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 September 30, 1999
Or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period from __________ to _________
Commission file number 1-13045
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 November 8, 1999, there were 17,075,125 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 September 30, 1999
and December 31, 1998 3
Consolidated Statements of Operations for the Three
Months Ended September 30, 1999 and 1998 4
Consolidated Statements of Operations for the Nine
Months Ended September 30, 1999 and 1998 5
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7-11
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-17
Item 3 - Quantitative and Qualitative Disclosures About Market
Risk 18
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 19
Signatures 19
Exhibit 27 - Financial Data Schedule 20
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PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
PIERCE LEAHY CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
ASSETS 1999 1998
------ ------------- ------------
(Unaudited)
CURRENT ASSETS:
Cash $ 2,028 $ 2,312
Accounts receivable, net of allowance for doubtful
accounts of $3,621 and $3,650 56,402 43,063
Inventories 1,051 1,056
Prepaid expenses and other 2,905 1,129
Deferred income taxes 4,402 4,402
------------- ------------
Total current assets 66,788 51,962
------------- ------------
PROPERTY AND EQUIPMENT 343,199 297,216
Less-Accumulated depreciation and amortization (80,623) (67,522)
------------- ------------
Net property and equipment 262,576 229,694
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OTHER ASSETS:
Intangible assets, net 419,119 381,515
Other 2,575 3,287
------------- ------------
Total other assets 421,694 384,802
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$ 751,058 $ 666,458
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 19,243 $ 3,583
Accounts payable 10,440 11,663
Accrued expenses 41,278 40,931
Deferred revenues 15,146 11,932
------------- ------------
Total current liabilities 86,107 68,109
LONG-TERM DEBT 564,105 514,362
DEFERRED RENT 6,822 5,856
DEFERRED INCOME TAXES 18,614 15,036
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK 4,927 -
SHAREHOLDERS' EQUITY 70,483 63,095
------------- ------------
$ 751,058 $ 666,458
============= ============
The accompanying notes are an integral part of these financial statements.
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PIERCE LEAHY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands except per share data)
Three Months Ended September 30,
1999 1998
------------- -------------
(Unaudited)
REVENUES:
Storage $ 48,761 $ 40,820
Service and storage material sales 39,275 33,777
---------------- -------------
Total revenues 88,036 74,597
---------------- -------------
OPERATING EXPENSES:
Cost of sales, excluding depreciation and amortization 49,573 41,961
Selling, general and administrative 11,423 9,882
Depreciation and amortization 10,888 9,385
Foreign currency exchange (540) 4,246
---------------- -------------
Total operating expenses 71,344 65,474
---------------- -------------
Operating income 16,692 9,123
INTEREST EXPENSE 13,363 12,089
---------------- -------------
Income (loss) before income taxes 3,329 (2,966)
INCOME TAXES 1,544 1,648
---------------- -------------
NET INCOME (LOSS) 1,785 (4,614)
PREFERRED STOCK DIVIDEND 280 -
---------------- -------------
NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS $ 1,505 $ (4,614)
================ =============
Basic net income (loss) per Common share $ 0.09 $ (0.27)
================ =============
Diluted net income (loss) per Common share $ 0.09 $ (0.27)
================ =============
Shares used in computing basic net income (loss) per Common share 17,070 17,026
================ =============
Shares used in computing diluted net income (loss) per Common share 17,582 17,026
================ =============
The accompanying notes are an integral part of these financial statements.
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PIERCE LEAHY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands except per share data)
Nine Months Ended September 30,
1999 1998
------------ ------------
(Unaudited)
REVENUES:
Storage $ 139,856 $ 111,217
Service and storage material sales 113,903 83,816
------------ ------------
Total revenues 253,759 195,033
------------ ------------
OPERATING EXPENSES:
Cost of sales, excluding depreciation and amortization 143,429 111,155
Selling, general and administrative 33,563 27,512
Depreciation and amortization 32,084 25,181
Foreign currency exchange (5,505) 7,908
-------------- ------------
Total operating expenses 203,571 171,756
-------------- ------------
Operating income 50,188 23,277
INTEREST EXPENSE 38,877 30,772
-------------- ------------
Income (loss) before income taxes 11,311 (7,495)
INCOME TAXES 3,482 2,613
-------------- ------------
NET INCOME (LOSS) 7,829 (10,108)
PREFERRED STOCK DIVIDEND 648 -
-------------- ------------
NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS $ 7,181 $ (10,108)
============== ============
Basic net income (loss) per Common share $ 0.42 $ (0.60)
============== ============
Diluted net income (loss) per Common share $ 0.41 $ (0.60)
============== ============
Shares used in computing basic net income (loss) per Common share 17,066 16,731
============== ============
Shares used in computing diluted net income (loss) per Common share 17,589 16,731
============== ============
The accompanying notes are an integral part of these financial statements.
