<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 1998
REGISTRATION NO. 333-34897
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
CAREY INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
DELAWARE 4119 52-1171965
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION
ORGANIZATION) CODE NUMBER)
4530 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20016
(202) 895-1200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
VINCENT A. WOLFINGTON
CAREY INTERNATIONAL, INC.
4530 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20016
(202) 895-1200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
COPIES OF COMMUNICATIONS TO:
JAMES E. DAWSON, ESQUIRE
NUTTER, MCCLENNEN & FISH, LLP
ONE INTERNATIONAL PLACE
BOSTON, MA 02110
(617) 439-2000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
--------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM
SECURITIES AMOUNT TO BE OFFERING PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED PRICE PER SHARE(/1/) AGGREGATE OFFERING PRICE(/1/) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, $.01 par
value 1,500,000 shares $14.5625 $21,843,750.00 $6,619.32(2)
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Determined pursuant to Rule 457(c) under the Securities Act of 1933, as
amended, based upon the average of the high and low prices per share of
Common Stock reported on The Nasdaq National Market on August 26, 1997.
(2) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
PROSPECTUS
1,500,000 SHARES
[LOGO OF CAREY INTERNATIONAL, INC. APPEARS HERE]
CAREY INTERNATIONAL, INC.
COMMON STOCK
----------------
This Prospectus relates to 1,500,000 shares of Common Stock, $.01 par value
per share (the "Common Stock"), of Carey International, Inc. (the "Company")
that may be offered and issued by the Company from time to time in connection
with acquisitions of other businesses or properties by the Company.
Carey intends to concentrate its acquisitions within the chauffeured vehicle
service industry. If the opportunity arises, however, Carey may attempt to
make acquisitions that are either complementary to its present operations or
which it considers advantageous even though they may be dissimilar to its
present activities. The consideration for any such acquisition may consist of
shares of Common Stock, cash, notes or other evidences of debt, assumptions of
liabilities or a combination thereof, as determined from time to time by
negotiations between Carey and the owners or controlling persons of businesses
or properties to be acquired.
The shares covered by this Prospectus may be issued in exchange for shares
of capital stock, partnership interests or other assets representing an
interest, direct or indirect, in other companies or other entities, in
exchange for assets used in or related to the business of such companies or
entities, or otherwise pursuant to the agreements providing for such
acquisitions. The terms of such acquisitions and of the issuance of shares of
Common Stock under acquisition agreements will generally be determined by
direct negotiations with the owners or controlling persons of the businesses
or properties to be acquired or, in the case of entities that are more widely
held, through exchange offers to stockholders or documents soliciting the
approval of statutory mergers, consolidations or sales of assets. It is
anticipated that the shares of Common Stock issued in any such acquisition
will be valued at a price reasonably related to the market value of the Common
Stock either at the time of agreement on the terms of an acquisition or at or
about the time of delivery of the shares.
It is not expected that underwriting discounts or commissions will be paid
by the Company in connection with issuances of shares of Common Stock under
this Prospectus. However, finders' fees or brokers' commissions may be paid
from time to time in connection with specific acquisitions, and such fees may
be paid through the issuance of shares of Common Stock covered by this
Prospectus. Any person receiving such a fee may be deemed to be an underwriter
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
The Company's Common Stock is listed on The Nasdaq National Market under the
symbol "CARY." The closing market price of the Common Stock on The Nasdaq
National Market on January 20, 1998 was $15.125.
----------------
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER
THE SECTION "RISK FACTORS" BEGINNING ON PAGE 7.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY 21, 1998
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Company or any of the Underwriters. This Prospectus does
not constitute an offer to sell or the solicitation of any offer to buy any
security other than the shares of Common Stock offered by this Prospectus, nor
does it constitute an offer to sell or a solicitation of any offer to buy the
shares of Common Stock by anyone in any jurisdiction in which such offer or
solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that information contained herein is correct as of any time subsequent to the
date hereof.
--------------------
TABLE OF CONTENTS
--------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Recent Acquisition....................................................... 12
Recapitalization......................................................... 12
Dividend Policy.......................................................... 13
Selected Consolidated Financial Data..................................... 14
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 15
Business................................................................. 21
Management............................................................... 31
Principal Stockholders................................................... 37
Certain Transactions..................................................... 38
Description of Capital Stock............................................. 40
Shares Eligible for Future Sale.......................................... 42
Plan of Distribution..................................................... 43
Legal Matters............................................................ 44
Experts.................................................................. 44
Additional Information................................................... 44
Index to Financial Statements............................................ F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus.
THE COMPANY
Carey International, Inc. ("Carey" or the "Company") is one of the world's
largest chauffeured vehicle service companies, providing services through a
worldwide network of owned and operated companies, licensees and affiliates
serving 420 cities in 65 countries. The "Carey" brand name has represented
quality chauffeured vehicle service since the 1920s. The Company owns and
operates its service providers in New York, San Francisco, Los Angeles, London,
Washington D.C., Indianapolis, South Florida and Philadelphia. In addition, the
Company generates revenues from licensing the "Carey" name and providing
central reservation, billing and sales and marketing services to its licensees.
The Company's worldwide network also includes affiliates in locations in which
the Company has neither owned and operated companies nor licensees. Over the
past five years, the Company has invested significant capital in developing its
reservation, central billing and worldwide service infrastructure. By
leveraging its current infrastructure and position as a market leader, the
Company intends to consolidate the highly fragmented chauffeured vehicle
service industry through the acquisition of: (i) current Carey licensees, (ii)
additional companies in markets in which the Company already owns and operates
a chauffeured vehicle service company, and (iii) companies in other strategic
markets in North America, Europe and the Pacific rim of Asia.
The Carey network utilizes chauffeured sedans, limousines, vans and minibuses
to provide services for airport pick-ups and drop-offs, inter-office transfers,
business and association meetings, conventions, roadshows, promotional tours,
special events, incentive travel and leisure travel. Businesses and business
travelers utilize the Company's services primarily as a management tool, to
achieve more efficient use of time and other resources.
Carey's worldwide network of chauffeured vehicle service companies allows it
to provide services with consistently high quality to its customers in
virtually every major city in the expanding global travel market. The network
is linked to over 300,000 reservation terminals in travel agencies, corporate
travel departments and government offices by the Carey International
Reservation System (the "CIRS"), the chauffeured vehicle service industry's
most extensive centralized global reservation system.
The Company estimates that the United States chauffeured vehicle service
industry generated revenues of approximately $3.9 billion in 1996, and has
undergone steady growth in recent years, with revenues increasing at a compound
annual growth rate of 10.9% between 1990 and 1996. The industry is highly
fragmented, with approximately 9,000 companies utilizing over 100,000 vehicles.
The Company believes that during 1996 no chauffeured vehicle service company
accounted for more than 2% of total United States industry revenues. The
Company also believes that similar fragmentation exists in the chauffeured
vehicle service industry outside the United States.
3
<PAGE>
The Company's objective is to increase its profitability and its market share
in the chauffeured vehicle service industry by implementing the following
growth strategies:
Expand through Acquisitions. Carey believes that there are significant
opportunities to acquire additional chauffeured vehicle service companies
that would benefit from the capital and management resources that the
Company can provide. Carey intends to acquire current Carey licensees, as
well as additional chauffeured vehicle service companies both in markets in
which the Company already owns and operates such a business and in other
strategic regions in North America, Europe and the Pacific rim of Asia.
Carey believes it has a competitive advantage in acquiring licensees
because of a right of first refusal contained in the substantial majority
of its domestic license agreements. The Company believes that it has less
than a 10% market share in each of the markets in which it owns and
operates a chauffeured vehicle service company, and that there is
significant potential for it to expand its business in such markets through
acquisitions. As the Company acquires additional chauffeured vehicle
service companies, it anticipates that cost savings can be achieved through
the consolidation of certain administrative functions and the elimination
of redundant facilities, equipment and personnel.
Carey has successfully begun to implement its acquisition strategy. Since
November 1991, the Company has acquired 19 chauffeured vehicle service
companies, including, since January 1995, two of its licensees (in Ft.
Lauderdale/Miami and San Francisco) and are additional chauffeured vehicle
service companies (two in each of Boca Raton, San Francisco and London, and
one in each of New York, Los Angeles, Indianapolis, and Washington, D.C.).
In June 1997, the Company acquired Manhattan International Limousine
Network Ltd. and an affiliated company ("Manhattan Limousine"), one of the
largest chauffeured vehicle service companies in the metropolitan New York
area and the operator of a network of approximately 300 affiliates
worldwide. Manhattan Limousine generated revenues of approximately $18.4
million during its fiscal year ended September 30, 1996, representing
approximately 21.7% of the Company's fiscal 1996 revenues on a pro forma
basis. See "Recent Acquisitions" and "Pro Forma Consolidated Financial
Statements."
Increase International Market Share. Approximately 11.6% of the Company's
revenue, net was derived from services performed outside the United States
during its fiscal year ended November 30, 1996. Of these international
revenues, approximately 60.8% was generated by the Company's owned and
operated business in London, approximately 38.1% was generated by the
Company's international licensees and the remainder was generated by the
Company's international affiliates. Carey believes that its network can
capture a significant portion of the growing international market for
chauffeured vehicle services by acquiring or licensing additional
chauffeured vehicle service companies and otherwise implementing the Carey
system outside the United States. The Company intends to increase its
international presence by intensifying its sales and marketing efforts,
strengthening its relationships with significant domestic and international
business travel arrangers, and capitalizing on the capacity of the CIRS to
operate on a global scale. By enhancing its international presence, the
Company also expects to increase its revenues from providing chauffeured
vehicle services to international travelers both visiting the United States
and travelling abroad.
Expand Licensee Network Worldwide. The Company will seek to expand its
worldwide network and generate additional revenues from license and
marketing fees by licensing additional chauffeured vehicle service
companies in smaller markets that do not justify a Company-owned presence.
Ultimately, as these less strategic markets grow in size and importance to
the Company, the licensees in such markets may become acquisition
candidates.
Convert Salaried Chauffeurs to Independent Operators. The Company
believes that it can improve its profitability by continuing to convert
salaried chauffeurs to independent operators in certain businesses acquired
by Carey. The objective of Carey's independent operator strategy is to
instill in each chauffeur the sense of purpose, responsibility and
dedication characteristic of an independent business owner, thereby
4
<PAGE>
increasing the profitability of the chauffeur and the Company. Carey's
independent operator program allows the Company to reduce its labor and
capital costs, convert fixed costs to variable costs and generate revenues
from fees paid by independent operators.
In 1979, the Company was organized as a Delaware corporation and commenced
operations by acquiring certain rights to the "Carey" name held by a
predecessor company. Predecessor companies operated chauffeured vehicle service
businesses under the "Carey" name since the 1920s. The Company's principal
executive offices are located at 4530 Wisconsin Avenue, N.W., Washington, D.C.
20016. Its telephone number at that location is (202) 895-1200. As used herein,
unless the context otherwise requires, "Carey" or the "Company" refers to Carey
International, Inc. and its subsidiaries.
5
<PAGE>
SUMMARY AND PRO FORMA CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED AUGUST 31,
-----------------------------------
FISCAL YEAR ENDED NOVEMBER 30, 1996 1997
--------------------------------------------------------------- --------- -------------------------
1992(1) 1993(1) 1994(1) 1995(1) 1996
------- -------- ------- ------- --------------------------
ACTUAL(1) PRO FORMA(2) ACTUAL(1) ACTUAL(1) PRO FORMA(3)
---------- ------------ --------- --------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
STATEMENT OF
OPERATIONS DATA:
Revenue, net........ $27,669 $30,319 $35,525 $43,484 $59,505 $84,922 $41,176 $52,051 $67,103
Cost of revenue..... 20,199 22,751 24,954 29,943 40,438 55,554 27,950 35,598 44,149
------- -------- ------- ------- ---------- --------- ------- --------- ---------
Gross profit........ 7,470 7,568 10,571 13,541 19,067 29,368 13,226 16,453 22,954
Selling, general and
administrative
expense............ 5,939 8,174 9,487 12,419 15,078 22,815 10,909 12,903 17,700
------- -------- ------- ------- ---------- --------- ------- --------- ---------
Operating income
(loss)............. 1,531 (606) 1,084 1,122 3,989 6,553 2,317 3,550 5,254
Interest income
(expense) and other
income (expense)... (819) (1,308) (1,194) (1,292) (1,277) 30 (966) (575) 23
------- -------- ------- ------- ---------- --------- ------- --------- ---------
Income (loss) before
provision (benefit)
for income taxes... 712 (1,914) (110) (170) 2,712 6,583 1,351 2,975 5,277
Provision (benefit)
for income taxes... 53 10 19 25 (104) 2,784 420 1,228 2,269
------- -------- ------- ------- ---------- --------- ------- --------- ---------
Net income (loss)... $ 659 $ (1,924) $ (129) $ (195) $ 2,816 $ 3,799 $ 931 $ 1,747 $ 3,008
======= ======== ======= ======= ========== ========= ======= ========= =========
Pro forma net income
per share.......... $ 0.89(4) $ 0.52 $ 0.39(4) $0.38
========== ========= ========= =========
Weighted average
shares
outstanding........ 3,510,020(4) 7,332,364 4,866,621(4) 7,941,065
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31, 1997
---------------
NOVEMBER 30, PRO
1996 ACTUAL FORMA
------------ ------- -------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)........................ $(1,732) $ 3,171 $ 2,615
Total assets..................................... 42,526 74,044 77,838
Long-term debt, less current maturities.......... 11,192 1,798 2,425
Deferred revenue(5).............................. 6,181 13,721 13,721
Total stockholders' equity....................... $ 6,672 $43,680 $45,287
</TABLE>
- -------
(1) Consistent with generally accepted accounting principles, the consolidated
financial data does not reflect the effect of the acquisition of Indy
Connection Limousines, Inc. ("Indy Connection") completed October 31, 1997
accounted for as a pooling-of-interests.
(2) Gives effect to the following events as if they had occurred on December 1,
1995: (i) the acquisition of Camelot Barthropp Ltd., completed February
1996, including the interest cost related to indebtedness incurred in
connection with such acquisition, (ii) the acquisition of Manhattan
Limousine (using statement of operations data for Manhattan Limousine's
fiscal year ended September 30, 1996) and the amortization of associated
goodwill, (iii) the acquisition of Indy Connection completed October 31,
1997 accounted for as a pooling-of-interests, (iv) the conversion of
certain preferred stock and subordinated debt into Common Stock, see
"Recapitalization," and the elimination of interest expense associated with
the subordinated debt; (v) the issuance of shares of Common Stock to (a)
repay certain existing debt of the Company, (b) pay the cash and note
portions of the purchase price for Manhattan Limousine, (c) repay certain
debt assumed in connection with the acquisition of Manhattan Limousine, (d)
redeem certain preferred stock of the Company and (e) pay the stock portion
of the purchase price in connection with the acquisition of Manhattan
Limousine, (vi) the elimination of interest expense associated with debt
repaid from the proceeds of the IPO and (vii) other adjustments as
described under "Pro Forma Consolidated Financial Statements" and the notes
thereto.
(3) Gives effect to the events set forth in clauses (ii) through (vii) of note
(2) above as if they had occurred on December 1, 1995, except that, with
respect to clause (ii), the statement of operations data is for Manhattan
Limousine's six months ended March 31, 1997.
(4) Gives effect to the conversion of certain preferred stock and subordinated
debt into Common Stock and the elimination of associated interest expense
on the subordinated debt as a result of the Recapitalization. See Notes 2
and 18 to the Company's Consolidated Financial Statements.
(5) Represents the balance of the fees deferred in connection with independent
operator agreements less amounts previously recognized. Such fees are
recognized ratably over the terms of the agreements, which typically range
from 10 to 20 years. See the Notes to the Company's Consolidated Financial
Statements.
6
<PAGE>
RISK FACTORS
The following factors should be considered, together with the other
information in this Prospectus, in evaluating an investment in the Company.
This Prospectus contains certain 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 as a result
of certain of the factors set forth in the following risk factors and
elsewhere in this Prospectus.
HISTORY OF LOSSES
The Company has generated a net loss in three of the past four fiscal years.
Although the Company was profitable during the fiscal year ended November 30,
1996, there can be no assurance that the Company will be able to sustain
profitability.
RISKS ASSOCIATED WITH ACQUISITION OF MANHATTAN LIMOUSINE
The acquisition of Manhattan Limousine was consummated simultaneously with
the Company's underwritten initial public offering of Common Stock in June
1997 (the "IPO"). Manhattan Limousine generated pro forma revenues of
approximately $18.4 million during its fiscal year ended September 30, 1996,
representing approximately 23.4% of the Company's fiscal 1996 revenues on a
pro forma basis. As a result of the acquisition of Manhattan Limousine,
approximately 41% of the Company's revenues currently are generated from
services provided within the New York City metropolitan area. The integration
of Manhattan Limousine, which is the Company's largest acquisition to date,
will place significant demands on the Company's management and infrastructure,
and there can be no assurance that Manhattan Limousine's business will be
successfully integrated with that of the Company, that the Company will be
able to realize operating efficiencies or eliminate redundant costs, or that
the combined business will be operated profitably. Further, there can be no
assurance that customers of Manhattan Limousine will continue to do business
with the Company. The failure of the Company in any of these respects could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Acquisition of Manhattan Limousine."
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY
The Company intends to grow primarily through the acquisition of additional
chauffeured vehicle service companies. Increased competition for acquisition
candidates may develop, in which event there may be fewer acquisition
opportunities available to the Company as well as higher acquisition costs for
the opportunities that are available. There can be no assurance that the
Company will be able to identify, acquire or profitably manage additional
businesses or successfully integrate any acquired businesses into the Company
without substantial costs, delays, or other operational or financial problems.
There also can be no assurance that the Company will be able to purchase its
licensees that operate in markets in which the Company does not own and
operate a chauffeured vehicle service company.
The success of any acquisition will depend upon the Company's ability to
introduce automation and management systems, to convert salaried chauffeurs
employed by the acquired business to independent operators and to integrate
the acquired business with the Company's existing operations. Customer
dissatisfaction or performance problems at a single acquired company could
have an adverse effect on the reputation of the Company and the Company's
sales and marketing initiatives. There can be no assurance that any businesses
acquired in the future will achieve anticipated revenues and earnings.
Further, acquisitions involve a number of special risks, including possible
adverse effects on the Company's operating results, diversion of management's
attention, failure to retain key personnel at an acquired company, risks
associated with unanticipated events or liabilities and amortization of
goodwill or other acquired intangible assets, some or all of which could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Acquisition Strategy."
7
<PAGE>
RISKS RELATED TO ACQUISITION FINANCING
The Company may choose to finance future acquisitions by using shares of its
Common Stock for a portion or all of the consideration to be paid. In the
event that the Common Stock does not maintain a sufficient market value, or
potential acquisition candidates are otherwise unwilling to accept Common
Stock as part of the consideration for the sale of their businesses, the
Company might not be able to utilize Common Stock as consideration for
acquisitions and would be required to utilize more of its cash resources, if
available, in order to maintain its acquisition program. If the Company does
not have sufficient cash resources, its growth could be limited unless it is
able to obtain additional capital through debt or equity financings. There can
be no assurance that such financing will be available if and when needed or on
terms acceptable to the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
RISKS ASSOCIATED WITH RAPID GROWTH
As a result of the Manhattan Limousine acquisition, the continued
implementation of the Company's acquisition strategy and the expansion of the
Company's licensee network, the Company may experience rapid growth which
could place additional demands on the Company's administrative, operational
and financial resources. Managing future growth will depend on a number of
factors, including the maintenance of the quality of services the Company
provides to its customers, and the recruitment, motivation and retention of
qualified chauffeurs and other personnel. Sustaining growth will require
enhancements to the Company's operational and financial systems as well as
additional management, operational and financial resources. There can be no
assurance that the Company will be able to manage its expanding operations
effectively or that it will be able to maintain or accelerate its growth, and
any failure to do so could have a material adverse effect on the Company's
business, financial condition and results of operations.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company believes that its future operating results may continue to be
subject to quarterly variations caused by such factors as seasonal business
travel, variable scheduling of special events and the timing of acquisitions
by the Company. The Company's least profitable quarter generally has been the
first quarter (ending February 28 or 29), and its most profitable quarter
generally has been the fourth quarter (ending November 30). The Company's
operating results may be subject to considerable fluctuations caused by
special events, such as business and trade association meetings and
conventions and sporting events with national or international participation,
which do not necessarily recur annually, may not be held at the same time of
year and may not always be located in a city in which the Company owns and
operates a chauffeured vehicle service company. In addition, adverse economic
conditions may impact the Company's operating results by reducing the overall
number of road shows and promotional tours. All of these factors can cause
significant fluctuations in quarterly results of operations. Accordingly,
results in any fiscal quarter may not be indicative of results of future
quarters. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Quarterly Results of Operations."
RISKS ASSOCIATED WITH LICENSEE OPERATIONS
The Company has 39 licensees serving 106 cities in the United States and 24
licensees serving 105 cities outside the United States. Although a component
of the Company's strategy is to increase the number of licensees, there can be
no assurance that the Company will be able to attract qualified licensees in
desired locations. The failure of the Company to attract new licensees or the
failure of the Company's licensees to operate successfully could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the failure of one or more of the
Company's licensees to maintain the Company's service standards and conform to
the Carey system could have a material adverse effect on the reputation of the
Carey network and the Company's business, financial condition and results of
operations.
In addition, the Company is subject to federal regulation and certain state
laws which govern the offer and sale of franchises. Most state franchise laws
impose substantive requirements on the franchise agreement,
8
<PAGE>
including limitations on non-competition provisions and termination or non-
renewal of a franchise. Some states require that certain materials be
registered before franchises can be offered or sold in that state. Violations
of federal regulations and the state franchising laws could result in civil
penalties against the Company and civil and criminal penalties against the
executive officers of the Company. While the Company believes that it has
operated in compliance with federal and state franchise laws, no assurance can
be given that the Company will not be required to cease offering and selling
licenses in certain states because of future changes in franchise laws or the
Company's failure or inability to comply with existing franchise laws.
STATUS OF INDEPENDENT OPERATORS
The Company's ability to benefit from conversions of salaried chauffeurs to
independent operators will depend, in part, on the Company's continued ability
to classify independent operators as third party contractors rather than as
employees. The Company does not pay or withhold any federal or state
employment tax with respect to or on behalf of independent operators. The
Internal Revenue Service (the "IRS") previously challenged the Company's
independent operator policy at its owned and operated business in
Philadelphia, but in March 1997 agreed to settle the challenge without an
adjudication of a violation of IRS regulations. Also in March 1997, the IRS
approved guidelines that chauffeured vehicle service providers such as the
Company can follow in order to treat independent operators as third party
contractors rather than as employees. These guidelines distinguish a third
party contractor from an employee using several factors based upon whether or
not the individual, among other things, (i) invests cash in the venture, (ii)
has the potential to realize a profit or loss, (iii) can make his or her
service available to the public and (iv) is required to comply with company
policies regarding how and when to provide services. The Company believes that
its practices substantially conform to these guidelines, and that, as a
result, its independent operators will be treated as third party contractors.
If, however, the Company's practices are determined not to conform with the
guidelines, or if it is adjudicated that the Company is required to treat its
independent operators as employees, the Company could become responsible for
certain past and future employment taxes. There can be no assurance that, in
the event of such an adverse adjudication, there will not be a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Independent Operators."
INDEPENDENT OPERATOR FINANCING
An important component of the Company's business strategy for its owned and
operated companies involves the preferred use of independent operators instead
of salaried chauffeurs operating Company-owned vehicles. A chauffeur becomes
an independent operator by signing an agreement to pay a fee to the Company
ranging from $45,000 to $75,000. The payment of independent operator fees
historically has been financed by the Company, financing companies or banks.
Prior to September 1996, the Company usually sold to third parties the
independent operator notes initially financed by it. Since September 1996, the
Company has ceased selling such notes to third parties. Because the Company
now bears most of the risk relating to payment of these notes, significant
defaults in their payment could have a material adverse effect on the
Company's business, financial condition and results of operations. Each new
independent operator is required to own or obtain his or her vehicle. The cost
of a new vehicle ranges from $35,000 to $65,000, depending upon whether it is
a sedan or a limousine and the features included in the vehicle. The Company
generally does not finance vehicle purchases by its independent operators. As
a result, the ability of independent operators to obtain their own vehicles, a
requirement for conversions from salaried chauffeurs to independent operators,
will depend upon the availability of third party vehicle financing for
independent operators. The inability of independent operators to obtain
vehicle financing will adversely affect the Company's ability to utilize
independent operators, and would have a material adverse effect on the
Company's business, financial condition and results of operations. There can
be no assurance that such financing will be available if and when needed or on
terms acceptable to potential independent operators. See "Business--
Independent Operators."
POTENTIAL ADVERSE EFFECT OF LITIGATION
The Company, certain of its subsidiaries and certain of its officers and
directors currently are named as defendants in a complaint, purporting to be a
class action, alleging that the plaintiff and others similarly situated
9
<PAGE>
suffered monetary damages as a result of misrepresentations by the defendants
in their use of a surface transportation billing charge. While the Company
denies all claims made against it, it has reached a settlement with the
plaintiff and plaintiff's counsel. Moreover, there can be no assurance that
claims under the terms of this or any other settlement entered into by the
Company will not adversely affect the Company's business, financial condition
and results of operations. Defense of lawsuits against the Company generally
can be expensive and time-consuming, regardless of the outcome, and an adverse
result in a lawsuit could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--Legal
Proceedings."
FACTORS AFFECTING TRAVEL
The Company is subject to risks generally affecting levels of business
travel, including economic cycles, political changes, terrorist threats or
acts and technological advances. The Company cannot predict the likelihood of
occurrence of any such events. If the occurrence of any such event
significantly reduces domestic or international travel, there could be a
material adverse effect on the Company's business, financial condition and
results of operations.
INSURANCE COVERAGE AND CLAIMS
The Company is exposed to claims for personal injury or death and property
damage as a result of automobile accidents involving chauffeured vehicles
operated by its employees and independent operators and by its licensees and
their drivers. The Company maintains, and the Company's independent operators
are required to maintain, levels of insurance which the Company believes to be
adequate. The Company's licensees are required to maintain adequate levels of
insurance and to name the Company as an additional insured on their insurance
policies. There can be no assurance, however, that the limits and the scope of
any such insurance coverage will be adequate. The cost of maintaining personal
injury, property damage and workers' compensation insurance is significant.
The Company and its independent operators and licensees could experience
higher insurance premiums as a result of adverse claims experiences, general
increases in premiums by insurance carriers or both. Significant increases in
such premiums could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Independent
Operators" and "Business--Insurance."
DEPENDENCE ON KEY PERSONNEL
While the Company has numerous senior managers with many years of experience
in the chauffeured vehicle service industry, the Company's success is
dependent on the efforts, abilities and leadership of its executive officers,
particularly, Vincent A. Wolfington, the Company's Chairman and Chief
Executive Officer, and Don R. Dailey, the Company's President. The Company
currently does not have employment agreements with any of its executive
officers. The loss of the services of one or more of such officers could have
a material adverse effect on the Company's business, financial condition and
results of operations.
COMPETITION
The chauffeured vehicle service industry is highly competitive and
fragmented with few significant national participants operating multi-city
reservation systems. Each local market usually contains numerous local
participants as well as a few companies offering regional and national
service. Chauffeured vehicle service companies compete primarily on the basis
of price, quality, scope of service and dependability. The Company also
competes with service providers offering alternative modes of transportation,
such as buses, jitney services, taxis, radio cars and rental cars. The Company
competes both for customers and for possible acquisitions. The Company expects
its business to become more competitive as existing competitors expand and
additional companies enter the market. Certain of the Company's existing
competitors have, and any new competitors that enter the industry may have,
access to significantly greater financial resources than the Company.
Competitive market conditions could have a material adverse affect on the
Company's business, financial condition and results of operations. See
"Business--Competition."
10
<PAGE>
POSSIBLE FUTURE SALES OF SHARES
Sales of substantial amounts of Common Stock in the public market during or
after this offering, or the perception that such sales could occur, may
adversely affect prevailing market prices of the Common Stock and could impair
the future ability of the Company to raise capital through an offering of its
equity securities or to use such securities as consideration in acquisitions.
As of January 13, 1998, the Company had 7,640,497 shares outstanding. Of these
shares, 4,376,155 shares are freely tradeable without restriction under the
Securities Act, except for any such shares which may be beneficially owned by
an "affiliate" of the Company (as that term is defined in Rule 144). The
remaining 3,264,342 shares represent (i) shares issued pursuant to this
Prospectus to affiliates of companies acquired by the Company; or (ii) shares
issued prior to the completion of the Company's IPO or in connection with the
acquisition of Manhattan Limousine which are deemed to be "restricted
securities" under Rule 144. Unless the resale is registered under the
Securities Act, such restricted shares may not be sold in the open market only
in compliance with the applicable requirements of Rule 144. Except for shares
held by affiliates of the Company and the 228,571 shares issued in connection
with the acquisition of Manhattan Limousine, all of such restricted shares are
currently eligible for resale under Rule 144. See "Shares Eligible for Future
Sale."
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation,
By-laws and Delaware law could, together or separately, discourage potential
acquisition proposals, delay or prevent a change in control of the Company and
limit the price that certain investors might be willing to pay in the future
for shares of the Common Stock. Those provisions, among other things, provide
for a classified Board of Directors, allow the Board of Directors to issue,
without further stockholder approval, up to 1,000,000 shares of preferred
stock with rights and privileges that could be senior to the Common Stock,
prohibit the stockholders from calling special meetings of stockholders,
restrict the ability of stockholders to nominate directors and submit
proposals to be considered at stockholders' meetings, impose a supermajority
voting requirement in connection with stockholders' amendments to the By-laws
and prohibit stockholders after this offering from acting by written consent
in lieu of a meeting. The Company also is subject to Section 203 of the
Delaware General Corporation Laws (the "DGCL") which, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any of a broad
range of business combinations with any "interested stockholder" for a period
of three years following the date on which such stockholder became an
interested stockholder. See "Description of Capital Stock."
POSSIBLE VOLATILITY OF STOCK PRICE AND LIMITATIONS ON RESALE
There can be no assurance that an active public market for the Common Stock
will continue during or after this offering. From time to time during or after
this offering, there may be significant volatility in the market price for the
Common Stock. Quarterly operating results of the Company, changes in general
conditions in the economy or the chauffeured vehicle service industry, or
other developments affecting the Company, its licensees and affiliates or the
Company's competitors could cause the market price of the Common Stock to
fluctuate substantially. The equity markets have, on occasion, experienced
significant price and volume fluctuations that have affected the market prices
for many companies' securities and have been unrelated to the operating
performance of those companies. Any such fluctuations that occur during or
after this offering may adversely affect the prevailing market price of the
Common Stock.
