<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
COMMISSION FILE NUMBER: 1-14234
Caribiner International, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 13-3466655
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16 West 61st Street, New York, NY 10023
------------------------------------- -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 541-5300
--------------
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 [ ]
The registrant had 23,417,152 shares of Common Stock (par value $0.01 per share)
outstanding as of August 4, 1997.
<PAGE>
INDEX
PART I. Financial Information
<TABLE>
<S> <C>
Item 1. Financial Statements (Unaudited)
Review Report of Independent Accountants......................................... 2
Consolidated Balance Sheets as of
September 30, 1996 and June 30, 1997............................................. 3
Consolidated Statements of Operations for
the nine months ended June 30, 1996 and 1997..................................... 4
Consolidated Statements of Operations for
the three months ended June 30, 1996 and 1997.................................... 5
Consolidated Statements of Cash Flows for
the nine months ended June 30, 1996 and 1997..................................... 6
Consolidated Statement of Changes in Stockholders' Equity for the nine months
ended June 30, 1997.............................................................. 8
Notes to Consolidated Financial Statements....................................... 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................... 15
PART II.Other Information
Item 4. Submission of Matters to a Vote of Security Holders.............................. 20
Item 6. Exhibits and Reports on Form 8-K................................................. 21
SIGNATURES....................................................................................... 23
</TABLE>
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Review Report of Independent Accountants
Stockholders and Board of Directors
Caribiner International, Inc.
We have reviewed the accompanying consolidated balance sheet of Caribiner
International, Inc. as of June 30, 1997, and the related consolidated statements
of operations for the three months and nine months ended June 30, 1996 and 1997,
the consolidated statement of changes in stockholders' equity for the nine
months ended June 30, 1997 and the consolidated statements of cash flows for the
nine months ended June 30, 1996 and 1997. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements in order for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Caribiner International, Inc. as of
September 30, 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year then ended, not presented
herein, and in our report dated December 6, 1996, except for Note 15 as to which
the date is December 20, 1996, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet as of September 30, 1996, is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
/s/ Ernst & Young LLP
New York, New York
August 4, 1997
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Caribiner International, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, June 30,
ASSETS 1996 1997
(Note 1) (unaudited)
------------------ -----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 8,431,777 $ 22,868,916
Trade accounts receivable - net of allowance for doubtful
accounts of $304,860 and $585,817 at September 30, 1996
and June 30, 1997, respectively 36,201,774 73,883,003
Deferred charges 8,989,410 11,217,691
Prepaid expenses and other current assets 3,394,951 10,979,580
------------------ -----------------
Total Current Assets 57,017,912 118,949,190
Property and equipment - net 21,954,660 33,814,861
Goodwill - net 46,949,122 123,181,459
Other assets 399,696 3,257,089
------------------ -----------------
TOTAL ASSETS $ 126,321,390 $ 279,202,599
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank line of credit $ 6,000,000 $ 4,000,000
Current portion of long-term debt 648,696 1,310,325
Trade accounts payable 7,529,536 12,802,846
Accrued expenses and other current liabilities 8,846,491 23,070,266
Accrued production costs 11,355,416 13,005,339
Taxes payable 2,224,365 5,028,428
Payable to sellers of SCH International Limited (Note 3) -- 8,847,290
Deferred income 13,334,965 18,138,037
------------------ -----------------
Total Current Liabilities 49,939,469 86,202,531
Long-term debt 16,189,922 24,720,324
Deferred income 5,007,183 7,341,217
Other liabilities 1,717,433 1,479,293
------------------ -----------------
TOTAL LIABILITIES 72,854,007 119,743,365
Stockholders' Equity:
Preferred stock, $0.01 par value:
2,000,000 shares authorized, none issued and outstanding at
September 30, 1996 and June 30, 1997, respectively -- --
Common stock, $0.01 par value:
40,000,000 voting shares authorized, 19,196,318 and 23,207,018
shares issued and outstanding at September 30, 1996 and June 30, 191,963 232,071
1997, respectively
Additional paid-in capital 59,936,973 153,073,874
Translation adjustment 85,723 430,185
Retained earnings (deficit) (6,747,276) 5,723,104
------------------ -----------------
TOTAL STOCKHOLDERS' EQUITY 53,467,383 159,459,234
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 126,321,390 $ 279,202,599
================== =================
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
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Caribiner International, Inc.
Consolidated Statements of Operations
For the Nine Months Ended
(unaudited)
<TABLE>
<CAPTION>
June 30,
1996 1997
----------------- -------------------
<S> <C> <C>
Service revenue $ 99,776,939 $ 151,447,999
Rental revenue -- 81,845,053
----------------- -------------------
Total revenue 99,776,939 233,293,052
Cost of service revenue 66,945,123 102,362,469
Cost of rental revenue -- 51,638,773
----------------- -------------------
Total cost of revenue 66,945,123 154,001,242
----------------- -------------------
Gross profit 32,831,816 79,291,810
Operating expenses:
Selling, general and administrative expenses 21,574,964 50,079,139
Non-cash compensation expense 1,072,000 --
Depreciation and amortization 2,138,746 6,869,644
----------------- -------------------
Total operating expenses 24,785,710 56,948,783
----------------- -------------------
Operating income 8,046,106 22,343,027
Interest expense with related parties 1,199,281 --
Other interest expense, net 453,436 1,206,789
----------------- -------------------
Income before taxes 6,393,389 21,136,238
Provision for taxes 2,237,686 8,665,858
----------------- -------------------
Net income $ 4,155,703 $ 12,470,380
================= ===================
Earnings per common share $ 0.31 $ 0.59
================= ===================
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
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<PAGE>
Caribiner International, Inc.
