<PAGE>
FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X]AMENDMENT NO. 2 TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended September 30, 1996
----------------------------------------------------
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
----------------- ------------------------------
Commission file number 1-14234
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CARIBINER INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(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)
(212) 541-5300
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
Common Stock, par value $0.01 per share New York Stock Exchange
- --------------------------------------- ------------------------------------
Securities Registered Pursuant to Section 12(g) of the Act:
None
- --------------------------------------------------------------------------------
(Title of Class)
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Registration S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_]
As of December 24, 1996, the aggregate market value of voting stock held by
non-affiliates of the registrant was $214,573,541.
As of December 24, 1996, the registrant had 9,614,151 shares of its common
stock, par value $0.01 per share (the "Common Stock"), issued and outstanding.
The undersigned Registrant hereby amends its Annual Report on Form 10-K for
the fiscal year ended September 30, 1996 as set forth in the pages attached
hereto.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements contained herein are foreward-looking statements that are
made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements involve known and
unknown risks and uncertainties which may cause the Company's actual results
in future periods or plans for future periods to differ materially from what
is currently anticipated. Those risks include, among others, general
competitive factors, the Company's ability to successfully complete and
integrate its acquisitions and to implement operational improvements in its
acquired businesses and the seasonality and episodic nature of the Company's
business.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
components of the Company's operating statement data, including such data as a
percentage of revenue.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------
1994 1995 1996
------------- ------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue.......................... $59,174 100.0% $81,131 100.0% $148,330 100.0%
Cost of revenue.................. 39,724 67.1 54,312 66.9 99,797 67.3
------- ----- ------- ----- -------- -----
Gross profit..................... 19,450 32.9 26,819 33.1 48,533 32.7
Selling, general and
administrative expenses......... 14,349 24.3 19,306 23.8 30,442 20.5
Non-cash compensation expense.... -- -- -- -- 1,072 0.7
Depreciation and amortization.... 2,137 3.6 2,330 2.9 3,142 2.1
Write-off of certain intangibles. -- -- -- -- -- --
------- ----- ------- ----- -------- -----
Total operating expenses......... 16,486 27.9 21,636 26.7 34,656 23.4
------- ----- ------- ----- -------- -----
Operating income (loss).......... 2,964 5.0 5,183 6.4 13,877 9.4
Interest expense with related
parties......................... 2,107 3.6 2,234 2.8 1,199 0.8
Interest expense, other.......... 502 0.8 1,259 1.6 387 0.3
------- ----- ------- ----- -------- -----
Income (loss) before taxes....... 355 0.6 1,690 2.1 12,291 8.3
Provision (benefit) for taxes.... 62 0.1 264 0.3 4,302 2.9
------- ----- ------- ----- -------- -----
Net income (loss)................ $ 293 0.5% $ 1,426 1.8% $ 7,989 5.4%
======= ===== ======= ===== ======== =====
</TABLE>
Fiscal 1996 Compared to Fiscal 1995
Revenue. Revenue increased $67.2 million, or 83%, from $81.1 million in
fiscal 1995 to $148.3 million in fiscal 1996. Through a combination of
internal growth and acquisitions the Company increased its revenues from
clients across a broad range of industries. Increases in telecommunications,
food services and information technology clients accounted for 14.6%, 12.3%,
and 12.3% of the revenue growth, respectively. In addition, a new lodging
client accounted for 8.7% of the increased revenue. Approximately 25% of the
increase was due to sales meetings in connection with a triennial event held
by an insurance client. The remainder of the increase in revenue was spread
among several other industries.
Gross profit. Gross profit increased 81% from $26.8 million in fiscal 1995
to $48.5 million in fiscal 1996, primarily as a result of the revenue growth
described above. Gross profit as a percentage of revenue decreased slightly to
32.7% in fiscal 1996 from 33.1% in fiscal 1995.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $11.1 million or 58% from $19.3 million in
fiscal 1995 to $30.4 million in fiscal 1996. Salaries and related costs
increased $6.9 million resulting primarily from the addition of new offices
and personnel resulting from acquisitions and in support of other revenue
growth, as well as normal inflationary increases. Other general and
administrative expenses, including rent, occupancy and telephone, increased
$2.6 million resulting from the Company's overall growth. Direct selling
expenses, including commissions, advertising, travel and other costs related
to obtaining business, increased $1.6 million. Selling, general and
administrative expenses as a percentage
1
<PAGE>
of revenue declined from 23.8% in fiscal 1995 to 20.5% in fiscal 1996 as
revenue increased more rapidly than such expenses. In fiscal 1996, the Company
also recorded a non-recurring non-cash compensation expense of $1.1 million
resulting from the vesting of common stock sold pursuant to the Company's
management stock plan at a price lower than its fair market value.
Depreciation and amortization. Depreciation and amortization expense
increased $0.8 million from $2.3 million in fiscal 1995 to $3.1 million in
fiscal 1996. This increase was primarily due to the purchase of computer
equipment, fixed assets acquired through acquisitions and goodwill resulting
from such acquisitions.
Interest expense. Interest expense with related parties decreased by $1.0
million from fiscal 1995 to fiscal 1996 due to the repayment and conversion of
debt as of March 15, 1996 in connection with the Initial Public Offering.
Other interest expense, net, decreased by $0.9 million from fiscal 1995 to
fiscal 1996 due to a lower average borrowing level, the repayment of
outstanding balances as of March 15, 1996 in connection with the Initial
Public Offering, and interest income earned on the proceeds from the Initial
Public Offering.
Income before taxes. Income before taxes increased from $1.7 million in
fiscal 1995 to $12.3 million in fiscal 1996 as revenue growth from internal
business and acquired businesses contributed to the improved earnings of the
Company.
Provision for taxes. The provision for taxes as a percentage of income
before taxes was 35.0% and 15.6% for fiscal 1996 and fiscal 1995,
respectively. The increase in the effective 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. Beginning with the fiscal
year ending September 30, 1997, the Company expects to reflect an effective
tax rate in accordance with statutory tax rates as adjusted for book/tax
differences such as nondeductible expenses.
Net income. Net income increased to $8.0 million in fiscal 1996 from net
income of $1.4 million in fiscal 1995, for the reasons set forth in the
preceding paragraphs. Pro forma net income per common share increased in
fiscal 1996 to $1.05 from $0.49 in fiscal 1995. Excluding the effect of the
non-recurring non-cash compensation charge of $1.1 million, pro forma net
income per common share would have been $1.18 for fiscal 1996.
Fiscal 1995 Compared to Fiscal 1994
Revenue. Revenue increased 37.1% from $59.2 million in fiscal 1994 to $81.1
million in fiscal 1995. Higher revenue from the Ford Motor Co. accounted for
approximately two-thirds of the revenue increase. Increased revenue from
clients in the information technology sector contributed approximately 25% of
the increase.
Gross profit. Gross profit increased 37.9% from $19.5 million in fiscal 1994
to $26.8 million in fiscal 1995. The $7.4 million increase resulted primarily
from the revenue growth described in the preceding paragraph. Gross profit as
a percentage of revenue rose slightly from 32.9% to 33.1%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 34.5% from $14.3 million in fiscal 1994 to
$19.3 million in fiscal 1995. Salaries and related costs increased $3.1
million primarily as a result of acquisitions, new office openings and
additional personnel in connection with the Company's growth as well as annual
inflationary increases. Direct selling expenses increased $0.4 million to
support revenue growth. In addition, other general and administrative expenses
for new and additional offices increased $1.5 million. Selling, general and
administrative expenses as a percentage of revenue declined from 24.3% in
fiscal 1994 to 23.8% in fiscal 1995.
