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):
June 13, 1996 (May 9, 1996)
CORT BUSINESS SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1-14146 54-1662135
(State of Incorporation) (Commission File Number) I.R.S. Employer
Identification No.
4401 Fair Lakes Court, Fairfax, Virginia 22033
(Address of principal executive offices) (Zip Code)
(703) 968-8500
(Registrant's telephone number)
<PAGE>
The undersigned registrant (the "Company") hereby amends the Current Report on
Form 8-K dated May 9, 1996 by including herewith for filing the financial
statements and pro forma financial information required by Item 7 on Form 8-K
which information was not practicably available at the time of the filing of
this Form as set forth on the pages indicated below and attached hereto.
Item 7. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements of Businesses Acquired
-------------------------------------------
Unaudited Condensed Consolidated Balance Sheet
as of March 31, 1996..................................... F-1
Unaudited Condensed Consolidated Statements of
Operations for the three months
ended March 31, 1995 and 1996............................ F-2
Unaudited Condensed Consolidated Statements of
Cash Flows for the three months
ended March 31, 1995 and 1996............................ F-3
Notes to Unaudited Condensed Consolidated
Financial Statements.............. ...................... F-4
Report of Independent Auditors............................... F-5
Consolidated Balance Sheets
as of December 31, 1994 and 1995......................... F-6
Consolidated Statements of Operations
for the years ended December 31, 1994 and 1995........... F-8
Consolidated Statements of Shareholders' Deficit
for the years ended December 31, 1994 and 1995........... F-9
Consolidated Statements of Cash Flows
for the years ended December 31, 1994 and 1995...........F-10
Notes to Consolidated Financial Statements...................F-11
(b) Pro Forma Financial Data
------------------------
Unaudited Pro Forma Condensed Statements of Operations
for the year ended December 31, 1995 and the three
months ended March 31, 1996..............................F-18
Unaudited Pro Forma Condensed Balance Sheet
as of March 31, 1996.....................................F-20
Notes to Unaudited Pro Forma Condensed Financial Statements..F-21
(c) Exhibit
-------
Consent of Ernst & Young LLP.................................23.1
<PAGE>
EVANS RENTS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
March 31,
1996
---------
ASSETS
<S> <C>
Cash................................................................... $ 351
Accounts receivable, less allowance for doubtful accounts of $238...... 2,265
Prepaid expenses....................................................... 12
Rental merchandise, net................................................ 17,663
Property, equipment and leasehold improvements, net.................... 2,288
Deposits and other assets.............................................. 175
---
Total assets...................................................... $22,754
======
LIABILITIES AND SHAREHOLDERS' DEFICIT
Liabilities:
Senior obligations payable........................................ $ 9,529
Convertible subordinated notes.................................... 15,735
Accounts payable.................................................. 754
Accrued expenses.................................................. 1,583
Accrued interest.................................................. 9,244
Deferred revenue.................................................. 1,531
-----
Total liabilities............................................. 38,376
Redeemable Preferred Stock............................................. 5,000
Shareholders' deficit.................................................. (20,622)
------
Total liabilities and shareholders' deficit....................... $22,754
======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F1
<PAGE>
EVANS RENTS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1995 1996
------ ------
Revenue:
<S> <C> <C>
Rental income........................................... $6,624 $6,906
Relocation income and fees.............................. 719 519
Sales of merchandise.................................... 309 457
--- ---
Total revenue....................................... 7,652 7,882
----- -----
Costs and operating expenses:
Cost of merchandise sold................................ 223 312
Depreciation:
Rental merchandise.................................. 638 726
Property, equipment and leasehold improvements...... 154 203
Operating expenses...................................... 2,469 2,377
General and administrative expenses..................... 2,946 3,064
----- -----
Total costs and operating expenses.................. 6,430 6,682
----- -----
Operating profit.................................... 1,222 1,200
Interest expense, net........................................ 906 830
--- ---
Income before taxes..................................... 316 370
Income taxes................................................. 40 48
-- --
Net income.............................................. $ 276 $ 322
=== ===
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F2
<PAGE>
EVANS RENTS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1995 1996
------ ------
Operating activities:
<S> <C> <C>
Net income................................................. $ 276 $ 322
Adjustments to reconcile net income to net cash
provided by operating activities:
Net book value of rental merchandise disposals.......... 265 314
Depreciation:
Rental merchandise .................................... 638 726
Property, equipment and leasehold improvements......... 154 203
Changes in operating accounts, net...................... 1,467 (342)
----- ---
Net cash provided by operating activities.............. 2,800 1,223
----- -----
Investing activities:
Purchases and refurbishing of rental merchandise........... (3,064) (761)
Purchases of property, equipment and leasehold improvements (259) (89)
--- --
Net cash used by investing activities.................. (3,323) (850)
----- ---
Financing activities:
Net borrowings (payments) under line of credit agreements.. 471 (91)
Net borrowings (payments) under notes payable.............. 35 (55)
-- --
Net cash provided (used) by financing activities....... 506 (146)
--- ---
Net increase (decrease) in cash.............................. (17) 227
Cash at beginning of period.................................. 52 124
-- ---
Cash at end of period........................................ $ 35 $ 351
== ===
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................... $ 279 $ 227
Income taxes .......................................... 3 --
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F3
<PAGE>
EVANS RENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(1) Basis of Presentation
---------------------
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting of
only normal recurring accruals, necessary for a fair presentation of the
consolidated financial position of Evans Rents as of March 31, 1996, and
the results of operations and cash flows for the three months ended March
31, 1995 and 1996. The results of operations for the three months ended
March 31, 1996 are not necessarily indicative of the results that may be
expected for the full year. These condensed consolidated financial
statements are unaudited, and do not include all related footnote
disclosures.
