<PAGE>
UNITED STATES
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 September 30, 2000
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
IRON MOUNTAIN INCORPORATED
(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)
745 ATLANTIC AVENUE, BOSTON, MA 02111
-------------------------------------
(Address of Principal Executive Offices, Including Zip Code)
(617) 535-4766
--------------
(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
---- ----
Number of shares of the registrant's Common Stock outstanding as of
November 3, 2000: 54,980,132
<PAGE>
IRON MOUNTAIN INCORPORATED
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at September 30, 2000 and
December 31, 1999 (Unaudited) 3
Condensed Consolidated Statements of Operations for the Three Months Ended
September 30, 2000 and 1999 (Unaudited) 4
Condensed Consolidated Statements of Operations for the Nine Months Ended
September 30, 2000 and 1999 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2000 and 1999 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7-21
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of
Operations 22-26
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 27
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 27
Signature 28
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
IRON MOUNTAIN INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
----------------- -----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 74,587 $ 3,830
Accounts receivable (less allowances of $12,717
and $5,740 respectively) 177,888 104,074
Deferred income taxes 17,322 12,475
Prepaid expenses and other 27,001 23,285
----------- -----------
Total Current Assets 296,798 143,664
Property, Plant and Equipment:
Property, plant and equipment 889,459 497,369
Less: Accumulated depreciation (140,925) (93,630)
----------- -----------
Property, Plant and Equipment, net 748,534 403,739
Other Assets:
Goodwill, net 1,511,019 729,213
Customer acquisition costs, net 25,099 16,742
Deferred financing costs, net 14,995 16,549
Other 22,723 7,305
----------- -----------
Total Other Assets 1,573,836 769,809
----------- -----------
Total Assets $ 2,619,168 $ 1,317,212
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 41,268 $ 9,890
Accounts payable 38,601 25,770
Accrued expenses 138,527 68,519
Deferred income 50,463 32,981
Other current liabilities 22,507 13,188
----------- -----------
Total Current Liabilities 291,366 150,348
Long-term Debt, net of current portion 1,311,200 603,057
Other Long-term Liabilities 5,837 5,749
Deferred Rent 12,309 10,819
Deferred Income Taxes 30,565 16,207
Minority Interest 42,818 42,278
Shareholders' Equity:
Common stock 550 369
Additional paid-in capital 992,816 560,620
Accumulated deficit (63,479) (31,558)
Accumulated other comprehensive items (4,814) (1,193)
Treasury stock -- (39,484)
----------- -----------
Total Shareholders' Equity 925,073 488,754
----------- -----------
Total Liabilities and Shareholders' Equity $ 2,619,168 $ 1,317,212
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
IRON MOUNTAIN INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Revenues:
Storage $152,959 $82,339
Service and storage material sales 103,174 54,568
-------------- --------------
Total Revenues 256,133 136,907
Operating Expenses:
Cost of sales (excluding depreciation) 125,079 69,226
Selling, general and administrative 63,783 33,381
Depreciation and amortization 34,829 16,338
Stock option compensation expense 171 --
Merger-related expenses 1,262 --
-------------- --------------
Total Operating Expenses 225,124 118,945
-------------- --------------
Operating Income 31,009 17,962
Interest Expense, net 31,038 14,075
Other (Income) Expense 3,025 (115)
-------------- --------------
Income (Loss) from Continuing Operations Before Provision (Benefit)
for Income Taxes and Minority Interest (3,054) 4,002
Provision (Benefit) for Income Taxes (7,023) 2,953
Minority Interests in (Losses) Earnings of Subsidiaries (630) 50
-------------- --------------
Income from Continuing Operations before Extraordinary Item 4,599 999
Loss on sale of Discontinued Operations -- 4,000
Extraordinary Charge from Early Extinguishment of Debt (Net of Tax
Benefit of $1,928) 2,892 --
-------------- --------------
Net Income (Loss) $1,707 $ (3,001)
============== ==============
Net Income (Loss) Per Common Share - Basic and Diluted:
Income from Continuing Operations $0.08 $0.03
Loss from Discontinued Operations -- (0.11)
Extraordinary Charge from Early Extinguishment of Debt (0.05) --
-------------- --------------
Net Income (Loss) Per Common Share - Basic and Diluted $0.03 $(0.08)
============== ==============
Weighted Average Common Shares Outstanding - Basic 54,827 35,331
============== ==============
Weighted Average Common Shares Outstanding - Diluted 56,130 36,196
============== ==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
IRON MOUNTAIN INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Revenues:
Storage $426,343 $229,989
Service and storage material sales 294,492 148,054
-------------- --------------
Total Revenues 720,835 378,043
Operating Expenses:
Cost of sales (excluding depreciation) 351,510 189,828
Selling, general and administrative 181,964 94,194
Depreciation and amortization 92,776 46,214
Stock option compensation expense 15,110 --
Merger-related expenses 5,653 --
-------------- --------------
Total Operating Expenses 647,013 330,236
-------------- --------------
Operating Income 73,822 47,807
Interest Expense, net 85,066 40,246
Other (Income) Expense 7,505 (115)
-------------- --------------
Income (Loss) from Continuing Operations Before Provision for Income
Taxes and Minority Interest (18,749) 7,676
Provision for Income Taxes 11,353 7,805
Minority Interests in (Losses) Earnings of Subsidiaries (1,073) 515
-------------- --------------
Loss from Continuing Operations before Extraordinary Item (29,029) (644)
Income from Discontinued Operations -- 241
Loss on sale of Discontinued Operations -- 13,400
Extraordinary Charge from Early Extinguishment of Debt (Net of Tax
Benefit of $1,928) 2,892 --
-------------- --------------
Net Loss $ (31,921) $(13,803)
============== ==============
Net Loss Per Common Share - Basic and Diluted:
Loss from Continuing Operations $ (0.55) $(0.02)
Discontinued Operations -- (0.40)
Extraordinary Charge from Early Extinguishment of Debt (0.06) --
-------------- --------------
Net Loss Per Common Share - Basic and Diluted $ (0.61) $(0.42)
============== ==============
Weighted Average Common Shares Outstanding - Basic and Diluted 52,480 32,641
============== ==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
IRON MOUNTAIN INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------------
2000 1999
------------------ -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (31,921) $ (13,803)
Adjustments to Reconcile Net Loss to Loss from Continuing Operations before
Extraordinary Item:
Income from Discontinued Operations -- (241)
Loss on sale of Discontinued Operations -- 13,400
Extraordinary Charge from Early Extinguishment of Debt 2,892 --
------------------ -------------------
Loss from Continuing Operations before Extraordinary Item (29,029) (644)
Adjustments to Reconcile Loss from Continuing Operations before
Extraordinary Item to Net Cash
Provided by Operating Activities of Continuing Operations:
Minority Interests in (Losses) Earnings of Subsidiaries (1,073) 515
Depreciation and Amortization 92,776 46,214
Amortization of Deferred Financing Costs and Bond Discount 2,082 1,455
Provision for Doubtful Accounts 4,101 1,580
Stock Option Compensation Expense 15,110 --
Foreign Currency (Gain) Loss 7,723 (115)
Other, Net (50) 18
Changes in Assets and Liabilities (Exclusive of Acquisitions):
Accounts Receivable (16,209) (18,653)
Prepaid Expenses and Other Current Assets 11,614 (10,186)
Deferred Income Taxes 9,697 7,248
Other Assets 55 139
Accounts Payable (3,618) (4,947)
Accrued Expenses 16,080 (1,283)
Deferred Income (680) 1,422
Deferred Rent 1,490 975
Other Long-term Liabilities (387) (9)
------------------ -------------------
Cash Flows Provided by Continuing Operations 109,682 23,729
Cash Flows Provided by Discontinued Operations -- 790
------------------ -------------------
Cash Flows Provided by Operating Activities 109,682 24,519
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Paid for Acquisitions, net of cash acquired (76,119) (187,513)
Capital Expenditures (116,158) (72,769)
Investment in Convertible Preferred Stock (6,524) --
Additions to Customer Acquisition Costs (10,147) (6,061)
Proceeds from Sale of Property and Equipment 1,113 --
------------------ -------------------
Cash Flows Used in Continuing Operations (207,835) (266,343)
Cash Flows Used in Discontinued Operations -- (409)
------------------ -------------------
Cash Flows Used in Investing Activities (207,835) (266,752)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Debt (579,277) (236,420)
Proceeds from Borrowings 388,230 216,744
Proceeds from Term Loans 350,000 --
Net Proceeds from Sale of Senior Subordinated Notes -- 149,460
Debt Financing and Equity Contribution from Minority Shareholder 9,457 4,780
Debt Financing Costs (5,295) (5,077)
Net Proceeds from Equity Offering -- 153,755
Repurchase of Common Stock -- (39,484)
Proceeds from Exercise of Stock Options 5,460 1,518
Stock Issuance Costs (124) (1,220)
------------------ -------------------
Cash Flows Provided by Financing Activities 168,451 244,056
Effect of Exchange Rates on Cash and Cash Equivalents 459 (66)
Increase in Cash and Cash Equivalents 70,757 1,757
Cash and Cash Equivalents, Beginning of Period 3,830 1,715
------------------ -------------------
Cash and Cash Equivalents, End of Period $ 74,587 $ 3,472
================== ===================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousand, except Per Share Data and Amounts Denoted in Millions)
(Unaudited)
(1) GENERAL
The interim condensed consolidated financial statements presented herein have
been prepared by Iron Mountain Incorporated ("Iron Mountain" or the "Company")
without audit and, in the opinion of management, reflect all adjustments of a
normal recurring nature necessary for a fair presentation. Interim results are
not necessarily indicative of results for a full year.