Affiliates of companies acquired by Carey who receive Common Stock under
this Prospectus are subject for one year to the restrictions of Rule 145 under
the Securities Act, including the volume of sale limitations and manner of
sale requirements thereof. The requirements of Rule 145 may limit the ability
of such affiliates to resell Common Stock they may receive under this
Prospectus.
11
<PAGE>
RECENT ACQUISITIONS
Simultaneously with the completion of the IPO, the Company acquired
Manhattan International Limousine Network Ltd. and an affiliated company
("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 Common Stock. In addition, the
Company assumed approximately $3.7 million of outstanding indebtedness of
Manhattan Limousine, all of which subsequently has been repaid. Pursuant to
the terms of the acquisition, Manhattan Limousine distributed to its
stockholders prior to the closing approximately $3.8 million in assets and
$2.3 million in liabilities.
Prior to its acquisition by Carey, Manhattan Limousine was one of the
largest chauffeured vehicle service companies in the New York metropolitan
area, with revenues in its fiscal year ended September 30, 1996 totalling
approximately $18.4 million. Manhattan Limousine operated the Manhattan
International Limousine Network of more than 300 worldwide affiliates, a
significant majority of which are located in cities in which the Company
already has affiliates. In some cities the Company and Manhattan Limousine
shared common affiliates. Approximately 89.2% of Manhattan Limousine's fiscal
1996 revenues was generated by Manhattan Limousine's New York metropolitan
operations, and approximately 10.8% was generated by its affiliates outside
the New York metropolitan area. Approximately 18.0% of Manhattan Limousine's
fiscal 1996 revenues were derived from services performed for Virgin Atlantic
Airways, which had been Manhattan Limousine's largest customer. See the
Manhattan Limousine Consolidated Financial Statements and related notes
thereto.
In the acquisition, Carey assumed agreements with Manhattan Limousine's
independent operators and their collective fleet consisting of approximately
125 sedans and limousines.
Effective October 31, 1997, the Company issued 721,783 shares of its common
stock in exchange for all the outstanding common stock of Indy Connection
based on a conversion ratio of 1.008 shares (the merger exchange ratio) of the
Company's common stock for each share of Indy Connection's common stock, for a
total value of approximately $12.0 million. The merger qualified as a tax-free
reorganization and has been accounted for as a pooling-of-interests.
RECAPITALIZATION
On June 2, 1997, the Company effected the following transactions
(collectively, the "Recapitalization"): (i) a one-for-2.3255 reverse split of
outstanding Common Stock; (ii) the conversion of all of the 42,070 outstanding
shares of the Company's Series A Preferred Stock into the right to receive an
aggregate of $2,103,500 and 86,003 shares of Common Stock; (iii) the
redemption of all 10,000 shares of the Company's Series F Preferred Stock and
3,000 shares of the Company's Series G Preferred Stock for an aggregate price
of $1,000,000; (iv) the conversion of 9,580 shares of the Company's Series B
Preferred Stock, 46,890 shares of the Company's Series G Preferred Stock and
the Company's Subordinated Convertible Promissory Note dated September 1, 1991
in the principal amount of $2,000,000 into an aggregate of 1,857,524 shares of
Common Stock; (v) the exercise of a warrant to purchase 616,544 shares of
Common Stock by the application of $2,867,546 due the warrant holder under a
subordinated promissory note, and the repayment by the Company of the
remaining outstanding principal balance of $912,454 under such note; and (vi)
the amendment of the Company's Certificate of Incorporation to, among other
things, (a) eliminate all previously-designated series of Preferred Stock and
the designation of Class A Common Stock, and (b) increase the authorized
number of shares of Common Stock from 9,512,950 to 20,000,000.
12
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is quoted on The Nasdaq National Market under the
symbol "CARY." The following table sets forth for each period indicated the
high and low sale prices for the Common Stock as reported by The Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
May 28, 1997 through June 30, 1997 $15 5/8 $11
July 1, 1997 through August 31, 1997 15 1/2 13 1/2
September 1, 1997 through November 30, 1997 18 13 3/4
December 1, 1997 through January 12, 1998 15 7/8 14 1/8
</TABLE>
On January 20, 1998, the last reported sale price of the Common Stock was
$15.125 and there were approximately 115 holders of record of Common Stock.
DIVIDEND POLICY
The Company intends to retain all earnings to finance the growth and
development of its business and does not anticipate paying cash dividends on
the Common Stock in the foreseeable future. Any future determination as to the
payment of dividends on the Common Stock will depend upon the Company's future
earnings, results of operations, capital requirements and financial condition
and any other factor the Board of Directors of the Company may consider. The
Company's agreements with its principal lenders prohibit dividend payments.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected actual consolidated financial data as of November 30, 1992,
1993, 1994, 1995 and 1996 and for each of the five years in the period ended
November 30, 1996 have been derived from the consolidated financial statements
of the Company audited by Coopers & Lybrand L.L.P., independent accountants.
The selected actual consolidated financial data as of and for the nine months
ended August 31, 1996 and 1997 have been derived from the unaudited
consolidated financial statements of the Company. In the opinion of
management, the unaudited consolidated financial statements reflect all
adjustments, consisting only of normal, recurring adjustments, necessary to
present fairly the consolidated financial position and the consolidated
results of operations of the Company. The consolidated results of operations
for the nine-month period ended August 31, 1997 are not necessarily indicative
of the consolidated results of operations to be expected for the year ended
November 30, 1997.
The selected actual and pro forma consolidated financial data of the Company
should be read in conjunction with the Company's Consolidated Financial
Statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NOVEMBER 30, NINE MONTHS ENDED AUGUST 31,
------------------------------------------------------------- -----------------------------------
1992(1) 1993(1) 1994(1) 1995(1) 1996 1996 1997
------- ------- ------- ------- ------------------------- --------- -------------------------
ACTUAL(1) PRO FORMA(2) ACTUAL(1) ACTUAL(1) PRO FORMA(3)
--------- ------------ --------- --------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenue, net.......... $27,669 $30,319 $35,525 $43,484 $59,505 $84,922 $41,176 $52,051 $67,103
Cost of revenue....... 20,199 22,751 24,954 29,943 40,438 55,554 27,950 35,598 44,149
------- ------- ------- ------- --------- --------- ------- --------- ---------
Gross profit.......... 7,470 7,568 10,571 13,541 19,067 29,368 13,226 16,453 22,954
Selling, general and
administrative
expense.............. 5,939 8,174 9,487 12,419 15,078 22,815 10,909 12,903 17,700
------- ------- ------- ------- --------- --------- ------- --------- ---------
Operating income
(loss)............... 1,531 (606) 1,084 1,122 3,989 6,553 2,317 3,550 5,254
Interest income
(expense) and other
income (expense)..... (819) (1,308) (1,194) (1,292) (1,277) 30 (966) (575) 23
------- ------- ------- ------- --------- --------- ------- --------- ---------
Income (loss) before
provision (benefit)
for income taxes..... 712 (1,914) (110) (170) 2,712 6,583 1,351 2,975 5,277
Provision (benefit)
for income taxes..... 53 10 19 25 (104) 2,784 420 1,228 2,269
------- ------- ------- ------- --------- --------- ------- --------- ---------
Net income (loss)..... $ 659 $(1,924) $ (129) $ (195) $ 2,816 $ 3,799 $ 931 $ 1,747 $ 3,008
======= ======= ======= ======= ========= ========= ======= ========= =========
Pro forma net income
per
share................ $ 0.89(4) $ 0.52 $ 0.39(4) $ 0.38
========= ========= ========= =========
Weighted average
shares outstanding... 3,510,020(4) 7,332,364 4,866,621(4) 7,941,065
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 30, AUGUST 31,1997
----------------------------------------- -----------------
1992 1993 1994 1995 1996 ACTUAL PRO FORMA
------- ------- ------- -------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Working capital (defi-
cit).................. $ 1,740 $ 1,484 $ 1,298 $ (1,407) $(1,732) $ 3,171 $ 2,615
Total assets........... 28,855 27,941 27,109 35,897 42,526 74,044 77,838
Long-term debt, less
current maturities.... 10,293 12,083 11,090 13,217 11,192 1,798 2,425
Deferred revenue(5).... 3,270 4,300 4,485 4,726 6,181 13,721 13,721
Total stockholders' eq-
uity.................. $ 5,843 $ 4,388 $ 4,165 $ 3,912 $ 6,672 $43,680 $45,287
</TABLE>
- -------
(1) Consistent with generally accepted accounting principles, the consolidated
financial data does not reflect the effect of the acquisition of Indy
Connection Limousines, Inc. ("Indy Connection") completed October 31, 1997
accounted for as a pooling-of-interests.
(2) Gives effect to the following events as if they had occurred on December
1, 1995: (i) the acquisition of Camelot Barthropp Ltd., completed February
1996, including the interest cost relating to indebtedness incurred in
connection with such acquisition, (ii) the acquisition of Manhattan
Limousine (using statement of operations data for Manhattan Limousine's
fiscal year ended September 30, 1996) and the amortization of associated
goodwill, (iii) the acquisition of Indy Connection completed October 31,
1997 accounted for as a pooling-of-interest (iv) the conversion of certain
preferred stock and subordinated debt into Common Stock, see
"Recapitalization," and the elimination of interest expense associated
with the subordinated debt (v) the issuance of shares of Common Stock to
(a) repay certain existing debt of the Company, (b) pay the cash and note
portions of the purchase price for Manhattan Limousine, (c) repay certain
debt assumed in connection with the acquisition of Manhattan Limousine,
(d) redeem certain preferred stock of the Company and (e) pay the stock
portion of the purchase price in connection with the acquisition of
Manhattan Limousine, (vi) the elimination of interest expense associated
with debt repaid from the proceeds of the IPO and (vii) other adjustments
as described under "Pro Forma Consolidated Financial Statements" and the
notes thereto.
(3) Gives effect to the events set forth in clauses (ii) through (vi) of note
(2) above as if they had occurred on December 1, 1995, except that, with
respect to clause (ii), the statement of operations data is for Manhattan
Limousine's six months ended March 31, 1997.
(4) Gives effect to the conversion of certain preferred stock and subordinated
debt into Common Stock and the elimination of associated interest expense
on the subordinated debt as a result of the Recapitalization. See Notes 2
and 18 to the Company's Consolidated Financial Statements.
(5) Represents the balance of the fees deferred in connection with independent
operator agreements less amounts previously recognized. Such fees are
recognized ratably over the terms of the agreements, which typically range
from 10 to 20 years. See the Notes to the Company's Consolidated Financial
Statements.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and related notes thereto and "Selected Consolidated
Financial Data" appearing elsewhere in this Prospectus. Unless otherwise
indicated or the context otherwise requires, each reference to a year is to
the Company's fiscal year which ends on November 30 of such year.
OVERVIEW
The Company generates revenues primarily from chauffeured vehicle services
provided by (i) Carey's owned and operated businesses and (ii) Carey's
licensees and affiliates when services provided by such licensees and
affiliates are billed through the Company's central reservation and billing
system. In 1995 and 1996, approximately 74.7% and 73.6%, respectively, of the
Company's revenue, net was generated by chauffeured vehicle services provided
by the Company's owned and operated businesses, approximately 16.3% and 15.6%,
respectively, was generated by chauffeured vehicle services provided by the
Company's licensees and billed by the Company, and approximately 2.5% and
2.0%, respectively, was generated by chauffeured vehicle services provided by
the Company's affiliates and billed by the Company. Carey also generates
revenues from its licensees through fees (both initial and monthly) related to
(i) licensing the use of its name and service mark, (ii) its central
reservation and billing services and (iii) its marketing activities. In 1995
and 1996, approximately 2.7% and 3.2%, respectively, of the Company's revenue,
net was generated from its licensees through such fees. To a lesser extent,
the Company derives revenues from the payment of fees by independent
operators. The Company recognizes revenues from these fees ratably over the
terms of the independent operators' agreements with the Company, which
typically range from 10 to 20 years. As of August 31, 1997, the Company had
$13.7 million of deferred revenue on its balance sheet.
Cost of revenue primarily consists of amounts due to the Company's
independent operators. The amount due to independent operators is a percentage
(ranging from 60% to 67%) of the charges for services provided, net of
discounts and commissions. Cost of revenue also includes amounts due to the
Company's licensees and affiliates for chauffeured vehicle services provided
by them and billed by the Company. Such amounts generally include the charges
for services provided less a referral fee ranging from 15% to 25% of net
vehicle service revenue. Cost of revenue also includes salaries and benefits
paid to chauffeurs employed by the Company. To a lesser extent, cost of
revenue includes costs associated with owning and maintaining the vehicles
owned by the Company, telecommunications expenses, salaries and benefits for
reservationists, marketing expenses for the benefit of licensees, and
commissions due to travel agents and credit card companies.
Selling, general and administrative expenses consist primarily of
compensation and related benefits for the Company's officers and
administrative personnel, marketing and promotional expenses for the Company's
owned and operated chauffeured vehicle service companies, and professional
fees, as well as amortization costs related to the intangibles recorded as a
result of the Company's acquisitions.
In addition to internal growth from the Company's sales and marketing
efforts, an important component in the Company's growth to date has been the
acquisition of its licensees and other chauffeured vehicle service companies.
Since December 1994, Carey has acquired twelve chauffeured vehicle service
companies. Each of these acquisitions was made for cash and the issuance or
assumption of notes and was accounted for using the purchase method of
accounting. A substantial majority of the purchase price paid by the Company
in each such acquisition represented goodwill, franchise rights (if a licensee
was acquired) and/or other intangibles. Such franchise rights and goodwill are
amortized over 30 years on a straight-line basis and amounted to $34.5 million
(net of accumulated amortization) as of August 31, 1997.
15
<PAGE>
The results of operations for the acquired companies have been included in
the Company's consolidated financial statements from their respective dates of
acquisition. Carey expects to benefit from its acquisitions by consolidating
general and administrative functions, increasing operating efficiencies, and,
as a result of converting salaried chauffeurs to independent operators,
eliminating the overhead and capital costs associated with employing salaried
chauffeurs, leasing garages, maintaining parts and fuel inventories, and
owning and operating vehicles. The Company generally realizes these benefits
within six to twelve months after an acquisition, depending upon whether the
acquisition is of a chauffeured vehicle service company in a location in which
the Company already operates, or of a licensee in a market where Carey has yet
to establish operations.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data for the Company expressed as a percentage of revenue, net. With respect
to the pro forma data, see "Pro Forma Consolidated Financial Statements" and
the notes thereto.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NOVEMBER 30, NINE MONTHS ENDED AUGUST 31,
------------------------------------- ---------------------------------
1994 1995 1996 1996 1997
------- ------- ----------------- --------- ---------------------
PRO PRO
ACTUAL FORMA ACTUAL ACTUAL FORMA
-------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue, net............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue......... 70.2 68.9 68.0 65.4 67.9 68.4 65.8
------- ------- ------- ------- --------- --------- ---------
Gross profit............ 29.8 31.1 32.0 34.6 32.1 31.6 34.2
Selling, general and
administrative
expense................ 26.7 28.6 25.3 26.9 26.5 24.8 26.4
------- ------- ------- ------- --------- --------- ---------
Operating income........ 3.1 2.5 6.7 7.7 5.6 6.8 7.8
Interest income
(expense) and other
income (expense)....... (3.4) (3.0) (2.1) 0.1 (2.3) (1.1) 0.1
------- ------- ------- ------- --------- --------- ---------
Income (loss) before
provision (benefit) for
income taxes........... (0.3) (0.5) 4.6 7.8 3.3 5.7 7.9
Provision (benefit) for
income taxes........... 0.1 -- (0.2) 3.3 1.0 2.4 3.4
------- ------- ------- ------- --------- --------- ---------
Net income (loss)....... (0.4)% (0.5)% 4.8% 4.5% 2.3% 3.3% 4.5%
======= ======= ======= ======= ========= ========= =========
</TABLE>
NINE MONTHS ENDED AUGUST 31, 1997 (THE "1997 NINE-MONTH PERIOD") COMPARED TO
NINE MONTHS ENDED AUGUST 31, 1996 (THE "1996 NINE-MONTH PERIOD")
Revenue, Net. Revenue, net increased $10.9 million or 26.4% from $41.2
million in the 1996 Nine-Month Period to $52.1 million in the 1997 Nine-Month
Period. Of the increase, approximately $5.2 million related to expanded use of
the Carey network, including an increase in business from corporate travel
customers and business travel arrangers, and approximately $5.7 million was
due to revenues of Manhattan Limousine and the Company's operations in London,
which were not included in the 1996 Nine-Month Period.
Cost of Revenue. Cost of revenue increased $7.6 million or 27.4% from $28.0
million in the 1996 Nine-Month Period to $35.6 million in the 1997 Nine-Month
Period. The increase was primarily attributable to higher costs due to
increased business levels and to cost of revenue of Manhattan Limousine and
the Company's operations in London, which were not included in the 1996 Nine-
Month Period. Cost of revenue increased as a percentage of revenue, net from
67.9% in the 1996 Nine-Month Period to 68.4% in the 1997 Nine-Month Period,
primarily reflecting the effects of seasonally higher operating costs as a
percentage of revenues in the Company's London operations in the first quarter
of the 1997 Period and the relative increases in telephone, chauffeur and
certain other costs in the third quarter of 1997, offset by the benefit of
increased implementation of the Company's independent operator program.
16
<PAGE>
Selling, General and Administrative Expense. Selling, general and
administrative expenses increased approximately $2.0 million or 18.3% from
$10.9 million in the 1996 Nine-Month Period to $12.9 million in the 1997 Nine-
Month Period. The increase was largely due to the costs of additional
personnel, increased marketing expenses and increased administrative expenses
related to acquired operations and generally, in support of higher business
levels. Selling, general and administrative expenses decreased as a percentage
of revenue, net from 26.5% in the 1996 Nine-Month Period to 24.8% in the 1997
Nine-Month Period as a result of an increase in revenue, net without a
corresponding increase in administrative costs.
Interest Expense. Interest expense decreased approximately $395,000 or 30.4%
from $1.3 million in the 1996 Nine-Month Period to approximately $905,000 in
the 1997 Nine-Month Period. Interest expense decreased as a percentage of
revenue, net from 3.2% in the 1996 Nine-Month Period to 1.7% in the 1997 Nine-
Month Period. The decrease resulted from repayment of the principal amounts of
debt outstanding between the two periods and conversion of subordinated and
certain other debt to Common Stock coincident with the IPO.
Provision for Income Taxes. The provision for income taxes increased
approximately $807,000 from approximately $420,000 in the 1996 Nine-Month
Period to $1.2 million in the 1997 Nine-Month Period. The increase primarily
related to the increase in pre-tax income of the Company from $1.4 million in
the 1996 Nine-Month Period to $3.0 million in the 1997 Nine-Month Period. In
addition, the Company utilized NOLs in determining its provision for income
taxes in the 1996 Nine-Month Period but such NOLs were not available to the
Company in the 1997 Nine-Month Period.
Net Income. As a result of the foregoing, the Company's net income increased
approximately $817,000 or 87.8% from approximately $931,000 in the 1996 Nine-
Month Period to $1.7 million in the 1997 Nine-Month Period.
YEAR ENDED NOVEMBER 30, 1996 COMPARED TO YEAR ENDED NOVEMBER 30, 1995
Revenue, Net. Revenue, net increased approximately $16.0 million or 36.8%
from $43.5 million in 1995 to $59.5 million in 1996. Of the increase,
approximately $9.6 million was contributed by existing operations 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
$6.4 million was due to revenues of companies which were acquired from
December 1994 through February 1996.
Cost of Revenue. Cost of revenue increased approximately $10.5 million or
35.1% from $29.9 million in 1995 to $40.4 million in 1996. The increase was
primarily attributable to higher costs due to increased business levels. Cost
of revenue decreased as a percentage of revenue, net from 68.9% in 1995 to
68.0% in 1996 as a result of spreading the fixed costs of the Company's
reservations infrastructure over a larger revenue base.
Selling, General and Administrative Expense. Selling, general and
administrative expenses increased approximately $2.7 million or 21.4% from
$12.4 million in 1995 to $15.1 million in 1996. The increase was largely due
to higher administrative costs associated with additional personnel, increased
marketing and promotional expenses, and higher amortization of intangibles as
a result of acquisitions. Selling, general and administrative expenses
decreased as a percentage of revenue, net from 28.6% in 1995 to 25.3% in 1996
as a result of an increase in revenue without a corresponding increase in
administrative costs.
Interest Expense. Interest expense was $1.7 million in each of 1995 and
1996. Interest expense decreased as a percentage of revenue, net from 3.0% in
1995 to 2.1% in 1996.
Provision (Benefit) for Income Taxes. The provision for income taxes was
nominal in 1995. In 1996, the Company had a tax benefit of $104,000. Prior to
1996, the Company recorded a valuation allowance against its net deferred tax
assets. This allowance was reversed in 1996 in accordance with generally
accepted accounting principles. The reversal reduced the provision for income
taxes in 1996 by approximately $1.5 million. The increase in the provision
recordable in 1996, which was offset by the effect of reducing the valuation
allowance against deferred tax assets, was attributable to the Company's
increased pretax profit level in 1996 which exceeded the beneficial tax effect
of net operating loss carryforwards of prior years. The Company has utilized
the full amount of its net operating loss carryforwards.
Net Income (Loss). As a result of the foregoing, the Company had net income
of $2.8 million in 1996 compared to a net loss of approximately $195,000 in
1995.
17
<PAGE>
YEAR ENDED NOVEMBER 30, 1995 COMPARED TO YEAR ENDED NOVEMBER 30, 1994
Revenue, Net. Revenue, net increased approximately $8.0 million or 22.4%
from $35.5 million in 1994 to $43.5 million in 1995. Of the increase,
approximately $4.7 million was due to revenues of companies acquired from
December 1994 through August 1995, as well as the full year effect in 1995 of
companies acquired in 1994. Approximately $3.3 million of the increase was
contributed by existing operations as a result of an increase in business from
corporate travel customers, business travel arrangers, special event business,
and the implementation in mid-1995 of charges to licensees for central
reservation and billing services.
Cost of Revenue. Cost of revenue increased approximately $4.9 million or
20.0% from $25.0 million in 1994 to $29.9 million in 1995. The increase was
primarily attributable to higher operating costs due to increased business
levels and to operating costs related to acquired companies. Cost of revenue
decreased as a percentage of revenue, net from 70.2% in 1994 to 68.9% in 1995
as a result of increased utilization of the Company's operating resources and
the implementation, in mid-1995, of charges to licensees for central
reservation and billing services which did not result in a corresponding
increase in cost.
Selling, General and Administrative Expense. Selling, general and
administrative expenses increased approximately $2.9 million or 30.9% from
$9.5 million in 1994 to $12.4 million in 1995. This increase was largely due
to higher costs associated with additional personnel, increased marketing and
promotional expense, and the increase in the amortization of intangibles
recorded as a result of acquisitions. Selling, general and administrative
expenses increased as a percentage of revenue, net from 26.7% in 1994 to 28.6%
in 1995 as a result of relatively higher levels of administrative costs in
existing operations and additional expenses related to companies acquired late
in 1995 whose operations were not consolidated with the Company's operations
until 1996.
Interest Expense. Interest expense increased approximately $334,000 or 24.8%
from approximately $1.4 million in 1994 to $1.7 million in 1995. This increase
was due to net increases in debt in 1995 to fund acquisitions. Interest
expense as a percentage of revenue, net increased slightly from 3.8% in 1994
to 3.9% in 1995.
Provision for Income Taxes. The provision for income taxes was nominal in
1994 and in 1995.
Net Loss. As a result of the foregoing, the Company had a net loss of
approximately $195,000 in 1995 compared to a net loss of approximately
$129,000 in 1994.
18
<PAGE>
QUARTERLY RESULTS
The following table presents unaudited quarterly financial information for
1995, 1996 and the first three quarters of 1997. This information has been
prepared by the Company on a basis consistent with the Company's audited
financial statements and includes all adjustments (consisting only of normal
recurring adjustments) which management considers necessary for a fair
presentation of the results for such quarters.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------------------
1995 1996 1997
----------------------------------- ---------------------------------- ------------------------
FEB. MAY AUG. NOV. FEB. MAY AUG. NOV. FEB. MAY AUG.
28 31 31 30 29 31 31 30 28 31 31
------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue, net............ $8,333 $10,320 $10,235 $14,596 $11,558 $15,043 $14,575 $18,330 $14,141 $16,731 21,179
Gross profit............ 2,647 3,113 2,980 4,800 3,654 4,835 4,737 5,841 4,385 5,349 6,719
Operating income
(loss)................. (101) 235 (216) 1,204 293 1,037 987 1,673 566 1,293 1,691
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------------------
1995 1996 1997
----------------------------------- ---------------------------------- ------------------------
FEB. MAY AUG. NOV. FEB. MAY AUG. NOV. FEB. MAY AUG.
28 31 31 30 29 31 31 30 28 31 31
------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue, net............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............ 31.8 30.2 29.1 32.9 31.6 32.1 32.5 31.9 31.0 32.0 31.7
Operating income
(loss)................. (1.3)% 2.2% (2.1)% 8.2% 2.5% 6.8% 6.7% 9.1% 4.0% 7.7% 8.0%
</TABLE>
The Company believes that its future operating results may continue to be
subject to quarterly variations caused by such factors as seasonal business
travel, variable scheduling of special events and the timing of acquisitions
by the Company. The Company's least profitable quarter generally has been the
first quarter (ending February 28 or 29), and its most profitable quarter
generally has been the fourth quarter (ending November 30).
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $2.5 million from $2.8 million at
November 30, 1996 to $5.3 million at August 31, 1997. Operating activities
provided net cash of $1.2 million during the 1997 Nine-Month Period. The
overall net increase in cash and cash equivalents during the 1997 Nine-Month
Period primarily related to the cash proceeds to the Company from its IPO and
net cash provided by operations, offset by the use of such cash to retire
debt, acquire Manhattan Limousine and redeem certain preferred stock.
Cash used in investing activities increased by $6.8 million over the 1996
Nine-Month Period. Cash of $1.2 million was used in the 1996 Nine-Month Period
to acquire operations in London, whereas $7.4 million of cash was used in the
1997 Nine-Month Period to acquire Manhattan Limousine and to make additional
payments of contingent consideration for the acquisition of London.
Cash provided by financing activities increased by $9.0 million over the
1996 Nine-Month Period, primarily as a result of the net proceeds from the IPO
and after using such proceeds to retire debt and complete the
Recapitalization.
In connection with the IPO, the Company issued a total of 3,335,000 shares
of Common Stock and received proceeds, net of underwriters' discounts and
commissions and offering costs, of $30.7 million. The Company utilized the net
proceeds from the IPO to repay principal on indebtedness of $7.1 million and
to fund the Recapitalization by repaying principal on subordinated
indebtedness of approximately $912,000 and redeeming preferred stock for $3.1
million. Additionally, the Company completed its acquisition of Manhattan
Limousine by paying $11.8 million to the sellers of Manhattan Limousine and
repaying principal on indebtedness of Manhattan Limousine in the amount of
$3.5 million. The remaining net proceeds will be used for acquisitions and
other general corporate purposes, including working capital.
19
<PAGE>
As part of the Recapitalization, a further $4.9 million of debt was
converted to Common Stock of the Company. At August 31, 1997, the Company had
borrowings, including capitalized leases, of $1.1 million, approximately
$303,000 of which is to be repaid over the next 12 months.
Effective as of August 15, 1997, the Company entered into a senior credit
facility with three banks consisting of a secured revolving line of credit of
$25.0 million (the "Facility"). The Facility, which may be used for
acquisitions and working capital, is collateralized by the assets of the
Company and its domestic operating subsidiaries and by a pledge of the stock
of its international subsidiary. The Facility also provides availability for
the issuance of letters of credit. Loans made under the revolving line of
credit bear interest at the Company's option at either the bank's prime
lending rate or 2.0% above the LIBOR rate. Commitment fees equal to 0.375% per
annum are payable on the unused portion of the revolving line of credit. On
the second anniversary of the Facility, outstanding balances under the
Facility will convert to a five-year term loan, which will bear interest
either at a fixed rate (subject to availability) or at a variable LIBOR or
prime-based rate with adjustments determined based on the Company's earnings.
The terms of the Facility (i) prohibit the payment of dividends by the
Company, (ii) with certain exceptions prevent the Company from incurring or
assuming other indebtedness that is not subordinated to borrowings under the
Facility and (iii) require the Company to comply with certain financial
covenants.
While there can be no assurance, and depending on the methods of financing
and size of potential acquisitions, management believes that cash flow from
operations, the remaining net proceeds from the IPO and funds from the credit
Facility will be adequate to meet the Company's capital requirements for the
next 12 months. While the Company historically has financed acquisitions
primarily with cash, it may seek to finance future acquisitions by using
common stock for a portion or all of the consideration to be paid.
FACTORS TO BE CONSIDERED
The information set forth above contains forward-looking statements, which
involve risks and uncertainties. The Company's actual results could differ
materially from the results anticipated in these forward-looking statements.
Readers should refer to discussion under "Risk Factors" contained in the
Company's Registration Statement on Form S-1 (No. 333-22651) filed with the
Securities and Exchange Commission, which is incorporated herein by reference,
concerning certain factors which could cause the Company's actual results to
differ materially from the results anticipated in the forward-looking
statements contained herein.
IMPACT OF INFLATION AND FOREIGN CURRENCY FLUCTUATIONS
The Company does not believe that inflation and foreign currency fluctuation
has had, or will have, a material impact on the financial position and results
of operation.
20
<PAGE>
BUSINESS
Carey International, Inc. is one of the world's largest chauffeured vehicle
service companies, providing services through a worldwide network of owned and
operated companies, licensees and affiliates serving 420 cities in 65
countries. The "Carey" brand name has represented quality chauffeured vehicle
services since the 1920s. The Company owns and operates its service providers
in New York, San Francisco, Los Angeles, London, Washington D.C.,
Indianapolis, South Florida and Philadelphia. In addition, the Company
generates revenues from licensing the "Carey" name and providing central
reservation, billing and sales and marketing services to its licensees. The
Company's worldwide network also includes affiliates in locations in which the
Company has neither owned and operated companies nor licensees. Over the past
five years, the Company has invested significant capital in developing its
reservation, central billing and worldwide service infrastructure. By
leveraging its current infrastructure and position as a market leader, the
Company intends to consolidate the highly fragmented chauffeured vehicle
service industry through the acquisition of: (i) current Carey licensees, (ii)
additional companies in markets in which the Company already owns and operates
a chauffeured vehicle service company, and (iii) companies in other strategic
markets in North America, Europe and the Pacific rim of Asia.
The Carey network utilizes chauffeured sedans, limousines, vans and
minibuses to provide services for airport pick-ups and drop-offs, inter-office
transfers, business and association meetings, conventions, roadshows,
promotional tours, special events, incentive travel and leisure travel.
