Exhibit 99.1

PART I

Item 1. Business.

A. Development of Business.

We believe we are the global leader in information protection and storage services. We help organizations around the world reduce the costs and risks associated with information protection and storage. We offer comprehensive records management and data protection solutions, along with the expertise and experience to address complex information challenges such as rising storage costs, litigation, regulatory compliance and disaster recovery. Founded in 1951, Iron Mountain is a trusted partner to more than 90,000 corporate clients throughout North America, Europe, Latin America and the Pacific Rim. We have a diversified customer base comprised of numerous commercial, legal, banking, healthcare, accounting, insurance, entertainment and government organizations, including more than 90% of the Fortune 1000 and more than 75% of the FTSE 100.

Our vision is to protect and store the world’s information and to that end we have organized our business into a geographic model with separate management teams for each major geographic region: North America, Europe, Latin America and Asia/Pacific. The one exception to this model is our Digital business, which, by its nature, is deployed in a virtual fashion leveraging a common set of intellectual property and a global technology infrastructure. Our largest segment, the North American Physical Business, offers all of our various non-digital products and services that can broadly be categorized as records management services and physical data protection services, and we expect that over time these products and services will be available on a global basis through all of our geographic segments.

Our core records management services include: records management program development and implementation based on best-practices to help customers comply with specific regulatory requirements; implementation of policy-based programs that feature secure, cost-effective storage for all major media, including paper, which is the dominant form of records storage, flexible retrieval access and retention management; secure shredding services that ensure privacy and a secure chain of record custody; and specialized services for vital records, film and sound and regulated industries such as healthcare, energy and financial services.

Our physical data protection services include: disaster preparedness planning support and secure, off-site vaulting of data backup media for fast and efficient data recovery in the event of a disaster, human error or virus.

In addition to our core records management and physical data protection services, we sell storage materials, including cardboard boxes and magnetic media, and provide consulting, facilities management, fulfillment and other outsourcing services.

Our Digital services include: digital archiving services for secure, legally compliant and cost-effective long-term archiving of electronic records; electronic vaulting to provide managed, online data backup and recovery services for personal computers and server data; and intellectual property management services consisting of escrow services to protect and manage source code and other proprietary information with a trusted, neutral third party.

Iron Mountain was founded in 1951 in an underground facility near Hudson, New York. Now in our 55th year, we have experienced tremendous growth and organizational change, particularly since successfully completing the initial public offering of our common stock in February 1996. Since then, we have built ourselves from a regional business with limited product offerings and annual revenues of $104 million in 1995 into a global enterprise providing a full range of information protection and storage

services to customers in markets around the world. For the year ended December 31, 2005, we had total revenues of $2.1 billion.

Our growth since 1995 has been accomplished primarily through the acquisition of U.S. and international information protection and storage services companies. The goal of our current acquisition program is to supplement internal growth by continuing to establish a footprint in targeted international markets and adding fold-in acquisitions both in the U.S. and internationally. Having substantially completed our North American geographic expansion by the end of 2000, we shifted our focus from growth through acquisitions to internal revenue growth. In 2001, as a result of this shift, internal revenue growth exceeded growth through acquisitions for the first time since we began our acquisition program in 1996. This was also the case in 2002, 2003 and 2005. In 2004, revenue growth from acquisitions exceeded internal revenue growth due primarily to the acquisition of the records management operations of Hays plc (“Hays IMS”) in July 2003. In the absence of unusual acquisition activity, we expect to achieve most of our revenue growth internally in 2006 and beyond. We expect to achieve our internal growth through a sophisticated sales and account management coverage model designed to drive incremental revenues by acquiring new customer relationships and increasing business with new and existing customers by selling them our products and services in new geographies and selling new products and services such as secure shredding, electronic vaulting and digital archiving. These selling efforts will be augmented and supported by an expanded marketing program, which includes product management as a core discipline.

In December 2005, we completed three important acquisitions that build on our strategy to protect and store our customers’ information regardless of format or geography. We made our first move into the Asia Pacific region with the acquisition of the Australian and New Zealand operations of Pickfords Records Management (“Pickfords”) for approximately $86 million in cash. Pickfords is a leading records management company with a national footprint in both Australia and New Zealand. We acquired LiveVault Corporation (“LiveVault”), a leading provider of disk-based online server backup and recovery solutions, for approximately $36 million. We were already an equity investor in LiveVault at the time of the acquisition. Finally, we acquired Secure Destruction Limited (“Secure Destruction”), the largest shredding business in the U.K. Secure Destruction, based in London, is our first acquisition of a shredding business outside of North America.

As of December 31, 2005, we provided services to over 90,000 corporate clients in 85 markets in the U.S. and 81 markets outside of the U.S., employed over 15,800 people and operated over 900 records management facilities in the U.S., Canada, Europe, Latin America and Asia Pacific.

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

B. Description of Business.

The Information Protection and Storage Services Industry

Overview

Companies in the information protection and storage services industry store and manage information in a variety of media formats, which can broadly be divided into physical and electronic records, and provide a wide range of services related to the records stored. We refer to our general physical records storage and management services as records management. We define physical records to include paper documents, as well as all other non-electronic media such as microfilm and microfiche, master audio and videotapes, film, X-rays and blueprints. Electronic records include various forms of magnetic media such as computer tapes and hard drives and optical disks. We include in our electronic records storage and management services (1) electronic vaulting, (2) digital archiving services and (3) intellectual property management.

Physical Records

Physical records may be broadly divided into two categories: active and inactive. Active records relate to ongoing and recently completed activities or contain information that is frequently referenced. Active records are usually stored and managed on-site by the organization that originated them to ensure ready availability. Inactive physical records are the principal focus of the information protection and storage services industry. Inactive records consist of those records that are not needed for immediate access but which must be retained for legal, regulatory and compliance reasons or for occasional reference in support of ongoing business operations. A large and growing specialty subset of the physical records market is medical records. These are active and semi-active records that are often stored off-site with and serviced by an information protection and storage services vendor. Special regulatory requirements often apply to medical records.

Electronic Records

Electronic records management focuses on the storage of, and related services for, computer media that is either a backup copy of recently processed data or archival in nature. Customer needs for data backup and recovery and archiving are distinctively different. Backup data exists because of the need of many businesses to maintain backup copies of their data in order to be able to recover the data in the event of a system failure, casualty loss or other disaster. It is customary (and a best practice) for data processing groups to rotate backup tapes to off-site locations on a regular basis and to require multiple copies of such information at multiple sites.

In addition to the physical rotation and storage of backup data provided by our physical business segments, our Worldwide Digital Business segment offers electronic vaulting services as an alternative way for businesses to transfer data to us, and to access the data they have stored with us. Electronic vaulting is a Web-based service that automatically backs up computer data from servers or directly from personal computers over the Internet and stores it off site in one of our secure data centers. In early 2003, we announced an expansion of the electronic vaulting service to include backup and recovery for personal computer data, answering customers’ needs to protect critical business data, which is often unprotected on employee laptop and desktop personal computers. In November 2004, we acquired Connected Corporation (“Connected”), a market leader in the backup and recovery of this distributed data, and in December 2005, we acquired LiveVault, a market leader in the backup and recovery of server data.

There is a growing need for better ways of archiving electronic records for legal, regulatory and compliance reasons and for occasional reference in support of ongoing business operations. Historically, businesses have relied on backup tapes for storing archived data in electronic format, but this process can

be costly and ineffective when attempting to search and retrieve the data for litigation or other needs. In addition, many industries, such as healthcare and financial services, are facing increased governmental regulation mandating the way in which electronic records are stored and managed. To help customers meet these growing storage challenges, we introduced digital archiving services. We have experienced increasing market adoption of these services, especially for e-mail archiving, which enables businesses to identify and retrieve electronic records quickly and cost-effectively, while maintaining regulatory compliance.

Growth of Market

We believe that the volume of stored physical and electronic records will continue to increase for a number of reasons, including: (1) the rapid growth of inexpensive document producing technologies such as facsimile, desktop publishing software and desktop printing; (2) the continued proliferation of data processing technologies such as personal computers and networks; (3) regulatory requirements; (4) concerns over possible future litigation and the resulting increases in volume and holding periods of documentation; (5) the high cost of reviewing records and deciding whether to retain or destroy them; (6) the failure of many entities to adopt or follow policies on records destruction; and (7) audit requirements to keep backup copies of certain records in off-site locations.

We believe that paper-based information will continue to grow, not in spite of, but because of, new “paperless” technologies such as e-mail and the Internet. These technologies have prompted the creation of hard copies of such electronic information and have also led to increased demand for electronic records services, such as the storage and off-site rotation of backup copies of magnetic media. In addition, we believe that the proliferation of digital information technologies and distributed data networks has created a growing need for efficient, cost-effective, high quality solutions for electronic data protection, digital archiving and the management of electronic documents.

Consolidation of a Highly Fragmented Industry

There was significant consolidation within the highly fragmented information protection and storage services industry in North America from 1995 to 2000 and at a slower but continuing pace in recent years. Most information protection and storage services companies serve a single local market, and are often either owner-operated or ancillary to another business, such as a moving and storage company. We believe that the consolidation trend, both in North America and other regions, will continue because of the industry’s capital requirements for growth, opportunities for large information protection and storage services providers to achieve economies of scale and customer demands for more sophisticated technology-based solutions.

We believe that the consolidation trend in the industry is also due to, and will continue as a result of, the preference of certain large organizations to contract with one vendor in multiple cities and countries for multiple services. In particular, customers increasingly demand a single, large, sophisticated company to handle all of their important physical and electronic records needs. Large national and multinational companies are better able to satisfy these demands than smaller competitors. We have made, and intend to continue to make, acquisitions of our competitors, many of whom are small, single-city operators.

Description of Our Business

We generate our revenues by providing storage for a variety of information media formats, core records management services and an expanding menu of complementary products and services to a large and diverse customer base. Providing outsourced information protection and storage services is the mainstay of our customer relationships and provides the foundation for our revenue growth. The core services, which are a vital part of a comprehensive records management program, are highly recurring in

nature and therefore very predictable. Core services consist primarily of the handling and transportation of stored records and information. In our secure shredding operations, core services consist primarily of the scheduled collection and handling of sensitive records. In 2005, our storage and core service revenues represented approximately 86% of our total consolidated revenues. In addition to our core services, we offer a wide array of complementary products and services such as performing special project work, selling records management services related products, providing fulfillment services and consulting on records management issues. These services address more specific needs and are designed to enhance our customers’ overall records management programs. These services complement our core services; however, they are more episodic and discretionary in nature. Revenue generated by all of our operating segments includes both core and complementary components.

Our various operating segments offer the products and services discussed below. In general, our North American Physical Business segment offers non-digital records management, secure shredding, healthcare information services, vital records services, physical data backup and disaster recovery services, service and courier operations, fulfillment and consulting services in the U.S. and Canada. Our International Physical Business segment offers elements of all our non-digital product and services lines outside the U.S. and Canada. Our Worldwide Digital Business segment includes our digital archiving services, online backup and recovery solutions for server data and personal computers, and intellectual property management services. Some of our complementary services and products are offered within all of our segments. The amount of revenues derived from our North American Physical Business, International Physical Business and Worldwide Digital Business operating segments and other relevant data, including financial information about geographic areas and product and service lines, for fiscal years 2003, 2004 and 2005 are set forth in Note 10 to Notes to Consolidated Financial Statements.

Business Records Management

The hard copy business records stored by our customers with us by their nature are not very active. These types of records are stored in cartons packed by the customer. We use a proprietary order processing and inventory management system known as the SafekeeperPLUS® system to efficiently store and later retrieve a customer’s cartons. Storage charges are generally billed monthly on a per storage unit basis, usually either per carton or per cubic foot of records, and include the provision of space, racking, computerized inventory and activity tracking and physical security.

Physical Data Protection

Physical data protection services consist of the storage and rotation of backup computer media as part of corporate disaster recovery and business continuity plans. Computer tapes, cartridges and disk packs are transported off-site by our courier operations on a scheduled basis to secure, climate-controlled facilities, where they are available to customers 24 hours a day, 365 days a year, to facilitate data recovery in the event of a disaster. We use various proprietary information technology systems such as MediaLink™ and SecureBase™ software to manage this process. We also manage tape library relocations and support disaster recovery testing and execution.

Healthcare Information Services

Healthcare information services principally include the handling, storage, filing, processing and retrieval of medical records used by hospitals, private practitioners and other medical institutions. Medical records tend to be more active in nature and are typically stored on specialized open shelving systems that provide easier access to individual files. Healthcare information services also include recurring project work and ancillary services. Recurring project work involves the on-site removal of aged patient files and related computerized file indexing. Ancillary healthcare information services include release of

information (medical record copying), temporary staffing, contract coding, facilities management and imaging.

Vital Records Services

Vital records contain critical or irreplaceable data such as master audio and video recordings, film and other highly proprietary information. Vital records may require special facilities or services, either because of the data they contain or the media on which they are recorded. Our charges for providing enhanced security and special climate-controlled environments for vital records are higher than for typical storage services. We provide the same ancillary services for vital records as we provide for our other storage operations.

Service and Courier Operations

Service and courier operations are an integral part of a comprehensive records management program for all physical media including paper and certain electronic records. They include adding records to storage, temporary removal of records from storage, refiling of removed records, permanent withdrawals from storage, and destruction of records. Service charges are generally assessed for each procedure on a per unit basis. The SafekeeperPLUS® system controls the service processes from order entry through transportation and invoicing for business records management while the MediaLink™ and SecureBase™ systems manage the process for the physical data protection services business.

Courier operations consist primarily of the pickup and delivery of records upon customer request. Charges for courier services are based on urgency of delivery, volume and location and are billed monthly. As of December 31, 2005, we were utilizing a fleet of approximately 3,100 owned or leased vehicles.

Secure Shredding

Secure shredding is a natural extension of our records management services, completing the life cycle of a record, and involves the shredding of sensitive documents for corporate customers that, in many cases, also use our services for management of less sensitive archival records. These services typically include the scheduled pick-up of loose office records which customers accumulate in specially designed secure containers we provide. We believe that customers are motivated by increased privacy regulations, such as the Fair and Accurate Credit Transaction Act (“FACTA”) and the desire to protect their proprietary trade secrets. FACTA lists secure shredding as a preferred method of destroying personal data that exists in many of the hard copy records that are produced today. Complementary to our shredding operations is the sale of the resultant waste paper to third-party recyclers. Through a combination of plant-based shredding operations and mobile shredding units comprised of custom built trucks, we are able to offer secure shredding services to our customers in all of our existing markets throughout the U.S. and Canada. In December 2005, we acquired Secure Destruction, the largest provider of secure shredding services in the U.K.

We seek to expand our presence in this business through acquisitions and internal start-ups that leverage our existing records management infrastructure.

Electronic Vaulting Services

Electronic vaulting is our Web-based service that automatically backs up computer data from servers or directly from personal computers over the Internet and stores it off site in one of our secure data centers. In early 2003, we announced an expansion of the electronic vaulting service to include backup and recovery for personal computer data, answering customers’ needs to protect critical business data, which is often unprotected on employee laptop and desktop personal computers. Customers using electronic

vaulting for the online backup of personal computer and server data can choose our off-site hosted Software as a Service (SaaS) solution or they can license the software from us as part of an on-site solution.

Digital Services

Our digital archiving services focus on archiving digital information with long-term preservation requirements. These services represent the digital analogy to our physical records management services. Because of increased litigation risks and regulatory mandates, companies are increasingly aware of the need to apply the same records management policies and retention schedules to electronic data as they do physical records. Typical digital records include e-mail, e-statements, images, electronic documents retained for legal or compliance purposes and other data documenting business transactions. In addition, we offer electronic vaulting services as part of our digital services product line. Our electronic vaulting service automatically backs up personal computers and server data conveyed via telecommunications lines and the Internet, and stores it off site in one of our secure data centers which are always available in the event of a disaster.

The growth rate of mission-critical digital information is accelerating, driven in part by the use of the Internet as a distribution and transaction medium. The rising cost and increasing importance of digital information management, coupled with the increasing availability of telecommunications bandwidth at lower costs, may create meaningful opportunities for us. We continue to cultivate marketing and technology partnerships to support this anticipated growth.

Intellectual Property Management Services

We provide intellectual property management services through our wholly-owned subsidiary, Iron Mountain Intellectual Property Management, Inc. (“IPM”). IPM specializes in third party technology escrow services that protect intellectual property assets such as software source code. In addition, IPM assists in securing intellectual property as collateral for lending, investments and joint ventures, in managing domain name registrations and transfers, and in providing expertise and assistance to brokers and dealers in complying with electronic records regulations of the SEC.

We believe the issues encountered by customers trying to manage their electronic records are similar to the ones they face in their business records management programs and consist primarily of: (1) storage capacity and the preservation of data; (2) access to and control over the data in a secure environment; and (3) the need to retain electronic records due to regulatory compliance or for litigation support. Our digital services offerings are representative of our commitment to address evolving records management needs and expand the array of services we offer.

Complementary Services and Products

We offer a variety of additional services which customers may request or contract for on an individual basis. These services include conducting records inventories, packing records into cartons or other containers, and creating computerized indices of files and individual documents. We also provide services for the management of active records programs. We can provide these services, which generally include document and file processing and storage, both off-site at our own facilities and by supplying our own personnel to perform management functions on-site at the customer’s premises.

Other complementary lines of business that we operate include fulfillment services and professional consulting services. Fulfillment services are performed by our wholly-owned subsidiary, COMAC, Inc. (“COMAC”). COMAC stores customer marketing literature and delivers this material to sales offices, trade shows and prospective customers’ sites based on current and prospective customer orders. In addition, COMAC assembles custom marketing packages and orders, and manages and provides detailed reporting on customer marketing literature inventories.

Item 2. Properties.

As of December 31, 2005, we conducted operations through 708 leased facilities and 208 facilities that we own. Our facilities are divided among our reportable segments as follows: North American Physical Business (630), International Physical Business (274) and Worldwide Digital Business (12). These facilities contain a total of 56.3 million square feet of space. Facility rent expense was $134.4 million and $153.1 million for the years ended December 31, 2004 and 2005, respectively. The leased facilities typically have initial lease terms of ten to fifteen years with one or more five year options to extend. In addition, some of the leases contain either a purchase option or a right of first refusal upon the sale of the property. Our facilities are located throughout North America, Europe, Latin America and Asia Pacific, with the largest number of facilities in California, Florida, Illinois, New Jersey, Texas, Canada and the U.K. We believe that the space available in our facilities is adequate to meet our current needs, although future growth may require that we acquire additional real property either by leasing or purchasing. See Note 11 to Notes to Consolidated Financial Statements for information regarding our minimum annual rental commitments.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with “Item 6. Selected Financial Data” and the Consolidated Financial Statements and Notes thereto and the other financial and operating information included elsewhere in this filing.

