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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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
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IRON MOUNTAIN INCORPORATED
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2588479
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
745 ATLANTIC AVENUE, BOSTON, MASSACHUSETTS 02111
(Address of principal executive offices) (Zip Code)
617-535-4766
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
------------------- ------------------------------------
Common Stock, $.01 par value per share ("Common Stock") New York Stock Exchange
11 1/8% Senior Subordinated Notes Due 2006 New York Stock Exchange
9 1/8% Senior Subordinated Notes Due 2007 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
As of March 1, 2001, the aggregate market value of the Common Stock of the
registrant held by non-affiliates of the registrant was $1,625,654,468.28 based
on the closing price on the New York Stock Exchange on such date.
Number of shares of the registrant's Common Stock at March 1, 2001:
55,440,279
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IRON MOUNTAIN INCORPORATED
2000 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 11
Item 3. Legal Proceedings........................................... 11
Item 4. Submission of Matters to a Vote of Security Holders......... 12
PART II
Item 5. Market for the Registrant's Common Stock and Related
Shareholder Matters....................................... 13
Item 6. Selected Consolidated Financial and Operating Information... 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 16
Item 7A. Quantitative and Qualitative Disclosure About Market Risk... 26
Item 8. Financial Statements and Supplementary Data................. 26
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 26
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 27
Item 11. Executive Compensation...................................... 30
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 33
Item 13. Certain Relationships and Related Transactions.............. 35
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 36
EXPLANATORY NOTE
On February 1, 2000, Iron Mountain Incorporated, a Delaware corporation,
acquired Pierce Leahy Corp., a Pennsylvania corporation. The acquisition was
structured as a reverse merger with Pierce Leahy surviving and immediately
changing its name to Iron Mountain Incorporated. Immediately after the merger
former stockholders of Iron Mountain owned approximately 65% of the Company's
Common Stock. Because of this share ownership, Iron Mountain is considered the
acquiring entity for accounting purposes. We use the terms "Iron Mountain," the
"Company" or "we" herein to refer to both Iron Mountain Incorporated, prior to
the merger, and the combined company after the merger.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made and incorporated by reference statements in this annual report
on Form 10-K that constitute "forward-looking statements" as that term is
defined in the federal securities laws. These forward-looking statements concern
our operations, economic performance and financial condition. 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.
i
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:
- difficulties related to the integration of acquisitions generally and,
more specifically, the integration of our operations and those of Pierce
Leahy;
- unanticipated costs as a result of our acquisition of Pierce Leahy;
- uncertainties related to international expansion;
- uncertainties related to expansion into digital businesses, including the
timing of introduction and market acceptance of the Company's products and
services;
- rapid and significant changes in technology;
- the cost and availability of appropriate storage facilities;
- changes in customer preferences and demand for our services;
- our significant indebtedness and the cost and availability of financing
for contemplated growth; 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 Annual Report on Form 10-K. 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.
ii
PART I
ITEM 1. BUSINESS.
A. DEVELOPMENT OF BUSINESS.
Iron Mountain is the leader in records and information management services
("RIMS"). The Company is an international, full-service provider of records and
information management and related services, enabling customers to outsource
these functions. Iron Mountain has a diversified customer base that includes
more than half of the Fortune 500 and numerous commercial, legal, banking,
healthcare, accounting, insurance, entertainment and government organizations.
The Company provides storage for all major media, including paper, which is the
dominant form of records storage, magnetic media, including computer tapes,
microfilm and microfiche, master audio and videotapes, film and optical disks,
X-rays and blueprints. Iron Mountain's principal services provided to its
storage customers include courier pick-up and delivery, filing, retrieval and
destruction of records, database management, customized reporting and disaster
recovery support. The Company also sells storage materials, including cardboard
boxes and magnetic media, and provides confidential destruction, consulting,
facilities management, fulfillment and other outsourcing services.
Iron Mountain was founded in 1951 in an underground facility near Hudson,
New York. Now in its 50th year, the Company has experienced tremendous growth
and organizational change particularly since successfully completing the initial
public offering of its common stock in February 1996. Over those five years, the
Company has built itself from a regional business with limited product offerings
and annual revenues of $104 million for 1995 into the global leader in records
and information management services providing a full range of services to
customers in 114 markets around the world. For the year ended December 31, 2000,
Iron Mountain had total revenues of approximately $1 billion.
This growth has been accomplished primarily through the acquisition of 68
domestic and 16 international records management companies, including six
acquisitions completed in the first quarter of 2001. The goal of the Company's
current acquisition program is to supplement internal growth by continuing to
establish a footprint in targeted international markets and adding fold-in
acquisitions both domestically and internationally. Having substantially
completed its North American geographic expansion, the Company is shifting its
focus from growth through acquisitions to internal revenue growth. As a result
of this shift, the Company expects that internal revenue growth will comprise an
increasing percentage of total revenue growth. The Company intends to achieve
this internal growth through the use of aggressive selling efforts to acquire
new customers and capture market share and by offering a wide range of
complementary and ancillary services to expand its new and existing customer
relationships.
On February 1, 2000, Iron Mountain completed its most important acquisition
to date by merging with Pierce Leahy in a stock-for-stock merger valued at
$1.0 billion, including the assumption of debt and related transaction costs.
Since the merger, the Company has been integrating the cultures, operating
systems and procedures, and information technology systems of Iron Mountain and
Pierce Leahy. The integration process is continuing and is expected to proceed
for up to two more years.
As of December 31, 2000, the Company provided services to over 125,000
customer accounts in 77 markets in the United States and 37 markets outside of
the United States. Iron Mountain employs over 10,000 people and operates more
than 625 records management facilities in the United States, Canada, Europe and
Latin America.
1
B. DESCRIPTION OF BUSINESS.
THE RECORDS AND INFORMATION MANAGEMENT SERVICES INDUSTRY
OVERVIEW
Companies in the RIMS industry store and manage information in a variety of
media formats, which can broadly be divided into paper and electronic records,
and provide a wide range of services related to the records stored. The Company
refers to its general paper storage and management services as "business records
management." Paper records are defined to include paper documents, as well as
all other non-electronic media such as microfilm and microfiche, master audio
and videotapes, film, X-rays and blueprints. Electronic records include various
forms of magnetic media such as computer tapes and hard drives and optical
disks. The Company refers to its electronic records storage and management
services as "data security services" and "digital archiving services."
PAPER RECORDS
Paper records may be broadly divided into two categories: active and
inactive. Active records relate to ongoing and recently completed activities or
contain information that is frequently referenced. Active records are usually
stored and managed on-site by the organization that originated them to ensure
ready availability. Inactive paper records are the principal focus of the RIMS
industry. Inactive records consist of those records that are not needed for
immediate access but which must be retained for legal, regulatory and compliance
reasons or for occasional reference in support of ongoing business operations.
Based on industry studies, the Company believes that inactive records make up
approximately 80% of all paper records. A large and growing specialty subset of
the paper records market is medical records. These are active and semi-active
records that are often stored off-site with and serviced by a RIMS vendor.
ELECTRONIC RECORDS
Electronic records management focuses on the storage of, and related
services for, computer media that are either a back-up copy of recently
processed data or archival in nature. Back-up data exists because of the need of
many businesses to maintain back-up copies of data in order to be able to
operate in the event of a system failure, casualty loss or other disaster. It is
customary for data processing groups to rotate back-up tapes to off-site
locations on a regular basis and to require multiple copies of such information
at multiple sites. In addition to the management of physical back-up copies of
data, the Company is introducing new services that allow for the direct
transfer, storage and retrieval of back-up data between its customers and its
secure storage facilities via public broadband communications networks. The
Company refers to these services as "e-Vaulting."
Archival data is generally not needed for access but is retained for legal,
regulatory and compliance reasons or for occasional reference in support of
ongoing business operations. Historically, archival data, as well as back-up
data, has been stored on physical media such as computer tapes or optical disks.
The Company is collaborating with other companies to develop technologies to
provide storage and related services for this data electronically in its
original digital format. Customers' data will be captured via telecommunication
lines or the Internet. Based on the nature of the data, customers can choose to
store their data on-line for real-time access, near-line access for a slightly
lower cost or off-line on computer tapes or disks for less time-critical data.
The Company refers to these developing services as "digital archiving services."
GROWTH OF MARKET
The Company believes that the volume of stored paper and electronic records
will continue to increase for a number of reasons, including: (i) the rapid
growth of inexpensive document producing
2
technologies such as facsimile, desktop publishing software and desktop
printing, (ii) the continued proliferation of data processing technologies such
as personal computers and networks, (iii) regulatory requirements,
(iv) concerns over possible future litigation and the resulting increases in
volume and holding periods of documentation, (v) the high cost of reviewing
records and deciding whether to retain or destroy them, (vi) the failure of many
entities to adopt or follow policies on records destruction and (vii) audit
requirements to keep back-up copies of certain records in off-site locations.
Despite the growth of new "paperless" technologies, such as the Internet and
e-mail, management believes that stored information remains predominantly
paper-based. These technologies have promoted the creation of hard copies of
such electronic information and have also led to increased demand for data
security services, such as the storage and off-site rotation of back-up copies
of magnetic media, and outsourcing support services that address the needs of
data center operations and disaster recovery programs. In addition, management
believes that the proliferation of digital information technologies and
distributed data networks has created an emerging need for efficient,
cost-effective, high quality solutions for electronic archiving and the
management of electronic documents.
CONSOLIDATION OF A HIGHLY FRAGMENTED INDUSTRY
Over the past several years, there has been consolidation in the highly
fragmented RIMS industry. Most RIMS companies serve a single local market, and
are often either owner-operated or ancillary to another business, such as a
moving and storage company. The Company believes that this trend will continue
because of the industry's capital requirements for growth, opportunities for
large RIMS providers to achieve economies of scale and customer demands for more
sophisticated technology-based solutions.
Management believes that the consolidation trend in the industry is also due
to, and will continue as a result of, the preference of certain large
organizations to contract with one vendor in multiple cities and countries for
multiple services. In particular, customers increasingly demand a single, large,
sophisticated company to handle all of their important business and electronic
records needs. Large, national and multinational companies are better able to
satisfy these demands than smaller competitors. The Company has made, and
intends to continue to make, acquisitions of its competitors, many of whom are
small, single city operators.
DESCRIPTION OF IRON MOUNTAIN'S BUSINESS
BUSINESS RECORDS MANAGEMENT
The hard copy business records stored by the Company's customers with the
Company by their nature are not very active. These types of records are stored
in cartons, which are packed by the customer. The Company uses bar-coded
tracking technologies known as the SAFEKEEPER-TM- system and the PIERCE LEAHY
USER SOLUTION(-Registered Trademark-) (PLUS(-Registered Trademark-)) system and
other procedures to ensure the integrity of the contents of a customer's cartons
and to efficiently store and later retrieve a customer's cartons. As a central
component of its integration plan for the Pierce Leahy transaction, the Company
has developed the SAFEKEEPERPLUS-TM- system, combining the architecture of PLUS
and the enhanced functionality of SAFEKEEPER, and has begun a city-by-city
conversion program that is expected to be completed in 2002. Storage charges are
generally billed monthly on a per storage unit basis, usually either per carton
or per cubic foot of records, and include the provision of space, racking,
computerized inventory and activity tracking and physical security.
DATA SECURITY SERVICES
Data security services consist of the storage and rotation of back-up
computer media as part of corporate disaster and business recovery plans.
Computer tapes, cartridges and disk packs are
3
transported off-site by the Company's courier operations on a scheduled basis to
secure, climate-controlled facilities, where they are available to customers
24 hours a day, 365 days a year, to facilitate data recovery in the event of a
disaster. Iron Mountain uses various information technology systems such as
MEDIALINK-TM- and SECUREBASE-TM- software to manage this process. Iron Mountain
also manages tape library relocation and supports disaster recovery testing and
execution. The Company is now in the early stages of offering e-Vaulting as part
of its data security services product line. E-Vaulting allows customers
different levels of electronic transfer, storage and recovery of critical
back-up data ranging from real time transfers using storage silos to electronic
transfer and off-line storage for less immediate needs.
HEALTHCARE INFORMATION SERVICES
Healthcare information services principally include the handling, storage,
filing, processing and retrieval of medical records used by hospitals, private
practitioners and other medical institutions. Medical records tend to be more
active in nature and are typically stored on specialized shelving systems that
provide access to individual files. Healthcare information services also include
recurring project work and ancillary services. Recurring project work involves
the on-site removal of aged patient files and related computerized file
indexing. Ancillary healthcare information services include release of
information, temporary staffing, contract coding, facilities management and
imaging.
VITAL RECORDS SERVICES
Vital records contain critical or irreplaceable data such as master audio
and video recordings, film, software source code and other highly proprietary
information. Vital records may require special facilities or services, either
because of the data they contain or the media on which they are recorded. The
Company's charges for providing enhanced security and special climate-controlled
environments for vital records are higher than for typical storage functions.
The Company provides the same ancillary services for vital records as it
provides for its other storage operations.
SERVICE AND COURIER OPERATIONS
Service and courier operations are an integral part of a comprehensive
records management program for all physical media including paper and electronic
records. They include adding records to storage, temporary removal of records
from storage, refiling of removed records, permanent withdrawals from storage
and destruction of records. Service charges are generally assessed for each
procedure on a per unit basis. The SAFEKEEPER, PLUS and SAFEKEEPERPLUS systems
control the service processes from order entry through transportation and
invoicing for business records while MEDIALINK and SECUREBASE manage the process
for the data security services business.
Courier operations consist primarily of the pickup and delivery of records
upon customer request. Charges for courier services are based on urgency of
delivery, volume and location and are billed monthly. As of December 31, 2000,
Iron Mountain was utilizing a fleet of more than 1,900 owned or leased delivery
vehicles.
DIGITAL ARCHIVING SERVICES
Iron Mountain currently provides storage and related services for computer
media, primarily computer tapes and optical disks, that is archival in nature.
In addition, the Company is collaborating with other companies to develop
technologies and is exploring opportunities to leverage its customer
relationships, geographic presence and brand image to provide additional
information management services for digital records. The growth rate of
mission-critical digital information is accelerating, driven in part by the use
of the Internet as a distribution and transaction medium. The rising cost and
increasing importance of digital information management, coupled with the
increasing availability of
4
telecommunications bandwidth at lower costs, may create meaningful opportunities
for Iron Mountain. The Company is cultivating partnerships with technology
providers to develop a number of applications.
The Company believes the issues encountered by customers trying to manage
their electronic records are similar to the ones they face in their business
records management programs and consist primarily of: (i) storage capacity and
the preservation of data; (ii) access to and control over the data in a secure
environment; and (iii) the need to keep electronic records due to regulatory
compliance or for litigation support. Products and services are currently being
developed to address these needs and expand the array of services offered by the
Company for electronic records.
ADDITIONAL SERVICES AND PRODUCTS
Iron Mountain offers a variety of additional services, which customers may
request or contract for on an individual basis. These services include
inventorying records, packing records into cartons or other containers, and
creating computerized indices of files and individual documents. The Company
also provides services for the management of active records programs. The
Company can provide these services, which generally include document and file
processing and storage, both off-site at its own facilities and by supplying its
own personnel to perform management functions on-site at the customer's
premises.
Other complementary lines of business operated by the Company include
fulfillment services and confidential destruction. Fulfillment services are
performed by the Company's wholly owned subsidiary, COMAC, Inc. COMAC stores
customer marketing literature and delivers this material to sales offices, trade
shows and prospective customers' sites based on current and prospective customer
orders. In addition, COMAC assembles custom marketing packages and orders, and
manages and provides detailed reporting on customer marketing literature
inventories.
Confidential destruction involves the shredding of sensitive documents for
corporate customers that, in many cases, also use the Company's services for
management of less sensitive archival records. These services typically include
the scheduled pick-up of loose office records accumulated by customers in
specially designed containers provided by Iron Mountain. The Company currently
performs these services in 17 markets and seeks to expand its presence in this
business through acquisitions and internal start-ups.
In addition, the Company provides professional consulting services to large
customers, enabling them to develop and implement comprehensive records and
information management programs. Iron Mountain's consulting business draws on
the Company's experience in RIMS to analyze the practices of such companies and
assist them in creating more effective programs of records and information
management. The Company's consultants work with these customers to develop
policies for document review, analysis and evaluation and for scheduling of
document retention and destruction.
The Company also sells: (i) a full line of specially designed corrugated
cardboard, metal and plastic storage containers; (ii) magnetic media products
including computer tapes, cartridges and drives, tape cleaners and supplies and
CDs; and (iii) computer room equipment and supplies such as racking systems,
furniture, bar code scanners and printers.
The amount of the Company's revenues derived from business records
management, data security services and other operating segments (including
digital archiving services, confidential destruction and fulfillment services)
and other relevant financial data for fiscal years 1999 and 2000 is set forth in
Note 12 of Notes to Consolidated Financial Statements.
5
FINANCIAL CHARACTERISTICS OF IRON MOUNTAIN'S BUSINESS
Iron Mountain's financial model is based on the recurring nature of its
revenues. The historical predictability of this revenue stream and the resulting
EBITDA(1) allows the Company to operate with a high degree of financial
leverage. Since 1995, the Company has invested approximately $2.5 billion in
acquisitions, accounted for using the purchase method of accounting, as its
primary avenue of growth and in property, plant and equipment to support that
growth. Iron Mountain's primary financial goal has always been to increase
consolidated EBITDA, which is a source of funds for investment in continued
growth and for servicing indebtedness. Even as the Company shifts its focus from
growth through acquisitions to internal revenue growth, its primary financial
objective continues to be the growth in EBITDA in relation to capital invested
on a per share basis. Iron Mountain's business has the following financial
characteristics:
- RECURRING REVENUES. Iron Mountain derives a majority of its consolidated
revenues from fixed periodic, usually monthly, fees charged to customers
based on the volume of records stored. The Company's revenues from these
fixed periodic fees have grown for 48 consecutive quarters. Once a
customer places paper records in storage with the Company and until those
records are destroyed or permanently removed, for which the Company
typically receives a service fee, the Company receives recurring payments
for storage fees without incurring additional labor or marketing expenses
or significant capital costs. Similarly, contracts for the storage of
electronic back-up media consist primarily of fixed monthly payments. Over
each of the last five years, storage revenues, which are stable and
recurring, have accounted for approximately 60% of the Company's total
revenues. This stable and growing storage base also provides the
foundation for increases in revenues and EBITDA.
- HISTORICALLY NON-CYCLICAL BUSINESS. Iron Mountain has not experienced a
reduction of its business as a result of past general economic downturns,
although the Company can give no assurance that this would be the case in
the future. Management believes that the outsourcing of RIMS may
accelerate during economic downturns as companies focus on reducing costs
through outsourcing non-core operating functions. In addition, management
believes that companies that have outsourced RIMS are less likely during
economic downturns to incur the move-out costs and other expenses
associated with switching vendors or moving RIMS in-house.
- INHERENT GROWTH FROM EXISTING PAPER RECORDS CUSTOMERS. The Company's paper
records customers have on average generated additional Cartons(2) at a
faster rate than stored Cartons have been destroyed or permanently
removed. From January 1, 1996 through December 31, 2000, the Net Carton
Growth From Existing Customers(3) of Iron Mountain increased at an average
annual rate of approximately 6%. The Company believes the consistent
growth of its paper storage revenues is the result of a number of factors,
including: (i) the trend toward increased records retention,
(ii) customer satisfaction with the Company's services and (iii) the costs
and inconvenience of moving storage operations in-house or to another
provider of RIMS.
- ------------------------
1 EBITDA is defined as earnings before interest, taxes, depreciation,
amortization, extraordinary items, other income, merger-related expenses and
stock option compensation expense. Merger-related expenses are primarily
those 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.
2 The term "Carton" is defined as a measurement of volume equal to a single
standard storage carton, approximately 1.2 cubic feet. The number of cartons
stored does not include storage volumes in the Company's vital records
services and data security services, which are described below.
3 The term "Net Carton Growth From Existing Customers" is defined as the
increase in net Cartons attributable to existing customers without giving
effect to the loss of approximately 1.0 million Cartons in fires attributed
to arson in March 1997 in two of Iron Mountain's facilities in South
Brunswick Township, New Jersey. See "Item 3. Legal Proceedings."
6
- DIVERSIFIED AND STABLE CUSTOMER BASE. As of December 31, 2000, the Company
had over 125,000 customer accounts in a variety of industries. The Company
currently provides services to more than half of the Fortune 500 and
numerous commercial, legal, banking, healthcare, accounting, insurance,
entertainment and government organizations. No customer accounted for more
than 2% of the Company's consolidated revenues for the year ended
December 31, 2000. From January 1, 1996 through December 31, 2000, average
annual permanent removals of Cartons, not including destructions,
represented approximately 4% of total Cartons stored.
- CAPITAL EXPENDITURES RELATED PRIMARILY TO GROWTH. The Company's RIMS
business requires limited annual capital expenditures made in order to
maintain the Company's current revenue stream. From January 1, 1996
through December 31, 2000, approximately 90% of Iron Mountain's aggregate
capital expenditures were growth-related investments, primarily in racking
systems, management information systems, new buildings and improvements to
existing facilities. These growth-related capital expenditures are
primarily discretionary and create additional capacity for increases in
revenues and EBITDA.
GROWTH STRATEGY
Iron Mountain's objective is to maintain its position as the leader in
records and information management services. Domestically, the Company seeks to
be one of the largest RIMS providers in each of its geographic markets.
Internationally, the objectives are to continue to capitalize on its expertise
in the RIMS industry and to make additional acquisitions and investments in
selected international markets. The Company's primary avenues of growth are:
(i) increased business with existing customers; (ii) additions of new customers;
(iii) the introduction of new products and services such as e-Vaulting, digital
archiving and confidential destruction; and (iv) selective acquisitions in new
and existing markets.
GROWTH FROM EXISTING CUSTOMERS
Existing Iron Mountain customers storing paper records contribute to storage
and services revenues growth because on average they generate additional Cartons
at a faster rate than old Cartons are destroyed or permanently removed. In order
to maximize growth opportunities from existing customers, the Company seeks to
maintain high levels of customer retention by providing premium customer service
through its local management staff.
Through its local account management staff, the Company leverages existing
business relationships with its customers by selling complementary services and
products. Services include records tracking, indexing, customized reporting,
vital records management and consulting services.
ADDITIONS OF NEW CUSTOMERS
The Company's sales force is dedicated to two primary objectives:
establishing new customer account relationships and expanding new and existing
customer relationships by offering a wide array of complementary services and
products. In order to accomplish these objectives, the sales force draws on the
Company's national marketing organization and senior management. As a result of
acquisitions and its decision to recruit additional qualified sales
professionals, the Company has increased the size of its sales force to
approximately 250 such professionals.
INTRODUCTION OF NEW PRODUCTS AND SERVICES
Iron Mountain continues to expand its menu of products and services. The
Company has significantly increased its presence in the confidential destruction
industry and is in the process of developing new e-Vaulting and digital
archiving services. These new products and services allow the
7
Company to further penetrate its existing customer accounts and attract new
customers in previously untapped markets.
GROWTH THROUGH DOMESTIC ACQUISITIONS
The Company's acquisition strategy includes both expanding geographically,
focusing primarily on the 100 largest U.S. markets, and increasing the Company's
presence and scale within existing markets through "fold-in" acquisitions. Iron
Mountain has a successful record of acquiring and integrating RIMS companies.
See "Completed Acquisitions." The Company intends to continue its domestic
acquisition program. However, given the small number of large acquisition
prospects and the Company's increased revenue base, future acquisitions are
expected to be less significant to overall domestic revenue growth than they
have been historically.
INTERNATIONAL GROWTH STRATEGY
Iron Mountain also intends to continue to make acquisitions and investments
in RIMS businesses outside the United States. The Company has acquired and
invested in, and seeks to acquire and invest in, RIMS companies in countries,
and, more specifically, markets within such countries, where it believes there
is sufficient demand from existing multinational customers or the potential for
growth. Since beginning its international expansion program in January 1999,
Iron Mountain, directly and through joint ventures, has expanded its operations
into Canada, Europe and Latin America. These transactions have taken, and may
continue to take, the form of acquisitions of the entire business or controlling
or minority investments, with a long-term goal towards full ownership. In
addition to the criteria the Company uses to evaluate domestic acquisition
candidates, Iron Mountain also evaluates the presence in the potential market of
existing Iron Mountain clients as well as the risks uniquely associated with an
international investment, including those risks described below.
