<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
- --------------------------------------------------------------------------------
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 9, 1999
IRON MOUNTAIN INCORPORATED
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
--------------------------------------------------------------
(State or Other Jurisdiction of Incorporation or Organization)
0-27584 04-3107342
------- ----------
(Commission file number) (I.R.S. Employer Identification No.)
745 ATLANTIC AVENUE, BOSTON, MA 02111
------------------------------------------------------------
(Address of Principal Executive Offices, Including Zip Code)
(617) 535-4766
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
<PAGE>
ITEM 5. OTHER EVENTS
In a press release dated July 8, 1999, Iron Mountain Incorporated ("Iron
Mountain" or the "Company"), announced that in order to focus on its records
and information management services business, it has decided to sell its
Information Technology staffing business, Arcus Staffing Resources, Inc.
("Arcus Staffing" or "IT Staffing"). Iron Mountain acquired Arcus Staffing in
January 1998 as part of its acquisition of Arcus Group, Inc. ("Arcus Group").
The Company intends to complete this transaction in the second half of 1999,
though there can be no assurance in this regard. In 1998, Arcus Staffing
contributed $1.5 million of Earnings Before Interest, Taxes, Depreciation,
and Amortization, Extraordinary Items and Other Income ("EBITDA"), or 1.6% of
Iron Mountain's consolidated EBITDA, on revenues of $39.6 million, or 9.3% of
consolidated revenues.
Iron Mountain will account for the sale of Arcus Staffing as a discontinued
operation. Accordingly, the results of operations of Arcus Staffing have been
segregated from continuing operations and reported as a separate line item on
Iron Mountain's consolidated statements of operations. The Company expects to
report a loss on the sale of the Arcus Staffing business in its 1999 second
quarter results. The amount of that loss is not determinable at this time. The
loss will be reported separately from the results of Iron Mountain's continuing
operations. In addition, the Company has reclassified its 1998 and first quarter
1999 financial statements to present the operating results of Arcus Staffing as
a discontinued operation. The following reclassified financial statements and
other information are included in this filing:
<TABLE>
<CAPTION>
IRON MOUNTAIN INCORPORATED Page
<S> <C>
ANNUAL FINANCIAL STATEMENTS:
Report of Independent Public Accountants 4
Consolidated Balance Sheets as of December 31, 1997 and 1998 5
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998 6
Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 1996, 1997 and 1998 7
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998 8
Notes to Consolidated Financial Statements 9
INTERIM FINANCIAL STATEMENTS (UNAUDITED):
Condensed Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998 27
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1999 and 1998 28
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1999 and 1998 29
Notes to Consolidated Financial Statements 30
OTHER INFORMATION:
Management's Discussion and Analysis of Financial Condition
And Results of Operations 39
Selected Consolidated Financial and Operating Information 54
</TABLE>
1
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of the Businesses Acquired:
During 1999, the Company acquired several records management businesses. The
following represents the financial statements of First American Records
Management, Inc. and MAP, S.A. ("Memogarde") which were acquired by the Company
on April 1, 1999 and June 2, 1999, respectively. Such financial statements have
been included in this filing to comply with Rule 3-05 of Regulation S-X with
respect to acquisitions of businesses deemed to be individually insignificant
under such rule. Financial statements for a substantial majority of businesses
acquired by the Company since the date of the most recent audited balance sheet
have been furnished.
<TABLE>
<CAPTION>
FIRST AMERICAN RECORDS MANAGEMENT, INC. Page
------
<S> <C>
Report of Independent Public Accountants 56
Balance Sheets as of December 31, 1997 and 1998 and
March 31, 1999 (Unaudited) 57
Statements of Operations for the years ended December 31,
1997 and 1998 and for the three months ended
March 31, 1998 and 1999 (Unaudited) 58
Statements of Changes in Stockholders' Equity (Deficit) for
the years ended December 31, 1997 and 1998 and for
the three months ended March 31, 1999 (Unaudited) 59
Statements of Cash Flows for the years ended December 31,
1997 and 1998 and for the three months ended
March 31, 1998 and 1999 (Unaudited) 60
Notes to Financial Statements 61
MAP, S.A.
Report of Independent Public Accountants 72
Consolidated Balance Sheet as of February 28, 1999 73
Consolidated Statement of Operations for the year ended
February 28, 1999 74
Consolidated Statement of Cash Flows for the year ended
February 28, 1999 75
Consolidated Statement of Stockholders' Equity for
the year ended February 28, 1999 76
Notes to Consolidated Financial Statements 77
(b) Pro Forma Financial Information:
Unaudited Pro Forma Condensed Consolidated Financial
Statements 87
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of March 31, 1999 88
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Three Months Ended March 31, 1999 89
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Year Ended December 31, 1998 90
Notes to the Unaudited Pro Forma Condensed Consolidated
Financial Statements 91
</TABLE>
2
<PAGE>
(c) Exhibits:
Exhibit 23.1 Consent of Arthur Andersen LLP (Iron Mountain Incorporated)
Exhibit 23.2 Consent of Arthur Andersen LLP (MAP, S.A.)
Exhibit 23.3 Consent of Brach, Neal, Daney & Spence, LLP
Exhibit 99 Press Release dated July 8, 1999
3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Iron Mountain Incorporated:
We have audited the accompanying consolidated balance sheets of Iron
Mountain Incorporated (a Delaware corporation) and its subsidiaries as of
December 31, 1997 and 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Iron Mountain Incorporated
and its subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
July 2, 1999
4
<PAGE>
IRON MOUNTAIN INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ............................... $ 24,510 $ 1,715
Accounts receivable (less allowances of $1,929 and $3,316
as of 1997 and 1998, respectively) ..................... 40,545 75,565
Receivable from insurance company ....................... 5,410 329
Foreign currency transaction receivable ................. -- 45,885
Deferred income taxes ................................... 5,896 10,474
Prepaid expenses and other .............................. 5,566 9,969
--------- ---------
Total Current Assets ................................... 81,927 143,937
Property, Plant and Equipment:
Property, plant and equipment ........................... 245,174 354,101
Less--Accumulated depreciation .......................... (61,276) (87,358)
--------- ---------
Net Property, Plant and Equipment ...................... 183,898 266,743
Other Assets:
Goodwill, net ........................................... 340,852 527,235
Customer acquisition costs, net ......................... 7,319 9,574
Deferred financing costs, net ........................... 14,429 13,392
Other ................................................... 8,361 6,504
--------- ---------
Total Other Assets ..................................... 370,961 556,705
--------- ---------
Total Assets ........................................... $ 636,786 $ 967,385
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS'EQUITY
Current Liabilities:
Current portion of long-term debt ....................... $ 520 $ 1,731
Note payable ............................................ 3,000 --
Accounts payable ........................................ 11,022 20,620
Accrued expenses ........................................ 28,131 48,539
Foreign currency transaction payable .................... -- 46,200
Deferred income ......................................... 11,931 26,043
Other current liabilities ............................... 1,149 339
--------- ---------
Total Current Liabilities .............................. 55,753 143,472
Long-term Debt, net of current portion ................... 424,498 454,447
Other Long-Term Liabilities .............................. 5,336 8,925
Deferred Rent ............................................ 8,202 9,616
Deferred Income Taxes .................................... 5,264 12,043
Commitments and Contingencies (see Note 11)
Stockholders' Equity:
Preferred stock ......................................... -- --
Common stock ............................................ 202 294
Additional paid-in capital .............................. 151,904 355,927
Accumulated deficit ..................................... (14,373) (17,339)
--------- ---------
Total Stockholders' Equity ............................. 137,733 338,882
--------- ---------
Total Liabilities and Stockholders' Equity ............. $ 636,786 $ 967,385
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1996 1997 1998
---------- --------- ---------
<S> <C> <C> <C>
Revenues:
Storage ............................................. $ 85,826 $ 125,968 $ 230,702
Service and storage material sales .................. 52,892 82,797 153,259
--------- --------- ---------
Total Revenues ..................................... 138,718 208,765 383,961
Operating Expenses:
Cost of sales (excluding depreciation) .............. 70,747 106,879 192,113
Selling, general and administrative ................. 34,342 51,668 95,867
Depreciation and amortization ....................... 16,936 27,107 48,301
--------- --------- ---------
Total Operating Expenses ........................... 122,025 185,654 336,281
--------- --------- ---------
Operating Income ..................................... 16,693 23,111 47,680
Interest Expense ..................................... 14,901 27,712 45,673
Other Income, net .................................... -- -- 1,384
--------- --------- ---------
Income (Loss) from Continuing Operations
Before Provision (Benefit) for Income Taxes ....... 1,792 (4,601) 3,391
Provision (Benefit) for Income Taxes ................. 1,435 (80) 6,558
--------- --------- ---------
Income (Loss) from Continuing Operations............ 357 (4,521) (3,167)
Income from Discontinued Operations (net of
tax provision of $391) (Note 15)................... -- -- 201
--------- --------- ---------
Income (Loss) Before Extraordinary Charge .......... 357 (4,521) (2,966)
Extraordinary Charge from Early Retirement of Debt
(Net of Tax Benefit of $1,413)....................... 2,126 -- --
--------- --------- ---------
Net Loss ........................................... (1,769) (4,521) (2,966)
Accretion of Redeemable Put Warrant .................. 280 -- --
--------- --------- ---------
Net Loss Applicable to Common Stockholders ......... $ (2,049) $ (4,521) $ (2,966)
--------- --------- ---------
--------- --------- ---------
Income (Loss) per Common Share--Basic and Diluted
(See Notes 6 and 7):
Income (loss) from Continuing Operations............ $ 0.00 $ (0.26) $ (0.12)
Income from Discontinued Operations................. 0.00 0.00 0.01
--------- --------- ---------
Income (loss) Before Extraordinary Charge .......... 0.00 (0.26) (0.11)
Extraordinary Charge (net of Tax Benefit) .......... ( 0.15) -- --
--------- --------- ---------
Net Loss Applicable to Common Stockholders ......... $ (0.15) $ (0.26) $ (0.11)
--------- --------- ---------
--------- --------- ---------
Weighted Average Common Shares Outstanding ........... 13,911 17,172 27,470
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Common Stock
--------------------------------------------
Preferred Stock Class A Voting Voting
---------------------- --------------------- ----------------------
Shares Amount Shares Amount Shares Amount
------------- -------- ------------ -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 499,395 5 44,888 -- -- --
Conversion of preferred stock
to common stock (499,395) (5) (44,888) -- 10,915,712 109
Issuance of shares in initial
public offering -- -- -- -- 3,525,000 36
Exercise of stock options -- -- -- -- 10,344 --
Issuance of shares for
services -- -- -- -- 1,372 --
Conversion of common
stock--nonvoting to
common stock--voting -- -- -- -- 34,058 --
Net loss -- -- -- -- -- --
Warrant accretion -- -- -- -- -- --
-------- --- ------- -- ---------- ---
Balance, December 31, 1996 -- -- -- -- 14,486,486 145
Exercise of stock options -- -- -- -- 123,657 1
Issuance of shares for
services -- -- -- -- 2,751 --
Shares and options issued in
connection with acquisitions,
net of issuance costs -- -- -- -- 4,851,341 49
Conversion of common
stock--nonvoting to
Common Stock--voting -- -- -- -- 715,942 7
Net loss -- -- -- -- -- --
-------- --- ------- -- ---------- ---
Balance, December 31, 1997 -- -- -- -- 20,180,177 202
Shares and options issued in
connection with acquisitions,
net of issuance costs -- -- -- -- 2,645,913 26
Issuance of shares in
secondary public offering -- -- -- -- 6,037,500 60
Exercise of stock options -- -- -- -- 566,615 6
Net loss -- -- -- -- -- --
-------- --- ------- -- ---------- ---
Balance, December 31, 1998 -- -- -- -- 29,430,205 294
-------- --- ------- -- ---------- ---
-------- --- ------- -- ---------- ---
<CAPTION>
Common Stock
---------------------
Non-Voting Additional Total
--------------------- Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------------ -------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 -- -- 28,809 (7,803) 21,011
Conversion of preferred stock
to common stock 750,000 7 (111) -- --
Issuance of shares in initial
public offering -- -- 33,249 -- 33,285
Exercise of stock options -- -- 118 -- 118
Issuance of shares for
services -- -- 19 -- 19
Conversion of common
stock--nonvoting to
common stock--voting (34,058) -- -- -- --
Net loss -- -- -- (1,769) (1,769)
Warrant accretion -- -- -- (280) (280)
------- -- ------ ------ ------
Balance, December 31, 1996 715,942 7 62,084 (9,852) 52,384
Exercise of stock options -- -- 1,532 -- 1,533
Issuance of shares for
services -- -- 52 -- 52
Shares and options issued in
connection with acquisitions,
net of issuance costs -- -- 88,236 -- 88,285
Conversion of common
stock--nonvoting to
Common Stock--voting (715,942) (7) -- -- --
Net loss -- -- -- (4,521) (4,521)
-------- --- ------ ------ ------
Balance, December 31, 1997 -- -- 151,904 (14,373) 137,733
Shares and options issued in
connection with acquisitions,
net of issuance costs -- -- 66,888 -- 66,914
Issuance of shares in
secondary public offering -- -- 131,961 -- 132,021
Exercise of stock options -- -- 5,174 -- 5,180
Net loss -- -- -- (2,966) (2,966)
-------- --- ------- ------- -------
Balance, December 31, 1998 -- -- 355,927 (17,339) 338,882
-------- --- ------- ------- -------
-------- --- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss ............................................... $ (1,769) $ (4,521) $ (2,966)
Adjustments to reconcile net loss to loss from
continuing operations:
Income from discontinued operations (Note 15)......... -- -- 201
---------- ---------- ----------
Loss from continuing operations......................... (1,769) (4,521) (3,167)
Adjustments to reconcile loss from continuing
operations to net cash provided by operating
activities of continuing operations:
Depreciation and amortization ......................... 16,936 27,107 48,301
Amortization of financing costs ....................... 857 1,095 1,801
Provision for doubtful accounts ....................... 639 874 1,730
Extraordinary loss on early retirement of debt ........ 3,539 -- --
Loss on foreign currency transaction .................. -- -- 316
Other, net ............................................ -- 52 --
Changes in Assets and Liabilities (exclusive of acquisitions):
Accounts receivable ................................... (4,395) (4,433) (12,924)
Inventory, prepaid expenses and other assets .......... (878) (2,949) 4,410
Deferred income taxes ................................. (973) 1,190 9,058
Other assets .......................................... -- -- 13
Accounts payable ...................................... (1,278) 4,653 5,282
Accrued expenses ...................................... 3,642 (1,115) (127)
Other long-term liabilities ........................... (193) (1,240) 3,587
Deferred rent ......................................... (332) 551 1,414
Deferred income ....................................... 161 671 7,369
Other liabilities ..................................... (56) 485 --
---------- ---------- ----------
Cash Flows Provided by Continuing Operations ....... 15,900 22,420 67,063
Cash Flows Provided by Discontinued Operations ..... -- -- 67
---------- ---------- ----------
Cash Flows Provided by Operating Activities ........ 15,900 22,420 67,130
---------- ---------- ----------
Cash Flows from Investing Activities:
Cash paid for acquisitions ............................. (68,496) (192,230) (189,729)
Capital expenditures ................................... (24,446) (38,320) (55,927)
Additions to customer acquisition costs ................ (1,642) (1,635) (3,024)
Other, net ............................................. (25) (333) --
---------- ---------- ----------
Cash Flows Used in Continuing Operations ............. (94,609) (232,518) (248,680)
Cash Flows Used in Discontinued Operations ........... -- -- (527)
---------- ---------- ----------
Cash Flows Used in Investing Activities .............. (94,609) (232,518) (249,207)
---------- ---------- ----------
Cash Flows from Financing Activities:
Repayment of debt ...................................... (171,730) (178,181) (171,080)
Net proceeds from borrowings ........................... 69,570 167,850 194,811
Net proceeds from sale of senior subordinated notes..... 160,050 242,640 --
Net proceeds from initial public offering .............. 33,285 -- --
Proceeds from secondary equity offering, net of ........
underwriting discount ................................ -- -- 132,905
Retirement of redeemable put warrant ................... (6,612) -- --
Prepayment penalties on early retirement of debt ....... (1,785) -- --
Exercise of stock options .............................. 66 786 4,482
Financing costs ........................................ (2,267) (1,291) (764)
Stock issuance costs ................................... -- (649) (1,072)
---------- ---------- ----------
Cash Flows Provided by Continuing Operations ......... 80,577 231,155 159,282
Cash Flows Provided by Discontinued Operations ....... -- -- --
---------- ---------- ----------
Cash Flows Provided by Financing Activities .......... 80,577 231,155 159,282
---------- ---------- ----------
Increase (decrease) in Cash and Cash Equivalents ........ 1,868 21,057 (22,795)
Cash and Cash Equivalents, Beginning of Year ............ 1,585 3,453 24,510
---------- ---------- ----------
Cash and Cash Equivalents, End of Year .................. $ 3,453 $ 24,510 $ 1,715
---------- ---------- ----------
Supplemental Information:
Cash Paid for Interest .................................. $ 11,590 $ 22,440 $ 42,407
---------- ---------- ----------
---------- ---------- ----------
Cash Paid for Income Taxes .............................. $ 197 $ 1,306 $ 1,700
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(In thousands except share data)
1. Nature of Business
The accompanying financial statements represent the consolidated accounts
of Iron Mountain Incorporated and its subsidiaries (collectively "Iron Mountain"
or the "Company"). Iron Mountain is an international full-service provider of
records and information management and related services for all media in various
locations throughout the United States and the United Kingdom to Fortune 500
companies and numerous legal, banking, health care, accounting, insurance,
entertainment and government organizations. The Company also provides
information technology staffing ("IT Staffing") services.
2. Summary of Significant Accounting Policies
a. Principles of Consolidation
The accompanying financial statements reflect the financial position and
results of operations of Iron Mountain on a consolidated basis. All significant
intercompany account balances have been eliminated.
b. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
c. Cash and Cash Equivalents
The Company defines cash and cash equivalents to include cash on hand and
cash invested in short-term securities which have original maturities of less
than 90 days. Cash and cash equivalents are carried at cost, which approximates
fair market value.
d. Foreign Currency Transaction
On December 31, 1998, the Company had a receivable denominated in British
pounds from, and a payable in U.S. dollars to, a bank as a result of exercising
a foreign exchange agreement on December 30, 1998. Included in other income,
net, for the year ended December 31, 1998 is a $316 loss on the remeasurement of
the receivable based on the applicable exchange rate on December 31, 1998. The
British pounds were being acquired to finance the BDM acquisition discussed in
Note 15.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes new standards
regarding accounting and reporting requirements for derivative instruments and
hedging activities. It requires that entities recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The new standard is effective for fiscal years
beginning after June 15, 1999. The Company is presently studying the effect of
the new pronouncement and, as required, expects to adopt SFAS No. 133 beginning
January 1, 2000. As of December 31, 1998, the Company did not own any derivative
instruments.
e. Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated using the
straight-line method with the following useful lives:
9
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. Summary of Significant Accounting Policies (continued)
<TABLE>
<S> <C>
Buildings .............................. 40 to 50 years
Leasehold improvements ................. 8 to 10 years or the life of the
lease, whichever is shorter
Racking ................................ 10 to 20 years
Warehouse equipment/vehicles ........... 5 to 10 years
Furniture and fixtures ................. 3 to 5 years
Computer hardware and software ......... 3 years
</TABLE>
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
Land and buildings ..................... $ 67,870 $ 99,678
Leasehold improvements ................. 19,583 27,509
Racking ................................ 94,960 127,287
Warehouse equipment/vehicles ........... 12,290 23,239
Furniture and fixtures ................. 4,875 9,241
Computer hardware and software ......... 29,913 47,400
Construction in progress ............... 15,683 19,747
-------- --------
$245,174 $354,101
-------- --------
</TABLE>
The Company develops 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 and
amortized over the useful life of the software. Capitalization begins when the
design stage of the application has been completed, it is probable that the
project will be completed and the application will be used to perform the
function intended. Amortization begins when the software is placed in service.
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 will adopt SOP 98-1 prospectively beginning January 1, 1999. The new
accounting will result in certain costs being expensed starting in 1999 that
would have been capitalized under the previous policy.
Minor maintenance costs are expensed as incurred. Major improvements to the
leased buildings are capitalized as leasehold improvements and depreciated.
f. Goodwill
Goodwill reflects the cost in excess of fair value of the net assets of
companies acquired in purchase transactions. Goodwill is amortized using the
straight-line method from the date of acquisition over the expected period to be
benefited, currently estimated at 25 to 30 years. The Company assesses the
recoverability of goodwill, as well as other long-lived assets based upon
expectations of future undiscounted cash flows in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." Accumulated amortization of goodwill was $26,931 and $46,333 as
of December 31, 1997 and 1998, respectively.
10
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. Summary of Significant Accounting Policies (continued)
g. Customer Acquisition Costs
Costs related to the acquisition of large volume accounts, net of revenues
received for the initial transfer of the records, are capitalized and amortized
for an appropriate period not to exceed 12 years. If the customer terminates its
relationship with the Company, the unamortized cost is charged to expense.
However, in the event of such termination, the Company collects, and records as
income, permanent removal fees that generally equal or exceed the amount of the
unamortized costs. As of December 31, 1997 and 1998, those costs were $9,769 and
$12,793, respectively, and accumulated amortization of those costs were $2,450
and $3,219, respectively.
h. 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, unamortized
deferred financing costs are written off as an extraordinary charge in the
period the debt is retired. As of December 31, 1997 and 1998, deferred financing
costs were $16,163 and $16,928, respectively, and accumulated amortization of
those costs were $1,734 and $3,536, respectively.
i. Other Assets
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5 requires the costs of start-up activities,
including organization costs, to be expensed as incurred. The Company will adopt
SOP 98-5 beginning January 1, 1999. Management believes that the adoption of SOP
98-5 will not have a material impact on the Company's financial statements.
j. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Incentive compensation ......... $ 3,932 $ 5,934
Interest ....................... 8,427 9,975
Workers' compensation .......... 3,022 2,948
Payroll and vacation ........... 3,432 7,451
Restructuring costs ............ 5,443 10,482
Other .......................... 3,875 11,749
------- -------
$28,131 $48,539
------- -------
</TABLE>
k. Revenues
The Company's revenues consist of storage revenues and service and storage
material sales revenues. Storage revenues consist of periodic charges related to
the storage of materials (either on a per unit or per cubic foot of records
basis). In certain circumstances, based upon customer requirements, storage
revenues include periodic charges associated with normal, recurring service
activities. Service and storage material sales revenues are comprised of charges
for related service activities and the sale of storage materials. In certain
circumstances, storage material sales are recorded net of product costs when the
Company functions as a sales representative of the product manufacturer and does
not receive or take title to the products. Customers are generally billed on a
monthly basis on contractually agreed-upon terms.
Storage and service revenues are recognized in the month the respective
service is provided. Storage material sales are recognized when shipped to the
customer. Amounts related to future storage
11
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. Summary of Significant Accounting Policies (continued)
for customers where storage fees are billed in advance are accounted for as
deferred income and amortized over the applicable period.
l. Deferred Rent
The Company has entered into various leases for buildings used in the
storage of records. 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 balance
sheets. In addition, the Company has assumed various unfavorable leases in
connection with certain of its acquisitions. The discounted present value of
these lease obligations in excess of market rate at the date of the acquisition
was recorded as a deferred rent liability and is being amortized over the
remaining lives of the respective leases.
m. Stock-Based Compensation
Effective January 1, 1996, the Company adopted the provisions of SFAS No.
123, "Accounting for Stock-Based Compensation." The Company has elected to
continue to account for stock options at their intrinsic value with disclosure
of the effects of fair value accounting on net income (loss) and earnings (loss)
per share on a pro forma basis.
n. Interest Rate Caps
Premiums paid for interest rate cap agreements are amortized to interest
expense over the terms of the cap. Unamortized premiums are included in other
assets in the accompanying consolidated balance sheets. Amounts receivable, if
any, under cap agreements are accounted for as a reduction of interest expense.
As of December 31, 1998, there were no interest rate cap agreements outstanding.
o. Income (Loss) Per Common Share
During 1997, the Company adopted SFAS No. 128, "Earnings Per Share," and
restated its net income (loss) per share for the year ended 1996 (see Note 7).
p. Reclassifications
Certain reclassifications have been made to the 1996 and 1997 financial
statements to conform to the 1998 presentation.
3. Common Stock Split
On June 30, 1998, the Company's Board of Directors authorized and approved
a three-for-two stock split effected in the form of a dividend on the Company's
Common Stock. Such additional shares of Common Stock were issued on July 31,
1998 to all stockholders of record as of the close of business on July 17, 1998.
All issued and outstanding share and per share amounts in the accompanying
financial statements and Notes thereto have been restated to reflect the stock
split.
4. Debt
Long-term debt consists of the following:
12
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
4. Debt (continued)
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1998
------------ -----------
<S> <C> <C>
Revolving Credit Facility ....................................... $ -- $ 35,300
10-1/8% Senior Subordinated Notes due 2006 (the "1996 Notes").... 165,000 165,000
8-3/4% Senior Subordinated Notes due 2009 (the "1997 Notes") .... 249,525 249,566
Real Estate Mortgages ........................................... 10,312 2,349
Other ........................................................... 181 3,963
-------- --------
Long-term debt .................................................. 425,018 456,178
Less current portion ............................................ (520) (1,731)
-------- --------
Long-term debt, net of current portion .......................... $424,498 $454,447
-------- --------
-------- --------
</TABLE>
a. Revolving Credit Facility
Iron Mountain has a $250 million revolving credit facility, as amended (the
"Credit Agreement"), which is scheduled to mature on September 30, 2002. The
amendments amended and restated, among other terms, interest rates, commitment
fees and financial covenants.
The Credit Agreement specifies certain minimum or maximum relationships
between operating cash flows (earnings before interest, taxes, depreciation,
amortization, extraordinary charges and other income) and interest, total debt
and fixed charges. There are restrictions on dividends declared by the Company,
sales or pledging of assets, acquisitions, capital expenditures and changes in
business and ownership; cash dividends are effectively prohibited. As of
December 31, 1998, the Company was in compliance with all of its debt covenants.
Loans under the Credit Agreement are secured by the capital stock of all of the
Company's domestic subsidiaries.
The interest rate on loans under the Credit Agreement varies, at the
Company's option, on a choice of base rates plus an applicable margin. The
applicable margin varies depending on the base rate selected and certain debt
ratios. The timing of interest payments also varies with the base rate selected.
At December 31, 1998, the effective interest rate was 6.45%.
b. 1996 Notes
On October 1, 1996, the Company issued $165 million of 10 1/8% Senior
Subordinated Notes due 2006. Interest on the 1996 Notes is payable semiannually
on April 1 and October 1 and commenced on April 1, 1997. The net proceeds of
$160.1 million after underwriting discounts and commissions were used to repay
outstanding bank debt under the Credit Agreement and certain other indebtedness,
to fund the purchase price of an acquisition and for general corporate purposes.
In connection with the prepayment of such indebtedness, the Company incurred an
extraordinary charge of $3,539, not including related tax benefit of $1,413,
during the fourth quarter of 1996. The charge consists of a prepayment penalty,
the write-off of deferred financing costs and an original issue discount and a
loss on the termination of interest rate protection agreements.
The 1996 Notes contain covenants and restrictions similar to, or less
restrictive than, the Credit Agreement. During the first 36 months after the
date of issuance of the 1996 Notes, and subject to certain restrictions, the
Company may, with the net proceeds of one or more Qualified Equity Offerings, as
defined, redeem up to 35% of the 1996 Notes at a redemption price of 109.125% of
their initial principal amount. After September 30, 2001, and subject to certain
restrictions, the Company may, at its option,
13
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
4. Debt (continued)
redeem any or all of the 1996 Notes at face value, plus a premium ranging from
approximately 2% to 5% through September 30, 2004. Thereafter, the 1996 Notes
may be redeemed at face value. Additionally, under certain circumstances,
including a change of control or following certain asset sales, the holders of
the 1996 Notes may require the Company to repurchase the 1996 Notes.
c. 1997 Notes
On October 24, 1997, the Company issued $250 million of 8 3/4% Senior
Subordinated Notes due 2009. Interest on the 1997 Notes is payable semiannually
on March 31 and September 30 and commenced on March 31, 1998. The net proceeds
were $242.6 million after an original issue discount of $485 and underwriting
discounts and commissions.
