-----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, DqokCN+OEfuf63+eIeTllyz2jQxchoE/wkT6rKtMjnUs9cpGRLvZ8/YwgIdDxRsU vzE+XnNaJshCQT04aFuE1g== 0000928385-98-000055.txt : 19980114 0000928385-98-000055.hdr.sgml : 19980114 ACCESSION NUMBER: 0000928385-98-000055 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19971031 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980113 SROS: NONE 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: 8-K/A SEC ACT: SEC FILE NUMBER: 000-22551 FILM NUMBER: 98505775 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 8-K/A 1 FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ------------- FORM 8-K/A ------------- CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 October 31, 1997 ----------------------------- (Date of Report) (Date of earliest event reported) CAREY INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 000-22551 52-1171965 (State of incorporation (Commission (IRS Employer or organization) File Number) Identification No.) 4530 Wisconsin Avenue, NW, Fifth Floor Washington, DC 20016 (202) 895-1200 (Address of principal executive offices, including zip code and telephone numbers) N/A ----------------------------------------------------------------- (Former name or former address, if changed since last report) Item 5. Other Events ------------ The supplemental consolidated financial statements of Carey International, Inc. and Subsidiaries as of November 30, 1995 and 1996, and August 31, 1997, for each of the years in the three-year period ended November 30, 1996 and for the three month and nine month periods ended August 31, 1997 and 1996, together with the related supplemental schedules and supplemental Management's Discussion and Analysis of Results of Operations and Financial Condition, in each case as restated for the merger of Carey International, Inc. with and into Indy Connection Limousines, Inc. and Subsidiary (consummated on October 31, 1997) accounted for as a pooling-of-interests under Accounting Principles Board Opinion No. 16, are filed as exhibits hereto and incorporated by reference herein. Item 7. Financial Statements, Pro Forma Financial Information ----------------------------------------------------- a. Financial statements of business acquired. 1 Indy Connection Limousines, Inc. Financial Statements b. Pro forma financial information The supplemental financial data schedules (Exhibits 99.1 to 99.8) provide the pro forma financial information giving effect to the acquisition of Indy Connection Limousines, Inc. c. Exhibits. -------- The following exhibits are filed herewith: 2.1 Amended and Restated Agreement and Plan of Merger made as of October 10, 1997 by and among Carey International, Inc., Carey Limousine Indiana, Inc., Indy Connection Limousines, Inc., Transit Tours, Inc., KD & Associates Professional Corporation, Craig Del Fabro and Kim Del Fabro. (Previously provided with companies 8-K filed November 13, 1997.) 11 Supplemental Computations of Earnings Per Share 23 Consent of Coopers & Lybrand L.L.P. 99.1 Supplemental consolidated financial statements of Carey International, Inc. and Subsidiaries as of August 31, 1997, and for the three and nine month periods ended August 31, 1997 and 1996, restated for the merger of Carey International, Inc. and Indy Connection Limousine, Inc. and Subsidiary (consummated on October 31, 1997) accounted for as a pooling-of-interests under Accounting Principles Board Opinion No. 16 ("APB No. 16"). Item 7. Financial Statements, Pro Forma Financial Information, (Continued) ------------------------------------------------------------------ c. Exhibits. -------- 99.2 Supplemental consolidated financial statements of Carey International, Inc. and Subsidiaries as of November 30, 1996 and 1995, and for each of the years in the three-year period ended November 30, 1996 restated for the merger of Carey International, Inc. and Indy Connection Limousine, Inc. and Subsidiary (consummated on October 31, 1997) accounted for as a pooling-of- interests under Accounting Principles Board Opinion No. 16. 99.3 Supplemental Management's Discussion and Analysis of Financial Condition and Results of Operation restated for the merger of Carey International, Inc. and Indy Connection Limousine, Inc. and Subsidiary (consummated on October 31, 1997) accounted for as a pooling-of-interests under Accounting Principles Board No. 16. 99.4 Supplemental Financial Data Schedules as of and for the nine month period ended August 31, 1997. 99.5 Supplemental Financial Data Schedule for the nine month period ended August 31, 1996. 99.6 Supplemental Financial Data Schedules as of and for the year ended November 30, 1996. 99.7 Supplemental Financial Data Schedules as of and for the year ended November 30, 1995. 99.8 Supplemental Financial Data Schedule for the year ended November 30, 1994. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CAREY INTERNATIONAL, INC. By: /s/ David H. Haedicke ---------------------------------- David H. Haedicke Executive Vice President Chief Financial Officer Date: January 13, 1998 EX-1 2 EXHIBIT 1 Exhibit 1 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. Washington, D.C. November 14, 1997 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 Total 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. 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....................... 45,943 ---------- Total other expenses, net....................................... (100,932) ---------- Income before income taxes.......................................... 1,519,584 Provision for income taxes.......................................... 559,361 ---------- Net income.......................................................... $960,223 ==========
