SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
-------------
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 29, 1999
RECKSON SERVICE INDUSTRIES, INC.
(Exact name of Registrant as specified in its Charter)
Delaware
(State of Incorporation)
0-30162 11-3383642
(Commission File Number) (IRS Employer Id. Number)
10 East 50th Street 10022
New York, New York (Zip Code)
(Address of principal executive offices)
(212) 931-8000
(Registrant's telephone number, including area code)
<PAGE>
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant hereby amends the following items, financial statements,
exhibits or other portions of its Current Report on Form 8-K, as filed with
the Securities and Exchange Commission on August 13, 1999, as set forth in the
pages attached hereto and the Registrant incorporates by reference its Current
Report on Form 8-K/A as heretofore filed with the Securities and Exchange
Commission on March 24, 1999.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired
VANTAS Incorporated - Consolidated Financial Statements
-------------------------------------------------------
Unaudited Consolidated Balance Sheets as of June 30, 1999 and
December 31, 1998
Unaudited Consolidated Statements of Operations for the three months
ended June 30, 1999 and June 30, 1998 and the six months ended
June 30, 1999 and June 30, 1998
Unaudited Consolidated Statements of Cash Flows for the six months
ended June 30, 1999 and June 30, 1998
Notes to Unaudited Consolidated Financial Statements
(b) Pro Forma Financial Information
Reckson Service Industries, Inc. Unaudited Pro Forma Condensed
Consolidated Balance Sheet as of June 30, 1999
Reckson Service Industries, Inc. Unaudited Pro Forma Condensed
Consolidating Statement of Operations for the six months
ended June 30, 1999
Reckson Service Industries, Inc. Unaudited Pro Forma Condensed
Consolidating Statement of Operations for the year ended
December 31, 1998
Notes to Unaudited Pro Forma Consolidated Financial Statements
VANTAS Incorporated Unaudited Pro Forma Statement of Income for the six
months ended June 30, 1999
VANTAS Incorporated Unaudited Pro Forma Statement of Income for the
year ended December 31, 1998
(c) Exhibits
23. Consent of PricewaterhouseCoopers LLP
<PAGE>
SIGNATURES
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.
RECKSON SERVICE INDUSTRIES, INC.
/s/ Michael Maturo
----------------------------------
Michael Maturo,
Executive Vice President, Chief
Financial Officer and Treasurer
Date: September 10, 1999
<PAGE>
VANTAS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS: 1999 1998
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $2,002,516 $3,615,087
Restricted cash 1,253,371 10,000,000
Accounts receivable, net of allowance for doubtful accounts
of $686,000 at June 30, 1999 and $401,000 at December 31, 1998, respectively 7,730,706 3,821,175
Prepaid expenses and other current assets 6,066,916 5,145,682
Deferred income taxes 1,146,816 174,000
Deferred financing costs 592,356 466,727
---------------- ----------------
Total current assets 18,792,681 23,222,671
Intangibles, net 179,681,076 81,605,181
Property and equipment, net 49,138,215 23,124,702
Deferred financing costs, net 3,073,098 2,584,418
Security deposits 3,621,132 2,110,952
Other assets, net 3,472,218 1,426,526
---------------- ----------------
Total assets $257,778,420 $134,074,450
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses $16,096,590 $9,578,807
Capital lease obligations 1,846,903 731,510
Deferred rent payable 1,200,815 727,619
Notes payable - other 6,000,000 -
Notes payable - bank 6,925,000 7,875,000
---------------- ----------------
Total current liabilities 32,069,308 18,912,936
Notes payable - bank 84,750,000 65,125,000
Acquisitions payable 6,643,864 -
Tenants' security deposits 17,627,847 8,592,948
Deferred rent payable 13,748,316 6,607,771
Deferred income taxes 3,956,016 1,514,000
Capital lease obligations 752,062 602,153
Other liabilities 1,052,518 -
---------------- ----------------
Total liabilities 160,599,931 101,354,808
---------------- ----------------
Redeemable Preferred stock, authorized 30,000,000 shares:
Series A Convertible, $.01 par value, issued and outstanding
7,574,711 shares (liquidation preference $12,900,000) 15,153,241 14,407,957
Series B Convertible, $.01 par value, issued and outstanding
3,222,851 shares (liquidation preference $15,309,000) 16,376,649 15,700,638
Series C Convertible, $.01 par value, issued and outstanding
13,325,424 shares at June 30, 1999 (liquidation preference $63,296,000) 65,714,381 -
---------------- ----------------
97,244,271 30,108,595
---------------- ----------------
Stockholders' equity:
Class A Common stock, $.01 par value, authorized 35,000,000 shares,
