<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
-------------
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 13, 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
New York, New York 10022
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(212) 931-8000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
<PAGE>
The Registrant is filing this Current Report on Form 8-K in order to
file interim financial statements of VANTAS Incorporated ("VANTAS") and its
Subsidiaries and related pro forma financial information of the Company and
VANTAS.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
VANTAS INCORPORATED AND SUBSIDIARIES - CONSOLIDATED FINANCIAL
STATEMENTS
Consolidated Balance Sheets as of September 30, 1999 (unaudited)
and December 31, 1998
Consolidated Statements of Operations for the three and nine months
ended September 30, 1999 and 1998 (unaudited)
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998 (unaudited)
Notes to Consolidated Financial Statements (unaudited)
(B) PRO FORMA FINANCIAL INFORMATION
RECKSON SERVICE INDUSTRIES, INC.
Pro Forma Condensed Consolidated Balance Sheet (unaudited) as of
September 30, 1999
Pro Forma Condensed Consolidating Statement of Operations (unaudited)
for the nine months ended September 30, 1999
Pro Forma Condensed Consolidating Statement of Operations for the
year ended December 31, 1998
Notes to Pro Forma Financial Statements (unaudited)
VANTAS INCORPORATED
Pro Forma Statement of Income (unaudited) for the nine months ended
September 30, 1999
Pro Forma Statement of Income (unaudited) for the year ended December
31, 1998
Notes to Pro Forma Financial Statements (unaudited)
<PAGE>
(A)
VANTAS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 30,
ASSETS: 1999 1998
-------------- --------------
(Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,695,314 $ 3,615,087
Restricted cash 32,752,583 10,000,000
Accounts receivable, net of allowance for doubtful accounts
of $795,000 at September 30, 1999 and $401,000 at December 31, 1998 9,195,182 3,821,175
Prepaid expenses and other current assets 8,074,037 5,145,682
Deferred income taxes 1,146,816 174,000
Deferred financing costs 902,956 466,727
-------------- --------------
Total current assets 53,766,888 23,222,671
Intangibles, net 187,813,495 81,605,181
Property and equipment, net 62,912,816 23,124,702
Deferred financing costs, net 4,709,596 2,584,418
Security deposits 4,324,762 2,110,952
Other assets, net 7,730,493 1,426,526
-------------- --------------
Total assets $ 321,258,050 $ 134,074,450
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Accounts payable and accrued expenses $ 16,864,959 $ 9,578,807
Capital lease obligations 1,288,499 731,510
Deferred rent payable 1,865,568 727,619
Notes payable-- bank 13,000,000 7,875,000
-------------- --------------
Total current liabilities 33,019,026 18,912,936
Notes payable - bank 111,250,000 65,125,000
Acquisitions payable 7,353,378 --
Tenants' security deposits 18,689,123 8,592,948
Deferred rent payable 19,012,798 6,607,771
Deferred income taxes 3,956,016 1,514,000
Capital lease obligations 645,589 602,153
Other liabilities 809,702 --
-------------- --------------
Total liabilities 194,735,632 101,354,808
-------------- --------------
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) 15,525,883 14,407,957
Series B Convertible, $.01 par value, issued and outstanding
3,222,851 shares (liquidation preference $15,309,000) 16,728,438 15,700,638
Series C Convertible, $.01 par value, issued and outstanding
13,325,424 shares (liquidation preference $63,296,000) 67,093,512 --
Series D Convertible, $.01 par value, issued and outstanding
5,109,873 shares (liquidation preference $26,827,000) 26,923,664 --
Series E Convertible, $.01 par value, issued and outstanding
604,413 shares (liquidation preference $3,173,000) 3,173,061 --
-------------- --------------
Total redeemable preferred stock 129,444,558 30,108,595
-------------- --------------
Stockholders' equity (deficit):
Class A Common stock, $.01 par value, authorized 41,000,000 shares,
issued and outstanding 4,901,868 shares 49,019 49,019
Class B Common stock, $.01 par value, authorized 20,000,000 shares -- --
Additional paid-in capital 3,133,608 3,133,608
Retained earnings (deficit) (5,154,767) 378,420
-------------- --------------
(1,972,140) 3,561,047
