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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
Commission File No. 1-14146
CORT BUSINESS SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 54-1662135
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4401 Fair Lakes Court, Fairfax, VA 22033
(Address of principal executive offices) (Zip Code)
(703) 968-8500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding as of
Class July 23, 1996
----- -------------
Class A, $.01 par value 10,687,444
Class B, $.01 par value - 0 -
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Page ____ of ____ Pages
Exhibit Index on Page ____
<PAGE>
CORT BUSINESS SERVICES CORPORATION
INDEX TO FORM 10-Q
Page No.
--------
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets................. 1
Condensed Consolidated Statements of Operations....... 2
Condensed Consolidated Statements of Cash Flows....... 3
Notes to Unaudited Condensed Consolidated
Financial Statements............................... 4
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................. 8
Part II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS... 12
Item 6. EXHIBITS AND REPORTS ON FORM 8-K...................... 13
SIGNATURE.............................................................. 14
<PAGE>
CORT BUSINESS SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
------------ -----------
(unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents........................... $ 379 $ 598
Accounts receivable, net............................ 6,019 9,036
Prepaid expenses.................................... 3,973 3,730
Rental furniture, net............................... 103,741 137,322
Property, plant and equipment, net.................. 31,044 34,790
Other receivables and assets, net................... 3,814 3,229
Goodwill, net....................................... 24,752 38,529
------ ------
Total assets................................... $173,722 $227,234
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable............................... $ 3,597 $ 7,093
Accrued expenses............................... 19,096 25,703
Deferred revenue and security deposits......... 11,186 13,805
Revolving credit facility, secured and other... 3,800 41,416
Senior notes, 12%.............................. 50,000 50,000
Deferred income taxes.......................... 10,622 7,097
------ -----
Total liabilities.......................... 98,301 145,114
Stockholders' equity................................ 75,421 82,120
------ ------
Total liabilities and stockholders' equity..... $173,722 $227,234
======= =======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
- 1 -
<PAGE>
CORT BUSINESS SERVICES CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ --------------------
1995 1996 1995 1996
-------- ------ ------ ------
<S> <C> <C> <C> <C>
Revenue:
Furniture rental.................... $ 35,239 $ 46,882 $ 69,054 $ 85,437
Furniture sales..................... 9,288 11,226 19,604 21,440
----- ------ ------ ------
Total revenue................... 44,527 58,108 88,658 106,877
Operating costs and expenses:
Cost of furniture rental............ 6,943 9,190 13,430 16,628
Cost of furniture sales............. 5,409 6,640 11,612 12,578
Selling, general and
administrative expenses......... 25,750 34,073 50,939 62,294
------ ------ ------ ------
Total costs and expenses........ 38,102 49,903 75,981 91,500
------ ------ ------ ------
Operating earnings.............. 6,425 8,205 12,677 15,377
Interest expense......................... 4,199 2,264 8,344 4,045
----- ----- ----- -----
Income before income taxes.......... 2,226 5,941 4,333 11,332
Income taxes............................. 953 2,458 1,865 4,689
--- ----- ----- -----
Net income.......................... $ 1,273 $ 3,483 $ 2,468 $ 6,643
===== ===== ===== =====
Earnings per share....................... $0.26 $0.30 $0.51 $0.57
Weighted average number of
shares used in computation............ 7,242 11,623 7,241 11,619
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
- 2 -
<PAGE>
CORT BUSINESS SERVICES CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 2,468 $ 6,643
Proceeds of disposals of rental furniture in
excess of gross profit................................. 11,459 12,090
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization:
Rental furniture depreciation ....................... 9,240 11,934
Other depreciation................................... 1,229 1,629
Goodwill amortization................................ 331 390
Amortization of debt issuance costs.................. 378 337
Discount on junior subordinated debentures........... 33 --
Current period interest converted to debt............. 621 --
Rental furniture inventory shrinkage.................. 606 712
Changes in operating accounts, net.................... 1,807 3,805
----- -----
Net cash provided by operating activities............ 28,172 37,540
------ ------
Cash flows from investing activities:
Purchases of rental furniture............................ (31,116) (43,252)
Purchases of property, plant and equipment............... (1,947) (3,479)
Sales of property, plant and equipment................... 208 36
Purchase of Evans Rents.................................. -- (27,725)
Purchase of short-term investments....................... (870) --
------- -------
Net cash used by investing activities................ (33,725) (74,420)
------ ------
Cash flows from financing activities:
Issuance of common stock................................. 8 56
Repayments on the line of credit......................... -- (15,153)
Borrowings on the line of credit......................... -- 52,753
Repayments of long term debt............................. (287) (557)
Proceeds from issuance of long term debt................. 287 --
-------- ------
Net cash provided by financing activities............ 8 37,099
-------- ------
Net increase (decrease) in cash and cash equivalents. (5,545) 219
Cash and cash equivalents at beginning of period........... 13,161 379
------ ------
Cash and cash equivalents at end of period................. $ 7,616 $ 598
====== ======
Supplemental disclosures of cash flow information:
Debentures issued in lieu of cash interest............... $ 1,865 --
Interest paid............................................ 6,474 $ 3,579
Income taxes paid........................................ 1,012 4,117
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
- 3 -
<PAGE>
CORT BUSINESS SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 CORT Business Services Corporation
("CORT" or the "Company") and Subsidiaries as of June 30, 1996, and the
results of their operations for the three months ended June 30, 1996 and
1995 and six months ended June 30, 1996 and 1995, and cash flows for the
six months ended June 30, 1996 and 1995. The results of operations for the
six months ended June 30, 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 in the Company's 1995 Annual Report on Form 10-K.
(2) Credit Facility
---------------
On May 24, 1996, the Company amended the bank credit facility ("Credit
Facility") to increase its borrowing capacity from $50 million to $70
million, subject to certain borrowing base restrictions. No other
substantial changes were made to the Credit Facility pursuant to this
amendment.