issued and outstanding 4,901,868 shares 49,019 49,019
Additional paid-in capital 3,133,608 3,133,608
Retained earnings (deficit) (2,298,409) 378,420
---------------- ----------------
884,218 3,561,047
Note receivable from issuance of stock (950,000) (950,000)
---------------- ----------------
Total stockholders' equity (65,782) 2,611,047
---------------- ----------------
Total liabilities and stockholders' equity $257,778,420 $134,074,450
================ ================
</TABLE>
<PAGE>
VANTAS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------- ----------------------------------
1999 1998 1999 1998
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
BUSINESS CENTER OPERATIONS:
REVENUES:
Office rentals $30,571,559 $12,997,663 $57,636,857 $23,199,845
Support services 21,767,664 9,390,003 41,289,746 16,158,554
------------- ------------- -------------- --------------
52,339,223 22,387,666 98,926,603 39,358,399
------------- ------------- -------------- --------------
EXPENSES:
Rent 20,111,485 7,218,146 37,474,431 12,900,533
Support services 7,611,480 3,059,860 14,393,631 5,032,282
Center general and administrative 14,773,359 5,957,771 27,814,947 10,172,444
------------- ------------- -------------- --------------
42,496,324 16,235,777 79,683,009 28,105,259
------------- ------------- -------------- --------------
Contribution from operation of
business centers 9,842,899 6,151,889 19,243,594 11,253,140
------------- ------------- -------------- --------------
OTHER (EXPENSES) INCOME:
Corporate general and administrative (2,626,436) (2,027,444) (5,188,818) (3,543,866)
Merger and integration charges (640,527) - (1,384,981) -
Depreciation and amortization (3,352,770) (1,431,206) (6,253,673) (2,177,424)
Interest expense, net (2,340,570) (1,307,008) (4,245,289) (2,093,442)
Managed center income 214,155 212,294 401,781 341,181
Other income 34,684 21,428 34,684 76,195
------------- ------------- -------------- --------------
(8,711,464) (4,531,936) (16,636,296) (7,397,356)
------------- ------------- -------------- --------------
Income before minority interest and
income taxes 1,131,435 1,619,953 2,607,298 3,855,784
Minority interest in net (income) loss of
consolidated partnerships - 208,877 - (331,087)
------------- ------------- -------------- --------------
Income before provision for income taxes 1,131,435 1,828,830 2,607,298 3,524,697
Provision for income taxes (581,000) (730,000) (1,331,000) (1,395,000)
------------- ------------- -------------- --------------
Net income $550,435 $1,098,830 $1,276,298 $2,129,697
------------- ------------- -------------- --------------
Accretion of preferred stock (1,983,117) (538,652) (3,953,127) (888,989)
------------- ------------- -------------- --------------
Net (loss) income applicable
to common stock ($1,432,682) $560,178 ($2,676,829) $1,240,708
============= ============= ============== ==============
Share information:
Basic earnings:
Net (loss) income per common share ($0.29) $0.11 ($0.55) $0.24
============= ============= ============== ==============
Weighted average number of common
shares outstanding 4,901,868 4,960,735 4,901,868 5,064,601
============= ============= ============== ==============
Diluted earnings:
Net (loss) income per common share ($0.29) $0.06 ($0.55) $0.14
============= ============= ============== ==============
Weighted average number of common
shares outstanding 4,901,868 14,621,155 4,901,868 14,058,612
============= ============= ============== ==============
</TABLE>
<PAGE>
VANTAS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------------
JUNE 30, JUNE 30,
1999 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,276,298 $2,129,697
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 6,253,673 2,146,634
Amortization of deferred financing costs 290,553 211,304
Deferred income taxes - 1,389,100
Provision for doubtful accounts 211,358 274,012
Minority interest in net income of consolidated partnerships - 331,087
Deferred rent payable 2,469,589 472,861
Deferred credits (376,664) (135,790)
Non-cash interest expense - 118,133
Broker referral fees 430,406 -
Changes in operating assets and liabilities:
Accounts receivable (1,026,730) (753,836)
Prepaid expenses and other current assets (684,312) (572,752)
Security deposits and other assets 61,672 (132,120)
Accounts payable and accrued expenses (35,747) 1,291,732
Income taxes payable 591,695 (484,477)
Tenants' security deposits 1,930,155 768,510
-------------- --------------
Net cash provided by operating activities 11,391,946 7,054,095
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of net assets of business centers (40,456,146) (19,705,312)
Proceeds from acquisitions 8,400,000 -
Purchases of property and equipment (13,310,664) (4,660,905)
