PIERCE LEAHY CORP
10-Q, 1997-08-14
PUBLIC WAREHOUSING & STORAGE
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<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-Q
- --------------------------------------------------------------------------------

(Mark One)
[X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934
                  For the Quarterly Period Ended June 30, 1997

                                       or

[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

           For the Transition Period from ____________ to ___________

                        Commission file number 333-9963

                               PIERCE LEAHY CORP.
             (Exact Name of Registrant as Specified in its Charter)

     Pennsylvania                                  23-2588479
     ------------                                  ----------
(State or Other Jurisdiction of         (I.R.S. Employer Identification No.)
Incorporation or Organization)

                   631 Park Avenue, King of Prussia, PA 19406
                   ------------------------------------------
          (Address of Principal Executive Offices, Including Zip Code)

                                 (610) 992-8200
                                 --------------
              (Registrant's Telephone Number, Including Area Code)

Indicate by check mark whether the registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes   X                               No     
    -----                                ------

As of August 8, 1997, there were 16,149,107 shares of the Registrant's Common
Stock, par value $0.01 per share, outstanding.


                                     - 1 -
<PAGE>
 
                               PIERCE LEAHY CORP.
                                     INDEX
<TABLE> 
<CAPTION> 

                                                                            Page

<S>                                                                       <C> 
PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements (Unaudited)
 
     Consolidated Balance Sheets at December 31, 1996                       3
     and June 30, 1997
 
     Consolidated Statements of Operations for the Three
     Months Ended June 30, 1996 and 1997                                    4
 
     Consolidated Statements of Operations for the Six
     Months Ended June 30, 1996 and 1997                                    5
 
     Consolidated Statements of Cash Flows for the Six
     Months Ended June 30, 1996 and 1997                                    6
 
     Notes to Consolidated Financial Statements                            7-9
 
 
Item 2 - Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                        10-14
 
PART II - OTHER INFORMATION
 
Item 6 - Exhibits and Reports on Form 8-K                                  15
     Signatures
 
     Exhibit 27 - Financial Data Schedule                                  16
 
</TABLE>

                                     - 2 -
<PAGE>
 
                        PIERCE LEAHY CORP.
                    CONSOLIDATED BALANCE SHEETS
                     (unaudited, in thousands)

<TABLE> 
<CAPTION> 


                                                                     Proforma
                                                                     June 30,
                                          December 31,   June 30,     1997
      ASSETS                                 1996          1997      (Note 4)
      ------                             ------------- ----------- ------------
<S>                                      <C>           <C>         <C> 
CURRENT ASSETS:
  Cash                                    $      1,254  $    1,236   $   16,487
  Accounts receivable (less allowance
   for doubtful accounts of $795 and 
   $1,321)                                      17,828      24,609       24,609
  Inventories                                      611         878          878
  Prepaid expenses and other                       688         800          800
  Deferred income taxes                              -          15        5,915
                                          ------------  ----------  ----------- 
     Total current assets                       20,381      27,538       48,689
                                          ------------  ----------  ----------- 
 
PROPERTY AND EQUIPMENT:                        158,154     187,228      187,228
 Less: Accumulated depreciation and     
  amortization                                 (45,020)    (49,012)     (49,012)
                                          ------------  ----------  ----------- 
 
    Net property and equipment                 113,134     138,216      138,216
                                          ------------  ----------  ----------- 
 
OTHER ASSETS:
  Intangible assets, net                        97,544     172,923      174,039
  Other                                          3,761       3,480        3,480
                                          ------------  ----------  ----------- 
 
     Total other assets                        101,305     176,403      177,519
                                          ------------  ----------  ----------- 
 
                                           $   234,820   $ 342,157   $  364,424
                                          ============  ==========  =========== 
 
    LIABILITIES AND SHAREHOLDERS' DEFICIT
    -------------------------------------
 
CURRENT LIABILITIES:
  Current portion of long-term debt        $     7,310   $   1,325   $    1,325
  Current portion of noncompete  
   obligations                                     466         387          387
  Accounts payable                               6,757       5,073        5,073
  Accrued expenses                              20,563      22,392       22,392
  Deferred revenue                               9,218      10,130       10,130
                                          ------------  ----------  ----------- 

     Total current liabilities                  44,314      39,307       39,307
 
LONG-TERM DEBT                                 209,330     321,906      254,158
NONCOMPETE OBLIGATIONS                             317         147          147
DEFERRED RENT                                    2,841       3,359        3,359
DEFERRED INCOME TAXES                            3,456       2,929       11,529
SHAREHOLDERS' DEFICIT                          (25,438)    (25,491)      55,924
                                          ------------  ----------  ----------- 

                                           $   234,820   $ 342,157   $  364,424
                                          ============  ==========  =========== 
</TABLE> 

  The accompanying notes are an integral part of these financial statements.
 