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PIERCE LEAHY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended September 30,
-------------------------------
1999 1998
------------- -------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 7,829 $ (10,108)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 31,965 25,181
(Gain) loss on sale of property and equipment (94) 29
Deferred income tax provision 3,482 2,577
Amortization of deferred financing costs 1,157 1,017
Change in deferred rent 771 1,045
Foreign currency adjustment (4,818) 10,422
Changes in assets and liabilities, excluding the effects
from the purchases of businesses:
(Increase) decrease in -
Accounts receivable, net (10,002) (10,129)
Inventories 62 (385)
Prepaid expenses and other (1,191) 564
Other assets 740 2,324
Increase (decrease) in -
Accounts payable (2,033) 1,367
Accrued expenses (2,871) 1,897
Deferred revenue 1,290 1,108
------------- -------------
Net cash provided by operating activities 26,287 26,909
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for businesses acquired, net of cash acquired (23,633) (186,499)
Capital expenditures (39,840) (30,468)
Client acquisition costs (11,468) (7,334)
Increase in intangible assets (2,039) (5,684)
Proceeds from sale of property and equipment 1,106 -
------------- -------------
Net cash used in investing activities (75,874) (229,985)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving line of credit 81,868 165,423
Payments on revolving line of credit (36,628) (76,247)
Proceeds from issuance of long-term debt 5,261 128,843
Issuance of redeemable preferred stock 4,615 -
Payments on long-term debt (5,031) (9,856)
Payment of deferred financing costs (669) (2,511)
Proceeds from exercise of stock options 223 -
Payment of dividends on redeemable preferred stock (336) -
------------- -------------
Net cash provided by financing activities 49,303 205,652
------------- -------------
NET INCREASE (DECREASE) IN CASH (284) 2,576
CASH, BEGINNING OF PERIOD 2,312 1,782
------------- -------------
CASH, END OF PERIOD $ 2,028 $ 4,358
============= =============
SUPPLEMENTAL DISCLOSURE-CASH PAID FOR INTEREST $ 42,164 $ 30,188
============= =============
SUPPLEMENTAL DISCLOSURE-CASH PAID FOR INCOME TAXES $ 53 $ -
============= =============
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 except 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, 1998 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, 1998, included in the
Company's Annual Report on Form 10-K.
2) ACQUISITIONS:
During 1998, the Company completed 16 acquisitions. For the nine months
ended September 30, 1999, four records management businesses were purchased
by the Company. All 1998 and 1999 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 companies acquired in 1999 exceeded the underlying estimated
fair value of the net assets acquired by $40,619, which has been assigned
to goodwill and is being amortized over the estimated benefit period of 30
years. For the nine months ended September 30, 1999, the Company paid an
aggregate purchase price of approximately $42,929 for the acquisitions,
consisting of $23,633 in net cash and $19,296 in Seller notes. The most
significant of these acquisitions was Datavault, Limited, a U.K. based
records management company with operations in seven markets throughout
England and Scotland. This acquisition was financed with borrowings under
the Company's credit facility and the issuance of Seller notes. The Company
has historically financed its acquisitions primarily with borrowings under
its credit facilities and with cash flows from existing operating
activities.
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3) LONG-TERM DEBT:
September 30, December 31,
1999 1998
------------- ------------
11 1/8% Senior Subordinated Notes due 2006 $ 130,000 $ 130,000
9 1/8% Senior Subordinated Notes due 2007 120,000 120,000
8 1/8% Senior Notes due 2008 134,566 134,537
U.S. Revolver 152,000 118,000
Canadian Revolver 11,240 -
Mortgage Notes 9,591 7,368
Seller Notes 18,314 3,475
Other 7,637 4,565
---------- ----------
583,348 517,945
Less-Current portion (19,243) (3,583)
----------- ----------
$ 564,105 $ 514,362
=========== ==========
In February 1999, the Company amended the U.S. portion of its revolving
credit facility to provide for borrowings of up to $175,000. All other
material terms and conditions remained the same.
