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, 1998
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)
Pennsylvania 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 ___
As of May 8, 1998, there were 16,477,728 shares of the Registrant's Common
Stock, par value $0.01 per share, outstanding.
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PIERCE LEAHY CORP.
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Consolidated Balance Sheets at March 31, 1998
and December 31, 1997 3
Consolidated Statements of Operations for the Three
Months Ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6-8
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-11
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 12
Exhibit 27 - Financial Data Schedule 13
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PIERCE LEAHY CORP.
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
March 31, December 31,
ASSETS 1998 1997
- ------ -------- --------
CURRENT ASSETS:
Cash $ 2,483 $ 1,782
Accounts receivable, net of allowance for doubtful
accounts of $2,887 and $2,399 31,325 25,201
Inventories 872 813
Prepaid expenses and other 1,112 1,772
Deferred income taxes 2,589 2,621
-------- --------
Total current assets 38,381 32,189
-------- --------
PROPERTY AND EQUIPMENT 231,177 214,981
Less-Accumulated depreciation and amortization (57,778) (54,500)
-------- --------
Net property and equipment 173,399 160,481
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OTHER ASSETS:
Intangible assets, net 238,060 196,750
Other 2,745 5,293
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Total other assets 240,805 202,043
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$452,585 $394,713
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LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,907 $ 1,084
Current portion of noncompete obligations 220 220
Accounts payable 6,873 8,838
Accrued expenses 24,716 24,754
Deferred revenues 12,436 10,199
-------- --------
Total current liabilities 46,152 45,095
LONG-TERM DEBT 334,729 277,767
NONCOMPETE OBLIGATIONS 72 126
DEFERRED RENT 4,358 3,993
DEFERRED INCOME TAXES 8,594 8,409
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY 58,680 59,323
-------- --------
$452,585 $394,713
======== ========
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 except share and per share data)
Three Months Ended March 31,
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1998 1997
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REVENUES:
Storage $ 33,214 $ 23,322
Service and storage material sales 23,076 16,910
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Total revenues 56,290 40,232
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OPERATING EXPENSES:
Cost of sales, excluding depreciation and amortization 32,915 22,298
Selling, general and administrative 8,774 6,762
Depreciation and amortization 7,219 4,214
Foreign currency exchange (62) 182
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Total operating expenses 48,846 33,456
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Operating income 7,444 6,776
INTEREST EXPENSE 8,300 6,712
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Income (loss) before income taxes (856) 64
INCOME TAXES 181 --
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NET INCOME (LOSS) $ (1,037) $ 64
============ ============
Basic and diluted net income (loss) per Common share $ (0.06) $ 0.01
============ ============
Shares used in computing basic net income (loss) per Common share 16,477,728 10,485,090
============ ============
Shares used in computing diluted net income (loss) per Common share 16,477,728 10,944,603
============ ============
Pro forma data (Unaudited):
Historical income before income taxes $ 64
Pro forma income taxes 291
------------
Pro forma net loss available to Common shareholders $ (227)
============
Pro forma basic and diluted net loss per Common shar $ (0.02)
============
Shares used in computing pro forma basic net loss per Common share 10,485,090
============
Shares used in computing pro forma diluted net loss per Common share 10,485,090
============
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,
-----------------------
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,037) $ 64
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,227 4,214
Gain on sale of property
and equipment 29 3
Deferred income tax provision 181 (13)
Amortization of deferred
financing costs 293 233
Change in deferred rent 338 229
Foreign currency adjustment 241 (110)
Changes in assets and liabilities,
excluding the effects from the
purchase of businesses:
(Increase) decrease in-
Accounts receivable, net (4,264) (2,968)
Inventories (39) (75)
Prepaid expenses and other 797 (450)
Other assets 2,559 (9)
Increase (decrease) in-
Accounts payable (2,135) (3,754)
Accrued expenses (5,489) (4,038)
Deferred revenue 1,758 1,125
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Net cash provided by (used in)
operating activities 457 (5,549)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for businesses acquired, net
of cash acquired (40,044) (18,463)
Capital expenditures (12,622) (10,794)
Client acquisition costs (2,054) (1,788)
Increase in intangible assets (1,044) (706)
Payments on noncompete agreements (55) (155)
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Net cash used in investing activities (55,819) (31,906)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on revolving line of credit 52,684 44,628
Proceeds from issuance of long-term debt 4,300 -
Payments on long-term debt and capital lease
obligations (834) (7,213)
Payment of debt financing costs (87) (150)
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Net cash provided by financing
activities 56,063 37,265
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NET INCREASE (DECREASE) IN CASH 701 (190)
CASH, BEGINNING OF PERIOD 1,782 1,254
-------- --------
CASH, END OF PERIOD $ 2,483 $ 1,064
======== ========
SUPPLEMENTAL DISCLOSURE-CASH PAID
FOR INTEREST $ 14,558 $ 11,768
======== ========
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PIERCE LEAHY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in thousands except share and per share data)
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, 1997 has been derived
from the Company's 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, 1997, included in
the Company's Annual Report on Form 10-K.
