<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, 1999
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 1-13045
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 9, 1999, there were 17,068,770 shares of the Registrant's Common
Stock, par value $0.01 per share, outstanding.
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<PAGE>
PIERCE LEAHY CORP.
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Consolidated Balance Sheets at June 30, 1999
and December 31, 1998 3
Consolidated Statements of Operations for the Three
Months Ended June 30, 1999 and 1998 4
Consolidated Statements of Operations for the Six
Months Ended June 30, 1999 and 1998 5
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7-11
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-17
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 18
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 19
Item 6 - Exhibits and Reports on Form 8-K 19
Signatures 19
Exhibit 27 - Financial Data Schedule 20
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
PIERCE LEAHY CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1999 1998
------ ------------ ------------
<S> <C> <C>
(Unaudited)
CURRENT ASSETS:
Cash $ 2,255 $ 2,312
Accounts receivable, net of allowance for doubtful
accounts of $3,734 and $3,650 50,145 43,063
Inventories 1,133 1,056
Prepaid expenses and other 2,273 1,129
Deferred income taxes 4,402 4,402
------------ ------------
Total current assets 60,208 51,962
------------ ------------
PROPERTY AND EQUIPMENT 329,567 297,216
Less-Accumulated depreciation and amortization (76,432) (67,522)
------------ ------------
Net property and equipment 253,135 229,694
------------ ------------
OTHER ASSETS:
Intangible assets, net 418,786 381,515
Other 1,681 3,287
------------ ------------
Total other assets 420,467 384,802
------------ ------------
$ 733,810 $ 666,458
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 20,113 $ 3,583
Accounts payable 7,843 11,663
Accrued expenses 43,995 40,931
Deferred revenues 14,769 11,932
------------ ------------
Total current liabilities 86,720 68,109
LONG-TERM DEBT 550,437 514,362
DEFERRED RENT 6,445 5,856
DEFERRED INCOME TAXES 17,097 15,036
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK 4,822 -
SHAREHOLDERS' EQUITY 68,289 63,095
------------ ------------
$ 733,810 $ 666,458
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
PIERCE LEAHY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30,
1999 1998
------------ ------------
<S> <C> <C>
(Unaudited)
REVENUES:
Storage $ 46,921 $ 37,183
Service and storage material sales 38,608 26,963
------------ ------------
Total revenues 85,529 64,146
------------ ------------
OPERATING EXPENSES:
Cost of sales, excluding depreciation and amortization 48,261 36,279
Selling, general and administrative 11,562 8,856
Depreciation and amortization 11,253 8,577
Foreign currency exchange (3,150) 3,724
------------ ------------
Total operating expenses 67,926 57,436
------------ ------------
Operating income 17,603 6,710
INTEREST EXPENSE 12,911 10,383
------------ ------------
Income (loss) before income taxes 4,692 (3,673)
INCOME TAXES 1,052 784
------------ ------------
NET INCOME (LOSS) 3,640 (4,457)
PREFERRED STOCK DIVIDEND 276 -
------------ ------------
NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS $ 3,364 $ (4,457)
============ ============
Basic net income (loss) per Common share $ 0.20 $ (0.27)
============ ============
Diluted net income (loss) per Common share $ 0.19 $ (0.27)
============ ============
Shares used in computing basic net income (loss) per Common share 17,056 16,679
============ ============
Shares used in computing diluted net income (loss) per Common share 17,591 16,679
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
PIERCE LEAHY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands except per share data)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
------------ ------------
<S> <C> <C>
(Unaudited)
REVENUES:
Storage $ 91,095 $ 70,397
Service and storage material sales 74,628 50,039
------------ -----------
Total revenues 165,723 120,436
------------ -----------
OPERATING EXPENSES:
Cost of sales, excluding depreciation and amortization 93,856 69,194
Selling, general and administrative 22,140 17,630