The 1997 Notes contain covenants and restrictions similar to, or less
restrictive than, the Credit Agreement. Prior to September 30, 2002, and subject
to certain restrictions, the Company may, at its option, redeem any or all of
the 1997 Notes at a make-whole price, as defined. On or after September 30,
2002, and subject to certain restrictions, the Company may, at its option,
redeem any or all of the 1997 Notes at face value, plus a premium of up to
approximately 4% through September 30, 2005. Thereafter, the 1997 Notes may be
redeemed at face value. Also, any time through October 23, 2000, the Company may
redeem a portion of the 1997 Notes, subject to restrictions, with the net
proceeds of one or more Qualified Equity Offerings, as defined, at a redemption
price of 108.75% of the principal amount of such 1997 Notes. Additionally, under
certain circumstances, including a change of control or following certain asset
sales, the holders of the 1997 Notes may require the Company to repurchase the
1997 Notes.
d. Real Estate Mortgages
The real estate mortgages include an $8,037, 10 year, 11% mortgage based on
a 30 year amortization with a $7,495 balloon payment due October 2000. The
mortgage was repaid in full during 1998. Also included in real estate mortgages
is a $3,000, 8% note that is payable in various installments commencing in 1997
and maturing in November 2006.
e. Other
Other long-term debt includes various notes and obligations assumed by the
Company as a result of certain acquisitions completed by the Company during
1998.
Maturities of long-term debt are as follows:
Year Amount
---- --------
1999 .................... $ 1,731
2000 .................... 807
2001 .................... 1,661
2002 .................... 35,899
2003 .................... 419
Thereafter .............. 415,661
--------
$456,178
--------
--------
As of December 31, 1998, the 1996 and 1997 Notes were fully and
unconditionally guaranteed, on a joint and several basis, on a senior
subordinated basis, by all of the Company's direct and indirect domestic
subsidiaries (the "Subsidiary Guarantors"). The Company is a holding company and
during the periods presented substantially all of the assets of which were the
stock of the Subsidiary Guarantors,
14
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
4. Debt (continued)
and substantially all of the operations of which were conducted by the
Subsidiary Guarantors. Accordingly, the aggregate assets, liabilities, earnings
and equity of the Subsidiary Guarantors were 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.
Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities, the Company has estimated the
following fair values for its long-term debt as of December 31:
<TABLE>
<CAPTION>
1997 1998
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revolving Credit Facility. ......... $ -- $ -- $ 35,300 $ 35,300
1996 Notes. ........................ 165,000 179,850 165,000 178,200
1997 Notes ......................... 249,525 255,000 249,566 257,500
Real estate mortgages .............. 10,312 11,322 2,349 2,349
Other .............................. 181 181 3,963 3,963
</TABLE>
5. Acquisitions
The Company purchased substantially all of the assets and assumed certain
liabilities of 16, 18 and 15 records management businesses during 1996, 1997 and
1998, respectively. Each of these acquisitions was 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. The excess of the purchase price over
the underlying fair value of the assets and liabilities of each acquisition has
been assigned to goodwill and is being amortized over the estimated benefit
period of 25 to 30 years. Consideration for the various acquisitions included:
(i) cash which was provided through the Company's Credit Agreement, a portion of
the net proceeds from the initial public offering of its common stock (the
"Initial Public Offering"), the Company's 1998 equity offering and the issuance
of the 1996 Notes and the 1997 Notes; (ii) issuance of the Company's common
stock and options to purchase the Company's common stock; and (iii) certain net
assets of a business acquired in 1997.
A summary of the consideration paid and the allocation of the purchase
price of the acquisitions is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Cash Paid ...................................... $ 68,496 $192,230 $189,729
Fair Value of Common Stock Issued .............. -- 85,863 51,448
Fair Value of Options Issued ................... -- 3,071 15,655
Fair Value of Certain Net Assets of a Business
Acquired in 1997 .............................. -- -- 3,000
-------- -------- --------
Total Consideration ........................ 68,496 281,164 259,832
-------- -------- --------
Fair Value of Assets Acquired .................. 19,476 68,774 89,053
Liabilities Assumed ............................ (4,874) (26,932) (38,165)
-------- -------- --------
Fair Value of Net Assets Acquired .......... 14,602 41,842 50,888
-------- -------- --------
Recorded Goodwill .............................. $ 53,894 $239,322 $208,944
-------- -------- --------
-------- -------- --------
</TABLE>
15
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
5. Acquisitions (continued)
The following unaudited pro forma combined information shows the results of
the Company's operations for the years ended December 31, 1997 and 1998 as
though each of the significant acquisitions completed during 1997 and 1998 had
occurred on January 1, 1997:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Revenues ........................................ $393,753 $400,128
Loss from Continuing Operations ................. (9,013) (4,805)
Net Loss ........................................ (9,013) (4,604)
Loss Per Common Share from Continuing
Operations - Basic and Diluted ................. (0.31) (0.17)
Net Loss Per Common Share - Basic and Diluted ... (0.31) (0.16)
</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 January 1, 1997 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 acquired businesses. Certain acquisitions completed in 1997
are not included in the pro forma results as their effect was immaterial.
In connection with the acquisitions completed in 1997 and 1998, the Company
has undertaken certain restructurings of the acquired businesses. The
restructuring activities include certain reductions in staffing levels,
elimination of duplicate facilities, and other costs associated with exiting
certain activities of the acquired businesses. These restructuring activities
were recorded as costs of the acquisitions and were provided in accordance with
Emerging Issues Task Force Issue No. 95-3, "Recognition of Liabilities in
Connection with a Purchase Business Combination."
The following is a summary of reserves related to such restructuring
activities:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Reserves, beginning of the year .......... $ 1,340 $ 5,443
Reserves established ..................... 6,574 11,368
Expenditures ............................. (2,163) (4,690)
Adjustments to goodwill .................. (308) (1,639)
-------- --------
Reserves, end of the year ................ $ 5,443 $ 10,482
-------- --------
-------- --------
</TABLE>
6. Capital Stock, Redeemable Put Warrant and Stock Options
a. Capital Stock
On February 6, 1996, the Company completed its Initial Public Offering and
issued 3,525,000 shares of common stock--voting.
In connection with the Initial Public Offering, the Board of Directors
approved, and the stockholders ratified, a recapitalization and the designation
of three new classes of stock as follows:
<TABLE>
<CAPTION>
Authorized
Class Shares
----- -----------
<S> <C>
Preferred stock, $.01 par value.................. 2,000,000
Common stock--voting, $.01 par value............. 13,000,000
Common stock--nonvoting, $.01 par value.......... 1,000,000
</TABLE>
Upon consummation of the Initial Public Offering, all shares of capital
stock were automatically converted into shares of common stock--voting and, in
the case of one stockholder, common stock--nonvoting. The number of common
shares received upon conversion were as follows:
16
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
6. Capital Stock, Redeemable Put Warrant and Stock Options (continued)
<TABLE>
<CAPTION>
Common
-------------------------
Preferred Voting Nonvoting
----------- ------------ ----------
<S> <C> <C> <C>
Series A1 and Series A3 ......... 50,000 1,480,971 --
Series A2 ....................... 98,000 2,152,719 750,000
Series C ........................ 351,395 7,214,690 --
------- --------- -------
Total ........................... 499,395 10,848,380 750,000
------- ---------- -------
------- ---------- -------
</TABLE>
On March 3, 1997, the Board of Directors approved, and the stockholders
ratified, an increase in the number of authorized shares of common
stock--voting, $.01 par value, from 13,000,000 shares to 20,000,000 shares. On
January 5, 1998, the stockholders voted to increase the number of authorized
shares of common stock to 100,000,000 shares.
On April 3, 1998, the Company issued and sold an aggregate of 6,037,500
shares (including 787,500 to cover over-allotments) of its Common Stock in an
underwritten public offering. 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
certain acquisitions completed in 1998 and for general corporate purposes.
The following table summarizes the number of shares authorized, issued and
outstanding for each issue of the Company's capital stock as of December 31:
issue of the Company's capital stock as of December 31:
<TABLE>
<CAPTION>
Number of Shares
-------------------------------------------------------------------
Authorized Issued and Outstanding
----------------------------- -----------------------------------
Par
Equity Type Value 1997 1998 1997 1998
----------- ----- ------------ -------------- ------------------- -------------
<S> <C> <C> <C> <C> <C>
Preferred stock .............. $ .01 2,000,000 2,000,000 -- --
Common stock--voting ......... .01 20,000,000 100,000,000 20,180,177(1) 29,430,205
Common stock--nonvoting .01 1,000,000 1,000,000 -- --
</TABLE>
- ----------------
(1) This amount gives effect to the stock dividend discussed in Note 3. The
actual number of issued and outstanding shares as of December 31, 1997 was
13,453,451.
b. Redeemable Put Warrant
In connection with the issuance of certain debt, the Company also issued a
put warrant, dated December 14, 1990 (the "Warrant"), exercisable for 666,578
shares of common stock for nominal consideration upon the occurrence of certain
specified events. On February 7, 1996, in connection with the Initial Public
Offering, the Warrant was redeemed for $6,612. This Warrant was accreted each
year using the effective interest rate method based on the Warrant's estimated
redemption value at its estimated redemption date of February 15, 1996.
c. Stock Options
Effective November 30, 1995, the Board of Directors approved the adoption
of the 1995 Stock Incentive Plan (the "Stock Incentive Plan"). A total of
1,500,000 shares of common stock were available for grant as options and other
rights under the Stock Incentive Plan. On March 3, 1997 and March 23, 1998, the
number of shares of common stock available for grant as options under the Stock
Incentive Plan increased to 2,100,000 and 3,000,000, respectively.
Effective December 21, 1995, the Board of Directors approved the 1995 Stock
Option Plan for Non-Employee Directors (the "Non-Employee Director Plan") that
permitted non-employee directors to elect to receive all or a portion of their
compensation in the form of common stock. Directors electing to receive
17
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
6. Capital Stock, Redeemable Put Warrant and Stock Options (continued)
common stock received, as an incentive, an amount of stock equivalent to 110% of
the director's compensation otherwise due to be paid in cash. During 1997, the
Company issued 2,226 shares under the Non-Employee Director Plan. On June 30,
1997, the Non-Employee Director Plan was terminated.
During 1997, the Company issued options to employees of two acquired
companies to purchase 218,879 shares of the Company's common stock. The options
replaced options held by the employees for the acquired companies' common stock.
The options were accounted for as additional purchase price based on the fair
value of the options when issued.
During 1998, the Company assumed two existing stock option plans from an
acquired company and options under the existing plans were converted into
options to purchase 885,000 shares of the Company's common stock under such
plans. No new options may be issued under these plans. The options were
accounted for as additional purchase price based on the fair value of the
options when issued.
The following is a summary of stock option transactions, including those
issued to employees of acquired companies, during the applicable periods:
<TABLE>
<CAPTION>
Weighted Average
Options Exercise Price
------------- -----------------
<S> <C> <C>
Options outstanding, December 31, 1995 ......... 501,461 5.44
Granted ........................................ 680,781 10.99
Exercised ...................................... (10,344) 6.39
Canceled ....................................... (27,606) 7.84
------- -----
Options outstanding, December 31, 1996 ......... 1,144,292 8.68
Granted ........................................ 703,670 17.01
Exercised ...................................... (125,711) 6.59
Canceled ....................................... (46,203) 14.73
--------- -----
Options outstanding, December 31, 1997 ......... 1,676,048 12.17
Granted ........................................ 1,173,018 12.02
Exercised ...................................... (566,615) 7.88
Canceled ....................................... (116,132) 12.36
--------- -----
Options outstanding, December 31, 1998 ......... 2,166,319 13.21
--------- -----
--------- -----
</TABLE>
Except for the options granted in connection with acquisitions, the stock
options were granted with exercise prices equal to or greater than the market
price of the stock at the date of grant. The majority of options become
exercisable ratably over a period of five years unless the holder terminates
employment. The number of options available for grant at December 31, 1998 was
894,994.
Effective January 1, 1996, the Company adopted the provisions of SFAS No.
123, "Accounting for Stock-Based Compensation." The Company has elected to
continue to account for stock options issued to employees at their intrinsic
value with disclosure of fair value accounting on net income (loss) and earnings
(loss) per share on a pro forma basis. Had the Company elected to recognize
compensation cost based on the fair value of the options granted at grant date
as prescribed by SFAS No. 123, net loss applicable to common stockholders and
net loss per common share would have been increased to the pro forma amounts
indicated in the table below:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Loss from continuing operations, as reported ..................... $(2,049) $(4,521) $(3,167)
Income from discontinued operations, as reported ................. -- -- 201
------- ------- -------
Net loss applicable to common stockholders, as reported ......... (2,049) (4,521) (2,966)
Loss from continuing operations, pro forma ....................... (2,614) (5,411) (4,071)
Income from discontinued operations, pro forma ................... -- -- 201
------- ------- -------
Net loss applicable to common stockholders, pro forma ........... (2,614) (5,411) (3,870)
Loss from continuing operations per common share - basic and
diluted, as reported ............................................ (0.15) (0.26) (0.12)
Income from discontinued operations per common share - basic
and diluted, as reported ........................................ -- -- 0.01
------- ------- -------
Net loss per common share - basic and diluted, as reported ...... (0.15) (0.26) (0.11)
Loss from continuing operations per common share - basic
and diluted, pro forma .......................................... (0.19) (0.31) (0.15)
Income from discontinued operations per common share - basic
and diluted, pro forma .......................................... -- -- 0.01
------- ------- -------
Net loss per common share - basic and diluted, pro forma ........ (0.19) (0.31) (0.14)
</TABLE>
18
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
6. Capital Stock, Redeemable Put Warrant and Stock Options (continued)
The weighted average fair value of options granted in 1996, 1997 and 1998
was $4.92, $11.06 and $8.92 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:
<TABLE>
<CAPTION>
Assumption 1996 1997 1998
- -------------------------------------- ----------- ----------- ----------
<S> <C> <C> <C>
Expected volatility .................. 24.2% 29.2% 28.4%
Risk-free interest rate .............. 6.34 5.91 5.11
Expected dividend yield .............. None None None
Expected life of the option .......... 7.5 years 7.0 years 5.0 years
</TABLE>
The following table summarizes additional information regarding options
outstanding and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
Outstanding Exercisable
---------------------------------------------- -----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Contractual Life Exercise Exercise
Exercise Prices Number (in Years) Price Number Price
- -------------------------- ------------ ------------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$0.75 to $0.87............ 31,374 8.0 $ 0.87 18,241 $ 0.87
$4.32 to $5.77............ 486,771 3.6 4.86 455,699 4.80
$6.63 to $9.10............ 232,971 6.9 8.02 130,391 8.07
$10.25 to $10.94.......... 633,993 7.4 10.42 296,739 10.50
$17.17 to $25.03.......... 668,475 8.8 21.83 111,487 21.21
$26.79 to $29.19.......... 112,735 9.5 28.03 4,291 27.17
------- --- -------- ------- --------
2,166,319 7.0 $ 13.21 1,016,848 $ 8.71
--------- --- -------- --------- --------
--------- --- -------- --------- --------
</TABLE>
7. Income (Loss) Per Common Share--Basic and Diluted
In accordance with SFAS No. 128, basic income (loss) per common share is
calculated by dividing income (loss) available to common stockholders by the
weighted average number of common shares outstanding. The calculation of diluted
income (loss) per share is consistent with that of basic income (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.
Income (loss) per common share--basic and diluted has been calculated as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Income (loss) from continuing operations, before accretion
of put warrant .................................................... $ 357 (4,521) (3,167)
Accretion of redeemable put warrant ................................ (280) 0 0
-------- -------- --------
Income (loss) from continuing operations ........................... 77 (4,521) (3,167)
Income from discontinued operations ................................ 0 0 201
-------- -------- --------
Income (loss) applicable to common stockholders, before
extraordinary charge .............................................. 77 (4,521) (2,966)
Extraordinary charge (net of tax benefit) .......................... (2,126) -- --
-------- -------- --------
Net loss applicable to common stockholders ......................... $ (2,049) $ (4,521) $ (2,966)
-------- -------- --------
-------- -------- --------
Weighted average common shares outstanding (in thousands) .......... 13,911 17,172 27,470
-------- -------- --------
-------- -------- --------
</TABLE>
19
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
7. Income (Loss) Per Common Share--Basic and Diluted (continued)
<TABLE>
<CAPTION>
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Income (loss) per common share--basic and diluted:
Loss from continuing operations .................... $ 0.00 $ (0.26) $ (0.12)
Net income from discontinued operations ............ 0.00 0.00 0.01
Income (loss) before extraordinary charge .......... 0.00 (0.26) (0.11)
Extraordinary charge (net of tax benefit) .......... ( 0.15) -- --
-------- --------- ---------
Net loss applicable to common stockholders ......... $ (0.15) $ (0.26) $ (0.11)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Because their effect is antidilutive, 1,144,929, 1,676,048 and 2,166,319
shares of common stock underlying outstanding options have been excluded from
the above calculation for the years ended December 31, 1996, 1997 and 1998,
respectively.
The effect of adopting SFAS No.128 on the previously reported loss per
share data for the year ended 1996 was as follows:
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Primary and fully diluted net loss per share (as previously reported) $ (0.14)
Effect of SFAS No. 128 ............................................... (0.01)
Net loss per common share--basic and diluted ......................... (0.15)
-------
-------
</TABLE>
8. Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
which requires the recognition of deferred tax assets and liabilities for the
expected tax consequences of temporary differences between the tax and financial
reporting bases of assets and liabilities.
The Company has estimated federal net operating loss carryforwards of
$46,153 at December 31, 1998 to reduce future federal income taxes, if any,
which begin to expire in 2005. The preceding net operating loss carryforwards do
not include preacquisition net operating loss carryforwards of Arcus Group. As a
result of the litigation relating to Arcus Group's net operating loss
carryforwards, the Company has not recognized the deferred tax asset generated
by such loss carryforwards. If the litigation is resolved favorably, any tax
benefit realized will be recorded as a reduction of goodwill. The Company also
has estimated state net operating loss carryforwards of approximately $17,951 to
reduce future state income taxes, if any. Additionally, the Company has
alternative minimum tax credit carryforwards of $587, which have no expiration
date and are available to reduce future income taxes, if any.
20
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. Income Taxes (continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1998
------------ ------------
<S> <C> <C>
Deferred Tax Assets:
Accrued liabilities .................................................. $ 4,726 $ 8,033
Deferred rent ........................................................ 3,411 3,767
Net operating loss carryforwards ..................................... 7,360 16,759
AMT credit ........................................................... 587 587
Other ................................................................ 2,317 6,151
--------- ---------
18,401 35,297
Valuation Allowance .................................................. -- (4,369)
--------- ---------
18,401 30,928
--------- ---------
Deferred Tax Liabilities:
Other assets, principally due to differences in amortization ......... (2,693) (6,389)
Plant and equipment, principally due to differences in
depreciation ........................................................ (11,217) (22,284)
Customer acquisition costs ........................................... (3,859) (3,824)
--------- ---------
(17,769) (32,497)
--------- ---------
Net deferred tax asset (liability) .................................... $ 632 $ (1,569)
--------- ---------
--------- ---------
</TABLE>
The Company receives a tax deduction upon exercise of non-qualified stock
options by employees for the difference between the exercise price and the
market price of the underlying common stock on the date of exercise which is
included in the net operating loss carryforwards above. A valuation allowance
has been recorded for this tax asset because of uncertainty of its realization.
If the assets are realized, they will be credited to either additional paid-in
capital ($1,873) or, for options granted for acquisitions, to goodwill ($2,496).
The Company and its subsidiaries file a consolidated federal income tax
return. The provision (benefit) for income tax consists of the following
components:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1996 1997 1998
----------- --------- ---------
<S> <C> <C> <C>
Federal--current .......... $ 958 $ -- $ --
Federal--deferred ......... 57 (459) 4,509
State--current ............ 1,450 399 505
State--deferred ........... (1,030) (20) 1,544
-------- ------ ------
$ 1,435 $ (80) $6,558
-------- ------ ------
-------- ------ ------
</TABLE>
21
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. Income Taxes (continued)
A reconciliation of total income tax expense (benefit) and the amount
computed by applying the federal income tax rate of 34% to income (loss) before
income taxes is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax provision (benefit) ......... $ 609 $ (1,564) $ 1,153
Increase in income taxes resulting from:
State taxes (net of federal tax benefit) ........... 278 250 1,367
Nondeductible goodwill amortization ................ 602 1,221 3,675
Other .............................................. (54) 13 363
------ -------- -------
$1,435 $ (80) $ 6,558
------ -------- -------
------ -------- -------
</TABLE>
9. Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31 June 30 Sept. 30 Dec. 31
- ------------------------------------------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
1997
Revenues .................................... $42,154 $ 46,585 $ 54,655 $ 65,371
Gross profit ................................ 20,390 22,477 26,785 32,233
Net loss .................................... (516) (969) (325) (2,711)
Net loss per common share--basic and diluted (0.04) (0.06) (0.02) (0.14)
1998
Revenues .................................... 89,056 93,464 98,544 102,897
Gross profit ................................ 44,139 46,708 49,038 51,963
Loss from continuing operations ............. (548) (395) (1,019) (1,205)
Net loss .................................... (314) (261) (1,069) (1,322)
Loss per common share from continuing
operations - basic and diluted ............. (0.02) (0.01) (0.04) (0.05)
Net loss per common share - basic and
diluted .................................... (0.01) (0.01) (0.04) (0.05)
</TABLE>
10. Segment Information
On December 31, 1998, Iron Mountain adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131"). The new
rules establish revised standards for public companies relating to the reporting
of financial and descriptive information about their operating segments in
financial statements. The adoption of SFAS 131 did not have a material effect on
the Company's primary financial statements, but did affect the disclosure of
segment information contained herein.
Iron Mountain classifies its operations into two fundamental businesses:
records and information management services ("RIMS") and information
technology staffing ("IT Staffing"). As discussed in Note 15, Iron Mountain
decided to sell the IT Staffing operations and has classified operations from
this business segment as a discontinued operation on the condensed
consolidated statements of operations and cash flows. The reportable segments
are managed separately since each business has different economic
characteristics based on the differing customer requirements and the nature
of the services provided. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies
(see Note 2). The Company assesses performance based on earnings before
interest, taxes, depreciation, amortization, extraordinary items and other
income ("EBITDA").
22
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
10. Segment Information (continued)
<TABLE>
<CAPTION>
IT
RIMS Staffing Total
------------ ---------- ------------
<S> <C> <C> <C>
1998:
Revenues from External Customers ........................ $ 383,961 $ 39,551 $ 423,512
Revenues from Other Operating Segments .................. -- 268 268
--------- -------- ---------
Total Reportable Segment Revenues ....................... $ 383,961 $ 39,819 $ 423,780
--------- -------- ---------
--------- -------- ---------
EBITDA .................................................. $ 95,981 $ 1,526 $ 97,507
Segment Assets .......................................... 940,698 26,687 967,385
Capital Expenditures, Exclusive of Acquisitions ......... 55,898 556 56,454
</TABLE>
A reconciliation of the totals reported for the reportable operating
segments to the applicable line items in the consolidated financial statements
for the year ended December 31, 1998 is as follows:
<TABLE>
<S> <C>
Total Revenues:
Total Revenues from Reportable Segments .............. $ 423,780
Revenues from Discontinued Operation ................. (39,551)
Intercompany Eliminations and Other Revenues ......... (268)
---------
Total Consolidated Revenues from Continuing
Operations ........................................ $ 383,961
---------
Income from Continuing Operations Before
Provision for Income Taxes:
Total EBITDA from Continuing Operations .............. $ 95,981
Depreciation and Amortization ........................ (48,301)
Interest Expense ..................................... (45,673)
Other Income, net .................................... 1,384
---------
Income from Continuing Operations Before
Provision for Income Taxes ........................ $ 3,391
---------
---------
</TABLE>
Information as to Iron Mountain's products and services and operations in
different geographical areas is as follows:
<TABLE>
<S> <C>
Revenues by Product and Services:
Storage Revenues ........................... $ 230,702
Service and Storage Material Sales ......... 153,259
---------
Total Revenues ........................... $ 383,961
---------
---------
Revenues:
United States .............................. $ 381,959
International .............................. 2,002
---------
Total Revenues ........................... $ 383,961
---------
---------
Long-lived Assets:
United States .............................. $ 821,929
International .............................. 485
---------
Total Long-lived Assets .................. $ 822,414
---------
---------
</TABLE>
Information is not provided for 1996 and 1997 because the IT Staffing
business was not acquired until 1998 and the Company had no international
operations in those years.
23
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
11. Commitments and Contingencies
a. Leases
Iron Mountain leases most of its facilities under various operating leases.
A majority of these leases have renewal options of five to ten years and have
either fixed or Consumer Price Index escalation clauses. The Company also leases
equipment under operating leases, primarily computers which have an average
lease life of three years. Trucks and office equipment are also leased and have
remaining lease lives ranging from one to seven years. Rent expense was $21,114,
$29,332 and $47,049 for the years ended December 31, 1996, 1997 and 1998,
respectively.
Minimum future lease payments are as follows:
<TABLE>
<CAPTION>
Year Operating
- -------------------------------------------- ----------
<S> <C>
1999 .................................. $ 41,700
2000 .................................. 39,999
2001 .................................. 36,928
2002 .................................. 33,545
2003 .................................. 29,442
Thereafter ............................ 141,339
--------
Total minimum lease payments .......... $322,953
--------
--------
</TABLE>
Included in the lease commitments disclosed in the preceding paragraph are
certain five-year operating lease agreements signed in 1998 for specified
records storage warehouses. At the end of the lease term, the Company, at its
option, may: (i) negotiate a renewal of the lease; (ii) purchase the properties
at a price equal to the lessor's original cost (approximately $47.5 million); or
(iii) allow the lease to expire and cause the properties to be sold. The
Company's ability to cause the properties to be sold depends upon its compliance
with certain terms of the lease. Under certain conditions, the Company would
receive any excess of the net sales proceeds over the properties' original cost.
In the event that the net sales proceeds are less than 85% of the properties'
original cost, the Company would make contingent rental payments to the lessor
equal to that difference.
b. Facility Fire
In March 1997, the Company experienced three fires, all of which
authorities have determined were caused by arson. These fires resulted in damage
to one and destruction of the Company's other RIMS facility in South Brunswick
Township, New Jersey.
Some of Iron Mountain's customers or their insurance carriers have asserted
claims as a consequence of the destruction of or damage to their records as a
result of the fires, some of which allege negligence or other culpability on the
part of Iron Mountain. The Company has received notices of claims and lawsuits
filed by customers and abutters seeking damages against the Company and to
rescind their written contracts with Iron Mountain. Iron Mountain denies any
liability as a result of the destruction of or damage to customer records as a
result of the fires, which were beyond its control, and intends to vigorously
defend itself against these and any other lawsuits that may arise. The Company
is also pursuing coverage of these claims and lawsuits with its various
insurers. The claims process is lengthy and its outcome cannot be predicted with
certainty.
24
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
11. Commitments and Contingencies (continued)
Based on its present assessment of the situation, management, after
consultation with legal counsel, does not believe that the fires will have a
material adverse effect on Iron Mountain's financial condition or results of
operations, although there can be no assurance in this regard.
In June 1998, the Company settled several insurance claims, including a
significant claim under its business interruption policy, related to the fires.