This discussion contains “forward-looking statements,” as that term is defined in the Private Securities Litigation Reform Act of 1995 and in other federal securities laws. See “Cautionary Note Regarding Forward-Looking Statements” on page ii of this filing and “Item 1A. Risk Factors” on page 13 of this filing.

Overview

Our revenues consist of storage revenues as well as service and storage material sales revenues. Storage revenues, both physical and digital, which are considered a key performance indicator for the information protection and storage services industry, consist of largely recurring periodic charges related to the storage of materials or data (generally on a per unit or per cubic foot of records basis), which are typically retained by customers for many years, and have accounted for over 56% of total consolidated revenues in each of the last five years. Our quarterly revenues from these fixed periodic storage fees have grown for 68 consecutive quarters. Service and storage material sales revenues are comprised of charges for related service activities and courier operations and the sale of software licenses and storage materials. Related core service revenues arise from: (a) the handling of records including the addition of new records, temporary removal of records from storage, refiling of removed records, destruction of records, and permanent withdrawls from storage; (b) courier operations, consisting primarily of the pickup and delivery of records upon customer request; (c) secure shredding of sensitive documents; and (d) other recurring services including maintenance and support contracts. Our complementary services revenues arise from special project work, including data restoration, providing fulfillment services, consulting services and product sales, including software licenses, specially designed storage containers, magnetic media including computer tapes and related supplies. Our consolidated revenues are subject to variations caused by the net effect of foreign currency translation on revenue derived from outside the U.S. For the years ended December 31, 2003, 2004 and 2005, we derived approximately 19%, 27% and 28%, respectively, of our total revenues from outside the U.S. The increase in total revenues from 2003 to 2004 is primarily a result of our acquisition of Hays IMS.

respective storage or service is provided and customers are generally billed on a monthly basis on contractually agreed-upon terms. Amounts related to future storage or prepaid service contracts, including maintenance and support contracts, for customers where storage fees or services are billed in advance are accounted for as deferred revenue and recognized ratably over the applicable storage or service period or when the service is performed. Storage material sales are recognized when shipped to the customer and include software license sales (less than 1% of consolidated revenues in 2005). Sales of software licenses to distributors are recognized at the time a distributor reports that the software has been licensed to an end-user and all revenue recognition criteria have been satisfied.

Cost of sales (excluding depreciation) consists primarily of wages and benefits for field personnel, facility occupancy costs including rent and utilities, transportation expenses including vehicle leases and fuel, other product costs of sales and other equipment costs and supplies. Of these, wages and benefits and facility occupancy costs are the most significant. Trends in total wages and benefits dollars and as a percentage of total consolidated revenue are influenced by changes in headcount and compensation levels, achievement of incentive compensation targets, workforce productivity and variability in costs associated with medical insurance and workers compensation. Trends in facility occupancy costs are similarly impacted by the total number of facilities we occupy, the mix of properties we own versus properties we occupy under operating leases, fluctuations in per square foot occupancy costs, and the levels of utilization of these properties.

The expansion of our European, secure shredding and digital services businesses has impacted the major cost of sales components. Our European and secure shredding operations are more labor intensive than our core physical businesses and therefore increase our labor costs as a percent of consolidated revenues. This trend is partially offset by our digital services businesses, which require significantly less direct labor. Our secure shredding operations incur less facility costs and higher transportation costs as a percent of revenues compared to our core physical businesses.

Selling, general and administrative expenses consist primarily of wages and benefits for management, administrative, information technology, sales, account management and marketing personnel, as well as expenses related to communications and data processing, travel, professional fees, bad debts, training, office equipment and supplies. Trends in total wages and benefits dollars and as a percentage of total consolidated revenue are influenced by changes in headcount and compensation levels, achievement of incentive compensation targets, workforce productivity and variability in costs associated with medical insurance. The overhead structure of our expanding European operations, as compared to our North American operations, is more labor intensive and has not achieved the same level of overhead leverage, which may result in an increase in selling, general and administrative expenses, as a percentage of consolidated revenue, as our European operations become a more meaningful percentage of our consolidated results. Similarly, our digital services business requires a higher level of overhead, particularly in the area of information technology, than our core physical businesses.

Our adoption of the measurement provisions of SFAS No. 123 as amended by SFAS No. 148 has resulted in increasing amounts of selling, general and administrative expenses. We began using the fair value method of accounting for stock-based compensation in our financial statements beginning January 1, 2003 using the prospective method. The prospective method involves recognizing expense for the fair value for all awards granted or modified in the year of adoption and thereafter with no expense recognition for previous awards. We expect to record approximately $0.9 million of additional stock compensation expense in 2006 associated with unvested stock option grants issued prior to January 1, 2003 associated with adopting SFAS No. 123R, “Share-Based Payment.”

Our depreciation and amortization charges result primarily from the capital-intensive nature of our business. The principal components of depreciation relate to storage systems, which include racking, building and leasehold improvements, computer systems hardware and software, and buildings.

Amortization relates primarily to customer relationships and acquisition costs and core technology and is impacted by the nature and timing of acquisitions.

Our consolidated revenues and expenses are subject to variations caused by the net effect of foreign currency translation on revenues and expenses incurred by our entities outside the U.S. During 2005, we have seen increases in both revenues and expenses as a result of the strengthening of the British pound sterling, the Euro, and the Canadian dollar against the U.S. dollar, based on an analysis of weighted average rates for the comparable periods. It is difficult to predict how much foreign currency exchange rates will fluctuate in the future and how those fluctuations will impact individual balances reported in our consolidated statement of operations. Given the relative increase in our international operations, these fluctuations may become material on individual balances. However, because both the revenues and expenses are denominated in the local currency of the country in which they are derived or incurred, the impact of currency fluctuations on our operating income, operating margin and net income is mitigated.

Non-GAAP Measures

Operating Income Before Depreciation and Amortization, or OIBDA

OIBDA is defined as operating income before depreciation and amortization expenses. OIBDA Margin is calculated by dividing OIBDA by total revenues. Our management uses these measures to evaluate the operating performance of our consolidated business. As such, we believe these measures provide relevant and useful information to our current and potential investors. We use OIBDA for planning purposes and multiples of current or projected OIBDA-based calculations in conjunction with our discounted cash flow models to determine our overall enterprise valuation and to evaluate acquisition targets. We believe OIBDA and OIBDA Margin are useful measures to evaluate our ability to grow our revenues faster than our operating expenses and they are an integral part of our internal reporting system utilized by management to assess and evaluate the operating performance of our business. OIBDA does not include certain items, specifically (1) minority interest in earnings (losses) of subsidiaries, net, (2) other (income) expense, net, (3) income from discontinued operations and loss on sale of discontinued operations and (4) cumulative effect of change in accounting principle that we believe are not indicative of our core operating results. OIBDA also does not include interest expense, net and the provision for income taxes. These expenses are associated with our capitalization and tax structures, which management does not consider when evaluating the profitability of our core operations. Finally, OIBDA does not include depreciation and amortization expenses, in order to eliminate the impact of capital investments, which management evaluates by comparing capital expenditures to incremental revenue generated and as a percentage of total revenues. OIBDA and OIBDA Margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with accounting principles generally accepted in the Unites States of America, or GAAP, such as operating or net income or cash flows from operating activities (as determined in accordance with GAAP).

Reconciliation of OIBDA to Operating Income and Net Income (In Thousands):

	Year Ended December 31,
	2003			2004			2005
OIBDA	$	435,811		$	508,125		$	573,706
Less: Depreciation and Amortization	130,918			163,629			186,922
Operating Income	304,893			344,496			386,784
Less: Interest Expense, Net	150,468			185,749			183,584
Other (Income) Expense, Net	(2,564		)	(7,988		)	6,182
Provision for Income Taxes	66,730			69,574			81,484
Minority Interests in Earnings of Subsidiaries	5,622			2,970			1,684
Cumulative Effect of Change in Accounting Principle (net of tax benefit)	—			—			2,751
Net Income	$	84,637		$	94,191		$	111,099

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. 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 accounting for acquisitions, allowance for doubtful accounts and credit memos, impairment of tangible and intangible assets, income taxes, stock-based compensation and self-insured liabilities. We base our estimates on historical experience, actuarial estimates, current conditions and various other assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities and are not readily apparent from other sources. Actual results may differ from these estimates. Our critical accounting policies include the following, which are listed in no particular order:

Accounting for Acquisitions

Part of our growth strategy has included the acquisition of numerous businesses. The purchase price of these acquisitions has been determined after due diligence of the acquired business, market research, strategic planning, and the forecasting of expected future results and synergies. Estimated future results and expected synergies are subject to revisions as we integrate each acquisition and attempt to leverage resources.

Each acquisition has been accounted for using the purchase method of accounting as defined under the applicable accounting standards at the date of each acquisition, including, Accounting Principles Board Opinion No. 16, “Accounting for Business Combinations,” and more recently, SFAS No. 141, “Business Combinations.” Accounting for these acquisitions has resulted in the capitalization of the cost in excess of fair value of the net assets acquired in each of these acquisitions as goodwill. We estimated the fair values of the assets acquired in each acquisition as of the date of acquisition and these estimates are subject to adjustment. These estimates are subject to final assessments of the fair value of property, plant and equipment, intangible assets, operating leases and deferred income taxes. We complete these assessments within one year of the date of acquisition. We are not aware of any information that would indicate that the final purchase price allocations for acquisitions completed in 2005 would differ meaningfully from preliminary estimates. See Note 6 to Notes to Consolidated Financial Statements.

In connection with each of our acquisitions, we have undertaken certain restructurings of the acquired businesses to realize efficiencies and potential cost savings. Our restructuring activities include the elimination of duplicate facilities, reductions in staffing levels, and other costs associated with exiting certain activities of the businesses we acquire. The estimated cost of these restructuring activities are included as costs of the acquisition and are recorded as goodwill consistent with the guidance of Emerging Issues Task Force (“EITF”) Issue No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination.” While we finalize our plans to restructure the businesses we acquire within one year of the date of acquisition, it may take more than one year to complete all activities related to the restructuring of an acquired business.

Allowance for Doubtful Accounts and Credit Memos

We maintain an allowance for doubtful accounts and credit memos for estimated losses resulting from the potential inability of our customers to make required payments and disputes regarding billing and service issues. When calculating the allowance, we consider our past loss experience, current and prior trends in our aged receivables and credit memo activity, current economic conditions, and specific circumstances of individual receivable balances. If the financial condition of our customers were to significantly change, resulting in a significant improvement or impairment of their ability to make payments, an adjustment of the allowance may be required. As of December 31, 2004 and 2005, our allowance for doubtful accounts and credit memos balance totaled $13.9 million and $14.5 million, respectively.

Impairment of Tangible and Intangible Assets

Assets subject to amortization: In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, we review long-lived assets and all amortizable intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to their carrying amount. The operations are generally distinguished by the business segment and geographic region in which they operate. If the operation is determined to be unable to recover the carrying amount of its assets, then intangible assets are written down first, followed by the other long-lived assets of the operation, to fair value. Fair value is based on discounted cash flows or appraised values, depending upon the nature of the assets.

Goodwill—Assets not subject to amortization: We apply the provisions of SFAS No. 142 to goodwill and intangible assets with indefinite lives which are not amortized but are reviewed annually for impairment or more frequently if impairment indicators arise. Separable intangible assets that are not deemed to have indefinite lives are amortized over their useful lives. We have selected October 1 as our annual goodwill impairment review date. We performed our annual goodwill impairment review as of October 1, 2003, 2004 and 2005 and noted no impairment of goodwill. In making this assessment, management relies on a number of factors including operating results, business plans, economic projections, anticipated future cash flows, and transactions and market place data. There are inherent uncertainties related to these factors and management’s judgement in applying them to the analysis of goodwill impairment. As of December 31, 2005, no factors were identified that would alter this assessment. Impairment adjustments recognized in the future, if any, will be recognized as operating expenses. Our operating segments at which level we performed our goodwill impairment analysis as of December 31, 2005 were as follows: Business Records Management, Data Protection, Fulfillment, Digital Archiving Services, Europe, South America, Mexico and Asia Pacific. When changes occur in the composition of one or more operating segments, the goodwill is reassigned to the segments affected based on their relative fair values. Beginning January 1, 2006, we changed our reportable segments as a result of certain management and organizational structure changes within our North American business. Therefore, the presentation of all historical segment

reporting has been changed to conform to our new management reporting. See Note 10 to Notes to Consolidated Financial Statements for more information regarding our changes in segment reporting. Goodwill valuations have been calculated using an income approach based on the present value of future cash flows of each operating segment. This approach incorporates many assumptions including future growth rates, discount factors, expected capital expenditures and income tax cash flows. Changes in economic and operating conditions impacting these assumptions could result in a goodwill impairment in future periods.

Accounting for Internal Use Software

We develop various software applications for internal use. We account for those costs in accordance with the provisions of Statement of Position (“SOP”) 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” SOP 98-1 requires computer software costs associated with internal use software to be expensed as incurred until certain capitalization criteria are met. SOP 98-1 also defines which types of costs should be capitalized and which should be expensed. Payroll and related costs for employees who are directly associated with, and who devote time to, the development of internal use computer software projects, to the extent time is spent directly on the project, are capitalized and depreciated over the estimated useful life of the software. Capitalization begins when the design stage of the application has been completed and it is probable that the project will be completed and used to perform the function intended. Depreciation begins when the software is placed in service. Computer software costs that are capitalized are evaluated for impairment in accordance with SFAS No.144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

It may be necessary for us to write-off amounts associated with the development of internal use software if the project cannot be completed as intended. Our expansion into new technology-based service offerings requires the development of internal use software that will be susceptible to rapid and significant changes in technology. We may be required to write-off unamortized costs or shorten the estimated useful life if an internal use software program is replaced with an alternative tool prior to the end of the software’s estimated useful life. General uncertainties related to expansion into digital businesses, including the timing of introduction and market acceptance of our services, may adversely impact the recoverability of these assets. See Note 2(f) to Notes to Consolidated Financial Statements.

During the years ended December 31, 2003 and 2005, we replaced internal use software programs, which resulted in the write-off to loss on disposal/writedown of property, plant and equipment, net of the remaining net book value of $0.7 million and $1.1 million, respectively. We did not have any such write-offs during 2004.

Income Taxes

We have recorded a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. In the ordinary course of business, there are many transactions and calculations where the ultimate tax outcome is uncertain. If actual results differ unfavorably from certain of our estimates used, we may not be able to realize all or part of our net deferred income tax assets and additional valuation allowances may be required. Although we believe our estimates are reasonable, no assurance can be given that our estimates reflected in the tax provisions and accruals will equal our actual results. These differences could have a material impact on our income tax provision and operating results in the period in which such determination is made.

We are subject to examination by various tax authorities in jurisdictions in which we have significant business operations. We regularly assess the likelihood of additional assessments by tax authorities and provide for these matters as appropriate. Although we believe our tax estimates are appropriate, the final determination of tax audits and any related litigation could result in changes in our estimates.

We have not provided deferred taxes on book basis differences related to certain foreign subsidiaries because such basis differences are not expected to reverse in the foreseeable future and we intend to reinvest indefinitely outside the U.S. These basis differences arose primarily through the undistributed book earnings of our foreign subsidiaries. The basis differences could be reversed through a sale of the subsidiaries, the receipt of dividends from subsidiaries as well as certain other events or actions on our part, which would result in an increase in our provision for income taxes.

Stock-Based Compensation

As of January 1, 2003, we adopted the measurement provisions of SFAS No. 123, as amended by SFAS No. 148. As a result we began using the fair value method of accounting for stock-based compensation in our financial statements beginning January 1, 2003 using the prospective method. The prospective method involves recognizing expense for the fair value for all awards granted or modified in the year of adoption and thereafter with no expense recognition for previous awards. We have applied the fair value recognition provisions to all stock based awards granted, modified or settled on or after January 1, 2003 and will continue to provide the required pro forma information for all awards previously granted, modified or settled before January 1, 2003 in our consolidated financial statements. During the year ended December 31, 2005, we recorded $6.2 million of stock compensation expense in our consolidated statement of operations. Had we elected to recognize compensation cost based on the fair value of all options as of their grant dates as prescribed by SFAS No. 123 and No. 148, we would have recorded stock compensation expense (net of tax benefit) of $3.3 million, $5.4 million and $6.0 million in our consolidated statements of operations for the years ended December 31, 2003, 2004 and 2005, respectively.

In December 2004, the Financial Accounting Standards Board issued SFAS No. 123R, “Share-Based Payment.” SFAS No. 123R is a revision of SFAS No. 123 and supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”). Among other items, SFAS No. 123R eliminates the use of APB No. 25 and the intrinsic value method of accounting, and requires companies to recognize the cost of employee services received in exchange for awards of equity instruments, based on the grant date fair value of those awards, in the financial statements. The effective date of SFAS No. 123R is the first reporting period in the first fiscal year beginning after June 15, 2005, which would be our first quarter of 2006. SFAS No. 123R permits companies to adopt its requirements using either a “modified prospective” method, or a “modified retrospective” method. Under the “modified prospective” method, compensation cost is recognized in the financial statements beginning with the effective date, based on the requirements of SFAS No. 123R for all share-based payments granted after that date, and based on the requirements of SFAS No. 123 for all unvested awards granted prior to the effective date of SFAS No. 123R. Under the “modified retrospective” method, the requirements are the same as under the “modified prospective” method, but this method also permits entities to restate financial statements of previous periods based on pro forma disclosures made in accordance with SFAS No. 123.

We will adopt SFAS No. 123R effective January 1, 2006 using the modified prospective method of implementation. Based on outstanding stock options granted to employees prior to our prospective implementation of the measurement provisions of SFAS No. 123 and SFAS No. 148 on January 1, 2003, we expect to record approximately $0.9 million of additional stock compensation expense in 2006 associated with unvested stock option grants issued prior to January 1, 2003.

Self-Insured Liabilities

We are self-insured up to certain limits for costs associated with workers’ compensation claims, vehicle accidents, property and general business liabilities, and benefits paid under employee healthcare and long-term disability programs. At December 31, 2004 and 2005 there were approximately $25.7 million, and $30.4 million, respectively, of self-insurance accruals reflected in our consolidated balance sheets. The measurement of these costs requires the consideration of historical cost experience and judgments about the present and expected levels of cost per claim. We account for these costs primarily through actuarial methods, which develop estimates of the undiscounted liability for claims incurred, including those claims incurred but not reported. These methods provide estimates of future ultimate claim costs based on claims incurred as of the balance sheet date.