The interim unaudited condensed consolidated financial statements should be
read in conjunction with the audited consolidated financial statements
included herein.
(2) Subsequent Event
----------------
On April 24, 1996, Evans Rents was acquired by CORT Business Services
Corporation whereby CORT acquired all of the outstanding equity interest in
Evans Rents.
F4
<PAGE>
Report of Independent Auditors
------------------------------
The Board of Directors and Shareholders
Evans Rents
We have audited the accompanying consolidated balance sheets of Evans Rents as
of December 31, 1995 and 1994, and the related consolidated statements of
operations, shareholders' deficit, and cash flows for the years then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Evans
Rents at December 31, 1995 and 1994, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, CA
March 15, 1996
F5
<PAGE>
EVANS RENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
(Restated-Note 1)
1995 1994
---------------------------
Assets
<S> <C> <C>
Cash $ 123,652 $ 51,952
Accounts receivable, less allowance for doubtful
accounts of $241,016 and $169,158 2,168,192 2,209,596
Prepaid expenses 14,800 31,279
Rental merchandise: 22,180,052 19,004,754
Less accumulated depreciation (4,237,967) (3,434,998)
---------------------------
Net rental merchandise 17,942,085 15,569,756
Property, equipment and leasehold improvements,
at cost:
Leasehold improvements 1,948,890 1,581,124
Office and warehouse equipment 679,692 638,360
Showroom furniture and equipment 1,008,080 692,745
Vehicles 1,484,556 1,028,889
---------------------------
5,121,218 3,941,118
Less accumulated depreciation and amortization (2,718,661) (2,143,826)
---------------------------
Net property, equipment and leasehold improvements 2,402,557 1,797,292
Deposits and other assets 178,716 191,926
---------------------------
Total assets $22,830,002 $19,851,801
===========================
</TABLE>
F6
<PAGE>
<TABLE>
<CAPTION>
December 31
(Restated-Note 1)
1995 1994
----------------------------
Liabilities and shareholders' deficit
Liabilities:
<S> <C> <C>
Senior obligations payable (Note 2) $ 9,674,563 $ 8,874,286
Convertible subordinated notes 15,735,000 15,735,000
Accounts payable 1,207,436 945,972
Accrued expenses 1,971,762 2,073,517
Accrued interest 8,654,250 6,294,000
Deferred revenue 1,531,131 1,506,501
----------------------------
38,774,142 35,429,276
Commitments (Note 8)
10% noncumulative convertible redeemable preferred
stock at $.001 par value:
Series F, 5,000,000 shares authorized;
4,100,000 issued and outstanding 4,100,000 4,100,000
Series G, 900,000 shares authorized, issued
and outstanding 900,000 900,000
Shareholders' deficit:
Series A Preferred Stock, $.001 par value,
100,000 shares authorized; 93,300 issued
and outstanding (82,500 issued and outstanding
in 1994) 93 83
Series B Preferred Stock, $.001 par value,
50,000 shares authorized, issued and outstanding 50 --
Common Stock, $.001 par value, 20,000,000 shares
authorized; 159,574 issued and outstanding
(108,489 shares issued and outstanding in 1994) 160 108
Additional paid-in capital 15,678,085 15,674,747
Accumulated deficit (36,622,528) (36,252,413)
----------------------------
Total shareholders' deficit (20,944,140) (20,577,475)
----------------------------
Total liabilities and shareholders' deficit $22,830,002 $19,851,801
============================
</TABLE>
See accompanying notes.
