Item 1. Business.
A. Development of Business.
We are the leader in records and information management services
("RIMS"). We are an international, full-service provider of records and
information management and related services, enabling customers to outsource
these functions. We have a diversified customer base that includes more than
half of the Fortune 500 and numerous commercial, legal, banking, healthcare,
accounting, insurance, entertainment and government organizations. Our
comprehensive solutions help customers save money and manage risks associated
with legal and regulatory compliance, protection of vital assets, and business
continuity challenges.
Our core business records management services include: records
management program development and implementation based on best-practices;
secure, cost-effective storage for all major media, including paper, which is
the dominant form of records storage, flexible retrieval access and retention of
records; digital archiving services for secure, legally compliant and
cost-effective long-term archiving of electronic records; secure shredding
services that ensure privacy and a secure chain of record custody; and
customized services for vital records, film and sound and regulated industries
such as healthcare and financial services.
Our off-site data protection services include: disaster recovery
planning, testing, impact analysis and consulting; secure, off-site vaulting of
backup tapes for fast and efficient data recovery in the event of a disaster,
human error or virus; managed, online data backup and recovery services for
personal computers and server data; and intellectual property escrow services to
secure source code and other proprietary information with a trusted, neutral
third party.
In addition to our core records management and off-site data protection
services, we sell storage materials, including cardboard boxes and magnetic
media, and provide consulting, facilities management, fulfillment and other
outsourcing services.
Iron Mountain was founded in 1951 in an underground facility near
Hudson, New York. Now in our 52nd 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 the leader in records and information
management services, providing a full range of services to customers in markets
around the world. For the year ended December 31, 2002, we had total revenues of
more than $1.3 billion.
The growth since 1995 has been accomplished primarily through the
acquisition of domestic and international records management 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 domestically 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. In addition, our capital expenditures, made
primarily to support internal growth, exceeded the aggregate acquisition
consideration we conveyed in both 2001 and 2002. We expect this trend to
continue and to achieve this internal growth through the use of aggressive
selling efforts to acquire new customers and by offering a wide range of
complementary and ancillary services to expand our new and existing customer
relationships.
On February 1, 2000, we completed our most important acquisition to date
by merging with Pierce Leahy Corp. in a stock-for-stock merger valued at
$1.0 billion, including the assumption of debt and
1
related transaction costs. Since the merger, we had been integrating the
cultures, operating systems and procedures, and information technology systems
of Iron Mountain and Pierce Leahy. We completed the integration process in 2002
ahead of schedule. See Note 7 to Notes to Consolidated Financial Statements.
As of December 31, 2002, we provided services to over 150,000 customer
accounts in 81 markets in the United States and 47 markets outside of the United
States, employed over 11,500 people and operated approximately 650 records
management facilities in the United States, Canada, Europe and Latin America.
B. Description of Business.
The Records and Information Management Services Industry
Overview
Companies in the RIMS industry store and manage information in a variety
of media formats, which can broadly be divided into paper and electronic
records, and provide a wide range of services related to the records stored. We
refer to our general paper storage and management services as "business records
management." Paper records are defined 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
(i) "off-site data protection" and (ii) "digital archiving services."
Paper Records
Paper 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 paper records are the principal focus of the RIMS
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 paper records market is medical
records. These are active and semi-active records that are often stored off-site
with and serviced by a RIMS 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 are 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. We refer to these
services as off-site data protection.
In addition to the physical rotation and storage of backup data, we have
introduced 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 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
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computer data, answering customers' needs to protect critical business data,
which is often orphaned and unprotected on employee laptops and desktop personal
computers.
There is a growing need for better ways of archiving data 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, 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 early
market adoption of the service, 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 paper and electronic records will
continue to increase for a number of reasons, including: (i) the rapid growth of
inexpensive document producing technologies such as facsimile, desktop
publishing software and desktop printing; (ii) the continued proliferation of
data processing technologies such as personal computers and networks;
(iii) regulatory requirements; (iv) concerns over possible future litigation and
the resulting increases in volume and holding periods of documentation; (v) the
high cost of reviewing records and deciding whether to retain or destroy them;
(vi) the failure of many entities to adopt or follow policies on records
destruction; and (vii) 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 an emerging
need for efficient, cost-effective, high quality solutions for digital archiving
and the management of electronic documents.