Restricted cash 10,000,000 -
-------------- --------------
Net cash used in investing activities (35,366,810) (24,366,217)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 35,200,000 21,529,000
Repayments on borrowings (10,525,000) (6,551,099)
Deferred financing costs (904,862) (546,625)
Payments of capital leases (1,294,630) (338,186)
Distributions to minority partners - (745,980)
Proceeds from exercise of common stock options - 210,000
Purchase and retirement of common and preferred stock - (415,917)
Proceeds from issuance of preferred stock, net of issuance costs - 7,874,400
Preferred stock issuance costs (113,215) -
-------------- --------------
Net cash provided by financing activities 22,362,293 21,015,593
-------------- --------------
Net decrease in cash (1,612,571) 3,703,471
Cash at beginning of period 3,615,087 2,206,483
-------------- --------------
Cash at end of period $2,002,516 $5,909,954
============== ==============
</TABLE>
<PAGE>
VANTAS Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
1. General
The consolidated financial statements for the three and six month periods ended
June 30, 1999 and 1998 have been prepared by VANTAS Incorporated (the "Company")
(formerly Alliance National Incorporated) and, in the opinion of management,
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial position, operating results
and cash flows for each period presented. The December 31, 1998 consolidated
balance sheet was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
These consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's December 31,
1998 Transition Report. Results for interim periods are not necessarily
indicative of results for a full year.
Pursuant to the rules and regulations of the Securities and Exchange Commission,
the Company's Series A, Series B and Series C Convertible Preferred Stock is
required to be presented outside of stockholders' equity and therefore has been
reclassified for purposes of this financial statement presentation.
2. Acquisitions
On January 8, 1999, two newly formed subsidiaries of the Company were merged
(the "Mergers") with and into InterOffice Superholding Corporation
("InterOffice") and Reckson Executive Centers, Inc. ("Reckson"), respectively.
InterOffice and Reckson collectively owned 45 business centers. As a result of
the Mergers, InterOffice and Reckson became wholly-owned subsidiaries of the
Company and the former shareholders of such entities received 13,325,424 shares
of the Company's Series C Convertible Preferred Stock ("Series C").
In connection with the Mergers, the Company authorized 15,000,000 shares of
Series C, which will rank on parity with the Series A and Series B Convertible
Preferred Stock (individually "Series A" and "Series B"). In connection with the
issuance of the Series C, the Series A and Series B were modified in certain
respects, including the elimination of redemption rights. Except for certain
class voting rights and except for the conversion feature described below, the
Series C will have substantially identical terms as the Series A and Series B.
If the original holders of the Series C or certain of their permitted
transferees are the holders of the Series C at the time of conversion thereof,
the Series C will be converted into Class B Common Stock which will have
identical terms and conditions as the Company's Class A Common Stock (formerly
the Common Stock) except that such Class B Common Stock will carry the right to
elect a specified number of directors, not to exceed four, following an initial
public offering.
The Company incurred merger and integration costs of approximately $641,000 and
$1,385,000 during the three and six months ended June 30, 1999 in connection
with the Mergers. Such charges consist primarily of severance and consulting
costs.
The Company's effective tax rate for the three and six months ended June 30,
1999 has increased as compared to the comparable periods of the prior year, due
to the fact that goodwill associated with the Mergers is not tax deductible.
In addition to the Mergers described above, the Company, in 6 unrelated
acquisitions, acquired 33 business centers for an aggregate purchase price of
$36.4 million.
The pro forma financial information set forth below is based upon the Company's
historical consolidated statements of operations for the six months ended June
30, 1999 and 1998, adjusted to give effect to these acquisitions as of January
1, 1998.
The pro forma financial information is presented for informational purposes only
and may not be indicative of what actual results of operations would have been
had the acquisitions occurred on January 1, 1998, nor does it purport to
represent the results of operations for future periods.
