UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended March 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period from __________ to __________
Commission file number 0-27584
IRON MOUNTAIN INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-3107342
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
745 Atlantic Avenue, Boston, MA 02111
(Address of Principal Executive Offices, Including Zip Code)
(617) 357-4455
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of May 8, 1998, there were 19,432,725 shares of the Registrant's Common
Stock, par value $0.01 per share, and no shares of the Registrant's Nonvoting
Common Stock, par value $0.01 per share, outstanding.
<PAGE>
IRON MOUNTAIN INCORPORATED
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets at March 31, 1998 and
December 31, 1997 (Unaudited) 3
Condensed Consolidated Statements of Operations for the Three Months Ended
March 31, 1998 and 1997 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1998 and 1997 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6-9
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of
Operations 10-13
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 14
Item 5- Other Information 15
Item 6 - Exhibits and Reports on Form 8-K 15
Signature 16
</TABLE>
<PAGE>
IRON MOUNTAIN INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------------- -------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 2,312 $ 24,510
Accounts Receivable (less allowances of $2,738
and $1,929 respectively) 64,658 40,545
Receivable from Insurance Company 5,891 5,410
Deferred Income Taxes 9,879 5,896
Prepaid Expenses and Other 6,391 5,566
------------ ------------
Total Current Assets 89,131 81,927
PROPERTY, PLANT AND EQUIPMENT:
Property, Plant and Equipment 274,251 245,174
Less: Accumulated Depreciation (67,184) (61,276)
------------ -------------
Property, Plant and Equipment, net 207,067 183,898
OTHER ASSETS:
Goodwill, net 480,095 340,852
Customer Acquisition Costs, net 7,935 7,319
Deferred Financing Costs, net 14,315 14,429
Other 7,475 8,361
------------ ------------
Total Other Assets 509,820 370,961
------------ ------------
Total Assets $ 806,018 $ 636,786
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current Portion of Long-term Debt $ 956 $ 520
Note Payable -- 3,000
Accounts Payable 12,231 11,022
Accrued Expenses 38,153 28,131
Deferred Income 18,919 11,931
Other 898 1,149
------------ ------------
Total Current Liabilities 71,157 55,753
LONG-TERM DEBT, NET OF CURRENT PORTION 522,198 424,498
OTHER LONG-TERM LIABILITIES 5,319 5,336
DEFERRED RENT 8,571 8,202
DEFERRED INCOME TAXES 5,224 5,264
STOCKHOLDERS' EQUITY:
Common Stock 150 135
Additional Paid-in Capital 208,086 151,971
Accumulated Deficit (14,687) (14,373)
------------- -------------
Total Stockholders' Equity 193,549 137,733
------------- -------------
Total Liabilities and Stockholders' Equity $ 806,018 $ 636,786
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
IRON MOUNTAIN INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------------
1998 1997
------------------ -----------------
<S> <C> <C>
REVENUES:
Storage $ 52,948 $ 25,823
Service and Storage Material Sales 46,536 16,331
----------- ----------
Total Revenues 99,484 42,154
OPERATING EXPENSES:
Cost of Sales (Excluding Depreciation) 52,610 21,764
Selling, General and Administrative 24,418 10,207
Depreciation and Amortization 11,264 5,722
----------- ----------
Total Operating Expenses 88,292 37,693
----------- ----------
OPERATING INCOME 11,192 4,461
INTEREST EXPENSE 12,332 5,140
----------- ----------
Loss Before Credit for Income Taxes
(1,140) (679)
CREDIT FOR INCOME TAXES
(826) (163)
----------- ----------
Net Loss $ (314) $ (516)
=========== ==========
NET LOSS PER COMMON SHARE- BASIC AND DILUTED $ (0.02) $ (0.05)
=========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 14,846 10,137
=========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
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IRON MOUNTAIN INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------------
1998 1997
----------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (314) $ (516)
Adjustments to Reconcile Net Loss to Cash
Flows Provided by Operating Activities:
Depreciation and Amortization 11,264 5,722
Amortization of Deferred Financing Costs 450 223
Provision for Doubtful Accounts 445 62
Deferred Income Taxes (1,005) (152)
Changes in Assets and Liabilities (Exclusive of Acquisitions):
Accounts Receivable (6,110) (1,401)
Receivable from Insurance Company (481) --
Prepaid Expenses and Other Current Assets 587 (989)
Other Assets 1,341 224
Accounts Payable (2,848) (570)
Accrued Expenses 2,422 2,767
Deferred Income 3,016 34
Other Current Liabilities (251) 143
Deferred Rent 369 487
Other Long-term Liabilities (33) (623)
------------- -----------
Cash Flows Provided by Operating Activities 8,852 5,411
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (10,217) (5,426)
Additions to Customer Acquisition Costs (778) (214)
Cash Paid for Acquisitions (112,522) (18,016)
------------- -----------