4) REDEEMABLE PAY-IN-KIND PREFERRED STOCK:
In February 1999, the Company entered into an agreement to issue up to
$15,000 of redeemable pay-in-kind ("PIK") preferred stock. This stock is
redeemable at any time during the ten year term and has an initial annual
dividend rate of 11.36%, subject to increase under certain circumstances
including subsequent issuances of preferred stock (depending on certain
interest rates at such time) and if the preferred stock is not redeemed
prior to six months from its initial issuance. At its option, the Company
may issue additional shares of preferred stock in lieu of quarterly cash
dividend payments. The Company issued $5,000 of the redeemable PIK
preferred stock in March 1999. The Company incurred fees of approximately
$385, providing for net proceeds of approximately $4,615. For the nine
months ended September 30, 1999, amortization of fees was $312 and dividend
payments of $336 were made to the preferred stockholders. On November 1,
1999 the Company redeemed all of the outstanding redeemable PIK preferred
stock and paid all dividends.
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5) EARNINGS PER SHARE:
The weighted average common and common equivalent shares outstanding for
purposes of calculating net income (loss) per common share are computed as
follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
------ ------ ------ ------
Weighted average common shares
outstanding used for basic net
income (loss) per common share 17,070 17,026 17,066 16,731
Dilutive effect of common stock
options outstanding 512 - 523 -
------ ------ ------ ------
Weighted average common and
common equivalent shares
used for diluted net income
(loss) per common share 17,582 17,026 17,589 16,731
====== ====== ====== ======
Options to purchase an aggregate of 1,336 shares of Common stock at prices
ranging from $5.09 to $25.50 per share were outstanding at September 30,
1999.
6) COMPREHENSIVE INCOME (LOSS):
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," requires presentation of the components of
comprehensive income (loss). The Company's comprehensive income (loss)
includes net income (loss) and unrealized gains and losses from foreign
currency translation adjustments. The Company's total comprehensive income
(loss) is as follows:
Nine months ended, Three months ended,
September 30, September 30,
------------- -------------
1999 1998 1999 1998
------------- ------------- ------------- ------------
Comprehensive Income (Loss):
Net Income (Loss) Applicable to
Common Shareholders $ 7,181 $ (10,108) $ 1,505 $ (4,614)
Other Comprehensive Income (Loss):
Foreign Currency Translation Adjustment (30) (740) 1,053 (610)
Income Tax Benefit Related to Items of
Other Comprehensive Income (Loss) 12 296 (421) 244
--------- ---------- ---------- ---------
Other Comprehensive Income (Loss) $ 7,163 $ (10,552) $ 2,137 $ (4,980)
========= ========== ========== =========
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7) SEGMENT AND SUBSIDIARY INFORMATION (UNAUDITED)
The Company stores and services business records for clients throughout the
United States, Canada and the United Kingdom. The following information is a
summary of the operating results and financial position for the Company's
Canadian operations and the Company's U.S. and other operations:
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------------- ------------ ----------- ----------
Revenues:
United States and other $ 76,273 $ 64,851 $ 219,632 $ 170,156
Canada 11,763 9,746 34,127 24,877
------------- ------------ ----------- ----------
Total $ 88,036 $ 74,597 $ 253,759 $ 195,033
============= ============ =========== ==========
EBITDA:
United States and other $ 24,046 $ 20,342 $ 68,509 $ 50,033
Canada 2,994 2,412 8,258 6,333
------------- ------------ ----------- ----------
Total $ 27,040 $ 22,754 $ 76,767 $ 56,366
============= ============ =========== ==========
Operating income (loss):
United States and other $ 14,994 $ 13,942 $ 41,102 $ 30,800
Canada 1,698 (4,819) 9,086 (7,523)
------------- ------------ ----------- ----------
Total $ 16,692 $ 9,123 $ 50,188 $ 23,277
============= ============ =========== ==========
Net income (loss) applicable to
Common shareholders:
United States and other $ 2,382 $ 2,042 $ 5,524 $ 1,882
Canada (877) (6,656) 1,657 (11,990)
------------- ------------ ----------- ----------
Total $ 1,505 $ (4,614) $ 7,181 $ (10,108)
============= ============ =========== ==========
At At
September 30, December 31,
1999 1998
------------- ------------
Current assets:
United States and other $ 57,597 $ 42,896
Canada 9,191 9,066
------------- ------------
Total $ 66,788 $ 51,962
============= ============
Total assets:
United States and other $ 610,861 $ 542,378
Canada 140,197 124,080
------------- ------------
Total $ 751,058 $ 666,458
============= ============
Current liabilities:
United States and other $ 76,075 $ 59,885
Canada 10,032 8,224
------------- ------------
Total $ 86,107 $ 68,109
============= ============
Long-term liabilities:
United States and other $ 442,768 $ 399,739
Canada 146,773 135,515
------------- ------------
Total $ 589,541 $ 535,254
============= ============
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The summarized financial information of the Canadian subsidiaries has been
prepared from the books and records maintained by each subsidiary. The
summarized financial information may not necessarily be indicative of the
results of operations or financial position had the Canadian subsidiaries
operated as independent entities. Certain intercompany sales and charges,
and intercompany loans among the Company and its Canadian subsidiaries are
included in the Canadian subsidiaries' records and are eliminated in
consolidation.
