UNITED STATES 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, 2001 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 ------- IRON MOUNTAIN INCORPORATED (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) 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 August 3, 2001: 55,846,765.
IRON MOUNTAIN INCORPORATED INDEX <TABLE> <CAPTION> PAGE <S> <C> PART I. FINANCIAL INFORMATION Item 1. Unaudited Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets at June 30, 2001 and December 31, 2000 (Unaudited) ................................................ 3 Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2001 and 2000 (Unaudited) ........................................... 4 Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 2001 and 2000 (Unaudited) ........................................... 5 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2000 (Unaudited) ........................................... 6 Notes to Condensed Consolidated Financial Statements (Unaudited) .................. 7-21 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ................................................................... 22-27 Item 3. Quantitative and Qualitative Disclosures About Market Risk ........................ 28 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security-Holders ............................... 28 Item 6. Exhibits and Reports on Form 8-K .................................................. 29 Signature ......................................................................... 30 </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> JUNE 30, DECEMBER 31, 2001 2000 ---- ---- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents ...................... $ 36,837 $ 6,200 Accounts receivable (less allowances of $18,056 and $15,989 respectively) .................... 215,531 176,442 Deferred income taxes .......................... 30,642 30,990 Prepaid expenses and other ..................... 37,828 23,036 ----------- ----------- Total Current Assets ..................... 320,838 236,668 Property, Plant and Equipment: Property, plant and equipment .................. 1,080,348 984,939 Less: Accumulated depreciation ................. (194,293) (152,545) ----------- ----------- Property, Plant and Equipment, net ....... 886,055 832,394 Other Assets, net: Goodwill ....................................... 1,544,875 1,525,630 Customer acquisition costs ..................... 31,391 27,692 Deferred financing costs ....................... 19,920 14,534 Other .......................................... 20,349 22,178 ----------- ----------- Total Other Assets, net .................. 1,616,535 1,590,034 ----------- ----------- Total Assets ............................. $ 2,823,428 $ 2,659,096 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt .............. $ 31,395 $ 40,789 Accounts payable ............................... 48,822 42,531 Accrued expenses ............................... 158,764 153,291 Deferred income ................................ 78,738 53,884 Other current liabilities ...................... 23,342 23,558 ----------- ----------- Total Current Liabilities ................ 341,061 314,053 Long-term Debt, net of current portion ............ 1,420,946 1,314,342 Other Long-term Liabilities ....................... 9,687 7,920 Deferred Rent ..................................... 17,139 16,346 Deferred Income Taxes ............................. 44,142 38,948 Minority Interest ................................. 67,976 43,029 Shareholders' Equity: Common stock ................................... 558 553 Additional paid-in capital ..................... 998,628 990,854 Accumulated deficit ............................ (66,185) (59,383) Accumulated other comprehensive items .......... (10,524) (7,566) ----------- ----------- Total Shareholders' Equity ............... 922,477 924,458 ----------- ----------- Total Liabilities and Shareholders' Equity $ 2,823,428 $ 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 JUNE 30, ---------------------- 2001 2000 ---- ---- <S> <C> <C> Revenues: Storage .......................................................... $171,891 $148,445 Service and storage material sales ............................... 121,443 104,120 --------- --------- Total Revenues ............................................. 293,334 252,565 Operating Expenses: Cost of sales (excluding depreciation) ........................... 139,030 121,973 Selling, general and administrative .............................. 78,686 64,724 Depreciation and amortization .................................... 37,788 31,644 Stock option compensation expense ................................ -- 14,939 Merger-related expenses .......................................... 377 3,875 --------- --------- Total Operating Expenses ................................... 255,881 237,155 --------- --------- Operating Income .................................................... 37,453 15,410 Interest Expense .................................................... 34,043 30,245 Other Income (Expense) .............................................. 7,015 (3,699) --------- --------- Income (Loss) Before Provision for Income Taxes and Minority Interest ...................................... 10,425 (18,534) Provision for Income Taxes .......................................... 16,091 9,847 Minority Interest in Losses of Subsidiaries ......................... (700) (136) --------- --------- Loss before Extraordinary Item ............................. (4,966) (28,245) Extraordinary Charge from Early Extinguishment of Debt (net of tax benefit of $3,300) ............................................... (4,780) -- --------- --------- Net Loss ................................................... $(9,746) $(28,245) ========= ========= Net Loss per Common Share - Basic and Diluted: Loss before Extraordinary Item ................................... $(0.09) $(0.52) Extraordinary Charge from Early Extinguishment of Debt ........... (0.09) -- --------- --------- Net Loss per Share - Basic and Diluted ..................... $(0.18) $(0.52) ========= ========= Weighted Average Common Shares Outstanding - Basic and Diluted ...... 55,651 54,641 ========= ========= </TABLE> THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 4
IRON MOUNTAIN INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, except Per Share Data) (Unaudited) <TABLE> <CAPTION> SIX MONTHS ENDED JUNE 30, ---------------------- 2001 2000 ---- ---- <S> <C> <C> Revenues: Storage .......................................................... $339,756 $273,384 Service and storage material sales ............................... 237,500 191,318 --------- --------- Total Revenues ............................................. 577,256 464,702 Operating Expenses: Cost of sales (excluding depreciation) ........................... 278,850 226,431 Selling, general and administrative .............................. 149,003 118,181 Depreciation and amortization .................................... 73,506 57,947 Stock option compensation expense ................................ -- 14,939 Merger-related expenses .......................................... 1,178 4,391 --------- --------- Total Operating Expenses ................................... 502,537 421,889 --------- --------- Operating Income .................................................... 74,719 42,813 Interest Expense .................................................... 68,030 54,028 Other Expense ....................................................... (2,172) (4,480) --------- --------- Income (Loss) Before Provision for Income Taxes and Minority Interest ...................................... 4,517 (15,695) Provision for Income Taxes .......................................... 7,254 18,376 Minority Interest in Losses of Subsidiaries ......................... (970) (443) --------- --------- Loss before Extraordinary Item ............................. (1,767) (33,628) Extraordinary Charge from Early Extinguishment of Debt (net of tax benefit of $3,300) ............................................... (4,780) -- --------- --------- Net Loss ................................................... $(6,547) $(33,628) ========= ========= Net Loss per Common Share - Basic and Diluted: Loss before Extraordinary Item ................................... $(0.03) $(0.66) Extraordinary Charge from Early Extinguishment of Debt ........... (0.09) -- --------- --------- Net Loss per Share - Basic and Diluted ..................... $(0.12) $(0.66) ========= ========= Weighted Average Common Shares Outstanding - Basic and Diluted ...... 55,540 51,292 ========= ========= </TABLE> THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 5