The condensed consolidated balance sheet presented as of December 31, 1999 has
been derived from the consolidated financial statements that have been audited
by the Company's independent public accountants. The unaudited condensed
consolidated financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in the annual financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to those rules and regulations, but the Company believes that
the disclosures are adequate to make the information presented not misleading.
The condensed consolidated financial statements and notes included herein should
be read in conjunction with the consolidated financial statements and notes
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1999.
Certain reclassifications have been made to the 1999 financial statements to
conform to the 2000 presentation.
(2) COMPREHENSIVE INCOME (LOSS)
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," requires presentation of the components of
comprehensive income (loss), including the changes in equity from non-owner
sources such as unrealized gains (losses) on securities and foreign currency
translation adjustments. The Company's total comprehensive income (loss) is
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------ ---------------------------------------
2000 1999 2000 1999
---------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Comprehensive Income (Loss):
Net Income (Loss) $1,707 $(3,001) $(31,921) $(13,803)
Other Comprehensive
Income (Loss):
Foreign Currency Translation
Adjustment (1,144) 340 (3,621) (1,947)
---------------- ---------------- ------------------ ----------------
Comprehensive Income
(Loss) $563 $(2,661) $(35,542) $(15,750)
================ ================ ================== ================
</TABLE>
7
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousand, except Per Share Data and Amounts Denoted in Millions)
(Unaudited)
(Continued)
(3) ACQUISITIONS
During the nine months ended September 30, 2000, the Company (i) completed its
acquisition of Pierce Leahy Corp. ("Pierce Leahy") in a stock-for-stock merger;
and (ii) purchased substantially all of the assets and assumed certain
liabilities of Data Storage Centers, Inc. In addition, the Company acquired
eight records and information management services businesses.
Each of the 2000 acquisitions and all 17 of the records and information
management services businesses acquired during 1999 were accounted for using the
purchase method of accounting and, accordingly, the results of operations for
each acquisition have been included in the consolidated results of the Company
from their respective acquisition dates. In connection with certain 1999 and
2000 acquisitions, related real estate was also purchased. The aggregate
purchase price for the 2000 acquisitions was comprised of cash, the Company's
common stock and stock options and the assumption of debt, and exceeded the
underlying fair value of the net assets acquired by $851,000 which has been
assigned to goodwill and is being amortized over 25 to 30 years.
A summary of the total consideration and the preliminary allocation of the
aggregate purchase price of the Company's 2000 acquisitions, as of their
acquisition dates, is as follows:
<TABLE>
<S> <C>
Purchase Price:
Cash Paid $ 80,252
Fair Value of Common Stock Issued 443,950
Fair Value of Stock Options 24,967
Fair Value of Debt Assumed 584,906
-----------
Total Purchase Price $ 1,134,075
===========
Allocation of Purchase Price:
Current Assets $ 73,260
Property, Plant & Equipment 288,766
Other Assets 19,692
Goodwill 851,000
Liabilities Assumed (96,711)
Minority Interest (1,932)
-----------
Total Allocation of Purchase Price $ 1,134,075
===========
</TABLE>
The allocation of purchase price includes one European acquisition completed in
November 1999 and excludes two acquisitions in Latin America completed in August
2000 due to the differences in consolidation year ends.
Allocation of the purchase price for the 2000 acquisitions was based on
estimates of the fair value of net assets acquired, and is subject to
adjustment. The purchase price allocations of the Pierce Leahy and Data Storage
Center, Inc. transactions are subject to finalization of the assessment of the
fair value of property, plant and equipment, operating leases and deferred
income taxes. Except for the Pierce Leahy acquisition, the Company is not aware
of any information that would indicate that the final purchase price allocations
will differ significantly from preliminary estimates.
8
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousand, except Per Share Data and Amounts Denoted in Millions)
(Unaudited)
(Continued)
(3) ACQUISITIONS (CONTINUED)
The following unaudited pro forma information shows the results of the Company's
operations for the nine months ended September 30, 2000 and the year ended
December 31, 1999 as though each of the significant 1999 and 2000 acquisitions
had occurred as of January 1, 1999:
<TABLE>
<CAPTION>
NINE MONTHS YEAR
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------------- ---------------------
<S> <C> <C>
Revenues $757,503 $905,199
Loss from Continuing Operations (32,464) (8,818)
Net Loss (32,464) (21,977)
Loss Per Share from Continuing Operations - Basic and Diluted (0.59) (0.16)
Net Loss Per Share - Basic and Diluted (0.59) (0.41)
</TABLE>
The pro forma results have been prepared for comparative purposes only and are
not necessarily indicative of the actual results of operations had the
acquisitions taken place as of January 1, 1999, or the results that may occur in
the future. Furthermore, the pro forma results do not give effect to all cost
savings or incremental costs which may occur as a result of the integration and
consolidation of the businesses. Certain 1999 and 2000 acquisitions are not
included in the pro forma results as their effect was immaterial.
In connection with the 1999 and 2000 acquisitions, the Company has undertaken
certain restructurings of the acquired businesses. The restructuring activities
include certain reductions in staffing levels, elimination of duplicate
facilities and other costs associated with exiting certain activities of the
acquired businesses. These restructuring activities were recorded as costs of
the acquisitions and were provided in accordance with Emerging Issues Task Force
Issue No. 95-3, "Recognition of Liabilities in Connection with a Purchase
Business Combination." The Company finalizes its restructuring plans for each
business no later than one year from the date of acquisition. Unresolved matters
primarily include completion of planned abandonments of facilities and
severances for certain 1999 and 2000 acquisitions.
