[CORT LOGO]


                               1998 Annual Report







              Furnishing
              Solutions
              for the
              Professional
              World




<PAGE>


CORT Today
CORT Business Services Corporation is the
largest, and only national, provider of high-
quality office and residential rental furniture
and related accessories. The Company provides
corporations, small businesses and individuals 
with temporary office, residential and trade 
show furniture and furnishings. CORT's national 
network, embracing 32 states and the District
of Columbia, includes 119 rental showrooms, 
83 furniture clearance centers and 75 distribution
centers. The Company's operational brand names 
include: CORT Furniture Rental, CORT/Instant
Furniture Rental, General Furniture Leasing, 
CORT Furniture Rental Clearance Center,
CORT Housewares, CORT Trade Show
Furnishings and Relocation Central.


Furnishing Solutions for
                  the Professional World

o Office Furniture Rental
o Residental Furniture Rental
o Retail Sales
o Internet 7 Relocation Services
o Housewares Rental
o Trade Show Furnishings
o Customitzed Product
o National Accounts Program


<PAGE>

                              Financial Highlights

                  (dollars in thousands, except per share data)
<TABLE>
<CAPTION>

Year ended December 31,                          1996        1997         1998
-----------------------                          ----        ----         ----
<S>                                           <C>          <C>          <C>     
Furniture rental revenue ................     $191,560     $237,212     $265,871
Furniture sales revenue .................       42,589       50,006       53,093
  Total revenue .........................      234,149      287,218      318,964
Gross profit ............................      171,984      211,327      238,747
Operating earnings ......................       35,448       46,308       52,647
Income before extraordinary loss ........       15,936       22,326       25,903
  Per diluted share .....................         1.31         1.67         1.92

As of December 31,
------------------
Total assets ............................     $247,199     $277,841     $332,896
Total debt ..............................       65,600       63,132       90,800
Stockholders' equity ....................      125,152      149,332      175,662
</TABLE>


     Total              Rental               Gross               Operating
    Revenue             Revenue              Profit              Earnings
(in millions)        (in millions)        (in millions)        (in millions)

     chart               chart               chart                 chart


                                       1

<PAGE>

                               To Our Investors:

Once  again,  I am  pleased  to begin my  report  on a note of  achievement  and
optimism.

     As  a  new  century  approaches,   CORT's  financial,   organizational  and
managerial  resources  make it very well  positioned for continued  growth.  Our
strengths include a proven and consistent strategic plan, a dominant position in
a dynamic  market,  and an  experienced  management  team committed to enhancing
value for all investors.

     In addition,  we continue to make  significant  infrastructure  investments
that will  serve us well in the  future.  One  notable  step is the  funding  of
high-potential  incubator businesses that complement our core rental operations.
Another is our Internet presence, which consists of relocationcentral.com, a web
site that provides local market  information for  transferring  business people,
and CORT1.com,  an increasingly  important sales,  marketing and service channel
for on-line information about CORT products and services.

     CORT is truly furnishing  solutions for growth in the professional world as
few other companies can.

     CORT  was  one of the  first  participants  in the  rent-to-rent  furniture
industry.  Other early  entrants have not  progressed  much further than renting
furniture and furnishings for the apartments of individual  customers.  But CORT
saw  an   opportunity   to  support   the  growth  of  the   American   business
infrastructure--from  home-based  offices to Main Street  businesses to regional
companies to global  corporations,  along with the away-from-home  residences of
corporate employees.  Today, as the largest company and most active consolidator
in a highly fragmented industry, CORT's early vision is paying off.

               [reverse  insert]
               "CORT saw an
               opportunity to
               support the
               growth of the
               American business
               infrasturcture."

A Year Of Steady Progress

     Revenues for the year ended December 31, 1998 rose 11.1% to $319.0 million,
a new record,  from $287.2  million in 1997.  Operating  income of $52.6 million
increased   13.7%  from  $46.3  million  the  year  before.   Income  before  an
extraordinary loss rose to $25.9 million, or $1.92 per diluted share, from $22.3
million,  or $1.67 per diluted share,  a year ago.  CORT's  operating  margin of
16.5% rose from 16.1% in 1997. This productivity yardstick is one of the best in
the rent-to-rent furniture industry.

     In September,  CORT redeemed the remaining  $49.9 million  principal of its
12% senior notes at 107% of the principal amount of each note. Accordingly,  the
Company recognized an extraordinary loss of $2.5 million:  primarily the premium
paid to noteholders, net of the associated tax benefits. Early retirement of the
senior notes  replaces high cost debt with lower cost debt and  strengthens  our
financial position for the future.

     The sole discordant  note in an otherwise  robust and productive year was a
slowing of our traditional rate of growth in core rental revenues, which exclude
acquisitions  and trade show operations.  To address this situation,  we plan to
aggressively  pursue  market  share in key  segments  and  introduce  new  sales
enhancement  programs.  In addition,  we realigned our  management  structure to
place our senior  managers  closer to business  opportunities  in local markets.
These  measures  should lead to a higher rate of revenue growth and energize the
Company for long-term quality performance.


                                       2
<PAGE>


     In addition to these initiatives, CORT will continue its expansion program.
External  growth  reinforces  our position as the only  national  company in our
industry,  builds  brand  equity and  embellishes  our  reputation  for superior
customer service.  Expansion,  through a combination of internal investments and
acquisitions, is central to our strategy for sustained, above-average growth.

Acquisitions  Continue

     Since the beginning of 1998, we acquired four  furniture  rental  companies
with total annualized revenues of approximately $30 million. We also purchased a
trade show  furnishings  business,  taking us deeper  into an  important  market
sector.

     The  acquired  rental  businesses--IS  Furniture  Rental  Corp.,  Furniture
Rentors of America,  Inc.,  Instant  Interiors  Corporation  and Alco  Furniture
Rental Co.--give us additional  presence in the important Northeast Corridor and
the growing Midwest.

     In  addition to  expanding  our  geographic  reach,  the Instant  Interiors
acquisition   also   provides  a   centralized   distribution   format  that  is
cost-effective in serving large geographic areas containing many smaller cities.
This template will be valuable as we expand outward from major business centers.

     The ability to offer  customers a national  presence is a vital part of our
business plan.  Corporate  customers,  who account for  approximately 80% of our
rental revenue,  require a degree of reach,  responsiveness  and product breadth
only CORT can provide. Customers also prefer a single point of contact available
through a national accounts program like ours.

     This  ability  to meet  big-company  needs  has  attracted  customers  like
Andersen  Consulting,  EDS, Exxon  Corporation,  The  Great-West  Life Assurance
Company, PepsiCo Inc., Sprint and Universal Studios.  Concurrently,  CORT serves
middle market,  small and start-up companies,  and meets an array of residential
needs. This is the professional world of today, and CORT is furnishing it.

The New Millennium

     We are very  confident  about the strength of our core  businesses,  and we
have the ability to take advantage of new opportunities. All the elements needed
for  progress--forward  momentum,  investments in our  infrastructure,  a tested
strategic plan and a focused and motivated employee team--are in place. With the
support of our  customers,  directors,  employees and managers,  we approach the
future with confidence.


/s/   Paul N. Arnold
-------------------------------------------
      Paul N. Arnold
      President and Chief Executive Officer

                                       3
<PAGE>

                     Furnishing Support for Business Growth

     The  growth-oriented  business  arena of today and  tomorrow  is a world of
people on the move:  To consulting  assignments,  training  sessions,  outsource
projects,   relocation   sites.   From  corporate   headquarters  to  divisions,
subsidiaries, sales offices, manufacturing sites, distribution centers, research
facilities.

     Each move sets up needs for fully  furnished work and living  environments.
Only CORT can provide so broad a range of office and  residential  furniture and
furnishings to meet customers' duration, location, quantity and budget needs.

     Beginning  early in this decade,  the world  shrank,  time  compressed  and
borders dissolved.  In response,  corporations  abandoned traditional notions of
how the workplace  should be  structured.  Corporations  found that mobility and
flexibility,  properly  harnessed,  could be potent  tools in the search for new
markets,  increased  productivity,  higher profitability and faster growth. This
led to re-engineering, downsizing and outsourcing. It led, in sum, to a world of
changing values.

     Fortunately,  CORT's culture  embraces  flexibility  and  adaptability.  We
operate with a sense that the needs of our customers will be different tomorrow.
This  challenge is one we are  continuously  prepared to meet.

A View Of The New World

     Business  people are  adaptable  and  comfortable  with  change:  Temporary
employees,  hired for a week, stay for a year.  Project teams  "parachute in" to
solve problems and put out fires.  Consultants  remain  continuously  on site to
implement  solutions and  troubleshoot  systems.  Employees  "telecommute"  from
furnished home offices and work out of satellite office "hotels."

     Business  tools are  revolutionizing  communications,  data  management and
information exchange--the new foundations of industry. Cell phones the size of a
playing card reach  anywhere in the world;  handheld  computer  devices send and
receive faxes and e-mail;  laptop computers more powerful than mainframes access
multiple databases and workgroups and turn any airport, automobile or hotel room
into a virtual office.

     Home offices become  functional,  efficient and  technologically  advanced:
Working in comfortable, familiar surroundings, entrepreneurs find an environment
that supports  their  creativity and helps them bring  imaginative  new ideas to
life.

     These  changes have enormous  implications  for the rental of CORT products
and services.

              [reverse insert with picture]
              "CORT is the com-
              pany best able to
              meet a customer's
              preferences in
              office furniture
              and furnishings for
              living quarters."

     For example,  approximately 12 million new  white-collar  jobs were created
between 1984 and 1994, and the Bureau of Labor Statistics  predicts a comparable
number  of new  jobs  by  2005.  Similarly,  when  CORT  was  founded  in  1972,
outsourcing,  as a  concept,  barely  existed.  Today,  many jobs are  filled by
contract  workers rather than  corporate  employees.  Outsourcing  has become an
important  driver of our business and exemplifies the changes  sweeping  through
our customer base.

                                       4
<PAGE>


At CORT, one rental order
has incredible potential:

Office
[picture]

National Accounts
[picture]

Trade Shows
[picture]

Internet
[picture]


                                       5
<PAGE>

Offering More Services
to Out Custoemrs:

Home
[picture]

Retail
[picture]

Housewares
[picture]

Relocation
[picture]


                                       6
<PAGE>

                         Meeting the Needs of Customers


CORT's customers include corporations,  businesses of all sizes, individuals and
apartment  communities  that meet relocation  needs.  Large or small,  customers
expect high quality and reasonable cost in the office and residential  furniture
and  furnishings  they rent,  and value,  service  and  responsiveness  from the
resource they use. CORT best meets those needs, standards and expectations.

     Corporations now prefer to rent furniture for many of the same reasons they
lease  automobiles,  business aircraft,  office machines,  capital equipment and
other items:  Conservation of capital, costs tailored to every budget,  flexible
lease  lengths,  extensive  product  choices,  one-stop  shopping,  rapid  order
fulfillment  and,  increasingly,  the  convenience  of  electronically  accessed
information.

     Ours is truly a  business  built on  understanding  and  responding  to the
customer.

In The Office Market, Flexibility
Is The Key

     CORT  rents a full  line  of  branded,  top-quality  furniture  that  meets
temporary needs, whether short- or long-term, in any type or size business.