Cash Flows Used in Investing Activities (123,517) (23,656)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Debt (9,465) (742)
Net Proceeds from Borrowings 101,700 17,400
Debt Financing Costs (336) (165)
Proceeds from Exercise of Stock Options 876 66
Stock Issuance Costs (308) --
------------- -----------
Cash Flows Provided by Financing Activities 92,467 16,559
------------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (22,198) (1,686)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 24,510 3,453
------------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,312 $ 1,767
============= ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands except Per Share Data)
(Unaudited)
(1) GENERAL
The interim condensed consolidated financial statements presented herein have
been prepared by Iron Mountain Incorporated ("Iron Mountain" or the "Company")
without audit and, in the opinion of management, reflect all adjustments of a
normal recurring nature necessary for a fair presentation. Interim results are
not necessarily indicative of results for a full year.
The condensed consolidated balance sheet presented as of December 31, 1997, has
been derived from the consolidated financial statements that have been audited
by the Company's independent public accountants. The unaudited condensed
consolidated financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in the annual financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to those rules and regulations, but the Company believes that
the disclosures are adequate to make the information presented not misleading.
The condensed consolidated financial statements and notes included herein should
be read in conjunction with the consolidated financial statements and notes
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1997.
(2) ACQUISITIONS
During the three months ended March 31, 1998, the Company purchased
substantially all of the assets, and assumed certain liabilities, of four
records management businesses and, through a merger, acquired all of the
outstanding capital stock of Arcus Group, Inc. ("Arcus"), a leading provider of
off-site data security and a provider of information technology staffing
services (collectively, the "1998 Acquisitions"). Each of the 1998 Acquisitions
and all 18 of the records management businesses acquired during 1997 (the "1997
Acquisitions"), were accounted for using the purchase method of accounting, and
accordingly, the results of operations for each acquisition have been included
in the consolidated results of the Company from their respective acquisition
dates. In connection with certain 1998 and 1997 acquisitions, related real
estate was also purchased. The aggregate purchase price for the 1998
Acquisitions exceeded the underlying fair value of the net assets acquired by
$143,788 which has been assigned to goodwill and is being amortized over 25 to
30 years. The purchase price allocations are preliminary and subject to
adjustment. To finance the 1998 Acquisitions, the Company issued 1,438 shares of
its Common Stock, par value $.01 per share (the "Common Stock"), issued options
to purchase approximately 600 shares of Common Stock and paid $112,522 in cash.
The cash portion of the purchase price was funded with a portion of the net
proceeds from the sale of the 1997 Notes, as defined herein, and borrowings
under the Company's revolving credit facility.
6
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands except Per Share Data)
(Unaudited)
(continued)
A summary of the total consideration and the preliminary allocation of the
aggregate purchase price of the 1998 acquisitions, as of the acquisition dates,
is as follows:
<TABLE>
<S> <C>
Cash Paid $112,522
Fair Value of Common Stock Issued 39,398
Fair Value of Options Issued 15,654
--------
Total Consideration 167,574
--------
Fair Value of Assets Acquired During 1998 42,826
Liabilities Assumed (19,040)
--------
Fair Value of Net Assets 23,786
--------
Acquired
Recorded Goodwill $143,788
=========
</TABLE>
The following unaudited pro forma combined information shows the results of the
Company's operations for the three months ended March 31, 1998 and the year
ended December 31, 1997 as though each of the 1998 and 1997 acquisitions had
occurred as of the beginning of the respective period:
<TABLE>
<CAPTION>
Three Months Year
Ended Ended
March 31, December 31,
1998 1997
------------------ ---------------------
<S> <C> <C>
Revenues $ 99,660 $ 365,762
Net Loss (325) (5,538)
Net Loss Per Share- Basic and Diluted (0.02) (0.30)
</TABLE>
The pro forma results have been prepared for comparative purposes only and are
not necessarily indicative of the actual results of operations had the
acquisitions taken place as of the beginning of each period or the results that
may occur in the future. Furthermore, the pro forma results do not give effect
to all cost savings or incremental costs which may occur as a result of the
integration and consolidation of the businesses. Certain 1997 Acquisitions,
representing annual revenues of approximately $2,800, were not included in the
pro forma results, as their effect was immaterial.