The following is a summary of reserves related to such restructuring activities:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------------- -------------------
<S> <C> <C>
Reserves, Beginning Balance..................................... $9,340 $10,482
Reserves Established............................................ 16,572 4,234
Expenditures.................................................... (4,038) (4,843)
Adjustments to Goodwill......................................... (2,596) (533)
------- -----
Reserves, Ending Balance........................................ $19,278 $9,340
======= ======
</TABLE>
9
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousand, except Per Share Data and Amounts Denoted in Millions)
(Unaudited)
(Continued)
(3) ACQUISITIONS (CONTINUED)
At September 30, 2000, the restructuring reserves related to acquisitions
consisted of lease losses on abandoned facilities ($11.6 million), severance
costs for approximately 19 people ($2.4 million) and other exit costs ($5.3
million). These accruals are expected to be used within one year of the
finalization of the restructuring plans except for lease losses of $3.3 million,
which are based on contracts that extend through the expected lease term date,
and long-term severance contracts of approximately $2.7 million that extend
through 2013.
At December 31, 1999, the restructuring reserves related to acquisitions
consisted of lease losses on abandoned facilities ($4.8 million), severance
costs for approximately 12 people ($1.5 million) and other exit costs ($3.0
million). These accruals are expected to be used within one year of the
finalization of the restructuring plans except for lease losses of $4.6 million,
which are based on contracts that extend through the expected lease term date,
and long-term severance contracts of approximately $1.1 million that extend
through 2013.
(4) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
-------------------------------- ---------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Revolving Credit Facility $ -- $ -- $ 5,000 $ 5,000
Tranche A Term Loan due 2005,
variable Interest Rate 150,000 150,000 -- --
Tranche B Term Loan due 2006,
variable Interest Rate 200,000 200,000 -- --
10-1/8% Senior Subordinated Notes due
2006 (the "1996 Notes") 165,000 167,100 165,000 167,900
8-3/4% Senior Subordinated Notes due
2009 (the "1997 Notes") 249,637 236,300 249,606 237,500
8-1/4% Senior Subordinated Notes due
2011 (the "1999 Notes") 149,523 136,500 149,490 136,100
11-1/8% Senior Subordinated Notes due
2006 (the "1996A Notes") 132,167 135,900 -- --
9-1/8% Senior Subordinated Notes due
2007 (the "1997A Notes") 113,993 115,200 -- --
8-1/8% Senior Subordinated Notes due
2008 (the "1998A Notes") 120,532 124,200 -- --
Real Estate Mortgages 17,448 17,448 2,048 2,048
Seller Notes 13,685 13,685 -- --
Other 40,483 40,483 41,803 41,803
----------- -----------
Total Long-term Debt 1,352,468 612,947
Less: Current Portion (41,268) (9,890)
----------- -----------
Long-term Debt, Net of Current Portion $ 1,311,200 $ 603,057
=========== ===========
</TABLE>
10
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousand, except Per Share Data and Amounts Denoted in Millions)
(Unaudited)
(Continued)
(4) LONG-TERM DEBT (CONTINUED)
The estimated fair values for the long-term debt are based on the borrowing
rates available to the Company at September 30, 2000 and December 31, 1999 for
loans with similar terms and average maturities. The fair values of the 1996
Notes, 1997 Notes, 1999 Notes, 1996A Notes, 1997A Notes and 1998A Notes are
based on the quoted market prices for those notes on September 30, 2000 and
December 31, 1999.
On August 14, 2000, the Company entered into an amended and restated
revolving credit agreement (the "Amended Credit Agreement"). The Amended
Credit Agreement replaces the Company's prior credit facility, increases the
aggregate principal amount available to $750 million and includes two
tranches of term debt in addition to the $400 million revolving credit
facility. Tranches A and B represent term loans to the Company in principal
amounts of $150 million and $200 million, respectively. The Tranche A term
loan and the revolving credit component of the Amended Credit Agreement
mature on January 31, 2005, while the Tranche B term loan matures on February
28, 2006. The interest rate on borrowings under the Amended Credit Agreement
varies depending on the Company's choice of base rates, plus an applicable
margin. As of September 30, 2000, the interest rates in effect ranged from
8.69% to 9.59%. Restrictive covenants under this agreement are similar to
those under the Company's prior credit facility.
In conjunction with the refinancing of the Company's senior credit facility,
the Company had an early extinguishment of debt, which resulted in a loss of
$2.9 million (net of tax benefit of $1.9 million) in the third quarter of
2000. In accordance with SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt," this loss is classified as an extraordinary item and
recorded in the statement of operations as a separate item.
(5) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-
GUARANTORS
As of September 30, 2000, the 1996 Notes, the 1997 Notes, the 1999 Notes, the
1996A Notes and the 1997A Notes (the "Parent Notes") were fully and
unconditionally guaranteed, on a senior subordinated basis, by all of the
Company's direct and indirect wholly owned domestic subsidiaries (the
"Subsidiary Guarantors"). These guarantees are joint and several obligations of
the Subsidiary Guarantors. In addition, the 1996A Notes and the 1997A Notes are
secured by a second lien on 65% of the stock of Iron Mountain Canada
Corporation, the Company's principal Canadian operating subsidiary ("Canada
Company"). The remainder of the Company's subsidiaries (the "Non-Guarantors") do
not guarantee the Parent Notes. The Non-Guarantors consist of (i) the Company's
foreign subsidiaries, including without limitation, Canada Company, Iron
Mountain Europe Limited, Iron Mountain South America, Ltd. and their respective
subsidiaries, (ii) a majority-owned subsidiary that owns and leases real
property to the Company, and (iii) Iron Mountain Records Management (Puerto
Rico), Inc.
The 1998A Notes are general unsecured obligations of Canada Company, ranking
PARI PASSU in right of payment to all of Canada Company's existing and future
senior unsecured indebtedness. As of September 30, 2000, the 1998A Notes were
fully and unconditionally guaranteed, on a senior subordinated basis, by the
Company, the Subsidiary Guarantors and three of the Non-Guarantors that are
organized under the laws of Canadian provinces. As with the Parent Notes, these
guarantees are joint and several.