(3) Acquisition of Evans Rents
--------------------------
On April 24, 1996 the Company acquired Evans Rents, a provider of rental
furniture in California, for approximately $27,725,000, including costs of
acquisition, in a transaction accounted for as a purchase business
combination. As such, the fair value of Evans Rents' assets and liabilities
were recognized as of April 24, 1996, and the Company's results of
operations include Evans Rents' operations subsequent to that date.
The purchase price has been allocated to assets and liabilities based on
preliminary estimates of fair value as of the date of acquisition. The
final allocation of the purchase price will be determined when appraisals
and other studies are completed. As part of the purchase price allocation,
the Company recorded a reserve for estimated costs to be incurred in the
consolidation of duplicate Evans Rents' facilities and termination of
employment of certain members of Evans Rents' management who will not be
replaced. Based on the allocation of the purchase price over the net assets
acquired, goodwill of approximately $14,167,000 was recorded. Such goodwill
is being amortized on a straight-line basis over 40 years. The purchase
price has been allocated as follows (in thousands):
Cash $ 25
Accounts receivable 1,967
Prepaid expenses and other assets 182
Rental property 15,066
Property, plant and equipment 1,932
Deferred taxes 2,600
Goodwill 14,167
Accounts payable and accrued expenses (2,235)
Notes payable (573)
Deferred revenue (1,543)
Other liabilities, including reserve
for duplicate facilities (3,863)
-------
$27,725
=======
The Company financed the acquisition of Evans Rents with borrowings under
the Credit Facility.
- 4 -
<PAGE>
CORT BUSINESS SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 1996
(4) Income Taxes
------------
The Internal Revenue Service ("IRS") has examined the Federal income tax
returns of CORT Furniture Rental Corporation ("CFR") for the years 1989
through June 30, 1992 and has proposed certain adjustments to CFR's taxable
income, relating primarily to methods of depreciation, period of cost
recovery and certain capitalized financing fees. If successfully asserted
by the IRS, the proposed adjustments would result in approximately $22
million of additional tax liability, including accrued interest through
June 30, 1996. The Company, however, has agreed in principle with the IRS
appeals officer handling the administrative appeal of the examination as to
a settlement of the proposed adjustments. The settlement agreed to in
principle will not result in any additional financial statement tax
expenses, as the Company's reserves included in deferred income taxes are
adequate to cover such expenses, and will not require the Company to alter
its methods of depreciation or cost recovery period. The Company will be
required to make a payment to the IRS and certain state jurisdictions for
income and franchise tax purposes. The total amount of the proposed
settlement is approximately $3 million, including interest through June 30,
1996, of which the Company made an initial deposit of approximately
$925,000 in February 1996. This agreement is only an agreement in
principle, however, and is subject to final IRS approval and thus could
change. The tentative settlement will become effective only upon approval
by the proper IRS personnel and execution of definitive settlement
documentation. Upon final IRS approval, the Company will make the remaining
required payment.
The IRS has also proposed the disallowance of certain deductions taken by
Fairwood Corporation for the Former Group through the year ended December
31, 1988 and subsequent years. The IRS challenge includes the assertion
that certain interest deductions taken by the Former Group should be
recharacterized as non-deductible dividend distributions and that
deductions for certain expenses related to the acquisition of Mohasco
Corporation (now Consolidated Furniture Corporation ("Consolidated")),
CFR's former shareholder, be disallowed. Under IRS regulations, the Company
and each other member of the Former Group is severally liable for the full
amount of any Federal income tax liability of the Former Group while CFR
was a member of the Former Group, which could be as much as approximately
$29 million for such periods (including interest through June 30, 1996).
Under the agreement of sale for CFR, Consolidated agreed to indemnify the
Company in full for any consolidated tax liability of the Former Group for
the years during which CFR was a member of the Former Group. In addition,
the Company may have rights of contribution against other members of the
Former Group if the Company were required to pay more than its equitable
share of any consolidated tax liability. Although Fairwood Corporation has
stated that it believes the IRS's position with respect to those proposed
disallowances is unjustified and is contesting the matter vigorously,
neither the Company nor Fairwood Corporation can predict a successful
resolution to the IRS examination. Due to the preliminary nature of the IRS
challenge, the Company is not in a position to determine the probable
outcome and its impact on the Company, if any.
- 5 -
<PAGE>
CORT BUSINESS SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 1996
(5) Stock Options
-------------
The Company maintains the Stock Option and Stock Purchase Plan (the "1994
Plan"), the 1995 Stock-Based Incentive Plan (the "1995 Plan") and the 1995
Directors Stock Option Plan (the "Director Plan") for key employees and
non-employee directors of the Company.