Depreciation and amortization 21,196 15,796
Foreign currency exchange (4,965) 3,662
------------ -----------
Total operating expenses 132,227 106,282
------------ -----------
Operating income 33,496 14,154
INTEREST EXPENSE 25,514 18,683
------------ -----------
Income (loss) before income taxes 7,982 (4,529)
INCOME TAXES 1,938 965
------------ -----------
NET INCOME (LOSS) 6,044 (5,494)
PREFERRED STOCK DIVIDEND 368 -
------------ -----------
NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS $ 5,676 $ (5,494)
============ ===========
Basic net income (loss) per Common share $ 0.33 $ (0.33)
============ ===========
Diluted net income (loss) per Common share $ 0.32 $ (0.33)
============ ===========
Shares used in computing basic net income (loss) per Common share 17,046 16,578
============ ===========
Shares used in computing diluted net income (loss) per Common share 17,583 16,578
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
PIERCE LEAHY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 6,044 $ (5,494)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 21,076 15,796
(Gain) loss on sale of property and equipment (31) 29
Deferred income tax provision 1,938 961
Amortization of deferred financing costs 769 649
Change in deferred rent 398 724
Foreign currency adjustment (4,776) 4,753
Changes in assets and liabilities, excluding the effects
from the purchases of businesses:
(Increase) decrease in -
Accounts receivable, net (3,885) (6,840)
Inventories (23) (393)
Prepaid expenses and other (583) 856
Other assets 1,632 2,587
Increase (decrease) in -
Accounts payable (4,594) (3,288)
Accrued expenses 502 2,081
Deferred revenue 992 2,717
----------- -----------
Net cash provided by operating activities 19,459 15,138
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for businesses acquired, net of cash acquired (22,434) (139,611)
Capital expenditures (26,427) (19,215)
Client acquisition costs (7,119) (4,438)
Increase in intangible assets (1,837) (4,401)
Proceeds from sale of property and equipment 824 -
----------- -----------
Net cash used in investing activities (56,993) (167,665)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving line of credit 62,773 93,612
Payments on revolving line of credit (28,773) (71,347)
Proceeds from issuance of long-term debt 2,818 134,278
Issuance of redeemable preferred stock 4,644 -
Payments on long-term debt (3,294) (1,158)
Payment of deferred financing costs (668) (2,108)
Proceeds from exercise of stock options 166 -
Payment of dividends on redeemable preferred stock (189) -
----------- -----------
Net cash provided by financing activities 37,477 153,277
----------- -----------
NET INCREASE (DECREASE) IN CASH (57) 750
CASH, BEGINNING OF PERIOD 2,312 1,782
----------- -----------
CASH, END OF PERIOD $ 2,255 $ 2,532
=========== ===========
SUPPLEMENTAL DISCLOSURE-CASH PAID FOR INTEREST $ 25,638 $ 14,946
=========== ===========
SUPPLEMENTAL DISCLOSURE-CASH PAID FOR INCOME TAXES $ 31 $ -
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<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, 1998 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 for the year ended December 31, 1998, included in the
Company's Annual Report on Form 10-K.
2) ACQUISITIONS:
During 1998, the Company completed 16 acquisitions. For the six months
ended June 30, 1999, three records management businesses were purchased by
the Company. All 1998 and 1999 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 Companies acquired in 1999 exceeded the underlying estimated
fair value of the net assets acquired by $38,780, 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, 1999, the Company paid an
aggregate purchase price of approximately $41,316 for the acquisitions,
consisting of $22,434 in net cash and $18,882 in Seller notes. The most
significant of these acquisitions was Datavault, Limited, a U.K. based
records management company with operations in seven markets throughout
England and Scotland. This acquisition was financed with borrowings under
the Company's credit facility and the issuance of Seller notes. The Company
has historically financed its acquisitions primarily with borrowings under
its credit facilities and with cash flows from existing operating
activities.