11
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousand, except Per Share Data and Amounts Denoted in Millions)
(Unaudited)
(Continued)
(5) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-
GUARANTORS (CONTINUED)
Summarized financial information for Canada Company is as follows:
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
SEPTEMBER 30, 2000
----------------------------
<S> <C>
Revenues $ 36,624
EBITDA 9,999
Operating loss (793)
Net loss (8,956)
<CAPTION>
SEPTEMBER 30, 2000
----------------------------
<S> <C>
Current assets $ 11,667
Total assets 144,280
Current liabilities 9,005
Long-term liabilities 119,685
</TABLE>
12
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousand, except Per Share Data and Amounts Denoted in Millions)
(Unaudited)
(Continued)
(5) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-
GUARANTORS (CONTINUED)
The following financial data summarizes the consolidating Company on the equity
method of accounting as of September 30, 2000 and December 31, 1999 and for the
three and nine month periods ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 168 $ 68,089 $ 6,330 $ -- $ 74,587
Accounts Receivable 6,738 142,337 28,813 -- 177,888
Intercompany Receivable (Payable) 150,071 (120,755) (29,316) -- --
Other Current Assets 452 58,774 5,996 (20,899) 44,323
----------- ----------- ----------- ----------- -----------
Total Current Assets 157,429 148,445 11,823 (20,899) 296,798
Property, Plant and Equipment, net 95,161 536,668 116,705 -- 748,534
Other Assets:
Due From Affiliates 433,174 -- -- (433,174) --
Long-term Notes Receivable from Affiliates 698,992 124,100 -- (823,092) --
Investment in Subsidiaries 378,318 51,498 77,788 (507,604) --
Goodwill, net 467,771 834,427 198,361 10,460 1,511,019
Other 15,797 41,566 5,454 -- 62,817
----------- ----------- ----------- ----------- -----------
Total Other Assets 1,994,052 1,051,591 281,603 (1,753,410) 1,573,836
----------- ----------- ----------- ----------- -----------
Total Assets $ 2,246,642 $ 1,736,704 $ 410,131 $(1,774,309) $ 2,619,168
=========== =========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Total Current Liabilities $ 29,733 $ 180,455 $ 102,077 $ (20,899) $ 291,366
Long-term Debt, Net of Current Portion 1,169,679 1,575 139,946 -- 1,311,200
Due to Affiliates -- 433,174 -- (433,174) --
Long-term Notes Payable to Affiliates 124,100 698,929 63 (823,092) --
Other Long-term Liabilities (3,727) 55,912 (3,474) -- 48,711
Minority Interest 1,784 -- (1,169) 42,203 42,818
Shareholders' Equity 925,073 366,659 172,688 (539,347) 925,073
----------- ----------- ----------- ----------- -----------
Total Liabilities and Shareholders' Equity $ 2,246,642 $ 1,736,704 $ 410,131 $(1,774,309) $ 2,619,168
=========== =========== =========== =========== ===========
</TABLE>
13
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousand, except Per Share Data and Amounts Denoted in Millions)
(Unaudited)
(Continued)
(5) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-
GUARANTORS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ -- $ 2,260 $ 1,570 $ -- $ 3,830
Accounts Receivable -- 93,076 10,998 -- 104,074
Other Current Assets -- 42,312 6,718 (13,270) 35,760
----------- ----------- ----------- ----------- -----------
Total Current Assets -- 137,648 19,286 (13,270) 143,664
Property, Plant and Equipment, net -- 352,784 50,955 -- 403,739
Other Assets:
Due From Affiliates 224,826 -- -- (224,826) --
Long-term Notes Receivable from Affiliates 557,123 -- -- (557,123) --
Investment in Subsidiaries 276,291 52,971 -- (329,262) --
Goodwill, net -- 623,285 105,928 -- 729,213
Other 15,908 24,036 652 -- 40,596
----------- ----------- ----------- ----------- -----------
Total Other Assets 1,074,148 700,292 106,580 (1,111,211) 769,809
----------- ----------- ----------- ----------- -----------
Total Assets $ 1,074,148 $ 1,190,724 $ 176,821 $(1,124,481) $ 1,317,212
=========== =========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Total Current Liabilities $ 15,398 $ 100,630 $ 47,590 $ (13,270) $ 150,348
Long-term Debt, Net of Current Portion 569,996 2,942 30,119 -- 603,057
Due to Affiliates -- 224,793 33 (224,826) --
Long-term Notes Payable to Affiliates -- 557,123 -- (557,123) --
Other Long-term Liabilities -- 31,497 1,278 -- 32,775
Minority Interest -- -- 42,278 -- 42,278
Shareholders' Equity 488,754 273,739 55,523 (329,262) 488,754
----------- ----------- ----------- ----------- -----------
Total Liabilities and Shareholders' Equity $ 1,074,148 $ 1,190,724 $ 176,821 $(1,124,481) $ 1,317,212
=========== =========== =========== =========== ===========
</TABLE>
14
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousand, except Per Share Data and Amounts Denoted in Millions)
(Unaudited)
(Continued)
(5) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-
GUARANTORS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Storage $ 880 $ 135,498 $ 16,581 $ -- $ 152,959
Service and Storage Material Sales 4,750 85,750 13,968 (1,294) 103,174
----------- ----------- -------------- ----------- ------------
Total Revenues 5,630 221,248 30,549 (1,294) 256,133
Operating Expenses:
Cost of Sales (Excluding Depreciation) 3,725 100,105 16,295 4,954 125,079
Selling, General and Administrative 790 61,244 7,997 (6,248) 63,783
Depreciation and Amortization 388 30,389 4,052 -- 34,829
Stock Option Compensation Expense -- -- 171 -- 171
Merger-Related Expenses -- 931 331 -- 1,262
----------- ----------- -------------- ----------- ------------
Total Operating Expenses 4,903 192,669 28,846 (1,294) 225,124
----------- ----------- -------------- ----------- ------------
Operating Income 727 28,579 1,703 -- 31,009
Interest (Income) Expense 26,992 (1,016) 5,062 -- 31,038
Equity in the (Income) Losses of Subsidiaries (28,773) 1,281 -- 27,492 --
Other Expense, net -- 720 2,305 -- 3,025
----------- ----------- -------------- ----------- ------------
Income (Loss) from Continuing Operations
Before Provision (Benefit) for Income
Taxes and Minority Interest 2,508 27,594 (5,664) (27,492) (3,054)
Provision (Benefit) for Income Taxes (2,178) (4,897) 52 -- (7,023)
Minority Interests in Earnings (Losses) of
Subsidiaries 87 -- (717) -- (630)
----------- ----------- -------------- ----------- ------------
Income (Loss) before Extraordinary Item 4,599 32,491 (4,999) (27,492) 4,599
Extraordinary Charge from Early
Extinguishment of Debt (Net of Tax
Benefit of $1,928) 2,892 -- -- -- 2,892
----------- ----------- -------------- ----------- ------------
Net Income (Loss) $ 1,707 $ 32,491 $(4,999) $(27,492) $ 1,707
=========== =========== ============== =========== ============
</TABLE>
15
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousand, except Per Share Data and Amounts Denoted in Millions)
(Unaudited)
(Continued)
(5) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-
GUARANTORS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999
-------------------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Storage $ -- $ 76,880 $ 5,459 $ -- $ 82,339
Service and Storage Material Sales -- 50,711 3,857 -- 54,568
--------- --------- --------- --------- ---------
Total Revenues -- 127,591 9,316 -- 136,907
Operating Expenses:
Cost of Sales (Excluding Depreciation) -- 64,044 5,182 -- 69,226
Selling, General and Administrative 31 31,298 2,052 -- 33,381
Depreciation and Amortization -- 15,180 1,158 -- 16,338
--------- --------- --------- --------- ---------
Total Operating Expenses 31 110,522 8,392 -- 118,945
--------- --------- --------- --------- ---------
Operating Income (Loss) (31) 17,069 924 -- 17,962
Interest (Income) Expense (193) 13,932 336 -- 14,075
Equity in the Losses of Subsidiaries 3,163 32 -- (3,195) --
Other (Income) Expense -- (115) -- -- (115)
--------- --------- --------- --------- ---------
Income (Loss) from Continuing Operations
Before Provision for Income Taxes and
Minority Interest (3,001) 3,220 588 3,195 4,002
Provision for Income Taxes -- 2,553 400 -- 2,953
Minority Interests in Earnings of Subsidiaries -- -- 50 -- 50
--------- --------- --------- --------- ---------
Income (Loss) from Continuing Operations (3,001) 667 138 3,195 999
Loss on sale of Discontinued Operations -- 4,000 -- -- 4,000
--------- --------- --------- --------- ---------
Net Income (Loss) $ (3,001) $ (3,333) $ 138 $ 3,195 $ (3,001)
========= ========= ========= ========= =========
</TABLE>
16
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousand, except Per Share Data and Amounts Denoted in Millions)
(Unaudited)
(Continued)
(5) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-
GUARANTORS (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Storage $ 2,323 $ 377,962 $ 46,058 $ -- $ 426,343
Service and Storage Material Sales 12,740 244,042 40,754 (3,044) 294,492
--------- --------- --------- --------- ---------
Total Revenues 15,063 622,004 86,812 (3,044) 720,835
Operating Expenses:
Cost of Sales (Excluding Depreciation) 9,090 295,035 47,385 -- 351,510
Selling, General and Administrative 2,410 161,382 21,216 (3,044) 181,964