Consolidated Statements of Operations
For the Three Months Ended
(unaudited)
<TABLE>
<CAPTION>
June 30,
1996 1997
----------------- ------------------
<S> <C> <C>
Service revenue $ 48,149,767 $ 67,487,040
Rental revenue -- 36,090,117
----------------- ------------------
Total revenue 48,149,767 103,577,157
Cost of service revenue 32,574,255 45,024,627
Cost of rental revenue -- 23,175,837
----------------- ------------------
Total cost of revenue 32,574,255 68,200,464
----------------- ------------------
Gross profit 15,575,512 35,376,693
Operating expenses:
Selling, general and administrative expenses 8,203,354 18,892,158
Depreciation and amortization 816,204 2,814,839
----------------- ------------------
Total operating expenses 9,019,558 21,706,997
----------------- ------------------
Operating income 6,555,954 13,669,696
Interest expense (income), net (214,731) 88,414
----------------- ------------------
Income before taxes 6,770,685 13,581,282
Provision for taxes 2,362,686 5,568,326
----------------- ------------------
Net income $ 4,407,999 $ 8,012,956
================= ==================
Earnings per common share $ 0.23 $ 0.35
================= ==================
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
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Caribiner International, Inc.
Consolidated Statements of Cash Flows
For the Nine Months Ended
(unaudited)
<TABLE>
<CAPTION>
June 30,
1996 1997
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,155,703 $ 12,470,380
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,138,746 9,549,115
Non-cash compensation 1,072,000 --
Change in assets and liabilities:
(Increase) in trade accounts receivable (8,533,261) (22,396,692)
(Increase) in deferred charges (315,872) (472,394)
(Increase) in prepaid expenses and
other current assets (812,461) (5,490,928)
Decrease (increase) in other assets 83,145 (2,824,972)
Increase (decrease) in trade accounts payable 807,027 (3,947,654)
Increase in deferred income 3,163,580 3,241,470
Increase in accrued expenses and other
liabilities 1,016,854 10,252,691
(Decrease) in accrued interest payable (7,250,375) --
---------------- ----------------
Net cash (used in) provided by operating activities (4,474,914) 381,016
---------------- ----------------
Cash flow used in investing activities:
Purchase of property and equipment (1,706,964) (7,992,136)
Acquisition of intangibles and businesses, net of
cash acquired (13,719,507) (69,919,676)
---------------- ----------------
Net cash used in investing activities (15,426,471) (77,911,812)
---------------- ----------------
Cash flow provided by financing activities:
Net proceeds from issuance of common stock 43,029,987 85,888,603
Proceeds from exercise of warrants 1,690,500 --
Repayments of long-term debt (14,650,970) (73,753,715)
Net (repayments) of bank line of credit (4,220,000) (2,000,000)
Proceeds from long-term debt 3,000,000 81,200,000
Payment of preferred stock dividends (2,201,618) --
Proceeds from issuance of common stock under the 1993
Management Stock Plan 174,167 --
Repurchase of common stock (176,904) --
---------------- ----------------
Net cash provided by financing activities 26,645,162 91,334,888
---------------- ----------------
Translation effect on cash and cash equivalents -- 633,047
Net increase in cash 6,743,777 14,437,139
Cash, beginning of period 212,612 8,431,777
---------------- ----------------
Cash, end of period $ 6,956,389 22,868,916
================ ================
Supplemental disclosure of cash flow information:
Interest paid $ 7,862,260 $ 1,156,934
================ ================
Income taxes paid $ 1,868,446 $ 3,591,309
================ ================
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
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Caribiner International, Inc.
Consolidated Statement of Changes in Stockholders' Equity
For the Nine Months Ended June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings
Shares Amount Paid in Capital (Deficit)
---------- -------- --------------- --------
<S> <C> <C> <C> <C>
Balance at September 30, 1996 19,196,318 $191,963 $ 59,936,973 $(6,747,276)
Issuance of common stock under non-employee
directors' stock plan 2,076 21 37,411 --
Issuance of common stock upon offering 3,743,600 37,436 85,754,469 --
Issuance of common stock upon acquisition of Rome
Network, Inc. 30,990 310 749,648 --
Issuance of common stock upon acquisition of
Blumberg Communications, Inc. 59,880 599 1,387,868 --
Issuance of common stock upon acquisition of D&D
Enterprises d/b/a/ Show Solutions 76,360 764 2,022,776 --
Issuance of common stock upon acquisition of
Wavelength Corporate Communications Pty Limited 2,998 30 81,853 --
Issuance of common stock upon acquisition of
Watts/Silverstein, Inc. 30,826 308 897,499 --
Issuance of common stock upon acquisition of WCT
Live Communication Limited 53,818 538 1,873,001 --
Issuance of common stock in connection with the
acquisition of SCH International Limited 10,152 102 332,376 --
Translation adjustment -- -- -- --
Net income -- -- -- 12,470,380
---------- -------- ------------ -----------
Balance at June 30, 1997 23,207,018 $232,071 $153,073,874 $ 5,723,104
========== ======== ============ ===========
<CAPTION>
Total
Translation Stockholders'
Adjustment Equity
----------- -------------
<S> <C> <C>
Balance at September 30, 1996 $85,723 $53,467,383
Issuance of common stock under non-employee
directors' stock plan -- 37,432
Issuance of common stock upon offering -- 85,791,905
Issuance of common stock upon acquisition of Rome
Network, Inc. -- 749,958
Issuance of common stock upon acquisition of
Blumberg Communications, Inc. -- 1,388,467
Issuance of common stock upon acquisition of D&D
Enterprises d/b/a/ Show Solutions -- 2,023,540
Issuance of common stock upon acquisition of
Wavelength Corporate Communications Pty Limited -- 81,883
Issuance of common stock upon acquisition of
Watts/Silverstein, Inc. -- 897,807
Issuance of common stock upon acquisition of WCT
Live Communication Limited -- 1,873,539
Issuance of common stock in connection with the
acquisition of SCH International Limited -- 332,478
Translation adjustment 344,462 344,462
Net income -- 12,470,380
-------- ------------
Balance at June 30, 1997 $430,185 $159,459,234
======== ============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
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<PAGE>
Caribiner International, Inc.