The accompanying notes are an integral part of these consolidated financial statements. 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. 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. 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. 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. 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. 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. EX-11 3 EXHIBIT 11 Exhibit 11 STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS SUPPLEMENTAL HISTORICAL EARNINGS PER SHARE
November 30, November 30, November 30, 1994 1995 1996 ------------ ------------ ------------ Net income (loss) available to common shareholders: Net income (loss).................................... $ (38,132) $ 98,121 $ 3,494,967 Preferred stock dividends............................ (8,750) (4,375) (900) ------------ ------------ ------------ Net income (loss) available to common shareholders... $ (46,882) $ 93,746 $ 3,494,067 ============ ============ ============ Common Stock and Common Stock Equivalents: Weighted average shares outstanding.................. 1,323,415 1,332,879 1,359,073 Convertible Securities: Series B Preferred Stock............................ 663,761 663,761 663,761 Series F Preferred Stock............................ 135,025 135,025 135,025 Series G Preferred Stock............................ 673,638 673,638 673,638 Options (calculated on Treasury Method) 1987 Plan.... 24,561 11,790 21,374 Options and warrants issued within one year of the offering (calculated on Treasury Method): Vested options repriced or granted.................. 219,706 219,706 219,706 Warrants repriced................................... 69,799 69,799 69,799 ------------ ------------ ------------ 289,505 289,505 289,505 ------------ ------------ ------------ Total common stock and common stock equivalents... 3,109,905 3,106,598 3,142,376 ============ ============ ============ Earnings (loss) per common share...................... $ (0.02) $ 0.03 $ 1.11 ============ ============ ============
11.1 STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS SUPPLEMENTAL HISTORICAL EARNINGS PER SHARE
For the three months ended For the nine months ended August 31, August 31, ---------------------------- --------------------------- 1996 1997 1996 1997 ------------ ------------ ------------ ------------ Net income available to common shareholders: Net income................................................... $ 680,613 $ 1,129,222 $ 1,466,604 $ 2,553,720 Preferred stock dividend..................................... - - (900) - ------------ ------------ ------------ ------------ Net income available to common shareholders.................. $ 680,613 $ 1,179,722 $ 1,465,704 $ 2,553,720 ============ ============ ============ ============ Common stock and common stock equivalents: Weighted average shares outstanding.......................... 1,357,714 7,468,832 1,357,714 3,475,722 Convertible Securities: Series B Preferred Stock.................................. 663,761 14,430 663,761 445,738 Series F Preferred Stock.................................. 135,025 2,935 135,025 90,674 Series G Preferred Stock.................................. 673,638 14,644 673,638 452,370 Options (calculated on Treasury Method) 1987 Plan............ 21,374 16,956 21,374 16,956 Options and warrants issued within one year of the offering (calculated on Treasury Method): Vested options repriced or granted........................ 207,020 297,690 207,020 296,162 Warrants repriced......................................... 65,782 89,547 65,782 80,391 ------------ ------------ ------------ ------------ 272,802 387,237 272,802 376,553 ------------ ------------ ------------ ------------ Total common stock and common stock equivalents.............. 3,124,314 7,905,034 3,124,314 4,858,013 ============ ============ ============ ============ Net income per common share.................................. $ 0.22 $ 0.15 $ 0.47 $ 0.53 ============ ============ ============ ============
11.2 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 November 30, 1996, and August 31, 1997 Supplemental Statements of Operations)
For the three For the nine November 30, months ended months ended 1996 August 31, 1997 August 31, 1997 --------------- --------------- --------------- Pro forma net income: Net income available to common shareholder..................................... $ 3,494,067 $ 1,179,722 $ 2,553,720 Add back interest (net of applicable income taxes) 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 $ 1,179,722 $ 2,703,392 =============== =============== =============== Common Stock and Common Stock Equivalents: Historical weighted average shares outstanding................................. 3,142,376 7,905,034 4,858,013 Add back: Less common stock equivalents included in historical earnings per share: Series B Preferred Stock...................................................... (663,761) (14,430) (445,738) Series F Preferred Stock...................................................... (135,025) (2,935) (90,674) Series G Preferred Stock...................................................... (673,638) (14,644) (452,370) Add effect of Recapitalization: Series A Preferred Stock...................................................... 86,003 1,870 57,754 Series B Preferred Stock...................................................... 663,761 14,430 445,738 Series F & G Preferred Stock.................................................. 763,748 16,603 512,882 Shares for $2,867,546 of subordinated debt.................................... 616,544 13,403 414,030 Shares for $2,000,000 of subordinated debt.................................... 430,015 9,348 288,769 --------------- --------------- --------------- Total pro forma common stock and common stock equivalents...................... 4,230,023 7,928,679 5,588,404 =============== =============== =============== Pro forma earnings per common share.............................................. $ 0.90 $ 0.15 $ 0.48 =============== =============== ===============