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<PAGE>
3) LONG-TERM DEBT:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------ ------------------
<S> <C> <C>
11 1/8% Senior Subordinated Notes due 2006 $130,000 $130,000
9 1/8% Senior Subordinated Notes due 2007 120,000 120,000
8 1/8% Senior Notes due 2008 134,557 134,537
U.S. Revolver 152,000 118,000
Mortgage Notes 7,253 7,368
Seller Notes 19,013 3,475
Other 7,727 4,565
------------------ ------------------
570,550 517,945
Less-Current portion (20,113) (3,583)
------------------ ------------------
$550,437 $514,362
================== ==================
</TABLE>
In February 1999, the Company amended the U.S. portion of its revolving
credit facility to provide for borrowings of up to $175,000. All other
material terms and conditions remained the same.
4) REDEEMABLE PAY-IN-KIND PREFERRED STOCK:
In March 1999, the Company entered into an agreement to issue up to $15,000
of redeemable pay-in-kind ("PIK") preferred stock. This stock is redeemable
at any time during the ten year term and has an initial annual dividend
rate of 11.36%, subject to increase under certain circumstances including
subsequent issuances of preferred stock (depending on certain interest
rates at such time) and if the preferred stock is not redeemed prior to six
months from its initial issuance. At its option, the Company may issue
additional shares of preferred stock in lieu of quarterly cash dividend
payments. The Company issued $5,000 of the redeemable PIK preferred stock
in March 1999. The Company incurred fees of approximately $356, providing
for net proceeds of approximately $4,644. Amortization of fees was $178
through June 30, 1999. In June 1999 dividend payments of $189 were made to
the preferred stockholders.
5) EARNINGS PER SHARE:
The weighted average common and common equivalent shares outstanding for
purposes of calculating net income (loss) per common share are computed as
follows:
-8-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- --------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding used for basic net
income (loss) per common share 17,056 16,679 17,046 16,578
Dilutive effect of common stock
options outstanding 535 - 537 -
-------------- -------------- -------------- -------------
Weighted average common and
common equivalent shares
used for diluted net income
(loss) per common share 17,591 16,679 17,583 16,578
============== ============== ============== =============
</TABLE>
Options to purchase an aggregate of 1,374,894 shares of Common stock at
prices ranging from $5.09 to $25.50 per share were outstanding at June 30,
1999.
6) COMPREHENSIVE INCOME (LOSS):
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," requires presentation of the components of
comprehensive income (loss). The Company's comprehensive income (loss)
includes net income (loss) and unrealized gains and losses from foreign
currency translation adjustments. The Company's total comprehensive income
(loss) is as follows:
<TABLE>
<CAPTION>
Six months ended, Three months ended,
June 30, June 30,
------------------------------- -------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
Comprehensive Income (Loss):
<S> <C> <C> <C> <C>
Net Income (Loss) $5,676 $(5,494) $3,364 $(4,457)
Other Comprehensive Income (Loss):
Foreign Currency Translation Adjustment (650) 44 (530) 36
Income Tax Benefit Related to Items of
Other Comprehensive Income (Loss) 260 18 212 15
------------- ------------- ------------- -------------
Other Comprehensive Income (Loss) $5,286 $(5,432) $3,046 $(4,406)
============= ============= ============= =============
</TABLE>
7) SEGMENT AND SUBSIDIARY INFORMATION (UNAUDITED):
The Company stores and services business records for clients throughout the
United States, Canada and the United Kingdom. The following information is
a summary of the operating results and financial position for the Company's
Canadian operations and the Company's U.S. and other operations:
-9-
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
United States and other $ 74,401 $ 54,469 $ 143,359 $ 105,305
Canada 11,128 9,677 22,364 15,131
------------ ------------ ------------ ------------
Total $ 85,529 $ 64,146 $ 165,723 $ 120,436
============ ============ ============ ============
EBITDA:
United States and other $ 23,414 $ 16,281 $ 44,463 $ 29,691
Canada 2,292 2,730 5,264 3,921
------------ ------------ ------------ ------------
Total $ 25,706 $ 19,011 $ 49,727 $ 33,612