Businesses and business travelers utilize the Company's services primarily as
a management tool, to achieve more efficient use of time and other resources.
Carey's worldwide network of chauffeured vehicle service companies allows it
to provide services with consistently high quality to its customers in
virtually every major city in the expanding global travel market. The network
is linked to over 300,000 reservation terminals in travel agencies, corporate
travel departments and government agencies by the Carey International
Reservation System (the "CIRS"), the chauffeured vehicle service industry's
most extensive centralized global reservation system.
MARKET OVERVIEW
The Company estimates that the United States chauffeured vehicle service
industry generated revenues of approximately $3.9 billion in 1996, and has
undergone steady growth in recent years, with revenues increasing at a
compound annual growth rate of 10.9% between 1990 and 1996. The industry is
highly fragmented, with approximately 9,000 companies utilizing over 100,000
vehicles. The Company believes that during 1996 no chauffeured vehicle service
company accounted for more than 2% of total United States industry revenues.
The Company also believes that similar fragmentation exists in the chauffeured
vehicle service industry outside the United States.
The chauffeured vehicle service industry serves businesses in virtually all
industrial and financial sectors of the economy. The Company believes that
business customers are becoming increasingly sophisticated in their use of
ground vehicle services and are demanding a broader array of "meet-and-greet"
and other services, as well as business amenities such as cellular phones.
Although there are other forms of transportation that compete with chauffeured
vehicles, such as buses, jitney services, taxis, radio cars and rental cars,
the Company believes that none of those forms of transportation provides the
quality, dependability and value-added services of chauffeur-driven vehicles.
The Company also believes that businesses place a premium on service providers
that are able to coordinate the travel itinerary of each member of a large
group over many locations with a single reservation and billing system.
21
<PAGE>
BUSINESS STRATEGY
The Company's objective is to increase its profitability and its market
share in the chauffeured vehicle service industry by implementing the
following growth strategies:
Expand through Acquisitions. Carey believes that there are significant
opportunities to acquire additional chauffeured vehicle service companies
that would benefit from the capital and management resources that the
Company can provide. Carey intends to acquire current Carey licensees, as
well as additional chauffeured vehicle service companies both in markets in
which the Company already owns and operates such a company and in other
strategic regions in North America, Europe and the Pacific rim of Asia.
Carey believes it has a competitive advantage in acquiring licensees
because of a right of first refusal contained in the substantial majority
of its domestic license agreements. The Company has successfully begun to
implement its acquisition strategy, having acquired 18 chauffeured vehicle
service companies since November 1991.
Increase International Market Share. Approximately 11.6% of the Company's
revenue, net was derived from services performed outside the United States
during its fiscal year ended November 30, 1996. Of these international
revenues, approximately 60.8% was generated by the Company's owned and
operated business in London, approximately 38.1% was generated by the
Company's international licensees and the remainder was generated by the
Company's international affiliates. Carey believes that its network can
capture a significant portion of the growing international market for
chauffeured vehicle services by acquiring or licensing additional
chauffeured vehicle service companies and otherwise implementing the Carey
system outside the United States. The Company intends to increase its
international presence by intensifying its sales and marketing efforts,
strengthening its relationships with significant domestic and international
business travel arrangers, and capitalizing on the capacity of the CIRS to
operate on a global scale. By enhancing its international presence, the
Company also expects to increase its revenues from providing chauffeured
vehicle services to international travelers both visiting the United States
and travelling abroad.
Expand Licensee Network Worldwide. The Company will seek to expand its
worldwide network and generate additional revenues from license and
marketing fees by licensing additional chauffeured vehicle service
companies in smaller markets that do not justify a Company-owned presence.
Ultimately, as these less strategic markets grow in size and importance to
the Company, the licensees in such markets may become acquisition
candidates.
Convert Salaried Chauffeurs to Independent Operators. The Company
believes that it can improve its profitability by continuing to convert
salaried chauffeurs to independent operators in businesses acquired by
Carey. The objective of Carey's independent operator strategy is to instill
in each chauffeur the sense of purpose, responsibility and dedication
characteristic of an independent business owner, thereby increasing the
profitability of the chauffeur and the Company. Carey's independent
operator program allows the Company to reduce its labor and capital costs,
convert fixed costs to variable costs and generate revenues from fees paid
by independent operators.
ACQUISITION STRATEGY
Carey believes that there are significant opportunities to acquire
additional chauffeured vehicle service companies as a result of: (i) the
highly fragmented and increasingly global nature of the industry, (ii)
industry participants' capital requirements and desire for liquidity, and
(iii) the pressures of increasing competition. The Company intends to continue
to pursue its acquisition program in order to strengthen its position in its
existing markets and to acquire operations in new markets.
Carey intends to pursue acquisitions that will allow the Company to own and
operate chauffeured vehicle service companies in new geographic markets. The
Company currently owns and operates chauffeured vehicle service companies in
six of the largest United States travel markets and in London, the largest
European travel market, and will seek to acquire Carey licensees in other
significant travel markets in North America, Europe,
22
<PAGE>
and the Pacific rim of Asia. The Company believes that its ability to acquire
its licensees will be enhanced by a right of first refusal that is contained
in a substantial majority of its domestic license agreements and the limited
terms of most of its international license agreements. The Company's
preference is to retain key management, operating and sales personnel of an
acquired company in a new market in order to maintain continuity of operations
and customer service.
The Company believes that it has a market share of less than 10% in each of
the markets in which it owns and operates a chauffeured vehicle service
company, and that there is significant potential for it to expand its business
in such markets through acquisitions. When justified by the size of an
existing market acquisition, the Company expects to retain key management and
sales personnel of the acquired company and to seek to improve that company's
profitability through implementation of the Company's operating strategies. In
most instances, acquired operations can be integrated into the Company's
existing operations in a market, resulting in elimination of duplicative
overhead and operating costs.
The Company believes that there are significant advantages to consolidating
the chauffeured vehicle service industry. Carey believes it can increase
revenues of acquired companies by marketing the worldwide services of its
network to customers of such companies, and by increasing the productivity of
chauffeurs at the acquired companies through the implementation of training
and quality assurance programs. Moreover, Carey believes that cost savings can
be achieved following acquisitions through (i) the consolidation of certain
administrative functions and increased use of automation, (ii) the elimination
of redundant facilities, equipment and personnel and (iii) the conversion of
salaried chauffeurs driving company-owned vehicles into independent operators
driving their own vehicles.
Carey has successfully begun its acquisition strategy, having acquired 19
chauffeured vehicle service companies since November 1991. The following table
lists the date of acquisition, location of each such chauffeured vehicle
service company and whether the acquired company was a licensee or affiliate
of the Company or other chauffeured vehicle service company:
ACQUISITION HISTORY
NOVEMBER 1991--PRESENT
<TABLE>
<CAPTION>
DATE LOCATION ACQUIRED COMPANY
---- -------- ----------------
<S> <C> <C>
November 1991................... Washington, DC Other
September 1992.................. Los Angeles, CA Other
August 1993..................... Wilmington, DE Licensee
September 1993.................. West Palm Beach, FL Licensee
November 1993................... New York, NY Other
June 1994....................... Washington, DC Other
June 1994....................... Los Angeles, CA Other
December 1994................... Boca Raton, FL Other
January 1995.................... San Francisco, CA Licensee
April 1995...................... Washington, DC Other
April 1995...................... Ft. Lauderdale/Miami, FL Licensee
May 1995........................ San Francisco, CA Other
August 1995..................... San Francisco, CA Other
August 1995..................... Boca Raton, FL Other
February 1996................... London, England Affiliate(/1/)
June 1997....................... New York, NY Other
October 1997.................... Indianapolis, IN Affiliate
October 1997.................... Los Angeles, CA Affiliate
December 1997................... London, England Other
</TABLE>
- --------
(1) Prior to the acquisition, the Company had no licensee in London.
23
<PAGE>
The Company has analyzed significant data on the chauffeured vehicle service
industry and individual businesses within that industry and believes that it
is well positioned to further implement its acquisition program. The Company
believes that management's lengthy tenure with the Company, extensive
experience in the chauffeured vehicle service industry and relationships with
acquisition candidates provide the Company with significant knowledge that
will assist the Company in its attempts to acquire licensees of the Company
and other chauffeured vehicle service companies. The Company regularly reviews
various strategic acquisition opportunities and periodically engages in
discussions regarding such possible acquisitions. As the result of this review
process, negotiations and acquisition agreements may occur from time to time
if appropriate opportunities arise.
The acquisition of Manhattan Limousine has solidified the Company's presence
in the New York metropolitan area and diversified its customer base. The
Company has benefitted from Manhattan Limousine's contracts with many New
York-based participants in the airline and hotel industries, including
airlines such as Virgin Atlantic Airways and Aer Lingus, and hotels such as
the Plaza Hotel and the Mark Hotel. Typically these arrangements are
terminable by the airline or hotel upon 30 days' notice. During its fiscal
year ended September 30, 1996, approximately 18.0% of Manhattan Limousine's
revenues were derived from services performed for Virgin Atlantic Airways.
While the Company has begun to consolidate certain administrative operations
of Manhattan Limousine with its own and to eliminate redundant facilities,
equipment and personnel, Manhattan Limousine otherwise will retain its
separate identity until June 1998, if not later.
Manhattan Limousine historically provided services solely through
independent operators rather than salaried chauffeurs. As a result, subsequent
to the acquisition, Carey has not been able to realize the benefits of
converting salaried chauffeurs into independent operators. See "--Independent
Operators." As a result of the acquisition, Carey assumed Manhattan
Limousine's network of approximately 300 affiliates from which Manhattan
Limousine received fees for referred business. A significant majority of these
affiliates are located in cities in which the Company already has affiliates,
and in some cities the companies share common affiliates already were Carey
affiliates as well.
As consideration for future acquisitions, the Company intends to use various
combinations of shares of Common Stock, cash and notes. Some or all of any
shares of Common Stock issued in connection with acquisitions may be
registered under the Securities Act.
SERVICE PROVIDER NETWORK
Carey's international network of owned and operated chauffeured vehicle
service companies, licensees and affiliates, serving 420 cities in 65
countries, enables it to provide its customers chauffeured vehicles in
virtually every significant travel market throughout the world. Carey believes
that its network is the most extensive in the industry, and intends to expand
the network by adding qualified licensees and affiliates in locations
justifying new or expanded service. The Company believes that the trend toward
globalization is opening more cities for business and personal travel around
the world. The Company monitors and evaluates cities in which a demand for
chauffeured vehicle services may warrant a "Carey" presence.
The Company's network provides chauffeured vehicle services for airport
pickups and drop-offs, inter-office transfers, business and association
meetings, conventions, road shows, promotional tours, special events,
incentive travel and leisure travel. Of these activities, the Company derived
approximately 9.3% of its 1996 pro forma revenues from hotel contracts,
approximately 8.3% from financial services customers and approximately 5.1%
from contracts with airlines. The Company also offers its clients travel and
tour planning services, "meet-and-greet" services, destination management
services, group movement coordination services, direct and central billing in
U.S. dollars, and access to the Company's 24-hour worldwide computerized
reservation system, the CIRS.
24
<PAGE>
The Company's fleet in its owned and operated locations contains four types
of vehicles consisting of chauffeured sedans, limousines, vans and minibuses,
some of which can carry up to 30 persons. In addition, the Company
subcontracts from time to time for buses that can carry a greater number of
passengers. The fleets of the Company's licensees and affiliates in larger
markets are similar to the Company's fleet, and in smaller markets generally
consist of only chauffeured sedans and limousines. All vehicles are driven by
uniformed professional chauffeurs, most of whom own the vehicles that they
drive. Each such chauffeur drives a clean, late model vehicle with amenities
important to the business traveler, such as cellular telephones and daily
newspapers.
Owned and Operated Companies. The Company owns and operates chauffeured
vehicle service companies in New York, San Francisco, Indianapolis, Los
Angeles, London, Washington, D.C., South Florida and Philadelphia. Revenue
provided by these companies represented approximately 77.6% of the Company's
revenue, net in fiscal 1995 and 76% in fiscal 1996.
Licensees. The Company has 39 licensees serving 106 cities in the United
States and 24 licensees serving 105 cities outside the United States, all of
which operate under the Carey name. Revenue, net provided by the Company's
licensees represented approximately 19.0% and 18.8% of the Company's revenue,
net in fiscal 1995 and 1996, respectively.
The domestic license fee ranges from $15,000 to $75,000, depending upon the
size of the market. The sum of the continuing fees paid by the domestic
licensee varies, but annually is generally less than 10% of its revenues or,
in some cases, less than 10% of an excess above a specified base.
Substantially all candidates appointed as domestic licensees have been in
business for at least 10 years prior to the grant of a license. The term of a
domestic license agreement entered into prior to January 1, 1996 is perpetual
and subsequent to January 1, 1996 is 10 years.
International licensees historically have not paid annual license fees;
rather, they have paid a commission on business referred to them. The term of
an international license agreement usually is from year to year, although in a
few cases it is perpetual.
Under the domestic license agreement, the Company provides the licensee with
(i) the right to use the "Carey" name, (ii) participation in the CIRS, (iii)
various consulting services, (iv) identification in various travel
directories, (v) access to bulk purchasing arrangements for automobiles, parts
and maintenance materials and (vi) national sales and marketing services. In
the event of a proposed transfer of a license or a licensee, the Company has
the right to approve the transferee. In addition, for most license agreements
executed prior to January 1, 1996 and all license agreements executed on or
after January 1, 1996, Carey retains a right of first refusal by which it may
acquire any license or licensee upon the same terms as the license or licensee
is proposed to be sold.
Typically, a licensee candidate acts as an affiliate before being selected
as a licensee. Licensees operate according to strict service guidelines
specified by the Company and market the Carey name in conjunction with the
Company's overall marketing program. The Company conducts ongoing quality
assurance programs and annual audits of licensees to insure that the licensees
have met the high service standards set forth by the Company. The Company has
the right to terminate any license if the licensee fails to comply with such
standards.
Affiliates. The Company utilizes affiliates to provide services to its
clients in cities where the Company does not have Company-owned operations or
licensees. Affiliates are not licensed to use the Carey name and do not pay
license fees to the Company, but must meet the Company's quality standards in
order to receive referred business. Pursuant to oral agreements between the
Company and its affiliates, the Company is entitled to receive a commission of
15% of net vehicle revenues for all referred business. The Company's
affiliates are located in 121 cities in the United States and 67 cities
outside the United States. Revenue, net provided by the Company's affiliates
represented approximately 2.2% and 1.8% of the Company's revenue, net in
fiscal 1995 and 1996, respectively.
25
<PAGE>
CAREY INTERNATIONAL RESERVATION SYSTEM (CIRS)
The hub of the Company's network of service providers is the CIRS, the Carey
International Reservation System. The CIRS is operated on a 24-hour basis by
Carey's central reservation department, which processes reservations through
the Company's proprietary computer system. The central reservation department
receives reservations through the Company's toll free "800" telephone number
(800-336-4646), by fax or telex, or through one of the six major airline
reservation systems, SABRE, APOLLO, WORLDSPAN, GALILEO, BABS and SITA. These
airline systems allow travel agencies, corporate travel departments and
government offices to access the CIRS through over 300,000 reservation
terminals worldwide. The Company bills a licensee or affiliate for each
reservation referred to the licensee or affiliate through the CIRS.
The CIRS can be accessed for up-to-date tariffs both in dollars and in
foreign currency for 420 cities throughout the world. Through the CIRS, the
Company's reservation and customer service personnel have instant access to
all rates, services offered, types of vehicles available and special airport
greeting capabilities in each individual city. Individual customer profiles
are maintained, including vehicle and chauffeur preferences, frequent pick-up
points, addresses and directions, billing requirements and account status.
The CIRS is used to make arrangements for a broad range of business and
consumer applications such as transportation to and from airports, association
and industry meetings and functions, road shows, transportation related to
incentive travel, board of directors meetings and sight seeing tours. Special
customer service facilities are available with direct phone lines, including a
special service desk, executive VIP desk, international tour desk, special
event desk and road show desk.
The CIRS utilizes client/server architecture and proprietary software
developed over a five-year period which allows constant input into a complex
international network linking more than 65 countries. A primary strength of
the CIRS is the reliability of its reporting and control systems which verify
all reservations for complete information, customer service requirements and
accounting authorizations. The CIRS also contains customer invoicing programs
to allow central billing directly through the system for all services used
worldwide. In addition, the system's ability to track reservations allows more
accurate and detailed analyses for marketing purposes.
In 1992, the Company began leasing its reservation and operating systems to
its licensees. These systems create a basis for certain licensees to have
direct access to the CIRS and provide them with the ability to book local
reservations, dispatch vehicles and account for chauffeured vehicle services.
MARKETING, SALES AND CUSTOMER SERVICE
The Company believes that "Carey," a registered service mark, is a highly
recognized name in the chauffeured vehicle service and travel industries
worldwide. The Company intends to continue to expand recognition of the
"Carey" name through its marketing and promotional efforts. Carey has
developed an extensive marketing program directed at both the travel arranger
and the end user of chauffeured vehicle services. The program consists of
directory listings, advertising, direct mail, public relations, cooperative
promotional and joint marketing programs, attendance at and sponsorship of
travel-related conventions and workshops, and direct selling. The direct sales
force serving the Company and its licensees currently consists of
approximately 20 professionals.
Carey is listed in approximately 95 travel directories which are used by
travel arrangers to obtain information on travel related services. Advertising
targeted at travel arrangers is placed in over 35 trade journals including
Business Travel Executive, Travel Weekly, Travel Trade and Business Travel
News. In addition, the Company advertises extensively in magazines and
newspapers, consumer association books, hotel room information books and the
Yellow Pages, and on radio and television in selected markets.
The Company's continuing direct mail program is targeted at both the travel
arranger and the end user. The program distributes approximately two million
promotional pieces annually. Most major travel arrangers receive at least six
direct mail pieces per year which include announcements of new services, news
on service providers
26
<PAGE>
and reservation programs, the Carey Newsletter and listings of rates. End
users and arrangers receive promotional pieces on Carey when they are billed
for the Company's services.
The Company's marketing program seeks to build upon brand name acceptance,
customer loyalty, service know-how, technology and strategic market
relationships with other market leaders in the travel and tourism industry,
such as airlines, travel agencies, credit card companies and central
reservation systems. The Company's sales force calls on thousands of accounts
annually and participates in trade shows, seminars and association meetings.
The Company also is involved in promotional and cooperative agreements with
American Express Platinum Card and Gold Card, Diner's Club "Club Chauffeur"
program, British Airways, Air France and various cruise lines.
The Company believes that the retention and expansion of existing business
is as important as new sales. Carey has established a base of loyal customers
in part by monitoring the standard of service through its quality assurance
and customer service programs. To assure that the Company continues to provide
consistently high quality and reliable service, Carey operates a five-part
quality assurance program. The Company's quality assurance program utilizes
survey cards that are sent to customers and travel arrangers. Approximately
90% of the quality assurance cards returned to Carey during the twelve-month
period ended November 30, 1996 rated the Company's reservation services,
chauffeurs and vehicles as "excellent." Carey's quality assurance program
includes evaluations performed by an independent consultant to measure the
quality of chauffeur services, the appearance of chauffeurs and vehicles, and
the availability of other amenities, such as cellular phones and daily
newspapers.
INDEPENDENT OPERATORS
An important component of Carey's strategy involves the preferred use of
independent operators instead of salaried chauffeurs operating Company-owned
vehicles. An independent operator takes responsibility for owning, operating
and maintaining his or her own vehicle. The Company believes that acting as an
independent operator creates incentives for the chauffeur to become more
productive, efficient and service-oriented, thereby increasing the
profitability of the chauffeur and the Company. The objective of the Company's
independent operator strategy is to instill in each chauffeur the sense of
purpose, responsibility and dedication characteristic of an independent
business owner.
The use of independent operators allows the Company to reduce its labor and
capital costs, convert fixed costs to variable costs and generate revenues
from fees paid by independent operators. Because of the greater responsibility
borne by independent operators, the Company is able to allocate fewer
resources to oversee its vehicle operations. As a result, the Company can
focus to a greater extent on support services, business development,
administration, billing, quality assurance, and sales and marketing.
Each independent operator enters into an agreement with the Company to
provide prompt and courteous service to the Company's customers with a
properly maintained, late model vehicle consistent with the Company's
standards. The cost of a new vehicle ranges from $35,000 to $65,000, depending
upon whether it is a sedan or a limousine and the features included in the
vehicle. Each new independent operator agrees to pay an initial fee to the
Company, acquires his or her vehicle and pays all of the maintenance and
operating expenses of such vehicle, including gasoline.
Prior to December 1996, the Company's typical agreement with an independent
operator had a term of 10 years and provided for a fee ranging from $30,000 to
$45,000 (depending on the local market) that was financed by the Company at an
annual interest rate of 8% to 12%. The notes evidencing such financing
generally were sold by the Company to third parties. Since December 1996, the
independent operator agreements entered into by the Company generally have
provided for, and the Company intends that future agreements will provide for,
a term of 15 years, fees of $45,000 to $75,000 and an interest rate of 15% per
year. In certain markets, such as New York, the Company may provide longer
terms and higher fees in its independent operator agreements. Currently, the
Company does not intend to continue its former practice of selling to third
parties notes evidencing independent operator financing. To date, the Company
has not incurred any material losses as a result of defaults under such notes,
and any potential future losses will be mitigated from an accounting
perspective because of the Company's policy of deferral of revenue recognition
in connection with independent operator fees.
27
<PAGE>
The independent operator agreement provides that the Company will bill and
collect all revenues (as defined in the agreement) and remit to the
independent operator 60% to 67% of such revenues. In this arrangement, the
Company assumes the risk of collecting from each customer and generally pays
the independent operator his or her share regardless of whether the Company is
paid by the customer. An independent operator's failure to meet the high
standards of service associated with the Carey name constitutes a breach of
the agreement and gives rise to a right of the Company to terminate the
agreement.
Independent operators also generally require financing to purchase their
vehicles. Typically, independent operators have utilized banks, vehicle
financing companies or CLI Fleet, Inc. ("CLI Fleet"), a finance company that
specializes in providing financing to the chauffeured vehicle service
industry. See "Certain Transactions." On occasion, the Company has provided
secured vehicle financing to independent operators with repayment terms of
three to five years.
CUSTOMERS
The Company's customer list exceeds 75,000 individuals and organizations
that are dispersed across many different industries and geographic locations.
No client accounted for more than 5% of the Company's revenue, net in 1996.
The Company's major clients include companies in the finance, travel and
related services, manufacturing, pharmaceutical, airline, insurance,
publishing, oil and gas exploration, entertainment, tobacco, and food and
beverage industries.
COMPETITION
The chauffeured vehicle service industry is highly competitive and
fragmented, with few significant national participants operating a multi-city
reservation system. Each local market usually contains numerous local
participants as well as a few companies offering regional and national
service. Chauffeured vehicle service providers compete primarily on the basis
of price, quality, scope of service and dependability. The Company also
competes with service providers offering alternative modes of transportation,
such as buses, jitney services, taxis, radio cars and rental cars. The Company
believes that its high quality of service and dependability have allowed the
Company to compete effectively in its markets. Carey competes both for
customers and for possible acquisitions. The Company expects its business to
become more competitive as existing competitors expand and additional
companies enter the industry. Certain of the Company's existing competitors
have, and any new competitors that enter the industry may have, access to
significantly greater financial resources than the Company.
GOVERNMENT REGULATION
The Company's chauffeured vehicle service operations are subject to various
state and local regulations and, in many instances, require permits and
licenses from state and local authorities. In addition, the Company is
regulated by the Federal Highway Administration with respect to, among other
things, minimum vehicular insurance requirements. The Company believes that it
has all required permits and licenses to conduct its operations and that it is
in substantial compliance with applicable regulatory requirements relating to
its operations.
The Company is subject to federal and state laws, rules and regulations
governing the offer and sale of franchises. A number of states have enacted
laws that require detailed disclosure in the offer and sale of franchises
and/or the registration of the franchisor with state administrative agencies.
The Company is also subject to Federal Trade Commission regulations relating
to disclosure requirements in the sale of franchises. Certain states have
enacted, and others may enact, legislation governing certain aspects of the
franchise relationship and limiting the ability of the franchisor to terminate
or refuse to renew a franchise. The law applicable to franchise sales and
relationships is rapidly developing, and the Company is unable to predict the
effect on its franchise system of additional requirements or restrictions that
may be enacted or promulgated or of court decisions that may be adverse to
franchisors. Due to the scope of the Company's business, and the complexity of
franchise regulation, compliance problems may be encountered from time to
time.
28
<PAGE>
INSURANCE
The Company is subject to accident claims as a result of the normal
operation of its fleet of vehicles, which claims and the defense thereof
generally are covered by insurance. The Company purchases automobile
liability, automobile collision and comprehensive damage, general liability,
comprehensive property damage, workers' compensation and other insurance
coverages that management considers adequate for the protection of the
Company's assets and operations, although there can be no assurance that the
coverages and limits of such policies will be adequate. The Company's standard
license agreement requires that its licensees purchase similar types of
insurance and name the Company as a named insured in such insurance policies.
A successful claim against the Company beyond the scope of its or its
licensees' insurance coverage or in excess of its or its licensees' limits
could have a material adverse effect on the Company's business, financial
condition and results of operations.
FACILITIES
The Company owns facilities in Alexandria, Virginia and Long Island City,
New York used by owned and operated chauffeured vehicle service companies
providing services in the Washington, D.C. and New York metropolitan areas,
respectively. The Company leases its corporate headquarters in Washington,
D.C. and also leases seven administrative and/or operating facilities in
California, New York, Indiana, Pennsylvania, Florida and London. Management
believes that the Company's facilities are adequate for its present needs and
that suitable additional or replacement space will be available as required.
EMPLOYEES AND INDEPENDENT OPERATORS
As of November 30, 1997, the Company had approximately 488 full-time
employees (approximately 125 of whom were chauffeurs) and approximately 178
part-time employees (approximately 116 of whom were chauffeurs). As of June
30, 1997, the Company also had agreements with approximately 452 independent
operators. The Company is not a party to any collective bargaining agreement.
INTELLECTUAL PROPERTY
The Company is the registered owner of two United States service marks
covering the "Carey" name. The Company believes that customer and travel
arranger recognition of these marks has contributed to its success. The
Company is not affiliated with Carey Transportation, Inc., a company that
provides bus transportation services in the metropolitan New York City area.
Except in this area, the Company believes it has the exclusive right to use
the "Carey" name in connection with transportation services in all locations
in which it either owns and operates a chauffeured vehicle service company or
maintains a licensee.
LEGAL PROCEEDINGS
The Company and certain of its officers and directors were named in a civil
action filed on May 15, 1996 in the United States District Court for the
Eastern District of Pennsylvania (Case No. 96-CV-3702) 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 STC is billed by Carey to its customers and represents a surcharge
on account of various fees and service costs incurred by it in its provision
of services to such customers. The plaintiff seeks damages in excess of $1.0
million on behalf of the class for each of the counts in the complaint
including fraud, negligent misrepresentation and violations of the Racketeer
Influenced and Corrupt Organizations law of 1970, which permits the recovery
of treble damages and attorneys' fees. The Company filed a motion to dismiss
that was denied, and subsequently has filed an answer denying any liability in
connection with this complaint.
29
<PAGE>
The Company has reached a settlement with the plaintiff and plaintiff's
counsel. The settlement calls for the Company to deposit $500,000 into a
settlement fund and provide a $450,000 letter of credit for a class consisting
of all persons who paid the STC during the period from May 15, 1992 through
March 15, 1997. As a condition of the final 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
totalling 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 received
final court approval. 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.
The Company is a party to other litigation in the ordinary course of
business. The Company does not anticipate an unfavorable result in any such
litigation or believe that an unfavorable result, if it occurred, would have a
material adverse effect on its business, financial condition and results of
operations.
30
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information pertaining to the
directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION
---- --- ----------------
<S> <C> <C>
Vincent A. Wolfington.......... 57 Chairman of the Board and Chief Executive
Officer
Don R. Dailey.................. 60 President and Director
Guy C. Thomas.................. 59 Executive Vice President--Operations
David H. Haedicke.............. 51 Executive Vice President and Chief
Financial Officer
Richard A. Anderson, Jr........ 52 Senior Vice President
Sally A. Snead................. 37 Senior Vice President--Information Systems
John C. Wintle................. 51 Senior Vice President--Europe
Paul A. Sandt.................. 37 Vice President and Chief Accounting Officer
Devin J. Murphy................ 31 Senior Vice President and Chief Development
Officer
S. Terrell Mellen.............. 41 Senior Vice President--Sales and Marketing
Robert W. Cox.................. 60 Director
William R. Hambrecht........... 62 Director
David McL. Hillman............. 44 Director
Nicholas J. St. George......... 58 Director
</TABLE>
Set forth below is a description of the backgrounds of each of the directors
and executive officers and the director nominee of the Company.
Vincent A. Wolfington, a co-founder of the Company, has served as its
Chairman of the Board of Directors and Chief Executive Officer since 1979. For
over 25 years, Mr. Wolfington has been involved in the limousine industry and
directly associated with the Carey system of licensees and affiliates. Mr.
Wolfington has served as a consultant to the National Academy of Sciences
Transportation Research Board, President of the National Para-transit
Association and a member of the International Limousine Association. Mr.
Wolfington currently is a member of the Executive Committee of the World
Travel and Tourism Council.
Don R. Dailey has been President and a director of the Company, which he co-
founded, since 1979. Mr. Dailey has been directly involved in the limousine
business for over 30 years. Mr. Dailey serves on a number of boards and
committees related to the travel industry, including the National Business
Travel Association, the International Business Travel Associates, the
Association of Corporate Travel Executives, the National Limousine Association
and the International Limousine Association (as its past president and member
of its executive committee).
Guy C. Thomas has served as Executive Vice President--Operations of the
Company since 1987. Mr. Thomas has served on a number of boards and committees
related to the travel industry, including the National Business Travel
Association, the Greater Washington Area Passenger Traffic Association, the
American Society of Association Executives, Meeting Planners International,
the Association of Corporate Travel Executives, the National Limousine
Association and the International Taxicab and Livery Association.
David H. Haedicke has been an Executive Vice President and Chief Financial
Officer of the Company since October 1996. From August 1996 to October 1996,
he was Senior Vice President and Chief Financial Officer of Infotechnology,
Inc., Hadron, Inc. and Comtex Scientific Corporation, an affiliated group of
companies engaged in systems management and software development. From
September 1993 to May 1996, he was Chief Financial Officer of Walcoff &
Associates, Inc., a communications and information management firm. From June
1991 to September 1993, he was Chief Financial Officer and Vice President of
Xsirus, Inc., a high technology research and development company. Mr. Haedicke
also was a partner at Ernst & Young L.L.P. from 1985 to June 1991, and was an
employee at that firm from 1973 to 1985. Mr. Haedicke is a Certified Public
Accountant.
