<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): April 2, 1997
-------------
Pierce Leahy Corp.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 333-9963 23-2588479
- ---------------------------- ----------- ------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
631 Park Avenue
King of Prussia, Pennsylvania 19406
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 992-8200
--------------
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
------------------------------------
On April 2, 1997, Pierce Leahy Corp. (the "Company") completed a stock
purchase of Records Management Services, Inc. ("RMS"), a provider of records
storage and management services with operations in Arizona,
California, Illinois, Indiana, Missouri, New Jersey, Ohio, Texas and Utah.
The stock purchase was consummated pursuant to a Stock Purchase Agreement
dated as of February 27, 1997 between the Company, RMS and certain shareholders
of RMS (the "Agreement"). The terms of the stock purchase were negotiated on an
arms-length basis.
The purchase price was approximately $62 million, including the repayment
of certain debt of RMS. The purchase price was financed by a borrowing under
the Company's credit facility with Canadian Imperial Bank of Commerce and the
several lenders parties thereto.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
------------------------------------------------------------------
(a) Financial Statements of Businesses Acquired.
Consolidated Financial Statements of Records Management Services, Inc.:
Report of Independent Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(b) Pro Forma Financial Information.
Pro Forma Consolidated Financial Statements (unaudited):
Basis of Presentation
Pro Forma Consolidated Balance Sheet
Pro Forma Consolidated Statement of Operations
Notes to Pro Forma Consolidated Financial Statements
(c) Exhibits.
The following exhibits are filed as part of this Report:
10. Stock Purchase Agreement dated as of February 27, 1997 between the
Company, Records Management Services, Inc. and certain shareholders of
Records Management Services, Inc. (incorporated by reference to
Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996).
-2-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Records Management Services, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of Records
Management Services, Inc. and subsidiaries (the "Company") as of September 30,
1996, and the related consolidated statements of operations, shareholders'
equity, and cash flows for the year 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Records Management Services,
Inc. and subsidiaries as of September 30, 1996, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
As described in Note 1, the Company changed its method of accounting for
customer acquisition costs effective October 1, 1995.
DELOITTE & TOUCHE LLP
Chicago, Illinois
November 22, 1996
(January 10, 1997 as to Note 11)
-3-
<PAGE>
RECORDS MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.............................................. $ 453,842 $ 176,116
Accounts receivable (net of allowance for doubtful
accounts of $51,433 and $51,523)................. 2,117,947 2,370,139
Carton inventory.................................. 120,940 133,444
Deposits.......................................... 179,909 120,120
Deferred income tax benefit (Note 9).............. 20,500 20,500
Other current assets.............................. 45,077 75,297
----------- -----------
Total current assets............................ 2,938,215 2,895,616
PROPERTY AND EQUIPMENT--Net......................... 6,075,578 6,119,988
OTHER ASSETS:
Investment in partnership (Note 3)................ 148,738 148,738
Deferred customer acquisition costs (Note 1)...... 444,905 443,298
Deferred income tax benefit (net of valuation
allowance of $76,600) (Note 9)................... 359,300 318,300
Goodwill.......................................... 199,295 192,488
----------- -----------
Total other assets.............................. 1,152,238 1,102,824
----------- -----------
TOTAL............................................... $10,166,031 $10,118,428
=========== ===========
</TABLE>
<TABLE>
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................... $ 1,264,004 $ 1,257,884
Accrued liabilities................................ 1,319,690 1,200,627
Notes payable to shareholders (Note 6)............. 225,000 300,000
Current portion of notes payable (Note 6).......... 48,395 50,843
Current portion of capital lease obligations (Note
7)................................................ 288,579 279,500
----------- -----------
Total current liabilities........................ 3,145,668 3,088,854
BANK REVOLVING CREDIT AND TERM LOANS (Note 6)........ 3,000,001 2,966,668
NOTES PAYABLE (Note 6)............................... 136,399 120,350
CAPITAL LEASE OBLIGATIONS (Note 7)................... 632,913 615,389
SHAREHOLDERS' EQUITY:
Common stock and additional paid-in capital, no
par; 1,000,000 shares authorized; 384,493 shares
outstanding (Note 10)............................. 151,738 151,738
Loan to shareholder for purchase of common stock... (71,899) (71,899)