7
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands except Per Share Data)
(Unaudited)
(continued)
(3) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------------- --------------
<S> <C> <C>
8-3/4% Senior Subordinated Notes (the "1997 Notes") $ 249,535 $ 249,525
10-1/8% Senior Subordinated Notes (the "1996 Notes") 165,000 165,000
Revolving Credit Facility 94,600 --
Real Estate Mortgages 10,217 10,312
Other 3,802 181
---------- ----------
Total Long-term Debt 523,154 425,018
Less: Current Portion (956) (520)
---------- ----------
Long-term Debt, Net of Current Portion $ 522,198 $ 424,498
========== ==========
</TABLE>
The 1996 and 1997 Notes are fully and unconditionally guaranteed, on a joint and
several basis, on a senior subordinated basis, by all of the Company's direct
and indirect subsidiaries (the "Subsidiary Guarantors"). The Company is a
holding company, substantially all of the assets of which are the Subsidiary
Guarantors, and substantially all of the operations of which are conducted by
the Subsidiary Guarantors. Accordingly, the aggregate assets, liablities,
earnings and equity of the Subsidiary Guarantors are substantially equivalent to
the assets, liabilities, earnings and equity of the Company on a consolidated
basis. Management of the Company believes that separate financial statements of,
and other disclosures with respect to, the Subsidiary Guarantors are not
meaningful or material to investors.
(4) EARNINGS PER SHARE
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 128,
basic net loss per common share is calculated by dividing net loss by the
weighted average number of common shares outstanding. The calculation of diluted
net loss per share is consistent with that of basic net loss per share but gives
effect to all dilutive potential common shares (that is, securities such as
options, warrants or convertible securities) that were outstanding during the
period, unless the effect is antidilutive. For the quarters ended March 31, 1998
and 1997, 1,587 and 777 potential common shares, respectively, have been
excluded from the calculation of diluted net loss per share, as their effects
are antidilutive.
(5) ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The new
standard establishes new guidelines regarding the disclosure requirements for
business segments. The Company is required to adopt the new standard in its 1998
year-end financial statements.
8
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands except Per Share Data)
(Unaudited)
(continued)
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). 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. The Company is
presently studying the effect of the new pronouncement and, as required, expects
to adopt SOP 98-1 prospectively beginning January 1, 1999. Simultaneously, the
Company is also reviewing the estimated useful lives of its software for
internal use and may revise its lives in connection with the adoption of SOP
98-1.
(6) SUBSEQUENT EVENTS
On April 3, 1998 the Company issued and sold an aggregate of 4,025 shares
(including 525 shares to cover over-allotments) of its Common Stock in an
underwritten public offering at a price to the public of $34.75 per share. Net
proceeds to the Company after deducting underwriters' discounts and commissions
were $132.9 million and were used to repay outstanding bank debt, to fund the
cash portion of the purchase price of InterMation, Inc. ("InterMation") and for
general corporate purposes.
On April 6, 1998, the Company acquired InterMation. The Company paid aggregate
consideration equal to $27.3 million, including approximately 326 shares of
Common Stock valued at $12.0 million, and the balance in cash and the assumption
of debt. InterMation is believed to be the leading provider of records
management services in the states of Oregon and Washington.
9
<PAGE>
IRON MOUNTAIN INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition and
results of operations for the three months ended March 31, 1998 and 1997 should
be read in conjunction with the consolidated financial statements and footnotes
for the three months ended March 31, 1998 included herein, and the year ended
December 31, 1997, included in the Company's Annual Report on Form 10-K.
Overview
On January 6, 1998, the Company completed the acquisition of Arcus, the
Company's largest acquisition to date, for total consideration of $153.8
million. The purchase price included approximately 1.4 million shares of the
Company's Common Stock with a fair value of $39.4 million, options to purchase
approximately 0.6 million shares of its Common Stock, valued at $15.7 million,
and the balance in cash and assumed debt. Management believes that Arcus is the
largest off-site data security services provider in the United States.
