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 June 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
August 4, 2000: 54,729,297
IRON MOUNTAIN INCORPORATED
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1 - Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at June 30, 2000 and
December 31, 1999 (Unaudited) 3
Condensed Consolidated Statements of Operations for the Three Months Ended
June 30, 2000 and 1999 (Unaudited) 4
Condensed Consolidated Statements of Operations for the Six Months Ended
June 30, 2000 and 1999 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2000 and 1999 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7-20
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of
Operations 21-25
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 25
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security-Holders 26
Item 6 - Exhibits and Reports on Form 8-K 26-27
Signature 29
2
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
IRON MOUNTAIN INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
JUNE 30, DECEMBER 31,
2000 1999
----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 8,347 $ 3,830
Accounts receivable (less allowances of $11,597
and $5,740 respectively) 169,259 104,074
Deferred income taxes 18,137 12,475
Prepaid expenses and other 22,657 23,285
----------- -----------
Total Current Assets 218,400 143,664
Property, Plant and Equipment:
Property, plant and equipment 844,732 497,369
Less: Accumulated depreciation (124,170) (93,630)
----------- -----------
Property, Plant and Equipment, net 720,562 403,739
Other Assets:
Goodwill, net 1,532,652 729,213
Customer acquisition costs, net 22,211 16,742
Deferred financing costs, net 18,139 16,549
Other 22,053 7,305
----------- -----------
Total Other Assets 1,595,055 769,809
----------- -----------
Total Assets $ 2,534,017 $ 1,317,212
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 32,810 $ 9,890
Accounts payable 27,317 25,770
Accrued expenses 131,741 68,519
Deferred income 49,748 32,981
Other current liabilities 22,037 13,188
----------- -----------
Total Current Liabilities 263,653 150,348
Long-term Debt, net of current portion 1,229,950 603,057
Other Long-term Liabilities 5,849 5,749
Deferred Rent 11,898 10,819
Deferred Income Taxes 39,287 16,207
Minority Interest 40,452 42,278
Shareholders' Equity:
Common stock 547 369
Additional paid-in capital 1,011,237 560,620
Accumulated deficit (65,186) (31,558)
Accumulated other comprehensive items (3,670) (1,193)
Treasury stock -- (39,484)
----------- -----------
Total Shareholders' Equity 942,928 488,754
----------- -----------
Total Liabilities and Shareholders' Equity $ 2,534,017 $ 1,317,212
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
3
IRON MOUNTAIN INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except Per Share Data)
(Unaudited)
THREE MONTHS ENDED
JUNE 30,
------------------------------
2000 1999
----------- -----------
Revenues:
Storage $ 148,445 $ 79,928
Service and storage material sales 104,120 51,837
----------- -----------
Total Revenues 252,565 131,765
Operating Expenses:
Cost of sales (excluding depreciation) 121,973 66,167
Selling, general and administrative 64,724 32,938
Depreciation and amortization 31,644 16,281
Stock option compensation expense 14,939 --
Merger-related expenses 3,875 --
----------- -----------
Total Operating Expenses 237,155 115,386
----------- -----------
Operating Income 15,410 16,379
Interest Expense 30,245 14,227
Other Expense, net 3,699 --
----------- -----------
Income (Loss) from Continuing Operations Before Provision for Income
Taxes and Minority Interest (18,534) 2,152
Provision for Income Taxes 9,847 3,229
Minority Interests in (Losses) Earnings of Subsidiaries (136) 318
----------- -----------
Loss from Continuing Operations (28,245) (1,395)
Income from Discontinued Operations -- 142
Loss on sale of Discontinued Operations -- 9,400
----------- -----------
Net Loss Applicable to Common Shareholders $ (28,245) $ (10,653)
=========== ===========
Net Loss Per Common Share - Basic and Diluted:
Loss from Continuing Operations $ (0.52) $ (0.04)
Loss from Discontinued Operations -- (0.28)
----------- -----------
Net Loss Per Common Share - Basic and Diluted $ (0.52) $ (0.32)
=========== ===========
Weighted Average Common Shares Outstanding - Basic and Diluted 54,641 33,028
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
4
IRON MOUNTAIN INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except Per Share Data)
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
------------------------------
2000 1999
----------- -----------
Revenues:
Storage $ 273,384 $ 147,650
Service and storage material sales 191,318 93,486
----------- -----------
Total Revenues 464,702 241,136
Operating Expenses:
Cost of sales (excluding depreciation) 226,431 120,602
Selling, general and administrative 118,181 60,813
Depreciation and amortization 57,947 29,876
Stock option compensation expense 14,939 --
Merger-related expenses 4,391 --
----------- -----------
Total Operating Expenses 421,889 211,291
----------- -----------
Operating Income 42,813 29,845
