<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended May 31, 1997 or
------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
--------- ---------
COMMISSION FILE NUMBER 000-22551
CAREY INTERNATIONAL, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 52-1171965
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4530 WISCONSIN AVENUE, NW, SUITE 500, WASHINGTON, DC 20016
------------------------------------------------------------
(Address of principal executive offices, including zip code)
(202) 895-1200
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No X
---- ----
There were 6,834,402 shares of the registrant's common stock, par value $ .01
per share, outstanding at July 11, 1997.
<PAGE>
CAREY INTERNATIONAL, INC.
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements (unaudited):
Consolidated balance sheets as of November 30, 1996
and May 31, 1997
Consolidated statements of operations for the three and six
month periods ended May 31, 1996 and 1997
Consolidated statements of cash flows for the six months
ended May 31, 1996 and 1997
Notes to consolidated financial statements
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II: OTHER INFORMATION
Item 1: Legal Proceedings
Item 2: Changes in Securities
Item 3: Defaults Upon Senior Securities
Item 4: Submission of Matters to a Vote of Security Holders
Item 5: Other Information
Item 6: Exhibits and Reports on Form 8-K
Signatures
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS November 30, May 31, Pro forma
1996 1997 May 31, 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash and cash equivalents $ 2,754,276 $ 1,720,162 $ 1,720,162
Amount due from underwriters - 28,318,500 28,318,500
Accounts receivable, net 10,141,732 8,576,942 8,576,942
Notes receivable from contracts, current portion 402,751 439,165 439,165
Prepaid expenses and other current assets 1,936,961 1,717,270 1,717,270
------------ ------------ ------------
Total current assets 15,235,720 40,772,039 40,772,039
Fixed assets, net 3,379,246 3,063,365 3,063,365
Notes receivable from contracts, excluding current portion 769,201 1,514,290 1,514,290
Franchise rights, net 5,348,264 5,230,305 5,230,305
Trade name, trademark and contract rights, net 6,685,135 6,589,414 6,589,414
Goodwill and other intangible assets, net 7,262,203 7,449,184 7,449,184
Deferred tax assets 2,461,573 2,764,157 2,764,157
Deposits and other assets 1,384,787 1,206,501 1,206,501
------------ ------------ ------------
Total assets $ 42,526,129 $ 68,589,255 $ 68,589,255
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of notes payable $ 5,131,227 $ 4,682,821 $ 4,682,821
Current portion of capital leases 199,224 223,222 223,222
Current portion of subordinated notes payable 440,000 880,000 -
Accounts payable and accrued expenses 11,196,949 10,854,118 14,870,070
------------ ------------ ------------
Total current liabilities 16,967,400 16,640,161 19,776,113
Notes payable, excluding current portion 5,188,742 3,949,930 3,949,930
Capital leases, excluding current portion 663,030 710,113 710,113
Subordinated notes payable, excluding current portion 5,340,000 4,900,000 -
Other long-term liabilities 111,281 64,369 64,369
Deferred tax liabilities 1,402,611 1,457,170 1,457,170
Deferred revenue 6,181,147 6,804,326 6,804,326
Commitments and contingencies
Stockholders' equity:
Preferred stock 1,115,400 1,115,400 -
Common stock, $.01 par value; 4,090,711 authorized
shares; 655,773 and 3,562,653 issued and outstanding
shares in 1996 and 1997, respectively 6,558 35,627 61,227
Additional paid-in capital 7,357,064 34,003,429 36,857,277
Accumulated deficit (1,807,104) (1,091,270) (1,091,270)
------------ ------------ ------------
Total stockholders' equity 6,671,918 34,063,186 35,827,234
------------ ------------ ------------
Total liabilities and stockholders' equity $ 42,526,129 $ 68,589,255 $ 68,589,255
============ ============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
1
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended May Six months ended May 31,
---------------------------- ----------------------------
1996 1997 1996 1997
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue, net $15,043,120 $16,730,712 $26,601,005 $30,872,095
Cost of revenue 10,207,697 11,381,701 18,111,676 21,137,961
----------- ----------- ----------- -----------
Gross profit 4,835,423 5,349,011 8,489,329 9,734,134
Selling, general and administrative
expenses 3,797,935 4,055,648 7,158,661 7,875,080
----------- ----------- ----------- -----------