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<PAGE>
Richard A. Anderson, Jr. has served as a Senior Vice President of the
Company since December 1988. Mr. Anderson also was Chief Operating Officer of
the Company's New York subsidiary, Carey Limousine NY, Inc., from December
1988 until August 1997. Mr. Anderson is Chairman of the New York Taxi and
Limousine Commission's Limousine Advisory Board, a former Board Member of the
Association of Corporate Travel Executives, and a member of the National
Business Travel Association and Meeting Planners International.
Sally A. Snead has served as the Company's Senior Vice President--
Information Systems since June 1993. From January 1987 to June 1993, she was
Executive Vice President and General Manager of Carey Limousine L.A., Inc. She
is a member of Executive Women International, the National Business Travel
Association, the Association of Corporate Travel Executives and the National
Limousine Association.
John C. Wintle has served as the Company's Senior Vice President--Europe
since May 1996 and as Executive Vice President and Managing Director of Carey
U.K. Ltd., a subsidiary of the Company, since March 1996. From 1982 to
February 1996, Mr. Wintle served Savoy Hotel PLC ("Savoy") and its affiliates,
including Camelot Barthropp Ltd. ("Camelot"), in various capacities. From
March 1993 to February 1996, Mr. Wintle was Executive Vice Chairman of
Camelot, which was acquired by Carey U.K. Ltd. in February 1996. Previously,
from 1989 to 1993, Mr. Wintle was General Manager, Restaurant Division, of
several entities affiliated with Savoy. From 1982 to 1989, Mr. Wintle had been
Group Financial Controller at Savoy.
Paul A. Sandt has served as a Vice President and Chief Accounting Officer of
the Company since October 1994. From May 1992 through September 1994, Mr.
Sandt was a staff member with the Securities and Exchange Commission, and from
December 1990 through May 1992, he was Director of Finance of The Kline
Automotive Group. From 1984 through 1990, he was employed by Coopers & Lybrand
L.L.P. Mr. Sandt is a Certified Public Accountant.
Devin J. Murphy has served as a Vice President of the Company since May
1996, and became Senior Vice President and Chief Development Officer in April
1997. Mr. Murphy received a Master's Degree in Business Administration from
Duke University in May 1996. For the six years prior to the commencement of
his MBA program in September 1994, Mr. Murphy held various sales and marketing
positions at companies within the information technology industry. These
companies include Bay Networks, Inc., where Mr. Murphy was Marketing Manager
from January 1993 to August 1994, Motorola Inc., where he was Manager, Major
Accounts from February 1991 to January 1993, and Hewlett-Packard Co. Inc.,
where he was Territory Manager from 1988 to 1991.
S. Terrell Mellen has served as Senior Vice President--Sales and Marketing of
the Company since September 1997. From September 1994 until September 1997 Ms.
Mellen was Executive Director of the Association of Corporate Travel
Executives (ACTE), a professional organization serving 1,800 members in
thirteen countries. From October 1988 until September 1994 Ms. Mellen was
Director of Marketing and Industry Relations for the Air Travel Card, a
corporate payment system issued by seven major US airlines. Prior to joining
Air Travel Card, Ms. Mellen held sales positions at Computer Associates
International and Piedmont Airlines. Ms. Mellen holds a Masters in Business
Administration degree from Georgetown University.
Robert W. Cox has served as a director of the Company since 1995. From 1969
until his retirement in 1994, Mr. Cox was a partner in the New York and
Chicago offices of the law firm Baker & McKenzie. From 1984 to 1992, Mr. Cox
was Chairman of the Executive Committee and Managing Partner of the firm, and
from 1993 to 1994, Mr. Cox was Chairman of the Policy Committee. Mr. Cox
currently is a director of Hon Industries, Inc.
William R. Hambrecht has served as a director of the Company since 1995. Mr.
Hambrecht is Chairman of Hambrecht & Quist LLC, an investment banking firm
which he co-founded in 1968. Mr. Hambrecht also serves as a director of Adobe
Systems, Inc.
David McL. Hillman has served as a director of the Company since 1994. Mr.
Hillman is Executive Vice President of PNC Capital Corp. and Executive Vice
President and Director of PNC Equity Management Corp., which he co-founded in
1982. Mr. Hillman is a director of several privately-held companies in
connection with PNC Capital Corp.'s investments in such companies.
32
<PAGE>
Nicholas J. St. George has served as a director of the Company since June
1997. Mr. St. George has been President and Chief Executive Officer of Oakwood
Homes Corporation ("Oakwood"), a manufacturer and retailer of manufactured
homes, since February 1979. Mr. St. George serves as a director of Oakwood, and
also is a director of American Bankers Insurance Group, Inc. and Legg Mason,
Inc.
BOARD OF DIRECTORS
The Company's Board of Directors is divided into three classes with staggered
three-year terms. The initial term of Messrs. Hambrecht and Hillman expire at
the Company's 1998 annual meeting, the initial terms of Messrs. Cox and St.
George expire at the Company's 1999 annual meeting, and the initial terms of
Messrs. Wolfington and Dailey expire at the Company's 2000 annual meeting.
Successors to the directors whose terms expire at each annual meeting are
elected for three-year terms. A director holds office until the annual meeting
for the year in which his term expires and until his successor is elected and
qualified.
Executive Committee. The members of the Executive Committee of the Company's
Board of Directors are Messrs. Wolfington, Cox and Dailey. The Executive
Committee exercises all the powers of the Board of Directors between meetings
of the Board of Directors, except such powers that are reserved to the Board of
Directors by applicable law.
Audit Committee. The members of the Audit Committee of the Company's Board of
Directors are Messrs. Hillman and St. George. The Audit Committee makes
recommendations concerning the engagement of independent public accountants,
reviews with the independent public accountants the plans for and results of
the audit, approves professional services provided by the independent public
accountants, reviews the independence of the independent public accountants,
considers the range of audit and non-audit fees and reviews the adequacy of the
Company's internal accounting controls.
Compensation Committee. The members of the Compensation Committee of the
Company's Board of Directors are Messrs. Cox and St. George. The Compensation
Committee establishes a general compensation policy for the Company and
approves increases in directors' fees and salaries paid to officers and senior
employees of the Company. The Compensation Committee administers the Company's
equity incentive plans and determines, subject to the provisions of the
Company's plans, the directors, officers and employees of the Company eligible
to participate in any of the plans, the extent of such participation and terms
and conditions under which benefits may be vested, received or exercised.
DIRECTOR COMPENSATION
Members of the Board of Directors who also serve as officers of the Company
do not receive compensation for serving on the Board. Each other member of the
Board receives an annual retainer of $15,000 for serving on the Board, plus a
fee of $1,000 for each Board of Directors' meeting attended. In addition, such
directors receive an additional fee of $500 for each committee meeting
attended, except that only one fee is paid in the event that more than one such
meeting is held on a single day. All directors receive reimbursement of
reasonable expenses incurred in attending Board and committee meetings and
otherwise carrying out their duties.
The Company maintains the Stock Plan for Non-Employee Directors (the
"Directors' Plan"). A maximum of 100,000 shares of Common Stock may be
delivered upon the exercise of options granted under the Directors' Plan and
elections to receive shares in lieu of cash compensation. Only directors of the
Company who are not employees of the Company or any of its subsidiaries (the
"Non-Employee Directors") are eligible to participate in the Directors' Plan.
While grants of stock options under the Directors' Plan are automatic and non-
discretionary, all questions of interpretation of the Directors' Plan are
determined by the Board of Directors.
On the date of each annual meeting of stockholders, each Non-Employee
Director continuing in office will be granted an option pursuant to the
Directors' Plan covering 2,500 shares. Any newly elected Non-Employee Director
will be granted an option pursuant to the Directors' Plan covering 5,000 shares
on the date of his or her election (whether such election occurs at an annual
meeting or otherwise). The option exercise price for all options granted under
the Directors' Plan is the closing price of a share of the Common Stock as
reported on the Nasdaq National Market on the date the option is granted. All
options granted under the Directors' Plan become fully exercisable six months
after the date of grant. Unless sooner terminated following the death,
disability or termination of service of a director, options granted under the
Directors' Plan will remain exercisable until the
33
<PAGE>
fifth anniversary of the date of grant. In addition, upon certain transactions
involving a change of control or the dissolution or liquidation of the
Company, all options held by Non-Employee Directors will terminate; provided,
however, that for a period of 20 days prior to the effective date of any such
transaction, dissolution or liquidation, all options outstanding under the
Directors' Plan that are not otherwise exercisable shall immediately vest and
become exercisable.
Under the Directors' Plan, a Non-Employee Director may elect to be paid all
or a portion of his or her annual retainer in shares of Common Stock. Any such
election must be made in writing at least 30 days prior to the date the annual
retainer would be paid by the Company. The number of shares to be delivered to
a Non-Employee Director upon such election is determined by dividing the
amount of the annual retainer to be received in shares of Common Stock by the
closing price of a share of Common Stock as reported on the Nasdaq National
Market on the date the annual retainer is to be paid.
The Board of Directors may at any time or times amend the Directors' Plan
for any purpose which at the time may be permitted by law.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table contains a summary of the compensation paid to the Chief
Executive Officer of the Company and the other executive officers whose salary
and bonus for the Company's fiscal year ended November 30, 1996 exceeded
$100,000.
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
-----------------------------------------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($) COMPENSATION($)(1)
- ------------------ --------- -------- --------------- ------------------
<S> <C> <C> <C> <C>
Vincent A. Wolfington.... $231,620 -- -- $57,000
Chairman and Chief
Executive Officer
Don R. Dailey............ 205,001 -- -- 57,000
President and Director
Guy C. Thomas............ 115,000 -- $13,020(2) 6,300
Executive Vice
President--Operations
</TABLE>
- --------
(1) Includes with respect to each of Messrs. Wolfington and Dailey $45,000
paid for providing certain personal guarantees on behalf of the Company
and $12,000 in life insurance premiums, and with respect to Mr. Thomas,
$6,300 in life insurance premiums.
(2) Includes a car allowance of $11,820.
34
<PAGE>
OPTIONS TO PURCHASE SHARES OF COMMON STOCK
Messrs. Wolfington, Dailey and Thomas hold options to purchase the following
shares of Common Stock, all of which options currently are exercisable at a
price of approximately $4.65 per share. The aggregate values of the options
are as set forth below, assuming a fair market value of $14.50 per share of
Common Stock, the closing price of the Common Stock on the Nasdaq National
Market on January 13, 1998. The named officers neither were granted nor
exercised options during the fiscal year ended November 30, 1996.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
NAME UNDERLYING OPTIONS VALUE
---- ------------------ ----------
<S> <C> <C>
Vincent A. Wolfington....................... 105,706 $1,041,204
Don R. Dailey............................... 105,706 $1,041,204
Guy C. Thomas............................... 32,018 $ 315,377
</TABLE>
EQUITY INCENTIVE PLANS
The Company currently maintains the 1987 Stock Option Plan (the "1987 Plan")
and the 1992 Stock Option Plan (the "1992 Plan"), both of which provide for
the award of incentive and non-statutory stock options by the Company. The
Company also maintains the 1997 Equity Incentive Plan (the "1997 Plan"), which
provides for the award of up to 650,000 shares of Common Stock in the form of
incentive stock options, non-statutory stock options, stock appreciation
rights, restricted stock, performance stock units and other stock units which
are valued by reference to the value of the Common Stock. The 1987 Plan, 1992
Plan and 1997 Plan are hereinafter referred to collectively as the "Equity
Plans."
As of January 13, 1998, options were outstanding to purchase an aggregate
of 914,336 shares of Common Stock under the Equity Plans, and an aggregate of
178,756 shares of Common Stock are authorized but have not yet been granted
under options pursuant to such plans (including 174,611 shares pursuant to the
1997 Plan).
Officers, key employees, non-employee directors of and consultants to the
Company are eligible to participate in the Equity Plans. The Equity Plans are
administered by the Compensation Committee of the Board of Directors. Among
other things, the Compensation Committee determines, subject to the provisions
of said plans, who shall receive awards, the types of awards to be made, and
the terms and conditions of each award. Options that are intended to qualify
as incentive stock options under the Equity Plans may be exercisable for not
more than 10 years after the date the option is awarded and may not be granted
at an exercise price less than the fair market value of the shares of Common
Stock at the time the option is granted (and, in the case of stock options
granted to holders of more than 10% of the Common Stock, may not be granted at
an exercise price less than 110% of the fair market value of the shares of
Common Stock at the time the options are granted). The Compensation Committee
may at any time, including in connection with a change in control of the
Company, accelerate the exercisability of all or any portion of any option
issued under the Equity Plans.
The Compensation Committee may amend, modify or terminate any outstanding
award under the Company's Equity Plans with the participant's consent, except
consent shall not be required if the Compensation Committee determines that
such action will not materially and adversely affect the participant. The
Board may amend, suspend or terminate any of the Equity Plans, or any part of
such plans, at any time, except that no amendment may be made without
stockholder approval if such approval is necessary to comply with any
applicable tax or regulatory requirement.
INDEMNIFICATION AND LIMITATION OF LIABILITIES OF OFFICERS AND DIRECTORS
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation provides for the elimination, subject to certain
conditions, of the personal liability of directors of the Company for monetary
damages for breach of their fiduciary duties. The directors, however, remain
subject to equitable remedies even if their liability for monetary damages is
eliminated. The Company's Certificate of Incorporation
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also provides that the Company shall indemnify its directors and officers. In
addition, the Company maintains an indemnification insurance policy covering
all directors and officers of the Company. In general, the Company's
Certificate of Incorporation and the indemnification insurance policy attempt
to provide the maximum protection permitted by Delaware law with respect to
indemnification of directors and officers.
Under the indemnification provisions of the Company's Certificate of
Incorporation and the indemnification insurance policy, the Company will pay
certain amounts incurred by a director or officer in connection with any civil
or criminal action or proceeding, and specifically including actions by or in
the name of the Company (derivative suits), where the individual's involvement
is by reason of the fact that he is or was a director or officer of the
Company. Such amounts include, to the maximum extent permitted by law,
attorney's fees, judgments, civil or criminal fines, settlement amounts, and
other expenses customarily incurred in connection with legal proceedings. A
director or officer will not receive indemnification if he is found not to
have acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Company.
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PRINCIPAL STOCKHOLDERS
The following table sets forth, as of January 13, 1998 certain information
with respect to the beneficial ownership of Common Stock for each beneficial
owner of more than 5% of the Company's Common Stock, each director of the
Company, each named executive officer of the Company and all directors and
executive officers as a group. Except as indicated in the footnotes below, the
persons named in this table have sole investment and voting power with respect
to the shares beneficially owned by them.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT
NAME OWNED OWNED
- ---- ------------ -------
<S> <C> <C>
Vincent A. Wolfington.................................... 417,788(1) 5.5%
Don R. Dailey............................................ 415,230(2) 5.4%
Guy C. Thomas............................................ 98,550(3) 1.3%
Robert W. Cox............................................ 20,400(4) 0.3%
William R. Hambrecht..................................... 952,560(5) 12.5%
David McL. Hillman....................................... 624,044(6) 8.2%
Nicholas J. St. George................................... 12,500 0.2%
Kaufman Fund, Inc........................................ 850,000 11.1%
H&Q London Ventures...................................... 444,093 5.8%
One Bush St.
San Francisco, CA
PNC Capital Corp. ....................................... 616,544 8.1%
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222
Yerac Associates, L.P. .................................. 516,018(7) 6.8%
45 Belden Place
San Francisco, CA 94104
All directors and executive officers as a group ......... 2,627,625(8) 34.4%
</TABLE>
- --------
* Less than 1%.
(1) Includes options to purchase 205,706 shares of Common Stock that currently
are exercisable. Also includes (1) 1,183 shares of Common Stock currently
held by a company controlled by Mr. Wolfington and (ii) 1,560 shares held
by a limited partnership which are attributable to Mr. Wolfington's wife
(980 shares) and minor child (780 shares). Excludes shares held by Yerac
Associates, L.P. ("Yerac"), a limited partnership of which Mr. Wolfington
is a limited partner, with respect to which shares Mr. Wolfington has no
voting or investment power. Mr. Wolfington's address is c/o Carey
International, Inc., 4530 Wisconsin Avenue, N.W., Washington, D.C. 20016.
(2) Includes options to purchase 205,706 shares of Common Stock that currently
are exercisable. Excludes shares held by Yerac Associates, L.P., a limited
partnership of which Mr. Dailey is a limited partner,with respect to which
shares Mr. Dailey has no voting or investment power. Mr. Dailey's address
is c/o Carey International, Inc., 4530 Wisconsin Avenue, N.W., Washington,
D.C. 20016.
(3) Includes options to purchase 35,768 shares of Common Stock that currently
are exercisable.
(4) Represents options to purchase shares of Common Stock that currently are
exercisable.
(5) Includes options to purchase 7,500 shares of Common Stock that currently
are exercisable and also includes the following number of shares of Common
Stock held by the following venture capital funds, as to which Mr.
Hambrecht disclaims beneficial ownership: H:Q Venture Partners (171,063)
Venture Associates (BVI) Limited (4,134 shares); H&Q London Ventures
(444,093 shares); H&Q Ventures IV (175,197 shares); Hamquist (10,727
shares); and Hambrecht & Quist California (31,227 shares). Also includes
(i) 85,816 shares of Common Stock with respect to which Mr. Hambrecht
shares record and beneficial ownership with Hamco Capital Corp. and (ii)
22,803 shares of Common Stock with respect to which Mr. Hambrecht shares
record and beneficial ownership with the Hambrecht 1980 Revocable Trust.
See "Certain Transactions." Mr. Hambrecht's address is c/o Hambrecht &
Quist California, One Bush Street, San Francisco, CA 94104.
(6) Includes options to purchase 7,500 shares of Common Stock that currently
are exercisable: also includes 616,544 shares held by PNC Capital Corp, of
which Mr. Hillman is Executive Vice President. Mr. Hillman disclaims
beneficial ownership of the shares held by PNC Capital Corp.
(7) Includes shares of Common Stock issuable upon exercise of a warrant to
purchase 86,003 shares of Common Stock at a price of approximately $4.65
per share. The warrant is exercisable at any time until September 1, 2001.
(8) See Notes 1, 2, 3, 4, 5 and 6. Also includes 85,153 shares of Common Stock
issuable upon exercise of the vested portions of options held by other
executive officers of the Company.
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<PAGE>
CERTAIN TRANSACTIONS
During 1993, for an aggregate purchase price of $850,000, the Company
acquired 85 shares of non-voting redeemable preferred stock of CLI Fleet, Inc.
("CLI Fleet") a privately-held finance company formed for the purpose of
financing the chauffeured vehicle service industry. As a holder of CLI Fleet
preferred stock, the Company is currently entitled to receive an annual
dividend of $500 per share. The Company waived the right to receive any
dividends accrued in respect of its preferred stock through April 30, 1996,
but during 1995 received referral fees totalling $100,000 from CLI Fleet. Also
during 1995, CLI Fleet redeemed 10 shares of preferred stock held by the
Company for an aggregate redemption price of $100,000. The remaining shares of
preferred stock are subject to mandatory redemption by redemption payments of
$100,000, $100,000 and $550,000 in May 1998, 1999 and 2000, respectively.
Under the terms of an agreement with CLI Fleet, commencing in April 1997, the
Company has an exclusive option to purchase all of the outstanding shares of
common stock of CLI Fleet at a purchase price equal to the greater of $187,500
or CLI Fleet's liquidating value as determined by an independent appraisal.
To date, CLI Fleet has provided financing to the Company's independent
operators, without recourse to the Company, for both initial fees due under
the Company's independent operator agreements and with respect to vehicles
purchased by independent operators. Each of the Company's owned and operated
chauffeured vehicle service companies has entered into a Finance & Service
Agreement with CLI Fleet, which provides that the Company will recommend and
refer independent operators to CLI Fleet for financing of vehicles. To date,
CLI Fleet also has purchased from the Company notes receivable due from
independent operators in exchange for cash or demand notes on a non-recourse
basis. The Company sold $378,733, $1,762,345 and $1,015,897 of independent
operator notes receivable to CLI Fleet for cash of $378,733, $1,290,899 and
$733,793 and demand promissory notes of $0, $471,446 and $282,104 in 1994,
1995 and 1996, respectively. These promissory notes are due on demand,
although monthly principal payments generally are received. These notes bear
interest at rates ranging from 5% to 7%. The Company generally no longer sells
notes receivables from independent operators to CLI Fleet, although CLI Fleet
continues to provide vehicle financing to the Company's independent operators.
In May 1996, the exercise price of a warrant issued to PNC was reduced from
$6.14 to $4.65 per share. In addition, in connection with the
Recapitalization, Carey repaid approximately $912,000 of the $3.8 million in
principal outstanding on its subordinated note held by PNC and applied the
balance of the outstanding principal to pay the purchase price for 616,544
shares of Common Stock issued to PNC upon exercise of the warrant held by it.
David McL. Hillman, a director of the Company, is Executive Vice President of
PNC.
In May 1996, the exercise price of a warrant to purchase 86,003 shares of
Common Stock owned by Yerac was reduced from $6.14 to $4.65 per share. In
addition, in connection with the Recapitalization, Yerac converted the entire
outstanding balance of a $2.0 million subordinated note held by it into
approximately 430,000 shares of Common Stock. From the net proceeds of the
IPO, the Company repaid approximately $1.1 million of additional outstanding
indebtedness to Yerac. Messrs. Wolfington and Dailey are limited partners of
Yerac. See "Principal Stockholders."
In connection with the Recapitalization, the Company redeemed 22,000 shares
of Series A Preferred Stock held by entities affiliated with Hambrecht & Quist
California (collectively "H&Q") for an aggregate of $1.1 million in cash plus
44,974 shares of Common Stock. Also in connection with the Recapitalization,
H&Q received 900,089 shares of Common Stock as a result of the conversion of
5,500 shares of Series B Preferred Stock and 31,864 shares of Series G
Preferred Stock. William R. Hambrecht, a director of the Company, is a
director and chairman of Hambrecht & Quist California and Hamco Capital
Corporation, and a general partner of Hambrecht & Quist Venture Partners
which, in turn, is the general partner of H&Q London Ventures, H&Q Ventures
International C.V., and H&Q Ventures IV. Mr. Hambrecht also is a trustee of
The Hambrecht 1980 Revocable Trust. See "Principal Stockholders."
Vincent A. Wolfington, the Company's Chairman and Chief Executive Officer,
and Don R. Dailey, the Company's President, each personally guaranteed certain
indebtedness of the Company in the original principal amount of $4.5 million.
The outstanding balance of this indebtedness totalled approximately $3.7
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<PAGE>
million as of February 28, 1997. The Company paid Messrs. Wolfington and
Dailey $45,000 each during 1996 as a fee for guaranteeing such indebtedness.
The Company used part of the net proceeds of the IPO to repay the entire
outstanding amount of such indebtedness, and following the repayment the
guarantees were terminated. In connection with the Recapitalization, Messrs.
Wolfington and Dailey received $20,250 and $13,650, respectively, and 7,569
shares and 5,123 shares of Common Stock, respectively, as a result of the
redemption of the shares of Series A Preferred Stock and the conversion of the
shares of Series G Preferred Stock beneficially owned by each of them.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, $.01 par value per share, and 1,000,000 shares of Preferred
Stock, $.01 par value per share ("Preferred Stock"). The following summary
description of the Common Stock and the Preferred Stock is qualified by
reference to the Company's Amended and Restated Certificate of Incorporation
included as an exhibit to the Registration Statement of which this Prospectus
is a part.
COMMON STOCK
As of January 13, 1998, there were 7,640,497 shares of Common Stock
outstanding, and outstanding options and warrants to purchase an aggregate of
1,208,289 shares of Common Stock. Including the foregoing shares underlying
outstanding options, a total of 87,293 shares of Common Stock are reserved for
issuance under the 1987 Plan, 385,480 shares are reserved for issuance under
the 1992 Plan, 650,000 shares of Common Stock are reserved for issuance under
the 1997 Plan and 100,000 shares of Common Stock are reserved for issuance
under the Directors' Plan. Holders of Common Stock are entitled to one vote
for each share held of record on all matters to be submitted to a vote of the
stockholders, and do not have cumulative voting rights. Subject to preferences
that may be applicable to any outstanding shares of Preferred Stock, holders
of Common Stock are entitled to receive ratably such dividends, if any, as may
be declared from time to time by the Board of Directors of the Company out of
funds legally available therefor. The Company's agreements with its principal
lenders prohibit dividend payments. See "Dividend Policy." All outstanding
shares of Common Stock are fully paid and nonassessable and the holders
thereof have no preferences or conversion, exchange or pre-emptive rights. In
the event of any liquidation, dissolution or winding-up of the affairs of the
Company, holders of Common Stock will be entitled to share ratably in the
assets of the Company remaining after payment or provision for payment of all
of the Company's debts and obligations and liquidation payments to holders of
outstanding shares of Preferred Stock, if any.
PREFERRED STOCK
Currently, there are no shares of Preferred Stock of the Company issued and
outstanding. Preferred Stock may be issued in one or more series without
further stockholder authorization, and the Board of Directors is authorized to
fix and determine the terms, limitations and relative rights and preferences
of the Preferred Stock, to establish series of Preferred Stock and to fix and
determine the variations as among series. Preferred Stock, if issued, would
have priority over the Common Stock with respect to dividends and to other
distributions, including the distribution of assets upon liquidation, and may
be subject to repurchase or redemption by the Company. The Board of Directors,
without approval of the holders of the Common Stock, can issue Preferred Stock
with voting and conversion rights (including multiple voting rights) which
could adversely affect the rights of holders of Common Stock. In addition to
having a preference with respect to dividends or liquidation proceeds,
Preferred Stock, if issued, may be entitled to the allocation of capital gains
from the sale of the Company's assets. Although the Company has no present
plans to issue any shares of Preferred Stock, the issuance of shares of
Preferred Stock, or the issuance of rights to purchase such shares, may have
the effect of delaying, deferring or preventing a change in control of the
Company or an unsolicited acquisition proposal.
CLASSIFIED BOARD OF DIRECTORS
The Restated Certificate of Incorporation and By-laws of the Company provide
for the Board of Directors to be divided into three classes of directors, as
nearly equal in number as is reasonably possible, serving staggered terms so
that directors' initial terms will expire either at the 1998, 1999 or 2000
annual meeting of stockholders. Starting with the 1998 annual meeting of
stockholders, one class of directors will be elected each year for a three-
year term. See "Management."
The Company believes that a classified Board of Directors will help to
assure the continuity and stability of the Board of Directors and the
Company's business strategies and policies as determined by the Board of
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<PAGE>
Directors, since a majority of the directors at any given time will have had
prior experience as directors of the Company. The Company believes that such
continuity and stability, in turn, will permit the Board of Directors to
represent more effectively the interests of its stockholders.
With a classified Board of Directors, at least two annual meetings of
stockholders, instead of one, generally will be required to effect a change in
the majority of the Board of Directors. As a result, a provision relating to a
classified Board of Directors may discourage proxy contests for the election
of directors or purchases of a substantial block of the Common Stock because
the provision could operate to prevent a rapid change in control of the Board
of Directors. The classification provision also could have the effect of
discouraging a third party from making a tender offer or otherwise attempting
to obtain control of the Company. Under the DGCL, unless a corporation's
certificate of incorporation otherwise provides, a director on a classified
board may be removed by the stockholders of the corporation only for cause.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER PROPOSALS AND STOCKHOLDER
NOMINATIONS OF DIRECTORS
The By-laws establish an advance notice procedure with regard to the
nomination by the stockholders of the Company of candidates for election as
directors (the "Nomination Procedure") and with regard to other matters to be
brought by stockholders before a meeting of stockholders of the Company (the
"Business Procedure").
The Nomination Procedure requires that a stockholder give written notice to
the Secretary of the Company, delivered to or mailed and received at the
principal executive offices of the Company not less than 60 days nor more than
90 days prior to the meeting, in proper form, of a planned nomination for the
Board of Directors. Detailed requirements as to the form and timing of that
notice are specified in the By-laws. If the Chairman determines that a person
was not nominated in accordance with the Nomination Procedure, such person
will not be eligible for election as a director.
Under the Business Procedure, a stockholder seeking to have any business
conducted at any meeting must give written notice to the Secretary of the
Company, delivered to or mailed and received at the principal executive
offices of the Company not less than 60 days nor more than 90 days prior to
the meeting, in proper form, subject to the requirements of the proxy
solicitation rules under the Securities Exchange Act of 1934. Detailed
requirements as to the form and timing of that notice are specified in the By-
laws. If the Chairman determines that the other business was not properly
brought before such meeting in accordance with the Business Procedure, such
business will not be conducted at such meeting.
Although the By-laws do not give the Board of Directors any power to approve
or disapprove of stockholder nominations for the election of directors or of
any other business desired by stockholders to be conducted at an annual or any
other meeting, the By-laws (i) may have the effect of precluding nominations
for the election of directors or precluding the conduct of business at a
particular annual meeting if the proper procedures are not followed or (ii)
may discourage or deter a third party from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to obtain
control of the Company, even if the conduct of such solicitation or such
attempt might be beneficial to the Company and its stockholders.
OTHER PROVISIONS
Special Meetings of the Stockholders of the Company. The Company's By-laws
provide that a special meeting of the stockholders of the Company only may be
called by the Chairman of the Board, or by order of the Board of Directors.
That provision prevents stockholders from calling a special meeting of
stockholders and potentially limits the stockholders' ability to offer
proposals to the annual meetings of stockholders, if no special meetings are
otherwise called by the Chairman or the Board.
Amendment of the By-laws. The Company's Restated Certificate of
Incorporation provides that the By-laws only may be amended by a vote of the
Board of Directors or by a vote of at least 75% of the outstanding shares of
the Company's stock entitled to vote in the election of directors.
41
<PAGE>
No Action by Written Consent. The Company's Restated Certificate of
Incorporation does not permit the Company's stockholders to act by written
consent. As a result, any action to be taken by the Company's stockholders
must be taken at a duly called meeting of the stockholders.
DELAWARE ANTI-TAKEOVER STATUTE
The Company is subject to Section 203 of the DGCL which, with certain
exceptions, prohibits a Delaware corporation from engaging in any of a broad
range of business combinations with any "interested stockholder" for a period
of three years following the date that such stockholder became an interested
stockholder, unless: (a) prior to such date, the Board of Directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (b) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (i) by persons who are directors and officers
and (ii) by employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer, or (c) on or after such date,
the business combination is approved by the Board of Directors and authorized
at an annual or special meeting of stockholders by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder. An "interested stockholder" is defined as any person
that is (y) the owner of 15% or more of the outstanding voting stock of the
corporation or (z) an affiliate or associate of the Company and was the owner
of 15% or more of the outstanding voting stock of the Company at any time
within the three-year period immediately prior to the date on which it is
sought to be determined whether such person is an interested stockholder.
