UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarterly Period Ended September 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period from ____________ to ___________
Commission file number 333-9963
PIERCE LEAHY CORP.
(Exact Name of Registrant as Specified in its Charter)
New York 23-2588479
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
631 Park Avenue, King of Prussia, PA 19406
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(Address of Principal Executive Offices, Including Zip Code)
(610) 992-8200
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
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As of December 2, 1996, there were 900 shares of the Registrant's Class A Common
Stock, par value $0.01 per share, and 9,000 shares of the Registrant's Non-
voting Class B Common Stock, par value $0.01 per share, outstanding.
PIERCE LEAHY CORP.
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets at December 31, 1995
and September 30, 1996 (Unaudited) 3
Consolidated Statements of Operations for the Three
Months Ended September 30, 1995 and 1996 (Unaudited) 4
Consolidated Statements of Operations for the Nine
Months Ended September 30, 1995 and 1996 (Unaudited) 5
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1995 and 1996 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7-8
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-13
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 13
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PIERCE LEAHY CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
December 31, September 30,
ASSETS 1995 1996
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Current Assets:
Cash and cash equivalents $ 722 $ 20,087
Accounts receivable (less allowance for doubtful
accounts of $487 and $770) 14,182 18,696
Inventories 762 689
Prepaid expenses and other 1,025 1,306
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TOTAL CURRENT ASSETS 16,691 40,778
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Property, plant and equipment, at cost 109,755 147,554
Less: Accumulated depreciation and amortization (35,328) (43,010)
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PROPERTY, PLANT AND EQUIPMENT, NET 74,427 104,544
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Other Assets:
Intangible assets, net 38,621 66,064
Other 1,589 2,376
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TOTAL OTHER ASSETS 40,210 68,440
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TOTAL ASSETS $ 131,328 $ 213,762
============ =============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Current portion of long-term debt $ 1,478 $ 191
Current portion of noncompete obligations 200 567
Accounts payable 4,641 5,379
Accrued expenses 9,533 13,850
Deferred revenue 8,978 9,053
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TOTAL CURRENT LIABILITIES 24,830 29,040
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Long-term Debt, net of current portion 116,812 203,583
Deferred Rent 2,814 2,960
Deferred Income Taxes 3,492 3,367
Noncompete Obligations 517 367
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TOTAL LONG-TERM LIABILITIES 123,635 210,277
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Commitments and Contingencies
Redeemable Warrants 1,064 -
Shareholders' Deficit (18,201) (25,555)
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TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 131,328 $ 213,762
============ =============
The accompanying notes are an integral part of these financial statements.
-4-
PIERCE LEAHY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
Three Months Ended September 30,
-----------------------------
1995 1996
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Revenues:
Storage $ 13,839 $ 19,272
Service and storage material sales 9,764 13,236
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TOTAL REVENUES 23,603 32,508
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Operating Expenses:
Cost of sales (excluding depreciation and amortization) 13,453 17,706
Selling, general and administrative 4,056 5,024
Depreciation and amortization 2,214 3,236
Consulting payments to related parties 125 -
Non-recurring charge - 3,254
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TOTAL OPERATING EXPENSES 19,848 29,220
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OPERATING INCOME 3,755 3,288
Interest expense 2,469 5,366
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INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 1,286 (2,078)
Extraordinary Item-Loss on early extinguishment of debt - 2,015
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NET INCOME(LOSS) 1,286 (4,093)
Accretion of redeemable warrants 223 -
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NET INCOME (LOSS) APPLICABLE TO
COMMON SHAREHOLDERS $ 1,063 $ (4,093)
============== =============
The accompanying notes are an integral part of these financial statements.