Operating income 1,037,488 1,293,363 1,330,668 1,859,054
Other income (expense):
Interest expense (450,180) (384,228) (872,402) (776,575)
Interest income 27,691 26,917 50,859 55,091
Gain on sales of fixed assets 93,604 6,285 153,003 125,396
----------- ----------- ----------- -----------
Income before provision for income taxes 708,603 942,337 662,128 1,262,966
Provision for income taxes 197,522 358,335 209,244 511,558
----------- ----------- ----------- -----------
Net income $ 511,081 $ 584,002 $ 452,884 $ 751,408
=========== =========== =========== ===========
Pro forma net income per common share $ 0.18 $ 0.24
Weighted average common shares =========== ===========
outstanding 3,749,524 3,685,032
=========== ===========
</TABLE>
2
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended May 31,
-------------------------------
1996 1997
----------- -----------
<S> <C> <C>
(Unaudited)
Cash flows from operating activities:
Net income $ 452,884 $ 751,408
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation and amortization of fixed assets 519,388 539,198
Amortization of intangible assets 513,217 534,375
Gain on sales of fixed assets (153,003) (125,396)
Provision for deferred taxes - (248,025)
Change in deferred revenue 717,571 623,179
Changes in operating assets and liabilities:
Accounts receivable 454,183 1,564,790
Notes receivable from contracts (770,533) (781,503)
Prepaid expenses, deposits and other assets (479,828) (799,605)
Accounts payable and accrued expenses (268,857) (576,903)
Deferred rent and other long-term liabilities (89,894) (46,912)
----------- -----------
Net cash provided by operating activities 895,128 1,434,606
----------- -----------
Cash flows from investing activities:
Proceeds from sales of fixed assets 411,338 322,080
Purchases of fixed assets (725,009) (240,089)
Acquisitions of chauffeured vehicle service companies, net of cash
acquired (1,199,306) (323,654)
----------- -----------
Net cash used in investing activities (1,512,977) (241,663)
----------- -----------
Cash flows from financing activities:
Proceeds of sale of notes receivable from independent operators 156,240 -
Principal payments under capital lease obligations (117,962) (108,831)
Payment of notes payable (1,823,456) (2,137,218)
Proceeds from notes payable 2,232,443 450,000
Payment of offering costs - (440,928)
Issuance of common stock - 9,920
Redemption of Series E preferred stock (97,500) -
----------- -----------
Net cash provided by (used in) financing activities 349,765 (2,227,057)
----------- -----------
Net decrease in cash and cash equivalents (268,084) (1,034,114)
Cash and cash equivalents at beginning of period 1,438,659 2,754,276
----------- -----------
Cash and cash equivalents at end of period $ 1,170,575 $ 1,720,162
=========== ===========
</TABLE>
3
<PAGE>
PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND AND ORGANIZATION
General
Carey International, Inc. (the "Company") provides services through a
worldwide network of owned and operated companies, licensees and affiliates
serving 420 cities in 65 countries. The Company owns and operates service
providers in the form of wholly-owned subsidiaries in the following cities:
New York (Carey Limousine N.Y., Inc.), San Francisco (Carey Limousine SF,
Inc.), Los Angeles (Carey Limousine L.A., Inc.), London (Carey UK Limited),
Washington, D.C. (Carey Limousine D.C., Inc.), South Florida (Carey Limousine
Florida, Inc.) and Philadelphia (Carey Limousine Corporation, Inc.). In
addition, the Company licenses the "Carey" name, and provides central
reservations, billing, and sales and marketing services to its licensees. The
Company's worldwide network includes affiliates in locations in which the
Company has neither owned and operated locations nor licensees. The Company
provides central reservations and billing services to such affiliates.
Acquisitions
The Company is engaged in a program of acquiring chauffeured vehicle
service businesses. Such acquisitions incude unrelated chauffeured vehicle
service businesses, some of which may be in cities in which the Company has
owned and operated service providers, including licensees operating under the
Carey name and trademark as well as affiliates of the Company. In the first
quarter of 1996, the Company acquired a chauffeured vehicle service company
operating in London, England. As more fully discussed in Note 7, on June 2,
1997 the Company acquired Manhattan International Limousine Network Ltd. and
an affiliated company ("Manhattan Limousine").