Interest Expense 54,028 26,171
Other Expense, net 4,480 --
----------- -----------
Income (Loss) from Continuing Operations Before Provision for Income
Taxes and Minority Interest (15,695) 3,674
Provision for Income Taxes 18,376 4,852
Minority Interests in (Losses) Earnings of Subsidiaries (443) 465
----------- -----------
Loss from Continuing Operations (33,628) (1,643)
Income from Discontinued Operations -- 241
Loss on sale of Discontinued Operations -- 9,400
----------- -----------
Net Loss Applicable to Common Shareholders $ (33,628) $ (10,802)
=========== ===========
Net Loss Per Common Share - Basic and Diluted:
Loss from Continuing Operations $ (0.66) $ (0.05)
Loss from Discontinued Operations -- (0.30)
----------- -----------
Net Loss Per Common Share - Basic and Diluted $ (0.66) $ (0.35)
=========== ===========
Weighted Average Common Shares Outstanding - Basic and Diluted 51,292 31,274
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
5
IRON MOUNTAIN INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
----------------------------------------
2000 1999
----------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (33,628) $ (10,802)
Adjustments to Reconcile Net Loss to Loss from Continuing Operations:
Income from Discontinued Operations -- (241)
Loss on sale of Discontinued Operations -- 9,400
---------- ----------
Loss from Continuing Operations (33,628) (1,643)
Adjustments to Reconcile Loss from Continuing Operations to Net Cash
Provided by Operating Activities of Continuing Operations:
Minority Interests in (Losses) Earnings of Subsidiaries (443) 465
Depreciation and Amortization 57,947 29,876
Amortization of Deferred Financing Costs 1,478 911
Provision for Doubtful Accounts 2,810 904
Stock Option Compensation Expense 14,939 --
Foreign Currency Loss 4,480 --
Other, Net 754 137
Changes in Assets and Liabilities (Exclusive of Acquisitions):
Accounts Receivable (6,817) (12,229)
Prepaid Expenses and Other Current Assets 6,663 1,364
Deferred Income Taxes 20,348 4,358
Other Assets 328 (237)
Accounts Payable (14,547) (7,319)
Accrued Expenses 19,476 5,002
Deferred Income (1,421) 954
Deferred Rent 1,079 627
Other Long-term Liabilities (375) --
---------- ----------
Cash Flows Provided by Continuing Operations 73,071 23,170
Cash Flows Used in Discontinued Operations -- (357)
---------- ----------
Cash Flows Provided by Operating Activities 73,071 22,813
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Paid for Acquisitions, net of cash acquired (71,099) (171,629)
Capital Expenditures (62,766) (40,338)
Investment in Subsidiary -- (4,800)
Investment in Convertible Preferred Stock (6,500) --
Additions to Customer Acquisition Costs (5,101) (3,933)
Other, Net (543) --
---------- ----------
Cash Flows Used in Continuing Operations (146,009) (220,700)
Cash Flows Used in Discontinued Operations -- (345)
---------- ----------
Cash Flows Used in Investing Activities (146,009) (221,045)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Debt (295,093) (237,370)
Proceeds from Borrowings 361,831 200,600
Net Proceeds from Sale of Senior Subordinated Notes -- 149,460
Debt Financing from Minority Shareholder 9,479 --
Debt Financing Costs (3,068) (4,182)
Net Proceeds from Equity Offering -- 153,755
Repurchase of Common Stock -- (39,484)
Proceeds from Exercise of Stock Options 3,862 901
Stock Issuance Costs -- (512)
---------- ----------
Cash Flows Provided by Continuing Operations 77,011 223,168
Cash Flows Provided by Discontinued Operations -- --
---------- ----------
Cash Flows Provided by Financing Activities 77,011 223,168
Effect of Exchange Rates on Cash and Cash Equivalents 444 (82)
Increase in Cash and Cash Equivalents 4,517 24,854
Cash and Cash Equivalents, Beginning of Period 3,830 1,715
---------- ----------
Cash and Cash Equivalents, End of Period $ 8,347 $ 26,569
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
6
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except Per Share Data)
(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.
(2) COMPREHENSIVE INCOME (LOSS)
Statement of Financial Accounting Standards 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:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------- ---------------------------------------
2000 1999 2000 1999
--------------- ---------------- ------------------ ----------------
Comprehensive Loss:
Net Loss $ (28,245) $ (10,653) $ (33,628) $ (10,802)
Other Comprehensive Loss:
Foreign Currency Translation
Adjustment (2,598) (1,711) (2,477) (2,287)
----------- ----------- ----------- -----------
Comprehensive Loss $ (30,843) $ (12,364) $ (36,105) $ (13,089)
=========== =========== =========== ===========
7
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except Per Share Data)
(Unaudited)
(Continued)
(3) ACQUISITIONS
During the six months ended June 30, 2000, the Company completed its acquisition
of Pierce Leahy Corp. in a stock-for-stock merger and purchased substantially
all of the assets, and assumed certain liabilities, of six additional records
and information management services businesses (collectively, the "2000
Acquisitions").