Notes To Consolidated Financial Statements
(Unaudited)
1. Interim Financial Information
The accompanying unaudited consolidated financial statements of Caribiner
International, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information
and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the consolidated
financial statements contain all adjustments, consisting of normal
recurring adjustments, considered necessary to present fairly the
consolidated financial position, results of operations and cash flows of
the Company. The results of operations for the three and nine months ended
June 30, 1997 are not necessarily indicative of the results of operations
that may be expected for any other interim periods or for the fiscal year
ending September 30, 1997.
The balance sheet at September 30, 1996 has been derived from the
Company's audited financial statements at that date, but does not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
Certain reclassifications have been made to the September 30, 1996
consolidated balance sheet to conform to the current period's
presentation.
2. Summary of Significant Accounting Policies
Revenue Recognition
Service revenue is recorded principally on the completed contract method
of accounting. The recognition of service revenue and cost of service
revenue is deferred until a project is completed which is often within a
three- to six-month time period. For those projects which provide for
multiple events, the contract revenue and costs are apportioned and
revenue and profit are recognized as each event occurs. If a client
cancels a project after production has begun, the client is obligated
under contract to pay for services performed and expenses incurred through
the date of cancellation, and there are no provisions for nonpayment by
the client.
The Company recognizes rental revenue over the rental period.
Cost of Revenue
Cost of service revenue is comprised of production costs, including the
salaries and benefits of production, creative and technical personnel
involved with the specific contracts, and other direct costs, including
contracted services, equipment rentals and
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<PAGE>
costs associated with the production of audio-visual effects. Such costs
are deferred until project completion.
Cost of rental revenue is comprised principally of direct labor costs,
commissions, depreciation and equipment rentals.
New Accounting Pronouncement
In February, 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share ("Statement 128"), which is required
to be adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share
and to restate all prior periods. Under the new requirements for
calculating primary earnings per share, the dilutive effect of stock
options will be excluded. The impact of Statement 128 on the calculation of
primary and fully diluted earnings per share for these quarters is not
expected to be material.
3. Business Acquisitions
In December, 1996, the Company acquired all of the outstanding capital
stock of Rome Network, Inc. ("Rome"), a regional producer of meetings and
events headquartered in San Francisco, for aggregate consideration of $3.2
million, which consisted of approximately $2.4 million in cash and the
issuance of 30,990 shares of the Company's common stock having a fair
market value of approximately $0.8 million.
In January, 1997, the Company acquired substantially all of the assets of
Video Supply Company, Inc. d/b/a Projexions Video Supply and
Projections/Video Supply Company (together, "Projexions"), a provider of
audio visual equipment rentals and related staging services, in the
southeastern U.S., for approximately $13.6 million (subject to certain
adjustments) in cash and $1.4 million in the repayment of certain
indebtedness.
In January, 1997, the Company completed the acquisition of all of the
outstanding capital stock of Blumberg Communications Inc. ("Blumberg"), a
provider of audio visual equipment rentals, sales and related staging
services, including hotel audio visual outsourcing services, in the upper
midwest and southern U.S. The Company paid aggregate consideration of $18.0
million (subject to certain adjustments), which consisted of approximately
$16.6 million in cash and the issuance of 59,880 shares of the Company's
common stock having a fair market value of approximately $1.4 million. In
addition, the Company repaid $3.9 million in outstanding indebtedness of
Blumberg at closing.
In April, 1997, the Company completed the acquisition of the assets of D&D
Enterprises, Inc., d/b/a/ Show Solutions ("Show Solutions"), a provider of
staging and show services based in Atlanta, for aggregate consideration of
approximately $11.4 million (subject to certain adjustments), which
consisted of $8.4 million in cash paid at closing, $1.0 million placed in
escrow to be paid at a later date upon satisfaction of certain terms and
conditions, and the issuance of 76,360 shares of the Company's common stock
having a fair market value of approximately $2.0 million. In addition, the
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Company repaid approximately $0.6 million in outstanding indebtedness of
Show Solutions.
In May, 1997, the Company acquired substantially all of the assets of
Wavelength Corporate Communications Pty Limited ("Wavelength"), a provider
of business communications services in Australia and New Zealand, for
aggregate consideration of approximately $2.0 million, which consisted of
$1.9 million in cash and the issuance of 2,998 shares of the Company's
common stock having a fair market value of approximately $0.1 million.
Also in May, 1997, the Company acquired all of the outstanding capital
stock of Watts/Silverstein, Inc. ("Watts/Silverstein"), a Seattle-based
business communications company, for approximately $4.1 million in cash,
which included the repayment of approximately $0.7 million in outstanding
indebtedness of Watts/Silverstein, and the issuance of 30,826 shares of the
Company's common stock having a fair market value of approximately $0.9
million.
In June, 1997, the Company acquired all of the outstanding capital stock
of WCT Live Communication Limited ("WCT"), a London-based business
communications services provider, for aggregate consideration of
approximately $12.0 million, which consisted of $10.1 million in cash and
the issuance of 53,818 shares of the Company's common stock having a fair
market value of $1.9 million.
