-----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, MoyufTjmR9iLRrfvmPz9cbwwhIqedAO22vtztXy21PS1hPbdGRrH3I39dZl7LbuE snMgp1S1Eb6FxsVYotdwPA== 0001036050-99-000803.txt : 19990415 0001036050-99-000803.hdr.sgml : 19990415 ACCESSION NUMBER: 0001036050-99-000803 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990414 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: 10-Q SEC ACT: SEC FILE NUMBER: 000-22551 FILM NUMBER: 99593743 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 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended February 28, 1999 ----------------- or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _________ to ________ COMMISSION FILE NUMBER 000-22551 CAREY INTERNATIONAL, INC. ------------------------- (Exact name of registrant as specified in its charter) DELAWARE 52-1171965 -------- ---------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 4530 WISCONSIN AVENUE, NW, SUITE 500, WASHINGTON, DC 20016 ---------------------------------------------------------- (Address of principal executive offices, including zip code) (202) 895-1200 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _______ ------ There were 9,579,664 shares of the registrant's common stock, par value $.01 per share, outstanding at April 13, 1999. CAREY INTERNATIONAL, INC. AND SUBSIDIARIES INDEX ----- PART I: FINANCIAL INFORMATION Item 1: Financial Statements (unaudited) Consolidated balance sheets as of November 30, 1998 and February 28, 1999 Consolidated statements of operations for the three month periods ended February 28, 1999 and 1998 Consolidated statements of cash flows for the three month periods ended February 28, 1999 and 1998 Notes to consolidated financial statements Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations PART II: OTHER INFORMATION Item 6: Exhibits and Reports on Form 8-K CAREY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
November 30, February 28, 1998 1999 ----------------- -------------- (Unaudited) ASSETS Cash and cash equivalents $ 14,456,241 $ 8,945,424 Accounts receivable, net 17,864,127 20,393,572 Notes receivable from contracts, current portion 1,249,117 1,198,898 Prepaid expenses and other current assets 1,291,508 2,220,142 ---------------- -------------- Total current assets 34,860,993 32,758,036 Fixed assets, net 12,912,287 15,819,584 Notes receivable from contracts, excluding current portion 9,538,856 9,584,679 Franchise rights, net 10,863,968 11,025,242 Trade name, trademark and contract rights, net 6,305,359 6,254,388 Goodwill and other intangible assets, net 53,273,552 60,185,600 Deposits and other assets 1,456,871 1,717,622 ---------------- -------------- Total assets $ 129,211,886 $ 137,345,151 ================ ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of notes payable $ 2,652,754 $ 3,330,251 Current portion of capital leases 384,511 103,818 Accounts payable and accrued expenses 18,086,507 17,931,056 ---------------- --------------- Total current liabilities 21,123,772 21,365,125 Notes payable, excluding current portion 1,665,194 6,258,782 Capital leases, excluding current portion 792,143 371,716 Deferred taxes and other long-term liabilities 406,835 1,311,404 Deferred revenue 15,085,118 14,972,902 Commitments and contingencies Stockholders' equity: Common stock, $.01 par value; 20,000,000 authorized shares, and 9,463,614 and 9,571,735 issued and outstanding shares in 1998 and 1999, respectively 94,636 95,717 Additional paid-in capital 78,668,859 79,940,159 Retained earnings 11,375,329 13,029,346 ---------------- -------------- Total stockholders' equity 90,138,824 93,065,222 ---------------- -------------- Total liabilities and stockholders' equity $ 129,211,886 $ 137,345,151 ================ ==============
The accompanying notes are an integral part of these consolidated financial statements. 1 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended February 28, ----------------------------------------- 1998 1999 ------------------ ------------------ (Unaudited) Revenue, net $ 23,650,588 $ 36,439,933 Cost of revenue 16,176,915 24,402,960 ---------------- ----------------- Gross profit 7,473,673 12,036,973 Selling, general and administrative expense 5,848,261 9,232,467 ---------------- ----------------- Operating income 1,625,412 2,804,506 Other income (expense): Interest expense (114,420) (107,758) Interest income 54,794 116,623 Gain on sales of fixed assets 32,198 32,485 ---------------- ----------------- Income before provision for income taxes 1,597,984 2,845,856 Provision for income taxes 680,741 1,192,760 ---------------- ----------------- Net income $ 917,243 $ 1,653,096 ================ ================= Net income per common share - basic $ 0.12 $ 0.17 ================ ================= Net income per common share - diluted $ 0.11 $ 0.17 ================ ================= Weighted average common shares used in computing net income per common share - basic 7,651,953 9,487,846 ================ ================= Weighted average common shares used in computing net income per common share - diluted 8,064,323 9,886,268 ================ =================