Each of the 2000 Acquisitions and all 17 of the records and information
management services businesses acquired during 1999 (the "1999 Acquisitions")
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
$836,935, 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 2000 Acquisitions, as of their acquisition
dates, is as follows:
Purchase Price:
Cash Paid $ 75,675
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 $ 1,129,498
============
Allocation of Purchase Price:
Current Assets $ 72,557
Property, Plant & Equipment 288,952
Other Assets 20,738
Goodwill 836,935
Liabilities Assumed (88,163)
Minority Interest (1,521)
------------
Total Allocation of Purchase Price $ 1,129,498
============
Allocation of the purchase price for the 2000 Acquisitions was based on
estimates of the fair value of net assets acquired, is subject to adjustment
upon finalization of the purchase price allocation. 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, restricted common stock 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
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except Per Share Data)
(Unaudited)
(Continued)
(3) ACQUISITIONS (CONTINUED)
The following unaudited pro forma information shows the results of the Company's
operations for the six months ended June 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:
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
2000 1999
------------------- ----------------
Revenues $ 501,362 $ 905,199
Loss from Continuing Operations (36,209) (7,225)
Net Loss (36,209) (20,384)
Loss Per Share from Continuing Operations - Basic
and Diluted (0.66) (0.13)
Net Loss Per Share - Basic and Diluted (0.66) (0.38)
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:
JUNE 30, DECEMBER 31,
2000 1999
------------------- -------------------
Reserves, Beginning Balance.................. $ 9,340 $ 10,482
Reserves Established......................... 8,323 4,234
Expenditures................................. (2,482) (4,843)
Adjustments to Goodwill...................... (1,239) (533)
--------- ---------
Reserves, Ending Balance..................... $ 13,942 $ 9,340
========= =========
9
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except Per Share Data)
(Unaudited)
(Continued)
(3) ACQUISITIONS (CONTINUED)
At June 30, 2000, the restructuring reserves related to acquisitions consisted
of lease losses on abandoned facilities ($6.7 million), severance costs for
approximately 33 people ($2.8 million) and other exit costs ($4.4 million).
These accruals are expected to be used within one year of the finalization of
the restructuring plans except for lease losses of $4.8 million, which are based
on contracts that extend through the expected lease term date, and long-term
severance contracts of approximately $2.8 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:
JUNE 30, 2000 DECEMBER 31, 1999
-------------------------------- ---------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------------- ------------- -------------- --------------
Revolving Credit Facility $ 258,083 $ 258,083 $ 5,000 $ 5,000
10-1/8% Senior Subordinated Notes due
2006 (the "1996 Notes") 165,000 165,400 165,000 167,900
8-3/4% Senior Subordinated Notes due
2009 (the "1997 Notes") 249,626 228,800 249,606 237,500
8-1/4% Senior Subordinated Notes due
2011 (the "1999 Notes") 149,513 131,300 149,490 136,100
11-1/8% Senior Subordinated Notes due
2006 (the "1996A Notes") 132,817 134,200 -- --
9-1/8% Senior Subordinated Notes due
2007 (the "1997A Notes") 113,771 114,600 -- --
8-1/8% Senior Subordinated Notes due
2008 (the "1998A Notes") 120,055 118,800 -- --
Real Estate Mortgages 17,393 17,393 2,048 2,048
Seller Notes 14,194 14,194 -- --
Other 42,308 42,308 41,803 41,803
-------------- -----------
Total Long-term Debt 1,262,760 612,947
Less: Current Portion (32,810) (9,890)
-------------- -----------
Long-term Debt, Net of Current
Portion $ 1,229,950 $ 603,057
============== ===========
The estimated fair values for the long-term debt are based on the borrowing
rates available to the Company at June 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 June 30, 2000 and December 31, 1999.
10
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except Per Share Data)
(Unaudited)
(Continued)
(5) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND
NON-GUARANTORS
As of June 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 June 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.
Summarized financial information for Canada Company is as follows:
FIVE MONTHS ENDED
JUNE 30, 2000
----------------------------
Revenues $ 23,380
EBITDA 6,415
Operating loss (176)
Net loss applicable to common
shareholders (5,565)
JUNE 30, 2000
----------------------------
Current assets $ 12,109
Total assets 144,317
Current liabilities 6,092
Long-term liabilities 126,000
11
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except Per Share Data)
(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 June 30, 2000 and December 31, 1999 and for the three
and six month periods ended June 30, 2000 and 1999:
JUNE 30, 2000
-----------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
ASSETS
Current Assets:
Cash and Cash Equivalents $ 609 $ (315) $ 8,053 $ -- $ 8,347
Accounts Receivable 6,250 135,894 27,115 -- 169,259
Intercompany Receivable (Payable) 126,087 (146,582) 20,495 -- --
Other Current Assets 473 53,785 5,793 (19,257) 40,794
----------- ----------- ----------- ----------- -----------
Total Current Assets 133,419 42,782 61,456 (19,257) 218,400
Property, Plant and Equipment, net 92,414 516,716 111,432 -- 720,562
Other Assets:
Due From Affiliates 345,330 -- -- (345,330) --
Long-term Notes Receivable from Affiliates 735,818 166,670 -- (902,488) --
Investment in Subsidiaries 366,602 51,475 72,383 (490,460) --
