-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OQURER1OEfHp6cDtbzMkkvw10NiLACcd20CWcWdGIuW05yxfTDqj3kL3e0pNNJmG pyPWjgD+D8wIJnKgroEdow== 0000928385-98-000093.txt : 19980122 0000928385-98-000093.hdr.sgml : 19980122 ACCESSION NUMBER: 0000928385-98-000093 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19980121 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAREY INTERNATIONAL INC CENTRAL INDEX KEY: 0000747201 STANDARD INDUSTRIAL CLASSIFICATION: LOCAL & SUBURBAN TRANSIT & INTERURBAN HWY PASSENGER TRAINS [4100] IRS NUMBER: 521171965 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: POS AM SEC ACT: SEC FILE NUMBER: 333-34897 FILM NUMBER: 98510556 BUSINESS ADDRESS: STREET 1: 4530 WISCONSIN AVE NW CITY: WASHINGTON STATE: DC ZIP: 20016 BUSINESS PHONE: 2028951200 MAIL ADDRESS: STREET 1: 4530 WISCONSIN AVE NW CITY: WASHINGTON STATE: DC ZIP: 20016 POS AM 1 POST EFFECTIVE AMENDMENT NO. 1 TO FORM S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 1998 REGISTRATION NO. 333-34897 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- POST-EFFECTIVE AMENDMENT NO. 1 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------- CAREY INTERNATIONAL, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) -------------- DELAWARE 4119 52-1171965 (STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.) INCORPORATION OR CLASSIFICATION ORGANIZATION) CODE NUMBER) 4530 WISCONSIN AVENUE, N.W. WASHINGTON, D.C. 20016 (202) 895-1200 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) -------------- VINCENT A. WOLFINGTON CAREY INTERNATIONAL, INC. 4530 WISCONSIN AVENUE, N.W. WASHINGTON, D.C. 20016 (202) 895-1200 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) -------------- COPIES OF COMMUNICATIONS TO: JAMES E. DAWSON, ESQUIRE NUTTER, MCCLENNEN & FISH, LLP ONE INTERNATIONAL PLACE BOSTON, MA 02110 (617) 439-2000 -------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [X] If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_] -------------- CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM SECURITIES AMOUNT TO BE OFFERING PROPOSED MAXIMUM AMOUNT OF TO BE REGISTERED REGISTERED PRICE PER SHARE(/1/) AGGREGATE OFFERING PRICE(/1/) REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------ Common Stock, $.01 par value 1,500,000 shares $14.5625 $21,843,750.00 $6,619.32(2) - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------
(1) Determined pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based upon the average of the high and low prices per share of Common Stock reported on The Nasdaq National Market on August 26, 1997. (2) Previously paid. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PROSPECTUS 1,500,000 SHARES [LOGO OF CAREY INTERNATIONAL, INC. APPEARS HERE] CAREY INTERNATIONAL, INC. COMMON STOCK ---------------- This Prospectus relates to 1,500,000 shares of Common Stock, $.01 par value per share (the "Common Stock"), of Carey International, Inc. (the "Company") that may be offered and issued by the Company from time to time in connection with acquisitions of other businesses or properties by the Company. Carey intends to concentrate its acquisitions within the chauffeured vehicle service industry. If the opportunity arises, however, Carey may attempt to make acquisitions that are either complementary to its present operations or which it considers advantageous even though they may be dissimilar to its present activities. The consideration for any such acquisition may consist of shares of Common Stock, cash, notes or other evidences of debt, assumptions of liabilities or a combination thereof, as determined from time to time by negotiations between Carey and the owners or controlling persons of businesses or properties to be acquired. The shares covered by this Prospectus may be issued in exchange for shares of capital stock, partnership interests or other assets representing an interest, direct or indirect, in other companies or other entities, in exchange for assets used in or related to the business of such companies or entities, or otherwise pursuant to the agreements providing for such acquisitions. The terms of such acquisitions and of the issuance of shares of Common Stock under acquisition agreements will generally be determined by direct negotiations with the owners or controlling persons of the businesses or properties to be acquired or, in the case of entities that are more widely held, through exchange offers to stockholders or documents soliciting the approval of statutory mergers, consolidations or sales of assets. It is anticipated that the shares of Common Stock issued in any such acquisition will be valued at a price reasonably related to the market value of the Common Stock either at the time of agreement on the terms of an acquisition or at or about the time of delivery of the shares. It is not expected that underwriting discounts or commissions will be paid by the Company in connection with issuances of shares of Common Stock under this Prospectus. However, finders' fees or brokers' commissions may be paid from time to time in connection with specific acquisitions, and such fees may be paid through the issuance of shares of Common Stock covered by this Prospectus. Any person receiving such a fee may be deemed to be an underwriter within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). The Company's Common Stock is listed on The Nasdaq National Market under the symbol "CARY." The closing market price of the Common Stock on The Nasdaq National Market on January 20, 1998 was $15.125. ---------------- PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER THE SECTION "RISK FACTORS" BEGINNING ON PAGE 7. ---------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS JANUARY 21, 1998 No dealer, salesman or any other person has been authorized to give any information or to make any representations other than those contained in this Prospectus in connection with the offer made by this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or any of the Underwriters. This Prospectus does not constitute an offer to sell or the solicitation of any offer to buy any security other than the shares of Common Stock offered by this Prospectus, nor does it constitute an offer to sell or a solicitation of any offer to buy the shares of Common Stock by anyone in any jurisdiction in which such offer or solicitation is not authorized, or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that information contained herein is correct as of any time subsequent to the date hereof. -------------------- TABLE OF CONTENTS --------------------
Page ---- Prospectus Summary....................................................... 3 Risk Factors............................................................. 7 Recent Acquisition....................................................... 12 Recapitalization......................................................... 12 Dividend Policy.......................................................... 13 Selected Consolidated Financial Data..................................... 14 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 15 Business................................................................. 21 Management............................................................... 31 Principal Stockholders................................................... 37 Certain Transactions..................................................... 38 Description of Capital Stock............................................. 40 Shares Eligible for Future Sale.......................................... 42 Plan of Distribution..................................................... 43 Legal Matters............................................................ 44 Experts.................................................................. 44 Additional Information................................................... 44 Index to Financial Statements............................................ F-1
PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements, including the notes thereto, appearing elsewhere in this Prospectus. THE COMPANY Carey International, Inc. ("Carey" or the "Company") is one of the world's largest chauffeured vehicle service companies, providing services through a worldwide network of owned and operated companies, licensees and affiliates serving 420 cities in 65 countries. The "Carey" brand name has represented quality chauffeured vehicle service since the 1920s. The Company owns and operates its service providers in New York, San Francisco, Los Angeles, London, Washington D.C., Indianapolis, South Florida and Philadelphia. In addition, the Company generates revenues from licensing the "Carey" name and providing central reservation, billing and sales and marketing services to its licensees. The Company's worldwide network also includes affiliates in locations in which the Company has neither owned and operated companies nor licensees. Over the past five years, the Company has invested significant capital in developing its reservation, central billing and worldwide service infrastructure. By leveraging its current infrastructure and position as a market leader, the Company intends to consolidate the highly fragmented chauffeured vehicle service industry through the acquisition of: (i) current Carey licensees, (ii) additional companies in markets in which the Company already owns and operates a chauffeured vehicle service company, and (iii) companies in other strategic markets in North America, Europe and the Pacific rim of Asia. The Carey network utilizes chauffeured sedans, limousines, vans and minibuses to provide services for airport pick-ups and drop-offs, inter-office transfers, business and association meetings, conventions, roadshows, promotional tours, special events, incentive travel and leisure travel. Businesses and business travelers utilize the Company's services primarily as a management tool, to achieve more efficient use of time and other resources. Carey's worldwide network of chauffeured vehicle service companies allows it to provide services with consistently high quality to its customers in virtually every major city in the expanding global travel market. The network is linked to over 300,000 reservation terminals in travel agencies, corporate travel departments and government offices by the Carey International Reservation System (the "CIRS"), the chauffeured vehicle service industry's most extensive centralized global reservation system. The Company estimates that the United States chauffeured vehicle service industry generated revenues of approximately $3.9 billion in 1996, and has undergone steady growth in recent years, with revenues increasing at a compound annual growth rate of 10.9% between 1990 and 1996. The industry is highly fragmented, with approximately 9,000 companies utilizing over 100,000 vehicles. The Company believes that during 1996 no chauffeured vehicle service company accounted for more than 2% of total United States industry revenues. The Company also believes that similar fragmentation exists in the chauffeured vehicle service industry outside the United States. 3 The Company's objective is to increase its profitability and its market share in the chauffeured vehicle service industry by implementing the following growth strategies: Expand through Acquisitions. Carey believes that there are significant opportunities to acquire additional chauffeured vehicle service companies that would benefit from the capital and management resources that the Company can provide. Carey intends to acquire current Carey licensees, as well as additional chauffeured vehicle service companies both in markets in which the Company already owns and operates such a business and in other strategic regions in North America, Europe and the Pacific rim of Asia. Carey believes it has a competitive advantage in acquiring licensees because of a right of first refusal contained in the substantial majority of its domestic license agreements. The Company believes that it has less than a 10% market share in each of the markets in which it owns and operates a chauffeured vehicle service company, and that there is significant potential for it to expand its business in such markets through acquisitions. As the Company acquires additional chauffeured vehicle service companies, it anticipates that cost savings can be achieved through the consolidation of certain administrative functions and the elimination of redundant facilities, equipment and personnel. Carey has successfully begun to implement its acquisition strategy. Since November 1991, the Company has acquired 19 chauffeured vehicle service companies, including, since January 1995, two of its licensees (in Ft. Lauderdale/Miami and San Francisco) and are additional chauffeured vehicle service companies (two in each of Boca Raton, San Francisco and London, and one in each of New York, Los Angeles, Indianapolis, and Washington, D.C.). In June 1997, the Company acquired Manhattan International Limousine Network Ltd. and an affiliated company ("Manhattan Limousine"), one of the largest chauffeured vehicle service companies in the metropolitan New York area and the operator of a network of approximately 300 affiliates worldwide. Manhattan Limousine generated revenues of approximately $18.4 million during its fiscal year ended September 30, 1996, representing approximately 21.7% of the Company's fiscal 1996 revenues on a pro forma basis. See "Recent Acquisitions" and "Pro Forma Consolidated Financial Statements." Increase International Market Share. Approximately 11.6% of the Company's revenue, net was derived from services performed outside the United States during its fiscal year ended November 30, 1996. Of these international revenues, approximately 60.8% was generated by the Company's owned and operated business in London, approximately 38.1% was generated by the Company's international licensees and the remainder was generated by the Company's international affiliates. Carey believes that its network can capture a significant portion of the growing international market for chauffeured vehicle services by acquiring or licensing additional chauffeured vehicle service companies and otherwise implementing the Carey system outside the United States. The Company intends to increase its international presence by intensifying its sales and marketing efforts, strengthening its relationships with significant domestic and international business travel arrangers, and capitalizing on the capacity of the CIRS to operate on a global scale. By enhancing its international presence, the Company also expects to increase its revenues from providing chauffeured vehicle services to international travelers both visiting the United States and travelling abroad. Expand Licensee Network Worldwide. The Company will seek to expand its worldwide network and generate additional revenues from license and marketing fees by licensing additional chauffeured vehicle service companies in smaller markets that do not justify a Company-owned presence. Ultimately, as these less strategic markets grow in size and importance to the Company, the licensees in such markets may become acquisition candidates. Convert Salaried Chauffeurs to Independent Operators. The Company believes that it can improve its profitability by continuing to convert salaried chauffeurs to independent operators in certain businesses acquired by Carey. The objective of Carey's independent operator strategy is to instill in each chauffeur the sense of purpose, responsibility and dedication characteristic of an independent business owner, thereby 4 increasing the profitability of the chauffeur and the Company. Carey's independent operator program allows the Company to reduce its labor and capital costs, convert fixed costs to variable costs and generate revenues from fees paid by independent operators. In 1979, the Company was organized as a Delaware corporation and commenced operations by acquiring certain rights to the "Carey" name held by a predecessor company. Predecessor companies operated chauffeured vehicle service businesses under the "Carey" name since the 1920s. The Company's principal executive offices are located at 4530 Wisconsin Avenue, N.W., Washington, D.C. 20016. Its telephone number at that location is (202) 895-1200. As used herein, unless the context otherwise requires, "Carey" or the "Company" refers to Carey International, Inc. and its subsidiaries. 5 SUMMARY AND PRO FORMA CONSOLIDATED FINANCIAL DATA
NINE MONTHS ENDED AUGUST 31, ----------------------------------- FISCAL YEAR ENDED NOVEMBER 30, 1996 1997 --------------------------------------------------------------- --------- ------------------------- 1992(1) 1993(1) 1994(1) 1995(1) 1996 ------- -------- ------- ------- -------------------------- ACTUAL(1) PRO FORMA(2) ACTUAL(1) ACTUAL(1) PRO FORMA(3) ---------- ------------ --------- --------- ------------ (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue, net........ $27,669 $30,319 $35,525 $43,484 $59,505 $84,922 $41,176 $52,051 $67,103 Cost of revenue..... 20,199 22,751 24,954 29,943 40,438 55,554 27,950 35,598 44,149 ------- -------- ------- ------- ---------- --------- ------- --------- --------- Gross profit........ 7,470 7,568 10,571 13,541 19,067 29,368 13,226 16,453 22,954 Selling, general and administrative expense............ 5,939 8,174 9,487 12,419 15,078 22,815 10,909 12,903 17,700 ------- -------- ------- ------- ---------- --------- ------- --------- --------- Operating income (loss)............. 1,531 (606) 1,084 1,122 3,989 6,553 2,317 3,550 5,254 Interest income (expense) and other income (expense)... (819) (1,308) (1,194) (1,292) (1,277) 30 (966) (575) 23 ------- -------- ------- ------- ---------- --------- ------- --------- --------- Income (loss) before provision (benefit) for income taxes... 712 (1,914) (110) (170) 2,712 6,583 1,351 2,975 5,277 Provision (benefit) for income taxes... 53 10 19 25 (104) 2,784 420 1,228 2,269 ------- -------- ------- ------- ---------- --------- ------- --------- --------- Net income (loss)... $ 659 $ (1,924) $ (129) $ (195) $ 2,816 $ 3,799 $ 931 $ 1,747 $ 3,008 ======= ======== ======= ======= ========== ========= ======= ========= ========= Pro forma net income per share.......... $ 0.89(4) $ 0.52 $ 0.39(4) $0.38 ========== ========= ========= ========= Weighted average shares outstanding........ 3,510,020(4) 7,332,364 4,866,621(4) 7,941,065
AUGUST 31, 1997 --------------- NOVEMBER 30, PRO 1996 ACTUAL FORMA ------------ ------- ------- CONSOLIDATED BALANCE SHEET DATA: Working capital (deficit)........................ $(1,732) $ 3,171 $ 2,615 Total assets..................................... 42,526 74,044 77,838 Long-term debt, less current maturities.......... 11,192 1,798 2,425 Deferred revenue(5).............................. 6,181 13,721 13,721 Total stockholders' equity....................... $ 6,672 $43,680 $45,287
- ------- (1) Consistent with generally accepted accounting principles, the consolidated financial data does not reflect the effect of the acquisition of Indy Connection Limousines, Inc. ("Indy Connection") completed October 31, 1997 accounted for as a pooling-of-interests. (2) Gives effect to the following events as if they had occurred on December 1, 1995: (i) the acquisition of Camelot Barthropp Ltd., completed February 1996, including the interest cost related to indebtedness incurred in connection with such acquisition, (ii) the acquisition of Manhattan Limousine (using statement of operations data for Manhattan Limousine's fiscal year ended September 30, 1996) and the amortization of associated goodwill, (iii) the acquisition of Indy Connection completed October 31, 1997 accounted for as a pooling-of-interests, (iv) the conversion of certain preferred stock and subordinated debt into Common Stock, see "Recapitalization," and the elimination of interest expense associated with the subordinated debt; (v) the issuance of shares of Common Stock to (a) repay certain existing debt of the Company, (b) pay the cash and note portions of the purchase price for Manhattan Limousine, (c) repay certain debt assumed in connection with the acquisition of Manhattan Limousine, (d) redeem certain preferred stock of the Company and (e) pay the stock portion of the purchase price in connection with the acquisition of Manhattan Limousine, (vi) the elimination of interest expense associated with debt repaid from the proceeds of the IPO and (vii) other adjustments as described under "Pro Forma Consolidated Financial Statements" and the notes thereto. (3) Gives effect to the events set forth in clauses (ii) through (vii) of note (2) above as if they had occurred on December 1, 1995, except that, with respect to clause (ii), the statement of operations data is for Manhattan Limousine's six months ended March 31, 1997. (4) Gives effect to the conversion of certain preferred stock and subordinated debt into Common Stock and the elimination of associated interest expense on the subordinated debt as a result of the Recapitalization. See Notes 2 and 18 to the Company's Consolidated Financial Statements. (5) Represents the balance of the fees deferred in connection with independent operator agreements less amounts previously recognized. Such fees are recognized ratably over the terms of the agreements, which typically range from 10 to 20 years. See the Notes to the Company's Consolidated Financial Statements. 6 RISK FACTORS The following factors should be considered, together with the other information in this Prospectus, in evaluating an investment in the Company. This Prospectus contains certain forward-looking statements which involve risks and uncertainties. The Company's actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain of the factors set forth in the following risk factors and elsewhere in this Prospectus. HISTORY OF LOSSES The Company has generated a net loss in three of the past four fiscal years. Although the Company was profitable during the fiscal year ended November 30, 1996, there can be no assurance that the Company will be able to sustain profitability. RISKS ASSOCIATED WITH ACQUISITION OF MANHATTAN LIMOUSINE The acquisition of Manhattan Limousine was consummated simultaneously with the Company's underwritten initial public offering of Common Stock in June 1997 (the "IPO"). Manhattan Limousine generated pro forma revenues of approximately $18.4 million during its fiscal year ended September 30, 1996, representing approximately 23.4% of the Company's fiscal 1996 revenues on a pro forma basis. As a result of the acquisition of Manhattan Limousine, approximately 41% of the Company's revenues currently are generated from services provided within the New York City metropolitan area. The integration of Manhattan Limousine, which is the Company's largest acquisition to date, will place significant demands on the Company's management and infrastructure, and there can be no assurance that Manhattan Limousine's business will be successfully integrated with that of the Company, that the Company will be able to realize operating efficiencies or eliminate redundant costs, or that the combined business will be operated profitably. Further, there can be no assurance that customers of Manhattan Limousine will continue to do business with the Company. The failure of the Company in any of these respects could have a material adverse effect on the Company's business, financial condition and results of operations. See "Acquisition of Manhattan Limousine." RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY The Company intends to grow primarily through the acquisition of additional chauffeured vehicle service companies. Increased competition for acquisition candidates may develop, in which event there may be fewer acquisition opportunities available to the Company as well as higher acquisition costs for the opportunities that are available. There can be no assurance that the Company will be able to identify, acquire or profitably manage additional businesses or successfully integrate any acquired businesses into the Company without substantial costs, delays, or other operational or financial problems. There also can be no assurance that the Company will be able to purchase its licensees that operate in markets in which the Company does not own and operate a chauffeured vehicle service company. The success of any acquisition will depend upon the Company's ability to introduce automation and management systems, to convert salaried chauffeurs employed by the acquired business to independent operators and to integrate the acquired business with the Company's existing operations. Customer dissatisfaction or performance problems at a single acquired company could have an adverse effect on the reputation of the Company and the Company's sales and marketing initiatives. There can be no assurance that any businesses acquired in the future will achieve anticipated revenues and earnings. Further, acquisitions involve a number of special risks, including possible adverse effects on the Company's operating results, diversion of management's attention, failure to retain key personnel at an acquired company, risks associated with unanticipated events or liabilities and amortization of goodwill or other acquired intangible assets, some or all of which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Acquisition Strategy." 7 RISKS RELATED TO ACQUISITION FINANCING The Company may choose to finance future acquisitions by using shares of its Common Stock for a portion or all of the consideration to be paid. In the event that the Common Stock does not maintain a sufficient market value, or potential acquisition candidates are otherwise unwilling to accept Common Stock as part of the consideration for the sale of their businesses, the Company might not be able to utilize Common Stock as consideration for acquisitions and would be required to utilize more of its cash resources, if available, in order to maintain its acquisition program. If the Company does not have sufficient cash resources, its growth could be limited unless it is able to obtain additional capital through debt or equity financings. There can be no assurance that such financing will be available if and when needed or on terms acceptable to the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." RISKS ASSOCIATED WITH RAPID GROWTH As a result of the Manhattan Limousine acquisition, the continued implementation of the Company's acquisition strategy and the expansion of the Company's licensee network, the Company may experience rapid growth which could place additional demands on the Company's administrative, operational and financial resources. Managing future growth will depend on a number of factors, including the maintenance of the quality of services the Company provides to its customers, and the recruitment, motivation and retention of qualified chauffeurs and other personnel. Sustaining growth will require enhancements to the Company's operational and financial systems as well as additional management, operational and financial resources. There can be no assurance that the Company will be able to manage its expanding operations effectively or that it will be able to maintain or accelerate its growth, and any failure to do so could have a material adverse effect on the Company's business, financial condition and results of operations. SEASONALITY AND QUARTERLY FLUCTUATIONS The Company believes that its future operating results may continue to be subject to quarterly variations caused by such factors as seasonal business travel, variable scheduling of special events and the timing of acquisitions by the Company. The Company's least profitable quarter generally has been the first quarter (ending February 28 or 29), and its most profitable quarter generally has been the fourth quarter (ending November 30). The Company's operating results may be subject to considerable fluctuations caused by special events, such as business and trade association meetings and conventions and sporting events with national or international participation, which do not necessarily recur annually, may not be held at the same time of year and may not always be located in a city in which the Company owns and operates a chauffeured vehicle service company. In addition, adverse economic conditions may impact the Company's operating results by reducing the overall number of road shows and promotional tours. All of these factors can cause significant fluctuations in quarterly results of operations. Accordingly, results in any fiscal quarter may not be indicative of results of future quarters. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Quarterly Results of Operations." RISKS ASSOCIATED WITH LICENSEE OPERATIONS The Company has 39 licensees serving 106 cities in the United States and 24 licensees serving 105 cities outside the United States. Although a component of the Company's strategy is to increase the number of licensees, there can be no assurance that the Company will be able to attract qualified licensees in desired locations. The failure of the Company to attract new licensees or the failure of the Company's licensees to operate successfully could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, the failure of one or more of the Company's licensees to maintain the Company's service standards and conform to the Carey system could have a material adverse effect on the reputation of the Carey network and the Company's business, financial condition and results of operations. In addition, the Company is subject to federal regulation and certain state laws which govern the offer and sale of franchises. Most state franchise laws impose substantive requirements on the franchise agreement, 8 including limitations on non-competition provisions and termination or non- renewal of a franchise. Some states require that certain materials be registered before franchises can be offered or sold in that state. Violations of federal regulations and the state franchising laws could result in civil penalties against the Company and civil and criminal penalties against the executive officers of the Company. While the Company believes that it has operated in compliance with federal and state franchise laws, no assurance can be given that the Company will not be required to cease offering and selling licenses in certain states because of future changes in franchise laws or the Company's failure or inability to comply with existing franchise laws. STATUS OF INDEPENDENT OPERATORS The Company's ability to benefit from conversions of salaried chauffeurs to independent operators will depend, in part, on the Company's continued ability to classify independent operators as third party contractors rather than as employees. The Company does not pay or withhold any federal or state employment tax with respect to or on behalf of independent operators. The Internal Revenue Service (the "IRS") previously challenged the Company's independent operator policy at its owned and operated business in Philadelphia, but in March 1997 agreed to settle the challenge without an adjudication of a violation of IRS regulations. Also in March 1997, the IRS approved guidelines that chauffeured vehicle service providers such as the Company can follow in order to treat independent operators as third party contractors rather than as employees. These guidelines distinguish a third party contractor from an employee using several factors based upon whether or not the individual, among other things, (i) invests cash in the venture, (ii) has the potential to realize a profit or loss, (iii) can make his or her service available to the public and (iv) is required to comply with company policies regarding how and when to provide services. The Company believes that its practices substantially conform to these guidelines, and that, as a result, its independent operators will be treated as third party contractors. If, however, the Company's practices are determined not to conform with the guidelines, or if it is adjudicated that the Company is required to treat its independent operators as employees, the Company could become responsible for certain past and future employment taxes. There can be no assurance that, in the event of such an adverse adjudication, there will not be a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Independent Operators." INDEPENDENT OPERATOR FINANCING An important component of the Company's business strategy for its owned and operated companies involves the preferred use of independent operators instead of salaried chauffeurs operating Company-owned vehicles. A chauffeur becomes an independent operator by signing an agreement to pay a fee to the Company ranging from $45,000 to $75,000. The payment of independent operator fees historically has been financed by the Company, financing companies or banks. Prior to September 1996, the Company usually sold to third parties the independent operator notes initially financed by it. Since September 1996, the Company has ceased selling such notes to third parties. Because the Company now bears most of the risk relating to payment of these notes, significant defaults in their payment could have a material adverse effect on the Company's business, financial condition and results of operations. Each new independent operator is required to own or obtain his or her vehicle. The cost of a new vehicle ranges from $35,000 to $65,000, depending upon whether it is a sedan or a limousine and the features included in the vehicle. The Company generally does not finance vehicle purchases by its independent operators. As a result, the ability of independent operators to obtain their own vehicles, a requirement for conversions from salaried chauffeurs to independent operators, will depend upon the availability of third party vehicle financing for independent operators. The inability of independent operators to obtain vehicle financing will adversely affect the Company's ability to utilize independent operators, and would have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that such financing will be available if and when needed or on terms acceptable to potential independent operators. See "Business-- Independent Operators." POTENTIAL ADVERSE EFFECT OF LITIGATION The Company, certain of its subsidiaries and certain of its officers and directors currently are named as defendants in a complaint, purporting to be a class action, alleging that the plaintiff and others similarly situated 9 suffered monetary damages as a result of misrepresentations by the defendants in their use of a surface transportation billing charge. While the Company denies all claims made against it, it has reached a settlement with the plaintiff and plaintiff's counsel. Moreover, there can be no assurance that claims under the terms of this or any other settlement entered into by the Company will not adversely affect the Company's business, financial condition and results of operations. Defense of lawsuits against the Company generally can be expensive and time-consuming, regardless of the outcome, and an adverse result in a lawsuit could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Legal Proceedings." FACTORS AFFECTING TRAVEL The Company is subject to risks generally affecting levels of business travel, including economic cycles, political changes, terrorist threats or acts and technological advances. The Company cannot predict the likelihood of occurrence of any such events. If the occurrence of any such event significantly reduces domestic or international travel, there could be a material adverse effect on the Company's business, financial condition and results of operations. INSURANCE COVERAGE AND CLAIMS The Company is exposed to claims for personal injury or death and property damage as a result of automobile accidents involving chauffeured vehicles operated by its employees and independent operators and by its licensees and their drivers. The Company maintains, and the Company's independent operators are required to maintain, levels of insurance which the Company believes to be adequate. The Company's licensees are required to maintain adequate levels of insurance and to name the Company as an additional insured on their insurance policies. There can be no assurance, however, that the limits and the scope of any such insurance coverage will be adequate. The cost of maintaining personal injury, property damage and workers' compensation insurance is significant. The Company and its independent operators and licensees could experience higher insurance premiums as a result of adverse claims experiences, general increases in premiums by insurance carriers or both. Significant increases in such premiums could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Independent Operators" and "Business--Insurance." DEPENDENCE ON KEY PERSONNEL While the Company has numerous senior managers with many years of experience in the chauffeured vehicle service industry, the Company's success is dependent on the efforts, abilities and leadership of its executive officers, particularly, Vincent A. Wolfington, the Company's Chairman and Chief Executive Officer, and Don R. Dailey, the Company's President. The Company currently does not have employment agreements with any of its executive officers. The loss of the services of one or more of such officers could have a material adverse effect on the Company's business, financial condition and results of operations. COMPETITION The chauffeured vehicle service industry is highly competitive and fragmented with few significant national participants operating multi-city reservation systems. Each local market usually contains numerous local participants as well as a few companies offering regional and national service. Chauffeured vehicle service companies compete primarily on the basis of price, quality, scope of service and dependability. The Company also competes with service providers offering alternative modes of transportation, such as buses, jitney services, taxis, radio cars and rental cars. The Company competes both for customers and for possible acquisitions. The Company expects its business to become more competitive as existing competitors expand and additional companies enter the market. Certain of the Company's existing competitors have, and any new competitors that enter the industry may have, access to significantly greater financial resources than the Company. Competitive market conditions could have a material adverse affect on the Company's business, financial condition and results of operations. See "Business--Competition." 10 POSSIBLE FUTURE SALES OF SHARES Sales of substantial amounts of Common Stock in the public market during or after this offering, or the perception that such sales could occur, may adversely affect prevailing market prices of the Common Stock and could impair the future ability of the Company to raise capital through an offering of its equity securities or to use such securities as consideration in acquisitions. As of January 13, 1998, the Company had 7,640,497 shares outstanding. Of these shares, 4,376,155 shares are freely tradeable without restriction under the Securities Act, except for any such shares which may be beneficially owned by an "affiliate" of the Company (as that term is defined in Rule 144). The remaining 3,264,342 shares represent (i) shares issued pursuant to this Prospectus to affiliates of companies acquired by the Company; or (ii) shares issued prior to the completion of the Company's IPO or in connection with the acquisition of Manhattan Limousine which are deemed to be "restricted securities" under Rule 144. Unless the resale is registered under the Securities Act, such restricted shares may not be sold in the open market only in compliance with the applicable requirements of Rule 144. Except for shares held by affiliates of the Company and the 228,571 shares issued in connection with the acquisition of Manhattan Limousine, all of such restricted shares are currently eligible for resale under Rule 144. See "Shares Eligible for Future Sale." CERTAIN ANTI-TAKEOVER PROVISIONS Certain provisions of the Company's Restated Certificate of Incorporation, By-laws and Delaware law could, together or separately, discourage potential acquisition proposals, delay or prevent a change in control of the Company and limit the price that certain investors might be willing to pay in the future for shares of the Common Stock. Those provisions, among other things, provide for a classified Board of Directors, allow the Board of Directors to issue, without further stockholder approval, up to 1,000,000 shares of preferred stock with rights and privileges that could be senior to the Common Stock, prohibit the stockholders from calling special meetings of stockholders, restrict the ability of stockholders to nominate directors and submit proposals to be considered at stockholders' meetings, impose a supermajority voting requirement in connection with stockholders' amendments to the By-laws and prohibit stockholders after this offering from acting by written consent in lieu of a meeting. The Company also is subject to Section 203 of the Delaware General Corporation Laws (the "DGCL") which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any "interested stockholder" for a period of three years following the date on which such stockholder became an interested stockholder. See "Description of Capital Stock." POSSIBLE VOLATILITY OF STOCK PRICE AND LIMITATIONS ON RESALE There can be no assurance that an active public market for the Common Stock will continue during or after this offering. From time to time during or after this offering, there may be significant volatility in the market price for the Common Stock. Quarterly operating results of the Company, changes in general conditions in the economy or the chauffeured vehicle service industry, or other developments affecting the Company, its licensees and affiliates or the Company's competitors could cause the market price of the Common Stock to fluctuate substantially. The equity markets have, on occasion, experienced significant price and volume fluctuations that have affected the market prices for many companies' securities and have been unrelated to the operating performance of those companies. Any such fluctuations that occur during or after this offering may adversely affect the prevailing market price of the Common Stock. Affiliates of companies acquired by Carey who receive Common Stock under this Prospectus are subject for one year to the restrictions of Rule 145 under the Securities Act, including the volume of sale limitations and manner of sale requirements thereof. The requirements of Rule 145 may limit the ability of such affiliates to resell Common Stock they may receive under this Prospectus. 11 RECENT ACQUISITIONS Simultaneously with the completion of the IPO, the Company acquired Manhattan International Limousine Network Ltd. and an affiliated company ("Manhattan Limousine") for aggregate consideration of $14.2 million, composed of (i) $7.1 million in cash, (ii) $4.7 million in promissory notes bearing interest at the rate of 8.0% per annum and payable one year from the date of the acquisition, and (iii) 228,571 shares of Common Stock. In addition, the Company assumed approximately $3.7 million of outstanding indebtedness of Manhattan Limousine, all of which subsequently has been repaid. Pursuant to the terms of the acquisition, Manhattan Limousine distributed to its stockholders prior to the closing approximately $3.8 million in assets and $2.3 million in liabilities. Prior to its acquisition by Carey, Manhattan Limousine was one of the largest chauffeured vehicle service companies in the New York metropolitan area, with revenues in its fiscal year ended September 30, 1996 totalling approximately $18.4 million. Manhattan Limousine operated the Manhattan International Limousine Network of more than 300 worldwide affiliates, a significant majority of which are located in cities in which the Company already has affiliates. In some cities the Company and Manhattan Limousine shared common affiliates. Approximately 89.2% of Manhattan Limousine's fiscal 1996 revenues was generated by Manhattan Limousine's New York metropolitan operations, and approximately 10.8% was generated by its affiliates outside the New York metropolitan area. Approximately 18.0% of Manhattan Limousine's fiscal 1996 revenues were derived from services performed for Virgin Atlantic Airways, which had been Manhattan Limousine's largest customer. See the Manhattan Limousine Consolidated Financial Statements and related notes thereto. In the acquisition, Carey assumed agreements with Manhattan Limousine's independent operators and their collective fleet consisting of approximately 125 sedans and limousines. Effective October 31, 1997, the Company issued 721,783 shares of its common stock in exchange for all the outstanding common stock of Indy Connection based on a conversion ratio of 1.008 shares (the merger exchange ratio) of the Company's common stock for each share of Indy Connection's common stock, for a total value of approximately $12.0 million. The merger qualified as a tax-free reorganization and has been accounted for as a pooling-of-interests. RECAPITALIZATION On June 2, 1997, the Company effected the following transactions (collectively, the "Recapitalization"): (i) a one-for-2.3255 reverse split of outstanding Common Stock; (ii) the conversion of all of the 42,070 outstanding shares of the Company's Series A Preferred Stock into the right to receive an aggregate of $2,103,500 and 86,003 shares of Common Stock; (iii) the redemption of all 10,000 shares of the Company's Series F Preferred Stock and 3,000 shares of the Company's Series G Preferred Stock for an aggregate price of $1,000,000; (iv) the conversion of 9,580 shares of the Company's Series B Preferred Stock, 46,890 shares of the Company's Series G Preferred Stock and the Company's Subordinated Convertible Promissory Note dated September 1, 1991 in the principal amount of $2,000,000 into an aggregate of 1,857,524 shares of Common Stock; (v) the exercise of a warrant to purchase 616,544 shares of Common Stock by the application of $2,867,546 due the warrant holder under a subordinated promissory note, and the repayment by the Company of the remaining outstanding principal balance of $912,454 under such note; and (vi) the amendment of the Company's Certificate of Incorporation to, among other things, (a) eliminate all previously-designated series of Preferred Stock and the designation of Class A Common Stock, and (b) increase the authorized number of shares of Common Stock from 9,512,950 to 20,000,000. 12 PRICE RANGE OF COMMON STOCK The Company's Common Stock is quoted on The Nasdaq National Market under the symbol "CARY." The following table sets forth for each period indicated the high and low sale prices for the Common Stock as reported by The Nasdaq National Market.
HIGH LOW ------- ------ May 28, 1997 through June 30, 1997 $15 5/8 $11 July 1, 1997 through August 31, 1997 15 1/2 13 1/2 September 1, 1997 through November 30, 1997 18 13 3/4 December 1, 1997 through January 12, 1998 15 7/8 14 1/8
On January 20, 1998, the last reported sale price of the Common Stock was $15.125 and there were approximately 115 holders of record of Common Stock. DIVIDEND POLICY The Company intends to retain all earnings to finance the growth and development of its business and does not anticipate paying cash dividends on the Common Stock in the foreseeable future. Any future determination as to the payment of dividends on the Common Stock will depend upon the Company's future earnings, results of operations, capital requirements and financial condition and any other factor the Board of Directors of the Company may consider. The Company's agreements with its principal lenders prohibit dividend payments. 13 SELECTED CONSOLIDATED FINANCIAL DATA The selected actual consolidated financial data as of November 30, 1992, 1993, 1994, 1995 and 1996 and for each of the five years in the period ended November 30, 1996 have been derived from the consolidated financial statements of the Company audited by Coopers & Lybrand L.L.P., independent accountants. The selected actual consolidated financial data as of and for the nine months ended August 31, 1996 and 1997 have been derived from the unaudited consolidated financial statements of the Company. In the opinion of management, the unaudited consolidated financial statements reflect all adjustments, consisting only of normal, recurring adjustments, necessary to present fairly the consolidated financial position and the consolidated results of operations of the Company. The consolidated results of operations for the nine-month period ended August 31, 1997 are not necessarily indicative of the consolidated results of operations to be expected for the year ended November 30, 1997. The selected actual and pro forma consolidated financial data of the Company should be read in conjunction with the Company's Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations contained elsewhere in this Prospectus.
FISCAL YEAR ENDED NOVEMBER 30, NINE MONTHS ENDED AUGUST 31, ------------------------------------------------------------- ----------------------------------- 1992(1) 1993(1) 1994(1) 1995(1) 1996 1996 1997 ------- ------- ------- ------- ------------------------- --------- ------------------------- ACTUAL(1) PRO FORMA(2) ACTUAL(1) ACTUAL(1) PRO FORMA(3) --------- ------------ --------- --------- ------------ (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue, net.......... $27,669 $30,319 $35,525 $43,484 $59,505 $84,922 $41,176 $52,051 $67,103 Cost of revenue....... 20,199 22,751 24,954 29,943 40,438 55,554 27,950 35,598 44,149 ------- ------- ------- ------- --------- --------- ------- --------- --------- Gross profit.......... 7,470 7,568 10,571 13,541 19,067 29,368 13,226 16,453 22,954 Selling, general and administrative expense.............. 5,939 8,174 9,487 12,419 15,078 22,815 10,909 12,903 17,700 ------- ------- ------- ------- --------- --------- ------- --------- --------- Operating income (loss)............... 1,531 (606) 1,084 1,122 3,989 6,553 2,317 3,550 5,254 Interest income (expense) and other income (expense)..... (819) (1,308) (1,194) (1,292) (1,277) 30 (966) (575) 23 ------- ------- ------- ------- --------- --------- ------- --------- --------- Income (loss) before provision (benefit) for income taxes..... 712 (1,914) (110) (170) 2,712 6,583 1,351 2,975 5,277 Provision (benefit) for income taxes..... 53 10 19 25 (104) 2,784 420 1,228 2,269 ------- ------- ------- ------- --------- --------- ------- --------- --------- Net income (loss)..... $ 659 $(1,924) $ (129) $ (195) $ 2,816 $ 3,799 $ 931 $ 1,747 $ 3,008 ======= ======= ======= ======= ========= ========= ======= ========= ========= Pro forma net income per share................ $ 0.89(4) $ 0.52 $ 0.39(4) $ 0.38 ========= ========= ========= ========= Weighted average shares outstanding... 3,510,020(4) 7,332,364 4,866,621(4) 7,941,065
NOVEMBER 30, AUGUST 31,1997 ----------------------------------------- ----------------- 1992 1993 1994 1995 1996 ACTUAL PRO FORMA ------- ------- ------- -------- ------- ------- --------- CONSOLIDATED BALANCE SHEET DATA: Working capital (defi- cit).................. $ 1,740 $ 1,484 $ 1,298 $ (1,407) $(1,732) $ 3,171 $ 2,615 Total assets........... 28,855 27,941 27,109 35,897 42,526 74,044 77,838 Long-term debt, less current maturities.... 10,293 12,083 11,090 13,217 11,192 1,798 2,425 Deferred revenue(5).... 3,270 4,300 4,485 4,726 6,181 13,721 13,721 Total stockholders' eq- uity.................. $ 5,843 $ 4,388 $ 4,165 $ 3,912 $ 6,672 $43,680 $45,287
- ------- (1) Consistent with generally accepted accounting principles, the consolidated financial data does not reflect the effect of the acquisition of Indy Connection Limousines, Inc. ("Indy Connection") completed October 31, 1997 accounted for as a pooling-of-interests. (2) Gives effect to the following events as if they had occurred on December 1, 1995: (i) the acquisition of Camelot Barthropp Ltd., completed February 1996, including the interest cost relating to indebtedness incurred in connection with such acquisition, (ii) the acquisition of Manhattan Limousine (using statement of operations data for Manhattan Limousine's fiscal year ended September 30, 1996) and the amortization of associated goodwill, (iii) the acquisition of Indy Connection completed October 31, 1997 accounted for as a pooling-of-interest (iv) the conversion of certain preferred stock and subordinated debt into Common Stock, see "Recapitalization," and the elimination of interest expense associated with the subordinated debt (v) the issuance of shares of Common Stock to (a) repay certain existing debt of the Company, (b) pay the cash and note portions of the purchase price for Manhattan Limousine, (c) repay certain debt assumed in connection with the acquisition of Manhattan Limousine, (d) redeem certain preferred stock of the Company and (e) pay the stock portion of the purchase price in connection with the acquisition of Manhattan Limousine, (vi) the elimination of interest expense associated with debt repaid from the proceeds of the IPO and (vii) other adjustments as described under "Pro Forma Consolidated Financial Statements" and the notes thereto. (3) Gives effect to the events set forth in clauses (ii) through (vi) of note (2) above as if they had occurred on December 1, 1995, except that, with respect to clause (ii), the statement of operations data is for Manhattan Limousine's six months ended March 31, 1997. (4) Gives effect to the conversion of certain preferred stock and subordinated debt into Common Stock and the elimination of associated interest expense on the subordinated debt as a result of the Recapitalization. See Notes 2 and 18 to the Company's Consolidated Financial Statements. (5) Represents the balance of the fees deferred in connection with independent operator agreements less amounts previously recognized. Such fees are recognized ratably over the terms of the agreements, which typically range from 10 to 20 years. See the Notes to the Company's Consolidated Financial Statements. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes thereto and "Selected Consolidated Financial Data" appearing elsewhere in this Prospectus. Unless otherwise indicated or the context otherwise requires, each reference to a year is to the Company's fiscal year which ends on November 30 of such year. OVERVIEW The Company generates revenues primarily from chauffeured vehicle services provided by (i) Carey's owned and operated businesses and (ii) Carey's licensees and affiliates when services provided by such licensees and affiliates are billed through the Company's central reservation and billing system. In 1995 and 1996, approximately 74.7% and 73.6%, respectively, of the Company's revenue, net was generated by chauffeured vehicle services provided by the Company's owned and operated businesses, approximately 16.3% and 15.6%, respectively, was generated by chauffeured vehicle services provided by the Company's licensees and billed by the Company, and approximately 2.5% and 2.0%, respectively, was generated by chauffeured vehicle services provided by the Company's affiliates and billed by the Company. Carey also generates revenues from its licensees through fees (both initial and monthly) related to (i) licensing the use of its name and service mark, (ii) its central reservation and billing services and (iii) its marketing activities. In 1995 and 1996, approximately 2.7% and 3.2%, respectively, of the Company's revenue, net was generated from its licensees through such fees. To a lesser extent, the Company derives revenues from the payment of fees by independent operators. The Company recognizes revenues from these fees ratably over the terms of the independent operators' agreements with the Company, which typically range from 10 to 20 years. As of August 31, 1997, the Company had $13.7 million of deferred revenue on its balance sheet. Cost of revenue primarily consists of amounts due to the Company's independent operators. The amount due to independent operators is a percentage (ranging from 60% to 67%) of the charges for services provided, net of discounts and commissions. Cost of revenue also includes amounts due to the Company's licensees and affiliates for chauffeured vehicle services provided by them and billed by the Company. Such amounts generally include the charges for services provided less a referral fee ranging from 15% to 25% of net vehicle service revenue. Cost of revenue also includes salaries and benefits paid to chauffeurs employed by the Company. To a lesser extent, cost of revenue includes costs associated with owning and maintaining the vehicles owned by the Company, telecommunications expenses, salaries and benefits for reservationists, marketing expenses for the benefit of licensees, and commissions due to travel agents and credit card companies. Selling, general and administrative expenses consist primarily of compensation and related benefits for the Company's officers and administrative personnel, marketing and promotional expenses for the Company's owned and operated chauffeured vehicle service companies, and professional fees, as well as amortization costs related to the intangibles recorded as a result of the Company's acquisitions. In addition to internal growth from the Company's sales and marketing efforts, an important component in the Company's growth to date has been the acquisition of its licensees and other chauffeured vehicle service companies. Since December 1994, Carey has acquired twelve chauffeured vehicle service companies. Each of these acquisitions was made for cash and the issuance or assumption of notes and was accounted for using the purchase method of accounting. A substantial majority of the purchase price paid by the Company in each such acquisition represented goodwill, franchise rights (if a licensee was acquired) and/or other intangibles. Such franchise rights and goodwill are amortized over 30 years on a straight-line basis and amounted to $34.5 million (net of accumulated amortization) as of August 31, 1997. 15 The results of operations for the acquired companies have been included in the Company's consolidated financial statements from their respective dates of acquisition. Carey expects to benefit from its acquisitions by consolidating general and administrative functions, increasing operating efficiencies, and, as a result of converting salaried chauffeurs to independent operators, eliminating the overhead and capital costs associated with employing salaried chauffeurs, leasing garages, maintaining parts and fuel inventories, and owning and operating vehicles. The Company generally realizes these benefits within six to twelve months after an acquisition, depending upon whether the acquisition is of a chauffeured vehicle service company in a location in which the Company already operates, or of a licensee in a market where Carey has yet to establish operations. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain financial data for the Company expressed as a percentage of revenue, net. With respect to the pro forma data, see "Pro Forma Consolidated Financial Statements" and the notes thereto.
