-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VmdHJ/tZpC/WZtAXssBebvTvN5PEjzFORqIT3xOsflZ+aKK60KjTm3a66GFqwaap +G+f46Rp2JcChUCR+osfJQ== 0000912057-99-009201.txt : 19991214 0000912057-99-009201.hdr.sgml : 19991214 ACCESSION NUMBER: 0000912057-99-009201 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19991213 ITEM INFORMATION: FILED AS OF DATE: 19991213 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RECKSON SERVICES INDUSTRIES INC CENTRAL INDEX KEY: 0001052743 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE AGENTS & MANAGERS (FOR OTHERS) [6531] IRS NUMBER: 113383642 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-14183 FILM NUMBER: 99773653 BUSINESS ADDRESS: STREET 1: 10 EAST 50TH STREET CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2129318000 MAIL ADDRESS: STREET 1: 225 BROADHOLLOW RD CITY: MELVILLE STATE: NY ZIP: 11747 8-K 1 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT ------------- Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): December 13, 1999 RECKSON SERVICE INDUSTRIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware (STATE OF INCORPORATION) 0-30162 11-3383642 (COMMISSION FILE NUMBER) (IRS EMPLOYER ID. NUMBER) 10 East 50th Street New York, New York 10022 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (212) 931-8000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) The Registrant is filing this Current Report on Form 8-K in order to file interim financial statements of VANTAS Incorporated ("VANTAS") and its Subsidiaries and related pro forma financial information of the Company and VANTAS. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED VANTAS INCORPORATED AND SUBSIDIARIES - CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets as of September 30, 1999 (unaudited) and December 31, 1998 Consolidated Statements of Operations for the three and nine months ended September 30, 1999 and 1998 (unaudited) Consolidated Statements of Cash Flows for the nine months ended September 30, 1999 and 1998 (unaudited) Notes to Consolidated Financial Statements (unaudited) (B) PRO FORMA FINANCIAL INFORMATION RECKSON SERVICE INDUSTRIES, INC. Pro Forma Condensed Consolidated Balance Sheet (unaudited) as of September 30, 1999 Pro Forma Condensed Consolidating Statement of Operations (unaudited) for the nine months ended September 30, 1999 Pro Forma Condensed Consolidating Statement of Operations for the year ended December 31, 1998 Notes to Pro Forma Financial Statements (unaudited) VANTAS INCORPORATED Pro Forma Statement of Income (unaudited) for the nine months ended September 30, 1999 Pro Forma Statement of Income (unaudited) for the year ended December 31, 1998 Notes to Pro Forma Financial Statements (unaudited) (A) VANTAS INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, December 30, ASSETS: 1999 1998 -------------- -------------- (Unaudited) Current assets: Cash and cash equivalents $ 1,695,314 $ 3,615,087 Restricted cash 32,752,583 10,000,000 Accounts receivable, net of allowance for doubtful accounts of $795,000 at September 30, 1999 and $401,000 at December 31, 1998 9,195,182 3,821,175 Prepaid expenses and other current assets 8,074,037 5,145,682 Deferred income taxes 1,146,816 174,000 Deferred financing costs 902,956 466,727 -------------- -------------- Total current assets 53,766,888 23,222,671 Intangibles, net 187,813,495 81,605,181 Property and equipment, net 62,912,816 23,124,702 Deferred financing costs, net 4,709,596 2,584,418 Security deposits 4,324,762 2,110,952 Other assets, net 7,730,493 1,426,526 -------------- -------------- Total assets $ 321,258,050 $ 134,074,450 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT): Current liabilities: Accounts payable and accrued expenses $ 16,864,959 $ 9,578,807 Capital lease obligations 1,288,499 731,510 Deferred rent payable 1,865,568 727,619 Notes payable-- bank 13,000,000 7,875,000 -------------- -------------- Total current liabilities 33,019,026 18,912,936 Notes payable - bank 111,250,000 65,125,000 Acquisitions payable 7,353,378 -- Tenants' security deposits 18,689,123 8,592,948 Deferred rent payable 19,012,798 6,607,771 Deferred income taxes 3,956,016 1,514,000 Capital lease obligations 645,589 602,153 Other liabilities 809,702 -- -------------- -------------- Total liabilities 194,735,632 101,354,808 -------------- -------------- Redeemable Preferred stock, authorized 30,000,000 shares: Series A Convertible, $.01 par value, issued and outstanding 7,574,711 shares (liquidation preference $12,900,000) 15,525,883 14,407,957 Series B Convertible, $.01 par value, issued and outstanding 3,222,851 shares (liquidation preference $15,309,000) 16,728,438 15,700,638 Series C Convertible, $.01 par value, issued and outstanding 13,325,424 shares (liquidation preference $63,296,000) 67,093,512 -- Series D Convertible, $.01 par value, issued and outstanding 5,109,873 shares (liquidation preference $26,827,000) 26,923,664 -- Series E Convertible, $.01 par value, issued and outstanding 604,413 shares (liquidation preference $3,173,000) 3,173,061 -- -------------- -------------- Total redeemable preferred stock 129,444,558 30,108,595 -------------- -------------- Stockholders' equity (deficit): Class A Common stock, $.01 par value, authorized 41,000,000 shares, issued and outstanding 4,901,868 shares 49,019 49,019 Class B Common stock, $.01 par value, authorized 20,000,000 shares -- -- Additional paid-in capital 3,133,608 3,133,608 Retained earnings (deficit) (5,154,767) 378,420 -------------- -------------- (1,972,140) 3,561,047 Note receivable from issuance of stock (950,000) (950,000) -------------- -------------- Total stockholders' equity (deficit) (2,922,140) 2,611,047 -------------- -------------- Total liabilities and stockholders' equity (deficit) $ 321,258,050 $ 134,074,450 ============== ==============