Goodwill, net 467,758 852,874 201,560 10,460 1,532,652
Other 17,310 38,864 6,229 -- 62,403
----------- ----------- ----------- ----------- -----------
Total Other Assets 1,932,818 1,109,883 280,172 (1,727,818) 1,595,055
----------- ----------- ----------- ----------- -----------
Total Assets $ 2,158,651 $ 1,669,381 $ 453,060 $(1,747,075) $ 2,534,017
=========== =========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Total Current Liabilities $ 21,014 $ 172,766 $ 89,130 $ (19,257) $ 263,653
Long-term Debt, Net of Current Portion 1,072,214 2,755 154,981 -- 1,229,950
Due to Affiliates -- 345,330 -- (345,330) --
Long-term Notes Payable to Affiliates 124,100 735,755 42,633 (902,488) --
Other Long-term Liabilities (1,605) 61,987 (3,348) -- 57,034
Minority Interest -- -- (446) 40,898 40,452
Shareholders' Equity 942,928 350,788 170,110 (520,898) 942,928
----------- ----------- ----------- ----------- -----------
Total Liabilities and Shareholders' Equity $ 2,158,651 $ 1,669,381 $ 453,060 $(1,747,075) $ 2,534,017
=========== =========== =========== =========== ===========
12
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except Per Share Data)
(Unaudited)
(Continued)
(5) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-
GUARANTORS (CONTINUED)
DECEMBER 31, 1999
-----------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
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
=========== =========== =========== =========== ===========
13
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except Per Share Data)
(Unaudited)
(Continued)
(5) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-
GUARANTORS (CONTINUED)
THREE MONTHS ENDED JUNE 30, 2000
----------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
Revenues:
Storage $ 869 $ 131,388 $ 16,188 $ -- $ 148,445
Service and Storage Material Sales 4,741 85,788 14,838 (1,247) 104,120
--------- --------- --------- --------- ---------
Total Revenues 5,610 217,176 31,026 (1,247) 252,565
Operating Expenses:
Cost of Sales (Excluding Depreciation) 3,129 105,046 16,884 (3,086) 121,973
Selling, General and Administrative 960 54,216 7,709 1,839 64,724
Depreciation and Amortization 1,389 26,670 3,585 -- 31,644
Stock Option Compensation Expense -- 14,939 -- -- 14,939
Merger-Related Expenses -- 3,753 122 -- 3,875
--------- --------- --------- --------- ---------
Total Operating Expenses 5,478 204,624 28,300 (1,247) 237,155
--------- --------- --------- --------- ---------
Operating Income 132 12,552 2,726 -- 15,410
Interest Income (13,674) -- -- 13,674 --
Interest Expense 25,190 13,586 5,143 (13,674) 30,245
Equity in the Losses of Subsidiaries 18,981 186 -- (19,167) --
Other Expense, net -- 713 2,986 -- 3,699
--------- --------- --------- --------- ---------
Loss from Continuing Operations Before
Provision (Benefit) for Income Taxes
and Minority Interest (30,365) (1,933) (5,403) 19,167 (18,534)
Provision (Benefit) for Income Taxes (2,120) 12,536 (569) -- 9,847
Minority Interests in Losses of Subsidiaries -- -- (136) -- (136)
--------- --------- --------- --------- ---------
Net Loss $ (28,245) $ (14,469) $ (4,698) $ 19,167 $ (28,245)
========= ========= ========= ========= =========
14
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except Per Share Data)
(Unaudited)
(Continued)
(5) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-
GUARANTORS (CONTINUED)
THREE MONTHS ENDED JUNE 30, 1999
--------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
Revenues:
Storage $ -- $ 74,921 $ 5,007 $ -- $ 79,928
Service and Storage Material Sales -- 48,018 3,819 -- 51,837
--------- --------- --------- --------- ---------
Total Revenues -- 122,939 8,826 -- 131,765
Operating Expenses:
Cost of Sales (Excluding Depreciation) -- 61,039 5,128 -- 66,167
Selling, General and Administrative 61 31,514 1,363 -- 32,938
Depreciation and Amortization -- 15,230 1,051 -- 16,281
--------- --------- --------- --------- ---------
Total Operating Expenses 61 107,783 7,542 -- 115,386
--------- --------- --------- --------- ---------
Operating Income (Loss) (61) 15,156 1,284 -- 16,379
Interest Income (13,752) -- -- 13,752 --
Interest Expense 13,870 13,876 233 (13,752) 14,227
Equity in the (Earnings) Losses of
Subsidiaries 10,474 (366) -- (10,108) --
--------- --------- --------- --------- ---------
Income (Loss) from Continuing Operations
Before Provision for Income Taxes and
Minority Interest (10,653) 1,646 1,051 10,108 2,152
Provision for Income Taxes -- 2,862 367 -- 3,229
Minority Interests in Earnings of Subsidiaries -- -- 318 -- 318
--------- --------- --------- --------- ---------
Income (Loss) from Continuing
Operations (10,653) (1,216) 366 10,108 (1,395)
Income from Discontinued Operations -- 142 -- -- 142
Loss on sale of Discontinued Operations -- 9,400 -- -- 9,400
--------- --------- --------- --------- ---------
Net Income (Loss) $ (10,653) $ (10,474) $ 366 $ 10,108 $ (10,653)
========= ========= ========= ========= =========
15
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except Per Share Data)
(Unaudited)
(Continued)
(5) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-
GUARANTORS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2000
----------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
Revenues:
Storage $ 1,443 $ 242,464 $ 29,477 $ -- $ 273,384
Service and Storage Material Sales 7,990 158,292 26,786 (1,750) 191,318
--------- --------- --------- --------- ---------
Total Revenues 9,433 400,756 56,263 (1,750) 464,702
Operating Expenses:
Cost of Sales (Excluding Depreciation) 5,365 194,930 31,090 (4,954) 226,431
Selling, General and Administrative 1,620 100,138 13,219 3,204 118,181
Depreciation and Amortization 1,730 49,471 6,746 -- 57,947
Stock Option Compensation Expense -- 14,939 -- -- 14,939
Merger-Related Expenses -- 4,269 122 -- 4,391
--------- --------- --------- --------- ---------