We believe the use of actuarial methods to account for these liabilities provides a consistent and effective way to measure these highly judgmental accruals. However, the use of any estimation technique in this area is inherently sensitive given the magnitude of claims involved and the length of time until the ultimate cost is known. We believe our recorded obligations for these expenses are appropriate. Nevertheless, changes in healthcare costs, accident frequency and severity, and other factors can materially affect the estimates for these liabilities.

Results of Operations

Comparison of Year Ended December 31, 2005 to Year Ended December 31, 2004 and Comparison of Year Ended December 31, 2004 to Year Ended December 31, 2003:

	Year Ended December 31,						Dollar		Percent
	2004			2005			Change		Change
Revenues	$	1,817,589		$	2,078,155		$	260,566		14.3	%
Operating Expenses	1,473,093			1,691,371			218,278			14.8	%
Operating Income	344,496			386,784			42,288			12.3	%
Other Expenses, Net	250,305			275,685			25,380			10.1	%
Net Income	$	94,191		$	111,099		$	16,908		18.0	%
OIBDA(1)	$	508,125		$	573,706		$	65,581		12.9	%
OIBDA Margin(1)	28.0		%	27.6		%

	Year Ended December 31,						Dollar		Percent
	2003			2004			Change		Change
Revenues	$	1,501,329		$	1,817,589		$	316,260		21.1	%
Operating Expenses	1,196,436			1,473,093			276,657			23.1	%
Operating Income	304,893			344,496			39,603			13.0	%
Other Expenses, Net	220,256			250,305			30,049			13.6	%
Net Income	$	84,637		$	94,191		$	9,554		11.3	%
OIBDA(1)	$	435,811		$	508,125		$	72,314		16.6	%
OIBDA Margin(1)	29.0		%	28.0		%

(1) See “Non-GAAP Measures—Operating Income Before Depreciation and Amortization, or OIBDA” for definition, reconciliation and a discussion of why we believe these measures provide relevant and useful information to our current and potential investors.

Revenue

Our consolidated storage revenues increased $138.2 million, or 13.2%, to $1,181.6 million for the year ended December 31, 2005 and $168.3 million, or 19.2%, to $1,043.4 million for the year ended December 31, 2004, in comparison to the years ended December 31, 2004 and 2003, respectively. The increase is attributable to internal revenue growth (9% during both 2005 and 2004) resulting from net increases in records and other media stored by existing customers and sales to new customers, acquisitions (3% during 2005 and 8% during 2004), primarily consisting of $91.2 million from the operations of Hays IMS in 2004, and foreign currency exchange rate fluctuations (1% during 2005 and 3% during 2004).

Consolidated service and storage material sales revenues increased $122.4 million, or 15.8%, to $896.6 million for the year ended December 31, 2005 and $147.9 million, or 23.6%, to $774.2 million for the year ended December 31, 2004, in comparison to the years ended December 31, 2004 and 2003, respectively. The increase is attributable to acquisitions (7% during 2005 and 14% during 2004), including revenue from the Hays IMS operations of $86.3 million in 2004, internal revenue growth (7% during 2005 and 6% during 2004) resulting from net increases in service and storage material sales to existing customers and sales to new customers, and foreign currency exchange rate fluctuations (1% during 2005 and 3% during 2004).

For the reasons stated above, our consolidated revenues increased $260.6 million, or 14.3%, to $2,078.2 million for the year ended December 31, 2005 and $316.3 million, or 21.1%, to $1,817.6 million for the year ended December 31, 2004, in comparison to the years ended December 31, 2004 and 2003, respectively. For the years ended December 31, 2004 and 2005, foreign currency exchange rate fluctuations that impacted our revenues were primarily due to the strengthening of the British pound sterling, Canadian dollar and Euro against the U.S. dollar, based on an analysis of weighted average rates for the comparable periods. Internal revenue growth was 6%, 8% and 8% for the years ended December 31, 2003, 2004 and 2005, respectively. We calculate internal revenue growth in local currency for our international operations.

Internal Growth—Eight-Quarter Trend

	2004												2005
	First Quarter			Second Quarter			Third Quarter			Fourth Quarter			First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Storage Revenue		8	%		9	%		8	%		9	%		8	%		9	%		9	%		10	%
Service and Storage Material Sales Revenue		6	%		4	%		5	%		9	%		3	%		6	%		12	%		9	%
Total Revenue		8	%		7	%		7	%		9	%		6	%		8	%		10	%		9	%

Our internal revenue growth rate represents the weighted average year over year growth rate of our revenues after removing the effects of acquisitions and foreign currency exchange rate fluctuations. Over the past eight quarters, the internal growth rate of our storage revenues has consistently ranged between 8% and 10%. In our North American paper business, net carton volume growth showed improvement and we benefited from a more positive pricing environment in 2005 compared to 2004. Strong growth rates in our digital services business more than offset the impact of reduced growth rates in Europe resulting from the inclusion of the slower growing Hays IMS business in our base revenues for internal growth calculation purposes. Net carton volume growth is a function of the rate new cartons are added by existing and new customers offset by the rate of carton destructions and other permanent removals.

The internal growth rate for service and storage material sales revenue is inherently more volatile than the storage revenue internal growth rate due to the more discretionary nature of the services we offer such as large special projects or data products and carton sales, as well as the price of recycled paper. These revenues are often event driven and impacted to a greater extent by economic downturns as customers defer or cancel the purchase of these services as a way to reduce their short-term costs. As a commodity, recycled paper prices are subject to the volatility of that market.

The internal growth rate for service and storage material sales revenues increased during 2005 compared to 2004. The internal growth rate for service and storage material sales revenues reflects the following: (1) strong data product sales; (2) a large data restoration project completed by our digital services business; (3) growth in North American storage related service revenue; (4) continued growth in our secure shredding business; and (5) improved growth rates in our data protection business. These positive factors were partially offset by: (1) lower special project revenues related to the public sector business in the UK; and (2) a large software license sale in the first quarter of 2004 that did not repeat in 2005.

Cost of Sales

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

							% of Consolidated Revenues						Percent Change
	2004	2005	Dollar Change	Percent Change			2004			2005			(Favorable)/ Unfavorable
Labor	$ 419,345	$ 447,600	$ 28,255		6.7	%		23.1	%		21.5	%		(1.6	)%
Facilities	246,325	275,987	29,662		12.0	%		13.6	%		13.3	%		(0.3	)%
Transportation	81,976	97,997	16,021		19.5	%		4.5	%		4.7	%		0.2	%
Product Cost of Sales	35,908	51,254	15,346		42.7	%		2.0	%		2.5	%		0.5	%
Other	40,345	65,401	25,056		62.1	%		2.2	%		3.1	%		0.9	%
	$823,899	$ 938,239	$ 114,340		13.9	%		45.3	%		45.1	%		(0.2	)%

							% of Consolidated Revenues						Percent Change
	2003	2004	Dollar Change	Percent Change			2003			2004			(Favorable)/ Unfavorable
Labor	$ 344,761	$ 419,345	$ 74,584		21.6	%		23.0	%		23.1	%		0.1	%
Facilities	211,597	246,325	34,728		16.4	%		14.1	%		13.6	%		(0.5	)%
Transportation	65,142	81,976	16,834		25.8	%		4.3	%		4.5	%		0.2	%
Product Cost of Sales	30,987	35,908	4,921		15.9	%		2.1	%		2.0	%		(0.1	)%
Other	28,260	40,345	12,085		42.8	%		1.9	%		2.2	%		0.3	%
	$680,747	$ 823,899	$ 143,152		21.0	%		45.3	%		45.3	%		—	%

Labor

For the year ended December 31, 2005 as compared to the year ended December 31, 2004, labor expense as a percentage of revenue decreased as a result of strong revenue growth, an increasing proportion of revenue from less labor intensive digital services and product sales. We also experienced improvement in our ratio of labor costs to revenues in our European operations as a result of completing the integration of Hays IMS in 2004.

For the year ended December 31, 2004 as compared to the year ended December 31, 2003, labor expense increased slightly as a percentage of revenue due primarily to our mix of services. Specifically, increases in labor expense were caused by (1) more labor intensive operations, primarily in Europe and in our secure shredding operations, (2) higher incentive compensation expense in 2004 compared to 2003, and (3) higher allocations of labor costs associated with internal information technology personnel and consultants to revenue producing projects in our digital business. These increases were partially offset by improved labor management in our data protection operations.

Facilities

Facilities costs as a percentage of consolidated revenues decreased to 13.3% for the year ended December 31, 2005 from 13.6% for the year ended December 31, 2004. The decrease in facilities costs as a percentage of consolidated revenues was primarily a result of maintaining approximately the same overall base rent per square foot in our North American operations during 2004 and 2005 while consolidated revenues increased. The largest component of our facilities cost is rent expense, which increased $15.2 million for the year ended December 31, 2005 compared to the year ended December 31, 2004 primarily as a result of properties under lease acquired through acquisitions in both Europe and North America. The expansion of our secure shredding business, which incurs lower facilities costs than our core physical businesses, also helped lower our facilities costs as a percentage of consolidated revenues.

Facilities costs as a percentage of consolidated revenues decreased to 13.6% as of December 31, 2004 from 14.1% as of December 31, 2003. The decrease in facilities costs as a percentage of consolidated revenues was primarily a result of maintaining approximately the same overall base rent per square foot in our North American operations during 2003 and 2004 while consolidated revenues increased. Rent expense increased $21.0 million for the year ended December 31, 2004 compared to the year ended December 31, 2003 primarily as a result of increased rent in our European operations of $15.4 million attributable to new facilities and properties acquired through acquisitions, including our acquisition of Hays IMS. Other facilities expenses in our European operations for year ended December 31, 2004 increased $14.4 million compared to the year ended December 31, 2003 primarily due to the growth of operations and acquisitions. Aside from our European operations, the remaining facilities expenses for the year ended December 31, 2004 were consistent with the year ended December 31, 2003.

Transportation

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

Our transportation expenses increased 0.2% as a percentage of consolidated revenues for the year ended December 31, 2004 compared to the year ended December 31, 2003, are influenced by several variables including total number of vehicles, owned versus leased vehicles, use of subcontracted couriers, fuel expenses, and maintenance. In the year ended December 31, 2004, we experienced a $7.0 million increase in transportation expenses in our European operations as compared to the year ended December 31, 2003, which is primarily attributable to an increase in fleet size and vehicles under operating lease resulting from the acquisition of Hays IMS and growth of operations. An increased percentage of vehicles under operating lease, higher fuel expenses, and increased subcontracted courier expenses during the year ended December 31, 2004 compared to the year ended December 31, 2003 also contributed to higher expenses.

Product and Other Cost of Sales

Product and other cost of sales are highly correlated to complementary revenue streams. Product and other cost of sales for the year ended December 31, 2005 were higher than the year ended December 31, 2004 as a percentage of consolidated revenues due to increased sales of data products at lower margins in North America, increased royalty payments associated with our electronic vaulting revenues and increases in technology costs associated with these revenue producing activities. Product and other cost of sales for the year ended December 31, 2004 were higher than the year ended December 31, 2003 as a percentage of consolidated revenues due to increased royalty payments associated with our electronic vaulting revenues and increased sales of lower margin data products in the second half of 2004.

Selling, General and Administrative Expenses

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

								% of Consolidated Revenues				Percent Change
	2004		2005	Dollar Change	Percent Change			2004		2005		(Favorable)/ Unfavorable
General andAdministrative	$ 259,209		$ 285,558	$ 26,349		10.2	%	14.3	%	13.7	%		(0.6	)%
Sales, Marketing & Account Management	150,419		180,558	30,139		20.0	%	8.3	%	8.7	%		0.4	%
Information Technology	81,187		99,177	17,990		22.2	%	4.5	%	4.8	%		0.3	%
Bad Debt Expense	(4,569	)	4,402	8,971		196.3	%	(0.3	)%	0.2	%		0.5	%
	$ 486,246		$ 569,695	$ 83,449		17.2	%	26.8	%	27.4	%		0.6.	%

										% of Consolidated Revenues				Percent Change
	2003		2004		Dollar Change		Percent Change			2003		2004		(Favorable)/ Unfavorable
General and Administrative	$ 206,293		$ 259,209		$ 52,916			25.7	%	13.7	%	14.3	%		0.6	%
Sales, Marketing & Account Management	111,432		150,419		38,987			35.0	%	7.4	%	8.3	%		0.9	%
Information Technology	68,208		81,187		12,979			19.0	%	4.5	%	4.5	%		—	%
Bad Debt Expense	(2,292	)	(4,569	)	(2,277	)		(99.3	)%	(0.2	)%	(0.3	)%		(0.1	)%
	$ 383,641		$ 486,246		$ 102,605			26.7	%	25.6	%	26.8	%		1.2	%

General and Administrative

The decrease in general and administrative expenses as a percentage of consolidated revenues for the year ended December 31, 2005 compared to the year ended December 31, 2004 is attributable to strong revenue growth and controls over overhead spending implemented in late 2004. These decreases were partially offset by increased incentive compensation expense and growth of our North American and European operations due to expansion and acquisitions.

The increase in general and administrative expenses as a percentage of consolidated revenues for the year ended December 31, 2004 compared to the year ended December 31, 2003 is primarily attributable to a $31.0 million increase in general and administrative expenses in our European operations due to the growth of operations and acquisitions, including Hays IMS. In our North American operations, general and administrative expenses increased as a result of increased headcount and higher wages due to normal inflation and merit increases, increased stock compensation expense, increased travel, recruiting, and professional fees, including costs associated with compliance with the Sarbanes-Oxley Act of 2002. These increases were partially offset by lower incentive compensation expense.

Sales, Marketing & Account Management

The majority of our sales, marketing and account management costs are labor related and are primarily driven by the headcount in each of these departments. Increased headcount and related compensation and commissions are the most significant contributors to the increase in sales and marketing expenses for the years ended December 31, 2005 and 2004. Throughout the year ended December 31, 2004 and during 2005, we have continued to invest in the expansion and improvement of our sales force and account management personnel. We have added sales and marketing employees and enlarged our account management force.The costs associated with these efforts have contributed to the increase in our sales, marketing and account management expenses. Our larger North American sales force generated a $3.0 million increase in sales commissions and an increase of $14.8 million of compensation expense for the

year ended December 31, 2005 compared to the year ended December 31, 2004. Marketing expenses for the year ended December 31, 2005 increased $3.3 million due to the introduction of several new marketing and promotional efforts to continue to develop awareness in the marketplace of our entire portfolio of services, especially our digital services. During the year ended December 31, 2004 our North American sales force generated an increase in sales commissions of $10.3 million over the year ended December 31, 2003. In addition, costs associated with our European sales, marketing and account management teams increased by $8.1 million and $7.7 million for the years ended December 31, 2005 and 2004, respectively, compared to the years ended December 31, 2004 and 2003, respectively, due to additions to our sales force through the hiring of new personnel and acquisitions.

Information Technology

Information technology expenses increased as a percentage of consolidated revenues for the year ended December 31, 2005 compared to the year ended December 31, 2004 due to increases in internal software development projects within our digital services business, the acquisitions of Connected and LiveVault and associated research and development activities, and increased information technology spending in our European operations. Higher utilization of existing information technology resources to revenue producing projects, which are charged to cost of goods sold, partially offset this increase.

Information technology expenses remained flat as a percentage of consolidated revenues for the year ended December 31, 2004 compared to the year ended December 31, 2003. Higher utilization of existing information technology resources and increased allocations of information technology resources to revenue producing projects, which are charged to cost of goods sold, were offset by increases in internal software development projects within our digital services business, the acquisition of Connected, associated research and development activities and increased information technology spending in our European operations of $8.5 million.

Bad Debt Expense

Consolidated bad debt expense for the year ended December 31, 2005 reflects what we believe to be more normal levels of bad debt expense.

The decrease in consolidated bad debt expense for the years ended December 31, 2003 and 2004 compared to prior years is primarily attributable to the success of our centralized collection efforts within the U.S. and Canada, which resulted in improved cash collections and an improved accounts receivable aging that allowed us to reduce our allowance for doubtful accounts during the years ended December 31, 2003 and 2004.

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

Consolidated depreciation and amortization expense increased $23.3 million to $187.0 million (9.0% of consolidated revenues) for the year ended December 31, 2005 from $163.6 million (9.0% of consolidated revenues) for the year ended December 31, 2004. Consolidated depreciation and amortization expense increased $32.7 million to $163.6 million (9.0% of consolidated revenues) for the year ended December 31, 2004 from $130.9 million (8.7% of consolidated revenues) for the year ended December 31, 2003. Depreciation expense increased $18.8 million for the year ended December 31, 2005 compared to the year ended December 31, 2004 and increased $28.0 million for the year ended December 31, 2004 compared to the year ended December 31, 2003, primarily due to the additional depreciation expense related to recent capital expenditures and acquisitions, including storage systems, which include racking, building and leasehold improvements, computer systems hardware and software, and buildings.

Amortization expense increased $4.5 million for the year ended December 31, 2005 compared to the year ended December 31, 2004 and increased $4.7 million for the year ended December 31, 2004 compared to the year ended December 31, 2003, primarily due to amortization of intangible assets, such as customer relationship intangible assets and intellectual property acquired through business combinations, including the Connected acquisition in November 2004. We expect that amortization expense will continue to increase as we acquire new businesses and reflect the full year impact of recent acquisitions, including LiveVault and Pickfords.

Consolidated gains on disposal/writedown of property, plant and equipment, net of $3.5 million for the year ended December 31, 2005, consisted primarily of a gain on the sale of a property in the U.K of $4.5 million offset primarily by software asset writedowns of $1.1 million. Consolidated gains on disposal/writedown of property, plant and equipment, net of $0.7 million for the year ended December 31, 2004, consisted primarily of a $1.2 million gain on the sale of a property in Florida during the second quarter of 2004 offset by disposals and asset writedowns. We recorded consolidated losses on disposal/writedown of property, plant and equipment, net of $1.1 million in the year ended December 31, 2003 consisting of disposals and asset writedowns partially offset by $4.2 million of gains on the sale of properties in Texas, Florida and the U.K.

Operating Income

As a result of the foregoing factors, consolidated operating income increased $42.3 million, or 12.3%, to $386.8 million (18.6% of consolidated revenues) for the year ended December 31, 2005 from $344.5 million (19.0% of consolidated revenues) for the year ended December 31, 2004.

Consolidated operating income increased $39.6 million, or 13.0%, to $344.5 million (19.0% of consolidated revenues) for the year ended December 31, 2004 from $304.9 million (20.3% of consolidated revenues) for the year ended December 31, 2003.

OIBDA

As a result of the foregoing factors, consolidated OIBDA increased $65.6 million, or 12.9%, to $573.7 million (27.6% of consolidated revenues) for the year ended December 31, 2005 from $508.1 million (28.0% of consolidated revenues) for the year ended December 31, 2004.