11.3 EX-23 4 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Carey International, Inc. on Form S-8 (File No. 333-32335) or our report dated November 14, 1997, on our audit of the consolidated financial statements of Indy Connection Limousines, Inc. as of September 30, 1997, and for the year then ended, which report is included in this Report on Form 8-K/A. Coopers & Lybrand L.L.P. Washington, DC January 13, 1997 EX-99.1 5 EXHIBIT 99.1 Exhibit 99.1 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
August 31, 1997 ------------ ASSETS (Unaudited) 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 supplemental consolidated financial statements. 1 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three months ended August 31, Nine months ended August 31, ------------------------------- ------------------------------ 1996 1997 1996 1997 ------------ ------------ ------------ ------------ Revenue, net........................................ $ 16,072,518 $ 22,932,463 $ 45,659,761 $ 57,217,364 Cost of revenue..................................... 10,600,231 15,358,731 30,281,404 38,022,538 ------------ ------------ ------------ ------------ Gross profit................................... 5,472,287 7,573,732 15,378,357 19,194,826 Selling, general and administrative expenses........ 4,128,861 5,551,586 12,085,577 14,271,544 ------------ ------------ ------------ ------------ Operating income............................... 1,343,426 2,022,146 3,292,780 4,923,282 Other income (expense): Interest expense.................................. (470,728) (169,919) (1,445,561) (1,022,554) Interest income................................... 55,223 111,142 109,402 170,397 Gain on sales of fixed assets..................... 82,830 38,993 245,489 179,471 ------------ ------------ ------------ ------------ Income before provision for income taxes............ 1,010,751 2,002,362 2,202,110 4,250,596 Provision for income taxes.......................... 330,138 822,640 735,506 1,696,876 ------------ ------------ ------------ ------------ Net income.......................................... $ 680,613 $ 1,179,722 $ 1,466,604 $ 2,553,720 ============ ============ ============ ============ Pro forma earnings per common share................. $ 0.15 $ 0.48 ============ ============ Pro forma weighted average common and common equivalent shares outstanding...................... 7,928,679 5,588,404 ============ ============
The accompanying notes are an integral part of these supplemental consolidated financial statements. 2 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 assets................... 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 assets................... (733,619) (453,038) Accounts payable and accrued expenses......................... (53,030) (1,675,064) Deferred rent and other long-term liabilities................. (43,264) (58,165) ------------ ------------ Net cash provided by operating activities................... 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 independent operators... 404,307 - Principal payments under capital lease obligations................. (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) financing 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 period..................... 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. 3 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 4 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 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. 5 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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. 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. 6 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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. 6. Net income per common share Net income per common share, on a historical basis, is as follows:
Three months ended Nine months ended August 31, August 31, ---------------------------- ---------------------------- 1996 1997 1996 1997 ------------ ------------ ------------ ------------ Net income available to common shareholders $ 680,613 $ 1,179,722 $ 1,465,704 $ 2,553,720 ============ ============ ============ ============ Weighted average common and common equivalent shares outstanding 3,124,314 7,905,034 3,124,314 4,858,013 ============ ============ ============ ============ Net income per common share $ 0.22 $ 0.15 $ 0.47 $ 0.53 ============ ============ ============ ============
7 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO THE SUPPLEMENTAL 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 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. 8 EX-99.2 6 EXHIBIT 99.2 Exhibit 99.2 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., 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. Washington, D.C. Coopers & Lybrand, L.L.P. 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 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
November 30, ---------------------------- ASSETS 1995 1996 ------------ ------------ 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, issued and outstanding............................ - - Common stock, $0.01 par value; issued and outstanding 1,377,556 shares............... 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. 2 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 =========== Weighted average common shares outstanding.................... 4,230,023 ===========