Six months ended June 30,
1999 1998
---- ----
Revenues $106,257,000 $85,024,000
Net income 826,000 4,622,000
Net income (loss) applicable to common stock (3,127,127) 1,201,180
Basic income (loss) per common share (.64) .24
Diluted income (loss) per common share (.64) .14
3. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
common share:
<TABLE>
<CAPTION>
Periods ended June 30,
Six Months Three Months
1999 1998 1999 1998
--------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Numerator:
Net income $ 1,276,298 $ 2,129,697 $ 550,435 $ 1,098,830
Accretion of preferred stock (3,953,127) (888,989) (1,983,117) (538,652)
--------------- --------------- ----------------- ---------------
Numerator for basic earnings per share-
Income applicable to common stock $ (2,676,829) $ 1,240,708 $ (1,432,682) $ 560,178
Effective of dilutive securities:
Accretion of preferred stock - 700,675 - 350,338
--------------- --------------- ----------------- ---------------
Numerator for diluted earnings per
share-income applicable to common
stock after assumed conversions $ (2,676,829) $ 1,941,383 $ (1,432,682) $ 910,516
Denominator:
Denominator for basic earnings per share-
Weighted average shares 4,901,868 5,064,601 4,901,868 4,960,735
Effect of dilutive securities:
Stock options - 804,728 - 1,220,542
Warrants - 614,572 - 865,167
Convertible preferred stock - 7,574,711 - 7,574,711
--------------- --------------- ----------------- ---------------
Dilutive potential common share - 8,994,011 - 9,660,420
Denominator for dilutive earnings per
share-adjusted weighted average
shares and assumed conversions 4,901,868 14,058,612 4,901,868 14,621,155
--------------- --------------- ----------------- ---------------
</TABLE>
Options and warrants to purchase 5,775,706 and 137,130 shares of common stock
were outstanding for the periods ended June 30, 1999 and 1998, respectively,
but were not included in the computation of diluted earnings per share because
their effect would be anti-dilutive. Additionally, 24,122,986 and 1,730,062
shares of Convertible Preferred Stock were outstanding for the periods ended
June 30, 1999 and 1998, respectively, but were not included in the computation
of diluted earnings per share because their effect would also be anti-dilutive.
4. Subsequent Events
Effective July 19, 1999, the Company amended its Articles of Incorporation to
increase the authorized shares of its common stock from 45 million to 61
million, of which 41 million and 20 million are designated Class A Common Stock
("Class A") and Class B Common Stock ("Class B"), respectively.
Effective August 3, 1999, the Company increased its $100 million credit
agreement (the "Agreement") with various lending institutions to approximately
$158 million. The Agreement provides for a $5 million acquisition loan
commitment, $128 million term loans, and a $25 million revolving loan
commitment, including letters of credit. Interest on each commitment ranges from
LIBOR plus 3.00% to LIBOR plus 3.75% for a one, three or six month period at the
election of the Company. The Company will pay a commitment fee of .5% on the
unused portion of the Agreement.
Effective August 4, 1999, the Company authorized 5,200,000 shares and issued
4,834,882 shares of Series D Convertible Preferred Stock ("Series D") for net
proceeds of approximately $19.2 million. The Series D was issued at $5.25 per
share, subject to adjustment up to $6.25 per share based upon the Company's
third and fourth quarter EBITDA as adjusted. The Series D has a liquidation
preference of $5.25 per share, and is also subject to adjustments based on the
Company's third and fourth quarter EBITDA as adjusted. The Series D ranks pari
passu with the Company's Series E Convertible Preferred Stock ("Series E"),and
senior to its Series A, Series B and Series C with respect to liquidation. The
Series D is convertible into the Company's Class B on a one-for-one basis or at
the election of the shareholder into the Company's Class A, subject to the
adjustment described above.
As of June 30, 1999, the Company had a $6 million Subordinated Promissory Note
payable to Reckson Service Industries, Inc., a related party. Such note bore
interest at the rate of 15% per annum and was satisfied from proceeds from the
issuance of the Series D on August 4, 1999.
Effective August 4, 1999, the Company authorized 1,000,000 shares and issued
352,380 shares of Series E Convertible Preferred Stock for net proceeds of
approximately $1.9 million. The Series E was issued at $5.25 per share, subject
to adjustment up to $6.25 per share based upon the Company's third and fourth
quarter EBITDA as adjusted. The Series E has a liquidation preference of $5.25
per share, and is also subject to adjustments based on the Company's third and
fourth quarter EBITDA as adjusted. The Series E ranks pari passu with the
Company's Series D, and senior to its Series A, Series B and Series C with
respect to liquidation. The Series E is convertible into the Company's Class A
on a one-for-one basis, subject to the adjustment described above.