3 VANTAS INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended September 30, Nine Months ended September 30, -------------------------------- ------------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Business Center Operations: Revenues: Office rentals $33,702,534 $ 14,689,145 $ 91,339,391 $ 37,888,990 Support services 24,151,543 9,745,192 65,441,289 25,903,746 ------------ ------------ ------------ ------------ 57,854,077 24,434,337 156,780,680 63,792,736 ------------ ------------ ------------ ------------ Expenses: Rent 22,644,701 8,438,141 60,119,132 21,338,674 Support services 8,430,709 3,493,422 22,824,340 8,525,704 Center general and administrative 16,309,554 7,265,777 44,124,501 18,238,221 ------------ ------------ ------------ ------------ 47,384,964 19,197,340 127,067,973 48,102,599 ------------ ------------ ------------ ------------ Contribution from operation of business centers 10,469,113 5,236,997 29,712,707 15,690,137 ------------ ------------ ------------ ------------ Other (Expenses) Income: Corporate general and administrative (3,091,233) (1,734,738) (8,280,051) (4,478,604) Merger and integration charges (219,126) -- (1,604,107) -- Depreciation and amortization (4,068,277) (1,206,141) (10,321,950) (3,383,565) Interest expense, net (2,887,939) (1,226,311) (7,133,228) (3,319,753) Managed center income 226,611 186,599 628,392 527,780 Other income (29,172) 5,059 5,512 81,254 ------------ ------------ ------------ ------------ (10,069,136) (3,975,532) (26,705,432) (10,572,888) ------------ ------------ ------------ ------------ Income before minority interest and income taxes 399,977 1,261,465 3,007,275 5,117,249 Minority interest in net income of consolidated partnerships -- -- -- (331,087) ------------ ------------ ------------ ------------ Income before provision for income taxes 399,977 1,261,465 3,007,275 4,786,162 Provision for income taxes (864,000) (465,000) (2,195,000) (1,860,000) ------------ ------------ ------------ ------------ Net (loss) income $ (464,023) $ 796,465 $ 812,275 $ 2,926,162 ------------ ------------ ------------ ------------ Accretion of preferred stock (2,392,337) (629,014) (6,345,464) (1,518,003) ------------ ------------ ------------ ------------ Net (loss) income applicable to common stock $(2,856,360) $ 167,451 $ (5,533,189) $ 1,408,159 ============ ============ ============ ============ Share information: Basic earnings: Net (loss) income per common share ($0.58) $0.03 ($1.13) $0.28 ============ ============ ============ ============ Weighted average number of common shares outstanding 4,901,868 4,951,868 4,901,868 5,027,024 ============ ============ ============ ============ Diluted earnings: Net (loss) income per common share ($0.58) $0.03 ($1.13) $0.17 ============ ============ ============ ============ Weighted average number of common shares outstanding 4,901,868 6,439,939 4,901,868 14,062,553 ============ ============ ============ ============
5 VANTAS INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended ------------------------------ September 30, September 30, 1999 1998 ------------ ------------- Cash flows from operating activities: Net income $ 812,275 $ 2,926,162 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,321,950 3,383,565 Amortization of deferred financing costs 492,197 283,304 Deferred income taxes -- 1,389,100 Provision for doubtful accounts 749,376 378,399 Minority interest in net income of consolidated partnerships -- 331,087 Deferred rent payable 4,107,676 659,641 Deferred credits (71,170) (222,235) Non-cash interest expense -- 118,133 Changes in operating assets and liabilities: Accounts receivable (2,763,938) (921,285) Prepaid expenses and other current assets (1,988,400) (2,023,964) Security deposits and other assets (1,941,873) (241,840) Accounts payable and accrued expenses 104,462 4,153,892 Income taxes payable 196,873 (1,052,755) Tenants' security deposits 2,491,223 1,478,155 Other liabilities 120,980 -- ------------ ------------- Net cash provided by operating activities 12,631,631 10,639,359 ------------ ------------- Cash flows from investing activities: Acquisition of net assets of business centers (50,428,992) (30,600,000) Proceeds from acquisitions 8,400,000 -- Purchases of property and equipment (26,643,689) (6,452,402) Restricted cash (21,799,212) -- ------------ ------------- Net cash used in investing activities (90,471,893) (37,052,402) ------------ ------------- Cash flows from financing