                                     - 3 -
<PAGE>
 
                              PIERCE LEAHY CORP.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
          (unaudited, in thousands, except share and per share data)

<TABLE> 
<CAPTION> 

 
                                            Three months ended
                                                 June 30,
                                    ----------------------------------
                                         1996                1997
                                    --------------    ----------------
<S>                                 <C>               <C> 
REVENUES:
 Storage                             $     18,516      $       26,691
 Service and storage material sales        13,107              19,517
                                    -------------     --------------- 
     Total revenues                        31,623              46,208
                                    -------------     --------------- 
 
OPERATING EXPENSES:
 Cost of sales, excluding       
  depreciation and amortization            17,783              25,611
 Selling, general and administrative        5,055               7,409
 Depreciation and amortization              3,040               5,210
 Consulting payments to related       
  parties                                    (125)                  -
 Foreign currency translation                   -                 (62)
                                    -------------     --------------- 
 
     Total operating expenses              25,753              38,168
                                    -------------     --------------- 
 
     Operating income                       5,870               8,040
 
INTEREST EXPENSE                            3,107               8,143
                                    -------------     --------------- 
 
NET INCOME (LOSS)                    $      2,763      $         (103)
                                    =============     =============== 
 
 
 
PROFORMA DATA:
 NET LOSS AS REPORTED                                  $         (103)
 
  PRO FORMA INCOME TAXES (NOTE 5)                                 386
                                                      ---------------
 
  PRO FORMA NET LOSS                                   $         (489)
                                                      ===============
 
  PRO FORMA NET LOSS PER SHARE (NOTE 6)                $         (.05)
                                                      ===============
 
  WEIGHTED AVERAGE SHARES OUTSTANDING                      10,552,278
                                                      ===============
 
</TABLE> 
 
  The accompanying notes are an integral part of these financial statements.
 
                                     - 4 -
<PAGE>
 
                              PIERCE LEAHY CORP.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
          (unaudited, in thousands, except share and per share data)

<TABLE> 
<CAPTION> 

                                            Six months ended
                                                June 30,
                                        -----------------------
                                              1996         1997
                                        ----------- -----------
<S>                                        <C>      <C> 
REVENUES:                                           
   Storage                                 $ 35,485  $   50,013
   Service and storage material sales        25,837      36,427
                                        ----------- -----------
                                                    
            Total revenues                   61,322      86,440
                                        ----------- -----------
                                                    
OPERATING EXPENSES:                                 
   Cost of sales, excluding                         
    depreciation and amortization            35,189      47,909
   Selling, general and administrative        9,911      14,171
   Depreciation and amortization              5,612       9,424
   Foreign currency translation                   -         120
                                        ----------- -----------
                                                    
            Total operating expenses         50,712      71,624
                                        ----------- -----------
                                                    
            Operating income                 10,610      14,816
                                                    
INTEREST EXPENSE                              5,953      14,855
                                        ----------- -----------
                                                    
NET INCOME (LOSS)                             4,657         (39)
                                                    
ACCRETION OF REDEEMABLE WARRANTS              1,561           -
                                        ----------- -----------
                                                    
NET INCOME (LOSS) APPLICABLE TO                     
     COMMON SHAREHOLDERS                   $  3,096 $       (39)
                                        =========== ===========
 
 
PROFORMA DATA:
 NET LOSS AS REPORTED                               $       (39)
 
   PRO FORMA INCOME TAXES (NOTE 5)                          628
                                                    -----------
 
   PRO FORMA NET LOSS                               $      (667)
                                                    ===========
 
   PRO FORMA NET LOSS PER SHARE (NOTE 6)            $      (.06)
                                                    ===========
 
   WEIGHTED AVERAGE SHARES OUTSTANDING               10,552,278
                                                    ===========
</TABLE> 
 
  The accompanying notes are an integral part of these financial statements.