The following stock option activity has occurred in the six months ended
June 30, 1996 under these plans:
1994 1995 Director
Plan Plan Plan
---- ---- ----
Shares under option:
Outstanding at
January 1, 1996........... 632,930 439,800 21,000
Granted................... -- 33,000 --
Exercised................. (2,146) -- --
Forfeited................. (5,367) -- --
----- ------- -------
Outstanding at
June 30, 1996............. 625,417 472,800 21,000
======= ======= ======
Options available to grant at
June 30, 1996............. 5,367 104,627 29,000
Exercise price per share:
At June 30, 1996.......... $0.25875 $12 - $18 $12
- $1.098
Options exercisable:
At June 30, 1996.......... 625,417 -- --
- 6 -
<PAGE>
CORT BUSINESS SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(dollar figures in thousands)
(6) Pro Forma Financial Information
-------------------------------
The following unaudited pro forma condensed consolidated financial
information presents the combined results of operations of the Company and
Evans Rents as if the acquisition had occurred as of January 1, 1995. This
information gives effect to certain adjustments including amortization of
goodwill, elimination of certain compensation expense, interest expense on
borrowings and related income tax effects. In addition, the information
gives effect to the initial public offering of the Company completed in
November 1995 as well as the exchange of all the Company's and CFR's
subordinated debentures, the retirement of $50 million in aggregate
principal amount of CFR's 12% Senior Notes and initial borrowings under the
Credit Facility, which all occurred contemporaneously with the initial
public offering. The pro forma consolidated financial information does not
necessarily reflect the results of operations that would have occurred had
the Company and Evans Rents constituted a single entity during the periods.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ------------------------
1995 1996 1995 1996
----------- ----------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenue:
Furniture rental.................... $ 42,492 $ 48,818 $ 83,651 $ 94,798
Furniture sales..................... 9,703 11,328 20,328 21,999
----- ------ ------ ------
Total revenue................... 52,195 60,146 103,979 116,797
Operating costs and expenses:
Cost of furniture rental............ 8,440 9,541 16,338 18,324
Cost of furniture sales............. 5,766 6,718 12,191 12,968
Amortization of goodwill............ 249 246 497 495
Selling, general and
administrative expenses......... 30,346 35,146 59,997 68,055
------ ------ ------ ------
Total costs and expenses........ 44,801 51,651 89,023 99,842
------ ------ ------ ------
Operating earnings.............. 7,394 8,495 14,956 16,955
Interest expense......................... 2,291 2,403 4,570 4,727
----- ----- ----- -----
Income before income taxes.......... 5,103 6,092 10,386 12,228
Income tax expense....................... 2,137 2,528 4,353 5,089
----- ----- ----- -----
Net income.......................... $ 2,966 $ 3,564 $ 6,033 $ 7,139
===== ===== ===== =====
Earnings per share....................... $0.26 $0.31 $0.52 $0.61
Weighted average number of
shares used in computation............ 11,608 11,623 11,608 11,619
</TABLE>
- 7 -
<PAGE>
CORT BUSINESS SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(dollar figures in thousands)
Results of Operations
- ---------------------
Three months ended June 30, 1996 as compared to three months ended June 30, 1995
Revenue
Total revenue increased 30.5% to $58,108 for the three months ended June 30,
1996 from $44,527 for the three months ended June 30, 1995. Approximately $5,922
or 13.3% of the percentage increase is attributed to the acquisition of Evans
Rents. Furniture rental revenue for the three months ended June 30, 1996 was
$46,882, a 33.0% increase from $35,239 for the corresponding period in 1995. The
Evans Rents acquisition resulted in approximately $5,676 or 16.1% of additional
furniture rental revenue for the three months ended June 30, 1996. The remaining
16.9% increase in furniture rental revenue reflects growth in the number of
leases as well as revenue per lease. Furniture sales increased 20.9% to $11,226
in the three months ended June 30, 1996 from $9,288 in the quarter ended June
30, 1995. Approximately 2.6% of the percentage increase is a result of the Evans
Rents acquisition.
Operating Costs and Expenses
Cost of furniture rental has decreased from 19.7% of furniture rental revenue in
1995 to 19.6% of furniture rental revenue in 1996. This decrease is the result
of the reduction of non depreciation rental cost components as a percent of
rental revenue, net of an increase in cost of rent from the start-up operations.
Cost of furniture sales increased from 58.2% of furniture sales revenue in 1995
to 59.1% of furniture sales revenue in 1996. The majority of this increase is
attributable to lower margins on sales by Evans Rents.
Selling, general and administrative expenses totaled $34,073 or 58.6% of total
revenue for the quarter ended June 30, 1996 as compared to $25,750 or 57.8% of
total revenue for the quarter ended June 30, 1995. However, excluding $425 of
certain charges associated with duplicate showrooms related to the Evans Rents
acquisition, selling, general and administrative expenses would have been 57.9%
despite the impact of start-up operations in four new markets.
Operating Earnings
As a result of the changes in revenue, operating costs and expenses discussed
above, operating earnings were $8,205 or 14.1% of total revenue in the second
quarter of 1996 compared to $6,425 or 14.4% of total revenue in the second
quarter of 1995. Excluding the charges related to the Evans Rents acquisition,
operating earnings would have been $8,630 or 14.9% of total revenue in the
second quarter of 1996.
Interest Expense
Interest expense for the quarter decreased to $2,264 in 1996 from $4,199 in
1995. The decrease is a result of the early retirement of $50,000 in Senior
Notes and the exchange of the Company's and CFR's subordinated debentures for
common stock, both of which occurred in the fourth quarter of 1995, net of
borrowings for the Evans Rents acquisition in April 1996.
- 8 -
<PAGE>
CORT BUSINESS SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(dollar figures in thousands)
Six months ended June 30, 1996 as compared to six months ended June 30, 1995
Revenue
Total revenue increased 20.5% to $106,877 for the six months ended June 30, 1996
from $88,658 for the six months ended June 30, 1995. The acquisition of Evans
Rents contributed approximately $5,922 or 6.7% of the percentage increase for
the six months ended June 30, 1996. Furniture rental revenue for the six months
ended June 30, 1996 was $85,437, a 23.7% increase from $69,054 for the six
months ended June 30, 1995. The acquisition of Evans Rents resulted in
approximately $5,676 or 8.2% of additional furniture rental revenue for the six
months ended June 30, 1996. The remaining 15.5% increase reflects growth in the
number of leases as well as revenue per lease. Furniture sales increased 9.4% to
$21,440 in the six months ended June 30, 1996 from $19,604 in the six months
ended June 30, 1995. The Evans Rents acquisition contributed approximately 1.2%
of the increase in furniture sales for the six months ended June 30, 1996.
Excluding the impact of an unusually large corporate sale in the first quarter
of 1995, retail sales would have shown an increase of 17.9%.