The experience, depth and strength of local management are particularly
important in Iron Mountain's international acquisition strategy. As a result,
Iron Mountain has formed joint ventures with, or acquired significant interests
from, target businesses throughout Europe and Latin America. Iron Mountain
believes this strategy, rather than an outright acquisition, may, in certain
markets, better position the Company to expand the existing business, although
the Company's long-term goal is to acquire full ownership of each such business.
The local partner will benefit from Iron Mountain's expertise in the RIMS
industry and, in certain cases, Iron Mountain's technology, and Iron Mountain
will benefit from its local partner's knowledge of the market, relationships
with customers and its presence in the community.
Iron Mountain's international investments are subject to risks and
uncertainties relating to the indigenous political, social, regulatory, tax and
economic structures of other countries, as well as fluctuations in currency
valuation, exchange controls, expropriation and governmental policies limiting
returns to foreign investors. At this time, there can be no assurance as to
whether any international investment will be successful in achieving its
objectives.
The amount of the Company's revenues derived from international operations
and other relevant financial data for fiscal years 1998, 1999 and 2000 is set
forth in Note 12 of Notes to Consolidated Financial Statements. During 2000,
Iron Mountain derived approximately 12% of its revenues from outside of the
United States.
COMPLETED ACQUISITIONS
MERGER OF IRON MOUNTAIN AND PIERCE LEAHY
On February 1, 2000, Iron Mountain completed its most important acquisition
to date as it acquired Pierce Leahy, a Pennsylvania corporation, in a
stock-for-stock merger. Because the transaction
8
was structured as a reverse merger, Iron Mountain merged with and into Pierce
Leahy and Pierce Leahy survived the merger. Immediately after the merger, the
Company changed its name from Pierce Leahy Corp. to Iron Mountain Incorporated.
See Note 6 of Notes to Consolidated Financial Statements.
RECENT ACQUISITIONS
As part of its growth strategy, from January 1, 1998 through December 31,
2000, Iron Mountain acquired 44 RIMS businesses. The following table presents
certain information with respect to the acquisitions completed by the Company
between January 1, 1998 and December 31, 2000.
COMPONENTS OF PURCHASE PRICE CONSIDERATION
------------------------------------------
(DOLLARS IN MILLIONS)
TOTAL AGGREGATE CASH PAID FAIR VALUE OF TOTAL
REVENUES AND DEBT COMMON STOCK AND PURCHASE
NUMBER REPRESENTED(1) ASSUMED OPTIONS ISSUED PRICE
-------- --------------- ---------- ---------------- ----------
1998 Acquisitions................... 15 $152 $193 $ 67 $ 260
1999 Acquisitions................... 17 98 215 46 261
2000 Acquisitions(2)................ 12 401 732 447 1,179
- ------------------------
(1) Total annual aggregate revenues were calculated in each case by reference to
the revenues of each of the acquired businesses during the year in which
they were acquired. This calculation includes an estimate of total revenues
for the portion of the year of acquisition during which any such acquired
business was included in Iron Mountain's results of operations.
(2) The total purchase price for the 2000 Acquisitions includes $1.0 billion for
the acquisition of Pierce Leahy on February 1, 2000.
CUSTOMERS
The Company's customer base is diversified in terms of revenues and industry
concentration. Iron Mountain tracks customer accounts, which are based on
invoices. Accordingly, depending upon how many invoices have been arranged at
the request of a customer, one organization may represent multiple customer
accounts. As of December 31, 2000, the Company had over 125,000 customer
accounts in a variety of industries. The Company currently provides services to
more than half of the Fortune 500 and numerous commercial, legal, banking,
healthcare, accounting, insurance, entertainment and government organizations.
No customer accounted for more than 2% of the Company's consolidated revenues
for the year ended December 31, 2000.
COMPETITION; ALTERNATIVE TECHNOLOGIES
The Company competes with its current and potential customers' internal
records and information management services capabilities. The Company can
provide no assurance that these organizations will begin or continue to use an
outside company such as Iron Mountain for their future records and information
management services.
The Company competes with multiple RIMS providers in all geographic areas
where it operates. Iron Mountain believes that competition for customers is
based on price, reputation for reliability, quality of service and scope and
scale of technology and that it generally competes effectively based on these
factors.
Iron Mountain also competes with other RIMS providers for companies to
acquire. Some of the Company's competitors may possess substantial financial and
other resources. If any such competitor were to devote additional resources to
the RIMS business and such acquisition candidates or focus its strategy on Iron
Mountain's markets, Iron Mountain's results of operations could be adversely
affected.
9
Iron Mountain derives most of its revenues from the storage of paper
documents and related services. This storage requires significant physical
space. Alternative storage technologies exist, many of which require
significantly less space than paper. These technologies include computer media,
microform, CD-ROM and optical disk. To date, none of these technologies has
replaced paper as the principal means for storing information. However, the
Company can provide no assurance that its customers will continue to store most
of their records in paper format. A significant shift by Iron Mountain's
customers to storage of data through non-paper based technologies, whether now
existing or developed in the future, could adversely affect its business. The
Company is collaborating with other companies to develop e-Vaulting and digital
archiving service products designed to address its customers' emerging need for
efficient, cost-effective, high quality solutions for electronic archiving and
the management of electronic documents.
EMPLOYEES
As of December 31, 2000, the Company employed about 8,300 full-time
employees in the United States. Directly and through majority-owned joint
ventures, as of December 31, 2000, the Company employed approximately 2,000
full-time employees outside of the United States. A small percentage of the
Company's employees are represented by unions. These unionized employees are
located in California, one city in Canada and in the United Kingdom. As of
December 31, 2000, the aggregate number of unionized employees was approximately
300.
All domestic non-union employees are eligible to participate in the
Company's benefit programs, which include medical, dental, life, short and
long-term disability and accidental death and dismemberment plans. Unionized
employees receive these types of benefits through their unions. In addition to
base compensation and other usual benefits, all full-time domestic employees
participate in some form of incentive-based compensation program that provides
payments based on profits, collections or attainment of specified objectives for
the unit in which they work. International employees participate in separate
benefit and incentive-based compensation programs. Management believes that the
Company has good relationships with its employees and unions.
INSURANCE
For strategic risk transfer purposes, the Company maintains a comprehensive
insurance program with insurers that it believes to be reputable and in amounts
that it believes to be appropriate. Property insurance is purchased on an
all-risk basis, including flood and earthquake, subject to certain sublimits and
deductibles, and inclusive of the replacement cost of real and personal
property, including leasehold improvements, business income loss and extra
expense. Separate policies for California earthquake exposures are maintained at
what the Company believes to be appropriate limits and deductibles for that
exposure. Included among other types of insurance carried by Iron Mountain are:
workers compensation, general liability, umbrella, automobile, and directors and
officers policies.
The Company's standard form of storage contract sets forth an agreed maximum
valuation for each carton or other storage unit held by the Company, which
serves as a limitation of liability for loss or damage, as permitted under the
Uniform Commercial Code. In contracts containing such limits, such values are
nominal, and the Company believes that in typical circumstances its liability
would be so limited in the event of loss or damage to stored items for which the
Company may be held liable. However, some of the Company's agreements with large
volume accounts and some of the contracts assumed in the Company's acquisitions
contain no such limits or contain higher limits or supplemental insurance
arrangements. See "Item 3. Legal Proceedings" for a description of claims by
particular customers seeking to rescind their contracts, including limitations
on liability, as a result of the fires experienced at Iron Mountain's South
Brunswick Township, New Jersey facilities in 1997.
10
ENVIRONMENTAL MATTERS
Some of the Company's currently and formerly owned or operated properties
were previously used for industrial or other purposes that involved the use or
storage of hazardous substances or petroleum products or may have involved the
generation of hazardous wastes. In some instances these properties included the
operation of underground storage tanks or the presence of asbestos-containing
materials. Although the Company has from time to time conducted limited
environmental investigations and remedial activities at some of its former and
current facilities, it has not undertaken an in-depth environmental review of
all of its properties. Under various federal, state and local environmental
laws, the Company may be potentially liable for environmental compliance and
remediation costs to address contamination, if any, located at these properties
as well as damages arising from such contamination. Environmental conditions for
which the Company might be liable may also exist at properties that it may
acquire in the future. In addition, future regulatory action and environmental
laws may impose costs for environmental compliance that do not exist today.
The Company currently transfers a portion of its risk of financial loss due
to environmental matters by purchasing a pollution liability insurance policy,
which covers all owned and leased locations. Coverage is provided for both
liability and remediation exposures.
ITEM 2. PROPERTIES.
As of December 31, 2000, Iron Mountain conducted operations through 504
leased and 131 owned facilities containing a total of 39.4 million square feet
of space. The leased facilities typically have initial lease terms of ten years
with options to renew for an additional five to ten years. In addition, many of
the leases contain either a purchase option or a right of first refusal upon the
sale of the property. The Company's facilities are located throughout North
America, Europe and Latin America, with the largest number of facilities in
California, Florida, Illinois, New Jersey, Texas, Canada and the United Kingdom.
The Company believes that the space available in its facilities is adequate to
meet its current needs. See Note 13 of Notes to Consolidated Financial
Statements for information regarding the Company's minimum annual rental
commitments.
ITEM 3. LEGAL PROCEEDINGS.
In March 1997, the Company experienced three fires, all of which authorities
have determined were caused by arson. The fires resulted in damage to one and
destruction of Iron Mountain's other RIMS facility in South Brunswick Township,
New Jersey.
Certain of the Company's customers or their insurance carriers have asserted
claims as a consequence of the destruction of, or damage to, their records as a
result of the fires, including claims with specific requests for compensation
and allegations of negligence or other culpability on the part of Iron Mountain.
The Company and its insurers have denied any liability on the part of Iron
Mountain as to all of these claims.
The Company is presently aware of five pending lawsuits that have been filed
against Iron Mountain by certain of its customers and/or their insurers, and of
two lawsuits filed by the insurers of abutters of the South Brunswick facility,
and of one lawsuit filed by a fire official who claims that he was injured in
the course of fighting the first fire. Six of these seven lawsuits have been
consolidated for pre-trial purposes in the Middlesex County, New Jersey,
Superior Court. The seventh lawsuit, brought by a single customer, is pending in
the Supreme Court for New York County, New York. An eighth lawsuit, also brought
by a single customer, was tried before a federal judge in New Jersey in
February 2000. After trial, judgment was entered in favor of Iron Mountain; no
appeal was filed in this matter.
11
Iron Mountain has denied liability and asserted affirmative defenses in all
of the remaining cases arising out of the fires and, in certain of the cases,
has asserted counterclaims for indemnification against the plaintiffs. Discovery
is ongoing. The Company denies any liability as a result of the destruction of,
or damage to, customer records or property of abutters as a result of the fires,
which were beyond its control. It also denies any liability for the injuries
allegedly sustained by the fire official. The Company intends to vigorously
defend itself against these and any other lawsuits that may arise.
The Company was paid by its general liability and property insurance carrier
for costs incurred as a result of business interruption and property damage due
to the fires. However, Iron Mountain's errors and omissions carrier made an
initial determination denying coverage as to these claims. In November 1998,
Iron Mountain filed an action in the United States District Court for the
District of Massachusetts seeking a declaration of coverage and other relief.
The parties, together with the general liability and property carrier, have
entered into a settlement agreement regarding reimbursement of defense costs and
continue to be in ongoing discussions regarding all remaining coverage issues.
The outcome of these proceedings cannot be predicted. Based on its present
assessment of the situation, after consultation with legal counsel, management
does not believe that the outcome of these proceedings will have a material
adverse effect on the Company's financial condition or results of operations,
although there can be no assurance in this regard.
In addition to the matters discussed above, the Company is involved in
litigation from time to time in the ordinary course of business. In the opinion
of management, no other material legal proceedings are pending to which the
Company, or any of its properties, is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders of Iron
Mountain during the fourth quarter of the fiscal year ended December 31, 2000.
12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS.
The Common Stock of the Company is traded on the New York Stock Exchange
("NYSE") under the symbol "IRM." Prior to the merger, the common stock of each
of Pierce Leahy and the Company were listed on the NYSE under the symbols "PLH"
and "IRM," respectively. Pierce Leahy first issued its common stock to the
public in July 1997, while Iron Mountain first issued its common stock to the
public in February 1996. Prior to April 26, 1999, the Common Stock of Iron
Mountain was traded on the Nasdaq National Market ("Nasdaq") under the symbol
"IMTN."
The following table sets forth the high and low sale prices for Pierce Leahy
and Iron Mountain common stock on the NYSE and the Nasdaq, for the years 1999
and 2000:
SALE PRICES
-------------------
HIGH LOW
-------- --------
1999--Pierce Leahy(1)
First Quarter............................................. $24.55 $21.82
Second Quarter............................................ 24.32 20.57
Third Quarter............................................. 23.64 18.24
Fourth Quarter............................................ 39.32 21.31
1999--Iron Mountain
First Quarter............................................. $36.25 $27.38
Second Quarter............................................ 33.13 25.38
Third Quarter............................................. 34.38 27.88
Fourth Quarter............................................ 39.50 25.13
2000--Iron Mountain
First Quarter(2).......................................... $34.88 $27.75
Second Quarter............................................ 36.81 29.63
Third Quarter............................................. 37.00 31.00
Fourth Quarter............................................ 37.50 29.50
- ------------------------
(1) The high and low sale prices on the NYSE for Pierce Leahy's common stock for
1999 have been adjusted to give effect to a one-for-ten stock split effected
in the form of a dividend declared and paid by Pierce Leahy in
January 2000.
(2) The high and low sale prices on the NYSE for the Iron Mountain Incorporated
common stock for the first quarter of 2000 include only the months of
February and March as the merger incurred on February 1, 2000.
The closing price of the Company's Common Stock on the NYSE on March 1, 2001
was $39.57. As of March 1, 2001, there were 682 holders of record of the
Company's Common Stock. The Company believes that there are more than 6,900
beneficial owners of the Company's Common Stock.
The Company's Board of Directors (the "Company Board") currently intends to
retain future earnings, if any, for the development of the Company's businesses
and does not anticipate paying cash dividends on the Company's Common Stock in
the foreseeable future. Future determinations by the Company Board to pay
dividends on the Common Stock would be based primarily upon the financial
condition, results of operations and business requirements of the Company.
Dividends, if any, would be payable at the sole discretion of the Company Board
out of the funds legally available for that purpose. Some of the Company's
agreements pursuant to which the Company has borrowed funds contain provisions
that limit the amount of dividends and stock repurchases that the Company may
make.
13
Pierce Leahy and Iron Mountain have not paid dividends on their shares of
common stock, other than stock dividends, during the last two years.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION.
The following selected consolidated statements of operations and balance
sheet data of the Company have been derived from the Company's audited
consolidated financial statements. The selected consolidated financial and
operating information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Iron Mountain's Consolidated Financial Statements and the Notes
thereto included elsewhere in this filing.
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Storage................................................... $ 85,826 $125,968 $230,702 $317,387 $585,664
Service and Storage Material Sales........................ 52,892 82,797 153,259 202,162 400,707
-------- -------- -------- -------- --------
Total Revenues.......................................... 138,718 208,765 383,961 519,549 986,371
Operating Expenses:
Cost of Sales (excluding depreciation).................... 70,747 106,879 192,113 260,930 482,771
Selling, General and Administrative....................... 34,342 51,668 95,867 128,948 246,559
Depreciation and Amortization............................. 16,936 27,107 48,301 65,422 126,810
Stock Option Compensation Expense......................... -- -- -- -- 15,110
Merger-Related Expenses................................... -- -- -- -- 9,133
-------- -------- -------- -------- --------
Total Operating Expenses................................ 122,025 185,654 336,281 455,300 880,383
Operating Income............................................ 16,693 23,111 47,680 64,249 105,988
Interest Expense, Net....................................... 14,901 27,712 45,673 54,425 117,975
Other Income (Expense), Net................................. -- -- 1,384 17 (6,045)
-------- -------- -------- -------- --------
Income (Loss) from Continuing Operations Before Provision
(Benefit) for Income Taxes and Minority Interest.......... 1,792 (4,601) 3,391 9,841 (18,032)
Provision (Benefit) for Income Taxes........................ 1,435 (80) 6,558 10,579 9,125
Minority Interest in Earnings (Losses) of Subsidiaries...... -- -- -- 322 (2,224)
-------- -------- -------- -------- --------
Income (Loss) from Continuing Operations before
Extraordinary
Item...................................................... 357 (4,521) (3,167) (1,060) (24,933)
Income from Discontinued Operations......................... -- -- 201 241 --
Loss on Sale of Discontinued Operations..................... -- -- -- (13,400) --
Extraordinary Charge (net of tax benefit)................... (2,126) -- -- -- (2,892)
-------- -------- -------- -------- --------
Loss Before Warrant Accretion............................... (1,769) (4,521) (2,966) (14,219) (27,825)
Accretion of Redeemable Put Warrant......................... 280 -- -- -- --
-------- -------- -------- -------- --------
Net Loss Applicable to Common Shareholders.................. $ (2,049) $ (4,521) $ (2,966) $(14,219) $(27,825)
======== ======== ======== ======== ========
Net Loss per Common Share--Basic and Diluted:
Income (Loss) from Continuing Operations.................. $ 0.00 $ (0.26) $ (0.12) $ (0.03) $ (0.47)
Income from Discontinued Operations....................... -- -- 0.01 0.01 --
Loss on Sale of Discontinued Operations................... -- -- -- (0.41) --
-------- -------- -------- -------- --------
Income (Loss) Before Extraordinary Charge................... 0.00 (0.26) (0.11) (0.43) (0.47)
Extraordinary Charge (net of tax benefit)................. (0.15) -- -- -- (0.05)
-------- -------- -------- -------- --------
Net Loss Applicable to Common Shareholders.................. $ (0.15) $ (0.26) $ (0.11) $ (0.43) $ (0.52)
======== ======== ======== ======== ========
Weighted Average Common Shares Outstanding--Basic
and Diluted............................................... 13,911 17,172 27,470 33,345 53,125
======== ======== ======== ======== ========
Pro Forma(1):
Net Loss Applicable to Common Shareholders................ $ (0.13)
========
Weighted Average Common Shares Outstanding................ 15,206
========
(FOOTNOTES ON FOLLOWING PAGE)
14
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- ---------- ----------
(IN THOUSANDS)
OTHER DATA:
EBITDA from Continuing Operations(2)... $ 33,629 $ 50,218 $ 95,981 $ 129,671 $ 257,041
EBITDA from Continuing Operations as a
Percentage of Total Revenues......... 24.2% 24.1% 25.0% 25.0% 26.1%
AS OF DECEMBER 31,
--------------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- ---------- ----------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and Cash Equivalents.............. $ 3,453 $ 24,510 $ 1,715 $ 3,830 $ 6,200
Total Assets........................... 281,799 636,786 967,385 1,317,212 2,659,096
Total Debt............................. 184,733 428,018 456,178 612,947 1,355,131
Shareholders' Equity................... 52,384 137,733 338,882 488,754 924,458
- ------------------------
(1) Represents pro forma earnings per share as if the preferred stock that was
converted into the Company Common Stock in connection with the Company's
initial public offering had been converted as of January 1, 1996.
(2) Based on the Company's experience in the RIMS industry, management believes
that EBITDA (which we define as earnings before interest, taxes,
depreciation, amortization, extraordinary items, other income,
merger-related expenses and stock option compensation expense) is an
important tool for measuring the performance of RIMS companies (including
potential acquisition targets) in several areas, such as liquidity,
operating performance and leverage. In addition, lenders use EBITDA-based
calculations as a criterion in evaluating RIMS companies, and substantially
all of the Company's financing agreements contain covenants in which
EBITDA-based calculations are used as a measure of financial performance.
However, EBITDA should not be considered an alternative to operating or net
income (as determined in accordance with generally accepted accounting
principles ("GAAP")) as an indicator of the Company's performance or to cash
flow from operations (as determined in accordance with GAAP) as a measure of
liquidity. See "Management's Discussion and Analysis of Financial Condition
and Results of Operation" and "Liquidity and Capital Resources" for
discussions of other measures of performance determined in accordance with
GAAP and the Company's sources and applications of cash flow.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH "ITEM 6.
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION" AND THE CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO AND THE OTHER FINANCIAL AND OPERATING
INFORMATION INCLUDED ELSEWHERE IN THIS FILING.
This discussion contains "forward-looking statements" as that term is
defined in the federal securities laws. Such 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.
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:
- difficulties related to the integration of acquisitions generally and,
more specifically, the integration of our operations and those of Pierce
Leahy;
- unanticipated costs as a result of our acquisition of Pierce Leahy;
- the uncertainties related to international expansion;
- the uncertainties related to expansion into digital businesses, including
the timing of introduction and market acceptance of the Company's products
and services;
- rapid and significant changes in technology;
- the cost and availability of appropriate storage facilities;
- changes in customer preferences and demand for our services;
- our significant indebtedness and the cost and availability of financing
for contemplated growth; and
- other general economic and business conditions.
OVERVIEW
The Company's primary financial objective has been to increase consolidated
EBITDA, which is a source of funds for investment in continued growth and to
service indebtedness. The Company has benefited from growth in consolidated
EBITDA from continuing operations, which has increased from $96.0 million for
1998 to $257.0 million for 2000 (a compound annual growth rate of 63.6%).
However, the pursuit of this objective has negatively affected other measures of
the Company's financial performance, such as consolidated net income.
For the years ended December 31, 1998 through 2000, the Company experienced
consolidated net losses. The Company attributes such losses in part to
significant charges associated with the pursuit of its growth strategy, namely:
- increases in depreciation expense associated with expansion of storage
capacity;
- increases in goodwill amortization associated with acquisitions accounted
for under the purchase method;
- increases in interest expense associated with the borrowings used to fund
acquisitions; and
- in 2000, charges for stock option compensation expense and merger-related
expenses associated with the integration of the operations of Iron
Mountain and Pierce Leahy.
16
On February 1, 2000, the Company completed its acquisition of Pierce Leahy
in a stock-for-stock merger valued at $1.0 billion. The acquisition was
structured as a reverse merger with Pierce Leahy being the surviving legal
entity and immediately changing its name to Iron Mountain Incorporated. Based on
the number of shares of Iron Mountain and Pierce Leahy common stock outstanding
immediately prior to the completion of the merger, immediately after the merger
former stockholders of Iron Mountain owned approximately 65% of the Company's
Common Stock. Because of this share ownership, Iron Mountain is considered the
acquiring entity for accounting purposes. The total consideration for this
transaction was comprised of: (i) 18.8 million shares of the Company's Common
Stock with a fair value of $421.2 million; (ii) 1.6 million options to acquire
the Company's Common Stock with a fair value of $25.3 million; (iii) assumed
debt with a fair value of $584.9 million; and (iv) $4.3 million of capitalized
transaction costs. Consolidated revenues of Pierce Leahy were $342.3 million for
the year ended December 31, 1999.
The Company's revenues consist of storage revenues as well as service and
storage material sales revenues. Storage revenues consist of periodic charges
related to the storage of materials (either on a per unit or per cubic foot of
records basis) and have accounted for approximately 60% of total revenues in
each of the last five years. In certain circumstances, based upon customer
requirements, storage revenues include periodic charges associated with normal,
recurring service activities. Service and storage material sales revenues are
comprised of charges for related service activities, the sale of storage
materials and courier operations. Courier operations consist primarily of the
pickup and delivery of records upon customer request. Related service revenues
arise from additions of new records, temporary removal of records from storage,
refiling of removed records, destructions of records, permanent withdrawals from
storage and sales of specially designed storage containers, magnetic media
including computer tapes and related supplies. Customers are generally billed on
a monthly basis on contractually agreed-upon terms.
Cost of sales (excluding depreciation) consists primarily of wages and
benefits for field personnel, facility occupancy costs, vehicle and other
equipment costs and supplies. Of these, wages and benefits and facility
occupancy costs are the most significant.
Selling, general and administrative expenses consist primarily of wages and
benefits for management, administrative, sales and marketing personnel, as well
as expenses related to travel, communications, data processing expenses,
professional fees, bad debts, training, office equipment and supplies.