                                     - 5 -
<PAGE>
 
                              PIERCE LEAHY CORP.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (unaudited, in thousands)

<TABLE> 
<CAPTION> 

                                            Six months ended
                                                June 30,
                                        ----------------------
                                              1996        1997
                                        ----------   ---------
<S>                                       <C>        <C> 
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income (loss)                        $  4,657   $    (39)
 Adjustments to reconcile net income
  (loss) to net cash
  provided by operations:
   Depreciation and amortization             5,612       9,424
   Gain on sale of property and         
    equipment                                    -           3
   Amortization of deferred financing   
    costs                                      173         414
   Change in deferred rent                      85         409
   Foreign currency adjustment                 (23)       (195)
   Changes in assets and liabilities,
    net of the effects
    from the purchase of businesses:
     (Increase) decrease in -
      Accounts receivable                   (3,663)     (3,394)
      Inventories                              128        (246)
      Prepaid expenses and other              (989)       (145)
      Other assets                             117         524
     Increase (decrease) in -
      Accounts payable                       2,376      (3,433)
      Accrued expenses                      (1,416)        155
      Deferred revenue                        (302)        666
      Deferred income taxes                   (126)       (148)
                                        ----------   ---------
       Net cash provided by operating   
        activities                           6,629       3,995
                                        ----------   ---------
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 Payments for business acquired, net of  
  cash acquired                            (18,546)    (81,680)
 Capital expenditures                       (7,657)    (16,350)
 Client acquisition costs                   (2,253)     (4,066)
 Increase in intangible assets              (3,564)     (3,189)
 Payments on noncompete agreements            (100)       (310)
                                        ----------   ---------
       Net cash used in investing
        activities                         (32,120)   (105,595)
                                        ----------   ---------
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 Net borrowings on revolving line of    
  credit                                     5,998     112,462
 Proceeds from issuance of long-term    
  debt                                      22,925           -
 Payments on long-term debt and capital 
  lease obligations                           (669)    (10,732)
 Prepayment penalties and cancellation  
  of warrants                               (2,625)          -
 Payment of debt financing costs                 -        (148)
                                        ----------   ---------
       Net cash provided by financing   
        activities                          25,629     101,582
                                        ----------   ---------
 
NET INCREASE (DECREASE) IN CASH                138         (18)
 
CASH, BEGINNING PERIOD                         722       1,254
                                        ----------   ---------
 
CASH, END OF PERIOD                       $    860   $   1,236
                                        ==========   =========
</TABLE> 
 
  The accompanying notes are an integral part of these financial statements.

                                     - 6 -
<PAGE>
 
                              PIERCE LEAHY CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (unaudited, in thousands, except share and per share data)


(1)  GENERAL:

     The interim consolidated financial statements presented herein have been
     prepared by Pierce Leahy Corp. ("Pierce Leahy" 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 consolidated balance sheet as of December 31, 1996 has been derived
     from the consolidated financial statements that have been audited by the
     Company's independent public accountants.  The unaudited 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.  The
     consolidated financial statements and notes included herein should be read
     in conjunction with the consolidated financial statements and notes for the
     year ended December 31, 1996, included in the Company's Annual Report on
     Form 10-K and the Company's Registration Statement on Form S-1 (File number
     333-23121).


(2)  ACQUISITIONS:

     During 1996, the Company purchased twelve records management businesses.
     During the six months ended June 30, 1997, eight records management
     businesses were purchased by the Company.  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  purchase price for the 1997 acquisitions made through June 30,
     1997 exceeded the underlying fair value of the net assets acquired by
     $72,555, which has been assigned to goodwill and is being amortized over
     the estimated benefit period of 30 years.  Funds used to make the various
     acquisitions were provided through the Company's credit facility.

                                     - 7 -
<PAGE>
 
(3)  LONG-TERM DEBT:

<TABLE> 
<CAPTION> 
                                                                        Pro Forma
                                                December 31,  June 30,   June 30,
                                                   1996         1997       1997
                                              -----------    --------    --------
     <S>                                         <C>         <C>         <C> 
     Revolving credit facility                   $  5,327    $117,748    $      -
     Senior subordinated notes                    200,000     200,000     250,000
     Mortgages                                      3,679       3,601       3,601
     Seller notes                                   7,600       1,823       1,823
     Other                                             34          59          59
                                              -----------    --------    --------
                 Total long-term debt             216,640     323,231     255,483
                                              