Arcus's data security services consist primarily of storage and off-site
rotation of back-up copies of magnetic media, as well as disaster recovery
support and testing, media library moves and product sales. In addition, Arcus
places information technology professionals with customers on either a
permanent, temporary or contract basis through its information technology
staffing business ("IT Staffing"). Arcus's revenues for the year ended December
31, 1997 totaled $95.3 million, of which, $35.0 million was generated by its IT
Staffing business. For the first quarter of 1998, Arcus reported total revenues
of $26.5 million, including $10.4 million from its IT Staffing business. All of
the revenues from the IT Staffing business are included in service and storage
material sales within the accompanying consolidated statements of operations.
During the first quarter of 1998, the Company acquired four additional records
management businesses for total consideration of $12.8 million. These four
acquisitions reported $6.1 million in revenues for the year ended December 31,
1997. The first quarter of 1998 was also the first quarter to fully reflect the
operations of HIMSCORP, Inc. (doing business under the name Record Masters),
which the Company acquired on November 1, 1997. During the first quarter of
1998, Record Masters generated $8.3 million in total revenues.
As a result of these first quarter acquisitions, Iron Mountain commenced
operations in six new markets (including the United Kingdom) and bolstered its
presence in twenty-two existing markets. As of March 31, 1998, the Company
operated 223 records centers in 53 markets nationwide and one in the United
Kingdom. The Company serves more than 50,000 customer accounts, including more
than half of the Fortune 500 Companies.
The Company's consolidated revenues increased $57.3 million, or 136.0%, to $99.5
million for the first quarter of 1998 from $42.2 million for the first quarter
of 1997. Consolidated revenues for the first quarter of 1998 included $89.1
million attributable to the Company's records and information management
services ("RIMS") business while the remaining $10.4 million was generated by
the Company's newly acquired IT Staffing business. Internal revenue growth,
adjusted for the effect of the South Brunswick Township, New Jersey fires in
March 1997, was 13.3%.
Results of Operations
Consolidated storage revenues increased $27.1 million, or 105.0%, to $52.9
million for the first quarter of 1998, from $25.8 million for the first quarter
of 1997. Internal storage revenue growth, on an adjusted basis, was 11.6%. The
internal storage revenue growth resulted primarily from net increases in records
and other
10
<PAGE>
IRON MOUNTAIN INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
media stored by existing customers and from sales to new customers.
The RIMS business accounted for all $52.9 million and $25.8 million of storage
revenues for the first quarter of 1998 and 1997, respectively.
Consolidated service and storage material sales revenues increased $30.2
million, or 185.0%, to $46.5 for the first quarter of 1998 from $16.3 million
for the first quarter of 1997. Internal service and storage material sales
revenue growth, on an adjusted basis, was 16.1%. The internal revenue growth
resulted from increases in service and storage material sales to existing
customers and the addition of new customer accounts. Included within the $30.2
million increase is $10.4 million attributable to the IT Staffing business, a
new business entered into by the Company as a result of the acquisition of
Arcus. Service and storage material sales revenues for the Company's RIMS
business increased $19.8 million, or 121.5%, to $36.1 million. The greater
percentage increase in service and storage material sales revenues, as compared
to storage revenues, for the first quarter of 1998 over the same period in 1997,
is primarily attributable to certain acquisitions that have a higher component
of service and storage material sales revenues, compared to storage revenues,
than the rest of the Company.
For the reasons discussed above, total consolidated revenues increased $57.3
million, or 136.0%, to $99.5 million for the first quarter of 1998 from $42.2
million for the same period last year. Total revenues for the RIMS business
increased $46.9 million, or 111.3%, to $89.1 million for the first quarter of
1998 from $42.2 million for the first quarter of 1997. Internal revenue growth,
on an adjusted basis, was 13.3%.
Consolidated cost of sales (excluding depreciation) increased $30.8 million, or
141.7%, to $52.6 million (52.9% of consolidated revenues) for the first quarter
of 1998 from $21.8 million (51.6% of consolidated revenues) for the first
quarter of 1997. The dollar increase was primarily attributable to the increase
in records and other media stored, expenses related to certain facility
relocations and costs associated with the Company's new IT Staffing business.