The Company has executed letters of intent and is negotiating definitive
agreements to acquire 13 business centers for an aggregate purchase price of
approximately $12 million. These transactions will be accounted for under the
purchase method of accounting.
<PAGE>
Unaudited Pro Forma Consolidated Financial Statements
The following unaudited pro forma financial statements are presented for
illustrative purposes only and are not indicative of the financial position or
results of operations of future periods or the results that actually would have
been realized had RSI acquired directly and through various subsidiaries
approximately $23 million of Series D Convertible Stock ("Series D") of VANTAS
Incorporated ("VANTAS"), for the specified periods. As a result of the purchase
RSI increased its basic beneficial ownership of VANTAS to 34.4%. The pro forma
financial statements, including the notes thereto, are qualified in their
entirety by reference to, and should be read in conjunction with, the historical
financial statements of RSI as filed on Form 10-K for the year ended December
31, 1998, the historical financial statements of RSI as filed on Form 10-Q for
the six months ended June 30, 1999.
The following pro forma financial statements of RSI give effect to increase in
the beneficial ownership percentage. The pro forma financial statements are
based on the historical financial statements and the notes thereto of RSI, and
VANTAS. The pro forma adjustments are preliminary and based on management's
estimates of the value of the tangible and intangible assets acquired.
The pro forma balance sheet of RSI assumes that the purchases of Series D to
increase RSI's beneficial ownership of VANTAS occurred on June 30, 1999. The pro
forma statements of operations of RSI for the six months ended June 30, 1999 and
for the year ended December 31, 1998 assume that the purchases of Series D
occurred as of January 1, 1998.
RECKSON SERVICE INDUSTRIES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
RSI
UNAUDITED PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------------- ------------------ -----------------
<S> <C> <C> <C>
ASSETS
- ------
Cash $ 192,714 $ - $ 192,714
Investment in RSVP Holdings LLC 28,112,162 28,112,162
Investment in Onsite Ventures, LLC 12,278,500 12,278,500
Investment in VANTAS 29,982,096 22,843,170 (1) 52,825,266
Advances to VANTAS 6,000,000 (6,000,000) (1) -
Affiliate receivables 1,951,182 1,951,182
Equipment (net of depreciation of $35,013) 203,986 203,986
Other assets 2,060,217 2,060,217
---------------- ----------------- ----------------
TOTAL ASSETS $ 80,780,857 $ 16,843,170 $ 97,624,027
================ ================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Accounts payable and accrued expenses $ 5,839,029 $ - $ 5,839,029
Credit facilities 67,006,239 16,843,170 (1) 83,849,409
---------------- ----------------- ----------------
TOTAL LIABILITIES 72,845,268 16,843,170 89,688,438
---------------- ----------------- ----------------
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value 248,118 248,118
Additional paid in capital 27,883,897 27,883,897
Retained earnings (20,196,426) (20,196,426)
---------------- ----------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 80,780,857 $ 16,843,170 $ 97,624,027
================ ================= ================
</TABLE>
RECKSON SERVICE INDUSTRIES, INC.
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<PAGE>
<TABLE>
<CAPTION>
RSI
HISTORICAL PRO FORMA
UNAUDITED ADJUSTMENTS PRO FORMA
------------------ ------------------- -------------------
<S> <C> <C> <C>
REVENUES
- --------
Interest income $ 1,187,620 $ (67,500)(4) $ 1,120,120
Management fee income 166,667 166,667
--------------- ----------------- ----------------
TOTAL REVENUES 1,354,287 (67,500) 1,286,787
--------------- ----------------- ----------------
Equity in loss of RSVP Holdings, LLC (1,953,705) (1,953,705)
Equity in loss of On-Site Ventures, LLC (69,907) (69,907)
Equity in earning of VANTAS 488,310 140,459 (2),(6) 628,769
--------------- ----------------- ----------------
TOTAL EQUITY IN EARNINGS (LOSS) ON INVESTMENTS (1,535,302) 140,459 (1,394,843)
--------------- ----------------- ----------------
EXPENSES
- --------
Professional fees 457,543 457,543
Terminated transaction costs 413,908 413,908
General and administrative expenses 7,776,904 7,776,904
Interest expense 2,961,366 1,010,590 (3) 3,971,956
--------------- ----------------- ----------------
TOTAL EXPENSES 11,609,721 1,010,590 12,620,311
--------------- ----------------- ----------------
NET LOSS $ (11,790,736) $ (937,631) $ (12,728,367)
=============== ================= ================
Basic and diluted net loss per weighted average common share ($0.48) ($0.52)
=============== ================
Basic and diluted weighted average common shares outstanding 24,699,285 24,699,285
=============== ================
</TABLE>
<PAGE>
RECKSON SERVICE INDUSTRIES, INC.