Initial public offering and reverse stock split
On February 25, 1997, the Board of Directors authorized management of the
Company to file a Registration Statement with the Securities and Exchange
Commission permitting the Company to sell shares of its common stock in an
initial public offering (the "IPO"). As discussed in Notes 6 and 7, the
Company entered into an underwriting agreement and agreed to sell shares in
the IPO on May 28, 1997 and received the net proceeds from the sale on June 2,
1997. The net proceeds are shown as "amounts due from underwriters" in the
accompanying consolidated balance sheet. The Board of Directors, on February
25, 1997, also authorized a one-for-2.3255 reverse stock split of the
outstanding shares of the Company's common stock. The Company's stockholders
subsequently approved the reverse stock split. All references to common
stock, options, warrants and per share data have been restated to give effect
to the reverse stock split. Also on February 25, 1997, the Board of Directors
authorized a Recapitalization Plan (the "Recapitalization"), which is more
fully described in Note 6.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements and those notes do not
include all of the disclosures included in the Company's audited, consolidated
financial statements for the years ended November 30, 1994, 1995 and 1996,
contained in its Registration Statement on Form S-1 (No. 333-22651). The
accompanying consolidated financial statements and those notes should be read
in conjunction with these financial statements. For further information, such
as the significant accounting policies followed by the Company, refer to the
notes to the Company's consolidated financial statements.
4
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The financial information included herein has not been audited. However,
in the opinion of management, the financial information, including the
consolidated financial statements, reflect all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the results
of the periods reflected. The results for these periods are not necessarily
indicative of the results for the full fiscal year.
Pro forma net income per common share
Consistent with Securities and Exchange Commission Staff Accounting
Bulletin ("SAB") No. 1B-2, the Company has recalculated historical weighted
average common shares outstanding and net income per common share to give
effect to the Recapitalization (see Note 6). The recalculated net income per
common share is determined by (i) adjusting net income available to common
shareholders to reflect the elimination of interest expense, net of taxes,
resulting from the conversion of a portion of the subordinated debt into
common stock and (ii) increasing the weighted average common shares
outstanding by the number of common shares resulting from the conversion of
subordinated debt and the partial conversion of the Series A Preferred Stock.
3. ACQUISITIONS
In February 1996, the Company acquired the common stock of a chauffeured
vehicle service company in London, England for approximately $1,500,000.
Additional contingent consideration of up to $1,000,000 may be payable with
respect to the two years ending February 28, 1998 based on the level of
revenues referred to the acquired company by the seller. As of May 31, 1997,
the Company has paid approximately $550,000 in such contingent consideration
for the London acquisition.
In the periods ended May 31, 1996 and May 31, 1997, the following
acquisition activity was recorded by the Company:
<TABLE>
<CAPTION>
Six months ended
------------------------------
May 31, May 31,
1996 1997
---------- ----------
<S> <C> <C>
Fair value of net assets and liabilities acquired:
Receivables and other assets $ 632,554 $
Fixed assets 928,377 -
Franchise rights 12,320 -
Goodwill 148,506 323,654
Trade liabilities (522,451) -
---------- ----------
Fair value of assets and liabilities acquired $1,199,306 $ 323,654
========== ==========
Cash payments (net of $223,695 cash acquired in 1996) $1,199,306 $ 323,654
========== ==========
</TABLE>
5
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is subject to various legal
actions which are not material to the financial condition, results of
operations or cash flows of the Company.
The Company, certain of the Company's subsidiaries and certain officers
and directors of the Company were named in a civil action filed on May 15,
1996 in the United States District Court for the Eastern District of
Pennsylvania entitled "Felix v. Carey International, Inc., et. al." The
plaintiff's complaint, which purports to be a class action, alleges that the
plaintiff and others similarly situated suffered monetary damages as a result
of misrepresentations by the various defendants in their use of a surface
transportation billing charge (the "STC"). The plaintiff seeks damages in
excess of $1 million on behalf of the class for each of the counts in the
complaint including fraud, negligent misrepresentation and violations of the
Racketeer Influenced and Corrupt Organizations law of 1970, which permits the
recovery of treble damages and attorneys' fees. A class has not yet been
certified in this case. The Company filed a motion to dismiss that was
denied, and subsequently has filed an answer denying any liability in
connection with this complaint. The Company is indemnifying and defending its
officers and directors who were named as defendants in the case, subject to
conditions imposed by applicable law.
