SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 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 ------------ ---------- (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 631 Park Avenue, King of Prussia, PA 19406 ------------------------------------------ (Address of Principal Executive Offices, Including Zip Code) (610) 992-8200 -------------- (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 August 7, 1998, there were 17,025,990 shares of the Registrant's Common Stock, par value $0.01 per share, outstanding. 1 PIERCE LEAHY CORP. INDEX Page PART I - FINANCIAL INFORMATION Item 1 - Financial Statements (Unaudited) Consolidated Balance Sheets at June 30, 1998 and December 31, 1997 3 Consolidated Statements of Operations for the Three Months Ended June 30, 1998 and 1997 4 Consolidated Statements of Operations for the Six Months Ended June 30, 1998 and 1997 5 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997 6 Notes to Consolidated Financial Statements 7-10 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 11-15 PART II - OTHER INFORMATION Item 4 Submission of Matters to a Vote of Security Holders 16 Item 6 - Exhibits and Reports on Form 8-K 16 Signatures 16 Exhibit 27 - Financial Data Schedule 17 2 PIERCE LEAHY CORP. CONSOLIDATED BALANCE SHEETS (unaudited, in thousands) June 30, December 31, ASSETS 1998 1997 ------ ----------- -------------- CURRENT ASSETS: Cash $ 2,532 $ 1,782 Accounts receivable, net of allowance for doubtful accounts of $2,801 and $2,399 37,713 25,201 Inventories 1,354 813 Prepaid expenses and other 1,408 1,772 Deferred income taxes 2,570 2,621 --------- --------- Total current assets 45,577 32,189 --------- --------- PROPERTY AND EQUIPMENT 252,485 214,981 Less-Accumulated depreciation and amortization (61,262) (54,500) --------- --------- Net property and equipment 191,223 160,481 --------- --------- OTHER ASSETS: Intangible assets, net 342,863 196,750 Other 2,855 5,293 --------- --------- Total other assets 345,718 202,043 --------- --------- $ 582,518 $ 394,713 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Current portion of long-term debt $ 3,318 $ 1,084 Current portion of noncompete obligations 260 220 Accounts payable 5,676 8,838 Accrued expenses 37,591 24,754 Deferred revenues 13,715 10,199 --------- --------- Total current liabilities 60,560 45,095 LONG-TERM DEBT 439,148 277,767 NONCOMPETE OBLIGATIONS 17 126 DEFERRED RENT 4,909 3,993 DEFERRED INCOME TAXES 9,354 8,409 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY 68,530 59,323 --------- --------- $ 582,518 $ 394,713 ========= ========= The accompanying notes are an integral part of these financial statements. -3- PIERCE LEAHY CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in thousands except share and per share data) Three Months Ended June 30, ---------------------------------- 1998 1997 -------------- ------------- REVENUES: Storage $ 37,183 $ 26,691 Service and storage material sales 26,963 19,517 ------------ ------------ Total revenues 64,146 46,208 ------------ ------------ OPERATING EXPENSES: Cost of sales, excluding depreciation and amortization 36,279 25,611 Selling, general and administrative 8,856 7,409 Depreciation and amortization 8,577 5,210 Foreign currency exchange 3,724 (62) ------------ ------------ Total operating expenses 57,436 38,168 ------------ ------------ Operating income 6,710 8,040 INTEREST EXPENSE 10,383 8,143 ------------ ------------ Loss before income taxes (3,673) (103) INCOME TAXES 784 -- ------------ ------------ NET LOSS $ (4,457) $ (103) ============ ============ Basic and diluted net loss per Common share $ (0.27) $ (0.01) ============ ============ Shares used in computing basic and diluted net loss per Common share 16,678,757 10,485,090 ============ ============ Pro forma data (Unaudited): Historical loss before income taxes $ (103) Pro forma income taxes 386 ------------ Pro forma net loss attributable to Common shareholders $ (489) ============ Pro forma basic and diluted net loss per Common share $ (0.05) ============ Shares used in computing pro forma basic and diluted net loss per Common share 10,485,090 ============ The accompanying notes are an integral part of these financial statements. -4- PIERCE LEAHY CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in thousands except share and per share data) Six Months Ended June 30, ------------------------------------ 1998 1997 --------------- --------------- REVENUES: Storage $ 70,397 $ 50,013 Service and storage material sales 50,039 36,427 ------------ ------------ Total revenues 120,436 86,440 ------------ ------------ OPERATING EXPENSES: Cost of sales, excluding depreciation and amortization 69,194 47,909 Selling, general and administrative 17,630 14,171 Depreciation and amortization 15,796 9,424 Foreign currency exchange 3,662 120 ------------ ------------ Total operating expenses 106,282 71,624 Operating income 14,154 14,816 INTEREST EXPENSE 18,683 