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
RSI
HISTORICAL PRO FORMA
UNAUDITED ADJUSTMENTS PRO FORMA
------------------ ----------------- -------------------
<S> <C> <C> <C>
REVENUES
- --------
Interest income $ 1,006,551 $ - $ 1,006,551
Management fee income 277,778 277,778
Other income 58,175 58,175
---------------- -------------- -----------------
TOTAL REVENUES 1,342,504 1,342,504
---------------- -------------- -----------------
Equity in loss of RSVP Holdings, LLC and other investments (3,840,926) (3,840,926)
Equity in loss of On-Site Ventures, LLC (30,555) (30,555)
Equity in loss of Reckson Executive Centers Inc. (149,079) 149,079 (5) 0
Equity in earnings of Interoffice Superholdings Corporation 54,161 (54,161) (5) 0
Equity in earning of VANTAS 0 2,648,015 (2),(6) 2,648,015
---------------- -------------- -----------------
TOTAL EQUITY IN EARNINGS (LOSS) ON INVESTMENTS (3,966,399) 2,742,933 (1,223,466)
---------------- -------------- -----------------
EXPENSES
- --------
Professional fees 457,901 457,901
General and administrative expenses 2,086,989 2,086,989
Amortization and depreciation 39,179 39,179
Terminated transaction and related costs 1,220,694 1,220,694
Interest expense 1,651,200 2,021,180 (3) 3,672,380
---------------- -------------- -----------------
TOTAL EXPENSES 5,455,963 2,021,180 7,477,143
---------------- -------------- -----------------
Loss before cumulative effect of change in accounting principle (8,079,858) 721,753 (7,358,105)
Cumulative effect of change in accounting principle (67,945) 0 (67,945)
---------------- -------------- -----------------
NET LOSS $ (8,147,803) $ 721,753 $ (7,426,050)
================ ============== =================
Basic and diluted net loss per weighted average common share ($0.56) ($0.51)
================ ================
Basic and diluted weighted average common shares outstanding 14,522,513 14,522,513
================ =================
</TABLE>
<PAGE>
Notes to Unaudited Pro Forma Consolidated Financial Statements:
(1) On July 29,1999, RSI purchased approximately $17.5 million of Series D
Convertible Preferred Stock ("Series D") of VANTAS Incorporated
("VANTAS"), through a $11.5 million draw on its $100 million credit
facility ("RSI Facility") from Reckson Operating Partnership L.P. and
converted $6.0 million of notes receivables. Additionally, on August
4,1999 RSI purchased approximately $5.3 million of Series D through a
draw under the RSI Facility , as a result of these purchases RSI
increased its basic beneficial ownership in VANTAS from 26.2% to 34.4%.
(2) The unaudited pro forma results of operations assume that RSI purchased
approximately $23 million of Series D and increased its basic
beneficial ownership interest to 34.4%, on January 1, 1998.
(3) To record interest expense associated with the additional draws of
approximately $16.8 million under the RSI Facility at an interest rate
of 12%.
(4) Elimination of interest income recognized on the $6.0 million of notes
receivable that were converted into VANTAS Series D shares.
(5) On January 8,1999 Interoffice Superholdings Corporation ("Interoffice")
and Reckson Executive Centers, Inc. ("REC") merged with VANTAS. Prior
to the merger, RSI held partial ownership of Interoffice and REC. The
unaudited pro forma statements of operations assume that the merger
occurred on January 1,1998, as a result any income or (loss) associated
with REC and Interoffice for the period prior to the merger were
eliminated.