Total Operating Expenses 8,715 363,747 51,177 (1,750) 421,889
--------- --------- --------- --------- ---------
Operating Income 718 37,009 5,086 -- 42,813
Interest Income (27,348) -- -- 27,348 --
Interest Expense 45,682 27,096 8,598 (27,348) 54,028
Equity in the Losses of Subsidiaries 19,333 84 -- (19,417) --
Other Expense, net -- 647 3,833 -- 4,480
--------- --------- --------- --------- ---------
Income (Loss) from Continuing Operations
Before Provision (Benefit) for Income
Taxes and Minority Interest (36,949) 9,182 (7,345) 19,417 (15,695)
Provision (Benefit) for Income Taxes (3,321) 22,506 (809) -- 18,376
Minority Interests in Losses of Subsidiaries -- -- (443) -- (443)
--------- --------- --------- --------- ---------
Net Loss $ (33,628) $ (13,324) $ (6,093) $ 19,417 $ (33,628)
========= ========= ========= ========= =========
16
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except Per Share Data)
(Unaudited)
(Continued)
(5) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND
NON-GUARANTORS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1999
------------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
Revenues:
Storage $ -- $ 141,034 $ 6,616 $ -- $ 147,650
Service and Storage Material Sales -- 88,370 5,116 -- 93,486
--------- --------- --------- --------- ---------
Total Revenues -- 229,404 11,732 -- 241,136
Operating Expenses:
Cost of Sales (Excluding Depreciation) -- 113,817 6,785 -- 120,602
Selling, General and Administrative 185 58,827 1,801 -- 60,813
Depreciation and Amortization -- 28,473 1,403 -- 29,876
--------- --------- --------- --------- ---------
Total Operating Expenses 185 201,117 9,989 -- 211,291
--------- --------- --------- --------- ---------
Operating Income (Loss) (185) 28,287 1,743 -- 29,845
Interest Income (24,112) -- -- 24,112 --
Interest Expense 25,589 24,377 317 (24,112) 26,171
Equity in the (Earnings) Losses of Subsidiaries
9,140 (387) -- (8,753) --
--------- --------- --------- --------- ---------
Income (Loss) from Continuing Operations
Before Provision for Income Taxes and
Minority Interest (10,802) 4,297 1,426 8,753 3,674
Provision for Income Taxes -- 4,278 574 -- 4,852
Minority Interests in Earnings of
Subsidiaries -- -- 465 -- 465
--------- --------- --------- --------- ---------
Income (Loss) from Continuing
Operations (10,802) 19 387 8,753 (1,643)
Income from Discontinued Operations -- 241 -- -- 241
Loss on sale of Discontinued Operations -- 9,400 -- -- 9,400
--------- --------- --------- --------- ---------
Net Income (Loss) $ (10,802) $ (9,140) $ 387 $ 8,753 $ (10,802)
========= ========= ========= ========= =========
17
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except Per Share Data)
(Unaudited)
(Continued)
(5) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-
GUARANTORS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2000
-----------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
Cash Flows from Operating Activities:
Cash Flows Provided by (Used in) Operating
Activities $ (13,796) $ 85,576 $ 1,291 $ -- $ 73,071
Cash Flows from Investing Activities:
Investment in Convertible Preferred Stock -- (6,500) -- -- (6,500)
Intercompany Loans to Subsidiaries (239,690) (18,822) -- 258,512 --
Cash Paid for Acquisitions, net of Cash Acquired (3,895) (57,012) (10,192) -- (71,099)
Capital Expenditures (10,960) (44,397) (7,409) -- (62,766)
Additions to Customer Acquisition Costs -- (4,431) (670) -- (5,101)
Other, Net (11) (487) (45) -- (543)
--------- --------- --------- --------- ---------
Cash Flows Used in Investing Activities (254,556) (131,649) (18,316) 258,512 (146,009)
Cash Flows from Financing Activities:
Repayment of Debt (114,830) (172,277) (7,986) -- (295,093)
Net Proceeds from Borrowings 358,500 1,885 1,446 -- 361,831
Debt Financing from Minority Shareholder -- -- 9,479 -- 9,479
Intercompany Loans from Parent 24,200 214,106 20,206 (258,512) --
Proceeds from Exercise of Stock Options 3,862 -- -- -- 3,862
Debt Financing and Stock Issuance Costs (2,771) (297) -- -- (3,068)
--------- --------- --------- --------- ---------
Cash Flows Provided by Financing Activities 268,961 43,417 23,145 (258,512) 77,011
Effect of Exchange Rates on Cash and Cash
Equivalents -- 81 363 -- 444
Increase (Decrease) in Cash and Cash Equivalents 609 (2,575) 6,483 -- 4,517
Cash and Cash Equivalents, Beginning of Period -- 2,260 1,570 -- 3,830
--------- --------- --------- --------- ---------
Cash and Cash Equivalents, End of Period $ 609 $ (315) $ 8,053 $ -- $ 8,347
========= ========= ========= ========= =========
18
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except Per Share Data)
(Unaudited)
(Continued)
(5) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-
GUARANTORS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1999
-----------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
Cash Flows from Operating Activities:
Cash Flows Provided by (Used in) Continuing
Operations $ (10,258) $ 31,216 $ 2,212 $ -- $ 23,170
Cash Flows Used in Discontinued Operations -- (357) -- -- (357)
--------- --------- --------- --------- ---------
Cash Flows Provided by (Used in) Operating
Activities (10,258) 30,859 2,212 -- 22,813
Cash Flows from Investing Activities:
Investment in Subsidiaries (51,610) (46,810) -- 93,620 (4,800)
Intercompany Loans to Subsidiaries (139,129) -- -- 139,129 --
Cash Paid for Acquisitions, net of Cash Acquired (2,398) (125,200) (44,031) -- (171,629)
Capital Expenditures -- (39,395) (943) -- (40,338)
Additions to Customer Acquisition Costs -- (3,933) -- -- (3,933)
--------- --------- --------- --------- ---------
Cash Flows Used in Continuing Operations (193,137) (215,338) (44,974) 232,749 (220,700)
Cash Flows Used in Discontinued Operations -- (345) -- -- (345)
--------- --------- --------- --------- ---------