The Company's depreciation and amortization charges result primarily from
the capital-intensive nature of its business and the acquisitions that the
Company has completed. The principal components of depreciation relate to
racking systems and related equipment, new buildings and leasehold improvements,
equipment for new facilities and computer system hardware and software.
Amortization relates primarily to goodwill arising from acquisitions and
customer acquisition costs. The Company has accounted for all of its
acquisitions under the purchase method. Since the purchase price for RIMS
companies is usually substantially in excess of the fair value of their net
assets, these purchases have given rise to significant goodwill and,
accordingly, significant levels of amortization. Although amortization is a
non-cash charge, it does decrease reported consolidated net income. Because
certain of the Company's acquisitions have given rise to nondeductible goodwill,
the Company's effective tax rate is higher than the statutory rate.
EBITDA is an important financial performance measure in the RIMS industry,
both for determining the value of companies within the industry and for defining
standards for borrowing from institutional lenders. The Company's EBITDA margins
from continuing operations were 25.0% for 1998, 25.0% for 1999 and 26.1% for
2000. The Company acquired 15 RIMS businesses in 1998, 17 in 1999 and 12 in
2000. With the exception of the Pierce Leahy merger in 2000, most acquisitions
had lower EBITDA margins than the rest of the Company's business. The Company
generally does not
17
realize anticipated synergies relating to acquisitions immediately. The Company
was able to increase its recent EBITDA margins through improved overall
operating efficiencies, economies of scale and the realization of synergies in
connection with earlier acquisitions, as well as the addition of the higher-
margin Pierce Leahy business in 2000. This increase was partially offset by
additional labor expense due to wage and incentive compensation equalization as
a result of the Pierce Leahy integration.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information
derived from the Company's consolidated statements of operations, expressed as a
percentage of total consolidated revenues.
YEAR ENDED DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Revenues:
Storage................................................... 60.1 % 61.1 % 59.4 %
Service and Storage Material Sales........................ 39.9 38.9 40.6
------- ------- -------
Total Revenues.......................................... 100.0 100.0 100.0
Operating Expenses:
Cost of Sales (Excluding Depreciation).................... 50.0 50.2 48.9
Selling, General and Administrative....................... 25.0 24.8 25.0
Depreciation and Amortization............................. 12.6 12.6 12.9
Stock Option Compensation Expense......................... -- -- 1.6
Merger-Related Expenses................................... -- -- 0.9
------- ------- -------
Total Operating Expenses................................ 87.6 87.6 89.3
Operating Income............................................ 12.4 12.4 10.7
Interest Expense............................................ 11.9 10.5 12.0
Other Income, Net........................................... 0.4 0.0 (0.5)
------- ------- -------
Income (Loss) from Continuing Operations Before Provision
for Income Taxes and Minority Interest.................... 0.9 1.9 (1.8)
Provision for Income Taxes.................................. 1.7 2.0 0.9
Minority Interest in (Losses) Earnings of Subsidiaries...... -- 0.1 (0.2)
------- ------- -------
Loss from Continuing Operations before Extraordinary Item... (0.8) (0.2) (2.5)
Income from Discontinued Operations......................... 0.1 0.1 --
Loss on Sale of Discontinued Operations..................... -- (2.6) --
Extraordinary Charge from Early Extinguishment of Debt (net
of Tax Benefit)........................................... -- -- (0.3)
------- ------- -------
Net Loss.................................................... (0.7)% (2.7)% (2.8)%
======= ======= =======
EBITDA from Continuing Operations........................... 25.0% 25.0% 26.1%
======= ======= =======
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Consolidated storage revenues increased $268.3 million, or 84.5%, to
$585.7 million for the year ended December 31, 2000 from $317.4 million for the
year ended December 31,1999. Consolidated storage revenues increased primarily
due to acquisitions, particularly the Pierce Leahy acquisition. Pierce Leahy's
1999 storage revenues were $190.1 million. Internal storage revenue growth,
calculated as if Pierce Leahy had merged with Iron Mountain on January 1, 1999,
was 11.7%. 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.
18
Consolidated service and storage material sales revenues increased
$198.5 million, or 98.2%, to $400.7 million for the year ended December 31,
2000, from $202.2 million for the year ended December 31, 1999. Consolidated
service and storage material sales revenues increased primarily due to
acquisitions, particularly the Pierce Leahy acquisition. Pierce Leahy's 1999
service and storage material sales revenues were $152.2 million. Internal
service and storage material sales revenue growth, calculated as if Pierce Leahy
had merged with Iron Mountain on January 1, 1999, was 13.3%. 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
$466.9 million, or 89.9%, to $986.4 million for the year ended December 31, 2000
from $519.5 million for the year ended December 31, 1999. Total internal revenue
growth, calculated as if Pierce Leahy had merged with Iron Mountain on
January 1, 1999, was 12.3%.
Consolidated cost of sales (excluding depreciation) increased
$221.9 million, or 85.0%, to $482.8 million (48.9% of consolidated revenues) for
the year ended December 31, 2000 from $260.9 million (50.2% of consolidated
revenues) for the year ended December 31, 1999. The dollar increase was
primarily attributable to the acquisition of Pierce Leahy. The decrease as a
percentage of revenues was primarily attributable to operating efficiencies,
particularly related to labor and transportation, gained as a result of an
increase in scale, offset by the increased facilities costs of Pierce Leahy,
which are typical of a more paper storage-intensive business. The Company's
business records and international segments are substantially paper-based.
Revenues for these segments have increased from 73% to 80% of total revenues
from 1999 to 2000.
Consolidated selling, general and administrative expenses increased
$117.7 million, or 91.2%, to $246.6 million (25.0% of consolidated revenues) for
the year ended December 31, 2000 from $128.9 million (24.8% of consolidated
revenues) for the year ended December 31, 1999. The dollar increase was
primarily attributable to the Pierce Leahy acquisition. The increase as a
percentage of revenues was primarily attributable to increased spending on
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 complementary digital service
offerings. These increases were partially offset by general management overhead
efficiencies driven by an increase in scale.
As a result of the foregoing factors, consolidated EBITDA increased
$127.3 million, or 98.2%, to $257.0 million (26.1% of consolidated revenues) for
the year ended December 31, 2000 from $129.7 million (25.0% of consolidated
revenues) for the year ended December 31, 1999.
EBITDA from the Company's international segment increased $13.3 million, or
180.7%, to $20.6 million (17.7% of international revenues) for the year ended
December 31, 2000 from $7.3 million (23.2% of international revenues) for the
year ended December 31, 1999. The Company acquired several foreign businesses in
late 1999 and 2000, some of which had lower EBITDA margins than the rest of the
Company's international segment. The Company generally does not recognize
anticipated synergies relating to acquisitions immediately.
Consolidated depreciation and amortization expense increased $61.4 million,
or 93.8%, to $126.8 million (12.9% of consolidated revenues) for the year ended
December 31, 2000 from $65.4 million (12.6% of consolidated revenues) for the
year ended December 31, 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.
Stock option compensation expense represents a non-cash charge resulting
from the acceleration of vesting and extension of exercise periods for
previously granted stock options as a part of separation
19
agreements with certain executives relating to the Pierce Leahy merger. Stock
option compensation expense was $15.1 million (1.6% of consolidated revenues)
for the year ended December 31, 2000.
Merger-related expenses are certain expenses directly related to the
Company's merger with Pierce Leahy that cannot be capitalized and include
severance, relocation and pay-to-stay payments, costs of exiting certain
facilities, system conversion costs and other transaction-related costs.
Merger-related expenses were $9.1 million (0.9% of consolidated revenues) for
the year ended December 31, 2000.
As a result of the foregoing factors, consolidated operating income
increased $41.8 million, or 65.0%, to $106.0 million (10.7% of consolidated
revenues) for the year ended December 31, 2000 from $64.2 million (12.4% of
consolidated revenues) for the year ended December 31, 1999.
Consolidated interest expense increased $63.6 million, or 116.8%, to
$118.0 million for the year ended December 31, 2000 from $54.4 million for the
year ended December 31, 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 increase in the Company's effective interest rate from
the same period in 1999; and (iv)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.
Consolidated other income (expense) was an expense of $6.0 million for the
year ended December 31, 2000 compared to income of $0.0 million for the year
ended December 31, 1999. The increase in expense was primarily due to a
weakening of the Canadian dollar against the U.S. dollar, as it relates to Iron
Mountain Canada Corporation's 8 1/8% Senior Subordinated Notes due 2008, and a
weakening of the British pound sterling against 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 for income taxes and minority interests
decreased $27.8 million to a loss of $18.0 million (1.8% of consolidated
revenues) for the year ended December 31, 2000 from income of $9.8 million (1.9%
of consolidated revenues) for the year ended December 31, 1999. The provision
for income taxes was $9.1 million for the year ended December 31, 2000 compared
to $10.6 million for the year ended December 31, 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 year ended December 31, 2000, the Company
recorded approximately $35 million in nondeductible goodwill amortization
expense.
Consolidated loss from continuing operations increased $23.8 million to
$24.9 million (2.5% of consolidated revenues) for the year ended December 31,
2000 from $1.1 million (0.2% of consolidated revenues) for the year ended
December 31, 1999.
In addition, 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 deferred financing costs associated with the extinguished debt.
As a result of the foregoing factors, consolidated net loss increased
$13.6 million, or 95.7%, to $27.8 million (2.8% of consolidated revenues) for
the year ended December 31, 2000 from $14.2 million (2.7% of consolidated
revenues) for the year ended December 31, 1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Consolidated storage revenues increased $86.7 million, or 37.6%, to
$317.4 million for the year ended December 31, 1999 from $230.7 million for the
year ended December 31, 1998, primarily due to
20
the completion of 32 acquisitions during 1999 and 1998. Consolidated internal
revenue growth was 10.9% and 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
$48.9 million, or 31.9%, to $202.2 million for the year ended December 31, 1999
from $153.3 million for the year ended December 31, 1998, primarily due to
acquisitions. Internal revenue growth was 16.7% and 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
$135.6 million, or 35.3%, to $519.5 million for the year ended December 31, 1999
from $384.0 million for the year ended December 31, 1998. Total internal revenue
growth was 13.2%.
Consolidated cost of sales (excluding depreciation) increased
$68.8 million, or 35.8%, to $260.9 million (50.2% of consolidated revenues) for
the year ended December 31, 1999 from $192.1 million (50.0% of consolidated
revenues) for the year ended December 31, 1998. The dollar increase was
primarily attributable to the additional facility and personnel costs needed to
service the increase in records and other media stored.
Consolidated selling, general and administrative expenses increased
$33.1 million, or 34.5%, to $128.9 million (24.8% of consolidated revenues) for
the year ended December 31, 1999 from $95.9 million (25.0% of consolidated
revenues) for the year ended December 31, 1998. The dollar increase is primarily
attributable to:
- the adoption, effective January 1, 1999, of SOP 98-1, which requires
certain computer software costs associated with internal use software
(primarily data conversion costs) that were previously capitalizable to be
expensed as incurred ($3.3 million in 1999);
- the addition of personnel and other overhead costs related primarily to
the acquisitions of First American Records Management, Inc. and Data
Base, Inc.;
- increased investment in sales and marketing to drive internal growth; and
- increased personnel, office and overhead costs to support growth.
Consolidated depreciation and amortization expense increased $17.1 million,
or 35.4%, to $65.4 million (12.6% of consolidated revenues) for the year ended
December 31, 1999 from $48.3 million (12.6% of consolidated revenues) for the
year ended December 31, 1998. The dollar increase is primarily attributable to
the additional depreciation and amortization expense related to acquisitions and
capital expenditures, including racking systems, information systems and
expansion of storage capacity in existing facilities.
As a result of the foregoing factors, consolidated operating income
increased $16.6 million, or 34.8%, to $64.2 million (12.4% of consolidated
revenues) for the year ended December 31, 1999 from $47.7 million (12.4% of
consolidated revenues) for the year ended December 31, 1998.
Consolidated interest expense increased $8.8 million, or 19.2%, to
$54.4 million for the year ended December 31, 1999 from $45.7 million for the
year ended December 31, 1998. The increase was primarily attributable to
increased indebtedness related to the financing of acquisitions and capital
expenditures. Such increase was partially offset by lower effective interest
rates for the year ended December 31, 1999 compared to the same period in 1998.
As a result of the foregoing factors, consolidated income from continuing
operations before the provision for income taxes and minority interest expense
increased $6.5 million to income of $9.8 million (1.9% of consolidated revenues)
for the year ended December 31, 1999 from income of $3.4 million (0.9% of
consolidated revenues) for the year ended December 31, 1998. The provision for
21
income taxes was $10.6 million for the year ended December 31, 1999 compared to
$6.6 million for the year ended December 31, 1998. The Company's effective tax
rate is higher than statutory rates primarily due to the amortization of the
nondeductible portion of goodwill associated with particular acquisitions (the
tax laws generally permit deduction of goodwill amortization for asset
purchases, but not for acquisitions of stock). For the year ended December 31,
1999, the Company recorded approximately $15 million in nondeductible goodwill
amortization expense.
Consolidated net loss increased $11.3 million to a net loss of
$14.2 million (2.7% of consolidated revenues) for the year ended December 31,
1999 from a consolidated net loss of $3.0 million (0.7% of consolidated
revenues) for the year ended December 31, 1998. The increase in net loss is
primarily due to the loss on sale of discontinued operations of $13.4 million.
As a result of the foregoing factors, consolidated EBITDA from continuing
operations increased $33.7 million, or 35.1%, to $129.7 million (25.0% of
consolidated revenues) for the year ended December 31, 1999 from $96.0 million
(25.0% of consolidated revenues) for the year ended December 31, 1998.
RECENT CONSOLIDATED QUARTERLY FINANCIAL DATA
The following table sets forth, for the quarterly periods indicated,
information derived from the Company's consolidated statements of operations.
The unaudited quarterly information has been prepared on the same basis as the
annual financial information and, in management's opinion, includes all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the information for the quarters presented. The operating results for any
quarter are not necessarily indicative of results for the year or for any future
period.
THREE MONTHS ENDED
-------------------------------------------------------------------------------------
1999 2000
----------------------------------------- -----------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
Revenues:
Storage................. $67,722 $79,928 $82,339 $87,398 $124,939 $148,445 $152,959 $159,321
Service and Storage
Material Sales........ 41,649 51,837 54,568 54,108 87,198 104,120 103,174 106,215
------- ------- ------- ------- -------- -------- -------- --------
Total Revenues........ 109,371 131,765 136,907 141,506 212,137 252,565 256,133 265,536
Operating Expenses:
Cost of Sales (Excluding
Depreciation)......... 54,435 66,167 69,226 71,102 104,458 121,973 125,079 131,261
Selling, General and
Administrative........ 27,875 32,938 33,381 34,754 53,457 64,724 63,783 64,595
Depreciation and
Amortization.......... 13,595 16,281 16,338 19,208 26,303 31,644 34,829 34,034
Stock Option
Compensation Expense.. -- -- -- -- -- 14,939 171 --
Merger-Related
Expenses.............. -- -- -- -- 516 3,875 1,262 3,480
------- ------- ------- ------- -------- -------- -------- --------
Total Operating
Expenses............ 95,905 115,386 118,945 125,064 184,734 237,155 225,124 233,370
------- ------- ------- ------- -------- -------- -------- --------
Operating Income.......... $13,466 $16,379 $17,962 $16,442 $ 27,403 $ 15,410 $ 31,009 $ 32,166
======= ======= ======= ======= ======== ======== ======== ========
EBITDA from Continuing
Operations.............. $27,061 $32,660 $34,300 $35,650 $ 54,222 $ 65,868 $ 67,271 $ 69,680
======= ======= ======= ======= ======== ======== ======== ========
22
LIQUIDITY AND CAPITAL RESOURCES
RECENT FINANCINGS AND SOURCES OF FUNDS
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 $750.0 million and includes two tranches of term
debt in addition to the $400.0 million revolving credit facility. Tranches A and
B represent term loans to the Company in principal amounts of $150.0 million and
$200.0 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 December 31, 2000, the
interest rates in effect ranged from 8.72% to 11.25%. In December 2000, and
again in January 2001, the Company entered into interest rate swap contracts for
the interest payments on an aggregate principal amount of $195.5 million of the
Tranche B debt, thereby fixing the interest rate thereon at 8.43%. Restrictive
covenants under this agreement are similar to those under the Company's prior
credit facility. As of December 31, 2000, outstanding borrowings under the
Company's Tranche A and B term loans were $150.0 million and $199.8 million,
respectively and borrowings under the Company's revolving credit facility were
$4 million. These borrowings were used to fund, among other things, the purchase
price of recent acquisitions, general corporate expenses and merger costs.
Net cash provided by financing activities was $172.4 million for the year
ended December 31, 2000, consisting primarily of the proceeds from borrowings
under the Company's revolving credit facility of $399.2 million and term loans
of $350.0 million, which were partially offset by repayments of debt of
$596.7 million.
As of December 31, 2000, the annual maturities of Iron Mountain's
indebtedness for the years ending December 31, 2001, 2002, 2003, 2004 and 2005
were $40.8 million, $8.5 million, $9.6 million, $4.9 million and
$302.0 million, respectively. See Note 4 of Notes to Consolidated Financial
Statements. None of the Company's public debt is subject to scheduled mandatory
redemption before 2006.
As of March 1, 2001, the Company had approximately $1.4 billion of total
debt, of which $1.2 billion, including the $195.5 million of debt subject to the
interest rate swap agreements, had fixed interest rates and $0.2 billion had
variable interest rates.
Net cash provided by continuing operations was $157.6 million for the year
ended December 31, 2000 compared to $56.3 million for the same period in 1999.
The increase was primarily attributable to the increase in EBITDA. The increase
in the provision for doubtful accounts was primarily attributable to the
increase in revenue due to internal growth as well as the Pierce Leahy and other
acquisitions.
At December 31, 2000, the Company had estimated net operating loss
carryforwards of approximately $128.0 million for federal income tax purposes.
As a result of such loss carryforwards, cash paid for income taxes has
historically been substantially lower than the provision for income taxes. The
preceding net operating loss carryforwards do not include potential
preacquisition net operating loss carryforwards of Arcus Group, Inc. and certain
other foreign acquisitions. Any tax benefit realized related to preacquisition
net operating loss carryforwards will be recorded as a reduction of goodwill
when, and if, realized. The Arcus Group carryforwards expire in eight years.
CAPITAL INVESTMENTS
As the Company has sought to increase its EBITDA, it has made significant
capital investments, consisting primarily of: (i) acquisitions; (ii) the
purchase and construction of real estate; (iii) other capital expenditures; and
(iv) customer acquisition costs. These investments have been primarily funded
through cash flows from operations and borrowings under the Company's credit
agreements.
23
Cash paid for acquisitions in 2000 was $140.9 million. In connection with
the acquisition of Pierce Leahy, the Company issued 18.8 million shares of its
Common Stock with a fair value of $421.2 million.
During 2000, total capital expenditures were $168.7 million. A significant
portion of the Company's capital expenditures are related to growth and consist
primarily of racking systems, management information systems, new buildings and
expansion of storage capacity in existing facilities. Approximately 10% of the
capital expenditures were expended in order to maintain the Company's then
current revenue stream.
The Company currently estimates that its capital expenditures (other than
capital expenditures related to future acquisitions, which cannot be presently
estimated, and the Company's digital services offerings, which are described
separately below) for 2001 will be approximately $175 to $200 million. The
Company expects to fund these expenditures with cash flows from operations and
borrowings under the Amended Credit Agreement.
In addition, the Company incurred costs (net of revenues received for the
initial transfer of records) related to the acquisition of large volume
accounts. In 2000, the Company's additions to customer acquisition costs were
$12.8 million.
The Company has begun to assess opportunities in the digital storage
business driven by e-commerce and facilitated by the Internet. Services
associated with this business would expand the Company's range of services into
the use of the Internet to facilitate the backup and storage of customer data.
In 2000, the Company entered into two strategic alliances to jointly develop,
market and sell new products and services for electronic data archiving
business. The Company estimates that expenses associated with the continuing
development and initial market testing phase of its digital service offerings
will be in the range of $3 million to $5 million. In addition, the Company
expects the capital expenditures associated with this phase, which is expected
to continue into the second half of 2001, to be in the range of $7 million to
$10 million. The Company intends to fund this effort with cash flows from
operations and borrowings under the Amended Credit Agreement.
ACQUISITIONS
The Company's liquidity and capital resources may be significantly impacted
by the Company's acquisition strategy in the foreseeable future. The Company's
future interest expense may increase significantly as a result of the additional
indebtedness it may incur to finance possible future acquisitions. To the extent
that future acquisitions are financed by additional borrowings under the Amended
Credit Agreement or other credit facilities, or the future issuance of debt
securities, the resulting increase in debt and interest expense could have a
negative effect on such measures of liquidity as the ratio of debt to equity,
EBITDA to debt and EBITDA to interest expense.
The Company has historically financed the cash portion of its acquisitions
with borrowings under its credit agreements in conjunction with cash flows
provided by operations and with the net proceeds of issuances of debt securities
and common stock.
In connection with its acquisition program, the Company has undertaken
certain restructurings of the acquired businesses. Formalized restructuring
plans for acquisitions are completed within one year of the date of acquisition.
The restructuring activities include reductions in staffing levels, elimination
of duplicate facilities and other costs associated with exiting certain
activities of the acquired businesses. In connection with these restructuring
activities, the Company established reserves of $31.4 million in 2000 as part of
the purchase accounting for its acquisitions. During 2000, the Company expended
$7.5 million for restructuring costs. In addition, the Company made
$4.7 million of adjustments, which reduced goodwill, primarily as a result of
management's finalizing restructuring plans within one year of acquisition.
These expenditures consisted primarily of severance costs and costs related to
exiting facilities. At December 31, 2000, the Company had a total of
$28.5 million accrued for restructuring
24
costs for all of its then completed acquisitions. See Note 6 of Notes to
Consolidated Financial Statements.
From January 1, 2001 through March 1, 2001, the Company and its European and
Latin American subsidiaries acquired six additional businesses for aggregate
consideration of approximately $41 million.
PIERCE LEAHY/ IRON MOUNTAIN INTEGRATION
The Company is currently in the process of integrating the operations and
headquarters functions of Iron Mountain and Pierce Leahy on a "best practices"
basis. This process includes the planning, development and execution of an
integration plan. During 2000, the Company completed the integration of sales,
overhead and support functions, and began to combine field operations, with the
goal of full integration within three years after the merger. Management's
current estimate is that the merger-related expenses to integrate the two
companies, the majority of which have been and will be incurred in 2000 and
2001, will total approximately $15 million. These costs consist primarily of
severance and relocation payments to certain employees, transition bonuses,
consultants' fees, reimaging expenses and system conversion costs. The Company
recorded merger-related expenses of $9.1 million during 2000. As a result of the
integration effort, management expects that the Company will realize an
estimated $15 million in annual operating cost savings within three years after
the merger. These cost savings will result primarily from the elimination of
redundant corporate expenses, more efficient operations and utilization of real
estate. The Company intends to fund the integration effort with cash flows from
operations and borrowings under the Amended Credit Agreement.
FUTURE CAPITAL NEEDS
The Company's primary financial objective continues to be to increase
consolidated EBITDA, which is a source of funds for investment in continued
growth and to service indebtedness. The Company's ability to generate sufficient
cash to fund its needs depends generally on the results of its operations and
the availability of financing. Management believes that cash flows from
operations in conjunction with borrowings from existing and possible future debt
financings will be sufficient to meet debt service requirements for the
foreseeable future and to make possible future acquisitions and capital
expenditures. However, there can be no assurance in this regard or that the
terms available for any future financing, if required, would be favorable to the
Company.
SEASONALITY
Historically, the Company's businesses have not been subject to seasonality
in any material respect.
INFLATION
Certain of the Company's expenses, such as wages and benefits, occupancy
costs and equipment repair and replacement, are subject to normal inflationary
pressures. Although the Company to date has been able to offset inflationary
cost increases through increased operating efficiencies and the negotiation of
favorable long-term real estate leases, the Company cannot assure that it will
be able to offset any future inflationary cost increases through similar
efficiencies, leases or increased storage or service charges.