============ ============ ============ ============
Operating income:
United States and other $ 13,159 $ 3,246 $ 26,108 $ 10,233
Canada 4,444 3,464 7,388 3,921
------------ ------------ ------------ ------------
Total $ 17,603 $ 6,710 $ 33,496 $ 14,154
============ ============ ============ ============
Net income (loss) applicable
to Common shareholders:
United States and other $ 1,641 $ 690 $ 3,142 $ (160)
Canada 1,723 (5,147) 2,534 (5,334)
------------ ------------ ------------ ------------
Total $ 3,364 $ (4,457) $ 5,676 $ (5,494)
============ ============ ============ ============
June 30, December 31,
1999 1998
------------ ------------
Current assets:
United States and other $ 50,913 $ 42,896
Canada 9,295 9,066
------------ ------------
Total $ 60,208 $ 51,962
============ ============
Total assets:
United States and other $ 596,918 $ 542,378
Canada 136,892 124,080
------------ ------------
Total $ 733,810 $ 666,458
============ ============
Current liabilities:
United States and other $ 79,103 $ 59,885
Canada 7,617 8,224
------------ ------------
Total $ 86,720 $ 68,109
============ ============
Long-term liabilities:
United States and other $ 437,661 $ 399,739
Canada 136,318 135,515
------------ ------------
Total $ 573,979 $ 535,254
============ ============
</TABLE>
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<PAGE>
The summarized financial information of the Canadian subsidiaries has been
prepared from the books and records maintained by each subsidiary. The
summarized financial information may not necessarily be indicative of the
results of operations or financial position had the Canadian subsidiaries
operated as independent entities. Certain intercompany sales and charges,
and intercompany loans among the Company and its Canadian subsidiaries are
included in the Canadian subsidiaries' records and are eliminated in
consolidation.
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.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information." This
statement establishes additional standards for segment reporting in the
financial statements and is effective for fiscal years beginning after
December 15, 1997. Management has determined that all of their operations
have similar economic characteristics and may be aggregated into a single
segment for disclosure under SFAS 131. Information concerning the
geographic operations of the Company as prescribed by SFAS 131 is provided
above.
8) SUBSEQUENT EVENTS:
Subsequent to June 30, 1999, the Company acquired Tippet-Richardson, Ltd.,
a records management company located in Halifax, Nova Scotia, for
approximately CDN $1.1 million. This acquisition was primarily funded with
borrowings under the Company's revolving credit facility.
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<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,
1999 and 1998 should be read in conjunction with the consolidated financial
statements and notes thereto for the three-month and six-month periods ended
June 30, 1999 and 1998, included herein, and the consolidated financial
statements and notes thereto for the year ended December 31, 1998, included in
the Company's Annual Report on Form 10-K.
Results of Operations
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Total revenues increased from $64.1 million for the three months ended June 30,
1998 to $85.5 million for the three months ended June 30, 1999, an increase of
$21.4 million, or 33.3%. Fourteen acquisitions were completed from April 1998 to
June 1999, which accounted for $10.9 million, or 50.9%, of such increase in
total revenues. The balance of the revenue growth ($10.5 million) resulted from
sales to new customers and from net increases in cubic feet stored from existing
customers. This represents a base business revenue growth of 16.4% for the
second quarter of 1999 as compared to the second quarter of 1998.
Storage revenues increased from $37.2 million for the three months ended June
30, 1998 to $46.9 million for the three months ended June 30, 1999, an increase
of $9.7 million, or 26.2%. Service and storage material sales revenues
increased from $27.0 million for the three months ended June 30, 1998 to $38.6
million for the three months ended June 30, 1999, an increase of $11.6 million,
or 43.2%, due in part to a $1.9 million increase in service revenues derived
from the marketing literature storage and fulfillment business acquired during
1998.