                 Less: Current portion             (7,310)     (1,325)     (1,325)
                                              -----------    --------    --------
                                              
                                              
                                                 $209,330    $321,906    $254,158
                                              ===========    ========    ========
</TABLE>

(4)  EQUITY AND DEBT OFFERINGS

     On July 7, 1997, Pierce Leahy completed an initial public offering of
     5,664,017 shares of its Common stock (the "Equity Offerings").  In
     addition, concurrent with the Equity Offerings Pierce Leahy sold $120,000
     principal amount of 9 1/8%  Senior Subordinated Notes due 2007 (the
     "Notes Offering").  The proceeds from these offerings were used  primarily
     to redeem a portion of the previously issued 11 1/8% Senior
     Subordinated Notes (the "1996 Notes") and to repay amounts outstanding
     under the Company's revolving credit facility, with the remainder to be
     used for general corporate purposes.

     The pro forma balance sheet as of June 30, 1997 reflects the sale of the
     5,664,017 shares of Common stock resulting in estimated net proceeds to the
     Company of $94,090 (after deducting underwriting discounts and commissions
     and estimated offering expenses of $7,862) and net proceeds of $115,909
     from the Notes Offering (after deducting underwriting discounts and
     commission and estimated offering expenses of $4,091).

     A substantial portion of the Equity Offerings was used to redeem $70,000 of
     the 1996 Notes on August 1, 1997 plus a $7,000 (pretax)  prepayment penalty
     incurred in connection with the redemption.  In addition, the Company will
     record a charge of approximately $2,975 relating to the write-off of
     unamortized deferred financing costs on the retired 1996 Notes.  This
     extraordinary charge of approximately $9,975 (pretax) will be recorded in
     the third quarter relating to the early extinguishment of debt. A tax
     benefit of approximately $3,900 relating to these charges will also be
     recorded in the

                                     - 8 -
<PAGE>
 
     third quarter. The redemption and extraordinary charge, net of tax, is
     reflected in the accompanying pro forma balance sheet.

     The proceeds from the Notes Offering were primarily used to repay existing
     amounts outstanding under the Company's credit facility.  This has also
     been reflected in the accompanying balance sheet.

     The Company previously operated as a Subchapter S corporation and
     terminated such status in connection with the Equity Offerings.  The
     Company will record a deferred income tax  provision of approximately
     $6,600 in connection with the termination of the Company's status as a
     Subchapter S corporation related to the tax effect of the differences in
     the basis of assets and liabilities for financial reporting and income tax
     purposes.  This deferred tax provision will be recorded in the third
     quarter of 1997.  This charge is reflected in the accompanying pro forma
     balance sheet.

     The pro forma balance sheet does not reflect an unusual charge of
     approximately $1,752 (pretax) that will be recorded in the third quarter
     for the write-off of the estimated unamortized compensation expense
     associated with stock options granted on January 1, 1997, due to the
     acceleration of vesting upon the completion of the offerings.

(5)  PRO FORMA INCOME TAXES

     Prior to June 30, 1997, Pierce Leahy was a Subchapter S Corporation for
     federal income tax purposes and, accordingly, income was passed through to
     the shareholders and taxed at the individual level.  The Subchapter S
     Corporation status was terminated in conjunction with the Equity Offerings.
     The pro forma income tax provision assumes the Company had been treated as
     a C corporation for income tax purposes for the three and six month periods
     ended June 30, 1997.

(6)  PRO FORMA NET LOSS PER SHARE

     Pro forma net loss per share was calculated by dividing pro forma net loss
     by the weighted average number of shares of common stock outstanding.
     Pursuant to the requirements of the Securities and Exchange Commission,
     common stock equivalents issued by the Company during the 12 months
     immediately preceding the Equity Offerings have been included in the
     calculation of the shares used in computing pro forma net loss per share as
     if they were outstanding for the period presented using the treasury stock
     method.  All other common stock equivalents have been excluded from the
     calculation as the impact is anti-dilutive.

                                     - 9 -
<PAGE>
 
               ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The following discussion and analysis of the Company's financial condition and
results of operations for the three month periods and the six month periods
ended June 30, 1996 and 1997 should be read in conjunction with the consolidated
financial statements and footnotes for the six month period ended June 30, 1997,
included herein, and the consolidated financial statements and footnotes for the
year ended December 31, 1996, included in the Company's Annual Report on Form
10-K and the Company's Registration Statement on Form S-1 (File number 333-
23121).