Other income, net, for the year ended December 31, 1998 includes a $1.7 million
gain related to the settlement.
c. Other Litigation
Iron Mountain is presently involved as a defendant in various litigation
which has occurred in the normal course of business. Management believes it has
meritorious defenses in all such actions, and in any event, the amount of
damages, if such matters were decided adversely, would not have a material
adverse effect on Iron Mountain's financial condition or results of operations.
12. Related Party Transactions
Iron Mountain leases space to an affiliated company, Schooner Capital LLC
("Schooner") for its corporate headquarters located in Boston, Massachusetts.
For the years ended December 31, 1996, 1997 and 1998, Schooner paid Iron
Mountain rent totaling $68, $85 and $90, respectively. Iron Mountain leased one
facility from a landlord which was a related party. Total rental payments for
the years ended December 31, 1996, 1997 and 1998, for this facility totaled $94,
$99 and $99, respectively. In the opinion of management, both of these leases
were entered into at market prices and terms.
13. Employee Benefit Plans
a. Profit Sharing Retirement Plan
The Company has a defined contribution plan which covers all non-union
employees meeting certain service requirements. Eligible employees may elect to
defer from 1% to 15% of compensation per pay period up to the amount allowed by
the Internal Revenue Code. The Company makes matching contributions based on the
amount of the employee contribution and years of credited service, according to
a schedule as described in the plan documents. The Company has expensed $419,
$642 and $910 for the years ended December 31, 1996, 1997 and 1998,
respectively.
b. Employee Stock Purchase Plan
During 1998, the Company introduced an employee stock purchase plan (the
"ESPP") which is available for participation by substantially all employees who
have met certain service requirements. Eligible employees may elect to
contribute from 1% to 15% of their gross compensation per pay period to the
ESPP. Such contributions are accumulated throughout the year until September 30,
the end of the fiscal year of the ESPP, and are then invested in the Company's
Common Stock. Such shares are purchased at 85% of the lower of the fair value at
the beginning or end of the fiscal year of the ESPP. Once purchased, such shares
are subject to a one year resale restriction. There were no shares granted under
the ESPP during 1998.
25
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
14. Noncash Transactions
The Company used the following as part of the consideration paid for
certain acquisitions:
<TABLE>
<CAPTION>
1996 1997 1998
------ ----------- -----------
<S> <C> <C> <C>
Fair Value of Common Stock Issued ........................................ -- $ 85,863 $ 51,448
Fair Value of Options Issued ............................................. -- 3,071 15,655
Fair Value of Certain Net Assets of a Business Acquired in 1997 .......... -- -- 3,000
</TABLE>
In December 1998, the Company entered into a foreign currency exchange
agreement and has recorded an asset and a liability based upon the exchange
rates as of December 31, 1998. A cash settlement of the agreement occurred in
January 1999.
During 1997, $3,086 of property and equipment, destroyed in a fire, was
transferred to receivable from insurance company.
See Note 5 for liabilities assumed in acquisitions.
15. Subsequent Events
a. Completed Acquisitions
In January 1999, the Company completed the acquisition of a majority
interest in Britannia Data Management Limited ("BDM"), a provider of records
management services in the United Kingdom. Total consideration for the 50.1
percent interest in BDM consisted of $49.8 million, including $47.3 million in
cash and the balance in the capital stock of the Company's pre-existing United
Kingdom subsidiary. The acquisition will be accounted for as a purchase.
On April 1, 1999, the Company acquired all of the outstanding capital
stock of First American Records Management, Inc. for total consideration of
$41.5 million.
Effective April 1, 1999, the Company acquired all of the outstanding
capital stock of Data Base, Inc. and certain related real estate for
approximately $116 million, including estimated transaction costs. The
consideration was comprised of 1,476,577 shares of the Company's Common Stock
with a fair value of $46.0 million and the balance in cash and assumed debt.
As part of the Data Base acquisition, the Company agreed to, and subsequently
did, repurchase all 1,477 shares of its Common Stock issued to the sellers
with a portion of the net proceeds from its May 1999 equity offering.
On June 2, 1999, BDM acquired MAP, S.A. and related companies for
aggregate consideration of approximately $17 million, based on an exchange
rate of 6.2699 French Francs per $1 on June 2, 1999. Memogarde, headquartered
and operating in Paris, France, is a leading provider of data security
services in France.
b. Line of Credit Agreement
In January 1999, the Company entered into a $10 million credit facility
with a bank that matures on September 30, 1999. Interest on borrowings under
this facility will be paid monthly at the lender's index rate plus one-half of
one percent. Restrictive covenants under this agreement are similar to those on
the Company's $250 million revolving credit facility discussed in Note 4.
c. Financing Activities
On April 26, 1999, the Company completed the sale, in a private
placement to qualified institutional buyers, of $150 million in aggregate
principal amount of its 8 1/4% Senior Subordinated Notes due 2011 (the "1999
Notes"). The 1999 Notes were issued at a price to investors of 99.64% of par.
The net proceeds from the sale of the 1999 Notes were used to repay
outstanding indebtedness under the Company's revolving credit facility.
On May 17, 1999, the Company issued and sold an aggregate of 5.8 million
shares (including approximately 0.8 million shares to cover over-allotments)
of its Common Stock in an underwritten public offering at a price to the
public of $28.00 per share. Net proceeds to the Company after deducting
underwriting discounts and commissions were $153.8 million and were used: (i)
to repurchase all of the 1,476,577 shares of the Company's Common Stock
issued in connection with the acquisition of Data Base at a purchase price of
$26.74 per share; (ii) to repay outstanding indebtedness under the revolving
credit facility; and (iii) for general corporate purposes, including the
funding of possible future acquisitions.
d. Discontinued Operations
In June 1999, the Company made a decision to sell its Information
Technology staffing business, Arcus Staffing Resources, Inc. ("Arcus
Staffing" or "IT Staffing"). Iron Mountain acquired Arcus Staffing in January
1998 as part of its acquisition of Arcus Group, Inc. The Company intends to
complete the sale in 1999. In 1998, Arcus Staffing reported revenues of $39.6
million and EBITDA of $1.5 million.
Iron Mountain has accounted for the sale of Arcus Staffing as
discontinued operations in accordance with APB No. 30. Accordingly, the
fiscal 1998 results of operations of Arcus Staffing have been segregated from
continuing operations and reported as a separate line item on the
accompanying consolidated statement of operations as discontinued operations.
The Company expects to report a loss on the sale of the Arcus Staffing
business in its 1999 second quarter results, although the amount is not
determinable at this time. The loss will be reported separately from results
of continuing operations.
26
<PAGE>
IRON MOUNTAIN INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 4,899 $ 1,715
Accounts Receivable (less allowances of $3,759
and $3,316 respectively) 84,378 75,565
Foreign Currency Transaction Receivable -- 45,885
Deferred Income Taxes 10,477 10,474
Prepaid Expenses and Other 10,300 10,298
----------- -----------
Total Current Assets 110,054 143,937
PROPERTY, PLANT AND EQUIPMENT:
Property, Plant and Equipment 421,594 354,101
Less: Accumulated Depreciation (109,773) (87,358)
----------- -----------
Property, Plant and Equipment, net 311,821 266,743
OTHER ASSETS:
Goodwill, net 600,715 527,235
Customer Acquisition Costs, net 11,008 9,574
Deferred Financing Costs, net 13,176 13,392
Other 5,970 6,504
----------- -----------
Total Other Assets 630,869 556,705
----------- -----------
Total Assets $ 1,052,744 $ 967,385
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current Portion of Long-term Debt $ 4,219 $ 1,731
Accounts Payable 13,656 20,620
Accrued Expenses 55,612 48,539
Foreign Currency Transaction Payable -- 46,200
Deferred Income 30,142 26,043
Other 339 339
----------- -----------
Total Current Liabilities 103,968 143,472
LONG-TERM DEBT, NET OF CURRENT PORTION 537,096 454,447
OTHER LONG-TERM LIABILITIES 8,955 8,925
DEFERRED RENT 9,956 9,616
DEFERRED INCOME TAXES 14,442 12,043
MINORITY INTEREST 39,470 --
STOCKHOLDERS' EQUITY:
Common Stock 295 294
Additional Paid-in Capital 356,626 355,927
Accumulated Deficit (17,488) (17,339)
Accumulated Other Comprehensive Income (576) --
----------- -----------
Total Stockholders' Equity 338,857 338,882
----------- -----------
Total Liabilities and Stockholders' Equity $ 1,052,744 $ 967,385
----------- -----------
----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
27
<PAGE>
IRON MOUNTAIN INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
REVENUES:
Storage $ 67,722 $ 52,948
Service and Storage Material Sales 41,649 36,108
--------- ---------
Total Revenues 109,371 89,056
OPERATING EXPENSES:
Cost of Sales (Excluding Depreciation) 54,435 44,917
Selling, General and Administrative 27,875 22,360
Depreciation and Amortization 13,595 11,058
--------- ---------
Total Operating Expenses 95,905 78,335
--------- ---------
OPERATING INCOME 13,466 10,721
INTEREST EXPENSE 11,944 12,314
--------- ---------
Income (Loss) from Continuing Operations Before Provision
(Benefit) for Income Taxes and Minority Interest in Net
Income of Consolidated Subsidiaries 1,522 (1,593)
PROVISION (BENEFIT) FOR INCOME TAXES 1,623 (1,045)
MINORITY INTEREST IN NET INCOME OF CONSOLIDATED SUBSIDIARIES 147 --
--------- ---------
Loss from Continuing Operations (248) (548)
Income from Discontinued Operations (net of tax provision
of $139 and $219, respectively) 99 234
--------- ---------
Net Loss $ (149) $ (314)
--------- ---------
--------- ---------
Loss Per Common Share from Continuing Operations -
Basic and Diluted $ (0.01) $ (0.02)
Income per Common Share from Discontinued
Operations - Basic and Diluted -- 0.01
--------- ---------
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.01) $ (0.01)
--------- ---------
--------- ---------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 29,500 22,269
--------- ---------
--------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
28
<PAGE>
IRON MOUNTAIN INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (149) $ (314)
Adjustments to Reconcile Net Loss to Loss
from Continuing Operations:
Income from Discontinued Operations (Note 8) 99 234
--------- ---------
Loss from Continuing Operations (248) (548)
Adjustments to Reconcile Loss from Continuing Operations to
Net Cash Provided by Operating Activities of Continuing
Operations:
Minority Interest 147 --
Depreciation and Amortization 13,595 11,058
Amortization of Deferred Financing Costs 454 450
Provision for Doubtful Accounts 350 443
Loss on Foreign Currency Transaction 55 --
Deferred Income Taxes 1,566 (1,005)
Changes in Assets and Liabilities (Exclusive of Acquisitions):
Accounts Receivable (2,204) (5,552)
Prepaid Expenses and Other Current Assets 1,522 99
Other Assets (72) 1,340
Accounts Payable (8,545) (2,990)
Accrued Expenses 2,611 1,940
Deferred Income 614 3,016
Other Current Liabilities -- (251)
Deferred Rent 340 369
Other Long-term Liabilities (49) (33)
--------- ---------
Cash Flows Provided by Continuing Operations 10,136 8,326
Cash Flows Provided by (Used in) Discontinued Operations (752) 526
--------- ---------
Cash Flows Provided by Operating Activities 9,384 8,852
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Paid for Acquisitions (54,489) (112,522)
Capital Expenditures (18,293) (10,121)
Additions to Customer Acquisition Costs (1,643) (778)
--------- ---------
Cash Flows Used in Continuing Operations (74,425) (123,421)
Cash Flows Used in Discontinued Operations (61) (96)
--------- ---------
Cash Flows Used in Investing Activities (74,486) (123,517)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Debt (8,171) (9,465)
Net Proceeds from Borrowings 76,100 101,700
Debt Financing Costs (238) (336)
Proceeds from Exercise of Stock Options 620 876
Stock Issuance Costs (4) (308)
--------- ---------
Cash Flows Provided by Continuing Operations 68,307 92,467
Cash Flows Provided by Discontinued Operations -- --
--------- ---------
Cash Flows Provided by Financing Activities 68,307 92,467
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS (21) --
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,184 (22,198)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,715 24,510
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,899 $ 2,312
--------- ---------
--------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
29
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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, 1998,
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 elsewhere in
this Current Report on Form 8-K for the year ended December 31, 1998.
(2) COMPREHENSIVE INCOME (LOSS)
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," requires presentation of the components of comprehensive income (loss),
including the changes in equity from non-owner sources such as unrealized gains
(losses) on securities and foreign currency translation adjustments. The
Company's total comprehensive income (loss) is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
----- -----
<S> <C> <C>
Comprehensive Loss:
Net Loss $(149) $(314)
Other Comprehensive Loss:
Foreign Currency Translation Adjustment (981) --
Income Tax Benefit Related to Items
of Other Comprehensive Loss 405 --
----- -----
Other Comprehensive Loss, Net of Tax (576) --
----- -----
Comprehensive Loss $(725) $(314)
----- -----
----- -----
</TABLE>
30
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except Per Share Data)
(Unaudited)
(Continued)
(3) ACQUISITIONS
During the three months ended March 31, 1999, the Company purchased
substantially all of the assets, and assumed certain liabilities, of three
records and information management businesses and purchased a controlling
50.1% interest in Britannia Data Management Limited ("BDM"), a provider of
records and information management services in the United Kingdom
(collectively, the "1999 Acquisitions"). Each of the 1999 Acquisitions and
all 15 of the records and information management businesses acquired during
1998 (the "1998 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 1999 and
1998 acquisitions, related real estate was also purchased. The aggregate
purchase price for the 1999 Acquisitions was comprised of cash and the
capital stock of Arcus Data Security Limited ("ADS"), the Company's existing
data security business in London, and exceeded the underlying fair value of
the net assets acquired by $15,864 which has been assigned to goodwill and is
being amortized over 25 to 30 years. The $63,586 of goodwill recorded by BDM
relates to the 1996 acquisition of BDM by Mentmore Abbey plc. The purchase
price allocations are preliminary and subject to adjustment.
A summary of the total consideration and the preliminary allocation of the
aggregate purchase price of the 1999 Acquisitions, as of the acquisition dates,
is as follows:
<TABLE>
<S> <C>
Purchase Price:
Cash Paid $ 54,489
Fair Value of ADS Capital Stock 2,489
--------
Total Purchase Price $ 56,978
--------
--------
Allocation of Purchase Price:
Current Assets $ 7,297
Property, Plant & Equipment 34,703
Other Assets 6,902
Fair Value of ADS Net Assets 2,489
Goodwill Recorded by BDM 63,586
Goodwill Recorded by Iron Mountain 15,864
Liabilities Assumed (34,540)
Minority Interest (39,323)
--------
Total Allocation of Purchase Price $ 56,978
--------
--------
</TABLE>
31
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except Per Share Data)
(Unaudited)
(Continued)
(3) ACQUISITIONS (CONTINUED)
The following unaudited pro forma information shows the results of the
Company's operations for the three months ended March 31, 1999 and the year
ended December 31, 1998 as though each of the 1999 Acquisitions and 1998
Acquisitions had occurred as of January 1, 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Revenues $ 109,718 $ 434,585
Loss from Continuing Operations (450) (12,592)
Net Loss (351) (12,391)
Loss Per Share from Continuing
Operations - Basic and Diluted (0.02) (0.44)
Net Loss Per Share - Basic and Diluted (0.01) (0.43)
</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 January 1, 1998 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.
(4) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
8-3/4% Senior Subordinated Notes
(the "1997 Notes") $ 249,576 $ 257,813 $ 249,566 $ 257,500
10-1/8% Senior Subordinated
Notes (the "1996 Notes") 165,000 178,819 165,000 178,200
Revolving Credit Facility 103,500 103,500 35,300 35,300
Real Estate Mortgages 2,274 2,274 2,349 2,349
Other 20,965 20,965 3,963 3,963
--------- ---------
Total Long-term Debt 541,315 456,178
Less: Current Portion (4,219) (1,731)
--------- ---------
Long-term Debt, Net of
Current Portion $ 537,096 $ 454,447
--------- ---------
--------- ---------
</TABLE>
The estimated fair values for the long-term debt are based on the borrowing
rates available to the Company at March 31, 1999 and December 31, 1998 for loans
with similar terms and average maturities.
32
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except Per Share Data)
(Unaudited)
(Continued)
(5) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-
GUARANTORS
The 1996 Notes and the 1997 Notes are fully and unconditionally guaranteed, on a
joint and several senior subordinated basis, by most, but not all, of the
Company's direct and indirect subsidiaries (the "Guarantors"). Currently, BDM
and its subsidiaries, along with certain parent holding companies, (the
"Non-Guarantors") are the only subsidiaries that do not guarantee the 1996 Notes
or the 1997 Notes.
Prior to the acquisition of BDM in January 1999, substantially all of the
Company's operations were conducted by its direct and indirect wholly owned
subsidiaries, all of which, other than Arcus Data Security Limited, were
guarantors of the 1996 Notes and 1997 Notes. Arcus Data Security Limited
represented less than 1% of the Company's consolidated revenues and was not
material to its results of operations. The Company's management does not believe
that separate financial statements of, and other disclosures with respect to,
the Guarantors for periods prior to 1999 are meaningful or material to
investors. Accordingly, no such financial statements were provided.
The following financial data summarizes the consolidating Company on the equity
method of accounting as of and for the first quarter of 1999:
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 2 $ 1,810 $ 3,087 $ -- $ 4,899
Accounts Receivable -- 77,596 6,782 -- 84,378
Other Current Assets -- 20,041 1,400 (664) 20,777
---------- ---------- ---------- ---------- ----------
Total Current Assets 2 99,447 11,269 (664) 110,054
PROPERTY, PLANT AND EQUIPMENT, NET -- 279,755 32,066 -- 311,821
OTHER ASSETS:
Due From Affiliates 198,604 -- -- (198,604) --
Long-term Notes Receivable from Affiliates 418,638 -- -- (418,638) --
Investment in Subsidiaries 236,435 48,576 -- (285,011) --
Goodwill, net -- 528,186 72,529 -- 600,715
Other 12,507 17,647 -- -- 30,154
---------- ---------- ---------- ---------- ----------
Total Other Assets 866,184 594,409 72,529 (902,253) 630,869
---------- ---------- ---------- ---------- ----------
Total Assets $ 866,186 $ 973,611 $ 115,864 $ (902,917) $1,052,744
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
TOTAL CURRENT LIABILITIES $ 9,253 $ 83,145 $ 12,234 $ (664) $ 103,968
LONG-TERM DEBT, NET OF CURRENT PORTION 518,076 4,385 14,635 -- 537,096
DUE TO AFFILIATES -- 198,604 -- (198,604) --
LONG-TERM NOTES PAYABLE TO AFFILIATES -- 418,638 -- (418,638) --
OTHER LONG-TERM LIABILITIES -- 32,404 949 -- 33,353
MINORITY INTEREST -- -- 39,470 -- 39,470
STOCKHOLDERS' EQUITY 338,857 236,435 48,576 (285,011) 338,857
---------- ---------- ---------- ---------- ----------
Total Liabilities and Stockholders' Equity $ 866,186 $ 973,611 $ 115,864 $ (902,917) $1,052,744
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
33
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except Per Share Data)
(Unaudited)
(Continued)
(5) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-
GUARANTORS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Storage $ -- $ 66,113 $ 1,609 $ -- $ 67,722
Service and Storage Material Sales -- 40,352 1,297 -- 41,649
--------- --------- --------- --------- ---------
Total Revenues -- 106,465 2,906 -- 109,371
OPERATING EXPENSES:
Cost of Sales (Excluding Depreciation) -- 52,778 1,657 -- 54,435
Selling, General and Administrative 124 27,313 438 -- 27,875
Depreciation and Amortization -- 13,242 353 -- 13,595
--------- --------- --------- --------- ---------
Total Operating Expenses 124 93,333 2,448 -- 95,905
--------- --------- --------- --------- ---------
OPERATING INCOME (LOSS) (124) 13,132 458 -- 13,466
INTEREST INCOME (10,360) -- -- 10,360 --
INTEREST EXPENSE 11,719 10,501 84 (10,360) 11,944
EQUITY IN THE EARNINGS OF SUBSIDIARIES (1,334) (20) -- 1,354 --
--------- --------- --------- --------- ---------
Income (loss) from Continuing Operations
Before Provision for Income Taxes and
Minority Interest in Net Income of
Consolidated Subsidiaries (149) 2,651 374 (1,354) 1,522
PROVISION FOR INCOME TAXES -- 1,416 207 -- 1,623
MINORITY INTEREST IN NET INCOME OF
CONSOLIDATED SUBSIDIARIES -- -- 147 -- 147
--------- --------- --------- --------- ---------
Income (Loss) from Continuing
Operations (149) 1,235 20 (1,354) (248)
Income from Discontinued Operations
(net of tax provision of $139) -- 99 -- -- 99
--------- --------- --------- --------- ---------
Net Income (Loss) $ (149) $ 1,334 $ 20 $ (1,354) $ (149)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
34
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except Per Share Data)
(Unaudited)
(Continued)
(5) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-
GUARANTORS (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash Flows Provided by (Used in) Continuing
Operations $(21,975) $ 31,618 $ 493 $ -- $ 10,136
Cash Flows Used in Discontinued
Operations -- (752) -- -- (752)
-------- -------- -------- -------- --------
Cash Flows Provided by (Used in)
Operating Activities (21,975) 30,866 493 -- 9,384
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Subsidiaries (46,613) (46,643) -- 93,256 --
Cash Paid for Acquisitions -- (10,656) (43,833) -- (54,489)
Capital Expenditures -- (18,166) (127) -- (18,293)
Additions to Customer Acquisition Costs -- (1,643) -- -- (1,643)
-------- -------- -------- -------- --------
Cash Flows Used in Continuing Operations (46,613) (77,108) (43,960) 93,256 (74,425)
Cash Flows Used in Discontinued Operations -- (61) -- -- (61)
-------- -------- -------- -------- --------
Cash Flows Used in Investing Activities (46,613) (77,169) (43,960) 93,256 (74,486)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Debt (7,900) (203) (68) -- (8,171)
Net Proceeds from Borrowings 76,100 -- -- -- 76,100
Equity Contribution from Parent -- 46,613 46,643 (93,256) --
Proceeds from Exercise of Stock Options 620 -- -- -- 620
Debt Financing and Stock Issuance Costs (242) -- -- -- (242)
-------- -------- -------- -------- --------
Cash Flows Provided by Continuing Operations 68,578 46,410 46,575 (93,256) 68,307
Cash Flows Provided by Discontinued Operations -- -- -- -- --
-------- -------- -------- -------- --------
Cash Flows Provided by Financing Activities 68,578 46,410 46,575 (93,256) 68,307
EFFECT OF EXCHANGE RATES ON CASH AND CASH
EQUIVALENTS -- -- (21) -- (21)
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (10) 107 3,087 -- 3,184
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 12 1,703 -- -- 1,715
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2 $ 1,810 $ 3,087 $ -- $ 4,899
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
35
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except Per Share Data)
(Unaudited)
(Continued)
(6) EARNINGS PER SHARE
In accordance with Statement of Financial Accounting Standards No. 128, basic
per share data is calculated by dividing net loss from continuing operations
or net loss by the weighted average number of common shares outstanding. The
calculation of diluted per share data is consistent with that of basic per
share data 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, 1999 and 1998, 875 and 1,587 potential shares,
respectively, have been excluded from the calculation of diluted per share
data, as their effects are antidilutive.
(7) SEGMENT REPORTING
Iron Mountain classifies its operations into two fundamental businesses:
records and information management services ("RIMS") and information
technology staffing ("IT Staffing"). As discussed in Note 8, Iron Mountain
decided to sell the IT Staffing operations and has classified operations from
this business segment as a discontinued operation on the condensed
consolidated statements of operations and cash flows as of March 31, 1999 and
1998, herein. The reportable segments are managed separately since each
business has different economic characteristics based on the differing
customer requirements and the nature of the services provided. The Company
assesses performance based on earnings before interest, taxes, depreciation,
amortization, extraordinary items and other income ("EBITDA").
<TABLE>
<CAPTION>
IT
RIMS STAFFING TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1999:
Revenues from External Customers $ 109,371 $ 10,732 $ 120,103
Revenues from Other Operating Segments -- 113 113
---------- ---------- ----------
Total Reportable Segment Revenues $ 109,371 $ 10,845 $ 120,216
---------- ---------- ----------
---------- ---------- ----------
EBITDA $ 27,061 $ 488 $ 27,549
Segment Assets as of March 31, 1999 $1,025,386 $ 27,358 $1,052,744
THREE MONTHS ENDED MARCH 31, 1998:
Revenues from External Customers $ 89,056 $ 10,428 $ 99,484
Revenues from Other Operating Segments -- 54 54
---------- ---------- ----------
Total Reportable Segment Revenues $ 89,056 $ 10,482 $ 99,538
---------- ---------- ----------
---------- ---------- ----------
EBITDA $ 21,779 $ 677 $ 22,456
Segment Assets as of December 31, 1998 $ 940,698 $ 26,687 $ 967,385
</TABLE>
36
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except Per Share Data)
(Unaudited)
(Continued)
(7) SEGMENT REPORTING (CONTINUED)
A reconciliation of the totals reported for the reportable operating segments
to the applicable line items in the condensed consolidated financial
statements is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
--------- ---------
<S> <C> <C>
TOTAL REVENUES:
Total Revenues from Reportable Segments $ 120,216 $ 99,538
Revenues from Discontinued Operation (10,732) (10,428)
Intercompany Eliminations and Other Revenues (113) (54)
--------- ---------
Total Consolidated Revenues from Continued
Operations $ 109,371 $ 89,056
--------- ---------
--------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
PROVISION FOR INCOME TAXES AND MINORITY
INTEREST IN NET INCOME OF CONSOLIDATED
SUBSIDIARIES:
Total EBITDA from Continuing Operations $ 27,061 $ 21,779
Depreciation and Amortization (13,595) (11,058)
Interest Expense (11,944) (12,314)
---------- ---------
Income (Loss) from Continuing Operations
Before Provision for Income Taxes
and Minority Interest in Net Income of
Consolidated Subsidiaries $ 1,522 $ (1,593)
---------- ---------
---------- ---------
</TABLE>
(8) SUBSEQUENT EVENTS
On April 1, 1999, the Company acquired all of the outstanding capital stock of
First American Records Management, Inc. for total consideration of $41.5
million.
Effective April 1, 1999, the Company acquired all the outstanding capital
stock of Data Base, Inc. and certain related real estate for approximately
$116 million, including estimated transaction costs. The consideration was
comprised of 1,477 shares of the Company's Common Stock with a fair value of
$46.0 million and the balance in cash and assumed debt. As part of the Data
Base acquisition, the Company agreed to, and subsequently did, repurchase all
1,477 shares of its Common Stock issued to the sellers with a portion of the
net proceeds from its May 1999 equity offering.
On April 26, 1999, the Company completed the sale, in a private placement to
qualified institutional buyers, of $150 million in aggregate principal amount of
its 8 1/4% Senior Subordinated Notes due 2011 (the "1999 Notes"). The 1999 Notes
were issued at a price to investors of 99.64% of par. The net proceeds from the
sale of the 1999 Notes were used to repay outstanding indebtedness under the
Company's revolving credit facility.
37
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except Per Share Data)
(Unaudited)
(Continued)
(8) SUBSEQUENT EVENTS (CONTINUED)
On May 17, 1999, the Company issued and sold an aggregate of 5.8 million
shares (including approximately 0.8 million shares to cover over-allotments)
of its Common Stock in an underwritten public offering at a price to the
public of $28.00 per share. Net proceeds to the Company after deducting
underwriting discounts and commissions were $153.8 million and were used: (i)
to repurchase all of the 1,477 shares of the Company's Common Stock issued in
connection with the acquisition of Data Base at a purchase price of $26.74
per share; (ii) to repay outstanding indebtedness under the revolving credit
facility; and (iii) for general corporate purposes, including the funding of
possible future acquisitions.
