-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LGOmyImcFPtvuPHWNlJpJSi8HR8R7oZkwgjT9KmxFHnR65RgujHtK3xjzetaioF0 tR9PPIH28VFcn54YyVKwug== 0001036050-99-001686.txt : 19990813 0001036050-99-001686.hdr.sgml : 19990813 ACCESSION NUMBER: 0001036050-99-001686 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIERCE LEAHY CORP CENTRAL INDEX KEY: 0001020569 STANDARD INDUSTRIAL CLASSIFICATION: PUBLIC WAREHOUSING & STORAGE [4220] IRS NUMBER: 232588479 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13045 FILM NUMBER: 99685622 BUSINESS ADDRESS: STREET 1: 631 PARK AVE CITY: KING OF PRUSSIA STATE: PA ZIP: 19406 BUSINESS PHONE: 6109928200 10-Q 1 FORM 10-Q 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, 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 August 9, 1999, there were 17,068,770 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, 1999 and December 31, 1998 3 Consolidated Statements of Operations for the Three Months Ended June 30, 1999 and 1998 4 Consolidated Statements of Operations for the Six Months Ended June 30, 1999 and 1998 5 Consolidated Statements of Cash Flows for the Six Months Ended June 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 4 - Submission of Matters to a Vote of Security Holders 19 Item 6 - Exhibits and Reports on Form 8-K 19 Signatures 19 Exhibit 27 - Financial Data Schedule 20 -2- PART I - FINANCIAL INFORMATION Item 1 - Financial Statements PIERCE LEAHY CORP. CONSOLIDATED BALANCE SHEETS (in thousands)
June 30, December 31, ASSETS 1999 1998 ------ ------------ ------------ (Unaudited) CURRENT ASSETS: Cash $ 2,255 $ 2,312 Accounts receivable, net of allowance for doubtful accounts of $3,734 and $3,650 50,145 43,063 Inventories 1,133 1,056 Prepaid expenses and other 2,273 1,129 Deferred income taxes 4,402 4,402 ------------ ------------ Total current assets 60,208 51,962 ------------ ------------ PROPERTY AND EQUIPMENT 329,567 297,216 Less-Accumulated depreciation and amortization (76,432) (67,522) ------------ ------------ Net property and equipment 253,135 229,694 ------------ ------------ OTHER ASSETS: Intangible assets, net 418,786 381,515 Other 1,681 3,287 ------------ ------------ Total other assets 420,467 384,802 ------------ ------------ $ 733,810 $ 666,458 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Current portion of long-term debt $ 20,113 $ 3,583 Accounts payable 7,843 11,663 Accrued expenses 43,995 40,931 Deferred revenues 14,769 11,932 ------------ ------------ Total current liabilities 86,720 68,109 LONG-TERM DEBT 550,437 514,362 DEFERRED RENT 6,445 5,856 DEFERRED INCOME TAXES 17,097 15,036 COMMITMENTS AND CONTINGENCIES REDEEMABLE PREFERRED STOCK 4,822 - SHAREHOLDERS' EQUITY 68,289 63,095 ------------ ------------ $ 733,810 $ 666,458 ============ ============
The accompanying notes are an integral part of these financial statements. -3- PIERCE LEAHY CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands except per share data)
Three Months Ended June 30, 1999 1998 ------------ ------------ (Unaudited) REVENUES: Storage $ 46,921 $ 37,183 Service and storage material sales 38,608 26,963 ------------ ------------ Total revenues 85,529 64,146 ------------ ------------ OPERATING EXPENSES: Cost of sales, excluding depreciation and amortization 48,261 36,279 Selling, general and administrative 11,562 8,856 Depreciation and amortization 11,253 8,577 Foreign currency exchange (3,150) 3,724 ------------ ------------ Total operating expenses 67,926 57,436 ------------ ------------ Operating income 17,603 6,710 INTEREST EXPENSE 12,911 10,383 ------------ ------------ Income (loss) before income taxes 4,692 (3,673) INCOME TAXES 1,052 784 ------------ ------------ NET INCOME (LOSS) 3,640 (4,457) PREFERRED STOCK DIVIDEND 276 - ------------ ------------ NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS $ 3,364 $ (4,457) ============ ============ Basic net income (loss) per Common share $ 0.20 $ (0.27) ============ ============ Diluted net income (loss) per Common share $ 0.19 $ (0.27) ============ ============ Shares used in computing basic net income (loss) per Common share 17,056 16,679 ============ ============ Shares used in computing diluted net income (loss) per Common share 17,591 16,679 ============ ============
The accompanying notes are an integral part of these financial statements. -4- PIERCE LEAHY CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands except per share data)