Cash Flows Used in Investing Activities (193,137) (215,683) (44,974) 232,749 (221,045)
Cash Flows from Financing Activities:
Repayment of Debt (235,900) (360) (1,110) -- (237,370)
Net Proceeds from Borrowings 200,600 -- -- -- 200,600
Net Proceeds from Sale of Senior Subordinated
Notes 149,460 -- -- -- 149,460
Net Proceeds from Equity Offerings 153,755 -- -- -- 153,755
Repurchase of Common Stock (39,484) -- -- -- (39,484)
Intercompany Loans from Parent -- 139,129 -- (139,129) --
Equity Contribution from Parent -- 46,810 46,810 (93,620) --
Proceeds from Exercise of Stock Options 901 -- -- -- 901
Debt Financing and Stock Issuance Costs (4,694) -- -- -- (4,694)
--------- --------- --------- --------- ---------
Cash Flows Provided by Continuing Operations 224,638 185,579 45,700 (232,749) 223,168
Cash Flows Provided by Discontinued
Operations -- -- -- -- --
--------- --------- --------- --------- ---------
Cash Flows Provided by Financing Activities 224,638 185,579 45,700 (232,749) 223,168
Effect of Exchange Rates on Cash and Cash
Equivalents -- -- (82) -- (82)
Increase in Cash and Cash Equivalents 21,243 755 2,856 -- 24,854
Cash and Cash Equivalents, Beginning of Period 12 1,703 -- -- 1,715
--------- --------- --------- --------- ---------
Cash and Cash Equivalents, End of Period $ 21,255 $ 2,458 $ 2,856 $ -- $ 26,569
========= ========= ========= ========= =========
19
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except Per Share Data)
(Unaudited)
(Continued)
(6) STOCK OPTION COMPENSATION EXPENSE
During the second quarter 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 $14.9 million. 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. The Company expects to incur an additional charge of this
nature amounting to at least $5 million in the third quarter of 2000.
(7) EARNINGS PER SHARE
In accordance with Statement of Financial Accounting Standards 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 three and six months ended June 30, 2000 and for the
three and six months ended June 30, 1999, 3.5 million and 2.1 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
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. Tranche
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. Restrictive covenants under
this agreement are similar to those under the Company's prior credit facility.
20
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 six months ended June 30, 2000 and 1999
should be read in conjunction with the condensed consolidated financial
statements and footnotes for the three and six months ended June 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 $120.8 million, or 91.7%, to
$252.6 million for the second quarter of 2000 from $131.8 million for the second
quarter of 1999. Internal revenue growth, calculated as if Pierce Leahy had
merged with Iron Mountain on January 1, 1999, was 12.7%. For the six months
ended June 30, 2000, the Company's consolidated revenues were $464.7 million
compared to $241.1 million for the same period last year, an increase of 92.7%.
Internal revenue growth, calculated as if Pierce Leahy had merged with Iron
Mountain on January 1, 1999, was 13.7%.
During the second quarter of 2000, the Company acquired four additional records
and information management services businesses for total consideration of $65.0
million. These four acquisitions reported $22.5 million in revenues for the year
ended December 31, 1999.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
Consolidated storage revenues increased $68.5 million, or 85.7%, to $148.4
million for the second quarter of 2000, from $79.9 million for the second
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 12.0%. 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 $52.3
million, or 100.9%, to $104.1 for the second quarter of 2000 from $51.8 million
for the second 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 13.8%. 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 $120.8
million, or 91.7%, to $252.6 million for the second quarter of 2000 from $131.8
million for the second quarter of 1999.
Consolidated cost of sales (excluding depreciation) increased $55.8 million, or
84.3%, to $122.0 million (48.3% of consolidated revenues) for the second quarter
of 2000 from $66.2 million (50.2% of consolidated revenues) for the second
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. The decrease was partially offset by increased reimaging
and other costs incurred as a result of the Pierce Leahy merger, which cannot
be capitalized or categorized as merger-related expense.
21
IRON MOUNTAIN INCORPORATED
Consolidated selling, general and administrative expenses increased $31.8
million, or 96.5%, to $64.7 million (25.6% of consolidated revenues) for the
second quarter of 2000 from $32.9 million (25.0% of consolidated revenues)
for the second 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 the following: (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 $15.3 million, or
94.4%, to $31.6 million (12.5% of consolidated revenues) for the second quarter
of 2000 from $16.3 million (12.4% of consolidated revenues) for the second
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.
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 $14.9 million, 5.9% of consolidated revenues, for the second quarter of
2000. The Company expects to incur an additional charge of this nature amounting
to at least $5 million in 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 $3.9
million, or 1.5% of consolidated revenues, for the second quarter of 2000.
As a result of the foregoing factors, consolidated operating income decreased
$1.0 million, or 5.9%, to $15.4 million (6.1% of consolidated revenues) for the
second quarter of 2000 from $16.4 million (12.4% of consolidated revenues) for
the second quarter of 1999.