On June 2, 1999, BDM acquired MAP, S.A. and related companies for aggregate
consideration of approximately $17 million, based on an exchange rate of
6.2699 French Francs per $1 on June 2, 1999. Memogarde, headquartered and
operating in Paris, France, is a leading provider of data security services
in France.
In June 1999, the Company made a decision to sell its Information Technology
staffing business, Arcus Staffing Resources, Inc. ("Arcus Staffing" or "IT
Staffing"). Iron Mountain acquired Arcus Staffing in January 1998 as part of
its acquisition of Arcus Group, Inc. The Company intends to complete the sale
in 1999. For the first three months of 1999 and 1998, Arcus Staffing reported
revenues of $10.7 million and $10.4 million, respectively, and EBITDA of $0.1
million and $0.2 million, respectively.
Iron Mountain has accounted for the sale of Arcus Staffing as discontinued
operations in accordance with APB No.30. Accordingly, the fiscal 1999 and
1998 results of operations of Arcus Staffing have been segregated from
continuing operations and reported as a separate line item on the
accompanying consolidated statement of operations as discontinued operations.
The Company expects to report a loss on the sale of the Arcus Staffing
business in its 1999 second quarter results, although the amount is not
determinable at this time. The loss will be reported separately from results
of continuing operations.
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the Selected
Consolidated Financial and Operating Information and Iron Mountain's
Consolidated Financial Statements and the Notes thereto and the other financial
and operating information included elsewhere in this filing.
Overview
Our primary financial objective is to increase our consolidated EBITDA,
which is a source of funds for investment in continued internal growth and
growth through acquisitions and to service indebtedness. We have benefited
from growth in consolidated EBITDA from continuing operations, which has
increased from $33.6 million for 1996 to $96.0 million for 1998 (a compound
annual growth rate of 68.9%). However, this objective has negatively affected
other measures of our financial performance, such as consolidated net income
and consolidated net income applicable to common stockholders.
For each of the three years in the period ended December 31, 1998 and the
three months ended March 31, 1999, we experienced consolidated net losses
applicable to common stockholders. We attribute such losses in part to
significant charges associated with our pursuit of our growth strategy, namely:
o increases in depreciation and amortization expenses associated with
expansion of our storage capacity,
o increases in goodwill amortization associated with acquisitions accounted
for under the purchase method and
o increases in interest expense associated with the borrowings used to fund
our acquisitions.
In addition, consolidated net income applicable to common stockholders was
negatively affected in 1996 by an extraordinary charge related to the early
retirement of debt.
In June 1999, in order to focus on our records and information
management services business we decided to sell Arcus Staffing. We acquired
Arcus Staffing in January 1998 as part of our acquisition of Arcus Group.
We intend to complete this transaction in the second half of 1999, though we
can give no assurance in this regard. In 1998, Arcus Staffing contributed
$1.5 million of EBITDA on revenues of $39.6 million.
We will account for the sale of Arcus Staffing as a discontinued
operation. Accordingly, the results of operations of Arcus Staffing have been
segregated from continuing operations and reported as a separate line item on
our consolidated statements of operations. We expect to report a loss on the
sale of the Arcus Staffing business in our 1999 second quarter results,
though we can give no assurance in this regard. The amount of that loss is
not determinable at this time. The loss will be reported separately from the
results of our continuing operations.
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 (either on a per unit or per cubic foot of records
basis) and have accounted for approximately 60% of total records and
information management services revenues in each of the last five years. In
certain circumstances, based upon customer requirements, storage revenues
include periodic charges associated with normal, recurring service activities.
Service and storage material sales revenues are comprised of charges for
related service activities and the sale of storage materials and are derived
primarily from our courier operations, consisting primarily of the pickup and
delivery of records upon customer request, additions of new records, temporary
removal of records from storage, refiling of removed records, destructions of
records, permanent withdrawals from storage and sales of specially designed
storage containers, magnetic media, including computer tapes, and related
supplies. Customers are generally billed on a monthly basis on contractually
agreed-upon terms.
Cost of sales (excluding depreciation) consists primarily of wages and
benefits, facility occupancy costs, vehicle and other equipment costs and
supplies. Of these, wages and benefits and facility occupancy costs are the most
significant. Over the past several years, we have been able to reduce per Carton
storage costs by:
o designing racking systems and operating space to maximize facility
storage efficiency,
o negotiating favorable facility leases and having facilities built to our
custom specifications and
o occupying larger facilities, which, when filled, are less expensive per
Carton to operate.
39
<PAGE>
Selling, general and administrative expenses consist primarily of
management, administrative, sales and marketing wages and benefits, as well as
travel, communications, professional fees, bad debts, training, office equipment
and supplies expenses.
Our depreciation and amortization charges result primarily from the
capital-intensive nature of the records and information management services
business and the acquisitions we have completed. The principal components of
depreciation relate to racking systems and related equipment, new buildings and
leasehold improvements, equipment for new facilities and computer system
hardware and software. Amortization primarily relates to goodwill and
noncompetition agreements arising from acquisitions and customer acquisition
costs. We have accounted for all of our acquisitions under the purchase method.
Since the purchase price for records and information management services
companies is usually substantially in excess of the fair value of their net
assets, these purchases have given rise to significant goodwill and,
accordingly, significant levels of amortization. Although amortization is a
non-cash charge, it does decrease reported consolidated net income.
EBITDA is an important financial performance measure in the records and
information management services industry, both for determining the value of
companies within the industry and for defining standards for borrowing from
institutional lenders. Our EBITDA margins from continuing operations were
24.2% for 1996, 24.1% for 1997, 25.0% for 1998 and 24.7% for the three months
ended March 31, 1999. We acquired 16 records and information management
services businesses in 1996, 18 in 1997, 15 in 1998 and four in the first
quarter of 1999, most of which had lower EBITDA margins than the rest of our
records and information management services business. We generally did not
recognize anticipated synergies relating to such acquisitions immediately.
Nonetheless, we have been able to maintain our recent records and information
management services EBITDA margins through increased overall operating
efficiencies and economies of scale and the realization of synergies in
connection with earlier acquisitions.
In March 1997, we experienced three fires that resulted in damage to one
and destruction of our other records and information management services
facility in South Brunswick Township, New Jersey. The affected facilities
represented less than three percent of revenues and less than two percent of
consolidated EBITDA for 1996. The results for the year ended December 31, 1997
do not include any gain or loss resulting from the fires. In June 1998, we
settled several insurance claims, including a significant claim under our
business interruption insurance policy, related to the fires. Other income,
net, for the year ended December 31, 1998 includes a $1.7 million gain related
to this settlement. The calculation of EBITDA does not include this gain. See
"Business--Legal Proceedings" and Note 11 of Notes to Iron Mountain's
Consolidated Financial Statements for a description of certain claims and
proceedings against Iron Mountain relating to these fires.
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 requires computer
software costs associated with internal use software to be expensed as incurred
until specified capitalization criteria are met. SOP 98-1 also defines which
types of costs should be capitalized and which should be expensed. We have
adopted SOP 98-1 prospectively as of January 1, 1999. Based on our current
budget, we expect our 1999 net income to be negatively impacted by
approximately $2 million and our 1999 EBITDA to be negatively impacted by
approximately $4 million.
40
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, information
derived from Iron Mountain's consolidated statements of operations, expressed
as a percentage of total consolidated revenues.
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, March 31,
------------------------------------------ ---------------------------
1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Storage ................................................ 61.9% 60.3% 60.1% 59.5% 61.9%
Service and Storage Material Sales ..................... 38.1 39.7 39.9 40.5 38.1
----- ----- ----- ----- -----
Total Revenues ........................................ 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Operating Expenses:
Cost of Sales (Excluding Depreciation) ................. 51.0 51.2 50.0 50.5 49.8
Selling, General and Administrative .................... 24.8 24.7 25.0 25.1 25.5
Depreciation and Amortization .......................... 12.2 13.0 12.6 12.4 12.4
----- ----- ----- ----- -----
Total Operating Expenses .............................. 88.0 88.9 87.6 88.0 87.7
----- ----- ----- ----- -----
Operating Income ........................................ 12.0 11.1 12.4 12.0 12.3
Interest Expense ........................................ 10.7 13.3 11.9 13.8 10.9
Other Income, Net ....................................... -- -- 0.4 -- --
----- ----- ----- ----- -----
Income (Loss) from Continuing Operations before
Provision (Benefit) for Income Taxes and Minority
Interest .............................................. 1.3 (2.2) 0.9 (1.8) 1.4
Provision (Benefit) for Income Taxes .................... 1.0 -- 1.7 (1.2) 1.5
Minority Interest in Net Income of Consolidated
Subsidairies .......................................... -- -- -- -- 0.1
----- ----- ----- ----- -----
Income (Loss) from Continuing Operations ................ 0.3 (2.2) (0.8) (0.6) (0.2)
Income from Discontinued Operations,
Net of Tax Provision .................................. -- -- 0.1 0.3 0.1
----- ----- ----- ----- -----
Income (Loss) Before Extraordinary Charge ............... 0.3 (2.2) (0.7) (0.3) (0.1)
Extraordinary Charge, Net of Tax Benefit ................ 1.6 -- -- -- --
----- ----- ----- ----- -----
Net Loss ................................................ (1.3) (2.2) (0.7) (0.3) (0.1)
Accretion of Redeemable Put Warrant ..................... 0.2 -- -- -- --
----- ----- ----- ----- -----
Net Loss Applicable to Common Stockholders .............. (1.5)% (2.2)% (0.7)% (0.3)% (0.1)%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
EBITDA from Continuing Operations ....................... 24.2% 24.1% 25.0% 24.4% 24.7%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
41
<PAGE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO
THREE MONTHS ENDED MARCH 31, 1998
Consolidated storage revenues increased $14.8 million, or 27.9%, to $67.7
million for the first quarter of 1999, from $52.9 million for the first quarter
of 1998. Internal storage revenue growth was 9.8%. The internal storage revenue
growth resulted primarily from net increases in records and other media stored
by existing customers and from sales to new customers.
Consolidated service and storage material sales revenues increased $5.5
million, or 15.3%, to $41.6 million for the first quarter of 1999 from $36.1
million for the first quarter of 1998. Internal service and storage material
sales revenue growth was 10.0%. The internal revenue growth resulted from
increases in service and storage material sales to existing customers and the
addition of new customer accounts.
For the reasons discussed above, total consolidated revenues increased $20.3
million, or 22.8%, to $109.4 million for the first quarter of 1999 from $89.1
million for the first quarter of 1998. Internal revenue growth was 9.9%.
Consolidated cost of sales (excluding depreciation) increased $9.5 million, or
21.2%, to $54.4 million (49.8% of consolidated revenues) for the first quarter
of 1999 from $44.9 million (50.5% of consolidated revenues) for the first
quarter of 1998. The dollar increase was primarily attributable to the increase
in records and other media stored and expenses related to certain facility
moves.
42
<PAGE>
Consolidated selling, general and administrative expenses increased $5.5
million, or 24.7%, to $27.9 million (25.5% of consolidated revenues) for the
first quarter of 1999 from $22.4 million (25.1% of consolidated revenues) for
the first quarter of 1998. The dollar increase was primarily attributable to:
(i) the Company's national sales and marketing meeting occurring in January
1999; (ii) the adoption, effective January 1, 1999, of Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" which requires certain computer software costs associated with
internal use software to be expensed as incurred; and (iii) increased personnel,
office and overhead costs to support the Company's growth.
Consolidated depreciation and amortization expense increased $2.5 million, or
22.9%, to $13.6 million (12.4% of consolidated revenues) for the first quarter
of 1999 from $11.1 million (12.4% of consolidated revenues) for the first
quarter of 1998. The dollar increase was primarily attributable to the
additional depreciation and amortization expense related to the 1998 and 1999
acquisitions, and capital expenditures including racking systems, information
systems and expansion of storage capacity in existing facilities.
As a result of the foregoing factors, consolidated operating income increased
$2.8 million, or 25.6%, to $13.5 million (12.3% of consolidated revenues) for
the first quarter of 1999 from $10.7 million (12.0% of consolidated revenues)
for the first quarter of 1998.
Consolidated interest expense decreased $0.4 million, or 3.0%, to $11.9 million
for the first quarter of 1999 from $12.3 million for the first quarter of 1998.
The decrease was primarily attributable to lower effective interest rates for
the first quarter of 1999 compared to the same period in 1998.
As a result of the foregoing factors, consolidated income (loss) from
continuing operations before provision (benefit) for income taxes and
minority interest in net income of consolidated subsidiaries increased $3.1
million to income of $1.5 million (1.4% of consolidated revenues) for the
first quarter of 1999 from a loss of $1.6 million (1.8% of consolidated
revenues) for the first quarter of 1998. The provision for income taxes was
$1.6 million for the first quarter of 1999 compared to a credit of $1.0
million for the first quarter of 1998. 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 our 1999 acquisitions, the
Company recorded approximately $72.0 million in nondeductible goodwill.
43
<PAGE>
Consolidated net loss decreased $0.2 million to a net loss of $0.1 million (0.1%
of consolidated revenues) for the first quarter of 1999 from a consolidated net
loss of $0.3 million (0.3% of consolidate revenues) for the first quarter of
1998.
As a result of the foregoing factors, consolidated EBITDA from continuing
operations increased $5.3 million, or 24.3%, to $27.1 million (24.7% of
consolidated revenues) for the first quarter of 1999 from $21.8 million
(24.4% of consolidated revenues) for the first quarter of 1998.
44
<PAGE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Consolidated storage revenues increased $104.7 million, or 83.1%, to
$230.7 million for the year ended December 31, 1998 from $126.0 million for the
year ended December 31, 1997, primarily due to the completion of 33
acquisitions during 1998 and 1997. Consolidated storage revenue internal
revenue growth was 10.2% and resulted primarily from net increases in records
and other media stored by existing customers and from sales to new customers.
The records and information management services business accounted for all of
the storage revenues for the years ended December 31, 1998 and 1997.
Consolidated service and storage material sales revenues increased $70.5
million, or 85.1%, to $153.3 million for the year ended December 31, 1998 from
$82.8 million for the year ended December 31, 1997, primarily due to
acquisitions. Service and storage material sales internal revenue growth was
14.6% and resulted from increases in service and storage material sales to
existing customers and the addition of new customer accounts.
For the reasons discussed above, total consolidated revenues increased
$175.2 million, or 83.9%, to $384.0 million for the year ended December 31, 1998
from $208.8 million for the year ended December 31, 1997. Total internal revenue
growth was 11.9%.
Consolidated cost of sales (excluding depreciation) increased $85.2
million, or 79.7%, to $192.1 million (50.0% of consolidated revenues) for the
year ended December 31, 1998 from $106.9 million (51.2% of consolidated
revenues) for the year ended December 31, 1997. We attribute the dollar increase
primarily to the increase in records and other media stored and expenses related
to facility relocations. We attribute the decrease as a percentage of revenues
primarily to:
o particular data security acquisitions, including the Arcus Group
acquisition, and the acquisition of a software escrow business, acquired
in the third quarter of 1997, having a higher gross margin than the rest
of Iron Mountain and
o the closing of redundant facilities associated with particular
acquisitions.
Consolidated selling, general and administrative expenses increased $44.2
million, or 85.5%, to $95.9 million (25.0% of consolidated revenues) for the
year ended December 31, 1998 from $51.7 million (24.7% of consolidated
revenues) for the year ended December 31, 1997. We attribute the dollar
increase primarily to:
o the addition of overhead attributable to the Arcus Group acquisition,
o additional salespeople, primarily related to the acquisitions of Arcus
Group and Safesite Records Management Corporation and our decision to
significantly increase our selling resources,
o increased personnel, office and overhead costs to support our growth and
o recruiting, relocation and training expenses associated with acquisition
integration.
45
<PAGE>
Consolidated depreciation and amortization expense increased $21.2
million, or 78.2%, to $48.3 million (12.6% of consolidated revenues) for the
year ended December 31, 1998 from $27.1 million (13.0% of consolidated
revenues) for the year ended December 31, 1997. We attribute the dollar
increase primarily to the additional depreciation and amortization expense
related to our acquisitions and capital expenditures for our records and
information management services businesses, including racking systems,
information systems and expansion of storage capacity in existing facilities.
As a result of the foregoing factors, consolidated operating income
increased $24.6 million, or 106.3%, to $47.7 million (12.4% of consolidated
revenues) for the year ended December 31, 1998 from $23.1 million (11.1% of
consolidated revenues) for the year ended December 31, 1997.
Consolidated interest expense increased $18.0 million, or 64.8%, to $45.7
million for the year ended December 31, 1998 from $27.7 million for the year
ended December 31, 1997. We attribute the increase primarily to increased
indebtedness related to the financing of acquisitions and capital expenditures.
Such increase was partially offset by lower effective interest rates for the
year ended December 31, 1998 compared to the same period in 1997.
Consolidated other income for the year ended December 31, 1998 is
comprised of a $1.7 million gain resulting from the settlement of several
insurance claims, including a significant claim under our business interruption
insurance policy, related to the March 1997 fires at our South Brunswick
Township, New Jersey facilities. A $0.3 million loss on a foreign currency
transaction in connection with our acquisition of Britannia Data Management
partially offset such gain.
As a result of the foregoing factors, consolidated income (loss) from
continuing operations before the provision (benefit) for income taxes increased
$8.0 million to income of $3.4 million (0.9% of consolidated revenues) for the
year ended December 31, 1998 from a loss of $4.6 million (2.2% of consolidated
revenues) for the year ended December 31, 1997. The provision for income taxes
was $6.6 million for the year ended December 31, 1998 compared to a credit of
$0.1 million for the year ended December 31, 1997. Our effective tax rate is
higher than statutory rates primarily due to the amortization of the
nondeductible portion of goodwill associated with particular acquisitions (the
tax laws generally permit deduction of such expenses for asset purchases, but
not for acquisitions of stock). In connection with our 1998 acquisitions, we
recorded approximately $128.1 million in nondeductible goodwill.
Consolidated net loss decreased $1.5 million to a net loss of $3.0 million
(0.7% of consolidated revenues) for the year ended December 31, 1998 from a
consolidated net loss of $4.5 million (2.2% of consolidated revenues) for the
year ended December 31, 1997.
As a result of the foregoing factors, consolidated EBITDA from
continuing operations increased $45.8 million, or 91.1%, to $96.0 million
(25.0% of consolidated revenues) for the year ended December 31, 1998 from
$50.2 million (24.1% of consolidated revenues) for the year ended December
31, 1997.
46
<PAGE>
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Consolidated storage revenues increased $40.2 million, or 46.8%, to $126.0
million for the year ended December 31, 1997 from $85.8 million for the year
ended December 31, 1996. Thirty-four acquisitions completed by Iron Mountain in
1996 and 1997 accounted for $34.0 million, or 84.7%, of such increase. The
balance of such increase resulted from net Carton growth from existing
customers and from sales to new customers.
Consolidated service and storage material sales revenues increased $29.9
million, or 56.5% to $82.8 million for the year ended December 31, 1997 from
$52.9 million for the year ended December 31, 1996. Acquisitions completed by
Iron Mountain in 1996 and 1997 accounted for $25.9 million, or 86.8%, of such
increase. The balance of such increase resulted from increases in service and
storage material sales to existing customers and the addition of new customer
accounts. We attribute the greater percentage increase in service and storage
material sales revenues, as compared to storage revenues, for the year ended
December 31, 1997 primarily to some businesses acquired in 1997 that have a
higher component of service and storage material sales revenues, compared to
storage revenues, than the rest of our records and information management
services business.
For the reasons discussed above, total consolidated revenues increased
$70.1 million, or 50.5%, to $208.8 million for the year ended December 31, 1997
from $138.7 million for the year ended December 31, 1996. We attribute an
increase of $59.9 million, or 42.3 percentage points, to our acquisitions
completed in 1996 and 1997, and an increase of $10.2 million, or 8.2 percentage
points, to internal growth. The internal growth percentage includes the loss of
revenues resulting from the fires in South Brunswick Township, New Jersey in
March 1997. Excluding our South Brunswick operations for both years, internal
growth for the year was 10.1%.
Consolidated cost of sales (excluding depreciation) increased $36.2
million, or 51.1%, to $106.9 million (51.2% of revenues) for the year ended
December 31, 1997 from $70.7 million (51.0% of revenues) for the year ended
December 31, 1996. We attribute the dollar increase primarily to the increase
in Cartons stored and expenses related to facility relocations. We attribute
the increase as a percentage of revenues primarily to recent acquisitions,
which initially have lower gross margins than the rest of Iron Mountain.
Consolidated selling, general and administrative expenses increased $17.4
million, or 50.5%, to $51.7 million (24.7% of revenues) for the year ended
December 31, 1997 from $34.3 million (24.8% of revenues) for the year ended
December 31, 1996. We attribute the dollar increase primarily to:
o increased personnel, office and overhead costs needed to support our
growth,
o the addition of overhead, primarily salespeople, related to the
acquisition of Safesite Records Management and
o the integration, training and redeployment of personnel principally
related to the Safesite Records Management acquisition.
Consolidated depreciation and amortization increased $10.2 million, or
60.1%, to $27.1 million (13.0% of revenues) for the year ended December 31,
1997 from $16.9 million (12.2% of revenues) for the year ended December 31,
1996. We attribute the dollar increase primarily to the additional depreciation
and amortization related to our acquisitions and capital expenditures including
racking systems, information systems and expansion of storage capacity in
existing facilities.
As a result of the foregoing factors, consolidated operating income
increased $6.4 million, or 38.4%, to $23.1 million (11.1% of revenues) for the
year ended December 31, 1997 from $16.7 million (12.0% of revenues) for the
year ended December 31, 1996.
Consolidated interest expense increased $12.8 million, or 86.0%, to $27.7
million for the year ended December 31, 1997 from $14.9 million for the year
ended December 31, 1996. We attribute the increase primarily to increased
indebtedness related to the financing of acquisitions. Lower effective interest
rates for the year ended December 31, 1997 as compared to the same period for
1996 partially offset such increase.
47
<PAGE>
As a result of the foregoing factors, consolidated income (loss) before
provision (benefit) for income taxes decreased $6.4 million to a loss of $4.6
million (2.2% of revenues) for the year ended December 31, 1997 from income of
$1.8 million (1.3% of revenues) for the year ended December 31, 1996. Provision
(benefit) for income taxes was a credit of $0.1 million for the year ended
December 31, 1997 compared with a provision of $1.4 million for the year ended
December 31, 1996. Our effective tax rate is less favorable than statutory
rates primarily due to the amortization of the nondeductible portion of
goodwill associated with particular acquisitions (the tax laws generally permit
deduction of such expenses for asset purchases, but not for acquisitions of
stock). In connection with our 1997 acquisitions, we recorded approximately
$145 million in nondeductible goodwill.
Consolidated net loss increased $2.7 million to a net loss of $4.5 million
(2.2% of revenues) for the year ended December 31, 1997 from a net loss of $1.8
million (1.3% of revenues) for the year ended December 31, 1996. Net loss
applicable to common stockholders increased $2.5 million to a net loss of $4.5
million (2.2% of revenues) for the year ended December 31, 1997 from a net loss
of $2.0 million (1.5% of revenues) after accretion of $0.3 million related to a
redeemable put warrant to acquire 666,578 shares of our common stock for the
year ended December 31, 1996. The warrant was redeemed in full in February 1996
with a portion of the proceeds from our initial public offering. As a result of
such redemption, we will not have any future charges for such accretion.
As a result of the foregoing factors, consolidated EBITDA increased $16.6
million, or 49.3%, to $50.2 million (24.1% of revenues) for the year ended
December 31, 1997 from $33.6 million (24.2% of revenues) for the year ended
December 31, 1996.
Recent Consolidated Quarterly Financial Data
The following table sets forth, for the quarterly periods indicated,
information derived from Iron Mountain's consolidated statements of operations.
The unaudited quarterly information has been prepared on the same basis as the
annual financial information and, in management's opinion, includes all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the information for the quarters presented. The operating results for
any quarter do not necessarily indicate results for the year or for any future
period.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------
1997
----------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
----------- ----------- ---------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Revenues:
Storage ............................... $ 25,823 $ 27,987 $ 32,390 $ 39,768
Service and, Storage Material
Sales ................................ 16,331 18,598 22,265 25,603
-------- -------- -------- --------
Total Revenues ...................... 42,154 46,585 54,655 65,371
Operating Expenses:
Cost of Sales (Excluding
Depreciation) ........................ 21,764 24,108 27,870 33,137
Selling, General and
Administrative ....................... 10,207 11,296 14,180 15,985
Depreciation and Amortization ......... 5,722 6,243 6,530 8,612
-------- -------- -------- --------
Total Operating Expenses ............ 37,693 41,647 48,580 57,734
-------- -------- -------- --------
Operating Income ....................... $ 4,461 $ 4,938 $ 6,075 $ 7,637
-------- -------- -------- --------
-------- -------- -------- --------
EBITDA ................................. $ 10,183 $ 11,181 $ 12,605 $ 16,249
-------- -------- -------- --------
-------- -------- -------- --------
<CAPTION>
Three Months Ended
---------------------------------------------
1998
---------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
----------- ---------- ---------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Revenues:
Storage ............................... $ 52,948 $55,592 $59,506 $ 62,656
Service and, Storage Material
Sales ................................ 36,108 37,872 39,038 40,241
-------- ------- ------- --------
Total Revenues ...................... 89,056 93,464 98,544 102,897
Operating Expenses:
Cost of Sales (Excluding
Depreciation) ........................ 44,917 46,756 49,506 50,934
Selling, General and
Administrative ....................... 22,360 23,638 24,069 25,800
Depreciation and Amortization ......... 11,058 11,903 12,630 12,710
-------- ------- ------- --------
Total Operating Expenses ............ 78,335 82,297 86,205 89,444
-------- ------- ------- --------
Operating Income ....................... $ 10,721 $11,167 $12,339 $13,453
-------- ------- ------- --------
-------- ------- ------- --------
EBITDA from Continuing Operations ...... $ 21,779 $23,070 $24,969 $26,163
-------- ------- ------- --------
-------- ------- ------- --------
</TABLE>
48
<PAGE>
Liquidity and Capital Resources
Recent Financings and Sources of Funds
In May 1999, we issued and sold an aggregate of 5,750,000 shares
(including 750,000 to cover over-allotments) of our common stock in an
underwritten public offering. We had net proceeds after deducting
underwriters' discounts of $153.8 million, which we used to repay outstanding
bank debt, to repurchase 1,476,577 shares of our common stock issued in
connection with our Data Base acquisition, to fund the cash portion of the
purchase price of some of our 1999 acquisitions and for general corporate
purposes.
In April 1999, we completed a private placement of $150 million in
aggregate principal amount of 8-1/4% Senior Subordinated Notes due 2011. We
received net proceeds of approximately $145.0 million from the offering after
deducting discounts, commissions and expenses. We used the net proceeds from
the notes offering to repay indebtedness under our credit agreement.
In connection with certain of our 1998 acquisitions, we issued 2,645,913
shares of our common stock with a fair value of $51.4 million and options to
acquire approximately 885,000 shares of common stock with a fair value of $15.7
million. In 1999, in connection with our Data Base acquisition, we issued
1,476,577 shares of our common stock with a fair value of $46.0 million. We
subsequently repurchased such shares for $39.5 million.
In April 1998, we issued and sold an aggregate of 6,037,500 shares
(including 787,500 to cover over-allotments) of our common stock in an
underwritten public offering. We had net proceeds after deducting
underwriters' discounts of $132.9 million, which we used to repay outstanding
bank debt, to fund the cash portion of the purchase price of some of our 1998
acquisitions and for general corporate purposes.