14,855 ------------ ------------ Loss before income taxes (4,529) (39) INCOME TAXES 965 -- ------------ ------------ NET LOSS $ (5,494) $ (39) ============ ============ Basic and diluted net loss per Common share $ (0.33) $ (0.00) ============ ============ Shares used in computing basic and diluted loss per Common share 16,578,243 10,485,090 ============ ============ Pro forma data (Unaudited): Historical loss before income taxes $ (39) Pro forma income taxes 628 ------------ Pro forma net loss attributable to Common shareholders $ (667) ============ Pro forma basic and diluted net loss per Common share $ (0.06) ============ Shares used in computing pro forma basic and diluted net loss per Common share 10,485,090 ============ The accompanying notes are an integral part of these financial statements. -5- PIERCE LEAHY CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands) Six Months Ended June 30, ------------------------------ 1998 1997 ------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (5,494) $ (39) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 15,796 9,424 Gain on sale of property and equipment 29 3 Deferred income tax provision 961 414 Amortization of deferred financing costs 649 409 Change in deferred rent 724 (195) Foreign currency adjustment 4,753 -- Changes in assets and liabilities, excluding the effects from the purchase of businesses: (Increase) decrease in - Accounts receivable, net (6,840) (3,394) Inventories (393) (246) Prepaid expenses and other 856 (145) Other assets 2,587 524 Increase (decrease) in - Accounts payable (3,288) (3,433) Accrued expenses 2,151 155 Deferred revenue 2,717 666 Deferred income taxes -- (148) --------- --------- Net cash provided by operating activities 15,208 3,995 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Payments for businesses acquired, net of cash acquired (139,611) (81,680) Capital expenditures (19,215) (16,350) Client acquisition costs (4,438) (4,066) Increase in intangible assets (4,401) (3,189) Payments on noncompete obligations (70) (310) --------- --------- Net cash used in investing activities (167,735) (105,595) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings on revolving line of credit 22,265 112,462 Proceeds from issuance of long-term debt 134,278 -- Payments on long-term debt and capital lease obligations (1,158) (10,732) Payment of debt financing costs (2,108) (148) --------- --------- Net cash provided by financing activities 153,277 101,582 --------- --------- NET INCREASE (DECREASE) IN CASH 750 (18) CASH, BEGINNING OF PERIOD 1,782 1,254 --------- --------- CASH, END OF PERIOD $ 2,532 $ 1,236 ========= ========= SUPPLEMENTAL DISCLOSURE-CASH PAID FOR INTEREST $ 14,946 $ 13,336 ========= ========= The accompanying notes are an integral part of these financial statements. -6- 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 thereto 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. For the six months ended June 30, 1998, 11 businesses were purchased by the Company. All 1998 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 aggregate purchase price for the 1998 acquisitions exceeded the underlying estimated fair value of the net assets acquired by $136,099, which has been assigned to goodwill and is being amortized over the estimated benefit period of 30 years. For the six months ended June 30, 1998, the Company paid an aggregate of approximately $157,202 for the acquisitions, of which $139,611 was in cash provided primarily through borrowings under the Company's credit facility, (the "Credit Facility"), and from the proceeds from the issuance of $135,000 principal amount of 8 1/8% Senior Notes by the Company's principal Canadian subsidiary. The remainder of the purchase price was comprised of shares of Common Stock with a deemed value of $14,416, and $3,175 in seller notes. Certain purchase agreements contain purchase price adjustments and earn-out provisions contingent upon future performance and other criteria that could affect the ultimate net cash paid for the acquisition. 7 3) LONG-TERM DEBT: June 30, December 31, 1998 1997 ------------------- ------------------ Senior Subordinated Notes $384,515 $250,000 U.S. Revolver 44,000 0 Canadian Revolver 0 22,303 Mortgage Notes 5,192 5,369 Seller Notes 4,141 1,051 Other 4,618 128 ------------------- ------------------ 442,466 278,851 Less: Current portion (3,318) (1,084) ------------------- ------------------ $439,148 $277,767 =================== ================== On April 7, 1998, Pierce Leahy Command Company, the Company's principal Canadian subsidiary, completed the issuance of $135,000 principal amount of 8 1/8% Senior Notes due 2008. Such notes are guaranteed on a senior subordinated basis by the Company. The notes were issued at a discount of 99.641% and such amount will be accreted through interest expense over the term of the Notes. 