<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, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period from _________ to _________
Commission file number 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 7, 1998, there were 17,025,990 shares of the Registrant's Common
Stock, par value $0.01 per share, outstanding.
1
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PIERCE LEAHY CORP.
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Consolidated Balance Sheets at June 30, 1998
and December 31, 1997 3
Consolidated Statements of Operations for the Three
Months Ended June 30, 1998 and 1997 4
Consolidated Statements of Operations for the Six
Months Ended June 30, 1998 and 1997 5
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7-10
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-15
PART II - OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 16
Item 6 - Exhibits and Reports on Form 8-K 16
Signatures 16
Exhibit 27 - Financial Data Schedule 17
2
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PIERCE LEAHY CORP.
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1998 1997
------ ----------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,532 $ 1,782
Accounts receivable, net of allowance for doubtful
accounts of $2,801 and $2,399 37,713 25,201
Inventories 1,354 813
Prepaid expenses and other 1,408 1,772
Deferred income taxes 2,570 2,621
--------- ---------
Total current assets 45,577 32,189
--------- ---------
PROPERTY AND EQUIPMENT 252,485 214,981
Less-Accumulated depreciation and amortization (61,262) (54,500)
--------- ---------
Net property and equipment 191,223 160,481
--------- ---------
OTHER ASSETS:
Intangible assets, net 342,863 196,750
Other 2,855 5,293
--------- ---------
Total other assets 345,718 202,043
--------- ---------
$ 582,518 $ 394,713
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,318 $ 1,084
Current portion of noncompete obligations 260 220
Accounts payable 5,676 8,838
Accrued expenses 37,591 24,754
Deferred revenues 13,715 10,199
--------- ---------
Total current liabilities 60,560 45,095
LONG-TERM DEBT 439,148 277,767
NONCOMPETE OBLIGATIONS 17 126
DEFERRED RENT 4,909 3,993
DEFERRED INCOME TAXES 9,354 8,409
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY 68,530 59,323
--------- ---------
$ 582,518 $ 394,713
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
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PIERCE LEAHY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
REVENUES:
Storage $ 37,183 $ 26,691
Service and storage material sales 26,963 19,517
------------ ------------
Total revenues 64,146 46,208
------------ ------------
OPERATING EXPENSES:
Cost of sales, excluding depreciation and amortization 36,279 25,611
Selling, general and administrative 8,856 7,409
Depreciation and amortization 8,577 5,210
Foreign currency exchange 3,724 (62)
------------ ------------
Total operating expenses 57,436 38,168
------------ ------------
Operating income 6,710 8,040
INTEREST EXPENSE 10,383 8,143
------------ ------------
Loss before income taxes (3,673) (103)
INCOME TAXES 784 --
------------ ------------
NET LOSS $ (4,457) $ (103)
============ ============
Basic and diluted net loss per Common share $ (0.27) $ (0.01)
============ ============
Shares used in computing basic and diluted net loss per Common share 16,678,757 10,485,090
============ ============
Pro forma data (Unaudited):
Historical loss before income taxes $ (103)
Pro forma income taxes 386
------------
Pro forma net loss attributable to Common shareholders $ (489)
============
Pro forma basic and diluted net loss per Common share $ (0.05)
============
Shares used in computing pro forma basic and diluted net loss per Common share 10,485,090
============
</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,
------------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
REVENUES:
Storage $ 70,397 $ 50,013
Service and storage material sales 50,039 36,427
------------ ------------
Total revenues 120,436 86,440
------------ ------------
OPERATING EXPENSES:
Cost of sales, excluding depreciation and amortization 69,194 47,909
Selling, general and administrative 17,630 14,171
Depreciation and amortization 15,796 9,424
Foreign currency exchange 3,662 120
------------ ------------
Total operating expenses 106,282 71,624
Operating income 14,154 14,816
INTEREST EXPENSE 18,683 14,855
------------ ------------
Loss before income taxes (4,529) (39)
INCOME TAXES 965 --
------------ ------------
NET LOSS $ (5,494) $ (39)
============ ============
Basic and diluted net loss per Common share $ (0.33) $ (0.00)
============ ============
Shares used in computing basic and diluted loss per Common share 16,578,243 10,485,090
============ ============
Pro forma data (Unaudited):
Historical loss before income taxes $ (39)