The increase as a percentage of consolidated revenues was primarily attributable
to the IT Staffing business having a lower gross margin than the rest of the
Company. Cost of sales (excluding depreciation) for the Company's RIMS business
increased $23.1 million, or 106.4%, to $44.9 million (50.4% of RIMS revenues)
for the first quarter of 1998 from $21.8 million (51.6% of RIMS revenues) for
the same period last year. The decrease as a percentage of revenues was
primarily attributable to the acquisition of a software escrow business,
acquired in the third quarter of 1997, having a higher gross margin than the
rest of the Company. The IT Staffing business reported cost of sales (excluding
depreciation) of $7.7 million (73.8% of IT Staffing revenues).
Consolidated selling, general and administrative expenses increased $14.2
million, or 139.2%, to $24.4 million (24.5% of consolidated revenues) for the
first quarter of 1998 from $10.2 million (24.2% of consolidated revenues) for
the first quarter of 1997. The dollar increase was primarily attributable to:
(i) the addition of overhead attributable to the Arcus acquisition; (ii)
additional salespeople, primarily related to the acquisitions of Arcus and
Safesite Records Management Corporation and the decision by the Company to
significantly increase its selling resources; and (iii) increased personnel,
office and overhead costs to support the Company's growth. Selling, general and
administrative expenses for the RIMS business increased $12.2 million, or
119.1%, to $22.4 million (25.1% of RIMS revenues) for the first quarter of 1998
from $10.2 million (24.2% of RIMS revenues) for the first quarter of 1997. The
IT Staffing business reported selling, general and administrative expenses of
$2.0 million (19.7% of IT Staffing revenues).
Consolidated depreciation and amortization expense increased $5.5 million, or
96.9%, to $11.2 million (11.3% of consolidated revenues) for the first quarter
of 1998 from $5.7 million (13.6% of consolidated revenues) for the first quarter
of 1997. The dollar increase was primarily attributable to the additional
11
<PAGE>
IRON MOUNTAIN INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
depreciation and amortization expense related to the aforementioned
acquisitions, and capital expenditures including racking systems, information
Depreciation and amortization expense for the RIMS business increased $5.3
million, or 93.3%, to $11.0 million (12.4% of RIMS revenues) for the first
quarter of 1998 from $5.7 million (13.6% of RIMS revenues) for the first quarter
of 1997. The IT Staffing business reported depreciation and amortization
expenses of $0.2 million (2.0% of IT Staffing revenues).
As a result of the foregoing factors, consolidated operating income increased
$6.7 million, or 150.9%, to $11.2 million (11.3% of consolidated revenues) for
the first quarter of 1998 from $4.5 million (10.6% of consolidated revenues) for
the first quarter of 1997.
Consolidated interest expense increased $7.2 million, or 139.9%, to $12.3
million for the first quarter of 1998 from $5.1 million for the first quarter of
1997. The increase was primarily attributable to increased indebtedness related
to the financing of acquisitions and capital expenditures. Such increase was
partially offset by lower effective interest rates for the first quarter of 1998
compared to the same period in 1997.
As a result of the foregoing factors, consolidated loss before credit for income
taxes increased $0.4 million to a loss of $1.1 million (1.1% of consolidated
revenues) for the first quarter of 1998 from a loss of $0.7 million (1.6% of
consolidated revenues) for the first quarter of 1997. Credit for income taxes
was $0.8 million for the first quarter of 1998 compared to $0.2 million for the
first quarter of 1997. The Company's effective tax rate is higher than statutory
rates primarily due to the amortization of the nondeductible portion of goodwill
associated with certain acquisitions (the tax laws generally permit deduction of
such expenses for asset purchases, but not for acquisitions of stock). In
connection with the 1998 Acquisitions, the Company recorded approximately $133.7
million in nondeductible goodwill.
Consolidated net loss decreased $0.2 million to a net loss of $0.3 million (0.3%
of consolidated revenues) for the first quarter of 1998 from a consolidated net
loss of $0.5 million (1.2% of consolidate revenues) for the first quarter of
1997.