F7
<PAGE>
EVANS RENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31
(Restated-Note 1)
1995 1994
---------------------------
Revenues:
<S> <C> <C>
Revenues:
Rental income $25,972,474 $22,716,405
Relocation income and fees 2,718,778 3,042,549
Sales of merchandise 1,814,269 1,363,321
---------------------------
Total revenues 30,505,521 27,122,275
Costs and operating expenses:
Cost of merchandise sold 1,388,612 847,986
Depreciation:
Rental merchandise 2,732,502 2,413,204
Property, equipment and leasehold improvements 688,444 505,749
Operating expenses 10,132,443 9,005,871
General and administrative expenses 12,176,190 11,849,072
---------------------------
Total costs and operating expenses 27,118,191 24,621,882
---------------------------
Operating profit 3,387,330 2,500,393
Interest expense, net 3,653,445 3,509,928
---------------------------
Loss before taxes (266,115) (1,009,535)
Income taxes 104,000 51,882
---------------------------
Net loss $ (370,115) $(1,061,417)
===========================
</TABLE>
See accompanying notes.
F8
<PAGE>
EVANS RENTS
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
(Restated-Note 1)
--------------------------------------------------------------------------------------
Series A Series B Additional Total
Preferred Preferred Common Paid-In Accumulated Shareholders'
Stock Stock Stock Capital Deficit Deficit
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 91 $ -- $108 $15,694,115 $(35,190,996) $(19,496,682)
Issuance of shares 16 -- -- 1,584 -- 1,600
Repurchase of shares (24) -- -- (952) -- (976)
Repurchase of warrants -- -- -- (20,000) -- (20,000)
Net loss -- -- -- -- (1,061,417) (1,061,417)
--------------------------------------------------------------------------------------
Balance at December 31, 1994 83 -- 108 15,674,747 (36,252,413) (20,577,475)
Issuance of shares 15 50 52 3,583 -- 3,700
Repurchase of shares (5) -- -- (245) -- (250)
Net loss -- -- -- -- (370,115) (370,115)
--------------------------------------------------------------------------------------
Balance at December 31, 1995 $ 93 $ 50 $160 $15,678,085 $(36,622,528) $(20,944,140)
======================================================================================
</TABLE>
See accompanying notes.
F9
<PAGE>
EVANS RENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
(Restated-Note 1)
1995 1994
---------------------------
Operating activities:
<S> <C> <C>
Net loss $ (370,115) $(1,061,417)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Net book value of rental merchandise disposals 1,408,675 1,254,303
Depreciation:
Rental merchandise 2,732,502 2,413,204
Property, equipment and leasehold
improvements 688,444 505,749
Disposals of property, equipment and leasehold
improvements 21,439 4,946
Changes in assets and liabilities:
Accounts receivable 41,404 (582,582)
Prepaid expenses 16,479 14,598
Deposits and other assets, net 13,210 10,220
Accounts payable 261,464 (602,657)
Accrued interest 2,360,250 2,360,250
Accrued expenses (101,755) 289,550
Deferred revenue 24,630 307,849
---------------------------
Net cash provided by operating activities 7,096,627 4,914,013
Investing activities:
Purchases and refurbishing of rental merchandise (6,513,506) (7,135,662)
Purchases of property, equipment and leasehold
improvements (1,315,148) (860,271)
---------------------------
Net cash used in investing activities (7,828,654) (7,995,933)
Financing activities:
Net borrowings under line of credit agreements 598,138 2,844,648
Net borrowings (payments) under notes payable 202,139 (42,650)
Net (payments) proceeds from issuance (repurchase)
of stock or warrants 3,450 (19,375)
---------------------------
Net cash provided by financing activities 803,727 2,782,623
---------------------------
Net increase (decrease) in cash 71,700 (299,297)
Cash at beginning of year 51,952 351,249
---------------------------
Cash at end of year $ 123,652 $ 51,952
===========================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,204,813 $ 990,479
Income taxes 94,150 65,282
</TABLE>
See accompanying notes.
F10
<PAGE>
EVANS RENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. Summary of Significant Accounting Policies
Organization of the Company
In 1985, Evans Rents and its wholly owned subsidiaries (collectively, the
Company), were incorporated in the state of California. The Company is primarily
engaged in renting furniture to commercial and residential customers.