Depreciation and amortization. Depreciation and amortization expense
increased by $0.2 million from fiscal 1994 to fiscal 1995 due primarily to the
purchase of computer equipment and goodwill from acquisitions.
Interest expense. Interest expense with related parties increased $0.1
million due to compounding. Other interest expense increased $0.8 million due
to higher borrowing under the Company's then-existing bank facility to fund
acquisitions, office expansions and increased working capital requirements.
2
<PAGE>
Income before taxes. Income before income taxes increased from $0.4 million
to $1.7 million as revenue growth both from internal business as well as
acquired businesses contributed to the improved earnings of the Company.
Provision for taxes. The provision for taxes in fiscal 1995 reflects
federal, state and local minimum taxes after benefit from the utilization of
net operating loss carryforwards. The provision for taxes in fiscal 1994
reflects state and local minimum taxes. See "--Income Taxes."
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through internal cash flow
and bank financing, including the Company's new financing facilities (as
described below), its recently replaced line of credit (the "1994 Line of
Credit") (as described below) and its recently replaced term facility (the
"1994 Term Facility") (as described below). These sources of funds have been
used to fund the Company's efforts to grow both internally and through
acquisitions.
The following table sets forth certain information from the Company's
Consolidated Statement of Cash Flows for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1994 1995 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net cash provided by (used in):
Operating activities.............................. $ 2,872 $ 442 $ 7,260
Investing activities.............................. (6,601) (7,758) (46,205)
Financing activities.............................. 3,572 7,256 47,078
</TABLE>
In fiscal 1994, the Company generated $2.9 million from its operating
activities. Net income plus depreciation and amortization provided $2.4
million. The net change in working capital provided $0.5 million, with
increases in accounts receivable resulting from increased revenue being more
than offset by increases in accounts payable, deferred income and accrued
liabilities. Investing activities required $6.6 million as a result of the
acquisition of businesses, purchase of property and equipment and additional
payments in connection with the merger with ICC. Financing activities provided
$3.6 million through use of the 1994 Line of Credit and 1994 Term Facility.
In fiscal 1995, the Company generated approximately $0.4 million from
operating activities compared to $2.9 million in fiscal 1994. The decrease was
the result of higher working capital requirements resulting from expansion of
operating activities and revenue growth. Investing activities included the
purchase of property and equipment and acquisitions of intangibles and
businesses that required approximately $7.8 million. Financing activities
provided approximately $7.3 million through use of the 1994 Line of Credit and
1994 Term Facility.
In fiscal 1996, the Company generated $7.3 million from its operating
activities. Net income plus depreciation and amortization and the non-cash
compensation expense described above provided $12.2 million. The net change in
working capital used $4.9 million, with increases in accounts receivable,
prepaid expenses and other current assets as well as a decrease in accrued
interest payable, offset by a net increase in accrued expenses and accounts
payable. Investing activities required $46.2 million, resulting primarily from
the acquisition of businesses and the purchase of equipment. Financing
activities provided approximately $47.1 million, of which an aggregate of
$44.4 million of net proceeds were received in fiscal 1996 from the issuance
of Common Stock and the exercise of warrants to purchase Common Stock, $18.0
million was provided by the 1994 Term Loan and net proceeds of $1.8 million
were provided by the 1994 Line of Credit. Such amounts were offset by $16.9
million used to repay certain outstanding bank borrowings and substantially
all other long-term indebtedness, and to pay accrued preferred stock
dividends. In addition, $0.2 million was used to repurchase Common Stock in
fiscal 1996.
3
<PAGE>
The 1994 Line of Credit provided the Company with funds to satisfy working
capital requirements and the 1994 Term Facility was used primarily to finance
acquisitions. As of September 30, 1996, $6.0 million was outstanding under the
1994 Line of Credit and $15.0 million was outstanding under the 1994 Term
Facility. As of September 30, 1996, each of the 1994 Line of Credit and the
1994 Term Facility bore interest at the rate of 9.25% per annum, which was 1%
over the lender's prime rate. 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 1994 Line of Credit and 1994 Term
Facility 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 December 4, 1996.
Capital expenditures were $1.6 million in each of fiscal 1994 and fiscal
1995 and $2.2 million in fiscal 1996. For fiscal 1995 and fiscal 1996, the
purchase of additional personal computers and expanded capabilities for the
computer system were the largest areas of expenditure. Capital expenditures in
fiscal 1994 were incurred primarily in connection with the purchase of
personal computers, an IBM AS/400 mid-range computer, furniture and fixtures
and leasehold improvements. The Company depreciates its equipment over the
estimated useful lives of such assets ranging from five to seven years. The
Company believes that capital expenditure requirements will increase to
approximately $9.0 million in fiscal 1997 (including Blumberg's anticipated
capital expenditure requirements, but excluding capital expenditure
requirements of any additional businesses acquired) primarily as a result of
planned investments in audio visual and staging equipment which the Company
will rent to its clients.
BILLINGS AND COLLECTIONS
Customers are normally billed on a per-project or per-rental basis.
Generally, the Company produces projects on a fixed-price basis. The
components of the fixed price are labor, both internal and external, outside
purchases and equipment utilization. The Company also produces projects priced
on a "cost-plus" basis, whereby the Company bills its employees' services to
the client at hourly or per diem rates, depending upon the employee, and then
charges for actual outside purchases plus an agreed upon mark-up. Like fixed
pricing, however, cost-plus pricing has a ceiling that cannot be exceeded
without written permission of the client. For both fixed-price and cost-plus
projects, the Company has a project change notice system to authorize all
production/price changes. TAVS provides audio visual equipment rentals to
customers based on published price lists. Generally, billing terms are one-
third due upon contract signing, one-third due during production and the
remainder due upon delivery and completion of the project. In the case of
TAVS, customers are billed upon completion of the staging service or rental.
Billings prior to delivery date are carried as deferred income in the
Company's financial statements and costs incurred prior to the delivery date
are carried as deferred charges. The Company has not had any material
collection problems in connection with its business.
In the event a client cancels a project after production work has begun, the
client is billed for work performed and expenses incurred through the date of
cancellation.
INCOME TAXES
The Company's effective tax rates for fiscal 1994, fiscal 1995 and fiscal
1996 were 17.5%, 15.6% and 35.0%, respectively, which resulted from the
utilization of federal net operating loss ("NOL") carryforwards.
4
<PAGE>
The increase in the effective tax rates for fiscal 1996 is due primarily to
income before tax in excess of the utilization of available NOL carryforwards
which are not subject to limitations. In future years the Company does not
expect to recognize any material benefit related to the utilization of NOL
carryforwards and expects to reflect a tax rate in accordance with statutory
tax rates adjusted for book/tax differences such as non-deductible expenses.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued two standards which will
be applicable to the Company beginning in fiscal 1997: No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of and No. 123, Accounting for Stock-Based Compensation. The impairment
standard is not expected to have a significant impact on the Company. The
Company has not yet determined which of the acceptable approaches it will use
under the stock compensation standard. Adoption of certain approaches under
the stock compensation standard could result in non-cash charges which, if
made, are not expected to be material. At a minimum, the standard will require
disclosures about the fair value of employee stock options.