FOREIGN CURRENCY EXCHANGE RATES
The Company generally views its investment in foreign businesses with a
functional currency other than the Company's reporting currency as long-term.
These investments are sensitive to fluctuations in foreign currency exchange
rates. The functional currencies of the Company's foreign subsidiaries are
principally denominated in Canadian dollars, British pounds sterling and several
other European and Latin American currencies. The effect of a change in foreign
exchange rates on the Company's net
25
investment in foreign subsidiaries is reflected in the "Accumulated other
comprehensive items" component of shareholders' equity. A 10% depreciation in
year-end 2000 functional currencies, relative to the U.S. dollar, would result
in a $2.9 million reduction in the Company's shareholders' equity.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
In December 2000, the Company entered into a derivative financial contract,
which is a variable-for-fixed swap of interest payments payable on the last two
principal payments of the Company's Tranche B term loan.
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. 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.
As of December 31, 2000, the Company had approximately $378 million of debt
outstanding with a weighted average variable interest rate of 9.05% and
approximately $977 million of fixed rate debt outstanding. If the weighted
average variable interest rate had increased by 1%, such increase would have had
a negative impact on the Company's net income for the year ended December 31,
2000 of approximately $3.0 million. See Note 4 of Notes to Consolidated
Financial Statements for a discussion of the Company's long-term indebtedness,
including the fair values of such indebtedness as of December 31, 2000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Directors and executive officers of the Company are as follows (all
information is as of March 12, 2001):
NAMES OF DIRECTORS AND EXECUTIVE OFFICERS AGE POSITION
- ----------------------------------------- -------- ------------------------------------------
C. Richard Reese(1)....................... 55 Chairman of the Board of Directors, Chief
Executive Officer and President
John F. Kenny, Jr......................... 43 Executive Vice President, Chief Financial
Officer and Director
Harold E. Ebbighausen..................... 46 Executive Vice President of the Company
and President of Arcus Data Security, Inc.
Robert G. Miller.......................... 44 President and Chief Operating Officer of
Iron Mountain Records Management, Inc.
Clarke H. Bailey(1)(3).................... 46 Director
Constantin R. Boden(2)(3)................. 64 Director
Kent P. Dauten(2)......................... 45 Director
Eugene B. Doggett......................... 64 Director
B. Thomas Golisano........................ 59 Director
Arthur D. Little(2)(3).................... 57 Director
J. Peter Pierce........................... 55 Director
Howard D. Ross............................ 49 Director
Vincent J. Ryan(1)(3)..................... 65 Director
- ------------------------
(1) Member of the Executive Committee; Mr. Ryan is the Chairman of the Executive
Committee.
(2) Member of the Audit Committee; Mr. Boden is the Chairman of the Audit
Committee.
(3) Member of the Compensation Committee; Mr. Little is the Chairman of the
Compensation Committee.
The Company Board currently consists of eleven Directors. There are three
classes of Directors who serve for three year terms and are elected on a
staggered basis, one class of Directors standing for election each year.
Directors of each class hold office until the third annual meeting of the
shareholders of the Company following their election or until their successors
are elected and qualified.
The executive officers were elected by the Board of Directors on June 1,
2000 except for individual changes since that date. All executive officers hold
office at the discretion of the Company Board until the first meeting following
the next annual meeting of shareholders and until their successors are chosen
and qualified.
27
DIRECTORS AND EXECUTIVE OFFICERS
C. RICHARD REESE is the Chairman of the Board, a position he has held since
November 1995, and the Chief Executive Officer of the Company, a position he has
held since 1981, and has been a Director of the Company since 1990. He is also
President of the Company, a position he has held since J. Peter Pierce's
resignation in June 2000 and previously held from 1981 until November 1985.
Mr. Reese is a member of the investment committee of Schooner Capital LLC
("Schooner"), a shareholder of the Company. Prior to joining Iron Mountain,
Mr. Reese lectured at Harvard Business School in "Entrepreneurship" and provided
consulting services to small- and medium-sized emerging enterprises. Mr. Reese
has also served as the President and a Director of Professional Records and
Information Services Management ("PRISM"), a trade group of approximately 530
members. He holds a Master of Business Administration degree from Harvard
Business School.
JOHN F. KENNY, JR. is an Executive Vice President and the Chief Financial
Officer of the Company, positions he has held since May 1997. He has also served
as a Director of the Company since March 2000. Mr. Kenny joined Iron Mountain in
1991 and held a number of operating positions before assuming the position of
Vice President of Corporate Development in 1995. Prior to 1991, Mr. Kenny was a
Vice President of CS First Boston Merchant Bank, New York, with responsibility
for risk capital investments. Mr. Kenny has also served as a Director and the
Treasurer of PRISM. He holds a Master of Business Administration degree from
Harvard Business School.
HAROLD E. EBBIGHAUSEN is an Executive Vice President of the Company and the
President of Arcus Data Security, Inc., a subsidiary of the Company.
Mr. Ebbighausen has been an Executive Vice President of the Company since May
1998, and has been the President of Arcus Data Security, Inc. since July 1998.
Mr. Ebbighausen was a Vice President of Data Security Services of Iron Mountain
from September 1996 through June 1997. Prior to joining Iron Mountain,
Mr. Ebbighausen was Vice President of Data Management Services with INSCI
Corporation, a software provider for computer output and data storage solutions
to optical and CD technology. Previously, he held a number of field management
positions with Anacomp, Inc., a service bureau provider in the micrographics
industry.
ROBERT G. MILLER was appointed the President of Iron Mountain Records
Management, Inc., a subsidiary of the Company, on March 12, 2001 and has served
as the Chief Operating Officer of Iron Mountain Records Management, Inc. since
July 2000. Prior to July, 2000 Mr. Miller was an Executive Vice President of
Iron Mountain Records Management, Inc., a position that he had held since
December 1996. Mr. Miller joined Iron Mountain in 1988 and held various
positions including District Manager from 1988 through 1991 and Regional Vice
President from 1991 through 1996. Prior to 1988, Mr. Miller was employed as a
District Manager at Bell & Howell Records Management Company.
CLARKE H. BAILEY is a Director of the Company, a position he has held since
January 1998. He is Co-Chairman and Director of Highgate Capital LLC, a private
equity firm, and Chairman, Chief Executive Officer and a Director of
ShipXact.com, Inc., a private fulfillment and distribution company. Mr. Bailey
also serves as Chairman and a Director of Glenayre Technologies, Inc., a
manufacturing company in the wireless communications industry. Mr. Bailey was
the Chairman and Chief Executive Officer of each of Arcus Group, Inc., United
Acquisition Company and Arcus Technology Services, Inc. from 1995 until their
acquisition by Iron Mountain in January 1998. He is also a Director of
Connectivity Technologies Inc., Swiss Army Brands, Inc. and SWWT, Inc. (formerly
known as Sweetwater, Inc.). He holds a Master of Business Administration degree
from The Wharton School, University of Pennsylvania.
CONSTANTIN R. BODEN is a Director of the Company, a position he has held
since December 1990. Mr. Boden is the principal of Boden Partners LLC and
chairman of the advisory board of Boston Capital Ventures, a risk capital
concern. For 34 years, until January 1995, Mr. Boden was employed by
28
The First National Bank of Boston, most recently as Executive Vice President,
International Banking. He holds a Master of Business Administration degree from
Harvard Business School.
KENT P. DAUTEN is a Director of the Company, a position he has held since
November 1997. He also serves as President of Keystone Capital, Inc., a
management and consulting advisory service firm, a position he has held since
March 1994. In February 1995, Mr. Dauten founded HIMSCORP, Inc. (d/b/a Records
Masters) and served as its President until its acquisition by Iron Mountain in
November 1997. Mr. Dauten currently serves as a Director of Health Management
Associates, Inc., a hospital management firm. Mr. Dauten holds a Master of
Business Administration degree from Harvard Business School.
EUGENE B. DOGGETT is a Director of the Company, a position he has held since
1990. From 1987 until May 1997, Mr. Doggett was the Chief Financial Officer of
Iron Mountain, and from 1990 until May 1998, Mr. Doggett was an Executive Vice
President of Iron Mountain. Mr. Doggett is also a Director of Mac-Gray
Corporation, a publicly held supplier of card and coin-operated laundry services
in multiple housing facilities. Prior to joining Iron Mountain, he had extensive
experience in commercial and investment banking, as well as financial and
general management experience at senior levels. He holds a Master of Business
Administration degree from Harvard Business School.
B. THOMAS GOLISANO is a Director of the Company, a position he has held
since June 1997. Mr. Golisano was Chairman of Safesite Records Management
Corporation until its acquisition by Iron Mountain in June 1997. He founded
Paychex Inc., a publicly held, national payroll service company, in 1971 and
serves as its Chairman, President and Chief Executive Officer. Mr. Golisano
serves on the Board of Trustees of Rochester Institute of Technology and on the
boards of several privately held companies. He has also served on the boards of
numerous non-profit organizations and is the founder of the B. Thomas Golisano
Foundation.
ARTHUR D. LITTLE is a Director of the Company, a position he has held since
November 1995. Mr. Little is a principal of A & J Acquisition Company, Inc.,
which he founded in 1996. Prior to that, he was Managing Director of and also a
partner in Narragansett Capital, Inc., a private investment firm. He holds a
Bachelor of Arts degree in history from Stanford University.
J. PETER PIERCE is a Director of the Company, a position he has held since
February 2000. From February 1, 2000 until his resignation in June 2000, he was
also the President of the Company. Prior to the merger with Pierce Leahy,
Mr. Pierce had been the President and Chief Executive Officer of Pierce Leahy
since 1995, and a Director of Pierce Leahy since the early 1970s. Mr. Pierce is
the Chairman and Chief Executive Officer of Telespectrum Worldwide, Inc., a
publicly held teleservices company. Mr. Pierce is also the founder and principal
partner in Pioneer Capital L.P., a venture capital company. Mr. Pierce attended
the University of Pennsylvania and served in the United States Marine Corps.
HOWARD D. ROSS is a Director of the Company, a position he has held since
February 2000. In 1999, Mr. Ross was involved in the formation, and is currently
a partner, of LLR Equity Partners, L.P., a venture capital fund. From 1984 to
October 1999, he was a partner at Arthur Andersen LLP. He is also a Director of
PRWW, Ltd., a provider of clinical testing and software services primarily to
the pharmaceutical industry, and of VerticalNet, Inc., a provider of e-commerce
solutions to businesses in various vertical markets. Mr. Ross holds a Bachelor
of Science degree in economics from The Wharton School, University of
Pennsylvania, and is a certified public accountant.
VINCENT J. RYAN is a Director of the Company, a position he has held for
over ten years. Mr. Ryan is the founder of Schooner and its predecessor,
Schooner Capital Corporation. Mr. Ryan has served as the Chairman and Chief
Executive Officer of Schooner since 1971, and as its President from 1971 to 1985
and from 1996 to 1999. Prior to November 1995, Mr. Ryan served as Chairman of
the Iron Mountain Board of Directors.
29
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's executive officers, Directors and persons who own more than ten
percent of a registered class of the Company's equity securities file reports of
ownership on Form 3 and changes in ownership on Form 4 or 5 with the Securities
and Exchange Commission (the "Commission"). Such executive officers, Directors
and ten percent shareholders are also required by Commission rules to furnish to
the Company copies of all Section 16(a) reports that they file. Based solely on
its review of the copies of such forms received by it, or written
representations from certain reporting persons that they were not required to
file a Form 5, the Company believes that, during the fiscal year ended
December 31, 2000, the executive officers, Directors and ten percent
shareholders of the Company complied with all Section 16(a) filing requirements
applicable to such persons.
ITEM 11. EXECUTIVE COMPENSATION.
The following table provides certain information concerning compensation
earned by the Chief Executive Officer and the other four most highly compensated
executive officers of the Company measured as of December 31, 2000 (the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
------------
NUMBER OF
ANNUAL COMPENSATION SHARES
------------------- OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION(1)
- --------------------------- -------- -------- -------- ------------ ------------ ---------------
C. Richard Reese ............. 2000 $428,366 (2) 0 0 $ 3,400
Chairman of the Board and 1999 $358,000 $250,000 0 0 $ 3,200
Chief Executive Officer 1998 $308,538 $190,000 0 0 $ 4,000
John F. Kenny, Jr. ........... 2000 $257,019 (2) 0 0 $ 3,400
Executive Vice President and 1999 $218,300 $153,000 0 26,765 $ 3,200
Chief Financial Officer 1998 $192,788 $135,000 0 0 $ 2,400
Harold E. Ebbighausen ........ 2000 $210,385 (2) 0 0 $ 3,199
President of Arcus Data 1999 $193,300 $ 80,000 0 35,690 $ 3,200
Security, Inc. 1998 $148,269 $110,000 0 0 $ 2,400
Robert G. Miller ............. 2000 $209,423 (2) $74,897 38,663 $ 3,051
President and Chief 1999 $153,500 $ 61,400 0 11,150 $ 2,983
Operating Officer of Iron 1998 $137,846 $ 27,570 0 0 $ 3,446
Mountain Records Management,
Inc.
J. Peter Pierce(3) ........... 2000 $137,500 -- 0 5,740 $1,291,763(4)
President 1999 -- -- -- -- --
1998 -- -- -- -- --
- ------------------------
(1) Reflects the Company's matching contribution to The Iron Mountain Companies
401(k) Plan and The Iron Mountain Profit Sharing/401(k) Plan for each
individual. Amounts shown for 2000 are estimated maximum contributions; the
final contributions have not yet been calculated.
(2) The Compensation Committee has not yet met with respect to year 2000 bonuses
and accordingly those amounts have not yet been determined.
(3) Mr. Pierce, who became an employee and President of the Company following
the merger of Iron Mountain and Pierce Leahy in February 2000, resigned from
that office effective June 30, 2000, and is no longer an executive officer
of the Company.
(4) Includes the estimated 401(k) contribution of $2,180 and the severance
payment of $1,289,583 based on Mr. Pierce's employment agreement.
30
The following table sets forth certain information concerning the grant of
options to purchase Company common stock to the Named Executive Officers during
the year ended December 31, 2000.
OPTION GRANTS IN 2000
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME AND PRINCIPAL POSITION GRANTED FISCAL YEAR 2000 ($/SH) DATE 5% 10%
- --------------------------- ---------- ---------------- -------- ---------- ------------ ------------
Robert G. Miller .............. 23,682 4.23% $33.781 4/24/2010 $1,303,126 $2,075,017
President and Chief Operating 14,981 2.67% $33.375 11/15/2010 $ 814,427 $1,296,845
Officer of Iron Mountain
Records Management, Inc.
J. Peter Pierce(2) ............ 5,740 1.02% $33.875 7/2/2010 $ 316,727 $ 504,334
President
- --------------------------
(1) Potential Realizable Value is based on the assumed growth rates for an
assumed ten-year option term. Five percent annual growth results in a Common
Stock price per share of $55.026, $54.364 and $55.179, and ten percent
annual growth results in a Common Stock price per share of $87.620, $86.566
and $87.863, respectively, for such term. The actual value, if any, an
executive may realize will depend on the excess of the market price of the
Common Stock over the exercise price on the date the option is exercised.
There is no assurance that the value realized by an executive will be at or
near the amounts reflected in this table.
(2) Mr. Pierce, who became President of the Company following the merger of Iron
Mountain and Pierce Leahy, resigned from that office effective June 30,
2000, and is no longer an executive officer of the Company.
The following table sets forth certain information with respect to stock
options during the year ended December 31, 2000 exercised by, and the
unexercised options to purchase common stock held by, the Named Executive
Officers.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT MONEY-OPTIONS AT
DECEMBER 31, 2000(1) DECEMBER 31, 2000
SHARES ACQUIRED VALUE --------------------------- ----------------------------
NAME AND PRINCIPAL POSITION ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- --------------- -------- ----------- ------------- ------------ -------------
John F. Kenny, Jr ......... 0 0 214,213 96,932 $4,715,378 $1,381,993
Executive Vice President,
Chief Financial Officer
Harold E. Ebbighausen ..... 0 0 33,259 39,216 $ 446,287 $ 261,575
President of Arcus Data
Security Inc.
Robert G. Miller .......... 0 0 39,736 54,624 $1,046,893 $ 338,227
President and Chief
Operating Officer of Iron
Mountain Records
Management, Inc.
J. Peter Pierce(2) ........ 0 0 478 5,262 $ 1,404 $ 15,457
President
- --------------------------
(1) Based on a year-end value of $36.8125 per share, less the exercise price.
(2) Mr. Pierce, who became President of the Company following the merger of Iron
Mountain and Pierce Leahy, resigned from that office effective June 30,
2000, and is no longer an executive officer of the Company.
31
DIRECTOR COMPENSATION
Directors who are employees of the Company do not receive additional
compensation for serving as Directors. Each Director who is not an employee of
the Company receives an annual retainer fee of $12,000 as compensation for his
or her services as a member of the Company Board and $500 for attendance at
committee meetings ($1,000 per meeting for the Chairman of the committee). In
addition, the Company has a program by which it grants its nonemployee Directors
options to purchase $200,000 of the Company's Common Stock every three years.
Each option is granted under the Iron Mountain Incorporated 1995 Stock Incentive
Plan or the Iron Mountain Incorporated 1997 Stock Option Plan (the "Stock
Incentive Plan" and the "Stock Option Plan," respectively), has an exercise
price equal to fair market value (as defined in the Stock Incentive Plan or the
Stock Option Plan, as applicable) on the date of grant, vests in equal amounts
over a period of three years and has a ten year term. All Directors are
reimbursed for out-of-pocket expenses incurred in attending meetings of the
Company Board or committees thereof, and for other expenses incurred in their
capacities as Directors.
The Company paid a total of $96,000 in cash for Directors fees in respect of
services for 2000.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENT
The Stock Incentive Plan provides for acceleration of the vesting of options
and stock appreciation rights ("SARs") if the Company or any wholly owned
subsidiary of the Company is a party to a merger or consolidation (whether or
not the Company is the surviving corporation) in any transaction or series of
related transactions and there is a "Limited Change of Control" of the Company.
A Limited Change of Control occurs if after the merger or consolidation
(a) individuals who immediately prior to the merger or consolidation served as
members of the Company Board no longer constitute a majority of the Company
Board or the board of directors of the surviving corporation and (b) the voting
securities of the Company outstanding immediately prior to the merger or
consolidation do not represent (either by remaining outstanding or upon
conversion into securities of the surviving corporation) more than 50% of the
voting power of the securities of the Company or the surviving corporation
immediately after the merger or consolidation.
As part of the merger with Pierce Leahy, Iron Mountain entered into a four
year employment agreement with J. Peter Pierce. Under the agreement, Mr. Pierce
was to serve as the Company's President. In connection with Mr. Pierce's
resignation as President, Iron Mountain and Mr. Pierce amended the employment
agreement and, in lieu of the payments and benefits provided for in the
employment agreement, Mr. Pierce received severance pay at the annual rate of
$325,000 through December 31, 2000 and a payment of $1,127,083. All payments
owed to Mr. Pierce pursuant to the employment agreement, as amended, have been
paid in full. Mr. Pierce is subject to customary confidentiality and
noncompetition agreements as part of the employment agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company Board consists of Mr. Little, who
is the Chairman, and Messrs. Boden, Ryan and Bailey. Mr. Ryan is the Chairman of
the Board and principal shareholder of Schooner Capital Trust. See "Item 13.
Certain Relationships and Related Transactions."
32
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to us with respect
to beneficial ownership of Common Stock by (i) each Director, (ii) the Named
Executive Officers, (iii) all Directors and Named Executive Officers of the
Company as a group and (iv) each shareholder known by us to be the beneficial
owner of more than five percent of the Common Stock. Such information is
presented as of March 1, 2001, except as otherwise indicated.
AMOUNT OF BENEFICIAL
OWNERSHIP(1)
-----------------------------
NAME SHARES PERCENT OWNED
- ---- ---------- -------------
DIRECTORS AND EXECUTIVE OFFICERS
C. Richard Reese(2)......................................... 1,689,458 3.0%
John F. Kenny, Jr.(3)....................................... 238,670 *
Harold E. Ebbighausen(4).................................... 34,386 *
Robert G. Miller(5)......................................... 51,514 *
Clarke H. Bailey(6)......................................... 60,371 *
Constantin R. Boden(7)...................................... 37,220 *
Kent P. Dauten(8)........................................... 1,265,127 2.3%
Eugene B. Doggett(9)........................................ 18,400 *
B. Thomas Golisano(10)...................................... 1,243,440 2.2%
J. Peter Pierce(11)......................................... 5,805,611 10.5%
Arthur D. Little(12)........................................ 44,665 *
Howard D. Ross(13).......................................... 2,200 *
Vincent J. Ryan(14)......................................... 5,102,025 9.2%
All Directors and executive officers as a group (13
persons)(15).............................................. 14,718,838 26.5%
FIVE PERCENT SHAREHOLDERS
Thomas W. Smith(16)......................................... 3,858,673 7.0%
Thomas N. Tryforos(17)...................................... 3,105,391 5.6%
T. Rowe Price Associates, Inc.(18).......................... 3,924,220 7.1%
- ------------------------
* Less than 1%
(1) Except as otherwise indicated, the persons named in the table above have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them.
(2) Mr. Reese is a Director, Chairman of the Board, Chief Executive Officer and
President of the Company. Includes 25,164 shares of Common Stock held in
trusts for the benefit of Mr. Reese's children, as to which Mr. Reese
disclaims beneficial ownership. Also includes 874,249 shares of Common
Stock as to which Mr. Reese shares beneficial ownership with Schooner
Capital LLC ("Schooner") as a result of a 1988 deferred compensation
arrangement, as amended, between Schooner and Mr. Reese relating to
Mr. Reese's former services as President of the predecessor corporation to
Schooner. Pursuant to such arrangement, upon the earlier to occur of
(i) Schooner's sale or exchange of substantially all of the shares of
Common Stock held by Schooner or (ii) the cessation of Mr. Reese's
employment with the Company, Schooner is required to transfer such shares
of Common Stock to Mr. Reese or remit to Mr. Reese cash in an amount equal
to the then current fair market value of such shares of Common Stock.
Schooner has agreed to vote the shares of Common Stock subject to such
arrangement at the direction of Mr. Reese.
33
(3) Mr. Kenny is the Executive Vice President, Chief Financial Officer and a
Director of the Company. Includes 226,427 shares that Mr. Kenny has the
right to acquire pursuant to currently exercisable options.
(4) Mr. Ebbighausen is the President of Arcus Data Security, Inc. Includes
33,260 shares that Mr. Ebbighausen has the right to acquire pursuant to
currently exercisable options.
(5) Mr. Miller is the President and Chief Operating Officer of the Iron
Mountain Records Management, Inc. All 51,514 shares are shares that
Mr. Miller has the right to acquire pursuant to currently exercisable
options.
(6) Mr. Bailey is a Director of the Company. Includes 5,900 shares that
Mr. Bailey has the right to acquire pursuant to currently exercisable
options.
(7) Mr. Boden is a Director of the Company. Includes 5,900 shares that
Mr. Boden has the right to acquire pursuant to currently exercisable
options.
(8) Mr. Dauten is a Director of the Company. Includes 5,900 shares that
Mr. Dauten has the right to acquire pursuant to currently exercisable
options.
(9) Mr. Doggett is a Director of the Company. Includes 5,900 shares that
Mr. Doggett has the right to acquire pursuant to currently exercisable
options.
(10) Mr. Golisano is a Director of the Company. Includes 11,327 shares that
Mr. Golisano has the right to acquire pursuant to currently exercisable
options.
(11) The information is presented as of December 31, 2000, and is based on a
Schedule 13G filed with the Commission on February 14, 2001. Mr. Pierce is
a Director of the Company. Includes 1,435 shares that Mr. Pierce has the
right to acquire pursuant to currently exercisable options. Also includes
5,786,026 shares held in a voting trust pursuant to a Voting Trust
Agreement dated June 24, 1997 (as amended or restated from time to time,
the "Voting Trust"). Mr. Pierce, as sole trustee of the Voting Trust holds
the power to vote the shares held in the Voting Trust. The beneficial
owners of the interests in the Voting Trust have the right to dispose of
the shares to which they have beneficial interests. In addition to the
928,401 shares owned directly by Mr. Pierce that are held in the Voting
Trust, Mr. Pierce directly owns 18,150 shares that are not subject to the
Voting Trust. Mr. Pierce's address is 209 West Lancaster Avenue, Suite 101,
Paoli, Pennsylvania 19301.