activities: Proceeds from borrowings 65,400,000 29,554,000 Payments on borrowings (14,150,000) (6,676,099) Deferred financing costs (3,053,604) (593,306) Payments of capital leases (1,970,643) (716,190) Distributions to minority partners -- (745,980) Proceeds from exercise of common stock options -- 210,000 Purchase and retirement of common and preferred stock -- (415,917) Proceeds from issuance of preferred stock, net of issuance costs 29,694,736 7,874,400 ------------ ------------- Net cash provided by financing activities 75,920,489 28,490,908 ------------ ------------- Net (decrease) increase in cash (1,919,773) 2,077,865 Cash at beginning of period 3,615,087 2,206,483 ------------ ------------- Cash at end of period $ 1,695,314 $ 4,284,348 ============ ============
6 VANTAS Incorporated and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The consolidated financial statements for the three and nine month periods ended September 30, 1999 and 1998 have been prepared by VANTAS Incorporated and Subsidiaries (the "Company") (formerly ALLIANCE NATIONAL Incorporated, and, prior to that, Executive Office Group, Inc.) and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial position, operating results and cash flows for each period presented. The December 31, 1998 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 1998 Transition Report. Results for interim periods are not necessarily indicative of results for a full year. Certain prior period amounts have been reclassified to conform to the current year presentation. 2. ACQUISITIONS Effective January 1, 1999, two newly formed subsidiaries of the Company were merged (the "Mergers") with and into InterOffice Superholding Corporation ("InterOffice") and Reckson Executive Centers, Inc. ("REC"), respectively. InterOffice and REC collectively owned 39 business centers. As a result of the Mergers, InterOffice and REC became wholly-owned subsidiaries of the Company and the former shareholders of such entities received 13,325,424 shares of the Company's Series C Preferred Stock Convertible Preferred Stock ("Series C Preferred Stock"), and the Company received $8.4 million in cash. In connection with the Mergers, the Company authorized 15,000,000 shares of Series C Preferred Stock, which ranks on parity with the Series A Convertible Preferred Stock and Series B Convertible Preferred Stock ("Series A Preferred Stock" and "Series B Preferred Stock", respectively). In connection with the issuance of the Series C Preferred Stock, the terms of the Series A Preferred Stock and Series B Preferred Stock were modified in certain respects, including with respect to the elimination of redemption rights. Except for certain class voting rights and except for the conversion feature described below, the Series C Preferred Stock has substantially identical terms as the Series A Preferred Stock and Series B Preferred Stock. If the original holders of the Series C Preferred Stock or certain of their permitted transferees are the holders of the Series C Preferred Stock at the time of conversion thereof, the Series C Preferred Stock will be converted into Class B Common Stock ("Class B Common Stock") which will have identical terms and conditions as the Company's Class A Common Stock ("Class A Common Stock") (formerly the Common Stock), except that such Class B Common Stock will carry the right to elect a specified number of directors, not to exceed four, following an initial public offering. On July 19, 1999, the Company increased the authorized shares of its common stock from 45 million to 61 million, of which 41 million and 20 million are designated Class A Common Stock and Class B Common Stock, respectively. The Company incurred merger and integration costs of approximately $ .2 million and $1.6 million during the three and nine months ended September 30, 1999, respectively, in connection with the Mergers. Such charges consist primarily of severance payments and other transaction related costs. The Company's effective tax rate (which is the provision for income taxes as a percentage of pre-tax income) for the three and nine months ended September 30, 1999 has increased as compared to the comparable periods of the prior year, primarily due to the effect of non-deductible goodwill amortization associated with the Mergers and certain of the Company's other acquisitions during 1999. In addition to the Mergers described above, the Company acquired 50 business centers, in 12 acquisitions, for an aggregate purchase price of $53.3 million during the nine months ended September 30, 1999. 7 The pro forma financial information set forth below is based upon the Company's historical consolidated statements of operations for the nine months ended September 30, 1999 and 1998, adjusted to give effect to the Mergers and the acquisitions noted above as of January 1, 1998. The pro forma financial information is presented for informational purposes only and may not be indicative of what actual results of operations would have been had the acquisitions occurred on January 1, 1998, nor does it purport to represent the results of operations for future periods.