QUARTERLY RESULTS
The following table sets forth the unaudited quarterly results of operations
for each of the quarters in fiscal 1995 and fiscal 1996. In management's
opinion, this unaudited quarterly information includes all adjustments which
are necessary for a fair presentation of the information for the quarters
presented. The operating results in any quarter are not necessarily indicative
of the results which may be expected for any other interim period.
<TABLE>
<CAPTION>
FISCAL FISCAL
1995 1996
-------------------------------- --------------------------------
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $11,399 $19,045 $21,641 $29,046 $20,407 $31,220 $48,150 $48,553
Gross profit............ 3,912 5,861 7,528 9,518 7,066 10,190 15,576 15,701
Operating income (loss). (1,143) 938 2,242 3,146 (87) 1,576 6,556 5,831
Net income (loss)....... (1,593) 91 1,127 1,801 (898) 643 4,408 3,836
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
5
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................... 7
Consolidated Balance Sheets as of September 30, 1995 and 1996............ 8
For the Years Ended September 30, 1994, 1995 and 1996:
Consolidated Statements of Operations.................................. 9
Consolidated Statements of Cash Flows.................................. 10
Consolidated Statements of Changes in Stockholders' Equity (Deficit)... 11
Notes to Consolidated Financial Statements............................... 12
</TABLE>
6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
Caribiner International, Inc.
We have audited the accompanying consolidated balance sheets of Caribiner
International, Inc. (the "Company") as of September 30, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended September 30,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company
at September 30, 1995 and 1996 and the consolidated results of its operations
and its cash flows for each of the three years in the period ended September
30, 1996, in conformity with generally accepted accounting principles.
/s/ Ernst &Young LLP
New York, New York
December 6, 1996
Except for Note 15 as to which the date
is December 20, 1996
7
<PAGE>
CARIBINER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1995 1996
----------- ------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 212,612 $ 8,431,777
Trade accounts receivable, net of allowance for
doubtful accounts of
$81,600 in 1995 and $304,860 in 1996.............. 22,920,679 36,201,774
Deferred charges................................... 3,804,858 8,989,410
Prepaid expenses and other current assets.......... 607,494 3,394,951
----------- ------------
TOTAL CURRENT ASSETS........................... 27,545,643 57,017,912
Property and equipment, net........................ 6,383,975 21,180,982
Goodwill, net...................................... 10,288,503 46,681,520
Other intangibles, net............................. 340,251 1,041,280
Other assets....................................... 740,040 399,696
----------- ------------
TOTAL ASSETS................................... $45,298,412 $126,321,390
=========== ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
----------------------------------------------
CURRENT LIABILITIES:
Bank line of credit................................ $ 4,220,000 $ 6,000,000
Current portion of long-term debt.................. 4,677,054 648,696
Trade accounts payable............................. 4,581,165 7,529,536
Accrued expenses and other current liabilities..... 3,471,233 12,698,716
Accrued production costs........................... 3,483,084 11,355,416
Deferred income.................................... 6,761,589 13,334,965
----------- ------------
TOTAL CURRENT LIABILITIES...................... 27,194,125 51,567,329
Long-term debt..................................... 7,147,675 16,189,922
Convertible Note including accrued interest........ 17,346,397 --
Deferred income.................................... 3,275,023 5,007,183
Accrued preferred stock dividends.................. 1,874,135 --
Other liabilities.................................. 895,288 89,573
----------- ------------
TOTAL LIABILITIES.............................. 57,732,643 72,854,007
STOCKHOLDERS' (DEFICIT) EQUITY:
Preferred stock, $.01 par value:
1,150,000 shares authorized, 450,000 shares issued
and outstanding at 1995; 2,000,000 shares autho-
rized, none issued and outstanding at 1996........ 4,500 --
Common stock, $.01 par value:
12,330,000 voting shares authorized and 685,000
non-voting shares authorized, 1,924,240 voting
shares and 577,239 non-voting shares issued and
outstanding at 1995; 40,000,000 voting shares au-
thorized, 9,598,159 shares issued and
outstanding at 1996............................... 25,015 95,982
Additional paid-in capital......................... 1,945,272 60,032,954
Translation adjustment............................. -- 85,723
Accumulated deficit................................ (14,409,018) (6,747,276)
----------- ------------
TOTAL STOCKHOLDERS' (DEFICIT) EQUITY........... (12,434,231) 53,467,383
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT)
EQUITY............................................. $45,298,412 $126,321,390
=========== ============
</TABLE>
See accompanying notes to the consolidated financial statements.
8
<PAGE>
CARIBINER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Revenue................................... $59,173,739 $81,131,219 $148,329,868
Cost of revenue........................... 39,723,994 54,312,550 99,797,490
----------- ----------- ------------
Gross profit.............................. 19,449,745 26,818,669 48,532,378
Operating expenses:
Selling, general and administrative
expenses................................ 14,348,904 19,305,899 30,442,235
Non-cash compensation expense........... -- -- 1,072,000
Depreciation and amortization........... 2,137,100 2,329,869 3,141,838
----------- ----------- ------------
Total operating expenses.................. 16,486,004 21,635,768 34,656,073
----------- ----------- ------------
Operating income.......................... 2,963,741 5,182,901 13,876,305
Interest expense with related parties..... 2,107,383 2,233,623 1,199,281
Other interest expense, net............... 501,509 1,259,315 385,909
----------- ----------- ------------
Income before taxes....................... 354,849 1,689,963 12,291,115
Provision for taxes....................... 62,257 264,430 4,301,890
----------- ----------- ------------
Net income.............................. $ 292,592 $ 1,425,533 $ 7,989,225
=========== =========== ============
Pro forma net income per common share... $0.30 $0.49 $1.05
===== ===== =====
</TABLE>
See accompanying notes to the consolidated financial statements.