(6) VANTAS equity in earnings includes amortization expense on goodwill
associated with the purchase of the Series D by RSI as if the purchase
occurred on January 1,1998. Goodwill is being amortized over a 30 year
period based on RSI's assessment of the significant barriers to entry
due to the rapid consolidation in the executive suites business. The
goodwill adjustment represents amortization for six months and twelve
months respectively, which were not included in the historical results.
<PAGE>
The following unaudited pro forma statement of income is presented to give
effect to VANTAS Incorporated's acquisition of 32 business centers as if such
acquisitions occurred on January 1, 1999. The pro forma statement of income is
based on the unaudited historical results of operations of VANTAS Incorporated
for the six months ended June 30, 1999.
The pro forma statement of income does not purport to represent what VANTAS
Incorporated's statement of income would have actually been had the acquisitions
been completed on January 1, 1999, nor is it necessarily indicative of future
operating results of the Company.
<TABLE>
<CAPTION>
VANTAS INCORPORATED
UNAUDITED PRO FORMA STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1999
VANTAS
INCORPORATED PRO FORMA
HISTORICAL PRO FORMA VANTAS
(UNAUDITED) ACQUISITIONS(1) ADJUSTMENTS INCORPORATED
----------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
BUSINESS CENTER OPERATIONS:
REVENUES:
Office rentals $ 57,636,857 $ 7,326,394 $ -- $ 64,963,251
Support services 41,289,746 4,654,025 -- 45,943,771
------------- ------------- ------------- -------------
98,926,603 11,980,419 -- 110,907,022
------------- ------------- ------------- -------------
EXPENSES:
Rent 37,474,431 4,283,115 -- 41,757,546
Support services 14,393,631 1,646,699 -- 16,040,330
Center general and administrative 27,814,947 2,713,398 -- 30,528,345
------------- ------------- ------------- -------------
79,683,009 8,643,212 -- 88,326,221
------------- ------------- ------------- -------------
Contribution from operation of business centers 19,243,594 3,337,207 -- 22,580,801
OTHER (EXPENSES) INCOME:
Corporate general and administrative (5,188,818) (619,569) -- (5,808,387)
Depreciation and amortization (6,253,673) (148,723) (482,456)(2) (6,884,852)
Interest expense, net (4,245,289) (7,358) (1,041,639)(3) (5,294,286)
Managed center income 401,781 -- -- 401,781
Other income 34,684 81,714 -- 116,398
Merger and integration charges (1,384,981) -- -- (1,384,981)
------------- ------------- ------------- -------------
(16,636,296) (693,936) (1,524,095) (18,854,327)
------------- ------------- ------------- -------------
Income before income taxes 2,607,298 2,643,271 (1,524,095) 3,726,474
Provision for income taxes 1,331,000 1,078,453 (621,831)(4) 1,787,622
------------- ------------- ------------- -------------
Net income $ 1,276,298 $ 1,564,818 $ (902,264) $ 1,938,852
============= ============= ============= =============
RSI Ownership 34.4%
==============
RSI equity in earnings 666,965
Net Goodwill expense (38,196)
--------------
Total RSI pickup 628,769
====================== =============
</TABLE>
(1) Reflects the results of operations of 32 business centers acquired for the
periods which are not included in the historical results. The 45 business
centers from the Interoffice and Reckson Mergers, which were effective
January 8, 1999, are not reflected in this column because their effect
would not be material.
(2) To record additional depreciation expense on fixed assets acquired as well
as amortization expense on goodwill associated with the purchase of 32
business centers by VANTAS Incorporated as if the acquisitions had occurred
on January 1, 1999. Fixed assets acquired are being depreciated over a
7-year period and goodwill is being amortized over a 30-year period. The
adjustment represents the depreciation and amortization for the periods
which are not included in the historical results.
(3) To record interest expense relating to borrowings on the Company's
acquisition loan facility utilized to finance the purchase of 32 business
centers, as if such acquisitions had occurred on January 1, 1999. The
interest expense is based on the Company's effective interest rate under
the facility and includes interest expense for the periods which are not
included in the historical results.
(4) To record income tax effects as a result of the pro forma adjustments.
<PAGE>
The following unaudited pro forma statement of income is presented to give
effect to VANTAS Incorporated's (formerly Alliance National Incorporated)
acquisition of (i) 137 business centers and (ii) the remaining interests in all
7 of its controlled partnerships (representing 9 business centers) as if such
acquisitions occurred on January 1, 1998. The pro forma statement of income is
based on the unaudited historical results of operations of VANTAS Incorporated
for the twelve months ended December 31, 1998. Effective January 1, 1999, VANTAS
Incorporated changed its fiscal year end from June 30 to December 31.