Additionally, the Company sells furniture rented by customers and furniture no
longer usable for rental purposes. As of December 31, 1995, the Company operated
17 showrooms and two warehouses in California. All significant intercompany
accounts have been eliminated.
Restatement of Financial Statements
The accompanying financial statements have been restated to conform with certain
requirements of the Securities and Exchange Commission, principally relating to
the classification of redeemable preferred stock and convertible subordinated
notes and the accrual of contingent interest payable.
Rental Merchandise
Merchandise is rented to customers under rental agreements which generally range
from two to 24 months. Customers may terminate the agreement at any time after
the minimum lease period of two months, or continue on a month-to-month basis.
Upon termination, rental merchandise is returned to the Company. Rental income
is recognized in monthly installments, beginning the day of delivery and each
month thereafter.
Merchandise rented to customers or available for rent is classified in the
consolidated balance sheet as rental merchandise. At December 31, 1995,
approximately 74% of the total rental merchandise was under rental agreements
with customers. Merchandise is valued at the lower of cost, less accumulated
depreciation, or market. Merchandise is depreciated on a straight-line basis
ranging over a period of 3 to 10 years.
Sales of merchandise consists of sales of rental merchandise directly to
customers who wish to purchase the furniture they are renting or sales of used
furniture. Cost of merchandise sold is determined using acquisition cost, less
applicable accumulated depreciation.
Market Value of Financial Instruments
The carrying amounts reported in the balance sheet for the Company's financial
instruments (cash and senior obligations payable) approximate their market
value.
The market value of the convertible subordinated notes are approximately $5.4
million based on transactions described in "Subsequent Events" (Note 10).
Property, Equipment and Leasehold Improvements
Depreciation of property, equipment and leasehold improvements is provided on a
straight-line basis over the lesser of the lease term, if applicable, or the
estimated useful lives of the respective assets, principally five to ten years.
F11
<PAGE>
EVANS RENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
1. Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
2. Senior Obligations Payable
Senior obligations payable were as follows for the years ended December 31:
1995 1994
----------------------------
$20,000,000 revolving line of credit,
expiring August 31, 1996 $9,017,433 $8,419,295
Notes payable 657,130 454,991
----------------------------
$9,674,563 $8,874,286
============================
The Company has a revolving credit agreement with a lender which provides for
maximum aggregate borrowings of $20,000,000 through August 31, 1996. The
revolving credit agreement is automatically and continuously renewed for
successive one-year periods unless terminated. The agreement requires monthly
interest payments at 1/2% over the prime rate (8.5% at December 31, 1995), on
average outstanding borrowings. Regardless of the outstanding principal balance,
the Company is required to pay minimum interest each month of $10,000 through
August 31, 1996. Borrowings are secured by substantially all of the assets of
the Company.
Notes payable at December 31, 1995, relate primarily to purchase of vehicles and
are secured by the vehicles, and to obligations related to tenant improvements
on certain facilities. Interest rates vary from 3.1% to 12.5%. Future annual
payments under these notes are as follows:
Fiscal Year Ending
------------------
1996 $237,475
1997 175,114
1998 146,986
1999 76,046
2000 21,509
--------
Total future payments $657,130
========
3. Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109) "Accounting for Income Taxes," which requires the
use of the liability method of accounting for deferred income taxes. In
addition, SFAS 109 requires the recognition of future tax benefits, such as net
operating loss carryforwards (NOLs), to the extent that realization of such
benefits are more likely than not. There was no cumulative effect of this
accounting change at the time of adoption.
F12
<PAGE>
EVANS RENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
3. Income Taxes (continued)
Significant components of the Company's deferred tax assets as of December 31,
1995 are as follows:
Deferred tax assets:
Book over tax depreciation $ 360,000
Net operating loss carryforward 11,100,000
-------------
Total deferred tax assets 11,460,000
Valuation allowance for deferred tax assets (11,460,000)
-------------
Net deferred tax assets $ --
=============
A valuation allowance for the amount of the net deferred tax assets has been
provided due to the uncertain nature of their ultimate realization based upon
the past earnings performance and the expiration of NOL carryforwards.
Realization is entirely dependent upon future earnings. Income taxes for 1995
and 1994 are composed primarily of alternative minimum taxes.
4. Convertible Subordinated Notes
In April 1989, the Company issued $15,735,000 principal amount of 15%
subordinated debentures (Debentures) due April 21, 1996. On April 30, 1992, the
Debentures were exchanged for 15% convertible subordinated notes (Notes).