The Company has reached a tentative settlement with the plaintiff and
plaintiff's counsel, which is subject to court approval and acceptance by the
proposed class. The settlement calls for the Company to deposit up to
$950,000 into a settlement fund for a class consisting of all persons who paid
the STC during the period from May 15, 1992 through March 15, 1997. Following
court approval of the settlement, the Company will change its disclosure
concerning the STC, and each class member showing proper authentication of a
claim shall be entitled to receive either (i) cash totaling 10% of the STC
paid during the period described above or (ii) a nontransferable credit to be
applied toward future use of the Company's services in an amount equal to 30%
of such STC. This settlement has been agreed to by the plaintiff and
plaintiff's counsel, but there can be no assurance that the court will
approve, or the proposed class will accept, the settlement. The Company is
indemnifying and defending its officers and directors who were named
defendants in the case, subject to conditions imposed by applicable law.
Although the Company does not believe the litigation described above will
have a material adverse effect on its business, financial condition and
results of operations, the defense of the litigation could be expensive and
time-consuming, regardless of the outcome, and , if the proposed settlement is
not approved and accepted, an adverse result in such litigation could have a
material adverse effect on the Company's business, financial condition,
results of operations and cash flows.
5. NET INCOME PER COMMON SHARE
Net income per common share, on a historical basis, is as follows:
<TABLE>
<CAPTION>
Three months ended May 31, Six months ended May 31,
------------------------- -------------------------
1996 1997 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income available to common shareholders $ 511,081 $ 584,002 $ 452,884 $ 751,408
========== ========== ========== ==========
Weighted average common shares outstanding 2,422,373 2,661,877 2,422,373 2,597,385
========== ========== ========== ==========
Net income per common share $ 0.21 $ 0.22 $ 0.19 $ 0.29
========== ========== ========== ==========
</TABLE>
6
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Common equivalent shares are included in the per share calculations where
the effect of their inclusion would be dilutive. Common equivalent shares
consist of Series B, F and G preferred stock as well as substantially all of
the subordinated debt of the Company and the assumed exercise of vested
outstanding stock options and warrants. Pursuant to SAB No. 83, the common
equivalent shares issued by the Company during the twelve months preceding the
effective date of the Registration Statement relating to the Company's initial
public offering, using the treasury stock method and the public offering price
of $10.50 per share, have been included in the calculation of net income per
common share.
6. RECAPITALIZATION AND PRO FORMA BALANCE SHEET
On February 25, 1997, the Board of Directors authorized the
Recapitalization of the Company to be effective upon the closing of the IPO.
Under the Recapitalization, preferred stock with a liquidation preference of
$11,154,900 and subordinated debt with a principal amount of $5,780,000
is to convert in part into 2,560,071 shares of common stock and is to be
repaid or redeemed in part for $4,015,952 in cash, with the cash portion
being paid out of the proceeds of the IPO.
The IPO, as discussed in Note 7, was closed on June 2, 1997, at which
time the Recapitalization became effective. Because the Recapitalization
resulted in a material change in the permanent equity of the Company, the
Company has presented a pro forma balance sheet giving effect to the change in
capitalization as though it had occurred on May 31, 1997.
7. SUBSEQUENT EVENTS
On June 2, 1997, the Company received net cash proceeds from its IPO of
$28,318,500. Immediately following the receipt of the net proceeds, the
Company dispersed approximately (i) $7.1 million to repay certain indebtedness
of the Company and (ii) $1.9 million to redeem certain preferred stock and to
repay a portion of subordinated debt under the Recapitalization (see Note 6).
A further $2.1 million is expected to be dispersed under the terms of the
Recapitalization as the remaining preferred stock is received for conversion
and redemption.
