- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q (MARK ONE) <TABLE> <C> <S> /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 </TABLE> FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 OR <TABLE> <C> <S> / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 </TABLE> FOR THE TRANSITION PERIOD FROM ______________ TO ______________ COMMISSION FILE NUMBER 1-13045 ------------------------ IRON MOUNTAIN INCORPORATED (Exact Name of Registrant as Specified in its Charter) <TABLE> <S> <C> PENNSYLVANIA 23-2588479 (State or Other Jurisdiction of (IRS Employer Identification No.) Incorporation or Organization) </TABLE> 745 ATLANTIC AVENUE, BOSTON, MA 02111 (Address of Principal Executive Offices, Including Zip Code) (617) 535-4766 (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 / / Number of shares of the registrant's Common Stock outstanding as of May 4, 2001: 55,579,027 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
IRON MOUNTAIN INCORPORATED INDEX <TABLE> <CAPTION> PAGE -------- <S> <C> <C> PART I--FINANCIAL INFORMATION Item 1-- Unaudited Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets at March 31, 2001 and December 31, 2000 (Unaudited)............................... 3 Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2001 and 2000 (Unaudited)...... 4 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000 (Unaudited)...... 5 Notes to Condensed Consolidated Financial Statements (Unaudited)................................................. 6-17 Item 2-- Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 18-20 Item 3-- Quantitative and Qualitative Disclosures About Market Risk........................................................ 21 PART II--OTHER INFORMATION Item 6-- Exhibits and Reports on Form 8-K............................ 21 Signature................................................... 22 </TABLE> 2
PART I. FINANCIAL INFORMATION ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS IRON MOUNTAIN INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) (UNAUDITED) <TABLE> <CAPTION> MARCH 31, DECEMBER 31, 2001 2000 ---------- ------------ <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 9,903 $ 6,200 Accounts receivable (less allowances of $17,786 and $15,989 respectively)................................... 208,057 176,442 Deferred income taxes..................................... 31,128 30,990 Prepaid expenses and other................................ 27,690 23,036 ---------- ---------- Total Current Assets.................................. 276,778 236,668 Property, Plant and Equipment: Property, plant and equipment............................. 1,033,895 984,939 Less: Accumulated depreciation............................ (172,592) (152,545) ---------- ---------- Property, Plant and Equipment, net.................... 861,303 832,394 Other Assets, net: Goodwill.................................................. 1,535,901 1,525,630 Customer acquisition costs................................ 29,167 27,692 Deferred financing costs.................................. 14,137 14,534 Other..................................................... 20,768 22,178 ---------- ---------- Total Other Assets, net............................... 1,599,973 1,590,034 ---------- ---------- Total Assets.......................................... $2,738,054 $2,659,096 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt......................... $ 31,629 $ 40,789 Accounts payable.......................................... 37,831 42,531 Accrued expenses.......................................... 146,488 153,291 Deferred income........................................... 76,729 53,884 Other current liabilities................................. 17,129 23,558 ---------- ---------- Total Current Liabilities............................. 309,806 314,053 Long-term Debt, net of current portion...................... 1,371,442 1,314,342 Other Long-term Liabilities................................. 12,095 7,920 Deferred Rent............................................... 16,731 16,346 Deferred Income Taxes....................................... 32,773 38,948 Minority Interest........................................... 69,272 43,029 Shareholders' Equity: Common stock.............................................. 555 553 Additional paid-in capital................................ 994,427 990,854 Accumulated deficit....................................... (56,439) (59,383) Accumulated other comprehensive items..................... (12,608) (7,566) ---------- ---------- Total Shareholders' Equity............................ 925,935 924,458 ---------- ---------- Total Liabilities and Shareholders' Equity............ $2,738,054 $2,659,096 ========== ========== </TABLE> THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 3
IRON MOUNTAIN INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ------------------- 2001 2000 -------- -------- <S> <C> <C> Revenues: Storage................................................... $167,865 $124,939 Service and storage material sales........................ 116,057 87,198 -------- -------- Total Revenues........................................ 283,922 212,137 Operating Expenses: Cost of sales (excluding depreciation).................... 139,820 104,458 Selling, general and administrative....................... 70,317 53,457 Depreciation and amortization............................. 35,718 26,303 Merger-related expenses................................... 801 516 -------- -------- Total Operating Expenses.............................. 246,656 184,734 -------- -------- Operating Income............................................ 37,266 27,403 Interest Expense............................................ 33,987 23,783 Other Expense............................................... (9,187) (781) -------- -------- Income (Loss) Before Provision (Benefit) for Income Taxes and Minority Interest......................... (5,908) 2,839 Provision (Benefit) for Income Taxes........................ (8,837) 8,529 Minority Interest in Losses of Subsidiaries................. (270) (307) -------- -------- Net Income (Loss)........................................... $ 3,199 $ (5,383) ======== ======== Net Income (Loss) per Share -- Basic and Diluted............ $ 0.06 $ (0.11) -------- -------- Weighted Average Common Shares Outstanding--Basic........... 55,427 47,943 ======== ======== Weighted Average Common Shares Outstanding--Diluted......... 56,593 47,943 ======== ======== </TABLE> THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 4