Consolidated OIBDA increased $72.3 million, or 16.6%, to $508.1 million (28.0% of consolidated revenues) for the year ended December 31, 2004 from $435.8 million (29.0% of consolidated revenues) for the year ended December 31, 2003.

Interest Expense, Net

Consolidated interest expense, net decreased $2.2 million to $183.6 million (8.8% of consolidated revenues) for the year ended December 31, 2005 from $185.7 million (10.2% of consolidated revenues) for the year ended December 31, 2004. The dollar decrease in interest expense, net was primarily due to the recording of interest expense totaling $21.5 million for the year ending December 31, 2004 compared to interest expense totaling $2.3 million for the year ending December 31, 2005 related to the net impact of mark-to-market adjustments and cash payments on all of our interest rate swap contracts. This was offset by increased borrowings, primarily an additional $150.0 million of term loans borrowed in November 2004 as permitted under our IMI Credit Agreement and the full year effect of the March 2004 IME Credit Agreement.

Consolidated interest expense, net increased $35.3 million to $185.7 million (10.2% of consolidated revenues) for year ended December 31, 2004 from $150.5 million (10.0% of consolidated revenues) for the year ended December 31, 2003. Increased borrowings, primarily from the issuance of our 71¤4% GBP

Senior Subordinated Notes due 2014, contributed to the dollar increase in interest expense. The increase of interest expense, net as a percentage of consolidated revenues was partially due to charges totaling $9.5 million (0.5% of consolidated revenues) related to recharacterization of interest rate swaps associated with real estate term loans we repaid in March and August 2004. These charges represent the fair market value of the swaps, which is a calculation of the net present value of the expected monthly cash payments over the remaining term of the swap based on current market conditions, as of the date the real estate term loans were repaid. We did not terminate the swaps and will continue to mark to market the fair market value of the derivative liability to expense, net and make our monthly cash payments as required under the swap contract for their remaining terms.

Other (Income) Expense, Net (in thousands)

	2004		2005		Change
Foreign currency transaction (gains) losses, net	$ (8,915	)	$ 7,201		$ 16,116
Debt extinguishment expense	2,454		—		(2,454	)
Other, net	(1,527	)	(1,019	)	508
	$ (7,988	)	$ 6,182		$ 14,170

	2003		2004		Change
Foreign currency transaction (gains) losses, net	$ (30,220	)	$ (8,915	)	$ 21,305
Debt extinguishment expense	28,174		2,454		(25,720	)
Gains on investments	(462	)	—		462
Other, net	(56	)	(1,527	)	(1,471	)
	$ (2,564	)	$ (7,988	)	$ (5,424	)

Foreign currency losses of $7.2 million based on period-end exchange rates were recorded in the year ended December 31, 2005 primarily due to the weakening of the British pound sterling, and Euro, net of the strengthening of the Canadian dollar against the U.S. dollar as these currencies relate to our inter-company balances with and between our Canadian, U.K. and European subsidiaries, borrowings denominated in foreign currencies under our revolving credit facility and British pounds sterling denominated debt held by our U.S. parent company.

Foreign currency gains of $30.2 million and $8.9 million based on period-end exchange rates were recorded during the years ended December 31, 2003 and 2004, respectively, primarily due to the strengthening of the British pound sterling, Euro, and the Canadian dollar against the U.S. dollar as these currencies relate to our inter-company balances with and between our Canadian, U.K., and European subsidiaries, U.S. dollar denominated debt held by our Canadian subsidiary, borrowings denominated in foreign currencies under our revolving credit facility, British pounds sterling denominated debt held by our U.S. parent company, British pounds sterling currency held in the U.S. and our British pound sterling denominated cross currency swap, which was terminated in March 2004.

During the three months ended March 31, 2004, we redeemed the remaining outstanding principal amount of the 81¤8% Senior Notes due 2008 of our Canadian subsidiary (the “Subsidiary notes”), resulting in a charge of $2.0 million, and we repaid a portion of our real estate term loans, which resulted in a charge of $0.4 million. During the year ended December 31, 2003, we redeemed the remaining outstanding principal amount of our 91¤8% Senior Subordinated Notes due 2007, resulting in a charge of $1.8 million, the remaining outstanding principal amount of our 83¤4% Senior Subordinated Notes due 2009, resulting in a charge of $13.8 million, and $115.0 million of the outstanding principal of our Subsidiary notes, resulting in a charge of $12.6 million. The charges consisted primarily of the call and tender premiums associated with the extinguished debt and the write-off of unamortized deferred financing cost and discounts.

Provision for Income Taxes

Our effective tax rates for the years ended December 31, 2003, 2004, and 2005 were 42.5%, 41.7%, and 41.4%, respectively. The primary reconciling item between the statutory rate of 35% and our effective rate is state income taxes (net of federal benefit). We are subject to income taxes in both the U.S. and numerous foreign jurisdictions. We are subject to examination by various tax authorities in jurisdictions in which we have significant business operations. We regularly assess the likelihood of additional assessments by tax authorities and provide for these matters as appropriate. Although we believe our tax estimates are appropriate, the final determination of tax audits and any related litigation could result in changes in our estimates.

Minority Interest

Minority interest in earnings of subsidiaries, net resulted in a charge to income of $5.6 million (0.4% of consolidated revenues), $3.0 million (0.2% of consolidated revenues) and $1.7 million (0.1% of consolidated revenues) for the years ended December 31, 2003, 2004, and 2005, respectively. This represents our minority partners’ share of earnings in our majority-owned international subsidiaries that are consolidated in our operating results. The decrease during 2005 is the result of our acquisition of various Latin American minority partner interests. The decrease during 2004 is a result of our acquisition of the remaining 49.9% equity interest in IME which was reflected for the first time during the second quarter of 2004. Increased profitability of our South American businesses in 2003 and 2004 contributed to the increase in minority interest in 2003 and offset the impact of acquiring the remaining 49.9% equity interest in IME in 2004.

Cumulative Effect of Change in Accounting Principle

In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations (FIN 47), an interpretation of SFAS No. 143, “Accounting for Asset Retirement Obligations” (SFAS No. 143). FIN 47 clarifies that conditional asset retirement obligations meet the definition of liabilities and should be recognized when incurred if their fair values can be reasonably estimated. Uncertainty surrounding the timing and method of settlement that may be conditional on events occurring in the future are factored into the measurement of the liability rather than the existence of the liability. SFAS No. 143 established accounting and reporting standards for obligations associated with the retirement of tangible long-lived assets legally required by law, regulatory rule or contractual agreement and the associated asset retirement costs. SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes the cost by increasing the carrying amount of the related long-lived asset, which is then depreciated over the useful life of the related asset. The liability is increased over time through income as a component of depreciation expense, such that the liability will equate to the future cost to retire the long-lived asset at the expected retirement date. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. Our obligations are primarily the result of requirements under our facility lease agreements which generally have “return to original condition” clauses which would require us to remove or restore items such as shred pits, vaults, demising walls and office build-outs, among others. As of December 31, 2005, we have recognized the cumulative effect of initially applying FIN 47 as a cumulative effect of change in accounting principle as prescribed in FIN 47, which resulted in a gross charge of $4.4 million ($2.8 million, net of tax).

Net Income

As a result of the foregoing factors, for the year ended December 31, 2005, consolidated net income increased $16.9 million, or 18.0%, to $111.1 million (5.3% of consolidated revenues) from net income of $94.2 million (5.2% of consolidated revenues) for the year ended December 31, 2004.

As a result of the foregoing factors, for the year ended December 31, 2004, consolidated net income increased $9.6 million, or 11.3%, to $94.2 million (5.2% of consolidated revenues) from net income of $84.6 million (5.6% of consolidated revenues) for the year ended December 31, 2003.

Segment Analysis (in thousands)

The results of our various operating segments are discussed below. Beginning January 1, 2006, we changed our reportable segments as a result of certain management and organizational changes within our North American business. Therefore, the presentation of all historical segment reporting has been changed to conform to our new management reporting. Our reportable segments are now North American Physical Business, International Physical Business and Worldwide Digital Business. See Note 10 of Notes to Consolidated Financial Statements. Our North American Physical Business, which is comprised of our non-digital United States and Canadian operations, offers the storage of paper documents, as well as all other non-electronic media such as microfilm and microfiche, master audio and videotapes, film, X-rays and blueprints, including healthcare information services, vital records services, service and courier operations, and the collection, handling and disposal of sensitive documents for corporate customers (“Hard Copy”); the storage and rotation of backup computer media as part of corporate disaster recovery plans, including service and courier operations (“Data Protection”); secure shredding services (“Shredding”); and the storage, assembly, and detailed reporting of customer marketing literature and delivery to sales offices, trade shows and prospective customers’ sites based on current and prospective customer orders, which we refer to as the “Fulfillment” business. Our International Physical Business segment offers information protection and storage services throughout Europe, South America, Mexico and Asia Pacific, including Hard Copy, Data Protection and Shredding. Our Worldwide Digital Business offers information protection and storage services for electronic records conveyed via telecommunication lines and the Internet, including online backup and recovery solutions for server data and personal computers, as well as email archiving and third party technology escrow services that protect intellectual property assets such as software source code.

North American Physical Business

Segment Revenue					Increase in Revenues				Percentage Increase in Revenues
For Years Ended
December 31, 2003	December 31, 2004		December 31, 2005		December 31, 2004		December 31, 2005		December 31, 2004			December 31, 2005
$1,279,797		$ 1,387,977		$ 1,529,612		$ 108,180		$ 141,635		8.5	%		10.2	%

Segment Contribution(1)					Segment Contribution(1) as a Percentage of Segment Revenue
For Years Ended
December 31, 2003	December 31, 2004		December 31, 2005		December 31, 2003			December 31, 2004			December 31, 2005
$400,799		$427,579		$444,343		31.3	%		30.8	%		29.0	%

Items Excluded from the Calculation of Segment Contribution(1)

Depreciation and Amortization
December 31, 2003	December 31, 2004		December 31, 2005
$104,811		$115,975		$118,493

(1) See Note 10 of Notes to Consolidated Financial Statements for definition of Contribution and for the basis on which allocations are made and a reconciliation of Contribution to income before provision for income taxes and minority interest on a consolidated basis.

During the year ended December 31, 2005, revenue in our North American Physical Business segment increased 10.2% primarily due to increasing storage internal growth rates resulting from higher net volume growth and a more positive pricing environment, increasing service revenue growth rates, growth of our secure shredding operations, higher internal growth rates from product sales and acquisitions. In addition,

favorable currency fluctuations during the year ended December 31, 2005 in Canada increased revenue, as measured in U.S. dollars, by $8.7 million when compared to the year ended December 31, 2004. Contribution as a percent of segment revenue decreased in the year ended December 31, 2005 due to our (a) increased investment in sales, marketing and account management, including higher sales commissions and compensation due to increased headcount, (b) increased bad debt expense, (c) increased incentive compensation expense, (d) higher transportation costs, primarily fuel, and (e) product sales at lower margins, offset by strong revenue growth, reduced facility expenses and the effectiveness of recent labor and cost management initiatives, including controls over overhead spending implemented in late 2004. The expansion of our secure shredding business, which incurs lower facilities costs than our core physical business, also lowers our facilities costs as a percentage of revenues.

During the year ended December 31, 2004, revenue in our North American Physical Business segment increased 8.5% primarily due to increased storage revenues, growth of our secure shredding operations, higher product sales, acquisitions (including a full year of revenue from the U.S. operations of Hays IMS in 2004 which represents an increase of $8.6 million over the partial year of revenue recorded in 2003), and was impacted by slower growth in service and special project revenue. In addition, favorable currency fluctuations during the year ended December 31, 2004 in Canada increased revenue, as measured in U.S. dollars, by $7.8 million when compared to the year ended December 31, 2003. Contribution as a percent of segment revenue decreased in the year ended December 31, 2004 due to our (a) increased investment in sales, marketing and account management, including higher sales commissions and compensation due to increased headcount, (b) increases in overhead due to normal inflation and merit increases, higher stock option expense, increased travel, recruiting, and professional fees, including costs associated with compliance with the Sarbanes-Oxley Act of 2002, (c) higher transportation expenses, primarily fuel and increased subcontracted courier expenses, (d) increased incentive compensation and (e) product sales at lower margins, offset by reduced facility expenses, bad debt expense and improved labor management in our data protection product line.

Included in our North American Physical Business segment are certain costs related to staff functions, including finance, human resources and information technology, which benefit the enterprise as a whole. These costs are primarily related to the general management of these functions on a corporate level and the design and development of programs, policies and procedures that are then implemented in the individual segments, with each segment bearing its own cost of implementation. Management has decided to allocate these costs to the North American segment as further allocation is impracticable.

International Physical Business

Segment Revenue					Increase in Revenues				Percentage Increase in Revenues
For Years Ended
December 31, 2003	December 31, 2004		December 31, 2005		December 31, 2004		December 31, 2005		December 31, 2004			December 31, 2005
$198,068		$ 380,033		$ 435,106		$ 181,965		$ 55,073		91.9	%		14.5	%

Segment Contribution(1)					Segment Contribution(1) as a Percentage of Segment Revenue
For Years Ended
December 31, 2003	December 31, 2004		December 31, 2005		December 31, 2003			December 31, 2004			December 31, 2005
$46,825		$89,751		$113,417		23.6	%		23.6	%		26.1	%

Items Excluded from the Calculation of Segment Contribution(1)

Depreciation and Amortization
December 31, 2003	December 31, 2004		December 31, 2005
$16,048		$33,234		$43,285

Revenue in our International Physical Business segment increased 14.5% during the year ended December 31, 2005 primarily due to acquisitions completed in Europe and in South America and strong internal growth in Latin America, offset by lower revenue in our U.K. public sector business. Favorable currency fluctuations during the year ended December 31, 2005 in Europe, Mexico and South America increased revenue, as measured in U.S. dollars, by $13.8 million compared to the year ended December 31, 2004. Contribution as a percent of segment revenue increased primarily due to improvements in both cost of sales and overhead labor ratios as a result of completing the integration of Hays IMS in the second half of 2004 offset by increased compensation associated with additional sales, marketing, and account management personnel, several new marketing and promotional efforts, and increased bad debt expense.

Revenue in our International Physical Business segment increased 91.9% during the year ended December 31, 2004 primarily due to acquisitions completed in Europe, including a full year of revenue from the acquisition of Hays IMS in 2004 which represents an increase of $114.2 million over the partial year of revenue recorded in 2003, and in South America and strong internal growth in both Europe and Latin America. Favorable currency fluctuations during the year ended December 31, 2004 in Europe, Mexico and South America increased revenue, as measured in U.S. dollars, by $35.7 million compared to the year ended December 31, 2003. Contribution as a percent of segment revenue remained flat primarily due to lower gross margins and increased overhead in our European operations attributable to our acquisition integration efforts and the establishment of a new shared service center offset by improved gross margins from our South American and Mexican operations.

Worldwide Digital Business

Segment Revenue					Increase in Revenues				Percentage Increase in Revenues
For Years Ended
December 31, 2003	December 31, 2004		December 31, 2005		December 31, 2004		December 31, 2005		December 31, 2004			December 31, 2005
$23,464		$ 49,579		$ 113,437		$ 26,115		$ 63,858		111.3	%		128.8	%

Segment Contribution(1)						Segment Contribution(1) as a Percentage of Segment Revenue
For Years Ended
December 31, 2003	December 31, 2004			December 31, 2005		December 31, 2003			December 31, 2004			December 31, 2005
$(10,683)		$(9,886	)		$12,461		(45.5	)%		(19.9	)%		11.0	%

Items Excluded from the Calculation of Segment Contribution(1)

Depreciation and Amortization
December 31, 2003	December 31, 2004		December 31, 2005
$10,059		$14,420		$25,144

During the year ended December 31, 2005, revenue in our Worldwide Digital Business segment increased 128.8% primarily due to the acquisition of Connected in November 2004, which represents an increase of $33.7 million over the partial year of revenue recorded in 2004 and strong internal growth

of 41%, including the impact of a large data restoration project completed in 2005. Contribution as a percent of segment revenue increased primarily due to strong revenue growth and improved overhead leverage, partially offset by increases in information technology costs, the acquisitions of Connected and LiveVault and associated research and development activities and the growth of our sales and account management force, including higher sales commissions.

During the year ended December 31, 2004, revenue in our Worldwide Digital Business segment increased 111.3% primarily due to strong internal revenue growth of 76%, primarily due to our data archiving, tape restoration, and electronic vaulting services, and the acquisition of Connected in November 2004, which contributed $7.2 million in revenue during 2004. Contribution as a percent of segment revenue increased primarily due to strong revenue growth and improved overhead leverage. This increase was partially offset by increased royalty payments, the growth of our sales force, including higher sales commissions, and increases in information technology costs.

Liquidity and Capital Resources

The following is a summary of our cash balances and cash flows for the years ended 2003, 2004 and 2005 (in thousands).

	2003		2004		2005
Cash flows provided by operating activities	$ 288,693		$ 305,364		$ 377,176
Cash flows used in investing activities	(586,634	)	(626,523	)	(436,175	)
Cash flows provided by financing activities	315,054		276,569		81,449
Cash and cash equivalents at the end of year	74,683		31,942		53,413

Net cash provided by operating activities was $305.4 million for the year ended December 31, 2004 compared to $377.2 million for the year ended December 31, 2005. The increase resulted primarily from an increase in operating income and non-cash items, such as depreciation and amortization and an improvement in working capital year over year.

Due to the nature of our businesses, we make significant capital expenditures and additions to customer relationship and acquisition costs. Our capital expenditures are primarily related to growth and include investments in storage systems, information systems and discretionary investments in real estate. Cash paid for our capital expenditures and additions to customer relationship and acquisition costs during the year ended December 31, 2005 amounted to $272.1 million and $13.4 million, respectively. From time to time and in the normal course of business we sell certain fixed assets, primarily real estate. In the year ended December 31, 2005, we received $28.6 million of net proceeds from the sales of assets. For the year ended December 31, 2004 and 2005, capital expenditures, net and additions to customer relationship and acquisition costs were funded entirely with cash flows provided by operating activities. Excluding acquisitions, we expect our capital expenditures to be between $300 million and $355 million in the year ending December 31, 2006.

In the year ended December 31, 2005, we paid net cash consideration of $178.2 million for acquisitions, which included approximately $86 million to purchase Pickfords and $36 million to purchase LiveVault. Cash flows from operations, borrowings under our revolving credit facilities and net proceeds from other financing transactions funded these acquisitions.

Net cash provided by financing activities was $81.4 million for the year ended December 31, 2005. During the year ended December 31, 2005, we had gross borrowings under our revolving credit facilities and term loan facilities of $568.7 million. We used the proceeds from these financing transactions and cash flows from operations to repay debt and term loans ($509.6) million, to repay debt financing from minority shareholders, net ($2.4) million and to fund acquisitions.