     Our customers include start-up companies,  businesses that are expanding or
transferring personnel from one site to another, and organizations  establishing
temporary offices to accommodate contract employees, special project teams, task
forces,  consultant groups, visiting auditors,  outside inspection teams, summer
interns and training classes.

     Movement  in the  workplace  is a  result  of  white-collar  job  creation,
corporate re-engineering and outsourcing. These factors and a growing preference
for  renting  over  buying  to  conserve  cash  are  key  dynamics  driving  the
rent-to-rent furniture industry.

In The Residential Market, Comfort Counts

     The furniture and furnishings needs of businesspeople away from home--as so
many are so often--don't  end at the close of the workday.  Being productive and
energetic  during the day  requires a  comfortable  environment  at night and on
weekends. Hotels and motels are often expensive and lack the comforts of home.

     But this sector of our customer  base is composed of workers with  choices.
And  they  are  choosing  to rent  comfortable,  cost-efficient  apartments  for
intervals  ranging  from a few months to a year or more.  Once an  apartment  is
rented,  CORT  handles  the rest,  from the  furniture  in the  living  room and
bedrooms down to the smallest housewares and accessories. When CORT is finished,
a house has become a home.

In The Aftermarket, Recovering Costs

     CORT's  ability  to  generate  revenues  from  furniture  does not end with
rentals. By visiting a CORT furniture  clearance center,  customers can purchase
previously rented furniture at prices  significantly  below conventional  retail
stores.

              [reverse insert with picture]
              "CORT welcomes
              new ideas and
              opportunities
              that can draw
              us closer to cus-
              tomers through
              established and
              new businesses."

     By the time a  furniture  item goes on sale in a clearance  center,  it has
been rented an average of three times in about  three  years.  The item is still
stylish and  attractive  and  represents  excellent  value to the buyer.  CORT's
direct furniture  investment is fully recovered  through clearance center sales.
In addition to incremental revenue generation,  clearance center sales enable us
to maintain the showroom quality of our rental products.

                                       7

<PAGE>

                   Reaching More Customers with More Services

New Sources Of Growth

As  a  resourceful  and  innovative   company,   CORT  welcomes  new  ideas  and
opportunities  that project our business  identity and draw us closer to present
and potential customers.

     Ironically,  some of our most noteworthy success comes not from change, but
from consistency.  In the traditional  rent-to-rent segment of our business, for
example, we have followed the same game plan for years and now have nearly twice
the market share of our closest  competitor.  We intend to implement  our proven
strategic plan with even greater energy and precision.

     Even as we keep up the pressure in the traditional furniture rental market,
we seek new avenues of growth from related areas.

     For example, we continue to invest in "incubator" businesses. These augment
our basic furniture  rental  activities by introducing new products and services
with high customer appeal.

     Our  housewares  unit,  which  provides   kitchen,   bedroom  and  bathroom
accessories,  was begun on an  extremely  modest  investment.  This unit has now
achieved a strategic importance consistent with a full-fledged business.

     The CORT  Trade  Show  Furnishings  Division  also  began  as an  incubator
business.  Trade shows,  conventions and special events figure  prominently in a
corporate marketing mix. CORT provides the display and workspace furniture, plus
"quiet  room"   furnishings,   which  make   conventions  such  effective  sales
environments.

     The rapid growth of this unit has been  supplemented by  acquisitions,  the
most recent of which was the purchase of the trade show furnishings  business of
Aaron  Rents,  Inc.  This  strengthens  our  existing  activities  in Las Vegas,
Chicago, Dallas, Orlando, Atlanta, New York, Los Angeles and San Francisco.

     The trade show business  shows signs of becoming  CORT's next  breakthrough
success.

     While not an incubator  business in the traditional  sense,  CORT's growing
and increasingly  sophisticated  use of the Internet  illustrates how quickly we
can turn opportunity to our advantage.

     We  operate  two  Internet  addresses:  relocationcentral.com  is  aimed at
relocating employees through corporate human resources departments--an important
part of our  customer  base.  It provides  updated  newcomer  information  about
housing  and  apartment  availabilities,   schools,  taxes,  transportation  and
recreational  and  cultural  activities  in many cities.  The other,  CORT1.com,
provides  visitors  with a showroom  locator and an on-line  catalog that can be
used to shop for CORT products and services.

              www.relocationcentral.com
              [picture]


              www.CORT1.com
              [picture]


                                       8
<PAGE>


                      CORT Business Services and Subsidary
                                Financial Review

<TABLE>
<CAPTION>

<S>                                                                           <C>
Selected Consolidated Financial Data ......................................   10

Management's Discussion and Analysis of
  Financial Condition and Results of Operations ...........................   11

Consolidated Balance Sheets ...............................................   15

Consolidated Statements of Operations .....................................   16

Consolidated Statements of Stockholders' Equity ...........................   17

Consolidated Statements of Cash Flows .....................................   18

Notes to Consolidated Financial Statements ................................   19

Independent Auditors' Report ..............................................   27

Market for Common Stock of the Registrant and
  Related Stockholders' Matters ...........................................   28

</TABLE>


                                       9
<PAGE>


                      CORT Business Services and Subsidary
                      Selected Consolidated Financial Data
                     (in thousands, except per share data)
<TABLE>
<CAPTION>

                                                                         Year ended December 31,
                                                          ----------------------------------------------------
                                                             1994      1995      1996(1)     1997       1998
                                                             ----      ----      -------     ----       ----
<S>                                                       <C>        <C>        <C>        <C>        <C>     
Furniture rental revenue ..............................   $130,026   $141,988   $191,560   $237,212   $265,871
Furniture sales revenue ...............................     34,534     37,321     42,589     50,006     53,093
                                                          --------   --------   --------   --------   --------
  Total revenue .......................................    164,560    179,309    234,149    287,218    318,964
Furniture rental gross profit .........................    104,255    114,038    154,602    191,578    218,008
Furniture sales gross profit ..........................     13,885     15,118     17,382     19,749     20,739
                                                          --------   --------   --------   --------   --------
  Total gross profit ..................................    118,140    129,156    171,984    211,327    238,747
Selling, general and administrative expenses...........     95,526    102,435    136,536    165,019    186,100
                                                          --------   --------   --------   --------   --------
Operating earnings ....................................     22,614     26,721     35,448     46,308     52,647
Interest expense, net .................................     16,246     15,917      8,251      8,374      7,837
Income (loss) before extraordinary loss ...............      3,546      6,218     15,936     22,326     25,903
Net income (loss) .....................................   $  3,546   $  2,075   $ 15,936   $ 22,326   $ 23,395
Earnings per common share  before extraordinary loss(2)   $   0.91   $   1.26   $   1.40   $   1.74   $   1.99
Earnings per common share before  extraordinary
 loss--assuming dilution(2) ...........................   $   0.85   $   1.11   $   1.31   $   1.67   $   1.92
</TABLE>


<TABLE>
<CAPTION>

As of December 31,                                          1994       1995       1996       1997       1998
------------------                                          ----       ----       ----       ----       ----
<S>                                                       <C>        <C>        <C>        <C>        <C>     
Total assets...........................................   $178,275   $173,722   $247,199   $277,841   $332,896
Total debt.............................................    123,645     53,800     65,600     63,132     90,800
Stockholders' equity...................................      6,963     75,421    125,152    149,332    175,662
</TABLE>
--------------

(1)  Income  statement  data for the year ended  December  31, 1996  include the
     results of  operations of Evans Rents from the date of  acquisition,  April
     24, 1996.  The  acquisition  of Evans Rents was accounted for as a purchase
     business  combination.  Revenue of Evans  Rents for the period of April 25,
     1996 through December 31, 1996 was approximately $22,500,000.

(2)  Earnings per common share before extraordinary loss is computed by dividing
     income before  extraordinary  loss by the weighted average number of shares
     of common  stock  outstanding  during  the  year.  In  connection  with the
     Company's  initial public offering of common stock,  the Company  exchanged
     all  subordinated  debentures  for 2,728,167  shares of common  stock.  For
     purposes  of the  computations  of earnings  per common  share for 1994 and
     1995,  the Company has assumed that the exchange  occurred as of January 1,
     1994 for 2,090,591 shares of common stock.


                                       10
<PAGE>


                      CORT Business Services and Subsidary
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations

The  following  information  should  be  read  together  with  the  consolidated
financial statements and notes thereto appearing elsewhere in this Annual Report
(dollars in thousands, except per share data).

Results of Operations

CORT Business Services  Corporation ("the Company") is a holding company with no
assets other than its investment in CORT Furniture Rental  Corporation  ("CFR").
The following analysis compares the results of operations of the Company for the
years ended December 31, 1996,  1997 and 1998.  The following  table sets forth,
for the periods  indicated,  certain  income  statement  data as a percentage of
total revenue, unless otherwise indicated.

<TABLE>
<CAPTION>

                                                      Year ended December 31,
                                                  ------------------------------
                                                   1996        1997        1998
                                                   ----        ----        ----
<S>                                                <C>         <C>         <C>  
Rental revenue .............................       81.8%       82.6%       83.4%
Sales revenue ..............................       18.2        17.4        16.6
                                                  -----       -----       -----
  Total revenue ............................      100.0       100.0       100.0
Cost of rental(1) ..........................       19.3        19.2        18.0
Cost of sales(1) ...........................       59.2        60.5        60.9
Gross profit margin ........................       73.4        73.6        74.9
Selling, general and
  administrative expenses ..................       58.3        57.5        58.4
                                                  -----       -----       -----
Operating earnings .........................       15.1        16.1        16.5
Interest expense, net ......................        3.5         2.9         2.5
Income taxes ...............................        4.8         5.4         5.9
                                                  -----       -----       -----
Income before extraordinary loss ...........        6.8%        7.8%        8.1%
Net income .................................        6.8%        7.8%        7.3%
</TABLE>
-------------

(1)  Cost of rental is  calculated as a percentage  of rental  revenue.  Cost of
     sales is calculated as a percentage of sales revenue.

Components of Operating Earnings

Revenue.  Substantially  all of the Company's  revenue is derived from base rent
and fees  from its  outstanding  furniture  leases  and from the sale of  rental
furniture.  Furniture  rental  revenue is recognized in the month in which it is
due.

Furniture sales revenue is recognized in the month of furniture  delivery.  Cost
of  Furniture  Rental.  The primary  component  of cost of  furniture  rental is
depreciation  of rental  furniture  which is a noncash  charge  included  in the
statements  of  cash  flows  as  a  component  of  cash  provided  by  operating
activities.   The  Company  depreciates  most  of  its  rental  furniture  on  a
declining-balance method over five years, with an estimated salvage value of 25%
to 40% of original  cost.  The Company  also records the net book value of other
disposals,  primarily  inventory  shrinkage,  as a  component  of  the  cost  of
furniture rental revenue.

Cost of Furniture  Sales.  When furniture is sold, the depreciated book value of
such  furniture is recorded as cost of furniture  sales and is also  included in
the  statements  of cash flows as a  component  of cash  provided  by  operating
activities.

Selling,   General   and   Administrative   Expenses.   Selling,   general   and
administrative  expenses include  employee,  delivery,  advertising,  occupancy,
utilities  and  other   operating   expenses,   non-rental   depreciation,   and
amortization of goodwill.