Pro forma income taxes 628
------------
Pro forma net loss attributable to Common shareholders $ (667)
============
Pro forma basic and diluted net loss per Common share $ (0.06)
============
Shares used in computing pro forma basic and diluted net loss per Common share 10,485,090
============
</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,
------------------------------
1998 1997
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,494) $ (39)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 15,796 9,424
Gain on sale of property and equipment 29 3
Deferred income tax provision 961 414
Amortization of deferred financing costs 649 409
Change in deferred rent 724 (195)
Foreign currency adjustment 4,753 --
Changes in assets and liabilities, excluding the effects
from the purchase of businesses:
(Increase) decrease in -
Accounts receivable, net (6,840) (3,394)
Inventories (393) (246)
Prepaid expenses and other 856 (145)
Other assets 2,587 524
Increase (decrease) in -
Accounts payable (3,288) (3,433)
Accrued expenses 2,151 155
Deferred revenue 2,717 666
Deferred income taxes -- (148)
--------- ---------
Net cash provided by operating activities 15,208 3,995
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for businesses acquired, net of cash acquired (139,611) (81,680)
Capital expenditures (19,215) (16,350)
Client acquisition costs (4,438) (4,066)
Increase in intangible assets (4,401) (3,189)
Payments on noncompete obligations (70) (310)
--------- ---------
Net cash used in investing activities (167,735) (105,595)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on revolving line of credit 22,265 112,462
Proceeds from issuance of long-term debt 134,278 --
Payments on long-term debt and capital lease obligations (1,158) (10,732)
Payment of debt financing costs (2,108) (148)
--------- ---------
Net cash provided by financing activities 153,277 101,582
--------- ---------
NET INCREASE (DECREASE) IN CASH 750 (18)
CASH, BEGINNING OF PERIOD 1,782 1,254
--------- ---------
CASH, END OF PERIOD $ 2,532 $ 1,236
========= =========
SUPPLEMENTAL DISCLOSURE-CASH PAID FOR INTEREST $ 14,946 $ 13,336
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
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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, 1997 has been derived
from the Company's 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 thereto for the year ended December 31, 1997, included
in the Company's Annual Report on Form 10-K.
2) ACQUISITIONS:
During 1997, the Company purchased 17 records management businesses. For
the six months ended June 30, 1998, 11 businesses were purchased by the
Company. All 1998 acquisitions were accounted for using the purchase
method of accounting and, accordingly, the results of operations for such
acquisitions have been included in the consolidated results of the Company
from their respective acquisition dates. The aggregate purchase price for
the 1998 acquisitions exceeded the underlying estimated fair value of the
net assets acquired by $136,099, which has been assigned to goodwill and is
being amortized over the estimated benefit period of 30 years. For the six
months ended June 30, 1998, the Company paid an aggregate of approximately
$157,202 for the acquisitions, of which $139,611 was in cash provided
primarily through borrowings under the Company's credit facility, (the
"Credit Facility"), and from the proceeds from the issuance of $135,000
principal amount of 8 1/8% Senior Notes by the Company's principal Canadian
subsidiary. The remainder of the purchase price was comprised of shares of
Common Stock with a deemed value of $14,416, and $3,175 in seller notes.
Certain purchase agreements contain purchase price adjustments and earn-out
provisions contingent upon future performance and other criteria that could
affect the ultimate net cash paid for the acquisition.
7
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3) LONG-TERM DEBT:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------------- ------------------
<S> <C> <C>
Senior Subordinated Notes $384,515 $250,000
U.S. Revolver 44,000 0
Canadian Revolver 0 22,303
Mortgage Notes 5,192 5,369
Seller Notes 4,141 1,051
Other 4,618 128
------------------- ------------------
442,466 278,851
Less: Current portion (3,318) (1,084)
------------------- ------------------
$439,148 $277,767
=================== ==================
</TABLE>
On April 7, 1998, Pierce Leahy Command Company, the Company's
principal Canadian subsidiary, completed the issuance of $135,000 principal
amount of 8 1/8% Senior Notes due 2008. Such notes are guaranteed on a
senior subordinated basis by the Company. The notes were issued at a
discount of 99.641% and such amount will be accreted through interest
expense over the term of the Notes.