The pro forma statement of income does not purport to represent what VANTAS
Incorporated's statement of income would have actually been had the acquisitions
been completed on January 1, 1998, nor is it necessarily indicative of future
operating results of the Company.
<TABLE>
<CAPTION>
VANTAS INCORPORATED
UNAUDITED PRO FORMA STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
INCORPORATED PRO FORMA
HISTORICAL PRO FORMA VANTAS
(UNAUDITED) ACQUISITIONS(1) ADJUSTMENTS INCORPORATED
----------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
BUSINESS CENTER OPERATIONS:
REVENUES:
Office rentals $ 55,099,625 $ 73,487,901 $ -- $ 128,587,526
Support services 38,315,961 44,914,627 -- 83,230,588
------------- ------------- ------------- -------------
93,415,586 118,402,528 -- 211,818,114
------------- ------------- ------------- -------------
EXPENSES:
Rent 31,716,572 47,479,717 -- 79,196,289
Support services 12,769,816 19,005,055 -- 31,774,871
Center general and administrative 24,830,404 23,502,759 -- 48,333,163
------------- ------------- ------------- -------------
69,316,792 89,987,531 -- 159,304,323
------------- ------------- ------------- -------------
Contribution from operation of business centers 24,098,794 28,414,997 -- 52,513,791
OTHER (EXPENSES) INCOME:
Corporate general and administrative (7,896,172) (9,194,176) -- (17,090,348)
Depreciation and amortization (4,535,486) (4,722,797) (1,985,254)(2) (11,243,537)
Interest expense, net (5,381,885) (423,797) (5,051,691)(3) (10,857,373)
Managed center income 795,286 -- -- 795,286
Other income 125,710 374,564 -- 500,274
------------- ------------- ------------- -------------
(16,892,547) (13,966,206) (7,036,945) (37,895,698)
------------- ------------- ------------- -------------
Income before minority interest and income taxes 7,206,247 14,448,791 (7,036,945) 14,618,093
Minority interest in net income of
consolidated partnerships (333,552) -- 333,552(4) --
------------- ------------- ------------- -------------
6,872,695 14,448,791 (6,703,393) 14,618,093
Provision for income taxes 2,805,000 5,873,660 (1,980,353)(5) 6,698,307
------------- ------------- ------------- -------------
Net income $ 4,067,695 $ 8,575,131 $ (4,723,040) $ 7,919,786
============= ============= ============= =============
RSI Ownership 34.4%
=============
RSI equity in earnings 2,724,406
Net Goodwill expense (76,391)
-------------
Total RSI pickup 2,648,015
====================== =============
</TABLE>
(1) Reflects the results of operations of 137 business centers acquired for
the periods which are not included in the historical results.
(2) To record additional depreciation expense on fixed assets acquired as well
as amortization expense on goodwill associated with the purchase of 137
business centers and the acquisition of its remaining interest in all of
its 7 controlled partnerships (representing 9 business centers) by VANTAS
Incorporated as if the acquisitions had occurred on January 1, 1998. Fixed
assets acquired are being depreciated over a 7-year period and goodwill is
being amortized over a 30-year period. The adjustment represents the
depreciation and amortization for the periods which are not included in
the historical results.
(3) To record interest expense relating to borrowings on the Company's
acquisition loan facility utilized to finance the purchase of 137 business
centers, as if such acquisitions had occurred on January 1, 1998. The
interest expense is based on the Company's effective interest rate under
the facility and includes interest expense for the periods which are not
included in the historical results.
(4) To eliminate minority interest in net income of consolidated partnerships
assuming the acquisition of the remaining interests in the Company's 7
controlled partnerships occurred as of January 1, 1998.
(5) To record income tax effects as a result of the pro forma adjustments.
EXHIBIT 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in this Current Report of
Reckson Service Industries, Inc. on Form 8-K/A of our report dated February 26,
1999 relating to the consolidated financial statements of VANTAS Incorporated
and Subsidiaries (formerly ALLIANCE NATIONAL Incorporated and Subsidiaries),
which appears in Reckson Service Industries, Inc.'s Current Report on Form 8-K/A
dated March 24, 1999.
/s/ PricewaterhouseCoopers LLP
New York, New York
September 8, 1999