IRON MOUNTAIN INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, --------------------- 2001 2000 --------- --------- <S> <C> <C> Cash Flows from Operating Activities: Net Income (Loss)......................................... $ 3,199 $ (5,383) Adjustments to Reconcile Net Income (Loss) to Cash Provided by Operating Activities: Minority Interests in Losses of Subsidiaries............ (270) (307) Depreciation and Amortization........................... 35,718 26,303 Amortization of Deferred Financing Costs and Bond Discount.............................................. 495 656 Provision for Doubtful Accounts......................... 2,381 1,196 Foreign Currency Loss................................... 9,187 781 Other, Net.............................................. 506 747 Changes in Assets and Liabilities (Exclusive of Acquisitions): Accounts Receivable..................................... (9,558) 1,068 Prepaid Expenses and Other Current Assets............... (7,375) 2,025 Deferred Income Taxes................................... (6,428) 10,447 Other Assets............................................ (616) 298 Accounts Payable........................................ (4,630) (12,092) Accrued Expenses........................................ 2,048 (10,261) Deferred Income......................................... (739) (1,016) Other Current Liabilities............................... 135 50 Deferred Rent........................................... 391 481 Other Long-term Liabilities............................. (545) 2,725 ------- -------- Cash Flows Provided by Operating Activities........... 23,899 17,718 Cash Flows from Investing Activities: Capital Expenditures...................................... (48,198) (27,646) Cash Paid for Acquisitions, net of cash acquired.......... (34,773) (5,636) Additions to Customer Acquisition Costs................... (2,307) (3,356) Other, Net................................................ 29 (435) ------- -------- Cash Flows Used in Investing Activities............... (85,249) (37,073) Cash Flows from Financing Activities: Repayment of Debt......................................... (35,734) (203,267) Proceeds from Borrowings.................................. 82,355 223,558 Debt Contribution from (Repayment to) Minority Shareholders............................................ (6,560) 7,036 Equity Contributions from Minority Shareholders........... 24,529 -- Proceeds from Exercise of Stock Options................... 2,539 885 Financing and Stock Issuance Costs........................ (235) (2,769) ------- -------- Cash Flows Provided by Financing Activities........... 66,894 25,443 Effect of Exchange Rates on Cash and Cash Equivalents....... (1,841) 186 Increase in Cash and Cash Equivalents....................... 3,703 6,274 Cash and Cash Equivalents, Beginning of Period.............. 6,200 3,830 ------- -------- Cash and Cash Equivalents, End of Period.................... $ 9,903 $ 10,104 ======= ======== </TABLE> THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 5
IRON MOUNTAIN INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) (1) GENERAL The interim condensed consolidated financial statements presented herein have been prepared by Iron Mountain Incorporated ("Iron Mountain" 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 condensed consolidated balance sheet presented as of December 31, 2000 has been derived from the consolidated financial statements that have been audited by the Company's independent public accountants. The unaudited condensed 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, but the Company believes that the disclosures are adequate to make the information presented not misleading. The condensed consolidated financial statements and notes included herein should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Certain reclassifications have been made to the 2000 financial statements to conform to the 2001 presentation. (2) COMPREHENSIVE LOSS Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," requires presentation of the components of comprehensive income (loss), including the changes in equity from non-owner sources such as unrealized gains (losses) on securities and foreign currency translation adjustments. The Company's total comprehensive income (loss) is as follows: <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ----------------------------- 2001 2000 ------------- ------------- <S> <C> <C> Comprehensive Loss: Net Income (Loss)............................. $ 3,199 $(5,383) Other Comprehensive Loss: Foreign Currency Translation Adjustment....... (788) 121 Transition Adjustment Charge.................. (214) -- Unrealized Loss on Hedging Contracts.......... (4,040) -- ------- ------- Comprehensive Loss.............................. $(1,843) $(5,262) ======= ======= </TABLE> 6
IRON MOUNTAIN INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) (CONTINUED) (3) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company adopted the provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, on January 1, 2001. SFAS No. 133 requires that every derivative instrument be recorded in the balance sheet as either an asset or a liability measured at its fair value. The adoption of SFAS No. 133 on January 1, 2001 resulted in the recognition of a derivative liability and a corresponding transition adjustment charge to accumulated other comprehensive items of approximately $214. Periodically, the Company acquires derivative instruments that are intended to hedge either cash flows or values which are subject to exchange or other market price risk, and not for trading purposes. The Company has formally documented its hedging relationships, including identification of the hedging instruments and the hedge items, as well as its risk management objectives and strategies for undertaking each hedge transaction. The Company has entered into three interest rate swap agreements, which are derivatives as defined by SFAS No. 133 and designated as cash flow hedges. These swap agreements hedge interest rate risk on certain amounts of its Tranche B debt as well as certain variable operating lease commitments. For all qualifying and highly effective cash flow hedges, the changes in the fair value of the derivatives are recorded in other comprehensive income. As a result of these interest rate swap agreements, the Company has recorded