4) PRO FORMA INCOME TAXES AND BASIC AND DILUTED NET LOSS PER SHARE:
Prior to July 1, 1997, the Company was an S Corporation for federal and
state income tax purposes. The pro forma income tax provision for the three
months and six months ended June 30, 1997 reflects taxes which would have
been recorded on the historical loss before income taxes, at an effective
rate of 39%, had the Company not been an S Corporation during such period.
The basic and diluted pro forma net loss per share is computed by dividing
pro forma net loss by the weighted average number of shares outstanding
during such period.
5) EARNINGS PER SHARE:
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share". SFAS No. 128 requires dual presentation of basic and diluted
earnings per share. According to SFAS No. 128, basic earnings per share,
which replaces primary earnings per share, is calculated by dividing net
income (loss) by the weighted average number of Common shares outstanding
for the period. Diluted earnings per share, which replaces fully diluted
earnings per share, reflects the potential dilution from the exercise or
conversion of
8
<PAGE>
securities into Common stock, such as stock options and warrants. The
Company was required to and did adopt SFAS No. 128 during the period ended
December 31, 1997.
For the three and six months ended June 30, 1998 and 1997, there was no
dilutive effect of stock options or warrants as the Company incurred a net
loss for such periods. Options to purchase 1,270,424 shares of Common stock
at prices ranging from $5.09 to $20.50 per share were outstanding at June
30, 1998.
6) COMPREHENSIVE INCOME:
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which is effective for financial statements issued for fiscal
years beginning after December 15, 1997. The Company's comprehensive
income includes net income and unrealized gains and losses from foreign
currency adjustments. The unrealized foreign currency exchange gains and
losses for the three and six month periods ended June 30, 1998 and 1997
were immaterial.
7) SUBSEQUENT EVENTS:
Subsequent to June 30, 1998, the Company acquired Kestrel Data Management
with records management operations in both Houston and Dallas, Texas;
Bender Records Management, Reno, Nevada; Keystone Records Storage,
Harrisburg, PA; Dallas Secured Records Storage, Dallas, Texas; and Data
Management Systems, Ltd., Halifax, Nova Scotia. The aggregate cash
consideration for these five acquisitions was approximately $63,000, which
was primarily funded with borrowings under the Credit Facility.
9
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8) SUBSIDIARY INFORMATION:
The following summarized financial information of the Company's Canadian
subsidiaries has been prepared from the books and records maintained by such
subsidiaries. The summarized financial information may not necessarily be
indicative of the results of operations or financial position had the Canadian
subsidiaries operated as an independent entity. Certain intercompany sales and
charges are included in the subsidiaries' records and are eliminated in
consolidation.
<TABLE>
<CAPTION>
For the Three Months Ended June 30, For the Six Months Ended June 30,
--------------------------------------------- -------------------------------------------
1998 1997 1998 1997
------------------- --------------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Revenues $ 9,676 $4,366 $15,131 $8,554
Gross margin $ 4,722 $2,059 $ 7,065 $4,132
Operating income $ 2,731 $1,014 $ 3,921 $2,068
Net income (loss) $(5,148) $ 406 $(5,334) $ 598
</TABLE>
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
--------------------------- ----------------------------
<S> <C> <C>
Current assets $ 7,517 $ 3,587
Total assets $116,481 $33,056
Current liabilities $ 8,693 $ 2,018
Long-term liabilities $137,380 $25,652
</TABLE>
In addition, the Company's domestic, wholly-owned subsidiaries are Monarch Box,
Inc., and Advanced Box, Inc. These subsidiaries were established in 1997 to
hold investments and certain intangible assets of the Company. They do not have
any other operations. There are no restrictions on the ability of any of the
subsidiaries to transfer funds to the Company in the form of loans, advances or
dividends, except as provided by applicable law.
10
<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 and six-month periods ended June 30,
1998 and 1997 should be read in conjunction with the consolidated financial
statements and notes thereto for the three-month and six-month periods ended
June 30, 1998 and 1997, included herein, and the consolidated financial
statements and notes thereto for the year ended December 31, 1997, included in
the Company's Annual Report on Form 10-K.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
Total revenues increased from $46.2 million for the three months ended June 30,
1997 to $64.1 million for the three months ended June 30, 1998, an increase of
$17.9 million, or 38.8%. Twenty-four acquisitions were completed from April 1997
to June 1998, which accounted for $13.3 million, or 73.9%, 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 and acquired
customers.