The Company semiannually is required to pay to the holders of the Notes on
October 31 and April 30, 80% of Earnings Available to Service Notes, as defined,
if any. To the extent such payment does not exceed the interest portion of the
Notes, any interest not paid shall accrue as unpaid interest but shall not be
treated as principal for purposes of any pro rata allocation of any future
redemption amount. The redemption value of the Notes prior to May 1, 2002, is
based upon the amount available from a Qualified Liquidity Event or Qualified
Initial Public Offering Event and a proceeds-sharing formula with the holders of
the Series A, B, F and G Preferred Stock. Upon the occurrence of a Qualified
Initial Public Offering Event, unless the Company has elected to redeem the
Notes or the holder has elected to convert such Notes into new notes, the Notes
shall be automatically converted into common stock, based upon the amount
available from a Qualified Initial Public Offering Event and the actual initial
public offering price of one share of common stock. The Notes are subordinated
and junior to any senior indebtedness and the Series F and G Preferred Stock.
There were no interest payments in 1995 and 1994, given the terms of the
"Earnings Available to Service Notes."
5. Redeemable Preferred Stock
The Company issued in a private placement on April 30, 1992, 3,725,000 shares of
Series F and 900,000 shares of Series G 10% noncumulative convertible redeemable
preferred stock (Series F and G preferred stock) for an aggregate consideration
of $4,625,000. Subsequently 375,000 additional shares of Series F were issued
for $375,000.
F13
<PAGE>
EVANS RENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
5. Redeemable Preferred Stock (continued)
At the option of the holder, each share of Series F Preferred Stock shall be
convertible into one share of common stock, subject to adjustment as provided in
the Company's restated articles of incorporation. Each share of Series G
Preferred Stock is convertible into one share of Series F Preferred Stock at the
option of the holder or is automatically converted upon a Qualified Liquidity
Event, as defined, or a Qualified Initial Public Offering, as defined. Upon
written notice of a majority of holders of the Series F and G Preferred Stock
after April 24, 1997, the Company shall redeem the stock at $1 per share plus
declared but unpaid dividends provided the Company's debt agreements do not
prohibit such redemption. Upon liquidation, the holders are entitled to a
preference equal to $1 per share for each share held, plus an amount equal to
all declared and unpaid dividends thereon. The holders of Series F Preferred
Stock are entitled to vote on all matters; however, the Series G Preferred Stock
are nonvoting.
6. Shareholders' Deficit
The authorized capital stock of the Company consists of 20,000,000 shares of
common stock, par value $0.001 per share; and 6,050,000 shares of preferred
stock, par value $0.001 per share, 100,000 shares of which are designated Series
A Preferred Stock; 50,000 shares of which are designated Series B Preferred
Stock. Issuances in 1995 were to officers based on management's estimate of the
Company's value of approximately $20,000,000. Series A and B Preferred Stock are
nonvoting.
In November 1988, in conjunction with the renegotiation of the line of credit
issued at that time, warrants to purchase a maximum of 237,200 shares of Series
E 4% noncumulative convertible preferred stock at $4.25 per share were issued to
two financial institutions providing a $7,500,000 revolving line of credit. The
warrants expire in November 1998. The then estimated fair market value of the
Series E warrants of $709,856 was included in additional paid-in capital and was
deducted from the carrying value of borrowings under the line of credit. In
1994, warrants to purchase a maximum of 158,132 shares were repurchased. As a
result of the recapitalization, the Series E preferred stock warrants were
converted into warrants to purchase common stock. In addition, the exercise
prices and outstanding shares of the Series E warrants and the outstanding
options (see Note 5) have been adjusted because of the reverse stock split. As a
result of the reverse stock split, the remaining warrants are now exercisable
for 53 shares at $6,322 per share.
During 1989, in conjunction with the issuance of promissory notes payable, the
Company issued warrants to such promissory note holders which are exercisable
for 276,250 shares of the Company's common stock at $4 per share during the next
equity financing in excess of $100,000. These warrants terminated during 1994.
The Company has reserved the equivalent of 5,000,000 shares of common stock for
issuance upon conversion of the Series F Preferred Stock, 136,597 shares for
issuance upon conversion of warrants, and 300,600 shares for issuance under the
Company's 1986 Incentive Stock Option Plan.
F14
<PAGE>
EVANS RENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
7. Stock Option Plan
In 1986 the Board of Directors authorized an Incentive Stock Option Plan and the
Board has reserved 1,300,000 shares of common stock for issuance under the plan.