Retained earnings.................................. 3,171,211 3,247,328
----------- -----------
Total shareholders' equity....................... 3,251,050 3,327,167
----------- -----------
TOTAL................................................ $10,166,031 $10,118,428
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
RECORDS MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31
SEPTEMBER 30, ----------------------
1996 1996 1995
------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUE:
Storage................................ $10,533,695 $2,790,142 $2,474,880
Service................................ 6,515,598 1,608,370 1,315,189
----------- ---------- ----------
17,049,293 4,398,512 3,790,069
OPERATING EXPENSES:
Cost of storage and service, excluding
depreciation and amortization......... 10,885,766 2,649,841 2,290,967
Selling, general and administrative.... 5,176,789 1,289,888 1,214,588
Depreciation and amortization.......... 820,274 238,238 208,741
----------- ---------- ----------
16,882,829 4,177,967 3,714,296
----------- ---------- ----------
Operating income..................... 166,464 220,545 75,773
OTHER INCOME (EXPENSE):
Interest income........................ 4,113 3,965 2,243
Interest expense....................... (374,594) (107,393) (71,304)
Loss on disposal of division........... (225,000)
Equity in income of partnership........ 4,834
----------- ---------- ----------
(590,647) (103,428) (69,057)
----------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES........ (424,183) 117,117 6,716
PROVISION (CREDIT) FOR INCOME TAXES (Note
9)...................................... (125,400) 41,000 2,500
----------- ---------- ----------
NET INCOME (LOSS)........................ $ (298,783) $ 66,117 $ 4,216
=========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
RECORDS MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON
STOCK AND
ADDITIONAL LOAN
PAID-IN TO RETAINED
CAPITAL SHAREHOLDER EARNINGS TOTAL
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1995........ $ 61,864 $3,469,994 $3,531,858
Issuance of common stock upon
exercise of options.......... 89,874 $(71,899) 17,975
Net loss...................... (298,783) (298,783)
-------- -------- ---------- ----------
BALANCE, SEPTEMBER 30, 1996..... 151,738 (71,899) 3,171,211 3,251,050
Net income (unaudited)........ 76,117 76,117
-------- -------- ---------- ----------
BALANCE, DECEMBER 31, 1996
(UNAUDITED).................... $151,738 $(71,899) $3,247,328 $3,327,167
======== ======== ========== ==========
</TABLE>
See notes to consolidated financial statements.
-6-
<PAGE>
RECORDS MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31
SEPTEMBER 30, --------------------
1996 1996 1995
------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................ $ (298,783) $ 76,117 $ 4,216
Adjustments to reconcile net income
(loss) to net cash flows from operating
activities:
Deferred income tax provision........... (167,400) 41,000 2,500
Depreciation and amortization........... 820,274 238,238 208,741
Equity in income of partnership......... (4,834)
Provision for loss on disposal of
division............................... 225,000
Changes in:
Accounts receivable.................... 1,187 (252,192) 211,460
Carton inventory....................... 3,081 (12,504) (88,216)
Deposits and other current assets...... 18,173 29,569 (223,015)
Accounts payable....................... 192,400 (6,120) 247,931
Accrued liabilities.................... 357,868 (119,063) (14,776)
---------- --------- ---------
Net cash flows from operating
activities........................... 1,146,966 (4,955) 348,841
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment....... (1,262,224) (225,693) (516,945)
Customer acquisition costs............... (522,950) (25,541) (105,600)
Repayment of loans to unconsolidated
partnership............................. 91,500 11,500
---------- --------- ---------
Net cash flows from investing
activities........................... (1,693,674) (251,234) (611,045)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under term
loan and revolving line of credit....... 925,001 (33,333) 237,000
Proceeds from notes payable to
shareholders............................ 225,000 75,000
Proceeds from exercise of stock options.. 17,975
Payments under capital leases............ (217,007) (49,603) (16,014)
Payment of notes payable................. (13,601)
---------- --------- ---------
Net cash flows from financing
activities........................... 950,969 (21,537) 220,986
---------- --------- ---------
NET CHANGE IN CASH......................... 404,261 (277,726) (41,218)
CASH--Beginning of year.................... 49,581 453,842 49,581
---------- --------- ---------
CASH--End of year.......................... $ 453,842 $ 176,116 $ 8,363
========== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for:
Interest................................ $ 334,089 $ 117,518 $ 70,179
Income taxes............................ 47,628 67,060 27,070
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES--Year
ended September 30, 1996:
The Company incurred equipment capital
lease obligations of $630,668.