IRON MOUNTAIN INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited) <TABLE> <CAPTION> SIX MONTHS ENDED JUNE 30, ------------------------- 2001 2000 ---- ---- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss .................................................................. $ (6,547) $ (33,628) Adjustments to Reconcile Net Loss before Extraordinary Item: Extraordinary Charge from Early Extinguishment of Debt ................. 4,780 -- --------- --------- Loss before Extraordinary Item ............................................ (1,767) (33,628) Adjustments to Reconcile Net Loss before Extraordinary Item to Cash Provided by Operating Activities: Minority Interests in Losses of Subsidiaries ........................... (970) (443) Depreciation and Amortization .......................................... 73,506 57,947 Amortization of Deferred Financing Costs and Bond Discount ............. 2,361 1,478 Provision for Doubtful Accounts ........................................ 6,172 2,810 Stock Option Compensation Expense ...................................... -- 14,939 Foreign Currency Loss .................................................. 2,172 4,480 Other, Net ............................................................. (39) 754 Changes in Assets and Liabilities (Exclusive of Acquisitions): Accounts Receivable .................................................... (19,192) (6,817) Prepaid Expenses and Other Current Assets .............................. (2,679) 6,663 Deferred Income Taxes .................................................. 8,296 20,348 Other Assets ........................................................... (206) 328 Accounts Payable ....................................................... (2,135) (14,547) Accrued Expenses ....................................................... (2,009) 19,476 Deferred Income ........................................................ (1,488) (1,421) Other Current Liabilities .............................................. 56 -- Deferred Rent .......................................................... 785 1,079 Other Long-term Liabilities ............................................ (55) (375) --------- --------- Cash Flows Provided by Operating Activities ...................... 62,808 73,071 CASH FLOWS FROM INVESTING ACTIVITIES: Capital Expenditures ...................................................... (89,975) (62,766) Cash Paid for Acquisitions, net of cash acquired .......................... (44,769) (71,099) Investment in Convertible Preferred Stock ................................. -- (6,500) Additions to Customer Acquisition Costs ................................... (5,832) (5,101) Other, Net ................................................................ 632 (543) --------- --------- Cash Flows Used in Investing Activities .......................... (139,944) (146,009) CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of Debt ......................................................... (112,349) (295,093) Early Retirement of Senior Subordinated Notes ............................. (133,726) -- Proceeds from Borrowings .................................................. 104,819 361,831 Net Proceeds from Sale of Senior Subordinated Notes ....................... 218,590 -- Equity Contributions from Minority Shareholders ........................... 24,744 -- Debt Financing from (Repayment to) Minority Shareholders .................. (271) 9,479 Proceeds from Exercise of Stock Options ................................... 6,145 3,862 Financing and Stock Issuance Costs ........................................ (185) (3,068) --------- --------- Cash Flows Provided by Financing Activities ...................... 107,767 77,011 Effect of Exchange Rates on Cash and Cash Equivalents ......................... 6 444 --------- --------- Increase in Cash and Cash Equivalents ......................................... 30,637 4,517 Cash and Cash Equivalents, Beginning of Period ................................ 6,200 3,830 --------- --------- Cash and Cash Equivalents, End of Period ...................................... $ 36,837 $ 8,347 ========= ========= </TABLE> THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 6
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 loss is as follows: <TABLE> <CAPTION> THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, -------------------------- ------------------------- 2001 2000 2001 2000 ---- ---- ---- ---- <S> <C> <C> <C> <C> Comprehensive Loss: Net Loss ...................................... $ (9,746) $(28,245) $ (6,547) $(33,628) Other Comprehensive Loss: Foreign Currency Translation Adjustment ... (262) (2,598) (1,050) (2,477) Transition Adjustment Charge .............. -- -- (214) -- Unrealized Gain (Loss) on Hedging Contracts 2,346 -- (1,694) -- -------- -------- -------- -------- Comprehensive Loss ............................ $ (7,662) $(30,843) $ (9,505) $(36,105) ======== ======== ======== ======== </TABLE> 7
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. 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. 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 cumulative charge to accumulated other comprehensive items of $1,908 at June 30, 2001. For the three and six months ended June 30, 2001, the Company recorded net losses of $397 and $456 resulting from interest rate swap settlements in interest, and $125 and $134 in 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 six months ended June 30, 2001, the Company purchased substantially all of the assets, and assumed certain liabilities, of ten 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 $53,169 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 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. 8
IRON MOUNTAIN INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands) (Unaudited) (Continued) (4) ACQUISITIONS (CONTINUED) The following is a summary of reserves related to such restructuring activities: <TABLE> <CAPTION> JUNE 30, DECEMBER 31, 2001 2000 ---- ---- <S> <C> <C> Reserves, Beginning Balance ......................................... $ 28,514 $ 9,340 Reserves Established ................................................ 1,162 31,409 Expenditures ........................................................ (4,722) (7,539) Adjustments to Goodwill ............................................. (1,335) (4,696) -------- --------- Reserves, Ending Balance ............................................ $ 23,619 $ 28,514 ======== ========= </TABLE> At June 30, 2001, the restructuring reserves related to acquisitions consisted of lease losses on abandoned facilities ($15,180), severance costs for approximately 11 people ($1,293) and other exit costs ($7,146). These accruals are expected to be used within one year of the finalization of the restructuring plans except for lease losses of $8,883 and severance contracts of approximately $615, all of which are based on contracts that extend beyond one year. (5) LONG-TERM DEBT Long-term debt consists of the following: <TABLE> <CAPTION> JUNE 30, 2001 DECEMBER 31, 2000 ------------- ----------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- ----- -------- ----- <S> <C> <C> <C> <C> Revolving Credit Facility due 2005 .................................. $ -- $ -- $ 4,000 $ 4,000 Tranche A Term Loan due 2005 ........................................ 150,000 150,000 150,000 150,000 Tranche B Term Loan due 2006 ........................................ 199,250 199,250 199,750 199,750 11 1/8% Senior Subordinated Notes due 2006 (the "11-1/8% notes")..... 5,462 5,777 131,517 136,500 10 1/8% Senior Subordinated Notes due 2006 (the "10-1/8% notes")..... 165,000 174,500 165,000 170,800 9 1/8% Senior Subordinated Notes due 2007 (the "9-1/8% notes")...... 114,660 125,400 114,216 118,800 8 3/4% Senior Subordinated Notes due 2009 (the "8-3/4% notes")....... 249,667 255,000 249,646 245,600 8 1/4% Senior Subordinated Notes due 2011 (the "8-1/4% notes")....... 149,557 148,900 149,535 141,400 8 5/8% Senior Subordinated Notes due 2013 (the "8-5/8% notes")....... 225,000 227,000 -- -- 8 1/8% Senior Subordinated Notes due 2008 (the "Subsidiary notes")... 121,804 134,300 120,850 128,600 Real Estate Mortgage ................................................ 22,187 22,187 20,457 20,457 Seller Notes ........................................................ 12,307 12,307 13,971 13,971 Other ............................................................... 37,447 37,447 36,189 36,189 ----------- ----------- Long-term debt ...................................................... 1,452,341 1,355,131 Less current portion ................................................ (31,395) (40,789) ----------- ----------- Long-term debt, net of current portion .............................. $ 1,420,946 $ 1,314,342 =========== =========== </TABLE> 9