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.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information." This
statement establishes additional standards for segment reporting in the
financial statements and is effective for fiscal years beginning after
December 15, 1997. Management has determined that all of their operations
have similar economic characteristics and may be aggregated into a single
segment for disclosure under SFAS 131. Information concerning the
geographic operations of the Company as prescribed by SFAS 131 is provided
above.
8.) SUBSEQUENT EVENTS:
Subsequent to September 30, 1999, the Company announced the execution of a
definitive agreement to be acquired by Iron Mountain Incorporated in a
stock-for-stock merger valued at approximately $1.2 billion. The merger
consideration will result in the equivalent of a fixed exchange ratio of
1.1 shares of Iron Mountain common stock for each share of Pierce Leahy
common stock. As a result of the merger, existing Pierce Leahy shareholders
will own approximately 35% of the combined company. Iron Mountain's nine-
member board of directors will be expanded to include two additional board
members designated by Pierce Leahy. The proposed merger is subject to the
approval by the shareholders of both companies, completion of regulatory
review, and other customary conditions. The Company expects the merger to
be completed in early 2000.
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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 and nine-month periods ended September
30, 1999 and 1998 should be read in conjunction with the consolidated financial
statements and notes thereto for the three-month and nine-month periods ended
September 30, 1999 and 1998, included herein, and the consolidated financial
statements and notes thereto for the year ended December 31, 1998, included in
the Company's Annual Report on Form 10-K.
Results of Operations
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
Total revenues increased from $74.6 million for the three months ended September
30, 1998 to $88.0 million for the three months ended September 30, 1999, an
increase of $13.4 million, or 18.0%. Nine acquisitions were completed from July
1998 through September 1999, which accounted for $4.0 million, or 29.8%, of such
increase in total revenues. The balance of the revenue growth ($9.4 million)
resulted from sales to new customers and from net increases in cubic feet stored
from existing customers. This represents a base business revenue growth of 12.6%
for the third quarter of 1999 as compared to the third quarter of 1998.
Storage revenues increased from $40.8 million for the three months ended
September 30, 1998 to $48.7 million for the three months ended September 30,
1999, an increase of $7.9 million, or 19.5%. Service and storage material sales
revenues increased from $33.8 million for the three months ended September 30,
1998 to $39.3 million for the three months ended September 30, 1999, an increase
of $5.5 million, or 16.3%.
Cost of sales (excluding depreciation and amortization) increased from $42.0
million in the three months ended September 30, 1998 to $49.6 million in the
three months ended September 30, 1999, an increase of $7.6 million, or 18.1%,
but remained at the same percentage of total revenues of 56.3% for both the 1998
and 1999 periods. The increase in dollars resulted primarily from an additional
number of employees and an increase in facility occupancy costs resulting from
the growth in cubic feet stored from new and existing customers and
acquisitions.
Selling, general and administrative expenses increased from $9.9 million for the
three months ended September 30, 1998 to $11.4 million for the three months
ended September 30, 1999, an increase of $1.5 million, or 15.6%, but decreased
as a percentage of total revenues from 13.2% in the 1998 period to 13.0% in the
1999 period. The dollar increase was primarily attributable to increases in
staffing, including increases in sales personnel and administrative staff, and
related training expenses. The decrease as a percentage of total revenues was
attributable to economies realized from administrative efficiencies of operating
in a centralized manner.