9
<PAGE>
CARIBINER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------
1994 1995 1996
----------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................. $ 292,592 $1,425,533 $ 7,989,225
Adjustments to reconcile net income to
net cash provided by
(used in) operating activities:
Non-cash compensation expense.......... -- -- 1,072,000
Depreciation and amortization.......... 2,137,100 2,329,869 3,141,838
Change in assets and liabilities:
(Increase) in accounts receivable.... (10,322,839) (6,407,492) (4,520,122)
(Increase) in deferred charges....... (256,856) (2,558,543) (769,988)
(Increase) in prepaid expenses and
other
current assets...................... (91,303) (261,873) (974,103)
Decrease in other assets............. 264,219 150,536 442,971
Increase (decrease) in accounts pay-
able................................ 2,766,666 (130,891) (1,650,337)
Increase (decrease) in deferred in-
come................................ 4,565,558 2,874,963 (64,800)
Increase in accrued expenses and
other liabilities................... 1,409,775 786,513 8,724,058
Increase (decrease) in accrued inter- 2,107,383 2,233,623 (6,130,397)
est payable......................... ----------- ---------- -----------
Net cash provided by operating activi- 2,872,295 442,238 7,260,345
ties.................................. ----------- ---------- -----------
Cash flow used in investing activities:
Purchase of property and equipment..... (1,592,848) (1,605,978) (2,222,395)
Acquisition of intangibles and busi-
nesses, net of cash acquired.......... (4,599,285) (6,151,649) (43,982,317)
Net cash paid in merger with ICC....... (408,938) -- --
----------- ---------- -----------
Net cash used in investing activities.. (6,601,071) (7,757,627) (46,204,712)
----------- ---------- -----------
Cash flow provided by (used in) financing
activities:
Net proceeds from issuance of common
stock................................. -- -- 42,480,447
Proceeds from exercise of warrants..... -- -- 1,690,500
Net proceeds from bank line of credit.. 660,000 2,550,000 1,780,000
Proceeds from long-term debt........... 3,000,000 6,000,000 18,000,000
Repayments of long-term debt........... (85,000) (1,297,574) (14,668,783)
Payment of preferred dividends......... -- -- (2,201,618)
Proceeds from issuance of common stock
under the
Management Stock Plan................. 2,050 5,383 174,167
Repurchase of common stock............. (4,899) (1,878) (176,904)
----------- ---------- -----------
Net cash provided by financing activi- 3,572,151 7,255,931 47,077,809
ties.................................. ----------- ---------- -----------
Effect of exchange rate changes on cash -- -- 85,723
and cash equivalents.................... ----------- ---------- -----------
Net (decrease) increase in cash.......... (156,625) (59,458) 8,219,165
Cash, beginning of year.................. 428,695 272,070 212,612
----------- ---------- -----------
Cash, end of year........................ $ 272,070 $ 212,612 $ 8,431,777
=========== ========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
10
<PAGE>
CARIBINER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL TOTAL
------------------ ------------------- PAID IN DEFERRED ACCUMULATED TRANSLATION STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT ADJUSTMENT EQUITY (DEFICIT)
--------- ------- ---------- ------- ----------- ------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
October 1, 1993. 2,327,827 $23,278 450,000 $ 4,500 $ 1,951,833 $ -- ($14,885,787) -- ($12,906,176)
Issuance of
common stock
upon the
purchase of
MultiMedia
Holdings, Inc. . 54,714 547 -- -- (388) -- -- -- 159
Exchange offer
and merger...... (5,647) (57) -- -- (60,416) -- -- -- (60,473)
Repurchase of
common stock
under the
Management Stock
Plan............ (33,222) (332) -- -- (250) -- (4,317) -- (4,899)
Issuance of
common stock
under the
Management Stock
Plan............ 107,973 1,080 -- -- 811 -- -- -- 1,891
Issuance of
warrants to
purchase 71,435
shares of common
stock........... -- -- -- -- 9,907 -- -- -- 9,907
Accrued
preferred stock
dividends....... -- -- -- -- -- -- (581,997) -- (581,997)
Net income...... -- -- -- -- -- -- 292,592 -- 292,592
--------- ------- ---------- ------- ----------- ---------- ------------ ------- ------------
Balance at
September 30,
1994............ 2,451,645 24,516 450,000 4,500 1,901,497 -- (15,179,509) -- (13,248,996)
Repurchase of
Management Stock
Plan shares by
the company..... (24,916) (249) -- -- (1,629) -- -- -- (1,878)
Issuance of
warrants to
purchase 293,967
shares of common
stock........... -- -- -- -- 40,769 -- -- -- 40,769
Issuance of
common stock
under the
Management Stock
Plan............ 74,750 748 -- -- 4,635 -- -- -- 5,383
Accrued
preferred stock
dividends....... -- -- -- -- -- -- (655,042) -- (655,042)
Net income...... -- -- -- -- -- -- 1,425,533 -- 1,425,533
--------- ------- ---------- ------- ----------- ---------- ------------ ------- ------------
Balance at
September 30,
1995............ 2,501,479 25,015 450,000 4,500 1,945,272 -- (14,409,018) -- (12,434,231)
Issuance of
common stock
under the
Management Stock
Plan............ 87,210 872 -- -- 1,245,295 (1,072,000) -- -- 174,167
Issuance of
warrants to
purchase 75,593
shares of common
stock........... -- -- -- -- 79,456 -- -- -- 79,456
Repurchase of
common stock.... (31,091) (311) -- -- (176,593) -- -- -- (176,904)
Accrued
preferred stock
dividends....... -- -- -- -- -- -- (327,483) -- (327,483)
Conversion of
Convertible Note
into preferred
stock........... -- -- 600,000 6,000 11,979,450 -- -- -- 11,985,450
Conversion of
preferred stock
into common
stock........... 3,596,250 35,963 (1,050,000) (10,500) (10,913) -- -- -- 14,550
Exercise of
warrants........ 534,505 5,345 -- -- 1,685,155 -- -- -- 1,690,500
Issuance of
common stock
upon
consummation of
initial public
offering........ 2,877,985 28,780 -- -- 42,286,150 -- -- -- 42,314,930
Issuance of
common stock
upon acquisition
of Lighthouse,
Ltd. ........... 31,821 318 -- -- 999,682 -- -- -- 1,000,000
Non-cash
compensation
charge.......... -- -- -- -- -- 1,072,000 -- -- 1,072,000
Translation
adjustment...... 85,723 85,723
Net income...... -- -- -- -- -- -- 7,989,225 -- 7,989,225
--------- ------- ---------- ------- ----------- ---------- ------------ ------- ------------
9,598,159 $95,982 -- $ -- $60,032,954 $ -- ($ 6,747,276) $85,723 $ 53,467,383
========= ======= ========== ======= =========== ========== ============ ======= ============
</TABLE>
See accompanying notes to the consolidated financial statements.
11
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
Caribiner International, Inc., formerly Business Communications Group, Inc.
(together with its direct and indirect wholly-owned subsidiaries, the
"Company"), is engaged in the production of meetings, events and training
programs and is a provider of related business communications services that
enable businesses to inform, sell to and train their sales forces, dealers,
franchisees, partners, stockholders and employees.
The Company was organized on December 1, 1989 by its then parent, Ingleby
Communications Corporation ("ICC"), and comprised substantially all of the
operations of ICC. Effective as of June 30, 1992, the Company completed a $16
million private placement (the "Private Placement"), with Warburg, Pincus
Investors, L.P. ("Warburg") consisting of $12 million principal amount of the
Company's 11.5% Convertible Promissory Note (the "Convertible Note") and $4
million of Cumulative Redeemable Convertible Voting Preferred Stock, par value
$.01 per share (the "Preferred Stock"). Simultaneously with the Private
Placement, the Company and ICC entered into a Stockholders Agreement with
Warburg that gave Warburg significant control in current and future operations
of the Company and its subsidiaries.
On July 16, 1993, the Company entered into an agreement with certain
shareholders of ICC (the "Exchange Offer") to exchange shares of its voting
common stock, par value $.01 per share (the "Common Stock"), for shares of ICC
common stock held by such shareholders. As a result of these transactions, ICC
was merged into a wholly owned subsidiary of the Company in a manner similar
to a pooling of interests (the "Merger"). In addition, the Stockholders
Agreement was terminated in connection with the Exchange Offer and a new
stockholders agreement was entered into among the Company, Warburg and each of
the other stockholders of the Company.
In March, 1996, the Company consummated an initial public offering (the
"Initial Public Offering") of its Common Stock, which included the sale by the
Company of approximately 2.9 million shares of Common Stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All intercompany balances and transactions
have been eliminated in consolidation.
Revenue Recognition
Revenue is recorded principally on the completed contract method of
accounting. The recognition of revenue and cost of 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
non-payment by the client.
Deferred income, which represents advance billings on uncompleted jobs, is
classified as long-term in the same proportion that anticipated profit on such
jobs bears to the related contract price. Deferred charges represent costs
incurred on uncompleted jobs.
12
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cost of Revenue
Cost of revenue is comprised of production costs including salaries and
benefits of production, creative and technical personnel spent on specific
contracts, and other direct costs including contracted services, equipment
rentals and costs associated with the production of audio-visual effects. Such
costs are deferred until project completion.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment, including equipment under capital leases, are stated
at cost. Depreciation is calculated on the straight-line method over the
estimated useful lives of the assets ranging from five to seven years.