SHARES ELIGIBLE FOR FUTURE SALE
As of January 13, 1998, the Company had 7,640,497 shares of Common Stock
outstanding. Of these shares, 4,376,155 shares are freely tradeable without
restriction under the Securities Act, except for any such shares which may be
beneficially owned by an "affiliate" of the Company (as that term is defined
in Rule 144). The remaining 3,264,342 shares represent (i) shares issued
pursuant to this Prospectus to affiliates of companies acquired by the
Company; or (ii) shares issued prior to the completion of the Company's IPO or
in connection with the acquisition of Manhattan Limousine which are deemed to
be "restricted securities" under Rule 144. Unless the resale is registered
under the Securities Act, such restricted shares may be sold in the open
market only in compliance with the applicable requirements of Rule 144. Except
for shares held by affiliates of the Company and the 228,571 shares issued in
connection with the acquisition of Manhattan Limousine, all of such restricted
shares are currently eligible for resale under Rule 144(k) described below.
Also as of January 13, 1998, if issued upon the exercise of outstanding
warrants, 263,953 shares of Common Stock also will constitute restricted
securities within the meaning of Rule 144 and will be eligible for sale in the
open market subject to the applicable requirements of Rule 144 discussed
below.
As of January 13, 1998 there were 944,336 shares of Common Stock issuable
upon the exercise of outstanding options under the Company's Equity Plans and
Directors' Plan and an additional 248,756 shares of Common Stock reserved for
future award or grant under such plans. The Company has filed a registration
statement on Form S-8 to register the issuance of shares under the Equity
Plans and Directors' Plan. Common Stock issued pursuant to such registration
statement upon exercise of outstanding vested options granted pursuant to the
Equity Plans and Directors' Plan, other than Common Stock issued to affiliates
of the Company, is available for immediate resale in the open market.
In general, under Rule 144, if a period of at least one year has elapsed
between the later of the date on which restricted securities were acquired
from the Company and the date on which they were acquired from an affiliate,
then the holder of such restricted securities (including an affiliate) is
entitled to sell that number of shares within any three-month period that does
not exceed the greater of (i) one percent of the then outstanding shares of
the Common Stock or (ii) the average weekly reported volume of trading of the
Common Stock during the four calendar weeks preceding such sales. Sales under
Rule 144 also are subject to certain requirements pertaining to the manner of
such sales, notices of such sales and the availability of current public
information
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<PAGE>
concerning the Company. Any shares not constituting restricted securities sold
by affiliates must be sold in accordance with the foregoing volume limitations
and other requirements but without regard to the one year holding period.
Under Rule 144(k), if a period of at least two years has elapsed from the
later of the date on which restricted securities were acquired from the
Company and the date on which they were acquired from the affiliate, a holder
of such restricted securities who is not an affiliate at the time of the sale
and has not been an affiliate for at least three months prior to the sale
would be entitled to sell the shares immediately without regard to the volume
limitations and other conditions described above.
The Company and the beneficial owners of approximately 4,000,000 shares of
Common Stock (including all of the Company's officers and directors and those
individuals who were issued Common Stock in the Manhattan Limousine
acquisition) have agreed that they will not offer, sell, contract to sell,
pledge, grant any option for the sale of, or otherwise dispose or cause the
disposition of any shares of Common Stock or securities convertible into or
exchangeable or exercisable for such shares prior to November 30, 1997,
without the prior written consent of Montgomery Securities, except for (i) in
the case of the Company, Common Stock issued pursuant to any employee or
director benefit plan described herein or in connection with acquisitions or
(ii) in the case of directors and executive officers, the exercise of stock
options pursuant to benefit plans described herein and shares of Common Stock
disposed of as bona fide gifts, subject in each case to the application of the
November 30, 1997 "lock-up" deadline to shares so issued or transferred. In
evaluating any request for a waiver of the lock-up period, Montgomery
Securities will consider, in accordance with their customary practice, all
relevant facts and circumstances at the time of the request, including,
without limitation, the recent trading market for the Common Stock, the size
of the request and, with respect to a request by the Company to issue
additional equity securities, the purpose of such an issuance. The holder of
228,571 shares of Common Stock issued in connection with the acquisition of
Manhattan Limousine will be entitled to certain demand and piggy-back
registration rights beginning June 2, 1998.
Sales of substantial amounts of Common Stock by existing stockholders could
have an adverse impact on the prevailing market price of the Common Stock. No
predictions can be made as to the effect, if any, that market sales of shares
by existing stockholders or the availability of such shares for future sale
will have on the market price of shares of Common Stock prevailing from time
to time.
PLAN OF DISTRIBUTION
This Prospectus relates to 1,500,000 shares of Common Stock that may be
offered and issued by the Company from time to time in connection with
acquisition of other businesses or properties by the Company.
Carey intends to concentrate its acquisitions within the chauffeured vehicle
service industry. If the opportunity arises, however, Carey may attempt to
make acquisitions that are either complementary to its present operations or
advantageous even though they may be dissimilar to its present activities. The
consideration for any such acquisition may consist of shares of Common Stock,
cash, notes or other evidences of debt, assumptions of liabilities or a
combination thereof, as determined from time to time by negotiations between
Carey and the owners or controlling persons of businesses or properties to be
acquired.
The shares covered by this Prospectus may be issued in exchange for shares
of capital stock, partnership interests or other assets representing an
interest, direct or indirect, in other companies or other entities, in
exchange for assets used in or related to the business of such companies or
entities, or otherwise pursuant to the agreements providing for such
acquisitions. The terms of such acquisitions and of the issuance of shares of
Common Stock under acquisition agreements will generally be determined by
direct negotiations with the owners or controlling persons of the business or
properties to be acquired or, in the case of entities that are more widely
held, through exchange offers to stockholders or documents soliciting the
approval of statutory mergers, consolidations or sales of assets. It is
anticipated that the shares of Common Stock issued in any such acquisition
will be valued at a price reasonably related to the market value of the Common
Stock either at the time of agreement on the terms of an acquisition or at or
about the time of delivery of the shares.
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<PAGE>
It is not expected that underwriting discounts or commissions will be paid
by the Company in connection with issuances of shares of Common Stock under
this Prospectus. However, finders' fees or brokers' commissions may be paid
from time to time in connection with specific acquisitions, and such fees may
be paid through the issuance of shares of Common Stock covered by this
Prospectus. Any person receiving such a fee may be deemed to an underwriter
within the meaning of the Securities Act.
Affiliates of companies acquired by Carey who receive Common Stock under
this Prospectus are subject for one year to the restrictions of Rule 145 under
the Securities Act, including the volume of sale limitations and manner of
sale requirements thereof. The requirements of Rule 145 may limit the ability
of such affiliates to resell Common Stock they may receive under this
Prospectus.
LEGAL MATTERS
The validity of the shares offered will be passed upon for the Company by
Nutter, McClennen & Fish, LLP, Boston, Massachusetts.
EXPERTS
The historical consolidated and supplemental financial statements of the
Company as of November 30, 1995 and 1996 and for each of the three years in
the period ended November 30, 1996 included in this Prospectus have been
included herein in reliance on the reports, which include an explanatory
paragraph relating to the restatement of such financial statements, of Coopers
& Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing.
The consolidated financial statements of Indy Connection Limousines, Inc. as
of September 30, 1997 and for the year ended September 30, 1997, included in
the Prospectus have been included herein in reliance on the report of Coopers
& Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing.
The combined financial statements of Manhattan Limousine as of September 30,
1996 and for the year ended September 30, 1996 included in this Prospectus
have been included herein in reliance on the report, which includes an
explanatory paragraph relating to the restatement of such financial
statements, of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The financial statements of Speed 6060 Limited (formerly Camelot Barthropp
Limited) as of and for the years ended December 31, 1994 and December 31,
1995, included in this Prospectus have been included herein in reliance on the
report of Coopers & Lybrand, Chartered Accountants and Registered Auditors,
given on the authority of that firm as experts in accounting and auditing.
The financial statements of Camelot Barthropp Limited (formerly Speed 6060
Limited) as of December 31, 1995 and for the period from August 4, 1995 to
December 31, 1995, included in this Prospectus have been included herein in
reliance on the report of Coopers & Lybrand, Chartered Accountants and
Registered Auditors, given on the authority of that firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act and the rules and regulations promulgated
thereunder, with respect to the Common Stock offered hereby. This Prospectus
omits certain information contained in the Registration Statement, and
reference is made to the Registration Statement and the exhibits and schedules
thereto for further information with respect to the Company and the Common
Stock
44
<PAGE>
offered hereby. Statements contained in this Prospectus concerning the
provisions or contents of any contract, agreement or any other document
referred to herein are not necessarily complete with respect to each such
contract, agreement or document filed as an exhibit to the Registration
Statement, reference is made to such exhibit for a more complete description
of the matters involved, and each such statement shall be deemed qualified by
such reference. The Registration Statement, including the exhibits and
schedules thereto, may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1204, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York
10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of the Registration Statement or any part thereof may be obtained from
such office, upon payment of the fees prescribed by the Commission. The
Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that submit electronic filings to the Commission.
The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files periodic reports and other
information with the Commission. For further information with respect to the
Company, reference hereby is made to such reports and other information which
can be inspected and copied at the public reference facilities maintained by
the Commission referenced above.
The Company's Common Stock is quoted on The Nasdaq National Market under the
trading symbol "CARY." Reports, proxy statements and other information about
the Company also may be inspected at the offices of The Nasdaq Stock Market,
Inc., 1735 K Street, N.W., Washington, DC 20006.
45
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CAREY INTERNATIONAL, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Consolidated Balance Sheet as of August 31, 1997............... F-4
Pro Forma Statement of Operations for nine months ended August 31, 1997.. F-5
Pro Forma Statement of Operations for the year ended November 30, 1996... F-6
Notes to Pro Forma Consolidated Financial Statements..................... F-7
HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Consolidated Financial Statements
Balance Sheet as of August 31, 1997...................................... F-8
Statements of Operations for nine months ended August 31, 1996 and 1997.. F-9
Statements of Cash Flows for nine months ended August 31, 1996 and 1997.. F-10
Notes to Consolidated Financial Statements............................... F-11
Audited Consolidated Financial Statements
Report of Independent Accountants........................................ F-15
Balance Sheets as of November 30, 1995 and 1996.......................... F-16
Statements of Operations for the years ended November 30, 1994, 1995 and
1996.................................................................... F-17
Statements of Changes in Stockholders' Equity for the years ended
November 30, 1994, 1995
and 1996................................................................ F-18
Statements of Cash Flows for the years ended November 30, 1994, 1995 and
1996.................................................................... F-19
Notes to Consolidated Financial Statements............................... F-20
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Supplemental Consolidated Financial Statements
Supplemental Balance Sheet as of August 31, 1997......................... F-37
Supplemental Statements of Operations for nine months ended August 31,
1997 and 1996........................................................... F-38
Supplemental Statements of Cash Flow for nine months ended August 31,
1997 and 1996........................................................... F-39
Notes to the Supplemental Consolidated Financial Statements.............. F-40
Audited Supplemental Consolidated Financial Statements
Report of Independent Accountants........................................ F-44
Supplemental Balance Sheet as of November 30, 1995 and 1996.............. F-45
Supplemental Statements of Operations for years ended November 30, 1994,
1995 and 1996........................................................... F-46
Supplemental Statement of Stockholders' Equity for the years ended
November 30, 1994, 1995 and 1996........................................ F-47
Supplemental Statements of Cash Flows for the years ended November 30,
1994, 1995 and 1996..................................................... F-49
Notes to the Supplemental Consolidated Financial Statements.............. F-50
INDY CONNECTION LIMOUSINES, INC. AND SUBSIDIARY
Audited Consolidated Financial Statements
Report of Independent Accountants........................................ F-68
Balance Sheet as of September 30, 1997................................... F-69
Statement of Operations for the year ended September 30, 1997............ F-70
Statement of Stockholders' Equity for the year ended September 30, 1997.. F-71
Statement of Cash Flows for the year ended September 30, 1997............ F-72
Notes to the Consolidated Financial Statements........................... F-73
MANHATTAN INTERNATIONAL LIMOUSINE NETWORK, LTD. AND AFFILIATE
Combined Financial Statements
Report of the Independent Accountants.................................... F-77
Balance Sheets as of September 30, 1996 and April 30, 1997 (unaudited)... F-78
Statements of Operations for the year ended September 30, 1996 and the
seven months ended
April 30, 1997 (unaudited).............................................. F-79
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Statements of Cash Flows for the year ended September 30, 1996 and the
seven months ended
April 30, 1997 (unaudited).............................................. F-80
Notes to Combined Financial Statements................................... F-81
CAMELOT BARTHROPP LIMITED
Audited Financial Statements
Report of the Independent Accountants.................................... F-87
Statement of Operations for the period from August 4, 1995 to December
31, 1995................................................................ F-88
Balance Sheet at December 31, 1995....................................... F-89
Notes to the Financial Statements........................................ F-90
SPEED 6060 LIMITED
Audited Financial Statements
Report of the Independent Accountants.................................... F-99
Statements of Operations for the years ended December 31, 1994 and 1995.. F-100
Balance Sheets at December 31, 1994 and 1995............................. F-101
Notes to the Financial Statements........................................ F-102
</TABLE>
F-2
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The Pro Forma Consolidated Balance Sheet as of August 31, 1997 and the Pro
Forma Consolidated Statement of Operations for the year ended November 30,
1996 and for the nine months ended August 31, 1997 are based on the historical
consolidated financial statements of Carey International, Inc. and
subsidiaries (the "Company"), Indy Connection Limousines, Inc. and Subsidiary
(Indy Connection), Manhattan International Limousine Network Ltd. and
Affiliate ("Manhattan Limousine") and Camelot Barthropp Limited. The Pro Forma
Consolidated Balance Sheet has been prepared to give retroactive affect to a
business combination with Indy Connection accounted for by the pooling-of-
interests method consummated October 31, 1997.
The Pro Forma Consolidated Statements of Operations for the year ended
November 30, 1996 and for the nine months ended August 31, 1997 have been
prepared assuming the acquisitions of Camelott Barthropp Limited and Manhattan
Limousine occurred on December 1, 1995. For purposes of the Pro Forma
Consolidated Statements of Operations for the year ended November 30, 1996 and
the nine months ended August 31, 1997, Manhattan Limousine's Statement of
Operations for the year ended September 30, 1996 has been combined with the
Consolidated Statement of Operations of the Company for the year ended
November 30, 1996 and Manhattan Limousine's Statement of Operations for the
six months ended March 31, 1997 has been combined with the Consolidated
Statement of Operations of the Company for the nine months ended August 31,
1997. The Pro Forma Consolidated Statements of Operations also reflect the
issuance of shares of Common Stock (net of underwriting discounts) required
to: (i) repay certain existing debt of the Company, (ii) pay the cash and note
portions of the purchase price for Manhattan Limousine, (iii) repay certain
debt assumed in connection with the acquisition of Manhattan Limousine, and
(iv) redeem certain preferred stock of the Company. The Pro Forma Consolidated
Statement of Operations also reflects the issuance of an aggregate of
3,335,000 shares of Common Stock in connection with (i) the acquisition of
Manhattan Limousine, (ii) the issuance of shares of Common Stock as part of
the Recapitalization and (iii) the conversion of certain debt into Common
Stock upon the closing of the initial public offering. All of the
aforementioned shares are assumed to have been issued, the debt repaid or
converted and the preferred stock redeemed at the beginning of the period
presented, and thus interest expense attributable to such debt has been
eliminated.
The Pro Forma Consolidated Financial Statements do not purport to represent
what the Company's actual results of operations or financial position would
have been had the acquisitions occurred as of such dates, or to project the
Company's results of operations or financial position for any period or date,
nor does it give effect to any matters other than those described in the notes
thereto. In addition, the allocation of purchase price to the assets and
liabilities of Manhattan Limousine is preliminary and the final allocation may
differ from the amounts reflected herein. The Pro Forma Consolidated Financial
Statements should be read in conjunction with the other financial statements
and notes thereto included elsewhere in this Prospectus.
F-3
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AUGUST 31, 1997
------------------------------------------------
INDY
COMPANY CONNECTION ELIMINATIONS TOTAL
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.... $ 5,277,921 $ 325,102 $ $ 5,603,023
Accounts receivable, net..... 9,210,589 426,323 9,636,912
Notes receivable from
contracts, current portion.. 663,807 663,807
Prepaid expenses and other
current assets.............. 1,316,417 152,797 1,469,214
----------- ---------- ---------- -----------
Total current assets..... 16,468,734 904,222 17,372,956
Fixed assets, net............ 4,589,016 2,835,119 7,424,135
Notes receivable from
contracts, excluding
current portion............. 8,326,216 8,326,216
Franchise rights, net........ 5,171,327 5,171,327
Trade name, trademark and
contract rights, net........ 6,541,553 6,541,553
Goodwill and other intangible
assets, net................. 27,929,464 22,342 27,951,806
Deferred tax assets.......... 2,968,058 2,968,058
Deposits and other assets.... 2,049,915 32,109 2,082,024
----------- ---------- ---------- -----------
Total assets........... $74,044,283 $3,793,792 $ -- $77,838,075
=========== ========== ========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current portion of notes
payable..................... $ 303,400 $ 810,270 $ $ 1,113,670
Current portion of capital
leases...................... 226,069 226,069
Accounts payable and accrued
expenses.................... 12,768,218 650,240 13,418,458
----------- ---------- ---------- -----------
Total current
liabilities............. 13,297,687 1,460,510 14,758,197
Notes payable, excluding
current portion............. 842,825 626,477 1,469,302
Capital leases, excluding
current portion............. 955,336 955,336
Deferred rent and other long-
term liabilities............ 53,116 53,116
Deferred tax liabilities..... 1,493,071 101,000 1,594,071
Deferred revenue............. 13,721,483 13,721,483
Stockholders' equity:
Common stock............... 68,427 491,725 (484,507) 75,645
Additional paid-in
capital................... 43,743,996 484,507 44,228,503
Retained earnings
(accumulated deficit)..... (131,658) 1,114,080 982,422
----------- ---------- ---------- -----------
Total stockholders'
equity.................. 43,680,765 1,605,805 -- 45,286,570
----------- ---------- ---------- -----------
Total liabilities and
stockholders' equity.. $74,044,283 $3,793,792 $ -- $77,838,075
=========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
F-4
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED AUGUST 31, 1997
-----------------------------------------------------------------------------------------------
ACTUAL
-----------------------------------
INDY MANHATTAN ACQUISITION RECAPITALIZATION OTHER
COMPANY CONNECTION LIMOUSINE ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA
----------- ---------- ---------- ----------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue, net............ $52,050,523 $5,230,482 $9,885,506 $ -- $ -- $(63,641) $67,102,870
Cost of revenue......... 35,597,997 2,488,182 6,126,205 -- -- (63,641) 44,148,743
----------- ---------- ---------- --------- -------- -------- -----------
Gross profit.......... 16,452,526 2,742,300 3,759,301 -- -- -- 22,954,127
Selling, general and
administrative
expense................ 12,902,857 1,368,687 3,010,144 (46,865)(1) -- 75,000 (6) 17,699,656
389,833 (2)
----------- ---------- ---------- --------- -------- -------- -----------
Operating income...... 3,549,669 1,373,613 749,157 (342,968) -- (75,000) 5,254,471
Other income (expense)
Interest expense...... (904,896) (109,246) (457,017) (37,310)(3) 250,000(5) 939,267 (6) (319,202)
Interest and other
income............... 329,837 11,619 16,500 (16,500)(4) -- -- 341,456
----------- ---------- ---------- --------- -------- -------- -----------
Income before provision
for income taxes....... 2,974,610 $1,275,986 $ 308,640 $(396,778) $250,000 $864,267 5,276,725
========== ========== ========= ======== ========
Provision for income
taxes.................. 1,227,183 2,268,992 (7)
----------- -----------
Net income ............. $ 1,747,427 $ 3,007,733
=========== ===========
Pro forma net income per
common share........... $ 0.38 (8)
===========
Weighted average shares
outstanding............ 7,941,065 (8)
===========
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
F-5
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED NOVEMBER 30, 1996
------------------------------------------------------------------------------------------------------------
ACTUAL
-----------------------------------------------
CAMELOT
INDY BARTHROPP MANHATTAN ACQUISITION RECAPITALIZATION OTHER
COMPANY CONNECTION LIMITED LIMOUSINE ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA
----------- ---------- --------- ----------- ----------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue, net...... $59,505,698 $6,080,105 $ 938,656 $18,438,547 $ -- $ -- $ (40,861) $84,922,145
Cost of revenue... 40,438,449 3,251,590 865,336 11,040,017 -- -- (40,861) 55,554,531
----------- ---------- --------- ----------- -------- -------- ---------- -----------
Gross profit.... 19,067,249 2,828,515 73,320 7,398,530 -- -- -- 29,367,614
Selling, general
and
administrative
expense.......... 15,077,553 1,649,057 211,097 5,821,899 (874,475)(1) -- 150,000 (6) 22,814,798
779,667 (2)
----------- ---------- --------- ----------- -------- -------- ---------- -----------
Operating income
(loss)......... 3,989,696 1,179,458 (137,777) 1,576,631 94,808 -- (150,000) 6,552,816
Other income
(expense)
Interest
expense........ (1,704,187) (194,044) (21,375) (881,854) (76,608)(3) 500,000(5) 1,890,151 (6) (487,917)
Interest and
other income... 426,349 92,116 -- 66,000 (66,000)(4) -- -- 518,465
----------- ---------- --------- ----------- -------- -------- ---------- -----------
Income (loss)
before provision
(benefit) for
income taxes..... 2,711,858 $1,077,530 $(159,152) $ 760,777 $(47,800) $500,000 $1,740,151 6,583,364
========== ========= =========== ======== ======== ==========
Provision
(benefit) for
income taxes..... (104,246) 2,784,763 (7)
----------- -----------
Net income ....... $ 2,816,104 $ 3,798,601
=========== ===========
Pro forma net
income per common
share............ $ 0.52 (8)
===========
Weighted average
shares
outstanding...... 7,349,067 (8)
===========
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
F-6
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
To date, all of the Company's acquisitions have been accounted for under the
purchase method of accounting with the results of the acquired companies
included in the Company's statements of operations beginning on the date of
the acquisition, except for Indy Connection which has been accounted for under
the pooling-of-interests method.
(1) Gives effect to the elimination from the Combined Statement of Operations
of Manhattan Limousine of: (i) a one-time charge related to advances to a
non-combined affiliate of Manhattan Limousine which were approximately
$7,000 and $218,000 for the nine months ended August 31, 1997 and the year
ended November 30, 1996, respectively, (ii) redundant administrative and
other costs immediately identifiable at the time of the acquisition
(relating to salary and benefits of a stockholder of Manhattan Limousine
and members of his family which will not be incurred by the Company) of
approximately $40,000 and $591,000 for the nine months ended August 31,
1997 and the year ended November 30, 1996, respectively, and
(iii) approximately $65,000 for the year ended November 30, 1996 of
financing fees associated with debt retained by a stockholder of Manhattan
Limousine.
(2) Gives effect to (i) the amortization of approximately $340,000 and
$680,000 for the nine months ended August 31, 1997 and the year ended
November 30, 1996, respectively, of goodwill recognized with respect to
the acquisition of Manhattan Limousine, and (ii) $50,000 and $100,000 for
the nine months ended August 31, 1997 and the year ended November 30,
1996, respectively, of consulting fees to be paid pursuant to a consulting
agreement entered into in connection with the acquisition of Manhattan
Limousine. Goodwill will be amortized over a 30-year period.
(3) Gives effect to an increase in interest associated with the promissory
notes in the aggregate amount of $4.8 million used to acquire Manhattan
Limousine and the increase of $520,000 in Manhattan Limousine's mortgage
note in January 1997, both of which were repaid out of the proceeds of the
IPO. Also gives effect to a decrease in interest expense associated with
the debt retained by a stockholder of Manhattan Limousine.
(4) Gives effect to the elimination of interest income related to a note
receivable retained by a stockholder of Manhattan Limousine.
(5) Reflects the elimination of approximately $250,000 and $500,000 for the
nine months ended August 31, 1997 and the year ended November 30, 1996,
respectively, of interest on certain debt converted into Common Stock.
(6) Reflects directors' and officers' insurance costs the Company anticipates
to incur in connection with being a public registrant and the elimination
of approximately $939,000 and $1.5 million for the nine months ended
August 31, 1997 and the year ended November 30, 1996, respectively, of
interest on certain current and long-term debt repaid from the proceeds of
the IPO or converted into Common Stock.
(7) Reflects the estimated provision for income taxes at an assumed rate of
43.0% and 42.3% for the nine months ended August 31, 1997 and the year
ended November 30, 1996, respectively, after giving consideration to
nondeductible goodwill expense.
(8) Pro forma net income per share was computed by dividing the pro forma net
income for the nine months ended August 31, 1997 and the year ended
November 30, 1996 by the pro forma weighted average number of shares
outstanding for each of the periods. Pro forma weighted average shares
outstanding include common shares and common share equivalents. Pursuant
to Securities and Exchange Commission Staff Accounting Bulletin (SAB) No.
83, the common equivalent shares issued by the Company during the 12
months preceding the effective date of the Registration Statement relating
to the Company's IPO, using the treasury stock method and the public
offering price of $10.50 per share, have been included in the calculation
of pro forma net income per share. All share numbers give effect to the
reverse stock split of one-for-2.3255 that was part of the
Recapitalization.
(9) The Pro Forma Consolidated Statement of Operations for the nine months
ended August 31, 1997 weighted average shares includes approximately
489,000 shares of common stock issued for cash or the beginning of June
1997 for approximately $4,775,000. Had the Company invested the funds
received from the issuance of common stock in investments yielding a 6.0%
return, the Company would have recognized an additional $143,000 of pre-
tax income. The Company has not included any such adjustment within the
Pro Forma Statements of Operations.
F-7
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AUGUST 31,
1997
-----------
(UNAUDITED)
<S> <C>
ASSETS
Cash and cash equivalents.......................................... $ 5,277,921
Accounts receivable, net........................................... 9,210,589
Notes receivable from contracts, current portion................... 663,807
Prepaid expenses and other current assets.......................... 1,316,417
-----------
Total current assets........................................... 16,468,734
Fixed assets, net.................................................. 4,589,016
Notes receivable from contracts, excluding current portion......... 8,326,216
Franchise rights, net.............................................. 5,171,327
Trade name, trademark and contract rights, net..................... 6,541,553
Goodwill and other intangible assets, net.......................... 27,929,464
Deferred tax assets................................................ 2,968,058
Deposits and other assets.......................................... 2,049,915
-----------
Total assets................................................. $74,044,283
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of notes payable................................... $ 303,400
Current portion of capital leases.................................. 226,069
Accounts payable and accrued expenses.............................. 12,768,218
-----------
Total current liabilities...................................... 13,297,687
Notes payable, excluding current portion........................... 842,825
Capital leases, excluding current portion.......................... 955,336
Deferred rent and other long-term liabilities...................... 53,116
Deferred tax liabilities........................................... 1,493,071
Deferred revenue................................................... 13,721,483
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value;
20,000,000 authorized shares, and
6,842,729 issued and outstanding shares......................... 68,427
Additional paid-in capital....................................... 43,743,996
Accumulated deficit.............................................. (131,658)
-----------
Total stockholders' equity..................................... 43,680,765
-----------
Total liabilities and stockholders' equity................... $74,044,283
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
AUGUST 31,
------------------------
1996 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenue, net........................................ $41,176,235 $52,050,523
Cost of revenue..................................... 27,950,106 35,597,997
----------- -----------
Gross profit.................................... 13,226,129 16,452,526
Selling, general and administrative expense......... 10,909,283 12,902,857
----------- -----------
Operating income................................ 2,316,846 3,549,669
Other income (expense):
Interest expense................................ (1,299,988) (904,896)
Interest income................................. 104,689 161,985
Gain on sales of fixed assets................... 229,229 167,852
----------- -----------
Income before provision for income taxes............ 1,350,776 2,974,610
Provision for income taxes.......................... 420,106 1,227,183
----------- -----------
Net income.......................................... $ 930,670 $ 1,747,427
=========== ===========
Pro forma earnings per common share................. $ 0.39
===========
Pro forma weighted average common and common
equivalent shares outstanding...................... 4,866,621
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
AUGUST 31,
-----------------------
1996 1997
---------- -----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 930,670 $ 1,747,427
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization of fixed assets..... 792,175 888,564
Amortization of intangible assets................. 780,244 898,958
Gain on sales of fixed assets..................... (229,229) (167,852)
Provision for deferred taxes...................... -- (416,025)
Change in deferred revenue........................ 772,581 860,543
Changes in operating assets and liabilities:
Accounts receivable............................. 1,267,037 1,036,257
Notes receivable from contracts................. (830,085) (1,170,305)
Prepaid expenses, deposits and other assets..... (637,512) (427,131)
Accounts payable and accrued expenses........... (167,075) (1,957,290)
Deferred rent and other long-term liabilities... (92,585) (58,165)
---------- -----------
Net cash provided by operating activities..... 2,586,221 1,234,981
---------- -----------
Cash flows from investing activities:
Proceeds from sales of fixed assets................. 728,637 382,394
Purchases of fixed assets........................... (868,386) (1,144,140)
Acquisitions of chauffeured vehicle service compa-
nies............................................... (1,248,585) (7,394,060)
---------- -----------
Net cash used in investing activities......... (1,388,334) (8,155,806)
---------- -----------
Cash flows from financing activities:
Proceeds of sales of notes receivable from indepen-
dent operators..................................... 404,307 --
Principal payments under capital lease obligations.. (152,925) (185,574)
Payments of notes payable........................... (2,916,914) (17,701,094)
Proceeds from notes payable......................... 2,320,541 450,000
Issuance of common stock............................ -- 30,897,090
Payments under Recapitalization Plan................ -- (4,015,952)
Redemption of Series E preferred stock.............. (97,500) --
---------- -----------
Net cash provided by (used in) financing ac-
tivities..................................... (442,491) 9,444,470
---------- -----------
Net increase in cash and cash equivalents............. 755,396 2,523,645
Cash and cash equivalents at beginning of period...... 1,438,659 2,754,276
---------- -----------
Cash and cash equivalents at end of period............ $2,194,055 $ 5,277,921
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM 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 NY, Inc. and Manhattan International Limousine
Network, Ltd.), San Francisco (Carey Limousine S.F., Inc.), Los Angeles (Carey
Limousine L.A., Inc.), Washington, D.C. (Carey Limousine D.C., Inc.), South
Florida (Carey Limousine Florida, Inc.), Philadelphia (Carey Limousine
Corporation) and London, England (Carey UK Limited). In addition, the Company
licenses the "Carey" name, and provides central reservations, billing, and
sales and marketing services to its licensees. The Company's worldwide network
includes affiliates in locations in which the Company has neither owned and
operated locations nor licensees. The Company provides central reservations
and billing services to such affiliates.