Six Months Ended June 30, 1999 1998 ------------ ------------ (Unaudited) REVENUES: Storage $ 91,095 $ 70,397 Service and storage material sales 74,628 50,039 ------------ ----------- Total revenues 165,723 120,436 ------------ ----------- OPERATING EXPENSES: Cost of sales, excluding depreciation and amortization 93,856 69,194 Selling, general and administrative 22,140 17,630 Depreciation and amortization 21,196 15,796 Foreign currency exchange (4,965) 3,662 ------------ ----------- Total operating expenses 132,227 106,282 ------------ ----------- Operating income 33,496 14,154 INTEREST EXPENSE 25,514 18,683 ------------ ----------- Income (loss) before income taxes 7,982 (4,529) INCOME TAXES 1,938 965 ------------ ----------- NET INCOME (LOSS) 6,044 (5,494) PREFERRED STOCK DIVIDEND 368 - ------------ ----------- NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS $ 5,676 $ (5,494) ============ =========== Basic net income (loss) per Common share $ 0.33 $ (0.33) ============ =========== Diluted net income (loss) per Common share $ 0.32 $ (0.33) ============ =========== Shares used in computing basic net income (loss) per Common share 17,046 16,578 ============ =========== Shares used in computing diluted net income (loss) per Common share 17,583 16,578 ============ ===========
The accompanying notes are an integral part of these financial statements. -5- PIERCE LEAHY CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Six Months Ended June 30, ------------------------- 1999 1998 ----------- ----------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 6,044 $ (5,494) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 21,076 15,796 (Gain) loss on sale of property and equipment (31) 29 Deferred income tax provision 1,938 961 Amortization of deferred financing costs 769 649 Change in deferred rent 398 724 Foreign currency adjustment (4,776) 4,753 Changes in assets and liabilities, excluding the effects from the purchases of businesses: (Increase) decrease in - Accounts receivable, net (3,885) (6,840) Inventories (23) (393) Prepaid expenses and other (583) 856 Other assets 1,632 2,587 Increase (decrease) in - Accounts payable (4,594) (3,288) Accrued expenses 502 2,081 Deferred revenue 992 2,717 ----------- ----------- Net cash provided by operating activities 19,459 15,138 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Cash paid for businesses acquired, net of cash acquired (22,434) (139,611) Capital expenditures (26,427) (19,215) Client acquisition costs (7,119) (4,438) Increase in intangible assets (1,837) (4,401) Proceeds from sale of property and equipment 824 - ----------- ----------- Net cash used in investing activities (56,993) (167,665) ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on revolving line of credit 62,773 93,612 Payments on revolving line of credit (28,773) (71,347) Proceeds from issuance of long-term debt 2,818 134,278 Issuance of redeemable preferred stock 4,644 - Payments on long-term debt (3,294) (1,158) Payment of deferred financing costs (668) (2,108) Proceeds from exercise of stock options 166 - Payment of dividends on redeemable preferred stock (189) - ----------- ----------- Net cash provided by financing activities 37,477 153,277 ----------- ----------- NET INCREASE (DECREASE) IN CASH (57) 750 CASH, BEGINNING OF PERIOD 2,312 1,782 ----------- ----------- CASH, END OF PERIOD $ 2,255 $ 2,532 =========== =========== SUPPLEMENTAL DISCLOSURE-CASH PAID FOR INTEREST $ 25,638 $ 14,946 =========== =========== SUPPLEMENTAL DISCLOSURE-CASH PAID FOR INCOME TAXES $ 31 $ - =========== ===========
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, 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 six months ended June 30, 1999, three 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 $38,780, 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, 1999, the Company paid an aggregate purchase price of approximately $41,316 for the acquisitions, consisting of $22,434 in net cash and $18,882 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. -7- 3) LONG-TERM DEBT:
June 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 134,557 134,537 U.S. Revolver 152,000 118,000 Mortgage Notes 7,253 7,368 Seller Notes 19,013 3,475 Other 7,727 4,565 ------------------ ------------------ 570,550 517,945 Less-Current portion (20,113) (3,583) ------------------ ------------------ $550,437 $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 March 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 $356, providing for net proceeds of approximately $4,644. Amortization of fees was $178 through June 30, 1999. In June 1999 dividend payments of $189 were made to the preferred stockholders. 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: -8-