Also on June 2, 1997, the Company acquired all of the issued and
outstanding capital stock of Manhattan Limousine for aggregate consideration
of $14.2 million, composed of (i) $7.1 million in cash, (ii) $4.7 million in
promissory notes bearing interest at the rate of 8.0% per annum and payable
one year from the date of the acquisition, and (iii) 228,571 shares of the
Company's common stock, $.01 par value per share. In connection with the
acquisition, the Company also repaid approximately $3.5 million of Manhattan
Limousine's indebtedness. The cash portion of the purchase price and the
repayment of indebtedness, amounting to approximately $10.6 million, were
funded from the proceeds of the IPO. (Refer to the Company's Registration
Statement on Form S-1 (No. 333-22651) for the audited financial statements of
Manhattan Limousine as of and for the year ended September 30, 1996 and the
unaudited financial statements of Manhattan Limousine as of and for the five
months ended February 28, 1997).
After the IPO, the underwriters elected to exercise their over-allotment
option in full. On June 6, 1997, the Company issued an additional 435,000
shares of common stock at the IPO price of $10.50 and received net cash
proceeds of approximately $4.2 million.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1997 (THE "1997 PERIOD") COMPARED TO THREE MONTHS
ENDED MAY 31, 1996 (THE "1996 PERIOD")
Revenue, Net. Revenue, net increased $1.7 million or 11.2% from $15.0
million in the 1996 Period to $16.7 million in the 1997 Period. The increase
arose as a result of expanded use of the Carey network, including an increase
in business from corporate travel customers and business travel arrangers.
Cost of Revenue. Cost of revenue increased $1.2 million or 11.5% from $10.2
million in the 1996 Period to $11.4 million in the 1997 Period. The increase
was primarily attributable to higher costs due to increased business levels.
Cost of revenue as a percentage of revenue, net was 67.9% in the 1996 Period and
68.0% in the 1997 Period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $258,000 or 6.8% from $3.8
million in the 1996 Period to $4.1 million in the 1997 Period. The increase was
largely due to the costs of additional personnel, increased marketing expenses
and increased administrative expenses in support of higher business levels.
Selling, general and administrative expenses decreased as a percentage of
revenue, net from 25.2% in the 1996 Period to 24.2% in the 1997 Period as a
result of an increase in revenue, net without a corresponding increase in
administrative costs.
Interest Expense. Interest expense was approximately $450,000 in the 1996
Period and approximately $384,000 in the 1997 Period. Interest expense
decreased as a percentage of revenue, net from 3.0% in the 1996 Period to 2.3%
in the 1997 Period as a result of payments reducing the underlying principal
amounts of debt between the two periods.
Provision for Income Taxes. The provision for income taxes increased
approximately $161,000 from approximately $198,000 in the 1996 Period to
approximately $358,000 in the 1997 Period. The increase primarily related to
the increase in pre-tax income of the Company from approximately $709,000 in the
1996 Period to approximately $942,000 in the 1997 Period. In addition, the
Company utilized the benefit of a net operating loss carryover ("NOLs") in
determining its provision for income taxes in the 1996 Period, but such NOLs
were not available to the Company in the 1997 Period.
Net Income. As a result of the foregoing, the Company's net income increased
approximately $73,000 or 14.3% from approximately $511,000 in the 1996 Period to
approximately $584,000 in the 1997 Period.
SIX MONTHS ENDED MAY 31, 1997 (THE "1997 SIX-MONTH PERIOD") COMPARED TO SIX
MONTHS ENDED MAY 31, 1996 (THE "1996 SIX-MONTH PERIOD")
Revenue, Net. Revenue, net increased $4.3 million or 16.1% from $26.6
million in the 1996 Period to $30.9 million in the 1997 Period. Of the
increase, approximately $3.4 million arose as a result of expanded use of the
Carey network, including an increase in business from corporate travel customers
and business travel arrangers, and approximately $930,000 was due to revenues of
the Company's operations in London which were not included in the 1996 Six-Month
Period.