The purchase price of a 1995 acquisition
was adjusted, reducing notes payable and
goodwill by $30,206.
The Company purchased all the tangible
assets of McClatchy Business Archives
for cash of $150,000 and notes payable
of $150,000.
The Company issued common stock valued at
$89,874 for cash of $17,975 and a note
receivable of $71,899.
</TABLE>
See notes to consolidated financial statements.
-7-
<PAGE>
RECORDS MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 1996
(INFORMATION FOR THE THREE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1995 IS
UNAUDITED.)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS--Records Management Services, Inc. (Illinois) (the
"Company") is a provider of business records management services including
storage, consulting, micro-imaging and contract management services.
PRINCIPLES OF CONSOLIDATION--The accompanying financial statements include
the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts, transactions and profits have been eliminated.
The Company's 50% interest in an unconsolidated partnership is accounted for
by the equity method.
INTERIM FINANCIAL STATEMENTS--The consolidated balance sheet as of December
31, 1996 and the consolidated statements of operations and cash flows for the
three months ended December 31, 1996 and 1995 are unaudited and, in the
opinion of management of the Company, include all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of the
results for those interim periods. The results of operations for the three
months ended December 31, 1996 and 1995 are not necessarily indicative of the
results to be expected for the full year.
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
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.
PROPERTY AND EQUIPMENT--Depreciation is computed using accelerated and
straight-line methods over the following estimated useful lives: buildings and
improvements, 31.5 years; equipment, 3-12 years.
GOODWILL--Goodwill represents the excess of purchase price of certain
subsidiaries over the fair value of net assets acquired and is amortized on a
straight-line basis over ten years. Accumulated amortization was $141,608 at
September 30, 1996.
CHANGE IN ACCOUNTING PRINCIPLE--Effective October 1, 1995, the Company began
capitalizing 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 5,000 or more cartons) are capitalized
and amortized over the life of the related contract (currently ranging from
three to five years). Management believes such treatment to be preferable
because it conforms with prevalent industry practice. As of September 30,
1996, acquisition costs of $522,950 have been capitalized, including $105,600
capitalized in the three months ended December 31, 1995; accumulated
amortization totaled $78,045 at September 30, 1996.
2. ACQUISITION
Effective November 30, 1995, the Company acquired all of the records storage
business of McClatchy Business Archives ("McClatchy") of Houston, Texas, for
$300,000 in a transaction accounted for as a purchase. The purchase price
included $150,000 in cash and a $150,000 note payable to the seller (see Note
6).
-8-
<PAGE>
RECORDS MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED SEPTEMBER 30, 1996
(INFORMATION FOR THE THREE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1995 IS
UNAUDITED.)
3. UNCONSOLIDATED PARTNERSHIP
The Company owns a 50% partnership interest in Certified Document
Destruction of Illinois ("CDDI"). CDDI provided document destruction services
to the Company and others until it sold its business to Crown Recycling &
Waste Services, Inc. ("Crown") effective September 30, 1996 for approximately
$500,000. The Company's 50% share of the gain recognized on the sale was
$53,581 and its 50% share of CDDI's operating loss for fiscal year 1996 was
$48,747. In connection with the sale agreement, the Company agreed to provide
at least 15 million pounds of material for destruction or disposal by Crown
during the five-year period ending September 30, 2001 for a total cost, based
on current market prices, of approximately $600,000.
4. DISPOSAL OF GEORGIA DIVISION
The Company closed the Georgia division effective September 30, 1996.