Nine months ended September 30, 1999 1998 ------------- ------------- Revenues $164,600,000 $137,945,000 Net income 1,424,000 6,474,000 Net (loss) income applicable to common stock (4,921,000) 1,158,000 Basic (loss) income per common share (1.00) .23 Diluted (loss) income per common share (1.00) .16
3. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted (loss) income per common share for the periods ended September 30:
Three Months Nine Months 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Numerator: Net (loss) income $ (464,023) $ 796,465 $ 812,275 $ 2,926,162 Accretion of preferred stock (2,392,337) (629,014) (6,345,464) (1,518,003) ------------ ------------ ------------ ------------ Numerator for basic (loss) income per share-(loss) income applicable to common stock $(2,856,360) $ 167,451 $(5,533,189) $ 1,408,159 Effect of dilutive securities: Accretion of preferred stock -- -- -- 1,051,012 ------------ ------------ ------------ ------------ Numerator for diluted (loss) income per share-(loss) income applicable to common stock after assumed conversions $(2,856,360) $ 167,451 $(5,533,189) $ 2,459,171 Denominator: Denominator for basic income (loss) per share-weighted average shares 4,901,868 4,951,868 4,901,868 5,027,024 Effect of dilutive securities: Stock options -- 879,711 -- 672,057 Warrants -- 608,360 -- 788,761 Convertible preferred stock -- -- -- 7,574,711 ------------ ------------ ------------ ------------ Dilutive potential common shares -- 1,488,071 -- 9,035,529 Denominator for dilutive income (loss) per share-adjusted weighted average shares and assumed conversions 4,901,868 6,439,939 4,901,868 14,062,553 ============ ============ ============ ============
Options and warrants to purchase 6,211,706 and 287,130 shares of common stock were outstanding for the three months ended September 30, 1999 and 1998, respectively, and 6,211,706 and 337,130 for the nine months ended September 30, 1999 and 1998, respectively, but were not included in the computation of diluted earnings per share in 1999 because their effect would have been anti-dilutive. Additionally, 29,837,272 and 2,747,915 shares of Convertible Preferred Stock were outstanding for the three and nine months ended September 30, 1999 and 1998, respectively. 4. REDEEMABLE PREFERRED STOCK During the nine months ended September 30, 1999, the Company authorized 5,200,000 shares and issued 5,109,873 shares of Series D Convertible Preferred Stock ("Series D Preferred Stock") for net proceeds of approximately $26.8 million. The Series D Preferred Stock was issued at $5.25 per share, subject to adjustment up to $6.25 per share based upon the Company's cumulative third and fourth quarter EBITDA, as adjusted. The Series D Preferred Stock has a 8 liquidation preference of $5.25 per share, which is also subject to adjustments based on the Company's cumulative third and fourth quarter EBITDA, as adjusted. The Series D Preferred Stock ranks pari passu with the Company's Series E Convertible Preferred Stock ("Series E Preferred Stock"), and senior to the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, with respect to liquidation. The Series D Preferred Stock is convertible into the Company's Class B Common Stock on a one-for-one basis, or at the election of the shareholder into the Company's Class A Common Stock, subject to the EBITDA adjustment described above. During the nine months ended September 30, 1999, the Company authorized 1,000,000 shares and issued 604,413 shares of Series E Preferred Stock for net proceeds of approximately $3.1 million. The Series E Preferred Stock was issued at $5.25 per share, subject to adjustment up to $6.25 per share based upon the Company's cumulative third and fourth quarter EBITDA, as adjusted. The Series E Preferred Stock has a liquidation preference of $5.25 per share, and is also subject to adjustments based on the Company's cumulative third and fourth quarter EBITDA, as adjusted. The Series E Preferred Stock ranks pari passu with the Company's Series D Preferred Stock , and senior to the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, with respect to liquidation. The Series E Preferred Stock is convertible into the Company's Class A Common Stock on a one-for-one basis, subject to the EBITDA adjustment described above. 5. NOTES PAYABLE Effective August 3, 1999, the Company increased its $100 million credit facility (the "Credit Facility") with various lending institutions to approximately $158 million. The Credit Facility provides for a $5 million acquisition loan commitment, $128 million in term loans, and a $25 million revolving loan commitment, including a sub-limit of $15 million for letters of credit. Interest on each commitment ranges from LIBOR plus 3.0% to LIBOR plus 3.75% for one, three or six month periods at the election of the Company. The Credit Facility provides for a commitment fee of 1/2 of 1.0% per annum on the unused portion thereof. In June 1999, the Company entered into a $6.0 million Subordinated Promissory Note payable to Reckson Services Industries, Inc. ("RSI"), a related party. Such note bore interest at the rate of 15.0% per annum and was fully satisfied from proceeds raised by the issuance of the Series D Preferred Stock. 