-5-
PIERCE LEAHY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
Nine Months Ended September 30,
-------------------------------
1995 1996
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Revenues:
Storage $ 39,804 $ 54,757
Service and storage material sales 28,363 39,073
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TOTAL REVENUES 68,167 93,830
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Operating Expenses:
Cost of sales (excluding depreciation and amortization) 39,390 52,895
Selling, general and administrative 11,871 14,935
Depreciation and amortization 6,518 8,848
Consulting payments to related parties 375 -
Non-recurring charge - 3,254
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TOTAL OPERATING EXPENSES 58,154 79,932
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OPERATING INCOME 10,013 13,898
Interest expense 6,625 11,319
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INCOME BEFORE EXTRAORDINARY ITEM 3,388 2,579
Extraordinary item-Loss on early extinguishment of debt - 2,015
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NET INCOME 3,388 564
Accretion of redeemable warrants 667 1,561
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NET INCOME (LOSS) APPLICABLE TO
COMMON SHAREHOLDERS $ 2,721 $ (997)
============== ==============
The accompanying notes are an integral part of these financial statements.
-6-
PIERCE LEAHY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended September 30,
----------------------------
1995 1996
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Cash Flows from Operating Activities:
Net income $ 3,388 $ 564
Adjustments to reconcile net income to net cash
provided by operations:
Extraordinary item - 2,015
Depreciation and amortization 6,518 8,848
Amortization of deferred financing costs 401 360
Change in deferred rent (22) 145
Foreign currency adjustment of long-term debt - 79
Changes in assets and liabilities (exclusive of acquisitions):
Accounts receivable (764) (4,514)
Inventories (282) 72
Prepaid expenses and other current assets (342) (281)
Other assets (325) (787)
Accounts payable (1,588) 739
Accrued expenses 2,785 4,336
Deferred revenue 1,296 56
Deferred income tax - (125)
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CASH FLOW PROVIDED BY OPERATIONS 11,065 11,507
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Cash Flows From Investing Activities:
Capital expenditures (11,955) (30,799)
Client acquisition expenditures (1,665) (4,542)
Payments for business acquired, net of cash acquired (13,499) (27,828)
Increase in intangible assets (83) (10,100)
Payments on noncompete agreements (103) (183)
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CASH FLOWS USED IN INVESTING ACTIVITIES (27,305) (73,452)
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Cash Flows Provided by Financing Activities:
Net borrowing under revolving line of credit 2,400 -
Proceeds from issuance of long-term debt 14,400 226,701
Payments on long-term debt (1,600) (141,216)
Proceeds from issuance of noncompete 800 400
Distribution to shareholders - (500)
Cancellation of warrants - (2,625)
Purchase of common stock for treasury - (1,450)
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CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 16,000 81,310
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NET INCREASE (DECREASE) IN CASH (240) 19,365
CASH AND CASH EQUIVALENTS, BEGINNING PERIOD 358 722
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 118 $ 20,087
============ =============
The accompanying notes are an integral part of these financial statements.
-7-
PIERCE LEAHY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands)
(Unaudited)
(1) GENERAL
The interim consolidated financial statements presented herein have been
prepared by Pierce Leahy Corp. ("Pierce Leahy" or the "Company") without
audit and, in the opinion of management, reflect all adjustments of a
normal recurring nature necessary for a fair presentation. Interim results
are not necessarily indicative of results for a full year.
The consolidated balance sheet as of December 31, 1995 has been derived
from the consolidated financial statements that have been audited by the
Company's independent public accountants. The unaudited consolidated
financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in the annual financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to those rules and regulations. The
consolidated financial statements and notes included herein should be read
in conjunction with the consolidated financial statements and notes for the
year ended December 31, 1995, included in the Company's Prospectus dated
October 23, 1996.
(2) OFFERING OF SENIOR SUBORDINATED NOTES
On July 17, 1996, the Company completed the sale of $200 million principal
amount of 11-1/8% Senior Subordinated Notes due 2006. Net proceeds were
used to repay debt primarily incurred for acquisitions, to fund
acquisitions, to purchase common stock for treasury and to provide working
capital.
(3) NON-RECURRING CHARGE AND EXTRAORDINARY ITEM
The Company incurred a non-recurring charge of $3,254 in the third quarter
of 1996 related to the purchase of real estate from affiliated parties
completed in connection with the sale of the Company's $200 million Senior
Subordinated Notes. The Company also incurred an extraordinary item of
$2,015 in the third quarter of 1996 related to the write-off of deferred
financing costs in connection with the repayment of outstanding
indebtedness.