Existing assets will be transferred to other divisions. Property rental
agreements were terminated and approximately $225,000 was accrued at September
30, 1996 for these and other costs.
5. BALANCE SHEET INFORMATION
Property and equipment as of December 31, 1996 comprises the following:
<TABLE>
<S> <C>
Land............................................................ $ 164,804
Buildings and improvements...................................... 2,645,666
Equipment....................................................... 9,415,568
-----------
12,226,038
Accumulated depreciation........................................ (6,150,460)
-----------
Property and equipment--net..................................... $ 6,075,578
===========
Accrued liabilities as of September 30, 1996 comprise the following:
Payroll......................................................... $ 246,327
Real estate taxes............................................... 272,791
401(k) plan contributions....................................... 335,094
Disposal of Georgia division.................................... 225,000
Other........................................................... 240,478
-----------
Total........................................................... $ 1,319,690
===========
</TABLE>
6. DEBT
Effective December 1, 1995, the Company entered into a $2,000,000 secured
term loan (the "Term Loan") agreement and a $1,200,000 secured revolving line
of credit agreement (the "Line") with a bank. The Term Loan and the Line
(collectively, the "Loans") bear interest due monthly at the prime rate plus
1%. The Term Loan also requires monthly principal payments of $11,111. All
unpaid principal is due February 1, 1997. At September 30, 1996, total
outstanding borrowings were $3,000,001.
The Term Loan is secured by first mortgages on certain real estate owned by
the Company. The Line is secured by a first priority lien on all of the
Company's assets. The Loans are cross-collateralized and cross-defaulted.
-9-
<PAGE>
RECORDS MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED SEPTEMBER 30, 1996
(INFORMATION FOR THE THREE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1995 IS
UNAUDITED.)
See Note 11 regarding refinancing of the Loans.
The $150,000 note payable issued in connection with the purchase of
McClatchy bears interest at 9% per annum and is payable in eight annual
installments of principal and interest of $27,101 (see Note 2). The $34,794
balance of a note payable issued in connection with a fiscal year 1995
acquisition is payable upon demand. Annual maturities of notes payable amount
to $48,395 for the year ending September 30, 1997 and range from $15,000 to
$19,200 for the succeeding four years.
In 1996, certain shareholders agreed to loan $300,000 to the Company, of
which $225,000 was advanced prior to September 30, 1996. The notes bear
interest at 11% per annum and are due on September 30, 1997.
7. LEASING ARRANGEMENTS
The Company has operating lease agreements for warehouse space expiring at
various dates through 2004. Leases covering a portion of the total leased
space are with entities controlled by directors and shareholders of the
Company. The leases contain renewal options for additional periods and
generally provide for rent adjustments based on changes in the Consumer Price
Index and actual real estate taxes and interest.
The Company has guaranteed payment of all principal and interest due on a
loan payable by Morris West Limited Partnership ("Morris West"), which is
owned by certain directors and shareholders of the Company, to LaSalle
National Bank in the amount of $640,000. Morris West is one of the related
entities from which the Company leases warehouse space.
The estimated future minimum rental payments required under the operating
leases as of September 30, 1996 are as follows:
<TABLE>
<CAPTION>
RELATED UNRELATED
FISCAL YEAR ENTITIES ENTITIES TOTAL
----------- ---------- ---------- ----------
<S> <C> <C> <C>
1997........................................ $ 504,833 $ 913,224 $1,418,057
1998........................................ 314,833 866,368 1,181,201
1999........................................ 241,558 736,601 978,159
2000........................................ 69,833 656,319 726,152
2001........................................ 69,833 656,319 726,152
Thereafter.................................. 151,305 1,460,228 1,611,533
---------- ---------- ----------
Total................................... $1,352,195 $5,289,059 $6,641,254
========== ========== ==========
</TABLE>
During fiscal year 1996, the Company recorded rent expense totaling
$1,638,953, including $732,900 of rent to related entities.
-10-
<PAGE>
RECORDS MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED SEPTEMBER 30, 1996
(INFORMATION FOR THE THREE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1995 IS
UNAUDITED.)