Consolidation of a Highly Fragmented Industry
There was significant consolidation within the highly fragmented RIMS
industry from 1995 to 2000. Most RIMS 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 will
continue because of the industry's capital requirements for growth,
opportunities for large RIMS 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 paper 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 storage for records and information is the
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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 business, core
services consist primarily of the scheduled collection and handling of sensitive
records. In 2002, our storage and core service revenues represented
approximately 85% of our total revenues. In addition to our core services, we
offer a wide array of complementary products and services such as performing
special project work, selling RIMS-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 our business
records and off-site data protection businesses includes both core and
complementary components.
Our various operating segments offer the products and services discussed
below. In general, our business records management segment offers records
management, healthcare information services, vital records services, and service
and courier operations in the United States and Canada. Our off-site data
protection segment offers data backup and recovery disaster services, vital
records services, service and courier operations, and intellectual property
protection services in the United States. Our international segment offers
elements of all our product and services lines outside the United States and
Canada. Our corporate and other segment includes our secure shredding,
fulfillment, consulting and digital archiving services. Some of our
complementary services and products are offered within all of our segments. The
amount of revenues derived from our business records management, off-site data
protection, international, and corporate and other operating segments and other
relevant data for fiscal years 2000, 2001 and 2002 are set forth in Note 12 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. As a central component of our integration plan
for the Pierce Leahy transaction, we developed the SafekeeperPLUS system and
carried out a city-by-city conversion program that was completed in 2002.
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.
Off-Site Data Protection
Off-site 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 proprietery 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. In addition, we
have introduced electronic vaulting services as part of our off-site data
protection services product line. Our electronic vaulting service automatically
backs up personal computer and server data over the Internet and stores it off
site in one of our secure data centers, always available in the event of a
disaster.
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.
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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, software source code 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 functions. 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 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 MediaLink™ and SecureBase™ systems manage the process
for the off-site data protection services.
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,
2002, we were utilizing a fleet of more than 2,100 owned or leased vehicles.
Secure Shredding
Secure shredding is a natural extension of our records management
services, completing the lifecycle of a record. The service involves the
shredding of sensitive documents for corporate customers that, in many cases,
also use our services for management of less sensitive archival records. We
believe that customers are motivated by increased privacy regulation and the
desire to protect their proprietary trade secrets. These services typically
include the scheduled pick-up of loose office records which customers accumulate
in specially designed secure containers we provide. Complementary to our
shredding operations is the sale of the resultant waste paper to third-party
recyclers. We currently perform these services in 40 cities and seek to expand
our presence in this business through acquisitions and internal start-ups that
leverage our existing records management infrastructure.
Intellectual Property Protection Services
We provide intellectual property protection services through our wholly
owned subsidiary, DSI Technology Escrow Services, Inc. DSI specializes in third
party technology escrow services that protect intellectual property assets such
as software source code. In addition, DSI assists in securing intellectual
property as collateral for lending, investments and other joint ventures, in
managing domain name registrations and transfers, and provides expertise and
assistance to brokers and dealers in complying with electronic records
regulations of the Securities and Exchange Commission, the Commission or SEC.
5
Digital Archiving Services
Our digital archiving services focus on archiving digital information
with long-term preservation requirements. These services represent the digital
analogy to our paper 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 paper records. Typical digital records include
e-mail, e-statements, images, electronic documents retained for legal or
compliance purposes and other data documenting business transactions.
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.
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: (i) storage capacity and the
preservation of data; (ii) access to and control over the data in a secure
environment; and (iii) the need to retain electronic records due to regulatory
compliance or for litigation support. Our digital archiving service is
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 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.
We provide professional consulting services to customers, enabling them
to develop and implement comprehensive records and information management
programs. Our consulting business draws on our experience in RIMS to analyze the
practices of companies and assist them in creating more effective programs of
records and information management. Our consultants work with these customers to
develop policies for document review, analysis and evaluation and for scheduling
of document retention and destruction.