IRON MOUNTAIN INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands) (Unaudited) (Continued) (5) LONG-TERM DEBT (CONTINUED) The estimated fair values for the long-term debt are based on the borrowing rates available to the Company at June 30, 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, 8-5/8% notes (collectively, the "Parent Notes") and the Subsidiary notes are based on the quoted market prices for those notes on June 30, 2001 and December 31, 2000. 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, $218,590 after paying the underwriters' discounts and commissions and related 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 recorded an extraordinary charge of $4,780 (net of tax benefit of $3,300) in the second quarter related to the early retirement of the 11-1/8% notes. The Company redeemed the remaining $5,412 of outstanding principal amount of the 11-1/8% notes in July 2001, at a redemption price (expressed as a percentage of principal amount) of 105.563%, plus accrued and unpaid interest, totaling $6,016. 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 The following financial data summarizes the consolidating Company on the equity method of accounting as of June 30, 2001 and December 31, 2000 and for the three and six month periods ended June 30, 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") and the Company's other Canadian subsidiaries that guarantee the Subsidiary notes, but do not guarantee the Parent notes. The Parent and the Guarantors also guarantee the Subsidiary notes issued by Canada Company. 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> JUNE 30, 2001 ------------------------------------------------------------------------------- CANADA NON- PARENT GUARANTORS COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED ------ ----------- ------- ---------- ------------- ------------ <S> <C> <C> <C> <C> <C> <C> ASSETS Current Assets: Cash and Cash Equivalents .................... $ -- $ 23,127 $ 1,724 $ 11,986 $ -- $ 36,837 Accounts Receivable .......................... -- 177,759 15,747 22,025 -- 215,531 Intercompany Receivable (Payable) ............ 614,934 (499,507) (94,508) (20,919) -- -- Other Current Assets ......................... -- 62,425 3,116 2,929 -- 68,470 ---------- ----------- --------- --------- ------------ ----------- Total Current Assets ....................... 614,934 (236,196) (73,921) 16,021 -- 320,838 Property, Plant and Equipment, net ............. -- 719,706 71,395 94,954 -- 886,055 Other Assets: Long-term Intercompany Receivable ............ 535,979 -- -- -- (535,979) -- Long-term Notes Receivable from Affiliates ... 654,278 -- -- -- (654,278) -- Investment in Subsidiaries ................... 390,086 85,286 -- -- (475,372) -- Goodwill, net ................................ -- 1,264,271 124,117 146,022 10,465 1,544,875 Other ........................................ 26,496 40,316 10,639 727 (6,518) 71,660 ---------- ----------- --------- --------- ------------ ----------- Total Other Assets ......................... 1,606,839 1,389,873 134,756 146,749 (1,661,682) 1,616,535 ---------- ----------- --------- --------- ------------ ----------- Total Assets ............................... $2,221,773 $1,873,383 $132,230 $257,724 $(1,661,682) $2,823,428 ========== =========== ========= ========= ============ ========== LIABILITIES AND SHAREHOLDERS' EQUITY Total Current Liabilities .................... $ 33,584 $ 210,075 $ 14,348 $ 83,054 $ -- $ 341,061 Long-term Debt, Net of Current Portion ....... 1,265,712 1,782 126,558 26,894 -- 1,420,946 Long-term Intercompany Payable ............... -- 535,979 -- -- (535,979) -- Long-term Notes Payable to Affiliates ........ -- 654,278 -- -- (654,278) -- Other Long-term Liabilities .................. -- 74,587 858 2,041 (6,518) 70,968 Minority Interest ............................ -- -- -- 709 67,267 67,976 Shareholders' Equity ......................... 922,477 396,682 (9,534) 145,026 (532,174) 922,477 ---------- ----------- ---------- --------- ------------ ---------- Total Liabilities and Shareholders' Equity . $2,221,773 $1,873,383 $ 132,230 $257,724 $(1,661,682) $2,823,428 ========== =========== ========== ========= ============ ========== </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> 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> 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 JUNE 30, 2001 ----------------------------------------------------------------------------- CANADA NON- PARENT GUARANTORS COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED ---------- ---------- -------- ---------- ------------ ------------ <S> <C> <C> <C> <C> <C> <C> Revenues: Storage ........................................ $ -- $ 149,666 $ 8,279 $ 13,946 $ -- $ 171,891 Service and Storage Material Sales ............. -- 103,527 8,941 8,975 -- 121,443 --------- --------- --------- --------- --------- --------- Total Revenues ................................ -- 253,193 17,220 22,921 -- 293,334 Operating Expenses: Cost of Sales (Excluding Depreciation) .......... -- 117,983 8,367 12,680 -- 139,030 Selling, General and Administrative ............. -- 68,960 3,530 6,196 -- 78,686 Depreciation and Amortization ................... -- 32,135 2,564 3,089 -- 37,788 Merger-related Expenses ......................... -- 377 -- -- -- 377 --------- --------- --------- --------- --------- --------- Total Operating Expenses ...................... -- 219,455 14,461 21,965 -- 255,881 --------- --------- --------- --------- --------- --------- Operating Income ................................ -- 33,738 2,759 956 -- 37,453 Interest Expense, net ........................... 13,190 14,841 4,063 1,949 -- 34,043 Equity in the (Earnings) Losses of Subsidiaries .................................. (8,224) 1,113 -- -- 7,111 -- Other Income (Expense), net ..................... -- 2,003 5,024 (12) -- 7,015 --------- --------- --------- --------- --------- --------- Income (Loss) Before Provision (Benefit) for Income Taxes and Minority Interest Expense .................................... (4,966) 19,787 3,720 (1,005) (7,111) 10,425 Provision (Benefit) for Income Taxes ............ -- 15,846 (603) 848 -- 16,091 Minority Interests in Losses of Subsidiaries .................................. -- -- -- (700) -- (700) --------- --------- --------- --------- --------- --------- Income (Loss) before Extraordinary Item ....... (4,966) 3,941 4,323 (1,153) (7,111) (4,966) Extraordinary Charge from Early Extinguishment of Debt (Net of Tax Benefit of $3,300) ............................ (4,780) -- -- -- -- (4,780) --------- --------- --------- --------- --------- --------- Net Income (Loss) ............................. $ (9,746) $ 3,941 $ 4,323 $ (1,153) $ (7,111) $ (9,746) ========= ========= ========= ========= ========= ========= </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 JUNE 30, 2000 --------------------------------------------------------------------------------- CANADA NON- PARENT GUARANTORS COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED ----------- ---------- -------- ----------- ------------ ------------ <S> <C> <C> <C> <C> <C> <C> Revenues: Storage ..................................... $ 869 $ 131,388 $ 6,643 $ 9,545 $ -- $ 148,445 Service and Storage Material Sales .......... 