Storage revenues increased from $26.7 million for the three months ended June
30, 1997 to $37.2 million for the three months ended June 30, 1998, an increase
of $10.5 million, or 39.3%. Service and storage material sales revenue
increased from $19.5 million for the three months ended June 30, 1997 to $27.0
million for the three months ended June 30, 1998, an increase of $7.5 million,
or 38.2%.
Cost of sales (excluding depreciation and amortization) increased from $25.6
million in the three months ended June 30, 1997 to $36.3 million in the three
months ended June 30, 1998, an increase of $10.7 million, or 41.7%, and
increased as a percentage of total revenues from 55.4% in the 1997 period to
56.6% in the 1998 period. The increase in dollars and as a percentage of total
revenues resulted primarily from an increase in wages and benefits resulting
from an increased number of employees and an increase in facility occupancy
costs resulting from an increase in cubic feet stored from growth and
acquisitions.
Selling, general and administrative expenses increased from $7.4 million for the
three months ended June 30, 1997 to $8.9 million for the three months ended June
30, 1998, an increase of $1.5 million, or 19.5%, but decreased as a percentage
of total revenues from 16.0% in the 1997 period to 13.8% in the 1998 period. The
dollar increase was primarily attributable to increases in staffing, including
increases in sales force and administrative staff. The decrease as a percentage
of total revenues was attributable to economies realized from the administrative
efficiencies of operating in a centralized manner, including the use of the
Company's proprietary PLUS(R) computer software system.
Depreciation and amortization expense increased from $5.2 million for the three
months ended June 30, 1997 to $8.6 million for the three months ended June 30,
1998, an increase of $3.4 million, or 64.6%, and increased as a percentage of
revenues from 11.3% for the three
11
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months ended June 30, 1997 to 13.4% for the three months ended June 30, 1998.
The increase in both dollars and as a percentage of total revenues was primarily
attributable to the additional depreciation and amortization expense related to
the 24 acquisitions completed from April 1997 to June 1998 and to capital
expenditures for buildings, shelving, improvements to records management
facilities and information systems, and client acquisition costs.
The Company had a foreign currency exchange gain for the three months ended June
30, 1997 of $0.1 million (.1% of total revenues) and a loss of $3.7 million
(5.8% of total revenues) for the three months ended June 30, 1998. The change
in the foreign currency exchange is primarily due to a decrease in the value of
the Canadian dollar as compared to the U.S. dollar. This movement affects
liabilities denominated in U.S. dollars, primarily the $135.0 million principal
amount of 8 1/8% Senior Notes issued by Pierce Leahy Command Company, a Canadian
subsidiary of the Company, ("Command").
Interest expense increased from $8.1 million for the three months ended June 30,
1997 to $10.4 million for the three months ended June 30, 1998, an increase of
$2.3 million, or 27.5%. The increase was primarily attributable to increased
indebtedness incurred to finance acquisitions and capital expenditures.
As a result of the foregoing factors, the Company had a loss before income taxes
of $.1 million (.2% of total revenues) for the three months ended June 30, 1997
compared to a loss before income taxes of $3.7 million (5.7% of total revenues)
for the three months ended June 30, 1998.
The Company recorded a provision for income taxes of $.8 million (or 1.2% of
revenues) for the three months ended June 30, 1998. There were no income taxes
in the six months ended June 30, 1997 since the Company operated as a Subchapter
S corporation during such period.
As a result of the foregoing items, the net loss for the three months ended June
30, 1997 was $.1 million (.2% of total revenues) and the net loss was $4.5
million (6.9% of total revenues) for the three months ended June 30, 1998.
Earnings before interest expense, income taxes, depreciation and amortization,
and foreign currency exchange ("EBITDA") increased from $13.2 million for the
three months ended June 30, 1997 to $19.0 million for the three months ended
June 30, 1998, an increase of $5.8 million, or 44.2%. As a percentage of total
revenues, EBITDA was 28.5% for the three months ended June 30, 1997 and 29.6%
for the three months ended June 30, 1998.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Total revenues increased from $86.4 million for the six months ended June 30,
1997 to $120.4 million for the six months ended June 30, 1998, an increase of
$34.0 million, or 39.3%. Twenty- eight acquisitions were completed from January
1997 to June 1998, which accounted for $24.4 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 and acquired
customers.