All of the transactions described above were financed by additional
drawings on one of the Company's credit facilities, except for the
acquisition of Show Solutions, which was paid from the Company's cash on
hand.
In July, 1997, the Company acquired all of the outstanding capital stock
of Bauer Audio Visual, Inc. ("Bauer"), a provider of audio visual equipment
rentals and audio visual outsourcing services throughout the United States.
Consideration paid for the acquisition was $14.6 million in cash and the
issuance of 167,762 shares of the Company's common stock with an aggregate
fair market value of approximately $4.6 million. In addition, at closing
the Company repaid approximately $7.0 million in outstanding long-term
indebtedness of Bauer and $4.8 million in outstanding short-term
indebtedness of Bauer.
Also,in July, 1997, the Company acquired all of the outstanding capital
stock of Envision Corporation ("Envision"), a Boston-based business
communications services provider. Consideration paid for the acquisition
was $5.6 million in cash and the issuance of 42,372 shares of the Company's
common stock having a fair market value of approximately $1.4 million.
Each of the acquisitions completed in July, 1997 were financed by
additional borrowings against the Company's existing credit facilities.
In connection with the acquisition of SCH International Limited
("Spectrum") consummated in June, 1996, contingent payments were to be made
in each of three years following the closing of the transaction, based upon
the achievement of certain performance goals. Such contingent payments
would be accounted for as additional purchase price as they became known.
In July, 1997, the Company settled all future contingent payments by
granting to the sellers of Spectrum aggregate consideration
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consisting of approximately $8.8 million in cash and the issuance of 10,152
shares of the Company's common stock having a fair market value of
approximately $0.3 million. Such transaction was accounted for as
additional purchase price and has been reflected in the accompanying
balance sheet as of June 30, 1997.
The following unaudited consolidated pro forma results of operations
of the Company for the nine months ended June 30, 1996 and 1997 give
effect to the following transactions as if they occurred on October 1,
1995: (i) the acquisitions of Koors Perry & Associates, Inc. ("Koors
Perry"), Lighthouse, Ltd. ("Lighthouse"), Spectrum, Total Audio Visual
Services ("TAVS"), Projexions, Blumberg, Show Solutions,
Watts/Silverstein and WCT Live, (ii) decreased interest expense and
preferred stock dividends resulting from the repayment of substantially
all outstanding bank borrowings and other long-term indebtedness of the
Company from proceeds of the initial public offering of common stock,
which was consummated on March 15, 1996 and (iii) the repayment with the
proceeds of the initial public offering of a portion of bank borrowings
that would have been incurred in connection with the acquisitions of
Koors Perry, Lighthouse, Spectrum and TAVS as if such acquisitions had
occurred on October 1, 1995. The effect of the acquisitions of Rome and
Wavelength on the Company's results of operations for the nine months
ended June 30, 1996 and 1997 is insignificant.
Nine Months Ended
June 30,
1996 1997
----------------- ------------------
(in millions, except per share data)
Revenue $251.7 $286.0
Income before taxes 11.4 21.8
Net income 6.7 12.9
Pro forma net income per $ 0.35 $ 0.61
common share
The above calculation of pro forma net income per common share assumes
that approximately 19.3 million and 21.3 million shares are outstanding
during the nine months ended June 30, 1996 and 1997, respectively.
The unaudited pro forma consolidated results of operations do not purport
to be indicative of the actual results of operations that would have
occurred had the acquisitions described above been made on October 1, 1995
or of results which may occur for any future period.
4. Stock Offering
In March, 1997, the Company consummated an offering of 4,105,000 shares
of its common stock, which included the sale of 3,743,600 shares of Common
Stock by the Company for $24.438 per share. The Company received net
proceeds of approximately $85.8 million (after deducting underwriting
discounts and expenses), of which approximately $64.5 million were used to
repay all of the Company's then
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outstanding bank borrowings. The remaining net proceeds were available to
make acquisitions, fund working capital needs and for general corporate
purposes.
5. Stock Split
The Company declared a 2-for-1 split of its common stock effected by
paying a stock dividend of one new share for every share of the Company's
common stock outstanding. The stock dividend was paid on June 20, 1997 to
stockholders of record as of May 30, 1997. The accompanying consolidated
financial statements, including the earnings per common share calculation,
have been restated to reflect such stock split.
6. Earnings per Common Share
The weighted average number of shares of common stock outstanding during
the three and nine months ended June 30, 1996 is 19,013,460 and 15,556,602,
respectively. The weighted average number of shares of common stock
outstanding during the three and nine months ended June 30, 1997 is
23,218,861 and 21,082,213 respectively.
Earnings per common share for the three and nine months ended June 30, 1996
has been computed on a pro forma basis assuming conversion of the
convertible note and all outstanding shares of preferred stock into common
stock (which, in each case, occurred on March 15, 1996 immediately prior to
the Company's initial public offering) as if such conversions occurred on
October 1, 1995. The pro forma earnings per share reflects adjustments to
eliminate the interest expense incurred on the convertible note and to
eliminate accrued preferred stock dividends. Pursuant to the requirements
of the Securities and Exchange Commission, common stock issued under the
1993 Management Stock Plan and warrants to purchase common stock issued at
prices below the initial public offering price per share during the twelve
months immediately preceding the date of the initial filing of the
Company's Registration Statement on Form S-1 (registration no. 33-80481)
have also been included in the calculation of common shares, using the
treasury stock method, as if they were outstanding for the three and nine
months ended June 30, 1996.
Of the net proceeds from the sale of shares of common stock offered by
the Company in its public offering completed in March, 1997, approximately
$64.5 million were used to repay aggregate outstanding bank borrowings.