a derivative liability of and a corresponding charge to accumulated other comprehensive items of approximately $4,254 at March 31, 2001. During the period ending March 31, 2001, the Company recorded net losses of $59 and $9 resulting from interest rate swap settlements in interest and rent expense, respectively. All interest rate swap agreements were determined to be highly effective whereby no ineffectiveness was recorded in earnings. (4) ACQUISITIONS During the three months ended March 31, 2001, the Company purchased substantially all of the assets, and assumed certain liabilities, of six records and information management services businesses. Each of the 2001 acquisitions and all 12 of the records and information management services businesses acquired during 2000 were accounted for using the purchase method of accounting and, accordingly, the results of operations for each acquisition have been included in the consolidated results of the Company from their respective acquisition dates. In connection with certain 2001 and 2000 acquisitions, related real estate was also purchased. The aggregate purchase price for the 2001 acquisitions exceeded the underlying fair value of the net assets acquired by $29,255 which has been assigned to goodwill and is being amortized over 25 to 30 years. In connection with the 2001 and 2000 acquisitions, the Company has undertaken certain restructurings of the acquired businesses. The restructuring activities include certain reductions in staffing levels, elimination of duplicate facilities and other costs associated with exiting certain activities of the acquired businesses. These restructuring activities were recorded as costs of the acquisitions and were provided in accordance with Emerging Issues Task Force Issue No. 95-3, "Recognition of 7
IRON MOUNTAIN INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) (CONTINUED) (4) ACQUISITIONS (CONTINUED) Liabilities in Connection with a Purchase Business Combination." The Company finalizes its restructuring plans for each business no later than one year from the date of acquisition. Unresolved matters primarily include completion of planned abandonments of facilities and employee severance costs for certain 2001 and 2000 acquisitions. The following is a summary of reserves related to such restructuring activities: <TABLE> <CAPTION> MARCH 31, DECEMBER 31, 2001 2000 --------- ------------ <S> <C> <C> Reserves, Beginning Balance........................... $28,514 $ 9,340 Reserves Established.................................. 314 31,409 Expenditures.......................................... (3,473) (7,539) Adjustments to Goodwill............................... (631) (4,696) ------- ------- Reserves, Ending Balance.............................. $24,724 $28,514 ======= ======= </TABLE> At March 31, 2001, the restructuring reserves related to acquisitions consisted of lease losses on abandoned facilities ($15,783), severance costs for approximately 16 people ($1,376) and other exit costs ($7,565). These accruals are expected to be used within one year of the finalization of the restructuring plans except for lease losses of $10,302 and severance contracts of approximately $674, all of which are based on contracts that extend beyond one year. 8
IRON MOUNTAIN INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) (CONTINUED) (5) LONG-TERM DEBT Long-term debt consists of the following: <TABLE> <CAPTION> MARCH 31, 2001 DECEMBER 31, 2000 --------------------- --------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ---------- -------- ---------- -------- <S> <C> <C> <C> <C> Revolving Credit Facility due 2005............... $ 51,000 $ 51,000 $ 4,000 $ 4,000 Tranche A Term Loan due 2005..................... 150,000 150,000 150,000 150,000 Tranche B Term Loan due 2006..................... 199,500 199,500 199,750 199,750 11 1/8% Senior Subordinated Notes due 2006 (the "11 1/8% notes")............................... 131,366 138,800 131,517 136,500 10 1/8% Senior Subordinated Notes due 2006 (the "10 1/8% notes")............................... 165,000 173,700 165,000 170,800 9 1/8% Senior Subordinated Notes due 2007 (the "9 1/8% notes")................................ 114,438 121,800 114,216 118,800 8 3/4% Senior Subordinated Notes due 2009 (the "8 3/4% notes")................................ 249,656 254,400 249,646 245,600 8 1/4% Senior Subordinated Notes due 2011 (the "8 1/4% notes")................................ 149,546 148,900 149,535 141,400 8 1/8% Senior Subordinated Notes due 2008 (the "Subsidiary notes")............................ 121,327 131,000 120,850 128,600 Real Estate Mortgages............................ 22,408 22,408 20,457 20,457 Seller Notes..................................... 12,817 12,817 13,971 13,971 Other............................................ 36,013 36,013 36,189 36,189 ---------- ---------- Long-term debt................................... 1,403,071 1,355,131 Less current portion............................. (31,629) (40,789) ---------- ---------- Long-term debt, net of current portion........... $1,371,442 $1,314,342 ========== ========== </TABLE> The estimated fair values for the long-term debt are based on the borrowing rates available to the Company at March 31, 2001 and December 31, 2000 for loans with similar terms and average maturities. The fair values of the 11 1/8% notes, 10 1/8% notes, 9 1/8% notes, 8 3/4% notes, 8 1/4% notes (collectively, the "Parent Notes") and the Subsidiary notes are based on the quoted market prices for those notes on March 31, 2001 and December 31, 2000. (6) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-GUARANTORS The following financial data summarizes the consolidating Company on the equity method of accounting as of March 31, 2001 and December 31, 2000 and for the first quarter of 2001 and 2000. The Guarantor column includes all subsidiaries that guarantee the Parent notes and the Subsidiary notes. The Canada Company column includes Iron Mountain Canada Corporation ("Canada Company"), the issuer of the Subsidiary notes, and the Company's other Canadian subsidiaries that guarantee the Subsidiary notes, but do not guarantee the Parent notes. The Parent and the Guarantors 9
