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 March 31, 1997
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 X No
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As of May 9, 1997, 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, 1996 3
and March 31, 1997 (Unaudited)
Consolidated Statements of Operations for the Three
Months Ended March 31, 1996 and 1997 (Unaudited) 4
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1996 and 1997 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6-7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-10
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 11
Exhibit 27 - Financial Data Schedule 12
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PIERCE LEAHY CORP.
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
December 31, March 31,
ASSETS 1996 1997
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CURRENT ASSETS:
Cash $ 1,254 $ 1,064
Accounts receivable (less allowance for doubtful
accounts of $795 and $982) 17,828 21,473
Inventories 611 687
Prepaid expenses and other 688 1,171
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Total current assets 20,381 24,395
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PROPERTY AND EQUIPMENT: 158,154 171,234
Less: Accumulated depreciation and amortization (45,020) (46,814)
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Net property and equipment 113,134 124,420
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OTHER ASSETS:
Intangible assets, net 97,544 113,873
Other 3,761 3,774
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Total other assets 101,305 117,647
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$ 234,820 $ 266,462
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LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 7,310 $ 205
Current portion of noncompete obligations 466 387
Accounts payable 6,757 3,558
Accrued expenses 20,563 16,586
Deferred revenue 9,218 10,437
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Total current liabilities 44,314 31,173
LONG-TERM DEBT 209,330 253,868
NONCOMPETE OBLIGATIONS 317 302
DEFERRED RENT 2,841 3,070
DEFERRED INCOME TAXES 3,456 3,443
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT (25,438) (25,394)
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$ 234,820 $ 266,462
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The accompanying notes are an integral part of these financial statements.
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PIERCE LEAHY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands)
Three Months Ended March 31,
-------------------------------------
1996 1997
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REVENUES:
Storage $ 16,969 $ 23,322
Service and storage material sales 12,730 16,910
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Total revenues 29,699 40,232
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OPERATING EXPENSES:
Cost of sales, excluding depreciation and amortization 17,406 22,298
Selling, general and administrative 4,856 6,762
Depreciation and amortization 2,572 4,214
Consulting payments to related parties 125 -
Foreign currency translation - 182
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Total operating expenses 24,959 33,456
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Operating income 4,740 6,776
INTEREST EXPENSE 2,846 6,712
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NET INCOME 1,894 64
ACCRETION OF REDEEMABLE WARRANTS 1,561 -
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NET INCOME APPLICABLE TO
COMMON SHAREHOLDERS $ 333 $ 64
================ ==================
The accompanying notes are an integral part of these financial statements.
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PIERCE LEAHY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Three Months Ended March 31,
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1996 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,894 $ 64
Adjustments to reconcile net income to net cash
provided by (used in) operations:
Depreciation and amortization 2,421 4,214
Gain on sale of property and equipment -- 3
Amortization of deferred financing costs 111 233
Change in deferred rent 43 229
Foreign currency adjustment 79 (110)
Changes in assets and liabilities, net of the effects from the purchase
of businesses:
(Increase) decrease in -
Accounts receivable (1,402) (2,968)
Inventories 107 (75)
Prepaid expenses and other (580) (450)
Other assets 162 (9)
Increase (decrease) in -
Accounts payable 39 (3,754)
Accrued expenses (628) (4,038)
Deferred revenue 244 1,125
Deferred income taxes -- (13)
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Net cash provided by (used in) operating activities 2,490 (5,549)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for business acquired, net of cash acquired (2,865) (18,463)
Capital expenditures (3,553) (10,794)
Client acquisition costs (1,108) (1,788)
Increase in intangible assets (763) (706)
Payments on noncompete agreements (50) (155)
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Net cash used in investing activities (8,339) (31,906)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on revolving line of credit 4,236 44,628
Proceeds from issuance of long-term debt 1,700 --
Payments on long-term debt and capital lease obligations (335) (7,213)
Payment of debt financing costs -- (150)
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Net cash provided by financing activities 5,601 37,265
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NET DECREASE IN CASH (248) (190)
CASH, BEGINNING PERIOD 722 1,254
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CASH, END OF PERIOD $ 474 $ 1,064
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The accompanying notes are an integral part of these financial statements.