As a result of the foregoing factors, consolidated earnings before interest,
taxes, depreciation, amortization and extraordinary charges ("EBITDA") increased
$12.3 million, or 120.5%, to $22.5 million (22.6% of consolidated revenues) for
the first quarter of 1998 from $10.2 million (24.2% of consolidated revenues)
for the first quarter of 1997. EBITDA for the RIMS business increased $11.6
million, or 113.9%, to $21.8 million (24.5% of RIMS revenues) for the first
quarter of 1998 from $10.2 million (24.2% of RIMS revenues) for the first
quarter of 1997. EBITDA for the IT Staffing business was $0.7 million (6.5% of
IT Staffing revenues) for the first quarter of 1998.
Liquidity and Capital Resources
As the Company has sought to increase its EBITDA, it has made significant
capital investments, consisting primarily of: (i) acquisitions; (ii) capital
expenditures, primarily related to growth (including investments in real estate,
racking systems, information systems and improvements to existing facilities);
and (iii) customer acquisition costs. Cash paid for these investments during the
first three months of 1998 amounted to $112.5 million, $10.2 million and $0.8
million, respectively. These investments have been primarily funded through cash
flows from operations, borrowings under the Company's revolving credit facility
and a portion of the net proceeds from the sale of the 1997 Notes.
12
<PAGE>
IRON MOUNTAIN INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Net cash provided by operations was $8.9 million for the first three months of
1998 compared to $5.4 million for the same period in 1997. The increase resulted
from the $12.3 million increase in EBITDA, which was partially offset by the
$6.1 million increase in trade accounts receivable related to increased revenues
and other changes in assets and liability accounts.
Net cash provided by financing activities was $92.5 million for the three months
ended March 31, 1998, consisting primarily of the proceeds from borrowings under
the Company's revolving credit facility of $101.7 million, which were partially
offset by repayments of debt of $9.5 million.
In April 1998, the Company issued and sold an aggregate of approximately 4.0
million shares (including approximately 0.5 million shares to cover
over-allotments) of its Common Stock in an underwritten public offering at a
price to the public of $34.75 per share. Net proceeds to the Company after
deducting underwriters' discounts and commissions were $132.9 million were used
to repay outstanding bank debt, to fund the cash portion of the purchase price
of InterMation and for general corporate purposes.
In January 1998, the Company issued 1.4 million shares of its Common Stock with
a fair value of $39.4 million in connection with the acquisition of Arcus.
Options to acquire approximately 0.6 million shares of Common Stock, valued at
$15.7 million, were also issued in connection with the Arcus acquisition. In
April 1998, the Company issued approximately 0.3 million shares of Common Stock,
valued at $12.0 million, as a portion of the purchase price for the InterMation
acquisition.
The Company is addressing the Year 2000 problem, which concerns the inability of
systems, primarily computer software programs, to properly recognize and process
date sensitive information relating to the year 2000 and beyond. Due to the long
term nature of records stored at the Company's facilities and the need to
schedule destructions of records years in the future, the Company's inventory
control systems are already Year 2000 compliant. The Company currently utilizes
certain other software (including its accounting software) that is not Year 2000
compliant. The Company, in the ordinary course of business, has for several
years had several information system improvement initiatives underway. These
initiatives include conversion of acquired businesses to the Company's inventory
control systems and the installation of new accounting software. Management
believes that such initiatives will adequately address the Year 2000 problem,
although there can be no assurance in this regard.
Costs related to new information systems are capitalized and amortized over
their useful lives. Management does not believe that the other costs associated
with addressing the Year 2000 problem will be material. The Company will
continue to address the Year 2000 issue in connection with its future
acquisitions. The ability of third parties with whom the Company transacts
business to adequately address their Year 2000 issues is outside of the
Company's control. Failure of such third parties or the Company to adequately
address their respective Year 2000 issues could have a material adverse effect
on the Company's financial condition or results of operations.