IRON MOUNTAIN INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) (CONTINUED) (6) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-GUARANTORS (CONTINUED) also guarantee the Subsidiary notes. The subsidiaries that do not guarantee either the Parent notes or the Subsidiary notes are referred to in the table as the "non-guarantors." <TABLE> <CAPTION> MARCH 31, 2001 ----------------------------------------------------------------------------- CANADA NON- PARENT GUARANTORS COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED ---------- ---------- -------- ---------- ------------ ------------ <S> <C> <C> <C> <C> <C> <C> ASSETS Current Assets: Cash and Cash Equivalents.... $ -- $ 2,863 $ 1,321 $ 5,719 $ -- $ 9,903 Accounts Receivable.......... -- 172,679 14,184 21,194 -- 208,057 Intercompany Receivable (Payable).................. 824,947 (712,933) (86,024) (25,990) -- -- Other Current Assets......... -- 52,707 734 5,377 -- 58,818 ---------- ---------- -------- -------- ----------- ---------- Total Current Assets..... 824,947 (484,684) (69,785) 6,300 -- 276,778 Property, Plant and Equipment, net.......................... -- 707,771 68,413 85,119 -- 861,303 Other Assets: Long-term Intercompany Receivable................. 331,006 -- -- -- (331,006) -- Long-term Notes Receivable from Affiliates............ 623,900 -- -- -- (623,900) -- Investment in Subsidiaries... 375,879 75,590 -- -- (451,469) -- Goodwill, net................ -- 1,268,922 120,304 136,513 10,162 1,535,901 Other........................ 15,946 43,536 9,704 579 (5,693) 64,072 ---------- ---------- -------- -------- ----------- ---------- Total Other Assets....... 1,346,731 1,388,048 130,008 137,092 (1,401,906) 1,599,973 ---------- ---------- -------- -------- ----------- ---------- Total Assets............. $2,171,678 $1,611,135 $128,636 $228,511 $(1,401,906) $2,738,054 ========== ========== ======== ======== =========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Total Current Liabilities.... $ 28,174 $ 200,716 $ 15,679 $ 65,237 $ -- $ 309,806 Long-term Debt, Net of Current Portion............ 1,217,569 3,791 126,119 23,963 -- 1,371,442 Long-term Intercompany Payable.................... -- 331,006 -- -- (331,006) -- Long-term Notes Payable to Affiliates................. -- 623,900 -- -- (623,900) -- Other Long-term Liabilities................ -- 64,858 108 2,326 (5,693) 61,599 Minority Interest............ -- -- -- 727 68,545 69,272 Shareholders' Equity......... 925,935 386,864 (13,270) 136,258 (509,852) 925,935 ---------- ---------- -------- -------- ----------- ---------- Total Liabilities and Shareholders' Equity... $2,171,678 $1,611,135 $128,636 $228,511 $(1,401,906) $2,738,054 ========== ========== ======== ======== =========== ========== </TABLE> 10
IRON MOUNTAIN INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) (CONTINUED) (6) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-GUARANTORS (CONTINUED) <TABLE> <CAPTION> DECEMBER 31, 2000 ----------------------------------------------------------------------------- CANADA NON- PARENT GUARANTORS COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED ---------- ---------- -------- ---------- ------------ ------------ <S> <C> <C> <C> <C> <C> <C> ASSETS Current Assets: Cash and Cash Equivalents.... $ 191 $ 3,336 $ 302 $ 2,371 $ -- $ 6,200 Accounts Receivable.......... 7,060 140,095 12,370 16,917 -- 176,442 Intercompany Receivable (Payable).................. 795,522 (658,022) (98,386) (45,060) 5,946 -- Other Current Assets......... 531 46,605 827 6,063 -- 54,026 ---------- ---------- -------- -------- ----------- ---------- Total Current Assets..... 803,304 (467,986) (84,887) (19,709) 5,946 236,668 Property, Plant and Equipment, net.......................... 99,549 586,504 66,953 79,388 -- 832,394 Other Assets: Long-term Intercompany Receivable................. 344,300 -- -- -- (344,300) -- Long-term Notes Receivable from Affiliates............ 607,600 124,100 -- -- (731,700) -- Investment in Subsidiaries... 370,830 49,626 -- -- (420,456) -- Goodwill, net................ -- 1,255,302 138,663 121,096 10,569 1,525,630 Other........................ 20,986 42,956 11,036 1,834 (12,408) 64,404 ---------- ---------- -------- -------- ----------- ---------- Total Other Assets....... 1,343,716 1,471,984 149,699 122,930 (1,498,295) 1,590,034 ---------- ---------- -------- -------- ----------- ---------- Total Assets............. $2,246,569 $1,590,502 $131,765 $182,609 $(1,492,349) $2,659,096 ========== ========== ======== ======== =========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Total Current Liabilities.... $ 26,921 $ 189,362 $ 12,429 $ 79,378 $ 5,963 $ 314,053 Long-term Debt, Net of Current Portion............ 1,170,884 3,513 124,834 15,111 -- 1,314,342 Long-term Intercompany Payable.................... -- 344,300 -- -- (344,300) -- Long-term Notes Payable to Affiliates................. 124,100 607,600 -- -- (731,700) -- Other Long-term Liabilities................ 206 73,693 113 1,610 (12,408) 63,214 Minority Interest............ -- -- -- (1,636) 44,665 43,029 Shareholders' Equity......... 924,458 372,034 (5,611) 88,146 (454,569) 924,458 ---------- ---------- -------- -------- ----------- ---------- Total Liabilities and Shareholders' Equity... $2,246,569 $1,590,502 $131,765 $182,609 $(1,492,349) $2,659,096 ========== ========== ======== ======== =========== ========== </TABLE> 11
IRON MOUNTAIN INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) (CONTINUED) (6) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-GUARANTORS (CONTINUED) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, 2001 --------------------------------------------------------------------------- CANADA NON- PARENT GUARANTORS COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED -------- ---------- -------- ---------- ------------ ------------ <S> <C> <C> <C> <C> <C> <C> Revenues: Storage........................ $ -- $146,575 $ 8,402 $12,888 $ -- $167,865 Service and Storage Material Sales........................ -- 99,988 8,267 7,802 -- 116,057 -------- -------- ------- ------- -------- -------- Total Revenues............. -- 246,563 16,669 20,690 -- 283,922 Operating Expenses: Cost of Sales (Excluding Depreciation)................ -- 119,490 8,737 11,593 -- 139,820 Selling, General and Administrative............... 75 62,273 2,751 5,218 -- 70,317 Depreciation and Amortization................. -- 30,488 2,484 2,746 -- 35,718 Merger-Related Expenses........ -- 772 -- 29 -- 801 -------- -------- ------- ------- -------- -------- Total Operating Expenses... 75 213,023 13,972 19,586 -- 246,656 -------- -------- ------- ------- -------- -------- Operating Income (Loss).......... (75) 33,540 2,697 1,104 -- 37,266 Interest Expense, net............ 13,170 14,881 4,050 1,886 -- 33,987 Equity in the (Earnings) Losses of Subsidiaries................ (16,444) 85 -- -- 16,359 -- Other Expense, net............... -- (2,892) (6,294) (1) -- (9,187) -------- -------- ------- ------- -------- -------- Income (Loss) Before Provision (Benefit) for Income Taxes and Minority Interest Expense......... 3,199 15,682 (7,647) (783) (16,359) (5,908) Provision (Benefit) for Income Taxes.......................... -- (9,100) 617 (354) -- (8,837) Minority Interests in Losses of Subsidiaries................... -- -- -- (270) -- (270) -------- -------- ------- ------- -------- -------- Net Income (Loss).......... $ 3,199 $ 24,782 $(8,264) $ (159) $(16,359) $ 3,199 ======== ======== ======= ======= ======== ======== </TABLE> 12
