CORT Business Services Corporation

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CORT Business Services Corporation

4401 Fair Lakes Court
Fairfax, Virginia 22033
U.S.A.
(703) 968-8500
(800) 962-CORT; (800) 962-2678
Fax: (703) 968-8501
Web site: http://www.cortl.com

Public Company
Founded: 1972 as CORT Furniture Rental Corporation
Employees: 2,300
Sales: $287.21 million (1997)
Stock Exchanges: New York
Ticker Symbol: CBZ
SICs: 7359 Equipment Rental & Leasing, Not Elsewhere Classified

Calling itself “America’s National Furniture Rental Company,” CORT Business Services Corporation is the largest, and only national, company in the United States providing corporations and small businesses office furniture on a “rent-to-rent” basis (as opposed to the “rent-to-own” segment of the furniture rental business). The company also provides residential furniture and housewares for corporate apartments and individual employees and booth furnishing rentals for trade shows. CORT operates under the names CORT Furniture Rental (its wholly owned subsidiary), General Furniture Leasing, CORT Furniture Rental Clearance Center, CORT Housewares, CORT Trade Show Furnishings, CORT Special Projects, and Relocation Central. As of August 1998, the company’s national network included 118 showrooms, 80 furniture clearance centers, and 74 distribution centers in 32 states and the District of Columbia.

Early History: 1972–87

During the 1960s, the Mohasco Corporation, then the maker of Mohawk Carpets and the largest carpet manufacturer in the country, was one of several companies that saw furniture as the core of a new retail home furnishings industry. In 1963 Mohasco began buying furniture makers, including Barcólo Manufacturing, the maker of the Barcolounger recliner; Stratford Corporation, which manufactured the Stratoliner recliner; Chromcraft; and Peters-Revington.

In 1972 Mohasco expanded its home furnishings activities with the purchase of five regional furniture rental companies, which it merged into CORT Furniture Rental. The acquisitions gave Mohasco an outlet for its excess manufacturing capacity. CORT provided furniture to people who needed furniture for a limited time—those moving into an area and taking a short-term apartment lease, newlyweds, and those recently separated.

The company offered basic furniture groups at its showrooms, with varying styles and prices. In 1977, for example, its least expensive package for a one-bedroom apartment cost $35 a month. The package included a bedroom set (dresser, single or double bed, mirror, nightstand, and lamp), a dining room set (table and four chairs), and furniture for a living room (couch, coffee table, chair, two end tables, and two lamps). Furniture for an efficiency apartment started at $20 a month. In addition to the monthly fee, the customer paid tax, an insurance fee, a refundable security deposit, and a $30 delivery fee. After a year’s rental, CORT offered a purchase option on the entire package.

Residential rentals were CORT’s primary business, but over the next several years both the furniture making and furniture renting divisions of Mohasco responded to a growing need for corporate furnishings—office chairs and desks, conference tables, cabinets, and credenzas. In the furniture rental business, a whole new segment was emerging.

Why would a business rent furniture rather than buy? The option was an obvious advantage for a business that was just getting started and could not afford a big cash outlay. In addition, there were tax advantages, with the monthly payments usually 100 percent tax deductible, as well as a single monthly accounting entry.

In 1987 Mohasco moved from upstate New York, where it had been located for more than 100 years, to Fairfax County, Virginia, in the suburbs of Washington, D.C., to be closer to its carpet and furniture plants in the South. CORT, which had five showrooms in the D.C. area, had had a regional office in Fairfax since the 1970s and had moved its headquarters there in 1980. That region, with a highly mobile population, government offices being reorganized, and new businesses opening, was an ideal location for a company meeting short-term furniture needs. CORT’s revenue more than doubled between 1982 and 1986, reaching $84 million (11 percent of company sales). By 1987 CORT had revenues of $93 million, making it the fastest growing division in the corporation.