The Company has granted options under this plan to its employees at prices
ranging from $.20 - $.50 per share. As a result of the reverse stock split the
exercise price per share has been adjusted to prices ranging from $298 - $744
per share as follows:
Shares
-----------------
December 31
1995 1994
-----------------
Outstanding at beginning of period 461 525
Granted -- --
Exercised -- --
Canceled (14) (64)
-----------------
Outstanding at end of period 447 461
=================
Exercisable 447 461
=================
These options are noncompensatory and vest over a four-year period; 25% on the
first anniversary of the date of grant, then 2% per month thereafter until fully
vested.
Additionally, the Company issued nonqualified stock options, as follows:
In 1987, the Company issued nonqualified stock options for 3 shares at $446
per share, which vest 1/18 per month. These options terminated during 1994.
In 1988, the Company issued nonqualified stock options for 7 shares at $744
per share, which vest 1/18 per month. On December 31, 1994, all options
were vested and exercisable. These options terminated during 1995.
8. Commitments
The Company leases its showrooms and warehouse facilities under long-term
operating lease arrangements. Management expects that in the normal course of
business, leases that expire will be renewed or replaced by other leases.
F15
<PAGE>
EVANS RENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
8. Commitments (continued)
At December 31, 1995, the future minimum annual rental payments required under
noncancelable operating leases are as follows:
Fiscal Year Ending Operating
------------------ ----------
1996 $2,193,643
1997 1,638,893
1998 854,095
1999 578,726
2000 468,655
Thereafter 1,815,629
----------
Total future payments $7,549,641
==========
Rent expense under noncancelable operating leases aggregated approximately
$2,242,551 and $2,233,467 for the years ended December 31, 1995 and 1994,
respectively.
9. Showroom and Warehouse Relocation Costs
Showroom and warehouse relocation costs of $264,116 in 1994, relate primarily to
the Company's decision to relocate its Northern California warehouse and
terminate its lease early and are included in general and administrative
expenses.
10. Subsequent Events
On March 15, 1996, the Company entered into an agreement with Cort Business
Services Corporation (Cort) whereby Cort would acquire all of the outstanding
equity interest in the Company. If the acquisition is completed it is
anticipated that the Company will be merged into a subsidiary of Cort.
F16
<PAGE>
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated financial data consists
of Unaudited Pro Forma Condensed Consolidated Statements of Operations for the
year ended December 31, 1995 and the three months ended March 31, 1996, and an
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1996
(collectively, the "Pro Forma Statements"). The Unaudited Pro Forma Condensed
Consolidated Statements of Operations give effect to the initial public offering
(the "Offering") of the Common Stock of CORT Business Services Corporation
completed in November 1995, the exchange of all of the Company's 14.5%
Subordinated Debentures, the Company's 15% Junior Subordinated Debentures and
the 14% Senior Subordinated Pay-In-Kind Notes of the Company's wholly-owned
subsidiary, CORT Furniture Rental Corporation ("CFR"), for shares of the
Company's Common Stock in the fourth quarter of 1995 (the "Exchange for Common
Stock"), the retirement of $50 million in aggregate principal amount of CFR's
12% Senior Notes due 2000, which were effected contemporaneously with the
Offering (the "Senior Notes Retirement"), initial borrowings under the Company's
revolving credit facility entered into contemporaneously with the Offering (the
"Credit Agreement") and the Company's acquisition of Evans Rents, a provider of
rental furniture in California, in April 1996 (the "Acquisition of Evans
Rents"), as if such events occurred on January 1, 1995. The Unaudited Pro Forma
Condensed Consolidated Balance Sheet gives effect to the Acquisition of Evans
Rents as if it occurred on March 31, 1996. The Offering, the Exchange for Common
Stock, the Senior Notes Retirement and the initial borrowings under the Credit
Agreement were effected before December 31, 1995 and have been reflected in the
Company's historical unaudited condensed consolidated balance sheet as of March
31, 1996.
Management believes that, on the basis set forth herein, the Pro Forma
Statements reflect a reasonable estimate of these transactions based on
currently available information. The pro forma financial data are presented for
informational purposes only and do not purport to represent what the Company's
financial position or actual results of operations would have been had these
transactions in fact occurred on the dates assumed or that may result from
future operations. The Pro Forma Statements should be read in conjunction with
the consolidated financial statements and related notes of the Company appearing
in the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995.