6. SUBSEQUENT EVENTS As of November 15, 1999, the Company has executed letters of intent and definitive agreements to acquire 2 business centers for an aggregate purchase price of approximately $1.5 million. These transactions will be accounted for under the purchase method of accounting. RSI, a holder of approximately 35.0% of the Company's outstanding capital stock, has entered into agreements with certain shareholders of the Company, including members of the Company's senior management and former members of the Company's Board of Directors, relating to the purchase of all or part of such shareholders' capital stock in the Company, including capital stock related to the exercise of vested stock options. Under the terms of the agreements, the Company is obligated to provide payments to certain members of senior management, to offset the tax effects to the individuals of the sales of shares, subject to certain qualifications relating to those individuals remaining in the employ of the Company. In addition, the Company will incur non-cash compensation expense based on the difference between the closing price of RSI's common stock at the closing date and the exercise price of the options exercised by senior management. Based on the closing price of RSI's common stock on November 12, 1999, the charge for the tax gross-up and the non-cash compensation will approximate $8.8 million and $10.2 million, respectively. These charges will be included in merger and integration expense during the fourth quarter of 1999, and are subject to adjustment based on the actual closing price of RSI's common stock at the closing date. Upon consummation of the purchases contemplated by these agreements, which is currently expected to occur between November, 1999 and February, 2000, RSI is expected to own between 67% and 87% of the Company's outstanding capital stock. (B) UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS The following unaudited pro forma financial statements are presented for illustrative purposes only and are not indicative of the financial position or results of operations of future periods or the results that actually would have been realized had RSI purchased an additional 50.4% interest in VANTAS Incorporated ("VANTAS") from third parties for approximately $109 million in cash and issuance of approximately 2.4 million shares of RSI common stock valued at $19 per share. As a result of the purchase RSI will increase its basic beneficial ownership of VANTAS to 85.4% and accordingly, will consolidate the operations of VANTAS. The financing of this transaction are assumed to be based on terms similar to the Company's existing credit facility. The pro forma financial statements, including the notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with, the historical financial statements of RSI as filed on Form 10-K for the year ended December 31, 1998, the historical financial statements of RSI as filed on Form 10-Q for the nine months ended September 30, 1999, the historical financial statements of VANTAS as filed on VANTAS' Form 10-Q for the nine months ended September 30, 1999, and the historical financial statements of VANTAS as filed on Form 8-K/A on March 24, 1999 for the year ended December 31, 1998. The following pro forma financial statements of RSI give effect to increase in the beneficial ownership percentage. The pro forma financial statements are based on the historical financial statements and the notes thereto of RSI, and VANTAS. The pro forma adjustments are preliminary and based on management's estimates of the value of the tangible and intangible assets acquired. The pro forma balance sheet of RSI assumes that the purchases of the additional 50.4% interest in VANTAS occurred on September 30, 1999. The pro forma statements of operations of RSI for the nine months ended September 30, 1999 and for the year ended December 31, 1998 assume that the additional 50.4% interest in VANTAS occurred as of January 1, 1998. RECKSON SERVICE INDUSTRIES, INC. PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999 (UNAUDITED)
RSI VANTAS UNAUDITED UNAUDITED PRO FORMA HISTORICAL HISTORICAL ADJUSTMENTS ELIMINATIONS (1) PRO FORMA -------------- ----------- ------------- ----------------- ---------- ASSETS Cash $ 359,699 $ 1,695,314 $ 5,954,405(8) $ - $ 8,009,418 Restricted cash - 32,752,583 - - 32,752,583 Investment in RSVP Holdings LLC 37,792,350 - - - 37,792,350 Investment in Onsite Ventures, LLC 15,379,701 - - - 15,379,701 Investment in VANTAS 69,781,904 - 150,114,478(1)(2) (219,896,382) - Investment in eSourceOne Inc. and other Investments 5,180,788 - - - 5,180,788 Affiliate receivables 1,968,982 - - - 1,968,982 Deferred Compensation 4,357,635 - - - 4,357,635 Accounts receivables - 9,195,182 - - 9,195,182 Intangible assets, net - 187,813,495 - 101,585,312 289,398,807 Property and equipment, net 223,782 62,912,816 - - 63,136,598 Other assets, net 1,344,407 26,888,660 - - 28,233,067 -------------- ------------- ------------ -------------- ------------ TOTAL ASSETS $136,389,248 $321,258,050 $156,068,883 $(118,311,070) $495,405,111 -------------- ------------- ------------ -------------- ------------ -------------- ------------- ------------ -------------- ------------ LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and accrued expenses $ 9,375,705 $16,864,959 $ - $ - $ 26,240,664 Credit facilities 116,625,383 - 103,790,274 (1)(2) - 220,415,657 Notes Payable 5,596,572 - - - 5,596,572 Capital lease obligation - 1,934,088 - - 1,934,088 Deferred rent payable - 20,878,366 - - 20,878,366 Notes payable-other - - - - - Notes payable-bank - 124,250,000 - - 124,250,000 Tenant's security deposits - 18,689,123 - - 18,689,123 Other liabilities - 12,119,096 - - 12,119,096 -------------- ------------- ------------ -------------- ------------ TOTAL LIABILITIES 131,597,660 194,735,632 103,790,274 - 430,123,566 -------------- ------------- ------------ -------------- ------------ MINORITY INTEREST - - - 14,165,753 (7) 14,165,753 TOTAL REDEEMABLE PREFERRED STOCK - 129,444,558 - (129,444,558) - -------------- ------------- ------------ -------------- ------------ SHAREHOLDERS' EQUITY Common Stock, $.01 par value 256,568 49,019 24,381 (1)(2) (49,019) 280,949 Additional paid in capital 36,471,496 3,133,608 52,254,228 (1)(2) (9,088,013) 82,771,319 Retained earnings (deficit) (31,936,476) (5,154,767) - 5,154,767 (31,936,476) Note receivable from issuance of stock - (950,000) - 950,000 - -------------- ------------- ------------ -------------- ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $136,389,248 $321,258,050 $156,068,883 $(118,311,070) $495,405,111 -------------- ------------- ------------ -------------- ------------ -------------- ------------- ------------ -------------- ------------
RECKSON SERVICE INDUSTRIES, INC. PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