IRON MOUNTAIN INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) (CONTINUED) (6) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-GUARANTORS (CONTINUED) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, 2000 --------------------------------------------------------------------------- CANADA NON- PARENT GUARANTORS COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED -------- ---------- -------- ---------- ------------ ------------ <S> <C> <C> <C> <C> <C> <C> Revenues: Storage......................... $ 574 $111,076 $ 4,360 $ 8,929 $ -- $124,939 Service and Storage Material Sales......................... 3,249 72,504 5,356 6,592 (503) 87,198 ------- -------- ------- ------- ------- -------- Total Revenues.............. 3,823 183,580 9,716 15,521 (503) 212,137 Operating Expenses: Cost of Sales (Excluding Depreciation)................. 2,236 89,884 5,136 9,070 (1,868) 104,458 Selling, General and Administrative................ 660 45,922 1,931 3,579 1,365 53,457 Depreciation and Amortization... 341 22,801 1,062 2,099 -- 26,303 Merger-Related Expenses......... -- 516 -- -- -- 516 ------- -------- ------- ------- ------- -------- Total Operating Expenses.... 3,237 159,123 8,129 14,748 (503) 184,734 ------- -------- ------- ------- ------- -------- Operating Income.................. 586 24,457 1,587 773 -- 27,403 Interest Expense, net............. 6,818 13,510 2,304 1,151 -- 23,783 Equity in the (Earnings) Losses of Subsidiaries.................... 352 (102) -- -- (250) -- Other Income (Expense), net....... -- 66 (846) (1) -- (781) ------- -------- ------- ------- ------- -------- Income (Loss) Before Provision (Benefit) for Income Taxes and Minority Interest Expense.......... (6,584) 11,115 (1,563) (379) 250 2,839 Provision (Benefit) for Income Taxes........................... (1,201) 9,970 (199) (41) -- 8,529 Minority Interests in Losses of Subsidiaries.................... -- -- -- (307) -- (307) ------- -------- ------- ------- ------- -------- Net Income (Loss)........... $(5,383) $ 1,145 $(1,364) $ (31) $ 250 $ (5,383) ======= ======== ======= ======= ======= ======== </TABLE> 13
IRON MOUNTAIN INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) (CONTINUED) (6) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-GUARANTORS (CONTINUED) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, 2001 --------------------------------------------------------------------------- CANADA NON- PARENT GUARANTORS COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED -------- ---------- -------- ---------- ------------ ------------ <S> <C> <C> <C> <C> <C> <C> Cash Flows from Operating Activities: Cash Flows Provided by (Used in) Operating Activities..... $(21,070) $ 45,009 $ 1,642 $ (1,682) $ -- $ 23,899 Cash Flows from Investing Activities: Capital Expenditures........... -- (42,528) (1,592) (4,078) -- (48,198) Cash Paid for Acquisitions, net of cash acquired............. -- (19,813) 206 (15,166) -- (34,773) Intercompany Loans to Subsidiaries................. (20,204) 2,537 -- -- 17,667 -- Investment in Subsidiaries..... (6,523) (6,523) -- -- 13,046 -- Additions to Customer Acquisition Costs............ -- (2,051) (75) (181) -- (2,307) Proceeds from Sales of Property and Equipment................ -- 8 5 16 -- 29 -------- -------- ------- -------- -------- -------- Cash Flows Used in Investing Activities..... (26,727) (68,370) (1,456) (19,409) 30,713 (85,249) Cash Flows from Financing Activities: Repayment of Debt.............. (883) (34,043) (60) (748) -- (35,734) Proceeds from Borrowings....... 46,116 35,686 -- 553 -- 82,355 Debt Repayment to Minority Shareholders................. -- -- -- (6,560) -- (6,560) Equity Contributions from Minority Shareholders........ -- -- -- 24,529 -- 24,529 Intercompany Loans from Parent....................... -- 14,791 4,937 (2,061) (17,667) -- Equity Contribution from Parent....................... -- 6,523 -- 6,523 (13,046) -- Proceeds from Exercise of Stock Options...................... 2,539 -- -- -- -- 2,539 Debt Financing and Stock Issuance Costs............... (166) (69) -- -- -- (235) -------- -------- ------- -------- -------- -------- Cash Flows Provided by Financing Activities..... 47,606 22,888 4,877 22,236 (30,713) 66,894 Effect of Exchange Rates on Cash and Cash Equivalents........... -- -- (4,044) 2,203 -- (1,841) Increase (Decrease) in Cash and Cash Equivalents............... (191) (473) 1,019 3,348 -- 3,703 Cash and Cash Equivalents, Beginning of Period............ 191 3,336 302 2,371 -- 6,200 -------- -------- ------- -------- -------- -------- Cash and Cash Equivalents, End of Period......................... $ -- $ 2,863 $ 1,321 $ 5,719 $ -- $ 9,903 ======== ======== ======= ======== ======== ======== </TABLE> 14