Storage revenues increased from $50.0 million for the six months ended June 30,
1997 to $70.4 million for the six months ended June 30, 1998, an increase of
$20.4 million, or 40.8%. Service
12
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and storage material sales revenues increased from $36.4 million for the six
months ended June 30, 1997 to $50.0 million for the six months ended June 30,
1998, an increase of $13.6 million, or 37.4%.
Cost of sales (excluding depreciation and amortization) increased from $47.9
million in the six months ended June 30, 1997 to $69.2 million in the six months
ended June 30, 1998, an increase of $21.3 million, or 44.4%, and increased as a
percentage of total revenues from 55.4% in the 1997 period to 57.5% in the 1998
period. The increase in dollars and as a percentage of total revenues resulted
primarily from an increase in wages and benefits resulting from an increased
number of employees and an increase in facility occupancy costs resulting from
an increase in cubic feet stored from growth and acquisitions.
Selling, general and administrative expenses increased from $14.2 million for
the six months ended June 30, 1997 to $17.6 million for the six months ended
June 30, 1998, an increase of $3.4 million, or 24.4%, but decreased as a
percentage of total revenues from 16.4% in the 1997 period to 14.6% in the 1998
period. The dollar increase was primarily attributable to increases in staffing,
including increases in sales force and administrative staff. The decrease as a
percentage of total revenues was attributable to economies realized from the
administrative efficiencies of operating in a centralized manner including the
use of the Company's proprietary PLUS(R) computer software system.
Depreciation and amortization expense increased from $9.4 million for the six
months ended June 30, 1997 to $15.8 million for the six months ended June 30,
1998, an increase of $6.4 million, or 67.6%, and increased as a percentage of
revenues from 10.9% for the six months ended June 30, 1997 to 13.1% for the six
months ended June 30, 1998. The increase in both dollars and percentage of
total revenues was primarily attributable to the additional depreciation and
amortization expense related to the 28 acquisitions completed from January 1997
to June 1998 and to capital expenditures for buildings, shelving, improvements
to records management facilities and information systems, and client acquisition
costs.
The Company had a foreign currency exchange loss for the six months ended June
30, 1997 of $.1 million (.1% of total revenues) and a loss of $3.7 million (3%
of total revenues) for the six months ended June 30, 1998. The change in the
foreign currency exchange is primarily due to a decrease in the value of the
Canadian dollar compared to the U.S. dollar. This movement affects liabilities
denominated in U.S. dollars, primarily the $135.0 million principal amount of
8 1/8% Senior Notes issued by Command.
Interest expense increased from $14.9 million for the six months ended June 30,
1997 to $18.7 million for the six months ended June 30, 1998, an increase of
$3.8 million, or 25.8%. The increase was primarily attributable to increased
indebtedness incurred to finance acquisitions and capital expenditures.
As a result of the foregoing factors, the Company had a loss before income taxes
of $.04 million for the six months ended June 30, 1997 compared to a loss
before income taxes of $4.5 million for the six months ended June 30, 1998.
13
<PAGE>
The Company recorded a provision for income taxes of $1.0 million (.8% of total
revenues) for the six months ended June 30, 1998. There were no income taxes in
the six months ended June 30, 1997 since the Company operated as a Subchapter S
corporation during such period.
As a result of the foregoing items, net loss for the six months ended June 30,
1997 was $.04 million and the net loss was $5.5 million (4.6% of total revenues)
for the six months ended June 30, 1998.
EBITDA increased from $24.4 million for the six months ended June 30, 1997 to
$33.6 million for the six months ended June 30, 1998, an increase of $9.2
million, or 38.0%. As a percentage of total revenues, EBITDA was 28.2% for the
six months ended June 30, 1997 and 27.9% for the six months ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company has made significant 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, 1998 was $139.6 million, $19.2 million and $4.4 million, respectively.
These investments were primarily funded with borrowings under the Credit
Facility and through the issuance of $135.0 million principal amount of 8 1/8%
Senior Notes due 2008 by Command. The notes are guaranteed on a senior
subordinated basis by the Company.