Depreciation and amortization expenses increased from $9.4 million for the three
months ended September 30, 1998 to $10.9 million for the three months ended
September 30, 1999, an
-12-
increase of $1.5 million, or 16.0%, but decreased as a percentage of revenues
from 12.6% for the three months ended September 30, 1998 to 12.4% for the three
months ended September 30, 1999. The dollar increase was primarily attributable
to the additional depreciation and amortization expense related to the nine
acquisitions completed from July 1998 through September 1999 and to capital
expenditures for shelving, buildings, improvements to records management
facilities and information systems, and to client acquisition costs. The
decrease as a percentage of total revenues from the three month periods ended
September 30, 1998 to September 30, 1999 was attributable to an increase in
revenue growth from existing and new customers and from a decrease in
acquisitions, which generally have a higher component of depreciation and
amortization expense.
The Company had a foreign currency exchange loss for the three months ended
September 30, 1998 of $4.2 million (or 5.7% of revenues) and a gain of $0.5
million (or 0.6% of revenues) for the three months ended September 30, 1999.
The change in the foreign currency exchange is primarily due to a change in the
value of the Canadian dollar as compared to the U.S. dollar, as it relates to
the principal on the 1998 Senior Notes due in April 2008 and the FASB 52
requirement to reflect this change in value.
Interest expense increased from $12.1 million (16.2% of revenues) for the three
months ended September 30, 1998 to $13.4 million (15.2% of revenues) for the
three months ended September 30, 1999, an increase of $1.3 million, or 10.5%.
The dollar 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 $3.0 million (4.0% of revenues) for the three months ended September 30, 1998
as compared to income before income taxes of $3.3 million (3.8% of revenues) for
the three months ended September 30, 1999.
The Company recorded a provision for income taxes of $1.6 million (or 2.2% of
revenues) for the three months ended September 30, 1998 and a provision for
income taxes of $1.5 million (or 1.8% of revenues) for the three months ended
September 30, 1999.
In February 1999, the Company entered into an agreement to issue up to $15
million of redeemable pay-in-kind ("PIK") preferred stock. The Company issued $5
million of the PIK preferred stock in March 1999. The preferred stock dividend
for the three months ended September 30, 1999 was $0.3 million (or 0.3% of
revenues).
As a result of the foregoing items, the net loss applicable to common
shareholders for the three months ended September 30, 1998 was $4.6 million
(6.2% of revenues) as compared to net income applicable to common shareholders
of $1.5 million (1.7% of revenues) for the three months ended September 30,
1999.
Earnings before interest expense, income taxes, depreciation and amortization,
and foreign currency exchange ("EBITDA") increased from $22.8 million for the
three months ended September 30, 1998 to $27.0 million for the three months
ended September 30, 1999, an increase of $4.2 million, or 18.8%. As a
percentage of revenues, EBITDA was 30.5% for the three months ended September
30, 1998 and 30.7% for the three months ended September 30, 1999. The increase
as a percentage of the total revenues reflected growth in the Company's
business, economies of scale, and increased operating efficiencies.
-13-
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
Total revenues increased from $195.0 million for the nine months ended September
30, 1998 to $253.8 million for the nine months ended September 30, 1999, an
increase of $58.8 million, or 30.1%. Twenty acquisitions were completed from
January 1998 to September 1999, which accounted for $30.4 million, or 51.8%, of
such increase in total revenues. The balance of the revenue growth ($28.4
million) resulted from sales to new customers and from net increases in cubic
feet stored from existing customers. This represents a base business revenue
growth of 14.5% for the nine months ended September 30, 1999 as compared to the
nine months ended September 30, 1998.
Storage revenues increased from $111.2 million for the nine months ended
September 30, 1998 to $139.9 million for the nine months ended September 30,
1999, an increase of $28.7 million, or 25.8%. Service and storage material
sales revenues increased from $83.8 million for the nine months ended September
30, 1998 to $113.9 million for the nine months ended September 30, 1999, an
increase of $30.1 million, or 35.9%, due in part to a $5.2 million increase in
service revenues derived from the marketing literature storage and fulfillment
business acquired in June 1998.
Cost of sales (excluding depreciation and amortization) increased from $111.2
million in the nine months ended September 30, 1998 to $143.4 million in the
nine months ended September 30, 1999, an increase of $32.2 million, or 29.0%,
but decreased as a percentage of total revenues from 57.0% in the 1998 period to
56.5% in the 1999 period. The increase in dollars resulted primarily from an
additional number of employees and an increase in facility occupancy costs
resulting from the growth in cubic feet stored from new and existing customers
and acquisitions. The decrease as a percentage of total revenues was due
primarily to increased operating efficiencies from the conversion of previously
acquired operations into the Company's PLUS(R) computer system.