Acquisitions
The Company is engaged in a program of acquiring chauffeured vehicle service
businesses. Such acquisitions include unrelated chauffeured vehicle service
businesses, some of which may be in cities in which the Company has owned and
operated service providers, licensees operating under the Carey name and
trademark and affiliates of the Company. In the first quarter of 1996, the
Company acquired a chauffeured vehicle service company operating in London,
England. As more fully discussed in Note 3, on June 2, 1997 the Company
acquired Manhattan International Limousine Network Ltd. and an affiliated
company ("Manhattan Limousine").
Initial public offering and reverse stock split
In connection with the Company's initial public offering ("IPO") completed
June 2, 1997, the Company's Board of Directors authorized a one for 2.3255
reverse stock split of the outstanding shares of the Company's common stock.
All references to common stock, options, warrants and per share data have been
restated to give effect to the reverse stock split. On February 25, 1997, the
Board of Directors also authorized a Recapitalization Plan (the
"Recapitalization"), which is more fully described in Note 7.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements and these notes do not
include all of the disclosures included in the Company's audited, consolidated
financial statements for the years ended November 30, 1994, 1995, and 1996,
which should be read in conjunction with these financial statements. For
further information, such as the significant accounting policies followed by
the Company, refer to the notes to the Company's audited consolidated
financial statements.
The financial information included herein has not been audited. However, in
the opinion of management, the 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.
F-11
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pro forma net income per common share
Consistent with Securities and Exchange Commission Staff Accounting Bulletin
("SAB") No. 1B-2, the Company has recalculated historical weighted average
common shares outstanding and net income per common share to give effect to
the Recapitalization (see Note 7). The recalculated net income per common
share is determined by (i) adjusting net income available to common
shareholders to reflect the elimination of interest expense, net of taxes,
resulting from the conversion of a portion of the subordinated debt into
common stock and (ii) increasing the weighted average common shares
outstanding by the number of common shares resulting from the conversion of
subordinated debt and the partial conversion of the Series A Preferred Stock.
3. ACQUISITIONS
In February 1996, the Company acquired the common stock of a chauffeured
vehicle service company in London, England for approximately $1,500,000.
Additional contingent consideration of up to $1,000,000 may be payable for the
two-year period ending February 28, 1998 based on the level of revenues
referred to the acquired company by the seller. As of August 31, 1997, the
Company has paid approximately $550,000 in such contingent consideration in
connection with the London acquisition. In September 1997, the Company made an
additional contingent consideration payment of approximately $280,000.
In June 1997, the Company acquired the common stock of Manhattan Limousine
for $14,200,000. The purchase price for the acquisition was composed of
$4,740,000 in debt to the sellers, a cash payment of $7,060,000 and the
issuance of 228,571 shares of common stock. The debt to the sellers was paid
off on July 31, 1997.
In the periods ended August 31, 1996 and 1997, the following acquisition
activity was recorded by the Company:
<TABLE>
<CAPTION>
NINE MONTHS ENDED AUGUST 31,
------------------------------
1996 1997
-------------- --------------
<S> <C> <C>
Fair value of net assets and liabilities
acquired:
Receivables and other assets............... $ 632,554 $ 159,575
Notes receivable from contracts............ -- 6,647,766
Fixed assets............................... 928,377 1,498,444
Franchise rights........................... 50,065 --
Goodwill and other tangibles............... 160,040 21,046,816
Trade payables and accrued expenses........ (522,451) (4,353,898)
Notes payable.............................. -- (8,524,850)
Deferred revenue........................... -- (6,679,793)
-------------- --------------
Fair value of assets and liabilities
acquired.................................. $ 1,248,585 $ 9,794,060
============== ==============
Issuance of stock (228,571 shares of common
stock).................................... $ -- $ 2,400,000
============== ==============
Cash payments (net of $223,695 cash
acquired in 1996)......................... $ 1,248,585 $ 7,394,060
============== ==============
</TABLE>
At the time of its acquisition by the Company, Manhattan Limousine was
subject to guarantees of certain independent operator leases with third party
finance companies of approximately $2.1 million.
F-12
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(CONTINUED)
4. SENIOR CREDIT FACILITY
Effective as of August 15, 1997, the Company entered into a senior credit
facility with three banks consisting of a secured revolving line of credit of
$25.0 million (the "Facility"). The Facility, which may be used for
acquisitions and working capital, is collateralized by the assets of the
Company and its domestic operating subsidiaries and by a pledge of the stock
of its international subsidiary. The Facility also provides availability for
the issuance of letters of credit. Loans made under the revolving line of
credit bear interest at the Company's option at either the bank's prime
lending rate or 2.0% above the LIBOR rate. Commitment fees equal to 0.375% per
annum are payable on the unused portion of the revolving line of credit. On
the second anniversary of the Facility, outstanding balances under the
Facility will convert to a five-year term loan, which will bear interest
either at a fixed rate (subject to availability) or at a variable LIBOR or
prime-based rate with adjustments determined based on the Company's earnings.
The terms of the Facility (i) prohibit the payment of dividends by the
Company, (ii) with certain exceptions, prevent the Company from incurring or
assuming other indebtedness that is not subordinated to borrowings under the
Facility and (iii) require the Company to comply with certain financial
covenants.
5. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is subject to various legal
actions which are not material to the financial condition, results of
operations or cash flows of the Company.
The Company, certain of the Company's subsidiaries and certain officers and
directors of the Company were named in a civil action filed on May 15, 1996 in
the United States District Court for the Eastern District of Pennsylvania
entitled "Felix v. Carey International, Inc., et. al." The plaintiff's
complaint, which purports to be a class action, alleges that the plaintiff and
others similarly situated suffered monetary damages as a result of
misrepresentations by the various defendants in their use of a surface
transportation billing charge (the "STC"). The plaintiff seeks damages in
excess of $1 million on behalf of the class for each of the counts in the
complaint including fraud, negligent misrepresentation and violations of the
Racketeer Influenced and Corrupt Organizations law of 1970, which permits the
recovery of treble damages and attorneys' fees. The proposed class has
received preliminary certification by the court. The Company is indemnifying
and defending its officers and directors who were named as defendants in the
case, subject to conditions imposed by applicable law.
The Company has reached a tentative settlement with the plaintiff and
plaintiff's counsel. The settlement calls for the Company to deposit $500,000
into a settlement fund and provide a $450,000 letter of credit for a class
consisting of all persons who paid the STC during the period from May 15, 1992
through March 15, 1997. As a condition of the fund settlement, the Company
will change its disclosure concerning the STC, and each class member showing
proper authentication of a claim shall be entitled to receive either (i) cash
totaling 10% of the STC paid during the period described above or (ii) a
nontransferable credit to be applied toward future use of the Company's
services in an amount equal to 30% of such STC.
The Company does not believe the settlement described above will have a
material adverse effect on its business, financial condition, results of
operations and cash flows.
F-13
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(CONTINUED)
6. NET INCOME PER COMMON SHARE
Net income per common share, on a historical basis, is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
AUGUST 31,
---------------------
1996 1997
---------- ----------
<S> <C> <C>
Net income available to common shareholders $ 930,670 $1,747,427
========== ==========
Weighted average common and common equivalent shares
outstanding 2,422,373 4,136,230
========== ==========
Net income per common share $ 0.38 $ 0.42
========== ==========
</TABLE>
Common equivalent shares are included in the per share calculations where
the effect of their inclusion would be dilutive. Common equivalent shares
consist of Series B, F and G preferred stock as well as substantially all of
the subordinated debt of the Company and the assumed exercise of vested
outstanding stock options and warrants. Pursuant to SAB No. 83, the common
equivalent shares issued by the Company during the twelve months preceding the
effective date of the Registration Statement relating to the IPO, using the
treasury stock method and the IPO price of $10.50 per share, have been
included in the calculation of net income per common share.
7. RECAPITALIZATION
On February 25, 1997, the Board of Directors authorized a Recapitalization,
which was implemented on June 2, 1997, coincident with the closing of the IPO.
Under the Recapitalization, the $2,000,000 subordinated convertible note dated
September 1, 1991 and the $3,780,000 subordinated note dated July 30, 1992
were converted into 1,046,559 shares of common stock and the remaining
principal balance of $912,454 was repaid. The Series A preferred stock was
converted, in part, into 86,003 shares of common stock and redeemed in part
for $2,103,500. All of the Series F preferred stock and 3,000 shares of the
Series G preferred stock was redeemed for $1,000,000.
The remaining preferred stock has been converted into 1,427,527 shares of
common stock. As a result of the Recapitalization, preferred stock with a
liquidation preference of $11,154,900 and subordinated debt with a principal
amount of $5,780,000 has been converted in part into 2,560,071 shares of
common stock and repaid or redeemed in part for $4,015,952 in cash, with the
cash portion paid out of the proceeds of the IPO.
F-14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Carey International, Inc.
We have audited the accompanying consolidated balance sheets of Carey
International, Inc. and Subsidiaries as of November 30, 1995 and 1996, and the
related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the three years in the period ended
November 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Carey
International, Inc. and Subsidiaries as of November 30, 1995, and 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended November 30, 1996, in conformity with generally
accepted accounting principles.
As discussed in Note 16 to the consolidated financial statements, the
accompanying consolidated balance sheet as of November 30, 1995, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the two years in the period ended November 30, 1995
have been restated for a change in the revenue recognition method.
Coopers & Lybrand L.L.P.
Washington, D.C.
January 31, 1997, except for
Notes 1, 2 and 18 as to which
the date is March 1, 1997
F-15
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 30,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................ $ 1,438,659 $ 2,754,276
Accounts receivable, net of allowance for doubtful
accounts of $294,000 in 1995 and $535,000 in 1996... 9,023,016 10,141,732
Notes receivable from contracts, current portion..... 659,609 402,751
Prepaid expenses and other current assets............ 364,741 1,936,961
----------- -----------
Total current assets............................. 11,486,025 15,235,720
Fixed assets, net of accumulated depreciation of
$2,779,000 in 1995 and $2,619,000 in 1996........... 2,185,071 3,379,246
Notes receivable from contracts, excluding current
portion............................................. 193,298 769,201
Franchise rights, net of accumulated amortization of
$1,494,000 in 1995 and $1,729,000 in 1996........... 5,533,956 5,348,264
Trade name, trademark and contract rights, net of
accumulated amortization of $781,000 in 1995 and
$973,000 in 1996.................................... 6,876,578 6,685,135
Goodwill and other intangible assets, net of
accumulated amortization of $574,000 in 1995 and
$827,000 in 1996.................................... 7,113,684 7,262,203
Deferred tax assets.................................. 892,993 2,461,573
Deposits and other assets............................ 1,615,316 1,384,787
----------- -----------
Total assets................................... $35,896,921 $42,526,129
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of notes payable..................... $ 4,585,703 $ 5,131,227
Current portion of capital leases.................... 206,031 199,224
Current portion of subordinated notes payable........ 100,000 440,000
Accounts payable and accrued expenses................ 8,000,972 11,196,949
----------- -----------
Total current liabilities........................ 12,892,706 16,967,400
Notes payable, excluding current portion............. 7,361,749 5,188,742
Capital leases, excluding current portion............ 74,879 663,030
Subordinated notes payable, excluding current
portion............................................. 5,780,000 5,340,000
Deferred rent and other long-term liabilities........ 148,195 111,281
Deferred tax liabilities............................. 1,001,480 1,402,611
Deferred revenue..................................... 4,726,134 6,181,147
Commitments and contingencies
Stockholders' equity:
Preferred stock.................................... 1,212,900 1,115,400
Class A common stock, $.01 par value; authorized
314,000 shares, none issued and outstanding.......
Common stock, $.01 par value; authorized 9,512,950
shares, issued and outstanding, 655,773 shares.... 6,558 6,558
Additional paid-in capital......................... 7,357,064 7,357,064
Accumulated deficit................................ (4,664,744) (1,807,104)
----------- -----------
Total stockholders' equity....................... 3,911,778 6,671,918
----------- -----------
Total liabilities and stockholders' equity....... $35,896,921 $42,526,129
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenue, net........................... $35,525,309 $43,483,947 $59,505,698
Cost of revenue........................ 24,953,904 29,942,961 40,438,449
----------- ----------- -----------
Gross profit......................... 10,571,405 13,540,986 19,067,249
Selling, general and administrative
expense............................... 9,486,797 12,419,062 15,077,553
----------- ----------- -----------
Operating income..................... 1,084,608 1,121,924 3,989,696
Other income (expense):
Interest expense..................... (1,348,883) (1,682,884) (1,704,187)
Interest income...................... 172,641 259,852 156,695
Gain (loss) on sale of fixed assets.. (18,359) 130,913 269,654
----------- ----------- -----------
Income (loss) before provision for
income taxes.......................... (109,993) (170,195) 2,711,858
Provision (benefit) for income taxes .. 19,000 25,000 (104,246)
----------- ----------- -----------
Net income (loss)...................... $ (128,993) $ (195,195) $ 2,816,104
=========== =========== ===========
Pro forma net income per common share.. $ .89
===========
Pro forma weighted average common
shares outstanding.................... 3,510,020
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-17
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------
SERIES A SERIES B SERIES E SERIES F SERIES G ADDITIONAL TOTAL
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK STOCK STOCK STOCK STOCK SHARES $ CAPITAL DEFICIT EQUITY
--------- --------- --------- --------- --------- ------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
November 30,
1993........... $420,700 $95,800 $266,250 $100,000 $498,900 623,091 $6,231 $7,335,796 $(4,336,178) $4,387,499
Accretion of
redeemable
preferred
stock.......... -- -- 8,750 -- -- -- -- (8,750) -- --
Redemption of
Series E
preferred
stock.......... -- -- (62,500) -- -- -- -- -- -- (62,500)
Payment of
accrued
dividends...... -- -- (26,250) -- -- -- -- -- -- (26,250)
Payment of
Series E
dividends...... -- -- -- -- -- -- -- -- (4,378) (4,378)
Net loss........ -- -- -- -- -- -- -- -- (128,993) (128,993)
-------- ------- -------- -------- -------- ------- ------ ---------- ----------- ----------
Balance at
November 30,
1994........... 420,700 95,800 186,250 100,000 498,900 623,091 6,231 7,327,046 (4,469,549) 4,165,378
Accretion of
redeemable
preferred
stock.......... -- -- 4,375 -- -- -- -- (4,375) -- --
Redemption of
Series E
preferred
stock.......... -- -- (62,500) -- -- -- -- -- -- (62,500)
Payment of
accrued
dividends...... -- -- (30,625) -- -- -- -- -- -- (30,625)
Issuance of
stock.......... -- -- -- -- -- 32,682 327 34,393 -- 34,720
Net loss........ -- -- -- -- -- -- -- -- (195,195) (195,195)
-------- ------- -------- -------- -------- ------- ------ ---------- ----------- ----------
Balance at
November 30,
1995........... 420,700 95,800 97,500 100,000 498,900 655,773 6,558 7,357,064 (4,664,744) 3,911,778
Redemption of
Series E
preferred
stock.......... -- -- (97,500) -- -- -- -- -- -- (97,500)
Cumulative
effect of
currency
translation.... -- -- -- -- -- -- -- -- 41,536 41,536
Net income...... -- -- -- -- -- -- -- -- 2,816,104 2,816,104
-------- ------- -------- -------- -------- ------- ------ ---------- ----------- ----------
Balance at
November 30,
1996........... $420,700 $95,800 $ -- $100,000 $498,900 655,773 $6,558 $7,357,064 $(1,807,104) $6,671,918
======== ======= ======== ======== ======== ======= ====== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-18
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................... $ (128,993) $ (195,195) $ 2,816,104
Adjustments to reconcile net income
(loss) to net cash from operating
activities:
Depreciation and amortization of fixed
assets............................... 1,233,267 1,265,934 1,100,320
Amortization of intangible assets..... 641,309 712,348 1,062,406
(Gain) loss on sales of fixed assets.. 18,359 (130,913) (269,654)
Deferred income tax benefit........... -- -- (1,370,557)
Change in deferred revenue............ 184,220 237,306 1,455,013
Changes in operating assets and
liabilities:
Accounts receivable.................. (962,523) (2,516,952) (486,162)
Notes receivable from contracts...... (519,155) 11,000 (1,052,838)
Prepaid expenses, deposits and other
assets.............................. (433,963) (192,666) (660,870)
Accounts payable and accrued
expenses............................ 679,233 3,389,540 2,003,427
Deferred rent and other long-term
liabilities......................... (10,407) 87,490 (36,914)
----------- ----------- -----------
Net cash provided by operating
activities......................... 701,347 2,667,892 4,560,275
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of fixed assets..... 172,747 565,510 862,980
Purchases of fixed assets.............. (445,967) (615,117) (1,134,910)
Software development costs............. -- (203,529) --
Redemption of investment in affiliate.. -- 100,000 --
Acquisitions of chauffeured vehicle
service companies, net of cash
acquired.............................. (114,521) (3,949,393) (1,730,232)
----------- ----------- -----------
Net cash used in investing
activities......................... (387,741) (4,102,529) (2,002,162)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds upon sale of notes receivable
from independent operators............ 378,733 1,493,399 733,793
Principal payments under capital lease
obligations........................... (384,181) (436,169) (243,485)
Preferred stock dividends.............. (30,628) (30,625) --
Payment of notes payable............... (2,277,466) (2,658,521) (3,867,747)
Proceeds from notes payable............ 1,119,515 3,106,808 2,232,443
Issuance of common stock............... -- 34,720 --
Redemption of Series E preferred
stock................................. (62,500) (62,500) (97,500)
----------- ----------- -----------
Net cash provided by (used in)
financing activities............... (1,256,527) 1,447,112 (1,242,496)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ (942,921) 12,475 1,315,617
Cash and cash equivalents at beginning
of year................................ 2,369,105 1,426,184 1,438,659
----------- ----------- -----------
Cash and cash equivalents at end of
year................................... $ 1,426,184 $ 1,438,659 $ 2,754,276
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND AND ORGANIZATION
General
Carey International, Inc. (the "Company") is one of the world's largest
chauffeured vehicle service companies, providing 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
generates revenues from licensing the "Carey" name, and from providing central
reservations, billing, sales and marketing services to its licensees. The
Company's worldwide network also includes affiliates in locations in which the
Company has neither owned and operated locations nor licensees.
Acquisitions and franchises
The Company is engaged in a program of acquiring chauffeured vehicle service
businesses, including licensees operating under the Carey name and trademark.
These acquisitions are accounted for as purchases. The carrying value of the
assets acquired is determined by the negotiated purchase price. In addition to
acquiring licensees operating under the Carey name, the Company has acquired
chauffeured vehicle service businesses in cities in which the Company
operates. In 1995, these acquisitions included chauffeured vehicle service
companies operating in Washington, D.C., Miami, West Palm Beach and San
Francisco. In 1996, the Company acquired a chauffeured vehicle service company
in London, England.
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"). The Board of Directors, at the same
meeting and subject to stockholder approval, authorized a reverse stock split
of approximately one-for-2.3255 of the outstanding shares of the Company's
common stock. A majority of the Company's stockholders have 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. The
Board of Directors also authorized a Recapitalization (see Note 18) on
February 25, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements include the financial statements of
the Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all short-term investments with original maturities of
three months or less to be cash equivalents.
F-20
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Notes receivable from contracts
An important component of the Company's operating strategy involves the
preferred use of non-employee independent operators chauffeuring their own
vehicles rather than employee chauffeurs operating Company-owned vehicles.
Each independent operator enters into an agreement with the Company to
provide prompt and courteous service to the Company's customers with a
properly maintained, late model vehicle which he or she owns and for which he
or she pays all of the maintenance and operating expenses, including gasoline.
The Company, under the independent operator agreement, agrees to bill and
collect all revenues and remit to the independent operator 60% to 65% of
revenues, as defined in the agreement. Each new operator agrees to pay a one-
time fee generally ranging from $30,000 to $45,000 to the Company under the
terms of the independent operator agreement. Through 1996, the term of the
independent operator agreement generally ranged from 10 years to perpetuity.
(See "Revenue recognition").
The Company typically receives a promissory note from the independent
operator as payment for the one-time fee due under the terms of the Standard
Independent Operator Agreement (see Note 4) and records the note in notes
receivable from contracts. The notes evidencing such financing generally were
sold on a non-recourse basis by the Company to third party finance companies
(see Note 11) in exchange for cash and promissory notes. Since September 1996,
the Company has ceased selling notes to third parties. Such promissory notes
due from finance companies have also been recorded in notes receivable from
contracts in the consolidated balance sheets.
Concentration of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash
equivalents, accounts receivable and notes receivable from contracts. The
Company maintains its cash and cash equivalents with various financial
institutions. In order to limit exposure to any one institution, the Company's
cash equivalents are composed mainly of overnight repurchase agreements
collateralized by U.S. Government securities. Accounts receivable are
generally diversified due to the large number of entities comprising the
Company's customer base and their dispersion across many different industries
and geographies. The Company performs ongoing credit evaluations of its
customers, and may require credit card documentation or prepayment of selected
transactions. Notes receivable from contracts are also geographically
dispersed and are supported by the underlying base of revenue serviced by each
respective independent operator (see Notes 4 and 11). The Company performs
ongoing evaluations of each independent operator's productivity and payment
capacity and has utilized third-party financing to reduce credit exposure.
Fixed assets
Furniture, equipment, vehicles, leasehold improvements and land and building
are stated at cost. Equipment under capital leases is stated at the lower of
the present value of minimum lease payments or the fair market value at the
inception of the lease. Depreciation on furniture, equipment, vehicles and
leasehold improvements is calculated on the straight-line method over the
estimated useful lives of the assets, generally three to five years. The
building owned by the Company is depreciated over 40 years on a straight-line
basis. Sales and retirements of fixed assets are recorded by removing the cost
and accumulated depreciation from the accounts. Gains or losses on sales and
retirements of property are reflected in results of operations.
Intangible assets
Effective September 1, 1991, the Company acquired the Carey name and
trademark and the contract rights to all royalty fee payments by various Carey
licensees for a purchase price of $7 million. These assets are held by Carey
Licensing, Inc. and are being amortized over 40 years.
F-21
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has acquired chauffeured vehicle service companies, all of which
have been accounted for as purchases. For each business acquired which is a
licensee of the Company, the excess of cost over the fair market value of the
net assets acquired is allocated to franchise rights in the consolidated
balance sheet. With respect to acquired businesses which are not licensees of
the Company, the excess of cost over the net assets acquired is allocated to
goodwill. Additional purchase price attributable to the operating performance
of the acquired entities is recorded as goodwill or franchise rights when
determined (see Note 13). Goodwill and franchise rights are amortized over 30
years using the straight-line method. Such amortization is included in
selling, general and administrative expense in the consolidated statement of
operations. The Company evaluates the recoverability of its intangible assets
based on estimated undiscounted cash flows over the lesser of the remaining
amortization periods or calculated lives, giving consideration to revenue
expected to be realized. This determination is based on an evaluation of such
factors as the occurrence of a significant change in the environment in which
the business operates or the expected future net cash flows (undiscounted and
without interest). There have been no adjustments to the carrying value of
intangible assets resulting from this evaluation.
Revenue recognition
Chauffeured vehicle services--The Company's principal source of revenue is
from chauffeured vehicle services provided by its operating subsidiaries. Such
revenue, net of discounts, is recorded when such services are provided. The
Company, through the Carey International Reservation System ("CIRS"), has a
central reservation system capable of booking reservations on behalf of its
licensees and affiliates. Under most circumstances, central reservations are
billed by the Company to the customer when the Company receives a service
invoice from the licensee or affiliate that provided the service. At such
time, the Company also records the gross revenue for the transaction.
Fees from licensees--The Company charges an initial license fee under its
domestic license agreement and records the fee as revenue on signing of the
agreement. The Company also charges its domestic licensees monthly franchise
and marketing fees equal to stated percentages of monthly revenues, as defined
in the licensing agreement. Monthly fees to domestic licensees are generally
less than 10% of the licensee's monthly revenues. The Company records such
fees as revenues as they are charged to the licensees.
International licensees and the Company's domestic and international
affiliates historically have not paid fees to the Company, but have instead
given a discount on business referred to them through CIRS. Such discounts
reduce the amount of service invoices to the Company from such licensees and
affiliates for services provided to customers whose reservations have been
booked and invoiced centrally by the Company.
Independent operator fees--The Company enters into contracts with
independent operators ("Standard Independent Operator Agreements") to provide
chauffeured vehicle services exclusively to the Company's customers. When
independent operator agreements are executed, the Company defers revenue equal
to the amount of the one-time fees and recognizes the fees as revenue over the
terms of the contracts or over 20 years for perpetual contracts. Upon
termination of an independent operator agreement, the remaining deferred
revenue associated with the specific contract, less any amounts due from the
independent operator deemed uncollectible, is recognized as revenue.
Income taxes
The provision for income taxes includes income taxes currently payable and
the change during the year in the net deferred tax liabilities or assets.
Deferred income tax liabilities and assets are determined based on the
differences between the financial statement and tax bases of liabilities and
assets using enacted tax rates in effect for the year in which the differences
are expected to reverse. A valuation allowance is provided to reduce the net
deferred tax asset, if any, to a level which, more likely than not, will be
realized.
F-22
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pro forma net income per common share
Consistent with Staff Accounting Bulletin 1B-2, the Company has recalculated
historical weighted average common shares outstanding and net income per
common share to give effect to the following matters pursuant to the
Recapitalization (see Note 18). The recalculated net income per common share
is determined by (i) adjusting net income available to common shareholders to
reflect the elimination in interest expense, net of taxes, resulting from the
conversion of $4,867,546 of 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 such debt, as well as the
partial conversion of the Series A and G Preferred Stock.
Stock-based compensation
In October 1995, the Financial Accounting Standards Boards issued Statement
of Financial Accounting Standards No. 123 ("SFAS 123") Accounting for Stock-
Based Compensation, which is effective for the Company's financial statements
for fiscal years beginning after December 15, 1995. SFAS 123 allows companies
to either account for stock-based compensation under the new provisions of
SFAS 123 or under the provisions of Accounting Principles Board Opinion No. 25
("APB 25"), Accounting for Stock Issued to Employees. The Company will
continue to apply the provisions of APB 25 and provide pro forma disclosure in
the notes to the financial statements.
Foreign operations
The Consolidated Balance Sheets include foreign assets and liabilities of
$3.7 million and $2.7 million as of November 30, 1996. The net effects of
foreign currency transactions reflected in income were immaterial. Assets and
liabilities of the Company's foreign operations are translated into United
States dollars using exchange rates in effect at the balance sheet date and
results of operations items are translated using the average exchange rate
prevailing throughout the period.
Reclassifications
Certain accounts in 1994 and 1995 have been reclassified to conform with the
1996 presentation.
3. FEES FROM LICENSEES
The total of all domestic license fees, franchise fees and marketing fees
earned in each of 1994, 1995 and 1996 was $1,466,588, $1,228,472 and
$2,180,540, respectively. Amounts due from licensees of $46,520 and $143,041
at November 30, 1995 and 1996, respectively, are included in accounts
receivable in the consolidated balance sheets of the Company.
4. TRANSACTIONS WITH INDEPENDENT OPERATORS
The Company recorded approximately $1,153,000, $1,130,000 and $2,371,000 in
1994, 1995 and 1996, respectively, as deferred revenue relating to fees from
new agreements with independent operators. Amounts of deferred revenue
recognized as revenues in 1994, 1995 and 1996 amounted to approximately
$969,000, $889,000 and $936,000, respectively.
Notes receivable from contracts include approximately $305,000 and $917,000
at November 30, 1995 and 1996, respectively, for amounts due from independent
operators and approximately $548,000 and $255,000 at November 30, 1995 and
1996, respectively, for amounts due from a related party financing company
(see Note 11).
F-23
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In the normal course of business, the Company's independent operators are
responsible for financing their own vehicles through third parties. From time
to time, the Company has arranged lease and purchase financing for certain
vehicles and has in turn leased back such vehicles to independent operators on
terms and conditions similar to those under which the Company is obligated (see
Note 5).
5. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Vehicles.............................................. $2,692,079 $2,337,947
Equipment............................................. 1,699,803 2,200,094
Furniture............................................. 319,597 525,202
Leasehold improvements................................ 252,366 404,888
Land and building..................................... -- 529,634
---------- ----------
4,963,845 5,997,765
Less accumulated depreciation and amortization........ 2,778,774 2,618,519
---------- ----------
Net fixed assets...................................... $2,185,071 $3,379,246
========== ==========
</TABLE>
The Company is obligated under various vehicle and equipment capital leases.
Vehicles and equipment under capital leases included in fixed assets are as
follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
-------------------
1995 1996
-------- ----------
<S> <C> <C>
Equipment............................................... $444,983 $1,048,633
Vehicles................................................ 352,796 621,420
-------- ----------
797,779 1,670,053
Less accumulated amortization........................... 536,713 561,871
-------- ----------
$261,066 $1,108,182
======== ==========
</TABLE>
6. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Bank revolving credit/term loan dated April 13, 1995,
modified December 1, 1996. Collateralized by accounts
receivable of the Company and the pledge of common
stock of the Company's U.S. subsidiaries. Interest only
payable until June 30, 1996; beginning July 1, 1996,
quarterly principal payments are required in an amount
sufficient to amortize the outstanding balance over a
four-year period. Interest is payable monthly at a
floating rate based on the Wall Street Journal prime
plus 1.25% (9.5% at November 30, 1996). This loan is
guaranteed by the Chairman of the Board and the
President of the Company............................... $4,500,000 $3,937,500
Note payable dated September 1, 1991, at an annual rate
of interest of 7.74%, collateralized by the assets of
Carey Licensing, Inc. Pursuant to an agreement with the
lender effective November 30, 1996, principal payments
of $220,000 are due quarterly from December 31, 1996
through December 31, 1997 and a final principal payment
of $240,000 is due March 1, 1998....................... 2,220,000 1,340,000
</TABLE>
F-24
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
NOVEMBER 30,
-------------------
1995 1996
--------- ---------
<S> <C> <C>
Bank line of credit of $1,000,000, dated October 17, 1994,
and collateralized by accounts receivable of Carey NY and
an assignment of license agreement between the Parent and
Carey NY; due April 30, 1997. Interest is payable monthly
at a variable interest rate of .75% above the bank's
prime rate (9.0% at November 30, 1996)................... 990,000 990,000
Various installment notes payable, with interest rates
ranging from 9% to 14.5%, collateralized by certain
vehicles and equipment of the Company's subsidiaries;
principal and interest are payable monthly over 36-month
terms.................................................... 693,002 254,279
Installment notes payable to sellers under acquisition
agreements dated various dates from June 30, 1994 to
September 8, 1995. Interest rates range from 7.5% to
8.5%. Interest is generally payable monthly. Principal is
payable in varying installments.......................... 2,339,418 1,305,574
Convertible note payable to seller under acquisition
agreement dated September 30, 1993 at an annual rate of
7.5%, interest payable quarterly; principal due in two
equal annual installments of $116,667 on January 2, 1996
and 1997. The note was repaid in January 1997............ 233,333 116,666
Bank line of credit of $200,000, dated October 31, 1995 at
a variable interest rate (10% at November 30, 1995),
collateralized by accounts receivable of Carey DC. This
facility was refinanced by a term loan with the same bank
on March 1, 1996......................................... 200,000 --
Amount payable to a seller under acquisition agreement
dated January 1, 1995. Due 30 days after receipt of an
audit of the predecessor company. Amount of the payment
is subject to reduction based on the results of the
audit. The audit has been completed and the amount was
subsequently reduced in 1996 to $210,821 and has been
repaid................................................... 250,000 --
Note payable to bank, dated September 30, 1995, payable in
monthly installments of $4,167 plus interest. Interest
rate is variable at bank's prime plus 1% (10.0% at
November 30, 1996)....................................... 241,667 191,717
Note payable to bank, dated August 30, 1993,
collateralized by accounts receivable, fixed assets and
intangible assets of Carey DC; monthly payments of $9,401
for principal and interest through August 31, 1996.