Leasehold improvements are amortized on the straight-line method over the
shorter of the lease term or the estimated useful life.
Goodwill and Other Intangibles
Goodwill represents the excess of the cost over the fair value of net assets
of purchased businesses and is amortized on a straight-line basis over periods
ranging from 15 years to 25 years. Accumulated amortization of goodwill was
$1,608,612 and $2,617,295 at September 30, 1995 and 1996, respectively. The
cost of other acquired intangibles, consisting of non-compete agreements,
sales backlog, customer lists and film and module library is amortized on a
straight-line basis over their estimated useful lives ranging from one to six
years. The cost of the film and module library is amortized on a straight-line
basis over the five-year estimated useful lives. Accumulated amortization of
other acquired intangible assets was $1,975,095 and $1,998,636 at September
30, 1995 and 1996, respectively.
The Company reviews the recoverability of intangible and other long-lived
assets whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. A loss is recognized for the difference between
the carrying amount and the estimated fair value of the asset.
Deferred Financing Fees
Deferred financing fees are amortized over the term of the related debt. The
amortization of deferred financing fees is reflected as a component of
interest expense. Accumulated amortization on deferred financing fees is
$505,200 and $662,656 at September 30, 1995 and 1996, respectively.
Foreign Currency Translation
The financial statements of foreign subsidiaries are translated into U.S.
dollars at current rates as of the balance sheet date, except for revenue,
costs and expenses which are translated at average current rates during each
reporting period. The gains or losses resulting from translation are included
as a separate component in stockholders' equity. The gains and losses
resulting from foreign currency transactions are included in the Company's
current results of operations. There were no transaction gains or losses in
fiscal 1994 and 1995. Transaction gains or losses in fiscal 1996 were not
significant.
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
13
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock Based Compensation
The Company grants to certain employees stock options for a fixed number of
shares with an exercise price equal to the fair value of the shares at the
date of grant. The Company accounts for stock option grants in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees," and,
accordingly, recognizes no compensation expense for such grants.
New Accounting Pronouncements
The Financial Accounting Standards Board issued two standards which will be
applicable to the Company beginning in fiscal 1997: No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of and No. 123, Accounting for Stock-Based Compensation. The impairment
standard is not expected to have a significant impact on the Company. The
Company has not yet determined which of the acceptable approaches it will use
under the stock compensation standard. Adoption of certain approaches under
the stock compensation standard could result in non-cash charges which if
made, are not expected to be material. At a minimum, the standard will require
disclosures about the fair value of employee stock options.
3. ACQUISITIONS
During fiscal 1995 and fiscal 1996, the Company purchased six companies
engaged in providing business communication services and acquired a
contractual relationship with a major corporation from another business
communications services provider.
The Company acquired Decomas, Incorporated and Executive Support Systems,
Inc. (collectively, "Decomas") in October, 1994 for $1.2 million and Richard
Kidd Productions, Inc. in September, 1995 for $1.1 million. In addition, in
August, 1995, the Company acquired a contractual relationship with a major
corporation from another business communications company for $2.0 million.
These transactions were financed through bank borrowings.
In January, 1996, the Company acquired substantially all of the assets of
Koors Perry & Associates, Inc. ("Koors Perry") for $4.8 million including the
issuance of a promissory note of $1.5 million as partial consideration. In
June, 1996 the Company acquired Lighthouse, Ltd. for $7.3 million which
consisted of cash and the issuance of 31,821 shares of the Company's Common
Stock having a value of approximately $1.0 million. Also in June, 1996, the
Company acquired SCH International Limited ("Spectrum") for $5.1 million. In
September, 1996, the Company completed its acquisition of Total Audio Visual
Services ("TAVS"), a leading provider of audio visual equipment rentals, sales
and related staging services, including hotel audio visual outsourcing
services, for $26.6 million. Except for the promissory note and the Common
Stock issuance described above, these transactions were financed through a
combination of cash and bank borrowings.
The accounting for these acquisitions is in accordance with the purchase
method and, accordingly, operations of the acquired businesses are included in
the accompanying consolidated statements of operations from their respective
dates of acquisition.
The acquisitions of each of Weiss/Watson, Inc. (acquired October, 1993),
Decomas, Koors Perry and Spectrum provided for contingent payments for three
years following the purchase based upon the achievement of certain performance
goals relating to revenue, gross profit or earnings before interest, taxes,
depreciation and amortization. Contingent payments are accounted for as
additional purchase price as they become known. No significant contingent
payments were made or accrued during fiscal 1994. During fiscal 1995 and
fiscal 1996, $1.8 million and $1.4 million, respectively, were paid and/or
accrued as additional consideration with respect to certain acquisitions.
14
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following unaudited consolidated pro forma results of operations of the
Company for the years ended September 30, 1995 and 1996 give effect to the
following transactions as if they occurred on October 1, 1994: (i) the
acquisitions of Koors Perry, Lighthouse, Ltd., Spectrum and TAVS, (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 (see
Note 6) 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 acquisition of TAVS as if such acquisition had occurred on
October 1, 1994.
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-----------------------
1995 1996
----------- -----------
(IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenue............................................. $ 182.1 $ 236.6
Income before taxes................................. 5.4 15.7
Net income.......................................... 4.8 9.7
Pro forma net income per common share............... 0.50 1.02
</TABLE>
The above calculation of pro forma net income per common share assumes that
approximately 9.5 million and 9.6 million shares were outstanding during 1995
and 1996, 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 been made at the beginning of fiscal 1995 or of results which
may occur in the future.
4. PROPERTY AND EQUIPMENT
At September 30, 1995 and 1996, property and equipment consisted of:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------------
1995 1996
----------- -----------
<S> <C> <C>
Furniture and equipment................................ $ 7,909,548 $23,571,968
Leasehold improvements................................. 2,354,692 2,782,271
Capital leases--equipment.............................. 307,188 705,333
----------- -----------
10,571,428 27,059,572
Less--accumulated depreciation and amortization........ 4,187,453 5,878,590
----------- -----------
$ 6,383,975 $21,180,982
=========== ===========
</TABLE>
The related depreciation and amortization expense for the years ended
September 30, 1995 and 1996 was $1,463,608 and $2,060,507, respectively.
5. DEBT
The Company has financed its operations primarily through internal cash flow
and bank financing, including the Company's new financing facilities, its
recently replaced line of credit (the "1994 Line of Credit") and its recently
replaced term facility (the "1994 Term Facility"). These sources of funds have
been used to fund the Company's efforts to grow both internally and through
acquisitions.
The 1994 Line of Credit provided the Company with funds to handle working
capital requirements and the 1994 Term Facility was used primarily to finance
acquisitions. As of September 30, 1996, $6.0 million was
15
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
outstanding under the 1994 Line of Credit and $15.0 million was outstanding
under the 1994 Term Facility. As of September 30, 1996, each of the 1994 Line
of Credit and the 1994 Term Facility bore interest at the rate of 9.25% per
annum, which was 1% over the lender's prime rate. 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 1994 Line of
Credit and 1994 Term Facility 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 December 4, 1996. The 1996
Facilities require compliance with certain covenants including financial
performance ratios.