Three Months Ended June 30, Six Months Ended June 30, --------------------------------- -------------------------------- 1999 1998 1999 1998 -------------- -------------- -------------- ------------- Weighted average common shares outstanding used for basic net income (loss) per common share 17,056 16,679 17,046 16,578 Dilutive effect of common stock options outstanding 535 - 537 - -------------- -------------- -------------- ------------- Weighted average common and common equivalent shares used for diluted net income (loss) per common share 17,591 16,679 17,583 16,578 ============== ============== ============== =============
Options to purchase an aggregate of 1,374,894 shares of Common stock at prices ranging from $5.09 to $25.50 per share were outstanding at June 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:
Six months ended, Three months ended, June 30, June 30, ------------------------------- ------------------------------- 1999 1998 1999 1998 ------------- ------------- ------------- ------------- Comprehensive Income (Loss): Net Income (Loss) $5,676 $(5,494) $3,364 $(4,457) Other Comprehensive Income (Loss): Foreign Currency Translation Adjustment (650) 44 (530) 36 Income Tax Benefit Related to Items of Other Comprehensive Income (Loss) 260 18 212 15 ------------- ------------- ------------- ------------- Other Comprehensive Income (Loss) $5,286 $(5,432) $3,046 $(4,406) ============= ============= ============= =============
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: -9-
For the Three Months Ended For the Six Months Ended June 30, June 30, ------------------------------------------------------- 1999 1998 1999 1998 ------------- ------------- ------------- ------------- Revenues: United States and other $ 74,401 $ 54,469 $ 143,359 $ 105,305 Canada 11,128 9,677 22,364 15,131 ------------ ------------ ------------ ------------ Total $ 85,529 $ 64,146 $ 165,723 $ 120,436 ============ ============ ============ ============ EBITDA: United States and other $ 23,414 $ 16,281 $ 44,463 $ 29,691 Canada 2,292 2,730 5,264 3,921 ------------ ------------ ------------ ------------ Total $ 25,706 $ 19,011 $ 49,727 $ 33,612 ============ ============ ============ ============ Operating income: United States and other $ 13,159 $ 3,246 $ 26,108 $ 10,233 Canada 4,444 3,464 7,388 3,921 ------------ ------------ ------------ ------------ Total $ 17,603 $ 6,710 $ 33,496 $ 14,154 ============ ============ ============ ============ Net income (loss) applicable to Common shareholders: United States and other $ 1,641 $ 690 $ 3,142 $ (160) Canada 1,723 (5,147) 2,534 (5,334) ------------ ------------ ------------ ------------ Total $ 3,364 $ (4,457) $ 5,676 $ (5,494) ============ ============ ============ ============ June 30, December 31, 1999 1998 ------------ ------------ Current assets: United States and other $ 50,913 $ 42,896 Canada 9,295 9,066 ------------ ------------ Total $ 60,208 $ 51,962 ============ ============ Total assets: United States and other $ 596,918 $ 542,378 Canada 136,892 124,080 ------------ ------------ Total $ 733,810 $ 666,458 ============ ============ Current liabilities: United States and other $ 79,103 $ 59,885 Canada 7,617 8,224 ------------ ------------ Total $ 86,720 $ 68,109 ============ ============ Long-term liabilities: United States and other $ 437,661 $ 399,739 Canada 136,318 135,515 ------------ ------------ Total $ 573,979 $ 535,254 ============ ============
-10- 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 June 30, 1999, the Company acquired Tippet-Richardson, Ltd., a records management company located in Halifax, Nova Scotia, for approximately CDN $1.1 million. This acquisition was primarily funded with borrowings under the Company's revolving credit facility. -11- 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, 1999 and 1998 should be read in conjunction with the consolidated financial statements and notes thereto for the three-month and six-month periods ended June 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 June 30, 1999 Compared to Three Months Ended June 30, 1998 Total revenues increased from $64.1 million for the three months ended June 30, 1998 to $85.5 