IRON MOUNTAIN INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) (CONTINUED) (6) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-GUARANTORS (CONTINUED) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, 2000 ---------------------------------------------------------------------------- CANADA NON- PARENT GUARANTORS COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED --------- ---------- -------- ---------- ------------ ------------ <S> <C> <C> <C> <C> <C> <C> Cash Flows from Operating Activities: Cash Flows Provided by (Used in) Operating Activities.... $ (7,077) $ 27,535 $(1,347) $(1,393) $ -- $ 17,718 Cash Flows from Investing Activities: Capital Expenditures.......... (2,471) (19,909) (1,999) (3,267) -- (27,646) Cash Paid for Acquisitions, net of Cash Acquired........ (3,895) (565) 55 (1,231) -- (5,636) Intercompany Loans to Subsidiaries................ (185,715) (10,527) -- -- 196,242 -- Investment in Subsidiaries.... -- (1,591) -- -- 1,591 -- Additions to Customer Acquisition Costs........... -- (2,696) (183) (477) -- (3,356) Other, Net.................... -- 91 (45) (481) -- (435) --------- --------- ------- ------- --------- --------- Cash Flows Used in Investing Activities.... (192,081) (35,197) (2,172) (5,456) 197,833 (37,073) Cash Flows from Financing Activities: Repayment of Debt............. (28,550) (172,192) (176) (2,349) -- (203,267) Proceeds from Borrowings...... 220,500 1,885 1,173 -- -- 223,558 Debt Financing and Equity Contribution from Minority Shareholders................ -- -- -- 7,036 -- 7,036 Intercompany Loans from Parent...................... 9,519 179,320 1,165 6,238 (196,242) -- Equity Contribution from Parent...................... -- -- 1,591 -- (1,591) -- Proceeds from Exercise of Stock Options............... 885 -- -- -- -- 885 Debt Financing and Stock Issuance Costs.............. (2,769) -- -- -- -- (2,769) --------- --------- ------- ------- --------- --------- Cash Flows Provided by Financing Activities.... 199,585 9,013 3,753 10,925 (197,833) 25,443 Effect of Exchange Rates on Cash and Cash Equivalents.......... -- -- (50) 236 -- 186 Increase in Cash and Cash Equivalents................... 427 1,351 184 4,312 -- 6,274 Cash and Cash Equivalents, Beginning of Period........... -- 2,260 -- 1,570 -- 3,830 --------- --------- ------- ------- --------- --------- Cash and Cash Equivalents, End of Period..................... $ 427 $ 3,611 $ 184 $ 5,882 $ -- $ 10,104 ========= ========= ======= ======= ========= ========= </TABLE> 15
IRON MOUNTAIN INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) (CONTINUED) (7) EARNINGS PER SHARE In accordance with SFAS No. 128, "Earnings per Share," basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding. The calculation of diluted net income (loss) per share is consistent with that of basic net income (loss) per share but gives effect to all potential common shares (that is, securities such as options, warrants or convertible securities) that were outstanding during the period, unless the effect is antidilutive. (8) SEGMENT INFORMATION An analysis of the Company's business segment information to the respective information in the consolidated financial statements is as follows: <TABLE> <CAPTION> BUSINESS OFF SITE RECORDS DATA CORPORATE TOTAL MANAGEMENT PROTECTION INTERNATIONAL & OTHER CONSOLIDATED ---------- ---------- ------------- ---------- ------------ <S> <C> <C> <C> <C> <C> THREE MONTHS ENDED MARCH 31, 2001 Revenue............................. $189,922 $44,916 $36,879 $ 12,205 $ 283,922 EBITDA.............................. 50,214 10,438 8,679 4,454 73,785 Total Assets........................ 914,515 73,114 345,960 1,404,465 2,738,054 THREE MONTHS ENDED MARCH 31, 2000 Revenue............................. 144,210 38,615 24,874 4,438 212,137 EBITDA.............................. 38,482 8,559 4,958 2,223 54,222 </TABLE> A reconciliation from the segment information to the consolidated balances for income (loss) before provision (benefit) for income taxes and minority interest is as follows: <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ----------------------------- 2001 2000 ------------- ------------- <S> <C> <C> EBITDA.......................................... $ 73,785 $ 54,222 Depreciation and Amortization................... (35,718) (26,303) Merger-related Expenses......................... (801) (516) Interest Expense................................ (33,987) (23,783) Other Expense, net.............................. (9,187) (781) -------- -------- Income (Loss) Before Provision (Benefit) for Income Taxes and Minority Interest........ $ (5,908) $ 2,839 ======== ======== </TABLE> 16
IRON MOUNTAIN INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) (CONTINUED) (8) SEGMENT INFORMATION (CONTINUED) Information as to the Company's operations in different geographical areas is as follows: <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ----------------------------- 2001 2000 ------------- ------------- <S> <C> <C> Revenues: United States................................... $ 247,043 $ 187,263 International................................... 36,879 24,874 ---------- ---------- Total Revenues................................ $ 283,922 $ 212,137 ========== ========== </TABLE> <TABLE> <CAPTION> MARCH 31, 2001 MARCH 31, 2000 -------------- -------------- <S> <C> <C> Long-lived Assets: United States................................... $2,054,517 $1,924,769 International................................... 406,759 330,018 ---------- ---------- Total Long-lived Assets....................... $2,461,276 $2,254,787 ========== ========== </TABLE> (9) SUBSEQUENT EVENTS In April 2001, Iron Mountain completed an underwritten public offering of $225,000 in aggregate principal amount of 8 5/8% Senior Subordinated Notes due 2013. The 8 5/8% notes were issued at a price to investors of 100% of par. The net proceeds to the Company, approximately $219,000 after paying the underwriters' discounts and commissions and estimated expenses, were used to fund the Company's offer to purchase and consent solicitation relating to its outstanding 11 1/8% Senior Subordinated Notes due 2006, to repay outstanding borrowings under the Company's revolving credit facility and for general corporate purposes, including acquisitions. In April 2001, the Company received and accepted tenders for $124,588 of the outstanding principal amount of its 11 1/8% notes. The Company expects to record an extraordinary charge of approximately $5,000 (net of tax benefit) in the second quarter related to the early retirement of the 11 1/8% notes. The Company intends to redeem the remaining $5,412 of outstanding principal amount of the 11 1/8% notes in July 2001, the first redemption date, at a redemption price (expressed as a percentage of principal amount) of 105.563%, plus accrued and unpaid interest to, but not including, the date of redemption. 17