During fiscal 1995 and fiscal 1996, under the terms of the 1994 Line of
Credit, the Company had the availability of funds up to $12.0 million, bearing
interest at prime plus 1%, limited to 85% of trade receivables outstanding at
each month-end. At September 30, 1995, $750,000 of the outstanding borrowings
under the 1994 Line of Credit and, at September 30, 1996, $15.0 million under
the 1994 Term Facility were excluded from current liabilities since the
Company intended and had the ability to keep that amount outstanding under the
1994 Line of Credit or the 1994 Term Facility beyond one year from the balance
sheet date, or that any repayment of this amount would have been from sources
other than current assets as of their respective balance sheet dates, such as
new equity financing.
Long-term Debt and Convertible Note
At September 30, 1995 and 1996, long-term debt consisted of:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------------
1995 1996
----------- -----------
<S> <C> <C>
Bank term loan......................................... $ 7,750,000 $15,000,000
Bank line of credit.................................... 750,000 --
Loan payable to Warburg................................ 2,999,181 --
Promissory note payable................................ -- 1,243,476
Equipment lease commitments............................ 325,548 595,142
----------- -----------
11,824,729 16,838,618
Less--current portion of long-term debt................ 4,677,054 648,696
----------- -----------
$ 7,147,675 $16,189,922
=========== ===========
Convertible Note including accrued interest............ $17,346,397 $ --
=========== ===========
</TABLE>
At September 30, 1996, the fair value of the above commitments approximated
the carrying amounts.
On July 20, 1994 the Company entered into a credit agreement with a bank
providing for the 1994 Term Facility of up to $5.0 million. As of September
29, 1995 the Company had signed an amendment increasing the
16
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
availability of funds to $15.0 million of which $7.3 million was available for
working capital, general corporate purposes and for acquisitions.
Approximately $3.0 million of a $10.0 million Warburg loan facility (the
"Warburg Term Loan"), which accrued interest at 11% per annum, was outstanding
as of September 30, 1995. In addition, warrants were issued during the term
that the Warburg Term Loan was outstanding (see Note 6). The $3.0 million
outstanding under such loan facility, including accrued interest of $1.0
million, was repaid upon the consummation of the Initial Public Offering.
The $12.0 million Convertible Note, which bore interest at a rate of 11.5%
annually, was converted at the conversion price determined at the time of the
Private Placement into 600,000 shares of Preferred Stock immediately prior to
the Initial Public Offering. Such shares of Preferred Stock were immediately
converted at the conversion price determined at the time of the Private
Placement into 2,055,000 shares of the Company's Common Stock. No dividends
had been declared or paid on the Preferred Stock before such conversion.
Accrued interest of $6.3 million relating to the Convertible Note was paid to
Warburg upon consummation of the Initial Public Offering.
In connection with the acquisition of Koors Perry, a promissory note for
$1.5 million was issued as partial consideration of the purchase price.
Approximately $1.2 million included in long-term debt represents the present
value of such promissory note which bears an interest rate of 10% and which is
payable over three years.
After giving effect to the 1996 Facilities, the aggregate minimum payments
of long-term debt outstanding at September 30, 1996 and for the next five
years are as follows: 1997--$0.6 million; 1998--$0.6 million; 1999--$0.4
million; 2000--$0.2 million; 2001--$0.0, and thereafter--$15.0 million;
totaling $16.8 million.
6. CAPITAL STOCK
Preferred Stock
The Preferred Stock issued in connection with the Private Placement in June,
1992 bore a cumulative compounding 12% dividend through the date of the
Initial Public Offering. Immediately prior to the consummation of the Initial
Public Offering, all shares of Preferred Stock were converted into 1,541,250
shares of Common Stock and accrued preferred stock dividends of $2.2 million
were paid.
Warrants
In August, 1993, as a result of entering into the Warburg Term Loan (see
Note 5), the Company issued warrants to Warburg for the purchase of 93,509
shares of Common Stock at an aggregate exercise price of $3,000. In addition,
one year later, and for each quarter that the principal remained outstanding
thereafter, additional warrants were issued at the rate of .375% of fully
diluted Common Stock, as defined, per each $1 million in principal advanced.
Additional warrants for 71,435 and 293,967 shares in 1994 and 1995,
respectively, were issued. The fair values of the warrants of $9,907, $40,769,
and $79,456 were included in interest expense in fiscal 1994, fiscal 1995 and
fiscal 1996, respectively. In connection with the Initial Public Offering,
Warburg exercised its warrants to purchase 534,505 shares of Common Stock at a
weighted average exercise price per share of $3.16.
Common Stock
In connection with the Exchange Offer and Merger described in Note 1, a
total of 1,869,525 shares of Common Stock was issued in the exchange and a
total of $3,229,238 was paid for the remaining ICC shares of common stock and
options and related professional fees. In addition, the Company assumed net
liabilities of $280,872 of ICC. The excess of the consideration paid by the
Company over the net book value of ICC was charged to additional paid-in
capital.
17
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Management Stock Plan
During fiscal 1993, the Company adopted the 1993 Management Stock Plan (the
"Management Stock Plan"). Under the Management Stock Plan, a committee of the
Board of Directors granted to employees awards of the Company's Series A non-
voting common stock, par value $.01 per share.
Prior to the Initial Public Offering in March, 1996, the Company sold common
stock pursuant to the Management Stock Plan at a price lower than its fair
market value and recorded non-cash compensation expense of $93,000 at such
time. Upon consummation of the Initial Public Offering, all shares of non-
voting common stock outstanding under the Management Stock Plan were converted
into 664,450 shares of voting common stock, and such Management Stock Plan was
then terminated. In addition, the Company incurred an additional non-cash
compensation charge of $979,000 upon the immediate vesting of such stock in
connection with the Initial Public Offering.
Receivables of $5,020 from certain officers and employees pursuant to
management stock awards in fiscal 1993 were collected in fiscal 1994.
1996 Stock Option Plan
Effective January 1, 1996, the Company adopted the 1996 Stock Option Plan
(the "Option Plan"). The Option Plan provides that options for an aggregate of
364,000 shares of Common Stock shall be available for grant, subject to
authorization by the Compensation Committee of the Board of Directors. The
purchase price per share under the Option Plan is the market price of the
Common Stock on the grant date. Market price on any day is the average of the
high and low reported consolidated trading sales price of the Common Stock for
such day. Options vest over a period of three years from the grant date.
During fiscal 1996, stock options to purchase an aggregate of 179,400 shares
of Common Stock were granted with a range of exercise prices of $25.69 to
$40.38. Options to purchase 8,600 shares were exercisable as of September 30,
1996. There were no options exercised or cancelled during fiscal 1996. As of
September 30, 1996, 184,600 options are available for future grant.
7. RELATED PARTY TRANSACTIONS
In the normal course of producing projects for clients, the Company
periodically uses the services of individuals related to and/or companies
owned by relatives of certain of its employees. In fiscal 1994 and fiscal
1995, the Company paid such vendors approximately $0.6 million and $1.3
million, respectively. During the year ended September 30, 1996, the Company
paid approximately $1.6 million to 14 such vendors.
As of September 30, 1995, the Company had a receivable from an officer of
$362,630 which was fully reserved in fiscal 1992. Such amount was repaid by
the officer following the consummation of the Initial Public Offering.
8. EMPLOYEE BENEFIT PLAN
The Company maintains a defined contribution plan of the profit sharing
type, covering all qualified employees. Company contributions to the plan each
year are based on net income and are at the discretion of the Board of
Directors. Company contributions for fiscal 1994, fiscal 1995 and fiscal 1996
were not significant. The Company's policy is to fund the costs accrued.
9. INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the carrying amounts used for income tax purposes. Differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and income
18
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
tax purposes resulted from the acquisition of certain business operations, the
difference between financial reporting recovery periods and tax reporting
recovery periods and the write-down of business assets for financial reporting
purposes.
Significant components of the Company's deferred tax assets and liabilities
as of September 30, 1995 and September 30, 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
NOL and tax credit carryforwards.................... $ 3,422,000 $ 1,409,798
Intangibles amortization............................ 574,975 192,387
Allowance for doubtful accounts..................... -- 127,932
Other reserves...................................... 221,513 187,241
----------- -----------
Total deferred tax assets......................... 4,218,488 1,917,358
Valuation allowance................................. (3,691,321) (1,317,464)
----------- -----------
Net deferred tax assets........................... $ 527,167 $ 599,894
----------- -----------
Deferred tax liabilities:
Tax over book depreciation and amortization......... 527,167 985,409
Other............................................... -- 24,500
----------- -----------
Total deferred tax liabilities.................... $ 527,167 $ 1,009,909
----------- -----------
Net deferred tax liability............................ $ -- $ 410,015
=========== ===========
</TABLE>
The valuation allowance represents a reduction of deferred tax assets for
future tax benefits that may not be realized.
At September 30, 1995 and 1996, the Company has net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $8.2 million
and $3.2 million, respectively, that expire in the years 2001 through 2007.
Approximately $3.2 million of NOL carryforwards may be subject to limitations
under the change in ownership and consolidated return provisions of the
Internal Revenue Code. The use of the NOL carryforwards, as adjusted, may also
be limited for state and local income tax purposes. The Company has not
recorded any future benefit related to the usage of the NOL carryforwards
since the amount of NOL that the Company will be permitted to use to offset
regular taxable income is not expected to be material.
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
Current:
Federal.......................................... $ -- $ 42,150 $2,120,612
State............................................ 62,257 222,280 1,736,478
Foreign.......................................... -- -- 34,785
-------- -------- ----------
Total current tax.............................. 62,257 264,430 3,891,875
Deferred:
Federal.......................................... -- -- 281,207
State............................................ -- -- 128,808
-------- -------- ----------
Total deferred tax............................. -- -- 410,015
-------- -------- ----------
Total provision for taxes.......................... $ 62,257 $264,430 $4,301,890
======== ======== ==========
</TABLE>
19
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The reconciliation of income tax attributable to operations computed at the
U.S. federal statutory tax rates to income tax expense is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
Tax expense at statutory rate............. $ 120,469 $ 574,587 $ 4,301,890
State income tax net of federal benefit... 41,090 146,705 1,212,436
Nondeductible non-cash compensation
expense................................... -- -- 375,200
Other nondeductible expenses.............. 34,527 163,568 263,601
Change in valuation allowance............. -- (900,000) (2,012,202)
Other..................................... (133,829) 279,570 160,965
--------- --------- -----------
$ 62,257 $ 264,430 $ 4,301,890
========= ========= ===========
</TABLE>
10. MAJOR CUSTOMERS
A portion of the Company's total revenue was derived from three major
customers in the automotive, information technology and insurance industries.
Revenues from the two customers in the automotive and information technology
industries aggregated 21% and 19%, respectively, in fiscal 1994; 34% and 16%,
respectively, in fiscal 1995; and 15% and 13%, respectively, in fiscal 1996.
Revenues from the customer in the insurance industry aggregated 11% in fiscal
1996. There was no revenue from this customer in fiscal 1994 and fiscal 1995.
Amounts due from the two customers in the automotive and information
technology industries represented 46% and 17%, respectively, at September 30,
1995, and 24% and 10%, respectively, at September 30, 1996, of accounts
receivable. Amounts due from the customer in the insurance industry
represented 5% of accounts receivable at September 30, 1996.
11. FOREIGN OPERATIONS
During fiscal 1996, the Company's foreign operations located in the United
Kingdom and Hong Kong generated revenue of $7.0 million and an operating loss
of $0.1 million. Such financial information reflects only four months of
foreign operations, and the Company expects that its foreign operations will
be more significant in the future. Included in the Company's Consolidated
Balance Sheet at September 30, 1996 are total identifiable assets of $16.2
million of such foreign operations.
12. COMMITMENTS AND CONTINGENCIES
Minimum annual rentals under noncancelable leases, excluding escalations
based upon increases in real estate taxes and operating expenses, are payable
as follows, for the year ended September 30: 1997--$3.2 million; 1998--$2.5
million; 1999--$2.2 million; 2000--$1.8 million; 2001--$1.1 million;
thereafter--$6.6 million; totaling $17.4 million.
Rent expense charged to operations in fiscal 1994, fiscal 1995 and fiscal
1996, was $1.7 million, $2.0 million, and $2.7 million, respectively. Rent
expense charged to operations in fiscal 1996 with respect to related parties
was $0.1 million.
The Company has employment contracts with certain of its officers and key
employees expiring at various dates through 1999 with future minimum payments
as follows, for the year ended September 30: 1997--$1.3 million; 1998--$1.3
million; 1999--$0.3 million; totaling $2.9 million. Also, certain agreements
provide additional compensation based on performance.
The Company is, from time to time, a defendant in various lawsuits arising
in the ordinary course of business. In the opinion of management resolving
these actions will not have a material effect on the Company's financial
condition, results of operations or liquidity.
20
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid was $272,959, $807,475 and $7,884,839 in fiscal 1994, fiscal
1995 and fiscal 1996, respectively. Taxes paid were $62,257, $264,430 and
$2,077,829 in fiscal 1994, fiscal 1995 and fiscal 1996, respectively.
14. UNAUDITED PRO FORMA INFORMATION
Pro forma net income per common share is calculated using the weighted
average number of shares of Common Stock outstanding during the period, plus
Common Stock issued pursuant to the Management Stock Plan and warrants to
purchase Common Stock issued at prices below the Initial Public Offering price
of $17.00 per share during the twelve-month period immediately preceding
December 15, 1995 (the initial filing date of the Company's Registration
Statement for its Initial Public Offering), assuming such Common Stock was
outstanding for all periods presented. In addition, shares of Common Stock
issued upon the conversion of all shares of Preferred Stock into shares of
Common Stock are included in the calculation as if they were outstanding for
all periods presented. Accordingly, pro forma net income per common share
reflects adjustments to eliminate interest expense incurred on the Convertible
Note during the periods presented and to eliminate accrued preferred stock
dividends. The weighted average number of shares of Common Stock outstanding
during the years ended September 30, 1994, 1995 and 1996 is 6,550,851,
6,620,003 and 8,245,107, respectively.
Of the net proceeds from the sale of shares of Common Stock offered by the
Company in the Initial Public Offering, approximately $25.6 million were used
to repay aggregate bank borrowings and other long-term indebtedness, including
accrued interest and accrued preferred stock dividends. Assuming the issuance
and sale of only that number of shares of Common Stock which would generate
net proceeds sufficient to repay indebtedness of $25.6 million and assuming
that such indebtedness had been repaid as of October 1, 1994, supplementary
pro forma net income per common share for fiscal 1995 and fiscal 1996 would
have been $0.56 and $1.03, respectively. For purposes of this computation, the
weighted average number of shares of Common Stock outstanding during the
periods ended September 30, 1995 and 1996 is 8,338,106 and 8,969,784,
respectively.
15. SUBSEQUENT EVENTS
In December, 1996, the Company entered into a definitive purchase agreement
to acquire all of the outstanding capital stock of Blumberg Communications
Inc. ("Blumberg"), a provider of audio visual equipment rentals and sales,
production and staging services and hotel audio visual outsourcing services.