Note receivable from issuance of stock (950,000) (950,000)
-------------- --------------
Total stockholders' equity (deficit) (2,922,140) 2,611,047
-------------- --------------
Total liabilities and stockholders' equity (deficit) $ 321,258,050 $ 134,074,450
============== ==============
</TABLE>
3
<PAGE>
VANTAS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended September 30, Nine Months ended September 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Business Center Operations:
Revenues:
Office rentals $33,702,534 $ 14,689,145 $ 91,339,391 $ 37,888,990
Support services 24,151,543 9,745,192 65,441,289 25,903,746
------------ ------------ ------------ ------------
57,854,077 24,434,337 156,780,680 63,792,736
------------ ------------ ------------ ------------
Expenses:
Rent 22,644,701 8,438,141 60,119,132 21,338,674
Support services 8,430,709 3,493,422 22,824,340 8,525,704
Center general and administrative 16,309,554 7,265,777 44,124,501 18,238,221
------------ ------------ ------------ ------------
47,384,964 19,197,340 127,067,973 48,102,599
------------ ------------ ------------ ------------
Contribution from operation
of business centers 10,469,113 5,236,997 29,712,707 15,690,137
------------ ------------ ------------ ------------
Other (Expenses) Income:
Corporate general and administrative (3,091,233) (1,734,738) (8,280,051) (4,478,604)
Merger and integration charges (219,126) -- (1,604,107) --
Depreciation and amortization (4,068,277) (1,206,141) (10,321,950) (3,383,565)
Interest expense, net (2,887,939) (1,226,311) (7,133,228) (3,319,753)
Managed center income 226,611 186,599 628,392 527,780
Other income (29,172) 5,059 5,512 81,254
------------ ------------ ------------ ------------
(10,069,136) (3,975,532) (26,705,432) (10,572,888)
------------ ------------ ------------ ------------
Income before minority interest and
income taxes 399,977 1,261,465 3,007,275 5,117,249
Minority interest in net income of
consolidated partnerships -- -- -- (331,087)
------------ ------------ ------------ ------------
Income before provision for income taxes 399,977 1,261,465 3,007,275 4,786,162
Provision for income taxes (864,000) (465,000) (2,195,000) (1,860,000)
------------ ------------ ------------ ------------
Net (loss) income $ (464,023) $ 796,465 $ 812,275 $ 2,926,162
------------ ------------ ------------ ------------
Accretion of preferred stock (2,392,337) (629,014) (6,345,464) (1,518,003)
------------ ------------ ------------ ------------
Net (loss) income applicable to
common stock $(2,856,360) $ 167,451 $ (5,533,189) $ 1,408,159
============ ============ ============ ============
Share information:
Basic earnings:
Net (loss) income per common share ($0.58) $0.03 ($1.13) $0.28
============ ============ ============ ============
Weighted average number of common
shares outstanding 4,901,868 4,951,868 4,901,868 5,027,024
============ ============ ============ ============
Diluted earnings:
Net (loss) income per common share ($0.58) $0.03 ($1.13) $0.17
============ ============ ============ ============
Weighted average number of common
shares outstanding 4,901,868 6,439,939 4,901,868 14,062,553
============ ============ ============ ============
</TABLE>
5
<PAGE>
VANTAS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------
September 30, September 30,
1999 1998
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 812,275 $ 2,926,162
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 10,321,950 3,383,565
Amortization of deferred financing costs 492,197 283,304
Deferred income taxes -- 1,389,100
Provision for doubtful accounts 749,376 378,399
Minority interest in net income of consolidated partnerships -- 331,087
Deferred rent payable 4,107,676 659,641
Deferred credits (71,170) (222,235)
Non-cash interest expense -- 118,133
Changes in operating assets and liabilities:
Accounts receivable (2,763,938) (921,285)
Prepaid expenses and other current assets (1,988,400) (2,023,964)
Security deposits and other assets (1,941,873) (241,840)
Accounts payable and accrued expenses 104,462 4,153,892
Income taxes payable 196,873 (1,052,755)
Tenants' security deposits 2,491,223 1,478,155
Other liabilities 120,980 --
------------ -------------
Net cash provided by operating activities 12,631,631 10,639,359
------------ -------------
Cash flows from investing activities:
Acquisition of net assets of business centers (50,428,992) (30,600,000)