million for the three months ended June 30, 1999, an increase of $21.4 million, or 33.3%. Fourteen acquisitions were completed from April 1998 to June 1999, which accounted for $10.9 million, or 50.9%, of such increase in total revenues. The balance of the revenue growth ($10.5 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 16.4% for the second quarter of 1999 as compared to the second quarter of 1998. Storage revenues increased from $37.2 million for the three months ended June 30, 1998 to $46.9 million for the three months ended June 30, 1999, an increase of $9.7 million, or 26.2%. Service and storage material sales revenues increased from $27.0 million for the three months ended June 30, 1998 to $38.6 million for the three months ended June 30, 1999, an increase of $11.6 million, or 43.2%, due in part to a $1.9 million increase in service revenues derived from the marketing literature storage and fulfillment business acquired during 1998. Cost of sales (excluding depreciation and amortization) increased from $36.3 million in the three months ended June 30, 1998 to $48.3 million in the three months ended June 30, 1999, an increase of $12.0 million, or 33.0%, but decreased as a percentage of total revenues from 56.6% in the 1998 period to 56.4% 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 existing customers and acquisitions. The decrease as a percentage of total revenue was due primarily to increased operating efficiencies from the conversion of previously acquired operations into the Company's PLUS(R) system. Selling, general and administrative expenses increased from $8.9 million for the three months ended June 30, 1998 to $11.6 million for the three months ended June 30, 1999, an increase of $2.7 million, or 30.6%, but decreased as a percentage of total revenues from 13.8% in the 1998 period to 13.5% 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 revenue was attributable to economies realized from administrative efficiencies of operating in a centralized manner. Depreciation and amortization expenses increased from $8.6 million for the three months ended June 30, 1998 to $11.3 million for the three months ended June 30, 1999, an increase of $2.7 -12- million, or 31.2%, but decreased as a percentage of revenues from 13.4% for the three months ended June 30, 1998 to 13.2% for the three months ended June 30, 1999. The dollar increase was primarily attributable to the additional depreciation and amortization expense related to the fourteen acquisitions completed from April 1998 through June 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 revenue from the three month periods ended June 30, 1998 to June 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 June 30, 1998 of $3.7 million (or -5.8% of revenues) and a gain of $3.2 million (or 3.7% of revenues) for the three months ended June 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 1998 Senior Notes and the FASB 52 requirement to reflect this change in value. Interest expense increased from $10.4 million for the three months ended June 30, 1998 to $12.9 million for the three months ended June 30, 1999, an increase of $2.5 million, or 24.3%. 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 $3.7 million (-5.7% of revenues) for the three months ended June 30, 1998 as compared to income before income taxes of $4.7 million (5.5% of revenues) for the three months ended June 30, 1999. The Company recorded a provision for income taxes of $0.8 million (or 1.2% of revenues) for the three months ended June 30, 1998 and a provision for income taxes of $1.1 million (or 1.2% of revenues) for the three months ended June 30, 1999. In March 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 June 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 June 30, 1998 was $4.5 million (-6.9% of revenues) as compared to net income applicable to common shareholders of $3.4 million (3.9% of revenues) for the three months ended June 30, 1999. Earnings before interest expense, income taxes, depreciation and amortization, and foreign currency exchange ("EBITDA") increased from $19.0 million for the three months ended June 30, 1998 to $25.7 million for the three months ended June 30, 1999, an increase of $6.7 million, or 35.2%. As a percentage of revenues, EBITDA was 29.6% for the three months ended June 30, 1998 and 30.1% for the three months ended June 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- Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998 