FISCAL YEAR ENDED NOVEMBER 30, NINE MONTHS ENDED AUGUST 31, ------------------------------------- --------------------------------- 1994 1995 1996 1996 1997 ------- ------- ----------------- --------- --------------------- PRO PRO ACTUAL FORMA ACTUAL ACTUAL FORMA -------- ------- --------- --------- --------- Revenue, net............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of revenue......... 70.2 68.9 68.0 65.4 67.9 68.4 65.8 ------- ------- ------- ------- --------- --------- --------- Gross profit............ 29.8 31.1 32.0 34.6 32.1 31.6 34.2 Selling, general and administrative expense................ 26.7 28.6 25.3 26.9 26.5 24.8 26.4 ------- ------- ------- ------- --------- --------- --------- Operating income........ 3.1 2.5 6.7 7.7 5.6 6.8 7.8 Interest income (expense) and other income (expense)....... (3.4) (3.0) (2.1) 0.1 (2.3) (1.1) 0.1 ------- ------- ------- ------- --------- --------- --------- Income (loss) before provision (benefit) for income taxes........... (0.3) (0.5) 4.6 7.8 3.3 5.7 7.9 Provision (benefit) for income taxes........... 0.1 -- (0.2) 3.3 1.0 2.4 3.4 ------- ------- ------- ------- --------- --------- --------- Net income (loss)....... (0.4)% (0.5)% 4.8% 4.5% 2.3% 3.3% 4.5% ======= ======= ======= ======= ========= ========= =========
NINE MONTHS ENDED AUGUST 31, 1997 (THE "1997 NINE-MONTH PERIOD") COMPARED TO NINE MONTHS ENDED AUGUST 31, 1996 (THE "1996 NINE-MONTH PERIOD") Revenue, Net. Revenue, net increased $10.9 million or 26.4% from $41.2 million in the 1996 Nine-Month Period to $52.1 million in the 1997 Nine-Month Period. Of the increase, approximately $5.2 million related to expanded use of the Carey network, including an increase in business from corporate travel customers and business travel arrangers, and approximately $5.7 million was due to revenues of Manhattan Limousine and the Company's operations in London, which were not included in the 1996 Nine-Month Period. Cost of Revenue. Cost of revenue increased $7.6 million or 27.4% from $28.0 million in the 1996 Nine-Month Period to $35.6 million in the 1997 Nine-Month Period. The increase was primarily attributable to higher costs due to increased business levels and to cost of revenue of Manhattan Limousine and the Company's operations in London, which were not included in the 1996 Nine- Month Period. Cost of revenue increased as a percentage of revenue, net from 67.9% in the 1996 Nine-Month Period to 68.4% in the 1997 Nine-Month Period, primarily reflecting the effects of seasonally higher operating costs as a percentage of revenues in the Company's London operations in the first quarter of the 1997 Period and the relative increases in telephone, chauffeur and certain other costs in the third quarter of 1997, offset by the benefit of increased implementation of the Company's independent operator program. 16 Selling, General and Administrative Expense. Selling, general and administrative expenses increased approximately $2.0 million or 18.3% from $10.9 million in the 1996 Nine-Month Period to $12.9 million in the 1997 Nine- Month Period. The increase was largely due to the costs of additional personnel, increased marketing expenses and increased administrative expenses related to acquired operations and generally, in support of higher business levels. Selling, general and administrative expenses decreased as a percentage of revenue, net from 26.5% in the 1996 Nine-Month Period to 24.8% in the 1997 Nine-Month Period as a result of an increase in revenue, net without a corresponding increase in administrative costs. Interest Expense. Interest expense decreased approximately $395,000 or 30.4% from $1.3 million in the 1996 Nine-Month Period to approximately $905,000 in the 1997 Nine-Month Period. Interest expense decreased as a percentage of revenue, net from 3.2% in the 1996 Nine-Month Period to 1.7% in the 1997 Nine- Month Period. The decrease resulted from repayment of the principal amounts of debt outstanding between the two periods and conversion of subordinated and certain other debt to Common Stock coincident with the IPO. Provision for Income Taxes. The provision for income taxes increased approximately $807,000 from approximately $420,000 in the 1996 Nine-Month Period to $1.2 million in the 1997 Nine-Month Period. The increase primarily related to the increase in pre-tax income of the Company from $1.4 million in the 1996 Nine-Month Period to $3.0 million in the 1997 Nine-Month Period. In addition, the Company utilized NOLs in determining its provision for income taxes in the 1996 Nine-Month Period but such NOLs were not available to the Company in the 1997 Nine-Month Period. Net Income. As a result of the foregoing, the Company's net income increased approximately $817,000 or 87.8% from approximately $931,000 in the 1996 Nine- Month Period to $1.7 million in the 1997 Nine-Month Period. YEAR ENDED NOVEMBER 30, 1996 COMPARED TO YEAR ENDED NOVEMBER 30, 1995 Revenue, Net. Revenue, net increased approximately $16.0 million or 36.8% from $43.5 million in 1995 to $59.5 million in 1996. Of the increase, approximately $9.6 million was contributed by existing operations as a result of expanded use of the Carey network, including an increase in business from corporate travel customers and business travel arrangers, and approximately $6.4 million was due to revenues of companies which were acquired from December 1994 through February 1996. Cost of Revenue. Cost of revenue increased approximately $10.5 million or 35.1% from $29.9 million in 1995 to $40.4 million in 1996. The increase was primarily attributable to higher costs due to increased business levels. Cost of revenue decreased as a percentage of revenue, net from 68.9% in 1995 to 68.0% in 1996 as a result of spreading the fixed costs of the Company's reservations infrastructure over a larger revenue base. Selling, General and Administrative Expense. Selling, general and administrative expenses increased approximately $2.7 million or 21.4% from $12.4 million in 1995 to $15.1 million in 1996. The increase was largely due to higher administrative costs associated with additional personnel, increased marketing and promotional expenses, and higher amortization of intangibles as a result of acquisitions. Selling, general and administrative expenses decreased as a percentage of revenue, net from 28.6% in 1995 to 25.3% in 1996 as a result of an increase in revenue without a corresponding increase in administrative costs. Interest Expense. Interest expense was $1.7 million in each of 1995 and 1996. Interest expense decreased as a percentage of revenue, net from 3.0% in 1995 to 2.1% in 1996. Provision (Benefit) for Income Taxes. The provision for income taxes was nominal in 1995. In 1996, the Company had a tax benefit of $104,000. Prior to 1996, the Company recorded a valuation allowance against its net deferred tax assets. This allowance was reversed in 1996 in accordance with generally accepted accounting principles. The reversal reduced the provision for income taxes in 1996 by approximately $1.5 million. The increase in the provision recordable in 1996, which was offset by the effect of reducing the valuation allowance against deferred tax assets, was attributable to the Company's increased pretax profit level in 1996 which exceeded the beneficial tax effect of net operating loss carryforwards of prior years. The Company has utilized the full amount of its net operating loss carryforwards. Net Income (Loss). As a result of the foregoing, the Company had net income of $2.8 million in 1996 compared to a net loss of approximately $195,000 in 1995. 17 YEAR ENDED NOVEMBER 30, 1995 COMPARED TO YEAR ENDED NOVEMBER 30, 1994 Revenue, Net. Revenue, net increased approximately $8.0 million or 22.4% from $35.5 million in 1994 to $43.5 million in 1995. Of the increase, approximately $4.7 million was due to revenues of companies acquired from December 1994 through August 1995, as well as the full year effect in 1995 of companies acquired in 1994. Approximately $3.3 million of the increase was contributed by existing operations as a result of an increase in business from corporate travel customers, business travel arrangers, special event business, and the implementation in mid-1995 of charges to licensees for central reservation and billing services. Cost of Revenue. Cost of revenue increased approximately $4.9 million or 20.0% from $25.0 million in 1994 to $29.9 million in 1995. The increase was primarily attributable to higher operating costs due to increased business levels and to operating costs related to acquired companies. Cost of revenue decreased as a percentage of revenue, net from 70.2% in 1994 to 68.9% in 1995 as a result of increased utilization of the Company's operating resources and the implementation, in mid-1995, of charges to licensees for central reservation and billing services which did not result in a corresponding increase in cost. Selling, General and Administrative Expense. Selling, general and administrative expenses increased approximately $2.9 million or 30.9% from $9.5 million in 1994 to $12.4 million in 1995. This increase was largely due to higher costs associated with additional personnel, increased marketing and promotional expense, and the increase in the amortization of intangibles recorded as a result of acquisitions. Selling, general and administrative expenses increased as a percentage of revenue, net from 26.7% in 1994 to 28.6% in 1995 as a result of relatively higher levels of administrative costs in existing operations and additional expenses related to companies acquired late in 1995 whose operations were not consolidated with the Company's operations until 1996. Interest Expense. Interest expense increased approximately $334,000 or 24.8% from approximately $1.4 million in 1994 to $1.7 million in 1995. This increase was due to net increases in debt in 1995 to fund acquisitions. Interest expense as a percentage of revenue, net increased slightly from 3.8% in 1994 to 3.9% in 1995. Provision for Income Taxes. The provision for income taxes was nominal in 1994 and in 1995. Net Loss. As a result of the foregoing, the Company had a net loss of approximately $195,000 in 1995 compared to a net loss of approximately $129,000 in 1994. 18 QUARTERLY RESULTS The following table presents unaudited quarterly financial information for 1995, 1996 and the first three quarters of 1997. This information has been prepared by the Company on a basis consistent with the Company's audited financial statements and includes all adjustments (consisting only of normal recurring adjustments) which management considers necessary for a fair presentation of the results for such quarters.
QUARTER ENDED ------------------------------------------------------------------------------------------------- 1995 1996 1997 ----------------------------------- ---------------------------------- ------------------------ FEB. MAY AUG. NOV. FEB. MAY AUG. NOV. FEB. MAY AUG. 28 31 31 30 29 31 31 30 28 31 31 ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ------ (IN THOUSANDS) Revenue, net............ $8,333 $10,320 $10,235 $14,596 $11,558 $15,043 $14,575 $18,330 $14,141 $16,731 21,179 Gross profit............ 2,647 3,113 2,980 4,800 3,654 4,835 4,737 5,841 4,385 5,349 6,719 Operating income (loss)................. (101) 235 (216) 1,204 293 1,037 987 1,673 566 1,293 1,691 QUARTER ENDED ------------------------------------------------------------------------------------------------- 1995 1996 1997 ----------------------------------- ---------------------------------- ------------------------ FEB. MAY AUG. NOV. FEB. MAY AUG. NOV. FEB. MAY AUG. 28 31 31 30 29 31 31 30 28 31 31 ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ------ Revenue, net............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Gross profit............ 31.8 30.2 29.1 32.9 31.6 32.1 32.5 31.9 31.0 32.0 31.7 Operating income (loss)................. (1.3)% 2.2% (2.1)% 8.2% 2.5% 6.8% 6.7% 9.1% 4.0% 7.7% 8.0%
The Company believes that its future operating results may continue to be subject to quarterly variations caused by such factors as seasonal business travel, variable scheduling of special events and the timing of acquisitions by the Company. The Company's least profitable quarter generally has been the first quarter (ending February 28 or 29), and its most profitable quarter generally has been the fourth quarter (ending November 30). LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents increased $2.5 million from $2.8 million at November 30, 1996 to $5.3 million at August 31, 1997. Operating activities provided net cash of $1.2 million during the 1997 Nine-Month Period. The overall net increase in cash and cash equivalents during the 1997 Nine-Month Period primarily related to the cash proceeds to the Company from its IPO and net cash provided by operations, offset by the use of such cash to retire debt, acquire Manhattan Limousine and redeem certain preferred stock. Cash used in investing activities increased by $6.8 million over the 1996 Nine-Month Period. Cash of $1.2 million was used in the 1996 Nine-Month Period to acquire operations in London, whereas $7.4 million of cash was used in the 1997 Nine-Month Period to acquire Manhattan Limousine and to make additional payments of contingent consideration for the acquisition of London. Cash provided by financing activities increased by $9.0 million over the 1996 Nine-Month Period, primarily as a result of the net proceeds from the IPO and after using such proceeds to retire debt and complete the Recapitalization. In connection with the IPO, the Company issued a total of 3,335,000 shares of Common Stock and received proceeds, net of underwriters' discounts and commissions and offering costs, of $30.7 million. The Company utilized the net proceeds from the IPO to repay principal on indebtedness of $7.1 million and to fund the Recapitalization by repaying principal on subordinated indebtedness of approximately $912,000 and redeeming preferred stock for $3.1 million. Additionally, the Company completed its acquisition of Manhattan Limousine by paying $11.8 million to the sellers of Manhattan Limousine and repaying principal on indebtedness of Manhattan Limousine in the amount of $3.5 million. The remaining net proceeds will be used for acquisitions and other general corporate purposes, including working capital. 19 As part of the Recapitalization, a further $4.9 million of debt was converted to Common Stock of the Company. At August 31, 1997, the Company had borrowings, including capitalized leases, of $1.1 million, approximately $303,000 of which is to be repaid over the next 12 months. Effective as of August 15, 1997, the Company entered into a senior credit facility with three banks consisting of a secured revolving line of credit of $25.0 million (the "Facility"). The Facility, which may be used for acquisitions and working capital, is collateralized by the assets of the Company and its domestic operating subsidiaries and by a pledge of the stock of its international subsidiary. The Facility also provides availability for the issuance of letters of credit. Loans made under the revolving line of credit bear interest at the Company's option at either the bank's prime lending rate or 2.0% above the LIBOR rate. Commitment fees equal to 0.375% per annum are payable on the unused portion of the revolving line of credit. On the second anniversary of the Facility, outstanding balances under the Facility will convert to a five-year term loan, which will bear interest either at a fixed rate (subject to availability) or at a variable LIBOR or prime-based rate with adjustments determined based on the Company's earnings. The terms of the Facility (i) prohibit the payment of dividends by the Company, (ii) with certain exceptions prevent the Company from incurring or assuming other indebtedness that is not subordinated to borrowings under the Facility and (iii) require the Company to comply with certain financial covenants. While there can be no assurance, and depending on the methods of financing and size of potential acquisitions, management believes that cash flow from operations, the remaining net proceeds from the IPO and funds from the credit Facility will be adequate to meet the Company's capital requirements for the next 12 months. While the Company historically has financed acquisitions primarily with cash, it may seek to finance future acquisitions by using common stock for a portion or all of the consideration to be paid. FACTORS TO BE CONSIDERED The information set forth above contains forward-looking statements, which involve risks and uncertainties. The Company's actual results could differ materially from the results anticipated in these forward-looking statements. Readers should refer to discussion under "Risk Factors" contained in the Company's Registration Statement on Form S-1 (No. 333-22651) filed with the Securities and Exchange Commission, which is incorporated herein by reference, concerning certain factors which could cause the Company's actual results to differ materially from the results anticipated in the forward-looking statements contained herein. IMPACT OF INFLATION AND FOREIGN CURRENCY FLUCTUATIONS The Company does not believe that inflation and foreign currency fluctuation has had, or will have, a material impact on the financial position and results of operation. 20 BUSINESS Carey International, Inc. is one of the world's largest chauffeured vehicle service companies, providing services through a worldwide network of owned and operated companies, licensees and affiliates serving 420 cities in 65 countries. The "Carey" brand name has represented quality chauffeured vehicle services since the 1920s. The Company owns and operates its service providers in New York, San Francisco, Los Angeles, London, Washington D.C., Indianapolis, South Florida and Philadelphia. In addition, the Company generates revenues from licensing the "Carey" name and providing central reservation, billing and sales and marketing services to its licensees. The Company's worldwide network also includes affiliates in locations in which the Company has neither owned and operated companies nor licensees. Over the past five years, the Company has invested significant capital in developing its reservation, central billing and worldwide service infrastructure. By leveraging its current infrastructure and position as a market leader, the Company intends to consolidate the highly fragmented chauffeured vehicle service industry through the acquisition of: (i) current Carey licensees, (ii) additional companies in markets in which the Company already owns and operates a chauffeured vehicle service company, and (iii) companies in other strategic markets in North America, Europe and the Pacific rim of Asia. The Carey network utilizes chauffeured sedans, limousines, vans and minibuses to provide services for airport pick-ups and drop-offs, inter-office transfers, business and association meetings, conventions, roadshows, promotional tours, special events, incentive travel and leisure travel. Businesses and business travelers utilize the Company's services primarily as a management tool, to achieve more efficient use of time and other resources. Carey's worldwide network of chauffeured vehicle service companies allows it to provide services with consistently high quality to its customers in virtually every major city in the expanding global travel market. The network is linked to over 300,000 reservation terminals in travel agencies, corporate travel departments and government agencies by the Carey International Reservation System (the "CIRS"), the chauffeured vehicle service industry's most extensive centralized global reservation system. MARKET OVERVIEW The Company estimates that the United States chauffeured vehicle service industry generated revenues of approximately $3.9 billion in 1996, and has undergone steady growth in recent years, with revenues increasing at a compound annual growth rate of 10.9% between 1990 and 1996. The industry is highly fragmented, with approximately 9,000 companies utilizing over 100,000 vehicles. The Company believes that during 1996 no chauffeured vehicle service company accounted for more than 2% of total United States industry revenues. The Company also believes that similar fragmentation exists in the chauffeured vehicle service industry outside the United States. The chauffeured vehicle service industry serves businesses in virtually all industrial and financial sectors of the economy. The Company believes that business customers are becoming increasingly sophisticated in their use of ground vehicle services and are demanding a broader array of "meet-and-greet" and other services, as well as business amenities such as cellular phones. Although there are other forms of transportation that compete with chauffeured vehicles, such as buses, jitney services, taxis, radio cars and rental cars, the Company believes that none of those forms of transportation provides the quality, dependability and value-added services of chauffeur-driven vehicles. The Company also believes that businesses place a premium on service providers that are able to coordinate the travel itinerary of each member of a large group over many locations with a single reservation and billing system. 21 BUSINESS STRATEGY The Company's objective is to increase its profitability and its market share in the chauffeured vehicle service industry by implementing the following growth strategies: Expand through Acquisitions. Carey believes that there are significant opportunities to acquire additional chauffeured vehicle service companies that would benefit from the capital and management resources that the Company can provide. Carey intends to acquire current Carey licensees, as well as additional chauffeured vehicle service companies both in markets in which the Company already owns and operates such a company and in other strategic regions in North America, Europe and the Pacific rim of Asia. Carey believes it has a competitive advantage in acquiring licensees because of a right of first refusal contained in the substantial majority of its domestic license agreements. The Company has successfully begun to implement its acquisition strategy, having acquired 18 chauffeured vehicle service companies since November 1991. Increase International Market Share. Approximately 11.6% of the Company's revenue, net was derived from services performed outside the United States during its fiscal year ended November 30, 1996. Of these international revenues, approximately 60.8% was generated by the Company's owned and operated business in London, approximately 38.1% was generated by the Company's international licensees and the remainder was generated by the Company's international affiliates. Carey believes that its network can capture a significant portion of the growing international market for chauffeured vehicle services by acquiring or licensing additional chauffeured vehicle service companies and otherwise implementing the Carey system outside the United States. The Company intends to increase its international presence by intensifying its sales and marketing efforts, strengthening its relationships with significant domestic and international business travel arrangers, and capitalizing on the capacity of the CIRS to operate on a global scale. By enhancing its international presence, the Company also expects to increase its revenues from providing chauffeured vehicle services to international travelers both visiting the United States and travelling abroad. Expand Licensee Network Worldwide. The Company will seek to expand its worldwide network and generate additional revenues from license and marketing fees by licensing additional chauffeured vehicle service companies in smaller markets that do not justify a Company-owned presence. Ultimately, as these less strategic markets grow in size and importance to the Company, the licensees in such markets may become acquisition candidates. Convert Salaried Chauffeurs to Independent Operators. The Company believes that it can improve its profitability by continuing to convert salaried chauffeurs to independent operators in businesses acquired by Carey. The objective of Carey's independent operator strategy is to instill in each chauffeur the sense of purpose, responsibility and dedication characteristic of an independent business owner, thereby increasing the profitability of the chauffeur and the Company. Carey's independent operator program allows the Company to reduce its labor and capital costs, convert fixed costs to variable costs and generate revenues from fees paid by independent operators. ACQUISITION STRATEGY Carey believes that there are significant opportunities to acquire additional chauffeured vehicle service companies as a result of: (i) the highly fragmented and increasingly global nature of the industry, (ii) industry participants' capital requirements and desire for liquidity, and (iii) the pressures of increasing competition. The Company intends to continue to pursue its acquisition program in order to strengthen its position in its existing markets and to acquire operations in new markets. Carey intends to pursue acquisitions that will allow the Company to own and operate chauffeured vehicle service companies in new geographic markets. The Company currently owns and operates chauffeured vehicle service companies in six of the largest United States travel markets and in London, the largest European travel market, and will seek to acquire Carey licensees in other significant travel markets in North America, Europe, 22 and the Pacific rim of Asia. The Company believes that its ability to acquire its licensees will be enhanced by a right of first refusal that is contained in a substantial majority of its domestic license agreements and the limited terms of most of its international license agreements. The Company's preference is to retain key management, operating and sales personnel of an acquired company in a new market in order to maintain continuity of operations and customer service. The Company believes that it has a market share of less than 10% in each of the markets in which it owns and operates a chauffeured vehicle service company, and that there is significant potential for it to expand its business in such markets through acquisitions. When justified by the size of an existing market acquisition, the Company expects to retain key management and sales personnel of the acquired company and to seek to improve that company's profitability through implementation of the Company's operating strategies. In most instances, acquired operations can be integrated into the Company's existing operations in a market, resulting in elimination of duplicative overhead and operating costs. The Company believes that there are significant advantages to consolidating the chauffeured vehicle service industry. Carey believes it can increase revenues of acquired companies by marketing the worldwide services of its network to customers of such companies, and by increasing the productivity of chauffeurs at the acquired companies through the implementation of training and quality assurance programs. Moreover, Carey believes that cost savings can be achieved following acquisitions through (i) the consolidation of certain administrative functions and increased use of automation, (ii) the elimination of redundant facilities, equipment and personnel and (iii) the conversion of salaried chauffeurs driving company-owned vehicles into independent operators driving their own vehicles. Carey has successfully begun its acquisition strategy, having acquired 19 chauffeured vehicle service companies since November 1991. The following table lists the date of acquisition, location of each such chauffeured vehicle service company and whether the acquired company was a licensee or affiliate of the Company or other chauffeured vehicle service company: ACQUISITION HISTORY NOVEMBER 1991--PRESENT
DATE LOCATION ACQUIRED COMPANY ---- -------- ---------------- November 1991................... Washington, DC Other September 1992.................. Los Angeles, CA Other August 1993..................... Wilmington, DE Licensee September 1993.................. West Palm Beach, FL Licensee November 1993................... New York, NY Other June 1994....................... Washington, DC Other June 1994....................... Los Angeles, CA Other December 1994................... Boca Raton, FL Other January 1995.................... San Francisco, CA Licensee April 1995...................... Washington, DC Other April 1995...................... Ft. Lauderdale/Miami, FL Licensee May 1995........................ San Francisco, CA Other August 1995..................... San Francisco, CA Other August 1995..................... Boca Raton, FL Other February 1996................... London, England Affiliate(/1/) June 1997....................... New York, NY Other October 1997.................... Indianapolis, IN Affiliate October 1997.................... Los Angeles, CA Affiliate December 1997................... London, England Other
- -------- (1) Prior to the acquisition, the Company had no licensee in London. 23 The Company has analyzed significant data on the chauffeured vehicle service industry and individual businesses within that industry and believes that it is well positioned to further implement its acquisition program. The Company believes that management's lengthy tenure with the Company, extensive experience in the chauffeured vehicle service industry and relationships with acquisition candidates provide the Company with significant knowledge that will assist the Company in its attempts to acquire licensees of the Company and other chauffeured vehicle service companies. The Company regularly reviews various strategic acquisition opportunities and periodically engages in discussions regarding such possible acquisitions. As the result of this review process, negotiations and acquisition agreements may occur from time to time if appropriate opportunities arise. The acquisition of Manhattan Limousine has solidified the Company's presence in the New York metropolitan area and diversified its customer base. The Company has benefitted from Manhattan Limousine's contracts with many New York-based participants in the airline and hotel industries, including airlines such as Virgin Atlantic Airways and Aer Lingus, and hotels such as the Plaza Hotel and the Mark Hotel. Typically these arrangements are terminable by the airline or hotel upon 30 days' notice. During its fiscal year ended September 30, 1996, approximately 18.0% of Manhattan Limousine's revenues were derived from services performed for Virgin Atlantic Airways. While the Company has begun to consolidate certain administrative operations of Manhattan Limousine with its own and to eliminate redundant facilities, equipment and personnel, Manhattan Limousine otherwise will retain its separate identity until June 1998, if not later. Manhattan Limousine historically provided services solely through independent operators rather than salaried chauffeurs. As a result, subsequent to the acquisition, Carey has not been able to realize the benefits of converting salaried chauffeurs into independent operators. See "--Independent Operators." As a result of the acquisition, Carey assumed Manhattan Limousine's network of approximately 300 affiliates from which Manhattan Limousine received fees for referred business. A significant majority of these affiliates are located in cities in which the Company already has affiliates, and in some cities the companies share common affiliates already were Carey affiliates as well. As consideration for future acquisitions, the Company intends to use various combinations of shares of Common Stock, cash and notes. Some or all of any shares of Common Stock issued in connection with acquisitions may be registered under the Securities Act. SERVICE PROVIDER NETWORK Carey's international network of owned and operated chauffeured vehicle service companies, licensees and affiliates, serving 420 cities in 65 countries, enables it to provide its customers chauffeured vehicles in virtually every significant travel market throughout the world. Carey believes that its network is the most extensive in the industry, and intends to expand the network by adding qualified licensees and affiliates in locations justifying new or expanded service. The Company believes that the trend toward globalization is opening more cities for business and personal travel around the world. The Company monitors and evaluates cities in which a demand for chauffeured vehicle services may warrant a "Carey" presence. The Company's network provides chauffeured vehicle services for airport pickups and drop-offs, inter-office transfers, business and association meetings, conventions, road shows, promotional tours, special events, incentive travel and leisure travel. Of these activities, the Company derived approximately 9.3% of its 1996 pro forma revenues from hotel contracts, approximately 8.3% from financial services customers and approximately 5.1% from contracts with airlines. The Company also offers its clients travel and tour planning services, "meet-and-greet" services, destination management services, group movement coordination services, direct and central billing in U.S. dollars, and access to the Company's 24-hour worldwide computerized reservation system, the CIRS. 24 The Company's fleet in its owned and operated locations contains four types of vehicles consisting of chauffeured sedans, limousines, vans and minibuses, some of which can carry up to 30 persons. In addition, the Company subcontracts from time to time for buses that can carry a greater number of passengers. The fleets of the Company's licensees and affiliates in larger markets are similar to the Company's fleet, and in smaller markets generally consist of only chauffeured sedans and limousines. All vehicles are driven by uniformed professional chauffeurs, most of whom own the vehicles that they drive. Each such chauffeur drives a clean, late model vehicle with amenities important to the business traveler, such as cellular telephones and daily newspapers. Owned and Operated Companies. The Company owns and operates chauffeured vehicle service companies in New York, San Francisco, Indianapolis, Los Angeles, London, Washington, D.C., South Florida and Philadelphia. Revenue provided by these companies represented approximately 77.6% of the Company's revenue, net in fiscal 1995 and 76% in fiscal 1996. Licensees. The Company has 39 licensees serving 106 cities in the United States and 24 licensees serving 105 cities outside the United States, all of which operate under the Carey name. Revenue, net provided by the Company's licensees represented approximately 19.0% and 18.8% of the Company's revenue, net in fiscal 1995 and 1996, respectively. The domestic license fee ranges from $15,000 to $75,000, depending upon the size of the market. The sum of the continuing fees paid by the domestic licensee varies, but annually is generally less than 10% of its revenues or, in some cases, less than 10% of an excess above a specified base. Substantially all candidates appointed as domestic licensees have been in business for at least 10 years prior to the grant of a license. The term of a domestic license agreement entered into prior to January 1, 1996 is perpetual and subsequent to January 1, 1996 is 10 years. International licensees historically have not paid annual license fees; rather, they have paid a commission on business referred to them. The term of an international license agreement usually is from year to year, although in a few cases it is perpetual. Under the domestic license agreement, the Company provides the licensee with (i) the right to use the "Carey" name, (ii) participation in the CIRS, (iii) various consulting services, (iv) identification in various travel directories, (v) access to bulk purchasing arrangements for automobiles, parts and maintenance materials and (vi) national sales and marketing services. In the event of a proposed transfer of a license or a licensee, the Company has the right to approve the transferee. In addition, for most license agreements executed prior to January 1, 1996 and all license agreements executed on or after January 1, 1996, Carey retains a right of first refusal by which it may acquire any license or licensee upon the same terms as the license or licensee is proposed to be sold. Typically, a licensee candidate acts as an affiliate before being selected as a licensee. Licensees operate according to strict service guidelines specified by the Company and market the Carey name in conjunction with the Company's overall marketing program. The Company conducts ongoing quality assurance programs and annual audits of licensees to insure that the licensees have met the high service standards set forth by the Company. The Company has the right to terminate any license if the licensee fails to comply with such standards. Affiliates. The Company utilizes affiliates to provide services to its clients in cities where the Company does not have Company-owned operations or licensees. Affiliates are not licensed to use the Carey name and do not pay license fees to the Company, but must meet the Company's quality standards in order to receive referred business. Pursuant to oral agreements between the Company and its affiliates, the Company is entitled to receive a commission of 15% of net vehicle revenues for all referred business. The Company's affiliates are located in 121 cities in the United States and 67 cities outside the United States. Revenue, net provided by the Company's affiliates represented approximately 2.2% and 1.8% of the Company's revenue, net in fiscal 1995 and 1996, respectively. 25 CAREY INTERNATIONAL RESERVATION SYSTEM (CIRS) The hub of the Company's network of service providers is the CIRS, the Carey International Reservation System. The CIRS is operated on a 24-hour basis by Carey's central reservation department, which processes reservations through the Company's proprietary computer system. The central reservation department receives reservations through the Company's toll free "800" telephone number (800-336-4646), by fax or telex, or through one of the six major airline reservation systems, SABRE, APOLLO, WORLDSPAN, GALILEO, BABS and SITA. These airline systems allow travel agencies, corporate travel departments and government offices to access the CIRS through over 300,000 reservation terminals worldwide. The Company bills a licensee or affiliate for each reservation referred to the licensee or affiliate through the CIRS. The CIRS can be accessed for up-to-date tariffs both in dollars and in foreign currency for 420 cities throughout the world. Through the CIRS, the Company's reservation and customer service personnel have instant access to all rates, services offered, types of vehicles available and special airport greeting capabilities in each individual city. Individual customer profiles are maintained, including vehicle and chauffeur preferences, frequent pick-up points, addresses and directions, billing requirements and account status. The CIRS is used to make arrangements for a broad range of business and consumer applications such as transportation to and from airports, association and industry meetings and functions, road shows, transportation related to incentive travel, board of directors meetings and sight seeing tours. Special customer service facilities are available with direct phone lines, including a special service desk, executive VIP desk, international tour desk, special event desk and road show desk. The CIRS utilizes client/server architecture and proprietary software developed over a five-year period which allows constant input into a complex international network linking more than 65 countries. A primary strength of the CIRS is the reliability of its reporting and control systems which verify all reservations for complete information, customer service requirements and accounting authorizations. The CIRS also contains customer invoicing programs to allow central billing directly through the system for all services used worldwide. In addition, the system's ability to track reservations allows more accurate and detailed analyses for marketing purposes. In 1992, the Company began leasing its reservation and operating systems to its licensees. These systems create a basis for certain licensees to have direct access to the CIRS and provide them with the ability to book local reservations, dispatch vehicles and account for chauffeured vehicle services. MARKETING, SALES AND CUSTOMER SERVICE The Company believes that "Carey," a registered service mark, is a highly recognized name in the chauffeured vehicle service and travel industries worldwide. The Company intends to continue to expand recognition of the "Carey" name through its marketing and promotional efforts. Carey has developed an extensive marketing program directed at both the travel arranger and the end user of chauffeured vehicle services. The program consists of directory listings, advertising, direct mail, public relations, cooperative promotional and joint marketing programs, attendance at and sponsorship of travel-related conventions and workshops, and direct selling. The direct sales force serving the Company and its licensees currently consists of approximately 20 professionals. Carey is listed in approximately 95 travel directories which are used by travel arrangers to obtain information on travel related services. Advertising targeted at travel arrangers is placed in over 35 trade journals including Business Travel Executive, Travel Weekly, Travel Trade and Business Travel News. In addition, the Company advertises extensively in magazines and newspapers, consumer association books, hotel room information books and the Yellow Pages, and on radio and television in selected markets. The Company's continuing direct mail program is targeted at both the travel arranger and the end user. The program distributes approximately two million promotional pieces annually. Most major travel arrangers receive at least six direct mail pieces per year which include announcements of new services, news on service providers 26 and reservation programs, the Carey Newsletter and listings of rates. End users and arrangers receive promotional pieces on Carey when they are billed for the Company's services. The Company's marketing program seeks to build upon brand name acceptance, customer loyalty, service know-how, technology and strategic market relationships with other market leaders in the travel and tourism industry, such as airlines, travel agencies, credit card companies and central reservation systems. The Company's sales force calls on thousands of accounts annually and participates in trade shows, seminars and association meetings. The Company also is involved in promotional and cooperative agreements with American Express Platinum Card and Gold Card, Diner's Club "Club Chauffeur" program, British Airways, Air France and various cruise lines. The Company believes that the retention and expansion of existing business is as important as new sales. Carey has established a base of loyal customers in part by monitoring the standard of service through its quality assurance and customer service programs. To assure that the Company continues to provide consistently high quality and reliable service, Carey operates a five-part quality assurance program. The Company's quality assurance program utilizes survey cards that are sent to customers and travel arrangers. Approximately 90% of the quality assurance cards returned to Carey during the twelve-month period ended November 30, 1996 rated the Company's reservation services, chauffeurs and vehicles as "excellent." Carey's quality assurance program includes evaluations performed by an independent consultant to measure the quality of chauffeur services, the appearance of chauffeurs and vehicles, and the availability of other amenities, such as cellular phones and daily newspapers. INDEPENDENT OPERATORS An important component of Carey's strategy involves the preferred use of independent operators instead of salaried chauffeurs operating Company-owned vehicles. An independent operator takes responsibility for owning, operating and maintaining his or her own vehicle. The Company believes that acting as an independent operator creates incentives for the chauffeur to become more productive, efficient and service-oriented, thereby increasing the profitability of the chauffeur and the Company. The objective of the Company's independent operator strategy is to instill in each chauffeur the sense of purpose, responsibility and dedication characteristic of an independent business owner. The use of independent operators allows the Company to reduce its labor and capital costs, convert fixed costs to variable costs and generate revenues from fees paid by independent operators. Because of the greater responsibility borne by independent operators, the Company is able to allocate fewer resources to oversee its vehicle operations. As a result, the Company can focus to a greater extent on support services, business development, administration, billing, quality assurance, and sales and marketing. Each independent operator enters into an agreement with the Company to provide prompt and courteous service to the Company's customers with a properly maintained, late model vehicle consistent with the Company's standards. The cost of a new vehicle ranges from $35,000 to $65,000, depending upon whether it is a sedan or a limousine and the features included in the vehicle. Each new independent operator agrees to pay an initial fee to the Company, acquires his or her vehicle and pays all of the maintenance and operating expenses of such vehicle, including gasoline. Prior to December 1996, the Company's typical agreement with an independent operator had a term of 10 years and provided for a fee ranging from $30,000 to $45,000 (depending on the local market) that was financed by the Company at an annual interest rate of 8% to 12%. The notes evidencing such financing generally were sold by the Company to third parties. Since December 1996, the independent operator agreements entered into by the Company generally have provided for, and the Company intends that future agreements will provide for, a term of 15 years, fees of $45,000 to $75,000 and an interest rate of 15% per year. In certain markets, such as New York, the Company may provide longer terms and higher fees in its independent operator agreements. Currently, the Company does not intend to continue its former practice of selling to third parties notes evidencing independent operator financing. To date, the Company has not incurred any material losses as a result of defaults under such notes, and any potential future losses will be mitigated from an accounting perspective because of the Company's policy of deferral of revenue recognition in connection with independent operator fees. 27 The independent operator agreement provides that the Company will bill and collect all revenues (as defined in the agreement) and remit to the independent operator 60% to 67% of such revenues. In this arrangement, the Company assumes the risk of collecting from each customer and generally pays the independent operator his or her share regardless of whether the Company is paid by the customer. An independent operator's failure to meet the high standards of service associated with the Carey name constitutes a breach of the agreement and gives rise to a right of the Company to terminate the agreement. Independent operators also generally require financing to purchase their vehicles. Typically, independent operators have utilized banks, vehicle financing companies or CLI Fleet, Inc. ("CLI Fleet"), a finance company that specializes in providing financing to the chauffeured vehicle service industry. See "Certain Transactions." On occasion, the Company has provided secured vehicle financing to independent operators with repayment terms of three to five years. CUSTOMERS The Company's customer list exceeds 75,000 individuals and organizations that are dispersed across many different industries and geographic locations. No client accounted for more than 5% of the Company's revenue, net in 1996. The Company's major clients include companies in the finance, travel and related services, manufacturing, pharmaceutical, airline, insurance, publishing, oil and gas exploration, entertainment, tobacco, and food and beverage industries. COMPETITION The chauffeured vehicle service industry is highly competitive and fragmented, with few significant national participants operating a multi-city reservation system. Each local market usually contains numerous local participants as well as a few companies offering regional and national service. Chauffeured vehicle service providers compete primarily on the basis of price, quality, scope of service and dependability. The Company also competes with service providers offering alternative modes of transportation, such as buses, jitney services, taxis, radio cars and rental cars. The Company believes that its high quality of service and dependability have allowed the Company to compete effectively in its markets. Carey competes both for customers and for possible acquisitions. The Company expects its business to become more competitive as existing competitors expand and additional companies enter the industry. Certain of the Company's existing competitors have, and any new competitors that enter the industry may have, access to significantly greater financial resources than the Company. GOVERNMENT REGULATION The Company's chauffeured vehicle service operations are subject to various state and local regulations and, in many instances, require permits and licenses from state and local authorities. In addition, the Company is regulated by the Federal Highway Administration with respect to, among other things, minimum vehicular insurance requirements. The Company believes that it has all required permits and licenses to conduct its operations and that it is in substantial compliance with applicable regulatory requirements relating to its operations. The Company is subject to federal and state laws, rules and regulations governing the offer and sale of franchises. A number of states have enacted laws that require detailed disclosure in the offer and sale of franchises and/or the registration of the franchisor with state administrative agencies. The Company is also subject to Federal Trade Commission regulations relating to disclosure requirements in the sale of franchises. Certain states have enacted, and others may enact, legislation governing certain aspects of the franchise relationship and limiting the ability of the franchisor to terminate or refuse to renew a franchise. The law applicable to franchise sales and relationships is rapidly developing, and the Company is unable to predict the effect on its franchise system of additional requirements or restrictions that may be enacted or promulgated or of court decisions that may be adverse to franchisors. Due to the scope of the Company's business, and the complexity of franchise regulation, compliance problems may be encountered from time to time. 28 INSURANCE The Company is subject to accident claims as a result of the normal operation of its fleet of vehicles, which claims and the defense thereof generally are covered by insurance. The Company purchases automobile liability, automobile collision and comprehensive damage, general liability, comprehensive property damage, workers' compensation and other insurance coverages that management considers adequate for the protection of the Company's assets and operations, although there can be no assurance that the coverages and limits of such policies will be adequate. The Company's standard license agreement requires that its licensees purchase similar types of insurance and name the Company as a named insured in such insurance policies. A successful claim against the Company beyond the scope of its or its licensees' insurance coverage or in excess of its or its licensees' limits could have a material adverse effect on the Company's business, financial condition and results of operations. FACILITIES The Company owns facilities in Alexandria, Virginia and Long Island City, New York used by owned and operated chauffeured vehicle service companies providing services in the Washington, D.C. and New York metropolitan areas, respectively. The Company leases its corporate headquarters in Washington, D.C. and also leases seven administrative and/or operating facilities in California, New York, Indiana, Pennsylvania, Florida and London. Management believes that the Company's facilities are adequate for its present needs and that suitable additional or replacement space will be available as required. EMPLOYEES AND INDEPENDENT OPERATORS As of November 30, 1997, the Company had approximately 488 full-time employees (approximately 125 of whom were chauffeurs) and approximately 178 part-time employees (approximately 116 of whom were chauffeurs). As of June 30, 1997, the Company also had agreements with approximately 452 independent operators. The Company is not a party to any collective bargaining agreement. INTELLECTUAL PROPERTY The Company is the registered owner of two United States service marks covering the "Carey" name. The Company believes that customer and travel arranger recognition of these marks has contributed to its success. The Company is not affiliated with Carey Transportation, Inc., a company that provides bus transportation services in the metropolitan New York City area. Except in this area, the Company believes it has the exclusive right to use the "Carey" name in connection with transportation services in all locations in which it either owns and operates a chauffeured vehicle service company or maintains a licensee. LEGAL PROCEEDINGS The Company and certain of its officers and directors were named in a civil action filed on May 15, 1996 in the United States District Court for the Eastern District of Pennsylvania (Case No. 96-CV-3702) entitled "Felix v. Carey International, Inc., et al." The plaintiff's complaint, which purports to be a class action, alleges that the plaintiff and others similarly situated suffered monetary damages as a result of misrepresentations by the various defendants in their use of a surface transportation billing charge (the "STC"). The STC is billed by Carey to its customers and represents a surcharge on account of various fees and service costs incurred by it in its provision of services to such customers. The plaintiff seeks damages in excess of $1.0 million on behalf of the class for each of the counts in the complaint including fraud, negligent misrepresentation and violations of the Racketeer Influenced and Corrupt Organizations law of 1970, which permits the recovery of treble damages and attorneys' fees. The Company filed a motion to dismiss that was denied, and subsequently has filed an answer denying any liability in connection with this complaint. 29 The Company has reached a settlement with the plaintiff and plaintiff's counsel. The settlement calls for the Company to deposit $500,000 into a settlement fund and provide a $450,000 letter of credit for a class consisting of all persons who paid the STC during the period from May 15, 1992 through March 15, 1997. As a condition of the final settlement, the Company will change its disclosure concerning the STC, and each class member showing proper authentication of a claim shall be entitled to receive either (i) cash totalling 10% of the STC paid during the period described above or (ii) a nontransferable credit to be applied toward future use of the Company's services in an amount equal to 30% of such STC. This settlement has received final court approval. The Company is indemnifying and defending its officers and directors who were named defendants in the case, subject to conditions imposed by applicable law. Although the Company does not believe the litigation described above will have a material adverse effect on its business, financial condition and results of operations, the defense of the litigation could be expensive and time-consuming, regardless of the outcome, and, if the proposed settlement is not approved and accepted, an adverse result in such litigation could have a material adverse effect on the Company's business, financial condition, results of operations and cash flows. The Company is a party to other litigation in the ordinary course of business. The Company does not anticipate an unfavorable result in any such litigation or believe that an unfavorable result, if it occurred, would have a material adverse effect on its business, financial condition and results of operations. 30 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information pertaining to the directors and executive officers.