Our net cash provided by financing activities consisted of:
o $80.6 million for the year ended December 31, 1996, consisting primarily
of the net proceeds of $160.1 million from the sale of our 10-1/8% Senior
Subordinated Notes due 2006 and $33.3 million from our initial public
offering, offset by $102.2 million of repayment of indebtedness and $6.6
million used to retire a redeemable warrant,
o $231.2 million for the year ended December 31, 1997, consisting primarily
of the net proceeds of $242.6 million from the sale of our 8-3/4% Senior
Subordinated Notes due 2009 offset by $10.3 million of repayment of
indebtedness,
o $159.3 million for the year ended December 31, 1998, consisting primarily
of the net proceeds of $132.9 million from our 1998 public equity
offering and additional borrowings under our revolving credit facility of
$23.7 million, and
o $68.3 million for the three months ended March 31, 1999, consisting
primarily of the proceeds from borrowings under our revolving credit
facility of $76.1 million, which were partially offset by repayments of
debt of $8.1 million.
As of March 31, 1999, outstanding borrowings under our credit agreement
amounted to $103.5 million.
As of June 30, 1999, we had indebtedness maturing for the year ending
December 31, 1999 of $4.8 million, for the year ending December 31, 2000 of
$0.8 million, for the year ending December 31, 2001 of $1.7 million, for the
year ending December 31, 2002 of $0.6 million and for the year ending
December 31, 2003 of $0.4 million.
With our acquisition of Britannia Data Management, we assumed a bank
loan with an outstanding balance as of October 31, 1998 of $15.9 million. See
Notes 2 and 4 of the Notes to Britannia Data Management Limited's Combined
Financial Statements.
As of June 30, 1999, Britannia Data Management had total bank debt of
$27.6 million based on applicable exchange rates on that date. $13.4 million
of the borrowings were used to fund the cash portion of the purchase price of
the Memogarde Acquisition.
As of June 30, 1999, excluding the debt of Britannia Data Management and
Memogarde, we had $569.9 million of total debt, all of which had fixed
interest rates. See Note 4 of Notes to Iron Mountain's Consolidated Financial
Statements.
Our net cash provided by continuing operations was $67.1 million for the
year ended December 31, 1998 compared to $22.4 million for the same period in
1997. We attribute the increase primarily to the increase in EBITDA, accounts
payable, other long-term liabilities and deferred income and the decrease in
inventory, prepaid expenses and other current assets.
Our net cash provided by continuing operations was $10.1 million for the
three months ended March 31, 1999 compared to $8.3 million for the same period
in 1998. We attribute the increase primarily to the increase in EBITDA, which
was partially offset by a decrease in trade accounts payable and other changes
in asset and liability accounts.
At December 31, 1998, we had estimated net operating loss carryforwards of
approximately $46.2 million for federal income tax purposes. As a result of
such loss carryforwards, cash paid for income taxes has
49
<PAGE>
historically been substantially lower than the provision for income taxes. The
preceding net operating loss carryforwards do not include preacquisition net
operating loss carryforwards of Arcus Group. As a result of the litigation
relating to Arcus Group's net operating loss carryforwards, we have not
recognized the deferred tax asset generated by such loss carryforwards. If we
receive a favorable outcome in the litigation, any tax benefit realized will be
recorded as a reduction of goodwill.
Capital Investments
As we have sought to increase our EBITDA, we have made significant capital
investments, consisting primarily of:
o acquisitions,
o capital expenditures, primarily related to growth, including
investments in real estate, racking systems, management information
systems and expansion of storage capacity in existing facilities and
o customer acquisition costs.
We paid cash for these investments during 1998 amounting to $189.7 million,
$56.5 million and $3.0 million, respectively. We have funded these investments
primarily through cash flows from operations, borrowings under our revolving
credit facility, a portion of the net proceeds from the sale of our 8-3/4%
Senior Subordinated Notes due 2009 and the net proceeds from our 1998 public
equity offering.
As a result of implementing our acquisition strategy, we paid cash for
acquisitions of $68.5 million in 1996, $192.2 million in 1997 and $189.7
million in 1998. In addition, in connection with certain of our acquisitions,
we issued common stock and options to purchase common stock with an aggregate
fair value of $88.9 million in 1997 and $67.1 million in 1998. From January 1,
1999 through April 30, 1999, we acquired six additional records and information
management services businesses for total consideration of approximately $215
million, including $46.0 million in fair value of our common stock.
Our growth-related capital expenditures were $23.3 million for 1996, $37.1
million for 1997 and $54.0 million for 1998. Growth-related capital
expenditures consist primarily of investments in racking systems, management
information systems, new buildings and expansion of storage capacity in
existing facilities. Our capital expenditures made in order to maintain our
current revenues were $1.1 million for 1996, $1.2 million for 1997 and $1.9
million for 1998.
We currently estimate that our capital expenditures (other than capital
expenditures related to future acquisitions, which we cannot presently
estimate) for 1999 will be approximately $65 to $70 million. We expect to fund
these expenditures with cash flows from operations.
In addition, we incur costs (net of revenues received for the initial
transfer of records) related to the acquisition of large volume accounts. Our
additions to customer acquisition costs were $1.6 million for 1996, $1.6
million for 1997 and $3.0 million for 1998.
Acquisitions
Our acquisitions within the records and information management services
industry have significantly impacted our liquidity and capital resources and,
given our acquisition strategy, may continue to do so for the foreseeable
future.
We have historically financed the cash portion of our acquisitions with
borrowings under our credit agreements in conjunction with cash flows provided
by operations and with the net proceeds of issuances of debt securities and
common stock. Our future interest expense may increase significantly as a
result of the additional indebtedness we may incur to finance possible future
acquisitions. To the extent that we finance future acquisitions with additional
borrowings under our revolving credit facility or other credit facilities, or
the future issuance of debt securities, the resulting increase in debt and
interest expense could negatively effect such measures of liquidity as debt to
equity, EBITDA to debt and EBITDA to interest expense.
In connection with our acquisition program, we undertake certain
restructurings of the acquired businesses. We complete formalized restructuring
plans for acquisitions within one year of the date of
50
<PAGE>
acquisition. The restructuring activities include reductions in staffing
levels, elimination of duplicate facilities and other costs associated with
exiting activities of the acquired businesses. In connection with these
restructuring activities, we established reserves of $6.6 million in 1997 and
$11.4 million in 1998 as part of the purchase accounting for the acquisitions.
We expended $2.2 million during 1997 and $4.7 million during 1998 for
restructuring costs. In addition, we made $0.3 million of adjustments in 1997
and $1.6 million of adjustments in 1998, which reduced goodwill, as a result of
management finalizing restructuring plans within one year of acquisition. These
expenditures consisted primarily of severance costs and costs relating to
exiting facilities. At December 31, 1998, we had a total of $10.5 million
accrued for restructuring costs for all of our then completed acquisitions. We
expect to record reserves for the acquisitions completed between January 1,
1999 and April 30, 1999 and are currently evaluating our restructuring plans.
We will continue to evaluate our restructuring plans regarding these
acquisitions during the year following their completion.
Future Capital Needs
Our ability to generate sufficient cash to fund our needs depends
generally on the results of our operations and the availability of financing.
Management believes that cash flows from operations in conjunction with
borrowings from existing and possible future debt financings will be sufficient
for the foreseeable future to meet debt service requirements and to make
possible future acquisitions and capital expenditures. However, we cannot make
any assurance in this regard or that the terms available for any future
financing, if required, would be favorable to us.
Seasonality
Historically, seasonality has not affected our businesses in any material
respect.
Inflation
Some of our expenses, such as wages and benefits, occupancy costs and
equipment repair and replacement, are subject to normal inflationary pressures.
Although to date we have been able to offset inflationary cost increases
through increased operating efficiencies, we cannot assure that we will be able
to offset any future inflationary cost increases through similar efficiencies
or increased storage or service charges.
Year 2000 Readiness
General
The Year 2000, or Y2K, problem refers to the inability of systems,
primarily software systems, to properly recognize and process date sensitive
information relating to the year 2000 and beyond. In order to respond to this
problem, we have established a Y2K Project Plan. The plan is comprised of five
major phases: awareness, assessment, renovation, validation and implementation.
These phases are applied to three general categories: operational systems
(consisting primarily of inventory and billing systems), financial accounting
systems and other products and services obtained from third parties.
Operational Systems
Our primary operational systems for our records and information
management services segment are Safekeeper-TM-, an internally developed
software application used mainly in our business records operations, and
MediaLink-TM-, a software application obtained from a third party used mainly
in our data security operations. Additionally, as an active acquirer of
businesses, we currently use, and will continue to use, several different
legacy operational systems that have been, and will be, inherited through our
ongoing acquisition program. Both Safekeeper and MediaLink are Y2K compliant.
Based on our assessment, we believe that approximately 85% of our business
units are currently operating with an operational system that is Y2K
compliant or upgradable to a currently available Y2K compliant version of the
existing software. We are currently converting the remaining business units
to a Y2K compliant operational system.
Our information technology staffing business uses commercially available,
off-the-shelf software packages from nationally recognized vendors for its
primary software applications, which include its financial
51
<PAGE>
accounting, time and billing and resume retrieval database systems. Based on
publicly available certifications from the vendors, we believe that these
software packages are Y2K compliant. The information technology staffing
business upgraded its accounting software to the Y2K compliant release in
December 1998, and expects to complete the upgrade of its time and billing
software to the Y2K compliant releases by the end of the second quarter of
1999.
Financial Accounting Systems
As part of our normal course of business, we have several system
improvement initiatives underway. One such initiative involves the installation
of new financial accounting software from Oracle Corporation. Oracle has
certified that its accounting software is Y2K compliant. The installation of
the Oracle software is substantially complete and is expected to be concluded
by the end of the third quarter of 1999.
We currently use, and will continue to use, several different legacy
accounting systems that have been, and will be, inherited through our ongoing
acquisition program. Accordingly, we continue to assess these newly acquired
legacy systems and, based on vendor certifications, we believe that
substantially all of these systems are Y2K compliant. We are in the process of
remediating the remaining systems and expect to complete such remediation
before the end of the third quarter of 1999.
Products and Services Obtained from Third Parties
The products and services we obtain from third parties consist mainly of
(1) facility systems, including telecommunications, climate control systems,
security systems, fire and safety systems, and (2) products and services
purchased from vendors, including third party payroll processing and products
for resale such as cartons and operating supplies. We have substantially
completed assessment of our telecommunications systems and are in the process
of implementing our remediation plan for such systems that are not Y2K
compliant. With respect to our other facility systems and products and services
purchased from vendors, we have substantially completed the assessment phase
and expect to complete the implementation phase by the end of the third quarter
of 1999.
Customers
Our customer base is diversified in terms of revenue and industry
concentration. Only two customers account for more than 1% of total revenues
and no customer accounts for more than 2% of total revenues. Given the nature
of the services we provide to our customers, as well as the diversification of
our customer base, we do not believe that Y2K issues associated with our
customers will have a material adverse effect on our financial condition or
results of operations.
Costs
Based on our current assessment of our Y2K issues, we do not expect the
total cost associated with required modifications to become Y2K compliant to be
material to our financial position. Some costs associated with our pre-existing
system improvement initiatives and the purchase of equipment (including the
financial accounting software developed by Oracle, Safekeeper and MediaLink)
will be capitalized and amortized over their useful lives. Some payroll and
related costs represent the redeployment of existing staff resources rather
than incremental costs to Iron Mountain. All other costs associated with our
Y2K plan will be expensed as incurred. We estimate that our costs associated
with the plan to be incurred in 1999 will be under $3 million. These costs are
included in our operating and capital budgets for 1999.
Contingency Plans
As part of our Y2K project, we have analyzed our points of major risk and
are developing contingency plans as a backup to our remediation effort.
52
<PAGE>
Year 2000 Risks
The failure on our part or one of our suppliers to correct a material Y2K
problem could result in an interruption in, or a failure of, normal business
activities or operations, although we do not know the extent of such a possible
business disruption at this time. We expect the implementation of our Y2K plan
to significantly reduce our level of uncertainty about the Y2K problem. We
believe that, with the completion of our existing system improvement
initiatives and the successful execution of the plan, we will substantially
reduce the likelihood of significant interruptions of normal operations.
However, we cannot assure that we will be able to address the Y2K issues for
all of our software applications and major operating systems in a timely manner
or that we will not encounter unexpected difficulties or significant expenses.
If we or our major third party suppliers of products and services fail to
adequately address our or their Y2K issues, or we fail to successfully
integrate or convert our computer systems generally, our business, financial
condition or results of operations could be materially adversely affected.
53
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated statements of operations and balance
sheet data of Iron Mountain as of and for each of the years ended December 31,
1994, 1995, 1996, 1997 and 1998 is derived from Iron Mountain's audited
consolidated financial statements. The selected consolidated statements of
operations and balance sheet data of Iron Mountain for the three months ended
March 31, 1998 and 1999 have been derived from our unaudited condensed
consolidated financial statements. You should read this information in
conjunction with Iron Mountain's Consolidated Financial Statements and the
footnotes thereto incorporated by reference in this prospectus. See
"Incorporation of Certain Information by Reference."
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Storage........................................... $ 54,098 $ 64,165 $ 85,826 $ 125,968 $ 230,702 $ 52,948 $ 67,722
Service and Storage Material Sales................ 33,520 40,271 52,892 82,797 153,259 36,108 41,649
--------- --------- --------- --------- --------- --------- ---------
Total Revenues.................................. 87,618 104,436 138,718 208,765 383,961 89,056 109,371
Operating Expenses:
Cost of Sales (Excluding Depreciation)............ 45,880 52,277 70,747 106,879 192,113 44,917 54,435
Selling, General and Administrative............... 20,853 26,035 34,342 51,668 95,867 22,360 27,875
Depreciation and Amortization..................... 8,690 12,341 16,936 27,107 48,301 11,058 13,595
--------- --------- --------- --------- --------- --------- ---------
Total Operating Expenses........................ 75,423 90,653 122,025 185,654 336,281 78,335 95,905
--------- --------- --------- --------- --------- --------- ---------
Operating Income.................................... 12,195 13,783 16,693 23,111 47,680 10,721 13,466
Interest Expense, Net............................... 8,954 11,838 14,901 27,712 45,673 12,314 11,944
Other Income, Net(1)................................ -- -- -- -- 1,384 -- --
--------- --------- --------- --------- --------- --------- ---------
Income (Loss) from Continuing Operations
Before Provision (Benefit) for Income Taxes
and Minority Interest............................. 3,241 1,945 1,792 (4,601) 3,391 (1,593) 1,522
Provision (Benefit) for Income Taxes................ 1,957 1,697 1,435 (80) 6,558 (1,045) 1,623
Minority Interest in Net Income of Consolidated
Subsidiaries...................................... -- -- -- -- -- -- 147
--------- --------- --------- --------- --------- --------- ---------
Income (Loss) from Continuing Operations............ 1,284 248 357 (4,521) (3,167) (548) (248)
Income from Discontinued Operations (net of tax
provision)........................................ -- -- -- -- 201 234 99
--------- --------- --------- --------- --------- --------- ---------
Income (Loss) Before Extraordinary Charge........... 1,284 248 357 (4,521) (2,966) (314) (149)
Extraordinary Charge, Net of Tax Benefit(2)......... -- -- 2,126 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net Income (Loss)................................... 1,284 248 (1,769) (4,521) (2,966) (314) (149)
Accretion of Redeemable Put Warrant................. 1,412 2,107 280 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net Loss Applicable to Common Stockholders.......... $ (128) $ (1,859) $ (2,049) $ (4,521) $ (2,966) $ (314) $ (149)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Income (Loss) Per Common Share--Basic and Diluted:
Income (Loss) from Continuing Operations.......... $ (0.40) $ (32.61) $ 0.00 $ (0.26) $ (0.12) $ (0.02) $ (0.01)
Income from Discontinued Operations............... -- -- -- -- 0.01 0.01 --
--------- --------- --------- --------- --------- --------- ---------
Income (Loss) Before Extraordinary Charge......... (0.40) (32.61) 0.00 (0.26) (0.11) (0.01) (0.01)
Extraordinary Charge, Net of Tax Benefit(2)....... -- -- (0.15) -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net Loss Applicable to Common Stockholders........ $ (0.40) $ (32.61) $ (0.15) $ (0.26) $ (0.11) $ (0.01) $ (0.01)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted Average Common Shares Outstanding........ 321 57 13,911 17,172 27,470 22,269 29,500
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro Forma(3):
Net Loss Per Share Applicable to Common
Stockholders.................................. $ (0.01) $ (0.16) $ (0.13) $ (0.26) $ (0.11) $ (0.01) $ (0.01)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted Average Common Shares Outstanding...... 11,976 11,676 15,206 17,172 27,470 22,269 29,500
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
OTHER DATA:
EBITDA from Continuing Operations (4)............... $ 20,885 $ 26,124 $ 33,629 $ 50,218 $ 95,981 $ 21,779 $ 27,061
EBITDA from Continuing Operations as a
Percentage of Total Revenues...................... 23.8% 25.0% 24.2% 24.1% 25.0% 24.5% 24.7%
Capital Expenditures:
Growth(5)(6)...................................... $ 15,829 $ 14,395 $ 23,334 $ 37,082 $ 54,039 $ 9,545 $ 17,642
Maintenance(7).................................... 1,151 858 1,112 1,238 1,888 576 651
--------- --------- --------- --------- --------- --------- ---------
Total Capital Expenditures(6)................... $ 16,980 $ 15,253 $ 24,446 $ 38,320 $ 55,927 $ 10,121 $ 18,293
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
54
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
AS OF DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
CONSOLIDATED BALANCE SHEET DATA:
Cash and Cash Equivalents........................... $ 1,303 $ 1,585 $ 3,453 $ 24,510 $ 1,715 $ 2,312 $ 4,899
Total Assets........................................ 136,859 186,881 281,799 636,786 967,385 806,018 1,052,744
Total Debt.......................................... 86,258 121,874 184,733 428,018 456,178 523,154 541,315
Stockholders' Equity................................ 22,869 21,011 52,384 137,733 338,882 193,549 338,857
</TABLE>
- ------------------------
(1) Other income, net includes a $1.7 million gain resulting from the settlement
of several insurance claims related to the March 1997 fires at our South
Brunswick Township, New Jersey facilities.
(2) The extraordinary charge consists of a prepayment penalty, the write-off of
deferred financing costs, original issue discount and loss on termination of
interest rate protection agreements.
(3) Represents pro forma earnings per share as if the preferred stock that was
converted into common stock in connection with our initial public offering
completed in 1996 had been converted for all periods presented.
(4) Based on our experience in the records and information management services
industry, we believe that EBITDA is an important tool for measuring the
performance of records and information management services companies
(including potential acquisition targets) in several areas, such as
liquidity, operating performance and leverage. In addition, lenders use
EBITDA in evaluating records and information management services companies,
and substantially all of our financing agreements contain covenants in which
EBITDA is used as a measure of financial performance. However, you should
not consider EBITDA to be a substitute to operating or net income (as
determined in accordance with GAAP) as an indicator of our performance or to
cash flow from operations (as determined in accordance with GAAP) as a
measure of liquidity.
(5) Growth capital expenditures consist primarily of investments in racking
systems, management information systems, new buildings and expansion of
storage capacity in existing facilities.
(6) Includes $2,901 in 1994 related to the cost of constructing a records and
information management services facility which was sold in a sale and
leaseback transaction in 1994.
(7) Consists of capital expenditures we made in order to maintain our current
revenues.
55
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
First American Records Management, Inc.:
We have audited the accompanying balance sheets of First American Records
Management, Inc., as of December 31, 1997 and 1998, and the related statements
of operations, changes in stockholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material aspects, the financial position of First American Records
Management, Inc., as of December 31, 1997 and 1998, and the results of its
operations and cash flows for the years then ended, in conformity with generally
accepted accounting principles.
BRACH, NEAL, DANEY & SPENCE, LLP
San Jose, California
April 1, 1999
56
<PAGE>
FIRST AMERICAN RECORDS MANAGEMENT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------- -----------
1997 1998 1999
--------- ---------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................. $1,014,539 $ 160,689 $ 48,853
Accounts receivable-
Trade--Less allowance for doubtful accounts of $12,000 in 1997 and
$35,000 in 1998....................................................... 1,556,216 1,498,699 1,542,283
Other assets--current................................................... 51,191 49,453 114,904
Deferred income taxes................................................... 36,000 -- --
--------- ---------- -----------
Total current assets................................................ 2,657,946 1,708,841 1,706,040
--------- ---------- -----------
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, AT COST..................... 4,736,650 5,723,368 5,794,046
Less--Accumulated depreciation and amortization........................... (1,787,467) (2,228,531) (2,335,631)
--------- ---------- -----------
2,949,183 3,494,837 3,458,415
OTHER ASSETS:
Notes receivable, related party........................................... 171,320 119,056 --
Intangible assets......................................................... 526,705 1,032,145 1,048,423
Customer acquisition costs, net........................................... 215,295 294,494 283,048
Other assets.............................................................. 129,254 195,011 176,896
--------- ---------- -----------
1,042,574 1,640,706 1,508,367
--------- ---------- -----------
Total assets........................................................ $6,649,703 $6,844,384 $6,672,822
--------- ---------- -----------
--------- ---------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Bank line of credit....................................................... $ 130,000 $ -- $ --
Current portion of long-term debt......................................... 823,266 826,559 832,221
Accounts payable.......................................................... 185,899 173,858 208,661
Accrued expenses.......................................................... 210,154 940,855 2,288,339
Income taxes payable...................................................... 31,400 170,776 170,776
Deferred revenue.......................................................... 229,684 267,113 267,113
Accrued stock appreciation rights......................................... -- 2,755,000 2,437,807
--------- ---------- -----------
Total current liabilities........................................... 1,610,403 5,134,161 6,204,917
LONG-TERM DEBT, NET OF CURRENT PORTION...................................... 2,682,940 6,667,839 6,399,508
ACCRUED STOCK APPRECIATION RIGHTS........................................... 1,785,000 -- --
ACCRUED MANAGEMENT INCENTIVES............................................... 380,000 -- --
OTHER LIABILITIES........................................................... 7,331 18,445 18,445
DEFERRED RENT............................................................... 216,596 447,795 468,288
DEFERRED INCOME TAXES....................................................... -- 598 598
COMMITMENTS AND CONTINGENCIES (SEE NOTE 14)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $0.001 par value;
Authorized--1,000,000 shares
Issued and outstanding--332,284 and 254,742 shares at December 31, 1997
and 1998, respectively................................................ 332 254 254
Paid-in capital........................................................... 2,826,894 3,338,870 3,338,870
Notes receivable, stockholders............................................ (271,454) (1,540,926) --
Treasury stock, at cost, no shares in 1997 and 90,378 shares in 1998...... -- (3,633,196) (3,633,196)
Accumulated deficit....................................................... (2,588,339) (3,589,456) (6,124,862)
--------- ---------- -----------
Total stockholders' equity (deficit)................................ (32,567) (5,424,454) (6,418,934)
--------- ---------- -----------
Total liabilities and stockholders' equity.......................... $6,649,703 $6,844,384 $6,672,822
--------- ---------- -----------
--------- ---------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
57
<PAGE>
FIRST AMERICAN RECORDS MANAGEMENT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
1997 1998 1998 1999
------------ ------------- ------------ -------------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Storage............................................... $ 5,089,662 $ 6,139,261 $ 1,435,634 $ 1,686,901
Service and storage materials......................... 2,966,766 3,760,649 810,731 1,165,124
------------ ------------- ------------ -------------
Total revenues.................................... 8,056,428 9,899,910 2,246,365 2,852,025
OPERATING EXPENSES:
Cost of sales......................................... 5,951,917 7,338,287 1,500,712 1,816,014
Selling, general and administrative................... 1,649,885 2,212,003 474,764 3,257,684
Depreciation and amortization......................... 542,650 572,044 181,932 153,004
------------ ------------- ------------ -------------
Total operating expenses.......................... 8,144,452 10,122,334 2,157,408 5,226,702
------------ ------------- ------------ -------------
OPERATING INCOME (LOSS)................................. (88,024) (222,424) 88,957 (2,374,677)
INTEREST EXPENSE, NET................................... 256,262 540,693 143,015 160,729
------------ ------------- ------------ -------------
LOSS BEFORE PROVISION FOR INCOME TAXES.................. (344,286) (763,117) (54,058) (2,535,406)
PROVISION FOR INCOME TAXES.............................. 398,200 238,000 17,000 --
------------ ------------- ------------ -------------
Net loss.......................................... $ (742,486) $ (1,001,117) $ (71,058) $ (2,535,406)
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
58
<PAGE>
FIRST AMERICAN RECORDS MANAGEMENT, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NOTES
NUMBER OF COMMON PAID-IN TREASURY RECEIVABLE, ACCUMULATED
SHARES STOCK CAPITAL STOCK STOCKHOLDERS DEFICIT TOTAL
----------- ----------- --------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996.......... 309,484 $ 309 $1,906,337 $ -- $ -- $(1,845,853) $ 60,793
Net loss.......................... -- -- -- -- -- (742,486) (742,486)
Sale of common stock.............. 22,900 23 920,557 -- -- -- 920,580
Note receivable, issuance......... -- -- -- -- (271,454) -- (271,454)
----------- ----- --------- ---------- ------------ ------------ ----------
BALANCE, DECEMBER 31, 1997.......... 332,384 332 2,826,894 -- (271,454) (2,588,339) (32,567)
Net loss.......................... -- -- -- -- -- (1,001,117) (1,001,117)
Repurchase of common stock........ (90,378) (90) -- (3,633,196) -- -- (3,633,286)
Sale of common stock.............. 12,736 12 511,976 -- (409,590) -- 102,398
Note receivable, issuance......... -- -- -- -- (859,882) -- (859,882)
----------- ----- --------- ---------- ------------ ------------ ----------
BALANCE, DECEMBER 31, 1998.......... 254,742 254 3,338,870 (3,633,196) (1,540,926) (3,589,456) (5,424,454)
Net loss.......................... -- -- -- -- -- (2,535,406) (2,535,406)
Note receivable, repayment........ -- -- -- -- 1,540,926 -- 1,540,926
----------- ----- --------- ---------- ------------ ------------ ----------
BALANCE, MARCH 31, 1999
(UNAUDITED)....................... 254,742 $ 254 $3,338,870 $(3,633,196) $ -- $(6,124,862) $(6,418,934)
----------- ----- --------- ---------- ------------ ------------ ----------
----------- ----- --------- ---------- ------------ ------------ ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
59
<PAGE>
FIRST AMERICAN RECORDS MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER THREE MONTHS ENDED MARCH
31, 31,
--------------------- ------------------------
<S> <C> <C> <C> <C>
1997 1998 1998 1999
--------- ---------- ----------- -----------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(742,486) $(1,001,117) $ (54,058) ($2,535,406)
Adjustments to reconcile net loss to net cash
provided by operating activities-
Amortization.............................................. 412,262 441,063 37,161 45,168
Depreciation.............................................. 112,347 130,981 144,770 107,099
Loss on disposition of assets............................. 18,041 -- -- --
Forgiveness of debt....................................... -- 120,000 120,000 1,659,982
Deferred taxes............................................ 366,000 36,598 -- --
Accrued stock appreciation rights......................... 701,000 970,000 -- --
(Increase) decrease in operating activities-
Accounts receivable, trade................................ (122,546) 57,517 (250,702) (43,584)
Other assets.............................................. (25,520) 1,718 (49,107) (65,451)
Accounts payable.......................................... 54,070 (12,039) 170,450 34,803
Accrued expenses.......................................... 491,814 350,701 (66,849) 1,030,291
Storage deposits.......................................... -- 11,114 11,114 --
Accrued interest.......................................... -- (36,662) -- --
Deferred revenue.......................................... 29,684 37,429 (14,151) --
Income taxes payable...................................... 31,400 139,376 (31,400) --
Deferred rent............................................. 6,271 231,199 30,460 20,493
--------- ---------- ----------- -----------
Total adjustments....................................... 2,074,823 2,478,995 101,746 2,788,801
--------- ---------- ----------- -----------
Net cash provided by operating activities............... 1,332,337 1,477,878 47,688 253,395
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits.................................................. (52,640) (29,095) (22,671) 18,115
Purchases of property and equipment....................... (81,443) -- -- (70,677)
Notes receivable, related parties......................... (279,174) (927,618) (12,546) --
Purchases of intangibles.................................. -- (500,000) (62,348) (50,000)
Customer acquisitions..................................... (222,174) (118,935) (66,323) --
Proceeds from sale of property and equipment.............. 179 -- -- --
Payments on note receivable, FATIC........................ 150,000 -- -- --
--------- ---------- ----------- -----------
Net cash used in investing activities................... (485,252) (1,575,648) (163,888) (102,562)
--------- ---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Treasury Stock................................ -- (3,633,286) (3,633,286) --
Financing of Treasury Stock............................... -- 3,633,286 3,633,286 --
Borrowings on long-term debt.............................. -- 567,475 -- 425,000
Repayments on long-term debt.............................. (791,264) (1,329,288) (778,406) (687,669)
Deferred financing costs.................................. (23,024) (96,665) -- --
Sale of new common stock.................................. 920,580 102,398 102,398 --
Dividends paid............................................ (125,000) -- -- --
--------- ---------- ----------- -----------
Net cash used in financing activities................... (18,708) (756,080) (676,008) (262,669)
--------- ---------- ----------- -----------
Net increase (decrease) in cash and cash equivalents.... 828,377 (853,850) (792,208) (111,836)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 186,162 1,014,539 1,014,539 160,689
--------- ---------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $1,014,539 $ 160,689 $ 222,331 $ 48,853
--------- ---------- ----------- -----------
--------- ---------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest.................................................. $ 265,201 $ 652,596 $ 143,015 $ 160,729
--------- ---------- ----------- -----------
--------- ---------- ----------- -----------
Income taxes.............................................. $ 800 $ 62,026 $ -- $ --
--------- ---------- ----------- -----------
--------- ---------- ----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
60
<PAGE>
FIRST AMERICAN RECORDS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
First American Records Management, Inc. (the Company) is a Delaware
corporation which provides hard copy and media records information management
services primarily to customers throughout the West Coast.