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 and six months ended June 30, 1997 reflects taxes which would have been recorded on the historical loss 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 loss per share is computed by dividing pro forma net 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 8 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 and six months ended June 30, 1998 and 1997, there was no dilutive effect of stock options or warrants as the Company incurred a net loss for such periods. Options to purchase 1,270,424 shares of Common stock at prices ranging from $5.09 to $20.50 per share were outstanding at June 30, 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 adjustments. The unrealized foreign currency exchange gains and losses for the three and six month periods ended June 30, 1998 and 1997 were immaterial. 7) SUBSEQUENT EVENTS: Subsequent to June 30, 1998, the Company acquired Kestrel Data Management with records management operations in both Houston and Dallas, Texas; Bender Records Management, Reno, Nevada; Keystone Records Storage, Harrisburg, PA; Dallas Secured Records Storage, Dallas, Texas; and Data Management Systems, Ltd., Halifax, Nova Scotia. The aggregate cash consideration for these five acquisitions was approximately $63,000, which was primarily funded with borrowings under the Credit Facility. 9 8) SUBSIDIARY INFORMATION: The following summarized financial information of the Company's Canadian subsidiaries has been prepared from the books and records maintained by such subsidiaries. The summarized financial information may not necessarily be indicative of the results of operations or financial position had the Canadian subsidiaries operated as an independent entity. Certain intercompany sales and charges are included in the subsidiaries' records and are eliminated in consolidation. For the Three Months Ended June 30, For the Six Months Ended June 30, --------------------------------------------- ------------------------------------------- 1998 1997 1998 1997 ------------------- --------------------- -------------------- ------------------ Revenues $ 9,676 $4,366 $15,131 $8,554 Gross margin $ 4,722 $2,059 $ 7,065 $4,132 Operating income $ 2,731 $1,014 $ 3,921 $2,068 Net income (loss) $(5,148) $ 406 $(5,334) $ 598 June 30, 1998 December 31, 1997 --------------------------- ---------------------------- Current assets $ 7,517 $ 3,587 Total assets $116,481 $33,056 Current liabilities $ 8,693 $ 2,018 Long-term liabilities $137,380 $25,652 In addition, the Company's domestic, wholly-owned subsidiaries are Monarch Box, Inc., and Advanced Box, Inc. These subsidiaries were established in 1997 to hold investments and certain intangible assets of the Company. They do not have any other operations. There are no restrictions on the ability of any of the subsidiaries to transfer funds to the Company in the form of loans, advances or dividends, except as provided by applicable law. 10 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 and six-month periods ended June 30, 1998 and 1997 should be read in conjunction with the consolidated financial statements and notes thereto for the three-month and six-month periods ended June 30, 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 June 30, 1998 Compared to Three Months Ended June 30, 1997 Total revenues increased from $46.2 million for the three months ended June 30, 1997 to $64.1 million for the three months ended June 30, 1998, an increase of $17.9 million, or 38.8%. Twenty-four acquisitions were completed from April 1997 to June 1998, which accounted for $13.3 million, or 73.9%, 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 and acquired customers. Storage revenues increased from $26.7 million for the three months ended June 30, 1997 to $37.2 million for the three months ended June 30, 1998, an increase of $10.5 million, or 39.3%. Service and storage material sales revenue increased from $19.5 million for the three months ended June 30, 1997 to $27.0 million for the three months ended June 30, 1998, an increase of $7.5 million, or 38.2%. Cost of sales (excluding depreciation and amortization) increased from $25.6 million in the three months ended June 30, 1997 to $36.3 million in the three months ended June 30, 1998, an increase of $10.7 million, or 41.7%, and increased as a percentage of total revenues from 55.4% in the 1997 period to 56.6% in the 1998 period. The increase in dollars and 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 $7.4 million for the three months ended June 30, 1997 to $8.9 million for the three months ended June 30, 1998, an increase of $1.5 million, or 19.5%, but decreased as a percentage of total revenues from 16.0% in the 1997 period to 13.8% 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 the administrative efficiencies of operating in a centralized manner, including the use of the Company's proprietary PLUS(R) computer software system. Depreciation and amortization expense increased from $5.2 million for the