Results of Operations

Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1997

Total revenues increased from $31.6 million for the three months ended June 30,
1996 to $46.2 million for the three months ended June 30, 1997, an increase of
$14.6 million, or 46.1%. Sixteen acquisitions, including the acquisition of
Records Management Services, Inc. ("RMS") on April 2, 1997, were completed from
July 1996 to June 1997 which accounted for $10.5 million, or 71.9% of such
increase in total revenues.  The balance of the revenue growth resulted from
sales to new customers and from net increases in cubic feet stored from existing
customers.

Storage revenues increased from $18.5 million for the three months ended June
30, 1996 to $26.7 million for the three months ended June 30, 1997, an increase
of $8.2 million, or 44.2%.  Service and storage material sales revenues
increased from $13.1 million for the three months ended June 30, 1996 to $19.5
million for the three months ended June 30, 1997, an increase of  $6.4 million,
or 48.9%.

Cost of sales (excluding depreciation and amortization) increased from $17.8
million in the three months ended June 30, 1996 to $25.6 million in the three
months ended June 30, 1997, an increase of $7.8 million, or 44.0% but decreased
as a percentage of total revenues from 56.2% in the 1996 period to 55.4% in the
1997 period.  The $7.8 million increase in cost of sales resulted primarily from
an increase in cubic feet stored associated with the growth in business. The
decrease in cost of sales as a percentage of total revenues was due primarily to
operating and storage efficiencies.

Selling, general and administrative expenses increased from $5.1 million for the
three months ended June 30, 1996 to $7.4 million for the three months ended June
30, 1997, an increase of $2.4 million, or 46.6%, and remained the same as a
percentage of revenues at 16.0% for both periods. The dollar increase was
primarily attributable to increases in staffing, including increases due to
acquisitions.

                                     - 10 -
<PAGE>
 
               ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Depreciation and amortization expense increased from $3.0 million for the three
months ended June 30, 1996 to $5.2 million for the three months ended June 30,
1997, an increase of $2.2 million, or 71.4%, and increased as a percentage of
revenues from 9.6% for the three months ended June 30, 1996 to 11.3% for the
three months ended June 30, 1997.  The increase was primarily attributable to
the additional depreciation and amortization expense related to the sixteen
acquisitions completed from July 1996 to June 1997 and, in addition, capital
expenditures for buildings, shelving, improvements to records management
facilities and information systems, and client acquisition costs.

Interest expense increased from $3.1 million for the three months ended June 30,
1996 to $8.1 million for the three months ended June 30, 1997, an increase of
$5.0 million, or 162.1%.  The increase was primarily attributable to increased
indebtedness related to financing acquisitions and capital expenditures, as well
as the higher interest rate on the Company's 11 1/8% Senior Subordinated Notes
issued in July 1996 compared to the bank debt repaid upon the issuance of such
Notes.

As a result of the foregoing factors, the Company had net income of $2.8 million
(8.7% of revenues) for the three months ended June 30, 1996 compared to a net
loss of $.1 million (-.2% of revenues) for the three months ended June 30, 1997.

Earnings before interest, taxes, depreciation and amortization, consulting
payments to related parties, and foreign currency translation ("EBITDA")
increased from $8.8 million for the three months ended June 30, 1996 to $13.2
million for the three months ended June 30, 1997, an increase of $4.4 million,
or 50.1%.  As a percentage of revenues, EBITDA increased from 27.8% for the
three months ended June 30, 1996 to 28.5% for the three months ended June 30,
1997.

Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1997

Total revenues increased from $61.3 million for the six months ended June 30,
1996 to $86.4 million for the six months ended June 30, 1997, an increase of
$25.1 million, or 40.9%.  Sixteen acquisitions, including the acquisition of RMS
on April 2, 1997, completed from July 1996 to June 1997 accounted for $15.7
million, or 62.7% of such increase in total revenues.  The balance of the
revenue growth resulted from sales to new customers and from net increases in
cubic feet stored from existing customers.

Storage revenues increased from $35.5 million for the six months ended June 30,
1996 to $50.0 million for the six months ended June 30, 1997, an increase of
$14.5 million, or 40.9%.  Service and storage material sales revenues increased
from $25.8 million for the six months ended June 30, 1996  to $36.4 million for
the six months ended June 30, 1997, an increase of $10.6 million, or 41.0%.