Operating Costs and Expenses
Cost of furniture rental has increased from 19.4% of furniture rental revenue in
1995 to 19.5% of furniture rental revenue in 1996. This increase is due to the
impact of start-up operations. Cost of furniture sales decreased from 59.2% of
furniture sales revenue in 1995 to 58.7% of furniture sales revenue in 1996. The
cost of furniture sales for 1995 included the large corporate sale which had a
reduced margin.
Selling, general and administrative expenses totaled $62,294 or 58.3% of total
revenue for the six months ended June 30, 1996 as compared to $50,939 or 57.5%
of total revenue for the six months ended June 30, 1995. However, excluding $425
of certain charges associated with duplicate showrooms related to the Evans
Rents acquisition, selling, general and administrative expenses would have been
57.9%. The remaining percentage increase is due to the impact of start-up
operations.
Operating Earnings
As a result of the changes in revenue, operating costs and expenses discussed
above, operating earnings were $15,377 or 14.4% of total revenue for the six
months ended June 30, 1996 compared to $12,677 or 14.3% of total revenue for the
six months ended June 30, 1995. Excluding the charges related to the Evans Rents
acquisition, operating earnings would have been 14.8% of total revenue for the
six months ended June 30, 1996.
Interest Expense
Interest expense for the six months ended June 30, 1996 decreased to $4,045 from
$8,344 in 1995. The decrease is a result of the early retirement of $50,000 in
Senior Notes and the exchange of the Company's and CFR's subordinated debentures
for common stock, both of which occurred in the fourth quarter of 1995, net of
borrowings for the Evans Rents acquisition in April 1996.
- 9 -
<PAGE>
CORT BUSINESS SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(dollar figures in thousands)
Furniture Purchases
Furniture purchases totaled $43,252 in the six months ended June 30, 1996, an
increase of 39.0% from the $31,116 purchased in the six months ended June 30,
1995. Approximately 11.2% of the increase resulted from the acquisition of Evans
Rents and start-up operations in four new markets. The remaining increase
supports the growth in furniture rental revenue and replenishes furniture which
has been sold or disposed of.
Liquidity and Capital Resources
- -------------------------------
The Company is a holding company with no independent operations and no material
assets other than its ownership of CFR. The Company is dependent on the receipt
of dividends or distributions from CFR to fund any obligations. The Credit
Facility and indenture governing the Senior Notes restrict the ability of CFR to
make advances and pay dividends to the Company.
CORT's primary capital requirements are purchases of rental furniture (including
new furniture purchases and lease portfolio acquisitions) and debt service. CORT
purchases furniture throughout each year to replace furniture which has been
sold and to maintain adequate levels of rental furniture to meet existing and
new customer needs. As the Company's growth strategies continue to be
implemented, furniture purchases are expected to increase.
The Company's other capital requirements consist of purchases of property, plant
and equipment, including warehouse and showroom improvements, office equipment,
trucks and computer hardware and standard programming enhancements necessary for
installation of the new management information system in additional districts.
Net purchases of property, plant and equipment were $1,739 and $3,443 for the
six months ended June 30, 1995 and 1996, respectively.
During the six months ended June 30, 1995 and 1996 net cash provided by
operations was $28,172 and $37,540, respectively. During the six months ended
June 30, 1995 and 1996 net cash used in investing activities was $33,725 and
$74,420, respectively. In 1996, approximately $27,725 was used for the
acquisition of Evans Rents. The remaining cash used in investing activities
consists primarily of purchases of rental furniture. During the six months ended
June 30, 1995 and 1996 net cash provided in financing activities was $8 and
$37,099, respectively. In 1996, approximately $27,725 was borrowed to acquire
Evans Rents.
CORT is required to make semi-annual cash interest payments, in arrears on March
1 and September 1, of $3,000 ($6,000 annually) on the Senior Notes. The Company
will not be required to make principal repayments on the Senior Notes until
maturity.
CFR has available a revolving line of credit of $70,000 (amended in May 1996
from $50,000), subject to certain borrowing base restrictions, to meet
acquisition and expansion needs as well as seasonal working capital and general
corporate requirements. CFR had borrowings of approximately $41,400 under the
Credit Facility at June 30, 1996.
The IRS has examined the federal income tax returns of CFR for the years 1989
through June 30, 1992. In connection with that examination, the IRS has proposed
adjustments for each year related to methods of depreciation and cost recovery
used by CFR. In addition, the IRS has notified CFR of proposed changes with
regard to legal and other fees previously deducted. If successfully asserted by
the IRS, the proposed adjustments would result in approximately $22,000 of
additional tax liability, including accrued interest through June 30, 1996. The
Company, however, has agreed in principle with the IRS appeals officer handling
the administrative appeal of the examination on a settlement of the proposed
adjustments. The settlement agreed to in principle will not result in any
additional
- 10 -
<PAGE>
CORT BUSINESS SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(dollar figures in thousands)
financial statement tax expenses, as the Company's reserves included in deferred
income taxes are adequate to cover such expenses, and will not require the
Company to alter its methods of depreciation or cost recovery period. The
Company will be required to make a payment to the IRS and certain state
jurisdictions for income and franchise tax purposes. The total amount of the
proposed settlement is approximately $3,000 (including interest through June 30,
1996) of which the Company made an initial deposit of approximately $925 in
February 1996. This agreement is only an agreement in principle, and thus could
change. The tentative settlement will become effective only upon approval by the
proper IRS personnel and execution of definitive settlement documentation. Upon
final IRS approval, the Company will make the remaining required payment from
either cash on hand or borrowings under the Credit Facility.