NAME AGE CURRENT POSITION ---- --- ---------------- Vincent A. Wolfington.......... 57 Chairman of the Board and Chief Executive Officer Don R. Dailey.................. 60 President and Director Guy C. Thomas.................. 59 Executive Vice President--Operations David H. Haedicke.............. 51 Executive Vice President and Chief Financial Officer Richard A. Anderson, Jr........ 52 Senior Vice President Sally A. Snead................. 37 Senior Vice President--Information Systems John C. Wintle................. 51 Senior Vice President--Europe Paul A. Sandt.................. 37 Vice President and Chief Accounting Officer Devin J. Murphy................ 31 Senior Vice President and Chief Development Officer S. Terrell Mellen.............. 41 Senior Vice President--Sales and Marketing Robert W. Cox.................. 60 Director William R. Hambrecht........... 62 Director David McL. Hillman............. 44 Director Nicholas J. St. George......... 58 Director
Set forth below is a description of the backgrounds of each of the directors and executive officers and the director nominee of the Company. Vincent A. Wolfington, a co-founder of the Company, has served as its Chairman of the Board of Directors and Chief Executive Officer since 1979. For over 25 years, Mr. Wolfington has been involved in the limousine industry and directly associated with the Carey system of licensees and affiliates. Mr. Wolfington has served as a consultant to the National Academy of Sciences Transportation Research Board, President of the National Para-transit Association and a member of the International Limousine Association. Mr. Wolfington currently is a member of the Executive Committee of the World Travel and Tourism Council. Don R. Dailey has been President and a director of the Company, which he co- founded, since 1979. Mr. Dailey has been directly involved in the limousine business for over 30 years. Mr. Dailey serves on a number of boards and committees related to the travel industry, including the National Business Travel Association, the International Business Travel Associates, the Association of Corporate Travel Executives, the National Limousine Association and the International Limousine Association (as its past president and member of its executive committee). Guy C. Thomas has served as Executive Vice President--Operations of the Company since 1987. Mr. Thomas has served on a number of boards and committees related to the travel industry, including the National Business Travel Association, the Greater Washington Area Passenger Traffic Association, the American Society of Association Executives, Meeting Planners International, the Association of Corporate Travel Executives, the National Limousine Association and the International Taxicab and Livery Association. David H. Haedicke has been an Executive Vice President and Chief Financial Officer of the Company since October 1996. From August 1996 to October 1996, he was Senior Vice President and Chief Financial Officer of Infotechnology, Inc., Hadron, Inc. and Comtex Scientific Corporation, an affiliated group of companies engaged in systems management and software development. From September 1993 to May 1996, he was Chief Financial Officer of Walcoff & Associates, Inc., a communications and information management firm. From June 1991 to September 1993, he was Chief Financial Officer and Vice President of Xsirus, Inc., a high technology research and development company. Mr. Haedicke also was a partner at Ernst & Young L.L.P. from 1985 to June 1991, and was an employee at that firm from 1973 to 1985. Mr. Haedicke is a Certified Public Accountant. 31 Richard A. Anderson, Jr. has served as a Senior Vice President of the Company since December 1988. Mr. Anderson also was Chief Operating Officer of the Company's New York subsidiary, Carey Limousine NY, Inc., from December 1988 until August 1997. Mr. Anderson is Chairman of the New York Taxi and Limousine Commission's Limousine Advisory Board, a former Board Member of the Association of Corporate Travel Executives, and a member of the National Business Travel Association and Meeting Planners International. Sally A. Snead has served as the Company's Senior Vice President-- Information Systems since June 1993. From January 1987 to June 1993, she was Executive Vice President and General Manager of Carey Limousine L.A., Inc. She is a member of Executive Women International, the National Business Travel Association, the Association of Corporate Travel Executives and the National Limousine Association. John C. Wintle has served as the Company's Senior Vice President--Europe since May 1996 and as Executive Vice President and Managing Director of Carey U.K. Ltd., a subsidiary of the Company, since March 1996. From 1982 to February 1996, Mr. Wintle served Savoy Hotel PLC ("Savoy") and its affiliates, including Camelot Barthropp Ltd. ("Camelot"), in various capacities. From March 1993 to February 1996, Mr. Wintle was Executive Vice Chairman of Camelot, which was acquired by Carey U.K. Ltd. in February 1996. Previously, from 1989 to 1993, Mr. Wintle was General Manager, Restaurant Division, of several entities affiliated with Savoy. From 1982 to 1989, Mr. Wintle had been Group Financial Controller at Savoy. Paul A. Sandt has served as a Vice President and Chief Accounting Officer of the Company since October 1994. From May 1992 through September 1994, Mr. Sandt was a staff member with the Securities and Exchange Commission, and from December 1990 through May 1992, he was Director of Finance of The Kline Automotive Group. From 1984 through 1990, he was employed by Coopers & Lybrand L.L.P. Mr. Sandt is a Certified Public Accountant. Devin J. Murphy has served as a Vice President of the Company since May 1996, and became Senior Vice President and Chief Development Officer in April 1997. Mr. Murphy received a Master's Degree in Business Administration from Duke University in May 1996. For the six years prior to the commencement of his MBA program in September 1994, Mr. Murphy held various sales and marketing positions at companies within the information technology industry. These companies include Bay Networks, Inc., where Mr. Murphy was Marketing Manager from January 1993 to August 1994, Motorola Inc., where he was Manager, Major Accounts from February 1991 to January 1993, and Hewlett-Packard Co. Inc., where he was Territory Manager from 1988 to 1991. S. Terrell Mellen has served as Senior Vice President--Sales and Marketing of the Company since September 1997. From September 1994 until September 1997 Ms. Mellen was Executive Director of the Association of Corporate Travel Executives (ACTE), a professional organization serving 1,800 members in thirteen countries. From October 1988 until September 1994 Ms. Mellen was Director of Marketing and Industry Relations for the Air Travel Card, a corporate payment system issued by seven major US airlines. Prior to joining Air Travel Card, Ms. Mellen held sales positions at Computer Associates International and Piedmont Airlines. Ms. Mellen holds a Masters in Business Administration degree from Georgetown University. Robert W. Cox has served as a director of the Company since 1995. From 1969 until his retirement in 1994, Mr. Cox was a partner in the New York and Chicago offices of the law firm Baker & McKenzie. From 1984 to 1992, Mr. Cox was Chairman of the Executive Committee and Managing Partner of the firm, and from 1993 to 1994, Mr. Cox was Chairman of the Policy Committee. Mr. Cox currently is a director of Hon Industries, Inc. William R. Hambrecht has served as a director of the Company since 1995. Mr. Hambrecht is Chairman of Hambrecht & Quist LLC, an investment banking firm which he co-founded in 1968. Mr. Hambrecht also serves as a director of Adobe Systems, Inc. David McL. Hillman has served as a director of the Company since 1994. Mr. Hillman is Executive Vice President of PNC Capital Corp. and Executive Vice President and Director of PNC Equity Management Corp., which he co-founded in 1982. Mr. Hillman is a director of several privately-held companies in connection with PNC Capital Corp.'s investments in such companies. 32 Nicholas J. St. George has served as a director of the Company since June 1997. Mr. St. George has been President and Chief Executive Officer of Oakwood Homes Corporation ("Oakwood"), a manufacturer and retailer of manufactured homes, since February 1979. Mr. St. George serves as a director of Oakwood, and also is a director of American Bankers Insurance Group, Inc. and Legg Mason, Inc. BOARD OF DIRECTORS The Company's Board of Directors is divided into three classes with staggered three-year terms. The initial term of Messrs. Hambrecht and Hillman expire at the Company's 1998 annual meeting, the initial terms of Messrs. Cox and St. George expire at the Company's 1999 annual meeting, and the initial terms of Messrs. Wolfington and Dailey expire at the Company's 2000 annual meeting. Successors to the directors whose terms expire at each annual meeting are elected for three-year terms. A director holds office until the annual meeting for the year in which his term expires and until his successor is elected and qualified. Executive Committee. The members of the Executive Committee of the Company's Board of Directors are Messrs. Wolfington, Cox and Dailey. The Executive Committee exercises all the powers of the Board of Directors between meetings of the Board of Directors, except such powers that are reserved to the Board of Directors by applicable law. Audit Committee. The members of the Audit Committee of the Company's Board of Directors are Messrs. Hillman and St. George. The Audit Committee makes recommendations concerning the engagement of independent public accountants, reviews with the independent public accountants the plans for and results of the audit, approves professional services provided by the independent public accountants, reviews the independence of the independent public accountants, considers the range of audit and non-audit fees and reviews the adequacy of the Company's internal accounting controls. Compensation Committee. The members of the Compensation Committee of the Company's Board of Directors are Messrs. Cox and St. George. The Compensation Committee establishes a general compensation policy for the Company and approves increases in directors' fees and salaries paid to officers and senior employees of the Company. The Compensation Committee administers the Company's equity incentive plans and determines, subject to the provisions of the Company's plans, the directors, officers and employees of the Company eligible to participate in any of the plans, the extent of such participation and terms and conditions under which benefits may be vested, received or exercised. DIRECTOR COMPENSATION Members of the Board of Directors who also serve as officers of the Company do not receive compensation for serving on the Board. Each other member of the Board receives an annual retainer of $15,000 for serving on the Board, plus a fee of $1,000 for each Board of Directors' meeting attended. In addition, such directors receive an additional fee of $500 for each committee meeting attended, except that only one fee is paid in the event that more than one such meeting is held on a single day. All directors receive reimbursement of reasonable expenses incurred in attending Board and committee meetings and otherwise carrying out their duties. The Company maintains the Stock Plan for Non-Employee Directors (the "Directors' Plan"). A maximum of 100,000 shares of Common Stock may be delivered upon the exercise of options granted under the Directors' Plan and elections to receive shares in lieu of cash compensation. Only directors of the Company who are not employees of the Company or any of its subsidiaries (the "Non-Employee Directors") are eligible to participate in the Directors' Plan. While grants of stock options under the Directors' Plan are automatic and non- discretionary, all questions of interpretation of the Directors' Plan are determined by the Board of Directors. On the date of each annual meeting of stockholders, each Non-Employee Director continuing in office will be granted an option pursuant to the Directors' Plan covering 2,500 shares. Any newly elected Non-Employee Director will be granted an option pursuant to the Directors' Plan covering 5,000 shares on the date of his or her election (whether such election occurs at an annual meeting or otherwise). The option exercise price for all options granted under the Directors' Plan is the closing price of a share of the Common Stock as reported on the Nasdaq National Market on the date the option is granted. All options granted under the Directors' Plan become fully exercisable six months after the date of grant. Unless sooner terminated following the death, disability or termination of service of a director, options granted under the Directors' Plan will remain exercisable until the 33 fifth anniversary of the date of grant. In addition, upon certain transactions involving a change of control or the dissolution or liquidation of the Company, all options held by Non-Employee Directors will terminate; provided, however, that for a period of 20 days prior to the effective date of any such transaction, dissolution or liquidation, all options outstanding under the Directors' Plan that are not otherwise exercisable shall immediately vest and become exercisable. Under the Directors' Plan, a Non-Employee Director may elect to be paid all or a portion of his or her annual retainer in shares of Common Stock. Any such election must be made in writing at least 30 days prior to the date the annual retainer would be paid by the Company. The number of shares to be delivered to a Non-Employee Director upon such election is determined by dividing the amount of the annual retainer to be received in shares of Common Stock by the closing price of a share of Common Stock as reported on the Nasdaq National Market on the date the annual retainer is to be paid. The Board of Directors may at any time or times amend the Directors' Plan for any purpose which at the time may be permitted by law. EXECUTIVE COMPENSATION Summary Compensation Table The following table contains a summary of the compensation paid to the Chief Executive Officer of the Company and the other executive officers whose salary and bonus for the Company's fiscal year ended November 30, 1996 exceeded $100,000.
ANNUAL COMPENSATION ----------------------------------------------------- NAME AND OTHER ANNUAL ALL OTHER PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($) COMPENSATION($)(1) - ------------------ --------- -------- --------------- ------------------ Vincent A. Wolfington.... $231,620 -- -- $57,000 Chairman and Chief Executive Officer Don R. Dailey............ 205,001 -- -- 57,000 President and Director Guy C. Thomas............ 115,000 -- $13,020(2) 6,300 Executive Vice President--Operations
- -------- (1) Includes with respect to each of Messrs. Wolfington and Dailey $45,000 paid for providing certain personal guarantees on behalf of the Company and $12,000 in life insurance premiums, and with respect to Mr. Thomas, $6,300 in life insurance premiums. (2) Includes a car allowance of $11,820. 34 OPTIONS TO PURCHASE SHARES OF COMMON STOCK Messrs. Wolfington, Dailey and Thomas hold options to purchase the following shares of Common Stock, all of which options currently are exercisable at a price of approximately $4.65 per share. The aggregate values of the options are as set forth below, assuming a fair market value of $14.50 per share of Common Stock, the closing price of the Common Stock on the Nasdaq National Market on January 13, 1998. The named officers neither were granted nor exercised options during the fiscal year ended November 30, 1996.
NUMBER OF SECURITIES NAME UNDERLYING OPTIONS VALUE ---- ------------------ ---------- Vincent A. Wolfington....................... 105,706 $1,041,204 Don R. Dailey............................... 105,706 $1,041,204 Guy C. Thomas............................... 32,018 $ 315,377
EQUITY INCENTIVE PLANS The Company currently maintains the 1987 Stock Option Plan (the "1987 Plan") and the 1992 Stock Option Plan (the "1992 Plan"), both of which provide for the award of incentive and non-statutory stock options by the Company. The Company also maintains the 1997 Equity Incentive Plan (the "1997 Plan"), which provides for the award of up to 650,000 shares of Common Stock in the form of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, performance stock units and other stock units which are valued by reference to the value of the Common Stock. The 1987 Plan, 1992 Plan and 1997 Plan are hereinafter referred to collectively as the "Equity Plans." As of January 13, 1998, options were outstanding to purchase an aggregate of 914,336 shares of Common Stock under the Equity Plans, and an aggregate of 178,756 shares of Common Stock are authorized but have not yet been granted under options pursuant to such plans (including 174,611 shares pursuant to the 1997 Plan). Officers, key employees, non-employee directors of and consultants to the Company are eligible to participate in the Equity Plans. The Equity Plans are administered by the Compensation Committee of the Board of Directors. Among other things, the Compensation Committee determines, subject to the provisions of said plans, who shall receive awards, the types of awards to be made, and the terms and conditions of each award. Options that are intended to qualify as incentive stock options under the Equity Plans may be exercisable for not more than 10 years after the date the option is awarded and may not be granted at an exercise price less than the fair market value of the shares of Common Stock at the time the option is granted (and, in the case of stock options granted to holders of more than 10% of the Common Stock, may not be granted at an exercise price less than 110% of the fair market value of the shares of Common Stock at the time the options are granted). The Compensation Committee may at any time, including in connection with a change in control of the Company, accelerate the exercisability of all or any portion of any option issued under the Equity Plans. The Compensation Committee may amend, modify or terminate any outstanding award under the Company's Equity Plans with the participant's consent, except consent shall not be required if the Compensation Committee determines that such action will not materially and adversely affect the participant. The Board may amend, suspend or terminate any of the Equity Plans, or any part of such plans, at any time, except that no amendment may be made without stockholder approval if such approval is necessary to comply with any applicable tax or regulatory requirement. INDEMNIFICATION AND LIMITATION OF LIABILITIES OF OFFICERS AND DIRECTORS As permitted by the Delaware General Corporation Law, the Company's Certificate of Incorporation provides for the elimination, subject to certain conditions, of the personal liability of directors of the Company for monetary damages for breach of their fiduciary duties. The directors, however, remain subject to equitable remedies even if their liability for monetary damages is eliminated. The Company's Certificate of Incorporation 35 also provides that the Company shall indemnify its directors and officers. In addition, the Company maintains an indemnification insurance policy covering all directors and officers of the Company. In general, the Company's Certificate of Incorporation and the indemnification insurance policy attempt to provide the maximum protection permitted by Delaware law with respect to indemnification of directors and officers. Under the indemnification provisions of the Company's Certificate of Incorporation and the indemnification insurance policy, the Company will pay certain amounts incurred by a director or officer in connection with any civil or criminal action or proceeding, and specifically including actions by or in the name of the Company (derivative suits), where the individual's involvement is by reason of the fact that he is or was a director or officer of the Company. Such amounts include, to the maximum extent permitted by law, attorney's fees, judgments, civil or criminal fines, settlement amounts, and other expenses customarily incurred in connection with legal proceedings. A director or officer will not receive indemnification if he is found not to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. 36 PRINCIPAL STOCKHOLDERS The following table sets forth, as of January 13, 1998 certain information with respect to the beneficial ownership of Common Stock for each beneficial owner of more than 5% of the Company's Common Stock, each director of the Company, each named executive officer of the Company and all directors and executive officers as a group. Except as indicated in the footnotes below, the persons named in this table have sole investment and voting power with respect to the shares beneficially owned by them.
SHARES BENEFICIALLY PERCENT NAME OWNED OWNED - ---- ------------ ------- Vincent A. Wolfington.................................... 417,788(1) 5.5% Don R. Dailey............................................ 415,230(2) 5.4% Guy C. Thomas............................................ 98,550(3) 1.3% Robert W. Cox............................................ 20,400(4) 0.3% William R. Hambrecht..................................... 952,560(5) 12.5% David McL. Hillman....................................... 624,044(6) 8.2% Nicholas J. St. George................................... 12,500 0.2% Kaufman Fund, Inc........................................ 850,000 11.1% H&Q London Ventures...................................... 444,093 5.8% One Bush St. San Francisco, CA PNC Capital Corp. ....................................... 616,544 8.1% One PNC Plaza 249 Fifth Avenue Pittsburgh, PA 15222 Yerac Associates, L.P. .................................. 516,018(7) 6.8% 45 Belden Place San Francisco, CA 94104 All directors and executive officers as a group ......... 2,627,625(8) 34.4%
- -------- * Less than 1%. (1) Includes options to purchase 205,706 shares of Common Stock that currently are exercisable. Also includes (1) 1,183 shares of Common Stock currently held by a company controlled by Mr. Wolfington and (ii) 1,560 shares held by a limited partnership which are attributable to Mr. Wolfington's wife (980 shares) and minor child (780 shares). Excludes shares held by Yerac Associates, L.P. ("Yerac"), a limited partnership of which Mr. Wolfington is a limited partner, with respect to which shares Mr. Wolfington has no voting or investment power. Mr. Wolfington's address is c/o Carey International, Inc., 4530 Wisconsin Avenue, N.W., Washington, D.C. 20016. (2) Includes options to purchase 205,706 shares of Common Stock that currently are exercisable. Excludes shares held by Yerac Associates, L.P., a limited partnership of which Mr. Dailey is a limited partner,with respect to which shares Mr. Dailey has no voting or investment power. Mr. Dailey's address is c/o Carey International, Inc., 4530 Wisconsin Avenue, N.W., Washington, D.C. 20016. (3) Includes options to purchase 35,768 shares of Common Stock that currently are exercisable. (4) Represents options to purchase shares of Common Stock that currently are exercisable. (5) Includes options to purchase 7,500 shares of Common Stock that currently are exercisable and also includes the following number of shares of Common Stock held by the following venture capital funds, as to which Mr. Hambrecht disclaims beneficial ownership: H:Q Venture Partners (171,063) Venture Associates (BVI) Limited (4,134 shares); H&Q London Ventures (444,093 shares); H&Q Ventures IV (175,197 shares); Hamquist (10,727 shares); and Hambrecht & Quist California (31,227 shares). Also includes (i) 85,816 shares of Common Stock with respect to which Mr. Hambrecht shares record and beneficial ownership with Hamco Capital Corp. and (ii) 22,803 shares of Common Stock with respect to which Mr. Hambrecht shares record and beneficial ownership with the Hambrecht 1980 Revocable Trust. See "Certain Transactions." Mr. Hambrecht's address is c/o Hambrecht & Quist California, One Bush Street, San Francisco, CA 94104. (6) Includes options to purchase 7,500 shares of Common Stock that currently are exercisable: also includes 616,544 shares held by PNC Capital Corp, of which Mr. Hillman is Executive Vice President. Mr. Hillman disclaims beneficial ownership of the shares held by PNC Capital Corp. (7) Includes shares of Common Stock issuable upon exercise of a warrant to purchase 86,003 shares of Common Stock at a price of approximately $4.65 per share. The warrant is exercisable at any time until September 1, 2001. (8) See Notes 1, 2, 3, 4, 5 and 6. Also includes 85,153 shares of Common Stock issuable upon exercise of the vested portions of options held by other executive officers of the Company. 37 CERTAIN TRANSACTIONS During 1993, for an aggregate purchase price of $850,000, the Company acquired 85 shares of non-voting redeemable preferred stock of CLI Fleet, Inc. ("CLI Fleet") a privately-held finance company formed for the purpose of financing the chauffeured vehicle service industry. As a holder of CLI Fleet preferred stock, the Company is currently entitled to receive an annual dividend of $500 per share. The Company waived the right to receive any dividends accrued in respect of its preferred stock through April 30, 1996, but during 1995 received referral fees totalling $100,000 from CLI Fleet. Also during 1995, CLI Fleet redeemed 10 shares of preferred stock held by the Company for an aggregate redemption price of $100,000. The remaining shares of preferred stock are subject to mandatory redemption by redemption payments of $100,000, $100,000 and $550,000 in May 1998, 1999 and 2000, respectively. Under the terms of an agreement with CLI Fleet, commencing in April 1997, the Company has an exclusive option to purchase all of the outstanding shares of common stock of CLI Fleet at a purchase price equal to the greater of $187,500 or CLI Fleet's liquidating value as determined by an independent appraisal. To date, CLI Fleet has provided financing to the Company's independent operators, without recourse to the Company, for both initial fees due under the Company's independent operator agreements and with respect to vehicles purchased by independent operators. Each of the Company's owned and operated chauffeured vehicle service companies has entered into a Finance & Service Agreement with CLI Fleet, which provides that the Company will recommend and refer independent operators to CLI Fleet for financing of vehicles. To date, CLI Fleet also has purchased from the Company notes receivable due from independent operators in exchange for cash or demand notes on a non-recourse basis. The Company sold $378,733, $1,762,345 and $1,015,897 of independent operator notes receivable to CLI Fleet for cash of $378,733, $1,290,899 and $733,793 and demand promissory notes of $0, $471,446 and $282,104 in 1994, 1995 and 1996, respectively. These promissory notes are due on demand, although monthly principal payments generally are received. These notes bear interest at rates ranging from 5% to 7%. The Company generally no longer sells notes receivables from independent operators to CLI Fleet, although CLI Fleet continues to provide vehicle financing to the Company's independent operators. In May 1996, the exercise price of a warrant issued to PNC was reduced from $6.14 to $4.65 per share. In addition, in connection with the Recapitalization, Carey repaid approximately $912,000 of the $3.8 million in principal outstanding on its subordinated note held by PNC and applied the balance of the outstanding principal to pay the purchase price for 616,544 shares of Common Stock issued to PNC upon exercise of the warrant held by it. David McL. Hillman, a director of the Company, is Executive Vice President of PNC. In May 1996, the exercise price of a warrant to purchase 86,003 shares of Common Stock owned by Yerac was reduced from $6.14 to $4.65 per share. In addition, in connection with the Recapitalization, Yerac converted the entire outstanding balance of a $2.0 million subordinated note held by it into approximately 430,000 shares of Common Stock. From the net proceeds of the IPO, the Company repaid approximately $1.1 million of additional outstanding indebtedness to Yerac. Messrs. Wolfington and Dailey are limited partners of Yerac. See "Principal Stockholders." In connection with the Recapitalization, the Company redeemed 22,000 shares of Series A Preferred Stock held by entities affiliated with Hambrecht & Quist California (collectively "H&Q") for an aggregate of $1.1 million in cash plus 44,974 shares of Common Stock. Also in connection with the Recapitalization, H&Q received 900,089 shares of Common Stock as a result of the conversion of 5,500 shares of Series B Preferred Stock and 31,864 shares of Series G Preferred Stock. William R. Hambrecht, a director of the Company, is a director and chairman of Hambrecht & Quist California and Hamco Capital Corporation, and a general partner of Hambrecht & Quist Venture Partners which, in turn, is the general partner of H&Q London Ventures, H&Q Ventures International C.V., and H&Q Ventures IV. Mr. Hambrecht also is a trustee of The Hambrecht 1980 Revocable Trust. See "Principal Stockholders." Vincent A. Wolfington, the Company's Chairman and Chief Executive Officer, and Don R. Dailey, the Company's President, each personally guaranteed certain indebtedness of the Company in the original principal amount of $4.5 million. The outstanding balance of this indebtedness totalled approximately $3.7 38 million as of February 28, 1997. The Company paid Messrs. Wolfington and Dailey $45,000 each during 1996 as a fee for guaranteeing such indebtedness. The Company used part of the net proceeds of the IPO to repay the entire outstanding amount of such indebtedness, and following the repayment the guarantees were terminated. In connection with the Recapitalization, Messrs. Wolfington and Dailey received $20,250 and $13,650, respectively, and 7,569 shares and 5,123 shares of Common Stock, respectively, as a result of the redemption of the shares of Series A Preferred Stock and the conversion of the shares of Series G Preferred Stock beneficially owned by each of them. 39 DESCRIPTION OF CAPITAL STOCK The Company's authorized capital stock consists of 20,000,000 shares of Common Stock, $.01 par value per share, and 1,000,000 shares of Preferred Stock, $.01 par value per share ("Preferred Stock"). The following summary description of the Common Stock and the Preferred Stock is qualified by reference to the Company's Amended and Restated Certificate of Incorporation included as an exhibit to the Registration Statement of which this Prospectus is a part. COMMON STOCK As of January 13, 1998, there were 7,640,497 shares of Common Stock outstanding, and outstanding options and warrants to purchase an aggregate of 1,208,289 shares of Common Stock. Including the foregoing shares underlying outstanding options, a total of 87,293 shares of Common Stock are reserved for issuance under the 1987 Plan, 385,480 shares are reserved for issuance under the 1992 Plan, 650,000 shares of Common Stock are reserved for issuance under the 1997 Plan and 100,000 shares of Common Stock are reserved for issuance under the Directors' Plan. Holders of Common Stock are entitled to one vote for each share held of record on all matters to be submitted to a vote of the stockholders, and do not have cumulative voting rights. Subject to preferences that may be applicable to any outstanding shares of Preferred Stock, holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors of the Company out of funds legally available therefor. The Company's agreements with its principal lenders prohibit dividend payments. See "Dividend Policy." All outstanding shares of Common Stock are fully paid and nonassessable and the holders thereof have no preferences or conversion, exchange or pre-emptive rights. In the event of any liquidation, dissolution or winding-up of the affairs of the Company, holders of Common Stock will be entitled to share ratably in the assets of the Company remaining after payment or provision for payment of all of the Company's debts and obligations and liquidation payments to holders of outstanding shares of Preferred Stock, if any. PREFERRED STOCK Currently, there are no shares of Preferred Stock of the Company issued and outstanding. Preferred Stock may be issued in one or more series without further stockholder authorization, and the Board of Directors is authorized to fix and determine the terms, limitations and relative rights and preferences of the Preferred Stock, to establish series of Preferred Stock and to fix and determine the variations as among series. Preferred Stock, if issued, would have priority over the Common Stock with respect to dividends and to other distributions, including the distribution of assets upon liquidation, and may be subject to repurchase or redemption by the Company. The Board of Directors, without approval of the holders of the Common Stock, can issue Preferred Stock with voting and conversion rights (including multiple voting rights) which could adversely affect the rights of holders of Common Stock. In addition to having a preference with respect to dividends or liquidation proceeds, Preferred Stock, if issued, may be entitled to the allocation of capital gains from the sale of the Company's assets. Although the Company has no present plans to issue any shares of Preferred Stock, the issuance of shares of Preferred Stock, or the issuance of rights to purchase such shares, may have the effect of delaying, deferring or preventing a change in control of the Company or an unsolicited acquisition proposal. CLASSIFIED BOARD OF DIRECTORS The Restated Certificate of Incorporation and By-laws of the Company provide for the Board of Directors to be divided into three classes of directors, as nearly equal in number as is reasonably possible, serving staggered terms so that directors' initial terms will expire either at the 1998, 1999 or 2000 annual meeting of stockholders. Starting with the 1998 annual meeting of stockholders, one class of directors will be elected each year for a three- year term. See "Management." The Company believes that a classified Board of Directors will help to assure the continuity and stability of the Board of Directors and the Company's business strategies and policies as determined by the Board of 40 Directors, since a majority of the directors at any given time will have had prior experience as directors of the Company. The Company believes that such continuity and stability, in turn, will permit the Board of Directors to represent more effectively the interests of its stockholders. With a classified Board of Directors, at least two annual meetings of stockholders, instead of one, generally will be required to effect a change in the majority of the Board of Directors. As a result, a provision relating to a classified Board of Directors may discourage proxy contests for the election of directors or purchases of a substantial block of the Common Stock because the provision could operate to prevent a rapid change in control of the Board of Directors. The classification provision also could have the effect of discouraging a third party from making a tender offer or otherwise attempting to obtain control of the Company. Under the DGCL, unless a corporation's certificate of incorporation otherwise provides, a director on a classified board may be removed by the stockholders of the corporation only for cause. ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER PROPOSALS AND STOCKHOLDER NOMINATIONS OF DIRECTORS The By-laws establish an advance notice procedure with regard to the nomination by the stockholders of the Company of candidates for election as directors (the "Nomination Procedure") and with regard to other matters to be brought by stockholders before a meeting of stockholders of the Company (the "Business Procedure"). The Nomination Procedure requires that a stockholder give written notice to the Secretary of the Company, delivered to or mailed and received at the principal executive offices of the Company not less than 60 days nor more than 90 days prior to the meeting, in proper form, of a planned nomination for the Board of Directors. Detailed requirements as to the form and timing of that notice are specified in the By-laws. If the Chairman determines that a person was not nominated in accordance with the Nomination Procedure, such person will not be eligible for election as a director. Under the Business Procedure, a stockholder seeking to have any business conducted at any meeting must give written notice to the Secretary of the Company, delivered to or mailed and received at the principal executive offices of the Company not less than 60 days nor more than 90 days prior to the meeting, in proper form, subject to the requirements of the proxy solicitation rules under the Securities Exchange Act of 1934. Detailed requirements as to the form and timing of that notice are specified in the By- laws. If the Chairman determines that the other business was not properly brought before such meeting in accordance with the Business Procedure, such business will not be conducted at such meeting. Although the By-laws do not give the Board of Directors any power to approve or disapprove of stockholder nominations for the election of directors or of any other business desired by stockholders to be conducted at an annual or any other meeting, the By-laws (i) may have the effect of precluding nominations for the election of directors or precluding the conduct of business at a particular annual meeting if the proper procedures are not followed or (ii) may discourage or deter a third party from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of the Company, even if the conduct of such solicitation or such attempt might be beneficial to the Company and its stockholders. OTHER PROVISIONS Special Meetings of the Stockholders of the Company. The Company's By-laws provide that a special meeting of the stockholders of the Company only may be called by the Chairman of the Board, or by order of the Board of Directors. That provision prevents stockholders from calling a special meeting of stockholders and potentially limits the stockholders' ability to offer proposals to the annual meetings of stockholders, if no special meetings are otherwise called by the Chairman or the Board. Amendment of the By-laws. The Company's Restated Certificate of Incorporation provides that the By-laws only may be amended by a vote of the Board of Directors or by a vote of at least 75% of the outstanding shares of the Company's stock entitled to vote in the election of directors. 41 No Action by Written Consent. The Company's Restated Certificate of Incorporation does not permit the Company's stockholders to act by written consent. As a result, any action to be taken by the Company's stockholders must be taken at a duly called meeting of the stockholders. DELAWARE ANTI-TAKEOVER STATUTE The Company is subject to Section 203 of the DGCL which, with certain exceptions, prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any "interested stockholder" for a period of three years following the date that such stockholder became an interested stockholder, unless: (a) prior to such date, the Board of Directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder, (b) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (i) by persons who are directors and officers and (ii) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer, or (c) on or after such date, the business combination is approved by the Board of Directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. An "interested stockholder" is defined as any person that is (y) the owner of 15% or more of the outstanding voting stock of the corporation or (z) an affiliate or associate of the Company and was the owner of 15% or more of the outstanding voting stock of the Company at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is an interested stockholder. SHARES ELIGIBLE FOR FUTURE SALE As of January 13, 1998, the Company had 7,640,497 shares of Common Stock outstanding. Of these shares, 4,376,155 shares are freely tradeable without restriction under the Securities Act, except for any such shares which may be beneficially owned by an "affiliate" of the Company (as that term is defined in Rule 144). The remaining 3,264,342 shares represent (i) shares issued pursuant to this Prospectus to affiliates of companies acquired by the Company; or (ii) shares issued prior to the completion of the Company's IPO or in connection with the acquisition of Manhattan Limousine which are deemed to be "restricted securities" under Rule 144. Unless the resale is registered under the Securities Act, such restricted shares may be sold in the open market only in compliance with the applicable requirements of Rule 144. Except for shares held by affiliates of the Company and the 228,571 shares issued in connection with the acquisition of Manhattan Limousine, all of such restricted shares are currently eligible for resale under Rule 144(k) described below. Also as of January 13, 1998, if issued upon the exercise of outstanding warrants, 263,953 shares of Common Stock also will constitute restricted securities within the meaning of Rule 144 and will be eligible for sale in the open market subject to the applicable requirements of Rule 144 discussed below. As of January 13, 1998 there were 944,336 shares of Common Stock issuable upon the exercise of outstanding options under the Company's Equity Plans and Directors' Plan and an additional 248,756 shares of Common Stock reserved for future award or grant under such plans. The Company has filed a registration statement on Form S-8 to register the issuance of shares under the Equity Plans and Directors' Plan. Common Stock issued pursuant to such registration statement upon exercise of outstanding vested options granted pursuant to the Equity Plans and Directors' Plan, other than Common Stock issued to affiliates of the Company, is available for immediate resale in the open market. In general, under Rule 144, if a period of at least one year has elapsed between the later of the date on which restricted securities were acquired from the Company and the date on which they were acquired from an affiliate, then the holder of such restricted securities (including an affiliate) is entitled to sell that number of shares within any three-month period that does not exceed the greater of (i) one percent of the then outstanding shares of the Common Stock or (ii) the average weekly reported volume of trading of the Common Stock during the four calendar weeks preceding such sales. Sales under Rule 144 also are subject to certain requirements pertaining to the manner of such sales, notices of such sales and the availability of current public information 42 concerning the Company. Any shares not constituting restricted securities sold by affiliates must be sold in accordance with the foregoing volume limitations and other requirements but without regard to the one year holding period. Under Rule 144(k), if a period of at least two years has elapsed from the later of the date on which restricted securities were acquired from the Company and the date on which they were acquired from the affiliate, a holder of such restricted securities who is not an affiliate at the time of the sale and has not been an affiliate for at least three months prior to the sale would be entitled to sell the shares immediately without regard to the volume limitations and other conditions described above. The Company and the beneficial owners of approximately 4,000,000 shares of Common Stock (including all of the Company's officers and directors and those individuals who were issued Common Stock in the Manhattan Limousine acquisition) have agreed that they will not offer, sell, contract to sell, pledge, grant any option for the sale of, or otherwise dispose or cause the disposition of any shares of Common Stock or securities convertible into or exchangeable or exercisable for such shares prior to November 30, 1997, without the prior written consent of Montgomery Securities, except for (i) in the case of the Company, Common Stock issued pursuant to any employee or director benefit plan described herein or in connection with acquisitions or (ii) in the case of directors and executive officers, the exercise of stock options pursuant to benefit plans described herein and shares of Common Stock disposed of as bona fide gifts, subject in each case to the application of the November 30, 1997 "lock-up" deadline to shares so issued or transferred. In evaluating any request for a waiver of the lock-up period, Montgomery Securities will consider, in accordance with their customary practice, all relevant facts and circumstances at the time of the request, including, without limitation, the recent trading market for the Common Stock, the size of the request and, with respect to a request by the Company to issue additional equity securities, the purpose of such an issuance. The holder of 228,571 shares of Common Stock issued in connection with the acquisition of Manhattan Limousine will be entitled to certain demand and piggy-back registration rights beginning June 2, 1998. Sales of substantial amounts of Common Stock by existing stockholders could have an adverse impact on the prevailing market price of the Common Stock. No predictions can be made as to the effect, if any, that market sales of shares by existing stockholders or the availability of such shares for future sale will have on the market price of shares of Common Stock prevailing from time to time. PLAN OF DISTRIBUTION This Prospectus relates to 1,500,000 shares of Common Stock that may be offered and issued by the Company from time to time in connection with acquisition of other businesses or properties by the Company. Carey intends to concentrate its acquisitions within the chauffeured vehicle service industry. If the opportunity arises, however, Carey may attempt to make acquisitions that are either complementary to its present operations or advantageous even though they may be dissimilar to its present activities. The consideration for any such acquisition may consist of shares of Common Stock, cash, notes or other evidences of debt, assumptions of liabilities or a combination thereof, as determined from time to time by negotiations between Carey and the owners or controlling persons of businesses or properties to be acquired. The shares covered by this Prospectus may be issued in exchange for shares of capital stock, partnership interests or other assets representing an interest, direct or indirect, in other companies or other entities, in exchange for assets used in or related to the business of such companies or entities, or otherwise pursuant to the agreements providing for such acquisitions. The terms of such acquisitions and of the issuance of shares of Common Stock under acquisition agreements will generally be determined by direct negotiations with the owners or controlling persons of the business or properties to be acquired or, in the case of entities that are more widely held, through exchange offers to stockholders or documents soliciting the approval of statutory mergers, consolidations or sales of assets. It is anticipated that the shares of Common Stock issued in any such acquisition will be valued at a price reasonably related to the market value of the Common Stock either at the time of agreement on the terms of an acquisition or at or about the time of delivery of the shares. 43 It is not expected that underwriting discounts or commissions will be paid by the Company in connection with issuances of shares of Common Stock under this Prospectus. However, finders' fees or brokers' commissions may be paid from time to time in connection with specific acquisitions, and such fees may be paid through the issuance of shares of Common Stock covered by this Prospectus. Any person receiving such a fee may be deemed to an underwriter within the meaning of the Securities Act. Affiliates of companies acquired by Carey who receive Common Stock under this Prospectus are subject for one year to the restrictions of Rule 145 under the Securities Act, including the volume of sale limitations and manner of sale requirements thereof. The requirements of Rule 145 may limit the ability of such affiliates to resell Common Stock they may receive under this Prospectus. LEGAL MATTERS The validity of the shares offered will be passed upon for the Company by Nutter, McClennen & Fish, LLP, Boston, Massachusetts. EXPERTS The historical consolidated and supplemental financial statements of the Company as of November 30, 1995 and 1996 and for each of the three years in the period ended November 30, 1996 included in this Prospectus have been included herein in reliance on the reports, which include an explanatory paragraph relating to the restatement of such financial statements, of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. The consolidated financial statements of Indy Connection Limousines, Inc. as of September 30, 1997 and for the year ended September 30, 1997, included in the Prospectus have been included herein in reliance on the report of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. The combined financial statements of Manhattan Limousine as of September 30, 1996 and for the year ended September 30, 1996 included in this Prospectus have been included herein in reliance on the report, which includes an explanatory paragraph relating to the restatement of such financial statements, of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. The financial statements of Speed 6060 Limited (formerly Camelot Barthropp Limited) as of and for the years ended December 31, 1994 and December 31, 1995, included in this Prospectus have been included herein in reliance on the report of Coopers & Lybrand, Chartered Accountants and Registered Auditors, given on the authority of that firm as experts in accounting and auditing. The financial statements of Camelot Barthropp Limited (formerly Speed 6060 Limited) as of December 31, 1995 and for the period from August 4, 1995 to December 31, 1995, included in this Prospectus have been included herein in reliance on the report of Coopers & Lybrand, Chartered Accountants and Registered Auditors, given on the authority of that firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-4 (the "Registration Statement") under the Securities Act and the rules and regulations promulgated thereunder, with respect to the Common Stock offered hereby. This Prospectus omits certain information contained in the Registration Statement, and reference is made to the Registration Statement and the exhibits and schedules thereto for further information with respect to the Company and the Common Stock 44 offered hereby. Statements contained in this Prospectus concerning the provisions or contents of any contract, agreement or any other document referred to herein are not necessarily complete with respect to each such contract, agreement or document filed as an exhibit to the Registration Statement, reference is made to such exhibit for a more complete description of the matters involved, and each such statement shall be deemed qualified by such reference. The Registration Statement, including the exhibits and schedules thereto, may be inspected and copied at the public reference facilities maintained by the Commission at Room 1204, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of the Registration Statement or any part thereof may be obtained from such office, upon payment of the fees prescribed by the Commission. The Commission maintains a Web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that submit electronic filings to the Commission. The Company is subject to the informational requirements of the Exchange Act, and, in accordance therewith, files periodic reports and other information with the Commission. For further information with respect to the Company, reference hereby is made to such reports and other information which can be inspected and copied at the public reference facilities maintained by the Commission referenced above. The Company's Common Stock is quoted on The Nasdaq National Market under the trading symbol "CARY." Reports, proxy statements and other information about the Company also may be inspected at the offices of The Nasdaq Stock Market, Inc., 1735 K Street, N.W., Washington, DC 20006. 45 INDEX TO FINANCIAL STATEMENTS
PAGE ---- CAREY INTERNATIONAL, INC. PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS Pro Forma Consolidated Balance Sheet as of August 31, 1997............... F-4 Pro Forma Statement of Operations for nine months ended August 31, 1997.. F-5 Pro Forma Statement of Operations for the year ended November 30, 1996... F-6 Notes to Pro Forma Consolidated Financial Statements..................... F-7 HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS Unaudited Consolidated Financial Statements Balance Sheet as of August 31, 1997...................................... F-8 Statements of Operations for nine months ended August 31, 1996 and 1997.. F-9 Statements of Cash Flows for nine months ended August 31, 1996 and 1997.. F-10 Notes to Consolidated Financial Statements............................... F-11 Audited Consolidated Financial Statements Report of Independent Accountants........................................ F-15 Balance Sheets as of November 30, 1995 and 1996.......................... F-16 Statements of Operations for the years ended November 30, 1994, 1995 and 1996.................................................................... F-17 Statements of Changes in Stockholders' Equity for the years ended November 30, 1994, 1995 and 1996................................................................ F-18 Statements of Cash Flows for the years ended November 30, 1994, 1995 and 1996.................................................................... F-19 Notes to Consolidated Financial Statements............................... F-20 SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS Unaudited Supplemental Consolidated Financial Statements Supplemental Balance Sheet as of August 31, 1997......................... F-37 Supplemental Statements of Operations for nine months ended August 31, 1997 and 1996........................................................... F-38 Supplemental Statements of Cash Flow for nine months ended August 31, 1997 and 1996........................................................... F-39 Notes to the Supplemental Consolidated Financial Statements.............. F-40 Audited Supplemental Consolidated Financial Statements Report of Independent Accountants........................................ F-44 Supplemental Balance Sheet as of November 30, 1995 and 1996.............. F-45 Supplemental Statements of Operations for years ended November 30, 1994, 1995 and 1996........................................................... F-46 Supplemental Statement of Stockholders' Equity for the years ended November 30, 1994, 1995 and 1996........................................ F-47 Supplemental Statements of Cash Flows for the years ended November 30, 1994, 1995 and 1996..................................................... F-49 Notes to the Supplemental Consolidated Financial Statements.............. F-50 INDY CONNECTION LIMOUSINES, INC. AND SUBSIDIARY Audited Consolidated Financial Statements Report of Independent Accountants........................................ F-68 Balance Sheet as of September 30, 1997................................... F-69 Statement of Operations for the year ended September 30, 1997............ F-70 Statement of Stockholders' Equity for the year ended September 30, 1997.. F-71 Statement of Cash Flows for the year ended September 30, 1997............ F-72 Notes to the Consolidated Financial Statements........................... F-73 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK, LTD. AND AFFILIATE Combined Financial Statements Report of the Independent Accountants.................................... F-77 Balance Sheets as of September 30, 1996 and April 30, 1997 (unaudited)... F-78 Statements of Operations for the year ended September 30, 1996 and the seven months ended April 30, 1997 (unaudited).............................................. F-79
F-1
PAGE ----- Statements of Cash Flows for the year ended September 30, 1996 and the seven months ended April 30, 1997 (unaudited).............................................. F-80 Notes to Combined Financial Statements................................... F-81 CAMELOT BARTHROPP LIMITED Audited Financial Statements Report of the Independent Accountants.................................... F-87 Statement of Operations for the period from August 4, 1995 to December 31, 1995................................................................ F-88 Balance Sheet at December 31, 1995....................................... F-89 Notes to the Financial Statements........................................ F-90 SPEED 6060 LIMITED Audited Financial Statements Report of the Independent Accountants.................................... F-99 Statements of Operations for the years ended December 31, 1994 and 1995.. F-100 Balance Sheets at December 31, 1994 and 1995............................. F-101 Notes to the Financial Statements........................................ F-102
F-2 PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS BASIS OF PRESENTATION The Pro Forma Consolidated Balance Sheet as of August 31, 1997 and the Pro Forma Consolidated Statement of Operations for the year ended November 30, 1996 and for the nine months ended August 31, 1997 are based on the historical consolidated financial statements of Carey International, Inc. and subsidiaries (the "Company"), Indy Connection Limousines, Inc. and Subsidiary (Indy Connection), Manhattan International Limousine Network Ltd. and Affiliate ("Manhattan Limousine") and Camelot Barthropp Limited. The Pro Forma Consolidated Balance Sheet has been prepared to give retroactive affect to a business combination with Indy Connection accounted for by the pooling-of- interests method consummated October 31, 1997. The Pro Forma Consolidated Statements of Operations for the year ended November 30, 1996 and for the nine months ended August 31, 1997 have been prepared assuming the acquisitions of Camelott Barthropp Limited and Manhattan Limousine occurred on December 1, 1995. For purposes of the Pro Forma Consolidated Statements of Operations for the year ended November 30, 1996 and the nine months ended August 31, 1997, Manhattan Limousine's Statement of Operations for the year ended September 30, 1996 has been combined with the Consolidated Statement of Operations of the Company for the year ended November 30, 1996 and Manhattan Limousine's Statement of Operations for the six months ended March 31, 1997 has been combined with the Consolidated Statement of Operations of the Company for the nine months ended August 31, 1997. The Pro Forma Consolidated Statements of Operations also reflect the issuance of shares of Common Stock (net of underwriting discounts) required to: (i) repay certain existing debt of the Company, (ii) pay the cash and note portions of the purchase price for Manhattan Limousine, (iii) repay certain debt assumed in connection with the acquisition of Manhattan Limousine, and (iv) redeem certain preferred stock of the Company. The Pro Forma Consolidated Statement of Operations also reflects the issuance of an aggregate of 3,335,000 shares of Common Stock in connection with (i) the acquisition of Manhattan Limousine, (ii) the issuance of shares of Common Stock as part of the Recapitalization and (iii) the conversion of certain debt into Common Stock upon the closing of the initial public offering. All of the aforementioned shares are assumed to have been issued, the debt repaid or converted and the preferred stock redeemed at the beginning of the period presented, and thus interest expense attributable to such debt has been eliminated. The Pro Forma Consolidated Financial Statements do not purport to represent what the Company's actual results of operations or financial position would have been had the acquisitions occurred as of such dates, or to project the Company's results of operations or financial position for any period or date, nor does it give effect to any matters other than those described in the notes thereto. In addition, the allocation of purchase price to the assets and liabilities of Manhattan Limousine is preliminary and the final allocation may differ from the amounts reflected herein. The Pro Forma Consolidated Financial Statements should be read in conjunction with the other financial statements and notes thereto included elsewhere in this Prospectus. F-3 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET
AUGUST 31, 1997 ------------------------------------------------ INDY COMPANY CONNECTION ELIMINATIONS TOTAL ----------- ---------- ------------ ----------- ASSETS Cash and cash equivalents.... $ 5,277,921 $ 325,102 $ $ 5,603,023 Accounts receivable, net..... 9,210,589 426,323 9,636,912 Notes receivable from contracts, current portion.. 663,807 663,807 Prepaid expenses and other current assets.............. 1,316,417 152,797 1,469,214 ----------- ---------- ---------- ----------- Total current assets..... 16,468,734 904,222 17,372,956 Fixed assets, net............ 4,589,016 2,835,119 7,424,135 Notes receivable from contracts, excluding current portion............. 8,326,216 8,326,216 Franchise rights, net........ 5,171,327 5,171,327 Trade name, trademark and contract rights, net........ 6,541,553 6,541,553 Goodwill and other intangible assets, net................. 27,929,464 22,342 27,951,806 Deferred tax assets.......... 2,968,058 2,968,058 Deposits and other assets.... 2,049,915 32,109 2,082,024 ----------- ---------- ---------- ----------- Total assets........... $74,044,283 $3,793,792 $ -- $77,838,075 =========== ========== ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of notes payable..................... $ 303,400 $ 810,270 $ $ 1,113,670 Current portion of capital leases...................... 226,069 226,069 Accounts payable and accrued expenses.................... 12,768,218 650,240 13,418,458 ----------- ---------- ---------- ----------- Total current liabilities............. 13,297,687 1,460,510 14,758,197 Notes payable, excluding current portion............. 842,825 626,477 1,469,302 Capital leases, excluding current portion............. 955,336 955,336 Deferred rent and other long- term liabilities............ 53,116 53,116 Deferred tax liabilities..... 1,493,071 101,000 1,594,071 Deferred revenue............. 13,721,483 13,721,483 Stockholders' equity: Common stock............... 68,427 491,725 (484,507) 75,645 Additional paid-in capital................... 43,743,996 484,507 44,228,503 Retained earnings (accumulated deficit)..... (131,658) 1,114,080 982,422 ----------- ---------- ---------- ----------- Total stockholders' equity.................. 43,680,765 1,605,805 -- 45,286,570 ----------- ---------- ---------- ----------- Total liabilities and stockholders' equity.. $74,044,283 $3,793,792 $ -- $77,838,075 =========== ========== ========== ===========
The accompanying notes are an integral part of these pro forma consolidated financial statements. F-4 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED AUGUST 31, 1997 ----------------------------------------------------------------------------------------------- ACTUAL ----------------------------------- INDY MANHATTAN ACQUISITION RECAPITALIZATION OTHER COMPANY CONNECTION LIMOUSINE ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA ----------- ---------- ---------- ----------- ---------------- ----------- ----------- Revenue, net............ $52,050,523 $5,230,482 $9,885,506 $ -- $ -- $(63,641) $67,102,870 Cost of revenue......... 35,597,997 2,488,182 6,126,205 -- -- (63,641) 44,148,743 ----------- ---------- ---------- --------- -------- -------- ----------- Gross profit.......... 16,452,526 2,742,300 3,759,301 -- -- -- 22,954,127 Selling, general and administrative expense................ 12,902,857 1,368,687 3,010,144 (46,865)(1) -- 75,000 (6) 17,699,656 389,833 (2) ----------- ---------- ---------- --------- -------- -------- ----------- Operating income...... 3,549,669 1,373,613 749,157 (342,968) -- (75,000) 5,254,471 Other income (expense) Interest expense...... (904,896) (109,246) (457,017) (37,310)(3) 250,000(5) 939,267 (6) (319,202) Interest and other income............... 329,837 11,619 16,500 (16,500)(4) -- -- 341,456 ----------- ---------- ---------- --------- -------- -------- ----------- Income before provision for income taxes....... 2,974,610 $1,275,986 $ 308,640 $(396,778) $250,000 $864,267 5,276,725 ========== ========== ========= ======== ======== Provision for income taxes.................. 1,227,183 2,268,992 (7) ----------- ----------- Net income ............. $ 1,747,427 $ 3,007,733 =========== =========== Pro forma net income per common share........... $ 0.38 (8) =========== Weighted average shares outstanding............ 7,941,065 (8) ===========
The accompanying notes are an integral part of these pro forma consolidated financial statements. F-5 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1996 ------------------------------------------------------------------------------------------------------------ ACTUAL ----------------------------------------------- CAMELOT INDY BARTHROPP MANHATTAN ACQUISITION RECAPITALIZATION OTHER COMPANY CONNECTION LIMITED LIMOUSINE ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA ----------- ---------- --------- ----------- ----------- ---------------- ----------- ----------- Revenue, net...... $59,505,698 $6,080,105 $ 938,656 $18,438,547 $ -- $ -- $ (40,861) $84,922,145 Cost of revenue... 40,438,449 3,251,590 865,336 11,040,017 -- -- (40,861) 55,554,531 ----------- ---------- --------- ----------- -------- -------- ---------- ----------- Gross profit.... 19,067,249 2,828,515 73,320 7,398,530 -- -- -- 29,367,614 Selling, general and administrative expense.......... 15,077,553 1,649,057 211,097 5,821,899 (874,475)(1) -- 150,000 (6) 22,814,798 779,667 (2) ----------- ---------- --------- ----------- -------- -------- ---------- ----------- Operating income (loss)......... 3,989,696 1,179,458 (137,777) 1,576,631 94,808 -- (150,000) 6,552,816 Other income (expense) Interest expense........ (1,704,187) (194,044) (21,375) (881,854) (76,608)(3) 500,000(5) 1,890,151 (6) (487,917) Interest and other income... 426,349 92,116 -- 66,000 (66,000)(4) -- -- 518,465 ----------- ---------- --------- ----------- -------- -------- ---------- ----------- Income (loss) before provision (benefit) for income taxes..... 2,711,858 $1,077,530 $(159,152) $ 760,777 $(47,800) $500,000 $1,740,151 6,583,364 ========== ========= =========== ======== ======== ========== Provision (benefit) for income taxes..... (104,246) 2,784,763 (7) ----------- ----------- Net income ....... $ 2,816,104 $ 3,798,601 =========== =========== Pro forma net income per common share............ $ 0.52 (8) =========== Weighted average shares outstanding...... 7,349,067 (8) ===========
The accompanying notes are an integral part of these pro forma consolidated financial statements. F-6 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS To date, all of the Company's acquisitions have been accounted for under the purchase method of accounting with the results of the acquired companies included in the Company's statements of operations beginning on the date of the acquisition, except for Indy Connection which has been accounted for under the pooling-of-interests method. (1) Gives effect to the elimination from the Combined Statement of Operations of Manhattan Limousine of: (i) a one-time charge related to advances to a non-combined affiliate of Manhattan Limousine which were approximately $7,000 and $218,000 for the nine months ended August 31, 1997 and the year ended November 30, 1996, respectively, (ii) redundant administrative and other costs immediately identifiable at the time of the acquisition (relating to salary and benefits of a stockholder of Manhattan Limousine and members of his family which will not be incurred by the Company) of approximately $40,000 and $591,000 for the nine months ended August 31, 1997 and the year ended November 30, 1996, respectively, and (iii) approximately $65,000 for the year ended November 30, 1996 of financing fees associated with debt retained by a stockholder of Manhattan Limousine. (2) Gives effect to (i) the amortization of approximately $340,000 and $680,000 for the nine months ended August 31, 1997 and the year ended November 30, 1996, respectively, of goodwill recognized with respect to the acquisition of Manhattan Limousine, and (ii) $50,000 and $100,000 for the nine months ended August 31, 1997 and the year ended November 30, 1996, respectively, of consulting fees to be paid pursuant to a consulting agreement entered into in connection with the acquisition of Manhattan Limousine. Goodwill will be amortized over a 30-year period. (3) Gives effect to an increase in interest associated with the promissory notes in the aggregate amount of $4.8 million used to acquire Manhattan Limousine and the increase of $520,000 in Manhattan Limousine's mortgage note in January 1997, both of which were repaid out of the proceeds of the IPO. Also gives effect to a decrease in interest expense associated with the debt retained by a stockholder of Manhattan Limousine. (4) Gives effect to the elimination of interest income related to a note receivable retained by a stockholder of Manhattan Limousine. (5) Reflects the elimination of approximately $250,000 and $500,000 for the nine months ended August 31, 1997 and the year ended November 30, 1996, respectively, of interest on certain debt converted into Common Stock. (6) Reflects directors' and officers' insurance costs the Company anticipates to incur in connection with being a public registrant and the elimination of approximately $939,000 and $1.5 million for the nine months ended August 31, 1997 and the year ended November 30, 1996, respectively, of interest on certain current and long-term debt repaid from the proceeds of the IPO or converted into Common Stock. (7) Reflects the estimated provision for income taxes at an assumed rate of 43.0% and 42.3% for the nine months ended August 31, 1997 and the year ended November 30, 1996, respectively, after giving consideration to nondeductible goodwill expense. (8) Pro forma net income per share was computed by dividing the pro forma net income for the nine months ended August 31, 1997 and the year ended November 30, 1996 by the pro forma weighted average number of shares outstanding for each of the periods. Pro forma weighted average shares outstanding include common shares and common share equivalents. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 83, the common equivalent shares issued by the Company during the 12 months preceding the effective date of the Registration Statement relating to the Company's IPO, using the treasury stock method and the public offering price of $10.50 per share, have been included in the calculation of pro forma net income per share. All share numbers give effect to the reverse stock split of one-for-2.3255 that was part of the Recapitalization. (9) The Pro Forma Consolidated Statement of Operations for the nine months ended August 31, 1997 weighted average shares includes approximately 489,000 shares of common stock issued for cash or the beginning of June 1997 for approximately $4,775,000. Had the Company invested the funds received from the issuance of common stock in investments yielding a 6.0% return, the Company would have recognized an additional $143,000 of pre- tax income. The Company has not included any such adjustment within the Pro Forma Statements of Operations. F-7 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
AUGUST 31, 1997 ----------- (UNAUDITED) ASSETS Cash and cash equivalents.......................................... $ 5,277,921 Accounts receivable, net........................................... 9,210,589 Notes receivable from contracts, current portion................... 663,807 Prepaid expenses and other current assets.......................... 1,316,417 ----------- Total current assets........................................... 16,468,734 Fixed assets, net.................................................. 4,589,016 Notes receivable from contracts, excluding current portion......... 8,326,216 Franchise rights, net.............................................. 5,171,327 Trade name, trademark and contract rights, net..................... 6,541,553 Goodwill and other intangible assets, net.......................... 27,929,464 Deferred tax assets................................................ 2,968,058 Deposits and other assets.......................................... 2,049,915 ----------- Total assets................................................. $74,044,283 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of notes payable................................... $ 303,400 Current portion of capital leases.................................. 226,069 Accounts payable and accrued expenses.............................. 12,768,218 ----------- Total current liabilities...................................... 13,297,687 Notes payable, excluding current portion........................... 842,825 Capital leases, excluding current portion.......................... 955,336 Deferred rent and other long-term liabilities...................... 53,116 Deferred tax liabilities........................................... 1,493,071 Deferred revenue................................................... 13,721,483 Commitments and contingencies Stockholders' equity: Common stock, $.01 par value; 20,000,000 authorized shares, and 6,842,729 issued and outstanding shares......................... 68,427 Additional paid-in capital....................................... 43,743,996 Accumulated deficit.............................................. (131,658) ----------- Total stockholders' equity..................................... 43,680,765 ----------- Total liabilities and stockholders' equity................... $74,044,283 ===========
The accompanying notes are an integral part of these consolidated financial statements. F-8 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED AUGUST 31, ------------------------ 1996 1997 ----------- ----------- (UNAUDITED) Revenue, net........................................ $41,176,235 $52,050,523 Cost of revenue..................................... 27,950,106 35,597,997 ----------- ----------- Gross profit.................................... 13,226,129 16,452,526 Selling, general and administrative expense......... 10,909,283 12,902,857 ----------- ----------- Operating income................................ 2,316,846 3,549,669 Other income (expense): Interest expense................................ (1,299,988) (904,896) Interest income................................. 104,689 161,985 Gain on sales of fixed assets................... 229,229 167,852 ----------- ----------- Income before provision for income taxes............ 1,350,776 2,974,610 Provision for income taxes.......................... 420,106 1,227,183 ----------- ----------- Net income.......................................... $ 930,670 $ 1,747,427 =========== =========== Pro forma earnings per common share................. $ 0.39 =========== Pro forma weighted average common and common equivalent shares outstanding...................... 4,866,621 ===========
The accompanying notes are an integral part of these consolidated financial statements. F-9 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED AUGUST 31, ----------------------- 1996 1997 ---------- ----------- (UNAUDITED) Cash flows from operating activities: Net income.......................................... $ 930,670 $ 1,747,427 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization of fixed assets..... 792,175 888,564 Amortization of intangible assets................. 780,244 898,958 Gain on sales of fixed assets..................... (229,229) (167,852) Provision for deferred taxes...................... -- (416,025) Change in deferred revenue........................ 772,581 860,543 Changes in operating assets and liabilities: Accounts receivable............................. 1,267,037 1,036,257 Notes receivable from contracts................. (830,085) (1,170,305) Prepaid expenses, deposits and other assets..... (637,512) (427,131) Accounts payable and accrued expenses........... (167,075) (1,957,290) Deferred rent and other long-term liabilities... (92,585) (58,165) ---------- ----------- Net cash provided by operating activities..... 2,586,221 1,234,981 ---------- ----------- Cash flows from investing activities: Proceeds from sales of fixed assets................. 728,637 382,394 Purchases of fixed assets........................... (868,386) (1,144,140) Acquisitions of chauffeured vehicle service compa- nies............................................... (1,248,585) (7,394,060) ---------- ----------- Net cash used in investing activities......... (1,388,334) (8,155,806) ---------- ----------- Cash flows from financing activities: Proceeds of sales of notes receivable from indepen- dent operators..................................... 404,307 -- Principal payments under capital lease obligations.. (152,925) (185,574) Payments of notes payable........................... (2,916,914) (17,701,094) Proceeds from notes payable......................... 2,320,541 450,000 Issuance of common stock............................ -- 30,897,090 Payments under Recapitalization Plan................ -- (4,015,952) Redemption of Series E preferred stock.............. (97,500) -- ---------- ----------- Net cash provided by (used in) financing ac- tivities..................................... (442,491) 9,444,470 ---------- ----------- Net increase in cash and cash equivalents............. 755,396 2,523,645 Cash and cash equivalents at beginning of period...... 1,438,659 2,754,276 ---------- ----------- Cash and cash equivalents at end of period............ $2,194,055 $ 5,277,921 ========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-10 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS 1. BACKGROUND AND ORGANIZATION General Carey International, Inc. (the "Company") provides services through a worldwide network of owned and operated companies, licensees and affiliates serving 420 cities in 65 countries. The Company owns and operates service providers in the form of wholly-owned subsidiaries in the following cities: New York (Carey Limousine NY, Inc. and Manhattan International Limousine Network, Ltd.), San Francisco (Carey Limousine S.F., Inc.), Los Angeles (Carey Limousine L.A., Inc.), Washington, D.C. (Carey Limousine D.C., Inc.), South Florida (Carey Limousine Florida, Inc.), Philadelphia (Carey Limousine Corporation) and London, England (Carey UK Limited). In addition, the Company licenses the "Carey" name, and provides central reservations, billing, and sales and marketing services to its licensees. The Company's worldwide network includes affiliates in locations in which the Company has neither owned and operated locations nor licensees. The Company provides central reservations and billing services to such affiliates. Acquisitions The Company is engaged in a program of acquiring chauffeured vehicle service businesses. Such acquisitions include unrelated chauffeured vehicle service businesses, some of which may be in cities in which the Company has owned and operated service providers, licensees operating under the Carey name and trademark and affiliates of the Company. In the first quarter of 1996, the Company acquired a chauffeured vehicle service company operating in London, England. As more fully discussed in Note 3, on June 2, 1997 the Company acquired Manhattan International Limousine Network Ltd. and an affiliated company ("Manhattan Limousine"). Initial public offering and reverse stock split In connection with the Company's initial public offering ("IPO") completed June 2, 1997, the Company's Board of Directors authorized a one for 2.3255 reverse stock split of the outstanding shares of the Company's common stock. All references to common stock, options, warrants and per share data have been restated to give effect to the reverse stock split. On February 25, 1997, the Board of Directors also authorized a Recapitalization Plan (the "Recapitalization"), which is more fully described in Note 7. 2. BASIS OF PRESENTATION The accompanying consolidated financial statements and these notes do not include all of the disclosures included in the Company's audited, consolidated financial statements for the years ended November 30, 1994, 1995, and 1996, which should be read in conjunction with these financial statements. For further information, such as the significant accounting policies followed by the Company, refer to the notes to the Company's audited consolidated financial statements. The financial information included herein has not been audited. However, in the opinion of management, the statements reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results of the periods reflected. The results for these periods are not necessarily indicative of the results for the full fiscal year. F-11 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Pro forma net income per common share Consistent with Securities and Exchange Commission Staff Accounting Bulletin ("SAB") No. 1B-2, the Company has recalculated historical weighted average common shares outstanding and net income per common share to give effect to the Recapitalization (see Note 7). The recalculated net income per common share is determined by (i) adjusting net income available to common shareholders to reflect the elimination of interest expense, net of taxes, resulting from the conversion of a portion of the subordinated debt into common stock and (ii) increasing the weighted average common shares outstanding by the number of common shares resulting from the conversion of subordinated debt and the partial conversion of the Series A Preferred Stock. 3. ACQUISITIONS In February 1996, the Company acquired the common stock of a chauffeured vehicle service company in London, England for approximately $1,500,000. Additional contingent consideration of up to $1,000,000 may be payable for the two-year period ending February 28, 1998 based on the level of revenues referred to the acquired company by the seller. As of August 31, 1997, the Company has paid approximately $550,000 in such contingent consideration in connection with the London acquisition. In September 1997, the Company made an additional contingent consideration payment of approximately $280,000. In June 1997, the Company acquired the common stock of Manhattan Limousine for $14,200,000. The purchase price for the acquisition was composed of $4,740,000 in debt to the sellers, a cash payment of $7,060,000 and the issuance of 228,571 shares of common stock. The debt to the sellers was paid off on July 31, 1997. In the periods ended August 31, 1996 and 1997, the following acquisition activity was recorded by the Company:
NINE MONTHS ENDED AUGUST 31, ------------------------------ 1996 1997 -------------- -------------- Fair value of net assets and liabilities acquired: Receivables and other assets............... $ 632,554 $ 159,575 Notes receivable from contracts............ -- 6,647,766 Fixed assets............................... 928,377 1,498,444 Franchise rights........................... 50,065 -- Goodwill and other tangibles............... 160,040 21,046,816 Trade payables and accrued expenses........ (522,451) (4,353,898) Notes payable.............................. -- (8,524,850) Deferred revenue........................... -- (6,679,793) -------------- -------------- Fair value of assets and liabilities acquired.................................. $ 1,248,585 $ 9,794,060 ============== ============== Issuance of stock (228,571 shares of common stock).................................... $ -- $ 2,400,000 ============== ============== Cash payments (net of $223,695 cash acquired in 1996)......................... $ 1,248,585 $ 7,394,060 ============== ==============
At the time of its acquisition by the Company, Manhattan Limousine was subject to guarantees of certain independent operator leases with third party finance companies of approximately $2.1 million. F-12 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(CONTINUED) 4. SENIOR CREDIT FACILITY Effective as of August 15, 1997, the Company entered into a senior credit facility with three banks consisting of a secured revolving line of credit of $25.0 million (the "Facility"). The Facility, which may be used for acquisitions and working capital, is collateralized by the assets of the Company and its domestic operating subsidiaries and by a pledge of the stock of its international subsidiary. The Facility also provides availability for the issuance of letters of credit. Loans made under the revolving line of credit bear interest at the Company's option at either the bank's prime lending rate or 2.0% above the LIBOR rate. Commitment fees equal to 0.375% per annum are payable on the unused portion of the revolving line of credit. On the second anniversary of the Facility, outstanding balances under the Facility will convert to a five-year term loan, which will bear interest either at a fixed rate (subject to availability) or at a variable LIBOR or prime-based rate with adjustments determined based on the Company's earnings. The terms of the Facility (i) prohibit the payment of dividends by the Company, (ii) with certain exceptions, prevent the Company from incurring or assuming other indebtedness that is not subordinated to borrowings under the Facility and (iii) require the Company to comply with certain financial covenants. 5. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Company is subject to various legal actions which are not material to the financial condition, results of operations or cash flows of the Company. The Company, certain of the Company's subsidiaries and certain officers and directors of the Company were named in a civil action filed on May 15, 1996 in the United States District Court for the Eastern District of Pennsylvania entitled "Felix v. Carey International, Inc., et. al." The plaintiff's complaint, which purports to be a class action, alleges that the plaintiff and others similarly situated suffered monetary damages as a result of misrepresentations by the various defendants in their use of a surface transportation billing charge (the "STC"). The plaintiff seeks damages in excess of $1 million on behalf of the class for each of the counts in the complaint including fraud, negligent misrepresentation and violations of the Racketeer Influenced and Corrupt Organizations law of 1970, which permits the recovery of treble damages and attorneys' fees. The proposed class has received preliminary certification by the court. The Company is indemnifying and defending its officers and directors who were named as defendants in the case, subject to conditions imposed by applicable law. The Company has reached a tentative settlement with the plaintiff and plaintiff's counsel. The settlement calls for the Company to deposit $500,000 into a settlement fund and provide a $450,000 letter of credit for a class consisting of all persons who paid the STC during the period from May 15, 1992 through March 15, 1997. As a condition of the fund settlement, the Company will change its disclosure concerning the STC, and each class member showing proper authentication of a claim shall be entitled to receive either (i) cash totaling 10% of the STC paid during the period described above or (ii) a nontransferable credit to be applied toward future use of the Company's services in an amount equal to 30% of such STC. The Company does not believe the settlement described above will have a material adverse effect on its business, financial condition, results of operations and cash flows. F-13 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(CONTINUED) 6. NET INCOME PER COMMON SHARE Net income per common share, on a historical basis, is as follows:
NINE MONTHS ENDED AUGUST 31, --------------------- 1996 1997 ---------- ---------- Net income available to common shareholders $ 930,670 $1,747,427 ========== ========== Weighted average common and common equivalent shares outstanding 2,422,373 4,136,230 ========== ========== Net income per common share $ 0.38 $ 0.42 ========== ==========
Common equivalent shares are included in the per share calculations where the effect of their inclusion would be dilutive. Common equivalent shares consist of Series B, F and G preferred stock as well as substantially all of the subordinated debt of the Company and the assumed exercise of vested outstanding stock options and warrants. Pursuant to SAB No. 83, the common equivalent shares issued by the Company during the twelve months preceding the effective date of the Registration Statement relating to the IPO, using the treasury stock method and the IPO price of $10.50 per share, have been included in the calculation of net income per common share. 7. RECAPITALIZATION On February 25, 1997, the Board of Directors authorized a Recapitalization, which was implemented on June 2, 1997, coincident with the closing of the IPO. Under the Recapitalization, the $2,000,000 subordinated convertible note dated September 1, 1991 and the $3,780,000 subordinated note dated July 30, 1992 were converted into 1,046,559 shares of common stock and the remaining principal balance of $912,454 was repaid. The Series A preferred stock was converted, in part, into 86,003 shares of common stock and redeemed in part for $2,103,500. All of the Series F preferred stock and 3,000 shares of the Series G preferred stock was redeemed for $1,000,000. The remaining preferred stock has been converted into 1,427,527 shares of common stock. As a result of the Recapitalization, preferred stock with a liquidation preference of $11,154,900 and subordinated debt with a principal amount of $5,780,000 has been converted in part into 2,560,071 shares of common stock and repaid or redeemed in part for $4,015,952 in cash, with the cash portion paid out of the proceeds of the IPO. F-14 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Carey International, Inc. We have audited the accompanying consolidated balance sheets of Carey International, Inc. and Subsidiaries as of November 30, 1995 and 1996, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended November 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Carey International, Inc. and Subsidiaries as of November 30, 1995, and 1996, and the results of their operations and their cash flows for each of the three years in the period ended November 30, 1996, in conformity with generally accepted accounting principles. As discussed in Note 16 to the consolidated financial statements, the accompanying consolidated balance sheet as of November 30, 1995, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the two years in the period ended November 30, 1995 have been restated for a change in the revenue recognition method. Coopers & Lybrand L.L.P. Washington, D.C. January 31, 1997, except for Notes 1, 2 and 18 as to which the date is March 1, 1997 F-15 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, ------------------------ 1995 1996 ----------- ----------- ASSETS Cash and cash equivalents............................ $ 1,438,659 $ 2,754,276 Accounts receivable, net of allowance for doubtful accounts of $294,000 in 1995 and $535,000 in 1996... 9,023,016 10,141,732 Notes receivable from contracts, current portion..... 659,609 402,751 Prepaid expenses and other current assets............ 364,741 1,936,961 ----------- ----------- Total current assets............................. 11,486,025 15,235,720 Fixed assets, net of accumulated depreciation of $2,779,000 in 1995 and $2,619,000 in 1996........... 2,185,071 3,379,246 Notes receivable from contracts, excluding current portion............................................. 193,298 769,201 Franchise rights, net of accumulated amortization of $1,494,000 in 1995 and $1,729,000 in 1996........... 5,533,956 5,348,264 Trade name, trademark and contract rights, net of accumulated amortization of $781,000 in 1995 and $973,000 in 1996.................................... 6,876,578 6,685,135 Goodwill and other intangible assets, net of accumulated amortization of $574,000 in 1995 and $827,000 in 1996.................................... 7,113,684 7,262,203 Deferred tax assets.................................. 892,993 2,461,573 Deposits and other assets............................ 1,615,316 1,384,787 ----------- ----------- Total assets................................... $35,896,921 $42,526,129 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of notes payable..................... $ 4,585,703 $ 5,131,227 Current portion of capital leases.................... 206,031 199,224 Current portion of subordinated notes payable........ 100,000 440,000 Accounts payable and accrued expenses................ 8,000,972 11,196,949 ----------- ----------- Total current liabilities........................ 12,892,706 16,967,400 Notes payable, excluding current portion............. 7,361,749 5,188,742 Capital leases, excluding current portion............ 74,879 663,030 Subordinated notes payable, excluding current portion............................................. 5,780,000 5,340,000 Deferred rent and other long-term liabilities........ 148,195 111,281 Deferred tax liabilities............................. 1,001,480 1,402,611 Deferred revenue..................................... 4,726,134 6,181,147 Commitments and contingencies Stockholders' equity: Preferred stock.................................... 1,212,900 1,115,400 Class A common stock, $.01 par value; authorized 314,000 shares, none issued and outstanding....... Common stock, $.01 par value; authorized 9,512,950 shares, issued and outstanding, 655,773 shares.... 6,558 6,558 Additional paid-in capital......................... 7,357,064 7,357,064 Accumulated deficit................................ (4,664,744) (1,807,104) ----------- ----------- Total stockholders' equity....................... 3,911,778 6,671,918 ----------- ----------- Total liabilities and stockholders' equity....... $35,896,921 $42,526,129 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-16 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED NOVEMBER 30, ------------------------------------- 1994 1995 1996 ----------- ----------- ----------- Revenue, net........................... $35,525,309 $43,483,947 $59,505,698 Cost of revenue........................ 24,953,904 29,942,961 40,438,449 ----------- ----------- ----------- Gross profit......................... 10,571,405 13,540,986 19,067,249 Selling, general and administrative expense............................... 9,486,797 12,419,062 15,077,553 ----------- ----------- ----------- Operating income..................... 1,084,608 1,121,924 3,989,696 Other income (expense): Interest expense..................... (1,348,883) (1,682,884) (1,704,187) Interest income...................... 172,641 259,852 156,695 Gain (loss) on sale of fixed assets.. (18,359) 130,913 269,654 ----------- ----------- ----------- Income (loss) before provision for income taxes.......................... (109,993) (170,195) 2,711,858 Provision (benefit) for income taxes .. 19,000 25,000 (104,246) ----------- ----------- ----------- Net income (loss)...................... $ (128,993) $ (195,195) $ 2,816,104 =========== =========== =========== Pro forma net income per common share.. $ .89 =========== Pro forma weighted average common shares outstanding.................... 3,510,020 ===========
The accompanying notes are an integral part of these consolidated financial statements. F-17 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK -------------- SERIES A SERIES B SERIES E SERIES F SERIES G ADDITIONAL TOTAL PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PAID-IN ACCUMULATED STOCKHOLDERS' STOCK STOCK STOCK STOCK STOCK SHARES $ CAPITAL DEFICIT EQUITY --------- --------- --------- --------- --------- ------- ------ ---------- ----------- ------------- Balance at November 30, 1993........... $420,700 $95,800 $266,250 $100,000 $498,900 623,091 $6,231 $7,335,796 $(4,336,178) $4,387,499 Accretion of redeemable preferred stock.......... -- -- 8,750 -- -- -- -- (8,750) -- -- Redemption of Series E preferred stock.......... -- -- (62,500) -- -- -- -- -- -- (62,500) Payment of accrued dividends...... -- -- (26,250) -- -- -- -- -- -- (26,250) Payment of Series E dividends...... -- -- -- -- -- -- -- -- (4,378) (4,378) Net loss........ -- -- -- -- -- -- -- -- (128,993) (128,993) -------- ------- -------- -------- -------- ------- ------ ---------- ----------- ---------- Balance at November 30, 1994........... 420,700 95,800 186,250 100,000 498,900 623,091 6,231 7,327,046 (4,469,549) 4,165,378 Accretion of redeemable preferred stock.......... -- -- 4,375 -- -- -- -- (4,375) -- -- Redemption of Series E preferred stock.......... -- -- (62,500) -- -- -- -- -- -- (62,500) Payment of accrued dividends...... -- -- (30,625) -- -- -- -- -- -- (30,625) Issuance of stock.......... -- -- -- -- -- 32,682 327 34,393 -- 34,720 Net loss........ -- -- -- -- -- -- -- -- (195,195) (195,195) -------- ------- -------- -------- -------- ------- ------ ---------- ----------- ---------- Balance at November 30, 1995........... 420,700 95,800 97,500 100,000 498,900 655,773 6,558 7,357,064 (4,664,744) 3,911,778 Redemption of Series E preferred stock.......... -- -- (97,500) -- -- -- -- -- -- (97,500) Cumulative effect of currency translation.... -- -- -- -- -- -- -- -- 41,536 41,536 Net income...... -- -- -- -- -- -- -- -- 2,816,104 2,816,104 -------- ------- -------- -------- -------- ------- ------ ---------- ----------- ---------- Balance at November 30, 1996........... $420,700 $95,800 $ -- $100,000 $498,900 655,773 $6,558 $7,357,064 $(1,807,104) $6,671,918 ======== ======= ======== ======== ======== ======= ====== ========== =========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-18 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED NOVEMBER 30, ------------------------------------- 1994 1995 1996 ----------- ----------- ----------- Cash flows from operating activities: Net income (loss)...................... $ (128,993) $ (195,195) $ 2,816,104 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization of fixed assets............................... 1,233,267 1,265,934 1,100,320 Amortization of intangible assets..... 641,309 712,348 1,062,406 (Gain) loss on sales of fixed assets.. 18,359 (130,913) (269,654) Deferred income tax benefit........... -- -- (1,370,557) Change in deferred revenue............ 184,220 237,306 1,455,013 Changes in operating assets and liabilities: Accounts receivable.................. (962,523) (2,516,952) (486,162) Notes receivable from contracts...... (519,155) 11,000 (1,052,838) Prepaid expenses, deposits and other assets.............................. (433,963) (192,666) (660,870) Accounts payable and accrued expenses............................ 679,233 3,389,540 2,003,427 Deferred rent and other long-term liabilities......................... (10,407) 87,490 (36,914) ----------- ----------- ----------- Net cash provided by operating activities......................... 701,347 2,667,892 4,560,275 ----------- ----------- ----------- Cash flows from investing activities: Proceeds from sale of fixed assets..... 172,747 565,510 862,980 Purchases of fixed assets.............. (445,967) (615,117) (1,134,910) Software development costs............. -- (203,529) -- Redemption of investment in affiliate.. -- 100,000 -- Acquisitions of chauffeured vehicle service companies, net of cash acquired.............................. (114,521) (3,949,393) (1,730,232) ----------- ----------- ----------- Net cash used in investing activities......................... (387,741) (4,102,529) (2,002,162) ----------- ----------- ----------- Cash flows from financing activities: Proceeds upon sale of notes receivable from independent operators............ 378,733 1,493,399 733,793 Principal payments under capital lease obligations........................... (384,181) (436,169) (243,485) Preferred stock dividends.............. (30,628) (30,625) -- Payment of notes payable............... (2,277,466) (2,658,521) (3,867,747) Proceeds from notes payable............ 1,119,515 3,106,808 2,232,443 Issuance of common stock............... -- 34,720 -- Redemption of Series E preferred stock................................. (62,500) (62,500) (97,500) ----------- ----------- ----------- Net cash provided by (used in) financing activities............... (1,256,527) 1,447,112 (1,242,496) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents............................ (942,921) 12,475 1,315,617 Cash and cash equivalents at beginning of year................................ 2,369,105 1,426,184 1,438,659 ----------- ----------- ----------- Cash and cash equivalents at end of year................................... $ 1,426,184 $ 1,438,659 $ 2,754,276 =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-19 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BACKGROUND AND ORGANIZATION General Carey International, Inc. (the "Company") is one of the world's largest chauffeured vehicle service companies, providing services through a worldwide network of owned and operated companies, licensees and affiliates serving 420 cities in 65 countries. The Company owns and operates service providers in the form of wholly-owned subsidiaries in the following cities: New York (Carey Limousine N.Y., Inc.), San Francisco (Carey Limousine SF, Inc.), Los Angeles (Carey Limousine L.A., Inc.), London (Carey UK Limited), Washington, D.C. (Carey Limousine D.C., Inc.), South Florida (Carey Limousine Florida, Inc.) and Philadelphia (Carey Limousine Corporation, Inc.). In addition, the Company generates revenues from licensing the "Carey" name, and from providing central reservations, billing, sales and marketing services to its licensees. The Company's worldwide network also includes affiliates in locations in which the Company has neither owned and operated locations nor licensees. Acquisitions and franchises The Company is engaged in a program of acquiring chauffeured vehicle service businesses, including licensees operating under the Carey name and trademark. These acquisitions are accounted for as purchases. The carrying value of the assets acquired is determined by the negotiated purchase price. In addition to acquiring licensees operating under the Carey name, the Company has acquired chauffeured vehicle service businesses in cities in which the Company operates. In 1995, these acquisitions included chauffeured vehicle service companies operating in Washington, D.C., Miami, West Palm Beach and San Francisco. In 1996, the Company acquired a chauffeured vehicle service company in London, England. Reverse Stock Split On February 25, 1997, the Board of Directors authorized management of the Company to file a Registration Statement with the Securities and Exchange Commission permitting the Company to sell shares of its common stock in an initial public offering (the "IPO"). The Board of Directors, at the same meeting and subject to stockholder approval, authorized a reverse stock split of approximately one-for-2.3255 of the outstanding shares of the Company's common stock. A majority of the Company's stockholders have approved the reverse stock split. All references to common stock, options, warrants and per share data have been restated to give effect to the reverse stock split. The Board of Directors also authorized a Recapitalization (see Note 18) on February 25, 1997. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated. The preparation of 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and cash equivalents The Company considers all short-term investments with original maturities of three months or less to be cash equivalents. F-20 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Notes receivable from contracts An important component of the Company's operating strategy involves the preferred use of non-employee independent operators chauffeuring their own vehicles rather than employee chauffeurs operating Company-owned vehicles. Each independent operator enters into an agreement with the Company to provide prompt and courteous service to the Company's customers with a properly maintained, late model vehicle which he or she owns and for which he or she pays all of the maintenance and operating expenses, including gasoline. The Company, under the independent operator agreement, agrees to bill and collect all revenues and remit to the independent operator 60% to 65% of revenues, as defined in the agreement. Each new operator agrees to pay a one- time fee generally ranging from $30,000 to $45,000 to the Company under the terms of the independent operator agreement. Through 1996, the term of the independent operator agreement generally ranged from 10 years to perpetuity. (See "Revenue recognition"). The Company typically receives a promissory note from the independent operator as payment for the one-time fee due under the terms of the Standard Independent Operator Agreement (see Note 4) and records the note in notes receivable from contracts. The notes evidencing such financing generally were sold on a non-recourse basis by the Company to third party finance companies (see Note 11) in exchange for cash and promissory notes. Since September 1996, the Company has ceased selling notes to third parties. Such promissory notes due from finance companies have also been recorded in notes receivable from contracts in the consolidated balance sheets. Concentration of credit risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, accounts receivable and notes receivable from contracts. The Company maintains its cash and cash equivalents with various financial institutions. In order to limit exposure to any one institution, the Company's cash equivalents are composed mainly of overnight repurchase agreements collateralized by U.S. Government securities. Accounts receivable are generally diversified due to the large number of entities comprising the Company's customer base and their dispersion across many different industries and geographies. The Company performs ongoing credit evaluations of its customers, and may require credit card documentation or prepayment of selected transactions. Notes receivable from contracts are also geographically dispersed and are supported by the underlying base of revenue serviced by each respective independent operator (see Notes 4 and 11). The Company performs ongoing evaluations of each independent operator's productivity and payment capacity and has utilized third-party financing to reduce credit exposure. Fixed assets Furniture, equipment, vehicles, leasehold improvements and land and building are stated at cost. Equipment under capital leases is stated at the lower of the present value of minimum lease payments or the fair market value at the inception of the lease. Depreciation on furniture, equipment, vehicles and leasehold improvements is calculated on the straight-line method over the estimated useful lives of the assets, generally three to five years. The building owned by the Company is depreciated over 40 years on a straight-line basis. Sales and retirements of fixed assets are recorded by removing the cost and accumulated depreciation from the accounts. Gains or losses on sales and retirements of property are reflected in results of operations. Intangible assets Effective September 1, 1991, the Company acquired the Carey name and trademark and the contract rights to all royalty fee payments by various Carey licensees for a purchase price of $7 million. These assets are held by Carey Licensing, Inc. and are being amortized over 40 years. F-21 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company has acquired chauffeured vehicle service companies, all of which have been accounted for as purchases. For each business acquired which is a licensee of the Company, the excess of cost over the fair market value of the net assets acquired is allocated to franchise rights in the consolidated balance sheet. With respect to acquired businesses which are not licensees of the Company, the excess of cost over the net assets acquired is allocated to goodwill. Additional purchase price attributable to the operating performance of the acquired entities is recorded as goodwill or franchise rights when determined (see Note 13). Goodwill and franchise rights are amortized over 30 years using the straight-line method. Such amortization is included in selling, general and administrative expense in the consolidated statement of operations. The Company evaluates the recoverability of its intangible assets based on estimated undiscounted cash flows over the lesser of the remaining amortization periods or calculated lives, giving consideration to revenue expected to be realized. This determination is based on an evaluation of such factors as the occurrence of a significant change in the environment in which the business operates or the expected future net cash flows (undiscounted and without interest). There have been no adjustments to the carrying value of intangible assets resulting from this evaluation. Revenue recognition Chauffeured vehicle services--The Company's principal source of revenue is from chauffeured vehicle services provided by its operating subsidiaries. Such revenue, net of discounts, is recorded when such services are provided. The Company, through the Carey International Reservation System ("CIRS"), has a central reservation system capable of booking reservations on behalf of its licensees and affiliates. Under most circumstances, central reservations are billed by the Company to the customer when the Company receives a service invoice from the licensee or affiliate that provided the service. At such time, the Company also records the gross revenue for the transaction. Fees from licensees--The Company charges an initial license fee under its domestic license agreement and records the fee as revenue on signing of the agreement. The Company also charges its domestic licensees monthly franchise and marketing fees equal to stated percentages of monthly revenues, as defined in the licensing agreement. Monthly fees to domestic licensees are generally less than 10% of the licensee's monthly revenues. The Company records such fees as revenues as they are charged to the licensees. International licensees and the Company's domestic and international affiliates historically have not paid fees to the Company, but have instead given a discount on business referred to them through CIRS. Such discounts reduce the amount of service invoices to the Company from such licensees and affiliates for services provided to customers whose reservations have been booked and invoiced centrally by the Company. Independent operator fees--The Company enters into contracts with independent operators ("Standard Independent Operator Agreements") to provide chauffeured vehicle services exclusively to the Company's customers. When independent operator agreements are executed, the Company defers revenue equal to the amount of the one-time fees and recognizes the fees as revenue over the terms of the contracts or over 20 years for perpetual contracts. Upon termination of an independent operator agreement, the remaining deferred revenue associated with the specific contract, less any amounts due from the independent operator deemed uncollectible, is recognized as revenue. Income taxes The provision for income taxes includes income taxes currently payable and the change during the year in the net deferred tax liabilities or assets. Deferred income tax liabilities and assets are determined based on the differences between the financial statement and tax bases of liabilities and assets using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided to reduce the net deferred tax asset, if any, to a level which, more likely than not, will be realized. F-22 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Pro forma net income per common share Consistent with Staff Accounting Bulletin 1B-2, the Company has recalculated historical weighted average common shares outstanding and net income per common share to give effect to the following matters pursuant to the Recapitalization (see Note 18). The recalculated net income per common share is determined by (i) adjusting net income available to common shareholders to reflect the elimination in interest expense, net of taxes, resulting from the conversion of $4,867,546 of subordinated debt into common stock and (ii) increasing the weighted average common shares outstanding by the number of common shares resulting from the conversion of such debt, as well as the partial conversion of the Series A and G Preferred Stock. Stock-based compensation In October 1995, the Financial Accounting Standards Boards issued Statement of Financial Accounting Standards No. 123 ("SFAS 123") Accounting for Stock- Based Compensation, which is effective for the Company's financial statements for fiscal years beginning after December 15, 1995. SFAS 123 allows companies to either account for stock-based compensation under the new provisions of SFAS 123 or under the provisions of Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock Issued to Employees. The Company will continue to apply the provisions of APB 25 and provide pro forma disclosure in the notes to the financial statements. Foreign operations The Consolidated Balance Sheets include foreign assets and liabilities of $3.7 million and $2.7 million as of November 30, 1996. The net effects of foreign currency transactions reflected in income were immaterial. Assets and liabilities of the Company's foreign operations are translated into United States dollars using exchange rates in effect at the balance sheet date and results of operations items are translated using the average exchange rate prevailing throughout the period. Reclassifications Certain accounts in 1994 and 1995 have been reclassified to conform with the 1996 presentation. 3. FEES FROM LICENSEES The total of all domestic license fees, franchise fees and marketing fees earned in each of 1994, 1995 and 1996 was $1,466,588, $1,228,472 and $2,180,540, respectively. Amounts due from licensees of $46,520 and $143,041 at November 30, 1995 and 1996, respectively, are included in accounts receivable in the consolidated balance sheets of the Company. 4. TRANSACTIONS WITH INDEPENDENT OPERATORS The Company recorded approximately $1,153,000, $1,130,000 and $2,371,000 in 1994, 1995 and 1996, respectively, as deferred revenue relating to fees from new agreements with independent operators. Amounts of deferred revenue recognized as revenues in 1994, 1995 and 1996 amounted to approximately $969,000, $889,000 and $936,000, respectively. Notes receivable from contracts include approximately $305,000 and $917,000 at November 30, 1995 and 1996, respectively, for amounts due from independent operators and approximately $548,000 and $255,000 at November 30, 1995 and 1996, respectively, for amounts due from a related party financing company (see Note 11). F-23 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In the normal course of business, the Company's independent operators are responsible for financing their own vehicles through third parties. From time to time, the Company has arranged lease and purchase financing for certain vehicles and has in turn leased back such vehicles to independent operators on terms and conditions similar to those under which the Company is obligated (see Note 5). 5. FIXED ASSETS Fixed assets consist of the following:
NOVEMBER 30, --------------------- 1995 1996 ---------- ---------- Vehicles.............................................. $2,692,079 $2,337,947 Equipment............................................. 1,699,803 2,200,094 Furniture............................................. 319,597 525,202 Leasehold improvements................................ 252,366 404,888 Land and building..................................... -- 529,634 ---------- ---------- 4,963,845 5,997,765 Less accumulated depreciation and amortization........ 2,778,774 2,618,519 ---------- ---------- Net fixed assets...................................... $2,185,071 $3,379,246 ========== ==========
The Company is obligated under various vehicle and equipment capital leases. Vehicles and equipment under capital leases included in fixed assets are as follows:
NOVEMBER 30, ------------------- 1995 1996 -------- ---------- Equipment............................................... $444,983 $1,048,633 Vehicles................................................ 352,796 621,420 -------- ---------- 797,779 1,670,053 Less accumulated amortization........................... 536,713 561,871 -------- ---------- $261,066 $1,108,182 ======== ==========
6. NOTES PAYABLE Notes payable consist of the following:
NOVEMBER 30, --------------------- 1995 1996 ---------- ---------- Bank revolving credit/term loan dated April 13, 1995, modified December 1, 1996. Collateralized by accounts receivable of the Company and the pledge of common stock of the Company's U.S. subsidiaries. Interest only payable until June 30, 1996; beginning July 1, 1996, quarterly principal payments are required in an amount sufficient to amortize the outstanding balance over a four-year period. Interest is payable monthly at a floating rate based on the Wall Street Journal prime plus 1.25% (9.5% at November 30, 1996). This loan is guaranteed by the Chairman of the Board and the President of the Company............................... $4,500,000 $3,937,500 Note payable dated September 1, 1991, at an annual rate of interest of 7.74%, collateralized by the assets of Carey Licensing, Inc. Pursuant to an agreement with the lender effective November 30, 1996, principal payments of $220,000 are due quarterly from December 31, 1996 through December 31, 1997 and a final principal payment of $240,000 is due March 1, 1998....................... 2,220,000 1,340,000
F-24 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 30, ------------------- 1995 1996 --------- --------- Bank line of credit of $1,000,000, dated October 17, 1994, and collateralized by accounts receivable of Carey NY and an assignment of license agreement between the Parent and Carey NY; due April 30, 1997. Interest is payable monthly at a variable interest rate of .75% above the bank's prime rate (9.0% at November 30, 1996)................... 990,000 990,000 Various installment notes payable, with interest rates ranging from 9% to 14.5%, collateralized by certain vehicles and equipment of the Company's subsidiaries; principal and interest are payable monthly over 36-month terms.................................................... 693,002 254,279 Installment notes payable to sellers under acquisition agreements dated various dates from June 30, 1994 to September 8, 1995. Interest rates range from 7.5% to 8.5%. Interest is generally payable monthly. Principal is payable in varying installments.......................... 2,339,418 1,305,574 Convertible note payable to seller under acquisition agreement dated September 30, 1993 at an annual rate of 7.5%, interest payable quarterly; principal due in two equal annual installments of $116,667 on January 2, 1996 and 1997. The note was repaid in January 1997............ 233,333 116,666 Bank line of credit of $200,000, dated October 31, 1995 at a variable interest rate (10% at November 30, 1995), collateralized by accounts receivable of Carey DC. This facility was refinanced by a term loan with the same bank on March 1, 1996......................................... 200,000 -- Amount payable to a seller under acquisition agreement dated January 1, 1995. Due 30 days after receipt of an audit of the predecessor company. Amount of the payment is subject to reduction based on the results of the audit. The audit has been completed and the amount was subsequently reduced in 1996 to $210,821 and has been repaid................................................... 250,000 -- Note payable to bank, dated September 30, 1995, payable in monthly installments of $4,167 plus interest. Interest rate is variable at bank's prime plus 1% (10.0% at November 30, 1996)....................................... 241,667 191,717 Note payable to bank, dated August 30, 1993, collateralized by accounts receivable, fixed assets and intangible assets of Carey DC; monthly payments of $9,401 for principal and interest through August 31, 1996. Interest rate is fixed at 8%. This note was refinanced on March 1, 1996 by a term loan with the same bank.......... 90,631 -- Note payable to bank dated October 17, 1994, collateralized by accounts receivable and fixed assets of Carey NY. Principal and interest payments of $2,848 are payable monthly. Remaining balance is due October 17, 1999. Interest rate is fixed at 9.25%.................... 189,401 149,001 Bank line of credit of $750,000, dated February 26, 1996 collateralized by accounts receivable of Carey Licensing, Inc.; due March 31, 1997. Interest is payable monthly at 1% above the Wall Street Journal's "Prime Rate" (9.25% at November 30, 1996)....................................... -- 750,000 Bank line of credit of $200,000, dated February 26, 1996, collateralized by accounts receivable of Carey FLA.; due March 31, 1997. Interest is payable monthly at 1% above Wall Street Journal's "Prime Rate" (9.25% at November 30, 1996).................................................... -- 200,000 Note payable to bank, dated March 1, 1996, collateralized by accounts receivable of Carey DC. Monthly payments of $12,735 of principal and interest through March 1, 2001. Interest is payable monthly at .5% above the bank's Prime Rate (9.5% at November 30, 1996)......................... -- 662,053