Consolidated interest expense increased $16.0 million, or 112.6%, to $30.2
million for the second quarter of 2000 from $14.2 million for the second quarter
of 1999. The increase was primarily attributable to increased indebtedness
related to the financing of acquisitions and capital expenditures as well as
debt assumed as a result of the Pierce Leahy acquisition. Consolidated other
income (expense) for the second quarter of 2000 is comprised of a $3.7 million
net foreign currency exchange loss primarily due to a change in the value of the
Canadian dollar as compared to U.S. dollar, as it relates to the 1998A Notes.
As a result of the foregoing factors, consolidated income (loss) from continuing
operations before provision for income taxes and minority interests in (losses)
earnings of subsidiaries decreased $20.7 million to a loss of $18.5 million
(7.3% of consolidated revenues) for the second quarter of 2000 from income of
$2.2 million (1.6% of consolidated revenues) for the second quarter of 1999. The
provision for income taxes was $9.8 million for the second quarter of 2000
compared to $3.2 million for the second quarter 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). In connection with the acquisitions closed in the
second quarter of 2000, the Company recorded approximately $9 million in
nondeductible goodwill.
22
IRON MOUNTAIN INCORPORATED
Consolidated loss from continuing operations increased $26.8 million to $28.2
million (11.2% of consolidated revenues) for the second quarter of 2000 from
$1.4 million (1.1% of consolidated revenues) for the second quarter of 1999.
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 $33.2 million, or 101.7%, to $65.9 million (26.1% of consolidated
revenues) for the second quarter of 2000 from $32.7 million (24.8% of
consolidated revenues) for the second quarter of 1999.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Consolidated storage revenues increased $125.7 million, or 85.2%, to $273.4
million for the first six months of 2000, from $147.7 million for the first six
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 12.2%. 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 $97.8
million, or 104.6%, to $191.3 million for the first six months of 2000 from
$93.5 million for the first six 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 16.0%. 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 $223.6
million, or 92.7%, to $464.7 million for the first six months of 2000 from
$241.1 million for the first six months of 1999.
Consolidated cost of sales (excluding depreciation) increased $105.8 million, or
87.8%, to $226.4 million (48.7% of consolidated revenues) for the first six
months of 2000 from $120.6 million (50.0% of consolidated revenues) for the
first six 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. The decrease was partially offset by increased reimaging
and other costs incurred as a result of the Pierce Leahy merger, which cannot
be capitalized or categorized as merger-related expense.
Consolidated selling, general and administrative expenses increased $57.4
million, or 94.3%, to $118.2 million (25.4% of consolidated revenues) for the
first six months of 2000 from $60.8 million (25.2% of consolidated revenues)
for the first six 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 expense, increased spending in
sales and marketing, as well as increased spending in information technology
related to the following: (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 $28.0 million, or
94.0%, to $57.9 million (12.5% of consolidated revenues) for the first six
months of 2000 from $29.9 million (12.4% of consolidated revenues) for the first
six 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.
23
IRON MOUNTAIN INCORPORATED
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 $14.9 million, 3.2% of consolidated revenues, for the first six months of
2000. The Company expects to incur an additional charge of this nature amounting
to at least $5 million in 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 $4.4
million, or 0.9% of consolidated revenues, for the first six months of 2000.
As a result of the foregoing factors, consolidated operating income increased
$13.0 million, or 43.5%, to $42.8 million (9.2% of consolidated revenues) for
the first six months of 2000 from $29.8 million (12.4% of consolidated revenues)
for the first six months of 1999.
Consolidated interest expense increased $27.8 million, or 106.4%, to $54.0
million for the first six months of 2000 from $26.2 million for the first six
months of 1999. The increase was primarily attributable to increased
indebtedness related to the financing of acquisitions and capital expenditures
as well as debt assumed as a result of the Pierce Leahy acquisition.
Consolidated other income (expense) for the first six months of 2000 is
comprised of a $4.5 million net foreign currency exchange loss primarily due to
a change in the value of the Canadian dollar as compared to U.S. dollar, as it
relates to the 1998A Notes.
As a result of the foregoing factors, consolidated income (loss) from continuing
operations before provision for income taxes and minority interests in (losses)
earnings of subsidiaries decreased $19.4 million to a loss of $15.7 million
(3.4% of consolidated revenues) for the first six months of 2000 from income of
$3.7 million (1.5% of consolidated revenues) for the first six months of 1999.
The provision for income taxes was $18.4 million for the first six months of
2000 compared to $4.9 million for the first six 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). In connection with the 2000
Acquisitions, the Company recorded approximately $518 million in nondeductible
goodwill.
Consolidated loss from continuing operations increased $32.0 million to $33.6
million (7.2% of consolidated revenues) for the first six months of 2000 from
$1.6 million (0.7% of consolidated revenues) for the first six months of 1999.
As a result of the foregoing factors, consolidated EBITDA increased $60.4
million, or 101.1%, to $120.1 million (25.8% of consolidated revenues) for the
first six months of 2000 from $59.7 million (24.8% of consolidated revenues) for
the first six 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) acquisitions; (ii) capital
expenditures, primarily related to growth (including investments in real estate,
racking systems, information systems and expansion of storage capacity in
existing facilities); and (iii) customer acquisition costs. Cash paid for these
investments during the first six months of 2000 amounted to $71.1 million, $62.8
million and $5.1 million, respectively. These investments have been primarily
funded through cash flows from operations and borrowings under the Company's
revolving credit facility.