The IRS has also proposed the disallowance of certain deductions taken by
Fairwood Corporation for the Former Group through the year ended December 31,
1988 and subsequent years. The IRS challenge includes the assertion that certain
interest deductions taken by the Former Group should be recharacterized as
non-deductible dividend distributions and that deductions for certain expenses
related to the acquisition of Mohasco Corporation (now Consolidated Furniture
Corporation), CFR's former shareholder, be disallowed. Under IRS regulations,
the Company and each other member of the Former Group is severally liable for
the full amount of any Federal income tax liability of the Former Group while
CFR was a member of the Former Group, which could be as much as approximately
$29,000 for such periods (including interest through June 30, 1996). Under the
agreement of sale for CFR, Consolidated agreed to indemnify the Company in full
for any consolidated tax liability of the Former Group for the years during
which CFR was a member of the Former Group. In addition, the Company may have
rights of contribution against other members of the Former Group if the Company
were required to pay more than its equitable share of any consolidated tax
liability. Although Fairwood Corporation has stated that it believes the IRS's
position with respect to those proposed disallowances is unjustified and is
contesting the matter vigorously, neither the Company nor Fairwood Corporation
can predict a successful resolution to the IRS examination. No assurance can be
given that, if Consolidated becomes liable for Federal income tax as a result of
the examination, and if the IRS were to collect any resulting tax directly from
CFR, that CFR would be able to recover all or part of the deficiency from
Consolidated under its indemnity or from other members of the Former Group under
the rights of contribution. No reserves are included in the Company's
consolidated financial statements with respect to potential tax liabilities of
the Former Group. There can be no assurance, however, that the Company's
ultimate liability with respect to periods during which CFR was a member of the
Former Group will not result in a material impact on the Company's financial
condition or results of operations.
- 11 -
<PAGE>
CORT BUSINESS SERVICES CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Annual Meeting of Stockholders of the Company was held on May
7, 1996. Set forth below is a description of the matters voted
upon and the number of votes cast for, against or withheld, as
well as the number of abstentions and broker nonvotes, as
applicable to each such matter.
1. The following seven directors were elected to the Board of
Directors of the Company. There were no other nominees for
director.
A. Keith E. Alessi
Shares voted for: 9,121,449
Shares withheld: 16,894
Abstentions: N/A
Broker nonvotes: N/A
B. Paul N. Arnold
Shares voted for: 9,121,249
Shares withheld: 17,094
Abstentions: N/A
Broker nonvotes: N/A
C. Bruce C. Bruckmann
Shares voted for: 9,121,449
Shares withheld: 16,894
Abstentions: N/A
Broker nonvotes: N/A
D. Charles M. Egan
Shares voted for: 9,121,449
Shares withheld: 16,894
Abstentions: N/A
Broker nonvotes: N/A
E. Michael A. Delaney
Shares voted for: 9,121,449
Shares withheld: 16,894
Abstentions: N/A
Broker nonvotes: N/A
F. Gregory B. Maffei
Shares voted for: 9,121,369
Shares withheld: 16,974
Abstentions: N/A
Broker nonvotes: N/A
G. James A. Urry
Shares voted for: 9,121,449
Shares withheld: 16,894
Abstentions: N/A
Broker nonvotes: N/A
2. The accounting firm of KPMG Peat Marwick LLP was elected
independent accountants for the year ending December 31, 1996.
Shares voted for: 9,136,243
Shares withheld: 900
Abstentions: 1,200
Broker nonvotes: N/A
- 12 -
<PAGE>
CORT BUSINESS SERVICES CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION (CONTINUED)
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (see Index on page E-1)
(b) Reports on Form 8-K:
The Company filed one (1) report on Form 8-K dated May 9, 1996
to report that, during the quarter of the fiscal year covered
by this report on Form 10-Q, the Company acquired all of the
outstanding stock of privately held Evans Rents for
approximately $27 million in cash.
The Company filed one (1) report on Form 8-K/A dated June 13,
1996 to provide the requisite financial statements and pro
forma financial statements relating to the acquisition of
Evans Rents.
- 13 -
<PAGE>
CORT BUSINESS SERVICES CORPORATION AND SUBSIDIARIES
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.
CORT BUSINESS SERVICES CORPORATION
(Registrant)
Date: July 23, 1996 By: /s/ Frances Ann Ziemniak
------------- ------------------------------------------------------
Frances Ann Ziemniak
Vice President, Finance & CFO
(Principal financial and principal accounting officer)
- 14 -
<PAGE>
CORT BUSINESS SERVICES CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Description Page
- --------------------------------------------------------------------------------
2.1 Stock Purchase Agreement, dated June 22, 1993, by and among
the Company, Interfinancial, Inc., General Furniture Leasing
Company and Fortis, Inc.; incorporated by reference to Exhibit
2.1 to CFR's Registration Statement on Form S-1, No. 33-65094,
filed on June 25, 1993
2.2 First Amendment to Stock Purchase Agreement, dated as of
August 31, 1993, by and among the Company, Fortis, Inc.,
Interfinancial, Inc. and General Furniture Leasing Company;
incorporated by reference to Exhibit 2.2 to CFR's Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30,
1993
2.3 Assignment and Assumption Agreement, dated as of August 31,
1993, between CFR and the Company; incorporated by reference
to Exhibit 2.3 to CFR's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1993
2.4 Acquisition Agreement, dated March 15, 1996, by and among the
Company, CE Merger Sub Inc. and Evans Rents; incorporated by
reference to Exhibit 2.4 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995
3.1 Restated Certificate of Incorporation of the Company;
incorporated by reference to Exhibit 3.1 to Amendment No. 3 to
the Company's Registration Statement on Form S-1, No. 33-97568
filed on November 13, 1995
3.2 By-laws of the Company; incorporated by reference to Exhibit
3.2 to Amendment No. 3 to the Company's Registration Statement
on Form S-1, No. 33-97568 filed on November 13, 1995
4.1 Form of Indenture between CFR and United States Trust Company
of New York, as Trustee, with respect to CFR's 12% Senior
Notes due 2000; incorporated by reference to Exhibit 4.1 to
Amendment No. 3 to the Company's Registration Statement on
Form S-1, No. 33-65094, filed on August 20, 1993
4.2 First Supplemental Indenture between CFR and United States
Trust Company of New York, as Trustee, dated August 25, 1995;
incorporated by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-1, No. 33-97568 filed on
September 29, 1995
4.3 Second Supplemental Indenture between CFR and United States
Trust Company of New York, as Trustee, dated September 29,
1995; incorporated by reference to Exhibit 4.9 to Amendment No.