YEAR ENDED DECEMBER 31, 1998
AS COMPARED TO YEAR ENDED DECEMBER 31, 1997

Revenue.  Total  revenue  increased  11.1% to $318,964 in 1998 from  $287,218 in
1997.  Furniture rental revenue for the year was $265,871, a 12.1% increase from
$237,212 in 1997. Rental revenue growth before the impact of acquisitions, trade
show operations and merged markets was approximately 5% which reflects growth in
the number of leases as well as revenue  per lease.  Furniture  sales  increased
6.2% to  $53,093  in 1998  from  $50,006  in 1997.  Excluding  the  impact of an
unusually  large  corporate sale in the second quarter of 1997,  furniture sales
would have shown an increase of 10.1%.  This  increase  reflects  the  Company's
continued efforts to maintain the quality of its rental furniture line-up.

Gross Profit.  Gross profit  margin on total revenue  increased to 74.9% for the
year ended  December  31, 1998 from 73.6% for the year ended  December 31, 1997.
The gross profit margin on furniture  rental revenue  increased to 82.0% in 1998
from 80.8% in 1997. This improvement is primarily attributed to the expansion of
CORT's housewares  business, a reduction in depreciation as a percent of revenue
and  improvements  in inventory  control from the continued  installation of the
perpetual  system.  Gross profit margin on furniture sales revenue  decreased to
39.1% in 1998 from 39.5% in 1997.  The gross profit  margin on  furniture  sales
revenue for 1997 would have been 40.1%  without the  unusually  large  corporate
sale.

Selling,   General   and   Administrative   Expenses.   Selling,   general   and
administrative  expenses  totaled  $186,100 or 58.4% of total revenue in 1998 as
compared  to  $165,019  or 57.5% of total  revenue in 1997.  This  increase as a
percentage of revenue is attributed to investments in personnel,  facilities and
marketing  efforts which the Company  believes are an integral part of its plans
for future growth.

Operating  Earnings.  As a result of the  changes in revenue,  gross  margin and
selling, general and administrative expenses discussed above, operating earnings
increased to $52,647,  or 16.5% of total revenue in 1998 from $46,308,  or 16.1%
of total revenue in 1997.

Interest Expense,  net. Interest expense decreased to $7,837 in 1998 from $8,374
in 1997.  This decrease is due to the  replacement  of the senior notes with the
lower interest rate debt of the revolving  credit facility and the effect of the
lower market interest rate on the revolving credit facility, partially offset by
additional borrowings for acquisitions.

                                       11
<PAGE>


                      CORT Business Services and Subsidary
                     Mangement's Discussion and Analysis of
           Financial Condition and Results of Operations (continued)

Extraordinary Loss. As a result of the early retirement of the senior notes, the
Company  recognized a loss of $2,508,  net of taxes, which has been reflected in
the Company's  consolidated statement of operations as an extraordinary loss for
the year ended  December 31, 1998.  The  extraordinary  loss includes  $3,495 of
premiums on the senior  note  retirement,  the  write-off  of $677 of  deferred
financing fees and $8 of other associated costs.

Furniture Purchases. Furniture purchases totaled $81,671 in 1998, an increase of
7.4% from the $76,010 purchased in 1997. Furniture purchases increased primarily
due to purchases in acquired businesses.  The remaining increase reflects normal
business requirements offset in part by a reduction for merged markets.

YEAR ENDED DECEMBER 31, 1997
AS COMPARED TO YEAR ENDED DECEMBER 31, 1996

Revenue.  Total  revenue  increased  22.7% to $287,218 in 1997 from  $234,149 in
1996.  Furniture rental revenue for the year was $237,212, a 23.8% increase from
$191,560 in 1996.  Rental revenue growth before the impact of  acquisitions  and
merged  markets was  approximately  13% which  reflects  growth in the number of
leases as well as revenue per lease.  Furniture sales increased 17.4% to $50,006
in 1997  from  $42,589  in 1996.  Excluding  the  impact of an  unusually  large
corporate sale in the second quarter of 1997,  furniture  sales would have shown
an increase of 13.3%. This increase reflects the Company's  continued efforts to
maintain the quality of its rental furniture line-up.

Gross Profit.  Gross profit  margin on total revenue  increased to 73.6% for the
year ended  December  31, 1997 from 73.4% for the year ended  December 31, 1996.
The gross profit margin on furniture  rental revenue was 80.8% in 1997 and 80.7%
in 1996.  Gross profit margin on furniture  sales revenue  decreased to 39.5% in
1997 from 40.8% in 1996.  The profit margin on furniture  sales revenue for 1997
would have been 40.1% without the unusually large corporate sale.

Selling,   General   and   Administrative   Expenses.   Selling,   general   and
administrative  expenses  totaled  $165,019 or 57.5% of total revenue in 1997 as
compared to $136,536 or 58.3% of total revenue in 1996. This percentage decrease
is attributed to the  efficiencies  gained in  California by  integrating  Evans
Rents, as well as the growth and productivity of the startups the Company opened
in prior years. In addition,  1996 included $425 of certain  charges  associated
with duplicate showroom closings related to the acquisition of Evans Rents.

Operating  Earnings.  As a result of the  changes in revenue,  gross  margin and
selling, general and administrative expenses discussed above, operating earnings
increased to $46,308,  or 16.1% of total revenue in 1997 from $35,448,  or 15.1%
of total revenue in 1996.

Interest Expense,  net. Interest expense increased to $8,374 in 1997 from $8,251
in 1996.

Furniture Purchases.  Furniture purchases totaled $76,010 in 1997, a decrease of
1.7% from the $77,323  purchased in 1996.  Purchases in 1996 were  significantly
higher as the Company  converted the Evans Rents  business to the CORT Furniture
line. In 1997,  furniture purchases supported normal growth and replenishment of
furniture which had been sold or disposed.

LIQUIDITY AND CAPITAL RESOURCES

The  Company's  primary  capital   requirements  are  for  purchases  of  rental
furniture.  The  Company  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.  Furniture  purchases  were
$77,323,  $76,010  and  $81,671  in 1996,  1997 and 1998,  respectively.  As the
Company's growth strategies continue to be implemented,  furniture purchases are
expected to increase accordingly.

The Company's other capital requirements consist of purchases of property, plant
and equipment, including leasehold improvements, warehouse and office equipment,
standard   programming   enhancements  and  computer   hardware   necessary  for
installation of the management  information system in additional districts.  Net
purchases of property,  plant and  equipment  were $5,652,  $7,638 and $8,898 in
1996, 1997 and 1998, respectively.

During  1996,  1997 and 1998,  net cash  provided  by  operations  was  $78,374,
$100,639 and $108,189,  respectively.  During 1996, 1997 and 1998, net cash used
in investing  activities  was  $122,927,  $100,665  and  $132,234  respectively,
consisting primarily of purchases of rental furniture and portfolio acquisitions
and in  1996,  the  acquisitions  of  Evans  Rents  and  AFR  and in  1998,  the
acquisition of Instant  Interiors  Corporation.  During 1996, 1997 and 1998, net
cash provided  (used) by financing  activities  was $44,297,  ($97) and $24,748,
respectively.  In 1996,  $32,672 was  provided by the public  offering of common
stock, net of expenses, which was used to repay indebtedness under the revolving
credit facility primarily due to the acquisition of Evans Rents.

                                       12
<PAGE>


                      CORT Business Services and Subsidary
                     Mangement's Discussion and Analysis of
           Financial Condition and Results of Operations (continued)

CFR  maintains a revolving  credit  facility  that  provides a $125,000  line of
credit to meet  acquisition  and  expansion  needs as well as  seasonal  working
capital  and general  corporate  requirements.  The  revolving  credit  facility
expires  February 2002 and restricts the ability of CFR to make advances and pay
dividends to the Company.  Borrowings  under the revolving  credit facility bear
interest at a  fluctuating  rate based on, at the Company's  option,  either the
lead lender's base rate or the London Interbank Offer Rate (LIBOR).  The average
interest  rate paid by CFR during 1996,  1997 and 1998 on the  revolving  credit
facility was 7.30%, 7.25% and 6.70%,  respectively.  A commitment fee calculated
based  upon the unused  portion  of the  revolving  credit  facility  is payable
quarterly  in arrears.  The Company had $30,447  available  under the  revolving
credit facility at December 31, 1998.

The Company believes that future cash flows from  operations,  together with the
borrowings  available  under the  revolving  credit  facility  will  provide the
Company with sufficient  liquidity and financial resources to finance its growth
and satisfy its working capital  requirements  through the term of the revolving
credit facility.

The Internal  Revenue Service  ("IRS") had proposed the  disallowance of certain
deductions  taken by Fairwood  Corporation for a consolidated tax group of which
CFR was previously a member (the "Former Group") through the year ended December
31, 1988.  The IRS  challenge  included  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. Fairwood Corporation
has  indicated  to the  Company  that it has reached an  agreement  with the IRS
regarding  a  settlement  of the  proposed  adjustments.  The  bankruptcy  court
handling  Fairwood  Corporation's  bankruptcy  filing  approved the terms of the
settlement  in October  1998.  The total tax liability of the Former Group under
the terms of the  settlement is  approximately  $5 million,  including  interest
through  December 31, 1998.  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  $4  million  for such
periods  (including  interest  through December 31, 1998) under the terms of the
settlement.  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.  The Company is not in a position to
determine  the  probable   impact  on  the  Company's   consolidated   financial
statements, if any.

YEAR 2000 COMPLIANCE

As is the case with other  companies using  computers in their  operations,  the
Company is faced with the task of addressing the Year 2000 issue.  The Year 2000
issue arises from the widespread use of computer programs that rely on two-digit
codes to perform computations or decision-making functions. The Company has done
a  comprehensive  review of its  significant  computer  programs to identify the
systems that would be affected by the Year 2000 issue.

The  Company  relies on  computer-based  technology  and  utilizes  a variety of
third-party  hardware and software.  The Company's rental and retail  functions,
including lease writing,  inventory control, billing and accounts receivable use
the  software  called  "RTR."  This  software,  which is the  Company's  primary
operating  system,  has been  recently  developed  and  installed in most of the
Company's  operations.  The  RTR  software  has  been  modified  for  Year  2000
compliance  and  is  currently  being  tested.  The  installation  of RTR in the
Company's  remaining  operations,  as well as the  Year  2000  modification,  is
expected to be completed in the third quarter of 1999.

The Company utilizes third-party  software for administrative  functions such as
accounting,  payroll and human  resources.  The  Company  expects to upgrade the
administrative function third-party software to the Year 2000 version or install
new software which is Year 2000 compliant in the first half of 1999. The Company
currently  estimates the cost of modifying its computer  systems to be Year 2000
compliant to be approximately $250; the majority of these costs will be incurred
by March 31, 1999.

                                       13
<PAGE>


                      CORT Business Services and Subsidary
                     Mangement's Discussion and Analysis of
           Financial Condition and Results of Operations (continued)

The  Company is still in the  process of  reviewing  its Year 2000  exposure  to
customers  and  vendors.  The Company is not  dependent  on any one  supplier or
customer for more than 10% of its rental furniture or revenue, respectively. The
Company is sending  inquiries as to Year 2000  readiness to selected  vendors in
order to  identify  any  significant  exposures  that may  exist  and  establish
alternative  sources or  strategies  where  necessary.  The Company is currently
unaware of any Year 2000  problems  faced by any  customers  or vendors that are
likely to have a material adverse effect on the Company.