Proceeds from acquisitions 8,400,000 --
Purchases of property and equipment (26,643,689) (6,452,402)
Restricted cash (21,799,212) --
------------ -------------
Net cash used in investing activities (90,471,893) (37,052,402)
------------ -------------
Cash flows from financing activities:
Proceeds from borrowings 65,400,000 29,554,000
Payments on borrowings (14,150,000) (6,676,099)
Deferred financing costs (3,053,604) (593,306)
Payments of capital leases (1,970,643) (716,190)
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 29,694,736 7,874,400
------------ -------------
Net cash provided by financing activities 75,920,489 28,490,908
------------ -------------
Net (decrease) increase in cash (1,919,773) 2,077,865
Cash at beginning of period 3,615,087 2,206,483
------------ -------------
Cash at end of period $ 1,695,314 $ 4,284,348
============ ============
</TABLE>
6
<PAGE>
VANTAS Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements for the three and nine month
periods ended September 30, 1999 and 1998 have been prepared by VANTAS
Incorporated and Subsidiaries (the "Company") (formerly ALLIANCE NATIONAL
Incorporated, and, prior to that, Executive Office Group, Inc.) 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.
Certain prior period amounts have been reclassified to conform to the
current year presentation.
2. ACQUISITIONS
Effective January 1, 1999, two newly formed subsidiaries of the Company
were merged (the "Mergers") with and into InterOffice Superholding Corporation
("InterOffice") and Reckson Executive Centers, Inc. ("REC"), respectively.
InterOffice and REC collectively owned 39 business centers. As a result of the
Mergers, InterOffice and REC 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 Preferred Stock Convertible Preferred Stock ("Series C
Preferred Stock"), and the Company received $8.4 million in cash.
In connection with the Mergers, the Company authorized 15,000,000
shares of Series C Preferred Stock, which ranks on parity with the Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock ("Series A
Preferred Stock" and "Series B Preferred Stock", respectively). In connection
with the issuance of the Series C Preferred Stock, the terms of the Series A
Preferred Stock and Series B Preferred Stock were modified in certain respects,
including with respect to the elimination of redemption rights. Except for
certain class voting rights and except for the conversion feature described
below, the Series C Preferred Stock has substantially identical terms as the
Series A Preferred Stock and Series B Preferred Stock. If the original holders
of the Series C Preferred Stock or certain of their permitted transferees are
the holders of the Series C Preferred Stock at the time of conversion thereof,
the Series C Preferred Stock will be converted into Class B Common Stock ("Class
B Common Stock") which will have identical terms and conditions as the Company's
Class A Common Stock ("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.
On July 19, 1999, the Company increased 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 and Class B Common Stock, respectively.
The Company incurred merger and integration costs of approximately $ .2
million and $1.6 million during the three and nine months ended September 30,
1999, respectively, in connection with the Mergers. Such charges consist
primarily of severance payments and other transaction related costs.
The Company's effective tax rate (which is the provision for income
taxes as a percentage of pre-tax income) for the three and nine months ended
September 30, 1999 has increased as compared to the comparable periods of the
prior year, primarily due to the effect of non-deductible goodwill amortization
associated with the Mergers and certain of the Company's other acquisitions
during 1999.
In addition to the Mergers described above, the Company acquired 50
business centers, in 12 acquisitions, for an aggregate purchase price of $53.3
million during the nine months ended September 30, 1999.
7
<PAGE>
The pro forma financial information set forth below is based upon the
Company's historical consolidated statements of operations for the nine months
ended September 30, 1999 and 1998, adjusted to give effect to the Mergers and
the acquisitions noted above 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.