IRON MOUNTAIN INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME

(In thousands, except share data)

	Common Stock Voting				Additional				(Accumulated Deficit)				Accumulated Other				Total Stockholders’
	Shares	Amounts			Paid-in Capital				Retained Earnings				Comprehensive Items				Equity
Balance, December 31, 2002	127,574,436		$	1,275		$	1,020,027			$	(45,403	)		$	(31,038	)		$	944,861
Issuance of shares under employee stock purchase plan and option plans, including tax benefit	788,445		8			18,240				—				—				18,248
Deferred compensation	—		—			(4,624		)		—				—				(4,624		)
Currency translation adjustment	—		—			—				—				16,466				16,466
Market value adjustments for hedging contracts, net of tax	—		—			—				—				6,215				6,215
Market value adjustments for securities, net of tax	—		—			—				—				311				311
Net income	—		—			—				84,637				—				84,637
Balance, December 31, 2003	128,362,881		1,283			1,033,643				39,234				(8,046		)		1,066,114
Issuance of shares under employee stock purchase plan and option plans, including tax benefit	1,455,033		15			33,450				—				—				33,465
Deferred compensation	—		—			(3,533		)		—				—				(3,533		)
Currency translation adjustment	—		—			—				—				14,669				14,669
Market value adjustments for hedging contracts, net of tax	—		—			—				—				13,576				13,576
Market value adjustments for securities, net of tax	—		—			—				—				86				86
Net income	—		—			—				94,191				—				94,191
Balance, December 31, 2004	129,817,914		1,298			1,063,560				133,425				20,285				1,218,568
Issuance of shares under employee stock purchase plan and option plans, including tax benefit	1,844,957		19			57,324				—				—				57,343
Deferred compensation	—		—			(16,060		)		—				—				(16,060		)
Currency translation adjustment	—		—			—				—				(4,300		)		(4,300		)
Stock options issued in connection with an acquisition	—		—			780				—				—				780
Market value adjustments for hedging contracts, net of tax	—		—			—				—				2,458				2,458
Market value adjustments for securities, net of tax	—		—			—				—				241				241
Net income	—		—			—				111,099				—				111,099
Balance, December 31, 2005	131,662,871		$	1,317		$	1,105,604			$	244,524			$	18,684			$	1,370,129

	2003		2004		2005
COMPREHENSIVE INCOME:
Net Income	$	84,637	$	94,191	$	111,099
Other Comprehensive (Loss) Income:
Foreign Currency Translation Adjustments	16,466		14,669		(4,300		)
Market Value Adjustments for Hedging Contracts, Net of Tax Provision of $2,268, $4,955 and $973	6,215		13,576		2,458
Market Value Adjustments for Securities, Net of Tax	311		86		241
Comprehensive Income	$	107,629	$	122,522	$	109,498

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

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(In thousands, except share and per share data)

1. Nature of Business

The accompanying financial statements represent the consolidated accounts of Iron Mountain Incorporated, a Delaware corporation, and its subsidiaries. We are an international full-service provider of information protection and storage and related services for all media in various locations throughout the United States, Canada, Europe, Australia, New Zealand, Mexico and South America to numerous commercial, legal, banking, health care, accounting, insurance, entertainment and government organizations, including more than 90% of the Fortune 1000 and more than 75% of the FTSE 100.

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. Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 accounting for acquisitions, allowance for doubtful accounts and credit memos, impairments of tangible and intangible assets, income taxes, stock-based compensation and self-insured liabilities. We base our estimates on historical experience, actuarial estimates, current conditions and various other assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities and are not readily apparent from other sources. Actual results may differ from these estimates.

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

2. Summary of Significant Accounting Policies (Continued)

c. Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and cash invested in short-term securities which have remaining maturities at the date of purchase of less than 90 days. Cash and cash equivalents are carried at cost, which approximates fair value.

d. Foreign Currency

Local currencies are considered the functional currencies for our operations outside the United States. All assets and liabilities are translated at period-end exchange rates, and revenues and expenses are translated at average exchange rates for the applicable period, in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 52, “Foreign Currency Translation.” Resulting translation adjustments are reflected in the accumulated other comprehensive items component of stockholders’ equity. The gain or loss on foreign currency transactions, calculated as the difference between the historical exchange rate and the exchange rate at the applicable measurement date, including those related to (a) U.S. dollar denominated 81¤8% senior notes of our Canadian subsidiary (the “Subsidiary notes”), which were fully redeemed as of March 31, 2004, (b) our 71¤4% GBP Senior Subordinated Notes due 2014 (the “71¤4% notes”), (c) the borrowings in certain foreign currencies under our revolving credit agreements, and (d) certain foreign currency denominated intercompany obligations of our foreign subsidiaries to us and between our foreign subsidiaries, are included in other (income) expense, net, on our consolidated statements of operations. The total of such net gains amounted to $30,223, $8,915 and a net loss of $7,201 for the years ended December 31, 2003, 2004 and 2005, respectively.

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

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

2. Summary of Significant Accounting Policies (Continued)

f. Property, Plant and Equipment

Property, plant and equipment are stated at cost and depreciated using the straight-line method with the following useful lives:

Buildings		40 to 50 years
Leasehold improvements		8 to 10 years or the life of the lease, whichever is shorter
Racking		5 to 20 years
Warehouse equipment		3 to 9 years
Vehicles		5 to 10 years
Furniture and fixtures		2 to 5 years
Computer hardware and software		3 to 5 years

Property, plant and equipment, at cost, consist of the following:

	December 31,
	2004			2005
Land and buildings		$	819,221	$	846,171
Leasehold improvements		181,452		208,693
Racking		699,104		809,899
Warehouse equipment/vehicles		117,740		146,593
Furniture and fixtures		51,075		58,184
Computer hardware and software		326,613		381,024
Construction in progress		71,634		106,316
		$	2,266,839	$	2,556,880

Minor maintenance costs are expensed as incurred. Major improvements which extend the life, increase the capacity or improve the safety or the efficiency of property owned are capitalized. Major improvements to leased buildings are capitalized as leasehold improvements and depreciated.

We develop various software applications for internal use. Payroll and related costs for employees who are directly associated with, and who devote time to, the development of internal use computer software projects (to the extent of the time spent directly on the project) are capitalized in accordance with Statement of Position 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use” (“SOP 98-1”). Capitalization begins when the design stage of the application has been completed and it is probable that the project will be completed and used to perform the function intended. Capitalized software costs are depreciated over the estimated useful life of the software beginning when the software is placed in service.

In March 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations (FIN 47), an interpretation of SFAS No. 143, “Accounting for Asset Retirement Obligations” (SFAS No. 143). FIN 47 clarifies that conditional asset retirement obligations meet the definition of liabilities and should be recognized when incurred if

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

2. Summary of Significant Accounting Policies (Continued)

their fair values can be reasonably estimated. Uncertainty surrounding the timing and method of settlement that may be conditional on events occurring in the future are factored into the measurement of the liability rather than the existence of the liability. SFAS No. 143 established accounting and reporting standards for obligations associated with the retirement of tangible long-lived assets legally required by law, regulatory rule or contractual agreement and the associated asset retirement costs. SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes the cost by increasing the carrying amount of the related long-lived asset, which is then depreciated over the useful life of the related asset. The liability is increased over time through income such that the liability will equate to the future cost to retire the long-lived asset at the expected retirement date. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. Our obligations are primarily the result of requirements under our facility lease agreements which generally have “return to original condition” clauses which would require us to remove or restore items such as shred pits, vaults, demising walls and office build-outs, among others. As of December 31, 2005, we have recognized the cumulative effect of initially applying FIN 47 as a cumulative effect of change in accounting principle as prescribed in FIN 47. The impact of adopting FIN 47 as of December 31, 2005 was a gross charge of $4,422 ($2,751, net of tax), an increase in property, plant and equipment, net of $1,889 and long-term liabilities of $6,311. The significant assumptions used in estimating our aggregate asset retirement obligation are the timing of removals, estimated cost and associated expected inflation rates that are consistent with historical rates and credit-adjusted risk-free rates that approximate our incremental borrowing rate.

g. Goodwill and Other Intangible Assets

We apply the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets.” Under SFAS No. 142, goodwill and intangible assets with indefinite lives are not amortized but are reviewed annually for impairment or more frequently if impairment indicators arise. Separable intangible assets that are not deemed to have indefinite lives are amortized over their useful lives.

We have selected October 1 as our annual goodwill impairment review date. We performed our annual goodwill impairment review as of October 1, 2003, 2004 and 2005 and noted no impairment of goodwill. In making this assessment, we rely on a number of factors including operating results, business plans, economic projections, anticipated future cash flows, transactions and market place data. There are inherent uncertainties related to these factors and our judgment in applying them to the analysis of goodwill impairment. As of December 31, 2005, no factors were identified that would alter this assessment. Impairment adjustments recognized in the future, if any, will be recognized as operating expenses. Our operating segments at which level we performed our goodwill impairment analysis as of December 31, 2005 were as follows: Business Records Management, Data Protection, Fulfillment, Digital Archiving Services, Europe, South America, Mexico and Asia Pacific. When changes occur in the composition of one or more operating segments, the goodwill is reassigned to the segments affected based on their relative fair value. Beginning January 1, 2006, we changed our reportable segments as a result of certain management and organizational structure changes within our North American business. Therefore, the presentation of

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

2. Summary of Significant Accounting Policies (Continued)

all historical segment reporting has been changed to conform to our new management reporting. See Note 10 for more information regarding our changes in segment reporting.

Goodwill valuations have been calculated using an income approach based on the present value of future cash flows of each operating segment. This approach incorporates many assumptions including future growth rates, discount factors, expected capital expenditures and income tax cash flows. Changes in economic and operating conditions impacting these assumptions could result in goodwill impairments in future periods.

The changes in the carrying value of goodwill attributable to each reportable operating segment for the years ended December 31, 2004 and 2005 is as follows:

	North American Physical Business			International Physical Business				Worldwide Digital Business			Total Consolidated
Balance as of December 31, 2003	$	1,429,630			$	311,815		$	34,834			$	1,776,279
Deductible goodwill acquired during the year	50,408				55,297			4,119				109,824
Non-deductible goodwill acquired during the year	12,705				11,141			73,667				97,513
Adjustments to purchase reserves	(518		)		11,966			—				11,448
Fair value adjustments	(1,732		)		940			—				(792		)
Currency effects and other Adjustments	12,731				33,214			—				45,945
Balance as of December 31, 2004	1,503,224				424,373			112,620				2,040,217
Deductible goodwill acquired during the year	17,260				10,878			—				28,138
Non-deductible goodwill acquired during the year	15,871				47,209			22,298				85,378
Adjustments to purchase reserves	(328		)		(854		)	308				(874		)
Fair value adjustments	822				(1,951		)	(1,427		)		(2,556		)
Currency effects and other Adjustments	6,188				(15,913		)	(1,937		)		(11,662		)
Balance as of December 31, 2005	$	1,543,037			$	463,742		$	131,862			$	2,138,641

h. Long-Lived Assets

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, we review long-lived assets and all amortizable intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to their carrying amount. The operations are generally distinguished by the business segment and geographic region in which they operate. If the operation is determined to be unable to recover the carrying amount of its assets, then intangible assets are written down first, followed by the other long-lived assets of the operation, to fair value. Fair value is determined based on discounted cash flows or appraised values, depending upon the nature of the assets.

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

2. Summary of Significant Accounting Policies (Continued)

Consolidated losses on disposal/writedown of property, plant and equipment, net of $1,130 in the year ended December 31, 2003 consisted of disposals and asset writedowns partially offset by approximately $4,200 of gains on the sale of properties in Texas, Florida and the U.K. Consolidated gains on disposal/writedown of property, plant and equipment, net of $681 for the year ended December 31, 2004, consisted primarily of a gain on the sale of a property in Florida during the second quarter of 2004 of approximately $1,200 offset by disposals and asset writedowns. Consolidated gains on disposal/writedown of property, plant and equipment, net of $3,485 for the year ended December 31, 2005, consisted primarily of a gain on the sale of a facility in the U.K. during the fourth quarter of 2005 of approximately $4,500 offset by software asset writedowns.

i. Customer Relationships and Acquisition Costs and Other Intangible Assets

Costs related to the acquisition of large volume accounts, net of revenues received for the initial transfer of the records, are capitalized and amortized over periods ranging from five to 30 years (weighted average of 28 years at December 31, 2005). If the customer terminates its relationship with us, the unamortized cost is charged to expense. However, in the event of such termination, we collect, and record as income, permanent removal fees that generally equal or exceed the amount of the unamortized costs. Customer relationship intangible assets acquired through business combinations are amortized over periods ranging from six to 30 years (weighted average of 19 years at December 31, 2005). As of December 31, 2004 and 2005, the gross carrying amount of customer relationships and acquisition costs was $213,378 and $264,728, respectively, and accumulated amortization of those costs was $23,598 and $35,722, respectively. For the years ended December 31, 2003, 2004 and 2005, amortization expense was $4,395, $10,044 and $12,910, respectively.

Other intangible assets, including noncompetition agreements, acquired core technology and trademarks, are capitalized and amortized over a weighted average period of eight years. As of December 31, 2004 and 2005, the gross carrying amount of other intangible assets was $26,410 and $30,094 respectively, and accumulated amortization of those costs was $9,447 and $5,082, respectively, included in other in other assets in the accompanying consolidated balance sheets. For the years ended December 31, 2003, 2004 and 2005, amortization expense was $2,559, $1,638 and $3,314, respectively, included in depreciation and amortization in the accompanying consolidated statements of operations.

Estimated amortization expense for existing intangible assets (excluding deferred financing costs which are amortized through interest expense) for the next five succeeding fiscal years is as follows:

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

2. Summary of Significant Accounting Policies (Continued)

j. Deferred Financing Costs

Deferred financing costs are amortized over the life of the related debt using the effective interest rate method. If debt is retired early, the related unamortized deferred financing costs are written off in the period the debt is retired to other (income) expense, net. As of December 31, 2004 and 2005, gross carrying amount of deferred financing costs was $46,231 and $46,697, respectively, and accumulated amortization of those costs was $9,641 and $15,091, respectively, and was recorded in interest expense, net.

k. Accrued Expenses

Accrued expenses consist of the following:

	December 31,
	2004			2005
Interest		$	50,669	$	49,800
Payroll and vacation		43,637		42,456
Derivative liability		7,150		2,359
Restructuring costs (see Note 6)		21,414		5,541
Incentive compensation		21,789		32,364
Other		91,484		134,200
		$	236,143	$	266,720

l. Revenues

Our revenues consist of storage revenues as well as service and storage material sales revenues. Storage revenues consist of periodic charges related to the storage of materials or data (generally on a per unit or per cubic foot of records basis). Service and storage material sales revenues are comprised of charges for related service activities and courier operations and the sale of software licenses and storage materials. Related core service revenues arise from: (a) the handling of records including the addition of new records, temporary removal of records from storage, refiling of removed records, destruction of records, and permanent withdrawls from storage; (b) courier operations, consisting primarily of the pickup and delivery of records upon customer request; (c) secure shredding of sensitive documents; and (d) other recurring services including maintenance and support contracts. Our complementary services revenues arise from special project work, including data restoration, providing fulfillment services, consulting services and product sales, including software licenses, specially designed storage containers, magnetic media including computer tapes and related supplies.

We recognize revenue when the following criteria are met: persuasive evidence of an arrangement exists, services have been rendered, the sales price is fixed or determinable, and collectability of the resulting receivable is reasonably assured. Storage and service revenues are recognized in the month the respective storage or service is provided and customers are generally billed on a monthly basis on contractually agreed-upon terms. Amounts related to future storage or prepaid service contracts, including maintenance and support contracts, for customers where storage fees or services are billed in advance are accounted for as deferred revenue and recognized ratably over the applicable storage or service period or

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

2. Summary of Significant Accounting Policies (Continued)

when the service is performed. Storage material sales are recognized when shipped to the customer and include software license sales (less than 1% of consolidated revenues in 2005). Sales of software licenses to distributors are recognized at the time a distributor reports that the software has been licensed to an end-user and all revenue recognition criteria have been satisfied.

m. Rent Normalization

We have entered into various leases for buildings. Certain leases have fixed escalation clauses or other features which require normalization of the rental expense over the life of the lease resulting in deferred rent being reflected in the accompanying consolidated balance sheets. In addition, we have assumed various above and below market leases in connection with certain of our acquisitions. The difference between the present value of these lease obligations and the market rate at the date of the acquisition was recorded as a prepaid rent or deferred rent liability and is being amortized over the remaining lives of the respective leases.

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

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

2. Summary of Significant Accounting Policies (Continued)

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

	Year Ended December 31,
	2003			2004			2005
Net income, as reported	$	84,637		$	94,191		$	111,099
Add: Stock-based employee compensation expense included in reported net income, net of tax benefit	984			3,567			4,757
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax benefit	(3,304		)	(5,432		)	(5,965		)
Net income, pro forma	$	82,317		$	92,326		$	109,891
Earnings per share:
Basic—as reported	$	0.66		$	0.73		$	0.85
Basic—pro forma	0.65			0.72			0.84
Diluted—as reported	0.65			0.72			0.84
Diluted—pro forma	0.63			0.70			0.83

The weighted average fair value of options granted in 2003, 2004 and 2005 was $10.97, $8.58 and $11.85 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 year ended December 31:

Weighted Average Assumption	2003		2004		2005
Expected volatility	27.0	%	24.8	%	26.5	%(1)
Risk-free interest rate	2.91		3.41		4.12
Expected dividend yield	None		None		None
Expected life of the option	5.0 years		5.0 years		6.6 years

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

o. Income Taxes

We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax and financial reporting basis of assets and liabilities and for loss and credit carryforwards. Valuation allowances are provided when recovery of deferred tax assets is not considered likely.

p. 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

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

2. Summary of Significant Accounting Policies (Continued)

calculation of diluted net income per share is consistent with that of basic net income per share but gives effect to all potential common shares (that is, securities such as options, warrants or convertible securities) that were outstanding during the period, unless the effect is antidilutive. Potential common shares, substantially attributable to stock options, included in the calculation of diluted net income per share totaled 2,177,201, 2,092,831 and 1,411,082 shares for the years ended December 31, 2003, 2004 and 2005, respectively. Potential common shares of 570,456, 91,045 and 640,938 for the years ended December 31, 2003, 2004 and 2005, respectively, have been excluded from the calculation of diluted net income per share, as their effects are antidilutive.

q. New Accounting Pronouncements

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

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

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

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

2. Summary of Significant Accounting Policies (Continued)

expect to record approximately $900 of additional stock compensation expense in 2006 associated with unvested stock option grants issued prior to January 1, 2003.

r. Rollforward of Allowance for Doubtful Accounts and Credit Memo Reserves

Year Ended December 31,	Balance at Beginning of the Year			Charged to Revenue			Charged to Expense				Other Additions(1)			Deductions(2)				Balance at End of the Year
2003		$	21,409		$	14,657		$	(2,292	)		$	9,133		$	(21,985	)		$	20,922
2004		20,922			17,858			(4,569		)		4,397			(24,722		)		13,886
2005		13,886			21,124			4,402				67			(24,957		)		14,522

(1) Primarily consists of recoveries of previously written-off accounts receivable, allowances of businesses acquired and the impact associated with currency translation adjustments.