The accompanying notes are an integral part of these supplemental consolidated financial statements. 3 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 $ - ========== ========== ========== ========== ========== =============
Common Stock ---------------------- Additional Total Shares $ paid-in Accumulated stockholders' 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. 4 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 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. 5 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. 6 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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. 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, 7 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 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. 8 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 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 9 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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. 10 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 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). 11 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 ============ ============
12 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. subsidiaries. Interest only is 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 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 restrictive covenants. The agreement was subsequently renegotiated at similar terms........................................................... 845,753 411,402
13 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 guaranty by the former owners of Indy Connection............................................... 390,263 363,705 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
14 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 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
15 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 ============ ============
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. 16 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 ============
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. 17 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 ============ ============ ============
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 14.7 1.0 -------- -------- -------- 130.6% 76.7% 7.9% ======== ======== ========
18 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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. 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 preference 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 (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). 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 Directors............................................................... 498,900 498,900
19 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Class B, par value $4.00, 20,000 shares, authorized, issued and outstanding (All shares were redeemed at September 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 lease $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 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. 20 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 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) 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 ============ ============ ============
21 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 based upon their estimated fair values with any remaining considerations allocated to either franchise rights or goodwill, as follows: 22 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 ============ ============
23 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 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. 24 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL 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 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). 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). 25 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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........... 3,109,905 3,106,598 3,142,376 ========== ========== ========== Net income (loss) per common share................. $ (0.02) $ 0.03 $ 1.11 ========== ========== ==========
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 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 26 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 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. 27 EX-99.3 7 EXHIBIT 99.3 Exhibit 99.3 SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Supplemental Consolidated Financial Statements and related notes thereto Supplemental 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 77.6% and 76.1%, respectively, of the Company's revenue, net was generated by chauffeured vehicle services provided by the Company's owned and operated businesses, approximately 14.5% and 14.1%, respectively, was generated by chauffeured vehicle services provided by the Company's licensees and billed by the Company, and approximately 2.2% and 1.8%, 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 2.4% and 3.0%, 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 of 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 service provided less a referral fee ranging from 15% to 25% of net vehicle service revenue. Cost of revenue includes costs associated with owning and maintaining the vehicles owned by the Company, telecommunications expense, 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 ten 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 1 SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued) license was acquired) and/or intangibles. In addition, the Company completed a merger with Indy Connection which was accounted for as a pooling-of-interests. 