(12) Mr. Little is a Director of the Company. Includes 37,500 shares held by The
Little Family Trust, as to which Mr. Little disclaims beneficial ownership,
as well as 5,900 shares that Mr. Little has the right to acquire pursuant
to currently exercisable options.
(13) Mr. Ross is a Director of the Company. All 2,200 shares are shares that
Mr. Ross has the right to acquire pursuant to currently exercisable
options.
(14) Mr. Ryan is a Director of the Company. Includes 5,900 shares that Mr. Ryan
has the right to acquire pursuant to currently exercisable options. Also
includes (i) 2,736,076 shares of Common Stock held by Schooner, as to which
Mr. Ryan has sole voting power and investment power as the Chairman of the
Board of Schooner and the principal stockholder of Schooner Capital Trust,
the sole member of Schooner; (ii) 6,000 shares held in a trust for the
benefit of Mr. Ryan's heirs, as to which Mr. Ryan disclaims beneficial
ownership except to the extent of his pecuniary interest therein; and
(iii) 55,500 shares held by The Schooner Foundation as to which Mr. Ryan
disclaims beneficial ownership. Mr. Ryan's address is c/o Schooner Capital
LLC, 745 Atlantic Avenue, Boston, Massachusetts 02111.
(15) Includes 361,563 shares that Directors and executive officers have the
right to acquire pursuant to currently exercisable options.
34
(16) This information is presented as of December 31, 2000, and is based solely
on a Schedule 13G filed with the Commission on February 14, 2001.
Mr. Smith has sole voting and dispositive power over 777,033 shares and has
shared voting and dispositive power over 3,081,640 shares with
Mr. Tryforos. The address of Mr. Smith is 323 Railroad Avenue, Greenwich,
Connecticut 06830.
(17) This information is presented as of December 31, 2000, and is based solely
on a Schedule 13G filed with the Commission on February 14, 2001.
Mr. Tryforos has sole voting and dispositive power over 23,751 shares and
has shared voting and dispositive power over 3,081,640 shares with
Mr. Smith. The address of Mr. Tryforos is 323 Railroad Avenue, Greenwich,
Connecticut 06830.
(18) This information is presented as of December 31, 2000, and is based solely
on a Schedule 13G filed with the Commission on February 8, 2001. These
securities are owned by various individual and institutional investors for
which T. Rowe Price Associates, Inc. ("Price Associates") serves as
independent advisor with power to direct investments and/or sole power to
vote the securities. Price Associates has sole voting power over 781,500
shares and sole dispositive power over 3,924,220 shares, but disclaims
beneficial ownership as to all of these shares. The address of T. Rowe
Price Associates, Inc. is 100 E. Pratt Street, Baltimore, Maryland 21202.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
REAL ESTATE TRANSACTIONS
Schooner leases space from the Company at the Company's corporate
headquarters. Vincent J. Ryan, a Director of the Company, is the Chairman and
Chief Executive Officer of Schooner. Such lease is a tenancy-at-will and may be
terminated by either the Company or by Schooner at any time. As consideration
for such lease, Schooner pays rent to the Company based on its pro rata share of
all expenses related to the use and occupancy of the premises. The rent paid by
Schooner to the Company under such lease was approximately $96,000 in the year
ended December 31, 2000, and Schooner currently pays annual rent of
approximately $101,000. The Company believes that the terms of this lease are no
less favorable to it than would have been negotiated with an unrelated third
party.
The Company leases from three separate limited partnerships certain of its
facilities in Suffield, Connecticut, Orlando, Florida and Charlotte, North
Carolina. J. Peter Pierce, a Director of the Company, is the general partner of
the limited partnerships and members of the Pierce family and their affiliates
own substantial limited partnership interests in each of the limited
partnerships. The leases for the Suffield, Orlando and Charlotte facilities
terminate on December 31, 2005, October 31, 2004 and August 31, 2001,
respectively. Each of such leases contains two five-year renewal options. The
aggregate rental payment by the Company for such properties during 2000 was
$1,684,000. The Company believes that the terms of these leases are no less
favorable to the Company than would have been negotiated with unrelated third
parties.
OTHER TRANSACTIONS
The Company paid compensation of approximately $212,000 for the year ended
December 31, 2000 to Mr. T. Anthony Ryan. Mr. Ryan is Vice President, Real
Estate, of the Company and is the brother of Vincent J. Ryan, a Director of the
Company. The Company believes that the terms of Mr. Ryan's employment are no
less favorable to it than would be negotiable with an unrelated third party.
The Company provided an annual pension in the amount of $96,000 to Leo W.
Pierce, Sr. for the year ended December 31, 2000. Mr. Pierce formerly served as
Chairman Emeritus of the Company and is the father of J. Peter Pierce, a
Director of the Company. The Company will continue to provide a pension to
Mr. Pierce, or his spouse, if she survives him, in 2001.
35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) and (2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES FILED
AS PART OF THIS REPORT:
A. IRON MOUNTAIN INCORPORATED
PAGE
--------
Report of Independent Public Accountants.................... 37
Consolidated Balance Sheets, December 31, 1999 and 2000..... 38
Consolidated Statements of Operations, Years ended December
31, 1998, 1999 and 2000................................... 39
Consolidated Statements of Shareholders' Equity and
Comprehensive Loss, Years ended December 31, 1998, 1999
and 2000.................................................. 40
Consolidated Statements of Cash Flows, Years ended December
31, 1998, 1999 and 2000................................... 41
Notes to Consolidated Financial Statements.................. 42
B. IRON MOUNTAIN EUROPE LIMITED
Report of the Independent Auditors.......................... 73
C. FINANCIAL STATEMENT SCHEDULE:
Report of Independent Public Accountants.................... 74
Schedule II--Valuation and Qualifying Accounts.............. 75
(a)(3) EXHIBITS FILED AS PART OF THIS REPORT:
As listed in the Exhibit Index following the signature page hereof.
(b) REPORTS ON FORM 8-K:
On November 14, 2000, the Company filed a Current Report on Form 8-K under
Item 7 to update previously filed pro forma information with the Company's
results of operations for the nine months ended September 30, 2000.
36
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Iron Mountain Incorporated:
We have audited the accompanying consolidated balance sheets of Iron
Mountain Incorporated (a Pennsylvania corporation) and its subsidiaries as of
December 31, 1999 and 2000, and the related consolidated statements of
operations, shareholders' equity and comprehensive loss and cash flows for each
of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of Iron Mountain Incorporated's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the consolidated financial statements of Iron
Mountain Europe Limited as of October 31, 1999 and 2000, which statements
reflect total assets and total revenues of 12 percent and 6 percent in 1999, and
6 percent and 5 percent in 2000, respectively, of the related consolidated
totals. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for this entity, is based solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Iron Mountain Incorporated and its subsidiaries as of
December 31, 1999 and 2000 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 23, 2001
37
IRON MOUNTAIN INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
-----------------------
1999 2000
---------- ----------
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 3,830 $ 6,200
Accounts receivable (less allowances of $5,740 and $15,989
as of 1999 and 2000, respectively)...................... 104,074 176,442
Deferred income taxes..................................... 12,475 30,990
Prepaid expenses and other................................ 23,285 23,036
---------- ----------
Total Current Assets.................................... 143,664 236,668
Property, Plant and Equipment:
Property, plant and equipment............................. 497,369 984,939
Less--Accumulated depreciation............................ (93,630) (152,545)
---------- ----------
Net Property, Plant and Equipment....................... 403,739 832,394
Other Assets, net:
Goodwill.................................................. 729,213 1,525,630
Customer acquisition costs................................ 16,742 27,692
Deferred financing costs.................................. 16,549 14,534
Other..................................................... 7,305 22,178
---------- ----------
Total Other Assets, net................................. 769,809 1,590,034
---------- ----------
Total Assets............................................ $1,317,212 $2,659,096
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt......................... $ 9,890 $ 40,789
Accounts payable.......................................... 25,770 42,531
Accrued expenses.......................................... 68,519 153,291
Deferred income........................................... 32,981 53,884
Other current liabilities................................. 13,188 23,558
---------- ----------
Total Current Liabilities............................... 150,348 314,053
Long-term Debt, net of current portion...................... 603,057 1,314,342
Other Long-term Liabilities................................. 5,749 7,920
Deferred Rent............................................... 10,819 16,346
Deferred Income Taxes....................................... 16,207 38,948
Commitments and Contingencies (see Note 13)
Minority Interest........................................... 42,278 43,029
Shareholders' Equity:
Common stock.............................................. 369 553
Additional paid-in capital................................ 560,620 990,854
Accumulated deficit....................................... (31,558) (59,383)
Accumulated other comprehensive items..................... (1,193) (7,566)
Treasury stock............................................ (39,484) --
---------- ----------
Total Shareholders' Equity.............................. 488,754 924,458
---------- ----------
Total Liabilities and Shareholders' Equity.............. $1,317,212 $2,659,096
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
38
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Revenues:
Storage................................................... $230,702 $317,387 $585,664
Service and storage material sales........................ 153,259 202,162 400,707
-------- -------- --------
Total Revenues.......................................... 383,961 519,549 986,371
Operating Expenses:
Cost of sales (excluding depreciation).................... 192,113 260,930 482,771
Selling, general and administrative....................... 95,867 128,948 246,559
Depreciation and amortization............................. 48,301 65,422 126,810
Stock option compensation expense......................... -- -- 15,110
Merger-related expenses................................... -- -- 9,133
-------- -------- --------
Total Operating Expenses................................ 336,281 455,300 880,383
Operating Income............................................ 47,680 64,249 105,988
Interest Expense............................................ 45,673 54,425 117,975
Other Income (Expense), net................................. 1,384 17 (6,045)
-------- -------- --------
Income (Loss) from Continuing Operations Before Provision
for Income Taxes and Minority Interest.................. 3,391 9,841 (18,032)
Provision for Income Taxes.................................. 6,558 10,579 9,125
Minority Interest in Earnings (Losses) of Subsidiaries...... -- 322 (2,224)
-------- -------- --------
Loss from Continuing Operations before Extraordinary
Item.................................................... (3,167) (1,060) (24,933)
Income from Discontinued Operations......................... 201 241 --
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................................................ $ (2,966) $(14,219) $(27,825)
======== ======== ========
Net Loss per Share--Basic and Diluted:
Loss from Continuing Operations........................... $ (0.12) $ (0.03) $ (0.47)
Discontinued Operations................................... 0.01 (0.40) --
Extraordinary Charge from Early Extinguishment of Debt.... -- -- (0.05)
-------- -------- --------
Net Loss per Share--Basic and Diluted................... $ (0.11) $ (0.43) $ (0.52)
======== ======== ========
Weighted Average Common Shares Outstanding--Basic and
Diluted................................................... 27,470 33,345 53,125
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
39
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ACCUMULATED
VOTING ADDITIONAL OTHER TOTAL
--------------------- PAID-IN ACCUMULATED COMPREHENSIVE TREASURY SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT ITEMS STOCK EQUITY
---------- -------- ---------- ------------ -------------- -------- -------------
BALANCE, DECEMBER 31, 1997........ 20,180,177 $202 $151,904 $(14,373) $ -- $ -- $137,733
Shares and options issued in
connection with acquisitions,
net of issuance costs........... 2,645,913 26 66,888 -- -- -- 66,914
Issuance of shares in secondary
Public offering, net of issuance
costs........................... 6,037,500 60 131,961 -- -- -- 132,021
Exercise of stock options,
including tax benefit........... 566,615 6 5,174 -- -- -- 5,180
Net loss.......................... -- -- -- (2,966) -- -- (2,966)
---------- ---- -------- -------- ------- ------- --------
BALANCE, DECEMBER 31, 1998........ 29,430,205 294 355,927 (17,339) -- -- 338,882
Shares and options issued in
connection with acquisitions,
net of issuance costs........... 1,476,577 15 45,745 -- -- -- 45,760
Issuance of shares in secondary
Public offering, net of issuance
costs........................... 5,750,000 57 152,486 -- -- -- 152,543
Issuance of shares under Employee
Stock Purchase Plan and Option
Plans, including tax benefit.... 286,830 3 6,179 -- -- -- 6,182
Acceleration of options in
connection with sale of
business........................ -- -- 283 -- -- -- 283
Currency translation adjustment... -- -- -- -- (1,193) -- (1,193)
Purchase of treasury shares....... -- -- -- -- -- (39,484) (39,484)
Net loss.......................... -- -- -- (14,219) -- -- (14,219)
---------- ---- -------- -------- ------- ------- --------
BALANCE, DECEMBER 31, 1999........ 36,943,612 369 560,620 (31,558) (1,193) (39,484) 488,754
Shares and options issued in
connection with acquisitions,
net of issuance costs........... 18,783,813 188 444,801 -- -- -- 444,989
Issuance of shares under Employee
Stock Purchase Plan and Option
Plans, including tax benefit.... 1,029,050 11 9,792 -- -- -- 9,803
Stock option compensation
expense......................... -- -- 15,110 -- -- -- 15,110
Currency translation adjustment... -- -- -- -- (6,373) -- (6,373)
Retirement of treasury stock...... (1,476,577) (15) (39,469) -- -- 39,484 --
Net loss.......................... -- -- -- (27,825) -- -- (27,825)
---------- ---- -------- -------- ------- ------- --------
BALANCE, DECEMBER 31, 2000........ 55,279,898 $553 $990,854 $(59,383) $(7,566) $ -- $924,458
========== ==== ======== ======== ======= ======= ========
1998 1999 2000
---- ---- ----
COMPREHENSIVE LOSS:
Net loss.................................................... $(2,966) $(14,219) $(27,825)
Foreign currency translation adjustment..................... -- (1,193) (6,373)
------- -------- --------
Comprehensive loss.......................................... $(2,966) $(15,412) $(34,198)
======= ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
40
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Cash Flows from Operating Activities:
Net loss.................................................. $ (2,966) $(14,219) $(27,825)
Adjustments to reconcile net loss to loss from continuing
operations before extraordinary item:
Income from discontinued operations....................... (201) (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... (3,167) (1,060) (24,933)
Adjustments to reconcile loss from continuing operations
before extraordinary item to cash flows provided by
operating activities of continuing operations:
Minority interest......................................... -- 322 (2,224)
Depreciation and amortization............................. 48,301 65,422 126,810
Amortization of deferred financing costs and bond
discount................................................ 1,801 1,981 2,595
Provision for doubtful accounts........................... 1,730 2,733 9,714
Stock option compensation expense......................... -- -- 15,110
Foreign currency (gain) loss and other, net............... 316 238 4,737
Changes in Assets and Liabilities (exclusive of
acquisitions):
Accounts receivable....................................... (12,924) (22,996) (15,881)
Prepaid expenses and other current assets................. 4,410 (9,691) 19,332
Deferred income taxes..................................... 9,058 8,989 8,350
Other assets.............................................. 13 663 474
Accounts payable.......................................... 5,282 2,009 (553)
Accrued expenses and other current liabilities............ (127) 6,306 8,779
Deferred rent............................................. 1,414 1,203 5,527
Deferred income........................................... 7,369 3,331 686
Other long-term liabilities............................... 3,587 (3,176) (919)
-------- -------- --------
Cash Flows Provided by Operating Activities of Continuing
Operations................................................ 67,063 56,274 157,604
Cash Flows Provided by (Used in) Operating Activities of
Discontinued Operations................................... 67 (836) --
-------- -------- --------
Cash Flows Provided by Operating Activities............... 67,130 55,438 157,604
Cash Flows from Investing Activities:
Cash paid for acquisitions, net of cash acquired.......... (189,729) (212,160) (140,940)
Capital expenditures...................................... (55,927) (98,657) (168,706)
Investment in convertible preferred stock................. -- -- (6,524)
Additions to customer acquisition costs................... (3,024) (8,122) (12,779)
Proceeds from sale of property and equipment.............. -- -- 1,320
-------- -------- --------
Cash Flows Used in Investing Activities of Continuing
Operations................................................ (248,680) (318,939) (327,629)
Cash Flows Provided by (Used in) Investing Activities of
Discontinued Operations................................... (527) 7,814 --
-------- -------- --------
Cash Flows Used in Investing Activities................... (249,207) (311,125) (327,629)
Cash Flows from Financing Activities:
Repayment of debt......................................... (171,080) (249,654) (596,744)
Proceeds from borrowings.................................. 194,811 235,141 404,993
Proceeds from term loans.................................. -- -- 350,000
Debt financing and equity contribution from minority
shareholder............................................. -- 11,636 11,430
Net proceeds from sale of senior subordinated notes....... -- 149,460 --
Proceeds from secondary equity offering, net of
underwriting discount................................... 132,905 153,755 --
Repurchase of common stock................................ -- (39,484) --
Exercise of stock options................................. 4,482 3,589 8,180
Financing and stock issuance costs........................ (1,836) (6,590) (5,449)
-------- -------- --------
Cash Flows Provided by Financing Activities............... 159,282 257,853 172,410
Effect of exchange rates on cash and cash equivalents....... -- (51) (15)
-------- -------- --------
Increase (Decrease) in Cash and Cash Equivalents............ (22,795) 2,115 2,370
Cash and Cash Equivalents, Beginning of Year................ 24,510 1,715 3,830
-------- -------- --------
Cash and Cash Equivalents, End of Year...................... $ 1,715 $ 3,830 $ 6,200
======== ======== ========
Supplemental Information:
Cash Paid for Interest...................................... $ 42,407 $ 46,555 $ 98,114
======== ======== ========
Cash Paid for Income Taxes.................................. $ 1,700 $ 1,916 $ 2,891
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
41
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
1. NATURE OF BUSINESS
The accompanying financial statements represent the consolidated accounts of
Iron Mountain Incorporated, a Pennsylvania corporation, and its subsidiaries
(collectively "Iron Mountain" or the "Company"). Iron Mountain is an
international full-service provider of records and information management and
related services for all media in various locations throughout the United
States, Canada, Europe, Mexico and South America to Fortune 500 companies and
numerous legal, banking, health care, accounting, insurance, entertainment and
government organizations.
On February 1, 2000, the Company completed its acquisition of Pierce Leahy
in a stock-for-stock merger valued at $1.0 billion. The acquisition was
structured as a reverse merger with Pierce Leahy being the surviving legal
entity and immediately changing its name to Iron Mountain Incorporated.
Immediately after the merger the former stockholders of Iron Mountain owned
approximately 65% of the Company's common stock. Because of this share
ownership, Iron Mountain is considered the acquiring entity for accounting
purposes. This transaction has been accounted for under the purchase method of
accounting.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation
The accompanying financial statements reflect the financial position and
results of operations of Iron Mountain on a consolidated basis. All
significant intercompany account balances have been eliminated.
b. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
c. Cash and Cash Equivalents
The Company defines cash and cash equivalents to include cash on hand
and cash invested in short-term securities which have original maturities of
less than 90 days. Cash and cash equivalents are carried at cost, which
approximates fair value.
d. Foreign Currency Translation
Local currencies are considered the functional currencies for most of
the Company's operations outside the United States. All assets and
liabilities are translated at year-end exchange rates, and revenues and
expenses are translated at average exchange rates for the year, in
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 52, "Foreign Currency Translation." Resulting translation adjustments
are reflected in the "Accumulated Other Comprehensive Items" component of
stockholders' equity. The gain or loss on foreign currency transactions,
including those related to U.S. dollar denominated 8 1/8% Senior Notes of
the Company's Canadian subsidiary and those related to the British pound
sterling denominated
42
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
intercompany obligation of the Company's 50.1% owned British subsidiary to
the Company are included in Other Income (Expense), net, on the Company's
Consolidated Statements of Operations.
e. Derivative Instruments and Hedging Activities
On December 31, 1998, the Company had a receivable denominated in
British pounds sterling from, and a payable in U.S. dollars to, a bank as a
result of exercising a foreign exchange agreement on December 30, 1998.
Included in Other Income (Expense), net, for the year ended December 31,
1998 is a $316 loss on the remeasurement of the receivable based on the
applicable exchange rate on December 31, 1998. The British pounds sterling
were being acquired to finance the acquisition of Iron Mountain Europe
Limited ("IM Europe") on January 4, 1999. As of December 31, 2000, the
Company did not have any such foreign exchange agreement.
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"), as amended by SFAS 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities and is effective for all fiscal years beginning after June 15,
2000, as amended by SFAS 137, "Accounting for Derivative Instruments and
Hedging Activities." The Company has adopted SFAS 133 prospectively
beginning January 1, 2001.
SFAS 133 requires that every derivative instrument be recorded in the
balance sheet as either an asset or a liability measured at its fair value.
SFAS 133 requires that as of the date of initial adoption, the difference
between the fair value of the derivative instruments recorded on the balance
sheet and the previous carrying amount of those derivatives be reported in
net income or other comprehensive income, as appropriate.
Periodically, the Company acquires derivative instruments that are
intended to hedge either cash flows or values which are subject to exchange
or other market price risk, and not for trading purposes. On December 20,
2000, the Company entered into an interest rate swap contract to hedge the
risk of changes in specifically identified cash flows attributable to
changes in market interest rates. The derivative instrument is a
variable-for-fixed swap of interest payments payable on the last two
principal payments, $48,000 on November 30, 2005 and $51,500 on
February 28, 2006, of the Company's Tranche B term loan. The notional value
of the swap equals $99,500 and has a fixed rate of 5.9% and a variable rate
based on periodic three month LIBOR rates. The fair value of the swap as of
December 31, 2000 was a liability of $214. On January 1, 2001, the Company
adopted the provisions of SFAS No. 133 resulting in the recognition of a
derivative liability and a corresponding transition adjustment charge to
other comprehensive items of approximately $214.
43
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
f. Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated using
the straight-line method with the following useful lives:
Buildings............................ 40 to 50 years
Leasehold improvements............... 8 to 10 years or the life of the
lease, whichever is shorter
Racking.............................. 5 to 20 years
Warehouse equipment/vehicles......... 4 to 20 years
Furniture and fixtures............... 3 to 10 years
Computer hardware and software....... 3 to 5 years
Property, plant and equipment consist of the following:
DECEMBER 31,
-------------------
1999 2000
-------- --------
Land and buildings...................................... $158,648 $331,921
Leasehold improvements.................................. 35,011 62,381
Racking................................................. 180,876 364,337
Warehouse equipment/vehicles............................ 28,954 45,532
Furniture and fixtures.................................. 11,886 22,574
Computer hardware and software.......................... 60,998 96,408
Construction in progress................................ 20,996 61,786
-------- --------
$497,369 $984,939
======== ========
Minor maintenance costs are expensed as incurred. Major improvements
which extend the life, increase the capacity or improve the safety or the
efficiency of property owned are capitalized. Major improvements to leased
buildings are capitalized as leasehold improvements and depreciated.
The Company develops various software applications for internal use.
Payroll and related costs for employees who are directly associated with and
who devote time to the development of internal-use computer software
projects (to the extent of the time spent directly on the project) are
capitalized and amortized over the useful life of the software.
Capitalization begins when the design stage of the application has been
completed, it is probable that the project will be completed and the
application will be used to perform the function intended. Amortization
begins when the software is placed in service.
Effective January 1, 1999, the Company adopted the provisions of
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires
computer software costs associated with internal use software to be expensed
as incurred until certain capitalization criteria are met. SOP 98-1 also
defines which types of costs should be capitalized and which should be
expensed. This accounting pronouncement
44
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
resulted in certain costs being expensed starting in 1999 that would have
been capitalized under the previous policy.
g. Goodwill
Goodwill reflects the cost in excess of fair value of the net assets of
companies acquired in purchase transactions. Goodwill is amortized using the
straight-line method from the date of acquisition over the expected period
to be benefited, currently estimated at 25 to 30 years. The Company assesses
the recoverability of goodwill, as well as other long-lived assets, when
there is an indication of possible impairment, based upon expectations of
future undiscounted cash flows in accordance with SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." Accumulated amortization of goodwill was $76,865 and $128,662
as of December 31, 1999 and 2000, respectively.
h. Customer Acquisition Costs
Costs related to the acquisition of large volume accounts, net of
revenues received for the initial transfer of the records, are capitalized
and amortized for an appropriate period not to exceed 12 years. If the
customer terminates its relationship with the Company, the unamortized cost
is charged to expense. However, in the event of such termination, the
Company collects, and records as income, permanent removal fees that
generally equal or exceed the amount of the unamortized costs. As of
December 31, 1999 and 2000, accumulated amortization of those costs were
$4,004 and $5,975, respectively.
i. Deferred Financing Costs
Deferred financing costs are amortized over the life of the related debt
using the effective interest rate method. If debt is retired early,
unamortized deferred financing costs are written off as an extraordinary
charge in the period the debt is retired. As of December 31, 1999 and 2000,
accumulated amortization of those costs was $5,517 and $5,592, respectively.
j. Investment in Preferred Stock
In May 2000, the Company made a $6.5 million investment in the
convertible preferred stock of a certain technology development company. The
investment has been recorded at cost and is included in other assets in the
accompanying consolidated balance sheet.