Depreciation and Amortization 2,118 79,860 10,798 -- 92,776
Stock Option Compensation Expense -- 14,939 171 -- 15,110
Merger-Related Expenses -- 5,200 453 -- 5,653
--------- --------- --------- --------- ---------
Total Operating Expenses 13,618 556,416 80,023 (3,044) 647,013
--------- --------- --------- --------- ---------
Operating Income 1,445 65,588 6,789 -- 73,822
Interest Expense, net 45,326 26,080 13,660 -- 85,066
Equity in the (Income) Losses of
Subsidiaries (9,440) 1,365 -- 8,075 --
Other Expense, net -- 1,367 6,138 -- 7,505
--------- --------- --------- --------- ---------
Income (Loss) from Continuing Operations
Before Provision (Benefit) for Income
Taxes and Minority Interest (34,441) 36,776 (13,009) (8,075) (18,749)
Provision (Benefit) for Income Taxes (5,499) 17,609 (757) -- 11,353
Minority Interests in Earnings (Losses) of
Subsidiaries 87 -- (1,160) -- (1,073)
--------- --------- --------- --------- ---------
Income (Loss) before Extraordinary Item (29,029) 19,167 (11,092) (8,075) (29,029)
Extraordinary Charge from Early
Extinguishment of Debt (Net of Tax
Benefit of $1,928) 2,892 -- -- -- 2,892
--------- --------- --------- --------- ---------
Net Income (Loss) $ (31,921) $ 19,167 $ (11,092) $ (8,075) $ (31,921)
========= ========= ========= ========= =========
</TABLE>
17
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousand, except Per Share Data and Amounts Denoted in Millions)
(Unaudited)
(Continued)
(5) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-
GUARANTORS (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
-------------------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Storage $ -- $ 217,914 $ 12,075 $ -- $ 229,989
Service and Storage Material Sales -- 139,081 8,973 -- 148,054
----------- ----------- -------------- ----------- ------------
Total Revenues -- 356,995 21,048 -- 378,043
Operating Expenses:
Cost of Sales (Excluding Depreciation) -- 177,861 11,967 -- 189,828
Selling, General and Administrative 216 90,125 3,853 -- 94,194
Depreciation and Amortization -- 43,653 2,561 -- 46,214
----------- ----------- -------------- ----------- ------------
Total Operating Expenses 216 311,639 18,381 -- 330,236
----------- ----------- -------------- ----------- ------------
Operating Income (Loss) (216) 45,356 2,667 -- 47,807
Interest (Income) Expense 1,284 38,309 653 -- 40,246
Equity in the (Income) Losses of
Subsidiaries 12,303 (328) -- (11,975) --
Other (Income) Expense -- (115) -- -- (115)
----------- ----------- -------------- ----------- ------------
Income (Loss) from Continuing Operations
Before Provision for Income Taxes and
Minority Interest (13,803) 7,490 2,014 11,975 7,676
Provision for Income Taxes -- 6,831 974 -- 7,805
Minority Interests in Earnings of Subsidiaries -- -- 515 -- 515
----------- ----------- -------------- ----------- ------------
Income (Loss) from Continuing Operations (13,803) 659 525 11,975 (644)
Income from Discontinued
Operations -- 241 -- -- 241
Loss on sale of Discontinued Operations -- 13,400 -- -- 13,400
----------- ----------- -------------- ----------- ------------
Net Income (Loss) $ (13,803) $ (12,500) $ 525 $ 11,975 $(13,803)
=========== ========== ============= =========== ============
</TABLE>
18
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousand, except Per Share Data and Amounts Denoted in Millions)
(Unaudited)
(Continued)
(5) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-
GUARANTORS (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Cash Flows Provided by (Used in)
Operating Activities $(100,603) $ 209,958 $ 327 $ -- $ 109,682
Cash Flows from Investing Activities:
Cash Paid for Acquisitions, net of Cash Acquired (6,417) (61,926) (7,776) -- (76,119)
Capital Expenditures (14,499) (87,254) (14,405) -- (116,158)
Investment in Convertible Preferred Stock -- (6,524) -- -- (6,524)
Intercompany Loans to Subsidiaries (252,074) (9,958) -- 262,032 --
Investment in Subsidiaries (151) (151) -- 302 --
Additions to Customer Acquisition Costs -- (8,897) (1,250) -- (10,147)
Proceeds from Sales of Property and Equipment -- 1,113 -- -- 1,113
----------- ----------- ----------- ----------- -----------
Cash Flows Used in Investing Activities (273,141) (173,597) (23,431) 262,334 (207,835)
Cash Flows from Financing Activities:
Repayment of Debt (390,999) (172,407) (15,871) -- (579,277)
Proceeds from Borrowings 382,500 3,746 1,984 -- 388,230
Proceeds from Term Loans 350,000 -- -- -- 350,000
Debt Financing and Equity Contribution from
Minority Shareholder -- -- 9,457 -- 9,457
Intercompany Loans from Parent 31,961 198,387 31,684 (262,032) --
Equity Contribution from Parent -- 151 151 (302) --
Proceeds from Exercise of Stock Options 5,460 -- -- -- 5,460
Debt Financing and Stock Issuance Costs (5,010) (409) -- -- (5,419)
----------- ----------- ----------- ----------- -----------
Cash Flows Provided by Financing Activities 373,912 29,468 27,405 (262,334) 168,451
Effect of Exchange Rates on Cash and Cash
Equivalents -- -- 459 -- 459
----------- ----------- ----------- ----------- -----------
Increase in Cash and Cash Equivalents 168 65,829 4,760 -- 70,757
Cash and Cash Equivalents, Beginning of Period -- 2,260 1,570 -- 3,830
----------- ----------- ----------- ----------- -----------
Cash and Cash Equivalents, End of Period $ 168 $ 68,089 $ 6,330 $ -- $ 74,587
=========== =========== =========== =========== ===========
</TABLE>
19
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousand, except Per Share Data and Amounts Denoted in Millions)
(Unaudited)
(Continued)
(5) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-
GUARANTORS (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
-----------------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Cash Flows Provided by (Used in) Continuing
Operations $ (27,505) $ 53,581 $ (2,347) -- $ 23,729
Cash Flows Provided by Discontinued Operations -- 790 -- -- 790
----------- ----------- -------------- ----------- ------------
Cash Flows Provided by (Used in) Operating
Activities (27,505) 54,371 (2,347) -- 24,519
Cash Flows from Investing Activities:
Cash Paid for Acquisitions (2,398) (125,327) (59,788) -- (187,513)
Capital Expenditures -- (60,497) (12,272) -- (72,769)
Intercompany Loans to Subsidiaries (139,129) -- -- 139,129 --
Investment in Subsidiaries (55,599) (55,599) -- 111,198 --
Additions to Customer Acquisition Costs -- (6,061) -- -- (6,061)
----------- ----------- -------------- ----------- ------------
Cash Flows Used in Continuing Operations (197,126) (247,484) (72,060) 250,327 (266,343)
Cash Flows Used in Discontinued Operations -- (409) -- -- (409)
----------- ----------- -------------- ----------- ------------
Cash Flows Used in Investing Activities (197,126) (247,893) (72,060) 250,327 (266,752)
Cash Flows from Financing Activities:
Repayment of Debt (235,000) (1,420) -- -- (236,420)
Proceeds from Borrowings 200,600 -- 16,144 -- 216,744
Net Proceeds from Sale of Senior Subordinated Notes 149,460 -- -- -- 149,460
Debt Financing from Minority Shareholder -- -- 4,780 -- 4,780
Net Proceeds from Equity Offering 153,755 -- -- -- 153,755
Repurchase of Common Stock (39,484) -- -- -- (39,484)
Intercompany Loans from Parent -- 139,129 -- (139,129) --
Equity Contribution from Parent -- 55,599 55,599 (111,198) --
Proceeds from Exercise of Stock Options 1,518 -- -- -- 1,518
Debt Financing and Stock Issuance Costs (6,230) (67) -- -- (6,297)
----------- ----------- -------------- ----------- ------------
Cash Flows Provided by Continuing Operations 224,619 193,241 76,523 (250,327) 244,056
Cash Flows Provided by Discontinued Operations -- -- -- -- --
----------- ----------- -------------- ----------- ------------
Cash Flows Provided by Financing Activities 224,619 193,241 76,523 (250,327) 244,056
Effect of Exchange Rates on Cash and Cash
Equivalents -- -- (66) -- (66)
----------- ----------- -------------- ----------- ------------
Increase (Decrease) in Cash and Cash Equivalents (12) (281) 2,050 -- 1,757
Cash and Cash Equivalents, Beginning of Period 12 1,703 -- -- 1,715
----------- ----------- -------------- ----------- ------------
Cash and Cash Equivalents, End of Period $ -- $ 1,422 $ 2,050 $ -- $ 3,472
=========== =========== ============== =========== ============
</TABLE>
20
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousand, except Per Share Data and Amounts Denoted in Millions)
(Unaudited)
(Continued)
(6) STOCK OPTION COMPENSATION EXPENSE
During the second and third quarters of 2000, the Company entered into
separation agreements with certain executives. The separation agreements for
these executives included the acceleration and extension of previously granted
stock options, which resulted in a non-cash charge of $15.1 million for the nine
months ended September 30, 2000. In accordance with Accounting Principles Board
No. 25, "Accounting for Stock Issued to Employees," compensation is equal to the
intrinsic value at the date of measurement, and recorded in the statement of
operations as stock option compensation expense.