In a worst-case scenario,  if the Company's operating system was not to be ready
for Year 2000, the Company would continue to make deliveries, record revenue and
bill  customers  utilizing a personal  computer  until the  computer  system was
ready.  This would not stop the  operations of the Company and currently is done
whenever a location experiences temporary down time.

There can be no guarantee that the foregoing cost estimates or deadlines will be
achieved and actual  results  could differ from current  expectations.  Specific
factors  that might  cause  differences  include,  but are not  limited  to, the
ability of  customers,  suppliers,  and other  companies on which the  Company's
operations  rely to modify or convert their  systems to be Year 2000 ready,  the
ability of the Company to locate and  correct all  relevant  computer  code,  or
similar  uncertainties.  The Company is in the process of developing contingency
plans for such scenarios.

INFLATION AND GENERAL ECONOMIC CONDITIONS

Historically,  the Company has been able to offset increases in furniture prices
with  increases  in rental  rates.  Management  believes  that  increases in new
furniture  prices have  averaged less than the overall  inflation  rate over the
last five years.  In periods of high  inflation,  the  Company has  historically
achieved  higher margins on its clearance  center sales.  A sustained  recession
with  little or no new job  growth  may have a  material  adverse  effect on the
Company's future opportunities for sustained growth.

NEW ACCOUNTING PRONOUNCEMENTS

On April 3, 1998, the Accounting  Standards  Executive  Committee (AcSEC) issued
Statement of Position No.  98-5,  Reporting on the Costs of Start-Up  Activities
(SOP 98-5)  effective  for the Company for fiscal year 1999.  SOP 98-5  requires
costs of start-up  activities,  including  organization costs, to be expensed as
incurred.  The Company currently expenses all such start-up costs;  accordingly,
the  adoption  of SOP 98-5 will have no  impact  on the  Company's  consolidated
financial statements.

FORWARD-LOOKING STATEMENTS

In addition to  historical  information,  this Annual  Report  includes  certain
forward-looking  statements  as  such  term is  defined  in  Section  27A of the
Securities  Act and  Section  21E of the  Exchange  Act.  These  forward-looking
statements involve certain risks and uncertainties, including but not limited to
acquisitions, additional financing requirements, development of new products and
services,  the effect of  competitive  products  and  pricing  and the effect of
general  economic  conditions,   that  could  cause  actual  results  to  differ
materially from those in such forward-looking statements.

                                       14
<PAGE>


                      CORT Business Services and Subsidary
                          Consolidated Balance Sheets
                (in thousands, except share and per share data)

<TABLE>
<CAPTION>

                                                                 December 31,
                                                             -------------------
                                                                1997      1998
                                                                ----      ----
<S>                                                         <C>        <C>
ASSETS
Cash and cash equivalents ................................   $     --   $    703
Accounts receivable, less allowance for doubtful
 accounts of $2,891 and $3,179 in 1997 and 1998,
 respectively ............................................     13,521     14,585
Prepaid expenses .........................................      4,127      5,918
Rental furniture, net (note 2) ...........................    164,323    189,059
Property, plant and equipment, net (note 4) ..............     38,777     43,861
Investment ...............................................         --      3,000
Other receivables and assets, net (note 5) ...............      3,183      3,048
Goodwill, net of accumulated amortization of $4,224 and
 $6,159 in  1997 and 1998, respectively (note 12) ........     53,910     72,722
                                                             --------   --------
                                                             $277,841   $332,896
                                                             ========   ========


LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable .........................................   $  5,551   $  3,417
Rental security deposits .................................      7,978      9,581
Accrued expenses (note 10) ...............................     27,936     21,076
Deferred rental revenue ..................................      9,239     11,541
Long-term debt (note 6) ..................................     63,132     90,800
Deferred income taxes (note 5) ...........................     14,673     20,819
                                                             --------   --------
                                                              128,509    157,234
                                                             ========   ========


Commitments and contingencies (notes 5, 7 and 9)

Stockholders' equity (notes 3, 8, and 11):
  Common stock, voting, $.01 par value, 20,000,000
   shares  authorized, 12,869,306 and 13,084,541 shares
   issued and outstanding  in 1997 and 1998, respectively         129        131
  Common stock, Class B, nonvoting, $.01 par value,
   20,000,000 shares  authorized, and none issued and
   outstanding ...........................................         --         --
  Additional paid-in capital .............................    103,007    105,940
  Retained earnings ......................................     46,196     69,591
                                                             --------   --------
    Total stockholders' equity ...........................    149,332    175,662
                                                             --------   --------
                                                             $277,841   $332,896
                                                             ========   ========
</TABLE>


See accompanying notes to consolidated financial statements.

                                       15
<PAGE>


                      CORT Business Services and Subsidary
                     Consolidated Statements of Operations
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                       Year ended December 31,
                                                    ------------------------------
                                                      1996       1997       1998
Revenue:
<S>                                                 <C>        <C>        <C>     
  Furniture rental ..............................   $191,560   $237,212   $265,871
  Furniture sales ...............................     42,589     50,006     53,093
                                                    --------   --------   --------
    Total revenue ...............................    234,149    287,218    318,964
                                                    --------   --------   --------
Operating costs and expenses:
  Cost of furniture rental ......................     36,958     45,634     47,863
  Cost of furniture sales .......................     25,207     30,257     32,354
  Employee, delivery and advertising expenses ...     95,204    114,674    128,710
  Occupancy, utilities and nonrental depreciation     22,722     27,747     32,496
  Amortization of goodwill ......................        961      1,546      1,935
  Other operating expenses ......................     17,649     21,052     22,959
                                                    --------   --------   --------
    Total costs and expenses ....................    198,701    240,910    266,317
                                                    --------   --------   --------
    Operating earnings ..........................     35,448     46,308     52,647
Interest expense, net ...........................      8,251      8,374      7,837
                                                    --------   --------   --------
    Income before income taxes and
     extraordinary loss .........................     27,197     37,934     44,810
Income tax expense (note 5) .....................     11,261     15,608     18,907
                                                    --------   --------   --------
    Income before extraordinary loss ............     15,936     22,326     25,903
Extraordinary loss on early retirement
 of debt, net of income tax benefit of
 $1,672 (notes 5 and 6) .........................         --         --      2,508
                                                    --------   --------   --------
    Net income ..................................   $ 15,936   $ 22,326   $ 23,395
                                                    ========   ========   ========

Earnings per common share before
 extraordinary loss (note 13) ...................   $   1.40   $   1.74   $   1.99
Extraordinary loss per common share .............         --         --        .19
                                                    --------   --------   --------
Earnings per common share .......................   $   1.40   $   1.74   $   1.80
                                                    ========   ========   ========
Weighted average number of common shares
 used in computation ............................     11,416     12,804     13,019
                                                    --------   --------   --------

Earnings per common share before
 extraordinary loss--assuming dilution
 (note 13) ......................................   $   1.31   $   1.67   $   1.92
Extraordinary loss per common share--
 assuming dilution ..............................         --         --        .19
                                                    --------   --------   --------
Earnings per common share--assuming dilution ....   $   1.31   $   1.67   $   1.73
                                                    ========   ========   ========
Weighted average number of common shares
 used in computation--assuming dilution .........     12,144     13,378     13,491
                                                    --------   --------   --------
</TABLE>


See accompanying notes to consolidated financial statements.

                                       16
<PAGE>


                      CORT Business Services and Subsidary
                Consolidated Statements of Stockholder's Equity
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                            Additional                Total
                                                                    Common    Paid-in    Retained  Stockholders'
                                                                     Stock    Capital    Earnings     Equity
                                                                     -----    -------    --------     ------
<S>                                                               <C>        <C>        <C>        <C>     
Balance, December 31, 1995 .....................................   $    104   $ 67,383   $  7,934   $ 75,421
  Net income ...................................................         --         --     15,936     15,936
  Income tax benefit from stock options exercised ..............         --        571         --        571
  Issuance of common stock from public offering, net of expenses         19     32,653         --     32,672
  Issuance of common stock from exercise of stock options ......          1        487         --        488
  Issuance of common stock from exercise of warrants ...........          3         61         --         64
                                                                   --------   --------   --------   --------
Balance, December 31, 1996 .....................................        127    101,155     23,870    125,152
                                                                   --------   --------   --------   --------
  Net income ...................................................         --         --     22,326     22,326
  Income tax benefit from stock options exercised ..............         --      1,177         --      1,177
  Issuance of common stock from exercise of stock options ......          1        660         --        661
  Issuance of common stock from exercise of warrants ...........          1         15         --         16
                                                                   --------   --------   --------    -------
Balance, December 31, 1997 .....................................        129    103,007     46,196    149,332
                                                                   --------   --------   --------    -------
  Net income ...................................................         --         --     23,395     23,395
  Income tax benefit from stock options exercised ..............         --      2,109         --      2,109
  Issuance of common stock from exercise of stock options, net .          1        810         --        811
  Issuance of common stock from exercise of warrants ...........          1         14         --         15
                                                                   --------   --------   --------    -------
Balance, December 31, 1998 .....................................   $    131   $105,940   $ 69,591   $175,662
                                                                   ========   ========   ========   ========
</TABLE>


See accompanying notes to consolidated financial statements.

                                       17

<PAGE>


                      CORT Business Services and Subsidary
                     Consolidated Statements of Cash Flows
                                 (in thousands)

<TABLE>
<CAPTION>
                                                           Year ended December 31,
                                                    -----------------------------------
                                                       1996         1997         1998
                                                       ----         ----         ----
Cash flows from operating activities:
<S>                                                 <C>          <C>          <C>      
  Net income ....................................   $  15,936    $  22,326    $  23,395
  Proceeds of disposals of rental furniture
 in excess of gross profit ......................      24,118       27,697       31,487
  Adjustments to reconcile net income to
   net cash provided by operating activities:
    Extraordinary loss on early retirement
     of debt ....................................          --           --        2,508
    Depreciation and amortization:
      Rental furniture ..........................      26,887       33,704       36,461
      Other depreciation and amortization .......       3,804        4,871        6,213
      Goodwill ..................................         961        1,546        1,935
      Deferred financing fees ...................         698          726          629
    Rental furniture inventory shrinkage ........       2,261        3,567        2,927
    Deferred income taxes .......................       2,990        3,972        4,762
    Changes in assets and liabilities, net
     of acquisitions:
      Accounts receivable .......................      (2,795)        (364)       1,271
      Prepaid expenses ..........................          (8)         195       (1,619)
      Other receivables and assets ..............          27           83       (1,248)
      Accounts payable, accrued expenses and
       rental security deposits, net ............       1,746          262       (2,465)
      Deferred rental revenue ...................       1,749        2,054        1,933
                                                    ---------    ---------    ---------
        Net cash provided by operating activities      78,374      100,639      108,189
                                                    ---------    ---------    ---------