Leveraged Buyouts: 1988–93

CORT’s success contributed to its parent’s appeal as a takeover prospect. After almost going under in the early 1980s, Mohasco, with 1987 revenues of $807 million, was one of the healthiest furniture companies in the county. Its 1987 annual report announced that all three of its divisions—furniture rental, furniture manufacturing, and carpet manufacturing—had record sales. But in February 1988, Nortek Inc., a Rhode Island building and electrical supplies company, announced that it had acquired seven percent of Mohasco’s shares and was considering a merger proposal. To avoid a takeover, Mohasco looked for a friendlier buyer, with 16 suitors eventually joining Nortek. In May, Mohasco announced that its best offer was a $455 million leveraged buyout by MHS Holding Corp., a company organized by Citicorp Venture Capital Ltd. and other investors. Mohasco management continued to run the company, which owed more than $300 million in long-term debt as a result of the buyout.

Less than a year later, Mohasco sold CORT for $150 million and Mohawk Carpet Corp. for $112 million to service that debt. In both instances, the buyers were management groups principally financed by Citicorp, making the big bank’s venture capital arm both the seller and buyer in the transactions. This leveraged buyout left CORT burdened with debt and short of cash, and the next several years were difficult ones for the company. Led by CORT President Paul Arnold, who had been with CORT since Mohasco created it, management cut costs by closing some showrooms and curtailing growth. However, the company still suffered a loss of more than $6 million on revenues of $106.5 million for 1992.

Brighter Days: 1993–96

The situation improved in March 1993, when Citicorp Venture Capital incorporated New CORT Holdings Corporation, which acquired all of the stock of CORT Furniture Rental Corporation for about $82.2 million. Citicorp eased the interest rate burden and the sale provided management with money to grow. To accomplish that growth, the company established a strategy focused on four areas: 1) make selective acquisitions; 2) initiate operations in new markets and open showrooms and clearance centers in existing markets; 3) expand the corporate customer base; and 4) invest in the development of various products and services.

CORT quickly implemented its strategy, buying several small furniture rental companies. In purchasing smaller outfits where CORT already had a presence, the company usually made a lease portfolio acquisition, acquiring existing leases and rental furniture and retaining local sales personnel, but not buying showrooms, distribution centers, or clearance centers. In new markets, CORT might decide to buy the real estate as well as the leases.

In September 1993, CORT acquired one of its main competitors, Dallas-based General Furniture Leasing Co., which had 1992 revenues of $41.5 million. CORT ended the year with revenues of $128.6 million, a 21 percent increase over 1992 revenues. General Furniture accounted for approximately $13.4 million of the total.

The merger with General Furniture not only opened new market areas for CORT, it also provided a different format and cost structure, targeting smaller markets and offering lower-cost rentals. Because of that, CORT operated showrooms in those markets under the General Furniture Leasing trade name. A survey commissioned by the company found that the average 1994 income of an individual CORT Furniture Rental customer was approximately $73,000, compared with $47,000 for a General Furniture Leasing individual customer.

In 1995 the company reached agreement with the IRS over tax issues relating to its returns from 1989 through 1992. With that matter settled, New CORT Holdings Corporation went public, changing its name to CORT Business Services Corporation and selling slightly more than three million shares for an estimated $37.2 million. That year, CORT moved into Birmingham, Alabama, and Little Rock, Arkansas, and began offering interior design services and furniture for model homes in three large metropolitan areas.

The following year, CORT made a second stock offering, raising around $32 million. Citicorp Venture Capital recouped some of its investment, but remained the majority shareholder with 45 percent of the stock. The influx of cash from the stock sales enabled the company to cut its debt almost in half.

Company Perspectives:

We will keep our position of leadership as the best rental furnishings services company by solving customer problems better than anyone else—problems that people have in finding fast, dependable, high-quality, financially sensible solutions to their office and residential furnishing needs.