The Company has entered into capitalized long-term leasing agreements for
shelving and various other equipment with an aggregate cost of $1,181,902 and
accumulated amortization of $137,297 at September 30, 1996. The future minimum
lease payments under the capitalized leases as of September 30, 1996 are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1997.............................................................. $ 389,591
1998.............................................................. 373,042
1999.............................................................. 268,283
2000.............................................................. 54,730
2001.............................................................. 29,983
---------
1,115,629
Less amount representing interest................................. 194,137
---------
Present value of future minimum lease payments.................... 921,492
Less principal due in one year.................................... 288,579
---------
Total......................................................... $ 632,913
=========
</TABLE>
8. EMPLOYEE BENEFIT PLAN
Eligible employees participate in the Records Management Services, Inc.
401(k) Profit Sharing Plan. Company contributions, consisting of a
discretionary profit-sharing contribution and a partial matching of employee
contributions, totaled approximately $161,000 for the year ended September 30,
1996.
9. INCOME TAXES
The components of the income tax benefit for the year ended September 30,
1996 are as follows:
<TABLE>
<S> <C>
Current......................................................... $ 42,000
Deferred........................................................ (186,700)
---------
(144,700)
Change in valuation allowance................................... 19,300
---------
Total....................................................... $(125,400)
=========
A reconciliation of the U.S. federal statutory rate of 35% to the effective
rate of tax benefit for the year ended September 30, 1996 is as follows:
Statutory rate.................................................. 35.0%
Nondeductible expenses.......................................... (2.8)
Adjustment of valuation allowance............................... (4.5)
Other, net...................................................... 1.9
---------
Effective rate.................................................. 29.6%
=========
</TABLE>
-11-
<PAGE>
RECORDS MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED SEPTEMBER 30, 1996
(INFORMATION FOR THE THREE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1995 IS
UNAUDITED.)
<TABLE>
The components of deferred tax assets as of September 30, 1996 are as
follows:
<S> <C>
Current:
Allowance for doubtful accounts................................. $ 20,500
========
Long-term:
AMT credit carry-forwards....................................... $100,500
Net operating loss carry-forwards............................... 522,100
Accrued expenses................................................ 222,800
Accumulated depreciation........................................ (372,600)
Other........................................................... (36,900)
Valuation allowance............................................. (76,600)
--------
Total......................................................... $359,300
========
</TABLE>
The valuation allowance relates to state operating loss carry-forwards of
subsidiaries that have not achieved profitable operations.
10. STOCK OPTIONS
In March 1996, the president of the Company exercised an option to purchase
4,993 shares of the Company's common stock at $18.00 per share in exchange for
cash of $17,975 (20%) and a note payable in the amount of $71,899 (80%). The
note bears interest at 6% per annum and requires monthly payments of principal
and interest of $607 from October 1996 until September 2002 when the remaining
principal ($51,143) is due.
The president of the Company holds two other options, each to purchase 4,993
shares at $12.00 per share. One option expires July 31, 1997, while the other
expires September 30, 1998.
11. SUBSEQUENT EVENTS
On January 10, 1997, the Company entered into a $2,500,000 secured term loan
agreement and a $1,500,000 secured revolving line of credit agreement bearing
interest at the prime rate. Proceeds were used to repay the existing Term Loan
and Line. The Term Loan requires monthly principal payments of $33,334. All
unpaid principal of both loans is due June 30, 1998. The Term Loan is secured
by certain equipment of the Company. The Line is secured by the Company's
accounts receivable. The loans are cross-collateralized and cross-defaulted.
In December 1996, the Company issued another option to the president of the
Company to purchase 4,993 shares at $12.00 per share. This option expires
November 30, 1999.
-12-
<PAGE>
PIERCE LEAHY CORP.
------------------
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
BASIS OF PRESENTATION
---------------------
(Unaudited)
-----------
The accompanying pro forma consolidated balance sheet as of December 31, 1996
and the related pro forma consolidated statement of operations for the year then
ended gives effect to the acquisition of Records Management Services, Inc.