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PIERCE LEAHY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in thousands)
(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, 1996 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, 1996, included in the Company's Annual Report
on Form 10-K.
(2) ACQUISITIONS:
During 1996, the Company purchased twelve records management businesses.
During the three months ended March 31, 1997, the Company purchased four
additional records management businesses. An additional two records
management businesses were acquired subsequent to March 31, 1997,
including Records Management Systems, Inc. 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 the respective acquisition dates.
The purchase price for the 1997 acquisitions made through March 31, 1997
exceeded the underlying fair value of the net assets acquired by $15,949,
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.
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(3) LONG-TERM DEBT:
December 31, March 31,
1996 1997
----------------- -------------------
Revolving credit facility $ 5,327 $ 49,900
Senior subordinated notes 200,000 200,000
Mortgages 3,679 3,607
Seller notes 7,600 500
Other 34 66
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Total long-term debt 216,640 254,073
Less: Current portion (7,310) (205)
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$ 209,330 $ 253,868
================= ===================
(4) SUBSEQUENT EVENTS:
Subsequent to March 31, 1997, the Company acquired Records Management
Systems, Inc. and one other records management business for an aggregate
purchase price of $63,073. These transactions will be accounted for under
the purchase method of accounting.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition and
results of operations for the three month periods ended March 31, 1996 and 1997
should be read in conjunction with the consolidated financial statements and
footnotes for the three month period ended March 31, 1997, included herein, and
the consolidated financial statements and footnotes for the year ended December
31, 1996, included in the Company's Annual Report on Form 10-K.
Results of Operations
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1997
Total revenues increased from $29.7 million for the first quarter of 1996 to
$40.2 million for the first quarter of 1997, an increase of $10.5 million, or
35.5%. Sixteen acquisitions completed from March 1996 to January 1997 accounted
for $7.2 million, or 68.6%, of such increase in total revenues. The balance of
the revenue growth resulted from sales to new customers and from net increases
in cubic feet stored from existing customers.
Storage revenues increased from $17.0 million for the first quarter of 1996 to
$23.3 million for the first quarter of 1997, an increase of $6.3 million, or
37.4%. Service and storage material sales revenues increased from $12.7 million
for the first quarter of 1996 to $16.9 million for the first quarter of 1997, an
increase of $4.2 million, or 32.8%.
Cost of sales (excluding depreciation and amortization) increased from $17.4
million in the three months ended March 31, 1996 to $22.3 million in the three
months ended March 31, 1997, an increase of $4.9 million, or 28.1%, but
decreased as a percentage of total revenues from 58.6% in 1996 to 55.4% in 1997.
The $4.9 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 the realization
of operating efficiencies.
Selling, general and administrative expenses increased from $4.9 million for the
first quarter of 1996 to $6.8 million for the first quarter of 1997, an increase
of $1.9 million, or 39.3%, and increased as a percentage of revenues from 16.4%
for the first quarter of 1996 to 16.8% for the first quarter of 1997. The dollar
increase was primarily attributable to increases in administrative staffing,
including increases due to acquisitions. The increase as a percentage of total
revenues was due primarily to increased marketing expenses related to the recent
expansion of the sales and marketing force and employee training.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Depreciation and amortization expense increased from $2.6 million for the first
quarter of 1996 to $4.2 million for the first quarter of 1997, an increase of
$1.6 million, or 63.8%, and increased as a percentage of revenues from 8.7% for
the first quarter of 1996 to 10.5% for the first quarter of 1997. The increase
was primarily attributable to the additional depreciation and amortization
expense related to the sixteen acquisitions completed from March 1996 to January
1997 and, in addition, capital expenditures for buildings, shelving,
improvements to records management facilities and information systems, and
client acquisition costs.