Selling, general and administrative expenses increased from $27.5 million for
the nine months ended September 30, 1998 to $33.6 million for the nine months
ended September 30, 1999, an increase of $6.1 million, or 22.0%, but decreased
as a percentage of total revenues from 14.1% in the 1998 period to 13.2% in the
1999 period. The dollar increase was primarily attributable to increases in
staffing, including increases in sales personnel and administrative staff, and
related training expenses. The decrease as a percentage of total revenues was
attributable to economies realized from administrative efficiencies of operating
in a centralized manner.
Depreciation and amortization expenses increased from $25.2 million for the nine
months ended September 30, 1998 to $32.1 million for the nine months ended
September 30, 1999, an increase of $6.9 million, or 27.4%, but decreased as a
percentage of revenues from 12.9% for the nine months ended September 30, 1998
to 12.6% for the nine months ended September 30, 1999. The dollar increase was
primarily attributable to the additional depreciation and amortization expense
related to the twenty acquisitions completed from January 1998 through September
1999 and to capital expenditures for shelving, buildings, improvements to
records management facilities and information systems, and to client acquisition
costs. The decrease as a percentage of total revenues from the nine month
periods ended September 30, 1998 to September 30, 1999 was attributable to an
increase in revenue growth from existing and new
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customers and from a decrease in acquisitions, which generally have a higher
component of depreciation and amortization expense.
The Company had a foreign currency exchange loss for the nine months ended
September 30, 1998 of $7.9 million (or 4.1% of revenues) and a gain of $5.5
million (or 2.2% of revenues) for the nine months ended September 30, 1999. The
change in the foreign currency exchange is primarily due to a change in the
value of the Canadian dollar as compared to the U.S. dollar, as it relates to
the principal on the 1998 Senior Notes due in April 2008 and the FASB 52
requirement to reflect this change in value.
Interest expense increased from $30.8 million (15.8% of revenues) for the nine
months ended September 30, 1998 to $38.9 million (15.3% of revenues) for the
nine months ended September 30, 1999, an increase of $8.1 million, or 26.3%.
The dollar 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 $7.5 million (3.8% of revenues) for the nine months ended September 30, 1998
as compared to income before income taxes of $11.3 million (4.5% of revenues)
for the nine months ended September 30, 1999.
The Company recorded a provision for income taxes of $2.6 million (or 1.3% of
revenues) for the nine months ended September 30, 1998 and a provision for
income taxes of $3.5 million (or 1.4% of revenues) for the nine months ended
September 30, 1999.
In February 1999, the Company entered into an agreement to issue up to $15
million of redeemable pay-in-kind ("PIK") preferred stock. The Company issued $5
million of the PIK preferred stock in March 1999. The preferred stock dividend
for the nine months ended September 30, 1999 was $0.6 million (or 0.3% of
revenues).
As a result of the foregoing items, the net loss applicable to common
shareholders for the nine months ended September 30, 1998 was $10.1 million
(5.2% of revenues) as compared to net income applicable to common shareholders
of $7.2 million (2.8% of revenues) for the nine months ended September 30, 1999.
EBITDA increased from $56.4 million for the nine months ended September 30, 1998
to $76.8 million for the nine months ended September 30, 1999, an increase of
$20.4 million, or 36.2%. As a percentage of revenues, EBITDA was 28.9% for the
nine months ended September 30, 1998 and 30.3% for the nine months ended
September 30, 1999. The increase as a percentage of the total revenues reflected
growth in the Company's business, economies of scale, and increased operating
efficiencies.
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Liquidity and Capital Resources
The Company has made significant investments, consisting primarily of (a)
acquisitions, (b) capital expenditures for buildings, shelving, improvements to
records management facilities and information systems, and (c) client
acquisition costs. Cash paid for these investments during the nine months ended
September 30, 1999 aggregated $23.6 million, $39.8 million and $11.5 million,
respectively. These investments were primarily funded with borrowings under the
Company's credit facility, through the issuance of $5.0 million of redeemable
PIK preferred stock in March 1999, and through cash provided by operations.