Cost of Revenue. Cost of revenue increased $3.0 million or 16.7% from $18.1
million in the 1996 Six-Month Period to $21.1 million in the 1997 Six-Month
Period. The increase was primarily attributable to higher costs due to
increased business levels and to costs of revenue of the Company's operations in
London which were not included in the 1996 Six-Month Period. Cost of revenue
increased as a percentage
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS --(CONTINUED)
of revenue, net from 68.1% in the 1996 Six-Month Period to 68.5% in the 1997
Six-Month Period, primarily reflecting the effects of seasonally higher
operating costs as a percentage of revenues in the Company's London operations
in the first quarter of the 1997 Period, offset by the benefit of increased
implementation of the Company's independent operator program.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $716,000 or 10.0% from $7.2
million in the 1996 Six-Month Period to $7.9 million in the 1997 Six-Month
Period. The increase was largely due to the costs of additional personnel,
increased marketing expenses and increased administrative expenses in support of
higher business levels. Selling, general and administrative expenses decreased
as a percentage of revenue, net from 26.9% in the 1996 Six-Month Period to 25.5%
in the 1997 Six-Month Period as a result of an increase in revenue, net without
a corresponding increase in administrative costs.
Interest Expense. Interest expense was approximately $872,000 in the 1996
Six-Month Period and approximately $777,000 in the 1997 Six-Month Period.
Interest expense decreased as a percentage of revenue, net from 3.3% in the 1996
Six-Month Period to 2.5% in the 1997 Six-Month Period as a result of payments
reducing the principal amounts of debt outstanding in the two periods.
Provision for Income Taxes. The provision for income taxes increased
approximately $302,000 from approximately $209,000 in the 1996 Six-Month Period
to approximately $512,000 in the 1997 Six-Month Period. The increase primarily
related to the increase in pre-tax income of the Company from approximately
$662,000 in the 1996 Six-Month Period to $1.3 million in the 1997 Period. In
addition, the Company utilized NOLs in determining its provision for income
taxes in the 1996 Six-Month Period but such NOLs were not available to the
Company in the 1997 Six-Month Period.
Net Income. As a result of the foregoing, the Company's net income increased
approximately $299,000 or 65.9% from approximately $453,000 in the 1996 Six-
Month Period to approximately $751,000 in the 1997 Six-Month Period.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $1.0 million to $1.7 million at May 31, 1997
from $2.8 million at November 30,1996. Operating activities provided net cash of
$1.4 million during the 1997 Six-Month Period. The overall net decrease in cash
and cash equivalents during the 1997 Six-Month Period related primarily to
payments related to prior acquisitions, repayment of debt and payment of costs
associated with the IPO.
The Company closed its IPO of 2,900,000 shares of common stock on June 2, 1997
and the underwriters exercised their over-allotment option for 435,000 shares of
common stock on June 6, 1997. In total, the Company issued 3,335,000 shares of
common stock in connection with the IPO and received proceeds, net of
underwriters' discount and commissions and offering costs, of $30.9 million.
The Company utilized the net proceeds to repay principal on indebtedness of $7.1
million and to partially fund the Recapitalization by repaying principal on
indebtedness of approximately $912,000 and redeeming preferred stock for $1.0
million. Additionally, the Company acquired Manhattan Limousine on June 2, 1997
and paid from the IPO proceeds $7.1 million to the sellers of Manhattan
Limousine and $3.5 million
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS --(CONTINUED)
to repay principal on indebtedness of Manhattan Limousine. Of the remaining
net proceeds, $2.1 million is expected to be used to complete the
Recapitalization of the Company and the balance of $9.2 million will be used for
acquisitions and other general corporate purposes, including working capital.
At May 31, 1997, the Company had borrowings, including notes payable to sellers
of chauffeured vehicle service companies, in the amount of $14.4 million. Of
the $14.4 million, approximately $8.0 million was repaid June 2, 1997 from the
net proceeds of the IPO, as more fully discussed in the preceding paragraph. As
part of the Recapitalization, on June 2, 1997, a further $4.9 million of the
Company's debt was converted to common stock of the Company. The remaining debt
of the Company, after such repayments and conversions, amounted to $1.5 million,
approximately $468,000 of which is to be repaid over the next 12 months.