We also sell: (i) a full line of specially designed corrugated
cardboard, metal and plastic storage containers; (ii) magnetic media products
including computer tapes, cartridges and drives, tape cleaners and supplies and
CDs; and (iii) computer room equipment and supplies such as racking systems,
furniture, bar code scanners and printers.
6
Financial Characteristics of Our Business
Our financial model is based on the recurring nature of our revenues.
The historical predictability of this revenue stream and the resulting EBITDA1
(earnings from continuing operations before interest, taxes, depreciation and
amortization) allow us to operate with a high degree of financial leverage. Our
primary financial goal has always been, and continues to be, to increase
consolidated EBITDA in relation to capital invested, even as our focus has
shifted from growth through acquisitions to internal revenue growth. EBITDA is a
source of funds for investment in continued growth and for servicing
indebtedness. Our business has the following financial characteristics:
º 1
º We believe that EBITDA (earnings before interest, taxes, depreciation and
amortization) is useful to investors because it is an important financial
measure used in evaluating our performance, as EBITDA is an internally
generated source of funds for investment in continued growth and for
servicing indebtedness. Externally, holders of our publicly issued debt use
EBITDA and EBITDA-based calculations as important criteria for evaluating
us and, as a result, all of our bond indentures and covenants include
EBITDA and EBITDA-based calculations as primary measures of financial
performance. However, EBITDA is not a measurement of financial performance
under accounting principles generally accepted in the United States and you
should not consider EBITDA to be a substitute for operating or net income
(as determined in accordance with accounting principles generally accepted
in the United States, or GAAP) as indicators of our performance or for cash
flow from operations (as determined in accordance with GAAP) as a measure
of our liquidity. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for discussions of other
measures of performance determined in accordance with GAAP and our sources
and applications of cash flow.
º •
º Recurring Revenues. We derive a majority of our consolidated revenues
from fixed periodic, usually monthly, fees charged to customers based
on the volume of records stored. Our revenues from these fixed
periodic storage fees have grown for 56 consecutive quarters. Once a
customer places paper records in storage with us and until those
records are destroyed or permanently removed, for which we typically
receive a service fee, we receive recurring payments for storage fees
without incurring additional labor or marketing expenses or
significant capital costs. Similarly, contracts for the storage of
electronic backup media consist primarily of fixed monthly payments.
In each of the last five years, storage revenues, which are stable and
recurring, have accounted for approximately 58% of our total revenues.
This stable and growing storage base also provides the foundation for
increases in revenues and EBITDA.
º •
º Historically Non-Cyclical Business. We have not experienced any
significant reductions of our storage business as a result of past
general economic downturns, although we can give no assurance that
this would be the case in the future. During this most recent economic
slowdown some customers delayed or postponed expenditures for certain
complementary records management projects. Additionally, the rate at
which customers added new cartons to their inventory with us slowed
somewhat, which may be a result of current economic conditions. We
believe that companies that have outsourced RIMS programs are less
likely during economic downturns to incur the move-out costs and other
expenses associated with switching vendors or moving their RIMS
programs in-house. However, some customers may cancel or delay certain
non-recurring or discretionary expenditures as a means of reducing
their short-term costs.
º •
º Inherent Growth from Existing Paper Records Customers. Our paper
records customers have on average generated additional Cartons2 at a
faster rate than stored Cartons have been destroyed or permanently
removed. From January 1, 1998 through December 31, 2001, our annual
Net Carton Growth From Existing Customers3
ranged from approximately 4% to approximately 6%. For the twelve
months ended December 31, 2002, Net Carton Growth from Existing
Customers was between 3% to 4%. We believe the consistent growth of
our paper storage revenues is the result of a number of factors,
including: (i) the trend toward increased records retention;
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(ii) customer satisfaction with our services; and (iii) the costs and
inconvenience of moving storage operations in-house or to another
provider of RIMS.