Cost of sales (excluding depreciation and amortization) increased from $36.3
million in the three months ended June 30, 1998 to $48.3 million in the three
months ended June 30, 1999, an increase of $12.0 million, or 33.0%, but
decreased as a percentage of total revenues from 56.6% in the 1998 period to
56.4% in the 1999 period. The increase in dollars resulted primarily from an
additional number of employees and an increase in facility occupancy costs
resulting from the growth in cubic feet stored from existing customers and
acquisitions. The decrease as a percentage of total revenue was due primarily to
increased operating efficiencies from the conversion of previously acquired
operations into the Company's PLUS(R) system.
Selling, general and administrative expenses increased from $8.9 million for the
three months ended June 30, 1998 to $11.6 million for the three months ended
June 30, 1999, an increase of $2.7 million, or 30.6%, but decreased as a
percentage of total revenues from 13.8% in the 1998 period to 13.5% in the 1999
period. The dollar increase was primarily attributable to increases in staffing,
including increases in sales personnel and administrative staff, and related
training expenses. The decrease as a percentage of total revenue was
attributable to economies realized from administrative efficiencies of operating
in a centralized manner.
Depreciation and amortization expenses increased from $8.6 million for the three
months ended June 30, 1998 to $11.3 million for the three months ended June 30,
1999, an increase of $2.7
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<PAGE>
million, or 31.2%, but decreased as a percentage of revenues from 13.4% for the
three months ended June 30, 1998 to 13.2% for the three months ended June 30,
1999. The dollar increase was primarily attributable to the additional
depreciation and amortization expense related to the fourteen acquisitions
completed from April 1998 through June 1999 and to capital expenditures for
shelving, buildings, improvements to records management facilities and
information systems, and to client acquisition costs. The decrease as a
percentage of total revenue from the three month periods ended June 30, 1998 to
June 30, 1999 was attributable to an increase in revenue growth from existing
and new customers and from a decrease in acquisitions, which generally have a
higher component of depreciation and amortization expense.
The Company had a foreign currency exchange loss for the three months ended June
30, 1998 of $3.7 million (or -5.8% of revenues) and a gain of $3.2 million (or
3.7% of revenues) for the three months ended June 30, 1999. The change in the
foreign currency exchange is primarily due to a change in the value of the
Canadian dollar as compared to the U.S. dollar, as it relates to the 1998 Senior
Notes and the FASB 52 requirement to reflect this change in value.
Interest expense increased from $10.4 million for the three months ended June
30, 1998 to $12.9 million for the three months ended June 30, 1999, an increase
of $2.5 million, or 24.3%. 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 $3.7 million (-5.7% of revenues) for the three months ended June 30, 1998 as
compared to income before income taxes of $4.7 million (5.5% of revenues) for
the three months ended June 30, 1999.
The Company recorded a provision for income taxes of $0.8 million (or 1.2% of
revenues) for the three months ended June 30, 1998 and a provision for income
taxes of $1.1 million (or 1.2% of revenues) for the three months ended June 30,
1999.
In March 1999, the Company entered into an agreement to issue up to $15 million
of redeemable pay-in-kind ("PIK") preferred stock. The Company issued $5 million
of the PIK preferred stock in March 1999. The preferred stock dividend for the
three months ended June 30, 1999 was $0.3 million (or 0.3% of revenues).
As a result of the foregoing items, the net loss applicable to common
shareholders for the three months ended June 30, 1998 was $4.5 million (-6.9% of
revenues) as compared to net income applicable to common shareholders of $3.4
million (3.9% of revenues) for the three months ended June 30, 1999.
Earnings before interest expense, income taxes, depreciation and amortization,
and foreign currency exchange ("EBITDA") increased from $19.0 million for the
three months ended June 30, 1998 to $25.7 million for the three months ended
June 30, 1999, an increase of $6.7 million, or 35.2%. As a percentage of
revenues, EBITDA was 29.6% for the three months ended June 30, 1998 and 30.1%
for the three months ended June 30, 1999. The increase as a percentage of the
total revenues reflected growth in the Company's business, economies of scale,
and increased operating efficiencies.