45
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
k. Accrued Expenses
Accrued expenses consist of the following:
DECEMBER 31,
-------------------
1999 2000
-------- --------
Interest................................................. $15,950 $ 33,657
Payroll and vacation..................................... 10,149 25,492
Restructuring costs...................................... 9,340 28,514
Incentive compensation................................... 6,492 11,701
Other.................................................... 26,588 53,927
------- --------
$68,519 $153,291
======= ========
l. Revenues
The Company's revenues consist of storage revenues as well as service
and storage material sales revenues. Storage revenues consist of periodic
charges related to the storage of materials (either on a per unit or per
cubic foot of records basis). In certain circumstances, based upon customer
requirements, storage revenues include periodic charges associated with
normal, recurring service activities. Service and storage material sales
revenues are comprised of charges for related service activities, the sale
of storage materials and courier operations. In certain circumstances,
storage material sales are recorded net of product costs when the Company
functions as a sales representative of the product manufacturer and does not
receive or take title to the products. Customers are generally billed on a
monthly basis on contractually agreed-upon terms.
Storage and service revenues are recognized in the month the respective
service is provided. Storage material sales are recognized when shipped to
the customer. Amounts related to future storage for customers where storage
fees are billed in advance are accounted for as deferred income and
amortized over the applicable period.
m. Deferred Rent
The Company has entered into various leases for buildings used in the
storage of records. Certain leases have fixed escalation clauses or other
features which require normalization of the rental expense over the life of
the lease resulting in deferred rent being reflected in the accompanying
consolidated balance sheets. In addition, the Company has assumed various
above market leases in connection with certain of its acquisitions. The
discounted present value of these lease obligations in excess of market rate
at the date of the acquisition was recorded as a deferred rent liability and
is being amortized over the remaining lives of the respective leases.
n. Stock-Based Compensation
Effective January 1, 1996, the Company adopted the provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation." The Company has elected
to continue to account for stock
46
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
options at their intrinsic value with disclosure of the effects of fair
value accounting on net income (loss) and earnings (loss) per share on a pro
forma basis.
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 of vesting and extension of the
exercise period of previously granted stock options, which resulted in a
non-cash charge of $15.1 million. In accordance with Accounting Principles
Board Opinion 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.
o. Merger-Related Expenses
Merger-Related Expenses as presented in the accompanying consolidated
financial statements relate primarily to non-capitalizable expenses directly
related to the merger of the Company and Pierce Leahy and consist primarily
of severance and pay-to-stay payments, cost of exiting certain facilities,
system conversion costs and other transaction-related costs.
p. Reclassifications
Certain reclassifications have been made to the 1998 and 1999 financial
consolidated statements to conform to the 2000 presentation.
3. COMMON STOCK SPLIT
On June 30, 1998, the Company's Board of Directors authorized and approved a
three-for-two stock split effected in the form of a dividend on the Company's
common stock. Such additional shares of common stock were issued on July 31,
1998 to all shareholders of record as of the close of business on July 17, 1998.
All issued and outstanding share and per share amounts in the accompanying
consolidated financial statements and Notes thereto have been restated to
reflect the stock split.
47
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
4. DEBT
Long-term debt consists of the following:
DECEMBER 31,
---------------------
1999 2000
-------- ----------
Revolving Credit Facility due 2005.......................... $ 5,000 $ 4,000
Tranche A Term Loan due 2005................................ -- 150,000
Tranche B Term Loan due 2006................................ -- 199,750
11 1/8% Senior Subordinated Notes due 2006 (the "11 1/8%
notes")................................................... -- 131,517
10 1/8% Senior Subordinated Notes due 2006 (the "10 1/8%
notes")................................................... 165,000 165,000
9 1/8% Senior Subordinated Notes due 2007 (the "9 1/8%
notes")................................................... -- 114,216
8 3/4% Senior Subordinated Notes due 2009 (the "8 3/4%
notes")................................................... 249,606 249,646
8 1/4% Senior Subordinated Notes due 2011 (the "8 1/4%
notes")................................................... 149,490 149,535
8 1/8% Senior Subordinated Notes due 2008 (the "Subsidiary
notes")................................................... -- 120,850
Real Estate Mortgage........................................ 2,048 20,457
Seller Notes................................................ -- 13,971
Other....................................................... 41,803 36,189
-------- ----------
Long-term debt.............................................. 612,947 1,355,131
Less current portion........................................ (9,890) (40,789)
-------- ----------
Long-term debt, net of current portion...................... $603,057 $1,314,342
======== ==========
a. Revolving Credit Facility and Term Loans
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. 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. Restrictive covenants under this agreement are
similar to those under the Company's prior credit facility. As of
December 31, 2000, the Company had outstanding borrowings of $353.8 million
under the Amended Credit Agreement, and the interest rates in effect ranged
from 8.72% to 11.25%. In connection with the refinancing of the Company's
credit agreement, the Company recorded a loss on early extinguishment of
debt of $2.9 million (net of tax benefit of $1.9 million).
In December 2000, the Company entered into an interest rate swap
contract to hedge the risk of changes in market interest rates on the
Company's Tranche B term loan. The instrument is a variable-for-fixed swap
of interest payments payable on the last two principal payments, $48,000 on
November 30, 2005 and $51,500 on February 28, 2006, of Tranche B term loan.
The notional value of the swap equals $99,500 and has a fixed rate of 5.9%
and a variable rate based on periodic three-month LIBOR rates. In
January 2001, the Company entered into a second interest rate swap
48
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
4. DEBT (CONTINUED)
contract on the Tranche B term loan. The notional value of the swap equals
$96,000 and has a fixed rate of 5.5% and a variable rate based on periodic
three-month LIBOR rates.
The Amended Credit Agreement specifies certain minimum or maximum
relationships between EBITDA (as defined therein) and interest, total debt
and fixed charges. There are restrictions on dividends declared by the
Company, sales or pledging of assets, investments and changes in business
and ownership; cash dividends are effectively prohibited. The Company was in
compliance with all debt covenants as of December 31, 2000. Loans under the
Amended Credit Agreement are secured by pledges of the capital stock of all
of the Company's domestic subsidiaries.
b. Publicly Issued Notes
The Company has outstanding five series of senior subordinated notes
issued to the public, that are obligations of the parent company, Iron
Mountain Incorporated (the "Parent notes"):
- $130 million principal amount of notes maturing on July 15, 2006 and
bearing interest at a rate of 11 1/8% per annum, payable semi-annually
in arrears on January 15 and July 15;
- $165 million principal amount of notes maturing on October 1, 2006 and
bearing interest at a rate of 10 1/8% per annum, payable semi-annually
in arrears on April 1 and October 1;
- $120 million principal amount of notes maturing on July 15, 2007 and
bearing interest at a rate of 9 1/8% per annum, payable semi-annually
in arrears on January 15 and July 15;
- $250 million principal amount of notes maturing on September 30, 2009
and bearing interest at a rate of 8 3/4% per annum, payable
semi-annually in arrears on March 31 and September 30; and
- $150 million principal amount of notes maturing on July 1, 2011 and
bearing interest at a rate of 8 1/4% per annum, payable semi-annually
in arrears on January 1 and July 1.
The Parent notes are fully and unconditionally guaranteed, on a senior
subordinated basis, by substantially all of the Company's direct and
indirect wholly owned domestic subsidiaries (the "Guarantors"). These
guarantees are joint and several obligations of the Guarantors. In addition,
the 11 1/8% notes and the 9 1/8% notes are secured by a second lien on 65%
of the stock of Iron Mountain Canada Corporation ("Canada Company"). The
remainder of the Company's subsidiaries do not guarantee the Parent notes.
In addition, Canada Company, the Company's principal Canadian
subsidiary, has publicly issued $135 million principal amount of notes that
mature on May 15, 2008 and bear interest at a rate of 8 1/8% per annum,
payable semi-annually in arrears on May 15 and November 15. The Subsidiary
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. The Subsidiary notes are fully and
unconditionally guaranteed, on a senior subordinated basis, by Iron Mountain
and the Guarantors. In addition, several of the non-guarantors that are
organized under
49
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
4. DEBT (CONTINUED)
the laws of Canadian provinces fully and unconditionally guarantee the
Subsidiary notes on a senior basis. As with the Parent Notes, these
guarantees are joint and several.
Each of the indentures for the notes provides that the Company may
redeem the outstanding notes, in whole or in part, upon satisfaction of
certain terms and conditions. In any redemption, the Company is also
required to pay all accrued but unpaid interest on the outstanding notes.
The following table presents the various redemption dates and prices of the
public notes. The redemption dates reflect the date at or after which the notes
may be redeemed at a premium redemption price. After these dates, the notes may
be redeemed at 100% of face value through maturity:
11 1/8% 10 1/8% 9 1/8% 8 3/4% 8 1/4% SUBSIDIARY
NOTES NOTES NOTES NOTES NOTES NOTES
REDEMPTION -------- ---------- -------- ------------- ------- ----------
DATE
- --------------------- JULY 15, OCTOBER 1, JULY 15, SEPTEMBER 30, JULY 1, MAY 15,
2001 105.563% 105.06% -- -- -- --
2002 103.708% 103.38% 104.563% 104.375% -- --
2003 101.854% 101.69% 103.042% 102.916% -- 104.063%
2004 -- -- 101.521% 101.458% 104.125% 102.708%
2005 -- -- -- -- 102.750% 101.354%
2006 -- -- -- -- 101.375% --
Prior to September 30, 2002, the 8 3/4% notes are redeemable at the
Company's option, in whole or in part, at a specified make-whole price.
Prior to July 1, 2004, the 8 1/4% notes are redeemable at the Company's
option, in whole or in part, at a specified make-whole price. Until July 1,
2002, the Company may under certain conditions redeem up to 35% of the 8 1/4%
notes with the net proceeds of one or more equity offerings, at a redemption
price of 108.25% of the principal amount.
In addition, until May 15, 2001, the Company may under certain conditions
redeem up to 35% of the Subsidiary notes with the net proceeds of a public
equity offering, at a redemption price of 108.125% of the principal amount.
Each of the indentures for the notes provides that the Company or, in the
case of the Subsidiary notes, Canada Company must repurchase, at the option of
the holders, the notes at 101% of their principal amount, plus accrued and
unpaid interest, upon the occurrence of a "Change of Control," which is defined
in each respective indenture. Except for required repurchases upon the
occurrence of a change of control or in the event of certain asset sales, each
as described in the respective indenture, the Company is not required to make
sinking fund or redemption payments with respect to any of the notes.
The indentures for the notes contain restrictive covenants similar to those
contained in the credit agreement.
50
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
4. DEBT (CONTINUED)
The 9 1/8% notes, the 11 1/8% notes and the Subsidiary notes were assumed in
the Pierce Leahy merger and were recorded at their fair market value on the date
of merger. The resulting net discount is being amortized over the remaining
period to maturity using the effective interest rate method.
h. Real Estate Mortgages
In connection with the purchase of real estate and acquisitions, the Company
assumed several mortgages on real property. The mortgages bear interest at rates
ranging from 8% to 10.5% that is payable in various installments through 2009.
i. Seller Notes
In connection with the merger with Pierce Leahy in 2000, the Company assumed
debt related to certain existing notes. These notes had been issued to sellers
by Pierce Leahy in connection with certain acquisitions which Pierce Leahy
completed in 1998 and 1999. The notes bear interest at rates ranging from 5% to
8% per year. The outstanding balance on the seller notes at December 31, 2000 is
due on demand through 2009.
j. Other
Other long-term debt includes various notes and obligations assumed by the
Company as a result of certain acquisitions completed by the Company during 1998
through 2000. At December 31, 2000, the Company's 50.1% owned subsidiary, IM
Europe, had various agreements with its local banks that provide for
$30.6 million of credit and carried an average effective interest rate of 6.79%.
Maturities of long-term debt are as follows:
YEAR AMOUNT
- ---- ----------
2001........................................................ $ 40,789
2002........................................................ 8,465
2003........................................................ 9,574
2004........................................................ 4,915
2005........................................................ 301,951
Thereafter.................................................. 989,437
----------
$1,355,131
==========
51
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
4. DEBT (CONTINUED)
Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities, the Company has estimated the
following fair values for its long-term debt as of December 31:
1999 2000
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
Revolving Credit Facility........... $ 5,000 $ 5,000 $ 4,000 $ 4,000
Tranche A Term Loan................. -- -- 150,000 150,000
Tranche B Term Loan................. -- -- 199,750 199,750
11 1/8% notes....................... -- -- 131,517 136,500
10 1/8% notes....................... 165,000 167,900 165,000 170,800
9 1/8% notes........................ -- -- 114,216 118,800
8 3/4% notes........................ 249,606 237,500 249,646 245,600
8 1/4% notes........................ 149,490 136,100 149,535 141,400
Subsidiary notes.................... -- -- 120,850 128,600
Real estate mortgage................ 2,048 2,048 20,457 20,457
Seller Notes........................ -- -- 13,971 13,971
Other............................... 41,803 41,803 36,189 36,189
5. SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND
NON-GUARANTORS
The following financial data summarizes the consolidating Company on the
equity method of accounting as of December 31, 2000 and 1999 and for the year
ended December 31, 2000 and 1999. The Guarantor column includes all subsidiaries
that guarantee the Parent notes and the Subsidiary notes. The Canada Company
column includes Canada Company and the Company's other Canadian subsidiaries
that guarantee the Subsidiary notes, but do not guarantee the Parent notes. The
Parent and the Guarantors also guarantee the Canada Company notes. The
subsidiaries that do not guarantee either the Parent notes or the Subsidiary
notes are referred to in the table as the "non-guarantors."
52
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
5. SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND
NON-GUARANTORS (CONTINUED)
DECEMBER 31, 2000
-----------------------------------------------------------------------------
CANADA NON-
PARENT GUARANTORS COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- -------- ---------- ------------ ------------
ASSETS
Current Assets:
Cash and Cash Equivalents..... $ 191 $ 3,336 $ 302 $ 2,371 $ -- $ 6,200
Accounts Receivable........... 7,060 140,095 12,370 16,917 -- 176,442
Intercompany Receivable
(Payable)................... 795,522 (658,022) (98,386) (45,060) 5,946 --
Other Current Assets.......... 531 46,605 827 6,063 -- 54,026
---------- ---------- -------- -------- ----------- ----------
Total Current Assets........ 803,304 (467,986) (84,887) (19,709) 5,946 236,668
Property, Plant and Equipment,
net........................... 99,549 586,504 66,953 79,388 -- 832,394
Other Assets:
Long-term Intercompany
Receivable.................. 344,300 -- -- -- (344,300) --
Long-term Notes Receivable
from Affiliates............. 607,600 124,100 -- -- (731,700) --
Investment in Subsidiaries.... 370,830 49,626 -- -- (420,456) --
Goodwill, net................. -- 1,255,302 138,663 121,096 10,569 1,525,630
Other......................... 20,986 42,956 11,036 1,834 (12,408) 64,404
---------- ---------- -------- -------- ----------- ----------
Total Other Assets.......... 1,343,716 1,471,984 149,699 122,930 (1,498,295) 1,590,034
---------- ---------- -------- -------- ----------- ----------
Total Assets................ $2,246,569 $1,590,502 $131,765 $182,609 $(1,492,349) $2,659,096
========== ========== ======== ======== =========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Total Current Liabilities..... $ 26,921 $ 189,362 $ 12,429 $ 79,378 $ 5,963 $ 314,053
Long-term Debt, Net of Current
Portion..................... 1,170,884 3,513 124,834 15,111 -- 1,314,342
Long-term Intercompany
Payable..................... -- 344,300 -- -- (344,300) --
Long-term Notes Payable to
Affiliates.................. 124,100 607,600 -- -- (731,700) --
Other Long-term Liabilities... 206 73,693 113 1,610 (12,408) 63,214
Minority Interest............. -- -- -- (1,636) 44,665 43,029
Shareholders' Equity.......... 924,458 372,034 (5,611) 88,146 (454,569) 924,458
---------- ---------- -------- -------- ----------- ----------
Total Liabilities and
Shareholders' Equity...... $2,246,569 $1,590,502 $131,765 $182,609 $(1,492,349) $2,659,096
========== ========== ======== ======== =========== ==========
53
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
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
========== ========== ======== =========== ==========
54
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
5. SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND
NON-GUARANTORS (CONTINUED)
YEAR ENDED DECEMBER 31, 2000
---------------------------------------------------------------------------
CANADA NON-
PARENT GUARANTORS COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- -------- ---------- ------------ ------------
Revenues:
Storage........................... $ 3,191 $518,136 $ 24,338 $39,999 $ -- $585,664
Service and Storage Material
Sales........................... 17,570 333,228 25,240 28,724 (4,055) 400,707
-------- -------- -------- ------- ------- --------
Total Revenues.................. 20,761 851,364 49,578 68,723 (4,055) 986,371
Operating Expenses:
Cost of Sales (Excluding
Depreciation)................... 11,173 408,336 24,149 39,113 -- 482,771
Selling, General and
Administrative.................. 5,350 215,547 12,522 17,195 (4,055) 246,559
Depreciation and Amortization..... 3,329 107,748 6,172 9,561 -- 126,810
Stock Option Compensation
Expense......................... -- 14,940 -- 170 -- 15,110
Merger-Related Expenses........... -- 8,420 273 440 -- 9,133
-------- -------- -------- ------- ------- --------
Total Operating Expenses........ 19,852 754,991 43,116 66,479 (4,055) 880,383
-------- -------- -------- ------- ------- --------
Operating Income.................... 909 96,373 6,462 2,244 -- 105,988
Interest Expense, net............... 41,857 55,999 12,576 7,543 -- 117,975
Equity in the (Earnings) Losses of
Subsidiaries...................... (7,565) 2,766 -- -- 4,799 --
Other Expense, net.................. -- (397) (5,590) (58) -- (6,045)
-------- -------- -------- ------- ------- --------
Income (Loss) Before Provision
(Benefit) for Income Taxes and
Minority Interest............... (33,383) 37,211 (11,704) (5,357) (4,799) (18,032)
Provision (Benefit) for Income
Taxes............................. (8,007) 18,697 (1,860) 295 -- 9,125
Minority Interest in Earnings
(Losses) of Subsidiaries.......... -- -- -- (2,224) -- (2,224)
-------- -------- -------- ------- ------- --------
Income (Loss) before Extraordinary
Item............................ (25,376) 18,514 (9,844) (3,428) (4,799) (24,933)
Extraordinary Charge from Early
Extinguishment of Debt (Net of Tax
Benefit of $1,928)................ (2,449) (443) -- -- -- (2,892)
-------- -------- -------- ------- ------- --------
Net Income (Loss)................. $(27,825) $ 18,071 $ (9,844) $(3,428) $(4,799) $(27,825)
======== ======== ======== ======= ======= ========
55
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
5. SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND
NON-GUARANTORS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
Revenues:
Storage............................. $ -- $297,988 $19,399 $ -- $317,387
Service and Storage Material
Sales............................. -- 189,127 13,035 -- 202,162
-------- -------- ------- -------- --------
Total Revenues.................... -- 487,115 32,434 -- 519,549
Operating Expenses:
Cost of Sales (Excluding
Depreciation)..................... -- 242,537 18,393 -- 260,930
Selling, General and
Administrative.................... 258 122,276 6,414 -- 128,948
Depreciation and Amortization....... -- 61,248 4,174 -- 65,422
-------- -------- ------- -------- --------
Total Operating Expenses.......... 258 426,061 28,981 -- 455,300
-------- -------- ------- -------- --------
Operating Income (Loss)............... (258) 61,054 3,453 -- 64,249
Interest Expense, net................. 1,457 51,655 1,313 -- 54,425
Equity in the (Earnings) Losses of
Subsidiaries........................ 12,504 (43) -- (12,461) --
Other (Expense) Income, net........... -- 50 (33) -- 17
-------- -------- ------- -------- --------
Income (Loss) Before Provision
(Benefit) for Income Taxes and
Minority Interest................. (14,219) 9,492 2,107 12,461 9,841
Provision for Income Taxes............ -- 8,990 1,589 -- 10,579
Minority Interest in Earnings of
Subsidiaries........................ -- -- 322 -- 322
-------- -------- ------- -------- --------
Income (Loss) from Continuing
Operations........................ (14,219) 502 196 12,461 (1,060)
Income from Discontinued Operations... -- 241 -- -- 241
Loss on Sale of Discontinued
Operations.......................... -- (13,400) -- -- (13,400)
-------- -------- ------- -------- --------
Net Income (Loss)................... $(14,219) $(12,657) $ 196 $ 12,461 $(14,219)
======== ======== ======= ======== ========
56
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
5. SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND
NON-GUARANTORS (CONTINUED)
YEAR ENDED DECEMBER 31, 2000
----------------------------------------------------------------------------
CANADA NON-
PARENT GUARANTORS COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- -------- ---------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash Flows Provided by (Used in)
Operating Activities................ $(101,411) $260,901 $(3,721) $ 1,835 $ -- $157,604
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Paid for Acquisitions, net of
cash acquired....................... (4,885) (85,343) (35,558) (15,154) -- (140,940)
Capital Expenditures.................. (19,629) (127,255) (6,896) (14,926) -- (168,706)
Investment in Convertible Preferred
Stock............................... -- (6,524) -- -- -- (6,524)
Intercompany Loans to Subsidiaries.... (259,462) (14,620) -- -- 274,082 --
Investment in Subsidiaries............ (3,047) (3,047) -- -- 6,094 --
Additions to Customer Acquisition
Costs............................... -- (11,181) (1,509) (89) -- (12,779)
Proceeds from Sales of Property and
Equipment........................... -- 1,133 -- 187 -- 1,320
--------- -------- ------- ------- -------- --------
Cash Flows Used in Investing
Activities........................ (287,023) (246,837) (43,963) (29,982) 280,176 (327,629)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Debt..................... (402,384) (174,200) (7,026) (13,134) -- (596,744)
Proceeds from Borrowings.............. 397,085 971 1,149 5,788 -- 404,993
Proceeds from Term Loans.............. 350,000 -- -- -- -- 350,000
Debt Financing and Equity Contribution
from Minority Shareholder........... -- -- 11,430 -- 11,430
Intercompany Loans from Parent........ 41,241 157,146 53,867 21,828 (274,082) --
Equity Contribution from Parent....... -- 3,047 -- 3,047 (6,094) --
Proceeds from Exercise of Stock
Options............................. 8,180 -- -- -- -- 8,180
Debt Financing and Stock Issuance
Costs............................... (5,497) 48 -- -- -- (5,449)
--------- -------- ------- ------- -------- --------
Cash Flows Provided by (Used in)
Financing Activities.............. 388,625 (12,988) 47,990 28,959 (280,176) 172,410
EFFECT OF EXCHANGE RATES ON CASH AND
CASH EQUIVALENTS...................... -- -- (4) (11) -- (15)
--------- -------- ------- ------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... 191 1,076 302 801 -- 2,370
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................ -- 2,260 -- 1,570 -- 3,830
--------- -------- ------- ------- -------- --------
CASH AND CASH EQUIVALENTS, END OF
PERIOD................................ $ 191 $ 3,336 $ 302 $ 2,371 $ -- $ 6,200
========= ======== ======= ======= ======== ========
57
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
5. SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND
NON-GUARANTORS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Flows Provided by (Used in)
Continuing Operations................. $ (17,837) $ 73,389 $ 722 $ -- $ 56,274
Cash Flows Used in Discontinued
Operations............................ -- (836) -- -- (836)
--------- --------- -------- --------- ---------
Cash Flows Provided by (Used in)
Operating Activities................ (17,837) 72,553 722 -- 55,438
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Paid for Acquisitions, net of cash
acquired.............................. (2,398) (132,078) (77,684) -- (212,160)
Capital Expenditures.................... -- (85,079) (13,578) -- (98,657)
Intercompany Loans to Subsidiaries...... (158,657) -- -- 158,657 --
Investment in Subsidiaries.............. (51,550) (51,550) -- 103,100 --
Additions to Customer Acquisition
Costs................................. -- (8,122) -- -- (8,122)
--------- --------- -------- --------- ---------
Cash Flows Used in Continuing
Operations.......................... (212,605) (276,829) (91,262) 261,757 (318,939)
Cash Flows Provided by Discontinued
Operations.......................... -- 7,814 -- -- 7,814
--------- --------- -------- --------- ---------
Cash Flows Used in Investing
Activities.......................... (212,605) (269,015) (91,262) 261,757 (311,125)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Debt....................... (246,400) (916) (2,338) -- (249,654)
Proceeds from Borrowings................ 216,100 -- 19,041 -- 235,141
Debt Financing from Minority
Shareholder........................... -- -- 11,636 -- 11,636
Net Proceeds from Sale of Senior
Subordinated Notes.................... 149,460 -- -- -- 149,460
Net Proceeds from Equity Offering....... 153,755 -- -- -- 153,755
Repurchase of Common Stock.............. (39,484) -- -- -- (39,484)
Intercompany Loans from Parent.......... -- 146,385 12,272 (158,657) --
Equity Contribution from Parent......... -- 51,550 51,550 (103,100) --
Proceeds from Exercise of Stock
Options............................... 3,589 -- -- -- 3,589
Debt Financing and Stock Issuance
Costs................................. (6,590) -- -- -- (6,590)
--------- --------- -------- --------- ---------
Cash Flows Provided by Financing
Activities.......................... 230,430 197,019 92,161 (261,757) 257,853
EFFECT OF EXCHANGE RATES ON CASH AND CASH
EQUIVALENTS............................. -- -- (51) -- (51)
--------- --------- -------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................. (12) 557 1,570 -- 2,115
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD.................................. 12 1,703 -- -- 1,715
--------- --------- -------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD.................................. $ -- $ 2,260 $ 1,570 $ -- $ 3,830
========= ========= ======== ========= =========
58
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
6. ACQUISITIONS
On February 1, 2000, the Company completed its acquisition of Pierce Leahy
in a stock-for-stock merger valued at $1.0 billion. The total consideration for
this transaction was comprised of: (i) 18.8 million shares of the Company's
common stock with a fair value of $421.2 million; (ii) 1.6 million options to
acquire the Company's common stock with a fair value of $25.3 million;
(iii) assumed debt with a fair value of $584.9 million; and (iv) approximately
$4.3 million of capitalized transaction costs.