º 2
º We define "Carton" as a measurement of volume equal to a single standard
storage carton, approximately 1.2 cubic feet.
º 3
º We define "Net Carton Growth From Existing Customers" as the increase in
net Cartons attributable to existing customers without giving effect to the
loss of approximately 1.0 million Cartons in fires attributed to arson in
March 1997 in two of our facilities in South Brunswick Township, New
Jersey. See Item 3. "Legal Proceedings". This calculation also excludes our
Latin American and European operations as well as a portion of our medical
records operations.
º •
º Diversified and Stable Customer Base. As of December 31, 2002, we had
over 150,000 customer accounts in a variety of industries. We
currently provide services to more than half of the Fortune 500 and
numerous commercial, legal, banking, healthcare, accounting,
insurance, entertainment and government organizations. No customer
accounted for more than 2% of our consolidated revenues for the year
ended December 31, 2002. From January 1, 1998 through December 31,
2002, average annual permanent removals of Cartons, not including
destructions, represented approximately 3% of total Cartons stored.
º •
º Capital Expenditures Related Primarily to Growth. Our RIMS business
requires limited annual capital expenditures made in order to maintain
our current revenue stream. From January 1, 1998 through December 31,
2002, over 85% of our aggregate capital expenditures were
growth-related investments, primarily in storage systems, which
include racking, building improvements and leasehold improvements,
computer systems hardware and software, and new buildings. These
growth-related capital expenditures are primarily discretionary and
create additional capacity for increases in revenues and EBITDA.
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Growth Strategy
Our objective is to maintain our position as the leader in RIMS.
Domestically, we seek to be one of the largest RIMS providers in each of our
geographic markets. Internationally, our objectives are to continue to
capitalize on our expertise in the RIMS industry and to make additional
acquisitions and investments in selected international markets. Our primary
avenues of growth are: (i) increased business with existing customers;
(ii) addition of new customers; (iii) the introduction of new products and
services such as secure shredding, electronic vaulting and digital archiving;
and (iv) selective acquisitions in new and existing markets.
Growth from Existing Customers
Our existing customers storing paper records contribute to storage and
storage-related service revenues growth because on average they generate
additional Cartons at a faster rate than old Cartons are destroyed or
permanently removed. In order to maximize growth opportunities from existing
customers, we seek to maintain high levels of customer retention by providing
premium customer service through our local management staff.
Through our local account management staff, we leverage existing
business relationships with our customers by selling complementary services and
products. Services include records tracking, indexing, customized reporting,
vital records management and consulting services.
Addition of New Customers
Our sales force is dedicated to two primary objectives: establishing new
customer account relationships and expanding new and existing customer
relationships by offering a wide array of complementary services and products.
In order to accomplish these objectives, our sales force draws on our national
marketing organization and senior management. As a result of acquisitions and
our decision to recruit additional qualified sales professionals, we have
increased the size of our sales force to approximately 450 such professionals as
of December 31, 2002 from approximately 390 as of December 31, 2001.
Introduction of New Products and Services
We continue to expand our menu of products and services. We have
significantly increased our presence in the secure shredding industry and have
developed new electronic vaulting and digital archiving services. These new
products and services allow us to further penetrate our existing customer
accounts and attract new customers in previously untapped markets.
Growth through Domestic Acquisitions
Our domestic acquisition strategy includes expanding geographically, as
necessary, and increasing our presence and scale within existing markets through
"fold-in" acquisitions. We have a successful record of acquiring and integrating
RIMS companies. Between January 1, 1996 and December 31, 2000, we completed 66
domestic acquisitions for total consideration of approximately $2 billion.
During 2001 and 2002, we completed 18 domestic acquisitions for total
consideration of $78.6 million. We intend to continue our domestic acquisition
program. However, given the small number of large acquisition prospects and our
increased revenue base, future acquisitions are expected to be less significant
to overall domestic revenue growth than they were prior to 2001.