1 to the Company's Registration Statement on Form S-1, No.
33-97568 filed on October 23, 1995
4.4 Warrant Agreement, dated September 1, 1993, between the
Company and United States Trust Company of New York, as
Warrant Agent; incorporated by reference to Exhibit 4.7 to the
Company's Registration Statement on Form S-1, No. 33-97568
filed on September 29, 1995
E - 1
<PAGE>
4.5 Amendment No. 1 to Warrant Agreement, dated February 1, 1994,
between the Company and United States Trust Company of New
York, as Warrant Agent; incorporated by reference to Exhibit
4.8 to the Company's Registration Statement on Form S-1, No.
33-97568 filed on September 29, 1995
10.1 Credit Agreement dated as of November 21, 1995 by and among
CFR, the Company, the lenders identified therein, and
NationsBank, N.A., as agent; incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995
10.2 Stock Option, Securities Purchase and Stockholders Agreement,
dated as of January 18, 1994, by and among the Company, CFR,
Citicorp Venture Capital Ltd. and certain investors named
therein; incorporated by reference to Exhibit 4.6 to the
Company's Registration Statement on Form S-8, No. 33-72724,
filed on December 9, 1993
10.3 Amendment 1 to New Cort Holdings Corporation and Subsidiaries
Employee Stock Option and Stock Purchase Plan as adopted by
the Board of Directors of the Company on December 21, 1993;
incorporated by reference to Exhibit 10.11 to CFR's Annual
Report on Form 10-K for the fiscal year ended December 31,
1993
10.4 New Cort Holdings Corporation and Subsidiaries Employee Stock
Option and Stock Purchase Plan (1995 Plan Distribution) as
adopted by the Board of Directors of the Company on December
16, 1994; incorporated by reference to Exhibit 10.13 to CFR's
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1995
10.5 Form of First Amendment to Stockholders Agreement, dated as of
November 13, 1995, by and among the Company, Citicorp Venture
Capital Ltd., and certain investors named therein;
incorporated by reference to Exhibit 10.5 to Amendment No. 3
to the Company's Registration Statement on Form S-1, No.
33-97568 filed on November 13, 1995
10.6 Registration Rights Agreement for Common Stock, dated as of
January 18, 1994, by and among the Company, Citicorp Venture
Capital Ltd. and certain investors named therein; incorporated
by reference to Exhibit 10.4 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended March 31, 1994
10.7 CFR's Supplemental Executive Retirement Plan, dated October
28, 1992, as amended through December 21, 1993; incorporated
by reference to Exhibit 10.12 to the CFR's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993
10.8 Agreement for Irrevocable Trust Under Cort Furniture Rental
Supplemental Executive Retirement Plan, dated August 20, 1990,
between CFR and Crestar Bank, N.A.; incorporated by reference
to Exhibit 10.13 to CFR's Registration Statement on Form S-1,
No. 33-65094, filed on June 25, 1993
10.9 Amendment Number One to the Agreement for Irrevocable Trust
Under CORT Furniture Rental Supplemental Executive Retirement
Plan, dated October 27, 1992, between CFR and Crestar Bank,
N.A.; incorporated by reference to Exhibit 10.14 to CFR's
Registration Statement on Form S-1, No. 33-65094, filed on
June 25, 1993
E - 2
<PAGE>
10.10 Letter Agreement, dated July 24, 1992, between CFR and Paul N.
Arnold; incorporated by reference to Exhibit 10.16 to CFR's
Registration Statement on Form S-1, No. 33-65094, filed on
June 25, 1993
10.11 Letter Agreement, dated August 18, 1993, between CFR and Paul
N. Arnold; incorporated by reference to Exhibit 10.26 to
Amendment No. 5 to the Company's Registration Statement on
Form S-1, No. 33-65094, filed on August 25, 1993
10.12 Employment Agreement, dated September 1, 1994, between CFR and
Charles M. Egan; incorporated by reference to Exhibit 10.10 to
CFR's Annual Report on Form 10-K for the year ended December
31, 1994
10.13 New Cort Holdings Corporation 1995 Stock-Based Incentive
Compensation Plan, as adopted by the Board of Directors on
July 25, 1995; incorporated by reference to Exhibit 10.16 to
Amendment No.1 to the Company's Registration Statement on Form
S-1, No. 33-97568 filed on October 23, 1995
10.14 Equity Share Agreement, between CFR and Lloyd and Eileen S.
Lenson, dated April 20, 1994; incorporated by reference to
Exhibit 10.17 to the Company's Registration Statement on Form
S-1, No. 33-97568 filed on September 29, 1995
10.15 Form of Senior Notes Purchases Agreement between CFR and
certain holders of CFR's 12% Senior Notes Due 2000, dated
September 28, 1995; incorporated by reference to Exhibit 10.18
to Amendment No. 2 to the Company's Registration Statement on
Form S-1, No. 33-97568 filed on November 1, 1995
10.16 Private Exchange Commitment Letter by and among the Company,
Citicorp Venture Capital Ltd. and certain investors, dated
September 28, 1995; incorporated by reference to Exhibit 10.19
to Amendment No. 1 to the Company's Registration Statement on
Form S-1, No. 33-97568 filed on October 23, 1995
10.17 CORT Business Services Corporation 1995 Directors Stock Option
Plan, as adopted by the Board of Directors on October 18, 1995;
incorporated by reference to Exhibit 10.20 to Amendment No. 3
to the Company's Registration Statement on Form S-1, No.
