SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 ro 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended August 31, 1997 or
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[_] 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.
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(Exact name of registrant as specified in its charter)
DELAWARE 52-1171965
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4530 WISCONSIN AVENUE, NW, SUITE 500, WASHINGTON, DC 20016
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(Address of principal executive offices, including zip code)
(202) 895-1200
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(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 6,842,729 shares of the registrant's common stock, par value $.01
per share, outstanding at October 13, 1997.
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
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PART I: FINANCIAL INFORMATION
Item 1: Financial Statements (unaudited)
Consolidated balance sheets as of November 30, 1996 and
August 31, 1997
Consolidated statements of operations for the three and nine
month periods ended August 31, 1996 and 1997
Consolidated statements of cash flows for the nine
month periods ended August 31, 1996 and 1997
Notes to consolidated financial statements
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II: OTHER INFORMATION
Item 1: Legal Proceedings
Item 2: Changes in Securities
Item 3: Defaults Upon Senior Securities
Item 4: Submission of Matters to a Vote of Security Holders
Item 5: Other Information
Item 6: Exhibits and Reports on Form 8-K
SIGNATURES
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
November 30, August 31,
1996 1997
------------ ------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 2,754,276 $ 5,277,921
Accounts receivable, net 10,141,732 9,210,589
Notes receivable from contracts, current portion 402,751 663,807
Prepaid expenses and other current assets 1,936,961 1,316,417
------------ ------------
Total current assets 15,235,720 16,468,734
Fixed assets, net 3,379,246 4,589,016
Notes receivable from contracts, excluding current portion 769,201 8,326,216
Franchise rights, net 5,348,264 5,171,327
Trade name, trademark and contract rights, net 6,685,135 6,541,553
Goodwill and other intangible assets, net 7,262,203 27,929,464
Deferred tax assets 2,461,573 2,968,058
Deposits and other assets 1,384,787 2,049,915
------------ ------------
Total assets $ 42,526,129 $ 74,044,283
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of notes payable $ 5,131,227 $ 303,400
Current portion of capital leases 199,224 226,069
Current portion of subordinated notes payable 440,000 -
Accounts payable and accrued expenses 11,196,949 12,768,218
------------ ------------
Total current liabilities 16,967,400 13,297,687
Notes payable, excluding current portion 5,188,742 842,825
Capital leases, excluding current portion 663,030 955,336
Subordinated notes payable, excluding current portion 5,340,000 -
Deferred rent and other long-term liabilities 111,281 53,116
Deferred tax liabilities 1,402,611 1,493,071
Deferred revenue 6,181,147 13,721,483
Commitments and contingencies
Stockholders' equity:
Preferred stock 1,115,400 -
Common stock, $.01 par value; 9,512,950 and 20,000,000
authorized shares, and 655,773 and 6,842,729 issued and
outstanding shares in 1996 and 1997, respectively 6,558 68,427
Additional paid-in capital 7,357,064 43,743,996
Accumulated deficit (1,807,104) (131,658)
------------ ------------
Total stockholders' equity 6,671,918 43,680,765
------------ ------------
Total liabilities and stockholders' equity $ 42,526,129 $ 74,044,283
============ ============
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 August 31, Nine months ended August 31,
----------------------------- ----------------------------
1996 1997 1996 1997
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Revenue, net $14,575,230 $21,178,428 $41,176,235 $52,050,523
Cost of revenue 9,838,430 14,460,036 27,950,106 35,597,997
----------- ----------- ----------- -----------
Gross profit 4,736,800 6,718,392 13,226,129 16,452,526
Selling, general and administrative
expense 3,750,622 5,027,777 10,909,283 12,902,857
----------- ----------- ----------- -----------
Operating income 986,178 1,690,615 2,316,846 3,549,669
Other income (expense):
Interest expense (427,586) (128,321) (1,299,988) (904,896)
Interest income 53,830 106,894 104,689 161,985
Gain on sales of fixed assets 76,226 42,456 229,229 167,852
----------- ----------- ----------- -----------