13
<PAGE>
IRON MOUNTAIN INCORPORATED
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
Following are the results of all matters submitted to a vote of security holders
during the quarter ended March 31, 1998. All of these matters were voted on at
the Special Meeting of Stockholders of the Company held on January 5, 1998:
Item 1: Approval and Adoption of Arcus Merger- Approval and adoption of the
Agreement and Plan of Merger, dated as of September 26, 1997, as
amended, by and among Iron Mountain Incorporated, Arcus Group, Inc.,
United Acquisition Company and Arcus Technology Services, Inc., and each
of the transactions contemplated thereby. (Approved)
<TABLE>
<S> <C> <C> <C>
For Against Abstain Broker Non-Vote
- -------------------- ------------------- ------------------- -------------------
10,774,981 2,771 5,221 1,279,888
</TABLE>
Item 2: Increase the Authorized Shares of Common Stock- Amendment to the
Company's Amended and Restated Certificate of Incorporation to increase
the number of shares of Common Stock that the Company is authorized to
issue from 20,000,000 to 100,000,000. (Approved)
<TABLE>
<S> <C> <C> <C>
For Against Abstain Broker Non-Vote
- -------------------- ------------------- ------------------- -------------------
10,257,175 1,800,715 4,971 --
</TABLE>
Item 3: Increase the Authorized Shares of Preferred Stock- Amendment to the
Company's Amended and Restated Certificate of Incorporation to increase
the number of shares of Preferred Stock, par value $0.01 per share,
that the Company is authorized to issue from 2,000,000 to 10,000,000.
(Not Approved)
<TABLE>
<S> <C> <C> <C>
For Against Abstain Broker Non-Vote
- -------------------- ------------------- ------------------- -------------------
8,897,843 1,879,909 5,221 1,279,888
</TABLE>
14
<PAGE>
IRON MOUNTAIN INCORPORATED
Item 5 - Other Information
As a result of the acquisition of Arcus, Clarke H. Bailey, formerly the Chairman
of the Board and Chief Executive Officer of Arcus, was appointed as a Director
of the Company.
Item 6 - Exhibits and Reports on Form 8-K
(a) The following exhibit is filed herewith
27 Financial Data Schedule
(b) Reports on Form 8-K
On January 13, 1998, the Company filed a Current Report on Form 8-K
pertaining to the consummation of the acquisition of Arcus and to report
certain legal proceedings. No other information was provided regarding the
Arcus transaction as the Company "previously reported" (as defined in Rule
12b-2) substantially the same information regarding the transaction
including the related historical and pro forma financial information, as is
required by Form 8-K, in its Registration Statement on Form S-4, filed on
November 26, 1997 (Registration No. 333-41045).
On February 18, 1998, the Company filed a Current Report on Form 8-K
pertaining to the consummation of the acquisition of Sloan Vaults
Incorporated. In accordance with Item 7(a)(4) of Form 8-K, the required
financial statements were scheduled to be filed on or before April 19,
1998.
On March 9, 1998, the Company filed a Current Report on Form 8-K to
disclose the Company's entrance into an agreement to acquire InterMation
and to report the Selected Consolidated Financial and Operating
Information, Management's Discussion and Analysis of Financial Condition
and Results of Operations, audited financial statements for the Company and
for Arcus Technology Services, Inc., Pro Forma Condensed Consolidated
Financial Information for the year ended December 31, 1997, and certain
legal proceedings.
On March 31, 1998, the Company filed a Current Report on Form 8-K to
disclose certain pro forma condensed consolidated financial information
reflecting the Company's proposed public offering of Common Stock and
certain other transactions and filing the underwriting agreement related to
such public offering.
15
<PAGE>
IRON MOUNTAIN INCORPORATED
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IRON MOUNTAIN INCORPORATED
May 15, 1998 By: /s/ Jean A. Bua
- ------------ --------------------------------
(date) Jean A. Bua
Vice President and Corporate Controller
(Principal Accounting Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 1998 AND THE
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS
THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0001004317
<NAME> IRON MOUNTAIN INCORPORATED
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1.000
<CASH> 2,312
<SECURITIES> 0
<RECEIVABLES> 67,396
<ALLOWANCES> (2,738)
<INVENTORY> 0
<CURRENT-ASSETS> 89,131
<PP&E> 274,251
<DEPRECIATION> (67,184)
<TOTAL-ASSETS> 806,018
<CURRENT-LIABILITIES> 71,157
<BONDS> 523,154
0
0
<COMMON> 150
<OTHER-SE> 193,399
<TOTAL-LIABILITY-AND-EQUITY> 806,018
<SALES> 99,484
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<CGS> 52,610
<TOTAL-COSTS> 88,292
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<INTEREST-EXPENSE> 12,332
<INCOME-PRETAX> (1,140)
<INCOME-TAX> (826)
<INCOME-CONTINUING> (314)
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