<TABLE>
<CAPTION>
Nine months ended September 30,
1999 1998
------------- -------------
<S> <C> <C>
Revenues $164,600,000 $137,945,000
Net income 1,424,000 6,474,000
Net (loss) income applicable to common stock (4,921,000) 1,158,000
Basic (loss) income per common share (1.00) .23
Diluted (loss) income per common share (1.00) .16
</TABLE>
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
(loss) income per common share for the periods ended September 30:
<TABLE>
<CAPTION>
Three Months Nine Months
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Numerator:
Net (loss) income $ (464,023) $ 796,465 $ 812,275 $ 2,926,162
Accretion of preferred stock (2,392,337) (629,014) (6,345,464) (1,518,003)
------------ ------------ ------------ ------------
Numerator for basic (loss) income
per share-(loss) income applicable
to common stock $(2,856,360) $ 167,451 $(5,533,189) $ 1,408,159
Effect of dilutive securities:
Accretion of preferred stock -- -- -- 1,051,012
------------ ------------ ------------ ------------
Numerator for diluted (loss) income
per share-(loss) income applicable
to common stock after assumed
conversions $(2,856,360) $ 167,451 $(5,533,189) $ 2,459,171
Denominator:
Denominator for basic income (loss)
per share-weighted average shares 4,901,868 4,951,868 4,901,868 5,027,024
Effect of dilutive securities:
Stock options -- 879,711 -- 672,057
Warrants -- 608,360 -- 788,761
Convertible preferred stock -- -- -- 7,574,711
------------ ------------ ------------ ------------
Dilutive potential common shares -- 1,488,071 -- 9,035,529
Denominator for dilutive income (loss)
per share-adjusted weighted average
shares and assumed conversions 4,901,868 6,439,939 4,901,868 14,062,553
============ ============ ============ ============
</TABLE>
Options and warrants to purchase 6,211,706 and 287,130 shares of common
stock were outstanding for the three months ended September 30, 1999 and 1998,
respectively, and 6,211,706 and 337,130 for the nine months ended September 30,
1999 and 1998, respectively, but were not included in the computation of diluted
earnings per share in 1999 because their effect would have been anti-dilutive.
Additionally, 29,837,272 and 2,747,915 shares of Convertible Preferred Stock
were outstanding for the three and nine months ended September 30, 1999 and
1998, respectively.
4. REDEEMABLE PREFERRED STOCK
During the nine months ended September 30, 1999, the Company authorized
5,200,000 shares and issued 5,109,873 shares of Series D Convertible Preferred
Stock ("Series D Preferred Stock") for net proceeds of approximately $26.8
million. The Series D Preferred Stock was issued at $5.25 per share, subject to
adjustment up to $6.25 per share based upon the Company's cumulative third and
fourth quarter EBITDA, as adjusted. The Series D Preferred Stock has a
8
<PAGE>
liquidation preference of $5.25 per share, which is also subject to adjustments
based on the Company's cumulative third and fourth quarter EBITDA, as adjusted.
The Series D Preferred Stock ranks pari passu with the Company's Series E
Convertible Preferred Stock ("Series E Preferred Stock"), and senior to the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock,
with respect to liquidation. The Series D Preferred Stock is convertible into
the Company's Class B Common Stock on a one-for-one basis, or at the election of
the shareholder into the Company's Class A Common Stock, subject to the EBITDA
adjustment described above.
During the nine months ended September 30, 1999, the Company authorized
1,000,000 shares and issued 604,413 shares of Series E Preferred Stock for net
proceeds of approximately $3.1 million. The Series E Preferred Stock was issued
at $5.25 per share, subject to adjustment up to $6.25 per share based upon the
Company's cumulative third and fourth quarter EBITDA, as adjusted. The Series E
Preferred Stock has a liquidation preference of $5.25 per share, and is also
subject to adjustments based on the Company's cumulative third and fourth
quarter EBITDA, as adjusted. The Series E Preferred Stock ranks pari passu with
the Company's Series D Preferred Stock , and senior to the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock, with respect to
liquidation. The Series E Preferred Stock is convertible into the Company's
Class A Common Stock on a one-for-one basis, subject to the EBITDA adjustment
described above.
