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.