4,741 85,788 7,007 7,831 (1,247) 104,120 --------- --------- --------- --------- --------- --------- Total Revenues ............................ 5,610 217,176 13,650 17,376 (1,247) 252,565 Operating Expenses: Cost of Sales (Excluding Depreciation) ...... 3,129 105,046 6,004 10,880 (3,086) 121,973 Selling, General and Administrative ......... 960 54,216 3,895 3,814 1,839 64,724 Depreciation and Amortization ............... 1,389 26,670 1,575 2,010 -- 31,644 Stock Option Compensation Expense ........... -- 14,939 -- -- -- 14,939 Merger-related Expenses ..................... -- 3,753 122 -- -- 3,875 --------- --------- --------- --------- --------- --------- Total Operating Expenses .................. 5,478 204,624 11,596 16,704 (1,247) 237,155 --------- --------- --------- --------- --------- --------- Operating Income .............................. 132 12,552 2,054 672 -- 15,410 Interest Expense, net ......................... 11,516 13,586 4,428 715 -- 30,245 Equity in the Losses of Subsidiaries .......... 18,981 186 -- -- (19,167) -- Other Expense, net ............................ -- (713) (2,108) (878) -- (3,699) --------- --------- --------- --------- --------- --------- Loss Before Provision (Benefit) for Income Taxes and Minority Interest Expense ............................... (30,365) (1,933) (4,482) (921) 19,167 (18,534) Provision (Benefit) for Income Taxes .......... (2,120) 12,536 (371) (198) -- 9,847 Minority Interests in Losses of Subsidiaries ................................ -- -- -- (136) -- (136) --------- --------- --------- --------- --------- --------- Net Loss .................................. $ (28,245) $ (14,469) $ (4,111) $ (587) $ 19,167 $ (28,245) ========= ========= ========= ========= ========= ========= </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> SIX MONTHS ENDED JUNE 30, 2001 ------------------------------------------------------------------------------ CANADA NON- PARENT GUARANTORS COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED --------- ----------- -------- ---------- ------------ ------------ <S> <C> <C> <C> <C> <C> <C> Revenues: Storage ........................................ $ -- $ 296,241 $ 16,681 $ 26,834 $ -- $ 339,756 Service and Storage Material Sales ............. -- 203,515 17,208 16,777 -- 237,500 --------- --------- --------- --------- --------- --------- Total Revenues ............................... -- 499,756 33,889 43,611 -- 577,256 Operating Expenses: Cost of Sales (Excluding Depreciation) ......... -- 237,473 17,104 24,273 -- 278,850 Selling, General and Administrative ............ 75 131,233 6,281 11,414 -- 149,003 Depreciation and Amortization .................. -- 62,623 5,048 5,835 -- 73,506 Merger-related Expenses ........................ -- 1,149 -- 29 -- 1,178 --------- --------- --------- --------- --------- --------- Total Operating Expenses ..................... 75 432,478 28,433 41,551 -- 502,537 --------- --------- --------- --------- --------- --------- Operating Income (Loss) .......................... (75) 67,278 5,456 2,060 -- 74,719 Interest Expense, net ............................ 26,360 29,722 8,113 3,835 -- 68,030 Equity in the (Earnings) Losses of Subsidiaries ................................... (24,668) 1,198 -- -- 23,470 -- Other Expense, net ............................... -- (889) (1,270) (13) -- (2,172) --------- --------- --------- --------- --------- --------- Income (Loss) Before Provision for Income Taxes and Minority Interest Expense ........ (1,767) 35,469 (3,927) (1,788) (23,470) 4,517 Provision for Income Taxes ....................... -- 6,746 14 494 -- 7,254 Minority Interests in Losses of Subsidiaries ................................... -- -- -- (970) -- (970) --------- --------- --------- --------- --------- --------- Income (Loss) before Extraordinary Item ...... (1,767) 28,723 (3,941) (1,312) (23,470) (1,767) Extraordinary Charge from Early Extinguishment of Debt (Net of Tax Benefit of $3,300) ...... (4,780) -- -- -- -- (4,780) --------- --------- --------- --------- --------- --------- Net Income (Loss) ........................... $ (6,547) $ 28,723 $ (3,941) $ (1,312) $ (23,470) $ (6,547) ========= ========= ========= ========= ========= ========= </TABLE> 15
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> SIX MONTHS ENDED JUNE 30, 2000 ---------------------------------------------------------------------------------- CANADA NON- PARENT GUARANTORS COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED ---------- ---------- --------- ---------- ------------ ------------ <S> <C> <C> <C> <C> <C> <C> Revenues: Storage .................................... $ 1,443 $ 242,464 $ 11,003 $ 18,474 $ -- $ 273,384 Service and Storage Material Sales ......... 7,990 158,292 12,363 14,423 (1,750) 191,318 --------- ---------- ---------- ------- --------- ---------- Total Revenues .......................... 9,433 400,756 23,366 32,897 (1,750) 464,702 Operating Expenses: Cost of Sales (Excluding Depreciation) ..... 5,365 194,930 11,140 19,950 (4,954) 226,431 Selling, General and Administrative ........ 1,620 100,138 5,826 7,393 3,204 118,181 Depreciation and Amortization .............. 1,730 49,471 2,637 4,109 -- 57,947 Stock Option Compensation Expense .......... -- 14,939 -- -- -- 14,939 Merger-related Expenses .................... -- 4,269 122 -- -- 4,391 --------- ---------- ---------- ------- -------- ---------- Total Operating Expenses ................ 8,715 363,747 19,725 31,452 (1,750) 421,889 --------- ---------- ---------- ------ --------- ---------- Operating Income .............................. 718 37,009 3,641 1,445 -- 42,813 Interest Expense, net ......................... 18,334 27,096 6,732 1,866 -- 54,028 Equity in the Losses of Subsidiaries .......... 19,333 84 -- -- (19,417) -- Other Expense, net ............................ -- (647) (2,954) (879) -- (4,480) --------- ----------- ----------- -------- -------- ----------- Income (Loss) Before Provision (Benefit) for Income Taxes and Minority Interest Expense ............. (36,949) 9,182 (6,045) (1,300) 19,417 (15,695) Provision (Benefit) for Income Taxes .......... (3,321) 22,506 (570) (239) -- 18,376 Minority Interests in Losses of Subsidiaries .. -- -- -- (443) -- (443) --------- ---------- ---------- -------- -------- ----------- Net Loss ................................ $ (33,628) $ (13,324) $ (5,475) $ (618) $ 19,417 $ (33,628) ========= =========== =========== ======== ======== ========== </TABLE> 16
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> SIX MONTHS ENDED JUNE 30, 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 ........................ $ (57,662) $ 116,583 $ 388 $ 3,499 $ -- $ 62,808 Cash Flows from Investing Activities: Cash Paid for Acquisitions, net of cash acquired ...................................... -- (27,783) 326 (17,312) -- (44,769) Capital Expenditures ............................ -- (73,035) (3,063) (13,877) -- (89,975) Intercompany Loans to Subsidiaries .............. (20,204) (4,743) -- -- 24,947 -- Investment in Subsidiaries ...................... (6,739) (6,739) -- -- 13,478 -- Additions to Customer Acquisition Costs ......... -- (5,339) (151) (342) -- (5,832) Proceeds from Sales of Property and Equipment ... -- 58 5 569 -- 632 --------- --------- --------- --------- --------- --------- Cash Flows Used in Investing Activities ....... (26,943) (117,581) (2,883) (30,962) 38,425 (139,944) Cash Flows from Financing Activities: Repayment of Debt ............................... (109,410) (142) (241) (2,556) -- (112,349) Early Retirement of Senior Subordinated Notes ......................................... (133,726) -- -- -- -- (133,726) Proceeds from Borrowings ........................ 103,000 73 -- 1,746 -- 104,819 Net Proceeds from Sale of Senior Subordinated Notes ............................ 218,590 -- -- -- -- 218,590 Debt Repayment to Minority Shareholders ........ -- -- -- (271) -- (271) Equity Contributions from Minority Shareholders ................................ -- -- -- 24,744 -- 24,744 Intercompany Loans from Parent .................. -- 14,119 6,072 4,756 (24,947) -- Equity Contribution from Parent ................. -- 6,739 -- 6,739 (13,478) -- Proceeds from Exercise of Stock Options ......... 6,145 -- -- -- -- 6,145 Debt Financing and Stock Issuance Costs ......... (185) -- -- -- -- (185) --------- --------- --------- --------- --------- --------- Cash Flows Provided by Financing Activities................................... 84,414 20,789 5,831 35,158 (38,425) 107,767 Effect of Exchange Rates on Cash and Cash Equivalents ..................................... -- -- (1,914) 1,920 -- 6 --------- --------- --------- --------- --------- --------- Increase (Decrease) in Cash and Cash Equivalents .. (191) 19,791 1,422 9,615 -- 30,637 Cash and Cash Equivalents, Beginning of Period .... 191 3,336 302 2,371 -- 6,200 --------- --------- --------- --------- --------- --------- Cash and Cash Equivalents, End of Period .......... $ -- $ 23,127 $ 1,724 $ 11,986 $ -- $ 36,837 ========= ========= ========= ========= ========= ========= </TABLE> 17