-13-
<PAGE>
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Total revenues increased from $120.4 million for the six months ended June 30,
1998 to $165.7 million for the six months ended June 30, 1999, an increase of
$45.3 million, or 37.6%. Nineteen acquisitions were completed from January 1998
to June 1999, which accounted for $26.4 million, or 58.3%, of such increase in
total revenues. The balance of the revenue growth ($18.9 million) resulted from
sales to new customers and from net increases in cubic feet stored from existing
customers. This represents a base business revenue growth of 15.7% for the six
months ended June 30, 1999 as compared to the six months ended June 30, 1998.
Storage revenues increased from $70.4 million for the six months ended June 30,
1998 to $91.1 million for the six months ended June 30, 1999, an increase of
$20.7 million, or 29.4%. Service and storage material sales revenues increased
from $50.0 million for the six months ended June 30, 1998 to $74.6 million for
the six months ended June 30, 1999, an increase of $24.6 million, or 49.1%, due
in part to a $5.0 million increase in service revenues derived from the
marketing literature storage and fulfillment business acquired during 1998.
Cost of sales (excluding depreciation and amortization) increased from $69.2
million in the six months ended June 30, 1998 to $93.9 million in the six months
ended June 30, 1999, an increase of $24.7 million, or 35.6%, but decreased as a
percentage of total revenues from 57.5% in the 1998 period to 56.6% in the 1999
period. The increase in dollars resulted primarily from an additional number of
employees and an increase in facility occupancy costs resulting from the growth
in cubic feet stored from existing customers and acquisitions. The decrease as a
percentage of total revenue was due primarily to increased operating
efficiencies from the conversion of previously acquired operations into the
Company's PLUS(R) system.
Selling, general and administrative expenses increased from $17.6 million for
the six months ended June 30, 1998 to $22.1 million for the six months ended
June 30, 1999, an increase of $4.5 million, or 25.6%, but decreased as a
percentage of total revenues from 14.6% in the 1998 period to 13.4% in the 1999
period. The dollar increase was primarily attributable to increases in staffing,
including increases in sales personnel and administrative staff, and related
training expenses. The decrease as a percentage of total revenue was
attributable to economies realized from administrative efficiencies of operating
in a centralized manner.
Depreciation and amortization expenses increased from $15.8 million for the six
months ended June 30, 1998 to $21.2 million for the six months ended June 30,
1999, an increase of $5.4 million, or 34.2%, but decreased as a percentage of
revenues from 13.1% for the six months ended June 30, 1998 to 12.8% for the six
months ended June 30, 1999. The dollar increase was primarily attributable to
the additional depreciation and amortization expense related to the nineteen
acquisitions completed from January 1998 through June 1999 and to capital
expenditures for shelving, buildings, improvements to records management
facilities and information systems, and to client acquisition costs. The
decrease as a percentage of total revenue from the six month periods ended June
30, 1998 to June 30, 1999 was attributable to an increase in revenue growth from
existing and new customers and from a decrease in acquisitions, which generally
have a higher component of depreciation and amortization expense.
The Company had a foreign currency exchange loss for the six months ended June
30, 1998 of $3.7 million (or -3.0% of revenues) and a gain of $5.0 million (or
3.0% of revenues) for the six
-14-
<PAGE>
months ended June 30, 1999. The change in the foreign currency exchange is
primarily due to a change in the value of the Canadian dollar as compared to the
U.S. dollar, as it relates to the 1998 Senior Notes and the FASB 52 requirement
to reflect this change in value.
Interest expense increased from $18.7 million for the six months ended June 30,
1998 to $25.5 million for the six months ended June 30, 1999, an increase of
$6.8 million, or 36.6%. 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 $4.5 million (-3.8% of revenues) for the six months ended June 30, 1998 as
compared to income before income taxes of $8.0 million (4.8% of revenues) for
the six months ended June 30, 1999.