Our people will have the local responsibility and authority to do whatever is necessary to be the best, providing product quality, services that meet customer needs, and a manner of service delivery that makes people feel good about doing business with CORT.

In the final analysis, we will lead the industry because we will stay committed to giving our customers better service than our competitors are willing or able to give.

In 1996 the company began operations in Portland, Oregon, and St. Louis, Missouri, and made its second large acquisition, that of California-based Evans Rents, for $27 million. This move greatly strengthened the company’s presence in the Los Angeles and San Francisco markets, where Evans rented high-margin office furniture and trade show furnishings. CORT also moved into New York, buying some assets of New York-based AFRA Enterprises Inc. and Apartment Furniture Rental. Although both these companies rented primarily residential furniture, CORT viewed the purchases as a way to enter the New York corporate market.

Diversification: 1997 to the Present

About 80 percent of the company’s rental revenues was from corporate customers. These ranged from huge corporations such as Warner Bros., MCI, and Exxon Company USA, to regional companies to small home-based businesses. Corporate rentals increased substantially as companies demanded more flexibility. They needed office furniture for work teams created for special projects, for training classes, and for consultants or employees on temporary assignments. Many of those consultants and employees, as well as employees relocating or changing jobs, also needed furnished apartments. In addition to serving the corporations themselves, CORT provided merchandise to apartment managers and to the employees themselves.

CORT’s customers typically wanted high quality furniture to meet temporary needs, had established credit, paid on a monthly basis, and did not buy the rented articles. The company generally leased merchandise for three-, six-, and 12-month terms. Prices were set to recover the original cost of the furniture over a ten-month period, and new pieces were constantly being added to inventory. To control inventory levels, CORT sold the previously rented furniture through its CORT Furniture Rental Clearance Centers, with the merchandise selling, on average, three years after its original purchase.

During 1997, CORT began diversifying its product mix, offering its own package of kitchen and other housewares instead of depending on a third-party contractor as it had in the past. The housewares package was designed for corporate apartments or employees needing a completely furnished residence for a short period. It also established the Relocation Central web site for its customers.

CORT moved more deeply into the trade show furnishings business with the purchase of the stock of Levitt Investment Company and the McGregor Corporation and the assets of ALCO Trade Show Services. As a major player in this market segment, CORT served major trade show contractors and corporate exhibitors, renting desks, couches, tables, and other specialty furniture for conventions and trade shows. The three companies were integrated into a single division catering to the big convention cities such as Atlanta, Chicago, Dallas, Las Vegas, Los Angeles, New Orleans, Orlando, New York City, San Francisco, and Washington, D.C.

During 1997, CORT entered the Pittsburgh and Cleveland markets through acquisitions and changed the company’s stock symbol to CBZ. When CORT went public, it took the CBS symbol, which was no longer in use after Westinghouse Electric Corp. bought the Columbia Broadcasting System. But when Westinghouse Electric changed its name to CBS Corp., it wanted the CBS ticker symbol. CORT agreed to relinquish the symbol for an undisclosed financial offer.

Since the beginning of 1993, CORT has developed into a national company through acquisitions and consolidation, including 15 small lease portfolio acquisitions and mergers with two larger regional rental companies. It also has expanded its products to include houseware packages and trade show furniture rentals. During 1998, CORT continued its acquisition strategy, buying Instant Interiors Corporation, a $12.5 million business operating in the Midwest. The “rent-to-rent” segment of the furniture rental industry, estimated to be a $750 million business, was highly fragmented. CORT, with 1997 revenues of nearly $287 million and a national network of showrooms and clearance centers, was clearly the “100-pound gorilla” of the industry.

Principal Subsidiaries

CORT Furniture Rental Corporation; Levitt Investment Company; McGregor Corporation.

Principal Operating Units

CORT Furniture Rental; General Furniture Leasing; CORT Furniture Rental Clearance Center; CORT Housewares; CORT Trade Show Furnishings; Special Projects; Relocation Central.