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 ------ ------ ------ ----------- ----------- Revenue, net................ 100.0% 100.0% 100.0% 100.0% 100.0% Cost of revenue ............ 68.7 67.4 66.6 66.3 66.5 ------ ------ ------ ----------- ----------- Gross profit................ 31.3 32.6 33.4 33.7 33.5 Selling, general and administrative expense..... 27.4 28.8 25.5 26.5 24.9 ------ ------ ------ ----------- ----------- Operating income............ 3.9 3.8 7.9 7.2 8.6 Interest income (expense) and other income (expense). (3.6) (3.0) (2.1) 2.4 1.2 ------ ------ ------ ----------- ----------- Income before provision for income taxes........... 0.3 0.8 5.8 4.8 7.4 Provision for income taxes. 0.4 0.6 0.5 1.6 2.9 ------ ------ ------ ----------- ----------- Net income (loss)........... (0.1%) 0.2% 5.3% 3.2% 4.5% ====== ====== ====== =========== ===========
Three Months Ended August 31, 1997 (the "1997 Period") Compared to Three Months Ended August 31, 1996 (the "1996 Period") Revenue, Net. Revenue, net increased $6.9 million or 42.7% from $16.1 million in the 1996 Period to $22.9 million in the 1997 Period. Of the increase, $2.1 million resulted from expanded use of the Carey network, including an increase in business from corporate travel customers and business travel arrangers. A further $4.8 million of the increase was due to the revenues of Manhattan International Limousine Network Ltd ("Manhattan Limousine"), which was acquired on June 2, 1997. 2 SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued) Cost of Revenue. Cost of revenue increased $4.8 million or 44.9% from $10.6 million in the 1996 Period to $15.4 million in the 1997 Period. The increase was primarily attributable to higher costs due to increased business levels and to cost of revenue of Manhattan Limousine, which was not included in the 1996 Period. Cost of revenue increased as a percentage of revenue, net from 66.0% in the 1996 Period to 67.0% in the 1997 Period, primarily reflecting increases in telephone, chauffeur and certain other costs as a percentage of revenue, net. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased approximately $1.4 million or 34.5% from $4.1 million in the 1996 Period to $5.6 million in the 1997 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 25.7% in the 1996 Period to 24.2% in the 1997 Period as a result of an increase in revenue, net without a corresponding increase in administrative costs. Interest Expense. Interest expense decreased approximately $301,000 or 63.9% from approximately $471,000 in the 1996 Period to approximately $170,000 in the 1997 Period. Interest expense decreased as a percentage of revenue, net from 2.9% in the 1996 Period to 0.7% in the 1997 Period. The decrease resulted from both the use of proceeds from the Company's initial public offering ("IPO") to repay outstanding debt and the 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 $493,000 from approximately $330,000 in the 1996 Period to approximately $823,000 in the 1997 Period. The increase primarily related to the increase in pre-tax income of the Company from approximately $1.0 million in the 1996 Period to $2.0 million in the 1997 Period. In addition, the Company utilized the benefit of a net operating loss carryovers ("NOLs") in determining its provision for income taxes in the 1996 Period, but such NOLs were not available to the Company in the 1997 Period. Net Income. As a result of the foregoing, the Company's net income increased approximately $499,000 or 73.3% from approximately $681,000 in the 1996 Period to approximately $1.2 million in the 1997 Period. 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 $11.6 million or 25.3% from $45.6 million in the 1996 Nine-Month Period to $57.2 million in the 1997 Nine-Month Period. Of the increase, approximately $5.9 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 $7.7 million or 25.6% from $30.3 million in the 1996 Nine-Month Period to $38.0 million in the 1997 Nine-Month Period. The increase was primarily attributable to higher costs due to increased business levels and to costs of revenue of Manhattan 3 SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued) 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 66.3% in the 1996 Nine-Month Period to 66.5% 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 1997 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. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased approximately $2.2 million or 18.1% from $12.1 million in the 1996 Nine-Month Period to $14.3 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 24.9% 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 $423,000 or 29.3% from $1.4 million in the 1996 Nine-Month Period to approximately $1.0 million 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 1.8% 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 $961,000 from approximately $736,000 in the 1996 Nine-Month Period to $1.7 million in the 1997 Nine-Month Period. The increase primarily related to the increase in pre-tax income of the Company from $2.2 million in the 1996 Nine-Month Period to $4.3 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 $1.1 million or 74.1% from approximately $1.5 million in the 1996 Nine-Month Period to $2.6 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 $16.6 million or 33.8% from $49.0 million in the 1995 to $65.5 million in 1996. Of the