The accrual basis accounting policies adopted by the Company are consistent
with generally accepted accounting principles. The significant policies are as
follows:
CONCENTRATION OF CREDIT RISK
The Company maintains its cash and cash equivalents in commercial checking
and money market accounts. Periodically throughout the year, cash is maintained
at the various banks in excess of insured (Federal Deposit Insurance
Corporation) amounts of $100,000.
INVENTORY
Inventory consists primarily of storage boxes and is stated at the lower of
cost or market using the first in, first out method of accounting.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements are reflected at cost and are
depreciated and amortized using accelerated and straight-line methods over
estimated useful lives as follows:
<TABLE>
<S> <C>
Computer Software............................................. 3 years
Furniture and Fixtures........................................ 7 years
Automobiles and Vehicles...................................... 5 years
Storage Racks and Equipment................................... 5-20 years
Equipment under Capital Leases................................ 5-7 years
Leasehold Improvements........................................ 31.5-39 years
</TABLE>
No depreciation is taken on equipment until placed in service. All repair
and maintenance costs are expensed as incurred.
INTANGIBLE ASSETS
Goodwill, noncompete covenants and deferred financing fees are stated at cost
less accumulated amortization. Amortization is provided by using the
straight-line method over estimated useful lives as follows:
<TABLE>
<S> <C>
Goodwill.......................................................... 25 years
Noncompete contracts.............................................. 4-5 years
Deferred financing fees........................................... 8 years
</TABLE>
The Company assesses the recoverability of intangible and other long-lived
assets whenever events or changes in circumstances indicate that the current
useful life has diminished. The Company
61
<PAGE>
FIRST AMERICAN RECORDS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(1) BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
considers the future undiscounted cash flows in assessing the recoverability of
these assets. If impairment has occurred, any excess of carrying value over fair
value is recorded as a loss.
CUSTOMER ACQUISITION COSTS
Costs, net of revenues received for the initial transfer of the records,
related to the acquisition of large volume accounts (accounts consisting of at
least $10,000 of acquisition costs) are capitalized and amortized for an
appropriate period not exceeding 12 years, unless the customer terminates its
relationship with the Company, at which time the unamortized cost is charged to
expense. However, in the event of such termination, the Company collects and
records as income permanent removal fees that generally equal or exceed the
amount of unamortized customer acquisition costs. As of December 31, 1997 and
1998, those costs were $222,173 and $341,108, respectively, and accumulated
amortization of those costs were $6,878 and $46,614, respectively.
REVENUE RECOGNITION
Storage and service revenues are recognized in the month the respective
service is provided. Storage material sales are recognized when shipped to the
customer. The Company invoices storage charges to its customers in advance and
these advanced billings are recorded as accounts receivable and the related
revenues are included as deferred revenue in the accompanying financial
statements.
INCOME TAXES
In accordance with Statement of Financial Accounting Standards (SFAS) No.
109, ACCOUNTING FOR INCOME TAXES, the Company recognizes deferred income taxes
based on the expected future tax consequences of differences between the
financial statement basis and the tax basis of assets and liabilities,
calculated using rates in effect for the year in which the differences are
expected to be reflected in the tax return. The differences relate primarily to
depreciable assets (use of different depreciation methods and lives for
financial statement and income tax purposes), accrued stock appreciation rights
and management incentives (deductible for financial statement purposes but not
for income tax purposes), the conversion from the cash method to accrual method
for tax reporting purposes, and certain nondeductible expense reserves and
accruals.
The deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled. Deferred taxes are
also recognized for tax credits that are available to offset future taxes
payable. Deferred tax assets that are not expected to be realized are reduced by
a valuation allowance.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Accordingly, actual results could differ from those estimates.
62
<PAGE>
FIRST AMERICAN RECORDS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(1) BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 financial statement
presentation to conform to the 1998 presentation.
UNAUDITED FINANCIAL INFORMATION
The unaudited financial information included herein have been prepared in
accordance with generally accepted accounting principles. In the opinion of
management, the unaudited financial statements include all adjustments of a
normal and recurring nature which are necessary for a fair presentation. The
results of operations for the three months ended March 31, are not necessarily
indicative of the results expected for the full year.
(2) NOTES RECEIVABLE WITH RELATED PARTIES
The notes receivable with related parties consisted of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Shareholders (two separate notes), payable with interest only at 9% per annum, unsecured,
due December 31, 2002. During 1998, the notes were reissued with terms of interest only
at 6%, accrued through December 31, 2004, with monthly principal and interest due
commencing on January 1, 2005, due December 31, 2006, secured by 156,672 shares of First
American Records Management, Inc.'s common stock......................................... $ 171,320 $ 119,056
----------- -----------
----------- -----------
Related Party Corporation (four separate notes), payable with interest only at 9% per
annum, unsecured, due December 31, 2002. During 1998, the above notes were consolidated
into one note with Chrysalis Capital, LLC, related party corporation, interest only at 6%
accrued through December 31, 2004, with monthly principal and interest due commencing on
January 1, 2005, due December 31, 2006, secured by 156,672 shares of First American
Records Management, Inc.'s common stock. The above notes call for $120,000 debt
forgiveness per year as long as the two shareholders are employed by the Company. In
1998, the Company recorded compensation expense in the amount of $120,000, representing
debt forgiveness for a portion of these loans. The aforementioned notes are part of a
line of credit agreement between the Company and shareholders, whereby the Company has
agreed to lend the shareholders up to $1,200,000 secured by the shareholders' common
stock investment in First American Records Management, Inc............................... 271,454 1,131,336
Shareholders (two separate notes), payable with interest only at 9% per annum, accrued
through December 31, 1999, with monthly principal and interest due commencing on January
31, 2000 to November 30, 2002, secured by 12,736 shares of First American Records
Management, Inc.'s common stock.......................................................... -- 409,590
----------- -----------
Notes receivable, stockholders............................................................. $ 271,454 $ 1,540,926
----------- -----------
----------- -----------
</TABLE>
The above notes receivable, stockholders are classified as a reduction of
stockholders' equity because they were issued to finance the purchase of common
stock and/or will be repaid through future charges to operations.
63
<PAGE>
FIRST AMERICAN RECORDS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C>
Storage racks................................................... $ 2,753,446 $ 3,288,213
Autos and trucks................................................ 501,429 560,495
Computer equipment and software................................. 681,317 852,678
Furniture and fixtures.......................................... 202,550 228,901
Machinery and equipment......................................... 277,894 361,769
Leasehold improvements.......................................... 320,014 431,312
------------- -------------
4,736,650 5,723,368
Less--Accumulated depreciation and amortization................. (1,787,467) (2,228,531)
------------- -------------
$ 2,949,183 $ 3,494,837
------------- -------------
------------- -------------
</TABLE>
(4) INTANGIBLE ASSETS
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ------------
<S> <C> <C>
Covenant not to compete............................................ $ 684,401 $ 734,401
Goodwill........................................................... 307,489 757,489
Deferred financing costs........................................... 23,022 119,687
Organization costs................................................. 19,095 19,095
---------- ------------
1,034,007 1,630,672
Less--Accumulated amortization..................................... (507,302) (598,527)
---------- ------------
$ 526,705 $ 1,032,145
---------- ------------
---------- ------------
</TABLE>
(5) LONG-TERM DEBT AND CREDIT FACILITY
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Comerica Bank-California line of credit........................... $ 130,000 $ --
------------ ------------
------------ ------------
Comerica Bank-California debt credit facility..................... $ 2,657,435 $ --
State Street Bank credit facility term loan....................... -- 3,791,617
State Street Bank term loan....................................... -- 3,144,731
State Street Bank term loan....................................... -- 236,728
Related party..................................................... 610,312 258,644
Notes payable..................................................... 85,635 62,678
Capital leases.................................................... 37,924 --
Other............................................................. 114,900 --
------------ ------------
3,506,206 7,494,398
Less--Current portion............................................. 823,266 826,559
------------ ------------
$ 2,682,940 $ 6,667,839
------------ ------------
------------ ------------
</TABLE>
64
<PAGE>
FIRST AMERICAN RECORDS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(5) LONG-TERM DEBT AND CREDIT FACILITY (CONTINUED)
At December 31, 1997, the Company had a credit facility with Comerica
Bank-California. Borrowings under the Comerica Bank-California credit facility
were secured by all assets of the Company. The total credit facility available
to the Company at December 31, 1997 was comprised of a $500,000 line of credit
at the bank's prime lending rate plus .5% (9.00% at December 31, 1997), a
$2,000,000 equipment line of credit at a bank's money market funds rate plus
.75% (9.25% at December 31, 1997), and a $1,734,858 term loan at the bank's
money market funds rate plus 1.25% (9.75% at December 31, 1997). As of December
31, 1997, amounts outstanding under the line of credit were $130,000, and
amounts outstanding under the equipment line of credit and the term loan were
$1,400,000 and $1,257,435, respectively.
In January 1998, the Company terminated its credit facility agreement with
Comerica Bank-California and concurrently entered into an eight year credit
facility agreement with State Street Bank and Trust. All Comerica
Bank-California balances were paid in full at January 1998. The total credit
facility available to the Company at December 31, 1998 under the State Street
Bank and Trust agreement is comprised of the following:
$4,500,000 credit facility at LIBOR plus 6% up to $1,500,000 (9% at
December 31, 1998) and the balance above $1,500,000) at the bank's prime
lending rate plus .25% to minus .25% based on certain financial covenant
compliance (8% at December 31, 1998). The line matures December 31, 2002, at
which time it will be convertible to a term loan payable at 2.25% per month
of the outstanding principal balance plus interest to December 31, 2003,
2.75% per month of the outstanding principal balance plus interest to
December 31, 2005.
$3,720,000 term loan at LIBOR plus 5.78% to 6% up to $2,000,000 (9% at
December 31, 1998) and the balance above $2,000,000 at 8% at December 31,
1998, payable in monthly principal payments of 1.54% to 1.91% of the
outstanding principal balance plus interest to December 31, 2002.
$280,000 term loan at 7.5% payable in monthly principal payments of
1.54% to 1.91% of the outstanding principal balance plus interest to
December 31, 2002.
The State Street Bank and Trust credit facility requires that the Company
meet several financial covenants throughout the facility's amortization period.
The credit facility calls for a blanket security agreement on all assets of the
Corporation throughout the term of the agreement and a pledge of 92% of the
Company's common stock.
RELATED PARTY LOANS
At December 31, 1997, related party loans were comprised of three loans with
a former shareholder, all unsecured with interest at 7.5%. Two of these loans
were paid in full in 1998. At December 31, 1998, amount represents a term loan
to a former shareholder at 7.5% per annum, four annual principal and interest
installments of $83,500 starting in February 1999, due February 2002.
NOTES PAYABLE
Three term loans secured by equipment with interest at 8.75% to 9.25%
payable in monthly payments through October 2003.
65
<PAGE>
FIRST AMERICAN RECORDS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(5) LONG-TERM DEBT AND CREDIT FACILITY (CONTINUED)
CAPITAL LEASES
Comprised of various capital leases, secured, payable in monthly payments of
$86 to $1,274 with interest from 10.51% to 18.50%. These leases were paid in
full in 1998.
OTHER
At December 31, 1997, other debt was comprised of a term loan at 7.5%. This
note was paid in full in 1998.
The aggregate maturities of long-term debt (at current interest rates) for
the next five years is as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
1999............................................................................ $ 1,091,858
2000............................................................................ 1,091,835
2001............................................................................ 1,092,684
2002............................................................................ 1,136,807
2003 and thereafter............................................................. 8,614
------------
4,421,798
Less--Amounts representing interest............................................. (719,017)
------------
$ 3,702,781
------------
------------
</TABLE>
(6) ACCRUED EXPENSES
Accrued expenses at December 31, 1997 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Incentive Compensation................................................ $ 75,467 $ 749,864
Interest.............................................................. 63,654 92,994
Other accrued expenses................................................ 50,431 77,436
Deferred rent--Current................................................ 20,602 20,561
---------- ----------
$ 210,154 $ 940,855
---------- ----------
---------- ----------
</TABLE>
(7) ACCRUED STOCK APPRECIATION RIGHTS
The Company has Stock Appreciation Rights agreements with two of its key
employees which have been accounted for under Accounting Principles Board
Opinion 25. These agreements state that each employee will receive in cash
the appreciation of share value of 15,474 shares. The agreements vest over a
five-year period with payment due for any increase in share value, over a
three-year period beginning in the year 2000. The agreements are in effect
for the years 1995 to 2000. Compensation expense incurred under the Stock
Appreciation Rights agreements totaled $701,000 and $970,000 for the years
ended December 31, 1997 and 1998, respectively. The valuation of the share
increases for the compensation element was provided by the Board of Directors
of First American Records Management, Inc. and has been based upon the
anticipated sale price of the Company (see Note 15). The valuation formula
has been agreed to by all parties and has been consistently applied over the
agreement period.
66
<PAGE>
FIRST AMERICAN RECORDS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Prior to 1998, the Company has stock appreciation rights agreements and
incentive compensation agreements where the valuation of the Company's stock is
a significant factor in determining the amount of compensation to the employees
under this agreement. The Board of Directors has estimated the valuation of the
Company stock in the absence of readily ascertainable market values. However,
because of the inherent uncertainty and valuation, this estimated value may
differ significantly from the value that would have been used had these market
values existed.
(8) INCENTIVE COMPENSATION AGREEMENTS
During 1997 and 1998, the Company entered into incentive compensation
agreements with 16 key management employees. The agreements call for additional
compensation payments in cash to these employees based on the fair market value
of the Company at December 31, 1999. The agreements stipulate that the employee
must be continuously employed by the Company from the effective date of the
agreement through December 31, 1999, in order to qualify for the incentive
payment. Incentive compensation expense, related to these agreements, was
$380,000 and $270,000 for the periods ended December 31, 1997 and 1998,
respectively.
(9) DEFERRED RENT
The Company leases office facilities throughout California and in
Washington. These lease agreements provide for annual rent escalations, which
are being accrued by the Company to provide that rent expense is recognized over
the lease term on a straight-line basis.
Net rent under these leases for the years ended December 31, 1997 and 1998
amounted to $1,231,186 and $1,791,941, respectively. The minimum rental
commitment (excluding variable common area expenses) and net rent expense under
these leases are as follows:
<TABLE>
<CAPTION>
MINIMUM AMORTIZATION
LEASE OF DEFERRED NET RENT
YEAR ENDING DECEMBER 31, PAYMENT RENT EXPENSE
- ------------------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
1999............................................. $ 1,873,329 $ 114,448 $ 1,987,777
2000............................................. 1,956,339 (26,458) 1,929,881
2001............................................. 1,937,900 (67,101) 1,870,799
2002............................................. 1,976,418 (105,619) 1,870,799
2003............................................. 1,467,324 (126,611) 1,340,713
Thereafter....................................... 2,527,472 (257,015) 2,270,457
------------- ------------ -------------
$ 11,738,782 $ (468,356) $ 11,270,426
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
(10) EMPLOYMENT AGREEMENT
A former minority interest shareholder of the Company entered into an
employment agreement on February 1, 1993. The agreement expired February 1,
1998, and required that the Company pay an annual salary of $60,000.
67
<PAGE>
FIRST AMERICAN RECORDS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(10) EMPLOYMENT AGREEMENT (CONTINUED)
In addition, the Company has employment agreements with two shareholders.
The agreements call for initial base salaries of $180,000 each per year, with
annual cost of living increases. The agreements also provide for $60,000 of debt
forgiveness each per year in connection with the related party notes receivable.
They provide for normal employee benefits and are effective through December
2001, with an unlimited number of one year renewal options. The agreements can
also be terminated by either party at any time for any reason, or no reason.
(11) INCOME TAXES
The Company utilizes Statement of Financial Accounting Standard (SFAS) No.
109, ACCOUNTING FOR INCOME TAXES, which requires the use of the liability method
of accounting for deferred income taxes.
The Company's total deferred tax liabilities, deferred tax assets and
deferred tax asset valuation allowances at December 31, 1997 and 1998 are as
follows:
<TABLE>
<CAPTION>
1997 1998
------------ -------------
<S> <C> <C>
Total deferred tax assets........................................ $ 1,381,000 $ 1,996,402
Less--Valuation allowance........................................ (710,000) (1,302,000)
------------ -------------
671,000 694,402
Total deferred tax liabilities................................... (635,000) (695,000)
------------ -------------
Net deferred tax assets (liabilities)............................ $ 36,000 $ (598)
------------ -------------
------------ -------------
</TABLE>
These amounts have been presented in the Company's financial statements as
follows:
<TABLE>
<CAPTION>
1997 1998
---------- -----------
<S> <C> <C>
Current deferred income tax assets................................... $ 36,000 $ --
---------- -----------
---------- -----------
Noncurrent deferred income tax liabilities........................... $ -- $ (598)
---------- -----------
---------- -----------
</TABLE>
A summary of the components of income tax expense is as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Federal:
Currently payable................................................. $ 12,000 $ 142,000
Prepaid........................................................... (132,800) (458,000)
----------- -----------
(120,800) (316,000)
----------- -----------
State:
Currently payable................................................. 20,200 60,000
Prepaid........................................................... (35,200) (98,000)
----------- -----------
(15,000) (38,000)
----------- -----------
(135,800) (354,000)
Increase in valuation allowance..................................... 534,000 592,000
----------- -----------
Provision for income taxes.......................................... $ 398,200 $ 238,000
----------- -----------
----------- -----------
</TABLE>
68
<PAGE>
FIRST AMERICAN RECORDS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(11) INCOME TAXES (CONTINUED)
The income tax provision differs from the expense or benefit that would
result from applying federal and state statutory rates to income or loss before
income taxes. This is primarily due to a valuation allowance that has been
provided to reduce the deferred tax assets to the amount that is more likely
than not to be realized. The reduction in the deferred tax assets is reflected
by the valuation allowance balance of $710,000 and $1,302,000 as of December 31,
1997 and 1998, respectively.
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Computed income taxes at statutory rate............................. $ (137,000) $ (310,000)
Limitation on the utilization of the tax benefits,
increase in deferred tax.......................................... 534,000 592,000
Other items, net.................................................... 1,200 (44,000)
----------- -----------
Provision for income taxes.......................................... $ 398,200 $ 238,000
----------- -----------
----------- -----------
</TABLE>
As of December 31, 1998, the Company has a federal net operating loss
carryforward available for future years of $55,377 expiring in the year 2011.
(12) 401(K) PLAN
The Company maintains a 401(k) Plan for all eligible employees. Employees
are eligible to participate if they have been employed for 12 months and work at
least 1,000 hours. The Company matches 25% of the employee's aggregate salary
reduction contribution, up to a maximum of $100 per employee per year. The
matching contributions for December 31, 1997 and 1998 were $3,075 and $3,135,
respectively.
(13) COMMITMENTS AND CONTINGENCIES
Operating leases consisted of the following at December 31, 1997 and 1998:
The Company leases office and warehouse facilities throughout California and
in Oregon and Washington and leases trucks under operating leases with terms
ranging from 25 months to 10 years. Rental expense for operating leases amounted
to approximately $1,590,000 and $1,985,000 for the years ended December 31, 1997
and 1998, respectively.
The Company entered into an agreement in January 1998 to sublease
approximately 50% at the warehouse facility in Vernon, California to a third
party for a term of 18 months.
69
<PAGE>
FIRST AMERICAN RECORDS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(13) COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum rental commitments payable under operating leases are
approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------------------------------------------------------------- -------------
<S> <C>
1999........................................................................... $ 2,254,445
2000........................................................................... 2,294,625
2001........................................................................... 2,265,889
2002........................................................................... 2,270,123
2003 and thereafter............................................................ 4,834,118
-------------
13,919,200
Lease sublease................................................................. (72,248)
-------------
$ 13,846,952
-------------
-------------
</TABLE>
(14) NONCASH ACTIVITY
The following are noncash investing and financing transactions:
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
1997 1998 1998 1999
------------- ------------- ------------- -------------
Noncash financial transactions-
Repayment of long-term debt......................... $ (791,264) $ (4,493,427) $ (3,401,836) $ (687,669)
Refinance of long-term debt with
State Street Bank................................. -- 3,164,139 3,164,139 --
------------- ------------- ------------- -------------
$ (791,264) $ (1,329,288) $ (237,697) $ (687,669)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Common stock--
Sale of common stock.................................. $ 920,580 $ 511,988 $ 511,988 $ --
Amount financed....................................... -- (409,590) (409,590) --
------------- ------------- ------------- -------------
$ 920,580 $ 102,398 $ 102,398 $ --
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Acquisition of equipment--
Cost of equipment................................... $ 1,401,443 $ 986,717 $ 255,909 $ --
Amount financed..................................... (1,320,000) (986,717) (255,909) --
------------- ------------- ------------- -------------
$ (81,443) $ -- $ -- $ --
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Principal payments on notes receivable,
related party....................................... $ -- $ 120,000 $ 120,000 $ 1,659,982
Debt forgiveness...................................... -- (120,000) (120,000) (1,659,982)
------------- ------------- ------------- -------------
$ -- $ -- $ -- $ --
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
(15) SUBSEQUENT EVENTS
On April 1, 1999, Iron Mountain Incorporated acquired all outstanding stock
of the Company.
70
<PAGE>
FIRST AMERICAN RECORDS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(15) SUBSEQUENT EVENTS (CONTINUED)
In addition, the notes receivable, related party and notes receivable,
stockholders were paid in full as compensation expense in the amount of
$1,659,982 in April 1999. Such costs have been reflected in the March 31, 1999
unaudited financial information as presented.
In April 1999, the Company paid all outstanding stock appreciation rights
and incentive compensation expense in the amount of $3,187,671. Such
compensation expenses have been reflected in the March 31, 1999 unaudited
financial information as presented.
71
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
MAP, S.A.:
In compliance with the assignment entrusted to us by your President, we
hereby report to you, for the year ended February 28, 1999, on the audit of the
accompanying consolidated financial statements of MAP, S.A. reported in French
Francs.
These consolidated financial statements have been prepared solely for the
purpose of the contemplated transaction with Britannia Data Management. The
consolidated financial statements have been prepared by the President. Our role
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the professional standards applied
in France. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements give a true and fair
view of the group's financial position and of its assets and liabilities as of
February 28, 1999, and of the results of its operations for the year then ended.
Accounting practices used by MAP, S.A. in preparing the accompanying
consolidated financial statements conform with generally accepted accounting
principles in France but do not conform with accounting principles generally
accepted in the United States (US GAAP). A description of these differences and
a complete reconciliation of consolidated net income and shareholders' equity to
US GAAP, along with consolidated financial information according to US GAAP, are
set forth in Notes 9 and 10.
Neuilly-sur-Seine, May 7, 1999
The Independent Auditors
/s/ Jean-Francois Ginies
Barbier Frinault & Associes
ARTHUR ANDERSEN
72
<PAGE>
MAP, S.A.
CONSOLIDATED BALANCE SHEET
AS OF FEBRUARY 28, 1999
(IN FRENCH FRANCS (FRF) AND IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................................... 3,263
Accounts receivable, net.......................................................... 5,145
Notes receivable from related parties............................................. 2,391
Other receivables................................................................. 710
Deferred income taxes............................................................. 139
Prepaid expenses.................................................................. 307
---------
Total current assets............................................................ 11,955
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment..................................................... 15,318
Less--Accumulated depreciation.................................................... (8,467)
---------
Net property, plant and equipment............................................... 6,851
OTHER ASSETS:
Intangible assets, net............................................................ 144
Goodwill, net..................................................................... 29,148
---------
Total other assets.............................................................. 29,292
---------
Total assets.................................................................... 48,098
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt................................................. 12,207
Notes payable to related parties.................................................. 243
Payable to SCI du Cornillon....................................................... 47
Trade accounts payable............................................................ 9,561
Accrued expenses.................................................................. 1,994
Income tax payable................................................................ 1,454
Other current liabilities......................................................... 455
---------
Total current liabilities....................................................... 25,961
LONG-TERM DEBT, NET OF CURRENT PORTION.............................................. 4,595
OTHER LONG-TERM LIABILITIES......................................................... 1,612
---------
Total liabilities............................................................... 32,168
COMMITMENTS AND CONTINGENCIES (SEE NOTE 5)
STOCKHOLDERS' EQUITY:
Common stock...................................................................... 250
Accumulated benefit............................................................... 15,680
---------
Total stockholders' equity...................................................... 15,930
---------
Total liabilities and stockholders equity....................................... 48,098
---------
---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
73
<PAGE>
MAP, S.A.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1999
(IN FRENCH FRANCS (FRF) AND IN THOUSANDS)
<TABLE>
<S> <C>
REVENUES:
Storage........................................................................... 25,139
Service and storage material sales................................................ 103
Other revenues.................................................................... 127
---------
Total revenues.................................................................. 25,369
---------
OPERATING EXPENSES:
Cost of sales (excluding depreciation)............................................ 6,808
Selling, general and administrative............................................... 6,281
Depreciation and amortization..................................................... 2,752
---------
Total operating expenses........................................................ 15,841
---------
OPERATING INCOME.................................................................... 9,528
INTEREST EXPENSE.................................................................... 470
OTHER INCOME, NET................................................................... 23
---------
Income before provision for income taxes........................................ 9,081
PROVISION FOR INCOME TAXES.......................................................... 3,692
---------
NET INCOME.......................................................................... 5,389
---------
---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
74
<PAGE>
MAP, S.A.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED FEBRUARY 28, 1999
(IN FRENCH FRANCS (FRF) AND IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................................ 5,389
Adjustments to reconcile net income to cash flows provided by operating
activities--
Depreciation and amortization................................................... 3,050
Deferred tax benefit............................................................ (35)
Change in working capital requirements.......................................... (1,186)
---------
Cash flows provided by operating activities................................... 7,218
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions........................................................ (1,178)
Capital expenditures.............................................................. (1,652)
Proceeds from sale of fixed assets................................................ 268
Reduction in employee receivable.................................................. 874
---------
Cash flows used in investing activities....................................... (1,688)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from borrowings...................................................... (3,177)
Change in capital................................................................. 240
Dividends paid.................................................................... (4,453)
---------
Cash flows used in financing activities....................................... (7,390)
---------
EFFECTS ON CASH OF CHANGES IN SCOPE OF CONSOLIDATION................................ 21
---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................... (1,839)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR........................................ 4,215
---------
CASH AND CASH EQUIVALENTS, END OF YEAR.............................................. 2,376
---------
---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
75
<PAGE>
MAP, S.A.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED FEBRUARY 28, 1999
(IN FRENCH FRANCS (FRF) AND IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON ACCUMULATED MINORITY
STOCK BENEFIT INTEREST TOTAL
------ ----------- --------- ------
<S> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY AS OF FEBRUARY 28, 1998..................... 10 14,693 30 14,733
Capital contribution........................................... 240 -- -- 240
Change in the scope of consolidation........................... -- 51 (30) 21
Dividends paid................................................. -- (4,453) -- (4,453)
Net income..................................................... -- 5,389 -- 5,389
--
------ ----------- ------
STOCKHOLDERS' EQUITY AS OF FEBRUARY 28, 1999..................... 250 15,680 -- 15,930
------ ----------- -- ------
------ ----------- -- ------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
76
<PAGE>
MAP, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
(IN FRENCH FRANCS (FRF) AND IN THOUSANDS, UNLESS OTHERWISE NOTED)
(1) NATURE OF BUSINESS
The accompanying financial statements represent the consolidated accounts of
MAP, S.A. and its subsidiaries (collectively, the Company). MAP, S.A. is the
holding company of Memogarde, the leader in the French market for the storage
and servicing of magnetic media products.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION
The accompanying financial statements reflect the financial position and
results of operations of the Company on a consolidated basis. The subsidiaries,
in which MAP, S.A. holds directly or indirectly the majority of the voting
shares, have been fully consolidated. All significant intercompany account
balances have been eliminated.