Interest rate is fixed at 8%. This note was refinanced on
March 1, 1996 by a term loan with the same bank.......... 90,631 --
Note payable to bank dated October 17, 1994,
collateralized by accounts receivable and fixed assets of
Carey NY. Principal and interest payments of $2,848 are
payable monthly. Remaining balance is due October 17,
1999. Interest rate is fixed at 9.25%.................... 189,401 149,001
Bank line of credit of $750,000, dated February 26, 1996
collateralized by accounts receivable of Carey Licensing,
Inc.; due March 31, 1997. Interest is payable monthly at
1% above the Wall Street Journal's "Prime Rate" (9.25% at
November 30, 1996)....................................... -- 750,000
Bank line of credit of $200,000, dated February 26, 1996,
collateralized by accounts receivable of Carey FLA.; due
March 31, 1997. Interest is payable monthly at 1% above
Wall Street Journal's "Prime Rate" (9.25% at November 30,
1996).................................................... -- 200,000
Note payable to bank, dated March 1, 1996, collateralized
by accounts receivable of Carey DC. Monthly payments of
$12,735 of principal and interest through March 1, 2001.
Interest is payable monthly at .5% above the bank's Prime
Rate (9.5% at November 30, 1996)......................... -- 662,053
</TABLE>
F-25
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
NOVEMBER 30,
----------------------
1995 1996
----------- ----------
<S> <C> <C>
Note payable to bank, dated May 10, 1996, collateralized
by the land and building held by Carey DC; monthly
payments of $3,863 of principal and interest are due
through April 10, 2001 and a balloon payment of
$375,468 on May 10, 2001. Interest fixed at 8.75%...... -- 423,179
----------- ----------
Total notes payable..................................... 11,947,452 10,319,969
Less current installments............................... 4,585,703 5,131,227
----------- ----------
Long-term portion....................................... $ 7,361,749 $5,188,742
=========== ==========
Subordinated notes payable consist of the following:
Subordinated convertible note dated September 1, 1991,
with the principal of $2,000,000 due on August 30,
2000; interest payable quarterly at a fixed rate of
7.74%. After September 1, 1992, this debt is
convertible into shares of common stock of the Company
at the discretion of the holder at a conversion price
of $6.14. A warrant for the purchase of 86,003 shares
of common stock of the Company was issued in connection
with the note. The warrant is exercisable immediately,
expires at the earlier of the third anniversary of an
initial public offering or November 30, 2001, and has
an exercise price of $6.14 per share. The note contains
certain antidilutive provisions which lower its
conversion price in the event dilutive securities are
subsequently issued by the Company at prices below the
note's conversion price. The warrant has not been
exercised. The terms of the agreement have been
modified as part of the Recapitalization (see Notes 15
and 18)................................................ $ 2,000,000 $2,000,000
Subordinated note dated July 30, 1992; interest only
payable quarterly until September 30, 1995. The
interest rate is fixed at 12%. Principal of $220,000
was paid on September 30, 1995. Pursuant to an
agreement with the lender dated November 30, 1996, no
further payments of principal are due until June 30,
1997, when $220,000 is due. Thereafter, quarterly
principal payments of $220,000 are due until March 31,
1998. On June 30, 1998, the loan balance of $2,240,000
is due. A warrant for the purchase of 616,544 shares of
Class A common stock or common stock was issued, in
connection with the note. The warrant is exercisable
immediately, has an exercise price of $6.14 per share
and expires at the earlier of the fifth anniversary of
the repayment of the note in full or July 30, 2000. The
warrant contains certain antidilutive provisions which
lower the exercise price in the event dilutive
securities are subsequently issued by the Company at
prices below the warrant exercise price. The warrant
has not been exercised. The terms of the agreement have
been modified as part of the Recapitalization (see Note
18).................................................... 3,780,000 3,780,000
Convertible note payable to seller under acquisition
agreement, dated September 30, 1992; interest payable
quarterly at a fixed rate of 7.74%. The note was repaid
in September, 1996. ................................... 100,000 --
----------- ----------
Total subordinated notes payable........................ 5,880,000 5,780,000
Less current installments............................... 100,000 440,000
----------- ----------
Subordinated notes payable, excluding current install-
ments.................................................. $ 5,780,000 $5,340,000
=========== ==========
</TABLE>
F-26
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future annual principal payments on all notes payable at November 30, 1996 are
as follows:
<TABLE>
<CAPTION>
EAR ENDING NOVEMBER 30:Y
- ------------------------
<S> <C>
1997............................................................ $ 5,571,227
1998............................................................ 5,622,403
1999............................................................ 1,486,254
2000............................................................ 881,183
2001 and thereafter............................................. 2,538,902
-----------
$16,099,969
===========
</TABLE>
Certain loan agreements, principally the Company's line of credit agreement,
contain restrictive covenants which include financial ratios related to
working capital, debt service coverage, debt to net worth and maintenance of a
minimum tangible net worth, and submission of audited financial statements,
prepared in accordance with generally accepted accounting principles, within
120 days after the end of the fiscal year. Additionally, these covenants
restrict the Company's capital expenditures and prohibit the payment of
dividends on the Company's common and preferred stock, except for the Series E
preferred stock. The Company did not meet certain covenants related to the
timely submission of financial statements, working capital, debt to net worth
and maintenance of a minimum tangible net worth at November 30, 1996. The
Company obtained waivers for compliance with these covenants through and
including November 30, 1996.
The carrying value of notes payable approximates the current value of the
notes payable at November 30, 1996. (See Note 17 for discussions of the fair
value for the subordinated debt). Interest paid during the years ended
November 30, 1994, 1995, and 1996 was approximately $1,358,000, $1,662,000 and
$1,682,000, respectively.
7. LEASES
The Company has several noncancelable operating leases, primarily for office
space and equipment, that expire over the next five years. Certain of the
Company's facilities are under operating leases which provide for rent
adjustments based on increases of defined indexes, such as the Consumer Price
Index. These agreements also typically include renewal options.
F-27
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments under noncancelable operating leases and the
present value of future minimum capital lease payments as of November 30, 1996
are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING NOVEMBER 30 LEASES LEASES
----------------------- -------- ----------
<S> <C> <C>
1997................................................... $233,778 $1,395,093
1998................................................... 171,653 1,277,009
1999................................................... 155,984 662,698
2000................................................... 155,984 245,746
2001................................................... 138,659 219,128
Thereafter............................................. 138,169 --
-------- ----------
Total minimum lease payments........................... 994,227 $3,799,674
==========
Less estimated executory costs......................... 5,189
--------
989,038
Less amount representing interest (at rates ranging
from 9% to 12%)....................................... 126,784
--------
Present value of net minimum capital lease payments.... 862,254
Less current portion of obligations under capital
lease................................................. 199,224
--------
Obligations under capital leases, excluding current
portion............................................... $663,030
========
</TABLE>
During the years ended November 30, 1994, 1995 and 1996 the Company
recognized $1,004,818, $508,724 and $252,355, respectively, of sublease rental
revenue under vehicle sublease arrangements with independent operators and
others.
During the years ended November 30, 1994, 1995 and 1996, the Company entered
into capital lease obligations of $79,414, $346,666 and $810,993,
respectively, related to the acquisition of vehicles and equipment.
Total rental expense for operating leases in 1994, 1995 and 1996 was
$1,023,372, $1,314,301 and $2,203,490, respectively.
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses is composed of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
----------------------
1995 1996
---------- -----------
<S> <C> <C>
Trade accounts payable............................... $5,222,306 $ 5,341,834
Accrued expenses and other liabilities............... 2,332,681 4,570,975
Gratuities payable................................... 445,985 458,801
Accrued offering costs............................... -- 825,339
---------- -----------
$8,000,972 $11,196,949
========== ===========
</TABLE>
F-28
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES
The provision (benefit) for income taxes is composed of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------------
1994 1995 1996
------- ------- -----------
<S> <C> <C> <C>
Federal:
Current...................................... $14,000 $15,000 $ 1,043,689
Deferred..................................... -- -- (1,220,799)
------- ------- -----------
14,000 15,000 (177,110)
------- ------- -----------
State and local:
Current...................................... 5,000 10,000 78,251
Deferred..................................... -- -- (149,758)
------- ------- -----------
5,000 10,000 (71,507)
------- ------- -----------
Foreign:
Current...................................... -- -- 144,371
------- ------- -----------
Total income tax provision (benefit)........... $19,000 $25,000 $ (104,246)
======= ======= ===========
</TABLE>
The Company's tax provision (benefit) for the years ended November 30, 1994,
1995 and 1996, respectively, differs from the statutory rate for federal
income taxes as a result of the tax effect of the following factors:
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Statutory rate.......... 34.0% 34.0% 34.0%
State income tax, net of
federal benefit........ (2.8) (2.4) (3.5)
Goodwill amortization... (13.0) (13.0) .8
Non-deductible life
insurance.............. (9.9) (23.8) .4
Meals and entertainment
expenses............... (12.2) (36.5) 1.5
Valuation allowance..... (13.4) 28.1 (38.5)
Other................... -- (1.1) 1.5
-------- -------- --------
(17.3)% (14.7)% (3.8)%
======== ======== ========
</TABLE>
The source and tax effects of temporary differences are composed of the
following:
<TABLE>
<CAPTION>
NOVEMBER 30,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
Allowance for bad debts............................ $ 108,000 $ 176,000
Net operating loss carryforward.................... 266,000 --
Deferred revenue................................... 1,701,000 2,040,000
Deferred state taxes and other..................... 425,000 558,000
----------- -----------
Gross deferred tax asset........................... 2,500,000 2,774,000
Valuation allowance................................ (1,499,000) --
----------- -----------
1,001,000 2,774,000
----------- -----------
Amortization of intangible assets.................. (951,000) (1,350,000)
Other.............................................. (50,000) (53,000)
----------- -----------
Gross deferred tax liability....................... (1,001,000) (1,403,000)
----------- -----------
Net deferred tax asset............................. $ -- $ 1,371,000
=========== ===========
</TABLE>
F-29
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A valuation allowance was provided in 1994 and 1995 to reduce the net
deferred tax asset to $0. In the fourth quarter of 1996, the Company concluded
that it was more likely than not that the net deferred tax asset would be
realized and therefore recorded a deferred tax benefit from the reversal of
the valuation allowance of $1,499,000.
Income taxes paid during the years ended November 30, 1994, 1995 and 1996
amounted to $0, $10,375 and $210,437, respectively.
10. PREFERRED STOCK
The Company has the following series of preferred stock:
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Series A, par value $10.00, authorized 43,000 shares,
issued and outstanding 42,070 shares (liquidation
preference of $4,207,000 and non-cumulative
dividends of $7.00 per share per annum when declared
by the Board of Directors).......................... $ 420,700 $ 420,700
Series B, par value $10.00, authorized 10,000 shares,
issued and outstanding 9,580 shares (liquidation
preference of $958,000 and non-cumulative dividends
of $5.00 per share per annum when declared by the
Board of Directors)................................. 95,800 95,800
Series E, par value $10.00, authorized 50 shares,
issued and outstanding 12.5 shares at November 30,
1995 (liquidation preference of $97,500)............ 97,500 --
Series F, par value $10.00, authorized 10,000 shares,
issued and outstanding 10,000 shares (liquidation
preference of $1,000,000 and non-cumulative
dividends of $5.00 per share per annum when declared
by the Board of Directors).......................... 100,000 100,000
Series G, par value $10.00, authorized 110,000
shares, issued and outstanding 49,890 shares
(liquidation preference of $4,989,900 and non-
cumulative dividends of $5.00 per share per annum
when declared by the Board of Directors)............ 498,900 498,900
---------- ----------
$1,212,900 $1,115,400
========== ==========
</TABLE>
At the option of preferred stockholders or upon the closing of an
underwritten public offering yielding net proceeds to the Company of at least
$10,000,000 and having an offering price of at least $14.81 per share, each
share of Series B, F and G preferred stock is convertible into the number of
shares of common stock equal to 500, 100 and 100 divided by the conversion
price, respectively. The conversion price as of November 30, 1996 was $7.216,
$7.406 and $7.406 for Series B, F and G preferred stock, respectively. The
Company has reserved 663,759, 135,025 and 633,393 shares of common stock,
respectively, for conversion of the Series B, F, and G preferred stock.
Antidilutive provisions lower the conversion price if certain securities are
issued by the Company at a price below the respective conversion prices then
in effect. The Company must redeem, on a pro rata basis, the outstanding
shares of Series A preferred stock plus for $100 per share any declared and
unpaid dividends upon the completion of an initial public offering yielding
net proceeds to the Company of at least $10,000,000. Series A, B and G
preferred stock have voting rights and Series F preferred stock is non-voting,
except under certain circumstances. (See Note 18 for discussion of the
Recapitalization, pursuant to which all of the preferred stock will be
redeemed or converted into common stock.)
F-30
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. RELATED-PARTY TRANSACTIONS
The Company has invested $750,000 in non-voting redeemable preferred stock
of a privately-held finance company formed for the purpose of providing
financing to the chauffeured vehicle services industry. This entity provides
financing to the Company's independent operators, without recourse to the
Company, for both automobiles and amounts due under independent operator
agreements. The Company sold $378,733, $1,762,345 and $1,015,897 of
independent operator notes receivable to this related-party finance company
for cash of $378,733, $1,290,899 and $733,793 and demand promissory notes of
$0, $471,446 and $282,104 in 1994, 1995 and 1996, respectively. The unpaid
balances of the promissory notes were $547,930 and $255,664 at November 30,
1995 and 1996, respectively, and are included in notes receivable from
contracts. These promissory notes are due on demand and, generally, monthly
principal payments are received by the Company. These notes generally bear
interest rates of 7%.
It is not practicable to estimate the fair value of the preferred stock
investment in a privately-held company. As a result, the Company's investment
in the privately-held finance company noted above is carried at its original
cost (less redemptions) of $750,000. At April 30, 1996, the total assets
reported by the privately-held company were $10,502,234 and stockholders'
equity was $1,108,448, revenues were $1,088,720 and net income was $96,681.
Pursuant to a stock ownership agreement between the common stockholders of
the related-party finance company and the Company, the Company has an option
to purchase all of the outstanding common stock of the affiliate at $12,500
per common share or market value, if higher. The option is not exercisable
until April 15, 1998.
A guarantee fee of $45,000 has been paid to both the Chairman of the Board
and the President of the Company for guaranteeing certain indebtedness (see
Note 6).
12. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is subject to various legal
actions which are not material to the financial position, 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 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 has agreed to indemnify and defend 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 Company does not believe that this
litigation will have a material adverse effect on the financial condition,
results of operations or cash flows of the Company.
13. ACQUISITIONS
In December 1994, the Company acquired certain assets and liabilities of a
chauffeured vehicle service company in Boca Raton, Florida and consolidated
the operations within its existing operations in West Palm Beach.
Subsequently, the Company acquired an additional chauffeured vehicle service
company in Boca Raton
F-31
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(in August 1995) and the Carey licensee in Fort Lauderdale--Miami (in April
1995) and consolidated the two additional businesses into the Carey South
Florida operations.
In January 1995, the Company acquired certain assets and liabilities of the
Carey licensee in San Francisco, California ("Carey SF"). Subsequently, the
Company acquired the business of two additional chauffeured service companies
(in May and August 1995) and combined the acquired operations with those of
Carey SF.
In April 1995, the Company acquired certain assets and liabilities of a
chauffeured vehicle service company in the Washington, DC area and combined
the acquired operations with those of Carey Limousine D.C., Inc.
In February 1996, the Company acquired the common stock of a chauffeured
vehicle service company in London, England for approximately $1,500,000. The
acquisition was financed through the incurrence of $950,000 in debt and a
payment of $550,000. Additional contingent consideration of up to $1,000,000
may be payable with respect to each of the two years ending February 28, 1998
based on the level of revenues referred to the acquired company by the seller.
As of November 30, 1996, the Company has paid $278,304 in contingent
consideration in the acquisition of the London company. In addition, the
Company is required to pay a standard commission to the seller of the acquired
chauffeured vehicle service company for business referral, which will be
expensed as incurred.
All acquisitions have been accounted for as purchases. The net assets
acquired and results of operations have been included in the financial
statements as of and from, respectively, the effective dates of the
acquisitions. The total consideration was allocated to the assets acquired
based upon their estimated fair values with any remaining consideration
allocated to either franchise rights or goodwill, as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------
1994 1995 1996
------- ---------- ----------
<S> <C> <C> <C>
NET ASSETS PURCHASED
Receivables and other assets.............. $ -- $ -- $ 632,554
Fixed assets.............................. -- 1,703,521 928,377
Franchise rights.......................... -- 1,527,402 89,243
Goodwill.................................. 75,000 4,697,958 447,269
Accounts payable and accrued expenses..... -- -- (367,211)
------- ---------- ----------
Fair value of assets acquired............. $75,000 $7,928,881 $1,730,232
======= ========== ==========
CONSIDERATION
Cash (exclusive of $223,695 cash acquired
in 1996)................................. $75,000 $3,633,620 $1,730,232
Capital leases assumed related to vehicle
acquisitions............................. -- 346,666 --
Notes assumed related to vehicle acquisi-
tions.................................... -- 895,571 --
Uncollateralized promissory notes issued
to sellers............................... -- 3,053,024 --
------- ---------- ----------
Total consideration..................... $75,000 $7,928,881 $1,730,232
======= ========== ==========
</TABLE>
Certain of these acquisitions require the payment of contingent
consideration based on percentages of annual net revenue of the acquired
entities over a defined future period. The Company paid $39,521, $315,773 and
F-32
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$291,755 in the years ended November 30, 1994, 1995 and 1996, respectively, in
contingent consideration and increased goodwill by the same amounts (see Note
2) which is reflected in the table above.
Of the total uncollateralized promissory notes issued to sellers in 1995,
two notes totaling $303,000 were subject to reduction based upon the results
of the acquired entities (see Note 6). The two notes were repaid in 1996 for
approximately $211,000 and the difference of approximately $92,000 reduced by
recorded goodwill.
The unaudited pro forma summary consolidated results of operations assuming
all the acquisitions had occurred for the purposes of the 1995 summary at the
beginning of fiscal 1995, and for the purposes of the 1996 summary at the
beginning of fiscal 1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenue.......................................... $ 51,490,000 $ 60,444,000
Cost of revenue.................................. (35,089,000) (41,304,000)
Other expense, net............................... (16,256,000) (16,570,000)
Benefit (provision) for income taxes............. (58,000) 164,000
------------ ------------
Net income....................................... $ 87,000 $ 2,734,000
============ ============
Net income per common share...................... $ .04 $ 1.13
============ ============
Weighted average common shares outstanding....... 2,387,954 2,422,373
============ ============
</TABLE>
14. 401(K) PLAN
The Company sponsors (but has made no contributions to) a defined
contribution plan established pursuant to Section 401(k) of the Internal
Revenue Code for the benefit of employees of the Company.
15. STOCK OPTION PLANS
On December 1, 1987, the Company established a Stock Option Plan (the "1987
Plan") that included all officers and key employees of the Company, non-
employee directors of the Company, and certain persons retained by the Company
as consultants. In accordance with the 1987 Plan, the Company's Board of
Directors may, from time to time, determine the persons to whom the stock
options are to be granted, the number of shares under option, the option price
and the manner in which payment of the option price shall be made. The 1987
Plan provides for the options to be exercised 25% each year beginning after
the year following the grant. The options are exercisable for a period of ten
years after the grant date. The total number of options authorized under the
1987 Plan is 195,656.
On July 28, 1992, the Company established a Stock Option Plan (the "1992
Plan") that included all officers and key employees of the Company, non-
employee directors of the Company, and certain persons retained by the Company
as consultants. In accordance with the 1992 Plan, the Company's Board of
Directors may, from time to time, determine the persons to whom the stock
options are to be granted, the number of shares under option, the option
price, the time or times during the exercise period at which each such option
will become exercisable, and the manner in which payment of the option price
shall be made. The options are exercisable for a period of ten years after
grant date. The total number of options authorized under the 1992 Plan is
388,647.
F-33
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock activity under the 1987 Plan and the 1992 Plan is as follows:
<TABLE>
<CAPTION>
1987 PLAN 1992 PLAN
---------------------- ------------------
OPTION OPTION
PRICE PER PRICE PER
SHARES SHARE SHARES SHARE
------- ------------- ------- ---------
<S> <C> <C> <C> <C>
Balance, December 1, 1993........... 64,502 $ 1.44 384,494 $7.40
Granted............................. -- -- 12,040 7.40
Exercised........................... -- -- -- --
Forfeited........................... -- -- (13,287) --
------- ------------- ------- -----
Balance, November 30, 1994.......... 64,502 1.44 383,247 7.40
Granted............................. -- -- 21,673 7.40
Exercised........................... (32,681) -- -- --
Forfeited........................... (860) -- (60,985) --
------- ------------- ------- -----
Balance, November 30, 1995.......... 30,961 1.44 343,935 7.40
Granted............................. 38,701 4.65 43,578 4.65
Exercised........................... -- --
Forfeited........................... -- (3,011)
------- -------
Balance, November 30, 1996.......... 69,662 $1.44 - $4.65 384,502 $4.65
======= =======
Vested and exercisable at November
30, 1996........................... 43,861 $1.44 - $4.65 341,948 $4.65
======= ============= ======= =====
</TABLE>
In May 1996, the options granted under the 1992 Plan and a warrant to
purchase 86,003 shares of common stock (see Note 6) were repriced to $4.65.
The options and warrant were repriced at the determined fair market value as
of the date of repricing (see Note 18).
On February 25, 1997, the Board of Directors adopted the 1997 Equity
Incentive Plan and the Stock Plan for Non-Employee Directors (see Note 18).
16. REVENUE RECOGNITION METHOD
The Company enters into agreements with independent operators under which
the independent operator contracts to provide chauffeured vehicle services
exclusively to the Company's customers over a contract period pursuant to a
Standard Independent Operator Agreement. Upon signing the Standard Independent
Operator Agreement, the Company is entitled to receive a one-time fee from the
independent operator. Previously, the Company would recognize the one-time fee
as revenue upon signing of the independent operator agreement and when
collection of the fee was reasonably assured. In accordance with APB 20, the
financial statements have been retroactively restated to report such fees as
deferred revenue which are recognized as revenue over the terms of the
contracts (see Note 2). The effect of such restatements was to reduce 1994 and
1995 revenue, results of operations and stockholders' equity by $665,391 and
$1,144,511, respectively (net of income taxes of $0 and $586,680 for 1994 and
1995, respectively).
17. NET INCOME PER COMMON SHARE
Net income per common share, on a historical basis, are as follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
----------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net income (loss) available to common
shareholders.............................. $ (137,743) $ (199,570) $2,816,104
Weighted average common shares outstand-
ing....................................... 2,392,879 2,387,954 2,422,373
Net income (loss) per common share......... $ (.06) $ (.08) $ 1.16
</TABLE>
F-34
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO 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 common shares issuable upon (a) conversion of Series B, F and G
preferred stock and (b) the assumed exercise of outstanding stock options and
warrants. Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin (SAB) No. 83, the common equivalent shares issued by the Company
during the twelve months preceding the anticipated effective date of the
Registration Statement relating to the Company's initial public offering,
using the treasury stock method and an assumed public offering price of $11.00
per share, have been included in the calculation of net income per common
share.
Net income (loss) available to common shareholders is the net income (loss)
for the fiscal year less accretion of dividends on the Series E preferred
stock of $8,750, $4,376 and $0 for 1994, 1995 and 1996, respectively.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128). FAS
128 simplifies the existing earnings per share (EPS) computations under
Accounting Principles Board Opinion No. 15, "Earnings Per Share," revises
disclosure requirements, and increases the comparability of EPS data on an
international basis. In simplifying the EPS computations, the presentation of
primary EPS is replaced with basic EPS, with the principal difference being
that common stock equivalents are not considered in computing basic EPS. In
addition, FAS 128 requires dual presentation of basic diluted EPS. FAS 128 is
effective for financial statements issued for periods ending after December
15, 1997. The Company's pro forma basic EPS under FAS 128 would have been
$4.29 and dilutive EPS under FAS 128 would not differ significantly from the
reported pro forma net income per share.
18. SUBSEQUENT EVENTS
On February 25, 1997, pursuant to an agreement reached in May 1996, the
Board of Directors authorized a recapitalization (the "Recapitalization"),
which will be implemented at the time of the IPO. Under the Recapitalization,
the $2,000,000 subordinated convertible note dated September 1, 1991 and the
$3,780,000 subordinated note dated July 30, 1992 will be converted or
exchanged for 1,046,559 shares of common stock and payment of $912,454. The
Series A preferred stock will be converted in part into 86,003 shares of
common stock and redeemed in part for $2,103,500. All of the Series F
preferred stock and 3,000 shares of the Series G preferred stock will be
redeemed for an aggregate of $1,000,000. The remaining preferred stock will be
converted into 1,427,509 shares of common stock. As a result of the
Recapitalization, preferred stock with a liquidation preference of $11,154,900
and subordinated debt with a principal amount of $5,780,000 will be converted
in part into 2,560,071 shares of common stock and repaid or redeemed in part
for $4,015,952 in cash. All of the cash amounts will be paid out of the
proceeds of the IPO.
On February 25, 1997, the Board of Directors adopted the 1997 Equity
Incentive Plan (the "1997 Plan"). A total of 650,000 shares of common stock
are reserved for issuance under the 1997 Plan. The Board of Directors also
granted options to purchase at the IPO price a total of 411,500 shares of
common stock under the 1997 Plan, such grants to be effective upon the
execution of an underwriting agreement in connection with the IPO.
Also on February 25, 1997, the Board of Directors, subject to stockholder
approval, adopted the Stock Plan for Non-Employee Directors (the "Directors'
Plan"). A total of 100,000 shares of common stock of the Company are reserved
for issuance under the Directors' Plan. Options to purchase at the IPO price a
total of 22,500 shares of common stock will be granted under the Directors'
Plan, such grants to be effective upon the execution of an underwriting
agreement in connection with the IPO.
Also on February 25, 1997, the Board of Directors, approved amendments to
the Company's Certificate of Incorporation increasing the number of authorized
shares of the Company's Common Stock from 9,512,950 to 20,000,000, and
increasing the number of authorized shares of the Company's preferred stock
from 173,050 to 1,000,000.
F-35
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On March 1, 1997, the Company entered into an agreement to purchase the
stock of Manhattan International Limousine Network Ltd. and an affiliated
company (collectively, "Manhattan Limousine"). Manhattan Limousine is one of
the largest providers of chauffeured vehicle services in the New York
metropolitan area. The Company expects to consummate the acquisition at the
time of the IPO. If the acquisition of Manhattan Limousine is not completed by
June 2, 1997, the Company has agreed to pay additional purchase price in the
amount of $7,500 for each day after such date until the closing of the
acquisition, up to an aggregate of $675,000.
F-36
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31,
1997
(UNAUDITED)
-----------
ASSETS
<S> <C>
Cash and cash equivalents.......................................... $ 5,603,023
Accounts receivable, net........................................... 9,636,912
Notes receivable from contracts, current portion................... 663,807
Prepaid expenses and other current assets.......................... 1,469,214
-----------
Total current assets........................................... 17,372,956
Fixed assets, net.................................................. 7,424,135
Notes receivable from contracts, excluding current portion......... 8,326,216
Franchise rights, net.............................................. 5,171,327
Trade name, trademark and contract rights, net..................... 6,541,553
Goodwill and other intangible assets, net.......................... 27,951,806
Deferred tax assets................................................ 2,968,058
Deposits and other assets.......................................... 2,082,024
-----------
Total assets................................................... $77,838,075
===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current portion of notes payable................................... $ 1,113,670
Current portion of capital leases.................................. 226,069
Accounts payable and accrued expenses.............................. 13,418,458
-----------
Total current liabilities...................................... 14,758,197
Notes payable, excluding current portion........................... 1,469,302
Capital leases, excluding current portion.......................... 955,336
Deferred rent and other long-term liabilities...................... 53,116
Deferred tax liabilities........................................... 1,594,071
Deferred revenue................................................... 13,721,483
Commitments and contingencies......................................