International Growth Strategy
We also intend to continue to make acquisitions and investments in RIMS
businesses outside the United States. We have acquired and invested in, and seek
to acquire and invest in, RIMS companies
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in countries, and, more specifically, markets within such countries, where we
believe there is sufficient demand from existing multinational customers or the
potential for growth. Since beginning our international expansion program in
January 1999, directly and through joint ventures, we have expanded our
operations into Canada, Europe and Latin America. Through December 31, 2000, we
completed 12 international acquisitions for total consideration of
$119.2 million. During 2001 and 2002, we completed eight international
acquisitions for total consideration of $41.7 million. These transactions have
taken, and may continue to take, the form of acquisitions of the entire business
or controlling or minority investments, with a long-term goal of full ownership.
In addition to the criteria we use to evaluate domestic acquisition candidates,
we also evaluate the presence in the potential market of our existing clients as
well as the risks uniquely associated with an international investment,
including those risks described below.
The experience, depth and strength of local management are particularly
important in our international acquisition strategy. As a result, we have formed
joint ventures with, or acquired significant interests in, target businesses
throughout Europe and Latin America. We have a 50.1% controlling interest in
each of our Iron Mountain Europe Limited, Iron Mountain South America, Ltd. and
Sistemas de Archivo Corporativo (a Mexican limited liability company)
subsidiaries. Iron Mountain South America has in some cases bought controlling,
yet not full, ownership in local businesses in order to enhance our local market
expertise. We believe this strategy, rather than an outright acquisition, may,
in certain markets, better position us to expand the existing business, although
our long-term goal is to acquire full ownership of each such business. The local
partner benefits from our expertise in the RIMS industry, our access to capital
and our technology, and we benefit from our local partner's knowledge of the
market, relationships with customers and their presence in the community.
Our international investments are subject to risks and uncertainties
relating to the indigenous political, social, regulatory, tax and economic
structures of other countries, as well as fluctuations in currency valuation,
exchange controls, expropriation and governmental policies limiting returns to
foreign investors. At this time, there can be no assurance as to whether any
international investment will be successful in achieving our objectives.
The amount of our revenues derived from international operations and
other relevant financial data for fiscal years 2000, 2001 and 2002 are set forth
in Note 12 to Notes to Consolidated Financial Statements. For the year ended
December 31, 2002, we derived approximately 14% of our total revenues from
outside of the United States.
Customers
Our customer base is diversified in terms of revenues and industry
concentration. We track customer accounts based on invoices. Accordingly,
depending upon how many invoices have been arranged at the request of a
customer, one organization may represent multiple customer accounts. As of
December 31, 2002, we had over 150,000 customer accounts in a variety of
industries. We currently provide services to more than half of the Fortune 500
and numerous commercial, legal, banking, healthcare, accounting, insurance,
entertainment and government organizations. No customer accounted for more than
2% of our consolidated revenues for the year ended December 31, 2002.
Competition
We compete with our current and potential customers' internal RIMS
capabilities. We can provide no assurance that these organizations will begin or
continue to use an outside company such as Iron Mountain for their future
records and information management services.
We compete with multiple RIMS providers in all geographic areas where we
operate. We believe that competition for customers is based on price, reputation
for reliability, quality of service and scope and scale of technology and that
we generally compete effectively based on these factors.
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We also compete with other RIMS providers for companies to acquire. Some
of our competitors may possess substantial financial and other resources. If any
such competitor were to devote additional resources to the RIMS business and
such acquisition candidates or focus their strategy on our markets, our results
of operations could be adversely affected.
Alternative Technologies
We derive most of our revenues from the storage of paper documents and
storage-related services. This storage requires significant physical space.
Alternative storage technologies exist, many of which require significantly less
space than paper. These technologies include computer media, microform, CD-ROM
and optical disk. To date, none of these technologies has replaced paper as the
principal means for storing information. However, we can provide no assurance
that our customers will continue to store most of their records in paper format.
A significant shift by our customers to storage of data through non-paper based
technologies, whether now existing or developed in the future, could adversely
affect our business. We continue to invest in additional services such as
electronic vaulting and digital archiving, designed to address our customers'
need for efficient, cost-effective, high quality solutions for electronic
records and information management.