Assuming the issuance and sale of only that number of shares of common
stock which would have generated net proceeds sufficient to repay
indebtedness of $64.5 million, and assuming that such indebtedness had been
repaid as of October 1, 1996, supplementary pro forma net income per share
would have been $0.35 and $0.61 for the three months and nine months ended
June 30, 1997, respectively. For purposes of this computation, the weighted
average number of shares of common stock outstanding during the three
months and nine months ended June 30, 1997 is 23,218,860 and 22,586,979
respectively.
Of the net proceeds from the sale of shares of common stock offered by the
Company in the initial public offering completed in March, 1996,
approximately $25.6 million were used to repay aggregate outstanding bank
borrowings and other long-term
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indebtedness, including accrued interest, and preferred stock dividends.
Assuming the issuance and sale of only that number of shares of common
stock which would have generated net proceeds sufficient to repay
indebtedness of $25.6 million, and assuming that such indebtedness had been
repaid as of October 1, 1995, supplementary pro forma net income per share
would have been $0.31 for the nine months ended June 30, 1996. For purposes
of this computation, the weighted average number of shares of common stock
outstanding during the three months and nine months ended June 30, 1996 is
17,492,600.
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<PAGE>
Caribiner International, Inc.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Nine Months Ended June 30, 1997 Compared to
Nine Months Ended June 30, 1996
Revenue. Revenue increased $133.5 million, or 134%, from $99.8 million in the
nine months ended June 30, 1996 to $233.3 million in the nine months ended June
30, 1997. The increase resulted primarily from the acquisition of other business
communications services companies, expanded activities from existing clients and
projects for new clients. Approximately 61% of the increase represented revenue
from the rental of audio visual equipment through the Company's Total Audio
Visual Services ("TAVS") division, which includes the results of the Video
Supply Company, Inc. d/b/a Projexions Video Supply and Projections/Video Supply
Company (together, "Projexions") (acquired in January, 1997), Blumberg
Communications, Inc. ("Blumberg") (acquired in January, 1997) and D&D
Enterprises, Inc. d/b/a Show Solutions ("Show Solutions") (acquired in April,
1997). Increases in service revenue primarily from clients in the
telecommunications, automotive, consumer products, information technologies,
government and pharmaceutical industries accounted for the remaining 39% of the
total revenue growth. Service revenue from clients in the financial services
industry decreased primarily as a result of a triennial sales meeting held by a
financial services client during the nine months ended June 30, 1996. This
decrease was offset by increases in service revenue from clients in the
industries described above, as well as various other industries.
Gross profit. Total gross profit increased $46.5 million, or 142%, from $32.8
million in the nine months ended June 30, 1996 to $79.3 million in the same
period of 1997, primarily as a result of the revenue growth described above. As
a percentage of service revenue, gross profit remained constant in the nine
months ended June 30, 1997 as compared with the prior comparable period. Gross
profit as a percentage of rental revenue was 36.9%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $28.5 million, or 132%, from $21.6 million in
the nine months ended June 30, 1996 to $50.1 million in the nine months ended
June 30, 1997. The increase was due primarily to acquisitions and to support
other revenue growth, as well as to normal inflationary increases. Salaries and
related costs increased $17.9 million from increased personnel resulting from
acquisitions and to support the Company's overall growth, as well as normal
inflationary increases. Other general and administrative expenses, including
rent and related costs, telephone, office supplies, as well as insurance costs,
and other miscellaneous expenses, increased $8.8 million due to acquisitions and
to support the revenue growth. Direct selling expenses such as travel, marketing
and other costs related to obtaining business increased $1.8 million. Selling,
-15-
<PAGE>
general and administrative expenses, as a percentage of total revenue, were
comparable in both periods. The $1.1 million nonrecurring, non-cash compensation
charge during the nine months ended June 30, 1996 was the result of the vesting
of common stock sold pursuant to the Company's management stock plan at a price
lower than its fair market value. Excluding the effect of the nonrecurring
non-cash compensation charge of $1.1 million, pro forma net income per common
share would have been $0.35 for the nine months ended June 30, 1996.
Depreciation and amortization. Depreciation and amortization expense for the
nine months ended June 30, 1997 was $6.8 million, an increase of $4.7 million as
compared to $2.1 million for the corresponding period in the prior year.
Property and equipment acquired through acquisitions and the continued
investment in rental equipment and information technology resulted in increased
depreciation expense of $2.9 million. Amortization expense increased $1.8
million resulting primarily from goodwill arising from acquisitions.
Interest expense. Interest expense with related parties decreased $1.2 million
due to the repayment and conversion of debt on March 15, 1996 in connection
with the Company's initial public offering. Other interest expense, net
increased primarily due to higher average borrowings to finance acquisitions and
increased working capital requirements.
Income before taxes. Income before taxes increased to $21.1 million in the nine
months ended June 30, 1997 from $6.4 million in the nine months ended June 30,
1996.
Provision for taxes. Taxes reflect an allocation based on the full year
anticipated effective tax rate. The provision for taxes as a percentage of
income before taxes was 35% and 41% for the nine months ended June 30, 1996 and
1997, respectively. The increase in the effective tax rate is due primarily to
income before tax in excess of the utilization of available net operating loss
carryforwards which are not subject to limitations.
Net income. Net income increased to $12.5 million in the nine months ended June
30, 1997 from $4.2 million in the nine months ended June 30, 1996. Earnings per
common share for the nine months ended June 30, 1997 increased to $0.59 from a
pro forma net income per share of $0.31 for the comparable period in fiscal
1996. The earnings per share for the nine months ended June 30, 1996 was
computed on a pro forma basis assuming conversion of the convertible note and
all outstanding shares of preferred stock into common stock (which, in each
case, occurred on March 15, 1996 immediately prior to the consummation of the
Company's initial public offering) as if such conversions occurred on October 1,
1995. The pro forma earnings per share computation reflects adjustments to
eliminate the interest expense incurred on the convertible note and to eliminate
accrued preferred stock dividends.