("RMS"), as described in Note 2, as if this transaction had occurred as of
December 31, 1996, in the case of the pro forma consolidated balance sheet, and
as of January 1, 1996, in the case of the pro forma consolidated statement of
operations.
It should be noted that the year end of Pierce Leahy Corp. (the "Company") is
December 31. Therefore, the Company's historical information relates to the
year ended December 31, 1996. The corresponding period for RMS is the fiscal
year ended September 30, 1996.
The pro forma consolidated financial statements have been prepared by
management of the Company and should be read in conjunction with the historical
consolidated financial statements of the Company, which have been previously
filed in the Company's Form 10-K for the year ended December 31, 1996, and the
historical financial statements of RMS, which are included elsewhere in this
Form 8-K. The pro forma consolidated financial statements are based on certain
assumptions and preliminary estimates which are subject to change. These
statements do no purport to be indicative of the consolidated financial position
or results of operations of the Company that might have occurred, nor are they
indicative of future results.
-13-
<PAGE>
PIERCE LEAHY CORP.
------------------
PRO FORMA CONSOLIDATED BALANCE SHEET--DECEMBER 31, 1996
-------------------------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Acquisition of
--------------
Records Management Services, Inc.
---------------------------------
Pro Forma
Historical Historical Adjustments
(Note 1) (Note 2) (Note 2) Pro Forma
------------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 1,254 $ 454 $ - $ 1,708
Accounts receivable, net 17,828 2,118 - 19,946
Inventories 611 121 - 732
Prepaid expenses and other 688 245 (21) (b) 912
----------- --------------- ---------- ------------
Total current assets 20,381 2,938 (21) 23,298
----------- --------------- ---------- ------------
PROPERTY AND EQUIPMENT, net 113,134 6,076 4,424 (a) 123,634
----------- --------------- ---------- ------------
OTHER ASSETS:
Intangible assets, net 97,544 644 50,374 (b) 148,562
Other 3,761 508 (359) (b) 3,910
----------- --------------- ---------- ------------
Total other assets 101,305 1,152 50,015 152,472
----------- --------------- ---------- ------------
$ 234,820 $ 10,166 $ 54,418 $ 299,404
=========== =============== ========== ============
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of $ 7,310 $ 562 $ (562) (c) $ 7,310
long-term debt
Current portion of 466 - - 466
noncompete obligations
Accounts payable 6,757 1,264 - 8,021
Accrued expenses 20,563 1,320 - 21,883
Deferred revenues 9,218 - - 9,218
----------- --------------- ---------- ------------
Total current liabilities 44,314 3,146 (562) 46,898
LONG-TERM DEBT 209,330 3,769 58,231 (c) 271,330
NONCOMPETE OBLIGATIONS 317 - - 317
DEFERRED RENT 2,841 - - 2,841
DEFERRED INCOME TAXES 3,456 - - 3,456
TOTAL SHAREHOLDERS' EQUITY
(DEFICIT) (25,438) 3,251 (3,251) (d) (25,438)
----------- --------------- ---------- ------------
$ 234,820 $ 10,166 $ 54,418 $ 299,404
=========== =============== ========== ============
</TABLE>
The accompanying notes are an integral part of this statement.
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<PAGE>
PIERCE LEAHY CORP.
------------------
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
----------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------
Unaudited
---------
<TABLE>
<CAPTION>
Acquisition of
Records Management Services, Inc.