Cash flows from investing activities:
  Purchases of rental furniture .................     (77,323)     (76,010)     (81,671)
  Portfolio acquisitions ........................      (2,790)     (16,851)     (21,970)
  Purchases of property, plant and equipment ....      (6,238)      (8,628)      (9,173)
  Sale of property, plant and equipment .........         586          990          275
  Purchase of Evans Rents .......................     (27,778)          --           --
  Purchase of AFR ...............................      (9,384)        (166)          --
  Purchase of Instant Interiors .................          --           --      (16,695)
  Purchase of investment ........................          --           --       (3,000)
                                                    ---------    ---------    ---------
        Net cash used in investing activities ...    (122,927)    (100,665)    (132,234)
                                                    ---------    ---------    ---------

Cash flows from financing activities:
  Repayments of senior notes ....................        (573)         (68)     (49,932)
  Payments of premium to retire senior notes ....          --           --       (3,503)
  Payment of deferred financing fees ............        (154)          --         (243)
  Borrowings on the line of credit ..............      87,400       54,200      131,500
  Repayments on the line of credit ..............     (75,600)     (56,600)     (53,900)
  Issuance of common stock ......................      33,224          677          826
  Other .........................................          --        1,694           --
                                                    ---------    ---------    ---------
        Net cash provided (used) by financing
         activities .............................      44,297          (97)      24,748
                                                    ---------    ---------    ---------

        Net increase (decrease) in cash and
         cash equivalents .......................        (256)        (123)         703
Cash and cash equivalents at beginning of year ..         379          123           --
                                                    ---------    ---------    ---------
Cash and cash equivalents at end of year ........   $     123    $      --    $     703
                                                    =========    =========    =========

Supplemental disclosures of cash
 flow information:
  Cash paid for:
    Interest ....................................   $   7,487    $   7,664    $   8,541
    Income taxes ................................       8,089       11,626       11,433
Noncash financing activities:
  Tax benefit from exercise of stock options ....   $     571    $   1,177    $   2,109
</TABLE>


See accompanying notes to consolidated financial statements.

                                       18

<PAGE>


                      CORT Business Services and Subsidary
                   Notes to Consolidated Financial Statements

(1) FORMATION AND DESCRIPTION OF THE COMPANY

CORT Business Services  Corporation (the "Company") is a holding company with no
independent  operations  and no material  assets other than its ownership of all
the outstanding capital stock of CORT Furniture Rental Corporation  ("CFR"). The
Company is largely  dependent on the receipt of dividends or distributions  from
CFR to fund its obligations. CFR is a provider of rental furniture,  accessories
and related  services to both corporate and individual  customers.  In addition,
CFR sells previously rented furniture.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Principles of Consolidation and Presentation

The consolidated  financial statements as of December 31, 1997 and 1998, and for
the years ended December 31, 1996,  1997 and 1998,  include the accounts of CORT
Business Services  Corporation and its wholly owned subsidiary.  All significant
intercompany transactions have been eliminated.

(b) Accounting Estimates

The  preparation  of  consolidated   financial  statements  in  conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of contingent  assets and liabilities at the date of the consolidated
financial  statements and the reported  amounts of revenues and expenses  during
the reported periods. Actual results could differ from these estimates.

(c) Rental Furniture

Rental  furniture  includes  residential and office furniture which is rented to
customers or is available for rental and/or sale and is recorded at the lower of
depreciated cost or market value. Rental furniture is depreciated primarily on a
declining-balance  method over 3 to 5 years,  with an estimated salvage value of
25 to 40 percent of original cost. Accumulated  depreciation on rental furniture
was  $66,797,000  and  $79,871,000 at December 31, 1997 and 1998,  respectively.
Reserves for purchase  options and shrinkage on rental furniture were $4,406,000
and $2,825,000 at December 31, 1997 and 1998, respectively.  Furniture no longer
meeting rental standards is held for sale.

Furniture  rentals are  recognized as revenue in the month they are due.  Rental
payments  received  prior to the  month  due are  recorded  as  deferred  rental
revenue.  Cost of furniture  rental  includes  depreciation  expense,  inventory
losses,  repairs and  maintenance,  net book value of furniture sold under lease
purchase options and costs of accessories.

Certain of CFR's  leases  include  purchase  options  whereby the  customer  can
receive  title  to  the  furniture  upon  satisfaction  of  certain  conditions.
Generally,  these  leases are short term and must be extended by the customer in
order for the purchase option to apply. CFR provides  reserves to reduce the net
book  value of  furniture  under  such  leases  based on the  length of time the
furniture  has been out on  lease  and the  likelihood  of the  exercise  of the
options.

The Company  considers  the  proceeds  from the sale of rental  furniture  as an
element of cash flow from  operations.  Accordingly,  the  proceeds  received in
excess of the gross profit  recognized on sales of rental furniture are added to
net  income  in  deriving  cash  flow  from   operations  in  the   accompanying
consolidated statements of cash flows.

(d) Property, Plant and Equipment

Property,  plant and  equipment  is recorded at cost or fair value,  if acquired
through a purchase  business  combination.  Depreciation  is computed  using the
straight-line  method over the estimated  useful lives of the assets as follows:
buildings  50 years;  major  roof  renovations  10 years;  furniture,  fixtures,
machinery and equipment from 5 to 10 years;  computer hardware and software from
3 to 5 years;  and  leasehold  improvements  over the shorter of the term of the
related leases or the estimated useful lives.

(e) Investment

Investment  consists of an equity ownership of less than 20% in a company and is
accounted  for under the cost  method  and  evaluated  for  recoverability  on a
regular basis.

(f) Goodwill

Goodwill,  representing the excess of the cost over the fair value of net assets
acquired,  is amortized using the straight-line  method over 20 to 40 years. The
Company  assesses the  recoverability  of this  intangible  asset by determining
whether the  amortization of the goodwill balance over its remaining life can be
recovered  through  undiscounted  future  operating  cash flows of the  acquired
operation.  The amount of goodwill  impairment,  if any,  is  measured  based on
projected   discounted  future  operating  cash  flows  using  a  discount  rate
reflecting  the  Company's   average  cost  of  funds.  The  assessment  of  the
recoverability  of goodwill will be impacted if estimated  future operating cash
flows are not achieved.

(g) Cash and Cash Equivalents

Cash  and  cash  equivalents  include  cash in banks  and  investments  having a
maturity  of  three  months  or less on the  date of  purchase.  Cash  and  cash
equivalents  at December 31, 1998  consisted  primarily of overnight  repurchase
funds.

(h) Rental Security Deposits

The Company may require a non-interest  bearing  security deposit of one month's
rent based on the Company's evaluation of the credit-worthiness of the customer.
The security deposit is returned at the end of the lease provided that all lease
terms have been satisfied.

(i) Stock-Based Compensation

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation,"  encourages, but does not require companies to record stock-based
employee  compensation  plans at fair value.  The Company has elected to account
for  stock-based  compensation  using the intrinsic  value method  prescribed in
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees,"  and related  Interpretations.  Accordingly,  compensation  cost for
employee

                                       19
<PAGE>


                      CORT Business Services and Subsidary
             Notes to Consolidated Financial Statements (continued)


stock  options is measured as the excess,  if any, of the quoted market price of
the Company's stock at the date of the grant over the exercise price an employee
must pay to acquire the stock.

(j) Income Taxes

Income taxes are reported under the asset and liability method, whereby deferred
tax assets  and  liabilities  are  recognized  for the  future tax  consequences
attributable to differences  between the financial statement carrying amounts of
existing  assets and liabilities  and their  respective tax bases.  Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled.  The effect on deferred tax assets and liabilities of a
change in tax rates is  recognized  in income in the period  that  includes  the
enactment date.

(k) Deferred Financing Fees

Costs incurred with the issuance of long-term debt are capitalized and amortized
over  the  term of the  related  debt  using a  method  which  approximates  the
effective interest method.

(l) Earnings Per Common Share

Earnings  per common  share is computed by dividing  net income by the  weighted
average number of shares of common stock outstanding  during the year.  Earnings
per common  share--assuming  dilution is computed by dividing  net income by the
weighted average number of shares of common stock and dilutive  potential common
stock. Dilutive securities are comprised entirely of stock options and warrants.
The Company has no other potentially dilutive securities.

(m) Advertising Costs

Advertising   production  costs  are  generally  expensed  the  first  time  the
advertisement is run. Media placement costs are generally  expensed in the month
the advertising appears. At December 31, 1997 and 1998, approximately $1,962,000
and  $2,475,000  of  deferred  advertising  expenses  were  reported  in prepaid
expenses.  Advertising expenses were approximately $10,983,000,  $12,632,000 and
$14,552,000 for the years ended December 31, 1996, 1997 and 1998, respectively.

(n) Comprehensive Income

On January 1, 1998, the Company adopted SFAS No. 130,  "Reporting  Comprehensive
Income." SFAS No. 130  establishes  standards  for  reporting and  presenting of
comprehensive  income and its components in a full set of financial  statements.
Comprehensive  income  of  the  Company  consists  solely  of  net  income  and,
accordingly,  the  adoption  of SFAS  No.  130 had no  impact  on the  Company's
consolidated  financial  statements.  The  Statement  requires  only  additional
disclosures in the  consolidated  financial  statements;  it does not affect the
Company's financial position or results of operations.

(3) Public Offering of Common Stock

In July 1996,  the  Company  sold,  through  an  underwritten  public  offering,
1,865,100  common shares at $18.75 per share.  The net proceeds of approximately
$32,672,000,  net of associated underwriting discounts and other expenses of the
offering,  were used to repay  indebtedness  under the revolving credit facility
primarily due to the acquisition of Evans Rents.

(4) Property, Plant and Equipment

Property, plant and equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                    December 31,  December 31,
                                                        1997          1998
                                                        ----          ----
<S>                                                   <C>           <C>    
Land and land improvements ........................   $ 6,772       $ 6,772
Buildings and improvements ........................    15,418        15,650
Machinery and equipment ...........................     5,243         6,183
Leasehold improvements ............................    14,657        19,242
Computer hardware and software ....................     7,257        11,060
Furniture and fixtures ............................     1,793         2,803
Other .............................................     2,391         2,880
                                                      -------       -------
                                                       53,531        64,590
Accumulated depreciation  and amortization ........    14,754        20,729
                                                      -------       -------
                                                      $38,777       $43,861
                                                      =======       =======
</TABLE>

(5) Income Taxes

Components  of the  expense  for income  taxes are  summarized  as  follows  (in
thousands):

<TABLE>
<CAPTION>

                                          Year ended    Year ended    Year ended
                                          December 31,  December 31,  December 31,
                                              1996          1997         1998
                                              ----          ----         ----
Current:
<S>                                        <C>           <C>           <C>     
  Federal ...........................      $  6,117      $  9,037      $ 11,275
  State and local ...................         1,489         2,453         2,870
                                           --------      --------      --------
                                              7,606        11,490        14,145
                                           --------      --------      --------
Deferred:
  Federal ...........................         3,107         3,515         4,161
  State and local ...................           548           603           601
                                           --------      --------      --------
                                              3,655         4,118         4,762
                                           --------      --------      --------
Total expense before
 extraordinary loss .................      $ 11,261      $ 15,608      $ 18,907
Income tax benefit from
 extraordinary loss on
 early retirement of debt ...........            --            --        (1,672)
                                           --------      --------      --------
Total income tax expense ............      $ 11,261      $ 15,608      $ 17,235
                                           ========      ========      ========
</TABLE>