(2) Primarily consists of the write-off of accounts receivable and adjustments to allowances of businesses acquired.

s. Accumulated Other Comprehensive Items, Net

Accumulated other comprehensive items, net consists of the following:

	December 31,
	2004			2005
Foreign currency translation adjustments	$	22,559		$	18,259
Market value adjustments for hedging contracts, net of tax	(2,671		)	(213		)
Market value adjustments for securities, net of tax	397			638
	$	20,285		$	18,684

t. Concentrations of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist principally of temporary cash investments and accounts receivable. We have no significant concentrations of credit risk as of December 31, 2005.

u. Reclassifications

Certain reclassifications have been made to the 2003 and 2004 consolidated financial statements to conform to the 2005 presentation.

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

3. Derivative Instruments and Hedging Activities

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. 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, we chose to swap the interest rates on $195,500 of floating rate debt to fixed rate as discussed in Note 4(a). Since entering into these two swap agreements, interest rates have fallen. As a result, the estimated cost to terminate these swaps (fair value of derivative liability) would be $4,333 and $122 at December 31, 2004 and 2005, respectively. We have recorded, in the accompanying consolidated balance sheets, the fair value of the derivative liability, a deferred tax asset and a corresponding charge to accumulated other comprehensive items of $4,333 ($2,910 recorded in accrued expenses and $1,423 recorded in other long-term liabilities), $1,585 and $2,748, respectively, as of December 31, 2004. We have recorded, in the accompanying consolidated balance sheets, the fair value of the derivative liability, a deferred tax asset and a corresponding charge to accumulated other comprehensive items of $122 (which was all recorded in accrued expenses), $48 and $74, respectively, as of December 31, 2005. Additionally, as a result of the foregoing, for the years ended December 31, 2003, 2004 and 2005, we recorded additional interest expense of $8,709, $8,460 and $3,952 resulting from interest rate swap payments. These interest rate swap agreements were determined to be highly effective, and therefore no ineffectiveness was recorded in earnings.

We have entered into a third interest rate swap agreement, which was designated as a cash flow hedge. This swap agreement hedged interest rate risk on certain amounts of our variable operating lease commitments. Specifically, we chose to swap the variable component of $47,500 of certain operating lease commitments to fixed operating lease commitments. This swap expired in March 2005. As a result, the estimated cost to terminate these swaps (fair value of derivative liability) would be $140 and $0 at December 31, 2004 and 2005, respectively. We have recorded, in the accompanying consolidated balance sheet, the estimated cost to terminate this swap (fair value of the derivative liability) of $140 (which was all recorded in accrued expenses) as of December 31, 2004. The total impact of marking to market the fair market value of the derivative liability and cash payments associated with the interest rate swaps agreement resulted in our recording additional interest expense of $2,083, interest expense of $1,246 and interest income of $6 for the years ended December 31, 2003, 2004 and 2005, respectively.

In connection with certain real estate loans, we swapped $97,000 of floating rate debt to fixed rate debt. Since the time we entered into the swap agreement, interest rates have fallen. As a result, the estimated cost to terminate these swaps (fair value of derivative liability) would be $6,934 and $2,458 at December 31, 2004 and 2005, respectively. We have recorded, in the accompanying consolidated balance sheet, the estimated cost to terminate this swap (fair value of the derivative liability) of $6,934 ($4,100 recorded in accrued expenses and $2,834 recorded in other long-term liabilities) as of December 31, 2004. We have recorded, in the accompanying consolidated balance sheet, the estimated cost to terminate this swap (fair value of the derivative liability) of $2,458 ($2,031 recorded in accrued expenses and $427 recorded in other long-term liabilities) as of December 31, 2005. Additionally, as a result of the foregoing, for the year ended December 31, 2003, we recorded additional interest expense of $4,806 resulting from interest rate swap payments. As a result of the repayment of the real estate term loans, we recorded an

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

3. Derivative Instruments and Hedging Activities (Continued)

additional $8,656 of interest in the third quarter of 2004, representing the fair value of the derivative liability. The total impact of marking to market the fair market value of the derivative liability and cash payments associated with the interest rate swap agreement resulted in our recording additional interest expense of $11,565 and interest income of $1,698 for the years ended December 31, 2004 and 2005, respectively.

In July 2003, we provided the initial financing totaling 190,459 British pounds sterling to IME for all of the consideration associated with the acquisition of the European information management services business of Hays plc (“Hays IMS”) using cash on hand and borrowings under our revolving credit facility. We recorded a foreign currency gain of $27,777 in other (income) expense, net for this intercompany balance for the year ended December 31, 2003. In March 2004, IME repaid 135,000 British pounds sterling with proceeds from their new credit agreement. We recorded a foreign currency gain of $11,866 in other (income) expense, net for this intercompany balance in the first quarter of 2004. In order to minimize the foreign currency risk associated with providing IME with the consideration necessary for the acquisition of the European operations of Hays 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 $11,496 on the translation of this revolving credit balance to U.S. dollars in other (income) expense, net for the year ended December 31, 2003. In the first quarter of 2004, these borrowings were repaid and we recorded a foreign currency loss of $2,995 on the translation of this revolving credit balance to U.S. dollars in other (income) expense, net.

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

In April 2004, IME entered into two floating for fixed interest rate swap contracts, each with a notional value of 50,000 British pounds sterling and a duration of two years, which were designated as cash flow hedges. These swap agreements hedge interest rate risk on IME’s 100,000 British pounds sterling term loan facility. We have recorded, in the accompanying consolidated balance sheet, the fair value of the derivative asset, a deferred tax liability and a corresponding increase to accumulated other comprehensive items of $115 (which was all recorded in other current assets), $39 and $76, respectively, as of December 31, 2004. We have recorded, in the accompanying consolidated balance sheet, the fair value of the derivative liability, a deferred tax asset and a corresponding charge to accumulated other comprehensive items of $207 (which was all recorded in accrued expenses), $68 and $139, respectively, as of December 31, 2005. For the years ended December 31, 2004 and 2005, we recorded additional interest expense of $202 and $32 resulting from interest rate swap cash payments.

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

4. Debt

Long-term debt consists of the following:

	December 31,
	2004			2005
IMI Revolving Credit Facility	$	122,563		$	216,396
IMI Term Loan Facility	349,000			345,500
IME Revolving Credit Facility	101,478			84,262
IME Term Loan Facility	184,330			177,450
81¤4% Senior Subordinated Notes due 2011 (the “81¤4% notes”)	149,715			149,760
85¤8% Senior Subordinated Notes due 2013 (the “85¤8% notes”)	481,054			481,032
71¤4% GBP Senior Subordinated Notes due 2014 (the “71¤4% notes”)	288,990			258,120
73¤4% Senior Subordinated Notes due 2015 (the “73¤4% notes”)	440,418			439,506
65¤8% Senior Subordinated Notes due 2016 (the “65¤8% notes”)	314,565			315,059
Real Estate Mortgages	5,908			4,707
Seller Notes	11,307			9,398
Other	28,694			48,241
Total Long-term Debt	2,478,022			2,529,431
Less Current Portion	(39,435		)	(25,905		)
Long-term Debt, Net of Current Portion	$	2,438,587		$	2,503,526

a. Revolving Credit Facility and Term Loans

In March 2004, IME and certain of its subsidiaries entered into a credit agreement (the “IME Credit Agreement”) with a syndicate of European lenders. The IME Credit Agreement provides for maximum borrowing availability in the principal amount of 200,000 British pounds sterling, including a 100,000 British pounds sterling revolving credit facility (the “IME revolving credit facility”), which includes the ability to borrow in certain other foreign currencies and a 100,000 British pounds sterling term loan (the “IME term loan facility”). The IME revolving credit facility matures on March 5, 2009. The IME term loan facility is payable in three installments; two installments of 20,000 British pounds sterling on March 5, 2007 and 2008, respectively, and the final payment of the remaining balance on March 5, 2009. The interest rate on borrowings under the IME Credit Agreement varies depending on IME’s choice of currency options and 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 from third parties, as well as limit IME’s ability to pay dividends to us. Most of IME’s non-dormant subsidiaries have either guaranteed the obligations or have their shares pledged to secure IME’s obligations under 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, Asia Pacific, Mexican or 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

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

4. Debt (Continued)

outstanding under its prior term loan and revolving credit facility and to pay transaction costs associated with the IME Credit Agreement. 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. Our consolidated balance sheet as of December 31, 2004 included 155,052 British pounds sterling ($285,808) of borrowings under the IME Credit Agreement. Our consolidated balance sheet as of December 31, 2005 included 147,500 British pounds sterling ($261,712) of borrowings under the IME Credit Agreement. The remaining availability, based on its current level of external debt and the leverage ratio under the IME revolving credit facility on October 31, 2005, was approximately 61,400 British pounds sterling ($109,000). The interest rate in effect under the IME revolving credit facility ranged from 3.3% to 6.2% as of October 31, 2005. For the years ended December 31, 2004 and 2005, we recorded commitment fees of $396 and $806, respectively, based on 0.9% of unused balances under the IME revolving credit facility.

On April 2, 2004 and subsequently on July 8, 2004, we entered into a new amended and restated revolving credit facility and term loan facility (the “IMI Credit Agreement”) to replace our prior credit agreement and to reflect more favorable pricing of our term loans. The IMI Credit Agreement had an aggregate principal amount of $550,000 and was comprised of a $350,000 revolving credit facility (the “IMI revolving credit facility”), which included the ability to borrow in certain foreign currencies, and a $200,000 term loan facility (the “IMI term loan facility”). The IMI revolving credit facility matures on April 2, 2009. With respect to the IMI term loan facility, quarterly loan payments of $500 began in the third quarter of 2004 and will continue through maturity on April 2, 2011, at which time the remaining outstanding principal balance of the IMI term loan facility is due. In November 2004, we entered into an additional $150,000 of term loans as permitted under our IMI Credit Agreement. The new term loans will mature at the same time as our current IMI term loan facility with quarterly loan payments of $375 that began in the first quarter of 2005 and will be priced at LIBOR plus a margin of 1.75%. On October 31, 2005, we entered into the second amendment to the IMI Credit Agreement increasing availability under the revolving credit facility from $350,000 to $400,000. As a result, the IMI Credit Agreement had an aggregate maximum principal amount of $750,000 as of December 31, 2005. The interest rate on borrowings under the IMI Credit Agreement varies depending on our choice of interest rate and currency options, plus an applicable margin. All intercompany notes and the capital stock of most of our U.S. subsidiaries are pledged to secure the IMI Credit Agreement. As of December 31, 2004, we had $122,563 of borrowings under our IMI revolving credit facility, of which $3,000 was denominated in U.S. dollars and the remaining balance was denominated in Canadian dollars (CAD 144,000); we also had various outstanding letters of credit totaling $22,099. As of December 31, 2005, we had $216,396 of borrowings under our IMI revolving credit facility, of which $9,000 was denominated in U.S. dollars and the remaining balance was denominated in Canadian dollars (CAD 168,328) and in Australian dollars (AUD 86,250); we also had various outstanding letters of credit totaling $23,974. The remaining availability, based on IMI’s current level of external debt and the leverage ratio under the IMI revolving credit facility, on December 31, 2005 was $159,630. The interest rate in effect under the IMI revolving credit facility and IMI term Loan facility was 5.8% and 6.2%, respectively, as of December 31, 2005. For the years ended December 31, 2004 and 2005, we recorded

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

4. Debt (Continued)

commitment fees of $1,112 and $846 based on 0.5% of unused balances under the IMI revolving credit facility.

In December 2000, we entered into an interest rate swap contract to hedge the risk of changes in market interest rates on our term loan. The instrument is a variable-for-fixed swap of quarterly interest payments payable on certain amounts of our term loan through 2006. The notional value of the swap equals $99,500 and has a fixed rate of 5.9% and a variable rate based on periodic three-month London Inter-Bank Offered Rate (LIBOR), this swap was reduced to the notional value of $51,500 as of December 31, 2005 and expired in February 2006. In January 2001, we entered into a second interest rate swap contract on our term loan. The notional value of the second swap equals $96,000 and has a fixed rate of 5.5% and a variable rate based on periodic three-month LIBOR, this swap expired in August 2005.

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

b. Notes Issued under Indentures

As of December 31, 2005, we have five series of senior subordinated notes issued under various indentures, that are obligations of the parent company, Iron Mountain Incorporated and are subordinated to debt outstanding under the IMI Credit Agreement:

· $150,000 principal amount of notes maturing on July 1, 2011 and bearing interest at a rate of 81¤4% per annum, payable semi-annually in arrears on January 1 and July 1;

· $480,874 principal amount of notes maturing on April 1, 2013 and bearing interest at a rate of 85¤8% per annum, payable semi-annually in arrears on April 1 and October 1;

· 150,000 British pounds sterling principal amount of notes maturing on April 15, 2014 and bearing interest at a rate of 71¤4% per annum, payable semi-annually in arrears on April 15 and October 15, these notes are listed on the Luxembourg Stock Exchange;

· $431,255 principal amount of notes maturing on January 15, 2015 and bearing interest at a rate of 73¤4% per annum, payable semi-annually in arrears on January 15 and July 15; and

· $320,000 principal amount of notes maturing on January 1, 2016 and bearing interest at a rate of 65¤8% per annum, payable semi-annually in arrears on January 1 and July 1.

The senior subordinated notes are fully and unconditionally guaranteed, on a senior subordinated basis, by substantially all of our direct and indirect wholly owned U.S. subsidiaries (the “Guarantors”). These guarantees are joint and several obligations of the Guarantors. The remainder of our subsidiaries do not guarantee the senior subordinated notes.

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

4. Debt (Continued)

For the year ended December 31, 2003 and 2004, we recorded a charge to other (income) expense, net of $28,174 and $2,454, respectively, related to the early retirement of various debt instruments.

Each of the indentures for the notes provides that we may redeem the outstanding notes, in whole or in part, upon satisfaction of certain terms and conditions. In any redemption, we are also required to pay all accrued but unpaid interest on the outstanding notes.

The following table presents the various redemption dates and prices of the public notes. The redemption dates reflect the date at or after which the notes may be redeemed at our option at a premium redemption price. After these dates, the notes may be redeemed at 100% of face value:

Redemption Date	81¤4% notes July 15,		85¤8% notes April 1,		71¤4% notes April 15,		73¤4% notes January 15,			65¤8% notes July 1,
2005	102.750	%	—		—			—		—
2006	101.375	%	104.313	%	—			—		—
2007	—		102.875	%	—			—		—
2008	—		101.438	%	—			103.875	%	103.313	%
2009	—		—		103.625	%		102.583	%	102.208	%
2010	—		—		102.417	%		101.292	%	101.104	%
2011	—		—		101.208	%		—		—

Prior to January 15, 2008, the 73¤4% notes are redeemable at our option, in whole or in part, at a specified make-whole price. Prior to January 15, 2006, we may under certain conditions redeem up to 35% of the 73¤4% notes with the net proceeds of one or more public equity offerings, at a redemption price of 107.750% of the principal amount.

Prior to July 1, 2008, the 65¤8% notes are redeemable at our option, in whole or in part, at a specified make-whole price. Prior to July 1, 2006, we may under certain conditions redeem 65¤8% notes with the net proceeds of one or more public equity offerings, at a redemption price of 106.625% of the principal amount.

Prior to April 15, 2009, the 71¤4% notes are redeemable at our option, in whole or in part, at a specified make-whole price. Prior to April 15, 2007, we may under certain conditions redeem 71¤4% notes with the net proceeds of one or more public equity offerings, at a redemption price of 107.25% of the principal amount.

Each of the indentures for the notes provides that we must repurchase, at the option of the holders, the notes at 101% of their principal amount, plus accrued and unpaid interest, upon the occurrence of a “Change of Control,” which is defined in each respective indenture. Except for required repurchases upon the occurrence of a Change of Control or in the event of certain asset sales, each as described in the respective indenture, we are not required to make sinking fund or redemption payments with respect to any of the notes.

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

4. Debt (Continued)

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 December 31, 2005, we were in compliance with all material debt covenants and agreements.

c. Real Estate Mortgages

In connection with the purchase of real estate and acquisitions, we assumed several mortgages on real property. The mortgages bear interest at rates ranging from 2.9% to 8.3% and are payable in various installments through 2023.

d. Seller Notes

In connection with the merger with Pierce Leahy in 2000, we assumed debt related to certain existing notes as a result of acquisitions which Pierce Leahy completed in 1999. The notes bear interest at a rate of 4.75% per year. The outstanding balance of 5,461 British pounds sterling ($9,398) on these notes at December 31, 2005 is due on demand through 2009 and is classified as a current portion of long-term debt.

e. Other

Other long-term debt includes various notes, capital leases and other obligations assumed by us as a result of certain acquisitions and other agreements. The outstanding balance of $48,241 on these notes at December 31, 2005 have a weighted average interest rate of 7.9%.

Maturities of long-term debt, excluding (premiums) discounts, net, are as follows:

Year	Amount
2006	$	25,905
2007	49,490
2008	46,084
2009	414,493
2010	5,676
Thereafter	1,984,553
	$	2,526,201

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

4. Debt (Continued)

We have estimated the following fair values for our long-term debt as of December 31:

	2004				2005
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
IMI Revolving Credit Facility(1)	$	122,563	$	122,563	$	216,396	$	216,396
IMI Term Loan Facility(1)	349,000		349,000		345,500		345,500
IME Revolving Credit Facility(1)	101,478		101,478		84,262		84,262
IME Term Loan Facility(1)	184,330		184,330		177,450		177,450
81¤4% notes(2)	149,715		154,500		149,760		151,500
85¤8% notes(2)	481,054		509,726		481,032		502,513
71¤4% notes(2)	288,990		275,263		258,120		250,376
73¤4% notes(2)	440,418		435,568		439,506		435,568
65¤8% notes(2)	314,565		299,200		315,059		299,200
Real Estate Mortgages(1)	5,908		5,908		4,707		4,707
Seller Notes(1)	11,307		11,307		9,398		9,398
Other(1)	28,694		28,694		48,241		48,241

(1) The fair value of this long-term debt either approximates the carrying value (as borrowings under these debt instruments are based on current variable market interest rates as of December 31, 2004 and 2005) or it is impracticable to estimate the fair value due to the nature of such long-term debt.