                                     - 11 -
<PAGE>
 
               ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (Continued)


Cost of sales (excluding depreciation and amortization) increased from $35.2
million in the six months ended June 30, 1996 to $47.9 million in the six months
ended June 30, 1997, an increase of $12.7 million, or 36.1% but decreased as a
percentage of total revenues from 57.4% in 1996 to 55.4% in 1997.  The $12.7
million increase in cost of sales resulted primarily from an increase in cubic
feet associated with the growth in business. The decrease in cost of sales as a
percentage of total revenues was due primarily to operating and storage
efficiencies.

Selling, general and administrative expenses increased from $9.9 million for the
six months ended June 30, 1996 to $14.2 million for the six months ended June
30, 1997, an increase of $4.3 million, or 43.0%, and increased as a percentage
of revenues from 16.2% for the six months ended June 30, 1996 to 16.4% for the
six months ended June 30, 1997.  The dollar increase was primarily attributable
to increases in staffing, including increases due to acquisitions.  The increase
as a percentage of total revenues was due primarily to increased marketing
expenses related to the recent expansion of the sales and marketing force and
employee training.

Depreciation and amortization expense increased from $5.6 million for the six
months ended June 30, 1996 to $9.4 million for the six months ended June 30,
1997, an increase of $3.8 million, or 67.9%, and increased as a percentage of
revenues from 9.2% for the six months ended June 30, 1996 to 10.9% for the six
months ended June 30, 1997.  The increase was primarily attributable to the
additional depreciation and amortization expense related to the sixteen
acquisitions completed from July 1996 to June 1997 and, in addition, capital
expenditures for buildings, shelving, improvements to records management
facilities and information systems, and client acquisition costs.

Interest expense increased from $6.0 million for the six months ended June 30,
1996 to $14.9 million for the six months ended June 30, 1997, an increase of
$8.9 million, or 149.5%.  The increase was primarily attributable to increased
indebtedness related to financing acquisitions and capital expenditures, as well
as the higher interest rate on the Company's 11 1/8% Senior Subordinated
Notes issued in July 1996 compared to the bank debt repaid upon the issuance of
such Notes.

As a result of the foregoing factors, the Company had net income of $4.7 million
(7.6% of revenues) for the six months ended June 30, 1996 compared to a net loss
of $.04 million (.045% of revenues) for the six months ended June 30, 1997.

EBITDA increased from $16.2 million for the six months ended June 30, 1996 to
$24.4 million for the six months ended June 30, 1997, an increase of $8.1
million, or 50.2%.  As a percentage of revenues, EBITDA increased from 26.5% for
the six months ended June 1996 to 28.2% for the six months ended June 30, 1997.

                                     - 12 -
<PAGE>
 
               ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (Continued)


Liquidity and Capital Resources

The Company has made significant capital investments, consisting primarily of
(i) acquisitions, (ii) capital expenditures for buildings, shelving,
improvements to records management facilities and information systems, and (iii)
client acquisition costs.  Cash paid for these investments during the six months
ended June 30, 1997 was $81.7 million, $16.4 million and $4.1 million,
respectively.  These investments were primarily funded with borrowings under the
Company's credit facility.

During the six months ended June 30, 1996, the Company generated $6.6 million in
net cash provided by operations as compared to net cash provided by operations
of  $4.0 million for the six months ended June 30, 1997.  The $2.6 million
decrease in net cash provided by operations for the six months ended June 30,
1997 compared to the prior year period resulted from a decrease in net income of
$4.7 million, a $2.1 million decrease in working capital, of which $4.2 million
was a result of reductions in accrued expenses and accounts payable, offset by
an increase of $3.8 million in depreciation and amortization.