The Company recorded a provision for income taxes of $1.0 million (or 0.8% of
revenues) for the six months ended June 30, 1998 and a provision for income
taxes of $1.9 million (or 1.2% of revenues) for the six months ended June 30,
1999.
In March 1999, the Company entered into an agreement to issue up to $15 million
of redeemable pay-in-kind ("PIK") preferred stock. The Company issued $5 million
of the PIK preferred stock in March 1999. The preferred stock dividend for the
six months ended June 30, 1999 was $0.4 million (or 0.2% of revenues).
As a result of the foregoing items, the net loss applicable to common
shareholders for the six months ended June 30, 1998 was $5.5 million (-4.6% of
revenues) as compared to net income applicable to common shareholders of $5.7
million (3.4% of revenues) for the six months ended June 30, 1999.
Earnings before interest expense, income taxes, depreciation and amortization,
and foreign currency exchange ("EBITDA") increased from $33.6 million for the
six months ended June 30, 1998 to $49.7 million for the six months ended June
30, 1999, an increase of $16.1 million, or 47.9%. As a percentage of revenues,
EBITDA was 27.9% for the six months ended June 30, 1998 and 30.0% for the six
months ended June 30, 1999. The increase as a percentage of the total revenues
reflected growth in the Company's business, economies of scale, and increased
operating efficiencies.
-15-
<PAGE>
Liquidity and Capital Resources
The Company has made significant investments, consisting primarily of (a)
acquisitions, (b) capital expenditures for buildings, shelving, improvements to
records management facilities and information systems, and (c) client
acquisition costs. Cash paid for these investments during the six months ended
June 30, 1999 aggregated $22.4 million, $26.4 million and $7.1 million,
respectively. These investments were primarily funded with borrowings under the
Company's credit facility, through the issuance of $5.0 million of redeemable
PIK preferred stock in March 1999, and through cash provided by operations.
During the six months ended June 30, 1999, the Company generated $19.5 million
in net cash from operations as compared to net cash provided by operations of
$15.1 million for the six months ended June 30, 1998. The $4.3 million increase
from the six months ended June 30, 1998 to the six months ended June 30, 1999
primarily resulted from the $16.1 million increase in EBITDA, offset by
unfavorable foreign currency cash transactions of $0.9 million and an increase
in cash paid for interest of $10.7 million.
The net cash provided by financing activities for the six months ended June 30,
1999 was $37.5 million, consisting primarily of $62.8 million of borrowings
under the credit facility, $4.6 million of net borrowings on redeemable
preferred stock, and $2.8 million of proceeds from the issuance of long-term
debt, offset by payments of $28.8 million of borrowings under the credit
facility and payments of $3.3 million on long-term debt. As of June 30, 1999,
the Company had $2.3 million of available cash and the credit facility providing
for $175.0 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, 1999, $152.0 million was outstanding under the
credit facility and an additional $18.9 million of the credit facility was
reserved to secure the issuance of letters of credit to guarantee the Seller
Notes issued in conjunction with the Datavault acquisition.
Year 2000 Compliance
The Company uses a number of computer software programs and systems in its
operations, including the PLUS(R) system and embedded systems contained in the
Company's buildings, plant, equipment and other infrastructure. The Company has
developed a plan designed to make its systems compliant with the requirements to
process transactions in the year 2000. Review of the Company's core PLUS(R)
system databases and programs has been performed and code modifications and
testing were completed in July 1998. The Company's internal financial
accounting system was upgraded to a vendor certified year 2000 compliant version
in December 1998. The Company is also working with its other internal
information systems, network service providers, and other key vendors with the
goal of overall year 2000 readiness. The Company estimates that its remediation
costs incurred to date in achieving Year 2000 compliance, including the
replacement of non-compliant systems, software modifications and validation,
have been approximately $0.3 million. In addition, the Company estimates the
cost to complete its Year 2000 evaluation, remediation and validation of all
systems will approximate less than $0.1 million. Funding for costs incurred to
date has come from cash flows from operations, and future costs are expected to
be funded in a similar manner. The Company has not deferred any significant
system projects due to its Year 2000 efforts.