During the nine months ended September 30, 1999, the Company generated $26.3
million in net cash from operations as compared to net cash provided by
operations of $26.9 million for the nine months ended September 30, 1998. The
$0.6 million decrease from the nine months ended September 30, 1998 to the nine
months ended September 30, 1999 primarily resulted from the $20.4 million
increase in EBITDA, offset by an increase in cash paid for interest of $12.0
million, and an increase in working capital of $7.1 million.
The net cash provided by financing activities for the nine months ended
September 30, 1999 was $49.3 million, consisting primarily of $81.9 million of
borrowings under the credit facility, $5.3 million of proceeds from the issuance
of long-term debt, and $4.6 million of net proceeds on redeemable preferred
stock, offset by payments of $36.6 million of borrowings under the credit
facility and payments of $5.0 million on long-term debt. As of September 30,
1999, the Company had $2.0 million of available cash and the credit facility
providing for $175.0 million of U.S. dollar borrowings and CDN $40.0 million of
Canadian dollar borrowings, subject to certain limitations and amounts already
outstanding. As of September 30, 1999, $163.2 million was outstanding under the
credit facility and an additional $17.9 million of the credit facility was
reserved to secure the issuance of letters of credit to guarantee the Seller
Notes issued in conjunction with the Datavault acquisition. On November 1, 1999
the Company redeemed all of the outstanding redeemable PIK preferred stock and
paid all dividends.
Year 2000 Compliance
The Company uses a number of computer software programs and systems in its
operations, including the PLUS(R) system and embedded systems contained in the
Company's buildings, plant, equipment and other infrastructure. The Company has
developed a plan designed to make its systems compliant with the requirements to
process transactions in the year 2000. Review of the Company's core PLUS(R)
system databases and programs has been performed and code modifications and
testing were completed in July 1998. The Company's internal financial
accounting system was upgraded to a vendor certified year 2000 compliant version
in December 1998. The Company is also working with its other internal
information systems, network service providers, and other key vendors with the
goal of overall year 2000 readiness. The Company estimates that its remediation
costs incurred to date in achieving Year 2000 compliance, including the
replacement of non-compliant systems, software modifications and validation,
have been approximately $0.3 million. In addition, the Company does not forecast
any additional cost to complete its Year 2000 evaluation, remediation and
validation of all systems. Funding for costs incurred to date has come from cash
flows from operations. The Company has not deferred any significant system
projects due to its Year 2000 efforts.
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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, contemplated
merger, 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. Such factors include, among others, the following: the inability to
complete the merger of Iron Mountain and Pierce Leahy due to the failure to
obtain the necessary regulatory approvals or satisfy other customary conditions;
general economic and business conditions; 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 3 - Quantitative And Qualitative Disclosures About Market Risk
Market risks relating to the Company's operations result primarily from changes
in interest rates and foreign currency exchange rates. The Company does not
currently utilize any derivative financial instruments that expose the Company
to significant market risk. The Company is exposed to cash flow and fair value
risk due to changes in interest rates with respect to its long-term debt. The
table below presents principal cash flows and related weighted average interest
rates of the Company's long-term debt at September 30, 1999 and December 31,
1998. Weighted average variable rates are based on implied forward rates in the
yield curve at September 30, 1999 and December 31, 1998. Implied forward rates
should not be considered a predictor of actual future interest rates. The
information is presented in U.S. dollars, the Company's reporting currency.
December 31, September 30, Fair
1998 1999 Value
-------------- --------------- ---------
Debt Obligations
- ----------------
Fixed Rate (US and other) $ 263,172 $ 280,943 $ 304,195
Weighted average interest rate 10.00% 9.86% 9.11%
Fixed Rate (CDN) $ 136,773 (a) $ 139,165 (a) $ 122,164
Weighted average interest rate 8.12% 8.13% 9.26%
Variable Rate (US) $ 118,000 $ 152,000 $ 152,000
Weighted average interest rate 8.43% 8.13% 8.13%
Variable Rate (CDN) $ - $ 11,240 $ 11,240
Weighted average interest rate 8.13% 8.13%
(a) The principal and interest payments due on 1998 Notes issued by Pierce Leahy
Command Company, the Company's principal Canadian subsidiary are payable in
U.S. Dollars, thus subjecting the Company to foreign currency risk.
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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 nine months ended
September 30, 1999, 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.
November 8, 1999 By: /s/ Douglas B. Huntley
---------------- ---------------------------
(date) Douglas B. Huntley
Vice President and Chief Financial Officer
(Principal Financial Officer)
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