Income before provision for income
taxes 688,648 1,711,644 1,350,776 2,974,610
Provision for income taxes 210,862 715,625 420,106 1,227,183
----------- ----------- ----------- -----------
Net income $ 477,786 $ 996,019 $ 930,670 $ 1,747,427
=========== =========== =========== ===========
Pro forma earnings per common share $ 0.14 $ 0.39
=========== ===========
Weighted average common and common
equivalent shares outstanding 7,206,896 4,866,621
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
2
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended August 31,
----------------------------
1996 1997
----------- -----------
(Unaudited)
Cash flows from operating activities:
Net income $ 930,670 $ 1,747,427
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization of fixed assets 792,175 888,564
Amortization of intangible assets 780,244 898,958
Gain on sales of fixed assets (229,229) (167,852)
Provision for deferred taxes - (416,025)
Change in deferred revenue 772,581 860,543
Changes in operating assets and liabilities:
Accounts receivable 1,267,037 1,036,257
Notes receivable from contracts (830,085) (1,170,305)
Prepaid expenses, deposits and other assets (637,512) (427,131)
Accounts payable and accrued expenses (167,075) (1,957,290)
Deferred rent and other long-term liabilities (92,585) (58,165)
----------- ------------
Net cash provided by operating activities 2,586,221 1,234,981
----------- ------------
Cash flows from investing activities:
Proceeds from sales of fixed assets 728,637 382,394
Purchases of fixed assets (868,386) (1,144,140)
Acquisitions of chauffeured vehicle service companies (1,248,585) (7,394,060)
----------- ------------
Net cash used in investing activities (1,388,334) (8,155,806)
----------- ------------
Cash flow from financing activities:
Proceeds of sales of notes receivable from independent operators 404,307 -
Principal payments under capital lease obligations (152,925) (185,574)
Payments of notes payable (2,916,914) (17,701,094)
Proceeds from notes payable 2,320,541 450,000
Issuance of common stock - 30,897,090
Payments under Recapitalization Plan - (4,015,952)
Redemption of Series E preferred stock (97,500) -
----------- ------------
Net cash provided by (used in) financing activities (442,491) 9,444,470
----------- ------------
Net increase in cash and cash equivalents 755,396 2,523,645
Cash and cash equivalents at beginning of period 1,438,659 2,754,276
----------- ------------
Cash and cash equivalents at end of period $ 2,194,055 $ 5,277,921
=========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
3
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
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 420 cities in 65 countries. The Company owns and operates service
providers in the form of wholly-owned subsidiaries in the following cities:
New York (Carey Limousine N.Y., Inc. and Manhattan International Limousine
Network, Ltd.), San Francisco (Carey Limousine SF, Inc.), Los Angeles
(Carey Limousine L.A., Inc.),, Washington, D.C. (Carey Limousine D.C.,
Inc.), South Florida (Carey Limousine Florida, Inc.), Philadelphia (Carey
Limousine Corporation, 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
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"). At the same meeting, the
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. Also on February 25, 1997, the Board of
Directors authorized a Recapitalization Plan (the "Recapitalization"),
which is more fully described in Note 7.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements and these notes do
not include all of the disclosures included in the Company's audited
4
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
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.
Pro forma net income per common share
Consistent with Securities and Exchange Commission Staff Accounting
Bulletin ("SAB") No. 1B-2, the Company has recalculated historical weighted
average common shares outstanding and net income per common share to give
effect to the Recapitalization (see Note 7). The recalculated net income
per common share is determined by (i) adjusting net income available to
common shareholders to reflect the elimination of interest expense, net of
taxes, resulting from the conversion of a portion of the subordinated debt
into common stock and (ii) increasing the weighted average common shares
outstanding by the number of common shares resulting from the conversion of
subordinated debt and the partial conversion of the Series A Preferred
Stock.