(2) The fair values of these debt instruments is based on quoted market prices for these notes on December 31, 2004 and 2005.

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

5. Selected Consolidated Financial Statements of Parent, Guarantors and Non-Guarantors

The following financial data summarizes the consolidating Company on the equity method of accounting as of December 31, 2004 and 2005 and for the years ended December 31, 2003, 2004 and 2005. The Guarantors column includes all subsidiaries that guarantee the senior subordinated notes. The subsidiaries that do not guarantee the senior subordinated notes are referred to in the table as the “Non-Guarantors.”

	December 31, 2004
	Parent		Guarantors		Non- Guarantors		Eliminations			Consolidated
Assets
Current Assets:
Cash and Cash Equivalents	$	—	$	11,021	$	20,921	$	—			$	31,942
Accounts Receivable	—		239,015		115,419		—				354,434
Intercompany Receivable	869,370		—		—		(869,370		)		—
Other Current Assets	1,064		83,977		30,146		(409		)		114,778
Total Current Assets	870,434		334,013		166,486		(869,779		)		501,154
Property, Plant and Equipment, Net	—		1,131,277		518,519		—				1,649,796
Other Assets, Net:
Long-term Notes Receivable from Affiliates and Intercompany Receivable	1,923,614		11,420		—		(1,935,034		)		—
Investment in Subsidiaries	479,270		182,866		1,061		(663,197		)		—
Goodwill	—		1,435,151		594,264		10,802				2,040,217
Other	30,128		116,438		105,196		(542		)		251,220
Total Other Assets, Net	2,433,012		1,745,875		700,521		(2,587,971		)		2,291,437
Total Assets	$	3,303,446	$	3,211,165	$	1,385,526	$	(3,457,750	)		$	4,442,387
Liabilities and Stockholders’ Equity
Intercompany Payable	$	—	$	313,259	$	556,111	$	(869,370	)		$	—
Current Portion of Long-term Debt	3,823		2,355		33,257		—				39,435
Total Other Current Liabilities	51,190		298,755		126,492		(409		)		476,028
Long-term Debt, Net of Current Portion	2,024,224		112		414,251		—				2,438,587
Long-term Notes Payable to Affiliates and Intercompany Payable	1,000		1,923,614		10,420		(1,935,034		)		—
Other Long-term Liabilities	4,641		212,083		40,542		(542		)		256,724
Commitments and Contingencies
Minority Interests	—		—		4,177		8,868				13,045
Stockholders’ Equity	1,218,568		460,987		200,276		(661,263		)		1,218,568
Total Liabilities and Stockholders’ Equity	$	3,303,446	$	3,211,165	$	1,385,526	$	(3,457,750	)		$	4,442,387

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

5. Selected Consolidated Financial Statements of Parent, Guarantors and Non-Guarantors (Continued)

	December 31, 2005
	Parent		Guarantors		Non- Guarantors		Eliminations			Consolidated
Assets
Current Assets:
Cash and Cash Equivalents	$	—	$	10,658	$	42,755	$	—			$	53,413
Accounts Receivable	—		290,546		118,018		—				408,564
Intercompany Receivable	868,392		—		—		(868,392		)		—
Other Current Assets	48		61,531		31,074		(462		)		92,191
Total Current Assets	868,440		362,735		191,847		(868,854		)		554,168
Property, Plant and Equipment, Net	—		1,225,580		555,686		—				1,781,266
Other Assets, Net:
Long-term Notes Receivable from Affiliates and Intercompany Receivable	2,048,104		11,069		—		(2,059,173		)		—
Investment in Subsidiaries	541,612		252,122		—		(793,734		)		—
Goodwill	—		1,482,537		646,363		9,741				2,138,641
Other	26,780		130,012		135,694		(421		)		292,065
Total Other Assets, Net	2,616,496		1,875,740		782,057		(2,843,587		)		2,430,706
Total Assets	$	3,484,936	$	3,464,055	$	1,529,590	$	(3,712,441	)		$	4,766,140
Liabilities and Stockholders’ Equity
Intercompany Payable	$	—	$	249,173	$	619,219	$	(868,392	)		$	—
Current Portion of Long-term Debt	3,841		7,613		14,451		—				25,905
Total Other Current Liabilities	48,229		389,691		128,633		(462		)		566,091
Long-term Debt, Net of Current Portion	2,057,884		10,816		434,826		—				2,503,526
Long-term Notes Payable to Affiliates and Intercompany Payable	1,000		2,048,104		10,069		(2,059,173		)		—
Other Long-term Liabilities	3,853		233,805		57,385		(421		)		294,622
Commitments and Contingencies
Minority Interests	—		—		2,389		3,478				5,867
Stockholders’ Equity	1,370,129		524,853		262,618		(787,471		)		1,370,129
Total Liabilities and Stockholders’ Equity	$	3,484,936	$	3,464,055	$	1,529,590	$	(3,712,441	)		$	4,766,140

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

5. Selected Consolidated Financial Statements of Parent, Guarantors and Non-Guarantors (Continued)

	Year Ended December 31, 2003
	Parent			Guarantors				Non- Guarantors				Eliminations				Consolidated
Revenues:
Storage	$	—			$	712,862			$	162,173			$	—			$	875,035
Service and Storage Material Sales	—				499,992				126,302				—				626,294
Total Revenues	—				1,212,854				288,475				—				1,501,329
Operating Expenses:
Cost of Sales (Excluding Depreciation)	—				545,202				135,545				—				680,747
Selling, General and Administrative	427				314,424				68,790				—				383,641
Depreciation and Amortization	20				106,024				24,874				—				130,918
Loss (Gain) on Disposal/Writedown of Property, Plant and Equipment, Net	—				1,771				(641		)		—				1,130
Total Operating Expenses	447				967,421				228,568				—				1,196,436
Operating (Loss) Income	(447		)		245,433				59,907				—				304,893
Interest Expense, Net	23,809				91,881				34,778				—				150,468
Equity in the Earnings of Subsidiaries, Net of Tax	(159,933		)		(4,334		)		—				164,267				—
Other Expense (Income), Net	51,040				(45,492		)		(8,112		)		—				(2,564		)
Income Before Provision for Income Taxes and Minority Interest	84,637				203,378				33,241				(164,267		)		156,989
Provision for Income Taxes	—				53,449				13,281				—				66,730
Minority Interest in Earnings of Subsidiaries	—				—				5,622				—				5,622
Net Income	$	84,637			$	149,929			$	14,338			$	(164,267	)		$	84,637

	Year Ended December 31, 2004
	Parent			Guarantors				Non- Guarantors			Eliminations				Consolidated
Revenues:
Storage	$	—			$	774,945			$	268,421		$	—			$	1,043,366
Service and Storage Material Sales	—				552,405				221,818			—				774,223
Total Revenues	—				1,327,350				490,239			—				1,817,589
Operating Expenses:
Cost of Sales (Excluding Depreciation)	—				586,437				237,462			—				823,899
Selling, General and Administrative	460				362,635				123,151			—				486,246
Depreciation and Amortization	36				123,098				40,495			—				163,629
(Gain) Loss on Disposal/Writedown of Property, Plant and Equipment, Net	—				(861		)		180			—				(681		)
Total Operating Expenses	496				1,071,309				401,288			—				1,473,093
Operating (Loss) Income	(496		)		256,041				88,951			—				344,496
Interest Expense (Income), Net	150,476				(29,598		)		64,871			—				185,749
Equity in the Earnings of Subsidiaries, Net of Tax	(267,560		)		(6,812		)		—			274,372				—
Other Expense (Income), Net	22,397				(34,934		)		4,549			—				(7,988		)
Income Before Provision for Income Taxes and Minority Interest	94,191				327,385				19,531			(274,372		)		166,735
Provision for Income Taxes	—				60,376				9,198			—				69,574
Minority Interest in Earnings of Subsidiaries	—				—				2,970			—				2,970
Net Income	$	94,191			$	267,009			$	7,363		$	(274,372	)		$	94,191

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

5. Selected Consolidated Financial Statements of Parent, Guarantors and Non-Guarantors (Continued)

	Year Ended December 31, 2005
	Parent			Guarantors				Non- Guarantors				Eliminations				Consolidated
Revenues:
Storage	$	—			$	862,961			$	318,590			$	—			$	1,181,551
Service and Storage Material Sales	—				642,659				253,945				—				896,604
Total Revenues	—				1,505,620				572,535				—				2,078,155
Operating Expenses:
Cost of Sales (Excluding Depreciation)	—				662,485				275,754				—				938,239
Selling, General and Administrative	187				432,588				136,920				—				569,695
Depreciation and Amortization	70				134,509				52,343				—				186,922
Loss (Gain) on Disposal/Writedown of Property, Plant and Equipment, Net	—				416				(3,901		)		—				(3,485		)
Total Operating Expenses	257				1,229,998				461,116				—				1,691,371
Operating (Loss) Income	(257		)		275,622				111,419				—				386,784
Interest Expense (Income), Net	156,057				(33,325		)		60,852				—				183,584
Equity in the Earnings of Subsidiaries, Net of Tax	(234,993		)		(28,176		)		—				263,169				—
Other (Income)Expense, Net	(32,420		)		36,956				1,646				—				6,182
Income Before Provision for Income Taxes and Minority Interest	111,099				300,167				48,921				(263,169		)		197,018
Provision for Income Taxes	—				63,665				17,819				—				81,484
Minority Interest in Earnings of Subsidiaries	—				—				1,684				—				1,684
Income Before Cumulative Effect of Change in Accounting Principle, Net of Tax Benefit	111,099				236,502				29,418				(263,169		)		113,850
Cumulative Effect of Change in Accounting Principle, Net of Tax Benefit	—				(2,215		)		(536		)		—				(2,751		)
Net Income	$	111,099			$	234,287			$	28,882			$	(263,169	)		$	111,099

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

5. Selected Consolidated Financial Statements of Parent, Guarantors and Non-Guarantors (Continued)

	Year Ended December 31, 2003
	Parent			Guarantors				Non- Guarantors				Eliminations				Consolidated
Cash Flows from Operating Activities	$	(3,823	)		$	252,175			$	40,341			$	—			$	288,693
Cash Flows from Investing Activities:
Capital expenditures	—				(142,744		)		(61,733		)		—				(204,477		)
Cash paid for acquisitions, net of cash acquired	—				(66,707		)		(313,183		)		—				(379,890		)
Intercompany loans to subsidiaries	(407,292		)		(324,980		)		—				732,272				—
Investment in subsidiaries	(1,705		)		(1,705		)		—				3,410				—
Investment in convertible preferred stock	—				(1,357		)		—				—				(1,357		)
Additions to customer relationship and acquisition costs	—				(9,549		)		(3,028		)		—				(12,577		)
Proceeds from sales of property and equipment	—				9,423				2,244				—				11,667
Cash Flows from Investing Activities	(408,997		)		(537,619		)		(375,700		)		735,682				(586,634		)
Cash Flows from Financing Activities:
Repayment of debt and term loans	(600,445		)		(683		)		(97,689		)		—				(698,817		)
Proceeds from debt and term loans	643,784				—				100,232				—				744,016
Early retirement of notes	(254,407		)		—				(119,851		)		—				(374,258		)
Net proceeds from sales of senior subordinated notes	617,179				—				—				—				617,179
Debt financing (repayment to) and equity contribution from (distribution to) minority shareholders, net	—				—				20,225				—				20,225
Intercompany loans from parent	—				287,190				445,082				(732,272		)		—
Equity contribution from parent	—				1,705				1,705				(3,410		)		—
Proceeds from exercise of stock options	8,426				—				—				—				8,426
Payment of debt financing costs and stock issuance costs	(1,717		)		—				—				—				(1,717		)
Cash Flows from Financing Activities	412,820				288,212				349,704				(735,682		)		315,054
Effect of exchange rates on cash and cash equivalents	—				—				1,278				—				1,278
Increase in cash and cash equivalents	—				2,768				15,623				—				18,391
Cash and cash equivalents, beginning of year	—				52,025				4,267				—				56,292
Cash and cash equivalents, end of year	$	—			$	54,793			$	19,890			$	—			$	74,683

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

5. Selected Consolidated Financial Statements of Parent, Guarantors and Non-Guarantors (Continued)

	Year Ended December 31, 2004
	Parent			Guarantors				Non- Guarantors				Eliminations				Consolidated
Cash Flows from Operating Activities	$	(176,437	)		$	426,230			$	55,571			$	—			$	305,364
Cash Flows from Investing Activities:
Capital expenditures	—				(162,032		)		(69,934		)		—				(231,966		)
Cash paid for acquisitions, net of cash acquired	—				(163,828		)		(220,510		)		—				(384,338		)
Intercompany loans to subsidiaries	44,240				28,501				—				(72,741		)
Investment in subsidiaries	(111,988		)		(111,988		)		—				223,976				—
Investment in convertible preferred stock	—				(858		)		—				—				(858		)
Additions to customer relationship and acquisition costs	—				(10,050		)		(2,422		)		—				(12,472		)
Proceeds from sales of property and equipment	—				3,053				58				—				3,111
Cash Flows from Investing Activities	(67,748		)		(417,202		)		(292,808		)		151,235				(626,523		)
Cash Flows from Financing Activities:
Repayment of debt and term loans	(706,149		)		(117,246		)		(261,618		)		—				(1,085,013		)
Proceeds from debt and term loans	668,882				—				479,393				—				1,148,275
Early retirement of notes	—				—				(20,797		)		—				(20,797		)
Net proceeds from sales of senior subordinated notes	269,427				—				—				—				269,427
Debt financing (repayment to) and equity contribution from (distribution to) minority shareholders, net	—				—				(41,978		)		—				(41,978		)
Intercompany loans from parent	—				(47,542		)		(25,199		)		72,741				—
Equity contribution from parent	—				111,988				111,988				(223,976		)
Proceeds from exercise of stock options	18,041				—				—				—				18,041
Payment of debt financing costs and stock issuance costs	(6,016		)		—				(5,370		)		—				(11,386		)
Cash Flows from Financing Activities	244,185				(52,800		)		236,419				(151,235		)		276,569
Effect of exchange rates on cash and cash equivalents	—				—				1,849				—				1,849
(Decrease) Increase in cash and cash equivalents	—				(43,772		)		1,031				—				(42,741		)
Cash and cash equivalents, beginning of year	—				54,793				19,890				—				74,683
Cash and cash equivalents, end of year	$	—			$	11,021			$	20,921			$	—			$	31,942

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

5. Selected Consolidated Financial Statements of Parent, Guarantors and Non-Guarantors (Continued)

	Year Ended December 31, 2005
	Parent			Guarantors				Non- Guarantors				Eliminations				Consolidated
Cash Flows from Operating Activities	$	(149,143	)		$	433,730			$	92,589			$	—			$	377,176
Cash Flows from Investing Activities:
Capital expenditures	—				(190,143		)		(81,986		)		—				(272,129		)
Cash paid for acquisitions, net of cash acquired	—				(66,890		)		(111,348		)		—				(178,238		)
Intercompany loans to subsidiaries	73,702				(107,286		)		—				33,584				—
Investment in subsidiaries	(15,687		)		(15,687		)		—				31,374				—
Additions to customer relationship and acquisition costs	—				(7,909		)		(5,522		)		—				(13,431		)
Proceeds from sales of property and equipment and other	—				15,895				11,728				—				27,623
Cash Flows from Investing Activities	58,015				(372,020		)		(187,128		)		64,958				(436,175		)
Cash Flows from Financing Activities:
Repayment of debt and term loans	(300,322		)		(2,783		)		(206,490		)		—				(509,595		)
Proceeds from debt and term loans	366,352				—				202,374				—				568,726
Debt financing (repayment to) and equity contribution from (distribution to) minority shareholders, net	—				—				(2,399		)		—				(2,399		)
Intercompany loans from parent	—				(74,977		)		108,561				(33,584		)		—
Equity contribution from parent	—				15,687				15,687				(31,374		)		—
Proceeds from exercise of stock options	25,649				—				—				—				25,649
Payment of debt financing costs and stock issuance costs	(551		)		—				(381		)		—				(932		)
Cash Flows from Financing Activities	91,128				(62,073		)		117,352				(64,958		)		81,449
Effect of exchange rates on cash and cash equivalents	—				—				(979		)		—				(979		)
(Decrease) Increase in cash and cash equivalents	—				(363		)		21,834				—				21,471
Cash and cash equivalents, beginning of year	—				11,021				20,921				—				31,942
Cash and cash equivalents, end of year	$	—			$	10,658			$	42,755			$	—			$	53,413

6. Acquisitions

The acquisitions we consummated in 2003, 2004 and 2005 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. The significant acquisitions are as follows:

To expand into new markets in Europe and add to our existing footprint, in July 2003, we and IME completed the acquisition of Hays IMS in two simultaneous transactions. IME acquired the European operations of Hays IMS for aggregate cash consideration (including transaction costs) of approximately

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

6. Acquisitions (Continued)

190,000 British pounds sterling ($309,000), while we acquired the U.S. operations of Hays IMS for aggregate cash consideration (including transaction costs) of approximately 14,500 British pounds sterling ($24,000). Both transactions were on a cash and debt free basis.

For full access to all future cash flows and greater strategic and financial flexibility, in February 2004, we completed the acquisition of the 49.9% equity interest held by Mentmore plc (“Mentmore”) 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. This transaction did not have material impact on revenue or operating income since we already fully consolidate IME’s financial results. Using the purchase method of accounting for this acquisition, the net assets of IME were adjusted to reflect 49.9% of the difference between the fair market value and their carrying value on the date of acquisition.

To build upon our mission to protect our customers’ information regardless of format, in November 2004, we acquired Connected Corporation (“Connected”) for total cash consideration of $109,326 (net of cash acquired). Connected’s technology allows for the protection, archiving and recovery of distributed data.

To develop our presence in Asia Pacific, in December 2005, we acquired the Australian and New Zealand operations of Pickfords Records Management for total cash consideration of approximately Australian Dollar 115,000 ($86,276, net of cash acquired).

To extend our leadership role in the protection of our customer’ business data, in December 2005, we acquired full ownership of LiveVault Corporation (“LiveVault”) for cash consideration of $35,798 (net of cash acquired). As of December 31, 2004, we had a minority interest investment in LiveVault with a carrying value of $3,615. LiveVault is a provider of disk-based online server backup and recovery solutions.