(7) EARNINGS PER SHARE
In accordance with SFAS No. 128, "Earnings per Share," basic net loss per common
share is calculated by dividing net loss by the weighted average number of
common shares outstanding. The calculation of diluted net loss per share is
consistent with that of basic net loss per share but gives effect to all
potential common shares (that is, securities such as options, warrants or
convertible securities) that were outstanding during the period, unless the
effect is antidilutive. For the nine months ended September 30, 2000 and 1999,
3.4 million and 2.3 million potential common shares, respectively, have been
excluded from the calculation of diluted net loss per share, as their effects
are antidilutive.
(8) INVESTMENT IN PREFERRED STOCK
Included in other assets is a $6.5 million investment in the Series F
convertible preferred stock of a certain technology development company, which
the Company purchased in May 2000. The investment has been recorded at the cost
basis.
(9) SUBSEQUENT EVENT
In October 2000, the Company acquired an off-site secure document destruction
services business for total consideration of approximately $28 million. The
acquisition will be accounted for using the purchase method of accounting.
In November 2000, the Company has entered into a definitive agreement to
acquire a records and information management services business in Canada for
total consideration of approximately $40 million. The acquisition will be
accounted for using the purchase method of accounting.
21
<PAGE>
IRON MOUNTAIN INCORPORATED
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 and nine months ended September 30, 2000 and
1999 should be read in conjunction with the condensed consolidated financial
statements and footnotes for the three and nine months ended September 30, 2000
included herein, and the year ended December 31, 1999, included in the Company's
Annual Report on Form 10-K filed with the Securities and Exchange Commission on
March 30, 2000.
OVERVIEW
The Company's consolidated revenues increased $119.2 million, or 87.1%, to
$256.1 million for the third quarter of 2000 from $136.9 million for the third
quarter of 1999. Internal revenue growth, calculated as if Pierce Leahy had
merged with Iron Mountain on January 1, 1999, was 10.7%. For the nine months
ended September 30, 2000, the Company's consolidated revenues were $720.8
million compared to $378.0 million for the same period last year, an increase of
90.7%. Internal revenue growth, calculated as if Pierce Leahy had merged with
Iron Mountain on January 1, 1999, was 12.8%.
During the third quarter of 2000, the Company acquired three additional
records and information management services businesses for total
consideration of $8.3 million. These three acquisitions reported $3.3 million
in revenues for the year ended December 31, 1999.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
Consolidated storage revenues increased $70.6 million, or 85.8%, to $152.9
million for the third quarter of 2000, from $82.3 million for the third quarter
of 1999. Consolidated storage revenues increased primarily due to acquisitions,
particularly the Pierce Leahy acquisition. Internal storage revenue growth,
calculated as if Pierce Leahy had merged with Iron Mountain on January 1, 1999,
was 11.4%. The internal storage revenue growth resulted primarily from net
increases in records and other media stored by existing customers and from sales
to new customers.
Consolidated service and storage material sales revenues increased $48.6
million, or 89.1%, to $103.2 million for the third quarter of 2000 from $54.6
million for the third quarter of 1999. Consolidated service and storage material
sales revenues increased primarily due to acquisitions, particularly the Pierce
Leahy acquisition. Internal service and storage material sales revenue growth,
calculated as if Pierce Leahy had merged with Iron Mountain on January 1, 1999,
was 9.7%. The internal revenue growth resulted from increases in service and
storage material sales to existing customers and the addition of new customer
accounts.
For the reasons discussed above, total consolidated revenues increased $119.2
million, or 87.1%, to $256.1 million for the third quarter of 2000 from $136.9
million for the third quarter of 1999.
Consolidated cost of sales (excluding depreciation) increased $55.9 million, or
80.7%, to $125.1 million (48.8% of consolidated revenues) for the third quarter
of 2000 from $69.2 million (50.6% of consolidated revenues) for the third
quarter of 1999. The dollar increase was primarily attributable to the
acquisition of Pierce Leahy, while the decrease as a percentage of revenues was
primarily attributable to operating efficiencies gained as a result of an
increase in scale.
22
<PAGE>
IRON MOUNTAIN INCORPORATED
Consolidated selling, general and administrative expenses increased $30.4
million, or 91.1%, to $63.8 million (24.9% of consolidated revenues) for the
third quarter of 2000 from $33.4 million (24.4% of consolidated revenues) for
the third quarter of 1999. The dollar increase was primarily attributable to the
Pierce Leahy acquisition, while the increase as a percentage of revenues was
primarily attributable to reimaging and other costs incurred as a result of the
Pierce Leahy merger, which cannot be capitalized or categorized as
merger-related expense, increased spending in sales and marketing, as well as
increased spending in information technology related to: (i) the conversion of
new systems for the Company's data security business; (ii) increased staffing in
preparation for systems conversions related to the integration of Pierce Leahy
with the Company; and (iii) the Company's efforts to explore new
technology-related service opportunities. These increases were partially offset
by efficiencies driven by an increase in scale.
Consolidated depreciation and amortization expense increased $18.5 million,
or 113.2%, to $34.8 million (13.6% of consolidated revenues) for the third
quarter of 2000 from $16.3 million (11.9% of consolidated revenues) for the
third quarter of 1999. The dollar increase was primarily attributable to the
additional depreciation and amortization expense related to 1999 and 2000
acquisitions, particularly the Pierce Leahy acquisition, and capital
expenditures including racking systems, information systems and expansion of
storage capacity in existing facilities. The increase in depreciation and
amortization expense as a percentage of revenues is due to relatively higher
capital expenditures for short-lived assets, particularly hardware and other
technology costs, as compared with 1999, as well as the inclusion in 2000 of
depreciation and amortization on the fair value of Pierce Leahy assets, which
carry a higher percentage of depreciation and amortization to revenue.