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IRON MOUNTAIN INCORPORATED
Net cash provided by operations was $73.1 million for the first six months of
2000 compared to $22.8 million for the same period in 1999. The increase
resulted from an increase in EBITDA, which was partially offset by an increase
in accounts receivable and a decrease in trade accounts payable.
Net cash provided by financing activities was $77.0 million for the first six
months of 2000, consisting primarily of the proceeds from borrowings under the
Company's revolving credit facility of $361.8 million, which were partially
offset by repayments of debt of $295.1 million.
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. Tranche
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. Restrictive covenants under
this agreement are similar to those under the Company's prior credit facility.
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 June 30, 2000, the Company had $289.3 million of debt outstanding with a
weighted average variable interest rate of 8.44% and $973.5 million of fixed
rate debt outstanding. If the weighted average variable interest rate had
increased by 1% to 9.44%, such increase would increase the Company's net loss
for the three and six month periods ended June 30, 2000 by approximately $0.7
million and $1.1 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 June 30, 2000
and December 31, 1999.
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IRON MOUNTAIN INCORPORATED
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The following matters were voted on by the Company's shareholders at its Annual
Meeting of Shareholders held on June 1, 2000 (the "2000 Annual Meeting").
ELECTION OF CLASS III DIRECTORS
Election of four (4) Class III directors to serve until the Company's
Year 2003 Annual Meeting of Shareholders, or until their successors
are elected and qualified.
TOTAL VOTE FOR TOTAL VOTE WITHHELD
EACH DIRECTOR FROM EACH DIRECTOR BROKER NON-VOTES
------------- ------------------ ----------------
Kent P. Dauten 46,719,408 95,334 0
Arthur D. Little 46,711,923 102,819 0
J. Peter Pierce 46,587,849 226,893 0
C. Richard Reese 46,601,909 212,833 0
The following directors' terms continued after the 2000 Annual Meeting:
Clarke H. Bailey, Contantin R. Boden, Eugene B. Doggett, B. Thomas
Golisano, John F. Kenny, Jr., Howard D. Ross and Vincent J. Ryan.
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
Ratification of the selection by the Board of Directors of the firm of
Arthur Andersen LLP as the Company's independent public accountants for
the current year.
FOR AGAINST ABSTAIN BROKER NON-VOTES
--- ------- ------- ----------------
46,582,637 215,806 16,299 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT NO. DESCRIPTION
27.1 Financial Data Schedule for the Six Months Ended
June 30, 2000
(b) Reports on Form 8-K
On May 4, 2000, the Company filed a Current Report on Form 8-K under Items 5 and
7 to announce the Company's operating results for the quarter ended March 31,
2000 and 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 described therein.
On May 15, 2000, the Company filed a Current Report on Form 8-K under Items 5
and 7 pertaining to the completion of its acquisition of substantially all of
the assets of Data Storage Center, Inc. ("DSC") and to provide certain audited
financial statements of DSC. The Current Report on Form 8-K also provided
unaudited pro forma financial information with respect to acquisitions by the
Company of businesses in 1999
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IRON MOUNTAIN INCORPORATED
and 2000 deemed to be individually significant under Rule 3-05 of Regulation S-X
and certain other financing transactions described therein.
On June 27, 2000, the Company filed a Current Report on Form 8-K under Item 5 to
report the announcement of the assumption by C. Richard Reese, the Company's
Chairman and Chief Executive Officer, of additional responsibilities as
President of the Company and the resignation of the Company's then President, J.
Peter Pierce. The Current Report on Form 8-K also announced that Bob Miller had
been appointed the chief operating officer of the Company's records management
division.
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IRON MOUNTAIN INCORPORATED
CERTAIN IMPORTANT FACTORS
We have made statements in this Quarterly Report on Form 10-Q that constitute
"forward-looking statements" as that term is defined in the federal securities
laws. These forward-looking statements concern the operations, economic
performance and financial condition of Iron Mountain. The forward-looking
statements are subject to various known and unknown risks, uncertainties and
other factors. When we use words such as "believes," "expects," "anticipates,"
"estimates" or similar expressions, we are making forward-looking statements.
Although we believe that our forward-looking statements are based on reasonable
assumptions, our expected results may not be achieved, and actual results may
differ materially from our expectations. Important factors that could cause
actual results to differ from expectations include, among others, the following:
- unanticipated costs as a result of Iron Mountain's acquisition
of Pierce Leahy;
- difficulties related to the integration of acquisitions
generally and, more specifically, the integration of the
operations of Iron Mountain and Pierce Leahy;
- our significant indebtedness and the cost and availability of
financing for contemplated growth;
- the cost and availability of appropriate storage facilities;
- changes in customer preferences and demand for our services;
- rapid and significant changes in technology;
- intense competition in the industry; and
- other general economic and business conditions.
These cautionary statements should not be construed by you to be exhaustive, and
they are made only as of the date of this report. You should read these
cautionary statements as being applicable to all forward-looking statements
wherever they appear. We assume no obligation to update or revise the
forward-looking statements or to update the reasons why actual results could
differ from those projected in the forward-looking statements.
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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
AUGUST 14, 2000 By: /s/ JEAN A. BUA
- --------------- ---------------------------------------
(date) Jean A. Bua
Vice President and Corporate Controller
(Principal Accounting Officer)
29