33-97568 filed on November 13, 1995
10.18 First Amendment to Credit Agreement dated as of May 24, 1996
by and among CFR, the Company, the lenders identified therein,
and NationsBank, N.A., as agent
11.1 Statement re: computation of per share earnings
27 Financial Data Schedule
E - 3
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT dated as of May __, 1996 (the "First Amendment")
to that Credit Agreement dated as of November 21, 1995 (as amended and modified,
the "Credit Agreement") by and among CORT FURNITURE RENTAL CORPORATION, a
Delaware corporation (the "Borrower"), CORT BUSINESS SERVICES CORPORATION, a
Delaware corporation (the "Company") and those Subsidiaries of the Borrower
identified as a "Guarantor" on the signature pages hereto (together with the
Company, the "Guarantors"), the several lenders identified on the signature
pages hereto (the "Lenders") and NATIONSBANK, N.A., as agent for the Lenders (in
such capacity, the "Agent"). Terms used but not otherwise defined herein shall
have the meanings provided in the Credit Agreement.
W I T N E S S E T H:
WHEREAS, the Lenders established a $50 million credit facility in favor
of the Borrower pursuant to the terms of the Credit Agreement;
WHEREAS, the Borrower has requested modification of the credit
facility, including an increase of $20 million in the Aggregate Revolving
Committed Amount;
WHEREAS, the Lenders have agreed to the requested
modifications on the terms and conditions hereafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
A. The Credit Agreement is amended and modified in the
following respects:
1. The pricing grid in the definition of "Applicable
Percentage" is amended to read as follows:
================================================================================
Applicable
Percentage
for Applicable
Eurodollar Applicable Percentage
Consolidated Loan and Percentage for
Pricing Funded Letter of for Base Commitment
Level Debt Ratio Credit Fee Rate Loans Fee
- --------------------------------------------------------------------------------
IV > 3.0 2.00% 0% .375%
-
- --------------------------------------------------------------------------------
III < 3.0 but > 2.25 1.75% 0% .300%
-
- --------------------------------------------------------------------------------
II < 2.25 but > 1.5 1.50% 0% .250%
-
- --------------------------------------------------------------------------------
I < 1.5 1.25% 0% .250%
================================================================================
<PAGE>
2. The Revolving Commitments are increased and the Schedule of
Lenders and Revolving Commitments in Schedule 2.1(a) is amended as attached, and
subsection (ii) of the proviso of the first sentence of Section 2.1(a) is
amended to read as follows:
"(ii) with regard to the Lenders collectively, the sum of the
aggregate amount of outstanding Revolving Loans plus LOC Obligations
plus Swingline Loans shall not exceed the lesser of SEVENTY MILLION
DOLLARS ($70,000,000) (as such aggregate maximum amount may be reduced
from time to time as provided herein, the "Revolving Committed Amount")
or the Borrowing Base"
3. The first sentence of Section 2.1(b)(i) is amended
to read as follows:
"The Borrower shall request a Revolving Loan borrowing by
written notice (or telephone notice promptly confirmed in writing which
confirmation may be by fax) to the Agent not later than 11:00 A.M.
(Charlotte, North Carolina time) on the Business day of the requested
borrowing in the case of Base Rate Loans, and on the third Business Day
prior to the date of the requested borrowing in the case of Eurodollar
Loans."
4. The Swingline Committed Amount is increased and
subsection (i) of Section 2.3(a) is amended to read as follows:
"(i) the aggregate amount of Swingline Loans outstanding at
any time shall not exceed FOUR MILLION DOLLARS ($4,000,000) (the
"Swingline Committed Amount"), and"
5. The first sentence of Section 3.3(d) is amended to
read as follows:
"Except as otherwise provided herein, the Borrower will
provide notice to the Agent of any prepayment by 11:00 A.M.
(Charlotte, North Carolina time) on the date of payment."
6. The Company has reached an oral settlement agreement with
the Internal Revenue Service with respect to the Borrower's federal income tax
returns for 1989 through 1992, the terms of which are set out in the Form 10-K,
copies of which have been provided to the Lenders. The definition of "Applicable
Percentage" contains a gross-up provision of 25 b.p.s. for Eurodollar Loans
until such time as a written settlement agreement is reached with the Internal
Revenue Service for a cash settlement cost of not more than $5,000,000 (by
asterisk reference to the pricing grid, the "Eurodollar Pre-Settlement Gross-Up
Provision"). The Lenders, on the basis of the oral agreement and in anticipation
of the definitive final settlement agreement on the terms of the oral agreement,
hereby agree to deletion of Eurodollar Pre-Settlement Gross-Up Provision
- 2 -
<PAGE>
effective immediately from the date of effectiveness of this
First Amendment.
B. The Borrower, the Company and the other Credit Parties
hereby certify that as of the date hereof:
(i) the representations and warranties made by the Borrower,
the Company and the other Credit parties in the Credit Agreement, the
Security Agreement and other Credit Documents are true and correct in
all material respects; and
(ii) No Default or Event of Default has occurred and
is continuing.
C. The effectiveness of this First Amendment is conditioned
upon receipt by the Agent of the following:
(i) fully executed copies of this First Amendment, amended,
restated and substituted Revolving Notes for each Lender evidencing the
increase in Revolving Commitments and an amended, restated and
substituted Swingline Note for the Swingline Lender;
(ii) copies of resolutions of the Company, the Borrower and
the other Credit Parties approving the terms, and authorizing execution
and delivery, of this First Amendment; and
(iii) legal opinions of counsel to the Company, the Borrower
and the other Credit Parties regarding the enforceability of this First
Amendment, the amended, restated and substituted Revolving Notes and
the amended, restated and substituted Swingline Note.
D. The Company and the other Guarantors join in the execution of this
First Amendment for purposes, among other things, of acknowledging and
consenting to the terms of this First Amendment and reaffirming their guaranty
obligations under the Credit Agreement, as amended hereby.