RSI HISTORICAL PRO FORMA PRO FORMA UNAUDITED VANTAS (2) ADJUSTMENTS PRO FORMA ------------- ----------- ------------ ------------- REVENUES Interest income $1,651,893 $ - $ (67,500)(4) $ 1,584,393 Management fee income 250,000 - - 250,000 Office rentals - 98,946,754 - 98,946,754 Support services - 70,335,502 - 70,335,502 ------------- ----------- ------------ ------------- TOTAL REVENUES 1,901,893 169,282,256 (67,500) 171,116,649 ------------- ----------- ------------ ------------- Equity in loss of RSVP Holdings, LLC (3,309,880) - - (3,309,880) Equity in loss eSourceOne, Inc. (819,212) - - (819,212) Equity in loss of On-Site Access, Inc. and predecessor entity (2,805,458) - - (2,805,458) Equity in earning of VANTAS 422,568 - (422,568)(1) ------------- ----------- ------------ ------------- TOTAL EQUITY IN EARNINGS (LOSS) ON INVESTMENTS (6,511,982) - (422,568) (6,934,550) ------------- ----------- ------------ ------------- EXPENSES Rent - 64,470,615 - 64,470,615 Support services - 24,588,123 - 24,588,123 Center general and administrative - 46,917,680 - 46,917,680 Terminated transaction costs 413,908 - - 413,908 General and administrative expenses 12,538,648 8,925,954 - 21,464,602 Interest expense, net 5,968,141 7,749,693 9,341,125(3) 23,058,959 Depreciation and amortization - 11,476,413 2,539,633(6) 14,016,046 Other expense, net - 853,483 - 853,483 ------------- ----------- ------------ ------------- TOTAL EXPENSES 18,920,697 164,981,961 11,880,758 195,783,416 ------------- ----------- ------------ ------------- Minority Interest - - (223,257)(7) (223,257) Provisions for income taxes - (2,771,135) - (2,771,135) ------------- ----------- ------------ ------------- NET (LOSS) INCOME $(23,530,786) $ 1,529,160 $(12,594,083) $(34,595,709) ------------- ----------- ------------ ------------- ------------- ----------- ------------ ------------- Basic and diluted net loss per weighted average common share $ (0.95) $ (1.27) ------------- ------------- ------------- ------------- Basic and diluted weighted average common shares outstanding 24,855,657 27,293,773 ------------- ------------- ------------- -------------
RECKSON SERVICE INDUSTRIES, INC. PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 (UNAUDITED)
RSI HISTORICAL PRO FORMA PRO FORMA UNAUDITED VANTAS (2) ADJUSTMENTS PRO FORMA ------------- ------------ ------------ ------------- REVENUES Interest income $1,006,551 $ - $ - $ 1,006,551 Management fee income 277,778 - - 277,778 Other income 58,175 1,343,572 - 1,401,747 Office rentals - 129,048,560 - 129,048,560 Support services - 83,771,783 - 83,771,783 ------------- ------------ ------------ ------------- TOTAL REVENUES 1,342,504 214,163,915 - 215,506,419 ------------- ------------ ------------ ------------- Equity in loss of RSVP Holdings, LLC and other investments (3,840,926) - - (3,840,926) Equity in loss of On-Site Ventures, LLC (30,555) - - (30,555) Equity in loss of Reckson Executive Centers, Inc. (149,079) - 149,079(5) - Equity in earnings of Interoffice Superholdings Corporation 54,161 - (54,161)(5) - ------------- ------------ ------------- ------------- TOTAL EQUITY IN EARNINGS (LOSS) ON INVESTMENTS (3,966,399) - 94,918 (3,871,481) ------------- ------------ ------------- ------------- EXPENSES Rent - 79,423,366 - 79,423,366 Support services - 31,965,773 - 31,965,773 Center general and administrative - 48,674,396 - 48,674,396 Professional fees 457,901 - - 457,901 Terminated transaction costs 1,220,694 - - 1,220,694 General and administrative expenses 2,086,989 17,140,348 - 19,227,337 Interest expense, net 1,651,200 10,532,274 12,454,833(3) 24,638,307 Depreciation and amortization 39,179 11,662,496 3,386,177(6) 15,087,852 ------------- ------------ ------------- ------------- TOTAL EXPENSES 5,455,963 199,398,653 15,841,010 220,695,626 ------------- ------------ ------------- ------------- Loss before minority interest, cumulative effect of change in accounting principle and provisions for income taxes (8,079,858) 14,765,262 (15,746,092) (9,060,688) ------------- ------------ ------------- ------------- Minority interest - - (1,169,009)(7) (1,169,009) Cumulative effect of change in accounting principle (67,945) - - (67,945) Provisions for income taxes - (6,758,352) - (6,758,352) ------------- ------------ ------------- ------------- NET (LOSS) INCOME $ (8,147,803) $ 8,006,910 $(16,915,101) $(17,055,994) ------------- ------------ ------------- ------------- ------------- ------------ ------------- ------------- Basic and diluted net loss per weighted average common share $ (0.56) $ (1.01) ------------- ------------- ------------- ------------- Basic and diluted weighted average common shares outstanding 14,522,513 16,960,629 ------------- ------------- ------------- -------------
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS: (1) Subsequent to October 1, 1999, RSI signed certain agreements which in conjunction with existing "tag along" rights will result in RSI purchasing an additional 50.4% of VANTAS from third parties for approximately $109 million in cash (including a $5 million deposit that was made prior to September 30, 1999) and the issuance of approximately 2.4 million shares of RSI common stock valued at $19 per share. These pro forma consolidated financial statements assume that RSI completed the $109 million purchase through the use of proceeds from a credit facility on terms similar to its existing credit facility. As a result, RSI's pro forma balance sheet and statements of operations have reflected and accounted for its investment in VANTAS under the consolidated method of accounting, all the necessary eliminations have been recorded. (2) The RSI unaudited pro forma results of operations for the nine months ended September 30, 1999 and year ended December 31, 1998 assume that RSI increased its beneficial ownership in VANTAS to 85.4% on January 1, 1998. The VANTAS unaudited pro forma results of operations for the nine months ended September 30, 1999 and the year ended December 31, 1998 