The  difference  between the actual  expense for taxes and taxes computed at the
Federal  income tax rate of 35 percent in 1996,  1997 and 1998 is  summarized as
follows (in thousands):
<TABLE>
<CAPTION>
                                           Year ended    Year ended    Year ended
                                           December 31,  December 31,  December 31,
                                              1996          1997          1998
                                              ----          ----          ----
<S>                                        <C>          <C>           <C>
Tax expense computed
  at Federal rate ......................    $  9,519     $ 13,277      $ 15,684
State and local taxes, net of
 Federal benefit .......................       1,324        1,986         2,153
Effects of goodwill  amortization ......         336          395           397
Other, net .............................          82          (50)          673
                                            --------     --------      --------
  Total  expense  before
   extraordinary loss ..................    $ 11,261     $ 15,608      $ 18,907
                                            ========     ========      ========
</TABLE>

                                       20
<PAGE>


                      CORT Business Services and Subsidary
             Notes to Consolidated Financial Statements (continued)

The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets and deferred tax  liabilities are presented below (in
thousands):

<TABLE>
<CAPTION>
                                                    December 31,    December 31,
                                                        1997           1998
                                                        ----           ----
<S>                                                  <C>             <C>
Deferred tax assets:                                              
  Accounts receivable, principally due to                         
    allowance for doubtful accounts ..............    $ 1,156        $ 1,271
  Compensated absences, principally due to                        
    accrual for financial reporting purposes .....        845            989
  Deferred financing fees ........................        352             --
  Deferred rental revenue ........................      3,715          4,617
  Reserve for unfavorable operating lease                         
    and duplicate facilities .....................      2,526            829
  Reserve for purchase options and                                
   shrinkage on rental property ..................      1,762          1,130
  Accrued insurance ..............................        998            991
  Net operating loss carryforwards ...............        205             --
  AMT credit carryforward ........................        394            104
  Other ..........................................      1,141          2,036
                                                      -------        -------
    Total gross deferred tax assets ..............     13,094         11,967
                                                      -------        -------
Deferred tax liabilities:                                         
  Rental furniture, principally due to                            
     differences in depreciation .................     22,387         29,320
  Property, plant and equipment, principally                      
     due to differences in depreciation ..........      5,140          2,453
  Other ..........................................        240          1,013
                                                      -------        -------
    Total gross deferred tax liabilities .........     27,767         32,786
                                                      -------        -------
    Net deferred tax liability ...................    $14,673        $20,819
                                                      =======        =======
</TABLE>

The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary differences
become deductible.  Management  considers the scheduled reversal of deferred tax
liabilities,  projected  future taxable income,  and tax planning  strategies in
making this assessment.

The Company is expecting  refunds from Federal and state taxing  authorities  of
approximately $1,030,000 which are included in other receivables and assets. The
Company  has  alternative  minimum  tax credit  carryforwards  of  approximately
$104,000 which are available to reduce future Federal  regular income taxes,  if
any, over an indefinite period.

The Internal  Revenue Service  ("IRS") had proposed the  disallowance of certain
deductions  taken by Fairwood  Corporation for a consolidated tax group of which
CORT Furniture Rental  Corporation  ("CFR") was previously a member (the "Former
Group") through the year ended December 31, 1988. The IRS challenge included 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.  Fairwood  Corporation  has indicated to the Company that it has
reached  an  agreement  with the IRS  regarding  a  settlement  of the  proposed
adjustments.  The bankruptcy court handling  Fairwood  Corporation's  bankruptcy
filing  approved  the terms of the  settlement  in October  1998.  The total tax
liability of the Former Group under the terms of the settlement is approximately
$5 million, including interest through December 31, 1998. 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 $4
million for such periods  (including  interest  through December 31, 1998) under
the terms of the settlement.  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.  The  Company is not in a
position  to  determine  the  probable  impact  on  the  Company's  consolidated
financial statements, if any.

(6) Long-Term Debt

The outstanding long-term debt was as follows (in thousands):

<TABLE>
<CAPTION>
                                                December 31,      December 31,
                                                   1997             1998
                                                   ----             ----
<S>                                              <C>              <C>    
Revolving credit facility ....................   $13,200          $90,800
Senior notes .................................    49,932               --
                                                 -------          -------
                                                 $63,132          $90,800
                                                 =======          =======
</TABLE>

CFR maintains a revolving credit facility with a group of banks.  This facility,
for which the Company is  guarantor,  provides a $125  million line of credit to
meet  acquisition  and expansion  needs as well as seasonal  working capital and
general corporate  requirements.  The revolving credit facility expires February
2002 and is unsecured  but does restrict the ability of CFR to pledge its assets
as security.  This facility  also  restricts the ability of CFR to make advances
and pay dividends to the Company. Borrowings under the revolving credit facility
bear interest at a fluctuating  rate based on, at the Company's  option,  either
the lead lender's  base rate or the London  Interbank  Offer Rate  (LIBOR).  The
average  interest  rate paid by CFR during 1996,  1997 and 1998 on the revolving
credit  facility was 7.30%,  7.25% and 6.70%,  respectively.  A  commitment  fee
calculated  based upon the unused  portion of the revolving  credit  facility is
payable  quarterly  in  arrears.  The Company had  approximately  $3,753,000  in
letters of credit  outstanding  at December 31, 1998 which reduced the borrowing
base  under  the  revolving  credit  facility.  The  Company  had  approximately
$30,447,000 available under the revolving credit facility at December 31, 1998.

On September 10, 1998, the Company redeemed the remaining $49,932,000 of its 12%
Senior Notes at a price of 107% of the principal  amount plus accrued and unpaid
interest  to the  date of  redemption.  The  Company  used  borrowings  under an
expanded  credit  line with its  existing  bank group to redeem the notes.  As a
result of the early retirement of the Senior Notes, the Company

                                       21
<PAGE>


                      CORT Business Services and Subsidary
             Notes to Consolidated Financial Statements (continued)


recognized an  extraordinary  loss of  $2,508,000,  net of income tax benefit of
$1,672,000 in the third quarter of 1998.

The estimated fair value of the Company's  consolidated  long-term debt based on
the  quoted  market  price and other  available  information  was  approximately
$68,100,000 and $90,800,000 for December 31, 1997 and 1998, respectively.

Other assets include debt issuance  costs,  net of accumulated  amortization  of
$1,264,000 and $201,000 at December 31, 1997 and 1998, respectively.

(7) Employee Benefit Plans

The Company  maintains an investment  and  profit-sharing  defined  contribution
retirement plan. All the Company's  employees are eligible to participate  after
one year of service. The Company makes a 50 percent matching contribution on the
first four percent of employee  contributions  to the plan.  The Company may, at
its   discretion,   make  additional   contributions   based  on  the  Company's
performance.  The aggregate plan contributions  were  approximately  $1,080,000,
$1,215,000 and $1,335,000 for the years ended December 31, 1996, 1997, and 1998,
respectively.

The  Company  maintains  a  Supplemental  Executive  Retirement  Plan (SERP) for
certain key present and former management executives.  The SERP consists of both
a defined benefit and a defined  contribution plan. The annual costs of the plan
were approximately $119,000,  $152,000 and $118,000 for the years ended December
31, 1996, 1997, and 1998,  respectively.  The accrued,  unfunded liability under
the plan as of December 31, 1998 was not significant.

The Company  maintains  an employee  stock  purchase  plan.  All  employees  are
eligible to participate  in the plan after 90 days of service.  The price of the
shares purchased in the open market is the average price paid for all the shares
purchased by the broker on the investment  date. The Company assumes the cost of
all brokerage  commissions  and service charges for all purchases made under the
plan.  During  1997 and 1998,  3,174 and  10,672  shares  of common  stock  were
purchased  through  the plan at  average  prices of $37.30 and $33.66 per share,
respectively.

(8) Stock Options

At December 31, 1998, the Company had four stock-based compensation plans, which
were  adopted  by  the  Board  of  Directors   and  approved  by  the  Company's
stockholders.  These plans are described  below. The Company applies APB Opinion
No. 25 and related Interpretations in accounting for its plans. Accordingly,  as
all options have been granted at exercise  prices equal to the fair market value
as of the date of grant,  no compensation  cost has been recognized  under these
plans in the accompanying  consolidated  financial statements.  Had compensation
cost for the  Company's  four  stock-based  compensation  plans been  determined
consistent  with FASB  Statement  No. 123, the Company's net income and earnings
per common  share  would have been  reduced to the pro forma  amounts  indicated
below (in thousands, except per share data):

<TABLE>
<CAPTION>

                                       Year ended      Year ended      Year ended
                                       December 31,    December 31,    December 31,
                                          1996            1997            1998
                                          ----            ----            ----
Net income
<S>                                   <C>             <C>             <C>       
  As Reported ..................      $   15,936      $   22,326      $   23,395
  Pro Forma ....................      $   15,327      $   21,461      $   21,783
Earnings per common share
  As Reported ..................      $     1.40      $     1.74      $     1.80
  Pro Forma ....................      $     1.34      $     1.68      $     1.67
Earnings per common share
  assuming dilution
    As Reported ................      $     1.31      $     1.67      $     1.73
    Pro Forma ..................      $     1.26      $     1.60      $     1.61
</TABLE>

The effects of compensation  cost as determined  under FASB Statement No. 123 on
net income in 1996,  1997 and 1998 may not be  representative  of the effects on
pro forma net income for future periods.

Stock Option and Stock Purchase Plan

Under the terms of the Stock Option and Stock  Purchase  Plan (the "1994 Plan"),
certain key employees were granted, at the discretion of the Board of Directors,
the right to purchase varying amounts of debt securities and options to purchase
common  stock.  Concurrent  with the  adoption of the 1994 Plan,  all members of
management who previously  held common stock of the Company gave up their rights
to such stock.

At the date of grant,  each employee had the option to purchase  immediately  in
cash all  granted  amounts of the debt  securities,  or defer  purchase of these
securities,  plus interest,  over a five-year  vesting  period.  In either case,
assuming all obligations to purchase the debt  securities  were  fulfilled,  the
exercise   price  of  the   options  to   purchase   common   stock  was  fixed.
Contemporaneously  with the initial public  offering of the Company in 1995, all
debt securities were exchanged for common stock.  There is no further obligation
to purchase debt  securities  under the 1994 Plan. An option under the 1994 Plan
vests over a five-year period and is exercisable over a ten-year period.

1995 Stock-Based Incentive Compensation Plan

The 1995  Stock-Based  Incentive  Compensation  Plan (the  "1995  Plan")  became
effective on October 31, 1995. The 1995 Plan was amended in May 1997 to increase
the number of stock options  available for grant. The 1995 Plan provides for the
granting  of a maximum  of  1,210,000  stock  options  to key  employees  of the
Company.  The shares  granted under the 1995 Plan may be in the form of deferred
stock, restricted stock, incentive stock options, non-qualified stock options or
stock  appreciation  rights.  All awards made in 1996, 1997 and 1998 were in the
form of non-qualified  stock options.  The exercise price of an option under the
1995  Plan is equal to the fair  market  value of  common  stock on the date the
option is  granted.  An option  under the 1995 Plan vests over a  three-year  or
seven-year period and the expiration period may not exceed ten years.