Total revenues increased from $120.4 million for the six months ended June 30, 1998 to $165.7 million for the six months ended June 30, 1999, an increase of $45.3 million, or 37.6%. Nineteen acquisitions were completed from January 1998 to June 1999, which accounted for $26.4 million, or 58.3%, of such increase in total revenues. The balance of the revenue growth ($18.9 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 15.7% for the six months ended June 30, 1999 as compared to the six months ended June 30, 1998. Storage revenues increased from $70.4 million for the six months ended June 30, 1998 to $91.1 million for the six months ended June 30, 1999, an increase of $20.7 million, or 29.4%. Service and storage material sales revenues increased from $50.0 million for the six months ended June 30, 1998 to $74.6 million for the six months ended June 30, 1999, an increase of $24.6 million, or 49.1%, due in part to a $5.0 million increase in service revenues derived from the marketing literature storage and fulfillment business acquired during 1998. Cost of sales (excluding depreciation and amortization) increased from $69.2 million in the six months ended June 30, 1998 to $93.9 million in the six months ended June 30, 1999, an increase of $24.7 million, or 35.6%, but decreased as a percentage of total revenues from 57.5% in the 1998 period to 56.6% 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 existing customers and acquisitions. The decrease as a percentage of total revenue was due primarily to increased operating efficiencies from the conversion of previously acquired operations into the Company's PLUS(R) system. Selling, general and administrative expenses increased from $17.6 million for the six months ended June 30, 1998 to $22.1 million for the six months ended June 30, 1999, an increase of $4.5 million, or 25.6%, but decreased as a percentage of total revenues from 14.6% in the 1998 period to 13.4% 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 revenue was attributable to economies realized from administrative efficiencies of operating in a centralized manner. Depreciation and amortization expenses increased from $15.8 million for the six months ended June 30, 1998 to $21.2 million for the six months ended June 30, 1999, an increase of $5.4 million, or 34.2%, but decreased as a percentage of revenues from 13.1% for the six months ended June 30, 1998 to 12.8% for the six months ended June 30, 1999. The dollar increase was primarily attributable to the additional depreciation and amortization expense related to the nineteen acquisitions completed from January 1998 through June 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 revenue from the six month periods ended June 30, 1998 to June 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 six months ended June 30, 1998 of $3.7 million (or -3.0% of revenues) and a gain of $5.0 million (or 3.0% of revenues) for the six -14- months ended June 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 1998 Senior Notes and the FASB 52 requirement to reflect this change in value. Interest expense increased from $18.7 million for the six months ended June 30, 1998 to $25.5 million for the six months ended June 30, 1999, an increase of $6.8 million, or 36.6%. 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 $4.5 million (-3.8% of revenues) for the six months ended June 30, 1998 as compared to income before income taxes of $8.0 million (4.8% of revenues) for the six months ended June 30, 1999. The Company recorded a provision for income taxes of $1.0 million (or 0.8% of revenues) for the six months ended June 30, 1998 and a provision for income taxes of $1.9 million (or 1.2% of revenues) for the six months ended June 30, 1999. In March 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 six months ended June 30, 1999 was $0.4 million (or 0.2% of revenues). As a result of the foregoing items, the net loss applicable to common shareholders for the six months ended June 30, 1998 was $5.5 million (-4.6% of revenues) as compared to net income applicable to common shareholders of $5.7 million (3.4% of revenues) for the six months ended June 30, 1999. Earnings before interest expense, income taxes, depreciation and amortization, and foreign currency exchange ("EBITDA") increased from $33.6 million for the six months ended June 30, 1998 to $49.7 million for the six months ended June 30, 