three months ended June 30, 1997 to $8.6 million for the three months ended June 30, 1998, an increase of $3.4 million, or 64.6%, and increased as a percentage of revenues from 11.3% for the three 11 months ended June 30, 1997 to 13.4% for the three months ended June 30, 1998. The increase in both dollars and as a percentage of total revenues was primarily attributable to the additional depreciation and amortization expense related to the 24 acquisitions completed from April 1997 to June 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 gain for the three months ended June 30, 1997 of $0.1 million (.1% of total revenues) and a loss of $3.7 million (5.8% of total revenues) for the three months ended June 30, 1998. The change in the foreign currency exchange is primarily due to a decrease in the value of the Canadian dollar as compared to the U.S. dollar. This movement affects liabilities denominated in U.S. dollars, primarily the $135.0 million principal amount of 8 1/8% Senior Notes issued by Pierce Leahy Command Company, a Canadian subsidiary of the Company, ("Command"). Interest expense increased from $8.1 million for the three months ended June 30, 1997 to $10.4 million for the three months ended June 30, 1998, an increase of $2.3 million, or 27.5%. 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 a loss before income taxes of $.1 million (.2% of total revenues) for the three months ended June 30, 1997 compared to a loss before income taxes of $3.7 million (5.7% of total revenues) for the three months ended June 30, 1998. The Company recorded a provision for income taxes of $.8 million (or 1.2% of revenues) for the three months ended June 30, 1998. There were no income taxes in the six months ended June 30, 1997 since the Company operated as a Subchapter S corporation during such period. As a result of the foregoing items, the net loss for the three months ended June 30, 1997 was $.1 million (.2% of total revenues) and the net loss was $4.5 million (6.9% of total revenues) for the three months ended June 30, 1998. Earnings before interest expense, income taxes, depreciation and amortization, and foreign currency exchange ("EBITDA") increased from $13.2 million for the three months ended June 30, 1997 to $19.0 million for the three months ended June 30, 1998, an increase of $5.8 million, or 44.2%. As a percentage of total revenues, EBITDA was 28.5% for the three months ended June 30, 1997 and 29.6% for the three months ended June 30, 1998. SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997 Total revenues increased from $86.4 million for the six months ended June 30, 1997 to $120.4 million for the six months ended June 30, 1998, an increase of $34.0 million, or 39.3%. Twenty- eight acquisitions were completed from January 1997 to June 1998, which accounted for $24.4 million, or 71.9%, 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 and acquired customers. Storage revenues increased from $50.0 million for the six months ended June 30, 1997 to $70.4 million for the six months ended June 30, 1998, an increase of $20.4 million, or 40.8%. Service 12 and storage material sales revenues increased from $36.4 million for the six months ended June 30, 1997 to $50.0 million for the six months ended June 30, 1998, an increase of $13.6 million, or 37.4%. Cost of sales (excluding depreciation and amortization) increased from $47.9 million in the six months ended June 30, 1997 to $69.2 million in the six months ended June 30, 1998, an increase of $21.3 million, or 44.4%, and increased as a percentage of total revenues from 55.4% in the 1997 period to 57.5% in the 1998 period. The increase in dollars and 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 $14.2 million for the six months ended June 30, 1997 to $17.6 million for the six months ended June 30, 1998, an increase of $3.4 million, or 24.4%, but decreased as a percentage of total revenues from 16.4% in the 1997 period to 14.6% 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 the administrative efficiencies of operating in a centralized manner including the use of the Company's proprietary PLUS(R) computer software system. Depreciation and amortization expense increased from $9.4 million for the six months ended June 30, 1997 to $15.8 million for the six months ended June 30, 1998, an increase of $6.4 million, or 67.6%, and increased as a percentage of revenues from 10.9% for the six months ended June 30, 1997 to 13.1% for the six months ended June 30, 1998. The increase in both dollars and percentage of total revenues was primarily attributable to the additional depreciation and amortization expense related to the 28 acquisitions completed from January 1997 to June 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 six months ended June 30, 1997 of $.1 million (.1% of total revenues) and a loss of $3.7 million (3% of total revenues) for the six months ended June 30, 1998. The change in the foreign currency exchange is primarily due to a decrease in the value of the Canadian dollar compared to the U.S. dollar. This movement affects liabilities denominated in U.S. dollars, primarily the $135.0 million principal amount of 8 1/8% Senior Notes issued by Command. Interest expense increased from $14.9 million for the six months ended June 30, 1997 to $18.7 million for the six months ended June 30, 1998, an increase of $3.8 million, or 25.8%. 