5. NOTES PAYABLE
Effective August 3, 1999, the Company increased its $100 million credit
facility (the "Credit Facility") with various lending institutions to
approximately $158 million. The Credit Facility provides for a $5 million
acquisition loan commitment, $128 million in term loans, and a $25 million
revolving loan commitment, including a sub-limit of $15 million for letters of
credit. Interest on each commitment ranges from LIBOR plus 3.0% to LIBOR plus
3.75% for one, three or six month periods at the election of the Company. The
Credit Facility provides for a commitment fee of 1/2 of 1.0% per annum on the
unused portion thereof.
In June 1999, the Company entered into a $6.0 million Subordinated
Promissory Note payable to Reckson Services Industries, Inc. ("RSI"), a related
party. Such note bore interest at the rate of 15.0% per annum and was fully
satisfied from proceeds raised by the issuance of the Series D Preferred Stock.
6. SUBSEQUENT EVENTS
As of November 15, 1999, the Company has executed letters of intent and
definitive agreements to acquire 2 business centers for an aggregate purchase
price of approximately $1.5 million. These transactions will be accounted for
under the purchase method of accounting.
RSI, a holder of approximately 35.0% of the Company's outstanding
capital stock, has entered into agreements with certain shareholders of the
Company, including members of the Company's senior management and former members
of the Company's Board of Directors, relating to the purchase of all or part of
such shareholders' capital stock in the Company, including capital stock related
to the exercise of vested stock options. Under the terms of the agreements, the
Company is obligated to provide payments to certain members of senior
management, to offset the tax effects to the individuals of the sales of shares,
subject to certain qualifications relating to those individuals remaining in the
employ of the Company. In addition, the Company will incur non-cash compensation
expense based on the difference between the closing price of RSI's common stock
at the closing date and the exercise price of the options exercised by senior
management. Based on the closing price of RSI's common stock on November 12,
1999, the charge for the tax gross-up and the non-cash compensation will
approximate $8.8 million and $10.2 million, respectively. These charges will be
included in merger and integration expense during the fourth quarter of 1999,
and are subject to adjustment based on the actual closing price of RSI's common
stock at the closing date. Upon consummation of the purchases contemplated by
these agreements, which is currently expected to occur between November, 1999
and February, 2000, RSI is expected to own between 67% and 87% of the Company's
outstanding capital stock.
<PAGE>
(B)
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 purchased an additional 50.4% interest in VANTAS
Incorporated ("VANTAS") from third parties for approximately $109 million in
cash and issuance of approximately 2.4 million shares of RSI common stock
valued at $19 per share. As a result of the purchase RSI will increase its
basic beneficial ownership of VANTAS to 85.4% and accordingly, will
consolidate the operations of VANTAS. The financing of this transaction are
assumed to be based on terms similar to the Company's existing credit
facility. 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 nine months ended September 30, 1999,
the historical financial statements of VANTAS as filed on VANTAS' Form 10-Q
for the nine months ended September 30, 1999, and the historical financial
statements of VANTAS as filed on Form 8-K/A on March 24, 1999 for the year
ended December 31, 1998.
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 the
additional 50.4% interest in VANTAS occurred on September 30, 1999. The pro
forma statements of operations of RSI for the nine months ended September 30,
1999 and for the year ended December 31, 1998 assume that the additional
50.4% interest in VANTAS occurred as of January 1, 1998.