Employees
As of December 31, 2002, we employed approximately 8,800 full-time
employees in the United States. Directly and through majority-owned joint
ventures, as of December 31, 2002, we employed approximately 3,000 full-time
employees outside of the United States. A small percentage of our employees are
represented by unions. These unionized employees are located in California and
one city in Canada. As of December 31, 2002, the aggregate number of unionized
employees was approximately 350.
All domestic non-union employees are eligible to participate in our
benefit programs, which include medical, dental, life, short and long-term
disability, retirement/401(k) and accidental death and dismemberment plans.
Unionized employees receive these types of benefits through their unions. In
addition to base compensation and other usual benefits, all full-time domestic
employees participate in some form of incentive-based compensation program that
provides payments based on profits, collections or attainment of specified
objectives for the unit in which they work. International employees participate
in separate benefit and incentive-based compensation programs. Management
believes that we have good relationships with our employees and unions.
Insurance
For strategic risk transfer purposes, we maintain a comprehensive
insurance program with insurers that we believe to be reputable and that have
adequate market security in amounts that we believe to be appropriate. Property
insurance is purchased on an all-risk basis, including flood, earthquake and
terrorism, subject to certain policy conditions, sublimits and deductibles, and
inclusive of the replacement cost of real and personal property, including
leasehold improvements, business income loss and extra expense. Separate
policies for insurer defined Critical Earthquake Zone exposures are maintained
at what we believe to be appropriate limits and deductibles for that exposure.
Included among other types of insurance that we carry are: workers compensation,
general liability, umbrella, automobile, and directors and officers liability
policies, subject to certain policy conditions, sublimits and deductibles. In
2002, we established a wholly owned Vermont domiciled captive insurance company
as a subsidiary; through the subsidiary we retain and reinsure a portion of our
property loss exposure.
Our standard form of storage contract sets forth an agreed maximum
valuation for each carton or other storage unit held by us, which serves as a
limitation of liability for loss or damage, as permitted under the Uniform
Commercial Code. In contracts containing such limits, such values are nominal,
and
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we believe that in typical circumstances our liability would be so limited in
the event of loss or damage to stored items for which we may be held liable.
However, some of our agreements with large volume accounts, some of the
contracts assumed in our acquisitions and some of our contracts outside the RIMS
businesses contain no such limits or contain higher limits or supplemental
insurance arrangements. See "Item 3. Legal Proceedings" for a description of
claims by particular customers seeking to rescind their contracts, including
limitations on liability, as a result of the fires experienced at our South
Brunswick Township, New Jersey facilities in 1997.
Environmental Matters
Some of our currently and formerly owned or operated properties were
previously used by entities other than us for industrial or other purposes that
involved the use or storage of hazardous substances or petroleum products or may
have involved the generation of hazardous wastes. In some instances these
properties included the operation of underground storage tanks or the presence
of asbestos-containing materials. We have undertaken remediation activities at
some of our properties. Although we regularly conduct limited environmental
reviews of real property that we intend to purchase, we have not undertaken an
in-depth environmental review of all of our owned and operated properties. Under
various federal, state and local environmental laws, we may be potentially
liable for environmental compliance and remediation costs to address
contamination, if any, located at owned and operated properties as well as
damages arising from such contamination. Environmental conditions for which we
might be liable may also exist at properties that we may acquire in the future.
In addition, future regulatory action and environmental laws may impose costs
for environmental compliance that do not exist today.
We currently transfer a portion of our risk of financial loss due to
currently undetected environmental matters by purchasing a pollution liability
insurance policy, which covers all owned and leased locations. Coverage is
provided for both liability and remediation costs.
Internet Website
Our Internet address is www.ironmountain.com. Under the "Investor
Relations" category on our Internet website, we make available through a
hyperlink to a third party SEC website, free of charge, our Annual Report on
Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K
and amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") as soon as
reasonably practicable after such forms are electronically filed or furnished to
the SEC. We are not including the information contained on or available through
our website as a part of, or incorporating such information by reference into,
this Annual Report.
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