F17
<PAGE>
CORT BUSINESS SERVICES CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended March 31, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical
------------------
The Evans Pro
Company Rents Adjustments Forma
------- ----- ----------- -----
Revenue:
<S> <C> <C> <C> <C>
Furniture rental.................. $38,555 $7,425 -- $45,980
Furniture sales................... 10,214 457 -- 10,671
------ --- ------ ------
Total revenue.................. 48,769 7,882 -- 56,651
------ ----- ------ ------
Operating costs and expenses:
Cost of furniture rental.......... 7,438 3,103 $ (22)(1)
(1,736)(2) 8,783
Cost of furniture sales........... 5,938 312 -- 6,250
Amortization of goodwill.......... 165 -- 83 (3) 248
Selling, general and
administrative expenses........ 28,056 3,267 (148)(4)
1,736 (2) 32,911
------ ----- ----- ------
Total costs and expenses....... 41,597 6,682 (87) 48,192
------ ----- --- ------
Operating income............... 7,172 1,200 87 8,459
Interest expense..................... 1,781 830 503 (5)
(790)(6) 2,324
----- --- ---- -----
Income before income taxes........... 5,391 370 374 6,135
Income taxes......................... 2,231 48 100 (7)
183 (8) 2,562
----- -- --- -----
Net income..................... $ 3,160 $ 322 $ 91 $3,573
======= ====== == ======
Earnings per share................... $ .31
Weighted average number of shares
used in computation............... 11,631
</TABLE>
See accompanying notes.
F18
<PAGE>
CORT BUSINESS SERVICES CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1995
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical
------------------
The Evans Pro
Company Rents Adjustments Forma
------- ----- ----------- -----
Revenue:
<S> <C> <C> <C> <C>
Furniture rental.................. $141,988 $28,691 -- $170,679
Furniture sales................... 37,321 1,814 -- 39,135
------ ----- ------ ------
Total revenue.................. 179,309 30,505 -- 209,814
------- ------ ------ -------
Operating costs and expenses:
Cost of furniture rental.......... 27,950 12,865 $ (89)(1)
(6,977)(2) 33,749
Cost of furniture sales........... 22,203 1,389 -- 23,592
Amortization of goodwill.......... 662 -- 333 (3) 995
Selling, general and
administrative expenses........ 101,773 12,864 (862)(4)
6,977 (2) 120,752
------- ------ ----- -------
Total costs and expenses....... 152,588 27,118 (618) 179,088
------- ------ ----- -------
Operating income............... 26,721 3,387 618 30,726
Interest expense, net................ 15,917 3,653 (8,852)(9)
2,010 (5)
(3,478)(6) 9,250
------ ----- ------ -----
Income (loss) before income taxes.... 10,804 (266) 10,938 21,476
Income taxes (benefit)............... 4,586 104 (210) (7)
4,508 (8) 8,988
----- --- ----- -----
Net income (loss)(10).......... $ 6,218 $ (370) $ 6,640 $ 12,488
======== ======= ======= ========
Earnings per share................... $ 1.09
Weighted average number of shares
used in computation............... 11,483
</TABLE>
See accompanying notes.
F19
<PAGE>
CORT BUSINESS SERVICES CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Historical
-----------------
The Evans Pro
Company Rents Adjustments Forma
------- ----- ----------- -----
Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents......... -- $ 351 -- $ 351
Accounts receivable, net.......... $ 7,027 2,265 -- 9,292
Prepaid expenses.................. 3,927 12 -- 3,939
Rental furniture, net............. 110,932 17,663 $(2,400)(11) 126,195
Property, plant and equipment, net 32,282 2,288 (300)(11) 34,270
Intangible and other assets....... 27,483 175 13,341 (12) 40,999
------ --- ------ ------
$181,651 $22,754 $10,641 $215,046
======== ======= ======= ========
Liabilities and Stockholders' Equity:
Accounts payable & accrued
expenses........................ $ 22,601 $11,581 $(9,244)(13)
3,800 (14) $ 28,738
Deferred revenue & security
deposits........................ 12,119 1,531 -- 13,650
Credit Facility and other......... 8,653 9,529 (8,927)(13)
27,725 (15) 36,980
Senior Notes...................... 50,000 -- -- 50,000
Convertible Subordinated Notes.... -- 15,735 (15,735)(13) --
Deferred taxes and other.......... 9,697 -- (2,600)(16) 7,097
----- ------ ------- -----
Total liabilities........ 103,070 38,376 (4,981) 136,465
Redeemable Preferred Stock........ -- 5,000 (5,000)(17) --
Stockholders' equity (deficit).... 78,581 (20,622) 20,622 (17) 78,581
------ ------ ------ ------
$181,651 $22,754 $10,641 $215,046
======== ======= ======= ========
</TABLE>
See accompanying notes.
F20
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
(1) Adjusts Evans Rents' historical depreciation expense on rental property
to conform to the Company's depreciation policy after giving effect to
the write-down of Evans Rents' rental property to fair market value.