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> SIX MONTHS ENDED JUNE 30, 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 ......................... $ (13,796) $ 85,576 $ (4,987) $ 6,278 $ -- $ 73,071 Cash Flows from Investing Activities: Investment in Convertible Preferred Stock ........ -- (6,500) -- -- -- (6,500) Cash Paid for Acquisitions, net of cash acquired ....................................... (3,895) (57,012) 55 (10,247) -- (71,099) Capital Expenditures ............................. (10,960) (44,397) (1,999) (5,410) -- (62,766) Intercompany Loans to Subsidiaries ............... (239,690) (18,822) -- -- 258,512 -- Additions to Customer Acquisition Costs .......... -- (4,431) (670) -- -- (5,101) Other, Net ....................................... (11) (487) (45) -- -- (543) --------- --------- --------- --------- --------- --------- Cash Flows Used in Investing Activities ................................... (254,556) (131,649) (2,659) (15,657) 258,512 (146,009) Cash Flows from Financing Activities: Repayment of Debt ................................ (114,830) (172,277) (908) (7,078) -- (295,093) Proceeds from Borrowings ......................... 358,500 1,885 1,163 283 -- 361,831 Debt Financing from Minority Shareholders ....... -- -- -- 9,479 -- 9,479 Intercompany Loans from Parent ................... 24,200 214,106 9,973 10,233 (258,512) -- Proceeds from Exercise of Stock Options .......... 3,862 -- -- -- -- 3,862 Debt Financing and Stock Issuance Costs .......... (2,771) (297) -- -- -- (3,068) --------- --------- --------- --------- --------- --------- Cash Flows Provided by Financing ............... 268,961 43,417 10,228 12,917 (258,512) 77,011 Activities Effect of Exchange Rates on Cash and Cash Equivalents ...................................... -- 81 (797) 1,160 -- 444 --------- --------- --------- --------- --------- --------- Increase (Decrease) in Cash and Cash Equivalents ... 609 (2,575) 1,785 4,698 -- 4,517 Cash and Cash Equivalents, Beginning of Period ..... -- 2,260 -- 1,570 -- 3,830 --------- --------- --------- --------- --------- --------- Cash and Cash Equivalents, End of Period ........... $ 609 $ (315) $ 1,785 $ 6,268 $ -- $ 8,347 ========= ========= ========= ========= ========= ========= </TABLE> 18
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. For the three and six months ended June 30, 2001, 2,992 potential common shares have been excluded from the calculation of diluted net loss per share, as their effects are 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 JUNE 30, 2001 Revenue ........................... $ 193,218 $47,876 $ 39,663 $ 12,577 $ 293,334 EBITDA ............................ 52,986 12,669 8,875 1,088 75,618 THREE MONTHS ENDED JUNE 30, 2000 Revenue ........................... 174,291 41,071 30,626 6,577 252,565 EBITDA ............................ 49,930 11,272 5,613 (947) 65,868 SIX MONTHS ENDED JUNE 30, 2001 Revenue ........................... $ 383,140 $92,792 $ 76,542 $ 24,782 $ 577,256 EBITDA ............................ 103,200 23,480 17,554 5,169 149,403 Total Assets ...................... 1,085,361 78,814 377,218 1,282,035 2,823,428 SIX MONTHS ENDED JUNE 30, 2000 Revenue ........................... 318,330 79,686 55,500 11,186 464,702 EBITDA ............................ 88,595 19,831 10,571 1,093 120,090 </TABLE> EBITDA, as presented above, is defined as earnings before interest, taxes, depreciation, amortization, extraordinary items, other income, merger-related expenses and stock option compensation expense. The Company's consulting business, previously analyzed as part of Business Records Management, is now analyzed within the Corporate & Other category. In addition, certain allocations from Corporate & Other to Business Records Management and Off Site Data Protection have been changed. To the extent practicable, the prior period numbers shown above have been adjusted to reflect both such changes. 19
IRON MOUNTAIN INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands) (Unaudited) (Continued) (8) SEGMENT INFORMATION (CONTINUED) 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 JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 2001 2000 2001 2000 ---- ---- ---- ---- <S> <C> <C> <C> <C> EBITDA ................................................ $ 75,618 $ 65,868 $149,403 $120,090 Depreciation and Amortization ......................... (37,788) (31,644) (73,506) (57,947) Stock Option Compensation Expense ..................... -- (14,939) -- (14,939) Merger-related Expenses ............................... (377) (3,875) (1,178) (4,391) Interest Expense ...................................... (34,043) (30,245) (68,030) (54,028) Other Income (Expense), net ........................... 7,015 (3,699) (2,172) (4,480) --------- --------- --------- ---------- Income (Loss) Before Provision (Benefit) for Income Taxes and Minority Interest .......... $ 10,425 $(18,534) $ 4,517 $(15,695) ========= ========= ========= ========== </TABLE> Information as to the Company's operations in different geographical areas is as follows: <TABLE> <CAPTION> THREE MONTHS ENDED JUNE 30, --------------------------- 2001 2000 ---- ---- <S> <C> <C> Revenues: United States ......................................... $253,671 $221,939 International ......................................... 39,663 30,626 -------- -------- Total Revenues ..................................... $293,334 $252,565 ======== ======== </TABLE> <TABLE> <CAPTION> SIX MONTHS ENDED JUNE 30, ------------------------- 2001 2000 ---- ---- <S> <C> <C> Revenues: United States ......................................... $500,714 $409,202 International ......................................... 76,542 55,500 -------- -------- Total Revenues ..................................... $577,256 $464,702 ======== ======== </TABLE> <TABLE> <CAPTION> JUNE 30, 2001 DECEMBER 31, 2000 ------------- ----------------- <S> <C> <C> Long-lived Assets: United States ......................................... $2,072,934 $2,050,257 International ......................................... 429,656 372,171 ---------- ---------- Total Long-lived Assets............................. $2,502,590 $2,422,428 ========== ========== </TABLE> (9) SUBSEQUENT EVENTS The Company redeemed the remaining $5,412 of principal amount of the 11-1/8% notes in July 2001, at a redemption price (expressed as a percentage of principal amount) of 105.563%, plus accrued and unpaid interest, totaling $6,016. 20
IRON MOUNTAIN INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands) (Unaudited) (Continued) (9) SUBSEQUENT EVENTS (CONTINUED) In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually for impairment or more frequently if impairment indicators arise. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives. The amortization provisions of SFAS No. 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the Company is required to adopt SFAS No. 142 effective January 1, 2002. We expect the adoption of SFAS No. 142 will have the impact of reducing our amortization of goodwill and intangibles commencing January 1, 2002; however, impairment reviews may result in future periodic write-downs. For the six months ended June 30, 2001, the Company recorded goodwill amortization of $29,480. The Company is currently evaluating the effect that the adoption of the provisions of SFAS No. 142 will have on its intangible assets. 21