Interest expense increased from $2.8 million for the first quarter of 1996 to
$6.7 million for the first quarter of 1997, an increase of $3.9 million, or
135.8%. The increase was primarily attributable to increased indebtedness
related to financing acquisitions and capital expenditures, as well as the
higher interest rate on the Company's 11 1/8% Senior Subordinated Notes compared
to the bank debt repaid upon the issuance of such Notes.
As a result of the foregoing factors, the Company had net income of $1.9 million
(6.4% of revenues) for the first quarter of 1996 compared to net income of $0.1
million (.2% of revenues) for the first quarter of 1997.
Earnings before interest, taxes, depreciation and amortization, consulting
payments to related parties, and foreign currency translation ("EBITDA")
increased from $7.4 million for the first quarter of 1996 to $11.2 million for
the first quarter of 1997, an increase of $3.7 million, or 50.2%. As a
percentage of revenues, EBITDA increased from 25.0% for the first quarter of
1996 to 27.8% for the first quarter of 1997.
Liquidity and Capital Resources
The Company has made significant capital investments, consisting primarily of
(i) acquisitions, (ii) capital expenditures for buildings, shelving,
improvements to records management facilities, information systems, and (iii)
client acquisition costs. Cash paid for these investments during the first
quarter of 1997 was $18.5 million, $10.8 million and $1.8 million, respectively.
These investments were primarily funded with borrowings under the Company's
Credit Facility.
During the first quarter of 1996, the Company generated $2.5 million in net cash
provided by operations as compared to net cash used in operations of $5.5
million for the first quarter of 1997. The increase in net cash used in
operations resulted from a decrease in net income of $1.6 million, an $8.1
million increase in working capital, of which $7.2 million was a result of
reductions in accrued expenses and accounts payable, offset by an increase of
$1.8 million in depreciation and amortization.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Net cash provided by financing activities was $5.6 million for the first quarter
of 1996, consisting primarily of borrowing of $4.2 million under the Credit
Facility and the issuance of additional long-term debt of $1.7 million, offset
by the repayment of long-term debt of $.3 million. The net cash provided by
financing activities for the first quarter of 1997 was $37.3 million, consisting
primarily of $44.6 million borrowings under the Credit Facility and $7.4 million
payments on long-term debt and seller notes. As of March 31, 1997, the Company
had $1.1 million of available cash and a Credit Facility providing for $110.0
million of U.S. dollar borrowing and $35.0 million of Canadian dollar borrowing.
As of March 31, 1997, $49.9 million was outstanding under the Credit Facility
and, according to certain covenants, the Company could have borrowed an
additional $33.7 million under the Credit Facility. The Company has additional
availability under the Credit Facility based upon the proforma EBITDA of
acquisitions. Subsequent to March 31, 1997, the Company acquired Records
Management Systems, Inc. and one additional record storage company for total
consideration of $63.1 million, which was financed through available cash and
borrowings under the Credit Facility.
Forward-Looking Statements
This Report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended, and is subject to the safe-harbor created by such sections.
Such forward-looking statements concern the Company's operations, economic
performance and financial condition, including in particular its acquisitions
and their integration into the Company's existing operations. Such statements
involved known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors, include among others, the following: general economic and business
condition; changes in customer preferences; competition; changes in technology;
the integration of any acquisitions; changes in business strategy; the
indebtedness of the Company; quality of management, business abilities and
judgment of the Company's personnel; the availability, terms and deployment of
capital; and various other factors referenced in this Report. The
forward-looking statements are made as of the date of this Report, and the
Company assumes no obligation to update the forward-looking statements or to
update the reasons why actual results could differ from those projected in the
forward-looking statements.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule for the three months ended
March 31, 1997, submitted to the Securities and
Exchange Commission in electronic format
(b) Reports on Form 8-K - None
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.
May 15, 1997 By: /s/ Douglas B. Huntley
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(date) Douglas B. Huntley
Vice President and Chief Financial Officer
(Principal Financial Officer)
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