(4) ACQUISITIONS
During 1995, the Company purchased five records management businesses.
During the nine months ended September 30, 1996, the Company purchased
seven additional records management businesses. Each of these acquisitions
was
-8-
PIERCE LEAHY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands)
(Unaudited)
(Continued)
(4) ACQUISITIONS (Continued)
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 purchase price for the 1996 acquisitions exceeded the underlying
fair value of the net assets acquired by $16,649, which has been assigned
to goodwill and is being amortized over the estimated benefit period of 30
years. Funds used to make the various acquisitions were provided through
the Company's credit facility and a portion of the net proceeds of the
Company's sale of the Senior Subordinated Notes.
(5) LONG-TERM DEBT
December 31, September 30,
1995 1996
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Senior Subordinated Notes $ - $200,000
Mortgages - 3,740
Other 83 34
Borrowings under previous credit
agreement (prepaid in July, 1996) 118,207 -
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TOTAL LONG-TERM DEBT 118,290 203,774
Less: Current portion 1,478 191
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LONG-TERM DEBT, NET
OF CURRENT PORTION $116,812 $203,583
===============================
(6) SUBSEQUENT EVENTS
Subsequent to September 30, 1996, the Company acquired four records
management business for $31,511 in transactions that were accounted for
under the purchase method of accounting.
-9-
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition and
results of operations for the three and nine month periods ended September 30,
1995 and 1996 should be read in conjunction with the consolidated financial
statements and footnotes for the three and nine month periods ended September
30, 1996, included herein, and the consolidated financial statements and
footnotes for the year ended December 31, 1995, included in the Company's
Prospectus dated October 23, 1996.
Results of Operations
Three Months Ended September 30, 1995 Compared to Three Months Ended September
30, 1996
Storage revenues increased from $13.8 million for the third quarter of 1995 to
$19.3 million for the third quarter of 1996, an increase of $5.4 million, or
39.3%. Service and storage material sales revenues increased from $9.8 million
for the third quarter of 1995 to $13.2 million for the third quarter of 1996, an
increase of $3.5 million, or 35.6%.
Total revenues increased from $23.6 million for the third quarter of 1995 to
$32.5 million for the third quarter of 1996, an increase of $8.9 million, or
37.7%. Nine acquisitions completed from October 1995 to September 1996
accounted for $6.8 million, or 76.4%, of such increase in total revenues. The
balance of the revenue growth resulted from net increases in cubic feet stored
from existing customers and from sales to new customers.
Cost of sales (excluding depreciation and amortization) increased from $13.5
million in the three months ended September 30, 1995 to $17.7 million in the
three months ended September 30, 1996, an increase of $4.2 million, or 31.6%,
but decreased as a percentage of total revenues from 57.0% in 1995 to 54.5% in
1996. The $4.2 million increase in cost of sales resulted primarily from an
increase in cubic feet stored from internal growth and acquisitions. The
decrease in cost of sales as a percentage of total revenues was due primarily to
operating efficiencies.
Selling, general and administrative expenses increased from $4.1 million for the
third quarter of 1995 to $5.0 million for the third quarter of 1996, an increase
of $0.9 million, or 23.9%, but decreased as a percentage of revenues from 17.2%
for the third quarter of 1995 to 15.5% for the third quarter of 1996. The
dollar increase was primarily attributable to increases in administrative
staffing, including increases due to acquisitions.
As a result of the foregoing factors, earnings before non-recurring charge,
interest, taxes, depreciation and amortization ("EBITDA") increased from $6.1
million for the third quarter of 1995 to $9.8 million for the third quarter of
1996, an increase of $3.7 million, or 60.4%. As a percentage of revenues,
EBITDA increased from 25.8% for the third quarter of 1995 to 30.1% for the third
quarter of 1996.