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 and six months ended June 30, 2001 and 2000 should be read in conjunction with the condensed consolidated financial statements and footnotes for the three and six months ended June 30, 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 $40.8 million, or 16.1%, to $293.3 million for the second quarter of 2001 from $252.6 million for the second quarter of 2000. Internal revenue growth, calculated in local currency for our international operations and as if Pierce Leahy had merged with Iron Mountain on January 1, 2000, was 10.9%. For the six months ended June 30, 2001, the Company's consolidated revenues were $577.3 million compared to $464.7 million for the same period last year, an increase of 24.2%. Internal revenue growth, calculated in local currency for our international operations and as if Pierce Leahy had merged with Iron Mountain on January 1, 2000, was 11.0%. During the second quarter of 2001, the Company acquired four businesses for total consideration of $11.1 million. These four acquisitions reported approximately $5 million in revenues for the fiscal year 2000. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000 Consolidated storage revenues increased $23.4 million, or 15.8%, to $171.9 million for the second quarter of 2001, from $148.4 million for the second quarter of 2000. The increase was attributable to: (i) internal revenue growth of 11.5% resulting primarily from net increases in records and other media stored by existing customers and sales to new customers; and (ii) acquisitions. 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 $17.3 million, or 16.6%, to $121.4 million for the second quarter of 2001, from $104.1 million for the second quarter of 2000. The increase was attributable to: (i) internal revenue growth of 10.0% resulting primarily from net increases in service and storage material sales to existing customers and sales to new customers; and (ii) acquisitions. 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 $40.8 million, or 16.1%, to $293.3 million for the second quarter of 2001 from $252.6 million for the second quarter of 2000. 22
IRON MOUNTAIN INCORPORATED Consolidated cost of sales (excluding depreciation) increased $17.1 million, or 14.0%, to $139.0 million (47.4% of consolidated revenues) for the second quarter of 2001 from $122.0 million (48.3% of consolidated revenues) for the second quarter of 2000. The dollar increase was consistent with the revenue growth of the Company and was partially offset by operating efficiencies at the Company's US and Canadian operations, particularly related to facility and labor costs. These efficiencies were gained as a result of an increase in scale. The decrease as a percentage of revenue was primarily attributable to the operating efficiencies mentioned above, offset by lower margins in the Company's expanding Confidential Destruction services. In US and Canadian operations, the facility costs increased $3.1 million, or 9.0%, and labor increased $7.2 million, or 12.4%, versus an increase in revenue of $35.3 million, or 15.0%. The Company's Confidential Destruction business generated gross margins of 42.6%, which negatively impacted the Company's gross margins by 0.2%. Consolidated selling, general and administrative expenses increased $14.0 million, or 21.6%, to $78.7 million (26.8% of consolidated revenues) for the second quarter of 2001 from $64.7 million (25.6% of consolidated revenues) for the second quarter of 2000. The dollar increase was primarily attributable to revenue growth of the Company, while the increase as a percentage of revenues was primarily attributable to: (i) $1.2 million of spending in the second quarter of 2001 for the Company's marketing and information technology initiatives related to the development of complementary technology-based service offerings; (ii) $1.2 million of increased spending for account management compensation at the Company's US and Canadian operations; and (iii) $2.3 million of increased bad debt expenses. These increases were offset by decreased spending in management and administrative compensation as a percentage of revenue (from 9.2% to 9.0%) due to efficiencies gained as a result of an increase in scale at the Company's US and Canadian operations. Consolidated depreciation and amortization expense increased $6.1 million, or 19.4%, to $37.8 million (12.9% of consolidated revenues) for the second quarter of 2001 from $31.6 million (12.5% of consolidated revenues) for the second quarter of 2000. Depreciation expense increased $4.6 million, primarily attributable to the additional depreciation expense related to the 2000 and 2001 acquisitions, and capital expenditures including racking systems, information systems and expansion of storage capacity in existing facilities. Amortization expense increased $1.5 million, primarily due to the additional amortization related to the goodwill generated by the Company's 2000 and 2001 acquisitions. Stock option compensation expense represents a non-cash charge resulting from the acceleration and extension of previously granted stock options as a part of separation agreements with certain executives. There were no such costs in the second quarter of 2001 compared to $14.9 million for the second quarter of 2000. 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 $0.4 million (0.1% of consolidated revenues) for the second quarter of 2001 compared to $3.9 million (1.5% of consolidated revenues) for the second quarter of 2000. 23
IRON MOUNTAIN INCORPORATED As a result of the foregoing factors, consolidated operating income increased $22.0 million, or 143.0%, to $37.5 million (12.8% of consolidated revenues) for the second quarter of 2001 from $15.4 million (6.1% of consolidated revenues) for the second quarter of 2000. Consolidated interest expense increased $3.8 million, or 12.6%, to $34.0 million for the second quarter of 2001 from $30.2 million for the second quarter of 2000. The increase was primarily attributable to increased indebtedness related to: (i) the inclusion of $4.7 million of interest expense on the 8-5/8% notes, which were issued in April 2001 and (ii) the financing of acquisitions and capital expenditures. These increases were partially offset by reduced interest expense of $3.3 million due to the early retirement of the 11-1/8% notes as well as a decline in the weighted average interest rate on the Company's variable rate debt. Consolidated other income (expense) was income of $7.0 million for the second quarter of 2001 compared to an expense of $3.7 million for the second quarter of 2000. The change was primarily due to the effect of the strengthening of the Canadian dollar against the U.S. dollar in the second quarter of 2001 as it relates to Canada Company's 8-1/8% Senior Subordinated Notes versus the weakening in both the Canadian dollar as it relates to the notes and the intercompany balances with the Company's Canadian subsidiaries and the British pound sterling as it relates to intercompany balances with the Company's European subsidiaries against the U.S. dollar in the second quarter of 2000. As a result of the foregoing factors, consolidated income (loss) before provision for income taxes and minority interest increased $29.0 million to income of $10.4 million (3.6% of consolidated revenues) for the second quarter of 2001 from a loss of $18.5 million (7.3% of consolidated revenues) for the second quarter of 2000. The provision for income taxes was $16.1 million for the second quarter of 2001 compared to $9.8 million for the second quarter of 2000. The provision was calculated by applying the Company's effective tax rate to the pre-tax income (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 with particular acquisitions. Consolidated loss before extraordinary item decreased $23.3 million to $5.0 million (1.7% of consolidated revenues) for the second quarter of 2001 from $28.2 million (11.2% of consolidated revenues) for the second quarter of 2000. In addition, the Company recorded an extraordinary charge of $4.8 million (net of tax benefit of $3.3 million) related to the early retirement of the 11-1/8% notes in