The accompanying notes are an integral part of these consolidated financial statements. 2 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended February 28, -------------------------------------- 1998 1999 ---------------- --------------- (Unaudited) Cash flows from operating activities: Net income $ 917,243 $ 1,653,096 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization of fixed assets 633,310 765,575 Amortization of intangible assets 409,702 694,363 Gain on sales of fixed assets (32,198) (32,485) Provision for deferred taxes (74,756) 907,260 Change in deferred revenue 241,975 (112,216) Changes in operating assets and liabilities: Accounts receivable 3,230,432 (1,787,415) Notes receivable from contracts (338,912) 4,396 Prepaid expenses, deposits and other assets (483,683) (993,997) Accounts payable and accrued expenses (3,361,407) (550,802) Deferred rent and other long-term liabilities (737,445) (2,691) ---------------- -------------- Net cash provided by operating activities 404,261 545,084 ---------------- -------------- Cash flows from investing activities: Proceeds from sales of fixed assets 518,584 281,825 Purchases of fixed assets (749,530) (1,558,288) Acquisitions of chauffeured vehicle service companies (1,171,636) (7,210,419) ---------------- -------------- Net cash used in investing activities (1,402,582) (8,486,882) ---------------- -------------- Cash flows from financing activities: Principal payments under capital lease obligations (248,733) (701,120) Payments of notes payable (474,802) (1,546,551) Proceeds from notes payable - 4,500,000 Issuance of common stock 174,987 178,652 ---------------- -------------- Net cash provided by (used in) financing activities (548,548) 2,430,981 ---------------- -------------- Net decrease in cash and cash equivalents (1,546,869) (5,510,817) Cash and cash equivalents at beginning of period 5,333,402 14,456,241 ---------------- -------------- Cash and cash equivalents at end of period $ 3,786,533 $ 8,945,424 ================ ============== The accompanying notes are an integral part of these consolidated financial statements.
3 CAREY INTERNATIONAL, INC. NOTES TO THE 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 465 cities in 65 countries. The Company owns and operates service providers in the form of wholly-owned subsidiaries in the following cities: Boston, Chicago, Indianapolis, Jacksonville, London, Los Angeles, Miami, New York, Philadelphia, San Francisco, Washington, D.C. and West Palm Beach. 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. The chauffeured vehicle service businesses that the Company seeks to acquire 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 three months of 1999, the Company acquired three chauffeured vehicle service companies in Miami and Jacksonville. (See Note 3) 2. BASIS OF PRESENTATION The accompanying consolidated financial statements and these notes do not include all of the disclosures included in the Company's audited consolidated financial statements for the years ended November 30, 1998 and 1997, and should be read in conjunction with those financial statements. For further information, such as the significant accounting policies followed by the Company, refer to the notes to the Company's audited consolidated financial statements. The consolidated financial statements included herein have not been audited. However, in the opinion of management, the 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. 4 CAREY INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 3. ACQUISITIONS In the periods ended 1998 and 1999, the following acquisition activity was recorded by the Company:
Three months ended February 28, --------------------------------- 1998 1999 ------------ ----------- Net assets purchased: Receivables and other assets $ 551,281 $ 969,295 Fixed assets 815,616 2,379,449 Franchise rights - 271,467 Goodwill and other intangibles assets 1,171,787 7,397,845 Accounts payable and accrued expenses (975,657) (396,272) Deferred taxes 160,000 - Capital leases (551,391) - -------------- ----------- $ 1,171,636 $10,621,784 ============== =========== Consideration: Cash payments $ 1,171,636 $ 7,210,419 Notes assumed related to vehicle acquisitions - 2,317,636 Issuance of stock (0 and 64,437 shares of common stock in 1998 and 1999, respectively) - 1,093,729 -------------- ----------- $ 1,171,636 $10,621,784 ============== ===========
5 CAREY INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 4. REVOLVING CREDIT FACILITY In January 1999, the Company entered into a new three-year Revolving Credit Facility consisting of an unsecured revolving line of credit of $75.0 million (the "Credit Facility"). The terms of the Credit Facility provide for two one-year extensions to its duration, subject to approval by the Company and the participating banks. Loans made under the Credit Facility will bear interest at the Company's option at either the bank's prime rate or at a varying rate above the LIBOR rate, depending on the ratio of the Company's debt to equity. Commitment fees equal to 0.375% per annum are payable on the unused portion of the Credit Facility. The terms of the Credit 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 subordinate to the borrowings under the Credit Facility and (iii) require the Company to comply with certain financial covenants. As of February 28, 1999, the Company had borrowed $4.5 million under the Credit Facility. 