F-25 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 30, ---------------------- 1995 1996 ----------- ---------- Note payable to bank, dated May 10, 1996, collateralized by the land and building held by Carey DC; monthly payments of $3,863 of principal and interest are due through April 10, 2001 and a balloon payment of $375,468 on May 10, 2001. Interest fixed at 8.75%...... -- 423,179 ----------- ---------- Total notes payable..................................... 11,947,452 10,319,969 Less current installments............................... 4,585,703 5,131,227 ----------- ---------- Long-term portion....................................... $ 7,361,749 $5,188,742 =========== ========== Subordinated notes payable consist of the following: Subordinated convertible note dated September 1, 1991, with the principal of $2,000,000 due on August 30, 2000; interest payable quarterly at a fixed rate of 7.74%. After September 1, 1992, this debt is convertible into shares of common stock of the Company at the discretion of the holder at a conversion price of $6.14. A warrant for the purchase of 86,003 shares of common stock of the Company was issued in connection with the note. The warrant is exercisable immediately, expires at the earlier of the third anniversary of an initial public offering or November 30, 2001, and has an exercise price of $6.14 per share. The note contains certain antidilutive provisions which lower its conversion price in the event dilutive securities are subsequently issued by the Company at prices below the note's conversion price. The warrant has not been exercised. The terms of the agreement have been modified as part of the Recapitalization (see Notes 15 and 18)................................................ $ 2,000,000 $2,000,000 Subordinated note dated July 30, 1992; interest only payable quarterly until September 30, 1995. The interest rate is fixed at 12%. Principal of $220,000 was paid on September 30, 1995. Pursuant to an agreement with the lender dated November 30, 1996, no further payments of principal are due until June 30, 1997, when $220,000 is due. Thereafter, quarterly principal payments of $220,000 are due until March 31, 1998. On June 30, 1998, the loan balance of $2,240,000 is due. A warrant for the purchase of 616,544 shares of Class A common stock or common stock was issued, in connection with the note. The warrant is exercisable immediately, has an exercise price of $6.14 per share and expires at the earlier of the fifth anniversary of the repayment of the note in full or July 30, 2000. The warrant contains certain antidilutive provisions which lower the exercise price in the event dilutive securities are subsequently issued by the Company at prices below the warrant exercise price. The warrant has not been exercised. The terms of the agreement have been modified as part of the Recapitalization (see Note 18).................................................... 3,780,000 3,780,000 Convertible note payable to seller under acquisition agreement, dated September 30, 1992; interest payable quarterly at a fixed rate of 7.74%. The note was repaid in September, 1996. ................................... 100,000 -- ----------- ---------- Total subordinated notes payable........................ 5,880,000 5,780,000 Less current installments............................... 100,000 440,000 ----------- ---------- Subordinated notes payable, excluding current install- ments.................................................. $ 5,780,000 $5,340,000 =========== ==========
F-26 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Future annual principal payments on all notes payable at November 30, 1996 are as follows:
EAR ENDING NOVEMBER 30:Y - ------------------------ 1997............................................................ $ 5,571,227 1998............................................................ 5,622,403 1999............................................................ 1,486,254 2000............................................................ 881,183 2001 and thereafter............................................. 2,538,902 ----------- $16,099,969 ===========
Certain loan agreements, principally the Company's line of credit agreement, contain restrictive covenants which include financial ratios related to working capital, debt service coverage, debt to net worth and maintenance of a minimum tangible net worth, and submission of audited financial statements, prepared in accordance with generally accepted accounting principles, within 120 days after the end of the fiscal year. Additionally, these covenants restrict the Company's capital expenditures and prohibit the payment of dividends on the Company's common and preferred stock, except for the Series E preferred stock. The Company did not meet certain covenants related to the timely submission of financial statements, working capital, debt to net worth and maintenance of a minimum tangible net worth at November 30, 1996. The Company obtained waivers for compliance with these covenants through and including November 30, 1996. The carrying value of notes payable approximates the current value of the notes payable at November 30, 1996. (See Note 17 for discussions of the fair value for the subordinated debt). Interest paid during the years ended November 30, 1994, 1995, and 1996 was approximately $1,358,000, $1,662,000 and $1,682,000, respectively. 7. LEASES The Company has several noncancelable operating leases, primarily for office space and equipment, that expire over the next five years. Certain of the Company's facilities are under operating leases which provide for rent adjustments based on increases of defined indexes, such as the Consumer Price Index. These agreements also typically include renewal options. F-27 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Future minimum lease payments under noncancelable operating leases and the present value of future minimum capital lease payments as of November 30, 1996 are as follows:
CAPITAL OPERATING YEAR ENDING NOVEMBER 30 LEASES LEASES ----------------------- -------- ---------- 1997................................................... $233,778 $1,395,093 1998................................................... 171,653 1,277,009 1999................................................... 155,984 662,698 2000................................................... 155,984 245,746 2001................................................... 138,659 219,128 Thereafter............................................. 138,169 -- -------- ---------- Total minimum lease payments........................... 994,227 $3,799,674 ========== Less estimated executory costs......................... 5,189 -------- 989,038 Less amount representing interest (at rates ranging from 9% to 12%)....................................... 126,784 -------- Present value of net minimum capital lease payments.... 862,254 Less current portion of obligations under capital lease................................................. 199,224 -------- Obligations under capital leases, excluding current portion............................................... $663,030 ========
During the years ended November 30, 1994, 1995 and 1996 the Company recognized $1,004,818, $508,724 and $252,355, respectively, of sublease rental revenue under vehicle sublease arrangements with independent operators and others. During the years ended November 30, 1994, 1995 and 1996, the Company entered into capital lease obligations of $79,414, $346,666 and $810,993, respectively, related to the acquisition of vehicles and equipment. Total rental expense for operating leases in 1994, 1995 and 1996 was $1,023,372, $1,314,301 and $2,203,490, respectively. 8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses is composed of the following:
NOVEMBER 30, ---------------------- 1995 1996 ---------- ----------- Trade accounts payable............................... $5,222,306 $ 5,341,834 Accrued expenses and other liabilities............... 2,332,681 4,570,975 Gratuities payable................................... 445,985 458,801 Accrued offering costs............................... -- 825,339 ---------- ----------- $8,000,972 $11,196,949 ========== ===========
F-28 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 9. INCOME TAXES The provision (benefit) for income taxes is composed of the following:
NOVEMBER 30, --------------------------- 1994 1995 1996 ------- ------- ----------- Federal: Current...................................... $14,000 $15,000 $ 1,043,689 Deferred..................................... -- -- (1,220,799) ------- ------- ----------- 14,000 15,000 (177,110) ------- ------- ----------- State and local: Current...................................... 5,000 10,000 78,251 Deferred..................................... -- -- (149,758) ------- ------- ----------- 5,000 10,000 (71,507) ------- ------- ----------- Foreign: Current...................................... -- -- 144,371 ------- ------- ----------- Total income tax provision (benefit)........... $19,000 $25,000 $ (104,246) ======= ======= ===========
The Company's tax provision (benefit) for the years ended November 30, 1994, 1995 and 1996, respectively, differs from the statutory rate for federal income taxes as a result of the tax effect of the following factors:
YEARS ENDED NOVEMBER 30, ------------------------------ 1994 1995 1996 -------- -------- -------- Statutory rate.......... 34.0% 34.0% 34.0% State income tax, net of federal benefit........ (2.8) (2.4) (3.5) Goodwill amortization... (13.0) (13.0) .8 Non-deductible life insurance.............. (9.9) (23.8) .4 Meals and entertainment expenses............... (12.2) (36.5) 1.5 Valuation allowance..... (13.4) 28.1 (38.5) Other................... -- (1.1) 1.5 -------- -------- -------- (17.3)% (14.7)% (3.8)% ======== ======== ========
The source and tax effects of temporary differences are composed of the following:
NOVEMBER 30, ------------------------ 1995 1996 ----------- ----------- Allowance for bad debts............................ $ 108,000 $ 176,000 Net operating loss carryforward.................... 266,000 -- Deferred revenue................................... 1,701,000 2,040,000 Deferred state taxes and other..................... 425,000 558,000 ----------- ----------- Gross deferred tax asset........................... 2,500,000 2,774,000 Valuation allowance................................ (1,499,000) -- ----------- ----------- 1,001,000 2,774,000 ----------- ----------- Amortization of intangible assets.................. (951,000) (1,350,000) Other.............................................. (50,000) (53,000) ----------- ----------- Gross deferred tax liability....................... (1,001,000) (1,403,000) ----------- ----------- Net deferred tax asset............................. $ -- $ 1,371,000 =========== ===========
F-29 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) A valuation allowance was provided in 1994 and 1995 to reduce the net deferred tax asset to $0. In the fourth quarter of 1996, the Company concluded that it was more likely than not that the net deferred tax asset would be realized and therefore recorded a deferred tax benefit from the reversal of the valuation allowance of $1,499,000. Income taxes paid during the years ended November 30, 1994, 1995 and 1996 amounted to $0, $10,375 and $210,437, respectively. 10. PREFERRED STOCK The Company has the following series of preferred stock:
NOVEMBER 30, --------------------- 1995 1996 ---------- ---------- Series A, par value $10.00, authorized 43,000 shares, issued and outstanding 42,070 shares (liquidation preference of $4,207,000 and non-cumulative dividends of $7.00 per share per annum when declared by the Board of Directors).......................... $ 420,700 $ 420,700 Series B, par value $10.00, authorized 10,000 shares, issued and outstanding 9,580 shares (liquidation preference of $958,000 and non-cumulative dividends of $5.00 per share per annum when declared by the Board of Directors)................................. 95,800 95,800 Series E, par value $10.00, authorized 50 shares, issued and outstanding 12.5 shares at November 30, 1995 (liquidation preference of $97,500)............ 97,500 -- Series F, par value $10.00, authorized 10,000 shares, issued and outstanding 10,000 shares (liquidation preference of $1,000,000 and non-cumulative dividends of $5.00 per share per annum when declared by the Board of Directors).......................... 100,000 100,000 Series G, par value $10.00, authorized 110,000 shares, issued and outstanding 49,890 shares (liquidation preference of $4,989,900 and non- cumulative dividends of $5.00 per share per annum when declared by the Board of Directors)............ 498,900 498,900 ---------- ---------- $1,212,900 $1,115,400 ========== ==========
At the option of preferred stockholders or upon the closing of an underwritten public offering yielding net proceeds to the Company of at least $10,000,000 and having an offering price of at least $14.81 per share, each share of Series B, F and G preferred stock is convertible into the number of shares of common stock equal to 500, 100 and 100 divided by the conversion price, respectively. The conversion price as of November 30, 1996 was $7.216, $7.406 and $7.406 for Series B, F and G preferred stock, respectively. The Company has reserved 663,759, 135,025 and 633,393 shares of common stock, respectively, for conversion of the Series B, F, and G preferred stock. Antidilutive provisions lower the conversion price if certain securities are issued by the Company at a price below the respective conversion prices then in effect. The Company must redeem, on a pro rata basis, the outstanding shares of Series A preferred stock plus for $100 per share any declared and unpaid dividends upon the completion of an initial public offering yielding net proceeds to the Company of at least $10,000,000. Series A, B and G preferred stock have voting rights and Series F preferred stock is non-voting, except under certain circumstances. (See Note 18 for discussion of the Recapitalization, pursuant to which all of the preferred stock will be redeemed or converted into common stock.) F-30 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 11. RELATED-PARTY TRANSACTIONS The Company has invested $750,000 in non-voting redeemable preferred stock of a privately-held finance company formed for the purpose of providing financing to the chauffeured vehicle services industry. This entity provides financing to the Company's independent operators, without recourse to the Company, for both automobiles and amounts due under independent operator agreements. The Company sold $378,733, $1,762,345 and $1,015,897 of independent operator notes receivable to this related-party finance company for cash of $378,733, $1,290,899 and $733,793 and demand promissory notes of $0, $471,446 and $282,104 in 1994, 1995 and 1996, respectively. The unpaid balances of the promissory notes were $547,930 and $255,664 at November 30, 1995 and 1996, respectively, and are included in notes receivable from contracts. These promissory notes are due on demand and, generally, monthly principal payments are received by the Company. These notes generally bear interest rates of 7%. It is not practicable to estimate the fair value of the preferred stock investment in a privately-held company. As a result, the Company's investment in the privately-held finance company noted above is carried at its original cost (less redemptions) of $750,000. At April 30, 1996, the total assets reported by the privately-held company were $10,502,234 and stockholders' equity was $1,108,448, revenues were $1,088,720 and net income was $96,681. Pursuant to a stock ownership agreement between the common stockholders of the related-party finance company and the Company, the Company has an option to purchase all of the outstanding common stock of the affiliate at $12,500 per common share or market value, if higher. The option is not exercisable until April 15, 1998. A guarantee fee of $45,000 has been paid to both the Chairman of the Board and the President of the Company for guaranteeing certain indebtedness (see Note 6). 12. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Company is subject to various legal actions which are not material to the financial position, results of operations or cash flows of the Company. The Company, certain of the Company's subsidiaries and certain officers and directors of the Company were named in a civil action filed on May 15, 1996 in the United States District Court for the Eastern District of Pennsylvania entitled "Felix v. Carey International, Inc., et al." The plaintiff's complaint, which purports to be a class action, alleges that the plaintiff and others similarly situated suffered monetary damages as a result of misrepresentations by the various defendants in their use of a surface transportation billing charge. The plaintiff seeks damages in excess of $1 million on behalf of the class for each of the counts in the complaint including fraud, negligent misrepresentation and violations of the Racketeer Influenced and Corrupt Organizations law of 1970, which permits the recovery of treble damages and attorneys' fees. A class has not yet been certified in this case. The Company filed a motion to dismiss that was denied, and subsequently has filed an answer denying any liability in connection with this complaint. The Company has agreed to indemnify and defend its officers and directors who were named as defendants in the case, subject to conditions imposed by applicable law. The Company has reached a tentative settlement with the plaintiff and plaintiff's counsel, which is subject to court approval and acceptance by the proposed class. The Company does not believe that this litigation will have a material adverse effect on the financial condition, results of operations or cash flows of the Company. 13. ACQUISITIONS In December 1994, the Company acquired certain assets and liabilities of a chauffeured vehicle service company in Boca Raton, Florida and consolidated the operations within its existing operations in West Palm Beach. Subsequently, the Company acquired an additional chauffeured vehicle service company in Boca Raton F-31 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (in August 1995) and the Carey licensee in Fort Lauderdale--Miami (in April 1995) and consolidated the two additional businesses into the Carey South Florida operations. In January 1995, the Company acquired certain assets and liabilities of the Carey licensee in San Francisco, California ("Carey SF"). Subsequently, the Company acquired the business of two additional chauffeured service companies (in May and August 1995) and combined the acquired operations with those of Carey SF. In April 1995, the Company acquired certain assets and liabilities of a chauffeured vehicle service company in the Washington, DC area and combined the acquired operations with those of Carey Limousine D.C., Inc. In February 1996, the Company acquired the common stock of a chauffeured vehicle service company in London, England for approximately $1,500,000. The acquisition was financed through the incurrence of $950,000 in debt and a payment of $550,000. Additional contingent consideration of up to $1,000,000 may be payable with respect to each of the two years ending February 28, 1998 based on the level of revenues referred to the acquired company by the seller. As of November 30, 1996, the Company has paid $278,304 in contingent consideration in the acquisition of the London company. In addition, the Company is required to pay a standard commission to the seller of the acquired chauffeured vehicle service company for business referral, which will be expensed as incurred. All acquisitions have been accounted for as purchases. The net assets acquired and results of operations have been included in the financial statements as of and from, respectively, the effective dates of the acquisitions. The total consideration was allocated to the assets acquired based upon their estimated fair values with any remaining consideration allocated to either franchise rights or goodwill, as follows:
YEAR ENDED NOVEMBER 30, ----------------------------- 1994 1995 1996 ------- ---------- ---------- NET ASSETS PURCHASED Receivables and other assets.............. $ -- $ -- $ 632,554 Fixed assets.............................. -- 1,703,521 928,377 Franchise rights.......................... -- 1,527,402 89,243 Goodwill.................................. 75,000 4,697,958 447,269 Accounts payable and accrued expenses..... -- -- (367,211) ------- ---------- ---------- Fair value of assets acquired............. $75,000 $7,928,881 $1,730,232 ======= ========== ========== CONSIDERATION Cash (exclusive of $223,695 cash acquired in 1996)................................. $75,000 $3,633,620 $1,730,232 Capital leases assumed related to vehicle acquisitions............................. -- 346,666 -- Notes assumed related to vehicle acquisi- tions.................................... -- 895,571 -- Uncollateralized promissory notes issued to sellers............................... -- 3,053,024 -- ------- ---------- ---------- Total consideration..................... $75,000 $7,928,881 $1,730,232 ======= ========== ==========
Certain of these acquisitions require the payment of contingent consideration based on percentages of annual net revenue of the acquired entities over a defined future period. The Company paid $39,521, $315,773 and F-32 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) $291,755 in the years ended November 30, 1994, 1995 and 1996, respectively, in contingent consideration and increased goodwill by the same amounts (see Note 2) which is reflected in the table above. Of the total uncollateralized promissory notes issued to sellers in 1995, two notes totaling $303,000 were subject to reduction based upon the results of the acquired entities (see Note 6). The two notes were repaid in 1996 for approximately $211,000 and the difference of approximately $92,000 reduced by recorded goodwill. The unaudited pro forma summary consolidated results of operations assuming all the acquisitions had occurred for the purposes of the 1995 summary at the beginning of fiscal 1995, and for the purposes of the 1996 summary at the beginning of fiscal 1996, are as follows:
YEAR ENDED NOVEMBER 30, -------------------------- 1995 1996 ------------ ------------ (UNAUDITED) Revenue.......................................... $ 51,490,000 $ 60,444,000 Cost of revenue.................................. (35,089,000) (41,304,000) Other expense, net............................... (16,256,000) (16,570,000) Benefit (provision) for income taxes............. (58,000) 164,000 ------------ ------------ Net income....................................... $ 87,000 $ 2,734,000 ============ ============ Net income per common share...................... $ .04 $ 1.13 ============ ============ Weighted average common shares outstanding....... 2,387,954 2,422,373 ============ ============
14. 401(K) PLAN The Company sponsors (but has made no contributions to) a defined contribution plan established pursuant to Section 401(k) of the Internal Revenue Code for the benefit of employees of the Company. 15. STOCK OPTION PLANS On December 1, 1987, the Company established a Stock Option Plan (the "1987 Plan") that included all officers and key employees of the Company, non- employee directors of the Company, and certain persons retained by the Company as consultants. In accordance with the 1987 Plan, the Company's Board of Directors may, from time to time, determine the persons to whom the stock options are to be granted, the number of shares under option, the option price and the manner in which payment of the option price shall be made. The 1987 Plan provides for the options to be exercised 25% each year beginning after the year following the grant. The options are exercisable for a period of ten years after the grant date. The total number of options authorized under the 1987 Plan is 195,656. On July 28, 1992, the Company established a Stock Option Plan (the "1992 Plan") that included all officers and key employees of the Company, non- employee directors of the Company, and certain persons retained by the Company as consultants. In accordance with the 1992 Plan, the Company's Board of Directors may, from time to time, determine the persons to whom the stock options are to be granted, the number of shares under option, the option price, the time or times during the exercise period at which each such option will become exercisable, and the manner in which payment of the option price shall be made. The options are exercisable for a period of ten years after grant date. The total number of options authorized under the 1992 Plan is 388,647. F-33 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Stock activity under the 1987 Plan and the 1992 Plan is as follows:
1987 PLAN 1992 PLAN ---------------------- ------------------ OPTION OPTION PRICE PER PRICE PER SHARES SHARE SHARES SHARE ------- ------------- ------- --------- Balance, December 1, 1993........... 64,502 $ 1.44 384,494 $7.40 Granted............................. -- -- 12,040 7.40 Exercised........................... -- -- -- -- Forfeited........................... -- -- (13,287) -- ------- ------------- ------- ----- Balance, November 30, 1994.......... 64,502 1.44 383,247 7.40 Granted............................. -- -- 21,673 7.40 Exercised........................... (32,681) -- -- -- Forfeited........................... (860) -- (60,985) -- ------- ------------- ------- ----- Balance, November 30, 1995.......... 30,961 1.44 343,935 7.40 Granted............................. 38,701 4.65 43,578 4.65 Exercised........................... -- -- Forfeited........................... -- (3,011) ------- ------- Balance, November 30, 1996.......... 69,662 $1.44 - $4.65 384,502 $4.65 ======= ======= Vested and exercisable at November 30, 1996........................... 43,861 $1.44 - $4.65 341,948 $4.65 ======= ============= ======= =====
In May 1996, the options granted under the 1992 Plan and a warrant to purchase 86,003 shares of common stock (see Note 6) were repriced to $4.65. The options and warrant were repriced at the determined fair market value as of the date of repricing (see Note 18). On February 25, 1997, the Board of Directors adopted the 1997 Equity Incentive Plan and the Stock Plan for Non-Employee Directors (see Note 18). 16. REVENUE RECOGNITION METHOD The Company enters into agreements with independent operators under which the independent operator contracts to provide chauffeured vehicle services exclusively to the Company's customers over a contract period pursuant to a Standard Independent Operator Agreement. Upon signing the Standard Independent Operator Agreement, the Company is entitled to receive a one-time fee from the independent operator. Previously, the Company would recognize the one-time fee as revenue upon signing of the independent operator agreement and when collection of the fee was reasonably assured. In accordance with APB 20, the financial statements have been retroactively restated to report such fees as deferred revenue which are recognized as revenue over the terms of the contracts (see Note 2). The effect of such restatements was to reduce 1994 and 1995 revenue, results of operations and stockholders' equity by $665,391 and $1,144,511, respectively (net of income taxes of $0 and $586,680 for 1994 and 1995, respectively). 17. NET INCOME PER COMMON SHARE Net income per common share, on a historical basis, are as follows:
NOVEMBER 30, ---------------------------------- 1994 1995 1996 ---------- ---------- ---------- Net income (loss) available to common shareholders.............................. $ (137,743) $ (199,570) $2,816,104 Weighted average common shares outstand- ing....................................... 2,392,879 2,387,954 2,422,373 Net income (loss) per common share......... $ (.06) $ (.08) $ 1.16
F-34 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Common equivalent shares are included in the per share calculations where the effect of their inclusion would be dilutive. Common equivalent shares consist of common shares issuable upon (a) conversion of Series B, F and G preferred stock and (b) the assumed exercise of outstanding stock options and warrants. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 83, the common equivalent shares issued by the Company during the twelve months preceding the anticipated effective date of the Registration Statement relating to the Company's initial public offering, using the treasury stock method and an assumed public offering price of $11.00 per share, have been included in the calculation of net income per common share. Net income (loss) available to common shareholders is the net income (loss) for the fiscal year less accretion of dividends on the Series E preferred stock of $8,750, $4,376 and $0 for 1994, 1995 and 1996, respectively. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128). FAS 128 simplifies the existing earnings per share (EPS) computations under Accounting Principles Board Opinion No. 15, "Earnings Per Share," revises disclosure requirements, and increases the comparability of EPS data on an international basis. In simplifying the EPS computations, the presentation of primary EPS is replaced with basic EPS, with the principal difference being that common stock equivalents are not considered in computing basic EPS. In addition, FAS 128 requires dual presentation of basic diluted EPS. FAS 128 is effective for financial statements issued for periods ending after December 15, 1997. The Company's pro forma basic EPS under FAS 128 would have been $4.29 and dilutive EPS under FAS 128 would not differ significantly from the reported pro forma net income per share. 18. SUBSEQUENT EVENTS On February 25, 1997, pursuant to an agreement reached in May 1996, the Board of Directors authorized a recapitalization (the "Recapitalization"), which will be implemented at the time of the IPO. Under the Recapitalization, the $2,000,000 subordinated convertible note dated September 1, 1991 and the $3,780,000 subordinated note dated July 30, 1992 will be converted or exchanged for 1,046,559 shares of common stock and payment of $912,454. The Series A preferred stock will be converted in part into 86,003 shares of common stock and redeemed in part for $2,103,500. All of the Series F preferred stock and 3,000 shares of the Series G preferred stock will be redeemed for an aggregate of $1,000,000. The remaining preferred stock will be converted into 1,427,509 shares of common stock. As a result of the Recapitalization, preferred stock with a liquidation preference of $11,154,900 and subordinated debt with a principal amount of $5,780,000 will be converted in part into 2,560,071 shares of common stock and repaid or redeemed in part for $4,015,952 in cash. All of the cash amounts will be paid out of the proceeds of the IPO. On February 25, 1997, the Board of Directors adopted the 1997 Equity Incentive Plan (the "1997 Plan"). A total of 650,000 shares of common stock are reserved for issuance under the 1997 Plan. The Board of Directors also granted options to purchase at the IPO price a total of 411,500 shares of common stock under the 1997 Plan, such grants to be effective upon the execution of an underwriting agreement in connection with the IPO. Also on February 25, 1997, the Board of Directors, subject to stockholder approval, adopted the Stock Plan for Non-Employee Directors (the "Directors' Plan"). A total of 100,000 shares of common stock of the Company are reserved for issuance under the Directors' Plan. Options to purchase at the IPO price a total of 22,500 shares of common stock will be granted under the Directors' Plan, such grants to be effective upon the execution of an underwriting agreement in connection with the IPO. Also on February 25, 1997, the Board of Directors, approved amendments to the Company's Certificate of Incorporation increasing the number of authorized shares of the Company's Common Stock from 9,512,950 to 20,000,000, and increasing the number of authorized shares of the Company's preferred stock from 173,050 to 1,000,000. F-35 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) On March 1, 1997, the Company entered into an agreement to purchase the stock of Manhattan International Limousine Network Ltd. and an affiliated company (collectively, "Manhattan Limousine"). Manhattan Limousine is one of the largest providers of chauffeured vehicle services in the New York metropolitan area. The Company expects to consummate the acquisition at the time of the IPO. If the acquisition of Manhattan Limousine is not completed by June 2, 1997, the Company has agreed to pay additional purchase price in the amount of $7,500 for each day after such date until the closing of the acquisition, up to an aggregate of $675,000. F-36 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1997 (UNAUDITED) ----------- ASSETS Cash and cash equivalents.......................................... $ 5,603,023 Accounts receivable, net........................................... 9,636,912 Notes receivable from contracts, current portion................... 663,807 Prepaid expenses and other current assets.......................... 1,469,214 ----------- Total current assets........................................... 17,372,956 Fixed assets, net.................................................. 7,424,135 Notes receivable from contracts, excluding current portion......... 8,326,216 Franchise rights, net.............................................. 5,171,327 Trade name, trademark and contract rights, net..................... 6,541,553 Goodwill and other intangible assets, net.......................... 27,951,806 Deferred tax assets................................................ 2,968,058 Deposits and other assets.......................................... 2,082,024 ----------- Total assets................................................... $77,838,075 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of notes payable................................... $ 1,113,670 Current portion of capital leases.................................. 226,069 Accounts payable and accrued expenses.............................. 13,418,458 ----------- Total current liabilities...................................... 14,758,197 Notes payable, excluding current portion........................... 1,469,302 Capital leases, excluding current portion.......................... 955,336 Deferred rent and other long-term liabilities...................... 53,116 Deferred tax liabilities........................................... 1,594,071 Deferred revenue................................................... 13,721,483 Commitments and contingencies...................................... Stockholders' equity: Common stock, $.01 par value; 20,000,000 authorized shares; 7,564,512 shares issued and outstanding......................... 75,645 Additional paid-in capital....................................... 44,228,503 Retained earnings................................................ 982,422 ----------- Total stockholders' equity..................................... 45,286,570 ----------- Total liabilities and stockholders' equity..................... $77,838,075 ===========
The accompanying notes are an integral part of these combined financial statements. F-37 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED AUGUST 31, ------------------------------ 1996 1997 -------------- -------------- Revenue, net.................................. $ 45,659,761 $ 57,217,364 Cost of revenue............................... 30,281,404 38,022,538 -------------- -------------- Gross profit.............................. 15,378,357 19,194,826 Selling, general and administrative expenses.. 12,085,577 14,271,544 -------------- -------------- Operating income.......................... 3,292,780 4,923,282 Other income (expense): Interest expense............................ (1,445,561) (1,022,554) Interest income............................. 109,402 170,397 Gain on sales of fixed assets............... 245,489 179,471 -------------- -------------- Income before provision for income taxes.. 2,202,110 4,250,596 Provision for income taxes.................... 735,506 1,696,876 -------------- -------------- Net income................................ $ 1,466,604 $ 2,553,720 ============== ============== Pro forma earnings per common share........... $ 0.48 ============== Pro forma weighted average common and common equivalent shares outstanding................ 5,588,404 ==============
The accompanying notes are an integral part of these supplemental consolidated financial statements. F-38 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED AUGUST 31, ----------------------------- 1996 1997 -------------- -------------- (UNAUDITED) Cash flows from operating activities: Net income.................................... $ 1,466,604 $ 2,553,720 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization of fixed as- sets....................................... 1,387,651 1,444,831 Amortization of intangible assets........... 781,630 900,346 Gain on sales of fixed assets............... (245,489) (179,471) Provision for deferred taxes................ -- (424,025) Change in deferred revenue.................. 772,581 860,543 Changes in operating assets and liabilities: Accounts receivable....................... 1,250,240 1,010,533 Notes receivable from contracts........... (830,085) (1,170,305) Prepaid expenses, deposits and other as- sets..................................... (733,619) (453,038) Accounts payable and accrued expenses..... (53,030) (1,675,064) Deferred rent and other long-term liabili- ties..................................... (43,264) (58,165) ------------- -------------- Net cash provided by operating activi- ties.................................. 3,753,219 2,809,905 ------------- -------------- Cash flows from investing activities: Proceeds from sales of fixed assets........... 1,699,233 1,291,286 Purchases of fixed assets..................... (2,605,483) (3,177,135) Acquisitions of chauffeured vehicle service companies.................................... (1,248,585) (7,394,060) ------------- -------------- Net cash used in investing activities.. (2,154,835) (9,279,909) ------------- -------------- Cash flow from financing activities: Proceeds of sales of notes receivable from in- dependent operators.......................... 404,307 -- Principal payments under capital lease obliga- tions........................................ (206,989) (185,574) Payments of notes payable..................... (3,257,478) (17,838,591) Proceeds from notes payable................... 2,320,541 450,000 Issuance of common stock...................... -- 30,897,290 Common stock dividends........................ (28,302) (101,857) Preferred stock dividends..................... (900) -- Payments under Recapitalization Plan.......... -- (4,015,952) Redemption of Series E preferred stock........ (137,500) -- ------------- -------------- Net cash provided by (used in) financ- ing activities........................ (906,321) 9,205,316 ------------- -------------- Net increase in cash and cash equivalents....... 692,063 2,735,312 Cash and cash equivalents at beginning of peri- od............................................. 1,615,711 2,867,711 ------------- -------------- Cash and cash equivalents at end of period...... $ 2,307,774 $ 5,603,023 ============= ==============
The accompanying notes are an integral part of these supplemental consolidated financial statements. F-39 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS 1. BACKGROUND AND ORGANIZATION General Carey International, Inc. (the "Company") provides services through a worldwide network of owned and operated companies, licensees and affiliates serving 420 cities in 65 countries. The Company owns and operates service providers in the form of wholly-owned subsidiaries in: New York (Carey Limousine N.Y., Inc. and Manhattan International Limousine Network, Ltd.), San Francisco (Carey Limousine SF, Inc.), Los Angeles (Carey Limousine L.A., Inc.), Indianapolis (Indy Connection Limousine, Inc., See Note 2), Washington, D.C. (Carey Limousine D.C., Inc.), South Florida (Carey Limousine Florida, Inc.), Philadelphia (Carey Limousine Corporation, Inc.) and London, England (Carey UK Limited). In addition, the Company licenses the "Carey" name, and provides central reservations, billing, and sales and marketing services to its licensees. The Company's worldwide network includes affiliates in locations in which the Company has neither owned and operated locations nor licensees. The Company provides central reservations and billing services to such affiliates. Acquisitions The Company is engaged in a program of acquiring chauffeured vehicle service businesses. Such acquisitions include unrelated chauffeured vehicle service businesses, some of which may be in cities in which the Company has owned and operated service providers, licensees operating under the Carey name and trademark and affiliates of the Company. In the first quarter of 1996, the Company acquired a chauffeured vehicle service company operating in London, England. As more fully discussed in Note 3, on June 2, 1997 the Company acquired Manhattan International Limousine Network Ltd. and an affiliated company ("Manhattan Limousine"). Initial public offering and reverse stock split In connection with the Company's initial public offering ("IPO") completed June 2, 1997, the Company's Board of Directors authorized a one for 2.3255 reverse stock split of the outstanding shares of the Company's common stock. All references to common stock, options, warrants and per share data have been restated to give effect to the reverse stock split. On February 25, 1997, the Board of Directors also authorized a Recapitalization Plan (the "Recapitalization"), which is more fully described in Note 7. 2. BASIS OF PRESENTATION The supplemental consolidated financial statements of Carey International, Inc. and subsidiaries have been prepared to give retroactive effect to the merger of Indy Connection Limousines, Inc. and subsidiary (Indy Connection) with and into Carey International, Inc. and subsidiaries on October 31, 1997. Generally accepted accounting principles proscribe giving effect to a consummated business combination accounted for by the pooling-of-interests method in financial statements that do not include the date of consummation. These supplemental financial statements do not extend through the date of consummation; however, they will become the historical consolidated financial statements of Carey International, Inc. and subsidiaries after financial statements covering the date of consummation of the business combination are issued. The accompanying consolidated financial statements and these notes do not include all of the disclosures included in the Company's supplemental audited consolidated financial statements for the years ended November 30, 1994, 1995 and 1996, which should be read in conjunction with these financial statements. For further information, such as the significant accounting policies followed by the Company, refer to the notes to the Company's supplemental consolidated financial statements. The supplemental consolidated financial statements included herein have not been audited. However, in the opinion of management, the supplemental consolidated financial statements reflect all adjustments (consisting F-40 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) only of normal recurring adjustments) necessary for a fair presentation of the results for the periods reflected. The results for these periods are not necessarily indicative of the results for the full fiscal year. Pro forma net income per common share Consistent with Securities and Exchange Commission Staff Accounting Bulletin ("SAB") No. 1B-2, the Company has recalculated historical weighted average common shares outstanding and net income per common share to give effect to the Recapitalization (see Note 7). The recalculated pro forma net income per common share is determined by (i) adjusting net income available to common shareholders to reflect the elimination of interest expense, net of taxes, resulting from the conversion of a portion of the subordinated debt into common stock and (ii) increasing the weighted average common shares outstanding by the number of common shares resulting from the conversion of subordinated debt and the partial conversion of the Series A Preferred Stock. 3. ACQUISITIONS In February 1996, the Company acquired the common stock of a chauffeured vehicle service company in London, England for approximately $1,500,000. Additional contingent consideration of up to approximately $1,000,000 may be payable for the two-year period ending February 28, 1998 based on the level of revenues referred to the acquired company by the seller. As of August 31, 1997, the Company has paid approximately $550,000 in such contingent consideration in connection with the London acquisition. In September 1997, the Company made an additional contingent consideration payment of approximately $280,000. In June 1997, the Company acquired the common stock of Manhattan Limousine for $14,200,000. The purchase price for the acquisition was composed of $4,740,00 in debt to the sellers, a cash payment of $7,060,000 and the issuance of 228,571 shares of common stock. The debt to the sellers was paid off on July 31, 1997. In the periods ended August 31, 1996 and 1997, the following acquisition activity was recorded by the Company:
NINE MONTHS ENDED AUGUST 31, ----------------------------- 1996 1997 -------------- -------------- Fair value of net assets and liabilities ac- quired: Receivables and other assets................. $ 632,554 $ 159,575 Notes receivable from contracts.............. -- 6,647,766 Fixed assets................................. 928,377 1,498,444 Franchise rights............................. 50,065 -- Goodwill and other tangibles................. 160,040 21,046,816 Trade payables and accrued expenses.......... (522,451) (4,353,898) Notes payable................................ -- (8,524,850) Deferred revenue............................. -- (6,679,793) ------------- -------------- Fair value of assets and liabilities acquired.. $ 1,248,585 $ 9,794,060 ============= ============== Issuance of stock (228,571 shares of common stock)........................................ $ -- $ 2,400,000 ============= ============== Cash payments (net of $223,695 cash acquired in 1996)......................................... $ 1,248,585 $ 7,394,060 ============= ==============
At the time of its acquisition by the Company, Manhattan Limousine was subject to guarantees of certain independent operator leases with third party finance companies of approximately $2.1 million. F-41 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 4. SENIOR CREDIT FACILITY With effect on August 15, 1997, the Company entered into a senior credit facility with three banks consisting of a secured revolving line of credit of $25.0 million (the "Facility"). The Facility, which may be used for acquisitions and working capital, is collateralized by the assets of the Company and its domestic operating subsidiaries and by a pledge of the stock of its international subsidiary. The Facility also provides availability for the issuance of letters of credit. Loans made under the revolving line of credit bear interest at the Company's option at either the bank's prime lending rate or 2.0% above the LIBOR rate. Commitment fees equal to 0.375% per annum are payable on the unused portion of the revolving line of credit. On the second anniversary of the Facility, outstanding balances under the Facility will convert to a five-year term loan, which will bear interest either at a fixed rate (subject to availability) or at a variable LIBOR or prime-based rate with adjustments determined based on the Company's earnings. The terms of the Facility (i) prohibit the payment of dividends by the Company, (ii) with certain exceptions, prevent the Company from incurring or assuming other indebtedness that is not subordinated to borrowings under the Facility and (iii) require the Company to comply with certain financial covenants. 5. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Company is subject to various legal actions which are not material to the financial condition, results of operations or cash flows of the Company. The Company, certain of the Company's subsidiaries and certain officers and directors of the Company were named in a civil action filed on May 15, 1996 in the United States District Court for the Eastern District of Pennsylvania entitled "Felix v. Carey International, Inc., et. al." The plaintiff's complaint, which purports to be a class action, alleges that the plaintiff and others similarly situated suffered monetary damages as a result of misrepresentations by the various defendants in their use of a surface transportation billing charge (the "STC"). The plaintiff seeks damages in excess of $1 million on behalf of the class for each of the counts in the complaint including fraud, negligent misrepresentation and violations of the Racketeer Influenced and Corrupt Organizations law of 1970, which permits the recovery of treble damages and attorneys' fees. The proposed class has received preliminary certification by the court. The Company is indemnifying and defending its officers and directors who were named as defendants in the case, subject to conditions imposed by applicable law. The Company has reached a tentative settlement with the plaintiff and plaintiff's counsel. The settlement calls for the Company to deposit $500,000 into a settlement fund and provide a $450,000 letter of credit for a class consisting of all persons who paid the STC during the period from May 15, 1992 through March 15, 1997. As a condition of the final settlement, the Company will change its disclosure concerning the STC, and each class member showing proper authentication of a claim shall be entitled to receive either (i) cash totaling 10% of the STC paid during the period described above or (ii) a nontransferable credit to be applied toward future use of the Company's services in an amount equal to 30% of such STC. The Company does not believe the settlement described above will have a material adverse effect on its business, financial condition, results of operations and cash flows. F-42 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 6. NET INCOME PER COMMON SHARE Net income per common share, on a historical basis, is as follows:
NINE MONTHS ENDED AUGUST 31, --------------------- 1996 1997 ---------- ---------- Net income available to common shareholders............. $1,465,704 $2,553,720 ========== ========== Weighted average common and common equivalent shares outstanding............................................ 3,124,314 4,858,013 ========== ========== Net income per common share............................. $ 0.47 $ 0.53 ========== ==========
Common equivalent shares are included in the per share calculations where the effect of their inclusion would be dilutive. Common equivalent shares consist of Series B, F and G preferred stock as well as substantially all of the subordinated debt of the Company and the assumed exercise of vested outstanding stock options and warrants. Pursuant to SAB No. 83, the common equivalent shares issued by the Company during the twelve months preceding the effective date of the Registration Statement relating to the IPO, using the treasury stock method and the IPO price of $10.50 per share, have been included in the calculation of net income per common share. 7. RECAPITALIZATION On February 25, 1997, the Board of Directors authorized a Recapitalization, which was implemented on June 2, 1997, coincident with the closing of the IPO. Under the Recapitalization, the $2,000,000 subordinated convertible note dated September 1, 1991 and the $3,780,000 subordinated note dated July 30, 1992 were converted into 1,046,559 shares of common stock and the remaining principal balance of $912,454 was repaid. The Series A preferred stock was converted, in part, into 86,003 shares of common stock and redeemed in part for $2,103,500. All of the Series F preferred stock and 3,000 shares of the Series G preferred stock was redeemed for $1,000,000. The remaining preferred stock has been converted into 1,427,527 shares of common stock. As a result of the Recapitalization, preferred stock with a liquidation preference of $11,154,900 and subordinated debt with a principal amount of $5,780,000 has been converted in part into 2,560,071 shares of common stock and repaid or redeemed in part for $4,015,952 in cash, with the cash portion paid out of the proceeds of the IPO. F-43 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Carey International, Inc. We have audited the accompanying supplemental consolidated balance sheets of Carey International, Inc. and Subsidiaries as of November 30, 1995 and 1996, and the related supplemental consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended November 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the supplemental consolidated financial statements referred to above present fairly, in all material respects, the financial position of Carey International Inc. and Subsidiaries as of November 30, 1995 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended November 30, 1996, in conformity with generally accepted accounting principles. The supplemental financial statements give retroactive effect to the merger on October 31, 1997, of Carey International, Inc. and Indy Connection Limousine, Inc. and Subsidiary, which has been accounted for as a pooling-of- interests as described in Notes 1, 2 and 13 to the supplemental consolidated financial statements. Generally accepted accounting principles proscribe giving effect to a consummated business combination accounted for by the pooling-of-interests method in financial statements that do not include the date of consummation. These financial statements do not extend through the date of consummation; however, they will become the historical consolidated financial statements of Carey International, Inc. and Subsidiaries after financial statements covering the date of consummation of the business combination are issued. As discussed in Note 16 to the supplemental consolidated financial statements, the accompanying supplemental consolidated balance sheets as of November 30, 1994 and 1995, and the related supplemental consolidated statements of operations, changes in stockholders' equity and cash flows for each of the two years in the period ended November 30, 1995, have been restated for a change in the revenue recognition method. Coopers & Lybrand, L.L.P. Washington, D.C. January 31, 1997, except for Note 18, as to which the date is March 1, 1997, and Notes 1, 2 and 13 and the fourth paragraph above, as to which the date is January 9, 1998 F-44 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, ------------------------ 1995 1996 ----------- ----------- ASSETS Cash and cash equivalents............................ $ 1,615,711 $ 2,867,711 Accounts receivable, net of allowance for doubtful accounts of $294,000 in 1995 and $535,000 in 1996... 9,364,356 10,542,331 Notes receivable from contracts, current portion..... 659,609 402,751 Prepaid expenses and other current assets............ 481,947 2,061,738 ----------- ----------- Total current assets............................. 12,121,623 15,874,531 Fixed assets, net of accumulated depreciation of $3,643,000 in 1995 and $3,394,000 in 1996........... 4,318,711 5,634,910 Notes receivable from contracts, excluding current portion............................................. 193,298 769,201 Franchise rights, net of accumulated amortization of $1,494,000 in 1995 and $1,729,000 in 1996........... 5,533,956 5,348,264 Trade name, trademark and contract rights, net of accumulated amortization of $781,000 in 1995 and $973,000 in 1996.................................... 6,876,578 6,685,135 Goodwill and other intangible assets, net of accumulated amortization of $585,000 in 1995 and $840,000 in 1996.................................... 7,139,263 7,285,933 Deferred tax assets.................................. 892,993 2,461,573 Deposits and other assets............................ 1,652,892 1,419,006 ----------- ----------- Total assets..................................... $38,729,314 $45,478,553 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of notes payable..................... $ 5,365,412 $ 5,858,249 Current portion of capital leases.................... 252,953 199,224 Current portion of subordinated notes payable........ 100,000 440,000 Accounts payable and accrued expenses................ 8,351,312 11,564,963 ----------- ----------- Total current liabilities........................ 14,069,677 18,062,436 Notes payable, excluding current portion............. 8,639,769 6,035,964 Capital leases, excluding current portion............ 82,021 663,030 Subordinated notes payable, excluding current portion............................................. 5,780,000 5,340,000 Deferred rent and other long-term liabilities........ 148,195 111,281 Deferred tax liabilities............................. 1,086,480 1,511,611 Deferred revenue..................................... 4,726,134 6,181,147 Commitments and contingencies Stockholders' equity: Preferred stock.................................... 1,252,900 1,115,400 Class A common stock, $.01 par value, authorized 314,000 Shares, none issued and outstanding....... -- -- Common stock, $0.01 par value; issued and outstanding 1,357,714 in 1995 and 1,377,556 shares in 1996........................................... 13,577 13,776 Additional paid-in capital......................... 7,821,570 7,841,371 Accumulated deficit................................ (4,891,009) (1,397,463) ----------- ----------- Total stockholders' equity....................... 4,197,038 7,573,084 ----------- ----------- Total liabilities and stockholders' equity....... $38,729,314 $45,478,553 =========== ===========
The accompanying notes are an integral part of these supplemental consolidated financial statements. F-45 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED NOVEMBER 30, ------------------------------------- 1994 1995 1996 ----------- ----------- ----------- Revenue, net........................... $40,313,722 $48,969,395 $65,544,942 Cost of revenue........................ 27,699,677 33,027,209 43,649,178 ----------- ----------- ----------- Gross profit......................... 12,614,045 15,942,186 21,895,764 Selling, general and administrative expense............................... 11,042,949 14,081,152 16,726,610 ----------- ----------- ----------- Operating income..................... 1,571,096 1,861,034 5,169,154 Other income (expense): Interest expense..................... (1,513,163) (1,910,966) (1,898,231) Interest income...................... 173,313 262,647 162,711 Gain (loss) on sales of assets....... (106,568) 156,005 355,754 ----------- ----------- ----------- Income before provision for income taxes................................. 124,678 368,720 3,789,388 Provision for income taxes............. 162,810 270,599 294,421 ----------- ----------- ----------- Net income (loss)...................... $ (38,132) $ 98,121 $ 3,494,967 =========== =========== =========== Pro forma net income per common share.. $ 0.90 =========== Pro forma weighted average common shares outstanding.................... 4,230,023 ===========