The Company has received a commitment letter from a bank for a credit facility
consisting of a secured revolving line of credit and subsequent term loan of
$20.0 million. The bank has also agreed to use its best efforts to syndicate an
additional $5.0 million for the facility. The facility, which may be used for
acquisitions and working capital, will be collateralized by the assets of the
Company and those of its existing and future subsidiaries. Loans made under the
revolving line of credit will bear interest at the Company's option of either
the bank's prime lending rate or 2.0% above the LIBOR rate. Commitment fees
equal to 0.375% per annum will be payable on the unused portion of the revolving
line of credit. On the second anniversary of the credit facility, outstanding
balances under the credit facility will convert into a five-year term loan,
which will bear interest either at a fixed rate (subject to availability) or at
a variable LIBOR rate with adjustments determined based on the Company's
earnings. The credit facility (i) will prohibit the payment of dividends by the
Company, (ii) will not permit the Company to incur or assume other indebtedness
that is not subordinated to the bank and (iii) will require the Company to
comply with certain financial covenants. The ability of the Company to obtain
the credit facility is subject to the completion of negotiations with the bank
as well as the satisfaction of certain conditions, including the execution of
appropriate loan documentation. In the event that the Company is unable to
obtain the credit facility, the Company believes that sufficient alternative
sources of financing will be available on reasonable terms.
While there can be no assurance, management believes that cash flow from
operations, the remaining net proceeds from the IPO and funds from the credit
facility will be adequate to meet the Company's capital requirements for the
next 12 months, depending on the methods of financing and size of potential
acquisitions. While the Company historically has financed acquisitions
primarily with cash, it may seek to finance future acquisitions by using common
stock for a portion or all of the consideration to be paid.
FACTORS TO BE CONSIDERED
The information set forth above contains forward-looking statements, which
involve risks and uncertainties. The Company's actual results could differ
materially from the results anticipated in these forward-looking statements.
Readers should refer to discussion under "Risk Factors" contained in the
Company's Registration Statement on Form S-1 (No. 333-22651) filed with the
Securities and Exchange
10
<PAGE>
Commission, which is incorporated herein by reference, concerning certain
factors which could cause the Company's actual results to differ materially from
the results anticipated in the forward-looking statements contained herein.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings: See Note 4 to the Consolidated Financial
Statements in Part I.
Item 2. Changes in Securities:
As discussed above, on June 2, 1997, in connection with
the closing of the IPO, the Company effected the
Recapitalization, which is more fully described under
"Recapitalization" in the Company's Registration Statement on
Form S-1 (file no. 333-22651) (the "Registration Statement").
Such description is hereby incorporated by reference into this
Quarterly Report. The shares of Common Stock issued by the
Company in connection with the Recapitalization were issued in
reliance upon Section 3(a)(9) under the Securities Act of 1933,
as amended.
With respect to other recent sales of unregistered
securities, the Company hereby incorporates by reference Item 15
of the Registration Statement.
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders: None
Item 5. Other Information:
In a Stockholder Action by Written Consent dated
effective February 26, 1997, holders of the Company's
outstanding voting securities representing approximately 95% of
the votes entitled to be cast with respect to such voting
securities, (i) approved the Recapitalization (including,
without limitation, the one-for 2.3255 reverse stock split of
the Common Stock and the amendment and restatement of the
Company's Certificate of Incorporation), (ii) approved the
termination of certain rights under various agreements among
such stockholders and the Company, (iii) approved the amendment
and restatement of the By-Laws of the Company, (iv) approved the
Company's 1997 Equity Incentive Plan and Stock Plan for Non-
Employee Directors and (v) elected the following directors:
Robert W. Cox, Don R. Dailey, William R. Hambrecht,
David McL. Hillman and Vincent A. Wolfington. Said Stockholder
Action by Written Consent was filed as Exhibit 2.3 to the
Registration Statement.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
11 Computation of Net Income Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K: The Company filed a Form 8-K on
June 16, 1997, disclosing the acquisition of Manhattan Limousine
by the Company on June 2, 1997.
11
<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 hereunto duly authorized.
CAREY INTERNATIONAL, INC.