2) ACQUISITIONS:
During 1997, the Company purchased 17 records management businesses.
During the three months ended March 31, 1998, five records management
businesses were purchased by the Company. All five acquisitions were
accounted for using the purchase method of accounting and, accordingly,
the results of operations for such acquisitions have been included in
the consolidated results of the Company from their respective
acquisition dates. The purchase price for the five 1998 acquisitions
exceeded the underlying estimated fair value of the net assets acquired
by $36,971, which has been assigned to goodwill and is being amortized
over the estimated benefit period of 30 years. During the three months
ended March 31, 1998, the Company paid an aggregate of approximately
$40,044 in cash, which was provided primarily through borrowings under
Company's Credit Facility.
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3) LONG-TERM DEBT:
March 31, December 31,
1998 1997
--------------- ---------------
Senior Subordinated Notes $250,000 $250,000
U.S. Revolver 50,500 0
Canadian Revolver 24,656 22,303
Mortgage Notes 5,991 5,369
Seller Notes 967 1,051
Other 4,522 128
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336,636 278,851
Less: Current portion (1,907) (1,084)
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$334,729 $277,767
=============== ===============
4) PRO FORMA INCOME TAXES AND BASIC AND DILUTED NET LOSS PER SHARE:
Prior to July 1, 1997, the Company was an S Corporation for federal and
state income tax purposes. The pro forma income tax provision for the
three months ended March 31, 1997 reflects taxes which would have been
recorded on the historical income before income taxes, at an effective
rate of 39%, had the Company not been an S Corporation during such
period. The basic and diluted pro forma net income (loss) per share is
computed by dividing pro forma net income (loss) by the weighted average
number of shares outstanding during such period.
5) EARNINGS PER SHARE:
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share". SFAS No. 128 requires dual presentation of basic
and diluted earnings per share. According to SFAS No. 128, basic
earnings per share, which replaces primary earnings per share, is
calculated by dividing net income (loss) by the weighted average number
of Common shares outstanding for the period. Diluted earnings per share,
which replaces fully diluted earnings per share, reflects the potential
dilution from the exercise or conversion of securities into Common
stock, such as stock options and warrants. The Company was required to
and did adopt SFAS No. 128 during the period ended December 31, 1997.
For the three months ended March 31, 1998, there were no dilutive
effects of stock options or warrants as the Company incurred a net loss.
For the three months ended March 31, 1997, the dilutive effects of the
weighted average number of stock options and warrants outstanding was
459,513 shares. Options to purchase 1,208,433 shares of
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Common stock at prices ranging from $5.09 to $5.86 per share were
outstanding at March 31, 1998.
6) COMPREHENSIVE INCOME:
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for financial statements issued for fiscal
years beginning after December 15, 1997. The Company's comprehensive
income includes net income and unrealized gains and losses from foreign
currency exchange. The unrealized foreign currency exchange gains and
losses for the periods ended March 31, 1998 and 1997 were immaterial.
7) SUBSEQUENT EVENTS:
On April 7, 1998, the Company acquired substantially all of the assets
of Archivex Inc., a Canadian corporation ("Archivex Acquisition"). The
aggregate cash consideration for the Archivex Acquisition was
approximately $63,000.
Concurrent with the Archivex Acquisition, the Company, through its
Canadian subsidiary, Pierce Leahy Command Company, issued $135,000
principal amount of 8 1/8 % Senior Subordinated Notes due 2008 ("Note
Offering"). The Company and its principal U.S. subsidiaries have
guaranteed the Notes on an unsecured Senior subordinated basis and the
Company's other Canadian subsidiary has guaranteed the Notes on an
unsecured Senior basis. The net proceeds from the Note Offering were
primarily used to finance the Archivex Acquisition and to repay
outstanding borrowings under the Company's Credit Facility.
Subsequent to March 31, 1998, in addition to the Archivex Acquisition,
the Company completed three acquisitions: Amodio Archives (New Britain,
CT); All Safe Archives (Boston, MA); and The Records Centre (Detroit,
MI). The total consideration for these three acquisitions was
approximately $25,500, which was primarily funded with borrowings under
the Company's Credit Facility.
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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, 1998 and 1997
should be read in conjunction with the consolidated financial statements and
notes thereto for the three-month periods ended March 31, 1998 and 1997,
included herein, and the consolidated financial statements and notes thereto for
the year ended December 31, 1997, included in the Company's Annual Report on
Form 10-K.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Total revenues increased from $40.2 million for the three months ended March 31,
1997 to $56.3 million for the three months ended March 31, 1998, an increase of
$16.1 million, or 39.9%. Eighteen acquisitions were completed from April 1997 to
March 1998, which accounted for $10.9 million, or 67.7 %, 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 $23.3 million for the three months ended March
31, 1997 to $33.2 million for the three months ended March 31, 1998, an increase
of $9.9 million, or 42.4%. Service and storage material sales revenues increased
from $16.9 million for the three months ended March 31, 1997 to $23.1 million
for the three months ended March 31, 1998, an increase of $6.2 million, or
36.5%.