Consideration will consist of $16.6 million in cash, repayment of
approximately $5.5 million of indebtedness and shares of Common Stock having a
market value of $1.4 million (the actual number of shares of Common Stock to
be based on the average closing price per share of the Common Stock for the
five business days prior to closing). The closing of the Blumberg acquisition
(which is subject to certain conditions, including the expiration or early
termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended) is expected to occur in January, 1997.
For its fiscal year ended May 31, 1996, Blumberg had revenue of $42.3 million.
In addition, in December, 1996, the Company filed a registration statement
with the Securities and Exchange Commission offering 1,878,200 shares of its
Common Stock, of which 1,750,000 shares of Common Stock would be offered by
the Company.
21
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)The following documents are filed as part of this Annual Report on Form
10K:
(1)The response to this portion of Item 14 is set forth in Item 8 of Part
II hereof.
(2)Financial Statement Schedules
Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have
been omitted.
(3)Exhibits
See accompanying Index to Exhibits. The Company will furnish to any
stockholder, upon written request, any exhibit listed in the
accompanying Index to Exhibits upon payment by such stockholder of the
Company's reasonable expenses in furnishing any such exhibit.
(b)Reports on Form 8-K
The Company filed the following reports on Form 8-K during the three months
ended September 30, 1996:
<TABLE>
<CAPTION>
DATE OF FILING ITEMS REPORTED SUBJECT OF REPORT
-------------- -------------- -------------------------------------------
<C> <C> <S>
August 13, 1996 7 Form 8-K/A containing financial information
in connection with the acquisition of
Lighthouse
August 14, 1996 7 Form 8-K/A containing financial information
in connection with the acquisition of
Spectrum
September 27, 1996 2, 7 Announcing the acquisition of TAVS
</TABLE>
(c)Reference is made to Item 14(a)(3) above.
(d)Reference is made to Item 14(a)(2) above.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized, on
February 21, 1997.
CARIBINER INTERNATIONAL, INC.
(Registrant)
/s/ Arthur F. Dignam
By:__________________________________
Name: Arthur F. Dignam
Title: Executive Vice President,
Chief Financial and
Administrative Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Raymond S. Ingleby Chairman of the Board, Chief February 21, 1997
____________________________________ Executive Officer and
Raymond S. Ingleby Director (Principal
Executive Officer)
/s/ Arthur F. Dignam Executive Vice President, February 21, 1997
____________________________________ Chief Financial and
Arthur F. Dignam Administrative Officer
(Principal Financial and
Accounting Officer)
/s/ Errol M. Cook Director February 21, 1997
____________________________________
Errol M. Cook
/s/ Bryan D. Langton Director February 21, 1997
____________________________________
Bryan D. Langton
/s/ Sidney Lapidus Director February 21, 1997
____________________________________
Sidney Lapidus
/s/ David E. Libowitz Director February 21, 1997
____________________________________
David E. Libowitz
</TABLE>
S-1
<PAGE>
INDEX TO EXHIBITS
The following is a list of all exhibits filed as part of this report:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
2.1 Agreement of Purchase and Sale of Assets, dated June 6, 1996, by and
among the Company, Lighthouse, Ltd., Mark P. Fitzgerald, Warren F. Moore
II and Richard C. Hunt (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 June 21, 1996, and incorporated herein by reference)
2.2 Share Sale Agreement, dated June 13, 1996, by and among Peter Devonald
Berners-Price ("Berners-Price") and others, Caribiner Holdings (UK)
Limited ("Caribiner UK") and the Company (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 June 28, 1996, and incorporated herein
by reference)
2.3 Share Purchase Agreement, dated June 13, 1996, by and among Caribiner
UK, Berners-Price, Mark Wallace, the Company and others (schedules
omitted -- the Company agrees to furnish a copy of any schedule to the
Commission upon request) (filed as Exhibit 2.2 to the Company's Current
Report on Form 8-K filed with the Commission on June 28, 1996, and
incorporated herein by reference)
2.4 Agreement of Purchase and Sale of Assets, dated September 12, 1996, by
and between Caribiner International, Inc. and General Electric Capital
Computer Leasing Corporation (schedules omitted (other than Schedules
2(c), 2(c)(i) and 6(bb)) -- 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
September 27, 1996, and incorporated herein by reference)
3.1 Restated Certificate of Incorporation of the Company filed March 15,
1996 with the Secretary of State of the State of Delaware (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 of the Company (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)
4 Specimen of Certificate of Common Stock of the Company (filed as Exhibit
4 to the Company's Registration Statement on Form S-1 (Registration No.
33-80481) and incorporated herein by reference)
+10.1 1996 Stock Option Plan of the Company (filed as an exhibit to the
Company's Registration Statement on Form S-1 (Registration No. 33-80481)
and incorporated herein by reference)
+10.2 Form of Stock Option Agreement in connection with 1996 Stock Option Plan
of the Company (filed as an exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1996 and incorporated
herein by reference)
+10.3 Non-Employee Directors' Stock Plan of the Registrant (filed as an
exhibit to the Company's Registration Statement on Form S-1
(Registration No. 33-80481) and incorporated herein by reference)
+10.4 Employment Agreement, dated as of October 1, 1995, between the Company
and Raymond S. Ingleby (filed as an exhibit to the Company's
Registration Statement on Form S-1 (Registration No. 33-80481) and
incorporated herein by reference)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
+10.5 Employment Agreement, dated as of December 1, 1995, between the Company
and Arthur F. Dignam (filed as an exhibit to the Company's Registration
Statement on Form S-1 (Registration No. 33-80481) and incorporated
herein by reference)
+10.6 Employment Agreement, dated as of December 1, 1995, between the Company
and Mark M. Cohen (filed as an exhibit to the Company's Registration
Statement on Form S-1 (Registration No. 33-80481) and incorporated
herein by reference)
+10.7 Employment Agreement, dated as of July 25, 1995, between Caribiner, Inc.
and Brian Shepherd (filed as an exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 1996 and
incorporated herein by reference)
+10.8 Employment Agreement, dated October 14, 1996, between the Company and
Lawrence P. Golen (filed as an exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1996 and incorporated
herein by reference)
10.9 Credit Agreement, dated as of December 4, 1996, among the Company,
Caribiner, Inc., the lenders named therein and the Chase Manhattan Bank,
as agent (schedules and exhibits omitted -- the Company agrees to
furnish a copy of any such schedule and exhibit to the Commission upon
request) (filed as Exhibit 10.8 to the Company's Registration Statement
on Form S-1 (Registration No. 333-18327) on December 20, 1996, and
incorporated herein by reference)
10.10 Stockholders Agreement, dated as of March 15, 1996, among the Company,
Warburg, Pincus Investors, L.P. and Raymond S. Ingleby (filed as an
exhibit to the Company's Registration Statement on Form S-1
(Registration No. 33-80481) and incorporated herein by reference)
11.1 Statement Regarding Computation of Pro Forma Net Income Per Common Share
(filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1996 and incorporated herein by
reference)
11.2 Statement Regarding Computation of Supplementary Pro Forma Income Per
Common Share (filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1996 and incorporated
herein by reference)
21 Subsidiaries of the Company (filed as an exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1996 and
incorporated herein by reference)
27 Financial Data Schedule (filed as an exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1996 and
incorporated herein by reference)
</TABLE>
- --------
+ Management contracts or compensatory plans or arrangements required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(a)(3).