-10-
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Depreciation and amortization expense increased from $2.2 million for the third
quarter of 1995 to $3.2 million for the third quarter of 1996, an increase of
$1.0 million, or 46.2%, and increased as a percentage of revenues from 9.4% for
the third quarter of 1995 to 10.0% for the third quarter of 1996. The increase
was primarily attributable to the additional depreciation and amortization
expense related to the nine acquisitions completed from October 1995 to
September 1996, capital expenditures for shelving, improvements to records
management facilities and information systems, and client acquisition costs.
The Company incurred a non-recurring charge of $3.3 million or 10.0% of total
revenues in the third quarter of 1996 related to the purchase of real estate
from affiliated parties completed in connection with the sale of the Company's
$200 million Senior Subordinated Notes.
Interest expense increased from $2.5 million for the third quarter of 1995 to
$5.4 million for the third quarter of 1996, an increase of $2.9 million, or
117.3%. The increase was primarily attributable to increased indebtedness
related to financing acquisitions and capital expenditures, as well as the
higher interest rate on the Senior Subordinated Notes.
As a result of the foregoing factors, the Company had income before
extraordinary item of $1.3 million (5.5% of revenues) for the third quarter of
1995 compared to a loss before extraordinary item of $2.1 million (6.4% of
revenues) for the third quarter of 1996.
The Company incurred an extraordinary item of $2.0 million or 6.2% of total
revenue in the third quarter of 1996. The extraordinary item is related to the
write-off of deferred financing costs in connection with the repayment of
outstanding indebtedness.
Net income was $1.3 million (or 5.5% of revenues) for the third quarter of 1995
compared to a net loss of $4.1 million (12.6% of revenues) for the third quarter
of 1996.
Nine Months Ended September 30, 1995 Compared to Nine Months Ended September 30,
1996
Storage revenues increased from $39.8 million for the nine months ended
September 30, 1995 to $54.8 million for the nine months ended September 30,
1996, an increase of $15.0 million or 37.6%. Service and storage material sales
revenues increased from $28.4 million for the nine months ended September 30,
1995 to $39.1 million for the nine months ended September 30, 1996, an increase
of $10.7 million or 37.8%.
-11-
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Total revenues increased from $68.2 million for the nine months ended
September 30, 1995 to $93.8 million for the nine months ended September 30,
1996, an increase of $25.7 million or 37.7%. Nine acquisitions completed from
October 1995 to September 1996 accounted for $16.8 million or 65.4% of such
increase in total revenues. The balance of the revenue growth resulted from net
increases in cubic feet stored from existing customers and from sales to new
customers, partially offset by the reduction of records of a major customer
pursuant to a records destruction program recommended by the Company under a
consulting agreement.
Cost of sales (excluding depreciation and amortization) increased from $39.4
million for the nine months ended September 30, 1995 to $52.9 million in the
nine months ended September 30, 1996, an increase of $13.5 million or 34.3%, but
decreased slightly as a percentage of total revenues from 57.8% in 1995 to 56.4%
in 1996. The $13.5 million increase resulted primarily from an increase in
cubic feet stored from internal growth and acquisitions. The decrease as a
percentage of total revenues was due primarily to operating efficiencies
partially offset by the effect of the severe winter weather in 1996 as compared
to 1995.
Selling, general and administrative expenses increased from $11.9 million in the
nine months ended September 30, 1995 to $14.9 million in the nine months ended
September 30, 1996, an increase of $3.1 million or 25.8%, but decreased as a
percentage of total revenues from 17.4% in 1995 to 15.9% in 1996. The
$3.1 million increase was due primarily to increases in administrative staffing,
including increases due to acquisitions.
As a result of the foregoing factors, EBITDA before non-recurring charge
increased from $16.9 million in the nine months ended September 30, 1995 to
$26.0 million in the nine months ended September 30, 1996, an increase of
$9.1 million or 53.8%, and increased as a percentage of total revenues from
24.8% in the first nine months of 1995 to 27.7% in the comparable 1996 period.
Depreciation and amortization expenses increased from $6.5 million in the nine
months ended September 30, 1995 to $8.8 million in the nine months September 30,
1996, an increase of $2.3 million or 35.8%, but decreased as a percentage of
total revenues from 9.6% in 1995 to 9.4% in 1996. Depreciation and amortization
expenses continued to increase primarily as a result of the Company's
acquisitions and capital expenditures for shelving, improvements to records
management facilities and information systems, and client acquisition costs.