1999, an increase of $16.1 million, or 47.9%. As a percentage of revenues, EBITDA was 27.9% for the six months ended June 30, 1998 and 30.0% for the six months ended June 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. -15- 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 six months ended June 30, 1999 aggregated $22.4 million, $26.4 million and $7.1 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 six months ended June 30, 1999, the Company generated $19.5 million in net cash from operations as compared to net cash provided by operations of $15.1 million for the six months ended June 30, 1998. The $4.3 million increase from the six months ended June 30, 1998 to the six months ended June 30, 1999 primarily resulted from the $16.1 million increase in EBITDA, offset by unfavorable foreign currency cash transactions of $0.9 million and an increase in cash paid for interest of $10.7 million. The net cash provided by financing activities for the six months ended June 30, 1999 was $37.5 million, consisting primarily of $62.8 million of borrowings under the credit facility, $4.6 million of net borrowings on redeemable preferred stock, and $2.8 million of proceeds from the issuance of long-term debt, offset by payments of $28.8 million of borrowings under the credit facility and payments of $3.3 million on long-term debt. As of June 30, 1999, the Company had $2.3 million of available cash and the credit facility providing for $175.0 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, 1999, $152.0 million was outstanding under the credit facility and an additional $18.9 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. 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 estimates the cost to complete its Year 2000 evaluation, remediation and validation of all systems will approximate less than $0.1 million. Funding for costs incurred to date has come from cash flows from operations, and future costs are expected to be funded in a similar manner. The Company has not deferred any significant system projects due to its Year 2000 efforts. -16- 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. Such factors include, among others, the following: 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. -17- 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 June 30, 1999 and December 31, 1998. Weighted average variable rates are based on implied forward rates in the yield curve at June 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, June 30, Fair 1998 1999 Value Debt Obligations - ---------------- Fixed Rate (US and other) $ 263,172 $ 279,359 $ 307,384 Weighted average interest rate 10.00% 9.88% 8.98% Fixed Rate (CDN) $ 136,773(a) $ 139,191(a) $ 125,438 Weighted average interest rate 8.12% 8.13% 9.02% Variable Rate (US) $ 118,000 $ 152,000 $ 152,000 Weighted average interest rate 8.43% 8.25% 8.25% (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.
-18- 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 14, 1999. The purpose of the meeting was to elect two directors to hold office until the annual meeting of shareholders in 2002 and to ratify the appointment of Arthur Andersen LLP as the Company's independent accountants for 1999. The vote with respect to electing the directors to hold office until the annual meeting of shareholders in 2002 was as follows: FOR WITHELD AUTHORITY Douglas B. Huntley 12,704,657 19,110 Delbert S. Conner 12,704,866 18,901 The vote with respect to the appointment of Arthur Andersen LLP as the Company's independent accountants for 1999 was as follows: FOR AGAINST ABSTAIN 12,719,202 3,015 1,550 Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule for the six months ended June 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. August 9, 1999 By: /s/ Douglas B. Huntley -------------- ------------------------- (date) Douglas B. Huntley Vice President and Chief Financial Officer (Principal Financial Officer) -19- EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS 3-MOS DEC-31-1999 DEC-31-1999 JAN-01-1999 APR-01-1999 JUN-30-1999 JUN-30-1999 2,255 2,255 0 0 53,879 53,879 (3,734) (3,734) 1,133 1,133 60,208 60,208 329,567 329,567 (76,432) (76,432) 733,810 733,810 86,720 86,720 570,550 570,550 0 0 0 0 171 171 68,118 68,118 733,810 733,810 0 0 165,723 85,529 0 0 132,227 67,926 0 0 0 0 25,514 12,911 7,982 4,692 1,938 1,052 6,044 3,640 0 0 0 0 0 0 6,044 3,640 0.33 0.20 0.32 0.19
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