<PAGE>
RECKSON SERVICE INDUSTRIES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
RSI VANTAS
UNAUDITED UNAUDITED PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS ELIMINATIONS (1) PRO FORMA
-------------- ----------- ------------- ----------------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash $ 359,699 $ 1,695,314 $ 5,954,405(8) $ - $ 8,009,418
Restricted cash - 32,752,583 - - 32,752,583
Investment in RSVP Holdings LLC 37,792,350 - - - 37,792,350
Investment in Onsite Ventures, LLC 15,379,701 - - - 15,379,701
Investment in VANTAS 69,781,904 - 150,114,478(1)(2) (219,896,382) -
Investment in eSourceOne Inc. and other
Investments 5,180,788 - - - 5,180,788
Affiliate receivables 1,968,982 - - - 1,968,982
Deferred Compensation 4,357,635 - - - 4,357,635
Accounts receivables - 9,195,182 - - 9,195,182
Intangible assets, net - 187,813,495 - 101,585,312 289,398,807
Property and equipment, net 223,782 62,912,816 - - 63,136,598
Other assets, net 1,344,407 26,888,660 - - 28,233,067
-------------- ------------- ------------ -------------- ------------
TOTAL ASSETS $136,389,248 $321,258,050 $156,068,883 $(118,311,070) $495,405,111
-------------- ------------- ------------ -------------- ------------
-------------- ------------- ------------ -------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 9,375,705 $16,864,959 $ - $ - $ 26,240,664
Credit facilities 116,625,383 - 103,790,274 (1)(2) - 220,415,657
Notes Payable 5,596,572 - - - 5,596,572
Capital lease obligation - 1,934,088 - - 1,934,088
Deferred rent payable - 20,878,366 - - 20,878,366
Notes payable-other - - - - -
Notes payable-bank - 124,250,000 - - 124,250,000
Tenant's security deposits - 18,689,123 - - 18,689,123
Other liabilities - 12,119,096 - - 12,119,096
-------------- ------------- ------------ -------------- ------------
TOTAL LIABILITIES 131,597,660 194,735,632 103,790,274 - 430,123,566
-------------- ------------- ------------ -------------- ------------
MINORITY INTEREST - - - 14,165,753 (7) 14,165,753
TOTAL REDEEMABLE PREFERRED STOCK - 129,444,558 - (129,444,558) -
-------------- ------------- ------------ -------------- ------------
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value 256,568 49,019 24,381 (1)(2) (49,019) 280,949
Additional paid in capital 36,471,496 3,133,608 52,254,228 (1)(2) (9,088,013) 82,771,319
Retained earnings (deficit) (31,936,476) (5,154,767) - 5,154,767 (31,936,476)
Note receivable from issuance of stock - (950,000) - 950,000 -
-------------- ------------- ------------ -------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $136,389,248 $321,258,050 $156,068,883 $(118,311,070) $495,405,111
-------------- ------------- ------------ -------------- ------------
-------------- ------------- ------------ -------------- ------------
</TABLE>
<PAGE>
RECKSON SERVICE INDUSTRIES, INC.
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
RSI
HISTORICAL PRO FORMA PRO FORMA
UNAUDITED VANTAS (2) ADJUSTMENTS PRO FORMA
------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUES
Interest income $1,651,893 $ - $ (67,500)(4) $ 1,584,393
Management fee income 250,000 - - 250,000
Office rentals - 98,946,754 - 98,946,754
Support services - 70,335,502 - 70,335,502
------------- ----------- ------------ -------------
TOTAL REVENUES 1,901,893 169,282,256 (67,500) 171,116,649
------------- ----------- ------------ -------------
Equity in loss of RSVP Holdings, LLC (3,309,880) - - (3,309,880)
Equity in loss eSourceOne, Inc. (819,212) - - (819,212)
Equity in loss of On-Site Access, Inc.
and predecessor entity (2,805,458) - - (2,805,458)
Equity in earning of VANTAS 422,568 - (422,568)(1)
------------- ----------- ------------ -------------
TOTAL EQUITY IN EARNINGS (LOSS) ON
INVESTMENTS (6,511,982) - (422,568) (6,934,550)
------------- ----------- ------------ -------------
EXPENSES
Rent - 64,470,615 - 64,470,615
Support services - 24,588,123 - 24,588,123
Center general and administrative - 46,917,680 - 46,917,680
Terminated transaction costs 413,908 - - 413,908
General and administrative expenses 12,538,648 8,925,954 - 21,464,602
Interest expense, net 5,968,141 7,749,693 9,341,125(3) 23,058,959
Depreciation and amortization - 11,476,413 2,539,633(6) 14,016,046
Other expense, net - 853,483 - 853,483
------------- ----------- ------------ -------------
TOTAL EXPENSES 18,920,697 164,981,961 11,880,758 195,783,416
------------- ----------- ------------ -------------
Minority Interest - - (223,257)(7) (223,257)
Provisions for income taxes - (2,771,135) - (2,771,135)
------------- ----------- ------------ -------------