-12-
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The Company incurred a non-recurring charge of $3.3 million or 3.5% of total
revenues in the nine months ended September 30, 1996 related to the purchase of
real estate from affiliated parties completed in connection with the sale of the
Company's $200 million principal amount of Senior Subordinated Notes.
Interest expense increased from $6.6 million in the nine months ended September
30, 1995 to $11.3 million in the nine months ended September 30, 1996, an
increase of 71.2%. This increase was due primarily to increased levels of
indebtedness, primarily to finance acquisitions and capital expenditures, as
well as the higher interest rate on the Senior Subordinated Notes compared to
the Company's credit facility. The Company's future interest expense may
increase further as a result of the higher interest rate on the Senior
Subordinated Notes and additional indebtedness the Company may incur to finance
possible future growth.
As a result of the foregoing factors, income before extraordinary item decreased
from $3.4 million (5.0% of revenues) for the nine months ended September 30,
1995 to $2.6 million (2.8% of revenues) for the nine months ended September 30,
1996, a decrease of $0.8 million.
The Company incurred an extraordinary item of $2.0 million or 2.1% of total
revenue in the nine months ended September 30, 1996. This extraordinary item is
related to the write-off of deferred financing costs in connection with the
repayment of indebtedness in connection with the Company's issuance of the
Senior Subordinated Notes.
As a result of the foregoing factors, net income decreased from $3.4 million in
the nine months ended September 30, 1995 to $0.6 million in the nine months
ended September 30, 1996, a decrease of $2.8 million, or 83.4%, and decreased as
a percentage of total revenues from 5.0% in 1995 to .6% in 1996.
Liquidity and Capital Resources
In July 1996, the Company sold $200.0 million of Senior Subordinated Notes in a
private offering. The net proceeds from the sale were used to repay debt
primarily incurred for acquisitions, to fund acquisitions, to purchase common
stock for treasury and to provide working capital.
-13-
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
As the Company has sought to increase its EBITDA, it has made significant
capital investments, consisting primarily of (i) acquisitions, (ii) capital
expenditures for shelving, improvements to records management facilities,
information systems, and (iii) client acquisition costs. Cash paid for these
investments during the first nine months of 1996 amounted to $27.8 million,
$30.8 million and $4.5 million, respectively. These investments have been
primarily funded with a portion of the net proceeds of the sale of the Senior
Subordinated Notes and with cash flow from operations.
During the nine months ended September 30, 1996, the Company generated $11.5
million in net cash from operations as compared to $11.1 million for the same
period of the prior year. The slight increase in net cash provided by
operations resulted from an increase in EBITDA of $9.1 million, offset by $4.7
million increase in interest expense, $3.3 million non-recurring charge and a
$1.0 million increase in working capital.
Net cash provided by financing activities was $81.3 million for the nine months
ended September 30, 1996, consisting primarily of the $200.0 million gross
proceeds from the sale of the Senior Subordinated Notes and the issuance of
additional long-term debt of $26.7 million, primarily offset by the repayment of
long-term debt of $141.2 million. As of September 30, 1996, the Company had
$20.1 million of available cash and a credit facility providing for $100.0
million of U.S. dollar borrowing and $35.0 million of Canadian dollar borrowing.
As of September 30, 1996, no amounts were outstanding under the credit facility,
and, according to certain covenants, the Company could have borrowed an
additional $37.3 million under the credit facility. Subsequent to September 30,
1996, the Company has acquired four additional record storage companies for
total consideration of $31.5 million, which was financed through available cash
and borrowings under the credit facility of $5.1 million.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule for the nine months ended
September 30, 1996, submitted to the Securities and
Exchange Commission in electronic format
-14-
PIERCE LEAHY CORP.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PIERCE LEAHY CORP.
December 2, 1996 By: /s/ Douglas B. Huntley
------------------ ------------------------
(date) Douglas B. Huntley
Vice President and Chief Financial Officer
(Principal Financial Officer)