increase, approximately $10.2 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 not acquired from December 1994 through February 1996. Cost of Revenue. Cost of revenue increased approximately $10.6 million or 32.2% from $33.0 million in 1995 to $43.6 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 67.4% in 4 SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued) 1995 to 66.6% 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 Expenses. Selling, general and administrative expenses increased approximately $2.6 million or 18.8% from $14.1 million in 1995 to $16.7 million in 1996. The increase was largely due to higher administrative costs associated with additional personnel, increased marketing expenses, and higher amortization of intangibles as a result of the acquisitions. Selling, general and administrative expenses decreased as a percentage of revenue, net from 28.8% in 1995 to 25.5% in 1996 as a result of an increase in revenue without a corresponding increase in administrative costs. Interest Expense. Interest expense was $1.9 million or in each of 1995 and 1996, respectively. Interest expense decreased as a percentage of revenue, net from 3.9% in 1995 to 2.9% in 1996. Provision for Income Taxes. The provision for income taxes increased approximately $24,000 from approximately $271,000 in 1996 to approximately $294,000 in 1996. 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. As a result of the foregoing, the Company's net income increased approximately $3.4 million from approximately $3.5 million in 1996 compared to a net income of approximately $98,000 in 1995. Year Ended November 30, 1995 Compared to Year Ended November 30, 1994 Revenue, Net. Revenue, net increased approximately $8.1 million or 21.5% from $40.3 million in 1994 to $49.0 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 $4.0 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 $5.3 million or 19.2% from $27.7 million in 1994 to $33.0 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 68.7% in 1994 to 67.4% in 1995 as a result of increased utilization of the Company's operating resources and the implementation, in mid-1995, of charges of licensees for central reservation and billing services which did not result in a corresponding increase in cost. 5 SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued) Selling, General and Administrative Expenses. Selling, general and administrative expenses increased approximately $3.0 million or 27.5% from $11.0 million in 1994 to $14.1 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 27.4% in 1994 to 28.8% 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 $398,000 or 26.3% from approximately $1.5 million in 1994 to $1.9 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 increased approximately $98,000 from approximately $163,000 in 1994 to approximately $271,000 in 1995. The tax provisions reflects the separate tax provisions of Carey International, Inc. and Subsidiaries and Carey of Indiana, Inc. prior to the two companies becoming a consolidated tax payer. Net Income. As a result of the foregoing, the Company's net income increased approximately $136,000 from approximately $108,000 in 1995 compared to a net loss of approximately $38,000 in 1994. Quarterly Results The following table presents unaudited quarterly financial information for 1995, 1996 and the first two 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 ------------------------------------------- ------------------------------------------ Feb. May Aug. Nov. Feb. May Aug. Nov. 28 31 31 30 29 31 31 30 ------- ------- ------- ------- ------- ------- ------- ------- (In thousands) Revenue, net.............. $9,503 $11,865 $11,686 $15,916 $12,892 $16,695 $16,073 $19,885 Gross profit.............. 3,081 3,874 3,610 5,376 4,232 5,674 5,472 6,517 Operating income (loss)... (42) 548 (27) 1,382 490 1,459 1,343 1,876 Quarter Ended ------------------------------- 1997 ------------------------------- Feb. May Aug. 28 31 31 ------- ------- ------ Revenue, net.............. $15,595 $18,690 $2,932 Gross profit.............. 5,126 6,495 7,574 Operating income (loss)... 912 1,990 2,022 Quarter Ended ------------------------------------------------------------------------------------------- 1995 1996 ------------------------------------------- ------------------------------------------ Feb. May Aug. Nov. Feb. May Aug. Nov. 28 31 31 30 29 31 31 30 ------- ------- ------- ------- ------- ------- ------- ------- (In thousands) Revenue, net.............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Gross profit.............. 32.4 32.7 30.9 33.8 32.8 34.0 34.0 32.8 Operating income (loss)... (0.4)% 4.6% (0.2)% 8.7% 3.8% 8.7% 8.4% 9.4% Quarter Ended ------------------------------- 1997 ------------------------------- Feb. May Aug. 28 31 31 ------- ------- ------ Revenue, net.............. 100.0% 100.0% 100.0% Gross profit.............. 32.9 34.8 33.0 Operating income (loss)... 5.8% 10.6% 8.8%
6 SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued) 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 $2.7 million from $2.9 million at November 30, 1996 to $5.6 million at August 31, 1997. Operating activities provided net cash of $2.8 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 $7.1 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 $10.1 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 subordinated indebtedness of approximately $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 $3.4 million. The remaining net proceeds will be used for acquisitions and other general corporate purposes, including working capital. 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 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 7 SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued) 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. 8 EX-99.4 8 EXHIBIT 99.4 Exhibit 99.4 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING BALANCE SHEET AUGUST 31, 1997