were based on unaudited historical results of operations adjusted for acquisitions. Refer to RSI's Form 8-K/A dated September 20, 1999 for more detail. (3) To record interest expense associated with the additional draws of approximately $104 million at an interest rate of 12%. (4) Elimination of interest income recognized on the $6.0 million of notes receivable that were converted into VANTAS Series D shares. (5) On January 8, 1999 Interoffice Superholdings Corporation ("Interoffice") and Reckson Executive Centers, Inc. ("REC") merged with VANTAS. Prior to the merger, RSI held partial ownership of Interoffice and REC. The unaudited pro forma statements of operations assume that the merger occurred on January 1, 1998, as a result any income or (loss) associated with REC and Interoffice for the period prior to the merger were eliminated. (6) Amortization expense on goodwill associated with the purchase of the additional 50.4% interest in VANTAS by RSI as if the purchase occurred on January 1, 1998. Goodwill is being amortized over a 30 year period based on RSI's assessment of the significant barriers to entry due to the rapid consolidation in the executive suites business. The goodwill adjustment represents amortization for six months and twelve months respectively, which were not included in the historical results. (7) Represents the minority interest of VANTAS at 14.6%, as a result of RSI's consolidation of VANTAS. (8) VANTAS received approximately $6 million in cash, as a result of certain warrants and vested options being exercised subsequent to October 1, 1999. The following unaudited pro forma statement of income is presented to give effect to VANTAS Incorporated's acquisition of 32 busienss centers as if such acquisitions occurred on January 1, 1999. The pro forma statement of income is on the unaudited historical results of operations of VANTAS Incorporated for the nine months ended September 30, 1999. The pro forma statement of income does not purport to represent what VANTAS Incorporated's statement of income would have actually been had the acquisitions been completed on January 1, 1999, nor is it necessarily indicative of future operating results of the Company.
VANTAS INCORPORATED UNAUDITED PRO FORMA STATEMENT OF INCOME NINE MONTHS ENDED SEPTEMBER 30, 1999 VANTAS INCORPORATED PRO FORMA HISTORICAL PRO FORMA VANTAS (UNAUDITED) ACQUISITIONS(1) ADJUSTMENTS INCORPORATED ----------- --------------- ----------- ------------ BUSINESS CENTER OPERATIONS: REVENUES: Office rentals $ 91,339,391 $ 7,607,363 $ -- $ 98,946,754 Support services 65,441,289 4,894,213 -- 70,335,502 ------------ ----------- ----------- ------------ 156,780,680 12,501,576 -- 169,282,256 ------------ ----------- ----------- ------------ EXPENSES: Rent 60,119,132 4,351,483 -- 64,470,615 Support services 22,824,340 1,763,783 -- 24,588,123 Center general and administrative 44,124,501 2,793,179 -- 46,917,680 ------------ ----------- ----------- ------------ 127,067,973 8,908,445 -- 135,976,418 ------------ ----------- ----------- ------------ Contribution from operation of business centers 29,712,707 3,593,131 -- 33,305,838 OTHER (EXPENSES) INCOME: Corporate general and administrative (8,280,051) (645,903) -- (8,925,954) Depreciation and amortization (10,321,950) (664,783) (489,680)(2) (11,476,413) Interest expense, net (6,641,031) (7,358) (1,101,304)(3) (7,749,693) Other expense, net (1,462,400) 608,917 -- (853,483) ------------ ----------- ----------- ------------ (26,705,432) (709,127) (1,590,984) (29,005,543) ------------ ----------- ----------- ------------ Income before income taxes 3,007,275 2,884,004 (1,590,984) 4,300,295 Provision for income taxes (2,195,000) (1,211,282) 635,147 (4) (2,771,135) ------------ ----------- ----------- ------------ Net income $ 812,275 $ 1,672,722 $ (955,837) $ 1,529,160 ============ =========== =========== ============
(1) Reflects the results of operations of 32 business centers acquired for the periods which are not included in the historical results. The 45 business centers from the Interoffice and Reckson Mergers, which were effective January 8, 1999, are not reflected in this column because their effect would not be material. (2) To record additional depreciation expense on fixed assets acquired as well as amortization expense on goodwill associated with the purchase of 32 business centers by VANTAS Incorporated as if the acquisitions had occurred on January 1, 1999. Fixed assets acquired are being depreciated over a 7-year period and goodwill is being amortized over a 30-year period. The adjustment represents the depreciation and amortization for the periods which are not included in the historical results. (3) To record interest expense relating to borrowings on the Company's acquisition loan facility utilized to finance the purchase of 32 business centers, as if such acquisitions had occurred on January 1, 1999. The interest expense is based on the Company's effective interest rate under the facility and includes interest expense for the periods which are not included in the historical results. (4) To record income tax effects as a result of the pro forma adjustments. The following unaudited pro forma statement of income is presented to give effect to VANTAS Incorporated's (formerly Alliance National Incorporated) acquisition of (i) 137 business centers and (ii) the remaining interests in all 7 of its controlled partnerships (representing 9 business centers) as if such acquisitions occurred on January 1, 1998. The pro forma statement of income is based on the unaudited historical results of operations of VANTAS Incorporated for the twelve months ended December 31, 1998. Effective January 1, 1999. VANTAS Incorporated changed its fiscal year end from June 30 to December 31. The Pro forma statement of income does not purport to represent what VANTAS Incorporated's statement of income would have actually been had the acquisitions been completed on January 1, 1998, nor is it necessarily indicative of future operating results of the Company.