-16-
<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. Such
factors include, among others, the following: general economic and business
conditions; 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.
-17-
<PAGE>
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Market risks relating to the Company's operations result primarily from changes
in interest rates and foreign currency exchange rates. The Company does not
currently utilize any derivative financial instruments that expose the Company
to significant market risk. The Company is exposed to cash flow and fair value
risk due to changes in interest rates with respect to its long-term debt. The
table below presents principal cash flows and related weighted average interest
rates of the Company's long-term debt at June 30, 1999 and December 31, 1998.
Weighted average variable rates are based on implied forward rates in the yield
curve at June 30, 1999 and December 31, 1998. Implied forward rates should not
be considered a predictor of actual future interest rates. The information is
presented in U.S. dollars, the Company's reporting currency.
<TABLE>
<CAPTION>
December 31, June 30, Fair
1998 1999 Value
<S> <C> <C> <C>
Debt Obligations
- ----------------
Fixed Rate (US and other) $ 263,172 $ 279,359 $ 307,384
Weighted average interest rate 10.00% 9.88% 8.98%
Fixed Rate (CDN) $ 136,773(a) $ 139,191(a) $ 125,438
Weighted average interest rate 8.12% 8.13% 9.02%
Variable Rate (US) $ 118,000 $ 152,000 $ 152,000
Weighted average interest rate 8.43% 8.25% 8.25%
(a) The principal and interest payments due on 1998 Notes issued by Pierce Leahy Command
Company, the Company's principal Canadian subsidiary are payable in U.S. Dollars, thus
subjecting the Company to foreign currency risk.
</TABLE>
-18-
<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 14, 1999. The
purpose of the meeting was to elect two directors to hold office until the
annual meeting of shareholders in 2002 and to ratify the appointment of Arthur
Andersen LLP as the Company's independent accountants for 1999.
The vote with respect to electing the directors to hold office until the
annual meeting of shareholders in 2002 was as follows:
FOR WITHELD AUTHORITY
Douglas B. Huntley 12,704,657 19,110
Delbert S. Conner 12,704,866 18,901
The vote with respect to the appointment of Arthur Andersen LLP as the
Company's independent accountants for 1999 was as follows:
FOR AGAINST ABSTAIN
12,719,202 3,015 1,550
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule for the six months ended June
30, 1999, submitted to the Securities and Exchange
Commission in electronic format
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 9, 1999 By: /s/ Douglas B. Huntley
-------------- -------------------------
(date) Douglas B. Huntley
Vice President and Chief Financial Officer
(Principal Financial Officer)
-19-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1999 APR-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 2,255 2,255
<SECURITIES> 0 0
<RECEIVABLES> 53,879 53,879
<ALLOWANCES> (3,734) (3,734)
<INVENTORY> 1,133 1,133
<CURRENT-ASSETS> 60,208 60,208
<PP&E> 329,567 329,567
<DEPRECIATION> (76,432) (76,432)
<TOTAL-ASSETS> 733,810 733,810
<CURRENT-LIABILITIES> 86,720 86,720
<BONDS> 570,550 570,550
0 0
0 0
<COMMON> 171 171
<OTHER-SE> 68,118 68,118
<TOTAL-LIABILITY-AND-EQUITY> 733,810 733,810
<SALES> 0 0
<TOTAL-REVENUES> 165,723 85,529
<CGS> 0 0
<TOTAL-COSTS> 132,227 67,926
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 25,514 12,911
<INCOME-PRETAX> 7,982 4,692
<INCOME-TAX> 1,938 1,052
<INCOME-CONTINUING> 6,044 3,640
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,044 3,640
<EPS-BASIC> 0.33 0.20
<EPS-DILUTED> 0.32 0.19
</TABLE>