Carey Indy International, Connection Inc. Limousine, Inc. 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 0 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 Preferred stock 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 ============== =============== ================ ============
99.4.1 EXHIBIT 99.4 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED AUGUST 31, 1997
Carey Indy International, Connection Inc. Limousine, Inc. Eliminations Total -------------- --------------- ------------ ----------- Revenue, net $ 52,050,523 $ 5,230,482 $ (63,641) $57,217,364 Cost of revenue 35,597,997 2,488,182 (63,641) 38,022,538 -------------- --------------- ------------ ----------- Gross profit 16,452,526 2,742,300 19,194,826 Selling, general and administrative expense 12,902,857 1,368,687 14,271,544 -------------- --------------- ------------ ----------- Operating income 3,549,669 1,373,613 4,923,282 Other income (expense): Interest expense (904,896) (117,658) (1,022,554) Interest and other income 161,985 8,412 170,397 Gain on sales of fixed assets 167,852 11,619 179,471 -------------- --------------- ------------ ----------- Income before provision for income taxes 2,974,610 1,275,986 4,250,596 Provision for income taxes 1,227,183 469,693 1,696,876 -------------- --------------- ------------ ----------- Net income $ 1,747,427 $ 806,293 $ $ 2,553,720 ============== =============== ============ ===========
99.4.2 EX-99.5 9 EXHIBIT 99.5 EXHIBIT 99.5 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED AUGUST 31, 1996
Carey Indy International Connection Inc. Limousine, Inc. Eliminations Total --------------- --------------- --------------- --------------- REVENUE, NET $ 41,176,235 $ 4,508,460 $ (24,934) $ 45,659,761 COST OF REVENUE 27,950,106 2,356,232 (24,934) 30,281,404 --------------- --------------- --------------- --------------- GROSS PROFIT 13,226,129 2,152,228 0 15,378,357 SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 10,909,283 1,176,294 12,085,577 --------------- --------------- --------------- --------------- OPERATING INCOME 2,316,846 975,934 0 3,292,780 OTHER INCOME (EXPENSE): INTEREST EXPENSE (1,299,988) (145,573) 0 (1,445,561) INTEREST AND OTHER INCOME 104,689 4,713 0 109,402 GAIN ON SALES OF FIXED ASSETS 229,229 16,260 0 245,489 --------------- --------------- --------------- --------------- INCOME BEFORE PROVISION FOR INCOME TAXES 1,350,776 851,334 0 2,202,110 PROVISION FOR INCOME TAXES 420,106 315,400 0 735,506 --------------- --------------- --------------- --------------- NET INCOME $ 930,670 $ 535,934 $ 0 $ 1,466,604 =============== =============== =============== ===============
99.5.1 EX-99.6 10 EXHIBIT 99.6 EXHIBIT 99.6 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING BALANCE SHEET NOVEMBER 30, 1996
Carey Indy International, Connection Inc. Limousine, Inc. Eliminations Total -------------- --------------- ------------ ----------- ASSETS Cash and cash equivalents $ 2,754,276 $ 113,435 $ $ 2,867,711 Accounts receivable, net 10,141,732 400,599 10,542,331 Notes receivable from contracts, current portion 402,751 402,751 Prepaid expenses and other current assets 1,936,961 124,777 2,061,738 ------------- -------------- ------------ ----------- TOTAL CURRENT ASSETS 15,235,720 638,811 15,874,531 Fixed assets, net 3,379,246 2,255,664 5,634,910 Notes receivable from contracts, excluding current portion 769,201 769,201 Franchise rights, net 5,348,264 5,348,264 Trade name, trademark and contract rights, net 6,685,135 6,685,135 Goodwill and other intangible assets, net 7,262,203 23,730 7,285,933 Deferred tax assets 2,461,573 2,461,573 Deposits and other assets 1,384,787 34,219 1,419,006 ------------- -------------- ------------ ----------- TOTAL ASSETS $ 42,526,129 $ 2,952,424 $ $45,478,553 ============= ============== ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of notes payable $ 5,131,227 $ 727,022 $ $ 5,858,249 Current portion of capital leases 199,224 199,224 Current portion of subordinated notes payable 440,000 440,000 Accounts payable and accrued expenses 11,196,949 368,014 11,564,963 ------------- -------------- ------------ ----------- TOTAL CURRENT LIABILITIES 16,967,400 1,095,036 18,062,436 Notes payable, excluding current portion 5,188,742 847,222 6,035,964 Capital leases, excluding current portion 663,030 633,030 Subordinated notes payable, excluding current portion 5,340,000 5,340,000 Deferred rent and other long-term liabilities 111,281 111,281 Deferred tax liabilities 1,402,611 109,000 1,511,611 Deferred revenue 6,181,147 6,181,147 STOCKHOLDERS' EQUITY Preferred stock 1,115,400 1,115,400 Common stock 6,558 491,525 (484,307) 13,776 Additional paid-in capital 7,357,064 484,307 7,841,371 Accumulated deficit (1,807,104) 409,641 (1,397,463) ------------- -------------- ------------ ----------- TOTAL STOCKHOLDERS' EQUITY 6,671,918 901,166 7,573,084 ------------- -------------- ------------ ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 42,526,129 $ 2,952,424 $ $45,478,553 ============= ============== ============ ===========
99.6.1 EXHIBIT 99.6 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED NOVEMBER 30, 1996