---------------------------------
Pro Forma
Historical Historical Adjustments
(Note 1) (Note 2) (Note 2) Pro Forma
-------------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Storage $ 75,900 $ 10,534 $ - $ 86,434
Service and storage materials sales 53,848 6,515 - 60,363
-------------- -------------- -------------- ----------
Total revenues 129,748 17,049 - 146,797
-------------- -------------- -------------- ----------
OPERATING EXPENSES:
Cost of sales (excluding
depreciation and amortization) 73,870 10,886 - 84,756
Selling, general and administrative 20,007 5,172 - 25,179
Non-recurring charges 3,254 225 - 3,479
Depreciation and amortization 12,869 820 1,973 (e) 15,662
-------------- -------------- -------------- ----------
Total operating expenses 110,000 17,103 1,973 129,076
-------------- -------------- -------------- ----------
Operating income 19,748 (54) (1,973) 17,721
INTEREST EXPENSE 17,225 370 4,778 (f) 22,373
-------------- -------------- -------------- ----------
Income (loss) before income taxes 2,523 (424) (6,751) (4,652)
INCOME TAXES - (125) 125 -
-------------- -------------- -------------- ----------
Income (loss) before 2,523 (299) (6,876) (4,652)
extraordinary item
EXTRAORDINARY CHARGE--Loss on early
extinguishment of debt 2,015 - - 2,015
-------------- -------------- -------------- ----------
NET INCOME (LOSS) $ 508 $ (299) $ (6,876) $ (6,667)
=============== ============== ============== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
-15-
<PAGE>
PIERCE LEAHY CORP.
------------------
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
-----------
1. HISTORICAL:
-----------
The historical balances of Pierce Leahy Corp. and its majority-owned subsidiary,
Pierce Leahy Command Company (together, the "Company"), represent the
consolidated balance sheet as of December 31, 1996 and the consolidated results
of operations for the year then ended as reported in the consolidated financial
statements which have been previously filed in the Company's Form 10-K.
2. ACQUISITION OF RECORDS MANAGEMENT SERVICES, INC.:
-------------------------------------------------
On April 2, 1997, the Company acquired all of the capital stock of Records
Management Services, Inc. ("RMS"). Total consideration paid at closing by the
Company was approximately $62,000,000, including the repayment of certain debt
of RMS. The acquisition has been accounted for using the purchase method of
accounting. Under this method the purchase price is allocated to the assets and
liabilities of RMS based on the fair values at the acquisition date. Such
allocation has been based on estimates that may be revised at a later date. The
purchase price exceeded the fair value of the net assets acquired by
approximately $48,508,000, which has been recorded as goodwill and will be
amortized on a straight-line basis over 30 years.
The historical balances for RMS were derived from the historical balance sheet
as of September 30, 1996 and the statement of operations for the year then
ended, which are included elsewhere in this Form 8-K.
The following pro forma adjustments for the acquisition of RMS are reflected in
the pro forma consolidated balance sheet as of December 31, 1996 and the pro
forma consolidated statement of operations for the year then ended:
Unaudited Pro Forma Adjustments to Consolidated Balance Sheet-
a. To record the step-up to the estimated fair value of land ($400,000),
warehouse equipment ($7,000,000), and buildings ($3,100,000).
b. Intangible assets of goodwill ($48,508,000), noncompete agreement
($2,000,000), and other intangibles ($510,000) result from the preliminary
allocation of the purchase price. These intangibles are subject to
adjustment based on the final allocation of the purchase price to the net
assets acquired. Also, pre-existing intangibles ($644,000) and deferred
income tax benefits ($380,000) were not allocated value in purchase
accounting.
-16-
<PAGE>
c. Reflects the Company's borrowing of $62,000,000 on its U.S. Revolver to fund
the acquisition of RMS and the repayment of debt of RMS of $4,331,000.
d. Reset the historical equity accounts of RMS.
Unaudited Pro Forma Consolidated Statement of Operations-
e. To record amortization expense of $1,973,000 relating to goodwill, noncompete
agreement, and other intangible assets based upon the estimated useful lives
of each intangible, plus depreciation expense of $474,000 relating to the
step-up in the value of warehouse equipment and buildings.
f. To record additional interest expense on the $62,000,000 of borrowings to
fund the aquisition at a weighted average interest rate of approximately
8.3%.
-17-
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: April 16, 1997 PIERCE LEAHY CORP.
By: /s/ Douglas B. Huntley
---------------------------------------------
Douglas B. Huntley, Vice President and
Chief Financial Officer
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<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description of Document
- ----------- -----------------------
10. Stock Purchase Agreement dated as of February 27, 1997
between the Company, Records Management Services, Inc. and
certain shareholders of Records Management Services, Inc.
(incorporated by reference to Exhibit 10.7 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1996).