3. ACQUISITIONS
In February 1996, the Company acquired the common stock of a
chauffeured vehicle service company in London, England for approximately
$1,500,000. Additional contingent consideration of up to 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 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
Effective as of August 15, 1997, the Company entered into a senior
credit facility with three banks consisting of a secured revolving line of
credit of $25.0 million (the "Facility"). The Facility, which may be used
for acquisitions and working capital, is collateralized by the assets of
the Company and its domestic operating subsidiaries and by a pledge of the
stock of its international subsidiary. The Facility also provides
availability for the issuance of letters of credit. Loans made under the
revolving line of credit bear interest at the Company's option at either
the bank's prime lending rate or 2.0% above the LIBOR rate. Commitment
fees equal to 0.375% per annum are payable on the unused portion of the
revolving line of credit. On the second anniversary of the Facility,
outstanding balances under the Facility will convert to a five-year term
loan, which will bear interest either at a fixed rate (subject to
availability) or at a variable LIBOR or prime-based rate with adjustments
determined based on the Company's earnings. The terms of the Facility
(i) prohibit the payment of dividends by the Company, (ii) with certain
exceptions, prevent the Company from incurring or assuming other
indebtedness that is not subordinated to borrowings under the Facility and
(iii) require the Company to comply with certain financial covenants.
6
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE 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, which has received preliminary court approval but is
subject to final court approval and acceptance by the proposed class. The
settlement calls for the Company to deposit up to $950,000 into a
settlement fund for a class consisting of all persons who paid the STC
during the period from May 15, 1992 through March 15, 1997. Following
final court approval of the 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.
7
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 $ 477,786 $ 996,019 $ 930,670 $1,747,427
========== ========== ========== ==========
Weighted average common and common
equivalent shares outstanding 2,422,373 7,183,251 2,422,373 4,136,230
========== ========== ========== ==========
Net income per common share $ 0.20 $ 0.14 $ 0.38 $ 0.42
========== ========== ========== ==========
Common equivalent shares are included in the per share calculations
where the effect of their inclusion would be dilutive. Common equivalent
shares consist of Series B, F and G preferred stock as well as
substantially all of the subordinated debt of the Company and the assumed
exercise of vested outstanding stock options and warrants. Pursuant to
SAB No. 83, the common equivalent shares issued by the Company during the
twelve months preceding the effective date of the Registration Statement
relating to the IPO, using the treasury stock method and the IPO price of
$10.50 per share, have been included in the calculation of net income per
common share.
7. RECAPITALIZATION
On February 25, 1997, the Board of Directors authorized a
Recapitalization, which was implemented on June 2, 1997, coincident with
the closing of the IPO. Under the Recapitalization, the $2,000,000
subordinated convertible note dated September 1, 1991 and the $3,780,000
subordinated note dated July 30, 1992 were converted into 1,046,559 shares
of common stock and the remaining principal balance of $912,454 was repaid.
The Series A preferred stock was converted, in part, into 86,003 shares of
common stock and redeemed in part for $2,103,500. All of the Series F
preferred stock and 3,000 shares of the Series G preferred stock was
redeemed for $1,000,000.
The remaining preferred stock has been converted into 1,427,527 shares
of common stock. As a result of the Recapitalization, preferred stock with
a liquidation preference of $11,154,900 and subordinated debt with a
principal amount of $5,780,000 has been converted in part into 2,560,071
shares of common stock and repaid or redeemed in part for $4,015,952 in
cash, with the cash portion paid out of the proceeds of the IPO.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 $6.6 million or 45.3% from $14.6
million in the 1996 Period to $21.2 million in the 1997 Period. Of the
increase, $1.8 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.