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

	2003			2004			2005
Cash Paid (gross of cash acquired)	$	387,803	(1)	$	388,243	(1)	$	180,457	(1)
Previous Investment Balance of Businesses Acquired	—			—			3,615
Fair Value of Options Issued	—			1,245			780
Total Consideration	387,803			389,488			184,852
Fair Value of Identifiable Assets Acquired(2)	244,950			160,622			85,070
Liabilities Assumed(3)	(46,217		)	(50,006		)	(21,876		)
Minority Interest	—			71,535		(4)	8,142		(5)
Total Fair Value of Identifiable Net Assets Acquired	198,733			182,151			71,336
Recorded Goodwill	$	189,070		$	207,337		$	113,516

(1) Included in cash paid for acquisitions in the consolidated statements of cash flows for the years ended December 31, 2003, 2004 and 2005 is a contingent payment of $1,077, $5,513 and $704, respectively, related to acquisitions made in the previous years.

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

6. Acquisitions (Continued)

(2) Consisted primarily of accounts receivable, prepaid expenses and other, land, buildings, racking, leasehold improvements. Additionally, includes core technology of $15,460 and $10,500 for the years ended December 31, 2004 and 2005, respectively, and customer relationship assets of $52,866, $64,064 and $70,724 for the years ended December 31, 2003, 2004 and 2005, respectively.

(3) Consisted primarily of accounts payable, accrued expenses and notes payable.

(4) Consisted primarily of the carrying value of Mentmore’s 49.9% minority interest in IME at the date of acquisition.

(5) Consisted primarily of the carrying value of minority interests of Latin American partners at the date of acquisition.

Allocation of the purchase price for the 2005 acquisitions was based on estimates of the fair value of net assets acquired, and is subject to adjustment. The purchase price allocations of certain 2005 transactions are subject to finalization of the assessment of the fair value of property, plant and equipment, intangible assets (primarily customer relationship assets), operating leases, restructuring purchase reserves, deferred revenue 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 in accordance with EITF 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 December 31, 2005 primarily include completion of planned abandonments of facilities and severance contracts in connection with certain acquisitions.

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

	2004			2005
Reserves, beginning of the year	$	16,322		$	21,414
Reserves established	15,282			1,142
Expenditures	(10,200		)	(7,360		)
Adjustments to goodwill, including currency effect(1)	10			(2,498		)
Reserves, end of the year	$	21,414		$	12,698

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

At December 31, 2004, the restructuring reserves related to acquisitions consisted of lease losses on abandoned facilities ($12,348), severance costs for approximately 56 people ($2,463) and move and other exit costs ($6,603). At December 31, 2005, the restructuring reserves related to acquisitions consisted of lease losses on abandoned facilities ($9,760), severance costs for approximately 22 people ($569) and move

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

6. Acquisitions (Continued)

and other exit costs ($2,369). These accruals are expected to be used prior to December 31, 2006 except for lease losses of $6,997 and severance contracts of $160, both of which are based on contracts that extend beyond one year.

In connection with some of our acquisitions, we have potential earn-out obligations that would be payable in the event businesses we acquired meet certain operational objectives. These payments are based on the future results of these operations and our estimate of the maximum contingent earn-out payments we may be required to make under all such agreements as of December 31, 2005 is approximately $21,195.

7. Capital Stock and Stock Options

a. Capital Stock

On May 27, 2004, our board authorized and approved a three-for-two stock split effected in the form of a dividend on our common stock. We issued the additional shares of common stock resulting from this stock dividend on June 30, 2004 to all stockholders of record as of the close of business on June 15, 2004. All share data has been reflected for such stock split.

The following table summarizes the number of shares authorized, issued and outstanding for each issue of our capital stock as of December 31:

				Number of Shares
				Authorized		Issued and Outstanding
Equity Type	Par Value			2004	2005	2004	2005
Preferred stock		$	.01	10,000,000	10,000,000	—	—
Common stock		.01		200,000,000	200,000,000	129,817,914	131,662,871

b. Stock Options

A total of 16,084,728 shares of common stock have been reserved for grants of options and other rights under our various stock incentive plans.

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

7. Capital Stock and Stock Options (Continued)

The following is a summary of stock option transactions, including those issued to employees of acquired companies, during the applicable periods, excluding transactions under the employee stock purchase plan:

	Options		Weighted Average Exercise Price
Options outstanding, December 31, 2002	5,845,224			$	12.05
Granted	687,851			24.80
Exercised	(661,302	)		8.85
Canceled	(78,519	)		17.60
Options outstanding, December 31, 2003	5,793,254			13.73
Granted	811,722			28.55
Exercised	(1,118,332	)		9.38
Canceled	(214,598	)		23.58
Options outstanding, December 31, 2004	5,272,046			16.55
Granted	1,773,498			32.33
Issued in Connection with Acquisitions	29,059			7.05
Exercised	(1,404,541	)		11.94
Canceled	(174,788	)		25.78
Options outstanding, December 31, 2005	5,495,274			22.41

Options granted in 2003, 2004 and 2005 were granted with exercise prices equal to the market price of the stock at the date of grant. The majority of these options become exercisable ratably over a period of five years unless the holder terminates employment and generally have a contractual life of 10 years. The number of shares available for grant at December 31, 2005 was 2,170,016.

The following table summarizes additional information regarding options outstanding and exercisable at December 31, 2005:

		Outstanding
		Weighted Average Remaining					Exercisable
Range of Exercise Prices	Number	Contractual Life (in Years)		Weighted Average Exercise Price			Number	Weighted Average Exercise Price
$0.39 to $0.39	390		1.1		$	0.39	390		$	0.39
$1.92 to $2.07	140,435		1.9		1.96		140,435		1.96
$2.95 to $4.05	72,206		3.1		3.70		72,206		3.70
$4.56 to $5.73	125,145		2.4		4.89		112,169		4.79
$7.63 to $10.78	359,074		2.0		9.55		359,074		9.55
$12.07 to $17.54	1,355,736		4.5		14.98		1,246,071		14.84
$18.28 to $25.60	1,108,001		6.6		22.21		569,003		21.32
$27.71 to $35.82	1,981,047		9.1		29.44		117,066		29.75
$43.04 to $43.45	353,240		9.9		43.27		—		—
	5,495,274		6.6		22.41		2,616,414		14.76

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

8. Income Taxes

The components of income before provision for income taxes and minority interest are:

	2003		2004		2005
U.S. and Canada	$	140,638	$	157,929	$	178,300
Foreign	16,351		8,806		18,718
	$	156,989	$	166,735	$	197,018

We have estimated federal net operating loss carryforwards which begin to expire in 2018 through 2021 of $123,800 at December 31, 2005 to reduce future federal taxable income, if any. The preceding net operating loss carryforwards do not include pre-acquisition net operating loss carryforwards of Arcus Group, Inc. in the amount of approximately $103,000. Any tax benefit realized related to pre-acquisition net operating loss carryforwards will be recorded as a reduction of goodwill when, and if, realized. We also have estimated state net operating loss carryforwards of $87,255. The state net operating loss carryforwards are subject to a valuation allowance of approximately 89%. Additionally, we have federal alternative minimum tax credit carryforwards of $3,500, which have no expiration date and are available to reduce future income taxes, if any, and foreign tax credits, which expire in 2015, of $15,200.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:

	December 31,
	2004			2005
Deferred Tax Assets:
Accrued liabilities	$	26,181		$	25,687
Deferred rent	8,654			11,478
Net operating loss carryforwards	63,579			45,783
AMT and Foreign Tax Credits	1,364			18,760
Valuation Allowance(1)	(5,691		)	(9,318		)
Unrealized loss on hedging contracts	1,585			48
Other	9,278			3,798
	104,950			96,236
Deferred Tax Liabilities:
Other assets, principally due to differences in amortization	(98,348		)	(120,321		)
Plant and equipment, principally due to differences in depreciation	(154,642		)	(148,959		)
Customer acquisition costs	(22,466		)	(24,647		)
	(275,456		)	(293,927		)
Net deferred tax liability	$	(170,506	)	$	(197,691	)

(1) The majority of the increase in our valuation allowance from 2004 to 2005 relates primarily to net operating losses acquired through acquisitions. Approximately $4,600 of the total 2005 valuation allowance, if realized, will be recorded as a reduction to goodwill.

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

8. Income Taxes (Continued)

We receive a tax deduction upon the exercise of non-qualified stock options or upon the disqualifying disposition by employees of incentive stock options and shares acquired under our employee stock purchase plan for the difference between the exercise price and the market price of the underlying common stock on the date of exercise or disqualifying disposition. The tax benefit for non-qualified stock options and the 15% discount associated with our employee stock purchase plan are included in the consolidated financial statements in the period in which compensation expense is recorded. The tax benefit associated with compensation expense recorded in the consolidated financial statements related to incentive stock options and incremental amounts recorded above the 15% discount associated with the employee stock purchase plan are recorded in the period the disqualifying disposition occurs. All tax benefits for awards issued prior to January 1, 2003 and incremental tax benefits in excess of compensation expense recorded in the consolidated financial statements are credited directly to equity and amounted to $3,950, $6,904 and $9,668 for the years ended December 31, 2003, 2004 and 2005, respectively.

We file a consolidated federal income tax return with our U.S. subsidiaries. The provision for income taxes consists of the following components:

	Year Ended December 31,
	2003		2004		2005
Federal—deferred	$	43,856	$	54,237	$	55,891
State—current	2,758		4,094		8,847
State—deferred	14,871		9,339		181
Foreign—current and deferred	5,245		1,904		16,565
	$	66,730	$	69,574	$	81,484

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

8. Income Taxes (Continued)

A reconciliation of total income tax expense and the amount computed by applying the federal income tax rate of 35% to income before provision for income taxes and minority interests for the years ended December 31, 2003, 2004 and 2005, respectively, is as follows:

	Year Ended December 31,
	2003			2004			2005
Computed “expected” tax provision	$	54,946		$	58,357		$	68,956
Changes in income taxes resulting from:
State taxes (net of federal tax benefit)	11,459			8,732			6,430
Increase in valuation allowance	—			—			1,092
Foreign tax rate and tax law differential	(540		)	(1,584		)	(94		)
Other, net	865			4,069			5,100
	$	66,730		$	69,574		$	81,484

9. Quarterly Results of Operations (Unaudited)

Quarter Ended	March 31		June 30		Sept. 30		Dec. 31
2004
Total revenues	$	433,922	$	445,410	$	459,330	$	478,927
Operating income	85,752		86,866		85,002		86,876
Net income	22,997		22,857		18,450		29,887
Net income per share—basic	0.18		0.18		0.14		0.23
Net income per share—diluted	0.18		0.17		0.14		0.23
2005
Total revenues	501,406		511,922		526,472		538,355
Operating income	91,110		96,693		102,177		96,804
Income before cumulative effect of change in accounting principle	22,949		25,410		36,377		29,114
Net income	22,949		25,410		36,377		26,363
Income before cumulative effect of change in accounting principle per share—basic	0.18		0.19		0.28		0.22
Income before cumulative effect of change in accounting principle per share—diluted	0.17		0.19		0.27		0.22
Net income per share—basic	0.18		0.19		0.28		0.20
Net income per share—diluted	0.17		0.19		0.27		0.20

10. Segment Information

Beginning January 1, 2006, we changed our reportable segments as a result of certain management and organizational changes within our North American business. Therefore, the presentation of all historical segment reporting has been changed to conform to our new management reporting. Our previous Business Records Management, Data Protection and Fulfillment operating segments are now

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

10. Segment Information (Continued)

considered one operating segment which we refer to as the North American Physical Business. Online backup and recovery solutions for server data and intellectual property management services are now included in the Worldwide Digital Business segment and were previously included in our old Data Protection segment. We now have six operating segments, as follows:

· North American Physical Business—throughout the United States and Canada, the storage of paper documents, as well as all other non-electronic media such as microfilm and microfiche, master audio and videotapes, film, X-rays and blueprints, including healthcare information services, vital records services, service and courier operations, and the collection, handling and disposal of sensitive documents for corporate customers (“Hard Copy”); the storage and rotation of backup computer media as part of corporate disaster recovery plans, including service and courier operations (“Data Protection”); secure shredding services (“Shredding”); and the storage, assembly, and detailed reporting of customer marketing literature and delivery to sales offices, trade shows and prospective customers’ sites based on current and prospective customer orders, which we refer to as the “Fulfillment” business

· Worldwide Digital Business—information protection and storage services for electronic records conveyed via telecommunication lines and the Internet, including online backup and recovery solutions for server data and personal computers, as well as email archiving and third party technology escrow services that protect intellectual property assets such as software source code

· Europe—information protection and storage services throughout Europe, including Hard Copy, Data Protection and Shredding

· South America—information protection and storage services throughout South America, including Hard Copy and Data Protection

· Mexico—information protection and storage services throughout Mexico, including Hard Copy and Data Protection and Shredding

· Asia Pacific—information protection and storage services throughout Australia and New Zealand, including Hard Copy, Data Protection and Shredding

The South America, Mexico and Asia Pacific operating segments do not individually meet the quantitative thresholds for a reporting segment, but have been aggregated and reported with Europe as one reportable segment, “International Physical Business,” given their similar economic characteristics, products, customers and processes. The Worldwide Digital Business does not meet the quantitative criteria for a reportable segment; however, management determined that it would disclose such information on a voluntary basis.

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

10. Segment Information (Continued)

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

	North American Physical Business		International Physical Business			Worldwide Digital Business			Total Consolidated
2003
Total Revenues	$	1,279,797		$	198,068	$	23,464			$	1,501,329
Depreciation and Amortization	104,811			16,048		10,059				130,918
Contribution	400,799			46,825		(10,683		)		436,941
Total Assets	3,054,877			765,814		71,408				3,892,099
Expenditures for Segment Assets(1)	219,962			358,515		18,467				596,944
2004
Total Revenues	1,387,977			380,033		49,579				1,817,589
Depreciation and Amortization	115,975			33,234		14,420				163,629
Contribution	427,579			89,751		(9,886		)		507,444
Total Assets	3,216,999			1,024,135		201,253				4,442,387
Expenditures for Segment Assets(1)	256,998			243,030		128,748				628,776
2005
Total Revenues	1,529,612			435,106		113,437				2,078,155
Depreciation and Amortization	118,493			43,285		25,144				186,922
Contribution	444,343			113,417		12,461				570,221
Total Assets	3,383,098			1,142,217		240,825				4,766,140
Expenditures for Segment Assets(1)	225,178			178,662		59,958				463,798

(1) Includes capital expenditures, cash paid for acquisitions, net of cash acquired, and additions to customer relationship and acquisition costs in the accompanying consolidated statements of cash flows.

The accounting policies of the reportable segments are the same as those described in Note 2 except that certain corporate and centrally controlled costs are allocated primarily to our North American Physical Business and Worldwide Digital Business segments. These allocations, which include human resources, information technology, finance, rent, real estate property taxes, medical costs, incentive compensation, stock option expense, worker’s compensation, 401(k) match contributions and property, general liability, auto and other insurance, are based on rates and methodologies established at the beginning of each year. Included in the corporate costs allocated to our North American Physical Business segment are certain costs related to staff functions, including finance, human resources and information technology, which benefit the enterprise as a whole. These costs are primarily related to the general management of these functions on a corporate level and the design and development of programs, policies and procedures that are then implemented in the individual segments, with each segment bearing its own cost of implementation. Management has decided to allocate these costs to the North American segment as further allocation is impracticable.

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2005
(In thousands, except share and per share data)

10. Segment Information (Continued)

Previously, certain corporate and centrally controlled costs were either not allocated or variances associated with the allocated charges and the actual charges were not pushed down to the operating segments, and these costs and variances remained in our previously reported segment named Corporate and Other. This is no longer the case, and all previously reported periods have been updated to reflect the new methodologies being employed.

Contribution for each segment is defined as total revenues less cost of sales (excluding depreciation) and selling, general and administrative expenses (including the costs allocated to each segment as described above). Internally, we use Contribution as the basis for evaluating the performance of and allocating resources to our operating segments.

A reconciliation of Contribution to income before provision for income taxes and minority interest on a consolidated basis is as follows:

	Years Ended December 31,
	2003			2004			2005
Contribution	$	436,941		$	507,444		$	570,221
Less: Depreciation and Amortization	130,918			163,629			186,922
Loss (Gain) on Disposal/Writedown of Property, Plant and Equipment, Net	1,130			(681		)	(3,485		)
Interest Expense, Net	150,468			185,749			183,584
Other (Income) Expense, Net	(2,564		)	(7,988		)	6,182
Income before Provision for Income Taxes and Minority Interest	$	156,989		$	166,735		$	197,018

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

	2003		2004		2005
Revenues:
United States	$	1,215,669	$	1,330,979	$	1,504,907
United Kingdom	145,735		270,665		275,426
Canada	87,592		106,577		132,302
Other International	52,333		109,368		165,520
Total Revenues	$	1,501,329	$	1,817,589	$	2,078,155
Long-lived Assets:
United States	$	2,514,031	$	2,735,545	$	2,887,981
United Kingdom	551,924		618,712		594,178
Canada	253,874		315,872		335,929
Other International	100,687		271,104		393,884
Total Long-lived Assets	$	3,420,516	$	3,941,233	$	4,211,972

(d)	Exhibits
	23.1	Consent of Deloitte & Touche LLP (Iron Mountain Incorporated, Delaware).
	23.2	Consent of RSM Robson Rhodes LLP (Iron Mountain Europe Limited).
	99.1	Updated Items 1, 2, 7 and 15 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

	IRON MOUNTAIN INCORPORATED
	(Registrant)
	By:	/s/ JOHN F. KENNY, JR.
	Name:		John F. Kenny, Jr.
	Title:		Executive Vice President and Chief Financial Officer
Date: May 22, 2006

	Payments Due by Period
	Total		Less than 1 Year			1-3 Years		3-5 Years		More than 5 Years
Long-term Debt (including Capital Lease Obligations)	$	2,526,201		$	25,905	$	95,574	$	420,169	$	1,984,553
Interest Payments(1)	1,090,003			141,961		267,885		260,307		419,850
Operating Lease Obligations	1,113,797			164,022		273,256		202,936		473,583
Purchase and Asset Retirement Obligations(2)	95,426			40,952		34,911		9,628		9,935
Total	$	4,825,427		$	372,840	$	671,626	$	893,040	$	2,887,921

	Page
A. Iron Mountain Incorporated
Report of Independent Registered Public Accounting Firm		39
Consolidated Balance Sheets, December 31, 2004 and 2005		40
Consolidated Statements of Operations, Years Ended December 31, 2003, 2004 and 2005		41
Consolidated Statements of Stockholders’ Equity and Comprehensive Income, Years Ended December 31, 2003, 2004 and 2005		42
Consolidated Statements of Cash Flows, Years Ended December 31, 2003, 2004 and 2005		43
Notes to Consolidated Financial Statements		44
B. Iron Mountain Europe Limited
Report of the Independent Auditors		82

Year	Operating
2006	$	164,022
2007	145,912
2008	127,344
2009	110,528
2010	92,408
Thereafter	473,583
Total minimum lease payments	$	1,113,797


Chartered Accountants
Birmingham, England

Estimated Amortization Expense