conjunction with the Company's underwritten public offering of the 8-5/8% notes in the second quarter of 2001. As noted in Note 8, Segment Information, of Notes to Condensed Consolidated Financial Statements, EBITDA is used for the Company's internal measurement of financial performance. As a result of the foregoing factors, consolidated EBITDA increased $9.8 million, or 14.8%, to $75.6 million (25.8% of consolidated revenues) for the second quarter of 2001 from $65.9 million (26.1% of consolidated revenues) for the second quarter of 2000. Excluding the $1.2 million of expenses related to the Company's technology-related service offerings, the Company's EBITDA margin for the second quarter of 2001 was 26.2% of consolidated revenues. There were no such costs in the second quarter of 2000. EBITDA margins at the Company's Business Records Management and Off Site Data Protection segments declined primarily due to the increased costs inherent in the decentralization of the Company's administrative functions which took place in the second half of 2000. In the Business Records Management segment, EBITDA margins also declined due to increased effort in accounts receivable management. In the Off Site Data Protection segment, these increased overhead costs were partially offset by improved gross margin performance driven by operational efficiencies achieved with the increase in revenue, particularly as it relates to labor and transportation costs. EBITDA margins at the Company's international segment increased from 18.3% to 22.4% primarily due to a decrease in management and administrative expenses as a percentage of revenue in the Company's Canadian subsidiary as a result of efficiencies gained through the increase in scale with the acquisition of FACS in December 2000. These gains were partially offset by an increase of $0.9 million of bad debt expense at the Company's European operations. SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000 Consolidated storage revenues increased $66.4 million, or 24.3%, to $339.8 million for the first six months of 2001, from $273.4 million for the first six months of 2000. The increase was attributable to: (i) acquisitions, particularly the inclusion of Pierce Leahy's revenue for six months of 2001 versus five months of 2000; and (ii) internal revenue growth of 12.1% resulting primarily from net increases in records and other media stored by existing customers 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. 24
IRON MOUNTAIN INCORPORATED Consolidated service and storage material sales revenues increased $46.2 million, or 24.1%, to $237.5 million for the first six months of 2001, from $191.3 million for the first six months of 2000. The increase was attributable to: (i) acquisitions, particularly the inclusion of Pierce Leahy's revenue for six months of 2001 versus five months of 2000; and (ii) internal revenue growth of 9.5% resulting primarily from net increases in service and storage material sales to existing customers 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 $112.6 million, or 24.2%, to $577.3 million for the first six months of 2001 from $464.7 million for the first six months of 2000. Consolidated cost of sales (excluding depreciation) increased $52.4 million, or 23.2%, to $278.9 million (48.3% of consolidated revenues) for the first six months of 2001 from $226.4 million (48.7% of consolidated revenues) for the first six months of 2000. The dollar increase was consistent with the revenue growth of the Company and was partially offset by operating efficiencies at the Company's US and Canadian operations, particularly related to labor and facility costs. These efficiencies were gained as a result of an increase in scale. The decrease as a percentage of revenue was primarily attributable to the operating efficiencies mentioned above, offset by lower margins in the Company's expanding Confidential Destruction services. In US and Canadian operations, the labor increased $21.3 million or 19.7%, and facility costs increased $14.7 million or 23.0%, versus an increase in revenue of $102.0 million, or 23.6%. The Company's Confidential Destruction business generated gross margins of 42.4%, which negatively impacted the Company's gross margins by 0.2%. Consolidated selling, general and administrative expenses increased $30.8 million, or 26.1%, to $149.0 million (25.8% of consolidated revenues) for the first six months of 2001 from $118.2 million (25.4% of consolidated revenues) for the first six months of 2000. The dollar increase was primarily attributable to revenue growth of the Company, while the increase as a percentage of revenues was primarily attributable to: (i) $2.1 million of spending in the first six months of 2001 for the Company's marketing and information technology initiatives related to the development of complementary technology-based service offerings; (ii) $2.7 million of increased spending in account management compensation at the Company's US and Canadian operations; and (iii) $3.5 million of increased bad debt expenses. The increases were offset by a decrease in spending for management and administrative compensation as a percentage of revenue (from 9.4% to 8.7%) due to efficiencies gained as a result of an increase in scale at the Company's US and Canadian operations. Consolidated depreciation and amortization expense increased $15.6 million, or 26.9%, to $73.5 million (12.7% of consolidated revenues) for the first six months of 2001 from $57.9 million (12.5% of consolidated revenues) for the first six months of 2000. Depreciation increased $10.6 million, primarily attributable to the additional depreciation expense related to the 2000 and 2001 acquisitions, particularly the inclusion of Pierce Leahy's expenses for six months of 2001 versus five months of 2000, and capital expenditures including racking systems, information systems and expansion of storage capacity in existing facilities. Amortization increased $5.0 million, primarily attributable to the additional amortization related to the goodwill generated by the Company's 2000 and 2001 acquisitions, particularly Pierce Leahy. 25
IRON MOUNTAIN INCORPORATED Stock option compensation expense represents a non-cash charge resulting from the acceleration and extension of previously granted stock options as a part of separation agreements with certain executives. There were no such costs for the first six months of 2001 compared to $14.9 million for the same period of 2000. 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 $1.2 million (0.2% of consolidated revenues) for the first six months of 2001 compared to $4.4 million (0.9% of consolidated revenues) for the same period of 2000. As a result of the foregoing factors, consolidated operating income increased $31.9 million, or 74.5%, to $74.7 million (12.9% of consolidated revenues) for the first six months of 2001 from $42.8 million (9.2% of consolidated revenues) for the first six months of 2000. Consolidated interest expense increased $14.0 million, or 25.9%, to $68.0 million for the first six months of 2001 from $54.0 million for the first six months of 2000. The increase was primarily attributable to increased indebtedness related to: (i) the inclusion of Pierce Leahy's debt for six months of 2001 versus five months of 2000 resulting in an increase of approximately $4.7 million; (ii) the inclusion of $4.7 million of interest expense on the 8-5/8% notes, which were issued in April 2001; and (iii) the financing of acquisitions and capital expenditures. These increases were partially offset by reduced interest expense of $2.0 million due to the early retirement of the 11-1/8% notes as well as a decline in the weighted average interest rate on the Company's variable rate debt. Consolidated other expense was $2.2 million for the first six months of 2001 compared to $4.5 million for the first six months of 2000. The change was primarily due to the more dramatic weakening in both the Canadian dollar as it relates to intercompany balances with the Company's Canadian subsidiaries and the British pound sterling as it relates to intercompany balances with the Company's European subsidiaries against the U.S. dollar in the first six months of 2000 versus the first