                                       22
<PAGE>

                      CORT Business Services and Subsidary
             Notes to Consolidated Financial Statements (continued)

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option-pricing   model  with  the  following   weighted  average
assumptions used for grants in 1996, 1997 and 1998, respectively:  0.0% dividend
yield for all years;  expected  volatility  of 30% for 1996 and 1997 and 36% for
1998;  risk-free  interest rates of 6.29%,  6.25%, and 5.61%;  expected lives of
five years, six years, and seven years, respectively.

1995 Directors Stock Option Plan

The 1995  Directors  Stock  Option  Plan  (the  "1995  Directors  Plan")  became
effective on October 18, 1995.  The 1995  Directors  Plan provided for automatic
grants of options to purchase  shares of common  stock on November  16, 1995 and
1996.  The option  exercise price per share is equal to the fair market value of
common  stock on the date the option is  granted.  All  options  granted  became
vested on November 16, 1998. The expiration period may not exceed ten years.

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option-pricing   model  with  the  following   weighted  average
assumptions used for grants in 1995 and 1996, respectively:  0.0% dividend yield
for both years;  expected  volatility of 30% for both years;  risk-free interest
rates of 5.89% and 6.43%; and expected lives of seven years for both years.

1997 Directors Stock Option Plan

The 1997  Directors  Stock  Option  Plan  (the  "1997  Directors  Plan")  became
effective on May 14, 1997.  The 1997 Directors Plan provides for the granting of
a maximum of 50,000 stock options to non-employee  directors of the Company. The
1997  Directors  Plan  provides for  automatic  grants of 2,000 shares of common
stock for each of the  Company's  non-employee  directors  on the  business  day
immediately  following the Company's Annual Meeting of Stockholders for calendar
years 1997,  1998,  1999,  2000 and 2001. The option price per share is equal to
the fair  market  value of common  stock on the date the option is  granted.  An
option  under the 1997  Directors  Plan vests over a  three-year  period and the
expiration period may not exceed ten years.

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option-pricing   model  with  the  following   weighted  average
assumptions used for grants in 1997 and 1998, respectively:  0.0% dividend yield
for both years;  expected volatility of 30% for 1997 and 36% for 1998; risk-free
interest  rate of 6.54% and 5.74%;  and  expected  lives of seven years for both
years.
<TABLE>
<CAPTION>
                                  1994 Plan                1995 Plan          1995 Directors Plan     1997 Directors Plan
                             -------------------    ----------------------    --------------------    -------------------
                                        Weighted                  Weighted                Weighted               Weighted
                             Shares     Average     Shares        Average     Shares      Average     Shares     Average
                              Under     Exercise     Under        Exercise     Under      Exercise     Under     Exercise
                             Option      Price      Option         Price      Option       Price      Option      Price
                             ------      -----      ------         -----      ------       -----      ------      -----
Outstanding at
<S>                        <C>          <C>        <C>          <C>           <C>       <C>          <C>          <C>
   December 31, 1995 .....  627,556      $0.57      439,800      $ 12.00       21,000    $ 12.00            --        --
    Granted ..............       --         --      131,300        19.87       10,000      22.75            --        --
    Exercised ............  (52,558)       .33      (39,501)       12.00           --         --            --        --
    Forfeited ............       --         --           --           --           --         --            --        --
                            -------      -----      -------     --------      -------    -------        ------   -------
Outstanding at                                                              
   December 31, 1996 .....  574,998      $0.59      531,599      $ 13.94       31,000    $ 15.47            --        --
    Granted ..............       --         --      106,500        25.68           --         --        10,000   $ 25.50
    Exercised ............  (70,565)      0.55      (50,115)       12.55           --         --            --        --
    Forfeited ............  (17,937)      0.79       (2,833)       18.31           --         --            --        --
                            -------      -----      -------      -------       ------    -------    ----------   -------
Outstanding at                                                              
  December 31, 1997 ......  486,496      $0.59      585,151      $ 16.18       31,000    $ 15.47        10,000    $25.50
    Granted ..............       --         --      479,500        36.92           --         --        10,000     39.63
    Exercised ............  (78,834)      0.59      (60,259)       14.90       (3,667)     14.93          (667)    25.50
    Repriced .............       --         --      (70,250)       39.36           --         --            --        --
    Forfeited ............   (3,969)      0.71       (8,563)       21.65           --         --            --        --
                            -------      -----      -------      -------       ------    -------        -------   ------
Outstanding at                                                              
  December 31, 1998 ......  403,693      $0.59      925,579      $ 14.34       27,333    $ 15.54        19,333    $32.81
                           --------      -----     --------     --------       ------    -------        ------    ------
Options exercisable at:
  December 31, 1996.......  574,998                 120,280                     7,003                       --
  December 31, 1997.......  486,496                 255,420                    19,002                       --
  December 31, 1998.......  403,693                 408,113                    27,333                    2,668
Weighted  average fair
 value at date of grant
 of options granted
 during the year ended:
    December 31, 1996..... $      --                 $ 7.58                    $10.59                   $   --
    December 31, 1997.....        --                  11.01                        --                    12.00
    December 31, 1998.....        --                  15.63                        --                    19.49
</TABLE>
                                       23
<PAGE>



                     CORT Business Services and Subsidary
             Notes to Consolidated Financial Statements (continued)


The following  table  summarizes  information  about the Company's stock options
outstanding at December 31, 1998:

<TABLE>
<CAPTION>
                                       Options Outstanding                               Options Exercisable
                  -----------------------------------------------------------  ------------------------------------
                                        Weighted Average
   Range of                           Remaining Contractual  Weighted Average                      Weighted Average
Exercise Prices   Number Outstanding        Life (years)      Exercise Price    Number Exercisable   Exercise Price
---------------   ------------------  ---------------------  ----------------  ------------------- ----------------
<S>                     <C>                    <C>               <C>               <C>                  <C>   
$ 0.2587- 1.098         403,693                5.47              $ 0.59            403,693              $ 0.59
        -12.00          331,125                6.88               12.00            331,125               12.00
 17.6875-29.1875        319,870                8.47               23.61            106,155               22.07
 33.875 -40.375         321,250                9.32               40.02                834               33.88
                  ------------------                                           -------------------
                      1,375,938                                                    841,807
                  ==================                                           ===================
</TABLE>

(9)RENTAL COMMITMENTS

The Company  leases  certain  warehouse and showroom  facilities  and equipment.
Future  minimum  lease  payments  at December  31, 1998 under all  noncancelable
operating leases are as follows (in thousands):

<TABLE>
<CAPTION>

    <S>                                                            <C>     
     1999.......................................................... $ 21,378
     2000..........................................................   18,931
     2001..........................................................   16,816
     2002..........................................................   14,268
     2003..........................................................   11,545
     Thereafter....................................................   31,872
                                                                    --------
        Total minimum lease payments...............................  114,810
     Less sublease rentals.........................................    1,329
                                                                    --------
        Net minimum operating lease payments....................... $113,481
                                                                    ========
</TABLE>

Rental  expense,   net  of  sublease  income,  was  approximately   $12,145,000,
$15,964,000,  and  $19,300,000  for the years ended December 31, 1996,  1997 and
1998,  respectively  (including  approximately   $2,460,000,   $3,880,000,   and
$4,446,000 for short-term vehicle leases).

(10)ACCRUED EXPENSES

Accrued expenses are comprised of (in thousands):

<TABLE>
<CAPTION>

                                                      December 31,  December 31,
                                                         1997           1998
                                                      ------------  ------------
<S>                                                     <C>            <C>    
Accrued salaries, wages and incentives..............    $ 7,568        $ 5,627
Accrued interest....................................      2,065            727
Accrued vacation....................................      2,113          2,474
Reserves for unfavorable operating lease
  and duplicate facilities..........................      6,317          2,230
Accrued property, payroll,
  sales and use taxes...............................      2,170          2,685
Accrued insurance...................................      2,496          2,477
Acquisition holdbacks...............................        887            662
Other accrued expenses..............................      4,320          4,194
                                                      -----------    -----------
                                                        $27,936        $21,076
                                                      ===========    ===========
</TABLE>

(11) WARRANTS TO PURCHASE COMMON STOCK

For the years ended  December  31, 1997 and 1998,  474,610 and 415,320  warrants
were exercised for an aggregate of 78,504 and 81,019 shares of the common stock,
respectively.  The  warrants  were subject to certain  anti-dilution  provisions
relating to  issuances of the common  stock.  All of the  Company's  warrants to
purchase  shares of common  stock  expired  September 1, 1998.  18,480  warrants
expired without being exercised.

(12) ACQUISITIONS

Instant Interiors Corporation

On August 14, 1998, the Company  acquired  certain  assets of Instant  Interiors
Corporation,   a  provider  of  rental   furniture  in  the  Midwest  area,  for
approximately $16,695,000, in a transaction accounted for as a purchase business
combination.  Based on the  allocation  of the purchase  price to the net assets
acquired,  goodwill of approximately  $7,970,000 was recorded.  Such goodwill is
being amortized on a straight-line basis over 40 years.

Other Acquisitions

In 1997, the Company acquired certain assets of Alco Trade Show Services,  Delta
Furniture Rentals,  Inc. and Integrity  Furniture Inc. In addition,  the Company
acquired the stock of Levitt Investment Company and McGregor  Enterprises.  Each
of these  transactions  were accounted for as a purchase  business  combination.
Based on the  allocation  of the purchase  price to the net assets  acquired,  a
total of  approximately  $10,235,000 of goodwill was recorded.  Such goodwill is
being amortized on a straight-line basis over 20 to 40 years.

In 1998,  the Company  acquired  certain  assets of IS Furniture  Rental  Corp.,
Furniture  Rentors of America,  Inc. and the trade show furnishings  business of
Aaron's  Rents,  Inc.,  as well as two  other  small  businesses.  Each of these
transactions were accounted for as a purchase business combination. Based on the
allocation  of the  purchase  price  to the net  assets  acquired,  a  total  of
approximately  $14,665,000  of goodwill  was  recorded.  Such  goodwill is being
amortized on a straight-line basis over 20 to 40 years.

                                       24


<PAGE>


                      CORT Business Services and Subsidary
             Notes to Consolidated Financial Statements (continued)

(13) EARNINGS PER COMMON SHARE

The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share amounts):
<TABLE>
<CAPTION>

                                         Year ended    Year ended    Year ended
                                        December 31,  December 31,  December 31,
                                           1996          1997          1998
                                        ------------  ------------  ------------
<S>                                       <C>           <C>           <C>    
Income before extraordinary loss.......   $15,936       $22,326       $25,903
Extraordinary loss, net of taxes.......        --            --         2,508
                                          -------       -------       -------
Net income applicable to common shares.   $15,936       $22,326       $23,395
                                          =======       =======       =======
Weighted average shares outstanding....    11,416        12,804        13,019
Effect of dilutive securities:
  Stock options........................       457           489           443
  Warrants.............................       271            85            29
                                          -------       -------       -------
Weighted average shares and
  assumed conversions..................    12,144        13,378        13,491
                                          =======       =======       =======
Earnings per common share
  before extraordinary loss............   $  1.40       $  1.74       $  1.99
Extraordinary loss per share...........        --            --           .19
                                          -------       -------       -------
Earnings per common share..............   $  1.40       $  1.74       $  1.80
                                          =======       =======       =======
Earnings per common share before
  extraordinary loss--assuming dilution   $  1.31       $  1.67       $  1.92
Extraordinary loss per share--
  assuming dilution....................        --            --           .19
                                          -------       -------       -------
Earnings per common share--
  assuming dilution....................   $  1.31       $  1.67       $  1.73
                                          =======       =======       =======
</TABLE>

(14) SEGMENT REPORTING

In June 1997,  the  Financial  Accounting  Standard  Board  issued  Statement of
Financial  Accounting  Standards  No.  131 (SFAS  No.  131),  "Disclosure  about
Segments of an Enterprise and Related  Information."  SFAS No. 131 requires CORT
to present  certain  information  about  each  identified  segment  that exceeds
certain quantitative thresholds for revenue, profit or loss, and assets.