E. The Borrower, the Company and the other Credit Parties will execute
such additional documents as are reasonably requested by the Agent to reflect
the terms and conditions of this First Amendment.
F. Except as modified hereby, all of the terms and
provisions of the Credit Agreement (and Exhibits) remain in full
force and effect.
G. The Borrower agrees to pay all reasonable costs and expenses in
connection with the preparation, execution and delivery of this First Amendment,
including without limitation the reasonable fees and expenses of Moore & Van
Allen, PLLC.
- 3 -
<PAGE>
H. This First Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original and it
shall not be necessary in making proof of this First Amendment to produce or
account for more than one such counterpart.
I. This First Amendment and the Credit Agreement, as amended hereby,
shall be deemed to be contracts made under, and for all purposes shall be
construed in accordance with, the laws of the State of North Carolina.
[Remainder of Page Intentionally Left Blank]
- 4 -
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this First Amendment to Credit Agreement to be duly executed and delivered as
of the date and year first above written.
BORROWER:
- ---------
CORT FURNITURE RENTAL CORPORATION,
a Delaware corporation
By:___________________________
Frances Ann Ziemniak,
Vice President, Finance and
Chief Financial Officer
COMPANY:
- --------
CORT BUSINESS SERVICES CORPORATION,
a Delaware corporation
By:___________________________
Frances Ann Ziemniak,
Vice President, Finance and
Chief Financial Officer
OTHER CREDIT PARTIES:
- ---------------------
EVANS RENTS,
a California corporation
By:___________________________
Title:
EVANS RELOCATION SERVICES,
a California corporation
By:___________________________
Title:
EVANS CONVENTION SERVICES,
a California corporation
By:___________________________
Title:
CLEARANCE CLUB HOME/OFFICE,
a California corporation
By:___________________________
Title:
<PAGE>
First Amendment to
Credit Agreement
Cort Furniture Rental
Corporation
LENDERS:
- --------
NATIONSBANK, N.A.,
in its capacity as Agent and as
a Lender
By________________________________
Title:
PROVIDENT BANK OF MARYLAND
By________________________________
Title:
NBD BANK
By________________________________
Title:
MELLON BANK, N.A.
By________________________________
Title:
<PAGE>
First Amendment to
Credit Agreement
Cort Furniture Rental
Corporation
Schedule 2.1(a)
Schedule of Lenders and
Revolving Commitments
<TABLE>
<CAPTION>
Revolving Revolving LOC LOC
Committed Commitment Committed Commitment
Lender Amount Percentage Amount Percentage
------ --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
NationsBank, N.A. $25,000,000 35.7143% $1,785,714.29 35.7143%
Provident Bank of Maryland $15,000,000 21.4286% $1,071,428.57 21.4286%
NBD Bank $15,000,000 21.4286% $1,071,428.57 21.4286%
Mellon Bank, N.A. $15,000,000 21.4286% $1,071,428.57 21.4286%
----------- --------- ------------- ---------
$70,000,000 100.0000% $5,000,000.00 100.0000%
</TABLE>
Exhibit 11.1
CORT BUSINESS SERVICES CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
1995 1996 1995 1996
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Weighted average shares outstanding:
Average shares outstanding during the period 4,170,181 10,531,781 4,168,378 10,478,184
Unexercised stock options and warrants using
the treasury stock method, other than Cheap Stock 763,241 1,091,509 763,241 1,140,522
Cheap stock options and issuances (1) 218,434 -- 218,434 --
Shares issued in the Exchange for Common Stock (2) 2,090,591 -- 2,090,591 --
--------- --------- --------- ---------
Total weighted average shares 7,242,447 11,623,290 7,240,644 11,618,706
========= ========== ========= ==========
Net income applicable to shares:
Net income $1,273,000 $3,458,000 $2,468,000 $6,643,000
Increase in earnings, net of taxes, resulting from the
Exchange for Common Stock (2) 610,000 -- 1,193,000 --
------- --------- --------- ---------
Net income applicable to shares 1,883,000 3,458,000 3,661,000 6,643,000
========= ========= ========= =========
Earnings per share $ 0.26 $ 0.30 $ 0.51 $ 0.57
========= ========= ========= =========
<FN>
(1) Pursuant to Staff Accounting Bulletin Topic 4:D, stock options granted and
stock issued within one year of the initial public offering have been
included in the calculation of weighted average common shares outstanding
using the treasury stock method based on an assumed initial public offering
price of $12.00 and have been treated as outstanding for all reported
periods.
(2) In connection with the Company's initial public offering of Common Stock,
the Company exchanged CFR's 14% Senior Subordinated Pay-In-Kind Notes, the
Company's 14.5% Subordinated Debentures, the Company's 15% Junior
Subordinated Debentures, including the unamortized discount, and accrued
interest on all such debentures for 2,728,167 shares of Common Stock. For
purposes of the computations of earnings per share for 1995, the Company has
assumed that the exchange occurred as of January 1, 1994 for 2,090,591
shares of Common Stock.
</FN>
</TABLE>
E - 4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Art. 5 FDS for Second Quarter 10-Q
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 598
<SECURITIES> 0
<RECEIVABLES> 10,199
<ALLOWANCES> 1,163
<INVENTORY> 137,322
<CURRENT-ASSETS> 0
<PP&E> 55,742
<DEPRECIATION> 20,952
<TOTAL-ASSETS> 227,234
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 107
<OTHER-SE> 82,013
<TOTAL-LIABILITY-AND-EQUITY> 227,234
<SALES> 21,440
<TOTAL-REVENUES> 106,877
<CGS> 12,578
<TOTAL-COSTS> 29,206
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 291
<INTEREST-EXPENSE> 4,045
<INCOME-PRETAX> 11,332
<INCOME-TAX> 4,689
<INCOME-CONTINUING> 6,643
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,643
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
</TABLE>