5. COMMITMENTS AND CONTINGENCIES The Company is from time to time a party to litigation arising in the ordinary of business. Management believes that no pending legal proceeding will have a material adverse effect on the business, financial condition, results of operations or cash flows of the Company. One of the corporations acquired by the Company has been examined by the Internal Revenue Service ("IRS") for periods prior to the acquisition date. The IRS has notified the acquired corporation of challenges to its methods of accounting and the tax treatment of certain items in those tax returns. The Company believes that any assessments ultimately sustainable by the IRS in this matter would be offset by Net Operating Loss Carryforwards (NOLs) of the acquired corporation and indemnification payments under the acquisition agreements, and would not have a material effect on the financial position, results of operations or cash flows of the Company. 6 CAREY INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 6. COMPREHENSIVE INCOME In 1999, the Company adopted SFAS No. 130, Comprehensive Income. Comprehensive income for the Company is calculated by adjusting "Net income" for the change in the unrealized gains or losses from foreign currency translations. For 1998 and 1999, comprehensive net income did not materially differ from net income. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS THREE MONTHS ENDED FEBRUARY 28, 1999 (THE "1999 PERIOD") COMPARED TO THREE MONTHS ENDED FEBRUARY 28, 1998 (THE "1998 PERIOD") Revenue, Net. Revenue, net increased $12.8 million or 54.1% from $23.7 million in the 1998 Period to $36.4 million in the 1999 Period. Of the increase, $3.4 million resulted from expanded use of the Carey network, including an increase in business from corporate travel customers and business travel arrangers. A further $9.4 million of the increase was due to the revenues from companies acquired by the Company. Cost of Revenue. Cost of revenue increased $8.2 million or 50.9% from $16.2 million in the 1998 Period to $24.4 million in the 1999 Period. The increase was primarily attributable to higher costs due to increased business levels and to increased costs associated with businesses acquired by Carey subsequent to the 1998 Period. Cost of revenue decreased as a percentage of revenue, net from 68.4% in the 1998 Period to 67.0% in the 1999 Period, primarily reflecting relatively lower reliance on subcontractors, or "farm-outs," to service higher levels of business during peak periods as well as a reduction of costs for businesses acquired that were not previously fully integrated into the Company's operations. Selling, General and Administrative Expense. Selling, general and administrative expense increased $3.4 million or 57.9% from $5.8 million in the 1998 Period to $9.2 million in the 1999 Period. The increase largely was due to the costs associated with higher business levels and costs of acquired businesses including personnel costs, administrative expenses and marketing expenses, and an increase in amortization of intangibles. Selling, general and administrative expense increased as a percentage of revenue, net from 24.7% in the 1998 Period to 25.3% in the 1999 Period as a result of platform acquisitions still in assimilation under the Company's acquisition transition program and incremental investment in infrastructure personnel and processes in the area of sales and marketing, technology, customer service and employee education and training. Provision for Income Taxes. The provision for income taxes increased approximately $512,000 from approximately $681,000 in the 1998 Period to $1.2 million in the 1999 Period. The increase primarily was a result of the increase in pre-tax income of the Company from $1.6 million in the 1998 Period to $2.8 million in the 1999 Period. As a result, the Company's effective tax rate was 42.6% in the 1998 Period and 41.9 in the 1999 Period. Net Income. As a result of the foregoing, the Company's net income increased approximately $736,000 or 80.2% from approximately $917,000 million in the 1998 Period to $1.7 million in the 1999 Period. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --(CONTINUED) LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents decreased approximately $5.5 million from $14.5 million at November 30, 1998 to $8.9 million at February 28, 1999. Operating activities provided net cash of approximately $545,000 during the 1999 Period compared to $404,000 in the 1998 Period. The overall net decrease in cash and cash equivalents at February 28, 1999 from November 30,1998 primarily related to the cash proceeds to the Company from its issuance of notes payable and net cash provided by chauffeured vehicle service operations, offset by the use of such cash to acquire chauffeured vehicle service companies and retire debt. Cash used in investing activities during the 1999 Period increased by $7.1 million over the 1998 Period. Cash of $1.4 million was used in the 1998 Period to acquire chauffeured vehicle service companies and purchase fixed assets, net of cash from sale of fixed assets, whereas $8.5 million of cash was used in the 1999 Period to acquire chauffeured vehicle service companies and purchase fixed assets, net of cash from sale of fixed assets. Cash provided by financing activities increased by $3.0 million over 1998, primarily as a result of the net notes payable activity used in financing new acquisitions. At February 28, 1999, the Company had debt outstanding of $9.6 million, approximately $3.3 of which is to be repaid over the next 12 months. In January 1999, the Company entered into a new three-year Revolving Credit Facility consisting of an unsecured revolving line of credit of $75.0 million (the "Credit Facility"). The