Net cash provided by financing activities was $25.6 million for the six months
ended June 30, 1996, consisting primarily of borrowing of $6.0 million under the
Company's credit facility and the issuance of additional long-term debt of $22.9
million, offset by the repayment of long-term debt of $.7 million and $2.6
million of prepayment penalties and cancellation of  the warrant related to a
previous credit agreement.  The net cash provided by financing activities for
the six months ended June 30, 1997 was $101.5 million, consisting primarily of
$112.5 million borrowings under the credit facility, offset by the repayment of
long-term debt of $10.8 million. As of June 30, 1997, the Company had $1.2
million of available cash and a credit facility providing for $110.0 million of
U.S. dollar borrowings and $35.0 million of Canadian dollar borrowings.  As of
June 30, 1997, $117.8 million was outstanding under the credit facility.
Subsequent to June 30, 1997,  the Company completed an initial public offering
of the Common Stock resulting in net proceeds to the Company in approximately
$94.1 million and concurrently issued $120.0 principal amount of 9 1/8%
Senior Subordinated Notes due 2007.  The net proceeds of the offerings were
primarily used to redeem $70.0 million principal amount of the Company's
11 1/8% Senior Subordinated Notes at 110% of their principal amount plus
accrued interest and to repay outstanding borrowings under the credit facility.
The Company subsequently has entered into an amended credit facility providing
for $140.0 million of U.S. dollar borrowings and $35.0 million of Canadian
dollar borrowings subject to certain restrictions.

                                     - 13 -
<PAGE>
 
               ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (Continued)



Forward-Looking Statements

This Report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended, and is subject to the safe-harbor created by such sections.
Such forward-looking statements concern the Company's operations, economic
performance and financial condition, including in particular its acquisitions
and their integration into the Company's existing operations.  Such statements
involved known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements.  Such
factors, include among others, the following:  general economic and business
condition; changes in customer preferences; competition; changes in technology;
the integration of any acquisitions; changes in business strategy; the
indebtedness of the Company; quality of management, business abilities and
judgment of the Company's personnel; the availability, terms and deployment of
capital; and various other factors referenced in this Report.  The forward-
looking statements are made as of the date of this Report, and the Company
assumes no obligation to update the forward-looking statements or to update the
reasons why actual results could differ from those projected in the forward-
looking statements.

                                     - 14 -
<PAGE>
 
PART II - OTHER INFORMATION

Item 6 - Exhibits and Reports on Form 8-K

       (a) Exhibits

            Exhibit 27 - Financial Data Schedule for the six months ended June
                         30, 1997, submitted to the Securities and Exchange
                         Commission in electronic format

       (b) Reports on Form 8-K- The Company filed a Form 8-K on April 16, 1997
                               reporting the acquisition of Records Management 
                               Services, Inc.

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.



                                  PIERCE LEAHY CORP.



     August 14, 1997              By:  /s/ Douglas B. Huntley
     ---------------                  ---------------------------
        (date)                    Douglas B. Huntley
                                  Vice President and Chief Financial Officer
                                  (Principal Financial Officer)

                                     - 15 -

<TABLE> <S> <C>

<PAGE>
<ARTICLE> 5
       
<S>                             <C>                     <C>
<PERIOD-TYPE>                   6-MOS                   6-MOS
<FISCAL-YEAR-END>                          DEC-31-1996             DEC-31-1997
<PERIOD-START>                             JAN-01-1996             JAN-01-1997
<PERIOD-END>                               JUN-30-1996             JUN-30-1997
<CASH>                                               0                   1,236
<SECURITIES>                                         0                       0
<RECEIVABLES>                                        0                  24,609
<ALLOWANCES>                                         0                   1,321
<INVENTORY>                                          0                     878
<CURRENT-ASSETS>                                     0                  27,538
<PP&E>                                               0                 187,228
<DEPRECIATION>                                       0                (49,012)
<TOTAL-ASSETS>                                       0                 341,057
<CURRENT-LIABILITIES>                                0                  39,307
<BONDS>                                              0                 323,231
                                0                       0
                                          0                       0
<COMMON>                                             0                       0
<OTHER-SE>                                           0                (25,491)
<TOTAL-LIABILITY-AND-EQUITY>                         0                 341,057
<SALES>                                              0                       0
<TOTAL-REVENUES>                                61,322                  86,440
<CGS>                                                0                       0
<TOTAL-COSTS>                                   50,712                  71,624
<OTHER-EXPENSES>                                     0                       0
<LOSS-PROVISION>                                     0                       0
<INTEREST-EXPENSE>                               5,953                  14,855
<INCOME-PRETAX>                                  4,657                    (39)
<INCOME-TAX>                                         0                       0
<INCOME-CONTINUING>                              4,657                    (39)
<DISCONTINUED>                                       0                       0
<EXTRAORDINARY>                                      0                       0
<CHANGES>                                            0                       0
<NET-INCOME>                                     4,657                    (39)
<EPS-PRIMARY>                                        0                       0
<EPS-DILUTED>                                        0                       0
        

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