The Company purchased substantially all of the assets and assumed certain
liabilities of 15, 17 and 12 records management businesses during 1998, 1999 and
2000, respectively. Each of these acquisitions was accounted for using the
purchase method of accounting, and accordingly, the results of operations for
each acquisition have been included in the consolidated results of the Company
from their respective acquisition dates. The excess of the purchase price over
the underlying fair value of the assets and liabilities of each acquisition has
been assigned to goodwill and is being amortized over the estimated benefit
period of 25 to 30 years. Consideration for the various acquisitions included:
(i) cash, which was provided through the Company's credit facilities, the
Company's 1998 and 1999 equity offerings and the issuance of the 10 1/8%, 8 3/4%
and 8 1/4% notes; (ii) issuances of the Company's common stock and options to
purchase the Company's common stock; and (iii) certain net assets of businesses
previously acquired.
A summary of the consideration paid and the allocation of the purchase price
of the acquisitions is as follows:
1998 1999 2000
-------- -------- ----------
Cash Paid................................................... $189,729 $212,160 $ 146,243
Fair Value of Common Stock Issued........................... 51,448 46,000 421,220
Fair Value of Options Issued................................ 15,655 -- 25,291
Fair Value of Debt Assumed.................................. -- -- 584,906
Fair Value of Certain Net Assets of Businesses Previously
Acquired.................................................. 3,000 2,489 1,063
-------- -------- ----------
Total Consideration....................................... 259,832 260,649 1,178,723
-------- -------- ----------
Fair Value of Assets Acquired............................... 89,053 110,206 436,206
Liabilities Assumed......................................... (38,165) (92,044) (125,650)
-------- -------- ----------
Fair Value of Net Assets Acquired......................... 50,888 18,162 310,556
-------- -------- ----------
Recorded Goodwill........................................... $208,944 $242,487 $ 868,167
======== ======== ==========
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 certain 2000 transactions are
subject to finalization of the assessment of the fair value of property, plant
and equipment, operating leases and deferred income taxes. The Company is not
aware of any information that would indicate that the final purchase price
allocations will differ significantly from preliminary estimates.
59
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
6. ACQUISITIONS (CONTINUED)
The following unaudited pro forma combined information shows the results of
the Company's operations for the years ended December 31, 1999 and 2000 as
though each of the significant acquisitions completed during 1999 and 2000 had
occurred on January 1, 1999:
1999 2000
-------- ----------
Revenues................................................. $934,078 $1,049,221
Net Loss from Continuing Operations Before Extraordinary
Item................................................... (6,876) (27,234)
Loss from Continuing Operations Before Extraordinary Item
per Share--Basic and Diluted........................... (0.13) (0.50)
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 acquired businesses. Certain acquisitions completed in 1999
and 2000 are not included in the pro forma results as their effect was
immaterial.
In connection with the acquisitions completed in 1998, 1999 and 2000, 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 at December 31, 2000 primarily include
completion of planned abandonments of facilities and severances for certain
acquisitions completed during 2000.
The following is a summary of reserves related to such restructuring
activities:
1998 1999 2000
-------- -------- --------
Reserves, beginning of the year.................. $ 5,443 $10,482 $ 9,340
Reserves established............................. 11,368 4,234 31,409
Expenditures..................................... (4,690) (4,843) (7,539)
Adjustments to goodwill.......................... (1,639) (533) (4,696)
------- ------- -------
Reserves, end of the year........................ $10,482 $ 9,340 $28,514
======= ======= =======
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 plan except for lease losses of $4.6 million
and severance contracts of approximately $1.1 million, all of which are based on
contracts that extend beyond one year.
60
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
6. ACQUISITIONS (CONTINUED)
At December 31, 2000 the restructuring reserves related to acquisitions
consisted of lease losses on abandoned facilities ($18.4 million), severance
costs for approximately 17 people ($3.2 million) and move and other exit costs
($6.9 million). These accruals are expected to be used within one year of the
finalization of the restructuring plan except for lease losses of $11.1 million
and severance contracts of approximately $0.7 million, all of which are based on
contracts that extend beyond one year.
7. CAPITAL STOCK AND STOCK OPTIONS
a. Capital Stock
On May 17, 1999, the Company issued and sold an aggregate of 5,750,000
shares (including 750,000 shares to cover over-allotments) of its common stock
in an underwritten public offering. Net proceeds to the Company after deducting
underwriters' discounts and commissions were $153.8 million and were used to
repay outstanding bank debt, to repurchase all of the Company's common stock
issued in connection with the acquisition of Data Base, Inc. completed in 1999
and for general corporate purposes.
The following table summarizes the number of shares authorized, issued and
outstanding for each issue of the Company's capital stock as of December 31:
AUTHORIZED NUMBER OF SHARES ISSUED OUTSTANDING
PAR ------------------------- ----------------------- -----------------------
EQUITY TYPE VALUE 1999 2000 1999 2000 1999 2000
- ----------- -------- ----------- ----------- ---------- ---------- ---------- ----------
Preferred stock.......... $.01 2,000,000 10,000,000 -- -- -- --
Common stock--voting..... .01 100,000,000 150,000,000 36,943,612 55,279,898 35,467,035 55,279,898
Common stock--nonvoting.. .01 1,000,000 -- -- -- -- --
b. Stock Options
A total of 6,667,664 shares of common stock have been reserved for grants of
options and other rights under the Company's various stock incentive plans and
employee stock purchase plan.
During 2000, the Company assumed the two existing stock option plans of
Pierce Leahy, resulting in 1.6 million additional stock options outstanding. The
options were accounted for as additional purchase price at their fair value.
During 1998, the Company assumed two existing stock option plans from an
acquired company and options under the existing plans were converted into
options to purchase 885,944 shares of the Company's common stock under such
plans. No new options may be issued under these plans. The options were
accounted for as additional purchase price based on the fair value of the
options when issued.
61
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
7. CAPITAL STOCK AND STOCK OPTIONS (CONTINUED)
The following is a summary of stock option transactions, including those
issued to employees of acquired companies, during the applicable periods,
excluding transactions under the employee stock purchase plan:
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
Options outstanding, December 31, 1997............. 1,676,048 $12.17
Granted............................................ 287,074 25.41
Issued in Connection With Acquisitions............. 885,944 7.68
Exercised.......................................... (566,615) 7.88
Canceled........................................... (116,132) 12.36
---------
Options outstanding, December 31, 1998............. 2,166,319 13.21
Granted............................................ 442,043 32.07
Exercised.......................................... (263,281) 10.86
Canceled........................................... (90,276) 20.27
---------
Options outstanding, December 31, 1999............. 2,254,805 16.91
Granted............................................ 560,491 33.40
Issued in Connection With Acquisitions............. 1,644,760 10.99
Exercised.......................................... (903,317) 7.07
Canceled........................................... (191,044) 26.70
---------
Options outstanding, December 31, 2000............. 3,365,695 18.83
=========
Except for the options granted in connection with acquisitions, the stock
options were granted with exercise prices equal to the market price of the stock
at the date of grant. The majority of options become exercisable ratably over a
period of five years unless the holder terminates employment. The number of
shares available for grant at December 31, 2000 was 1,833,949.
Effective January 1, 1996, the Company adopted the provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation." The Company has elected to
continue to account for stock options issued to employees at their intrinsic
value with disclosure of fair value accounting on net loss and loss per share on
a pro forma basis. Had the Company elected to recognize compensation cost based
on the
62
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
7. CAPITAL STOCK AND STOCK OPTIONS (CONTINUED)
fair value of the options granted at grant date as prescribed by SFAS No. 123,
net loss and net loss per share would have been increased to the pro forma
amounts indicated in the table below:
YEAR ENDED DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Loss from continuing operations, as reported.... $(3,167) $ (1,060) $(24,933)
Loss from continuing operations, pro forma...... (4,071) (2,486) (27,877)
Net loss, as reported........................... (2,966) (14,219) (27,825)
Net loss, pro forma............................. (3,870) (15,645) (30,769)
Loss from continuing operations--basic and
diluted, as reported.......................... (0.12) (0.03) (0.47)
Loss from continuing operations--basic and
diluted, pro forma............................ (0.15) (0.07) (0.52)
Net loss per share--basic and diluted, as
reported...................................... (0.11) (0.43) (0.52)
Net loss per share--basic and diluted, pro
forma......................................... (0.14) (0.47) (0.58)
The weighted average fair value of options granted in 1998, 1999 and 2000
was $8.92, $12.31 and $12.99 per share, respectively. The values were estimated
on the date of grant using the Black-Scholes option pricing model. The following
table summarizes the weighted average assumptions used for grants in the year
ended December 31:
ASSUMPTION 1998 1999 2000
- ---------- --------- --------- ---------
Expected volatility........................... 28.4% 31.5% 31.5%
Risk-free interest rate....................... 5.11 5.69 5.99
Expected dividend yield....................... None None None
Expected life of the option................... 5.0 years 5.0 years 5.0 years
The following table summarizes additional information regarding options
outstanding and exercisable at December 31, 2000:
OUTSTANDING
---------------------------- EXERCISABLE
WEIGHTED ---------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF CONTRACTUAL LIFE EXERCISE EXERCISE
EXERCISE PRICES NUMBER (IN YEARS) PRICE NUMBER PRICE
- --------------- --------- ---------------- --------- ---------- --------
$0.75 to $0.87...................... 22,849 6.0 $ 0.87 22,849 $ 0.87
$4.32 to $5.77...................... 786,865 3.1 4.75 786,603 4.75
$6.63 to $9.10...................... 126,752 4.2 8.32 123,807 8.32
$10.25 to $10.94.................... 584,752 5.5 10.42 476,419 10.44
$17.17 to $25.03.................... 694,833 6.8 21.49 324,966 21.33
$27.17 to $36.31.................... 1,149,644 9.1 32.64 166,789 31.29
--------- ----------
3,365,695 6.4 18.83 1,901,433 11.52
========= ==========
63
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
8. INCOME (LOSS) PER SHARE--BASIC AND DILUTED
In accordance with SFAS No. 128, basic income (loss) per share is calculated
by dividing income (loss) available to shareholders by the weighted average
number of shares outstanding. The calculation of diluted income (loss) per share
is consistent with that of basic income (loss) per share but gives effect to all
dilutive potential shares (that is, securities such as options, warrants or
convertible securities) that were outstanding during the period, unless the
effect is antidilutive.
Because their effect is antidilutive, 2,166,319, 2,254,805 and 3,365,695
shares of potential common stock underlying outstanding options have been
excluded from the above calculation for the years ended December 31, 1998, 1999
and 2000, respectively.
9. DISCONTINUED OPERATIONS
In June 1999, in order to focus on its records and information management
services ("RIMS") business, the Company decided to sell its information
technology staffing business ("IT Staffing"), Arcus Staffing Resources, Inc.
("Arcus Staffing"), which was acquired in January 1998 as part of the
acquisition of Arcus Group, Inc. ("Arcus Group"). Effective November 1, 1999,
the Company completed the sale of substantially all of the assets of Arcus
Staffing. The terms of the sale include contingent payments for a period of
18 months which may result in a revision of the recorded loss during 2001. In
accordance with the provisions of Accounting Principles Board Opinion No. 30,
the sale of Arcus Staffing was accounted for as a discontinued operation.
Accordingly, the Arcus Staffing operations were segregated from the Company's
continuing operations and reported as a separate line item on the Company's
consolidated statement of operations. The following table sets forth the revenue
and net income from discontinued operations for the year ended December 31, 1998
and the ten months ended October 31, 1999:
1998 1999
-------- --------
Revenues.................................................. $39,551 $35,455
Income from Discontinued Operations, net of tax benefit... 201 241
In 1999, the Company has recorded an estimated loss on the sale of Arcus
Staffing of $13,400, comprised of a write-off of goodwill, a deferred tax
benefit and estimated expenses directly related to the transaction partially
offset by the estimated income from operations of Arcus Staffing through the
date of disposition. The Company will continue to assess the adequacy of the
remaining liabilities as certain contingencies are resolved and final contingent
consideration is revised.
10. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires the recognition of deferred tax
assets and liabilities for the expected tax consequences of temporary
differences between the tax and financial reporting basis of assets and
liabilities.
64
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
10. INCOME TAXES (CONTINUED)
The components of income (loss) from continuing operations before provision
for income taxes and minority interest are:
1998 1999 2000
-------- -------- --------
Domestic.......................................... $3,391 $7,606 $(13,121)
Foreign........................................... -- 2,235 (4,911)
------ ------ --------
$3,391 $9,841 $(18,032)
====== ====== ========
The Company has estimated federal net operating loss carryforwards of
approximately $128,000 at December 31, 2000 to reduce future federal income
taxes, if any, which begin to expire in 2005. The preceding net operating loss
carryforwards do not include potential preacquisition net operating loss
carryforwards of Arcus Group and certain other foreign acquisitions. Any tax
benefit related to these loss carryforwards will be recorded as a reduction of
goodwill, if and when realized. The Company also has estimated state net
operating loss carryforwards of approximately $164,608. The state net operating
loss carryforwards are subject to a valuation allowance of approximately 47%.
Additionally, the Company has alternative minimum tax credit carryforwards of
$587, which have no expiration date and are available to reduce future income
taxes, if any.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
DECEMBER 31,
--------------------
1999 2000
-------- ---------
Deferred Tax Assets:
Accrued liabilities.................................. $ 8,812 $ 18,228
Deferred rent........................................ 4,316 6,907
Net operating loss carryforwards..................... 21,857 52,958
AMT credit........................................... 587 587
Other................................................ 6,606 22,893
-------- ---------
42,178 101,573
Deferred Tax Liabilities:
Other assets, principally due to differences in
amortization....................................... (9,727) (19,507)
Plant and equipment, principally due to differences
in depreciation.................................... (29,619) (79,291)
Customer acquisition costs........................... (6,564) (10,733)
-------- ---------
(45,910) (109,531)
-------- ---------
Net deferred tax liability........................... $ (3,732) $ (7,958)
======== =========
The Company receives a tax deduction upon exercise of non-qualified stock
options by employees for the difference between the exercise price and the
market price of the underlying common stock on the date of exercise, which is
included in the net operating loss carryforwards above. During the year,
65
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
10. INCOME TAXES (CONTINUED)
the Company recognized $8,694 of tax benefit related to the exercise of
non-qualified stock options, the value of which was included as part of the
purchase price of certain businesses.
This benefit was used to reduce goodwill of acquired companies in 2000. In
addition, $476 of tax benefit relate to the exercise of options was credited to
equity during the year.
The Company and its U.S. subsidiaries file a consolidated federal income tax
return. The provision for income tax consists of the following components:
YEAR ENDED DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Federal--current................................... $ -- $ -- $ --
Federal--deferred.................................. 4,509 6,304 5,404
State--current..................................... 505 645 1,301
State--deferred.................................... 1,544 2,041 2,018
Foreign............................................ -- 1,589 402
------ ------- ------
$6,558 $10,579 $9,125
====== ======= ======
A reconciliation of total income tax expense and the amount computed by
applying the federal income tax rate of 34%, 34% and 35% to income (loss) before
income taxes for the year ended December 31, 1998, 1999 and 2000, respectively,
is as follows:
YEAR ENDED DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Computed "expected" tax provision (benefit)....... $1,153 $ 3,346 $(6,311)
Increase in income taxes resulting from:
State taxes (net of federal tax benefit)........ 1,367 1,726 2,157
Nondeductible goodwill amortization............. 3,675 5,025 11,002
Foreign currency gain (loss).................... -- -- 1,621
Foreign tax rate and tax law differential....... -- 104 586
Other, net...................................... 363 378 70
------ ------- -------
$6,558 $10,579 $ 9,125
====== ======= =======
66
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
QUARTER ENDED MARCH 31 JUNE 30 SEPT. 30 DEC. 31
- ------------- -------- -------- -------- --------
1999
Revenues............................................ $109,371 $131,765 $136,907 $141,506
Gross profit........................................ 54,936 65,598 67,681 70,404
Income (Loss) from continuing operations............ (248) (1,395) 999 (416)
Net loss............................................ (149) (10,653) (3,001) (416)
Income (Loss) per share from continuing operations--
basic and diluted................................. (0.01) (0.04) 0.03 (0.01)
Net loss per share--basic and diluted............... (0.01) (0.32) (0.08) (0.01)
2000
Revenues............................................ $212,137 $252,565 $256,133 $265,536
Gross profit........................................ 107,679 130,592 131,054 134,275
Income (Loss) from continuing operations before
extraordinary item................................ (5,383) (28,245) 4,599 4,096
Net income (loss)................................... (5,383) (28,245) 1,707 4,096
Income (Loss) per share from continuing operations
before extraordinary item--basic and diluted...... (0.11) (0.52) 0.08 0.07
Net income (loss) per share--basic and diluted...... (0.11) (0.52) 0.03 0.07
12. SEGMENT INFORMATION
During the fourth quarter of 2000, the Company began to operate in nine
operating segments, based on their economic environment, geographic area, the
nature of their services and the nature of their processes:
- Business Records Management--the storage of paper documents, as well as
all other non-electronic media such as microfilm and microfiche, master
audio and videotapes, film, X-rays and blueprints, including healthcare
information services, vital records services and service and courier
operations
- Data Security Services--the storage and rotation of back-up computer media
as part of corporate disaster and business recovery plans, including
service and courier operations
- Confidential Destruction--the shredding of sensitive documents for
corporate customers
- Fulfillment--the storage of customer marketing literature and delivery to
sales offices, trade shows and prospective customers' sites based on
current and prospective customer orders; the assembly of custom marketing
packages and orders; the management and detailed reporting on customer
marketing literature inventories
- Digital Archiving Services--electronic storage and related services for
computer media, primarily computer tapes, optical disks and digital
records
- Europe--business records management and data security services throughout
Europe
67
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
12. SEGMENT INFORMATION (CONTINUED)
- Canada--business records management throughout Canada
- South America--business records management throughout South America
- Mexico--business records management throughout Mexico
The Europe, Canada, South America and Mexico operating segments do not
individually meet the quantitative thresholds for a reporting segment, but have
been aggregated and reported as one reporting segment, "International," given
their similar economic characteristics, products, customers and processes. The
Confidential Destruction, Fulfillment and Digital Archiving Services operating
segments do not meet the quantitative thresholds for a reportable segment and
thus are included in the "Corporate and Other" category. The Company evaluates
performance and allocates resources based on earnings before interest, taxes,
depreciation, amortization, extraordinary items, other income, merger-related
expenses and stock option compensation expense ("EBITDA"). Corporate items
include non-operating overhead, corporate general and administrative expenses,
non-allocated operating expenses and intersegment eliminations. Corporate assets
are principally cash and cash equivalents, prepaid items, certain non-operating
fixed assets, certain non-allocated goodwill, deferred income taxes, certain
non-trade receivables, certain intersegment receivables, and deferred financing
costs. The accounting policies of the reportable segments are the same as those
described in Note 2 of Notes to Consolidated Financial Statements, with the
exception of: (i) certain costs allocated by Corporate to the Business Records
Management and Data Security Services segments based on allocation rates set at
the beginning of each year; and (ii) certain non-cash charges (such as deferred
lease amortization) maintained at Corporate.
An analysis of the Company's business segment information to the respective
information in the consolidated financial statements is as follows:
BUSINESS
RECORDS DATA SECURITY CORPORATE TOTAL
MANAGEMENT SERVICES INTERNATIONAL & OTHER CONSOLIDATED
---------- ------------- ------------- ---------- ------------
1999
Revenue.............. $345,574 $143,057 $ 31,618 $ (700) $ 519,549
EBITDA............... 90,041 36,975 7,348 (4,693) 129,671
Total Assets......... 346,032 54,014 163,147 754,019 1,317,212
2000
Revenue.............. 674,704 167,607 116,687 27,373 986,371
EBITDA............... 190,141 42,162 20,623 4,115 257,041
Total Assets......... 763,419 69,858 382,994 1,442,825 2,659,096
The information in the foregoing table does not include 1998 data because it
would be impractical to obtain.
68
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
12. SEGMENT INFORMATION (CONTINUED)
A reconciliation from the segment information to the consolidated balances
for income (loss) from continuing operations before provision for income taxes
and minority interest is as follows:
1999 2000
-------- ---------
EBITDA................................................. $129,671 $ 257,041
Depreciation and Amortization.......................... (65,422) (126,810)
Stock Option Compensation Expense...................... -- (15,110)
Merger-related Expenses................................ -- (9,133)
Interest Expense....................................... (54,425) (117,975)
Other Income (Expense), net............................ 17 (6,045)
-------- ---------
Income (Loss) from Continuing Operations Before
Provision for Income Taxes and Minority Interest... $ 9,841 $ (18,032)
======== =========
Information as to the Company's operations in different geographical areas
is as follows:
1998 1999 2000
-------- ---------- ----------
Revenues:
United States.............................. $381,959 $ 487,931 $ 869,684
International.............................. 2,002 31,618 116,687
-------- ---------- ----------
Total Revenues........................... $383,961 $ 519,549 $ 986,371
======== ========== ==========
Long-lived Assets:
United States.............................. $822,963 $1,018,943 $2,050,257
International.............................. 485 154,605 372,171
-------- ---------- ----------
Total Long-lived Assets.................. $823,448 $1,173,548 $2,422,428
======== ========== ==========
13. COMMITMENTS AND CONTINGENCIES
a. Leases
The Company leases most of its facilities under various operating leases. A
majority of these leases have renewal options of five to ten years and have
either fixed or Consumer Price Index escalation clauses. The Company also leases
equipment under operating leases, primarily computers which have an average
lease life of three years. Trucks and office equipment are also leased and have
remaining lease lives ranging from one to seven years. Rent expense was $47,049,
$59,113 and $111,001 for the years ended December 31, 1998, 1999 and 2000,
respectively.