Cost of Revenue. Cost of revenue increased $4.6 million or 47.0% from
$9.8 million in the 1996 Period to $14.5 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 67.5% in the 1996 Period to 68.3% 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 $1.3 million or 34.1% from $3.8
million in the 1996 Period to $5.0 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 23.7% 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 $299,000 or
70.0% from approximately $428,000 in the 1996 Period to approximately $128,000
in the 1997 Period. Interest expense decreased as a percentage of revenue, net
from 2.9% in the 1996 Period to 0.6% 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 $505,000 from approximately $211,000 in the 1996 Period to
approximately $716,000 in the 1997 Period. The increase primarily related to
the increase in pre-tax income of the Company from approximately $689,000 in the
1996 Period to $1.7 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 $518,000 or 108.5% from approximately $478,000 in the
1996 Period to approximately $996,000 in the 1997 Period.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
NINE MONTHS ENDED AUGUST 31, 1997 (THE "1997 NINE-MONTH PERIOD") COMPARED TO
NINE MONTHS ENDED AUGUST 31, 1996 (THE "1996 NINE-MONTH PERIOD")
Revenue, Net. Revenue, net increased $10.9 million or 26.4% from $41.2
million in the 1996 Nine-Month Period to $52.1 million in the 1997 Nine-Month
Period. Of the increase, approximately $5.2 million related to expanded use of
the Carey network, including an increase in business from corporate travel
customers and business travel arrangers, and approximately $5.7 million was due
to revenues of Manhattan Limousine and the Company's operations in London, which
were not included in the 1996 Nine-Month Per iod.
Cost of Revenue. Cost of revenue increased $7.6 million or 27.4% from
$28.0 million in the 1996 Nine-Month Period to $35.6 million in the 1997 Nine-
Month Period. The increase was primarily attributable to higher costs due to
increased business levels and to cost of revenue of Manhattan Limousine and the
Company's operations in London, which were not included in the 1996 Nine-Month
Period. Cost of revenue increased as a percentage of revenue, net from 67.9% in
the 1996 Nine-Month Period to 68.4% in the 1997 Nine-Month Period, primarily
reflecting the effects of seasonally higher operating costs as a percentage of
revenues in the Company's London operations in the first quarter of 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 $2.0 million or 18.3% from $10.9
million in the 1996 Nine-Month Period to $12.9 million in the 1997 Nine-Month
Period. The increase was largely due to the costs of additional personnel,
increased marketing expenses and increased administrative expenses related to
acquired operations and generally, in support of higher business levels.
Selling, general and administrative expenses decreased as a percentage of
revenue, net from 26.5% in the 1996 Nine-Month Period to 24.8% in the 1997 Nine-
Month Period as a result of an increase in revenue, net without a corresponding
increase in administrative costs.
Interest Expense. Interest expense decreased approximately $395,000 or
30.4% from $1.3 million in the 1996 Nine-Month Period to approximately $905,000
in the 1997 Nine-Month Period. Interest expense decreased as a percentage of
revenue, net from 3.2% in the 1996 Nine-Month Period to 1.7% in the 1997 Nine-
Month Period. The decrease resulted from repayment of the principal amounts of
debt outstanding between the two periods and conversion of subordinated and
certain other debt to Common Stock coincident with the IPO.
Provision for Income Taxes. The provision for income taxes increased
approximately $807,000 from approximately $420,000 in the 1996 Nine-Month Period
to $1.2 million in the 1997 Nine-Month Period. The increase primarily related to
the increase in pre-tax income of the Company from $1.4 million in the 1996
Nine-Month Period to $3.0 million in the 1997 Nine-Month Period. In addition,
10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
the Company utilized NOLs in determining its provision for income taxes in the
1996 Nine-Month Period but such NOLs were not available to the Company in the
1997 Nine-Month Period.
Net Income. As a result of the foregoing, the Company's net income
increased approximately $817,000 or 87.8% from approximately $931,000 in the
1996 Nine-Month Period to $1.7 million in the 1997 Nine-Month Period.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $2.5 million from $2.8 million at
November 30, 1996 to $5.3 million at August 31, 1997. Operating activities
provided net cash of $1.2 million during the 1997 Nine-Month Period. The overall
net increase in cash and cash equivalents during the 1997 Nine-Month Period
primarily related to the cash proceeds to the Company from its IPO and net cash
provided by operations, offset by the use of such cash to retire debt, acquire
Manhattan Limousine and redeem certain preferred stock.
Cash used in investing activities increased by $6.8 million over the 1996
Nine-Month Period. Cash of $1.2 million was used in the 1996 Nine-Month Period
to acquire operations in London, whereas $7.4 million of cash was used in the
1997 Nine-Month Period to acquire Manhattan Limousine and to make additional
payments of contingent consideration for the acquisition of London.