six months of 2001. As a result of the foregoing factors, consolidated income (loss) before provision for income taxes and minority interest increased $20.2 million to income of $4.5 million (0.8% of consolidated revenues) for the first six months of 2001 from a loss of $15.7 million (3.4% of consolidated revenues) for the first six months of 2000. The provision for income taxes was $7.3 million for the first six months of 2001 compared to $18.4 million for the first six months of 2000. The provision was calculated by applying the Company's effective tax rate to the pre-tax income (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 with particular acquisitions. For the six months ended June 30, 2001, the Company recorded $19.6 million in nondeductible goodwill amortization expense. Consolidated loss before extraordinary item decreased $31.9 million to $1.8 million (0.3% of consolidated revenues) for the first six months of 2001 from $33.6 million (7.2% of consolidated revenues) for the first six months of 2000. In April 2001, the Company recorded an extraordinary charge of $4.8 million (net of tax benefit of $3.3 million) related to the early retirement of the 11-1/8% notes in conjunction with the Company's underwritten public offering of the 8-5/8% notes. As noted in Note 8, Segment Information, of Notes to Condensed Consolidated Financial Statements, EBITDA is used for the Company's internal measurement of financial performance. As a result of the foregoing factors, consolidated EBITDA increased $29.3 million, or 24.4%, to $149.4 million (25.9% of consolidated revenues) for the first six months of 2001 from $120.1 million (25.8% of consolidated revenues) for the first six months of 2000. Excluding the $2.1 million of expenses related to the Company's technology-related service offerings, the Company's EBITDA margin for the first six months of 2001 was 26.2% of consolidated revenues. There were no such costs in the first six months of 2000. EBITDA margins at the Company's Business Records Management segment declined primarily due to the increased costs associated with the decentralization of the Company's administrative functions, which took place in the second half of 2000, as well as increased effort in accounts receivable management. The decline in margins caused by decentralization at the Company's Off Site Data Protection segment was more than offset by gross margin improvement driven by operational efficiencies achieved with the increase in revenue, particularly as it relates to labor and transportation costs. EBITDA margins in the Company's international segment increased from 19.0% to 22.9% due to the inclusion of an additional month in 2001 of the Company's more profitable Canadian business acquired as a part of the Pierce Leahy acquisition and efficiency gains from the December 2000 acquisition of FACS. These increases were partially offset by an increase of $1.0 million of bad debt expense at the Company's European operations. 26
IRON MOUNTAIN INCORPORATED LIQUIDITY AND CAPITAL RESOURCES The Company 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 six months of 2001 amounted to $90.0 million, $44.8 million and $5.8 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 $2.7 million related to the Company's technology-based service offerings. Net cash provided by operations was $62.8 million for the first six months of 2001 compared to $73.1 million for the same period in 2000. The decrease primarily resulted from an increase in trade accounts receivable and prepaid expenses and a decrease in net deferred tax liabilities and accrued expenses which was partially offset by an increase in operating income and trade accounts payable. Net cash provided by financing activities was $107.8 million for the first six months of 2001, consisting primarily of net proceeds of $218.6 million from the sale of 8-5/8% Notes and equity contributions from minority shareholders of $24.7 million, which were partially offset by the early retirement of 11-1/8% Notes of $133.7 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, $218.6 million after paying the underwriters' discounts and commissions and related 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 recorded an extraordinary charge of $4.8 million (net of tax benefit of $3.3 million) in the second quarter related to the early retirement of the 11-1/8% notes. The Company redeemed the remaining $5.4 million of principal amount of the 11-1/8% notes in July 2001, at a redemption price (expressed as a percentage of principal amount) of 105.563%, plus accrued and unpaid interest, totaling $6.0 million. In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually for impairment or more frequently if impairment indicators arise. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives. The amortization provisions of SFAS No. 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the Company is required to adopt SFAS No. 142 effective January 1, 2002. We expect the adoption of SFAS No. 142 will have the impact of reducing our amortization of goodwill and intangibles commencing January 1, 2002; however, impairment reviews may result in future periodic write-downs. For the six months ended June 30, 2001, the Company recorded goodwill amortization of $29.5 million. The Company is currently evaluating the effect that the adoption of the provisions of SFAS No. 142 will have on its intangible assets. 27
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 are variable-for-fixed swaps of interest payments payable on an aggregate principal amount of $195.5 million of 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 June 30, 2001, the Company had $178.0 million of variable rate debt outstanding with a weighted average interest rate of 6.42% and $1,274.3 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 three and six month periods ended June 30, 2001 by approximately $0.3 and $0.6 million, respectively. See Note 5 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 June 30, 2001. PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS The following matters were voted on by the Company's stockholders at its Annual Meeting of Stockholders held on May 24, 2001 (the "2001 Annual Meeting"). (a) ELECTION OF CLASS I DIRECTORS Election of three (3) Class I directors to serve until the Company's Year 2004 Annual Meeting of Stockholders, or until their successors are elected and qualified. <TABLE> <CAPTION> TOTAL VOTE FOR TOTAL VOTE WITHHELD EACH DIRECTOR FROM EACH DIRECTOR BROKER NON-VOTES -------------- --------------------- ---------------- <S> <C> <C> <C> Clarke H. Bailey ..................... 46,673,871 766,717 0 Constantin R. Boden .................. 46,676,220 764,368 0 Eugene B. Doggett .................... 46,617,311 823,277 0 </TABLE> The following directors' terms continued after the 2001 Annual Meeting: B. Thomas Golisano, John F. Kenny, Jr., Howard D. Ross, Vincent J. Ryan, Kent P. Dauten, Arthur D. Little, J. Peter Pierce and C. Richard Reese. (b) RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS Ratification of the selection by the Board of Directors of the firm of Arthur Andersen LLP as the Company's independent public accountants for the current year. <TABLE> <CAPTION> FOR AGAINST ABSTAIN BROKER NON-VOTES --- ------- ------- ---------------- <S> <C> <C> <C> 46,980,829 466,237 13,522 0 </TABLE> 28
IRON MOUNTAIN INCORPORATED ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS EXHIBIT NO. DESCRIPTION 10.1 Master Lease and Security Agreement, dated as of May 22, 2001, between Iron Mountain Statutory Trust - 2001, as Lessor, and the Company, as Lessee 10.2 Unconditional Guaranty, dated as of May 22, 2001, from the Company, as Guarantor, to Iron Mountain Statutory Trust - 2001, as Lessor 10.3 Master Construction Agency Agreement, dated as of May 22, 2001, between Iron Mountain Statutory Trust - 2001, as Lessor, and Iron Mountain Records Management, Inc., as Construction Agent (b) REPORTS ON FORM 8-K None. 29
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. IRON MOUNTAIN INCORPORATED AUGUST 14, 2001 By: /S/ JEAN A. BUA - --------------- --------------------------------------- (date) Jean A. Bua Vice President and Corporate Controller (Principal Accounting Officer) 30