-16-
<PAGE>
Three Months Ended June 30, 1997 Compared to
Three Months Ended June 30, 1996
Revenue. Revenue increased $55.4 million, or 115%, from $48.1 million in the
three months ended June 30, 1996 to $103.6 million in the three months ended
June 30, 1997. Through a combination of acquisitions and internal growth, the
Company increased its revenues from clients across a broad range of industries.
Approximately 65% of the increase represented revenue from the rental of audio
visual equipment through the Company's TAVS division, which includes the results
of the Projexions (acquired in January, 1997), Blumberg (acquired in January,
1997) and Show Solutions (acquired in April, 1997). Increases in service revenue
primarily from clients in the automotive, telecommunications and pharmaceutical
industries accounted for the remaining 35% of the total revenue growth. In
addition, service revenue from clients in the financial services industry
decreased primarily as a result of a triennial sales meeting held by a client
during the three months ended June 30, 1996. This decrease was offset by
increases in service revenue from foreign government agencies and from clients
primarily in the consumer products industry.
Gross profit. Total gross profit increased $19.8 million, or 127%, from $15.6
million in the three months ended June 30, 1996 to $35.4 million in the three
months ended June 30, 1997 as a result of the revenue growth described above.
Gross profit as a percentage of service revenue increased to 33.3% for the three
months ended June 30, 1997 from 32.3% for the comparable period in fiscal 1996
primarily due to project mix. Gross profit as a percentage of rental revenue was
35.8% for the three months ended June 30, 1997.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $10.7 million, or 131%, from $8.2 million in
the three months ended June 30, 1996 to $18.9 million in the three months ended
June 30, 1997. Salaries and related costs increased $6.3 million primarily from
increased personnel resulting from acquisitions and to support the Company's
overall growth, as well as normal annual inflationary increases. Other general
and administrative expenses, including rent and related expenses, office
supplies, telephone and insurance costs, as well as other miscellaneous
expenses, increased $3.9 million due to acquisitions and to support the overall
significant growth of the Company. Direct selling expenses, including travel,
marketing and other costs related to obtaining business increased $0.5 million.
Selling, general and administrative expenses as a percentage of revenue
increased from 17.0% in the three months ended June 30, 1996 to 18.3% in the
three months ended June 30, 1997 due primarily to the fixed nature of certain
expenses.
Depreciation and amortization. Depreciation and amortization expense increased
$2.0 million from $0.8 million in the three months ended June 30, 1996 to $2.8
million in the three months ended June 30, 1997. Property and equipment acquired
through acquisitions and the continued investment in rental equipment and
information technology resulted in increased depreciation expense of $1.2
million in the three months ended June 30, 1997. Amortization expense increased
$0.8 million resulting primarily from goodwill arising from acquisitions.
-17-
<PAGE>
Interest expense. Interest expense, net, increased due to increased borrowings
incurred in connection with the consummation of acquisitions and increased
working capital requirements.
Income before taxes. Income before taxes increased from $6.8 million in the
three months ended June 30, 1996 to $13.6 million in the three months ended June
30, 1997 as revenue growth from acquired businesses as well as internal growth
contributed to the improved earnings of the Company.
Provision for taxes. The provision for taxes reflects an allocation based on the
full year anticipated tax provision. The provision for taxes as a percentage of
income before taxes was 35% and 41% for the three months ended June 30, 1996 and
1997, respectively. The increase in the effective tax rate is due primarily to
income before tax in excess of the utilization of available net operating loss
carryforwards which are not subject to limitations.
Net income. Net income increased to $8.0 million in the three months ended June
30, 1997 from $4.4 million in the three months ended June 30, 1996. Earnings per
common share for the three months ended June 30, 1997 increased to $0.35 from a
pro forma net income per share of $0.23 for the comparable period in fiscal
1996. The net income per share for the three months ended June 30, 1996 was
computed on a pro forma basis assuming conversion of the convertible note and
all outstanding shares of preferred stock into common stock (which, in each
case, occurred on March 15, 1996 immediately prior to the consummation of the
Company's initial public offering) as if such conversions occurred on October 1,
1995. The pro forma income per share computation reflects adjustments to
eliminate the interest expense incurred on the convertible note and to eliminate
accrued preferred stock dividends.
Liquidity and Capital Resources
On December 4, 1996, the Company entered into a new loan agreement with a
syndicate of banks pursuant to which the Company increased its aggregate
available bank financing from $27 million to $100 million, consisting of a $75
million six year reducing revolving credit facility (the "Reducing Revolver") to
be utilized in connection with the financing of acquisitions and a $25 million
six year revolving line of credit (the "Revolving Line" and together with the
Reducing Revolver, the "1996 Facilities"). Amounts outstanding under the
Company's former bank facilities were repaid with proceeds from the 1996
Facilities. The maturity date of each of the 1996 Facilities is December 31,
2002. Interest on outstanding amounts under the 1996 Facilities is payable
quarterly in arrears and, at the option of the Company, interest accrues at
either (i) LIBOR plus an applicable margin or (ii) an alternate base rate based
on the greatest of (a) the agent bank's prime rate, (b) the three month
secondary certificate of deposit rate and (c) the federal funds rate. The
interest rate will increase by 2.0% if principal or interest is not paid when
due (after applicable grace periods). Pursuant to the terms of the 1996
Facilities, the Company is required to reduce outstanding amounts under the
Revolving Line to less than $5.0 million for a period of not less than 30 days
during every 12-month period commencing on
-18-
<PAGE>
December 4, 1996. As of August 8, 1997, the Company had approximately
$58.3 million outstanding under the 1996 Facilities.