See Note (11).
(2) Reclassifies certain of Evans Rents' cost of furniture rental as
selling, general and administrative expenses to conform to the
Company's presentation policies.
(3) Recognizes the amortization expense of goodwill resulting from the
Acquisition of Evans Rents, over a 40-year period.
(4) Eliminates compensation expense associated with certain management
employees of Evans Rents who ceased employment following the
acquisition and will not be replaced.
(5) Reflects increased interest expense related to borrowings under the
Credit Facility of $27,725,000, assumed to bear interest at
approximately 7.25% (LIBOR + 175 basis points), in connection with the
Acquisition of Evans Rents.
An interest rate increase of 1/8% would increase pro forma interest
expense on the Credit Agreement by an aggregate of $9,000 and $35,000
for the three months ended March 31, 1996 and the year ended December
31, 1995, respectively. This increase in interest expense would
decrease pro forma income before taxes by the same amount. There would
be no impact on earnings per share.
(6) Eliminates interest expense associated with the debt of Evans Rents
outstanding prior to the acquisition, excluding certain debt associated
with Evans Rents' delivery trucks, which was assumed by the Company.
(7) Adjusts Evans Rents' historical income taxes to reflect an assumed tax
rate of 40%. Prior to the acquisition, Evans Rents was subject only to
alternative minimum tax due to substantial net operating losses. The
utilization of such net operating losses by the Company will be
limited.
(8) Recognizes the combined federal and state income tax effect of the net
increase in income before income taxes, at an assumed combined tax rate
of 40%.
(9) Reflects the reduction of historical interest expense relating to the
Exchange for Common Stock and the Senior Notes Retirement both of which
occurred contemporaneously with the offering in the fourth quarter of
1995. In addition, reflects the interest expense related to the assumed
average borrowings of $3,800,000 under the Credit Agreement assumed to
bear interest at approximately 7.25% (LIBOR + 175 basis points), the
elimination of amortization of deferred financing fees associated with
the Senior Notes Retirement and the additional amortization of deferred
financing fees relating to the Credit Agreement.
An interest rate increase of 1/8% would increase pro forma interest
expense on the Credit Agreement by an aggregate of $5,000 for the year
ended December 31, 1995. This increase in interest expense would
decrease pro forma income before income taxes by the same amount. There
would be no impact on earnings per share.
(10) Net income for the year ended December 31, 1995 is presented before an
extraordinary loss of $4,143,000, net of taxes, associated with the
Senior Notes Retirement.
(11) Adjusts the historical cost of Evans Rents' rental property and certain
equipment to fair market value based on preliminary studies.
F21
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
(CONTINUED)
(12) Reflects the increase in goodwill associated with the Acquisition of
Evans Rents.
(13) Eliminates debt and related accrued interest of Evans Rents not assumed
by the Company.
(14) Reflects reserves established to cover certain one-time costs
associated with the closure of duplicate Evans Rents' facilities
($3,350,0000) and the termination of the employment of certain members
of Evans Rents' management who will not be replaced ($450,000).
(15) Reflects additional borrowings under the Credit Agreement for the
Acquisition of Evans Rents and related transaction costs.
(16) Adjusts deferred taxes to reflect the Acquisition of Evans Rents.
(17) Eliminates Evans Rents' historical redeemable preferred stock and
stockholders' deficit.
F22
<PAGE>
SIGNATURE
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.
CORT BUSINESS SERVICES CORPORATION
Dated: June 13, 1996 By /s/ Frances Ann Ziemniak
---------------------------
Frances Ann Ziemniak
Vice President, Finance
and Chief Financial Officer
F23
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit No. Description Page Number
- ----------- ----------- -----------
23.1 Consent of Ernst & Young LLP E-2
E1
Exhibit 23.1
To Board of Directors
CORT Business Services Corporation
We consent to the incorporation by reference in the Registration Statements on
Form S-3 (No. 33-99008 and 333-1172), and Form S-8 (No. 33-72724) of CORT
Business Services Corporation of our report dated March 15, 1996 with respect to
the consolidated balance sheets of Evans Rents as of December 31, 1995 and 1994,
and the related consolidated statements of operations, statements of
shareholders' deficit, and cash flows for each of the two year periods ended
December 31, 1995, and the related financial statements schedule included
therein, which report appears in the Form 8-K of CORT Business Services
Corporation dated June 13, 1996.
ERNST & YOUNG LLP
Los Angeles, California
June 13, 1996
E2