Stock option compensation expense represents a non-cash charge resulting from
the acceleration and extension of previously granted stock options as a part of
separation agreements with certain executives. Stock option compensation expense
was $0.2 million, 0.1% of consolidated revenues, for the third quarter of 2000.
Merger-related expenses are certain expenses directly related to the Company's
merger with Pierce Leahy that cannot be capitalized and include severance and
pay-to-stay payments, costs of exiting certain facilities, system conversion
costs and other transaction-related costs. Merger-related expenses were $1.3
million, or 0.5% of consolidated revenues, for the third quarter of 2000.
As a result of the foregoing factors, consolidated operating income increased
$13.0 million, or 72.6%, to $31.0 million (12.1% of consolidated revenues) for
the third quarter of 2000 from $18.0 million (13.1% of consolidated revenues)
for the third quarter of 1999.
Consolidated interest expense increased $16.9 million, or 120.5%, to $31.0
million for the third quarter of 2000 from $14.1 million for the third
quarter of 1999. The increase was primarily attributable to increased
indebtedness related to: (i) the debt assumed as a result of the Pierce Leahy
acquisition; (ii) the financing of acquisitions and capital expenditures;
(iii) the debt refinancing of the Company on August 14, 2000, resulting in
additional principal outstanding and additional commitment fees, which were
only partially offset by interest earned on excess cash; and (iv) the
increase in the Company's effective interest rate from the same period in
1999. Consolidated other income (expense) was an expense of $3.0 million for
the third quarter of 2000 compared to income of $0.1 million for the third
quarter of 1999. The increase in expense was primarily due to a change in the
value of the Canadian dollar as compared to the U.S. dollar, as it relates to
the 1998A Notes, and a change in the value of the British pound sterling as
compared to the U.S. dollar on intercompany balances with the Company's
European subsidiaries.
As a result of the foregoing factors, consolidated income (loss) from continuing
operations before provision (benefit) for income taxes and minority interests
decreased $7.1 million to a loss of $3.1 million (1.2% of consolidated revenues)
for the third quarter of 2000 from income of $4.0 million (2.9% of consolidated
revenues) for the third quarter of 1999. The benefit for income taxes was $7.0
million for the third quarter of 2000 compared to a provision of $3.0 million
for the third quarter of 1999. The benefit was needed to reduce
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IRON MOUNTAIN INCORPORATED
the estimated tax provision for the year based on a revised estimate of the
Company's annual pretax income and resulting annual effective tax rate,
calculated as of the end of September 2000.
Consolidated income from continuing operations increased $3.6 million to $4.6
million (1.8% of consolidated revenues) for the third quarter of 2000 from $1.0
million (0.7% of consolidated revenues) for the third quarter of 1999. In
addition, the Company recorded an extraordinary charge of $2.9 million (net of
tax benefit of $1.9 million) related to the early extinguishment of debt in
conjunction with the refinancing of the Company's senior credit facility in the
third quarter of 2000. The charge primarily represented the write-off of
unamortized financing costs associated with the extinguished debt.
As a result of the foregoing factors, consolidated earnings before interest,
taxes, depreciation, amortization, extraordinary items, other income,
merger-related expenses and stock option compensation expense ("EBITDA")
increased $33.0 million, or 96.1%, to $67.3 million (26.3% of consolidated
revenues) for the third quarter of 2000 from $34.3 million (25.1% of
consolidated revenues) for the third quarter of 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1999
Consolidated storage revenues increased $196.3 million, or 85.4%, to $426.3
million for the first nine months of 2000, from $230.0 million for the first
nine months of 1999. Consolidated storage revenues increased primarily due to
acquisitions, particularly the Pierce Leahy acquisition. Internal storage
revenue growth, calculated as if Pierce Leahy had merged with Iron Mountain on
January 1, 1999, was 11.9%. The internal storage revenue growth resulted
primarily from net increases in records and other media stored by existing
customers and from sales to new customers.
Consolidated service and storage material sales revenues increased $146.4
million, or 98.9%, to $294.5 million for the first nine months of 2000 from
$148.1 million for the first nine months of 1999. Consolidated service and
storage material sales revenues increased primarily due to acquisitions,
particularly the Pierce Leahy acquisition. Internal service and storage material
sales revenue growth, calculated as if Pierce Leahy had merged with Iron
Mountain on January 1, 1999, was 14.2%. The internal revenue growth resulted
from increases in service and storage material sales to existing customers and
the addition of new customer accounts.
For the reasons discussed above, total consolidated revenues increased $342.8
million, or 90.7%, to $720.8 million for the first nine months of 2000 from
$378.0 million for the first nine months of 1999.
Consolidated cost of sales (excluding depreciation) increased $161.7 million, or
85.2%, to $351.5 million (48.8% of consolidated revenues) for the first nine
months of 2000 from $189.8 million (50.2% of consolidated revenues) for the
first nine months of 1999. The dollar increase was primarily attributable to the
acquisition of Pierce Leahy, while the decrease as a percentage of revenues was
primarily attributable to operating efficiencies gained as a result of an
increase in scale.
Consolidated selling, general and administrative expenses increased $87.8
million, or 93.2%, to $182.0 million (25.2% of consolidated revenues) for the
first nine months of 2000 from $94.2 million (24.9% of consolidated revenues)
for the first nine months of 1999. The dollar increase was primarily
attributable to the Pierce Leahy acquisition, while the increase as a percentage
of revenues was primarily attributable to reimaging and other costs incurred as
a result of the Pierce Leahy merger, which cannot be capitalized or categorized
as merger-related expenses, increased spending in sales and marketing, as well
as increased spending in information technology related to: (i) the conversion
of new systems for the Company's data security business; (ii) increased staffing
in preparation for systems conversions related to the integration of
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IRON MOUNTAIN INCORPORATED
Pierce Leahy with the Company; and (iii) the Company's efforts to explore new
technology-related service opportunities. These increases were partially
offset by efficiencies driven by an increase in scale.
Consolidated depreciation and amortization expense increased $46.6 million,
or 100.8%, to $92.8 million (12.9% of consolidated revenues) for the first
nine months of 2000 from $46.2 million (12.2% of consolidated revenues) for
the first nine months of 1999. The dollar increase was primarily attributable
to the additional depreciation and amortization expense related to the 1999
and 2000 acquisitions, particularly the Pierce Leahy acquisition, and capital
expenditures including racking systems, information systems and expansion of
storage capacity in existing facilities. The increase in depreciation and
amortization expense as a percentage of revenues is due to relatively higher
capital expenditures for short-lived assets, particularly hardware and other
technology costs, as compared with 1999, as well as the inclusion in 2000 of
depreciation and amortization on the fair value of Pierce Leahy assets, which
carry a higher percentage of depreciation and amortization to revenue.
Stock option compensation expense represents a non-cash charge resulting from
the acceleration and extension of previously granted stock options as a part of
separation agreements with certain executives. Stock option compensation expense
was $15.1 million, 2.1% of consolidated revenues, for the first nine months of
2000.
Merger-related expenses are certain expenses directly related to the Company's
merger with Pierce Leahy that cannot be capitalized and include severance and
pay-to-stay payments, costs of exiting certain facilities, system conversion
costs and other transaction-related costs. Merger-related expenses were $5.7
million, or 0.8% of consolidated revenues, for the first nine months of 2000.
As a result of the foregoing factors, consolidated operating income increased
$26.0 million, or 54.4%, to $73.8 million (10.2% of consolidated revenues) for
the first nine months of 2000 from $47.8 million (12.6% of consolidated
revenues) for the first nine months of 1999.