During the six months ended June 30, 1998, the Company generated $15.2 million
in net cash provided by operating activities as compared to net cash provided by
operating activities of $4.0 million for the six months ended June 30, 1997. The
$11.2 million increase in net cash provided by operating activities for the six
months ended June 30, 1998 compared to the prior year period was primarily
comprised of a $6.4 million increase in depreciation and amortization, a $3.8
million increase in working capital, and a $4.8 million foreign currency
adjustment. This increase in foreign currency adjustment primarily relates to
the non-cash charge related to the effect of the decrease of the Canadian dollar
compared to the U.S. dollar on the Company's Canadian subsidiaries' liabilities
denominated in U.S. dollars, primarily the $135.0 million principal amount of
8 1/8% Senior Notes.
The net cash provided by financing activities for the six months ended June 30,
1998 was $153.3 million, consisting primarily of the net proceeds from issuance
by Command of $135.0 million principal amount of 8 1/8% Senior Notes on April 7,
1998, and $22.3 million of borrowings under the Credit Facility. As of June 30,
1998, the Company had $2.5 million of available cash and the Credit Facility
providing for $150.0 million of U.S. dollar borrowings and $40.0 million of
Canadian dollar borrowings, subject to certain limitations and amounts already
outstanding. As of June 30, 1998, $44.0 million was outstanding under the Credit
Facility.
14
<PAGE>
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
involve 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. The
factors that could cause such a difference 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.
15
<PAGE>
PART II - OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of shareholders on May 15, 1998. The
purpose of the meeting was to elect three directors to hold office until the
annual meeting of shareholders in 2001 and to ratify the appointment of Arthur
Andersen LLP as the Company's independent accountants for 1998.
The vote with respect to electing the directors to hold office until the
annual meeting of shareholders in 2001 was as follows:
<TABLE>
<CAPTION>
FOR WITHELD AUTHORITY
---------- -----------------
<S> <C> <C>
J. Peter Pierce 13,508,623 1,351
Alan B. Campell 13,507,686 2,288
Thomas A. Decker 13,506,316 3,658
</TABLE>
The vote with respect to the appointment of Arthur Andersen LLP as the
Company's independent accountants for 1998 was as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----------------------- -------------------------------- -------
<S> <C> <C> <C>
Item 6 - Exhibits and
Reports on Form 8-K 13,507,407 1,117 1,450
</TABLE>
(a) Exhibits
Exhibit 27 - Financial Data Schedule for the six months ended June
30, 1998 submitted to the Securities and Exchange
Commission in electronic format
(b) Reports on Form 8-K The Company filed a Form 8-K reporting
the acquisition of Archivex Inc. dated April 17, 1998
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, 1998 By: /s/ Douglas B. Huntley
--------------- -------------------------
(date) Douglas B. Huntley
Vice President and Chief Financial Officer
(Principal Financial Officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997 APR-01-1998 APR-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997 JUN-30-1998 JUN-30-1997
<CASH> 2,532 1,236 2,532 1,236
<SECURITIES> 0 0 0 0
<RECEIVABLES> 40,514 25,930 40,514 25,930
<ALLOWANCES> (2,801) (1,321) (2,801) (1,321)
<INVENTORY> 1,354 878 1,354 878
<CURRENT-ASSETS> 45,577 27,538 45,577 27,538
<PP&E> 252,485 187,228 252,485 187,228
<DEPRECIATION> (61,262) (49,012) (61,262) (49,012)
<TOTAL-ASSETS> 582,518 342,157 582,518 342,157
<CURRENT-LIABILITIES> 60,560 39,307 60,560 39,307
<BONDS> 439,148 323,231 439,148 323,321
0 0 0 0
0 0 0 0
<COMMON> 170 0 170 0
<OTHER-SE> 68,360 (25,491) 68,360 (25,491)
<TOTAL-LIABILITY-AND-EQUITY> 582,518 342,157 582,518 342,157
<SALES> 0 0 0 0
<TOTAL-REVENUES> 120,436 86,440 64,146 46,208
<CGS> 0 0 0 0
<TOTAL-COSTS> 106,282 71,624 57,436 38,168
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 402 526 (87) 339
<INTEREST-EXPENSE> 18,683 14,855 10,383 8,143
<INCOME-PRETAX> (4,529) (39) (3,673) (103)
<INCOME-TAX> 965 0 784 0
<INCOME-CONTINUING> (5,494) (39) (4,457) (103)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (5,494) (39) (4,457) (103)
<EPS-PRIMARY> (0.33) 0 (0.27) 0
<EPS-DILUTED> (0.33) 0 (0.27) 0
</TABLE>