Date: July 14, 1997 By: /s/ Vincent A. Wolfington
---------------------------------
Vincent A. Wolfington
Chairman, Chief Executive Officer
Date: July 14, 1997 By: /s/ David H. Haedicke
---------------------------------
David H. Haedicke
Executive Vice President,
Chief Financial Officer
12
<PAGE>
EXHIBIT INDEX
NUMBER DESCRIPTION
11 Statements Regarding Computation of
Per Share Earnings
27 Financial Data Schedule
13
<PAGE>
STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS
HISTORICAL EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the three months ended For the six months ended
May 31, May 31,
-------------------------- --------------------------
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income available to common
shareholders: $ 511,081 $ 584,002 $ 452,884 $ 751,408
=========== =========== =========== ===========
Common stock and common stock
equivalents:
Weighted average shares outstanding 655,773 777,742 655,773 717,428
Convertible Securities:
Series B Preferred Stock 663,761 663,761 663,761 663,761
Series F Preferred Stock 135,025 135,025 135,025 135,025
Series G Preferred Stock 673,638 673,638 673,638 673,638
Options (calculated on Treasury Method)
1987 Plan 21,374 27,832 21,374 27,832
Options and warrants issued within one
year of the offering (calculated on
Treasury Method):
Vested options repriced or granted 207,020 307,111 207,020 302,933
Warrants repriced 65,782 76,768 65,782 76,768
----------- ----------- ----------- -----------
272,802 383,879 272,802 379,701
----------- ----------- ----------- -----------
Total common stock and common
stock equivalents 2,422,373 2,661,877 2,422,373 2,597,385
=========== =========== =========== ===========
Net income per common share $ 0.21 $ 0.22 $ 0.19 $ 0.29
=========== =========== =========== ===========
</TABLE>
<PAGE>
EXHIBIT 11
STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS (CONTINUED)
PRO FORMA EARNINGS PER SHARE
TO GIVE EFFECT TO THE RECAPITALIZATION
(Presented on the face of the historical Statement of Operations)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
May 31, 1997 May 31, 1997
-------------------------- ------------------------
<S> <C> <C>
Pro forma net income:
Net income $ 584,002 $ 751,408
Add back interest (tax affected at 40%) on
debt included in Recapitalization:
$2,000,000 subordinated note
(7.74%) converted to stock in
Recapitalization 23,220 46,440
$2,867,546 portion of subordinated note (12.0%)
converted to stock in Recapitalization 51,616 103,232
----------- -----------
Pro forma net income $ 658,838 $ 901,080
=========== ===========
Common stock and common stock equivalents:
Historical weighted average shares 2,661,877 2,597,385
Less common stock equivalents included in
historical earnings per share:
Series B Preferred Stock (663,761) (663,761)
Series F Preferred Stock (135,025) (135,025)
Series G Preferred Stock (673,638) (673,638)
Add effect of Recapitalization:
Series A Preferred Stock 86,003 86,003
Series B Preferred Stock 663,761 663,761
Series F & G Preferred Stock 763,748 763,748
Shares for $2,867,546 of subordinated
debt 616,544 616,544
Shares for $2,000,000 of subordinated
debt 430,015 430,015
----------- -----------
Total pro forma common stock and common
stock equivalents 3,749,524 3,685,032
=========== ===========
Pro forma net income per common share $ 0.18 $ 0.24
=========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 1,720,162
<SECURITIES> 0
<RECEIVABLES> 37,334,607
<ALLOWANCES> 476,000
<INVENTORY> 0
<CURRENT-ASSETS> 40,772,039
<PP&E> 3,063,365
<DEPRECIATION> 2,716,000
<TOTAL-ASSETS> 68,589,255
<CURRENT-LIABILITIES> 16,640,161
<BONDS> 0
0
1,115,400
<COMMON> 35,627
<OTHER-SE> 32,912,159
<TOTAL-LIABILITY-AND-EQUITY> 68,589,255
<SALES> 30,872,095
<TOTAL-REVENUES> 30,872,095
<CGS> 21,137,961
<TOTAL-COSTS> 29,013,041
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 776,575
<INCOME-PRETAX> 1,262,966
<INCOME-TAX> 511,558
<INCOME-CONTINUING> 751,408
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 751,408
<EPS-PRIMARY> .24
<EPS-DILUTED> 0
</TABLE>