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 a loss before income taxes of $.04 million for the six months ended June 30, 1997 compared to a loss before income taxes of $4.5 million for the six months ended June 30, 1998. 13 The Company recorded a provision for income taxes of $1.0 million (.8% of total revenues) for the six months ended June 30, 1998. There were no income taxes in the six months ended June 30, 1997 since the Company operated as a Subchapter S corporation during such period. As a result of the foregoing items, net loss for the six months ended June 30, 1997 was $.04 million and the net loss was $5.5 million (4.6% of total revenues) for the six months ended June 30, 1998. EBITDA increased from $24.4 million for the six months ended June 30, 1997 to $33.6 million for the six months ended June 30, 1998, an increase of $9.2 million, or 38.0%. As a percentage of total revenues, EBITDA was 28.2% for the six months ended June 30, 1997 and 27.9% for the six months ended June 30, 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 six months ended June 30, 1998 was $139.6 million, $19.2 million and $4.4 million, respectively. These investments were primarily funded with borrowings under the Credit Facility and through the issuance of $135.0 million principal amount of 8 1/8% Senior Notes due 2008 by Command. The notes are guaranteed on a senior subordinated basis by the Company. During the six months ended June 30, 1998, the Company generated $15.2 million in net cash provided by operating activities as compared to net cash provided by operating activities of $4.0 million for the six months ended June 30, 1997. The $11.2 million increase in net cash provided by operating activities for the six months ended June 30, 1998 compared to the prior year period was primarily comprised of a $6.4 million increase in depreciation and amortization, a $3.8 million increase in working capital, and a $4.8 million foreign currency adjustment. This increase in foreign currency adjustment primarily relates to the non-cash charge related to the effect of the decrease of the Canadian dollar compared to the U.S. dollar on the Company's Canadian subsidiaries' liabilities denominated in U.S. dollars, primarily the $135.0 million principal amount of 8 1/8% Senior Notes. The net cash provided by financing activities for the six months ended June 30, 1998 was $153.3 million, consisting primarily of the net proceeds from issuance by Command of $135.0 million principal amount of 8 1/8% Senior Notes on April 7, 1998, and $22.3 million of borrowings under the Credit Facility. As of June 30, 1998, the Company had $2.5 million of available cash and the Credit Facility providing for $150.0 million of U.S. dollar borrowings and $40.0 million of Canadian dollar borrowings, subject to certain limitations and amounts already outstanding. As of June 30, 1998, $44.0 million was outstanding under the Credit Facility. 14 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 a 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. 15 PART II - OTHER INFORMATION Item 4 Submission of Matters to a Vote of Security Holders The Company held its annual meeting of shareholders on May 15, 1998. The purpose of the meeting was to elect three directors to hold office until the annual meeting of shareholders in 2001 and to ratify the appointment of Arthur Andersen LLP as the Company's independent accountants for 1998. The vote with respect to electing the directors to hold office until the annual meeting of shareholders in 2001 was as follows: FOR WITHELD AUTHORITY ---------- ----------------- J. Peter Pierce 13,508,623 1,351 Alan B. Campell 13,507,686 2,288 Thomas A. Decker 13,506,316 3,658 The vote with respect to the appointment of Arthur Andersen LLP as the Company's independent accountants for 1998 was as follows: FOR AGAINST ABSTAIN ----------------------- -------------------------------- ------- Item 6 - Exhibits and Reports on Form 8-K 13,507,407 1,117 1,450 (a) Exhibits Exhibit 27 - Financial Data Schedule for the six months ended June 30, 1998 submitted to the Securities and Exchange Commission in electronic format (b) Reports on Form 8-K The Company filed a Form 8-K reporting the acquisition of Archivex Inc. dated April 17, 1998 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. August 14, 1998 By: /s/ Douglas B. Huntley --------------- ------------------------- (date) Douglas B. Huntley Vice President and Chief Financial Officer (Principal Financial Officer) 16