The accompanying notes are an integral part of these supplemental consolidated financial statements. F-46 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SERIES A SERIES B SERIES E SERIES F SERIES G CAREY INDIANA PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED STOCK STOCK STOCK STOCK STOCK STOCK --------- --------- --------- --------- --------- ------------- Balance at November 30, 1993................... $420,700 $95,800 $266,250 $100,000 $498,900 $400,000 Accretion of redeemable preferred stock........ -- -- 8,750 -- -- -- Issue Class B preferred stock.................. -- -- -- -- -- 80,000 Payment of common stock dividends.............. -- -- -- -- -- -- Redemption of preferred stock.................. -- -- (62,500) -- -- (400,000) Issue common stock...... -- -- -- -- -- -- Exchange stock for investment in discontinued operations............. -- -- -- -- -- -- Payment of accrued dividends.............. -- -- (26,250) -- -- -- Payment of Series E dividends.............. -- -- -- -- -- -- Net loss................ -- -- -- -- -- -- -------- ------- -------- -------- -------- -------- Balance at November 30, 1994................... 420,700 95,800 186,250 100,000 498,900 80,000 Accretion of redeemable preferred stock........ -- -- 4,375 -- -- -- Payment of common stock dividends.............. -- -- -- -- -- -- Redemption of preferred stock.................. -- -- (62,500) -- -- (40,000) Payment of preferred stock dividends........ -- -- (30,625) -- -- -- Issuance of stock....... -- -- -- -- -- -- Net income.............. -- -- -- -- -- -- -------- ------- -------- -------- -------- -------- Balance at November 30, 1995................... 420,700 95,800 97,500 100,000 498,900 40,000 Redemption of preferred stock.................. -- -- (97,500) -- -- (40,000) Issuance of options at below fair market value.................. -- -- -- -- -- -- Payment of preferred stock dividend......... -- -- -- -- -- -- Payment of common stock dividend............... -- -- -- -- -- -- Cumulative effect of currency translation... -- -- -- -- -- -- Net income.............. -- -- -- -- -- -- -------- ------- -------- -------- -------- -------- Balance at November 30, 1996................... $420,700 $95,800 $ -- $100,000 $498,900 $ -- ======== ======= ======== ======== ======== ========
The accompanying notes are an integral part of these supplemental consolidated financial statements. F-47
COMMON STOCK ADDITIONAL TOTAL ------------------ PAID-IN ACCUMULATED STOCKHOLDERS' SHARES $ CAPITAL DEFICIT EQUITY --------- ------- ---------- ----------- ------------- Balance at November 30, 1993................... 1,323,048 $13,230 $7,798,322 $(4,822,643) $4,770,559 Accretion of redeemable preferred stock........ -- -- (8,750) -- -- Issue Class B preferred stock.................. -- -- -- -- 80,000 Payment of common stock dividends.............. -- -- -- (103,076) (103,076) Redemption of preferred stock.................. -- -- -- -- (462,500) Issue common stock...... 14,881 149 14,851 15,000 Exchange stock for investment in discontinued operations............. (12,897) (129) (12,871) -- (13,000) Payment of accrued dividends.............. -- -- -- -- (26,250) Payment of Series E dividends.............. -- -- -- (4,378) (4,378) Net loss................ -- -- -- (38,132) (38,132) --------- ------- ---------- ----------- ---------- Balance at November 30, 1994................... 1,325,032 13,250 7,791,552 (4,968,229) 4,218,223 Accretion of redeemable preferred stock........ -- -- (4,375) -- -- Payment of common stock dividends.............. -- -- -- (20,901) (20,901) Redemption of preferred stock.................. -- -- -- -- (102,500) Payment of preferred stock dividends........ -- -- -- -- (30,625) Issuance of stock....... 32,682 327 34,393 -- 34,720 Net income.............. -- -- -- 98,121 98,121 --------- ------- ---------- ----------- ---------- Balance at November 30, 1995................... 1,357,714 13,577 7,821,570 (4,891,009) 4,197,038 Redemption of preferred stock.................. -- -- -- -- (137,500) Issuance of options at below fair market value.................. 19,842 199 19,801 -- 20,000 Payment of preferred stock dividend......... -- -- -- (900) (900) Payment of common stock dividend............... -- -- -- (42,057) (42,057) Cumulative effect of currency translation... -- -- -- 41,536 41,536 Net income.............. -- -- -- 3,494,967 3,494,967 --------- ------- ---------- ----------- ---------- Balance at November 30, 1996................... 1,377,556 $13,776 $7,841,371 $(1,397,463) $7,573,084 ========= ======= ========== =========== ==========
The accompanying notes are an integral part of these supplemental consolidated financial statements. F-48 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED NOVEMBER 30, ------------------------------------- 1994 1995 1996 ----------- ----------- ----------- Cash flows from operating activities: Net income (loss)..................... $ (38,132) $ 98,121 $ 3,494,967 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization of fixed assets....................... 1,816,307 2,087,370 2,095,439 Amortization of intangible assets... 672,983 714,199 1,064,255 (Gain) loss on sales of fixed assets............................. 106,568 (156,005) (355,754) Deferred income taxes expense (benefit).......................... 70,000 102,000 (1,346,557) Change in deferred revenue.......... 184,220 237,306 1,455,013 Change in operating assets and liabilities: Accounts receivable............... (948,971) (2,601,429) (545,421) Notes receivable from contracts... (519,155) 11,000 (1,052,838) Prepaid expenses, deposits and other assets..................... (362,838) (189,180) (665,084) Accounts payable and accrued expenses......................... 810,819 3,306,393 2,021,101 Deferred rent and other long-term liabilities...................... (61,967) 87,490 (36,914) ----------- ----------- ----------- Net cash provided by operating activities..................... 1,729,834 3,697,265 6,128,207 ----------- ----------- ----------- Cash flows from investing activities: Proceeds from sale of fixed assets.... 971,864 1,639,766 1,788,380 Purchases of fixed assets............. (2,347,495) (2,768,982) (3,091,353) Software development costs............ -- (203,529) -- Redemption of investment in affiliate............................ -- 100,000 -- Acquisitions of chauffeured vehicle service companies.................... (128,596) (3,949,393) (1,730,232) ----------- ----------- ----------- Net cash used in investing activities..................... (1,504,227) (5,182,138) (3,033,205) ----------- ----------- ----------- Cash flow from financing activities: Proceeds from sale of notes receivable from independent operators........... 378,733 1,493,399 733,793 Principal payments under capital lease obligations.......................... (384,181) (436,169) (297,549) Preferred stock dividends............. (30,628) (30,625) (900) Payment of notes payable.............. (4,036,740) (4,496,659) (5,976,357) Proceeds from notes payable........... 3,357,185 5,141,022 3,857,568 Issuance of common stock.............. 15,000 34,720 20,000 Common stock dividends................ (103,076) (20,901) (42,057) Issue preferred stock................. 80,000 -- -- Redemption of preferred stock......... (462,500) (102,500) (137,500) ----------- ----------- ----------- Net cash provided by (used in) financing activities........... (1,186,207) 1,582,287 (1,843,002) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents............................ (960,600) 97,414 1,252,000 Cash and cash equivalents at beginning of year................................ 2,478,897 1,518,297 1,615,711 ----------- ----------- ----------- Cash and cash equivalents at end of year................................... $ 1,518,297 $ 1,615,711 $ 2,867,711 =========== =========== ===========
The accompanying notes are an integral part of these supplemental consolidated financial statements. F-49 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS 1. BACKGROUND AND ORGANIZATION General Carey International, Inc. (the Company) is one of the world's largest chauffeured vehicle service companies, providing services through a worldwide network of owned and operated companies, licensees and affiliates serving 420 cities in 65 countries. The Company owns and operates service providers in the form of wholly-owned subsidiaries in: New York (Carey Limousine NY, Inc.), San Francisco (Carey Limousine SF, Inc.), Los Angeles (Carey Limousine L.A., Inc.), London (Carey UK Limited), Indianapolis (Indy Connection Limousine, Inc., See Note 2), Washington, DC (Carey Limousine DC, Inc.), South Florida (Carey Limousine Florida, Inc.) and Philadelphia (Carey Limousine Corporation, Inc.). In addition, the Company generates revenues from licensing the "Carey" name, and from providing central reservations, billing, sales and marketing services to its licensees. The Company's worldwide network also included affiliates in locations in which the Company has neither owned and operated locations nor licensees. The Company provides central reservations and billing services to such affiliates. Acquisitions and franchises The Company is engaged in a program of acquiring chauffeur vehicle service businesses, including licensees operating under the Carey name and trademark. These acquisitions are accounted for as purchases. The carrying value of the assets acquired is determined by the negotiated purchase price. In addition to acquiring licensees operating under the Carey name, the Company has acquired chauffeured vehicle service businesses in cities where the Company operates. In 1995, these acquisitions included chauffeur vehicle service companies operating in Washington, D.C., Miami, West Palm Beach and San Francisco. In 1996, the Company acquired a chauffeured vehicle service company in London, England. Reverse Stock Split On February 25, 1997, the Board of Directors authorized management of the Company to file a Registration Statement with the Securities and Exchange Commission permitting the Company to sell shares of its common stock in an initial public offering (the "IPO"). The Board of Directors, at the same meeting and subject to stockholder approval, authorized a reverse stock split of approximately one-for-2.3255 of the outstanding shares of the Company's common stock. A majority of the Company's stockholders have approved the reverse stock split. All references to common stock, options, warrants and per share data have been restated to give effect to the reverse stock split. The Board of Directors also authorized a Recapitalization (see Note 18) on February 25, 1997. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The supplemental consolidated financial statements of Carey International, Inc. and subsidiaries have been prepared to give retroactive effect to the merger of Indy Connection Limousines, Inc. and subsidiary (Indy Connection) with and into Carey International, Inc. and subsidiaries on October 31, 1997 (See Note 13). Generally accepted accounting principles proscribe giving effect to a consummated business combination accounted for by the pooling-of- interests method in financial statements that do not include the date of consummation. These supplemental financial statements do not extend through the date of consummation; however, they will become the historical consolidated financial statements of Carey International, Inc. and subsidiaries after financial statements covering the date of consummation of the business combination are issued. The supplemental consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated. F-50 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The preparation of 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and cash equivalents The Company considers all short-term investments with original maturities of three months or less to be cash equivalents. Notes receivable from contracts An important component of the Company's operating strategy involves the preferred use of non-employee independent operators chauffeuring their own vehicles rather than employee chauffeurs operating Company-owned vehicles. Each independent operator enters into an agreement with the Company to provide prompt and courteous service to the Company's customers with a properly maintained, late model vehicle which he or she owns and for which he or she pays all of the maintenance and operating expenses, including gasoline. The Company, under the independent operator agreement, agrees to bill and collect all revenues and remit to the independent operator 60% to 65% of revenues, as defined in the agreement. Each new operator agrees to pay a one- time fee generally ranging from $30,000 to $45,000 to the Company under the terms of the independent operator agreement. Through 1996, the term of the independent operator agreement generally ranged from 10 years to perpetuity. (See "Revenue recognition"). The Company typically receives a promissory note from the independent operator as payment for the one-time fee under the terms of the Standard Independent Operator Agreement (see Note 3) and records the note in notes receivable from contracts. The notes evidencing such financing generally were sold on a non-recourse basis by the Company to third party finance companies (see Note 11) in exchange for cash and promissory notes. Since September 1996, the Company has ceased selling notes to third parties. Such promissory notes due from finance companies have also been recorded in notes receivable from contracts in the consolidated balance sheets. Concentration of credit risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, accounts receivable and notes receivable from contracts. The Company maintains its cash and cash equivalents with various financial institutions. In order to limit exposure to any one institution, the Company's cash equivalents are composed mainly of overnight repurchase agreements collateralized by U.S. Government securities. Accounts receivable are generally diversified due to the large number of entities comprising the Company's customer base and their dispersion across many different industries. The Company performs ongoing credit evaluations of its customers, and may require credit card documentation or prepayment of selected transactions. Notes receivable from contracts are supported by the underlying base of revenue serviced by each respective independent operator (see Notes 4 and 11). The Company performs ongoing evaluations of each independent operator's productivity and payment capacity and has utilized third-party financing to reduce credit exposure. Fixed assets Furniture, equipment, vehicles and leasehold improvements are stated at cost. Equipment under capital leases is stated at the lower of the present value of minimum lease payments or the fair market value at the F-51 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) inception of the lease. Depreciation on furniture, equipment, vehicles and leasehold improvements is calculated on the straight-line method over the estimated useful lives of the assets, generally three to five years. The building owned by the Company is depreciated over 40 years on a straight-line basis. Sales and retirements of fixed assets are recorded by removing the cost and accumulated depreciation from the accounts. Gains or losses on sales and retirements of property are reflected in results of operations. Intangible assets Effective September 1, 1991, the Company acquired the Carey name and trademark and the contract rights to all royalty fee payments by various Carey licensees for a purchase price of $7 million. These assets are held by Carey Licensing, Inc. and are being amortized over 40 years. The Company has acquired chauffeured vehicle service companies, all of which have been accounted for as purchases, except for Indy Connection which has been accounted for as a pooling-of-interests. For each business acquired which is a licensee of the Company, the excess of cost over the fair market value of the net assets acquired is allocated to franchise rights in the balance sheet. With respect to acquired businesses which are not licensees of the Company, the excess of cost over the net assets acquired is allocated to goodwill. Goodwill and franchise rights are amortized over 30 years using the straight- line method. Such amortization is included in selling, general and administrative expense in the statement of operations. The Company evaluates the recoverability of its intangible assets based on estimated undiscounted cash flows over the lesser of the remaining amortization periods or calculated lives, giving consideration to revenue expected to be realized. This determination is based on an evaluation of such factors as the occurrence of a significant change in the environment in which the business operates or the expected future net cash flows (undiscounted and without interest). There have been no adjustments to the carrying value of intangible assets resulting from this evaluation. Revenue recognition Chauffeured vehicle services--The Company's principal source of revenue is from chauffeured vehicle services provided by its operating subsidiaries. Such revenue, net of discounts, is recorded when such services are provided. The Company, through the Carey International Reservation System ("CIRS"), has a central reservation system capable of booking reservations on behalf of its licensees and affiliates. Under most circumstances, central reservations are billed by the Company to the customer when the Company receives a service invoice from the licensee or affiliate that provided the service. At such time, the Company also records the gross revenue for the transaction. Fees from licensees--The Company charges an initial license fee under its domestic license agreement and records the fee as revenue on signing of the agreement. The Company also charges its domestic licensees monthly franchise and marketing fees equal to stated percentages of monthly revenues, as defined in the licensing agreement. Monthly fees to domestic licensees are generally less than 10% of the licensee's monthly revenues. The Company records such fees as revenues as they are charged to the licensees. International licensees and the Company's domestic and international affiliates historically have not paid fees to the Company, but have instead given a discount on business referred to them through CIRS. Such discounts reduce the amount of service invoices to the Company from such licensees and affiliates for services provided to customers whose reservations have been booked and invoiced centrally by the Company. Independent operator fees--The Company enters into contracts with independent operators ("Standard Independent Operator Agreements") to provide chauffeured vehicle services exclusively to the Company's customers. When independent operator agreements are executed, the Company defers revenue equal to the F-52 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) amount of the one-time fees and recognizes the fees as revenue over the terms of the contracts or over 20 years for perpetual contracts. Upon termination of an independent operator agreement, the remaining deferred revenue associated with the specific contract, less any amounts due from the independent operator deemed uncollectible, is recognized as revenue. Income taxes The provision for income taxes includes income taxes currently payable and the change during the year in the net deferred tax liabilities or assets. Deferred income tax liabilities and assets are determined based on the differences between the financial statement and tax bases of liabilities and assets using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided to reduce the net deferred tax asset, if any, to a level which, more likely than not, will be realized. Pro forma net income per common share Consistent with Staff Accounting Bulletin IB-2, the Company has recalculated historical weighted average common shares outstanding and net income per common share to give effect to the following matters pursuant to the Recapitalization (see Note 18). The recalculated pro forma net income per common share is determined by (i) adjusting net income available to common shareholders to reflect the elimination in interest expense, net of taxes, resulting from the conversion of $4,867,546 of subordinated debt into common stock and (ii) increasing the weighted average common shares outstanding by the number of common shares resulting from the conversion of such debt, as well as the partial conversion of the Series A Preferred Stock. Stock-based Compensation In October 1995, the Financial Accounting Standards Boards issued Statement of Financial Accounting Standards No. 123 ("SFAS 123") Accounting for Stock- Based Compensation, which is effective for the Company's financial statements for fiscal years beginning after December 15, 1995. SFAS 123 allows companies to either account for stock-based compensation under the new provisions of SFAS 123 or under the provisions of Accounting Principles Board Option No. 25 ("APB 25"), Accounting for Stock Issued to Employees. The Company will continue to apply the provisions of APB 25 and provide pro forma disclosure in the notes to the financial statements. Foreign operations The Consolidated Balance Sheets include foreign assets and liabilities of $3.7 million and $2.7 million as of November 30, 1996. The net effects of foreign currency transactions reflected in income were immaterial. Assets and liabilities of the Company's foreign operations are translated into United States dollars using exchange rates in effect at the balance sheet date and results of operations items are translated using the average exchange rate prevailing throughout the period. Reclassifications Certain accounts in 1994 and 1995 have been reclassified to conform with the 1996 presentation. 3. FEES FROM LICENSEES The total of all domestic license fees, franchises fees and marketing fees earned in each of 1994, 1995 and 1996 was $1,466,588, $1,228,472 and $2,180,540, respectively. Amounts due from licensees of $46,520 F-53 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) and $143,041 at November 30, 1995 and 1996, respectively, are included in accounts receivable in the consolidated balance sheets of the Company. 4. TRANSACTIONS WITH INDEPENDENT OPERATORS The Company recorded approximately $1,153,000, $1,130,000 and $2,371,000 in 1994, 1995 and 1996, respectively, as deferred revenue relating to fees from new agreements with independents operators. Amounts of deferred revenue recognized as revenues in 1994, 1995 and 1996 amounted to approximately $969,000, $889,000 and $936,000, respectively. Notes receivable from contracts include approximately $305,000 and $917,000 at November 30, 1995 and 1996, respectively, for amounts due from independent operators and approximately $548,000 and $255,000 at November 30, 1995 and 1996, respectively, for amounts due from a related party financing company (see Note 11). In the normal course of business, the Company's independent operators are responsible for financing their own vehicles through third parties. From time to time, the Company has arranged lease and purchase financing for certain vehicles and has in turn leased back such vehicles to independent operators on terms and conditions similar to those under which the Company is obligated (see Note 5). 5. FIXED ASSETS Fixed assets consist of the following:
NOVEMBER 30, ------------------------ 1995 1996 ----------- ----------- Vehicles.............................................. $ 5,352,304 $ 5,026,897 Equipment............................................. 1,801,668 2,303,348 Furniture............................................. 543,782 749,840 Leasehold improvements................................ 263,758 419,232 Land and building..................................... -- 529,634 ----------- ----------- 7,961,512 9,028,951 Less accumulated depreciation and amortization........ (3,642,801) (3,394,041) ----------- ----------- Net fixed assets...................................... $ 4,318,711 $ 5,634,910 =========== ===========
The Company is obligated under various vehicle and equipment capital leases. Vehicles and equipment under capital leases included in fixed assets are as follows:
NOVEMBER 30, ---------------------- 1995 1996 --------- ----------- Equipment............................................... $ 444,983 $ 1,048,633 Vehicles................................................ 352,796 621,420 --------- ----------- 797,779 1,670,053 Less accumulated amortization........................... (536,713) (561,871) --------- ----------- $ 261,066 $ 1,108,182 ========= ===========
F-54 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 6. NOTES PAYABLE Notes payable consist of the following:
NOVEMBER 30, --------------------- 1995 1996 ---------- ---------- Bank revolving credit/term loan dated April 13, 1995, modified December 1, 1996. Collateralized by accounts receivable of the Company and the pledge of common stock of the Company's U.S. sub- sidiaries. Interest only is payable until June 30, 1996; beginning July 1, 1996, quarterly prin- cipal payments are required in an amount suffi- cient to amortize the outstanding balance over a four-year period. Interest is payable monthly at a floating rate based on the Wall Street Journal prime plus 1.25% (9.5% at November 30, 1996). This loan is guaranteed by the Chairman of the Board and the President of the Company........... $4,500,000 $3,937,500 Note payable dated September 1, 1991, at an annual rate of interest of 7.74%, collateralized by the assets of Carey Licensing, Inc. Pursuant to an agreement with the lender effective November 30, 1996, principal payments of $220,000 are due quarterly from December 31, 1996 through December 31, 1997 and a final principal payment of $240,000 due March 1, 1998....................... 2,220,000 1,340,000 Bank line of credit of $1,000,000, dated October 17, 1994, collateralized by accounts receivable of Carey NY and assignment of license agreement between the Company and Carey NY; due April 30, 1997. Interest is payable monthly at a variable interest rate of .75% above the bank's prime rate (9.0% at November 30, 1996)...................... 990,000 990,000 Various installment notes payable, with interest rates ranging from 8.75% to 14.5%, collateralized by certain vehicles and equipment of the Company's subsidiaries; principal and interest are payable monthly over 36-month terms.......... 1,514,715 555,834 Notes payable to bank, dated March 26, 1996, at the prime rate (8.25 at November 30, 1996) plus 1.0% per annum and matures on January 31, 1998. The notes are collateralized by substantially all Indy Connection's assets. Under the terms of the agreement, Carey Limousine Indiana is subject to various general covenants. The bank also required the personal guaranty by the former shareholder of Indy Connection............................... -- 497,582 Discretionary credit agreement with a bank that allows the Company to purchase revenue earning vehicles under installment notes. Separate notes are required for each vehicle purchase with a maximum term on the note being thirty-six months. These notes bear interest at rates ranging from 8.9% to 11.0%. The notes are collateralized by Indy Connection's accounts receivable, inventory and equipment and is subject to various restric- tive covenants. The agreement was subsequently renegotiated at similar terms.................... 845,753 411,402 Two notes payable to bank, with interest at a fixed rate of 9.25% and a 48 month and 84 month term, respectively. The notes require monthly principal and interest payments that total $4,413. The notes are collateralized by vehicles. The agreement subjects Indy Connection to various general covenants and required a personal guar- anty by the former owners of Indy Connection..... 390,263 363,705
F-55 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 30, ------------------- 1995 1996 --------- --------- Installment notes payable to sellers under acquisition agreements dated various dates from June 30, 1994 to September 8, 1995. Interest rates ranges from 7.5% to 8.5%. Interest is generally payable monthly. Principal is payable in varying installments....................................... 2,339,418 1,305,574 Convertible note payable to seller under acquisition agreement dated September 30, 1993 at an annual rate of 7.5%, interest payable quarterly; principal due in two equal annual installments of $116,667 on January 2, 1996 and 1997. The note was repaid in January 1997....................................... 233,333 116,666 Bank line of credit $200,000, dated October 31, 1995 at variable interest rate (10% at November 30, 1995), collateralized by accounts receivable of Carey DC. This facility was refinanced by a term loan with the same bank on March 1, 1996........... 200,000 -- Amount payable to seller under acquisition agreement dated January 1, 1995. Due 30 days after receipt of an audit of the predecessor company. Amount of the payment is subject to reduction based on the results of the audit. The audit has been completed and the amount was subsequently reduced in 1996 to $210,821 and has been repaid....................... 250,000 -- Note payable to bank, dated September 30, 1995, payable in monthly installments of $4,167 plus interest. Interest rate is variable at bank's prime plus 1% (10.0% at November 30, 1996)............... 241,667 191,717 Note payable to bank, dated August 30, 1993, collateralized by accounts receivable, fixed assets and intangible assets of Carey DC; monthly payments of $9,401 for principal and interest are due through August 31, 1996. Interest rate is fixed at 8%. This note was refinanced on March 1, 1996 by a term loan with the same bank....................... 90,631 -- Note payable to bank, dated October 17, 1994, collateralized by accounts receivable and fixed assets of Carey NY. Principal and interest payments of $2,848 are payable monthly. Remaining balance is due October 17, 1999. Interest rate is fixed at 9.25%.............................................. 189,401 149,001 Bank line of credit of $750,000, dated February 26, 1996 collateralized by accounts receivable of Carey Licensing, Inc.; due March 31, 1997. Interest is payable monthly at 1% above the Wall Street Journal's "Prime Rate" (9.25% at November 30, 1996).............................................. -- 750,000 Bank line of credit of $200,000, dated February 26, 1996, collateralized by accounts receivable of Carey FLA; due March 31, 1997. Interest is payable monthly at 1% above Wall Street Journal's "Prime Rate" (9.25% at November 30, 1996)................. -- 200,000 Note payable to bank, dated March 1, 1996, collateralized by accounts receivable of Carey DC Monthly payments of $12,735 of principal and interest through March 1, 2001. Interest is payable monthly at .5% above the bank's Prime Rate (9.5% at November 30, 1996)................................. -- 662,053
F-56 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 30, ----------------------- 1995 1996 ----------- ----------- Note payable to bank, dated May 10, 1996, collateralized by the land and building held by Carey DC; monthly payments of $3,863 of principal and interest are due through April 10, 2001 and a balloon payment of $375,468 on May 10, 2001. Interest fixed at 8.75%.......... -- 423,179 ----------- ----------- Total notes payable............................. 14,005,181 11,894,213 Less current installments....................... 5,365,412 5,858,249 ----------- ----------- Long-term portion............................... $ 8,639,769 $ 6,035,964 =========== ===========
Subordinated notes payable consist of the following:
NOVEMBER 30, --------------------- 1995 1996 ---------- ---------- Subordinated convertible note, dated September 1, 1991, with the principal of $2,000,000 is due on August 30, 2000; interest payable quarterly as a fixed rate of 7.74%. After September 1, 1992, this debt is convertible into shares of common stock of the Company at the discretion of the holder at a conversion price of $6.14. A warrant for the purchase of 86,003 shares of common stock of the Company was issued in connection with the note. The warrant is exercisable immediately, expires at the earlier of the third anniversary of an initial public offering or November 30, 2001, and has an exercise price of $6.14 per share. The note contains certain antidilutive provisions which lower its conversion price in the event dilutive securities are subsequently issued by the Company at prices below the note's conversion price. The warrant has not been exercised. The terms of the agreement have been modified as part of the "Recapitalization" (see Notes 15 and 18).................................... $2,000,000 $2,000,000 Subordinated note dated July 30, 1992, interest only payable quarterly until September 30, 1995. The interest rate is fixed at 12%. Principal of $220,000 was paid on September 30, 1995. Pursuant to an agreement with the lender effective November 30, 1996, principal payments of $220,000 are due from June 30, 1997 until December 31, 1997; an installment of principal of $880,000 is due March 31, 1998; and a final payment of principal of $2,240,000 is due June 30, 1998. A warrant for the purchase of 616,544 shares of Class A common stock or common stock was issued in connection with the note. The warrant is exercisable immediately, has an exercise price of $6.14 per share and expires at the earlier fifth anniversary of the repayment of the note or July 30, 2000. The warrants contain certain antidilutive provisions which lower their exercise price in the event dilutive securities are subsequently issued by the Company at prices below the warrant's exercise price. The warrant has not been exercised. The terms of the agreement have been modified as part of the "Recapitalization" (see Note 18)................................................. 3,780,000 3,780,000 Convertible note payable to seller under acquisition agreement, dated September 30, 1992; interest payable quarterly at a fixed rate of 7.74%. The note was repaid in September 1996........................ 100,000 -- ---------- ---------- Total subordinated notes payable..................... 5,880,000 5,780,000 Less current installments............................ 100,000 440,000 ---------- ---------- Subordinated notes payable, excluding current installments........................................ $5,780,000 $5,340,000 ========== ==========
F-57 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Future annual principal payments on all notes payable at November 30, 1996 are as follows:
YEAR ENDING NOVEMBER 30: ------------------------ 1997........................................................... $ 6,298,249 1998........................................................... 6,129,209 1999........................................................... 1,691,567 2000........................................................... 924,900 2001 and thereafter............................................ 2,630,288 ----------- $17,674,213 ===========
Certain loan agreements contain restrictive covenants which include financial ratios related to working capital, debt service coverage, debt to net worth and maintenance of a minimum tangible net worth, and submission of audited financial statements, prepared in accordance with generally accepted accounting principles, within 120 days after the end of the fiscal year. Additionally, these covenants restrict the Company's capital expenditures and prohibit the payment of dividends on the Company's common and preferred stock, except for the Series E preferred stock and Indy Connection preferred stock. The Company did not meet certain covenants related to the timely submission of financial statements, working capital, debt to net worth and maintenance of a minimum tangible net worth at November 30, 1996. The Company obtained waivers for compliance with these covenants through and including November 30, 1996. The carrying value of notes payable approximates the current value of the notes payable at November 30, 1996. (See Note 18 for discussions of the fair value for the subordinated debt). Interest paid during the years ended November 30, 1994, 1995, and 1996 was approximately $1,512,000, $1,878,000 and $1,883,000, respectively. 7. LEASES The Company has several noncancelable operating leases, primarily for office space and equipment, that expire over the next five years. Certain of the Company's facilities are under operating leases which provide for rent adjustments based on increases of defined indexes, such as the Consumer Price Index. These agreements also typically include renewal options. Future minimum lease payments under noncancelable operating leases and the present value of future minimum capital lease payments as of November 30, 1996 are as follows:
CAPITAL OPERATING YEAR ENDING NOVEMBER 30 LEASES LEASES ----------------------- -------- ---------- 1997................................................... $233,778 $1,395,093 1998................................................... 171,653 1,277,009 1999................................................... 155,984 662,698 2000................................................... 155,984 245,746 2001................................................... 138,659 219,128 Thereafter............................................. 138,169 -- -------- ---------- Total minimum lease payments........................... 994,227 $3,799,674 ========== Less estimated executory costs......................... 5,189 -------- 989,038 Less amount representing interest (at rates ranging from 9% to 12%)....................................... 126,784 -------- Present value of net minimum capital lease payments.... 862,254 Less current portion of obligations under capital lease................................................. 199,224 -------- Obligations under capital leases, excluding current portion............................................... $663,030 ========
F-58 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) During the years ended November 30, 1994, 1995 and 1996 the Company recognized $1,004,818, $508,724 and $252,355, respectively, of sublease rental revenue under vehicle sublease arrangements with independent operators and others. During the years ended November 30, 1994, 1995 and 1996, the Company entered into capital lease obligations of $79,414, $346,666 and $810,993, respectively, related to the acquisition of vehicles and equipment. Total rental expense for operating leases in 1994, 1995 and 1996 was $1,075,029, $1,362,518 and $2,250,335, respectively. 8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Included in accounts payable and accrued expenses are the following:
NOVEMBER 30, ---------------------- 1995 1996 ---------- ----------- Trade accounts payable............................... $5,273,123 $ 5,385,328 Accrued expenses and other liabilities............... 2,632,204 4,895,495 Gratuities payable................................... 445,985 458,801 Accrued offering costs............................... -- 825,339 ---------- ----------- $8,351,312 $11,564,963 ========== ===========
9. INCOME TAXES The provision for income taxes is composed of the following:
NOVEMBER 30, ----------------------------- 1994 1995 1996 -------- -------- ----------- Federal: Current..................................... $ 65,558 $139,401 $ 1,368,311 Deferred.................................... 63,000 87,000 (1,197,799) -------- -------- ----------- 128,558 226,401 170,512 -------- -------- ----------- State and local: Current..................................... 27,252 29,198 128,296 Deferred.................................... 7,000 15,000 (148,758) -------- -------- ----------- 34,252 44,198 (20,462) -------- -------- ----------- Foreign Current..................................... -- -- 144,371 -------- -------- ----------- Total income tax provision.................... $162,810 $270,599 $ 294,421 ======== ======== ===========
F-59 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company's tax provision for the years ended November 30, 1994, 1995 and 1996, respectively, differs from the statutory rate for federal income taxes as a result of the tax effect of the following factors:
YEARS ENDED NOVEMBER 30, ---------------------------- 1994 1995 1996 -------- -------- -------- Statutory rate................................. 34.0% 34.0% 34.0% State income tax, net of federal benefit....... 18.0 7.2 (1.5) Goodwill amortization.......................... 11.5 6.0 .6 Non-deductible life insurance.................. 8.7 10.9 .3 Meals and entertainment expenses............... 10.8 16.9 1.1 Valuation allowance............................ 11.8 (13.0) (27.6) Other.......................................... 35.8 11.4 .9 -------- -------- -------- 130.6% 73.4% 7.8% ======== ======== ========
The source and tax effects of temporary differences are composed of the following:
NOVEMBER 30, ------------------------ 1995 1996 ----------- ----------- Allowances for bad debts.............................. $ 108,000 $ 176,000 Net operating losses carry-forward.................... 266,000 -- Capital loss carryforward............................. 119,000 74,000 Deferred revenue...................................... 1,701,000 2,040,000 Deferred state taxes and other........................ 425,000 558,000 ----------- ----------- Gross deferred tax asset.............................. 2,619,000 2,848,000 Valuation allowance................................... (1,618,000) (74,000) ----------- ----------- 1,001,000 2,774,000 ----------- ----------- Amortization of intangible assets..................... (951,000) (1,350,000) Other................................................. (135,000) (162,000) ----------- ----------- Gross deferred tax liability.......................... (1,086,000) (1,512,000) ----------- ----------- Net deferred tax asset................................ $ (85,000) $ 1,262,000 =========== ===========
A valuation allowance was provided in 1995 to reduce the net deferred tax asset to $0. In the fourth quarter of 1996, the Company concluded that it was more likely than not that substantially all of the deferred tax assets would be realized and reduced the valuation allowance by $1,499,000. Income taxes paid during the years ended November 30, 1994, 1995 and 1996 amounted to approximately $0, $187,000 and $616,000, respectively. F-60 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 10. PREFERRED STOCK The Company had the following series of preferred stock:
NOVEMBER 30, --------------------- 1995 1996 ---------- ---------- Series A, par value $10.00, authorized 43,000 shares, issued and outstanding 42,070 shares (liquidation preference of $4,207,000, redeemable at option of the Company). Non-cumulative dividend of $7.00 per annum when declared by the Board of Directors................ $ 420,700 $ 420,700 Series B, par value $10.00, authorized 10,000 shares, issued and outstanding 9,580 shares (liquidation pref- erence of $958,000). Non-cumulative dividend of $5.00 per annum when declared by the Board of Directors...... 95,800 95,800 Series E, par value $10.00, authorized 50 shares, issued and outstanding 12.5 shares at November 30, 1995 (liq- uidation preference of $97,500)........................ 97,500 -- Series F, par value $10.00, authorized 10,000 shares, issued and outstanding 10,000 shares (liquidation pref- erence of $1,000,000). Non-cumulative dividend of $5.00 per annum when declared by the Board of Directors...... 100,000 100,000 Series G, par value $10.00, authorized 110,000 shares, issued and outstanding 49,890 shares, (liquidation preference of $4,989,900). Non-cumulative dividend of $5.00 per annum when declared by the Board of Direc- tors................................................... 498,900 498,900 Class B, par value $4.00, 20,000 shares, authorized, is- sued and outstanding (all shares were redeemed at Sep- tember 30, 1996)....................................... 40,000 -- ---------- ---------- $1,252,900 $1,115,400 ========== ==========
At the option of the preferred stockholders or upon closing of underwritten public offering, yielding net proceeds of at least $10,000,000 and having an offering price of at least $14.81 per share, each share of the series B, F and G preferred stock is convertible into the number of shares of common stock equal to 500, 100 and 100 divided by the conversion price, respectively. The conversion price at November 30, 1996 was $7.216, $7.406 and $7.406 for Series B, F and G preferred stock, respectively. The Company has reserved 663,759, 135,025 and 633,393 shares of common stock, respectively, for conversion of the Series B, F and G preferred stock. Antidilutive provisions lower the conversion price if certain securities are issued by the Company at a price below the respective conversion prices then in effect. The Company must redeem, on a pro rata basis, the outstanding shares of Series A preferred stock plus for $100 per share any declared and unpaid dividends upon the completion of an initial public offering yielding net proceeds to the Company of at least $10,000,000. Series A, B, and G preferred stock have voting rights and Series F preferred stock is non- voting, except to certain circumstances (see Note 18 for discussion of the Recapitalization, pursuant to which all of the preferred stock will be redeemed or converted into common stock). 11. RELATED-PARTY TRANSACTIONS The Company has invested $750,000 in non-voting redeemable preferred stock of a privately-held finance company formed for the purpose of providing financing to the chauffeured vehicle service industry. This entity provides financing to the Company's independent operators, without recourse to the Company, for both automobiles and amounts due under independent operator agreements. The Company sold $378,733, $1,762,345 and $1,015,897 of independent operator notes receivable to this related-party finance company for cash of $378,733, $1,290,899 and $733,793 and demand promissory notes of $0, $471,446 and $282,104 in 1994, 1995 F-61 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) and 1996, respectively. The unpaid balances of the promissory notes were $547,930 and $255,664 at November 30, 1995 and 1996, respectively, and are included in notes receivable from contracts. These promissory notes are due on demand and, generally, monthly principal payments are received by the Company. These notes generally bear interest at rates of 7%. It is not practicable to estimate the fair value of a preferred stock investment in a privately-held company. As a result, the Company's investment in the privately-held finance company noted above is carried at its original cost (less redemptions) of $750,000. At April 30, 1996, the total assets reported by the privately-held company were $10,502,234 and stockholders' equity was $1,108,448, revenues were $1,088,720 and net income was $96,681. Pursuant to a stock ownership agreement between the common stockholders of the related party finance company and the Company, the Company has an option to purchase all of the outstanding common stock of the affiliate at $12,500 per common share or market value, if higher. The option is not exercisable until April 15, 1998. A guarantee fee of $45,000 has been paid to both the Chairman of the Board and the President of the Company for guaranteeing certain indebtedness (see Note 6). 12. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Company is subject to various legal actions which are not material to the financial position, the results of operations or cash flows of the Company. The Company, certain of the Company's subsidiaries and certain officers and directors of the Company were named in a civil action filed on May 16, 1996 in the United States District Court for the Eastern District of Pennsylvania entitled "Felix v. Carey International, Inc., et al." The plaintiff's complaint, which purports to be a class action, alleges that the plaintiff and others similarly situated suffered monetary damages as a result of misrepresentations by the various defendants in their use of a surface transportation billing charge. The plaintiff seeks damages in excess of $1 million on behalf of the class for each of the counts in the complaint including fraud, negligent misrepresentation and violations of the Racketeer Influenced and Corrupt Organizations Act of 1970. A class has not yet been certified in this case. At the appropriate time, the Company intends to file an answer denying any liability in connection with this litigation. The Company has agreed to indemnify and defend its officers and directors who were named as defendants in the case, subject to conditions imposed by applicable law. The Company does not believe that this litigation will have a material adverse effect on its financial condition, results of operations or cash flows of the Company. 13. ACQUISITIONS Effective October 31, 1997, in connection with the merger, the Company issued 721,783 shares of its common stock in exchange for all the outstanding common stock of The Indy Connection based on a conversion ratio of 1.008 shares (the merger exchange ratio) of the Company's common stock for each share of Indy Connection common stock, for a total value of approximately $12.0 million. The merger qualified as a tax-free reorganization and has been accounted for as a pooling-of-interests. Accordingly, the Company's supplemental consolidated financial statements have been restated for all periods prior to the business combination to include the combined financial results of Carey International, Inc. and Indy Connection. (See Note 2) F-62 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Revenue net and net income (loss) for the individual companies reported prior to the merger are as follows:
NOVEMBER 30, ------------------------------------- 1994 1995 1996 ----------- ----------- ----------- Revenue, net Carey International, Inc. .......... $35,525,309 $43,483,947 $59,505,698 Indy Connection..................... 4,788,413 5,485,448 6,080,105 Elimination......................... -- -- (40,861) ----------- ----------- ----------- Total............................. $40,313,722 $48,969,395 $65,544,942 =========== =========== =========== Net Income (loss) Carey International, Inc............ $ (128,993) $ (195,195) $ 2,816,104 Indy Connection..................... 90,861 293,316 678,863 ----------- ----------- ----------- Total............................. $ (38,132) $ 98,121 $ 3,494,967 =========== =========== ===========
The conforming of the accounting practices of the Company and Indy Connection resulted in no adjustments to net income (loss) or shareholders' equity. The Company estimates that transaction costs associated with the merger will be approximately $200,000. All fees and transaction expenses related to the merger and the restructuring of the combined companies will be expensed as required under the pooling-of-interests accounting method. These expenses have not been reflected in the supplemental consolidated statements of operations, but will be reflected in the consolidated statements of operations of the Company in the fourth quarter of 1997. In February 1996, the Company acquired certain assets and liabilities of a chauffeured vehicle service company in London, England for approximately $1,500,000. The acquisition was financed through the incurrence of $950,000 in debt and a payment of $550,000. Additional contingent consideration of up to $1,000,000 may be payable with respect to each of the two years ending February 28, 1998 based on the level of revenues referred to the acquired company by the seller. As of November 30, 1996, the Company has paid $278,304 in contingent consideration in the acquisition of the London company. In addition, the Company is required to pay a standard commission to the seller of the acquired chauffeured vehicle service company for business referral, which will be expensed as incurred. In April 1995, the Company acquired certain assets and liabilities of a chauffeured vehicle service company in the Washington, DC area and combined the acquired operations with those of Carey DC. In January 1995, the Company acquired certain assets and liabilities of the Carey licensee in San Francisco, California (Carey SF). Subsequently, the Company acquired the business of two additional chauffeured service companies (in May and August 1995) and combined the acquired operations with those of Carey SF. In December 1994, the Company acquired certain assets and liabilities of a chauffeured vehicle service company in Boca Raton, Florida and consolidated the operations within its existing operations in West Palm Beach. Subsequently, the Company acquired an additional chauffeured vehicle service company in Boca Raton (in August 1995) and the Carey licensee in Fort Lauderdale-Miami (in April 1995) and consolidated the two additional businesses into the Carey Florida operations. All acquisitions have been accounted for as purchases (except for the pooling as described above). The net assets acquired and results of operations have been included in the financial statements as of and from, respectively, the effective dates of the acquisitions. The total consideration was allocated to the assets acquired F-63 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) based upon their estimated fair values with any remaining considerations allocated to either franchise rights or goodwill, as follows:
YEAR ENDED NOVEMBER 30, ------------------------------- 1994 1995 1996 --------- ---------- ---------- Net assets purchased Receivables and other assets................ $ -- $ -- $ 632,554 Fixed assets................................ -- 1,703,521 928,377 Franchise rights............................ -- 1,527,402 89,243 Goodwill.................................... 128,596 5,013,731 447,269 Accounts payable and accrued expenses....... -- -- (367,211) --------- ---------- ---------- Fair value of assets acquired............... $ 128,596 $8,244,654 $1,730,232 ========= ========== ========== Consideration Cash (exclusive of $223,695 cash acquired in 1996)...................................... $ 128,596 $3,949,393 $1,730,232 Capital leases assumed related to vehicle acquisitions............................... -- 346,666 -- Notes assumed related to vehicle acquisitions............................... -- 895,571 -- Uncollateralized promissory notes issued to sellers.................................... -- 3,053,024 -- --------- ---------- ---------- Total consideration....................... $ 128,596 $8,244,654 $1,730,232 ========= ========== ==========
Certain of these acquisitions require the payment of contingent consideration based on percentages of annual net revenue of the acquired entities over a defined future period. The Company paid $39,521, $315,773 and $291,755 for the years ended November 30, 1994, 1995 and 1996, respectively, as contingent consideration (see Note 2) which is reflected in the table above. Of the total uncollateralized promissory notes issued to sellers in 1995, two notes totaling $303,000 were subject to reduction based upon the results of the acquired entities (see Note 6). The two notes were repaid in 1996 for approximately $211,000 and the difference of approximately $92,000 reduced recorded goodwill. The unaudited pro forma summary consolidated results of operations assuming the acquisitions had occurred for the purposes of the 1995 summary at the beginning of fiscal 1995, and for the purposes of the 1996 summary at the beginning of fiscal 1996, are as follows:
YEAR ENDED NOVEMBER 30, -------------------------- 1995 1996 ------------ ------------ (UNAUDITED) Revenue............................................. $ 56,975,000 $ 66,483,000 Cost of revenue..................................... (38,182,000) (44,515,000) Other expense, net.................................. (18,109,000) (18,320,000) Provision for income taxes.......................... (316,000) (235,000) ------------ ------------ Net income.......................................... $ 368,000 $ 3,413,000 ============ ============ Net income per common share......................... $ .12 $ 1.09 ============ ============ Weighted average common shares outstanding.......... 3,089,895 3,124,314 ============ ============
14. 401(K) PLAN The Company sponsors (but has made no contributions to) a defined contribution plan established pursuant to Section 401(k) of the Internal Revenue Code for the benefit of employees of the Company. F-64 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 15. STOCK OPTION PLANS On December 1, 1987, the Company established a Stock Option Plan (the "1987 Plan") that included all officers and key employees of the Company, non- employee directors of the Company, and certain persons retained by the Company as consultants. In accordance with the 1987 Plan, the Company's Board of Directors may, from time to time, determine the persons to whom the stock options are to be granted, the number of shares under option, the option price and the manner in which payment of the option price shall be made. The 1987 Plan provides for the options to be exercised 25% each year beginning after the year following the grant. The options are exercisable for a period of ten years after grant date. The total number of options authorized under the 1987 Plan is 195,656. On July 28, 1992, the Company established a Stock Option Plan (the "1992 Plan") that included all officers and key employees of the Company, non- employee directors of the Company, and certain persons retained by the Company as consultants. In accordance with the 1992 Plan, the Company's Board of Directors may, from time to time, determine the persons to whom the stock options are to be granted, the number of shares under option, the option price, the time or times during the exercise period at which each such option shall become exercisable, and the manner in which payment of the option price shall be made. The options are exercisable for a period of ten years after grant date. The total number of options authorized under the 1992 plan is 388,647. Stock activity under the 1987 Plan and the 1992 Plan is as follows:
1987 PLAN 1992 PLAN -------------------- ------------------ OPTION OPTION PRICE PER PRICE PER SHARES SHARE SHARES SHARE ------- ----------- ------- --------- Balance, December 1, 1993............. 64,502 $ 1.44 384,494 $7.40 Granted............................... -- -- 12,040 7.40 Exercised............................. -- -- -- -- Forfeited............................. -- -- (13,287) -- ------- ----------- ------- ----- Balance, November 30, 1994............ 64,502 1.44 383,247 7.40 Granted............................... -- -- 21,673 7.40 Exercised............................. (32,681) -- -- -- Forfeited............................. (860) -- (60,985) -- ------- ----------- ------- ----- Balance, November 30, 1995............ 30,961 1.44 343,935 7.40 Granted............................... 38,701 4.65 43,578 4.65 Exercised............................. -- -- -- -- Forfeited............................. -- -- (3,011) -- ------- ----------- ------- ----- Balance, November 30, 1996............ 69,662 $1.44-$4.65 384,502 $4.65 ======= =========== ======= ===== Vested and Exercisable at November 30, 1996................................. 43,861 $1.44-$4.65 341,948 $4.65 ======= =========== ======= =====