NET (LOSS) INCOME $(23,530,786) $ 1,529,160 $(12,594,083) $(34,595,709)
------------- ----------- ------------ -------------
------------- ----------- ------------ -------------
Basic and diluted net loss per weighted
average common share $ (0.95) $ (1.27)
------------- -------------
------------- -------------
Basic and diluted weighted average
common shares outstanding 24,855,657 27,293,773
------------- -------------
------------- -------------
</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 PRO FORMA
UNAUDITED VANTAS (2) ADJUSTMENTS PRO FORMA
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
REVENUES
Interest income $1,006,551 $ - $ - $ 1,006,551
Management fee income 277,778 - - 277,778
Other income 58,175 1,343,572 - 1,401,747
Office rentals - 129,048,560 - 129,048,560
Support services - 83,771,783 - 83,771,783
------------- ------------ ------------ -------------
TOTAL REVENUES 1,342,504 214,163,915 - 215,506,419
------------- ------------ ------------ -------------
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) -
Equity in earnings of Interoffice
Superholdings Corporation 54,161 - (54,161)(5) -
------------- ------------ ------------- -------------
TOTAL EQUITY IN EARNINGS (LOSS) ON
INVESTMENTS (3,966,399) - 94,918 (3,871,481)
------------- ------------ ------------- -------------
EXPENSES
Rent - 79,423,366 - 79,423,366
Support services - 31,965,773 - 31,965,773
Center general and administrative - 48,674,396 - 48,674,396
Professional fees 457,901 - - 457,901
Terminated transaction costs 1,220,694 - - 1,220,694
General and administrative expenses 2,086,989 17,140,348 - 19,227,337
Interest expense, net 1,651,200 10,532,274 12,454,833(3) 24,638,307
Depreciation and amortization 39,179 11,662,496 3,386,177(6) 15,087,852
------------- ------------ ------------- -------------
TOTAL EXPENSES 5,455,963 199,398,653 15,841,010 220,695,626
------------- ------------ ------------- -------------
Loss before minority interest, cumulative
effect of change in accounting principle and
provisions for income taxes (8,079,858) 14,765,262 (15,746,092) (9,060,688)
------------- ------------ ------------- -------------
Minority interest - - (1,169,009)(7) (1,169,009)
Cumulative effect of change in accounting
principle (67,945) - - (67,945)
Provisions for income taxes - (6,758,352) - (6,758,352)
------------- ------------ ------------- -------------
NET (LOSS) INCOME $ (8,147,803) $ 8,006,910 $(16,915,101) $(17,055,994)
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
Basic and diluted net loss per
weighted average common share $ (0.56) $ (1.01)
------------- -------------
------------- -------------
Basic and diluted weighted average
common shares outstanding 14,522,513 16,960,629
------------- -------------
------------- -------------
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS:
(1) Subsequent to October 1, 1999, RSI signed certain agreements which in
conjunction with existing "tag along" rights will result in RSI
purchasing an additional 50.4% of VANTAS from third parties for
approximately $109 million in cash (including a $5 million deposit that
was made prior to September 30, 1999) and the issuance of approximately
2.4 million shares of RSI common stock valued at $19 per share. These pro
forma consolidated financial statements assume that RSI completed the
$109 million purchase through the use of proceeds from a credit facility
on terms similar to its existing credit facility. As a result, RSI's pro
forma balance sheet and statements of operations have reflected and
accounted for its investment in VANTAS under the consolidated method of
accounting, all the necessary eliminations have been recorded.
(2) The RSI unaudited pro forma results of operations for the nine months
ended September 30, 1999 and year ended December 31, 1998 assume that RSI
increased its beneficial ownership in VANTAS to 85.4% on January 1, 1998.
The VANTAS unaudited pro forma results of operations for the nine months
ended September 30, 1999 and the year ended December 31, 1998 were based
on unaudited historical results of operations adjusted for acquisitions.
Refer to RSI's Form 8-K/A dated September 20, 1999 for more detail.
(3) To record interest expense associated with the additional draws of
approximately $104 million 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) Amortization expense on goodwill associated with the purchase of the
additional 50.4% interest in VANTAS 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.
(7) Represents the minority interest of VANTAS at 14.6%, as a result of RSI's
consolidation of VANTAS.