69
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Minimum future lease payments are as follows:
YEAR OPERATING
- ---- ---------
2001........................................................ $118,318
2002........................................................ 106,598
2003........................................................ 96,516
2004........................................................ 86,529
2005........................................................ 72,541
Thereafter.................................................. 307,456
--------
Total minimum lease payments................................ $787,958
========
Included in the lease commitments disclosed in the preceding paragraph are
certain five-year operating lease agreements signed in 1998, 1999 and 2000 for
specified records storage warehouses. At the end of the lease term, the Company,
at its option, may: (i) negotiate a renewal of the lease; (ii) purchase the
properties at a price equal to the lessor's original cost (approximately
$74.3 million); or (iii) allow the lease to expire and cause the properties to
be sold. The Company's ability to cause the properties to be sold depends upon
its compliance with certain terms of the lease. Under certain conditions, the
Company would receive any excess of the net sales proceeds over the properties'
original cost. In the event that the net sales proceeds are less than 85% of the
properties' original cost, the Company would make certain contingent rental
payments to the lessor equal to that difference, subject to a maximum amount.
b. Facility Fire
In March 1997, the Company experienced three fires, all of which authorities
have determined were caused by arson. These fires resulted in damage to one and
destruction of the Company's other RIMS facility in South Brunswick Township,
New Jersey.
Some of the Company's customers or their insurance carriers have asserted
claims as a consequence of the destruction of or damage to their records as a
result of the fires, some of which allege negligence or other culpability on the
part of the Company. The Company has received notices of claims and lawsuits
filed by customers and abutters seeking damages against the Company and to
rescind their written contracts with the Company. The Company denies any
liability as a result of the destruction of or damage to customer records as a
result of the fires, which were beyond its control, and intends to vigorously
defend itself against these and any other lawsuits that may arise. The Company
is also pursuing coverage of these claims and lawsuits with its various
insurers. The claims process is lengthy and its outcome cannot be predicted with
certainty.
Based on its present assessment of the situation, management, after
consultation with legal counsel, does not believe that the fires will have a
material adverse effect on the Company's financial condition or results of
operations, although there can be no assurance in this regard.
70
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In June 1998, the Company settled several insurance claims, including a
significant claim under its business interruption policy, related to the fires.
Other income, net, for the year ended December 31, 1998 includes a $1.7 million
gain related to the settlement.
c. Other Litigation
The Company is presently involved as a defendant in various litigation which
has occurred in the normal course of business. Management believes it has
meritorious defenses in all such actions, and in any event, the amount of
damages, if such matters were decided adversely, would not have a material
adverse effect on the Company's financial condition or results of operations.
14. RELATED PARTY TRANSACTIONS
The Company leases space to an affiliated company, Schooner Capital LLC
("Schooner"), for its corporate headquarters located in Boston, Massachusetts.
For the years ended December 31, 1998, 1999 and 2000, Schooner paid the Company
rent totaling $90, $94 and $96, respectively. Prior to 1999, the Company leased
one facility from a landlord who was a related party. The rental payments for
the year ended December 31, 1998 for this facility totaled $99. The Company
leases facilities from three separate limited partnerships, whose general
partner is a related party. The aggregate rental payment by the Company for such
facilities during 2000 was $1,684. In the opinion of management, all of these
leases were entered into at market prices and terms.
The Company has an agreement with a shareholder that requires pension
payments of $8 per month until the later of the death of the shareholder or his
spouse. The total benefit is recorded in accrued expenses in the accompanying
consolidated balance sheets.
Effective December 1, 2000, the Company sold its wholly owned UK subsidiary
Datavault Limited (acquired in the Pierce Leahy merger) to its 50.1% owned
subsidiary, Iron Mountain Europe, in exchange for approximately $18 million of
Iron Mountain Europe stock and debt of approximately $14 million. In connection
with this transaction, the Company's 49.9% partner in Iron Mountain Europe also
contributed approximately $18 million dollars to Iron Mountain Europe in
exchange for additional shares.
The transaction has been accounted for as a transfer between entities under
common control and, therefore, the results of operations and balance sheet of
Datavault Limited have been included in the Company's consolidated financial
statements through December 31, 2000.
15. EMPLOYEE BENEFIT PLANS
a. Iron Mountain Companies 401(k) Plan
The Company has a defined contribution plan, which generally covers all
non-union U.S. employees meeting certain service requirements. Eligible
employees may elect to defer from 1% to 20% of compensation per pay period up to
the amount allowed by the Internal Revenue Code. The Company makes matching
contributions based on the amount of an employee's contribution, according
71
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
15. EMPLOYEE BENEFIT PLANS (CONTINUED)
to a schedule as described in the plan document. The Company has expensed $910,
$1,890 and $2,646 for the years ended December 31, 1998, 1999 and 2000,
respectively.
b. Employee Stock Purchase Plan
On March 23, 1998, the Company introduced an employee stock purchase plan
(the "Plan"), which is available for participation by substantially all
employees who have met certain service requirements. The Plan was approved by
the shareholders of the Company on May 28, 1998 and commenced operations on
October 1, 1998. The Plan provides a way for eligible employees of the Company
to become shareholders of the Company on favorable terms. The Plan provides for
the purchase of up to 375,000 shares of the Company's common stock by eligible
employees through successive offering periods. At the start of each offering
period, participating employees are granted options to acquire the Company's
common stock. During each offering period, participating employees accumulate
after-tax payroll contributions, up to a maximum of 15% of their compensation,
to pay the exercise price of their options. At the end of the offering period,
outstanding options are exercised, and each employee's accumulated contributions
are used to purchase common stock of the Company. The price for shares purchased
under the Plan is 85% of their market price at either the beginning or the end
of the offering period, whichever is lower. There were 0, 50,907 and 93,246
shares purchased under the Plan for the years ended December 31, 1998, 1999 and
2000, respectively.
16. NONCASH TRANSACTIONS
The Company used the following as part of the consideration paid for certain
acquisitions:
1998 1999 2000
-------- -------- --------
Fair Value of Common Stock Issued............... $51,448 $46,000 $421,220
Fair Value of Options Issued.................... 15,655 -- 25,291
Fair Value of Debt Assumed...................... -- -- 584,906
Fair Value of Certain Net Assets of Businesses
Previously Acquired........................... 3,000 2,489 1,063
In December 1998, the Company entered into a foreign currency exchange
agreement and has recorded an asset and a liability based upon the exchange
rates as of December 31, 1998. A cash settlement of the agreement occurred in
January 1999.
See Note 6 for liabilities assumed in acquisitions.
17. SUBSEQUENT EVENT
In January 2001, the Company entered into two interest rate swap agreements,
which have notional values of $96,000 and $47,500, respectively, to hedge its
interest rate risk on its Tranche B debt as well as certain variable operating
lease commitments. The interest rate swap agreements will be accounted for in
accordance with the Company's adoption of SFAS 133 effective on January 1, 2001.
72
REPORT OF THE INDEPENDENT AUDITORS
To the Board of Directors of Iron Mountain Europe Limited:
We have audited the consolidated balance sheets of Iron Mountain Europe
Limited as of October 31, 1999 and 2000, and the related consolidated statements
of operations, stockholders' equity and comprehensive loss and cash flows (not
presented separately herein) for the year ended October 31, 2000 and the ten
months ended October 31, 1999. These consolidated financial statements are the
responsibility of the management of Iron Mountain Europe Limited. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free from material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Iron Mountain Europe Limited at October 31, 1999 and 2000 and the consolidated
results of their operations and their consolidated cash flows (not presented
separately herein) for the year ended October 31, 2000 and the ten months ended
October 31, 1999, in conformity with generally accepted accounting principles in
the United States.
RSM ROBSON RHODES
Chartered Accountants
Birmingham, England
February 23, 2001
73
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Iron Mountain Incorporated:
We have audited, in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of Iron Mountain
Incorporated (a Pennsylvania corporation) for each of the three years in the
period ended December 31, 2000 and have issued our report thereon dated
February 23, 2001. Our audits were made for the purpose of forming an opinion on
those basic financial statements taken as a whole. The supplemental schedule
listed in the accompanying index is the responsibility of Iron Mountain
Incorporated's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and regulations under the Securities
Exchange Act of 1934 and is not a required part of the basic financial
statements. The supplemental schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated, in all material respects, in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 23, 2001
74
SCHEDULE II
IRON MOUNTAIN INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT BALANCE AT
BEGINNING OF CHARGED TO OTHER END OF THE
YEAR ENDED DECEMBER 31, THE YEAR EXPENSE ADDITIONS(1) DEDUCTIONS YEAR
- ----------------------- ------------ ---------- ------------ ---------- ----------
Allowance for doubtful accounts and credit
memos:
1998........................................ $1,929 $1,730 $834 $(1,177) $3,316
1999........................................ 3,316 2,733 336 (645) 5,740
2000........................................ 5,740 9,714 535 -- 15,989
BALANCE AT BALANCE AT
BEGINNING OF END OF THE
YEAR ENDED DECEMBER 31, THE YEAR ADDITIONS DEDUCTIONS ADJUSTMENTS(2) YEAR
- ----------------------- ------------ --------- ---------- -------------- ----------
Reserve for restructuring activities:
1998....................................... $ 5,443 $11,368 $(4,690) $(1,639) $10,482
1999....................................... 10,482 4,234 (4,843) (533) 9,340
2000....................................... 9,340 31,409 (7,539) (4,696) 28,514
- ------------------------
(1) Includes allowance of businesses acquired during the year as described in
Note 6 of Notes to Consolidated Financial Statements.
(2) The adjustments represent changes to goodwill as a result of management's
finalizing its restructuring plan within one year of each acquisition.
75
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ C. RICHARD REESE
-----------------------------------------
C. Richard Reese
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND PRESIDENT
Dated: March 23, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ C. RICHARD REESE Chairman, and Chief March 23, 2001
------------------------------------------- Executive Officer,
C. Richard Reese President and Director
/s/ JOHN F. KENNY, JR. Executive Vice President, March 23, 2001
------------------------------------------- Chief Financial Officer
John F. Kenny, Jr. and Director
/s/ CLARKE H. BAILEY Director March 23, 2001
-------------------------------------------
Clarke H. Bailey
/s/ CONSTANTIN R. BODEN Director March 23, 2001
-------------------------------------------
Constantin R. Boden
/s/ KENT P. DAUTEN Director March 23, 2001
-------------------------------------------
Kent P. Dauten
Director March , 2001
-------------------------------------------
Eugene B. Doggett
76
NAME TITLE DATE
---- ----- ----
/s/ B. THOMAS GOLISANO Director March 23, 2001
-------------------------------------------
B. Thomas Golisano
/s/ ARTHUR D. LITTLE Director March 23, 2001
-------------------------------------------
Arthur D. Little
/s/ J. PETER PIERCE Director March 23, 2001
-------------------------------------------
J. Peter Pierce
/s/ HOWARD D. ROSS Director March 23, 2001
-------------------------------------------
Howard D. Ross
/s/ VINCENT J. RYAN Director March 23, 2001
-------------------------------------------
Vincent J. Ryan
77
INDEX TO EXHIBITS
Certain exhibits indicated below are incorporated by reference to documents
we have filed with the Securities and Exchange Commission (the "Commission").
Exhibit numbers in parentheses refer to the exhibit numbers in the applicable
filing (which are identified in the footnotes appearing at the end of this
index). Each exhibit marked by a pound sign (#) is a management contract or
compensatory plan.
EXHIBIT
NO. ITEM EXHIBIT
- --------------------- ------------------------------------------------------------ -----------------
2.1 Purchase Agreement, dated November 13, 2000, by and among Filed herewith as
Iron Mountain Canada Corporation, Iron Mountain Records Exhibit 2.1
Management, Inc. ("IMRM"), FACS Records Storage Income
Fund, FACS Records Centre Inc. and 3796281 Canada Inc.
2.2 Asset Purchase and Sale Agreement, dated February 18, 2000, (2.1)(23)
by and among IMRM, Data Storage Center, Inc., DSC of
Florida, Inc., DSC of Massachusetts, Inc., and Suddath Van
Lines, Inc.
2.3 Amendment No. 1 to Asset Purchase and Sale Agreement, dated (2.1)(24)
May 1, 2000, by and among IMRM, Data Storage Center, Inc.,
DSC of Florida, Inc., DSC of Massachusetts, Inc., Suddath
Van Lines, Inc. and Suddath Family Trust U/A 11/8/79.
2.4 Agreement and Plan of Merger, dated as of October 20, 1999, (2.1)(15)
by and between the Company and Pierce Leahy.
2.5 Stock Purchase Agreement, dated as of April 1, 1999, by and (2.2)(12)
among IMRM, First American Records Management, Inc. and all
of the stockholders of First American Records
Management, Inc. (confidential treatment granted as to
certain portions).
2.6 Stock Purchase Agreement, dated as of February 28, 1999, by (2.10)(10)
and among the Company, Data Base, Inc. ("Data Base") and all
of the stockholders of Data Base. (confidential treatment
granted as to certain portions).
2.7 First Amendment to Stock Purchase Agreement, dated as of (10.1)(12)
April 8, 1999, by and among the Company, Data Base and all
of the stockholders of Data Base.
2.8 Share Purchase Agreement, dated February 26, 1999, among (10.14)(21)
Charles Greaves Stuart-Menteth and Others, Pierce Leahy
Europe Limited and Eagle Trustees Limited, as the Sole
Trustee of the Stuart-Menteth Family Trust.
3.1 Amended and Restated Articles of Incorporation of the (Annex D)(21)
Company.
3.2 Amended and Restated Bylaws of the Company. (Annex E)(21)
4.1 Form of Senior Indenture. (4.1)(26)
4.2 Form of Subordinated Indenture. (4.2)(26)
4.3 Form of stock certificate representing shares of Common (4.1)(22)
Stock, $.01 par value per share, of the Company.
9.0 Amended and Restated Voting Trust Agreement, dated as of (9.0)(18)
February 28, 1998, by and among certain shareholders of the
Company. (#)
78
EXHIBIT
NO. ITEM EXHIBIT
- --------------------- ------------------------------------------------------------ -----------------
10.1 Shareholders' Agreement, dated as of October 20, 1999, among (Annex B)(21)
the Company, Pierce Leahy, and those shareholders of Pierce
Leahy listed on Schedule A thereto. (#)
10.2 Stockholders' Agreement, dated as of September 26, 1997, by (10.16)(5)
and among the Company and certain stockholders of Arcus
Group, Inc. (#)
10.3 Stockholders' Agreement, dated as of September 17, 1997, by (10.13)(6)
and between the Company and Kent P. Dauten. (#)
10.4 Stockholders' Agreement, dated as of February 19, 1997, by (10.20)(2)
and between the Company and certain stockholders of Safesite
Records Management Corporation. (#)
10.5 Employment Agreement, dated as of February 1, 2000, by and (10.5)(23)
between the Company and J. Peter Pierce. (#)
10.6 Letter Agreement, dated as of June 27, 2000, by and between Filed herewith as
the Company and J. Peter Pierce. (#) Exhibit 10.6
10.7 Iron Mountain Incorporated Executive Deferred Compensation Filed herewith as
Plan, as amended. (#) Exhibit 10.7
10.8 Nonqualified Stock Option Plan of Pierce Leahy Corp. (#) (10.3)(16)
10.9 Iron Mountain Incorporated 1997 Stock Option Plan, as Filed herewith as
amended. (#) Exhibit 10.9
10.10 Iron Mountain/ATSI 1995 Stock Option Plan. (#) (10.2)(7)
10.11 Iron Mountain Incorporated 1995 Stock Incentive Plan, as (10.3)(12)
amended. (#)
10.12 First Amendment, dated as of March 20, 2001, to the Fourth Filed herewith as
Amended and Restated Credit Agreement, dated as of Exhibit 10.12
August 14, 2000, among the Company and certain lenders party
thereto and The Chase Manhattan Bank, as Administrative
Agent.
10.13 Fourth Amended and Restated Credit Agreement, dated as of (10.1)(25)
August 14, 2000, among the Company and certain lenders
party thereto and The Chase Manhattan Bank, as
Administrative Agent.
10.14 Indenture for 8 1/4% Senior Subordinated Notes due 2011, (10.1)(13)
dated April 26, 1999, by and among the Company, certain of
its subsidiaries and The Bank of New York, as trustee.
10.15 Indenture for 8 3/4% Senior Subordinated Notes due 2009, (4.1)(4)
dated October 24, 1997, by and among the Company, certain
of its subsidiaries and The Bank of New York, as trustee.
10.16 Indenture for 10 1/8% Senior Subordinated Notes due 2006, (10.3)(2)
dated October 1, 1996, by and among the Company, certain of
its subsidiaries and First National Association, as trustee.
10.17 Indenture 8 1/8% Senior Notes due 2008, dated as of (4.1(c))(19)
April 7, 1998, by and among Pierce Leahy Command Company, as
issuer, Pierce Leahy and The Bank of New York, as trustee.
79
EXHIBIT
NO. ITEM EXHIBIT
- --------------------- ------------------------------------------------------------ -----------------
10.18 Indenture for 9 1/8% Senior Subordinated Notes due 2007, (10.5)(18)
dated as of July 7, 1997, by and between Pierce Leahy, as
issuer, and The Bank of New York, as trustee.
10.19 Indenture for 11 1/8% Senior Subordinated Notes due 2006, (4.4)(16)
dated as of July 15, 1996, between Pierce Leahy, as issuer,
and United States Trust Company of New York, as trustee.
10.20 Amended and Restated Registration Rights Agreement, dated as (10.1)(3)
of June 12, 1997, by and among the Company and certain
stockholders of the Company. (#)
10.21 Joinder to Registration Rights Agreement, dated as of (10.12)(5)
October 31, 1997, by and between the Company and Kent P.
Dauten. (#)
10.22 Registration Rights Agreement Joinder, dated as of (10.21)(23)
February 1, 2000, by and among the Company and certain
shareholders of the Company. (#)
10.23 Tax Indemnification Agreement among Pierce Leahy and certain (10.9)(17)
of its shareholders.
10.24 Record Center Storage Services Agreement between the (10.18)(1)
Company, Records Management, Inc. and Resolution Trust
Corporation, dated July 31, 1992, as renewed by letter
agreement effective May 20, 1999, between the Company and
the Federal Deposit Insurance Corporation.
10.25 Strategic Alliance Agreement, dated as of January 4, 1999, (10.2)(11)
by and among the Company, Iron Mountain (U.K.) Limited,
Britannia Data Management Limited and Mentmore Abbey plc.
10.26 Lease Agreement, dated as of October 1, 1998, between Iron (10.20)(9)
Mountain Statutory Trust--1998 and IMRM.
10.27 Unconditional Guaranty, dated as of October 1, 1998, from (10.21)(9)
the Company to Iron Mountain Statutory Trust--1998.
10.28 Amendment and Consent to Unconditional Guaranty, dated as of (10.1)(14)
July 1, 1999, between the Company and Iron Mountain
Statutory Trust--1998 and consented to by to by the lenders
listed therein.
10.29 Amended and Restated Agency Agreement, dated October 1, (10.1)(9)
1998, by and between Iron Mountain Statutory Trust--1998 and
IMRM.
10.30 Lease Agreement, dated as of July 1, 1999, by and between (10.2)(15)
Iron Mountain Statutory Trust--1999 and IMRM.
10.31 Agency Agreement, dated as of July 1, 1999, by and between (10.1)(15)
Iron Mountain Statutory Trust--1999 and IMRM.
10.31 Unconditional Guaranty, dated as of July 1, 1999, from the (10.3)(15)
Company to Iron Mountain Statutory Trust--1999.
10.32 Amendment No. 3 and Consent to Guaranty, dated as of (10.2)(25)
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.
80
EXHIBIT
NO. ITEM EXHIBIT
- --------------------- ------------------------------------------------------------ -----------------
10.33 Amendment No. 4 and Consent to Guaranty, dated as of (10.3)(25)
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.
21 Subsidiaries of the Company. Filed herewith as
Exhibit 21
23.1 Consent of Arthur Andersen LLP (Iron Mountain Incorporated, Filed herewith as
Pennsylvania). Exhibit 23.1
23.2 Consent of RSM Robson Rhodes (Iron Mountain Europe Limited). Filed herewith as
Exhibit 23.2
- ------------------------
1. Filed as an Exhibit to Iron Mountain Incorporated's, the Delaware
corporation, ("Iron Mountain/DE"), Registration Statement No. 33-99950,
filed with the Commission on December 1, 1995.
2. Filed as an Exhibit to Iron Mountain/DE's Annual Report on Form 10-K for the
year ended December 31, 1996, filed with the Commission, File No. 0-27584.
3. Filed as an Exhibit to Iron Mountain/DE's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997, filed with the Commission, File
No. 0-27584.
4. Filed as an Exhibit to Iron Mountain/DE's Current Report on Form 8-K dated
October 30, 1997, filed with the Commission, File No. 0-27584.
5. Filed as an Exhibit to Iron Mountain/DE's Registration Statement
No. 333-41045, filed with the Commission on November 26, 1997.
6. Filed as an Exhibit to Iron Mountain/DE's Registration Statement
No. 333-44185, filed with the Commission on January 13, 1998.
7. Filed as an Exhibit to Iron Mountain/DE's Current Report on Form 8-K dated
March 9, 1998, filed with the Commission, File No. 0-27584.
8. Filed as an Exhibit to Amendment No. 1 to Iron Mountain/DE's Registration
Statement No. 333-44187, filed with the Commission on August 3, 1998.
9. Filed as an Exhibit to Iron Mountain/DE's Registration Statement
No. 333-67765, filed with Commission on November 23, 1998.
10. Filed as an Exhibit to Iron Mountain/DE's Annual Report on Form 10-K for
the year ended December 31, 1998, filed with the Commission, File
No. 0-27584.
11. Filed as an Exhibit to Iron Mountain/DE's Current Report on Form 8-K dated
January 19, 1999, filed with the Commission, File No. 0-27584.
12. Filed as an Exhibit to Iron Mountain/DE's Current Report on Form 8-K dated
April 16, 1999, filed with the Commission, File No. 0-27584.
13. Filed as an Exhibit to Iron Mountain/DE's Current Report of Form 8-K dated
May 11, 1999, filed with the Commission, File No. 0-27584.
14. Filed as an Exhibit to Iron Mountain/DE's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999, filed with the Commission, File
No. 0-27584.
81
15. Filed as an Exhibit to Iron Mountain/DE's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999, filed with the Commission, File
No. 1-14937.
16. Filed as an Exhibit to Pierce Leahy's Registration Statement No. 333-9963,
filed with the Commission on August 12, 1996.
17. Filed as an Exhibit to Pierce Leahy's Registration Statement
No. 333-23121, filed with the Commission on March 11, 1997.
18. Filed as an Exhibit to Pierce Leahy's Annual Report on Form 10-K for the
year ended December 31, 1997, filed with the Commission, File
No. 333-09963.
19. Filed as an Exhibit to Pierce Leahy's Registration Statement
No. 333-58569, filed with the Commission on June 6, 1998.
20. Filed as Exhibit to Pierce Leahy's Registration Statement No. 333-69859,
filed with the Commission on December 29, 1998.
21. Filed as an Annex or Exhibit to Amendment No. 1 to Pierce Leahy's
Registration Statement No. 333-91577, filed with the Commission on
December 13, 1999.
22. Filed as an Exhibit to the Company's Current Report on Form 8-K dated
February 1, 2000, filed with the Commission, File No. 1-13045.
23. Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1999, filed with the Commission, File No. 1-13045.
24. Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000, filed with the Commission, File No. 1-13045.
25. Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000 filed with The Commission, File
No. 1-13045.
26. Filed as an Exhibit to Amendment No. 1 to the Company's Registration
Statement No. 333-54030, filed with the Commission on January 29, 2001.
82