Cost of sales (excluding depreciation and amortization) increased from $22.3
million in the three months ended March 31, 1997 to $32.9 million in the three
months ended March 31, 1998, an increase of $10.6 million, or 47.6%, and
increased as a percentage of total revenues from 55.4% in the 1997 period to
58.5% in the 1998 period. The increase as a percentage of total revenues
resulted primarily from an increase in wages and benefits resulting from an
increased number of employees and an increase in facility occupancy costs
resulting from an increase in cubic feet stored from growth and acquisitions.
Selling, general and administrative expenses increased from $6.8 million for the
three months ended March 31, 1997 to $8.8 million for the three months ended
March 31, 1998, an increase of $2.0 million, or 29.8%, but decreased as a
percentage of total revenues from 16.8% in the 1997 period to 15.6% in the 1998
period. The dollar increase was primarily attributable to increases in staffing,
including increases in sales force and administrative staff. The decrease as a
percentage of total revenues was attributable to economies realized from
administrative efficiencies operating in a centralized manner including the use
of the Company's proprietary PLUS(R) software system.
Depreciation and amortization expense increased from $4.2 million for the three
months ended March 31, 1997 to $7.2 million for the three months ended March 31,
1998, an increase of $3.0
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million, or 71.3%, and increased as a percentage of revenues from 10.5% for the
three months ended March 31, 1997 to 12.8% for the three months ended March 31,
1998. The increase was primarily attributable to the additional depreciation and
amortization expense related to the 18 acquisitions completed from April 1997 to
March 1998 and to capital expenditures for buildings, shelving, improvements to
records management facilities and information systems, and client acquisition
costs.
The Company had a foreign currency exchange loss for the three months ended
March 31, 1997 of $0.2 million (or 0.5% of revenues) and a gain of $0.1 million
(or 0.1% of revenues) for the three months ended March 31, 1998. The change in
the foreign currency adjustment is primarily due to an increase in the value of
the Canadian dollar compared to the U.S. dollar.
Interest expense increased from $6.7 million for the three months ended March
31, 1997 to $8.3 million for the three months ended March 31, 1998, an increase
of $1.6 million, or 23.7%. The increase was primarily attributable to increased
indebtedness incurred to finance acquisitions and capital expenditures.
As a result of the foregoing factors, the Company had income before income taxes
of $0.1 million (0.2% of revenues) for the three months ended March 31, 1997
compared to a loss before income taxes of $0.9 million (-1.5% of revenues) for
the three months ended March 31, 1998.
The Company recorded a provision for income taxes of $0.2 million (or 0.3% of
revenues) for the three months ended March 31, 1998. There were no income taxes
in the three months ended March 31, 1997 since the Company operated as a
Subchapter S corporation during such period.
As a result of the foregoing items, net income for the three months ended March
31, 1997 was $0.1 million (0.2% of revenues) and net loss was $1.0 million
(-1.8% of revenues) for the three months ended March 31, 1998.
Earnings before interest expense, taxes, depreciation and amortization, and
foreign currency exchange ("EBITDA") increased from $11.2 million for the three
months ended March 31, 1997 to $14.6 million for the three months ended March
31, 1998, an increase of $3.4 million, or 30.7%. As a percentage of revenues,
EBITDA was 27.8% for the three months ended March 31, 1997 and 25.9% for the
three months ended March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company has made significant investments, consisting primarily of (i)
acquisitions, (ii) capital expenditures for buildings, shelving, improvements to
records management facilities and information systems, and (iii) client
acquisition costs. Cash paid for these investments during the three months ended
March 31, 1998 aggregated $40.0 million, $12.6 million and $2.1 million,
respectively. These investments were primarily funded with borrowings under the
Company's Credit Facility.
During the three months ended March 31, 1998, the Company generated $0.5 million
in net cash provided by operations as compared to net cash used in operations of
$5.5 million for the three months ended March 31, 1997. The $6.0 million change
in net cash provided by operations for
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the three months ended March 31, 1998 compared to the prior year period was
primarily comprised of a $3.0 million increase in depreciation and amortization,
and a $3.4 million decrease in working capital.
The net cash provided by financing activities for the three months ended March
31, 1998 was $56.4 million, consisting primarily of borrowings under the
Company's Credit Facility. As of March 31, 1998, the Company had $2.5 million of
available cash and a Credit Facility providing for $150.0 million of U.S. dollar
borrowings and $40.0 million of Canadian dollar borrowings, subject to certain
limitations. As of March 31, 1998, $75.2 million was outstanding 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
involve 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. The
factors that could cause such difference, 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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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, 1998, submitted to the Securities
and Exchange Commission in electronic format
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 14, 1998 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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