Carey Indy International, Connection Inc. Limousine, Inc. Eliminations Total ---------------- ----------------- --------------- ---------------- Revenue, net $ 59,505,698 $ 6,080,105 $ (40,861) $ 65,544,942 Cost of revenue 40,438,449 3,251,590 (40,861) 43,649,178 ---------------- ----------------- --------------- ---------------- Gross profit 19,067,249 2,828,515 21,895,764 Selling, general and administrative expense 15,077,553 1,649,057 16,726,610 ---------------- ----------------- --------------- ---------------- Operating income 3,989,696 1,179,458 5,169,154 Other income (expense): Interest expense (1,704,187) (194,044) (1,898,231) Interest and other income 156,695 6,016 162,711 Gain (loss) on sales of fixed assets 269,654 86,100 355,754 ---------------- ----------------- --------------- ---------------- Income before provision for income taxes 2,711,858 1,077,530 3,789,388 Provision for income taxes (104,246) 398,667 294,421 ---------------- ----------------- --------------- ---------------- Net income $ 2,816,104 $ 678,863 $ $ 3,494,967 ================ ================= =============== ================
99.6.2 EX-99.7 11 EXHIBIT 99.7 EXHIBIT 99.7 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING BALANCE SHEETS NOVEMBER 30, 1995
Carey Indy International, Connection Inc. Limousine, inc. Eliminations Total -------------- --------------- ------------ ----------- ASSETS Cash and cash equivalents $ 1,438,659 $ 177,052 $ $ 1,615,711 Accounts receivable, net 9,023,016 341,340 9,364,356 Notes receivable from contracts, current portion 659,609 659,609 Prepaid expenses and other current assets 364,741 117,206 481,947 -------------- -------------- ------------ ----------- TOTAL CURRENT ASSETS 11,486,025 635,598 12,121,623 Fixed assets, net 2,185,071 2,133,640 4,318,711 Notes receivable from contracts, excluding current portion 193,298 193,298 Franchise rights, net 5,533,956 5,533,956 Trade name, trademark and contract rights, net 6,876,578 6,876,578 Goodwill and other intangible assets, net 7,113,684 25,579 7,139,263 Deferred tax assets 892,993 892,993 Deposits and other assets 1,615,316 37,576 1,652,892 -------------- -------------- ------------ ----------- TOTAL ASSETS $35,896,921 $2,832,393 $ $38,729,314 ============== ============== ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of notes payable $ 4,585,703 $ 779,709 $ $ 5,365,412 Current portion of capital leases 206,031 46,922 252,953 Current portion of subordinated notes payable 100,000 100,000 Accounts payable and accrued expenses 8,000,972 350,340 8,351,312 -------------- -------------- ------------ ----------- TOTAL CURRENT LIABILITIES 12,892,706 1,176,971 14,069,677 Notes payable, excluding current portion 7,361,749 1,278,020 8,639,769 Capital leases, excluding current portion 74,879 7,142 82,021 Subordinated notes payable, excluding current portion 5,780,000 5,780,000 Deferred rent and other long-term liabilities 148,195 148,195 Deferred tax liabilities 1,001,480 85,000 1,086,480 Deferred revenue 4,726,134 4,726,134 STOCKHOLDERS' EQUITY Preferred stock 1,212,900 40,000 1,252,900 Common stock 6,558 471,525 (464,506) 13,577 Additional paid-in capital 7,357,064 464,506 7,821,570 Accumulated deficit (4,664,744) (226,265) (4,891,009) -------------- -------------- ------------ ----------- TOTAL STOCKHOLDERS' EQUITY 3,911,778 285,260 4,197,038 -------------- -------------- ------------ ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $35,896,921 $2,832,393 $ $38,729,314 ============== ============== ============ ===========
99.7.1 EXHIBIT 99.7 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE YEAR ENDED NOVEMBER 30, 1995
Carey Indy International, Connection Inc. Limousine, Inc. Eliminations Total --------------- --------------- --------------- --------------- Revenue, net $ 43,483,947 $ 5,485,448 $ $ 48,969,395 Cost of revenue 29,942,961 3,084,248 33,027,209 --------------- --------------- --------------- --------------- Gross profit 13,540,986 2,401,200 15,942,186 Selling, general and administrative expense 12,419,062 1,662,090 14,081,152 --------------- --------------- --------------- --------------- Operating income 1,121,924 739,110 1,861,034 Other income (expense): Interest expense (1,682,886) (228,080) (1,910,966) Interest and other income 259,854 2,793 262,647 Gain on sales of fixed assets 130,913 25,092 156,005 --------------- --------------- --------------- --------------- Income before provision for income taxes (170,195) 538,915 368,720 Provision for income taxes 25,000 245,599 270,599 --------------- --------------- --------------- --------------- Net income $ (195,195) $ 293,316 $ $ 98,121 ================ ================ ================ ================
99.7.2 EX-99.8 12 EXHIBIT 99.8 EXHIBIT 99.8 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING FINANCIAL STATEMENTS OF OPERATIONS FOR THE YEAR ENDED NOVEMBER 30, 1994
Carey Indy International, Connection Inc. Limousine, Inc. Eliminations Total -------------- --------------- ------------- ------------ Revenue, net $ 35,525,309 $ 4,788,413 $ $ 40,313,722 Cost of revenue 24,953,904 2,745,773 27,699,677 -------------- --------------- ------------- ------------ Gross profit 10,571,405 2,042,640 12,614,045 Selling, general and administrative expense 9,486,797 1,556,152 11,042,949 -------------- --------------- ------------- ------------ Operating income 1,084,608 486,488 1,571,096 Other income (expense): Interest expense (1,348,883) (164,280) (1,513,163) Interest and other income 172,641 672 173,313 Loss on sales of assets (18,359) (88,209) (106,568) -------------- --------------- ------------- ------------ Income before provision for income taxes (109,993) 234,671 124,678 Provision for income taxes 19,000 143,810 162,810 -------------- --------------- ------------- ------------ Net income $ (128,993) $ 90,861 $ $ (38,132) ============== =============== ============= ============
99.8.1 -----END PRIVACY-ENHANCED MESSAGE-----