Credit Facility provides for two one-year extensions to its duration, subject to approval by the Company and the participating banks. The Credit Facility will be used for acquisitions and working capital. Loans made under the Credit Facility will bear interest at the Company's option at either the banks' prime lending rate or at a varying rate above the LIBOR rate depending upon the ratio of the Company's debt to equity. Commitment fees equal to 0.375% per annum are payable on the unused portion of the Credit Facility. The terms of the Credit 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 the borrowings under the Credit 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, cash and cash equivalents and funds from the Credit Facility will be adequate to meet the Company's capital requirements for the next 12 months. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --(CONTINUED) While the Company historically has financed many 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. The Company is in the process of upgrading its central and subsidiary reservation systems as well as its financial and certain other computer software and hardware systems. The upgrades are expected to provide significant enhancements to the Company's customer service and management information capabilities along with increased opportunities for more efficient processing and distribution of information. The Company's program of enhancements and upgrades overlaps with its plans to address the Year 2000 Problem, as described in the following three paragraphs, and replaces the need for on-going investments in its current systems that would otherwise occur in the absence of the program of enhancements and upgrades. The Company is currently committed to or anticipates spending an aggregate of approximately $6 to $8 million over the next 12 to 18 months on designing, developing and deploying software and replacing or upgrading computer-related hardware as part of its program of enhancements and upgrades. The Year 2000 Problem, which is common to most corporations, concerns the inability of certain information systems, primarily computer software programs, to properly recognize and process date sensitive information related to the year 2000 and beyond. While the Company anticipates that the upgrades referred to in the preceding paragraph will result in systems that are Year 2000 compliant, the Company has also developed plans to address the possible exposures of its existing systems to the Year 2000 Problem. Key financial, management information and operational systems, including equipment with embedded microprocessors, have been inventoried and assessed, and plans are in place for the necessary systems modifications or replacements. Progress against these plans is monitored and reported to senior management on a regular basis. Implementation of necessary changes to critical systems is expected to be completed during fiscal 1999. Costs to remedy the Year 2000 Problem for certain key financial and operational systems are expected to total approximately $175,000, of which approximately 75% has been spent to date, and are charged to expense as incurred. The Company intends to remedy its Year 2000 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --(CONTINUED) Problem in its computer-related hardware and other commercially available software as part of its overall systems upgrade discussed above. The Company is also assessing the potential impact on operations if key third parties are not successful in making their systems Year 2000 compliant in a timely manner. The effect, if any, on the Company's results of operations if the Company's customers or its suppliers are not fully Year 2000 compliant is not reasonably estimable. The Company's emergency backup and recovery procedures to be followed in the event of a failure of a business-critical system will be expanded to include specific procedures for potential Year 2000 issues. Contingency plans to protect the business from Year 2000-related interruptions are being developed and are expected to be complete by June 1999. 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. 333-59599) 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. 11 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibit: 27 Financial Data Schedule (for the three months ended February 28, 1998 and 1999) (b) Reports on Form 8-K The Company filed a current Report on Form 8-K on December 15, 1998 providing certain financial information with respect to an acquired business, the acquisition of which was reported in the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1998. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Carey International, Inc. Date: April 14, 1999 By: /s/ Vincent A. Wolfington -------------------------- Vincent A. Wolfington Chairman, Chief Executive Officer Date: April 14, 1999 By: /s/ David H. Haedicke ---------------------- David H. Haedicke Executive Vice President, Chief Financial Officer 13 EXHIBIT INDEX NUMBER DESCRIPTION 27 Financial Data Schedule (for the three months ended February 28, 1998 and 1999) 14 EX-27 2 EXHIBIT 27
5 3-MOS NOV-30-1999 DEC-01-1998 FEB-28-1999 8,945,424 0 21,592,470 0 0 32,758,036 15,819,584 0 137,345,151 21,365,125 0 0 0 95,717 79,940,159 137,345,151 0 36,439,933 24,402,960 33,635,427 (149,108) 0 107,758 2,845,856 1,192,760 1,653,096 0 0 0 1,653,096 0.17 0.17
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