The following table sets forth certain information from the Company's
Consolidated Statement of Cash Flows for the nine months ended June 30, 1996 and
1997:
Nine months Ended June 30,
1996 1997
----------------- -----------------
Net cash provided by (used in):
Operating activities $ (4,474,914) $ 381,016
Investing activities (15,426,471) (77,911,812)
Financing activities 26,645,162 91,334,888
For the nine months ended June 30, 1997, $0.4 million was provided by operating
activities. The net income adjusted for depreciation and amortization provided
$22.0 million. The net change in working capital used $21.6 million, with an
increase in accrued expenses and other liabilities and an increase in deferred
income, which was more than offset by increases in accounts receivable, prepaid
expenses and other current assets and a decrease in trade accounts payable.
Investing activities required $77.9 million due to acquisition-related
expenditures and property and equipment additions. Financing activities provided
$91.3 million in the nine months ended June 30, 1997, of which $85.9 million of
net proceeds were received during the period from the issuance of common stock
and $81.2 million was provided by drawings under the Company's Reducing
Revolver, offset by repayments on each of the 1996 Facilities.
For the nine months ended June 30, 1996, $4.5 million was used in operating
activities. The net loss adjusted for depreciation and amortization and the
non-cash compensation charge of $1.1 million provided $7.4 million. The net
change in working capital used $11.8 million, with increases in deferred income,
accrued expenses and accounts payable, more than offset by increases in accounts
receivable, prepaid expenses and other current assets and a decrease in accrued
interest. Investing activities required $15.4 million due to acquisition-related
expenditures and property and equipment additions. Financing activities provided
$26.6 million in the nine months ended June 30, 1996, of which an aggregate of
$44.9 million of net proceeds were received during the period from the issuance
of common stock and the exercise of warrants to purchase common stock and $3.0
million was provided by the Company's then-existing credit facility, offset by
$21.1 million used to repay all outstanding bank borrowings and substantially
all other long-term indebtedness (including accrued interest), and pay all
accrued preferred stock dividends. In addition, $0.2 million was used to
repurchase common stock during the period.
Capital expenditures were $1.7 million and $8.0 million during the nine months
ended June 30, 1996 and 1997, respectively. During the nine months ended June
30, 1996, the purchase of additional personal computers and expanded
capabilities for the computer system accounted for the largest areas of
expenditure. During the nine months ended June 30, 1997, the purchase of audio
visual equipment and the continued investment in information technology
comprised the major portion of the capital expenditures.
-19-
<PAGE>
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Annual Meeting of Stockholders
Date held: May 6, 1997
(b) Directors elected:
Errol M. Cook
Raymond S. Ingleby
Bryan D. Langton
Sidney Lapidus
David E. Libowitz
C. Anthony Wainwright
(c) Matters Voted Upon:
1. Election of Directors
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
------- --------- --------------
<S> <C> <C>
Errol M. Cook 9,607,789 41,381
Raymond S. Ingleby 9,607,789 41,381
Bryan D. Langton 9,610,989 38,181
Sidney Lapidus 9,607,789 41,381
David E. Libowitz 9,607,789 41,381
C. Anthony Wainwright 9,610,989 38,181
</TABLE>
2. Approval of Appointment of Ernst & Young LLP as
independent auditors for the fiscal year ending
September 30, 1997
Votes for: 9,648,570
Votes against: 400
Votes abstaining: 200
(d) Not applicable.
-20-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Required by Item 601 of Regulation S-K:
2.1 Agreement of Purchase and Sale of Stock, dated
May 29, 1997, by and among Caribiner
International, Inc. (the "Company"), Bauer
Audio Visual, Inc. and each of the
Stockholders listed on Schedule A thereto
(schedules omitted -- the Company agrees to
furnish a copy of any Schedule to the
Commission upon request) (filed as Exhibit 2.1
to the Company's Current Report on Form 8-K
filed with the Commission on July 18, 1997 and
incorporated herein by reference).
3.1 Restated Certificate of Incorporation (filed
as Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the three months
ended March 31, 1996 and incorporated herein
by reference).
3.2 Second Amended and Restated By-Laws (filed as
Exhibit 3.2 (b) to the Company's Registration
Statement on Form S-1 (Registration No.
33-80481) and incorporated herein by
reference).
11.1 Computation of Earnings Per Common Share for
the three months ended June 30, 1996 and
1997.
11.2 Computation of Earnings Per Common Share for
the nine months ended June 30, 1996 and 1997.
27.1 Financial Data Schedule.
-21-
<PAGE>
(b) Reports on Form 8-K:
The Company filed the following reports on Form 8-K (i)
during the three months ended June 30, 1997 and/or (ii)
since July 1, 1997 through the date hereof:
<TABLE>
<CAPTION>
Date of Filing Items Reported Subject of Report
-------------- -------------- -----------------
<S> <C> <C>
July 18, 1997 2,7 Announcing the completion of the
acquisition of all of the outstanding
capital stock of Bauer Audio Visual,
Inc.
</TABLE>
-22-
<PAGE>
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 thereunto duly authorized.
CARIBINER INTERNATIONAL, INC.
(Registrant)
Date: August 12, 1997 By: /s/ Raymond S. Ingleby
------------------------
Raymond S. Ingleby
Chairman of the Board and
Chief Executive Officer
By: /s/ Arthur F. Dignam
------------------------
Arthur F. Dignam
Executive Vice President and
Chief Financial and
Administrative Officer
(Principal Financial Officer
and Chief Accounting Officer)
-23-
<PAGE>
EXHIBIT INDEX
Page Number
2.1 Agreement of Purchase and Sale of Stock, dated May
29, 1997, by and among Caribiner International, Inc.