Consolidated interest expense increased $44.9 million, or 111.4%, to $85.1
million for the first nine months of 2000 from $40.2 million for the first
nine months of 1999. The increase was primarily attributable to increased
indebtedness related to: (i) the debt assumed as a result of the Pierce Leahy
acquisition; (ii) the financing of acquisitions and capital expenditures;
(iii) the debt refinancing of the Company on August 14, 2000, resulting in
additional principal outstanding and additional commitment fees, which were
only partially offset by interest earned on excess cash; and (iv) the
increase in the Company's effective interest rate from the same period in
1999. Consolidated other income (expense) was an expense of $7.5 million for
the first nine months of 2000 compared to income of $0.1 million for the
first nine months of 1999. The increase in expense was primarily due to a
change in the value of the Canadian dollar as compared to the U.S. dollar, as
it relates to the 1998A Notes, and a change in the value of the British pound
sterling as compared to the U.S. dollar on intercompany balances with the
Company's European subsidiaries.
As a result of the foregoing factors, consolidated income (loss) from continuing
operations before provision (benefit) for income taxes and minority interests
decreased $26.4 million to a loss of $18.7 million (2.6% of consolidated
revenues) for the first nine months of 2000 from income of $7.7 million (2.0% of
consolidated revenues) for the first nine months of 1999. The provision for
income taxes was $11.4 million for the first nine months of 2000 compared to
$7.8 million for the first nine months of 1999. The Company's effective tax rate
is higher than statutory rates primarily due to the amortization of the
nondeductible portion of goodwill associated with certain acquisitions (the tax
laws generally permit deduction of such expenses for asset purchases, but not
for acquisitions of stock). For the nine months ended September 30, 2000, the
Company recorded approximately $22.9 million in nondeductible goodwill
amortization expense.
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IRON MOUNTAIN INCORPORATED
Consolidated loss from continuing operations increased $28.4 million to $29.0
million (4.0% of consolidated revenues) for the first nine months of 2000 from
$0.6 million (0.2% of consolidated revenues) for the first nine months of 1999.
In August 2000, the Company recorded an extraordinary charge of $2.9 million
(net of tax benefit of $1.9 million) related to the early extinguishment of debt
in conjunction with the refinancing of the Company's senior credit facility. The
charge primarily represented the write-off of unamortized financing costs
associated with the extinguished debt. The loss on the sale of discontinued
operations for the first nine months of 1999 was comprised of a $13.1 million
write-off of goodwill and $1.3 million of estimated expenses directly related to
the sale of Arcus Staffing Resources, Inc. offset by a $1.0 million deferred tax
benefit and the estimated income from discontinued operations through the date
of disposition.
As a result of the foregoing factors, consolidated EBITDA increased $93.4
million, or 99.3%, to $187.4 million (26.0% of consolidated revenues) for the
first nine months of 2000 from $94.0 million (24.9% of consolidated revenues)
for the first nine months of 1999.
LIQUIDITY AND CAPITAL RESOURCES
As the Company has sought to increase its EBITDA, it has made significant
capital investments, consisting primarily of: (i) capital expenditures,
primarily related to growth (including investments in real estate, racking
systems, information systems and expansion of storage capacity in existing
facilities); (ii) acquisitions; and (iii) customer acquisition costs. Cash
paid for these investments during the first nine months of 2000 amounted to
$116.2 million, $76.1 million and $10.1 million, respectively. These
investments have been primarily funded through cash flows from operations and
borrowings under the Company's Amended Credit Agreement.
Net cash provided by operations was $109.7 million for the first nine months of
2000 compared to $24.5 million for the same period in 1999. The increase
primarily resulted from an increase in EBITDA as well as an increase in accrued
interest.
Net cash provided by financing activities was $168.5 million for the first nine
months of 2000, consisting primarily of the proceeds from borrowings under the
Company's revolving credit facility of $383.6 million and term loans of $350.0
million, which were partially offset by repayments of debt of $579.3 million.
On August 14, 2000, the Company entered into the Amended Credit Agreement.
The Amended Credit Agreement replaces the Company's prior credit facility,
increases the aggregate principal amount available to $750 million and
includes two tranches of term debt in addition to the $400 million revolving
credit facility. Tranches A and B represent term loans to the Company in
principal amounts of $150 million and $200 million, respectively. The Tranche
A term loan and the revolving credit component of the Amended Credit
Agreement mature on January 31, 2005, while the Tranche B term loan matures
on February 28, 2006. The interest rate on borrowings under the Amended
Credit Agreement varies depending on the Company's choice of base rates, plus
an applicable margin. As of September 30, 2000, the interest rates in effect
ranged from 8.69% to 9.59%. Restrictive covenants under this agreement are
similar to those under the Company's prior credit facility.
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IRON MOUNTAIN INCORPORATED
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not hold any derivative financial instruments or derivative
commodity instruments. Iron Mountain's investments in Iron Mountain Europe
Limited, Iron Mountain South America, Ltd. and other international investments
may be subject to risks and uncertainties relating to fluctuations in currency
valuation. In addition, one of the Company's Canadian subsidiaries, Iron
Mountain Canada Corporation, has U.S. dollar denominated debt. Gains and losses
due to exchange rate fluctuations related to this debt are recognized in the
Company's consolidated statements of operations.
The Company engages neither in speculative nor derivative trading activities.
As of September 30, 2000, the Company had $379.6 million of debt outstanding
with a weighted average variable interest rate of 8.98% and $972.9 million of
fixed rate debt outstanding. If the weighted average variable interest rate
had increased by 1% to 9.98%, such increase would increase the Company's net
loss for the three and nine month periods ended September 30, 2000 by
approximately $0.9 million and $2.0 million, respectively. See Note 4 to
Notes to Condensed Consolidated Financial Statements for a discussion of the
Company's long-term indebtedness, including the fair values of such
indebtedness as of September 30, 2000 and December 31, 1999.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) EXHIBIT NO. DESCRIPTION
---------- -----------
<S> <C>
10.1 Fourth Amended and Restated Credit Agreement, dated
as of August 14, 2000, among Iron Mountain
Incorporated (the "Company"), Iron Mountain Canada
Corporation, The Chase Manhattan Bank as
Administrative Agent, The Chase Manhattan Bank of
Canada as Canadian Administrative Agent, and
certain lenders party thereto.
10.2 Amendment No. 3 and Consent to Guaranty, dated as
of August 16, 2000, between the Company and Iron
Mountain Statutory Trust - 1999, and consented to
by the lenders listed therein and Wachovia Capital
Investments, Inc., as Agent Bank for such lenders.
10.3 Amendment No. 4 and Consent to Guaranty, dated as
of August 15, 2000, between the Company and Iron
Mountain Statutory Trust - 1998, and consented to
by the lenders listed therein and The Bank of Nova
Scotia, as Agent Bank for such lenders.
27.1 Financial Data Schedule for the Nine Months Ended
September 30, 2000.
</TABLE>
(b) REPORTS ON FORM 8-K
On August 15, 2000, the Company filed a Current Report on Form 8-K under Item 7
to provide unaudited pro forma financial information with respect to
acquisitions by the Company of businesses in 1999 and 2000 deemed to be
individually significant under Rule 3-05 of Regulation S-X and certain other
financing transactions.
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IRON MOUNTAIN INCORPORATED
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IRON MOUNTAIN INCORPORATED
November 14, 2000 By: /s/ Jean A. Bua
---------------------- ----------------------------------------
(date) Jean A. Bua
Vice President and Corporate Controller
(Principal Accounting Officer)
28