<TABLE>
<CAPTION>
NAME COMPANY ID % OF CONTROL % HELD METHOD
- --------------------------------------------- -------------- ------------ ------ ------------------
<S> <C> <C> <C> <C>
MAP, S.A. Parent Company
CARRICK...................................... 38952026300010 100 100 Fully Consolidated
FIME......................................... 38952021400013 100 100 Fully Consolidated
MEMOGARDE.................................... 34299394600025 100 100 Fully Consolidated
FTS.......................................... 39508177100010 100 100 Fully Consolidated
SCI du Cornillon............................. 34122955700010 100 100 Fully Consolidated
</TABLE>
The consolidated accounts of MAP, S.A. have been prepared in accordance with
accounting principles generally accepted in France (French GAAP), as set forth
in the French law on consolidation. The financial statements have been prepared
using a fiscal year end for MAP, S.A. and its subsidiaries of February 28, 1999
with the exception of SCI du Cornillon which has been consolidated based on its
fiscal year end of December 31, 1998.
(B) GOODWILL
If the purchase price of an acquired company differs from the corresponding
percentage of stockholders' equity acquired, such difference is analyzed and
allocated to the appropriate assets in the balance sheet.
Differences in valuation between the cost of assets and their fair value are
amortized over the same period as the related asset to which the difference has
been allocated. The period of amortization is the longer of the remaining
amortization period or the estimated useful life, if significantly different.
Any positive difference after allocation of a portion of purchase price to
the assets is recorded as goodwill and negative differences are recorded as
reserves for risks and charges. Goodwill is amortized over a period of 25 years.
77
<PAGE>
MAP, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999
(IN FRENCH FRANCS (FRF) AND IN THOUSANDS, UNLESS OTHERWISE NOTED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(C) ACCOUNTING PRINCIPLES AND VALUATION METHODS
The accounts of the Company have been prepared using the following
accounting principles:
- Conservatism,
- Historic cost basis,
- Going-concern,
- Proper cut-off,
- Consistency in accounting principles used.
The Company has applied valuation methods as set forth under French law for
commercial enterprises.
(D) FIXED ASSETS
Fixed assets are accounted for at cost. They are depreciated on a
straight-line basis or on an accelerated method, depending on their
characteristics. Useful lives of assets generally used are:
<TABLE>
<S> <C>
Software..................................................... 1 year
Buildings and improvements................................... 10 to 20 years
Shelvings.................................................... 3 to 7 years
Office equipment............................................. 3 years
Furnitures................................................... 5 years
</TABLE>
(E) FINANCIAL INVESTMENTS
Financial investments, other noncurrent assets and investment securities are
recorded at cost. When the fair or market value of such assets is impaired,
provisions are booked as an expense in the period.
(F) RECEIVABLES
Receivables are accounted for at nominal value. The Company records a
provision for bad debts when an account is deemed uncollectable.
(G) DEFERRED TAXES
Deferred taxes are accounted for according to the liability method at the
year-end tax rate. Temporary differences arise from differences between taxable
income and book income. Deferred taxes arising from net operating loss
carryforwards are accounted for with an appropriate valuation allowance.
78
<PAGE>
MAP, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999
(IN FRENCH FRANCS (FRF) AND IN THOUSANDS, UNLESS OTHERWISE NOTED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(H) MARKETABLE SECURITIES
Marketable securities have a maturity of less than three months and amount
to 3,487 as of February 28, 1999.
(3) PURCHASE ACCOUNTING AND RELATED GOODWILL
The following table presents the breakout of goodwill and related
accumulated amortization (based on a 25-year amortization period):
<TABLE>
<CAPTION>
AMORTIZATION
-------------------------------------
<S> <C> <C> <C> <C> <C>
OPENING CLOSING
COMPANY GROSS VALUE BALANCE PROVISION BALANCE NET VALUE
- -------------------------------------- ----------- ----------- ----------- ----------- -----------
Memogarde............................. 29,259 5,684 1,170 6,854 22,405
Fime.................................. 7,199 168 288 456 6,743
----------- ----- ----- ----- -----------
Total............................. 36,458 5,852 1,458 7,310 29,148
----------- ----- ----- ----- -----------
----------- ----- ----- ----- -----------
</TABLE>
The following table presents the breakout of the difference in valuation
that was allocated to the fixed assets at the time of acquisition of SCI du
Cornillon:
<TABLE>
<CAPTION>
AMORTIZATION
-----------------------------
<S> <C> <C> <C> <C> <C>
OPENING CLOSING
COMPANY GROSS VALUE BALANCE PROVISION BALANCE NET VALUE
- ----------------------------------- ----------- ------- --------- ------- ---------
SCI du Cornillon................... 1,531 383 77 460 1,071
--
----- ------- ------- ---------
Total.......................... 1,531 383 77 460 1,071
----- ------- -- ------- ---------
----- ------- -- ------- ---------
</TABLE>
79
<PAGE>
MAP, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999
(IN FRENCH FRANCS (FRF) AND IN THOUSANDS, UNLESS OTHERWISE NOTED)
(4) FIXED ASSETS AND RELATED AMORTIZATION/DEPRECIATION
GROSS VALUES
<TABLE>
<CAPTION>
OPENING CLOSING
INTANGIBLE ASSETS BALANCE ADDITIONS DISPOSALS BALANCE
- ----------------------------------- ------- --------- --------- -------
<S> <C> <C> <C> <C>
Organization costs................. 36 -- -- 36
Other.............................. 69 177 -- 246
--
------- --- -------
Total.......................... 105 177 -- 282
------- --- -- -------
------- --- -- -------
</TABLE>
<TABLE>
<CAPTION>
OPENING CLOSING
TANGIBLE ASSETS BALANCE ADDITIONS DISPOSALS BALANCE
- ---------------------------------------------------- ----------- ----------- ------------- ---------
<S> <C> <C> <C> <C>
Land................................................ 1,270 -- -- 1,270
Buildings........................................... 7,378 -- 266 7,112
Shelvings........................................... 3,673 292 -- 3,965
Other............................................... 1,790 1,183 2 2,971
----------- ----- --- ---------
Total........................................... 14,111 1,475 268 15,318
----------- ----- --- ---------
----------- ----- --- ---------
</TABLE>
ACCUMULATED AMORTIZATION AND DEPRECIATION
<TABLE>
<CAPTION>
BEGINNING CLOSING
INTANGIBLE ASSETS BALANCE ADDITIONS DISPOSALS BALANCE
- ------------------------- --------- --------- --------- -------
<S> <C> <C> <C> <C>
Organization costs....... 27 7 -- 34
Other.................... 53 50 -- 103
-- -- -- -------
Total................ 80 57 -- 137
-- -- -- -------
-- -- -- -------
</TABLE>
<TABLE>
<CAPTION>
BEGINNING CLOSING
TANGIBLE FIXED ASSETS BALANCE ADDITIONS DISPOSALS BALANCE
- ------------------------- --------- --------- --------- -------
<S> <C> <C> <C> <C>
Land..................... -- -- -- --
Buildings................ 3,349 356 -- 3,705
Shelvings................ 2,773 485 -- 3,258
Other.................... 1,183 321 -- 1,504
--
--------- --------- -------
Total................ 7,305 1,162 -- 8,467
--------- --------- -- -------
--------- --------- -- -------
</TABLE>
80
<PAGE>
MAP, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999
(IN FRENCH FRANCS (FRF) AND IN THOUSANDS, UNLESS OTHERWISE NOTED)
(5) MATURITIES OF LIABILITIES
<TABLE>
<CAPTION>
LESS THAN FROM 1 TO OVER
DEBT TOTAL 1 YEAR 5 YEARS 5 YEARS
- ---------------------------------------------------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Bank debt........................................... 15,915 11,320 4,595 --
Payable SCI du Cornillon............................ 47 47 -- --
Lines of credit, Overdrafts......................... 887 887 -- --
Trade payables...................................... 9,561 9,561 -- --
Accrued expenses.................................... 3,691 3,691 -- --
--------- ----------- ----- ---
Total........................................... 30,101 25,506 4,595 --
--------- ----------- ----- ---
--------- ----------- ----- ---
</TABLE>
(6) RISK RESERVES
<TABLE>
<CAPTION>
ALLOWANCES
OPENING ADDITIONS REVERSALS CLOSING
----------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Self-insurance reserve............................. 1,129 133 -- 1,262
Litigation reserve................................. -- 350 -- 350
Other.............................................. 110 -- 110 --
----- --- --- -----
Total.......................................... 1,239 483 110 1,612
----- --- --- -----
----- --- --- -----
</TABLE>
(7) DETAIL OF OPERATING REVENUES
<TABLE>
<CAPTION>
REVENUES
-----------
<S> <C>
MAP, S.A........................................................................... --
CARRICK............................................................................ 70
FIME............................................................................... --
Memogarde.......................................................................... 25,171
FTS................................................................................ 1
SCI du Cornillon................................................................... --
-----------
Total.......................................................................... 25,242
-----------
-----------
</TABLE>
81
<PAGE>
MAP, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999
(IN FRENCH FRANCS (FRF) AND IN THOUSANDS, UNLESS OTHERWISE NOTED)
(8) DEFERRED INCOME TAXES
<TABLE>
<CAPTION>
FY99 FY98
----- -----
<S> <C> <C>
Liabilities..................................................................... -- --
--- ---
Total....................................................................... -- --
--- ---
--- ---
Assets-
Temporary differences (Vacation pay, Organic)................................... 139 104
--- ---
Total....................................................................... 139 104
--- ---
--- ---
</TABLE>
(9) SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY THE COMPANY
AND
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The Company's accounting policies comply with French GAAP. Elements of the
Company's accounting policies which differ significantly from generally accepted
accounting principles in the United States (U.S. GAAP) are described below:
(A) ITEMS AFFECTING NET PROFIT AND SHAREHOLDERS' EQUITY
(1) PENSION AND POST-RETIREMENT BENEFITS
In accordance with French GAAP, the Company does not provide for retirement
indemnities. Under U.S. GAAP, such benefit expense is to be determined using a
specified actuarial method. Under U.S. GAAP, the Company would record an expense
in the current year of 23 and record a reserve of 293.
(2) RESERVES FOR RISKS AND CHARGES
As permitted under French GAAP, the Company has provided for a reserve to
cover future unidentified risks. Such a reserve would not be recorded under U.S.
GAAP. Presentation under U.S. GAAP would have the effect of reducing reserves
for risks and charges by 1,262 for the year ended February 28, 1999 and of
reducing selling, general and administrative expense during the period by 23.
(3) REPURCHASE OF MINORITY INTERESTS
As permitted under French GAAP, the Company recorded goodwill of 836 in
connection with the repurchase by the parent company of shares of one of its
subsidiaries for the difference between the price paid to reacquire the shares
of 1,178 and the value of the shares of 342 as determined by the associated
proportion of shareholders' equity. Under U.S. GAAP, the repurchased shares
would be considered as treasury stock and presented as a reduction of
stockholders' equity in the balance sheet. The Company also recorded
amortization of the goodwill during the fiscal year. Thus, under U.S. GAAP,
amortization expense would be reduced by 33 and the price paid to require the
shares of 1,178 would be presented as a treasury stock reduction in
stockholders' equity.
82
<PAGE>
MAP, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999
(IN FRENCH FRANCS (FRF) AND IN THOUSANDS, UNLESS OTHERWISE NOTED)
(9) SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY THE COMPANY
AND
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
(B) PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
(1) OTHER REVENUES
Other revenues as presented under French GAAP include the recovery of
provisions made for risks and charges previously charged to expense. Under U.S.
GAAP, such recoveries would be recorded as a reduction in expense during the
period. Presentation under U.S. GAAP would result in a reduction of other
revenues and selling, general and administrative expense, respectively, of 127.
(C) RECONCILIATION OF NET INCOME AND SHAREHOLDERS' EQUITY TO U.S. GAAP
(1) NET INCOME
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, 1999
-------------------
<S> <C>
Net income as reported in the Consolidated Income Statement................. 5,389
(a) Pension and post-retirement benefits.................................... (23)
(b) Reversal of general reserve............................................. 23
(c) Reversal of amortization of goodwill recorded on stock repurchase....... 33
-----
Net income according to U.S. GAAP....................................... 5,422
-----
-----
</TABLE>
(2) SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
AS OF
FEBRUARY 28, 1999
-----------------
<S> <C>
Shareholders' equity as reported in the Consolidated Balance Sheet.......... 15,930
(a) Pension and postretirement benefits..................................... (293)
(b) Reversal of general reserve............................................. 1,262
(c) Reversal of amortization of goodwill recorded on stock repurchase....... 33
(c) Reclassification of goodwill as treasury stock.......................... (836)
------
Shareholders' equity according to U.S. GAAP................................. 16,096
------
------
</TABLE>
(10) CONSOLIDATED FINANCIAL INFORMATION ACCORDING TO U.S. GAAP
The Company maintains its accounts in accordance with accounting principles
and practices employed by enterprises in France, whereas the following financial
statements reflect certain adjustments not recorded in the Company's books, to
present these statements in accordance with generally accepted accounting
principles in the United States. These financial statements have been translated
to U.S. dollars.
83
<PAGE>
MAP, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999
(IN FRENCH FRANCS (FRF) AND IN THOUSANDS, UNLESS OTHERWISE NOTED)
(10) CONSOLIDATED FINANCIAL INFORMATION ACCORDING TO U.S. GAAP (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The financial information expressed in U.S. dollars is presented solely for
the convenience of the reader. Assets and liabilities have been translated from
French Francs for each U.S. dollar using the closing exchange rate as of the
balance sheet date. Revenues and expenses have been translated at the average
exchange rate for each U.S. dollars. The rates are as follows:
<TABLE>
<CAPTION>
12 MONTHS ENDED FEBRUARY 28, 1999
- -----------------------------------------------------------------------------
<S> <C>
Average........................................................... 5.844
Closing........................................................... 5.954
</TABLE>
84
<PAGE>
MAP, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999
(IN FRENCH FRANCS (FRF) AND IN THOUSANDS, UNLESS OTHERWISE NOTED)
(10) CONSOLIDATED FINANCIAL INFORMATION ACCORDING TO U.S. GAAP (CONTINUED)
(A) CONSOLIDATED BALANCE SHEET ACCORDING TO U.S. GAAP (IN U.S. DOLLARS AND
IN THOUSANDS):
<TABLE>
<CAPTION>
AS OF
FEBRUARY 28,
1999
----------------
<S> <C>
ASSETS
Cash and cash equivalents....................................................................... $ 548
Accounts receivable, net........................................................................ 864
Notes receivable from related parties........................................................... 402
Other receivables............................................................................... 119
Deferred income taxes........................................................................... 23
Prepaid expenses................................................................................ 52
-------
Total current assets........................................................................ 2,008
-------
Property, plant and equipment................................................................... 2,573
Less--Accumulated depreciation.................................................................. (1,422)
-------
Net property plant and equipment............................................................ 1,151
-------
Intangible assets, net.......................................................................... 24
Goodwill, net................................................................................... 4,761
-------
Total other noncurrent assets............................................................... 4,785
-------
Total assets................................................................................ $ 7,944
-------
-------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long term debt............................................................... $ 2,050
Notes payable to related parties................................................................ 41
Payable to SCI du Cornillon..................................................................... 8
Accounts payable................................................................................ 1,606
Accrued expenses................................................................................ 335
Income tax payable.............................................................................. 244
Other current liabilities....................................................................... 76
-------
Total current liabilities................................................................... 4,360
Long-term debt, net of current portion.......................................................... 772
Reserves for risks and charges.................................................................. 59
Other long-term liabilities..................................................................... 49
-------
Total liabilities........................................................................... 5,240
-------
Common stock.................................................................................... 42
Retained Earnings............................................................................... 2,877
Treasury stock.................................................................................. (198)
Currency translation adjustment................................................................. (17)
-------
Total stockholders' equity.................................................................. 2,704
-------
Total liabilities and stockholders' equity.................................................. $ 7,944
-------
-------
</TABLE>
85
<PAGE>
MAP, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999
(IN FRENCH FRANCS (FRF) AND IN THOUSANDS, UNLESS OTHERWISE NOTED)
(10) CONSOLIDATED FINANCIAL INFORMATION ACCORDING TO U.S. GAAP (CONTINUED)
(B) CONSOLIDATED STATEMENT OF OPERATIONS ACCORDING TO U.S. GAAP (IN U.S.
DOLLARS AND IN THOUSANDS):
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, 1999
-----------------
<S> <C>
Storage..................................................................... $ 4,301
Service and storage material sales.......................................... 18
------
Total revenues.......................................................... 4,319
------
Cost of sales............................................................... 1,165
Selling, general and administrative expense................................. 1,053
Depreciation and amortization expense....................................... 465
------
Total operating expenses................................................ 2,683
------
Operating income........................................................ 1,636
Interest expense............................................................ 80
Other income, net........................................................... 4
------
Income before provision for income taxes................................ 1,560
Provision for income taxes.................................................. 632
------
Net income.............................................................. $ 928
------
------
</TABLE>
86
<PAGE>
IRON MOUNTAIN INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Consolidated Balance
Sheet (the "Pro Forma Balance Sheet") has been prepared based on the
historical condensed consolidated balance sheets of Iron Mountain, First
American Records Management, Inc., and Data Base, Inc. and Affiliate ("Data
Base") as of March 31, 1999 and Memogarde as of May 31, 1999. The Pro Forma
Balance Sheet gives effect to: (a) our First American Records Management and
Data Base acquisitions; (b) the acquisition of Memogarde (the "Memogarde
Acquisition") by Britannia Data Management Limited (our 50.1% subsidiary);
(c) the issuance of our 8 1/4% Senior Subordinated Notes Due 2011, completed
in April 1999 (the "1999 Debt Offering"); and (d) the sale of 5.8 million
shares of our Common Stock, par value $.01 per share (the "Common Stock"),
completed in May 1999 (the "1999 Equity Offering") as if each had occurred as
of March 31, 1999.
The following Unaudited Pro Forma Condensed Consolidated Statements
of Operations (the "Pro Forma Statements of Operations" and together with the
Pro Forma Balance Sheet, the "Pro Forma Financial Statements") for the three
months ended March 31, 1999 and for the year ended December 31, 1998 give
effect to: (a) our 1998 and 1999 acquisitions we completed through April 30,
1999; (b) the Memogarde Acquisition; (c) the sale of 6.0 million shares of
our Common Stock completed in April 1998 (the "1998 Equity Offering"); (d)
our 1999 Debt Offering; and (e) our 1999 Equity Offering as if each had
occurred as of January 1, 1998. However, the Pro Forma Statements of
Operations do not include results of operations prior to the date of
acquisition, or pro forma adjustments for (a) five acquisitions completed
after April 30, 1999, and (b) an acquisition completed by Data Base on
December 31, 1998. The impact of these acquisitions is immaterial to the
Unaudited Pro Forma Condensed Consolidated Financial Statements. Pro Forma
adjustments are described in the accompanying notes. See "Overview" in the
accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
In June 1999, we decided to sell Arcus Staffing. We acquired Arcus
Staffing in January 1998 as part of our acquisition of Arcus Group. We intend
to complete this transaction in the second half of 1999, though there can be
no assurance in this regard. We will account for the sale of Arcus Staffing
as a discontinued operation. Accordingly, the results of operations of Arcus
Staffing have been excluded from continuing operations in the accompanying
Pro Forma Statements of Operations. We expect to report a loss on the sale of
the Arcus Staffing business in our 1999 second quarter results. The amount of
that loss is not determinable at this time.
The Pro Forma Statements of Operations do not necessarily indicate
the actual results of operations that we would have reported if the events
described above had occurred as of January 1, 1998, nor do they necessarily
indicate the results of our future operations. Furthermore, the pro forma
results do not give effect to all cost savings or incremental costs that may
occur as a result of the integration and consolidation of our 1998
acquisitions, our 1999 acquisitions we completed through April 30, 1999 and
the Memogarde Acquisition (the "1999 Pro Forma Acquisitions"). In the opinion
of management, all adjustments necessary to fairly present these pro forma
financial statements have been made.
We have accounted for all of our acquisitions using the purchase
method of accounting.
87
<PAGE>
IRON MOUNTAIN INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
First
Historical American Pro Forma
Iron Records Data Pro Forma Iron
Mountain Management Base Memogarde(1) Adjustments Mountain(2)
---------- ---------- ---- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets $ 110,054 $ 1,706 $ 4,981 $ 1,954 $ 44,994 (A) $ 163,689
Property, Plant and Equipment, net 311,821 3,458 22,217 1,075 2,981 (A) 341,552
Goodwill, net 600,715 730 4,304 4,479 131,093 (A) 741,321
Other Long-term Assets 30,154 779 561 65 3,885 (A) 35,444
---------- ---------- ---------- ---------- --------------- ----------
Total Assets $1,052,744 $ 6,673 $ 32,063 $ 7,573 182,953 $1,282,006
---------- ---------- ---------- ---------- --------------- ----------
---------- ---------- ---------- ---------- --------------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities $ 103,968 $ 6,205 $ 12,592 $ 4,039 $ (14,951) (B) $ 111,853
Long-term Debt, net of Current Portion 537,096 6,400 19,057 733 34,361 (B) 597,647
Other Long-term Liabilities 8,955 18 -- 103 -- 9,076
Deferred Rent 9,956 468 -- -- (468) (B) 9,956
Deferred Income Taxes 14,442 1 -- -- 788 (B) 15,231
Minority Interest 39,470 -- -- -- -- 39,470
Stockholders' Equity (Deficit) 338,857 (6,419) 414 2,698 163,223 (B) 498,773
---------- ---------- ---------- ---------- --------------- ----------
Total Liabilities and Stockholders'
Equity $1,052,744 $ 6,673 $ 32,063 $ 7,573 $ 182,953 $1,282,006
---------- ---------- ---------- ---------- --------------- ----------
---------- ---------- ---------- ---------- --------------- ----------
</TABLE>
(1) Represents the historical condensed combined balance sheet of
Memogarde as of May 31, 1999, after conversion to U.S. generally
accepted accounting principles. See "Overview--Foreign Acquisitions"
in the accompanying Notes.
(2) Does not include pro forma adjustments for the planned sale of Arcus
Staffing.
The accompanying Notes are an integral part of these pro forma financial
statements.
88
<PAGE>
IRON MOUNTAIN INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 Pro Forma Acquisitions (2)
-----------------------------------------------------
First
Historical Britannia American Pro Forma
Iron Data Records Pro Forma Iron
Mountain(1) Management(3) Management Data Base Memogarde(4) Other Adjustments Mountain(5)
----------- ------------- ---------- --------- ------------ ----- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Storage $ 67,722 $ 3,178 $ 1,687 $ 6,781 $1,125 $ 308 $ -- $ 80,801
Service and Storage Material
Sales 41,649 2,032 1,165 415 -- 40 -- 45,301
--------- ------- -------- -------- ------ ----- ------------ ---------
Total Revenues 109,371 5,210 2,852 7,196 1,125 348 -- 126,102
Operating Expenses:
Cost of Sales (Excluding
Depreciation) 54,435 2,624 1,816 3,254 282 226 (38)(C) 62,599
Selling, General and
Administrative 27,875 1,313 3,258 8,695 319 375 (9,456)(D) 32,379
Depreciation and Amortization 13,595 608 153 873 107 11 977 (E) 16,324
--------- ------- -------- -------- ------ ----- ------------ ---------
Total Operating Expenses 95,905 4,545 5,227 12,822 708 612 (8,517) 111,302
--------- ------- -------- -------- ------ ----- ------------ ---------
Operating Income (Loss) 13,466 665 (2,375) (5,626) 417 (264) 8,517 14,800
Interest Expense, net 11,944 200 161 491 43 4 541 (F) 13,384
--------- ------- -------- -------- ------ ----- ------------ ---------
Income (Loss) Before Provision
(Benefit) for Income Taxes
and Minority Interest 1,522 465 (2,536) (6,117) 374 (268) 7,976 1,416
Provision (Benefit) for Income
Taxes 1,623 215 -- -- 240 -- (209)(G) 1,869
Minority Interest 147 -- -- -- -- -- 143 (H) 290
--------- ------- -------- -------- ------ ----- ------------ ---------
Income (Loss) from Continuing
Operations $ (248) $ 250 $ (2,536) $ (6,117) $ 134 $(268) $ 8,042 $ (743)
--------- ------- -------- -------- ------ ----- ------------ ---------
--------- ------- -------- -------- ------ ----- ------------ ---------
Loss from Continuing Operations
per Common Share - Basic and
Diluted $ (0.01) $ (0.02)
--------- ---------
--------- ---------
Weighted Average Common Shares
Outstanding 29,500 5,750 (I) 35,250
--------- ------------ ---------
--------- ------------ ---------
EBITDA from Continuing
Operations $ 27,061 $ 1,273 $ (2,222) $ (4,753) $ 524 $(253) $ 9,494 $ 31,124
</TABLE>
- -----------------
(1) Represents historical results of operations for Iron Mountain for the
three months ended March 31, 1999, after reclassifications to report
the results of operations of Arcus Staffing as a discontinued
operation.
(2) Represents historical results of operations for each 1999 Pro Forma
Acquisition for the period in 1999 prior to the time it was acquired.
See "Overview--Recent Acquisitions" in the accompanying Notes.
(3) Represents the historical condensed combined statement of operations
for Britannia Data Management for the two months ended December 31,
1998, after conversion to U.S. generally accepted accounting
principles. See "Overview--Foreign Acquisitions" in the accompanying
Notes.
(4) Represents the historical condensed consolidated statement of
operations for Memogarde for the three months ended May 31, 1999,
after conversion to U.S. generally accepted accounting principles. See
"Overview--Foreign Acquisitions" in the accompanying Notes.
(5) Does not give pro forma effect to certain identified cost savings of
$1.2 million that we believed would have been realized had the 1999
Pro Forma Acquisitions been fully integrated as of January 1, 1998.
These cost savings relate to: (a) termination of specific employees
and related net reductions in labor expenses, (b) closure of
identified redundant facilities and related net reductions in
occupancy costs and (c) elimination of related party expenses,
management fees and compensation expenses in excess of amounts that
we would have incurred.
The accompanying Notes are an integral part of these pro forma financial
statements.