IRON MOUNTAIN INCORPORATED 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 months ended March 31, 2001 and 2000 should be read in conjunction with the condensed consolidated financial statements and footnotes for the three months ended March 31, 2001 included herein, and the year ended December 31, 2000, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 23, 2001. OVERVIEW The Company's consolidated revenues increased $71.8 million, or 33.8%, to $283.9 million for the first quarter of 2001 from $212.1 million for the first quarter of 2000. Internal revenue growth, calculated in local currency for our international operations and as if Pierce Leahy Corp. had merged with Iron Mountain on January 1, 2000, was 11.2%. During the first quarter of 2001, the Company acquired six records and information management services businesses for total consideration of $41.0 million. These six acquisitions reported approximately $15 million in revenues for the fiscal year 2000. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000 Consolidated storage revenues increased $42.9 million, or 34.4%, to $167.9 million for the first three months of 2001, from $124.9 million for the first three months of 2000. The increase was attributable to: (i) acquisitions, particularly the Pierce Leahy acquisition; and (ii) internal revenue growth of 12.7% resulting primarily from net increases in records and other media stored by existing customers, price increases and sales to new customers. The total increase in storage revenues was partially offset by the unfavorable effects of currency translation as a result of the strengthening of the U.S. dollar against certain foreign currencies, primarily the Canadian dollar and the British pound sterling, in which the Company's international segment does business. Consolidated service and storage material sales revenues increased $28.9 million, or 33.1%, to $116.1 million for the first three months of 2001, from $87.2 million for the first three months of 2000. The increase was attributable to: (i) acquisitions, particularly the Pierce Leahy acquisition; and (ii) internal revenue growth of 9.0% resulting primarily from net increases in service and storage material sales to existing customers, price increases and sales to new customers. The total increase in service and storage material sales revenues was partially offset by the unfavorable effects of currency translation as a result of the strengthening of the U.S. dollar against certain foreign currencies, primarily the Canadian dollar and the British pound sterling, in which the Company's international segment does business. For the reasons discussed above, total consolidated revenues increased $71.8 million, or 33.8%, to $283.9 million for the first three months of 2001 from $212.1 million for the first three months of 2000. Consolidated cost of sales (excluding depreciation) increased $35.4 million, or 33.9%, to $139.8 million (49.2% of consolidated revenues) for the first three months of 2001 from $104.5 million (49.2% of consolidated revenues) for the first three months of 2000. The dollar increase was consistent with the revenue growth of the Company. Consolidated selling, general and administrative expenses increased $16.9 million, or 31.5%, to $70.3 million (24.8% of consolidated revenues) for the first three months of 2001 from $53.5 million (25.2% of consolidated revenues) for the first three months of 2000. The dollar increase was primarily 18
IRON MOUNTAIN INCORPORATED attributable to revenue growth of the Company. The percentage decrease was primarily attributable to general management overhead efficiencies due to an increase in scale partially offset by: (i) increased spending in Europe and Latin America as a percentage of revenues and (ii) spending in the first quarter of 2001 for the Company's marketing and information technology initiatives related to the development of complementary technology-based service offerings. As a result of the foregoing factors, consolidated EBITDA increased $19.6 million, or 36.1%, to $73.8 million (26.0% of consolidated revenues) for the first three months of 2001 from $54.2 million (25.6% of consolidated revenues) for the first three months of 2000. Excluding the $0.9 million of expenses related to the Company's technology-related service offerings, the Company's EBITDA margin for the first three months of 2001 was 26.3% of consolidated revenues. There were no such costs in the first three months of 2000. Consolidated depreciation and amortization expense increased $9.4 million, or 35.8%, to $35.7 million (12.6% of consolidated revenues) for the first three months of 2001 from $26.3 million (12.4% of consolidated revenues) for the first three months of 2000. The dollar increase was primarily attributable to the additional depreciation and amortization expense related to the 2000 and 2001 acquisitions, particularly the Pierce Leahy acquisition, and capital expenditures including racking systems, information systems and expansion of storage capacity in existing facilities. Merger-related expenses are certain expenses directly related to the Company's merger with Pierce Leahy that cannot be capitalized and include system conversion costs, costs of exiting certain facilities, severance, relocation and pay-to-stay payments and other transaction-related costs. Merger-related expenses were $0.8 million for the first three months of 2001 compared to $0.5 million for the first three months of 2000. As a result of the foregoing factors, consolidated operating income increased $9.9 million, or 36.0%, to $37.3 million (13.1% of consolidated revenues) for the first three months of 2001 from $27.4 million (12.9% of consolidated revenues) for the first three months of 2000. Consolidated interest expense increased $10.2 million, or 42.9%, to $34.0 million for the first three months of 2001 from $23.8 million for the first three months of 2000. The increase was primarily attributable to increased indebtedness related to: (i) the inclusion of Pierce Leahy's debt for three months of 2001 versus two months of 2000 and (ii) the financing of acquisitions and capital expenditures. Consolidated other expense was $9.2 million for the first three months of 2001 compared to $0.8 million for the first three months of 2000. The increase was primarily due to a weakening of the Canadian dollar against the U.S. dollar, as it relates to Canada Company's 8 1/8% Senior Subordinated Notes due 2008 and on intercompany balances with the Company's Canadian subsidiaries and a weakening of the British pound sterling against the U.S. dollar on intercompany balances with the Company's European subsidiaries. As a result of the foregoing factors, consolidated income (loss) before provision (benefit) for income taxes and minority interest decreased $8.7 million to a loss of $5.9 million (2.1% of consolidated revenues) for the first three months of 2001 from income of $2.8 million (1.3% of consolidated revenues) for the first three months of 2000. The benefit for income taxes was $8.8 million for the first three months of 2001 compared to a provision of $8.5 million for the first three months of 2000. The benefit was calculated by applying the Company's effective tax rate to the pre-tax loss. The Company's effective tax rate is based on an estimate of annual pre-tax income and is higher than statutory rates primarily due to the amortization of the nondeductible portion of goodwill associated 19