The  Company  has  identified  the  following  operating  segments  based on the
distinct products/services from which each derives revenue:

Furniture  Rental--rental of residential and office furniture and accessories to
individual and corporate customers.

Furniture  Sales--sale  of new  or  previously  rented  residential  and  office
furniture to the general public.

Trade Show  Operations--short-term  rental of display and work-place furnishings
for trade shows,  conventions,  and special  events to corporate  customers  and
trade show associations.

Housewares  Operations--rental  of kitchen,  bedroom and bathroom accessories to
the Furniture Rental segment.

Furniture  rental and furniture  sales  segments  represent the  aggregation  of
individual  districts,  all of which have similar economic  characteristics  and
distribution methods.

Trade Show  Operations  and Housewares  Operations do not meet the  quantitative
thresholds outlined by SFAS No. 131 and are aggregated with furniture rental and
furniture sales for reporting purposes.

The Company reports  separately,  in its Consolidated  Statements of Operations,
the revenue and associated cost of revenue of its remaining reportable segments.
Operating  segments  are  measured  on the  basis  of  gross  margin;  operating
expenses,   goodwill   amortization,   interest   expense,   tax  expense,   and
extraordinary items are not allocated to the individual segments.

Assets and liabilities are not specifically  allocated  between Furniture Rental
and Furniture Sales. All rental furniture is available for rental or sale.

                                       25


<PAGE>

                      CORT Business Services and Subsidary
             Notes to Consolidated Financial Statements (continued)


(15) QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                                  Three months ended
                                                 --------------------------------------------------
                                                 March 31,   June 30,   September 30,  December 31,
                                                   1998        1998          1998          1998
                                                 ---------  ----------  -------------  ------------
                                                      (in thousands, except per share amounts)
<S>                                               <C>        <C>           <C>            <C>    
Furniture rental revenue.......................   $62,814    $65,065       $68,477        $69,515
Furniture sales revenue........................    12,629     13,065        14,254         13,145
Operating earnings.............................    12,575     13,354        13,881         12,837
Income before income taxes.....................    10,608     11,283        11,755         11,164
Income before extraordinary loss...............     6,191      6,520         6,795          6,397
Earnings per common share before
  extraordinary loss...........................   $   .48    $   .50       $   .52        $   .49
Earnings per common share before 
  extraordinary loss--assuming dilution........   $   .46    $   .48       $   .50        $   .48
</TABLE>

<TABLE>
<CAPTION>

                                                                                           
                                                                                         
                                                                  Three months ended              
                                                 --------------------------------------------------
                                                 March 31,   June 30,   September 30,  December 31,
                                                   1997        1997          1997          1997    
                                                 ---------  ----------  -------------  ------------
                                                      (in thousands, except per share amounts)     
<S>                                               <C>        <C>           <C>            <C>      
Furniture rental revenue.......................   $55,553    $59,679       $61,135        $60,845  
Furniture sales revenue........................    11,748     14,802        12,253         11,203  
Operating earnings.............................    10,411     11,743        12,103         12,051  
Income before income taxes.....................     8,426      9,490         9,978         10,040
Income before extraordinary loss...............     4,930      5,607         5,876          5,913
Earnings per common share before                                                                   
  extraordinary loss...........................   $   .39    $   .44       $   .46        $   .46  
Earnings per common share before                                                                   
  extraordinary loss--assuming dilution........   $   .37    $   .42       $   .44        $   .44  
                                                                                                   
</TABLE>


                                       26


<PAGE>


                          Independent Auditors' Report


The Stockholders and Board of Directors
CORT Business Services Corporation and subsidiary:

We have audited the  accompanying  consolidated  balance sheets of CORT Business
Services  Corporation  and  subsidiary as of December 31, 1998 and 1997, and the
related consolidated  statements of operations,  stockholders'  equity, and cash
flows for each of the years in the  three-year  period ended  December 31, 1998.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of CORT  Business
Services  Corporation  and  subsidiary as of December 31, 1998 and 1997, and the
results  of their  operations  and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.



                                                 /s/KPMG LLP
                                                 -------------------------
                                                 KPMG LLP

                                                 Washington, D.C.
                                                 February 12, 1999


                                       27


<PAGE>


                   Market for Common Stock of the Registrant
                       and Related Stockholders' Matters


COMMON STOCK

The Company's common stock, par value $.01 per share (the "Common Stock") trades
on the New York Stock Exchange under the symbol "CBZ." The following  table sets
forth,  for the  period  indicated,  the high and low  sales  price per share of
common stock.
<TABLE>
<CAPTION>

                                                  1997               1998
                                             ----------------   ----------------
                                              High      Low       High     Low
                                            --------  -------    ------ --------
<S>                                         <C>     <C>        <C>      <C>
1st Quarter............................     25-1/2    20-3/4    47-1/2   33-3/4
2nd Quarter............................     30-14/16  21-1/4    48       31-1/8
3rd Quarter............................     43-1/4    27-13/16  37-13/16 24-1/16
4th Quarter............................     41-6/16   32-7/16   26-5/8   15
</TABLE>


DIVIDEND POLICY

The Company has not paid any cash  dividends  on its common  stock to date.  The
payment of  dividends,  if any,  in the future is within the  discretion  of the
Board of the Directors and will depend on the  Company's  earnings,  its capital
requirements and financial  condition.  It is the present intention of the Board
of Directors to retain all earnings,  if any, for use in the Company's  business
operations and accordingly the Board of Directors does not not expect to declare
or pay any  dividends  in the  foreseeable  future.  In  addition,  as a holding
company,  the Company's  ability to pay dividends is dependent on the receipt of
dividends or advances  from its wholly  owned  subsidiary,  CFR.  The  revolving
credit facility  restricts the ability of CFR to make advances and pay dividends
to the Company.

HOLDERS

As of March 22, 1999, the Company had approximately 202 holders of record of its
common  stock.  The  Company  believes  there are in excess of 2,000  beneficial
owners of its Common Stock.


                                       28


<PAGE>
                                  [CORT LOGO]
<TABLE>

<S>                                     <C>                                <C>
Directors
                                        Maureen C. Thune                   Annual Meeting
Keith E. Alessi                         Vice President, Controller &       CORT Business Services
Chairman, President & CEO               Assistant Secretary                Corporation's Annual Meeting of
TeleSpectrum Worldwide Inc.                                                Stockholder's will be held on
                                        Frances Ann Zienmiak               Tuesday, May 11, 1999 at 2:00 p.m.
Paul N. Arnold                          Executive Vice President           at the Holiday Inn Fair Oaks
President & Chief                       Chief Financial Officer            11787 Lee Jackson Highway
Executive Officer of                    and Secretary                      Fairfax, VA 22033
Cort Business                                                              
Services Corporation                    Division Officers                  Registrar and Transfer Agent
                                                                           American Stock Transfer &
Bruce C. Bruckmann                      George Bertrand                    Trust Company
Managing Director of                    Group Vice President               40 Wall Street
Bruckman, Rosser,                                                          New York, NY 10005
Sherrill & Co., Inc.                    Louis C. Caston                    
                                        Group Vice President               
Michael A. Delaney                                                         Corporate Headquarters
Managing Director of Citicorp           Duane B. DeArmond                  4401 Fair Lakes Court
Venture Capital Ltd.                    Group Vice President               Suite 300
                                                                           Fairfax, VA 22033
Charles M. Egan                         David C. Janecek                   703-968-8500
Chairman of CORT Business               Group Vice President               
Services Corporation                                                       
                                        Mark M. Koepsell                   Stockholder Inquiries
Gregory B. Maffei                       Vice President--National Accounts  A copy of the annual report as filed
Chief Financial Officer of                                                 with the Securities and Exchange
Microsoft Corporation                   John C. Lackey                     Commission on Form 10-K is
                                        Group Vice President               available without charge, exclusive of
James A. Urry                                                              exhibits, upon written request to:
Vice President of Citicorp              Richard W. Ritter III                Chief Financial Officer
Venture Capital Ltd.                    Group Vice President                 CORT Business Services Corporation
                                                                             4401 Fair Lakes Court
                                        Corporate Directory                  Suite 300
Corporate Officers                                                           Fairfax, VA 22033
                                        Corporate Legal Counsel              FAX: 703-968-8503
Paul N. Arnold                          Dechert Price & Rhoads
President & Chief Executive Officer     Philadelphia, PA

Robert S. Baker                         Independent Accountants
Group Vice President--CORT/Instant      KPMG LLP
                                        Washington, DC
Anthony J. Ballerdine
Senior Group Vice President

Michael G. Connors
Vice President--Real Estate

Charles M. Egan
Chairman

Kenneth W. Hemm
Executive Vice President &
Chief Operating Officer--Division II

Steven D. Jobes
Executive Vice President &
Chief Marketing Officer

Lloyd Lenson
Executive Vice President &
Chief Operating Officer--Division I

Victoria L. Stiles
Vice President--Human Resources &
Corporate Risk Management

William T. Swets                                  [picture]
Vice President--Business Development              CORT's new showroom design, Pleasonton, California
</TABLE>

<PAGE>


o Albuquerque            o Grand Rapids           o Orlando
o Ann Arbor              o Houston                o Pensacola
o Atlanta                o Huntsville             o Philadelphia
o Austin                 o Indianapolis           o Phoenix
o Baltimore              o Jacksonville           o Pittsburgh
o Baton Rouge            o Kalamazoo              o Portland
o Birmingham             o Kansas City            o Raleigh
o Boston                 o Lafayette              o Richmond
o Charlotte              o Lansing                o Sacramento
o Chicago                o Las Vegas              o Salt Lake City
o Cincinnati             o Lexington              o San Antonio
o Clearwater             o Little Rock            o San Diego
o Cleveland              o Los Angeles            o San Francisco
o Columbus               o Louisville             o San Jose



o Corpus Christi         o Memphis                o Seattle
o Dallas                 o Miami                  o St. Louis
o Dayton                 o Minneapolis            o St. Paul
o Denver                 o Nashville              o Tampa
o Detroit                o New Orleans            o Tulsa
o Durham                 o New York               o Virginia Beach
o El Paso                o Newark                 o Washington, DC
o Ft. Lauderdale         o Oklahoma City          o Westchester County
o Ft. Worth              o Orange County          o Wilmington


[CORT logo]

4401 Fair Lakes Court, Suite 300
Fairfax, VA 22033
Phone: 1-800-962-CORT
Internet Address: http://www.CORT1.com