In May of 1996, the options granted under the 1992 Plan and a warrant to purchase 86,003 shares of common stock (see Note 6) were repriced to $4.65. The options and warrant were repriced at the determined fair market value as of the date of repricing (see Note 18). On February 25, 1997, the Board of Directors adopted the 1997 Equity Incentive Plan and the Stock Plan for Non-Employee Directors (see Note 18). F-65 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 16. REVENUE RECOGNITION METHOD The Company enters into agreements with independent operators under which the independent operator contracts to provide chauffeured vehicle services exclusively to the Company's customers over a contract period pursuant to a Standard Independent Operator Agreement. Upon signing the Standard Independent Operator Agreement, the Company is entitled to receive a one-time fee from the independent operator. Previously, the Company would recognize the one-time fee as revenue upon signing of the independent operator agreement and when collection of the fee was reasonably assured. In accordance with APB 20, the financial statements have been retroactively restated to report such fees as deferred revenue which are recognized as revenue over the terms of the contracts. (See Note 2). The effect of such restatements was to reduce 1994 and 1995 revenue, results of operations and stockholders' equity by $665,391 and $1,144,511, respectively (net of income taxes of $0 and $586,680 for 1994 and 1995, respectively). 17. NET INCOME PER COMMON SHARE Net income per common share, on a historic basis, is as follows:
YEAR ENDED NOVEMBER 30, ------------------------------- 1994 1995 1996 --------- --------- ---------- Net income (loss) available to common shareholders................................. $ (46,882) $ 93,746 $3,494,067 ========= ========= ========== Weighted average common shares outstanding.... 3,093,202 3,089,895 3,125,673 ========= ========= ========== Net income (loss) per common share............ $ (0.02) $ 0.03 $ 1.12 ========= ========= ==========
Common equivalent shares are included in the per share calculations where the effect of their inclusion would be dilutive. Common equivalent shares consist of common shares issuable upon (a) conversion of Series B, F and G preferred stock and (b) the assumed exercise of outstanding stock options and warrants. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 83, the common equivalent shares issued by the Company during the twelve months preceding the anticipated effective date of the Registration Statement relating to the Company's initial public offering, using the treasury stock method and an assumed public offering price of $11.00 per share, have been included in the calculation of net income per common share. Net income (loss) available to common shareholders is the net income (loss) for the fiscal year less accretion of dividends on the Series E preferred stock of $8,750 and $4,375 for 1994 and 1995, respectively, and $900 of preferred dividends from Indy Connection preferred stock in 1996. In February 1997, the Financial Accounting Standards Boards issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128). FAS 128 simplifies the existing earnings per share (EPS) computations under Accounting Principles Board Opinion No. 15, "Earnings Per Share," revises disclosure requirements, and increases the comparability of EPS data on an international basis. In simplifying the EPS computations, the presentation of primary EPS is replaced with basic EPS, with the principal difference being that common stock equivalents are not considered in computing basic EPS. In addition, FAS 128 requires dual presentation of basic and diluted EPS. FAS 128 is effective for financial statements issued for periods ending after December 15, 1997. The Company's supplemental pro forma basic EPS under FAS 128 for the year ended November 30, 1996 would have been $2.57 and supplemental dilutive EPS under FAS 128 would not differ significantly form the reported pro forma net income per share. 18. SUBSEQUENT EVENTS On February 25, 1997, pursuant to an agreement reached in May 1996, the Board of Directors authorized a recapitalization ("Recapitalization Plan"), which will be implemented at the time of the IPO. Under the F-66 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Recapitalization, the $2,000,000 subordinated convertible note dated September 1, 1991 and the $3,780,000 subordinated note dated July 30, 1992 will be converted or exchanged for 1,046,559 shares of common stock and payment of $912,454. The Series A preferred stock will be converted into 86,003 shares of common stock and redeemed in part for $2,103,500. All of the Series F preferred stock and 3,000 shares of Series G preferred stock will be redeemed for an aggregate of $1,000,000. The remaining preferred stock will be converted into 1,427,509 shares of common stock. As a result of the Recapitalization, preferred stock with a liquidation preference of $11,154,900 and subordinated debt with a principal amount of $5,780,000 will be converted in part into 2,560,071 shares of common stock and repaid or redeemed in part for $4,015,952 in cash. All of the cash amounts will be paid out of the proceeds of the IPO. On February 25, 1997, the Board of Directors adopted the 1997 Equity Incentive Plan (the "1997 Plan"). A total of 650,000 shares of common stock are reserved for issuance under the 1997 Plan. The Board of Directors also granted options to purchase at the IPO price a total of 411,500 shares of common stock under the 1997 Plan, such grants to be effective upon the execution of an underwriting agreement in connection with the IPO. Also on February 25, 1997, the Board of Directors, subject to stockholder approval, adopted the Stock Plan for Non-Employee Directors (the "Directors' Plan"). A total of 100,000 shares of common stock of the Company are reserved for issuance under the Directors' Plan. Options to purchase at the IPO price a total of 22,500 shares of common stock will be granted under the Directors' Plan, such grants to be effective upon the execution of an underwriting agreement in connection with the IPO. Also on February 25, 1997, the Board of Directors approved amendments to the Company's Certificate of Incorporation increasing the number of authorized shares of the Company's Common Stock from 9,512,950 to 20,000,000, and increasing the number of authorized shares of the Company's preferred stock from 173,050 to 1,000,000. On March 1, 1997, the Company entered into an agreement to purchase the stock of Manhattan International Limousine Network Ltd. and an affiliated company (collectively, "Manhattan Limousine"). Manhattan Limousine is one of the largest providers of chauffeured vehicle services in the New York metropolitan area. The Company expects to consummate the acquisition at the time of the IPO. If the acquisition of Manhattan Limousine is not completed by June 2, 1997, the Company has agreed to pay additional purchase price in the amount of $7,500 for each day after such date until the closing of the acquisition, up to an aggregate of $675,000. F-67 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Indy Connection Limousines, Inc. We have audited the accompanying consolidated balance sheet of Indy Connection Limousines, Inc. ("the Company") and subsidiary as of September 30, 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Indy Connection Limousines, Inc. and subsidiary as of September 30, 1997, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Washington, D.C. November 14, 1997 F-68 INDY CONNECTION LIMOUSINES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997 ASSETS
1997 ---------- Current assets: Cash............................................................. $ 171,013 Accounts receivable.............................................. 364,595 Insurance claim receivable....................................... 40,000 Other current assets............................................. 163,413 ---------- Total current assets......................................... 739,021 ---------- Property and equipment: Transportation equipment......................................... 3,285,636 Transportation accessories....................................... 102,938 Office equipment and leasehold improvements...................... 245,450 ---------- 3,634,024 Accumulated depreciation (809,306) ---------- Property and equipment, net.................................. 2,824,718 ---------- Goodwill (net of accumulated amortization of $14,812).............. 22,188 Deposits and licenses.............................................. 32,219 Other assets....................................................... 33,646 ---------- Total assets................................................. $3,651,792 ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt............................. $ 761,756 Accounts payable, trade.......................................... 85,016 Accrued payroll and related expenses............................. 105,997 Accrued expenses, other.......................................... 195,380 Chauffeur tips and other......................................... 71,807 Customer deposits................................................ 11,100 ---------- Total current liabilities.................................... 1,231,056 ---------- Long-term debt, less current maturities............................ 709,655 Deferred income taxes.............................................. 90,000 Stockholders' equity: Preferred Stock, no par value; 250,000 shares authorized Common stock, no par value; authorized--1,750,000 shares; 727,542 shares issued and outstanding................................... 491,725 Retained earnings................................................ 1,129,356 ---------- 1,621,081 ---------- Total liabilities and stockholders' equity................... $3,651,792 ==========
The accompanying notes are an integral part of these consolidated financial statements. F-69 INDY CONNECTION LIMOUSINES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1997
1997 ---------- Revenues, net....................................................... $6,830,225 Cost of revenues.................................................... 3,411,327 ---------- Gross profit...................................................... 3,418,898 Selling, general and administrative expenses........................ 1,798,382 ---------- Income from operations............................................ 1,620,516 ---------- Other income (expense): Interest expense, net............................................. (146,875) Gain of disposals of property and equipment....................... 62,048 Other expense..................................................... (16,105) ---------- Total other expenses, net....................................... (100,932) ---------- Income before income taxes........................................ 1,519,584 Provision for income taxes.......................................... 559,360 ---------- Net income.......................................................... $960,224 ==========
The accompanying notes are an integral part of these consolidated financial statements. F-70 INDY CONNECTION LIMOUSINES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEAR ENDED SEPTEMBER 30, 1997
COMMON STOCK ---------------- RETAINED SHARES AMOUNT EARNINGS TOTAL ------- -------- ---------- ---------- Balance at September 30, 1996........ 707,542 $491,525 $270,989 $762,514 Exercise of common stock options..... 20,000 200 -- 200 Common stock dividends ($.14 per share).............................. -- -- (101,857) (101,857) Net income........................... -- -- 960,224 960,224 ------- -------- ---------- ---------- Balance at September 30, 1997........ 727,542 $491,725 $1,129,356 $1,621,081 ======= ======== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-71 INDY CONNECTION LIMOUSINES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 1997
1997 ----------- Cash flows from operating activities: Net income....................................................... $ 960,224 Add (deduct) items charged against income not affecting cash: Depreciation and amortization.................................. 849,198 Deferred income taxes.......................................... (3,000) Gain on disposals of property and equipment.................... (62,048) Changes in assets and liabilities: Accounts receivable............................................ (72,192) Other assets................................................... (17,198) Accounts payable, trade........................................ 34,971 Accrued expenses............................................... 56,530 Customer deposits.............................................. 8,681 ----------- Net cash flows provided by operating activities.............. 1,755,166 ----------- Cash flows from investing activities: Proceeds from sales of property and equipment.................... 1,231,940 Purchases of property and equipment.............................. (2,603,567) ----------- Net cash flows used in investing activities.................. (1,371,627) ----------- Cash flows from financing activities: Proceeds from issuance of long-term debt......................... 1,684,150 Repayment of notes payable and long-term debt.................... (1,917,237) Common stock dividends paid...................................... (116,007) ----------- Net cash used in financing activities........................ (349,094) ----------- Net increase in cash............................................... 34,445 Cash and cash equivalents at beginning of year..................... 136,568 ----------- Cash and cash equivalents at end of year........................... $ 171,013 =========== Supplemental disclosures of cash flow information: Cash payments for interest....................................... $ 151,085 Cash payments for income taxes................................... $ 653,346
The accompanying notes are an integral part of these consolidated financial statements. F-72 INDY CONNECTION LIMOUSINES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation The consolidated financial statements include the accounts of Indy Connection Limousines, Inc., and its wholly-owned subsidiary Transit Tours, Inc. (the "Company"). The Company provides various ground transportation services to individuals and businesses in the greater Indianapolis, Indiana area, by utilizing limousines, sedans, vans and buses. All significant intercompany transactions have been eliminated. Accounting estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The reported amounts of revenue and expenses during the reporting period may also be affected by the estimates and assumptions management is required to make. Actual results may differ from the estimates. Cash and cash equivalents The Company considers all short-term investments with original maturities of three months or less to be cash equivalents. Property and equipment Furniture, equipment, vehicles and leasehold improvements are stated at cost. Depreciation is generally computed on straight-line and accelerated methods for financial statements purposes over the estimated useful lives of the related assets, generally one to ten years. Depreciation expense for the year ended September 30, 1997 was $847,348. Gains or losses on sales and retirements are reflected in results of operations. Income taxes Deferred tax assets and liabilities are computed based on the differences between the financial reporting and income tax bases of assets and liabilities using the enacted tax rates. Deferred income tax expense is based on the change in deferred tax assets and liabilities from period to period, subject to an ongoing assessment of realization. Goodwill Goodwill is being amortized over twenty years on the straight-line method. The Company evaluates the recoverability of its goodwill based on estimated undiscounted cash flows over the lesser of the remaining amortization periods or calculated lives, giving consideration to revenue expected to be realized. This determination is based on an evaluation of such factors as the occurrence of a significant change in the environment in which the business operates or the expected future net cash flows (undiscounted and without interest). There have been no adjustments to the carrying value of goodwill resulting from this evaluation. Revenue Recognition Revenue for ground transportation services is recognized when such services are provided. F-73 INDY CONNECTION LIMOUSINES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2. LINES OF CREDIT Borrowings under lines of credit at September 30, 1997 consist of the following: NBD Bank, N.A. .................................................. $ 394,940 First of America--Indiana........................................ 1,076,471 ---------- 1,471,411 Less current portion............................................. (761,756) ---------- $ 709,655 ==========
The Company has a $950,000 discretionary credit agreement ("Agreement") with NBD Bank, N.A. that allows the Company to purchase revenue earning vehicles under installment notes. Separate notes are required for each vehicle purchased with the maximum term on the note ranging from twenty-four to thirty-six months. These installment notes bear interest at rates ranging from 8.75% to 9.5%. The Agreement is collateralized by the vehicles, and is subject to various restrictive covenants, the most restrictive of which require the Company to maintain compliance with certain financial ratios and minimum tangible net worth. Borrowings under the Agreement are personally guaranteed by the majority shareholder of the Company. This Agreement expires January 1, 1998. The outstanding balance was repaid on October 8, 1997. The Company has a $1,000,000 discretionary credit agreement ("Agreement") with First of America--Indiana that allows the Company to purchase revenue earning vehicles under installment notes. Separate notes are required for each vehicle purchased with the maximum term on the note generally ranging from twenty-four to thirty-six months. These installment notes bear interest at rates ranging from 8.75% to 10.5%. The Agreement is collateralized by the vehicles, and is subject to various restrictive covenants, the most restrictive of which require the Company to maintain compliance with certain financial ratios and minimum tangible net worth. Borrowings under the Agreement are personally guaranteed by the majority shareholder of the Company. The Agreement expires January 31, 1998, however, any borrowings outstanding at the date would be repaid over the remaining term of the individual notes. The Company also maintains a $125,000 working capital line of credit with First of America-Indiana. There were no borrowings outstanding at September 30, 1997. The line of credit is collateralized by substantially all other assets of the Company not collateralizing the NBD Bank borrowings. Under the terms of the line of credit, the Company is subject to various general covenants. The bank also requires the personal guarantee of the majority shareholder of the Company. Annual maturities of all outstanding borrowings at September 30, 1997 are as follows: 1998.............................................................. $ 761,756 1999.............................................................. 385,019 2000.............................................................. 66,614 2001.............................................................. 194,670 2002.............................................................. 31,313 Thereafter........................................................ 32,039 ---------- $1,471,411 ==========
3. LEASES The Company leases office and warehouse space and certain transportation equipment under various operating leases. Annual rental expense totaled approximately $46,000 in 1997. At September 30, 1997, the only remaining lease commitment was for office space through July 31, 1998, with monthly payments of $3,500. F-74 INDY CONNECTION LIMOUSINES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 4. INCOME TAXES Deferred tax assets and liabilities at September 30, 1997 were as follows: Capital loss carryforwards........................................ $ 74,000 Property and equipment............................................ (90,000) Less valuation allowance on capital loss carryforwards............ (74,000) -------- Net deferred tax liability........................................ $(90,000) ========
The provision for income taxes for the year ended September 30, 1997 consists of the following: Current: Federal.......................................................... $468,200 State............................................................ 94,160 -------- 562,360 Deferred: Federal.......................................................... -- State............................................................ (3,000) -------- Total.......................................................... $559,360 ========
The Company has capital loss carryforwards totaling approximately $216,000, expiring in various years through September 30, 2000, available to be applied against future capital gains. The Company's 1997 effective income tax rate differed from the applicable Federal rate as follows: Federal statutory rate................................................... 34% State income taxes, net of federal benefit............................... 4 Other, net............................................................... (1) --- Effective rate........................................................... 37% ===
5. RELATED PARTY TRANSACTIONS The Company has a consulting agreement with a corporation whose sole stockholder is a principal stockholder, officer and director of the Company. The Company incurred related consulting fees of $49,052 in 1997. 6. 401(K) RETIREMENT PLAN The Company has a defined contribution retirement savings plan which covers substantially all eligible employees, as defined. Participants may contribute up to 15% of their gross compensation, as defined annually. The Company may contribute matching amounts as determined annually by the Board of Directors. For 1997 the Company contributed an amount equal to 25% of the participant's contributions up to 5% of the participant's eligible compensation, as defined. The Company may make additional discretionary contributions as determined annually by the Board of Directors. Total retirement plan expenses in 1997 were approximately $15,000. F-75 INDY CONNECTION LIMOUSINES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 7. STOCK OPTION PLAN During December 1995, the Company adopted a stock option plan intended to promote a close identity of interest between the Company and its directors and officers, as well as to provide a means to attract and retain outstanding management. The Company made available 100,000 shares of common stock to be granted. There were no outstanding options as of September 30, 1997. 8. SUBSEQUENT EVENT On October 10, 1997, the Company entered into an Agreement and Plan of Merger (subsequently amended) with Carey International, Inc. ("Carey") to exchange substantially all of its outstanding common shares for common shares of Carey. At a special meeting of the stockholders held on October 27, 1997, the Amended Agreement and Plan of Merger was ratified by the Board of Directors and 99% of the Companies stockholders. On October 31, 1997, the transaction closed and the Company's stockholders received for each share of common stock held; (1) .99211 shares of Carey's common stock valued at $16.625 per share and (2) cash for fractional shares remaining. On November 1, 1997 the Company's operations continued as Carey Limousine Indiana, Inc., a wholly- owned subsidiary of Carey. F-76 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders Manhattan International Limousine Network Ltd. and Affliliate We have audited the accompanying combined balance sheet of Manhattan International Limousine Network Ltd. and Affliliate (collectively, the "Company") as of September 30, 1996, and the related combined statements of operations and retained earnings (accumulated deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 our audit provides a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Manhattan International Limousine Network Ltd. and Affliliate as of September 30, 1996, and the combined results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. As discussed in Note 10 to the combined financial statements, the accompanying combined balance sheet as of September 30, 1996, and the related combined statement of operations and retained earnings (accumulated deficit) and cash flows for the year then ended have been restated. COOPERS & LYBRAND L.L.P. Washington, D.C. March 1, 1997, except for Note 10 as to which the date is April 22, 1997 F-77 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE COMBINED BALANCE SHEETS
SEPTEMBER 30, APRIL 30, 1996 1997 ------------- ----------- (UNAUDITED) ASSETS Cash and cash equivalents........................... $ 130,494 $ 77,275 Accounts receivable, net of allowances for doubtful accounts of $181,000 and $194,000, respectively.... 2,466,134 1,781,923 Receivables from independent operators, current por- tion............................................... 271,086 368,335 Prepaid expenses and other current assets........... 51,499 51,499 ----------- ----------- Total current assets............................. 2,919,213 2,279,032 Fixed assets, net................................... 805,724 644,264 Receivables from independent operators, less current portion............................................ 7,375,219 7,638,554 Other assets........................................ 1,221,885 1,282,872 ----------- ----------- Total assets........................................ $12,322,041 $11,844,722 =========== =========== LIABILITIES Current portion of notes payable.................... $ 1,232,457 $ 1,958,293 Accounts payable, trade............................. 1,520,295 1,526,330 Accounts payable, independent operators............. 1,738,072 1,809,248 Accrued expenses.................................... 529,761 456,233 Other current liabilities........................... 240,059 232,002 ----------- ----------- Total current liabilities........................ 5,260,644 5,982,106 Notes payable, less current portion................. 4,523,171 3,266,567 Other liabilities................................... 862,875 783,491 Deferred revenue.................................... 6,801,965 6,940,762 Commitments and contingencies STOCKHOLDERS' DEFICIENCY MILN common stock, $1 par value, 200 shares autho- rized, 100 shares issued and outstanding........... 100 100 ILN common stock, $1 par value, 200 shares autho- rized, 200 shares issued and outstanding........... 1,000 1,000 MILN additional paid-in capital..................... 176,940 176,940 Retained earnings (accumulated deficit): MILN.............................................. (5,439,073) (5,477,392) ILN............................................... 134,419 171,148 ----------- ----------- Total stockholders' deficiency................... (5,126,614) (5,128,204) ----------- ----------- Total liabilities and stockholders' deficiency... $12,322,041 $11,844,722 =========== ===========
The accompanying notes are an integral part of these combined financial statements. F-78 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE SEVEN FOR THE YEAR ENDED MONTHS ENDED SEPTEMBER 30, APRIL 30, 1996 1997 ------------------ ------------- (UNAUDITED) Revenues: Service revenues, net....................... $17,218,728 $10,819,794 Interest from independent operator financ- ing........................................ 1,219,819 690,700 ----------- ----------- Total revenues.............................. 18,438,547 11,510,494 Cost of revenues.............................. 11,040,017 7,011,225 ----------- ----------- Gross profit................................ 7,398,530 4,499,269 Selling, general and administrative expenses.. 5,821,899 3,536,845 ----------- ----------- Operating income............................ 1,576,631 962,424 Interest expense.............................. (881,854) (575,937) Interest income............................... 66,000 16,500 ----------- ----------- Income before provision for income taxes.... 760,777 402,987 Provision for income taxes.................... 55,014 37,839 ----------- ----------- Net income.................................. 705,763 365,148 Accumulated deficit, beginning of period...... (5,907,417) (5,304,654) Distribution to S corporation stockholder..... (103,000) (366,738) ----------- ----------- Accumulated deficit, end of period............ ($5,304,654) ($5,306,244) =========== ===========
The accompanying notes are an integral part of these combined financial statements. F-79 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE COMBINED STATEMENTS OF CASH FLOWS
FOR THE SEVEN FOR THE YEAR ENDED MONTHS ENDED SEPTEMBER 30, 1996 APRIL 30, 1997 ------------------ -------------- (UNAUDITED) Cash flows from operating activities: Net income.................................. $705,763 $ 365,148 Adjustments necessary to reconcile net income to net cash provided by operating activities: Depreciation and amortization.............. 258,439 164,823 Change in deferred revenue................. (279,625) 138,797 Changes in operating assets and liabilities: Accounts receivable....................... (377,793) 684,211 Receivables from independent operators.... 139,363 (360,584) Other assets.............................. (103,240) (60,987) Accounts payable and accrued expenses..... (152,519) (67,493) Accounts payable, independent operators... 293,731 71,176 Other liabilities......................... (193,582) (87,441) -------- --------- Net cash provided by operating activities.............................. 290,537 847,650 -------- --------- Cash flows from investing activities: Purchases of fixed assets................... (256,248) (3,363) -------- --------- Net cash used in investing activities.... (256,248) (3,363) -------- --------- Cash flows from financing activities: Proceeds from advances from officer of com- pany....................................... -- 224,093 Net borrowings (payments) on line of credit..................................... 261,802 (595,361) Proceeds from borrowings under notes payable.................................... 310,000 800,000 Principal payments on notes payable......... (412,643) (959,500) Distribution to S corporation stockholder... (103,000) (366,738) -------- --------- Net cash provided by (used in) financing activities.............................. 56,159 (897,506) -------- --------- Net change in cash and cash equivalents...... 90,448 (53,219) Cash and cash equivalents, beginning of period...................................... 40,046 130,494 -------- --------- Cash and cash equivalents, end of period..... $130,494 $ 77,275 ======== =========
The accompanying notes are an integral part of these combined financial statements. F-80 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS 1. BACKGROUND AND ORGANIZATION Manhattan International Limousine Network Ltd. and its wholly-owned subsidiary (collectively, "MILN") are engaged primarily in the business of providing chauffeured vehicle services in New York City and the surrounding areas, and providing reservation and billing services to both individual and corporate customers worldwide through an affiliation with a network of independent chauffeured vehicle service companies. International Limousine Network Ltd. ("ILN") is an affiliated company (the "Affiliate") engaged in sales and marketing activities exclusively on behalf of MILN. The accompanying financial statements combine the accounts of MILN and ILN because such entities are under common control. All intercompany transactions have been eliminated. The combined entities are referred to herein as the "Company." ILN operates on a calendar year. As a result, the accompanying financial statements as of and for the year ended September 30, 1996 include the effects of combining the financial statements of ILN as of and for the year ended December 31, 1996. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents The Company considers all short-term investments with original maturities of three months or less to be cash equivalents. Receivables from Independent Operators and Accounts Payable, Independent Operators The Company enters into agreements with independent operators (franchisees) under which the independent operator contracts to provide chauffeured vehicle services exclusively to the Company's customers over the contract period. Upon signing the agreement, the Company is entitled to receive a one-time fee from the independent operator. The Company generally receives a minimal down payment from the independent operator together with a promissory note (see Note 3) and records the note as a receivable from the independent operator, but does not recognize revenue at that time. (See Revenue Recognition.) In addition, the Company collects all billings for services rendered by the independent operator and has the right to withhold and remit, from the independent operator's earnings, all payments due to the Company and certain third parties for, among other things, note payments, two-way radio charges and lease obligations on vehicles, on a monthly basis. The Company is then obligated to remit the balance of the independent operator's earnings on a monthly basis. The unpaid balance due to independent operators at the end of a given period is reflected as accounts payable, independent operators in the accompanying balance sheet. Concentration of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk include cash and cash equivalents, accounts receivable and receivables from independent operators. The Company maintains its cash and cash equivalents with various financial institutions. Accounts receivable are generally diversified due to the large number of entities comprising the Company's customer base and their dispersion across many different industries. The Company performs ongoing credit evaluations of its customers, and may require credit card documentation or prepayment of certain transactions. Receivables from independent operators are supported by the underlying base of revenues serviced by each respective independent operator. The Company performs ongoing evaluations of the productivity and payment capacity of each independent operator in order to manage its credit risk. F-81 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Fixed Assets Fixed assets are stated at cost. Depreciation on furniture, equipment, vehicles and leasehold improvements is calculated on the declining balance method over the estimated useful lives of the assets or the leaseholds, generally three to five years. Buildings and improvements are depreciated on the straight line method over 20 years. Sales and retirements of fixed assets are recorded by removing the cost and accumulated depreciation from the accounts. Gains and losses on sales of property are reflected in the results of operations. Intangible Assets The Company owns Federal Communications Commission licenses to three radio frequencies which it uses in the dispatch of vehicles used in its business. The licenses have been fully amortized in prior years. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition Service revenues include fees derived from chauffeured vehicle services provided by the Company's independent operators. Revenue is recorded for chauffeured vehicle services when those services are provided. When the Company enters into an agreement with an independent operator, the Company defers revenue equal to the amount of the contract and recognizes those fees over the term of the contract, typically 20 years. Amortization of deferred revenue is also included in independent operator service revenues in the accompanying combined statements of operations. Upon termination of an agreement, the remaining deferred revenue associated with the contract, less any amounts due from the independent operators deemed uncollectible, is recognized as revenue immediately. As described above, the Company typically provides extended financing terms to its independent operators for payment of the independent operator fee. Interest income is recognized as earned over the term of the loan agreement with the independent operator. The Company provides reservation services to its customers for service in other locations through its affiliation with a network of independent service companies. Revenue related to services provided by a member of the network is recognized as chauffeured vehicle service revenue when a gross service bill is received from the member. The corresponding liability to the member, reduced by the Company's discount, is recorded as a cost of revenue by the Company at such time. Income Taxes For MILN, the provision for income taxes includes income taxes currently payable and the change during the year in the net deferred tax assets or liabilities. Deferred income tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided to reduce the net deferred tax asset, if any, to a level which, more likely than not, will be realized. F-82 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) ILN has elected to be treated as an "S corporation" under provisions of the Internal Revenue Code. As such, the income tax effects of ILN's operations are borne directly by the stockholder, and no provision for ILN income taxes is recorded in the accompanying financial statements. Unaudited Interim Financial Statements The combined financial statements as of and for the seven-month period ended April 30, 1997 are unaudited. In the opinion of management, those unaudited financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present the financial statements on a basis substantially consistent with the annual audited financial statements contained herein. All disclosures herein related to April 30, 1997 and for the seven-month period ended April 30, 1997 are unaudited. 3. TRANSACTIONS WITH INDEPENDENT OPERATORS At the time the Company enters into an agreement with an independent operator, the Company is entitled to receive a one-time fee. Those fees are typically financed by the Company over 20 years at an interest rate of 15.75% per annum. Independent operator fees are recognized as revenue ratably over the terms of the agreements. In the opinion of management, the carrying value of the loans approximates their fair value. Revenue recognized from independent operator fees was $514,632 and $288,787 for the year ended September 30, 1996 and for the seven-month period ended April 30, 1997, respectively. The Company's independent operators are responsible for financing their own vehicles through third parties. Under programs the Company has established with several automotive leasing organizations, the Company guarantees lease payments until the independent operator has made twelve monthly lease payments. As of September 30, 1996, the Company's independent operators had aggregate lease obligations of $2,203,158 under these programs. 4. FIXED ASSETS Fixed assets consist of the following:
SEPTEMBER 30, APRIL 30, 1996 1997 ------------- ---------- Land................................................ $ 62,569 $ 62,569 Buildings and improvements.......................... 676,730 677,557 Furniture, fixtures and equipment................... 3,086,224 3,088,760 Vehicles............................................ 344,170 344,170 ---------- ---------- 4,169,693 4,173,056 Less accumulated depreciation....................... 3,363,969 3,528,792 ---------- ---------- Net fixed assets.................................... $ 805,724 $ 644,264 ========== ==========
Depreciation expense was $258,439 and $164,823 for the year ended September 30, 1996 and for the seven-month period ended April 30, 1997, respectively. F-83 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 5. NOTES PAYABLE Notes payable consist of the following:
SEPTEMBER 30, APRIL 30, 1996 1997 ------------- ---------- Line of credit of up to $2,000,000 under agreement dated December 27, 1994, collateralized by substantially all of the Company's assets; availability up to 80% of eligible accounts receivable at any date; interest payable monthly at prime plus 6%. In addition to interest obligations, agreement requires payment of annual facility fee equal to 1% of total line, as well as monthly and quarterly administration fees. The agreement terminates on December 27, 1997, after which it is automatically renewable unless terminated by either party as of any anniversary date, with 60 days prior written notice. Certain stockholders of the Company are guarantors on the Company's behalf......................................... $1,864,967 $1,269,606 First mortgage note on headquarters premises dated April 12, 1989, original principal of $1,200,000, subject to fixed monthly installments of principal, and interest at a rate of 14.75%......................................... 310,000 -- First mortgage note on headquarters premises dated January 17, 1997, original principal of $800,000, interest at 10.75% for the first year, after which rate becomes variable at prime plus 2.5%. Interest and principal payments due monthly based on 15-year amortization, with balloon payment due on fifth anniversary......................... -- 770,000 Various installment notes payable with interest rates ranging from 10.75% to 14.75%, and collateralized by certain independent operator agreements and receivables from independent operators of the Company. Principal and interest payments are due monthly over 60-month terms.... 3,228,364 2,719,650 Advances from officer of the company..................... -- 224,093 Notes payable, collateralized by certain equipment, principal and interest due monthly over terms of 24-39 months................................................... 352,297 241,511 ---------- ---------- 5,755,628 5,224,860 Less current portion 1,232,457 1,958,293 ---------- ---------- Notes payable, less current portion $4,523,171 $3,266,567 ========== ==========
In the opinion of management, the carrying amount of the notes payable approximates their fair value. Aggregate principal payments under the Company's note payable arrangements as of September 30, 1996 are due as follows: 1997.............................. $1,232,457 1998.............................. 2,747,898 1999.............................. 542,673 2000.............................. 588,368 2001.............................. 175,732 Thereafter........................ 468,500 ---------- Total............................. $5,755,628 ==========
F-84 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 6. INCOME TAXES The provision for income taxes consists of the following:
FOR THE YEAR FOR THE SEVEN ENDED MONTHS ENDED SEPTEMBER 30, APRIL 30, 1996 1997 ------------- -------------- Federal--Current................................ $ 15,845 $ -- State and local--Current........................ 39,169 37,839 --------- --------- Total income tax provision...................... $ 55,014 $ 37,839 ========= =========
The Company's effective income tax rates differed from the applicable Federal statutory rate due to the following:
FOR THE YEAR ENDED FOR THE SEVEN SEPTEMBER 30, MONTHS ENDED 1996 APRIL 30, 1997 ------------- -------------- Federal statutory rate......................... 34% 34% State and local income taxes................... 13 13 Effect of income of S corporation.............. (9) (54) Effect of changes in deferred tax asset valua- tion allowance................................ (43) 2 Other, primarily nondeductible travel and en- tertainment................................... 12 14 --- --- Effective income tax rate...................... 7% 9% === ===
As of September 30, 1996, for federal income tax purposes, the Company had net operating loss (NOL) carryforwards of $1,959,595 available to offset future taxable income, which expire from 2004 to 2010. The source and tax effects of temporary differences are as follows:
SEPTEMBER 30, APRIL 30, 1996 1997 ------------- ----------- NOL carryforwards.................................. $ 914,574 $ 916,694 Revenue recognition of independent operator fees... 857,606 773,517 Other.............................................. -- 116,138 Valuation allowance................................ (1,772,180) (1,806,349) ----------- ----------- Net deferred tax asset (liability)................. $ -- $ -- =========== ===========
Income taxes paid amounted to $14,505 and $0 for the year ended September 30, 1996 and for the seven-month period ended April 30, 1997, respectively. F-85 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 7. RELATED PARTY TRANSACTIONS Included in other noncurrent liabilities are loans from officers of the Company with remaining principal balances of $358,444 as of September 30, 1996. The loans have interest rates of 12.5% and are payable in equal installments of principal and interest over terms of 15 years. Aggregate principal payments under the loans were due as follows as of September 30, 1996: 1997.............................. $ 77,786 1998.............................. 10,781 1999.............................. 12,209 2000.............................. 13,825 2001.............................. 15,656 Thereafter........................ 228,187 -------- Total............................. $358,444 ========
During the year ended September 30, 1996 and the seven-month period ended April 30, 1997, the Company took one-time charges related to advances to a non-combined affiliate of approximately $218,000 and $7,000, respectively, which are included in selling, general and administrative expenses. 8. CONTINGENCIES The Company is involved in various legal actions which arise in the normal course of business. Management of the Company does not believe the ultimate resolution of these actions will have a material effect on the financial position, results of operations or cash flows of the Company. 9. MAJOR CUSTOMER The Company has one customer which accounted for approximately 18.0% of service revenues for the year and seven-month periods ended September 30, 1996 and April 30, 1997, respectively. 10. RESTATEMENTS The Company enters into agreements with independent operators under which the independent operator contracts to provide chauffeured vehicle services exclusively to the Company's customers over a contract period. Upon signing the contract, the Company is entitled to receive a one-time fee from the independent operator. Previously, the Company recognized the one-time fee as revenue upon signing of the agreement. In accordance with Opinion No. 20 of the Accounting Principles Board, "Accounting Changes", the financial statements have been retroactively restated to report such fees as deferred revenue which are recognized as revenue over the terms of the contracts (see Note 2). The effects of such restatements were to increase results of operations and stockholders' equity by $5,996 for the year ended September 30, 1996. The Company uses a network of independent service companies to provide chauffeured vehicle services to its customers. Certain previously unrecognized costs related to these services have been retroactively recorded. The effects of such restatements were to decrease results of operations by $301,984 for the year ended September 30, 1996, and to increase stockholders' deficiency by $432,671 as of September 30, 1996. 11. SUBSEQUENT EVENT On June 2, 1997, the stockholders of MILN and ILN sold their stock to Carey International, Inc., a company providing chauffeured vehicle services. F-86 REPORT OF INDEPENDENT ACCOUNTANTS To the Directors of Camelot Barthropp Limited (formerly Speed 6060 Limited): We have audited the accompanying balance sheet of Camelot Barthropp Limited as of December 31, 1995, and the related statement of operations for the period from August 4, 1995 to December 31, 1995, all expressed in pounds sterling. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with United Kingdom auditing standards which do not differ in any significant respect from United States generally accepted auditing standards. These standards require that we plan and perform our 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 presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Camelot Barthropp Limited as of December 31, 1995, and the results of its operations for the period from August 4, 1995 to December 31, 1995, in conformity with accounting principles generally accepted in the United Kingdom (which differ in certain respects from generally accepted accounting principles in the United States--see note 16). Coopers & Lybrand Chartered Accountants and Registered Auditors London, England February 26, 1996, except notes 15 and 16 which are dated February 25, 1997 F-87 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) STATEMENT OF OPERATIONS FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995
NOTE 1995 ---- --------- (Pounds) Revenues--continuing operations.................................. 1,266,924 Other operating income........................................... 4 7,700 --------- 1,274,624 Expenditures--continuing operations Vehicle operating costs........................................ 97,119 Other external charges......................................... 362,520 Staff costs.................................................... 3 423,286 Depreciation................................................... 4 114,914 Other operating charges........................................ 4 163,363 --------- 1,161,202 --------- Net income on ordinary activities before taxation................ 113,422 Tax on ordinary activities....................................... 5 60,256 --------- Net income on ordinary activities after taxation................. 53,166 Dividends payable................................................ -- --------- Net income retained.............................................. 53,166 =========
The Company has no recognized gains or losses other than the income above and therefore no separate statement of total recognized gains and losses has been presented. There is no difference between the income on ordinary activities before taxation and the retained income for the period stated above and their historical cost equivalents. The Company was incorporated on August 4, 1995, and as a result, there are no comparative figures. The accompanying notes are an integral part of these financial statements. F-88 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) BALANCE SHEET AT DECEMBER 31, 1995
NOTE 1995 ---- --------- (Pounds) Fixed assets Tangible assets................................................ 6 659,293 --------- Current assets Inventories.................................................... 7 9,747 Receivables.................................................... 8 548,103 Called up share capital not paid............................... 911,000 Cash at bank and in hand....................................... 366,912 --------- 1,835,762 Current liabilities.............................................. 9 1,530,889 --------- Net current assets............................................... 304,873 --------- 964,166 ========= Represented by: Shareholders' equity Called up share capital........................................ 11 92,000 Share premium account.......................................... 11 819,000 Retained earnings.............................................. 12 53,166 --------- Total shareholders' equity................................... 964,166 =========
The accompanying notes are an integral part of these financial statements. F-89 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 1. BASIS OF PREPARATION The accompanying financial statements of Camelot Barthropp Limited (previously Speed 6060 Limited) have been prepared in conformity with accounting principles generally accepted in the United Kingdom ("U.K. GAAP"), and are presented under the historical cost convention. These principles differ in certain material respects from generally accepted accounting principles in the United States ("U.S. GAAP"); see note 16. All amounts are expressed in pounds sterling ("(Pounds)"). The accompanying financial statements do not represent the U.K. statutory financial statements of Camelot Barthropp Limited, as certain reclassifications and changes in presentation and disclosure have been made to the U.K. financial statements prepared on a statutory basis in order to conform, more closely with accounting presentation and disclosure requirements applicable in the United States. The financial statements of Camelot Barthropp Limited for the period from August 4, 1995 to December 31, 1995, on which the auditors' report was unqualified, were the first prepared since its incorporation. These were not full statutory financial statements and therefore have not been delivered to the Registrar of Companies in England and Wales. The ultimate parent undertaking of Camelot Barthropp Limited was The Savoy Hotel PLC, a company incorporated under the laws of England throughout the period from August 4, 1995 to December 31, 1995, of these financial statements. 2. ACCOUNTING POLICIES USE OF ESTIMATES Preparation of financial statements in conformity with U.K. GAAP 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 financial statements and the reported amounts of revenues and expenses for an accounting period. Such estimates and assumptions could change in the future as more information becomes known or circumstances alter, such that Camelot Barthropp Limited's actual results may differ from the amounts reported and disclosed in the financial statements. DEPRECIATION Depreciation is provided so as to write off the cost being the market value of motor vehicles acquired from a fellow subsidiary undertaking less the estimated residual value of fixed assets over their expected useful lives. Depreciation on a straight line basis, mainly at the following annual rates: Motor vehicles --25% Furniture and equipment --10%-20% Improvements to premises --10%
INVENTORIES Inventories are valued at the lower of cost or net realizable value. DEFERRED TAXATION Provision is made for deferred taxation using the liability method at current taxation rates on all material timing differences to the extent that it is probable that a liability or asset will crystallize. REVENUES Revenues represent the invoiced value of services provided, excluding sales related taxes. F-90 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 FOREIGN CURRENCIES Assets and liabilities in foreign currencies have been translated into sterling at the rates ruling at the balance sheet date. OPERATING LEASES Rentals paid under operating leases are charged to operations on a straight line basis over the lease term. PENSION COSTS The Company contributes into both defined benefit and defined contribution schemes. An appropriate share of the costs of the pension schemes administered by the parent undertaking, which are a defined benefit scheme and a defined contribution scheme, are charged to operations for this Company in respect of staff who are members of these schemes. Full details of these schemes are disclosed in the financial statements of The Savoy Hotel PLC. The pension cost charge for defined contribution schemes represents the amounts payable to insurance companies in respect of the funds for the year to December 31. F-91 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 3. STAFF COSTS
FOR THE PERIOD AUGUST 4, 1995 TO DECEMBER 31, 1995 ------------------- (Pounds) Wages and salaries.......................................... 391,924 Social security costs....................................... 28,242 Pension costs............................................... 3,120 --------------- (Pounds)423,286 =============== Pension costs comprise: Payments to funded defined contribution schemes........... 320 Charges in respect of group scheme........................ 2,800 --------------- (Pounds) 3,120 =============== The average weekly number of employees during the period was as follows: NUMBER --------------- Chauffeurs and support staff................................ 43 Administration.............................................. 6 --------------- 49 =============== Directors' remuneration was as follows: Remuneration as executives................................ Nil Pension contributions..................................... Nil Compensation for loss of office........................... Nil --------------- (Pounds) Nil =============== Emoluments excluding pension: Chairman's emoluments..................................... (Pounds) Nil =============== Highest paid director's emoluments........................ (Pounds) Nil ===============
The number of directors (including the chairman and highest paid director) who received emoluments (excluding pension contributions) in the following ranges was: NUMBER ------ (Pounds)0-(Pounds)5,000............. 4 ======
No director waived emoluments in respect of the period ended December 31, 1995. The statement of operations for the period from August 4, 1995 to December 31, 1995 includes no head office management recharges from the parent undertaking in respect to the services provided by the directors of Camelot Barthropp Limited and other corporate overheads. F-92 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 4. INCOME ON ORDINARY ACTIVITIES BEFORE TAXATION
FOR THE PERIOD AUGUST 4, 1995 TO DECEMBER 31, 1995 ------------------ (Pounds) The income on ordinary activities before taxation is stated after charging: Marketing recharge from parent........................... 27,484 Depreciation............................................. 114,914 Operating leases--hire of plant and machinery............ 4,217 --other operating leases................................. 10,000 ======= and after crediting: Rent receivable.......................................... 5,526 Sundry income............................................ 417 Gain on disposal of tangible fixed assets................ 1,757 Other operating income................................... 7,700 =======
5. TAXATION
FOR THE PERIOD AUGUST 4, 1995 TO DECEMBER 31, 1995 ------------------ (Pounds) UK corporation tax on ordinary activities for the period at 33%....................................................... 60,256 ======
6. TANGIBLE FIXED ASSETS
SHORT LEASEHOLD MOTOR FURNITURE AND PREMISES VEHICLES EQUIPMENT TOTAL --------------- -------- ------------- -------- (Pounds) (Pounds) (Pounds) (Pounds) Cost At August 4, 1995............ -- -- -- -- Additions.................... 7,591 763,686 57,952 829,229 Disposals.................... -- (55,022) -- (55,022) ----- ------- ------ ------- At December 31, 1995......... 7,591 708,664 57,952 774,207 ----- ------- ------ ------- Accumulated depreciation At August 4, 1995............ -- -- -- -- Charge for the Year.......... 770 104,144 10,000 114,914 Disposals.................... -- -- -- -- ----- ------- ------ ------- At December 31, 1995......... 770 104,144 10,000 114,914 ----- ------- ------ ------- Net Book Value At December 31, 1995......... 6,821 604,520 47,952 659,293 ===== ======= ====== =======
F-93 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 7.INVENTORIES
1995 --------- (Pounds) Raw materials and consumables: Vehicle spare parts.............................................. 5,369 Petrol and oil................................................... 4,378 --------- 9,747 ========= 8.RECEIVABLES--AMOUNTS FALLING DUE WITHIN ONE YEAR Trade receivables.................................................. 337,960 Amounts owed by parent undertaking................................. 155,164 Other receivables.................................................. 4,784 Prepayments and accrued income..................................... 50,195 --------- 548,103 ========= 9.CURRENT LIABILITIES--AMOUNTS FALLING DUE WITHIN ONE YEAR Trade accounts payable............................................. 95,414 Borrowings from parent undertaking................................. 230,607 Borrowings from fellow subsidiary.................................. 936,674 Corporation tax.................................................... 60,256 Other taxes and social security.................................... 73,542 Other creditors.................................................... 5,605 Accruals........................................................... 128,791 --------- 1,530,889 =========
10.DEFERRED TAXES Provision for deferred taxes has been made in the financial statements in accordance with the Company's accounting policy. The provision and the full potential liability are as follows:
1995 ------------------------ POTENTIAL PROVISION LIABILITY --------- -------------- Accelerated capital allowances..................... -- (Pounds)17,875 === ==============
11.SHARE CAPITAL AND SHARE PREMIUM
1995 -------- (Pounds) Authorized: Ordinary Shares of (Pounds)1...................................... 100,000 =======
F-94 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 The Company was incorporated on August 4, 1995 with 1,000 Ordinary Shares of (Pounds)1 each. On August 30, 1995 the authorized share capital of the Company was increased by 99,000 Ordinary Shares of (Pounds)1 each.