IRON MOUNTAIN INCORPORATED with particular acquisitions. For the three months ended March 31, 2001, the Company recorded $9.6 million in nondeductible goodwill amortization expense. Consolidated net income increased $8.6 million to $3.2 million (1.1% of consolidated revenues) for the first three months of 2001 from a net loss of $5.4 million (2.5% of consolidated revenues) for the first three months of 2000. LIQUIDITY AND CAPITAL RESOURCES As the Company has sought to increase its EBITDA, it has made significant capital investments, consisting primarily of: (i) capital expenditures, primarily related to growth (including investments in real estate, racking systems, information systems and expansion of storage capacity in existing facilities); (ii) acquisitions; and (iii) customer acquisition costs. Cash paid for these investments during the first three months of 2001 amounted to $48.2 million, $34.8 million and $2.3 million, respectively. These investments have been primarily funded through cash flows from operations and borrowings under the Company's credit agreements. Included in capital expenditures is $1.5 million related to the Company's technology-based service offerings. Net cash provided by operations was $23.9 million for the first three months of 2001 compared to $17.7 million for the same period in 2000. The increase primarily resulted from an increase in EBITDA and an increase in accrued expenses, which was partially offset by an increase in trade accounts receivable and a decrease in the net deferred tax liability. Net cash provided by financing activities was $66.9 million for the first three months of 2001, consisting primarily of the proceeds from borrowings under the Company's revolving credit facility of $81.8 million and equity contributions from minority shareholders of $24.5 million, which were partially offset by repayments of debt of $35.7 million. In April 2001, Iron Mountain completed an underwritten public offering of $225.0 million in aggregate principal amount of 8 5/8% Senior Subordinated Notes due 2013. The 8 5/8% notes were issued at a price to investors of 100% of par. The net proceeds to the Company, approximately $219 million after paying the underwriters' discounts and commissions and estimated expenses, were used to fund the Company's offer to purchase and consent solicitation relating to its outstanding 11 1/8% Senior Subordinated Notes due 2006, to repay outstanding borrowings under the Company's revolving credit facility and for general corporate purposes, including acquisitions. In April 2001, the Company received and accepted tenders for $124.6 million of the outstanding principal amount of its 11 1/8% notes. The Company expects to record an extraordinary charge of approximately $5 million (net of tax benefit) in the second quarter related to the early retirement of the 11 1/8% notes. The Company intends to redeem the remaining $5.4 million of outstanding principal amount of the 11 1/8% notes in July 2001, the first redemption date, at a redemption price (expressed as a percentage of principal amount) of 105.563%, plus accrued and unpaid interest to, but not including, the date of redemption. 20
IRON MOUNTAIN INCORPORATED ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In December 2000 and January 2001, the Company entered into certain derivative financial contracts, which were variable-for-fixed swaps of interest payments payable on the Company's Tranche B term loan and certain variable operating lease commitments. Iron Mountain's investments in Iron Mountain Europe Limited, Iron Mountain South America, Ltd. and other international investments may be subject to risks and uncertainties relating to fluctuations in currency valuation. One of the Company's Canadian subsidiaries, Canada Company, has U.S. dollar denominated debt. Gains and losses due to exchange rate fluctuations related to this debt are recognized in the Company's consolidated statements of operations. As of March 31, 2001, the Company had $230.3 million of variable rate debt outstanding with a weighted average interest rate of 7.72% and $1,172.8 million of fixed rate debt outstanding. If the weighted average variable interest rate had increased by 1%, such increase would have had a negative impact on the Company's net income for the quarter ended March 31, 2001 of $0.3 million. See Note 4 of Notes to Consolidated Financial Statements for a discussion of the Company's long-term indebtedness, including the fair values of such indebtedness as of March 31, 2001. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS <TABLE> <CAPTION> EXHIBIT NO. DESCRIPTION - ----------- ----------- <C> <S> 4.1 Subordinated Indenture, dated as of April 3, 2001, among the Company, the Guarantors named therein and The Bank of New York, as trustee. 4.2 First Supplemental Indenture, dated as of April 3, 2001, among the Company, the Guarantors named therein and The Bank of New York, as trustee </TABLE> (b) REPORTS ON FORM 8-K On March 23, 2001, the Company filed a Current Report on Form 8-K under Items 5 and 7 to announce the Company's proposed underwritten public offering of Senior Subordinated Notes and related tender offer and consent solicitation. The Current Report on Form 8-K also provided unaudited pro forma financial information with respect to acquisitions by the Company of businesses in 2000 and certain other financing transactions described therein. On April 3, 2001, the Company filed a Current Report on Form 8-K under Items 5 and 7 to file certain documents in connection with a prospectus supplement, dated March 27, 2001, filed by the Company on March 28, 2001. 21
IRON MOUNTAIN INCORPORATED 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. <TABLE> <S> <C> <C> IRON MOUNTAIN INCORPORATED May 15, 2001 By: /s/ JEAN A. BUA (date) ----------------------------------------- Jean A. Bua VICE PRESIDENT AND CORPORATE CONTROLLER (PRINCIPAL ACCOUNTING OFFICER) </TABLE> 22