VANTAS INCORPORATED UNAUDITED PRO FORMA STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1998 VANTAS INCORPORATED PRO FORMA HISTORICAL PRO FORMA VANTAS (UNAUDITED) ACQUISITIONS(1) ADJUSTMENTS INCORPORATED ------------- --------------- ----------- ------------ BUSINESS CENTER OPERATIONS; REVENUES: Office rentals $55,099,625 $ 73,948,935 $ -- $129,048,560 Support services 38,315,961 45,455,822 -- 83,771,783 ----------- ----------- -------------- ------------ 93,415,586 119,404,757 -- 212,820,343 ----------- ----------- -------------- ------------ EXPENSES: Rent 31,716,572 47,706,794 -- 79,423,366 Support services 12,769,816 19,195,957 -- 31,965,773 Center general and administrative 24,830,404 23,843,992 -- 48,674,396 ----------- ----------- -------------- ------------ 69,316,792 90,746,743 -- 160,063,535 ----------- ----------- -------------- ------------ Contribution from operation of business centers 24,098,794 28,658,014 -- 52,756,808 OTHER (EXPENSES) INCOME: Corporate general and administrative (7,896,172) (9,244,176) (17,140,348) Depreciation and amortization (4,535,486) (4,722,797) (2,404,213)(2) (11,662,496) Interest expense, net (5,381,885) (423,797) (4,726,592)(3) (10,532,274) Managed center income 795,286 -- -- 795,286 Other income 125,710 422,576 -- 548,286 ----------- ----------- -------------- ------------ (16,892,547) (13,968,194) (7,130,805) (37,991,546) ----------- ----------- -------------- ------------ Income before minority interest and income taxes 7,206,247 14,689,820 (7,130,805) 14,765,262 ----------- ----------- -------------- ------------ Minority interest in net income of consolidated partnerships (333,552) -- 333,552 (4) -- ----------- ----------- -------------- ------------ 6,872,695 14,689,820 (6,797,253) 14,765,262 Provision for income taxes (2,805,000) (5,873,660) 1,920,308 (5) (6,758,352) ----------- ----------- -------------- ------------ Net income $ 4,067,695 $ 8,816,160 $(4,876,945) $ 8,006,910 ----------- ----------- -------------- ------------
(1) Reflects the results of operations of 137 business centers acquired for the periods which are not included in the historical results. (2) To record additional depreciation expense on fixed assets acquired as well as amortization expense on goodwill associated with the purchase of 137 business centers and the acquisition of its remaining interest in all of its 7 controlled partnerships (representing 9 business centers) by VANTAS Incorporated as if the acquisitions had occurred on January 1, 1998. Fixed assets acquired are being depreciated over a 7-year period and goodwill is being amortized over a 30-year period. The adjustment represents the depreciation and amortization for the periods which are not included in the historical results. (3) To record interest expense relating to borrowings on the Company's acquisition loan facility utilized to finance the purchase of 137 business centers, as if such acquisitions had occurred on January 1, 1998. The interest expense is based on the Company's effective interest rate under the facility and includes interest expense for the periods which are not included in the historical results. (4) To eliminate minority interest in net income of consolidated partnerships assuming the acquisition of the remaining interests in the Company's 7 controlled partnerships occured as of January 1, 1998. (5) To record income tax effects as a result of the pro forma adjustments. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RECKSON SERVICE INDUSTRIES, INC. By: /s/ Jason Barnett ------------------------------------- Jason Barnett Executive Vice President and General Counsel Date: December 13, 1999 -----END PRIVACY-ENHANCED MESSAGE-----