(8) VANTAS received approximately $6 million in cash, as a result of certain
warrants and vested options being exercised subsequent to October 1, 1999.
<PAGE>
The following unaudited pro forma statement of income is presented to give
effect to VANTAS Incorporated's acquisition of 32 busienss centers as if such
acquisitions occurred on January 1, 1999. The pro forma statement of
income is on the unaudited historical results of operations of VANTAS
Incorporated for the nine months ended September 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
NINE MONTHS ENDED SEPTEMBER 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 $ 91,339,391 $ 7,607,363 $ -- $ 98,946,754
Support services 65,441,289 4,894,213 -- 70,335,502
------------ ----------- ----------- ------------
156,780,680 12,501,576 -- 169,282,256
------------ ----------- ----------- ------------
EXPENSES:
Rent 60,119,132 4,351,483 -- 64,470,615
Support services 22,824,340 1,763,783 -- 24,588,123
Center general and administrative 44,124,501 2,793,179 -- 46,917,680
------------ ----------- ----------- ------------
127,067,973 8,908,445 -- 135,976,418
------------ ----------- ----------- ------------
Contribution from operation of business centers 29,712,707 3,593,131 -- 33,305,838
OTHER (EXPENSES) INCOME:
Corporate general and administrative (8,280,051) (645,903) -- (8,925,954)
Depreciation and amortization (10,321,950) (664,783) (489,680)(2) (11,476,413)
Interest expense, net (6,641,031) (7,358) (1,101,304)(3) (7,749,693)
Other expense, net (1,462,400) 608,917 -- (853,483)
------------ ----------- ----------- ------------
(26,705,432) (709,127) (1,590,984) (29,005,543)
------------ ----------- ----------- ------------
Income before income taxes 3,007,275 2,884,004 (1,590,984) 4,300,295
Provision for income taxes (2,195,000) (1,211,282) 635,147 (4) (2,771,135)
------------ ----------- ----------- ------------
Net income $ 812,275 $ 1,672,722 $ (955,837) $ 1,529,160
============ =========== =========== ============
</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
VANTAS
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 $ 73,948,935 $ -- $129,048,560
Support services 38,315,961 45,455,822 -- 83,771,783
----------- ----------- -------------- ------------
93,415,586 119,404,757 -- 212,820,343
----------- ----------- -------------- ------------
EXPENSES:
Rent 31,716,572 47,706,794 -- 79,423,366
Support services 12,769,816 19,195,957 -- 31,965,773
Center general and administrative 24,830,404 23,843,992 -- 48,674,396
----------- ----------- -------------- ------------
69,316,792 90,746,743 -- 160,063,535
----------- ----------- -------------- ------------
Contribution from operation of business centers 24,098,794 28,658,014 -- 52,756,808
OTHER (EXPENSES) INCOME:
Corporate general and administrative (7,896,172) (9,244,176) (17,140,348)
Depreciation and amortization (4,535,486) (4,722,797) (2,404,213)(2) (11,662,496)
Interest expense, net (5,381,885) (423,797) (4,726,592)(3) (10,532,274)
Managed center income 795,286 -- -- 795,286
Other income 125,710 422,576 -- 548,286
----------- ----------- -------------- ------------
(16,892,547) (13,968,194) (7,130,805) (37,991,546)
----------- ----------- -------------- ------------
Income before minority interest and income taxes 7,206,247 14,689,820 (7,130,805) 14,765,262
----------- ----------- -------------- ------------
Minority interest in net income of
consolidated partnerships (333,552) -- 333,552 (4) --
----------- ----------- -------------- ------------
6,872,695 14,689,820 (6,797,253) 14,765,262
Provision for income taxes (2,805,000) (5,873,660) 1,920,308 (5) (6,758,352)
----------- ----------- -------------- ------------
Net income $ 4,067,695 $ 8,816,160 $(4,876,945) $ 8,006,910
----------- ----------- -------------- ------------
</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
<PAGE>
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 occured as of January 1, 1998.
(5) To record income tax effects as a result of the pro forma adjustments.
<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.
By: /s/ Jason Barnett
-------------------------------------
Jason Barnett
Executive Vice President and
General Counsel
Date: December 13, 1999