NUMBER NOMINAL SHARE TOTAL ISSUED VALUE PREMIUM CONSIDERATION ------ ------- ------- ------------- Allotted, called up and fully paid: Ordinary Shares of (Pounds)1............ 92,000 92,000 819,000 911,000 ====== ====== ======= =======
On August 8, 1995, 1,000 shares were issued to The Savoy Hotel PLC at par. On August 30, a further 91,000 shares were issued to The Savoy Hotel PLC at a price of (Pounds)10.00 per share 12. RETAINED EARNINGS
1995 -------- (Pounds) At August 4, 1995................................................... -- Retained income for the period...................................... 53,166 ------- At December 31, 1995................................................ 53,166 ======= 13. RECONCILIATION OF MOVEMENTS ON SHAREHOLDERS' EQUITY 1995 -------- (Pounds) Opening shareholders' equity........................................ -- Issue of share capital.............................................. 92,000 Share premium....................................................... 819,000 Total recognized gains for the period............................... 53,166 ------- Closing shareholders' equity........................................ 964,166 =======
14. FINANCIAL COMMITMENTS a) The Company has annual commitments under operating leases as set out below:
1995 ------------------ LAND AND BUILDINGS OTHER --------- -------- (Pounds) (Pounds) Leases which expire: In the next year...................................... -- 3,363 In the second to fifth years.......................... -- 5,504 After five years...................................... -- -- --- ----- -- 8,867 === =====
b) Capital commitments:
1995 -------- (Pounds) Capital expenditure contracted for but not provided in the fi- nancial statements............................................ -- === Capital expenditure approved by the directors but not con- tracted for................................................... -- ===
F-95 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 15. POST BALANCE SHEET EVENTS The parent undertaking sold Camelot Barthropp Limited to Carey International, Inc. for an initial consideration of (Pounds)788,843. Further consideration of (Pounds)672,752 will become payable on the parent undertaking providing certain thresholds of business for Camelot Barthropp Limited are achieved during the period to March 31, 1998. 16. SUMMARY OF DIFFERENCES BETWEEN U.K. AND U.S. GAAP The financial statements are prepared in accordance with accounting principles generally accepted in the United Kingdom ("U.K. GAAP"). These accounting principles differ in certain material respects from the accounting principles generally accepted in the United States ("U.S. GAAP"). Described below are the material differences between U.K. GAAP and U.S. GAAP affecting the net income and shareholders' equity which are set forth in the tables that follow. TRANSFER OF ASSETS BETWEEN FELLOW SUBSIDIARIES Under U.K. GAAP, assets can be transferred from one subsidiary to a fellow subsidiary with the same parent undertaking, at their fair value. The difference between the fair value and the historical cost of these assets will result in an intragroup gain or loss in the statement of operations of the subsidiary selling the assets. The assets would remain at their fair value in the subsidiary that acquired the assets and the associated depreciation charge would be provided on these fair values. Under U.S. GAAP, assets can only be transferred from one subsidiary to a fellow subsidiary with the same parent undertaking, at their historical cost. As a result, under U.S. GAAP, no intragroup gain or loss would arise from the transaction, the assets would remain at historical cost and the associated depreciation charge would be provided on these historical costs. ALLOCATION OF EXPENSES IN A "CARVE OUT" SITUATION Under U.K. GAAP, certain costs incurred by the parent undertaking may not be reflected in the subsidiary financial statements; however, disclosure of this fact is generally provided in the subsidiary financial statements. Under U.S. GAAP, historical income statements of a subsidiary should reflect all costs incurred by the parent undertaking on its behalf, such as officer salaries and corporate overheads. DEFERRED TAXES Under U.K. GAAP, deferred taxation is accounted for using the liability method to the extent that it is considered probable that a liability will crystallize in the foreseeable future. Under U.S. GAAP, deferred taxation is provided for on all temporary differences and carryforwards. Deferred tax assets are recognised to the extent that it is more likely than not that they will be realized. Where doubt exists as to whether a deferred tax asset will be realized, an appropriate valuation allowance is established. STOCK SUBSCRIPTIONS Under U.K. GAAP the amount of the shares issued, including those issued pursuant to a stock subscription receivable, is shown on the face of the balance sheet. Any subscription receivable due on these shares would be shown separately in the balance sheet. Under U.S. GAAP, the net amount of the shares being the amount of the shares issued after deducting any subscriptions receivable therefrom, is shown on the face of the balance sheet. F-96 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 The effect of the above noted differences between U.K. and U.S. GAAP are as follows: (A)NET INCOME The approximate effects on net income of material differences between U.K. and U.S. GAAP are as follows:
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 -------------------- (Pounds) Net income reported under U.K. GAAP................... 53,166 Transfer of assets -- depreciation adjustment......... 15,590 Allocation of expenses................................ (21,170) Deferred taxes........................................ (17,875) Tax effect of U.S. GAAP reconciling adjustments....... 1,844 -------- Net income reported in accordance with U.S. GAAP...... 31,555 ======== (B)SHAREHOLDERS' EQUITY The approximate effects on shareholders' equity of material differences between U.K. and U.S. GAAP are as follows: AT DECEMBER 31, 1995 -------------------- (Pounds) Shareholders' equity reported under U.K. GAAP......... 964,166 Gain on transfer of assets--fixed assets.............. (112,500) --amounts payable..................................... 112,500 --depreciation adjustment............................. 15,590 Allocation of expenses................................ (21,170) Stock subscriptions................................... (911,000) Deferred taxes........................................ (17,875) Tax effect of U.S. GAAP reconciling adjustments....... 1,844 -------- Shareholders' equity reported in accordance with U.S. GAAP................................................. 31,555 ========
F-97 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 (C)STATEMENTS OF CASH FLOWS Under U.K. GAAP, wholly owned subsidiaries of a parent undertaking that are established under the law of any European Community State are exempt from including a statement of cash flows in their financial statements. Under U.S. GAAP, the statement of cash flows is required and therefore is shown below:
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 -------------------- (Pounds) Cash flows from operating activities Net income.......................................... 31,555 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of fixed assets..... 99,324 Gain on sale of fixed assets...................... (1,757) Change in operating assets and liabilities: Receivables..................................... (548,103) Inventories..................................... (9,747) Current liabilities............................. 738,861 -------- Net cash provided by operating activities..... 310,133 -------- Cash flows from investing activities: Proceeds from gain of fixed assets.................. 56,779 -------- Net cash provided by investing activities..... 56,779 -------- Net increase in cash and cash equivalents............. 366,912 Cash and cash equivalents at beginning of year........ -- -------- Cash and cash equivalents at end of year.............. 366,912 ========
F-98 REPORT OF INDEPENDENT ACCOUNTANTS To the Directors of Speed 6060 Limited (formerly Camelot Barthropp Limited): We have audited the accompanying balance sheets of Speed 6060 Limited as of December 31, 1994 and 1995, and the related statements of operations for each of the two years in the period ended December 31, 1995, all expressed in pounds sterling. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with United Kingdom auditing standards which do not differ in any significant respect from United States generally accepted auditing standards. These standards require that we plan and perform our 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 presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Speed 6060 Limited as of December 31, 1994 and 1995, and the results of its operations for each of the two years in the period ended December 31, 1995, in conformity with accounting principles generally accepted in the United Kingdom (which differ in certain respects from generally accepted accounting principles in the United States--see note 16). Coopers & Lybrand Chartered Accountants and Registered Auditors London, England February 26, 1996, except note 16 which is dated February 28, 1997 F-99 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
NOTE 1994 1995 ---- --------- --------- (Pounds) (Pounds) Revenues--discontinued operations................... 2,694,693 1,849,242 Other operating income.............................. 4 79,056 38,142 --------- --------- 2,773,749 1,887,384 --------- --------- Expenditures--discontinued operations Vehicle operating costs........................... 329,701 216,200 Other external charges............................ 537,423 403,330 Staff costs....................................... 3 1,086,203 710,084 Other operating charges........................... 4 647,327 509,688 --------- --------- 2,600,654 1,839,302 --------- --------- Operating income.................................... 173,095 48,082 Gain on the disposal of fixed assets to a fellow subsidiary......................................... -- 112,500 --------- --------- Income on ordinary activities before tax............ 173,095 160,582 Tax on ordinary activities.......................... 5 62,252 30,604 --------- --------- Net income on ordinary activities after taxation.... 110,843 129,978 Dividend payable.................................... 110,000 275,000 --------- --------- Net income (loss) retained.......................... 843 (145,022) ========= =========
The Company has no recognized gains or losses other than the income (losses) above and therefore no separate statement of total recognized gains and losses has been presented. There is no difference between the income on ordinary activities before taxation for the years stated above and their historical cost equivalents. The Company ceased trading at close of business on August 31, 1995 and consequently the statement of operations for 1995 only reflects the results to this date. The accompanying notes are an integral part of these financial statements. F-100 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) BALANCE SHEETS AT DECEMBER 31, 1994 AND 1995
NOTE 1994 1995 ---- --------- -------- (Pounds) (Pounds) Fixed assets Tangible assets..................................... 6 848,058 -- --------- ------- Current assets Inventories......................................... 7 19,650 -- Receivables......................................... 8 377,519 936,674 Cash at bank and in hand............................ 220,248 -- --------- ------- 617,417 936,674 Current liabilities--amounts falling due within one year................................................. 9 415,112 31,333 --------- ------- Net current assets.................................... 202,305 905,341 --------- ------- Total assets less current liabilities............. 1,050,363 905,341 ========= ======= Represented by: Shareholders' equity Called up share capital............................. 11 43,329 43,329 Retained earnings................................... 12 1,007,034 862,012 --------- ------- Total shareholders' equity........................ 1,050,363 905,341 ========= =======
The accompanying notes are an integral part of these financial statements. F-101 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 1. BASIS OF PREPARATION The accompanying financial statements of Speed 6060 Limited (formerly Camelot Barthropp Limited) have been prepared in conformity with accounting principles generally accepted in the United Kingdom ("U.K. GAAP"), and are presented under the historical cost convention. These principles differ in certain material respects from generally accepted accounting principles in the United States ("U.S. GAAP"); see note 16. All amounts are expressed in pounds sterling ("(Pounds)"). The accompanying financial statements do not represent the U.K. statutory financial statements of Speed 6060 Limited, as certain reclassifications and changes in presentation and disclosure have been made to the U.K. financial statements prepared on a statutory basis in order to conform, more closely with accounting presentation and disclosure requirements applicable in the United States. The financial statements of Speed 6060 Limited for the year ended December 31, 1995, on which the auditors' report was unqualified, were the latest financial statements to have been delivered to the Registrar of Companies in England and Wales. The ultimate parent undertaking of Speed 6060 Limited was The Savoy Hotel PLC, a company incorporated under the laws of England throughout the period being January 1, 1994 to December 31, 1995, of these financial statements. 2. ACCOUNTING POLICIES USE OF ESTIMATES Preparation of financial statements in conformity with U.K. GAAP 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 financial statements and the reported amounts of revenues and expenses for an accounting period. Such estimates and assumptions could change in the future as more information becomes known or circumstances alter, such that Speed 6060 Limited's actual results may differ from the amounts reported and disclosed in the financial statements. DEPRECIATION Depreciation is provided so as to write off the cost less estimated residual value of fixed assets over their expected useful lives. Depreciation is provided on a straight line basis, mainly at the following annual rates: Motor vehicles --25% Furniture and equipment --10%-20% Improvements to premises --10%
INVENTORIES Inventories are valued at the lower of cost or net realizable value. DEFERRED TAXATION Provision is made for deferred taxation using the liability method at current taxation rates on all material timing differences to the extent that it is probable that a liability or asset will crystallize. F-102 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 REVENUES Revenues represent the invoiced value of services provided, excluding sales related taxes. FOREIGN CURRENCIES Assets and liabilities in foreign currencies have been translated into sterling at the rates ruling at the balance sheet date. LEASES Assets held under capital leases are capitalized in the balance sheet and are depreciated over their useful lives. The interest element of the repayments is charged to operations over the period of the contract on a straight line basis. Rentals paid under operating leases are charged to operations on a straight line basis over the lease term. PENSION COSTS The Company contributes into both defined benefit and defined contribution schemes. An appropriate share of the costs of the pension schemes administered by the Parent Undertaking, which are a defined benefit scheme and a defined contribution scheme, are charged to operations for this Company in respect of staff who are members of these schemes. Full details of these schemes are disclosed in the financial statements of The Savoy Hotel PLC. The pension cost charge for defined contribution schemes represents the amounts payable to insurance companies in respect of the funds for the year to December 31. F-103 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 3.STAFF COSTS
1994 1995 ----------------- --------------- (Pounds) (Pounds) Wages and salaries....................... 1,002,012 653,498 Social security costs.................... 74,588 50,508 Other pension costs...................... 9,603 6,078 ----------------- --------------- (Pounds)1,086,203 (Pounds)710,084 ================= =============== Other pension costs comprise: Payments to funded defined contribution schemes................................. 1,160 640 Charges in respect of group scheme....... 8,443 5,438 ----------------- --------------- (Pounds) 9,603 (Pounds) 6,078 ================= =============== The average weekly number of employees during the year was as follows: NUMBER NUMBER ----------------- --------------- Chauffeurs and support staff........... 40 39 Administration......................... 6 5 ----------------- --------------- 46 44 ================= =============== Directors' remuneration was as follows: Remuneration as executives............. Nil Nil Pension contributions.................. Nil Nil Compensation for loss of office........ Nil Nil ----------------- --------------- (Pounds) Nil (Pounds) Nil ----------------- --------------- Emoluments excluding pension scheme contributions: Chairman's emoluments.................. (Pounds) Nil (Pounds) Nil ================= =============== Highest paid directors' emoluments..... (Pounds) Nil (Pounds) Nil ================= ===============
The number of directors (including the chairman and highest paid director) who received emoluments (excluding pension contributions) in the following ranges was:
NUMBER NUMBER ------ ------ (Pounds)0-(Pounds)5,000........................................ 5 4 === ===
No director waived emoluments in respect of the years ended December 31, 1994 and 1995. The statements of operations for the years ended December 31, 1994 and 1995 include no head office management recharges from the parent undertaking in respect to the services provided by the directors of Speed 6060 Limited and other corporate overheads. F-104 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 4.INCOME ON ORDINARY ACTIVITIES BEFORE TAXATION The income on ordinary activities before taxation is stated after charging:
1994 1995 -------- -------- (Pounds) (Pounds) Auditors' remuneration...................................... 10,000 6,000 Marketing recharge from parent.............................. -- 49,001 Depreciation................................................ 343,428 215,588 Operating leases--hire of plant and machinery............... 9,332 6,155 --other............................................... 35,250 20,000 ======= ======= and after crediting: Rent receivable............................................. 14,182 9,027 Sundry income............................................... 1,388 438 Gain on disposal of tangible fixed assets................... 63,486 28,677 Other operating income...................................... 79,056 38,142 ======= ======= 5.TAXATION UK corporation tax on income on ordinary activities for the years at 33%............................................... 63,000 31,333 UK corporation tax credit in respect of previous years...... (748) (729) ------- ------- 62,252 30,604 ======= =======
In 1995, the primary reason for the difference between the effective tax rate (19%) and the nominal rate of UK corporation tax (33%) is that the transfer of the traded assets of the Company was intra-group and therefore not subject to corporation tax. F-105 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 6.TANGIBLE FIXED ASSETS
SHORT FURNITURE LEASEHOLD MOTOR AND PREMISES VEHICLES EQUIPMENT TOTAL --------- ---------- --------- ---------- (Pounds) (Pounds) (Pounds) (Pounds) Cost At January 1, 1994............... 36,675 1,464,752 92,233 1,593,660 Additions........................ -- 402,593 49,053 451,646 Disposals........................ -- (382,634) (249) (382,883) Fully depreciated assets......... (11,355) -- (34,031) (45,386) ------- ---------- -------- ---------- At December 31, 1994............. 25,320 1,484,711 107,006 1,617,037 ------- ---------- -------- ---------- Additions........................ -- 115,800 8,075 123,875 Disposals........................ (25,320) (1,600,511) (115,081) (1,740,912) ------- ---------- -------- ---------- At December 31, 1995............. -- -- -- -- ======= ========== ======== ========== Accumulated Depreciation At January 1, 1994............... 25,234 709,265 54,039 788,538 Charge for the year.............. 2,310 319,191 21,927 343,428 Disposals........................ -- (317,352) (249) (317,601) Fully depreciated assets......... (11,355) -- (34,031) (45,386) ------- ---------- -------- ---------- At December 31, 1994............. 16,189 711,104 41,686 768,979 Charge for the year.............. 1,540 197,965 16,083 215,588 Disposals........................ (17,729) (909,069) (57,769) (984,567) ------- ---------- -------- ---------- At December 31, 1995............. -- -- -- -- ======= ========== ======== ========== Net Book Value At December 31, 1994............. 9,131 773,607 65,320 848,058 ======= ========== ======== ========== At December 31, 1995............. -- -- -- -- ======= ========== ======== ==========
In 1995, in accordance with the transfer agreement whereby the assets and business of the Company were transferred, an exceptional gain on disposal of (Pounds)112,500 was made. This gain specifically related to the transfer of motor vehicles which were transferred at fair market value. All other assets were transferred at net book value. 7.INVENTORIES
1994 1995 -------- -------- (Pounds) (Pounds) Raw materials and consumables: Vehicle spare parts........................................... 15,605 -- Petrol and oil................................................ 4,045 -- ------- ------- 19,650 -- ======= ======= 8.RECEIVABLES--AMOUNTS FALLING DUE WITHIN ONE YEAR Trade receivables............................................. 184,969 -- Amounts owed by parent undertaking............................ 104,027 -- Amounts owed by fellow subsidiary............................. -- 936,674 Other receivables............................................. 4,224 -- Prepayments and accrued income................................ 84,299 -- ------- ------- 377,519 936,674 ======= =======
F-106 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 9.CURRENT LIABILITIES--AMOUNTS FALLING DUE WITHIN ONE YEAR
1994 1995 -------- -------- (Pounds) (Pounds) Trade accounts payable..................................... 76,057 -- Borrowings from parent undertaking......................... 34,915 -- Corporation tax............................................ 63,000 31,333 Other taxes and social security............................ 49,699 -- Other creditors............................................ 11,299 -- Capital lease installments................................. 4,638 -- Accruals................................................... 65,504 -- Dividends payable.......................................... 110,000 -- ------- ------ 415,112 31,333 ======= ======
10.DEFERRED TAXES Provision for deferred taxes has been made in the financial statements in accordance with the Company's accounting policy. The provision and the full potential liability are as follows:
1994 1995 ------------------------- ------------------- POTENTIAL POTENTIAL PROVISION LIABILITY PROVISION LIABILITY --------- --------------- --------- --------- Accelerated capital allowances................. -- (Pounds) 15,534 -- --
11.SHARE CAPITAL
1994 1995 -------- -------- (Pounds) (Pounds) Authorized: "A' Ordinary Shares of (Pounds)1......................... 20,000 20,000 "B' Ordinary Shares of (Pounds)1......................... 30,000 30,000 ------ ------ 50,000 50,000 ====== ====== Allotted, called up and fully paid: "A' Ordinary Shares of (Pounds)1......................... 17,329 17,329 "B' Ordinary Shares of (Pounds)1......................... 26,000 26,000 ------ ------ 43,329 43,329 ====== ======
12.RETAINED EARNINGS
1994 1995 --------- --------- (Pounds) (Pounds) At January 1.......................................... 1,006,191 1,007,034 Transfer to (from) retained earnings.................. 843 (145,022) --------- --------- At December 31........................................ 1,007,034 862,012 ========= ========= 13.RECONCILIATION OF MOVEMENTS ON SHAREHOLDERS' EQUITY 1994 1995 --------- --------- (Pounds) (Pounds) Opening shareholders' equity.......................... 1,049,520 1,050,363 Total recognized (losses)/gains for the financial year................................................. 843 (145,022) --------- --------- Closing shareholders' equity.......................... 1,050,363 905,341 ========= =========
F-107 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 14.FINANCIAL COMMITMENTS a) The Company has annual commitments under operating leases as set out below:
1994 1995 ------------------ ------------------ LAND AND LAND AND BUILDINGS OTHER BUILDINGS OTHER --------- -------- --------- -------- (Pounds) (Pounds) (Pounds) (Pounds) Leases which expire: In the next year.................... 30,000 360 -- -- In the second to fifth years........ -- 9,038 -- -- After five years.................... -- -- -- -- ------ ----- --- --- 30,000 9,398 -- -- ====== ===== === ===
b) Capital commitments: The Company has no capital commitments at December 31, 1994 and 1995 15.GUARANTEE The Company has entered into a Composite Accounting Agreement with Barclays Bank PLC under which it has executed an unlimited guarantee in respect of the bank overdraft and other banking facility of the Parent Undertaking and certain Fellow Subsidiary Undertakings. 16.SUMMARY OF DIFFERENCES BETWEEN U.K. AND U.S. GAAP The financial statements are prepared in accordance with accounting principles generally accepted in the United Kingdom ("U.K. GAAP"). These accounting principles differ in certain material respects from the accounting principles generally accepted in the United States ("U.S. GAAP"). Described below are the material differences between U.K. GAAP and U.S. GAAP affecting the net income and shareholders' equity which are set forth in the tables that follow: Transfer of assets between fellow subsidiaries Under U.K. GAAP, assets can be transferred from one subsidiary to a fellow subsidiary with the same parent undertaking, at their fair value. The difference between the fair value and the historical cost of these assets will result in an intragroup gain or loss in the statement of operations of the subsidiary selling the assets. The assets would remain at their fair value in the subsidiary that acquired the assets. Under U.S. GAAP, assets can only be transferred from one subsidiary to a fellow subsidiary with the same parent undertaking, at their historical cost. As a result, under U.S. GAAP no intragroup gain or loss would arise from the transaction, and the assets would remain at historical cost. Allocation of expenses in a "carve out" situation Under U.K. GAAP, certain costs incurred by the parent undertaking may not be reflected in the subsidiary financial statements; however, disclosure of the fact is generally provided in the subsidiary financial statements. Under U.S. GAAP, historical statements of operations of a subsidiary should reflect all costs incurred by the parent undertaking on its behalf, such as officer salaries and corporate overheads. F-108 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 Deferred taxes Under U.K. GAAP, deferred taxation is accounted for using the liability method to the extent that it is considered probable that a liability will crystallize in the foreseeable future. Under U.S. GAAP, deferred taxation is provided for on all temporary differences and carryforwards. Deferred tax assets are recognised to the extent that it is more likely than not that they will be realized. Where doubt exists as to whether a deferred tax asset will be realized, an appropriate valuation allowance is established. Proposed dividends Under U.K. GAAP dividends paid and proposed are usually shown on the face of the statement of operations as an appropriation of current year earnings. Proposed dividends are provided on the basis of recommendation by the directors and may include dividends that are subject to subsequent approval by shareholders before they are declared. Under U.S. GAAP, only dividends approved during the current year are included in the statement of operations. The effect of the above noted differences between U.K. and U.S. GAAP are as follows: (A) NET INCOME The approximate effects on net income (loss) of material differences between U.K. and U.S. GAAP are as follows:
FOR THE YEARS ENDED DECEMBER 31, -------------------- 1994 1995 --------- --------- (Pounds) (Pounds) Net income reported under U.K. GAAP....................... 110,843 129,978 Gain on transfer of assets................................ -- (112,500) Allocation of expenses.................................... (68,350) (42,341) Deferred taxes............................................ 2,161 15,534 Tax effect of U.S. GAAP reconciling adjustments........... 22,556 13,973 -------- --------- Net income reported in accordance with U.S. GAAP.......... 67,210 4,644 ======== =========
(B) SHAREHOLDERS' EQUITY The approximate effects on shareholders' equity of material differences between U.K. and U.S. GAAP are as follows:
AT DECEMBER 31, ------------------- 1994 1995 --------- -------- (Pounds) (Pounds) Shareholders' equity reported under U.K. GAAP............ 1,050,363 905,341 Gain on transfer of assets............................... -- (112,500) Allocation of expenses................................... (68,350) (110,691) Deferred taxes........................................... (15,534) -- Proposed dividend........................................ 110,000 -- Tax effect of U.S. GAAP reconciling adjustments.......... 22,556 36,529 --------- -------- Shareholders' equity reported in accordance with U.S. GAAP.................................................... 1,099,035 718,679 ========= ========
F-109 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 (C) STATEMENTS OF CASH FLOWS Under U.K. GAAP, wholly owned subsidiaries of a parent undertaking that are established under the law of any European Community State are exempt from including a statement of cash flows in their financial statements. Under U.S. GAAP, the statement of cash flows is required and therefore is shown below:
YEAR ENDED YEAR ENDED DECEMBER 31, 1994 DECEMBER 31, 1995 ----------------- ----------------- (Pounds) (Pounds) Cash flows from operating activities: Net income................................ 67,210 4,644 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of fixed as- sets..................................... 343,428 215,588 Gain on sale of fixed assets.............. (63,486) (28,677) Change in operating assets and liabili- ties: Receivables............................. 54,058 166,047 Inventories............................. 3,797 19,650 Current liabilities..................... (79,729) (156,918) -------- -------- Net cash provided by operating activi- ties................................. 325,278 220,334 -------- -------- Cash flows from investing activities: Proceeds from sale of fixed assets........ 128,768 68,293 Purchases of fixed assets................. (451,646) (123,875) Net cash used in financing activi- ties................................. (322,878) (55,582) -------- -------- Cash flows from financing activities: Dividends paid.......................... -- (385,000) Net cash used in financing activi- ties................................. -- (385,000) -------- -------- Net increase (decrease) in cash and cash equivalents.............................. 2,400 (220,248) Cash and cash equivalents at beginning of year..................................... 217,848 220,248 -------- -------- Cash and cash equivalents at end of year.. 220,248 -- ======== ========
F-110 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company is a Delaware corporation. Reference is made to Section 145 of the DGCL, as amended, which provides that a corporation may indemnify any person who was or is a party to or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceedings, had no reasonable cause to believe his or her conduct was unlawful. Section 145 further provides that a corporation similarly may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite an adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. The Company's Restated Certificate of Incorporation further provides that the Company shall indemnify its directors and officers to the full extent permitted by the law of the State of Delaware. The Company's Certificate of Incorporation provides that the Company's directors shall not be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent that exculpation from liability is not permitted under the DGCL as in effect at the time such liability is determined. The Certificate of Incorporation also provides that each person who was or is made a party to, or is involved in, any action, suit, proceeding or claim by reason of the fact that he or she is or was a director, officer or employee of the Registrant (or is or was serving at the request of the Registrant as a director, officer, trustee employee or agent of any other enterprise including service with respect to employee benefit plans) shall be indemnified and held harmless by the Registrant, to the full extent permitted by Delaware law, as in effect from time to time, against all expenses (including attorneys' fees and expenses), judgments, fines, penalties and amounts to be paid in settlement incurred by such person in connection with the investigation, preparation to defend or defense of such action, suit, proceeding or claim. The rights to indemnification and the payment of expenses provided by the Certificate of Incorporation do not apply to any action, suit, proceeding or claim initiated by or on behalf of a person otherwise entitled to the benefit of such provisions. Any person seeking indemnification under the Certificate of Incorporation shall be deemed to have met the standard of conduct required for such indemnification unless the contrary shall be established. Any repeal or modification of such indemnification provisions shall not adversely affect any right or protection of a director or officer with respect to any conduct of such director or officer occurring prior to such repeal or modification. The Company maintains an indemnification insurance policy covering all directors and officers of the Company and its subsidiaries. II-1 ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (A) EXHIBITS.
SEQUENTIAL EXHIBIT NO. DESCRIPTION PAGE NO. ----------- ----------- ---------- *2.1 Stock Purchase Agreement dated as of March 1, 1997, by and among Carey International, Inc., Alfred J. Hemlock and Lupe C. Hemlock *2.2 Agreement and Plan of Merger dated as of March 1, 1997, by and among Carey International, Inc., Manhattan International Limousine Network Ltd., MLC Acquisition Corporation and Michael Hemlock *2.3 Form of Stockholder Action by Written Consent Adopted in Connection with the Recapitalization ++2.4 Amended and Restated Agreement of Plan of Merger made as of October 10, 1997 by and amoung Carey International, Inc., Carey Limousine Indiana, Inc., Indy Connection Limousines, Inc., Transit Tours, Inc., K.D. & Associates Professional Corporation, Craig Del Fabro and Kim Del Fabro *3.1 Form of Amended and Restated Certificate of Incorporation of the Company *3.2 Amended and Restated Bylaws of the Company *4.1 Specimen Stock Certificate *4.2 Form of Warrants *4.3 Carey International, Inc. Common Stock Purchase Warrant dated September 1, 1991, issued to Yerac Associates, L.P. *4.4 Form of Registration Rights Agreement between Carey International, Inc. and Michael Hemlock **5 Opinion of Nutter, McClennen & Fish, LLP *10.1 1997 Equity Incentive Plan *10.2 1992 Stock Option Plan *10.3 1987 Stock Option Plan *10.4 Stock Plan for Non-Employee Directors *10.5 Lease dated July 5, 1989 for 4530 Wisconsin Avenue, Washington, D.C., between Carey International, Inc. and 4530 Wisconsin Associates, as lessor, including Addendum, Exhibit B and Exhibit C; and Second Amendment to Lease dated August 6, 1993, including Exhibit A *10.6 Form of Escrow Agreement by and among Michael Hemlock, Alfred J. Hemlock, Lupe C. Hemlock and a bank to be named *10.7 Current form of Standard Master License Agreement *10.8 Current form of Standard International License Agreement *10.9 Form of Promissory Notes in connection with Acquisition of Manhattan Limousine *10.10 Current form of Standard Independent Operator Agreement +10.11 Form of Revolving Credit and Term Loan Agreement by and among Carey International, Inc., certain of its direct and indirect wholly-owned subsidiaries, and Fleet Bank, N.A., Banco Popular de Puerto Rico and George Mason Bank +11 Statements Regarding Computation of Per Share Earnings *21 Subsidiaries of the Registrant +23.1 Consent of Coopers & Lybrand L.L.P. +23.2 Consent of Coopers & Lybrand L.L.P. +23.3 Consent of Coopers & Lybrand L.L.P. +23.4 Consent of Coopers & Lybrand L.L.P. +23.5 Consent of Coopers & Lybrand, Chartered Accountants and Registered Auditors +23.6 Consent of Coopers & Lybrand, Chartered Accountants and Registered Auditors **23.7 Consent of Nutter, McClennen & Fish, LLP (contained in Exhibit 5) **24 Power of Attorney (contained in the signature page to this Registration Statement)
- -------- * Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 333-22651). ** Previously filed. + Filed herewith. ++ Incorporated by reference to the Company's Current Report on Form 8-K dated October 31, 1997. II-2 (B) FINANCIAL STATEMENT SCHEDULE: The following Financial Statement Schedule is filed as part of this Registration Statement. Report of Independent Accountants Schedule VIII--Valuation and Qualifying Accounts ITEM 22. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form. (5) That every prospectus (i) that is filed pursuant to paragraph (4) immediately preceding, or (ii) that purports to meet the requirements of section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (6) To respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of Form S-4, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (7) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-3 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WASHINGTON, THE DISTRICT OF COLUMBIA, ON THE DAY OF JANUARY 1998. Carey International, Inc. /s/ David H. Haedicke By: _________________________________ DAVID H. HAEDICKE CHIEF FINANCIAL OFFICER PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS AMENDMENT TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Vincent A. Wolfington* Chairman of the January 21, 1998 - ------------------------------------- Board and Chief VINCENT A. WOLFINGTON Executive Officer /s/ Don R. Dailey* President and January 21, 1998 - ------------------------------------- Director DON R. DAILEY /s/ David H. Haedicke Chief Financial January 21, 1998 - ------------------------------------- Officer DAVID H. HAEDICKE /s/ Paul A. Sandt* Principal Accounting January 21, 1998 - ------------------------------------- Officer PAUL A. SANDT /s/ David McL. Hillman* Director January 21, 1998 - ------------------------------------- DAVID MCL. HILLMAN Director January 21, 1998 - ------------------------------------- WILLIAM R. HAMBRECHT /s/ Robert W. Cox* Director January 21, 1998 - ------------------------------------- ROBERT W. COX /s/ Nicholas J. St. George* Director January 21, 1998 _____________________________________ NICHOLAS J. ST. GEORGE /s/ David H. Haedicke By: _________________________________ DAVID H. HAEDICKE ATTORNEY-IN-FACT
* Powers of Attorney have been filed with this Registration Statement. II-4 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Carey International, Inc. In connection with our audits of the consolidated financial statements of Carey International, Inc. and Subsidiaries as of November 30, 1995 and 1996, and for each of the three years in the period ended November 30, 1996, which financial statements are included in the Prospectus, we have also audited the consolidated financial statement schedule listed in Item 16(b) of Part II of the Registration Statement herein. In our opinion, this consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. Coopers & Lybrand L.L.P. Washington, D.C. January 31, 1997, except for Notes 1, 2 and 18 as to which the date is March 1, 1997 1 SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
BALANCE AT BEGINNING CHARGED TO COSTS DEDUCTIONS-- BALANCE AT END DESCRIPTION OF PERIOD AND EXPENSE WRITE-OFFS OF PERIOD ----------- -------------------- ---------------- ------------ -------------- Year ended November 30, 1996 Reserve and allowance from asset accounts: Allowance for doubtful accounts............. $293,796 $498,786 $(257,174) $535,408 Year ended November 30, 1995 Reserve and allowance from asset accounts: Allowance for doubtful accounts............. $203,872 $391,964 $(302,040) $293,796 Year ended November 30, 1994 Reserve and allowance from asset accounts: Allowance for doubtful accounts............. $219,979 $251,733 $(267,840) $203,872
2 EXHIBIT INDEX
SEQUENTIAL EXHIBIT NO. DESCRIPTION PAGE NO. ----------- ----------- ---------- *2.1 Stock Purchase Agreement dated as of March 1, 1997, by and among Carey International, Inc., Alfred J. Hemlock and Lupe C. Hemlock *2.2 Agreement and Plan of Merger dated as of March 1, 1997, by and among Carey International, Inc., Manhattan International Limousine Network Ltd., MLC Acquisition Corporation and Michael Hemlock *2.3 Form of Stockholder Action by Written Consent Adopted in Connection with the Recapitalization ++2.4 Amended and Restated Agreement of Plan of Merger made as of October 10, 1997 by and amoung Carey International, Inc., Carey Limousine Indiana, Inc., Indy Connection Limousines, Inc., Transit Tours, Inc., K.D. & Associates Professional Corporation, Craig Del Fabro and Kim Del Fabro. *3.1 Form of Amended and Restated Certificate of Incorporation of the Company *3.2 Amended and Restated Bylaws of the Company *4.1 Specimen Stock Certificate *4.2 Form of Warrants *4.3 Carey International, Inc. Common Stock Purchase Warrant dated September 1, 1991, issued to Yerac Associates, L.P. *4.4 Form of Registration Rights Agreement between Carey International, Inc. and Michael Hemlock **5 Opinion of Nutter, McClennen & Fish, LLP *10.1 1997 Equity Incentive Plan *10.2 1992 Stock Option Plan *10.3 1987 Stock Option Plan *10.4 Stock Plan for Non-Employee Directors *10.5 Lease dated July 5, 1989 for 4530 Wisconsin Avenue, Washington, D.C., between Carey International, Inc. and 4530 Wisconsin Associates, as lessor, including Addendum, Exhibit B and Exhibit C; and Second Amendment to Lease dated August 6, 1993, including Exhibit A *10.6 Form of Escrow Agreement by and among Michael Hemlock, Alfred J. Hemlock, Lupe C. Hemlock and a bank to be named *10.7 Current Form of Standard Master License Agreement *10.8 Form of Standard International License Agreement *10.9 Form of Promissory Notes in connection with Acquisition of Manhattan Limousine *10.10 Current Form of Standard Independent Operator Agreement *10.11 Form of Revolving Credit and Term Loan Agreement by and among Carey International, Inc., certain of its direct and indirect wholly-owned subsidiaries, and Fleet Bank, N.A, Banco Popular de Puerto Rico and George Mason Bank +11 Statements Regarding Computation of Per Share Earnings *21 Subsidiaries of the Registrant +23.1 Consent of Coopers & Lybrand L.L.P. +23.2 Consent of Coopers & Lybrand L.L.P. +23.3 Consent of Coopers & Lybrand L.L.P. +23.4 Consent of Coopers & Lybrand L.L.P. +23.5 Consent of Coopers & Lybrand, Chartered Accountants and Registered Auditors +23.6 Consent of Coopers & Lybrand, Chartered Accountants and Registered Auditors **23.7 Consent of Nutter, McClennen & Fish, LLP (contained in Exhibit 5) **24 Power of Attorney (contained in the signature page to this Registration Statement)
- -------- * Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 333-22651). ** Previously filed. + Filed herewith. ++ Incorporated by reference to the Company's Current Report on Form 8-K dated October 31, 1997. EX-11 2 EXHIBIT 11 Exhibit 11 STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS HISTORICAL EARNINGS PER SHARE
For the nine months ended For the year ended November 30, August 31, ------------------------------------------ ---------------------------- 1994 1995 1996 1996 1997 ----------- ----------- ------------ ---------------------------- Net income (loss) available to common shareholders: Net income (loss) $ (128,993) $ (195,195) $ 2,816,104 $ 930,670 $ 1,747,247 Preferred stock dividends (8,750) (4,375) -- -- -- ----------- ----------- ------------ ----------- -------------- Net income (loss) available to common shareholders $ (137,743) $ (199,570) $ 2,816,104 $ 930,670 $ 1,747,247 =========== =========== ============ =========== ============== Common stock and common stock equivalents: Weighted average shares outstanding 623,092 630,938 655,773 655,773 2,753,939 Convertible Securities: Series B Preferred Stock 663,761 663,761 663,761 663,761 445,738 Series F Preferred Stock 135,025 135,025 135,025 135,025 90,674 Series G Preferred Stock 673,638 673,638 673,638 673,638 452,370 Options (calculated on Treasury Method) 1987 Plan 24,561 11,790 21,374 21,374 16,956 Options and warrants issued within one year of the offering (calculated on Treasury Method): Vested options repriced or granted 207,020 207,020 207,020 207,020 296,162 Warrants repriced 65,782 65,782 65,782 65,782 80,391 ----------- ----------- ------------ ----------- -------------- 272,802 272,802 272,802 272,802 376,553 ----------- ----------- ------------ ----------- -------------- Total common stock and common stock equivalents 2,392,879 2,387,954 2,422,373 2,422,373 4,136,230 =========== =========== ============ =========== ============== Net income per common share $ (0.06) $ (0.08) $ 1.16 $ 0.38 $ 0.42 =========== =========== ============ =========== ==============
EXHIBIT 11 STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS (CONTINUED) PRO FORMA EARNINGS PER SHARE TO GIVE EFFECT TO THE RECAPITALIZATION (Presented on the face of the historical Statement of Operations)
For the year For the nine ended months ended November 30, 1996 August 31, 1997 ----------------- --------------- Pro forma net income: Net income $ 2,816,104 $ 1,747,427 Add back interest (tax affected at 40%) on debt included in Recapitalization: $2,000,000 subordinated note (7.74%) converted to stock in Recapitalization 92,879 46,440 $2,867,546 portion of subordinated note (12.0%) converted to stock in Recapitalization 206,464 103,232 ---------------- --------------- Pro forma net income $ 3,115,447 $ 1,897,099 ================ =============== Common stock and common stock equivalents: Historical weighted average shares outstanding 2,422,373 4,136,230 Less common stock equivalents included in historical earnings per share: Series B Preferred Stock (663,761) (445,738) Series F Preferred Stock (135,025) (90,674) Series G Preferred Stock (673,638) (452,370) Add effect of Recapitalization: Series A Preferred Stock 86,003 57,754 Series B Preferred Stock 663,761 445,738 Series F & G Preferred Stock 763,748 512,882 Shares for $2,867,546 of subordinated debt 616,544 414,030 Shares for $2,000,000 of subordinated debt 430,015 288,769 ----------------- --------------- Total pro forma common stock and common stock equivalents 3,510,020 4,866,621 ================ =============== Pro forma net income per common share $ 0.89 $ 0.39 ================ ===============
STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS (CONTINUED) PRO FORMA EARNINGS PER SHARE TO GIVE EFFECT TO THE RECAPITALIZATION AND THE OFFERING (Presented on the face of the Pro Forma Statement of Operations)
November 30, August 31, 1996 1997 ------------ ---------- Pro forma net income............................... $ 3,798,601 $ 3,007,733 ============ =========== Common Stock and Common Stock Equivalents: Outstanding shares of the Company................ 655,773 6,842,729 Shares used to convert subordinated debt: Shares for $2,867,546 of subordinated debt..... 616,544 -- Shares for $2,000,000 of subordinated debt..... 430,015 -- Shares used to convert preferred stock: Series A Preferred Stock..................... 86,003 -- Series B Preferred Stock..................... 663,761 -- Series F Preferred Stock..................... 763,748 -- ------------ ---------- Total outstanding shares of the Company............ 3,215,844 6,842,729 ------------ ---------- Shares issued in acquisition of Indy Connection.. 721,783 721,783 ------------ ---------- Shares issued in acquisition of Manhattan Limousine...................................... 228,571 -- ------------ ---------- Conversion of debt............................... 48,107 -- ------------ ---------- Shares from offering: Shares to pay off debt in connection with the offering..................................... 841,810 -- Shares used to provide cash for purchase of Manhattan Limousine.......................... 722,991 -- Shares used to pay off debt from acquisition of Manhattan Limousine....................... 485,407 -- Shares used to pay off debt assumed in Manhattan Limousine acquisition.............. 383,789 -- Shares used to pay off debt and redeem preferred stock as part of Recapitalization.. 411,260 -- ------------ ---------- Shares used in offering..... 2,845,257 -- ------------ ---------- Total shares outstanding........................... 7,059,562 7,564,512 ------------ ---------- Common stock equivalents (calculated on Treasury Method): Vested Options outstanding....................... 207,020 296,162 Warrants outstanding............................. 65,782 80,391 ------------ ---------- Common stock equivalents.... 272,802 376,553 ------------ ---------- Total common stock and common stock equivalents.... 7,332,364 7,941,065 ============ ========== Pro forma earnings per common share................ $ 0.52 $ 0.38 ============ ==========
STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS (Continued) SUPPLEMENTAL HISTORICAL EARNINGS PER SHARE
For the nine months ended August 31, November 30, November 30, November 30, -------------------------- 1994 1995 1996 1996 1997 ------------ ------------ ------------ ------------ ------------ Net income (loss) available to common shareholders: Net income (loss)............................... $ (38,132) $ 98,121 $ 3,494,967 $ 1,466,604 $ 2,553,720 Preferred stock dividends....................... (8,750) (4,375) (900) (900) -- ------------ ------------ ------------ ------------ ------------ Net income (loss) available to common shareholders.................................. $ (46,882) $ 93,746 $ 3,494,067 $ 1,465,704 $ 2,553,720 ============ ============ ============ ============ ============ Common Stock and Common Stock Equivalents: Weighted average shares outstanding............. 1,323,415 1,332,879 1,359,073 1,357,714 3,475,722 Convertible Securities Series B Preferred Stock...................... 663,761 663,761 663,761 663,761 445,738 Series F Preferred Stock...................... 135,025 135,025 135,025 135,025 90,674 Series G Preferred Stock...................... 673,638 673,638 673,638 673,638 452,370 Options (calculated on Treasury Method) 1987 Plan.......................................... 24,561 11,790 21,374 21,374 16,956 Options and warrants issued within one year of the offering (calculated on Treasury Method): Vested options repriced or granted............ 207,020 207,020 207,020 207,020 296,162 Warrants repriced............................. 65,782 65,782 65,782 65,782 80,391 ------------ ------------ ------------ ------------ ------------ 272,802 272,802 272,802 272,802 376,553 ------------ ------------ ------------ ------------ ------------ Total common stock and common stock equivalents............................... 3,093,202 3,089,895 3,125,673 3,124,314 4,858,013 ============ ============ ============ ============ ============ Earnings (loss) per common share.................. (0.02) 0.03 1.12 $ 0.47 $ 0.53 ============ ============ ============ ============ ============
STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS (CONTINUED) SUPPLEMENTAL PRO FORMA EARNINGS PER SHARE TO GIVE EFFECT TO THE RECAPITALIZATION (Presented on the face of the November 30, 1996, and August 31, 1997 Historical Supplemental Statements of Operations)
For the nine November 30, months ended 1996 August 31, 1997 ---------------- --------------- Pro forma net income: Net income available to common shareholder.............. $ 3,494,067 $ 2,553,720 Add back interest (tax affected) on debt included in Recapitalization: $2,000,000 subordinated note (7.74%) converted to stock in Recapitalization............................. 92,879 46,440 $2,867,546 subordinated note (12.0%) converted to stock in Recapitalization.......................... 206,464 103,232 ---------------- --------------- Pro forma net income.................................... $ 3,793,410 $ 2,703,392 ================ =============== Common Stock and Common Stock Equivalents: Historical weighted average shares outstanding.......... 3,142,376 4,858,013 Add back: Less common stock equivalents included in historical earnings per share: Series B Preferred Stock.............................. (663,761) (445,738) Series F Preferred Stock.............................. (135,025) (90,674) Series G Preferred Stock.............................. (673,638) (452,370) Add effect of Recapitalization: Series A Preferred Stock.............................. 86,003 57,754 Series B Preferred Stock.............................. 663,761 445,738 Series F & G Preferred Stock.......................... 763,748 512,882 Shares for $2,867,546 of subordinated debt............ 616,544 414,030 Shares for $2,000,000 of subordinated debt............ 430,015 288,769 ---------------- --------------- Total pro forma common stock and common stock equivalents............................................ 4,230,023 5,588,404 ================ =============== Pro forma earnings per common share....................... $ 0.90 $ 0.48 ================ ===============
EX-23.1 3 EXHIBIT 23.1 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-4 of our report dated January 31, 1997, except for Notes 1, 2 and 18, as to which the date is March 1, 1997, on our audits of the consolidated financial statements and financial statement schedule of Carey International, Inc. and subsidiaries as of November 30, 1996 and 1995, and for each year in the three year period ended November 30, 1996. The report on the consolidated financial statements includes an explanatory paragraph relating to a restatement for a change in the revenue recognition method. We also consent to the reference to our firm under the caption "Experts." /s/ Coopers & Lybrand L.L.P. ---------------------------- Coopers & Lybrand L.L.P. Washington, D.C. January 20, 1998 EX-23.2 4 EXHIBIT 23.2 Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-4 of our report dated January 31, 1997, except for Note 18, as to which the date is March 1, 1997, and Notes 1, 2 and 13 and the fourth paragraph of our report, as to which the date is January 9, 1998, on our audits of the supplemental consolidated financial statements of Carey International, Inc. and Subsidiaries as of November 30, 1996 and 1995, and for each year in the three year period ended November 30, 1996. The report on the supplemental consolidated financial statements includes an explanatory paragraph relating to a restatement for a change in the revenue recognition method. We also consent to the reference to our firm under the caption "Experts." /s/ Coopers & Lybrand L.L.P. ---------------------------- Coopers & Lybrand L.L.P. Washington, D.C. January 20, 1998 EX-23.3 5 EXHIBIT 23.3 EXHIBIT 23.3 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-4 of our report dated November 14, 1997, on our audit of the consolidated financial statements of Indy Connection Limousines, Inc. and subsidiary as of September 30, 1997, and for the year then ended. We also consent to the reference to our firm under the caption "Experts". /s/ Coopers & Lybrand ------------------------- COOPERS & LYBRAND Washington, D.C. Janaury 20, 1998 EX-23.4 6 EXHIBIT 23.4 Exhibit 23.4 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-4 of our report dated March 1, 1997, except for Note 10, as to which the date is April 22, 1997, on our audit of the combined financial statements of Manhattan International Limousine Network, Ltd. and Affiliate as of September 30, 1996, and for the year then ended, which includes as explanatory paragraph relating to a restatement for a change in the revenue recognition method and to record previously unrecorded costs related to services provided by independent service companies. We also consent to the reference to our firm under the caption "Experts". /s/ Coopers & Lybrand L.L.P. ----------------------------- COOPERS & LYBRAND LLP Washington, D.C. January 20, 1998 EX-23.5 7 EXHIBIT 23.5 Exhibit 23.5 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-4 of our report dated February 26, 1996, except for Notes 15 and 16 which are dated February 25, 1997, on our audit of the financial statements of Camelot Barthropp Limited (formerly Speed 6060 Limited) for the years ended December 31, 1995. We also consent to the reference to our firm under the caption "Experts." /s/ Coopers & Lybrand L.L.P. ----------------------------- COOPERS & LYBRAND LLP London, United Kingdom January 20, 1998 EX-23.6 8 EXHIBIT 23.6 Exhibit 23.6 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-4 of our report dated February 26, 1996, except for Note 16 which is dated February 28, 1997, on our audits of the financial statements of Speed 6060 Limited (formerly Camelot Barthropp Limited) for the years ended December 31, 1994 and 1995. We also consent to the reference to our firm under the caption "Experts." COOPERS & LYBRAND LLP London, United Kingdom January 20, 1998 EX-27 9 EXHIBIT 27
5 9-MOS NOV-30-1997 DEC-01-1996 AUG-31-1997 5,277,921 0 9,874,396 410,028 0 16,468,734 4,589,016 2,917,186 74,044,283 13,297,687 0 0 0 68,427 43,612,338 74,044,283 52,050,523 52,050,523 35,597,997 48,500,854 0 0 904,896 2,974,610 1,227,183 1,747,427 0 0 0 1,747,427 0.39 0
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