Cash provided by financing activities increased by $9.0 million over the
1996 Nine-Month Period, primarily as a result of the net proceeds from the IPO
and after using such proceeds to retire debt and complete the Recapitalization.
In connection with the IPO, the Company issued a total of 3,335,000 shares
of Common Stock and received proceeds, net of underwriters' discounts and
commissions and offering costs, of $30.7 million. The Company utilized the net
proceeds from the IPO to repay principal on indebtedness of $7.1 million and to
fund the Recapitalization by repaying principal on subordinanced indebtedness of
approximately $912,000 and redeeming preferred stock for $3.1 million.
Additionally, the Company completed its acquisition of Manhattan Limousine by
paying $11.8 million to the sellers of Manhattan Limousine and repaying
principal on indebtedness of Manhattan Limousine in the amount of $3.5 million.
The remaining net proceeds will be used for acquisitions and other general
corporate purposes, including working capital.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
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 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.
12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings: See Note 5 to the Consolidated Financial
Statements in Part I.
Item 2. Changes in Securities and Use of Proceeds: The Company's
Registration Statement on Form S-1 (File No. 333-22651)
relating to the IPO was declared effective by the SEC on May
27, 1997. The offering by the Company of the 3,335,000 shares
of Common Stock (the "Shares") registered under the
Registration Statement commenced on May 27, 1997 and the sale
of the Shares closed on June 2 and 6, 1997. All of the Shares
registered were sold in the IPO at an aggregate price of
$35,017,500 (before deducting underwriting discounts and
commissions and offering expenses). The managing underwriters
of the IPO were Montgomery Securities and Ladenburg, Thalmann
& Co., Inc. After deducting total expenses comprising
$2,451,225 in underwriting discounts and commissions and
$1,877,988 in offering expenses incurred through August 31,
1997, the Company received net proceeds from the IPO of
$30,688,287. No offering expenses or underwriting discounts
and commissions were paid or (in the case of unpaid offering
expenses as of August 31, 1997) are to be paid to directors,
officers or their associates, or to any affiliate of the
Company or any person(s) owning 10% or more of the Company's
Common Stock.
Of the total net proceeds from the IPO, the Company repaid
principal on indebtedness of $7.1 million, funded the
recapitalization of its capital stock by repaying principal
on subordinated indebtedness of approximately $912,000 and
redeeming certain preferred stock in the aggregate amount of
$3.1 million, and completed its acquisition of Manhattan
International Limousine Network Ltd. and an affiliate
(collectively, "Manhattan Limousine") by paying $11.8 million
to the sellers of Manhattan Limousine and repaying principal
on indebtedness of Manhattan Limousine in the amount of
$3.5 million.
For disclosure regarding certain payments made from the net
proceeds of the IPO to certain of the Company's directors and
officers and their associates, and to persons owning 10% or
more of the Company's Common Stock, reference is made to the
caption entitled "Certain Transactions" in the Company's
Registration Statement on Form S-1 (No. 333-22651).
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders: None
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K:
13
(a) Exhibits:
4 Revolving Credit Term Loan Agreement dated as of
August 15, 1997 among Carey International, Inc.,
certain of its direct and indirect wholly-owned
subsidiaries, and Fleet Bank, N.A., Banco Popular
de Puerto Rico and George Mason Bank (incorporated
by reference from the Company's Registration
Statement on Form S-4 (File No. 333-34897))
11 Computation of Net Income Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K: The Company filed a Form 8-K on
June 16, 1997, disclosing the acquisition of Manhattan
Limousine by the Company on June 2, 1997.
14
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: October 15, 1997 By: /s/ Vincent A. Wolfington
---------------------------------
Vincent A. Wolfington
Chairman, Chief Executive Officer
Date: October 15, 1997 By: /s/ David H. Haedicke
---------------------------------
David H. Haedicke
Executive Vice President,
Chief Financial Officer
15
EXHIBIT INDEX
NUMBER DESCRIPTION
4 Revolving Credit Term Loan Agreement as of August 15, 1997
11 Statements Regarding Computation of Per Share Earnings
27 Financial Data Schedule
16