89
<PAGE>
IRON MOUNTAIN INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 Acquisitions and 1999 Pro Forma Acquisitions (2)
---------------------------------------------------------------------
First
Historical National Britannia American
Iron Underground Data Records
Mountain(1) Storage Management(3) Management Data Base Memogarde(4) Other(5)
----------- ----------- ------------- ---------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Storage $ 230,702 $ 4,657 $16,258 $ 6,139 $24,907 $4,301 $ 12,880
Service and Storage Material
Sales 153,259 885 14,062 3,761 1,682 18 1,881
--------- ------- ------- -------- ------- ------ --------
Total Revenues 383,961 5,542 30,320 9,900 26,589 4,319 14,761
Operating Expenses:
Cost of Sales (Excluding
Depreciation) 192,113 2,116 16,511 7,338 11,337 1,165 6,183
Selling, General and
Administrative 95,867 1,121 5,580 2,212 6,555 1,049 6,910
Depreciation and Amortization 48,301 713 3,863 572 3,706 465 886
--------- ------- ------- -------- ------- ------ --------
Total Operating Expenses 336,281 3,950 25,954 10,122 21,598 2,679 13,979
--------- ------- ------- -------- ------- ------ --------
Operating Income (Loss) 47,680 1,592 4,366 (222) 4,991 1,640 782
Interest Expense, net 45,673 282 1,533 541 1,776 80 406
Other Income, net (7) 1,384 -- -- -- -- -- --
--------- ------- ------- -------- ------- ------ --------
Income (Loss) Before Provision
(Benefit) for Income Taxes
and Minority Interest 3,391 1,310 2,833 (763) 3,215 1,560 376
Provision (Benefit) for Income
Taxes 6,558 544 1,504 238 -- 632 (148)
Minority Interest -- -- -- -- -- -- --
--------- ------- ------- -------- ------- ------ --------
Income (Loss) from Continuing
Operations $ (3,167) $ 766 $ 1,329 $ (1,001) $ 3,215 $ 928 $ 524
--------- ------- ------- -------- ------- ------ --------
--------- ------- ------- -------- ------- ------ --------
Net Loss from Continuing
Operations per Common Share -
Basic and Diluted $ (0.12)
---------
---------
Weighted Average Common Shares
Outstanding 27,470
---------
---------
EBITDA from Continuing
Operations $ 95,981 $ 2,305 $ 8,229 $ 350 $ 8,697 $2,105 $ 1,668
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
Pro Forma Iron
Adjustments Mountain(6)
----------- -----------
<S> <C> <C>
Revenues:
Storage $ -- $ 299,844
Service and Storage Material
Sales -- 175,548
------- ---------
Total Revenues -- 475,392
Operating Expenses:
Cost of Sales (Excluding
Depreciation) (285) (C) 236,478
Selling, General and
Administrative -- 119,294
Depreciation and Amortization 4,741 (E) 63,247
------- ---------
Total Operating Expenses 4,456 419,019
------- ---------
Operating Income (Loss) (4,456) 56,373
Interest Expense, net 4,653 (F) 54,944
Other Income, net (7) -- 1,384
------- ---------
Income (Loss) Before Provision
(Benefit) for Income Taxes
and Minority Interest (9,109) 2,813
Provision (Benefit) for Income
Taxes (1,569)(G) 7,759
Minority Interest 928 (H) 928
------- ---------
Income (Loss) from Continuing
Operations $(8,468) $ (5,874)
------- ---------
------- ---------
Net Loss from Continuing
Operations per Common Share -
Basic and Diluted $ (0.17)
---------
---------
Weighted Average Common Shares
Outstanding 7,410 (I) 34,880
------- ---------
------- ---------
EBITDA from Continuing
Operations $ 285 $ 119,620
</TABLE>
- -----------------
(1) Represents historical results of operations for Iron Mountain for the
year ended December 31, 1998, after reclassifications to report the
results of operations of Arcus Staffing as a discontinued operation.
(2) Represents historical results of operations for: (a) each 1998
acquisition for the period in 1998 prior to the time it was acquired
and (b) each 1999 Pro Forma Acquisition, unless otherwise noted, for
the year ended December 31, 1998. See "Overview--Recent Acquisitions"
in the accompanying Notes.
(3) Represents the historical condensed combined statement of operations
for Britannia Data Management for the year ended October 31, 1998,
after conversion to U.S. generally accepted accounting principles. See
"Overview--Foreign Acquisitions" in the accompanying Notes.
(4) Represents the historical condensed consolidated statement of
operations for Memogarde for the year ended February 28, 1999, after
conversion to U.S. generally accepted accounting principles. See
"Overview--Foreign Acquisitions" in the accompanying Notes.
(5) After a reduction of service and storage material sales revenues of
$2.6 million and EBITDA of $0.6 million related to the disposition of
the assets of one of our subsidiaries which were exchanged,
along with cash, for the assets of Leonard Archives Acquisition Corp.
in October 1998. See "Overview--Recent Acquisitions" in the
accompanying Notes.
(6) Does not give pro forma effect to certain identified cost savings of
$6.7 million that we believed would have been realized had the 1999
Pro Forma Acquisitions been fully integrated as of January 1, 1998.
These cost savings relate to: (a) termination of specific employees
and related net reductions in labor expenses, (b) closure of
identified redundant facilities and related net reductions in
occupancy costs and (c) elimination of related party expenses,
management fees and compensation expenses in excess of amounts that
we would have incurred.
(7) Other income, net includes a $1.7 million gain resulting from the
settlement of several insurance claims related to the March 1997 fires
at our South Brunswick Township, New Jersey facilities.
The accompanying Notes are an integral part of these pro forma financial
statements.
90
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OVERVIEW
RECENT ACQUISITIONS
In 1998, the Company acquired 15 records and information management
services businesses, including Arcus Group and National Underground Storage,
Inc. Total consideration for Arcus Group was $153.7 million, including $55.0
million in aggregate fair value of Common Stock and options to acquire Common
Stock and the balance in cash and assumed debt. Total consideration for
National Underground Storage was $30.1 million in cash and assumed debt. The
aggregate purchase price of the businesses and related real estate acquired
in 1998, excluding Arcus Group and National Underground Storage, was $74.8
million, including $12.1 million in fair value of Common Stock. In addition,
the Company exchanged certain assets of Copyright, Inc., one of the Company's
subsidiaries, with a fair value of $3.0 million, as partial consideration in
the acquisition of the assets of Leonard Archives Acquisition Corp. The Pro
Forma Statement of Operations for the year ended December 31, 1998 reflects a
reduction of service and storage material sales revenues of $2.6 million and
a reduction of EBITDA of $0.6 million related to the disposition of these
assets.
From January 1, 1999, through April 30, 1999, the Company acquired six
records and information management services businesses, including a controlling
50.1 percent interest in Britannia Data Management. Total consideration for the
50.1 percent interest in Britannia Data Management was $49.3 million, consisting
of cash and the capital stock of Arcus Data Security Limited. The Company also
acquired Data Base and related real estate for $114.8 million, including $46
million in fair value of Common Stock (which was subsequently repurchased by the
Company for $39.5 million) and the balance in assumed debt and cash. On June 2,
1999, Britannia Data Management acquired Memogarde. The aggregate purchase price
of the businesses and related real estate acquired in 1999 through April 30,
1999 and Memogarde, excluding Data Base and Britannia Data Management, was $66
million.
The 1998 and 1999 acquisitions are as follows:
<TABLE>
<CAPTION>
1998 ACQUISITIONS COMPLETION DATE
----------------- ---------------
<S> <C>
Bekins Records Management (a division of Bekins Van & Storage, Inc.) January 1998
Midwest Records Management (a division of I-GO Van & Storage Co.) January 1998
Arcus Group, Inc. January 1998
Records Venture One, Inc. (d/b/a Information Management Consultants of Arizona) January 1998
Sloan Vaults, Inc. (d/b/a The Vault) February 1998
InterMation, Inc. April 1998
RIMS business of Bekins Moving & Storage Co. June 1998
National Underground Storage, Inc. July 1998
Hart Information Services, Inc July 1998
Rockford Business Interiors, Inc. July 1998
Albuquerque Archives, Inc. August 1998
Records and Filing Consultants, Inc. August 1998
Commercial Archives, Inc. October 1998
Leonard Archives Acquisition Corp. October 1998
Datavault Corporation November 1998
</TABLE>
91
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
<TABLE>
<CAPTION>
1999 PRO FORMA ACQUISITIONS
-----------------------------------------------------------------
<S> <C>
Britannia Data Management Limited (50.1% interest) January 1999
Secure Accessible Files Environment, Inc. February 1999
Confidential Records Center, Inc. March 1999
Information Storage Service Center, Inc. March 1999
First American Records Management, Inc. April 1999
Data Base, Inc. April 1999
MAP, S.A. (Memogarde) June 1999
</TABLE>
FOREIGN ACQUISITIONS
On January 4, 1999, the Company purchased a controlling 50.1 percent
interest in Britannia Data Management for total consideration of $49.3 million,
consisting of $46.8 million in cash and the balance in the capital stock of
Arcus Data Security Limited, the Company's existing data security services
business in London. The Company acquired shares of Britannia Data Management
from Mentmore Abbey plc and from Abbey Storage Limited, a wholly owned
subsidiary of Mentmore Abbey. In addition, the Company acquired newly issued
shares from Britannia Data Management in exchange for cash and the capital stock
of Arcus Data Security Limited. Upon completion of the transactions, Iron
Mountain owned 50.1 percent of the outstanding capital stock of Britannia Data
Management and Mentmore Abbey owned the remaining 49.9 percent.
The acquisition of Britannia Data Management was accounted for as a
purchase and, as such, its results of operations have been included in the
Company's consolidated financial results since the date of acquisition.
Britannia Data Management has an April 30 fiscal year end. For consolidation
purposes, the Company has designated October 31 as its fiscal year end.
Accordingly, the Pro Forma Statements of Operations for the three months ended
March 31, 1999 and for the year ended December 31, 1998 include Britannia Data
Management's combined condensed statements of operations for the two months
ended December 31, 1998 and for the year ended October 31, 1998, respectively.
On June 2, 1999, Britannia Data Management acquired Memogarde and
related companies for aggregate consideration of $16.9 million, based on an
exchange rate of 6.2699 French Francs per $1 on June 2, 1999. The Memogarde
Acquisition was accounted for as a purchase and, as such, its operations will
be included in the Company's consolidated financial results from the date of
acquisition. Memogarde has a February 28 fiscal year end. Accordingly, the
Pro Forma Balance Sheet as of March 31, 1999 includes the unaudited condensed
combined balance sheet of Memogarde as of May 31, 1999. The Pro Forma
Statements of Operations for the three months ended March 31, 1999 and for
the year ended December 31, 1998 include Memogarde's unaudited statement of
operations for the three months ended May 31, 1999 and the audited statement
of operations for the year ended February 28, 1999, respectively.
The financial statements of Britannia Data Management and Memogarde
have been prepared in accordance with U.S. generally accepted accounting
principles and have been translated into U.S. dollars in accordance with
Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation." The functional currencies of Britannia Data Management and
Memogarde are Pounds Sterling and French Francs, respectively. Accordingly, the
assets and liabilities have been translated into U.S. dollars at the exchange
rate in effect at the end of the period translated. Revenues and expenses have
been translated into U.S. dollars at the average exchange rate during the period
translated. Gains and losses
92
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
that result from translating assets and liabilities into U.S. dollars are
included in stockholders' equity as a cumulative translation adjustment. The
amount of the cumulative translation adjustment as of March 31, 1999 included in
stockholders' equity on the accompanying Pro Forma Balance Sheet is $0.6
million.
DATA BASE ACQUISITION
On April 8, 1999, the Company acquired Data Base and related real
estate for $114.8 million. As part of the total consideration, the Company
issued 1,476,577 shares of Common Stock with a fair value of $46.0 million.
On May 18, 1999, the Company repurchased all of the shares issued in
connection with the Data Base acquisition from the former shareholders of
Data Base for $39.5 million, with a portion of the net proceeds from the 1999
Equity Offering. The amortization of the goodwill created as a result of this
transaction is deductible for federal income tax purposes. On December 31,
1998, Data Base completed the acquisition of File Protek, Inc., a data
security services business in Portland, Oregon. The results of operations of
File Protek are not included in the accompanying Pro Forma Statement of
Operations. File Protek had total revenues of $1.0 million for its fiscal
year ended September 30, 1998.
BALANCE SHEET
The aggregate consideration paid for the 1998 acquisitions and 1999
Pro Forma Acquisitions was $489.0 million. The excess of the purchase price
over the book value of the net assets acquired for each of the acquisitions
was allocated to tangible and intangible assets, based on the Company's
estimate of the fair value of the net assets acquired. The following
allocation of the aggregate purchase price is preliminary and subject to
adjustment, based on the final determination of the fair value of the net
assets acquired (in millions):
<TABLE>
<S> <C>
1998 ACQUISITIONS:
Current Assets $ 28.9
Property, Plant and Equipment 54.2
Goodwill 202.7
Other Long-term Assets 1.7
Current Liabilities (22.7)
Deferred Income Taxes (2.4)
Other Long-term Liabilities (3.8)
------
Purchase Price of 1998 Acquisitions $258.6
1999 PRO FORMA ACQUISITIONS:
Current Assets 25.7
Property, Plant and Equipment 64.8
Goodwill 219.4
Other Long-term Assets 0.8
Current Liabilities (24.2)
Long-term Debt (15.0)
Deferred Income Taxes (1.7)
Other Long-term Liabilities (0.1)
</TABLE>
93
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
<TABLE>
<S> <C>
Minority Interest (39.3)
Purchase Price of 1999 Pro Forma Acquisitions 230.4
------
Total Purchase Price of the 1998 Acquisitions
and 1999 Pro Forma Acquisitions $489.0
------
------
</TABLE>
94
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
Our 1998 acquisitions and our 1999 Pro Forma Acquisitions are
assumed to be financed with Common Stock, options to purchase Common Stock,
the net proceeds from the sale in 1997 of 8 3/4% senior subordinated notes,
the net proceeds from: (a) the 1998 Equity Offering, (b) the 1999 Debt
Offering, and (c) the 1999 Equity Offering, certain assets of the Company,
including the capital stock of Arcus Data Security Limited and borrowings
under Britannia Data Management's line of credit (in millions):
<TABLE>
<S> <C>
1998 ACQUISITIONS:
Fair Value of Common Stock Issued $ 51.4
Fair Value of Options Granted 15.7
Net Proceeds from the sale of 1997 8 3/4% Senior Subordinated Notes 24.5
Net Proceeds from the 1998 Equity Offering 132.0
Net Proceeds from the 1999 Debt Offering 32.0
Assets of Copyright, Inc. 3.0
------
Purchase Price of 1998 Acquisitions $258.6
1999 PRO FORMA ACQUISITIONS:
Fair Value of Common Stock Issued $ 46.0
Net Proceeds from the 1999 Debt Offering 113.0
Net Proceeds from the 1999 Equity Offering 52.0
Borrowings under Britannia Data Management's Line of Credit 13.6
Assumption of Long-term Debt 3.3
Capital Stock of Arcus Data Security Limited 2.5
------
Purchase Price of 1999 Pro Forma Acquisitions 230.4
------
Total Purchase Price of 1998 and 1999
Pro Forma Acquisitions $489.0
------
------
</TABLE>
95
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
BALANCE SHEET (CONTINUED)
The accompanying Pro Forma Balance Sheet has been prepared as if the
acquisitions of First American Records Management, Data Base and Memogarde
had been completed as of March 31, 1999. The Pro Forma Balance Sheet has also
been prepared as if the 1999 Debt Offering and the 1999 Equity Offering had
been completed as of March 31, 1999 and reflects the following pro forma
adjustments:
(A) Pro forma adjustments to Assets consist of the following (in millions):
<TABLE>
<CAPTION>
PROPERTY, OTHER
CURRENT PLANT AND LONG-TERM
ASSETS EQUIPMENT GOODWILL ASSETS
------- --------- -------- ---------
<S> <C> <C> <C> <C>
ACQUISITION ADJUSTMENTS:
Reverse assets of acquired companies not purchased $ (0.3) $ -- $ -- $ (0.6)
Record estimated fair value in excess of net book value of assets
acquired 0.2 3.0 -- --
Reverse goodwill of acquired companies not purchased -- -- (9.5) --
Record goodwill related to acquired companies -- -- 140.6 --
------ ------ ------ ------
Total Acquisition Adjustments (0.1) 3.0 131.1 (0.6)
------ ------ ------ ------
FINANCING ADJUSTMENTS:
Record net proceeds from the 1999 Debt Offering 145.0 -- -- --
Record net proceeds from the 1999 Equity Offering 153.4 -- -- --
Record use of a portion of the net proceeds from the 1999 Equity Offering
to repurchase, at $26.74 per share, 1,476,577 shares of our
Common Stock issued in connection with the Data Base acquisition (39.5) -- -- --
Record use of the net proceeds from the 1999 Debt Offering and a portion
of the net proceeds from the 1999 Equity Offering to repay borrowings
under our revolving credit facility and to
repay debt used to finance our 1999 Pro Forma Acquisitions (213.8) -- -- --
Record deferred financing fees associated with our 1999 Debt
Offering -- -- -- 4.5
------ ------ ------ ------
Total Financing Adjustments 45.1 -- -- 4.5
------ ------ ------ ------
Total Pro Forma Adjustments $ 45.0 $ 3.0 $131.1 $ 3.9
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
96
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
(B) Pro Forma adjustments to Liabilities and Stockholders' Equity consist of the
following (in millions):
<TABLE>
<CAPTION>
DEFERRED
CURRENT LONG-TERM DEFERRED INCOME STOCKHOLDERS'
LIABILITIES DEBT RENT TAXES EQUITY
----------- --------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
ACQUISITION ADJUSTMENTS:
Reverse liabilities and equity of acquired companies not
assumed $(15.7) $(25.2) $ (0.5) $ -- $ 3.3
Record additional debt to finance the 1999 Pro Forma
Acquisitions -- 123.9 -- -- --
Record purchase reserves and estimated fair value of
liabilities of acquired companies 0.7 -- -- 0.8 --
Record common stock issued in connection with the Data
Base acquisition -- -- -- -- 46.0
------ ------ ------ ------ ------
Total Acquisition Adjustments (15.0) 98.7 (0.5) 0.8 49.3
------ ------ ------ ------ ------
FINANCING ADJUSTMENTS:
Record 1999 Debt Offering -- 149.5 -- -- --
Record net proceeds from the 1999 Equity Offering
-- -- -- -- 153.4
Record use of a portion of the net proceeds from
the 1999 Equity Offering to repurchase, at
$26.74 per share, 1,476,577 shares of our
Common Stock issued in connection with the
Data Base acquisition -- -- -- -- (39.5)
Record use of the net proceeds from the 1999 Debt
Offering and a portion of the net proceeds from the
1999 Equity Offering to repay borrowings under our
revolving credit facility -- (213.8) -- -- --
------ ------ ------ ------ ------
Total Financing Adjustments -- (64.3) -- -- 113.9
------ ------ ------ ------ ------
Total Pro Forma Adjustments $(15.0) $ 34.4 $ (0.5) $ 0.8 $163.2
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
97
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
STATEMENTS OF OPERATIONS
PRO FORMA ADJUSTMENTS
The accompanying Pro Forma Statements of Operations for the three
months ended March 31, 1999 and for the year ended December 31, 1998 has been
prepared as if the 1998 acquisitions, the 1999 Pro Forma Acquisitions, the
1998 Equity Offering, the 1999 Debt Offering and the 1999 Equity Offering had
occurred on January 1, 1998 and reflect the following pro forma adjustments:
(C) To reduce cost of sales to eliminate rent expense for facilities we
purchased as part of certain acquisitions that would not have been incurred had
these acquisitions occurred as of January 1, 1998.
(D) To reverse one-time bonus payments, other non-recurring
compensation expenses and broker's fees directly attributable to the Data Base
and First American Records Management acquisitions.
(E) To reflect additional depreciation expense based on the fair value
of the assets acquired and the remaining useful lives and the amortization of
goodwill. Property, plant and equipment are depreciated over three to 50 years,
goodwill is amortized over 25 to 30 years, software is amortized over three
years and covenants not-to-compete are amortized over two to five years on a
straight-line basis.
(F) Pro forma adjustments to Interest Expense consist of the following
(in millions):
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
ACQUISITION ADJUSTMENTS:
Reverse interest expense on debt of the acquired companies retired
or not assumed $(0.7) $(3.1)
Record interest expense on the additional debt used to finance our 1999
Pro Forma Acquisitions assumed to be financed under our revolving
credit facility 1.9 13.7
FINANCING ADJUSTMENTS:
Reverse interest expense on our revolving credit facility debt assumed to
be retired with the net proceeds from the 1999 Debt
Offering and a portion of the net proceeds from the 1999 Equity
Offering (3.4) (16.6)
Record interest expense related to our 1999 Debt Offering,
including amortization of deferred financing fees 3.2 12.8
Record interest income on excess cash from the 1999 Equity Offering
of $45.1 million at an assumed interest rate of 4.75% per annum (0.5) (2.1)
----- -----
Total Acquisition and Financing Adjustments $ 0.5 $ 4.7
----- -----
----- -----
</TABLE>
98
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
STATEMENTS OF OPERATIONS (continued)
(G) To adjust the provision for income taxes to a 40% rate on domestic
pro forma income before nondeductible goodwill amortization and other
nondeductible expenses, and adjust to foreign statutory rates on foreign pro
forma income before nondeductible goodwill.
(H) To record the 49.9 percent minority interest in the net income of
Britannia Data Management and Memogarde after giving pro forma effect to the net
income of Arcus Data Security Limited for the year ended December 31, 1998.
(I) To adjust the pro forma weighted average common shares
outstanding as if the 1998 acquisitions, the 1999 Pro Forma Acquisitions, the
1998 Equity Offering, the 1999 Debt Offering and the 1999 Equity Offering had
occurred on January 1, 1998. The number of shares of common stock issued and
repurchased, and the adjustments are as follows (in thousands):
<TABLE>
<CAPTION>
Total
Number of Three Months
Shares Issued Ended Year Ended
Transactions or Repurchased March 31, 1999 December 31, 1998
------------ -------------- -------------- -----------------
<S> <C> <C> <C>
1999 Equity Offering 5,750 5,750 5,750
1998 Equity Offering 6,038 -- 1,538
Data Base 1,477 1,477 1,477
Repurchase of Data Base shares (1,477) (1,477) (1,477)
Other 489 -- 122
------ ----- -----
Net Shares Issued 12,227 5,750 7,410
------ ----- -----
------ ----- -----
</TABLE>
99
<PAGE>
SIGNATURES
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
--------------------------
(Registrant)
July 9, 1999 By: /s/ Jean A. Bua
- ------------ ------------------------------
(date) Jean A. Bua
Vice President and Corporate Controller
(Principal Accounting Officer)
100
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated July 2, 1999 on Iron Mountain Incorporated financial
statements, included in this Current Report on Form 8-K, into its previously
filed registration statements on Forms S-3 (File No. 333-44185), S-4 (File
Nos. 333-44187 and 333-67765) and S-8 (File Nos. 333-24803, 333-33191,
333-43901, 333-60919, 333-60921 and 333-67499).
/s/ Arthur Andersen LLP
Boston, Massachusetts
July 9, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated May 7, 1999 on MAP, S.A. financial statements, included in
this Current Report on Form 8-K, into Iron Mountain Incorporated's previously
filed registration statements on Forms S-3 (File No. 333-44185), S-4 (File
Nos. 333-44187 and 333-67765) and S-8 (File Nos. 333-24803, 333-33191,
333-43901, 333-60919, 333-60921 and 333-67499).
/s/ Barbier Frinault & Associes
Arthur Andersen
Paris, France
July 2, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated April 1, 1999, on First American Records Management, Inc.
financial statements, included in this Current Report on Form 8-K, into Iron
Mountain Incorporated's previously filed registration statements on Forms S-3
(File No. 333-44185), S-4 (File Nos. 333-44187 and 333-67765) and S-8 (File
Nos. 333-24803, 333-33191, 333-43901, 333-60919, 333-60921 and 333-67499).
/s/Brach, Neal, Daney & Spence, LLP
San Jose, California
July 9, 1999
<PAGE>
EXHIBIT 99
FOR IMMEDIATE RELEASE
Contact: Stephen P. Golden
Assistant Controller
(617) 535-IRON (4766)
IRON MOUNTAIN ANNOUNCES DECISION TO SELL ARCUS STAFFING RESOURCES, INC.
BOSTON, MA - JULY 8, 1999 -- Iron Mountain Incorporated (NYSE: IRM), the world's
largest records management company, announced today that in order to focus on
its records and information management services business, it has decided to sell
its Information Technology staffing business, Arcus Staffing Resources, Inc.
("Arcus Staffing"). Iron Mountain acquired Arcus Staffing in January 1998 in
connection with its acquisition of Arcus Group, Inc. The Company intends to
complete this transaction in the second half of 1999. In 1998, Arcus Staffing
contributed $1.5 million of EBITDA, or 1.6% of Iron Mountain's consolidated
EBITDA, on revenues of $39.6 million, or 9.3% of consolidated revenues.
Richard Reese, Chairman and CEO stated, "Arcus Staffing is a strong player in
the IT staffing services business. We feel that employees will have better
career opportunities and that our customers will have access to a broader array
of services if Arcus Staffing is part of a staffing services-focused
organization."
Iron Mountain will account for the sale of Arcus Staffing as a discontinued
operation. Accordingly, the results of operations of Arcus Staffing will be
segregated from continuing operations and reported as a separate line item on
Iron Mountain's consolidated statements of operations. The Company expects to
report a loss on the sale of the Arcus Staffing business in its 1999
second-quarter results. The amount of that loss is not determinable at this
time. The loss will be reported separately from the results of Iron Mountain's
continuing operations. In addition, the Company will reclassify its 1998 and
first-quarter 1999 financial statements to present the operating results of
Arcus Staffing as a discontinued operation.
-- more --
<PAGE>
IRON MOUNTAIN ANNOUNCES DECISION TO SELL ARCUS STAFFING RESOURCES, INC. / PAGE 2
Iron Mountain currently operates more than 300 records and information
management services centers in 69 markets in the United States and six
internationally. The Company serves more than 70,000 customer accounts,
including more than half of the Fortune 500 Companies. Iron Mountain provides a
full array of records and information management services including: (i)
off-site storage, management and related consulting services for business,
healthcare and vital records; (ii) data security services including off-site
storage and rotation of electronic records; and (iii) sales of related products.
THIS PRESS RELEASE CONTAINS "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, AND IS SUBJECT TO THE SAFE
HARBOR CREATED BY SUCH ACT. THESE STATEMENTS CONCERN FUTURE EXPECTATIONS AND
PLANS THAT INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES. THE COMPANY WISHES TO
CAUTION READERS THAT CERTAIN FACTORS MAY HAVE AFFECTED THE COMPANY'S ACTUAL
RESULTS AND COULD CAUSE RESULTS FOR SUBSEQUENT PERIODS TO DIFFER MATERIALLY FROM
THOSE EXPRESSED IN ANY FORWARD LOOKING STATEMENT MADE BY OR ON BEHALF OF THE
COMPANY. SUCH FACTORS INCLUDE, BUT ARE NOT LIMITED TO (I) THE INABILITY TO
COMPLETE THE SALE OF ARCUS STAFFING ON SATISFACTORY TERMS OR ON THE DESIRED
TIMETABLE, AND (II) OTHER TRENDS IN COMPETITIVE OR ECONOMIC CONDITIONS AFFECTING
THE COMPANY'S FINANCIAL CONDITION OR RESULTS OF OPERATIONS NOT PRESENTLY
CONTEMPLATED. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE FORWARD-LOOKING
STATEMENTS TO REFLECT SUBSEQUENTLY OCCURRING EVENTS OR CIRCUMSTANCES.
###