(the "Company"), Bauer Audio Visual, Inc. and each of
the Stockholders listed on Schedule A thereto
(schedules omitted -- the Company agrees to furnish a
copy of any Schedule to the Commission upon request)
(filed as Exhibit 2.1 to the Company's Current Report
on Form 8-K filed with the Commission on July 18,
1997 and incorporated herein by reference).
3.1 Restated Certificate of Incorporation (filed as
Exhibit 3.1 to the Company's Quarterly Report on Form
10-Q for the three months ended March 31, 1996 and
incorporated herein by reference).
3.2 Second Amended and Restated By-Laws (filed as Exhibit
3.2 (b) to the Company's Registration Statement on
Form S-1 (Registration No. 33-80481) and incorporated
herein by reference).
11.1 Computation of Earnings Per Common Share for the
three months ended June 30, 1996 and 1997.
11.2 Computation of Earnings Per Common Share for the nine
months ended June 30, 1996 and 1997.
27.1 Financial Data Schedule.
-24-
<PAGE>
EXHIBIT 11.1
Caribiner International, Inc.
Computation of Earnings Per Common Share
For the Three Months Ended June 30
<TABLE>
<CAPTION>
1996 1997
------------------ ------------------
<S> <C> <C>
Weighted average common stock outstanding during the period 10,950,832 (a) 23,112,647
Effect of outstanding employee stock options -- 106,214
Conversion of convertible note into shares of preferred stock
and the subsequent conversion of such shares into shares
of common stock 4,110,000 --
Conversion of all outstanding shares of preferred stock and preferred stock
into shares of common stock 3,082,500 --
Exercise of warrants 1,069,010 --
Effect of exercise of warrants computed in accordance with the treasury
stock method (198,882) --
------------------ ------------------
Total weighted average common stock outstanding during the period 19,013,460 23,218,861
================== ==================
Income before taxes $ 6,770,685 $ 13,581,282
Income tax expense 2,382,256 5,568,326
------------------ ------------------
Net income $ 4,388,429 $ 8,012,956
================== ==================
Earnings per common share $ 0.23 (b) $ 0.35
================== ==================
</TABLE>
(a) Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common stock and common stock equivalents issued at prices below the
assumed initial public offering price per share during the twelve-month period
immediately preceding the initial filing date of the Company's Registration
Statement for its public offering have been included as outstanding for the
period.
(b) Computed on a pro forma basis assuming conversion of the convertible note
and all outstanding shares of preferred stock into common stock (which, in each
case, occurred on March 15, 1996 immediately prior to the initial public
offering) as if such conversion occurred on October 1, 1995. Pro forma loss per
share reflects adjustments to eliminate accrued preferred stock dividends.
-25-
<PAGE>
EXHIBIT 11.2
Caribiner International, Inc.
Computation of Earnings Per Common Share
For the Nine Months Ended June 30
<TABLE>
<CAPTION>
1996 1997
------------------- -------------------
<S> <C> <C>
Weighted average common stock outstanding during the period 7,493,974 (a) 20,993,415
Effect of Outstanding employee stock options -- 88,798
Conversion of Convertible note into shares of preferred stock and the
subsequent conversion of such shares into shares of common stock 4,110,000 --
Conversion of all outstanding shares of preferred stock and preferred
stock into shares of common stock 3,082,500 --
Exercise of warrants 1,069,010 --
Effect of exercise of warrants computed in accordance with the treasury
stock method (198,882) --
------------------- -------------------
Total weighted average common stock outstanding during the period 15,556,602 21,082,213
=================== ===================
Income before taxes $ 6,393,389 $ 21,136,238
Plus: reduction in interest expense from the conversion of the
Convertible Note 926,248 --
------------------- -------------------
Income before taxes 7,319,637 21,136,238
Income tax expense 2,561,873 8,665,858
------------------- -------------------
Net income $ 4,757,764 $ 12,470,380
=================== ===================
Earnings per common share $ 0.31 (b) $ 0.59
=================== ===================
</TABLE>
(a) Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common stock and common stock equivalents issued at prices below the
assumed initial public offering price per share during the twelve-month period
immediately preceding the initial filing date of the Company's Registration
Statement for its public offering have been included as outstanding for all
periods presented prior to the initial public offering.
(b) Computed on a pro forma basis assuming conversion of the convertible note
and all outstanding shares of preferred stock into common stock (which, in each
case, occurred on March 15, 1996 immediately prior to the initial public
offering) as if such conversion occurred on October 1, 1995. Pro forma loss per
share reflects adjustments to eliminate the interest expense on the convertible
note and to eliminate accrued preferred stock dividends.
-26-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 1997 OF CARIBINER
INTERNATIONAL, INC. AS SET FORTH IN THIS FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 22,869
<SECURITIES> 0
<RECEIVABLES> 73,883
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 118,949
<PP&E> 45,756
<DEPRECIATION> 11,941
<TOTAL-ASSETS> 279,203
<CURRENT-LIABILITIES> 86,203
<BONDS> 0
<COMMON> 232
0
0
<OTHER-SE> 159,227
<TOTAL-LIABILITY-AND-EQUITY> 279,203
<SALES> 233,293
<TOTAL-REVENUES> 233,293
<CGS> 154,001
<TOTAL-COSTS> 154,001
<OTHER-EXPENSES> 50,079
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,207
<INCOME-PRETAX> 21,136
<INCOME-TAX> 8,666
<INCOME-CONTINUING> 12,470
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,470
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0
</TABLE>