Stockholders' equity:
Common stock, $.01 par value; 20,000,000 authorized shares;
7,564,512 shares issued and outstanding......................... 75,645
Additional paid-in capital....................................... 44,228,503
Retained earnings................................................ 982,422
-----------
Total stockholders' equity..................................... 45,286,570
-----------
Total liabilities and stockholders' equity..................... $77,838,075
===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-37
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED AUGUST 31,
------------------------------
1996 1997
-------------- --------------
<S> <C> <C>
Revenue, net.................................. $ 45,659,761 $ 57,217,364
Cost of revenue............................... 30,281,404 38,022,538
-------------- --------------
Gross profit.............................. 15,378,357 19,194,826
Selling, general and administrative expenses.. 12,085,577 14,271,544
-------------- --------------
Operating income.......................... 3,292,780 4,923,282
Other income (expense):
Interest expense............................ (1,445,561) (1,022,554)
Interest income............................. 109,402 170,397
Gain on sales of fixed assets............... 245,489 179,471
-------------- --------------
Income before provision for income taxes.. 2,202,110 4,250,596
Provision for income taxes.................... 735,506 1,696,876
-------------- --------------
Net income................................ $ 1,466,604 $ 2,553,720
============== ==============
Pro forma earnings per common share........... $ 0.48
==============
Pro forma weighted average common and common
equivalent shares outstanding................ 5,588,404
==============
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-38
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED AUGUST 31,
-----------------------------
1996 1997
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 1,466,604 $ 2,553,720
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization of fixed as-
sets....................................... 1,387,651 1,444,831
Amortization of intangible assets........... 781,630 900,346
Gain on sales of fixed assets............... (245,489) (179,471)
Provision for deferred taxes................ -- (424,025)
Change in deferred revenue.................. 772,581 860,543
Changes in operating assets and liabilities:
Accounts receivable....................... 1,250,240 1,010,533
Notes receivable from contracts........... (830,085) (1,170,305)
Prepaid expenses, deposits and other as-
sets..................................... (733,619) (453,038)
Accounts payable and accrued expenses..... (53,030) (1,675,064)
Deferred rent and other long-term liabili-
ties..................................... (43,264) (58,165)
------------- --------------
Net cash provided by operating activi-
ties.................................. 3,753,219 2,809,905
------------- --------------
Cash flows from investing activities:
Proceeds from sales of fixed assets........... 1,699,233 1,291,286
Purchases of fixed assets..................... (2,605,483) (3,177,135)
Acquisitions of chauffeured vehicle service
companies.................................... (1,248,585) (7,394,060)
------------- --------------
Net cash used in investing activities.. (2,154,835) (9,279,909)
------------- --------------
Cash flow from financing activities:
Proceeds of sales of notes receivable from in-
dependent operators.......................... 404,307 --
Principal payments under capital lease obliga-
tions........................................ (206,989) (185,574)
Payments of notes payable..................... (3,257,478) (17,838,591)
Proceeds from notes payable................... 2,320,541 450,000
Issuance of common stock...................... -- 30,897,290
Common stock dividends........................ (28,302) (101,857)
Preferred stock dividends..................... (900) --
Payments under Recapitalization Plan.......... -- (4,015,952)
Redemption of Series E preferred stock........ (137,500) --
------------- --------------
Net cash provided by (used in) financ-
ing activities........................ (906,321) 9,205,316
------------- --------------
Net increase in cash and cash equivalents....... 692,063 2,735,312
Cash and cash equivalents at beginning of peri-
od............................................. 1,615,711 2,867,711
------------- --------------
Cash and cash equivalents at end of period...... $ 2,307,774 $ 5,603,023
============= ==============
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-39
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE SUPPLEMENTAL 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: New York (Carey
Limousine N.Y., Inc. and Manhattan International Limousine Network, Ltd.), San
Francisco (Carey Limousine SF, Inc.), Los Angeles (Carey Limousine L.A.,
Inc.), Indianapolis (Indy Connection Limousine, Inc., See Note 2), Washington,
D.C. (Carey Limousine D.C., Inc.), South Florida (Carey Limousine Florida,
Inc.), Philadelphia (Carey Limousine Corporation, Inc.) and London, England
(Carey UK Limited). In addition, the Company licenses the "Carey" name, and
provides central reservations, billing, and sales and marketing services to
its licensees. The Company's worldwide network includes affiliates in
locations in which the Company has neither owned and operated locations nor
licensees. The Company provides central reservations and billing services to
such affiliates.
Acquisitions
The Company is engaged in a program of acquiring chauffeured vehicle service
businesses. Such acquisitions include unrelated chauffeured vehicle service
businesses, some of which may be in cities in which the Company has owned and
operated service providers, licensees operating under the Carey name and
trademark and affiliates of the Company. In the first quarter of 1996, the
Company acquired a chauffeured vehicle service company operating in London,
England. As more fully discussed in Note 3, on June 2, 1997 the Company
acquired Manhattan International Limousine Network Ltd. and an affiliated
company ("Manhattan Limousine").
Initial public offering and reverse stock split
In connection with the Company's initial public offering ("IPO") completed
June 2, 1997, the Company's Board of Directors authorized a one for 2.3255
reverse stock split of the outstanding shares of the Company's common stock.
All references to common stock, options, warrants and per share data have been
restated to give effect to the reverse stock split. On February 25, 1997, the
Board of Directors also authorized a Recapitalization Plan (the
"Recapitalization"), which is more fully described in Note 7.
2. BASIS OF PRESENTATION
The supplemental consolidated financial statements of Carey International,
Inc. and subsidiaries have been prepared to give retroactive effect to the
merger of Indy Connection Limousines, Inc. and subsidiary (Indy Connection)
with and into Carey International, Inc. and subsidiaries on October 31, 1997.
Generally accepted accounting principles proscribe giving effect to a
consummated business combination accounted for by the pooling-of-interests
method in financial statements that do not include the date of consummation.
These supplemental financial statements do not extend through the date of
consummation; however, they will become the historical consolidated financial
statements of Carey International, Inc. and subsidiaries after financial
statements covering the date of consummation of the business combination are
issued.
The accompanying consolidated financial statements and these notes do not
include all of the disclosures included in the Company's supplemental audited
consolidated financial statements for the years ended November 30, 1994, 1995
and 1996, which should be read in conjunction with these financial statements.
For further information, such as the significant accounting policies followed
by the Company, refer to the notes to the Company's supplemental consolidated
financial statements.
The supplemental consolidated financial statements included herein have not
been audited. However, in the opinion of management, the supplemental
consolidated financial statements reflect all adjustments (consisting
F-40
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
only of normal recurring adjustments) necessary for a fair presentation of the
results for the periods reflected. The results for these periods are not
necessarily indicative of the results for the full fiscal year.
Pro forma net income per common share
Consistent with Securities and Exchange Commission Staff Accounting Bulletin
("SAB") No. 1B-2, the Company has recalculated historical weighted average
common shares outstanding and net income per common share to give effect to
the Recapitalization (see Note 7). The recalculated pro forma net income per
common share is determined by (i) adjusting net income available to common
shareholders to reflect the elimination of interest expense, net of taxes,
resulting from the conversion of a portion of the subordinated debt into
common stock and (ii) increasing the weighted average common shares
outstanding by the number of common shares resulting from the conversion of
subordinated debt and the partial conversion of the Series A Preferred Stock.
3. ACQUISITIONS
In February 1996, the Company acquired the common stock of a chauffeured
vehicle service company in London, England for approximately $1,500,000.
Additional contingent consideration of up to approximately $1,000,000 may be
payable for the two-year period ending February 28, 1998 based on the level of
revenues referred to the acquired company by the seller. As of August 31,
1997, the Company has paid approximately $550,000 in such contingent
consideration in connection with the London acquisition. In September 1997,
the Company made an additional contingent consideration payment of
approximately $280,000.
In June 1997, the Company acquired the common stock of Manhattan Limousine
for $14,200,000. The purchase price for the acquisition was composed of
$4,740,00 in debt to the sellers, a cash payment of $7,060,000 and the
issuance of 228,571 shares of common stock. The debt to the sellers was paid
off on July 31, 1997.
In the periods ended August 31, 1996 and 1997, the following acquisition
activity was recorded by the Company:
<TABLE>
<CAPTION>
NINE MONTHS ENDED AUGUST 31,
-----------------------------
1996 1997
-------------- --------------
<S> <C> <C>
Fair value of net assets and liabilities ac-
quired:
Receivables and other assets................. $ 632,554 $ 159,575
Notes receivable from contracts.............. -- 6,647,766
Fixed assets................................. 928,377 1,498,444
Franchise rights............................. 50,065 --
Goodwill and other tangibles................. 160,040 21,046,816
Trade payables and accrued expenses.......... (522,451) (4,353,898)
Notes payable................................ -- (8,524,850)
Deferred revenue............................. -- (6,679,793)
------------- --------------
Fair value of assets and liabilities acquired.. $ 1,248,585 $ 9,794,060
============= ==============
Issuance of stock (228,571 shares of common
stock)........................................ $ -- $ 2,400,000
============= ==============
Cash payments (net of $223,695 cash acquired in
1996)......................................... $ 1,248,585 $ 7,394,060
============= ==============
</TABLE>
At the time of its acquisition by the Company, Manhattan Limousine was
subject to guarantees of certain independent operator leases with third party
finance companies of approximately $2.1 million.
F-41
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. SENIOR CREDIT FACILITY
With effect on August 15, 1997, the Company entered into a senior credit
facility with three banks consisting of a secured revolving line of credit of
$25.0 million (the "Facility"). The Facility, which may be used for
acquisitions and working capital, is collateralized by the assets of the
Company and its domestic operating subsidiaries and by a pledge of the stock
of its international subsidiary. The Facility also provides availability for
the issuance of letters of credit. Loans made under the revolving line of
credit bear interest at the Company's option at either the bank's prime
lending rate or 2.0% above the LIBOR rate. Commitment fees equal to 0.375% per
annum are payable on the unused portion of the revolving line of credit. On
the second anniversary of the Facility, outstanding balances under the
Facility will convert to a five-year term loan, which will bear interest
either at a fixed rate (subject to availability) or at a variable LIBOR or
prime-based rate with adjustments determined based on the Company's earnings.
The terms of the Facility (i) prohibit the payment of dividends by the
Company, (ii) with certain exceptions, prevent the Company from incurring or
assuming other indebtedness that is not subordinated to borrowings under the
Facility and (iii) require the Company to comply with certain financial
covenants.
5. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is subject to various legal
actions which are not material to the financial condition, results of
operations or cash flows of the Company.
The Company, certain of the Company's subsidiaries and certain officers and
directors of the Company were named in a civil action filed on May 15, 1996 in
the United States District Court for the Eastern District of Pennsylvania
entitled "Felix v. Carey International, Inc., et. al." The plaintiff's
complaint, which purports to be a class action, alleges that the plaintiff and
others similarly situated suffered monetary damages as a result of
misrepresentations by the various defendants in their use of a surface
transportation billing charge (the "STC"). The plaintiff seeks damages in
excess of $1 million on behalf of the class for each of the counts in the
complaint including fraud, negligent misrepresentation and violations of the
Racketeer Influenced and Corrupt Organizations law of 1970, which permits the
recovery of treble damages and attorneys' fees. The proposed class has
received preliminary certification by the court. The Company is indemnifying
and defending its officers and directors who were named as defendants in the
case, subject to conditions imposed by applicable law.
The Company has reached a tentative settlement with the plaintiff and
plaintiff's counsel. The settlement calls for the Company to deposit $500,000
into a settlement fund and provide a $450,000 letter of credit for a class
consisting of all persons who paid the STC during the period from May 15, 1992
through March 15, 1997. As a condition of the final settlement, the Company
will change its disclosure concerning the STC, and each class member showing
proper authentication of a claim shall be entitled to receive either (i) cash
totaling 10% of the STC paid during the period described above or (ii) a
nontransferable credit to be applied toward future use of the Company's
services in an amount equal to 30% of such STC.
The Company does not believe the settlement described above will have a
material adverse effect on its business, financial condition, results of
operations and cash flows.
F-42
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. NET INCOME PER COMMON SHARE
Net income per common share, on a historical basis, is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
AUGUST 31,
---------------------
1996 1997
---------- ----------
<S> <C> <C>
Net income available to common shareholders............. $1,465,704 $2,553,720
========== ==========
Weighted average common and common equivalent shares
outstanding............................................ 3,124,314 4,858,013
========== ==========
Net income per common share............................. $ 0.47 $ 0.53
========== ==========
</TABLE>
Common equivalent shares are included in the per share calculations where
the effect of their inclusion would be dilutive. Common equivalent shares
consist of Series B, F and G preferred stock as well as substantially all of
the subordinated debt of the Company and the assumed exercise of vested
outstanding stock options and warrants. Pursuant to SAB No. 83, the common
equivalent shares issued by the Company during the twelve months preceding the
effective date of the Registration Statement relating to the IPO, using the
treasury stock method and the IPO price of $10.50 per share, have been
included in the calculation of net income per common share.
7. RECAPITALIZATION
On February 25, 1997, the Board of Directors authorized a Recapitalization,
which was implemented on June 2, 1997, coincident with the closing of the IPO.
Under the Recapitalization, the $2,000,000 subordinated convertible note dated
September 1, 1991 and the $3,780,000 subordinated note dated July 30, 1992
were converted into 1,046,559 shares of common stock and the remaining
principal balance of $912,454 was repaid. The Series A preferred stock was
converted, in part, into 86,003 shares of common stock and redeemed in part
for $2,103,500. All of the Series F preferred stock and 3,000 shares of the
Series G preferred stock was redeemed for $1,000,000.
The remaining preferred stock has been converted into 1,427,527 shares of
common stock. As a result of the Recapitalization, preferred stock with a
liquidation preference of $11,154,900 and subordinated debt with a principal
amount of $5,780,000 has been converted in part into 2,560,071 shares of
common stock and repaid or redeemed in part for $4,015,952 in cash, with the
cash portion paid out of the proceeds of the IPO.
F-43
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Carey International, Inc.
We have audited the accompanying supplemental consolidated balance sheets of
Carey International, Inc. and Subsidiaries as of November 30, 1995 and 1996,
and the related supplemental consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended November 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 supplemental consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Carey International Inc. and Subsidiaries as of November 30, 1995 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended November 30, 1996, in conformity with generally
accepted accounting principles.
The supplemental financial statements give retroactive effect to the merger
on October 31, 1997, of Carey International, Inc. and Indy Connection
Limousine, Inc. and Subsidiary, which has been accounted for as a pooling-of-
interests as described in Notes 1, 2 and 13 to the supplemental consolidated
financial statements. Generally accepted accounting principles proscribe
giving effect to a consummated business combination accounted for by the
pooling-of-interests method in financial statements that do not include the
date of consummation. These financial statements do not extend through the
date of consummation; however, they will become the historical consolidated
financial statements of Carey International, Inc. and Subsidiaries after
financial statements covering the date of consummation of the business
combination are issued.
As discussed in Note 16 to the supplemental consolidated financial
statements, the accompanying supplemental consolidated balance sheets as of
November 30, 1994 and 1995, and the related supplemental consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the two years in the period ended November 30, 1995, have been
restated for a change in the revenue recognition method.
Coopers & Lybrand, L.L.P.
Washington, D.C.
January 31, 1997, except for Note 18, as to which the date is March 1,
1997, and Notes 1, 2 and 13 and the fourth paragraph above, as to which
the date is January 9, 1998
F-44
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 30,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................ $ 1,615,711 $ 2,867,711
Accounts receivable, net of allowance for doubtful
accounts of $294,000 in 1995 and $535,000 in 1996... 9,364,356 10,542,331
Notes receivable from contracts, current portion..... 659,609 402,751
Prepaid expenses and other current assets............ 481,947 2,061,738
----------- -----------
Total current assets............................. 12,121,623 15,874,531
Fixed assets, net of accumulated depreciation of
$3,643,000 in 1995 and $3,394,000 in 1996........... 4,318,711 5,634,910
Notes receivable from contracts, excluding current
portion............................................. 193,298 769,201
Franchise rights, net of accumulated amortization of
$1,494,000 in 1995 and $1,729,000 in 1996........... 5,533,956 5,348,264
Trade name, trademark and contract rights, net of
accumulated amortization of $781,000 in 1995 and
$973,000 in 1996.................................... 6,876,578 6,685,135
Goodwill and other intangible assets, net of
accumulated amortization of $585,000 in 1995 and
$840,000 in 1996.................................... 7,139,263 7,285,933
Deferred tax assets.................................. 892,993 2,461,573
Deposits and other assets............................ 1,652,892 1,419,006
----------- -----------
Total assets..................................... $38,729,314 $45,478,553
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of notes payable..................... $ 5,365,412 $ 5,858,249
Current portion of capital leases.................... 252,953 199,224
Current portion of subordinated notes payable........ 100,000 440,000
Accounts payable and accrued expenses................ 8,351,312 11,564,963
----------- -----------
Total current liabilities........................ 14,069,677 18,062,436
Notes payable, excluding current portion............. 8,639,769 6,035,964
Capital leases, excluding current portion............ 82,021 663,030
Subordinated notes payable, excluding current
portion............................................. 5,780,000 5,340,000
Deferred rent and other long-term liabilities........ 148,195 111,281
Deferred tax liabilities............................. 1,086,480 1,511,611
Deferred revenue..................................... 4,726,134 6,181,147
Commitments and contingencies
Stockholders' equity:
Preferred stock.................................... 1,252,900 1,115,400
Class A common stock, $.01 par value, authorized
314,000 Shares, none issued and outstanding....... -- --
Common stock, $0.01 par value; issued and
outstanding 1,357,714 in 1995 and 1,377,556 shares
in 1996........................................... 13,577 13,776
Additional paid-in capital......................... 7,821,570 7,841,371
Accumulated deficit................................ (4,891,009) (1,397,463)
----------- -----------
Total stockholders' equity....................... 4,197,038 7,573,084
----------- -----------
Total liabilities and stockholders' equity....... $38,729,314 $45,478,553
=========== ===========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-45
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenue, net........................... $40,313,722 $48,969,395 $65,544,942
Cost of revenue........................ 27,699,677 33,027,209 43,649,178
----------- ----------- -----------
Gross profit......................... 12,614,045 15,942,186 21,895,764
Selling, general and administrative
expense............................... 11,042,949 14,081,152 16,726,610
----------- ----------- -----------
Operating income..................... 1,571,096 1,861,034 5,169,154
Other income (expense):
Interest expense..................... (1,513,163) (1,910,966) (1,898,231)
Interest income...................... 173,313 262,647 162,711
Gain (loss) on sales of assets....... (106,568) 156,005 355,754
----------- ----------- -----------
Income before provision for income
taxes................................. 124,678 368,720 3,789,388
Provision for income taxes............. 162,810 270,599 294,421
----------- ----------- -----------
Net income (loss)...................... $ (38,132) $ 98,121 $ 3,494,967
=========== =========== ===========
Pro forma net income per common share.. $ 0.90
===========
Pro forma weighted average common
shares outstanding.................... 4,230,023
===========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-46
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES E SERIES F SERIES G CAREY INDIANA
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
STOCK STOCK STOCK STOCK STOCK STOCK
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at November 30,
1993................... $420,700 $95,800 $266,250 $100,000 $498,900 $400,000
Accretion of redeemable
preferred stock........ -- -- 8,750 -- -- --
Issue Class B preferred
stock.................. -- -- -- -- -- 80,000
Payment of common stock
dividends.............. -- -- -- -- -- --
Redemption of preferred
stock.................. -- -- (62,500) -- -- (400,000)
Issue common stock...... -- -- -- -- -- --
Exchange stock for
investment in
discontinued
operations............. -- -- -- -- -- --
Payment of accrued
dividends.............. -- -- (26,250) -- -- --
Payment of Series E
dividends.............. -- -- -- -- -- --
Net loss................ -- -- -- -- -- --
-------- ------- -------- -------- -------- --------
Balance at November 30,
1994................... 420,700 95,800 186,250 100,000 498,900 80,000
Accretion of redeemable
preferred stock........ -- -- 4,375 -- -- --
Payment of common stock
dividends.............. -- -- -- -- -- --
Redemption of preferred
stock.................. -- -- (62,500) -- -- (40,000)
Payment of preferred
stock dividends........ -- -- (30,625) -- -- --
Issuance of stock....... -- -- -- -- -- --
Net income.............. -- -- -- -- -- --
-------- ------- -------- -------- -------- --------
Balance at November 30,
1995................... 420,700 95,800 97,500 100,000 498,900 40,000
Redemption of preferred
stock.................. -- -- (97,500) -- -- (40,000)
Issuance of options at
below fair market
value.................. -- -- -- -- -- --
Payment of preferred
stock dividend......... -- -- -- -- -- --
Payment of common stock
dividend............... -- -- -- -- -- --
Cumulative effect of
currency translation... -- -- -- -- -- --
Net income.............. -- -- -- -- -- --
-------- ------- -------- -------- -------- --------
Balance at November 30,
1996................... $420,700 $95,800 $ -- $100,000 $498,900 $ --
======== ======= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-47
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES $ CAPITAL DEFICIT EQUITY
--------- ------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at November 30,
1993................... 1,323,048 $13,230 $7,798,322 $(4,822,643) $4,770,559
Accretion of redeemable
preferred stock........ -- -- (8,750) -- --
Issue Class B preferred
stock.................. -- -- -- -- 80,000
Payment of common stock
dividends.............. -- -- -- (103,076) (103,076)
Redemption of preferred
stock.................. -- -- -- -- (462,500)
Issue common stock...... 14,881 149 14,851 15,000
Exchange stock for
investment in
discontinued
operations............. (12,897) (129) (12,871) -- (13,000)
Payment of accrued
dividends.............. -- -- -- -- (26,250)
Payment of Series E
dividends.............. -- -- -- (4,378) (4,378)
Net loss................ -- -- -- (38,132) (38,132)
--------- ------- ---------- ----------- ----------
Balance at November 30,
1994................... 1,325,032 13,250 7,791,552 (4,968,229) 4,218,223
Accretion of redeemable
preferred stock........ -- -- (4,375) -- --
Payment of common stock
dividends.............. -- -- -- (20,901) (20,901)
Redemption of preferred
stock.................. -- -- -- -- (102,500)
Payment of preferred
stock dividends........ -- -- -- -- (30,625)
Issuance of stock....... 32,682 327 34,393 -- 34,720
Net income.............. -- -- -- 98,121 98,121
--------- ------- ---------- ----------- ----------
Balance at November 30,
1995................... 1,357,714 13,577 7,821,570 (4,891,009) 4,197,038
Redemption of preferred
stock.................. -- -- -- -- (137,500)
Issuance of options at
below fair market
value.................. 19,842 199 19,801 -- 20,000
Payment of preferred
stock dividend......... -- -- -- (900) (900)
Payment of common stock
dividend............... -- -- -- (42,057) (42,057)
Cumulative effect of
currency translation... -- -- -- 41,536 41,536
Net income.............. -- -- -- 3,494,967 3,494,967
--------- ------- ---------- ----------- ----------
Balance at November 30,
1996................... 1,377,556 $13,776 $7,841,371 $(1,397,463) $7,573,084
========= ======= ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-48
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................... $ (38,132) $ 98,121 $ 3,494,967
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization of
fixed assets....................... 1,816,307 2,087,370 2,095,439
Amortization of intangible assets... 672,983 714,199 1,064,255
(Gain) loss on sales of fixed
assets............................. 106,568 (156,005) (355,754)
Deferred income taxes expense
(benefit).......................... 70,000 102,000 (1,346,557)
Change in deferred revenue.......... 184,220 237,306 1,455,013
Change in operating assets and
liabilities:
Accounts receivable............... (948,971) (2,601,429) (545,421)
Notes receivable from contracts... (519,155) 11,000 (1,052,838)
Prepaid expenses, deposits and
other assets..................... (362,838) (189,180) (665,084)
Accounts payable and accrued
expenses......................... 810,819 3,306,393 2,021,101
Deferred rent and other long-term
liabilities...................... (61,967) 87,490 (36,914)
----------- ----------- -----------
Net cash provided by operating
activities..................... 1,729,834 3,697,265 6,128,207
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of fixed assets.... 971,864 1,639,766 1,788,380
Purchases of fixed assets............. (2,347,495) (2,768,982) (3,091,353)
Software development costs............ -- (203,529) --
Redemption of investment in
affiliate............................ -- 100,000 --
Acquisitions of chauffeured vehicle
service companies.................... (128,596) (3,949,393) (1,730,232)
----------- ----------- -----------
Net cash used in investing
activities..................... (1,504,227) (5,182,138) (3,033,205)
----------- ----------- -----------
Cash flow from financing activities:
Proceeds from sale of notes receivable
from independent operators........... 378,733 1,493,399 733,793
Principal payments under capital lease
obligations.......................... (384,181) (436,169) (297,549)
Preferred stock dividends............. (30,628) (30,625) (900)
Payment of notes payable.............. (4,036,740) (4,496,659) (5,976,357)
Proceeds from notes payable........... 3,357,185 5,141,022 3,857,568
Issuance of common stock.............. 15,000 34,720 20,000
Common stock dividends................ (103,076) (20,901) (42,057)
Issue preferred stock................. 80,000 -- --
Redemption of preferred stock......... (462,500) (102,500) (137,500)
----------- ----------- -----------
Net cash provided by (used in)
financing activities........... (1,186,207) 1,582,287 (1,843,002)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ (960,600) 97,414 1,252,000
Cash and cash equivalents at beginning
of year................................ 2,478,897 1,518,297 1,615,711
----------- ----------- -----------
Cash and cash equivalents at end of
year................................... $ 1,518,297 $ 1,615,711 $ 2,867,711
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-49
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND AND ORGANIZATION
General
Carey International, Inc. (the Company) is one of the world's largest
chauffeured vehicle service companies, providing 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: New York (Carey Limousine NY, Inc.), San
Francisco (Carey Limousine SF, Inc.), Los Angeles (Carey Limousine L.A.,
Inc.), London (Carey UK Limited), Indianapolis (Indy Connection Limousine,
Inc., See Note 2), Washington, DC (Carey Limousine DC, Inc.), South Florida
(Carey Limousine Florida, Inc.) and Philadelphia (Carey Limousine Corporation,
Inc.). In addition, the Company generates revenues from licensing the "Carey"
name, and from providing central reservations, billing, sales and marketing
services to its licensees. The Company's worldwide network also included
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 and franchises
The Company is engaged in a program of acquiring chauffeur vehicle service
businesses, including licensees operating under the Carey name and trademark.
These acquisitions are accounted for as purchases. The carrying value of the
assets acquired is determined by the negotiated purchase price. In addition to
acquiring licensees operating under the Carey name, the Company has acquired
chauffeured vehicle service businesses in cities where the Company operates.
In 1995, these acquisitions included chauffeur vehicle service companies
operating in Washington, D.C., Miami, West Palm Beach and San Francisco. In
1996, the Company acquired a chauffeured vehicle service company in London,
England.
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"). The Board of Directors, at the same
meeting and subject to stockholder approval, authorized a reverse stock split
of approximately one-for-2.3255 of the outstanding shares of the Company's
common stock. A majority of the Company's stockholders have 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. The
Board of Directors also authorized a Recapitalization (see Note 18) on
February 25, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The supplemental consolidated financial statements of Carey International,
Inc. and subsidiaries have been prepared to give retroactive effect to the
merger of Indy Connection Limousines, Inc. and subsidiary (Indy Connection)
with and into Carey International, Inc. and subsidiaries on October 31, 1997
(See Note 13). Generally accepted accounting principles proscribe giving
effect to a consummated business combination accounted for by the pooling-of-
interests method in financial statements that do not include the date of
consummation. These supplemental financial statements do not extend through
the date of consummation; however, they will become the historical
consolidated financial statements of Carey International, Inc. and
subsidiaries after financial statements covering the date of consummation of
the business combination are issued.
The supplemental consolidated financial statements include the financial
statements of the Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated.
F-50
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all short-term investments with original maturities of
three months or less to be cash equivalents.
Notes receivable from contracts
An important component of the Company's operating strategy involves the
preferred use of non-employee independent operators chauffeuring their own
vehicles rather than employee chauffeurs operating Company-owned vehicles.
Each independent operator enters into an agreement with the Company to
provide prompt and courteous service to the Company's customers with a
properly maintained, late model vehicle which he or she owns and for which he
or she pays all of the maintenance and operating expenses, including gasoline.
The Company, under the independent operator agreement, agrees to bill and
collect all revenues and remit to the independent operator 60% to 65% of
revenues, as defined in the agreement. Each new operator agrees to pay a one-
time fee generally ranging from $30,000 to $45,000 to the Company under the
terms of the independent operator agreement. Through 1996, the term of the
independent operator agreement generally ranged from 10 years to perpetuity.
(See "Revenue recognition").
The Company typically receives a promissory note from the independent
operator as payment for the one-time fee under the terms of the Standard
Independent Operator Agreement (see Note 3) and records the note in notes
receivable from contracts. The notes evidencing such financing generally were
sold on a non-recourse basis by the Company to third party finance companies
(see Note 11) in exchange for cash and promissory notes. Since September 1996,
the Company has ceased selling notes to third parties. Such promissory notes
due from finance companies have also been recorded in notes receivable from
contracts in the consolidated balance sheets.
Concentration of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash
equivalents, accounts receivable and notes receivable from contracts. The
Company maintains its cash and cash equivalents with various financial
institutions. In order to limit exposure to any one institution, the Company's
cash equivalents are composed mainly of overnight repurchase agreements
collateralized by U.S. Government securities. Accounts receivable are
generally diversified due to the large number of entities comprising the
Company's customer base and their dispersion across many different industries.
The Company performs ongoing credit evaluations of its customers, and may
require credit card documentation or prepayment of selected transactions.
Notes receivable from contracts are supported by the underlying base of
revenue serviced by each respective independent operator (see Notes 4 and 11).
The Company performs ongoing evaluations of each independent operator's
productivity and payment capacity and has utilized third-party financing to
reduce credit exposure.
Fixed assets
Furniture, equipment, vehicles and leasehold improvements are stated at
cost. Equipment under capital leases is stated at the lower of the present
value of minimum lease payments or the fair market value at the
F-51
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
inception of the lease. Depreciation on furniture, equipment, vehicles and
leasehold improvements is calculated on the straight-line method over the
estimated useful lives of the assets, generally three to five years. The
building owned by the Company is depreciated over 40 years on a straight-line
basis. Sales and retirements of fixed assets are recorded by removing the cost
and accumulated depreciation from the accounts. Gains or losses on sales and
retirements of property are reflected in results of operations.
Intangible assets
Effective September 1, 1991, the Company acquired the Carey name and
trademark and the contract rights to all royalty fee payments by various Carey
licensees for a purchase price of $7 million. These assets are held by Carey
Licensing, Inc. and are being amortized over 40 years.
The Company has acquired chauffeured vehicle service companies, all of which
have been accounted for as purchases, except for Indy Connection which has
been accounted for as a pooling-of-interests. For each business acquired which
is a licensee of the Company, the excess of cost over the fair market value of
the net assets acquired is allocated to franchise rights in the balance sheet.
With respect to acquired businesses which are not licensees of the Company,
the excess of cost over the net assets acquired is allocated to goodwill.
Goodwill and franchise rights are amortized over 30 years using the straight-
line method. Such amortization is included in selling, general and
administrative expense in the statement of operations. The Company evaluates
the recoverability of its intangible assets based on estimated undiscounted
cash flows over the lesser of the remaining amortization periods or calculated
lives, giving consideration to revenue expected to be realized. This
determination is based on an evaluation of such factors as the occurrence of a
significant change in the environment in which the business operates or the
expected future net cash flows (undiscounted and without interest). There have
been no adjustments to the carrying value of intangible assets resulting from
this evaluation.
Revenue recognition
Chauffeured vehicle services--The Company's principal source of revenue is
from chauffeured vehicle services provided by its operating subsidiaries. Such
revenue, net of discounts, is recorded when such services are provided. The
Company, through the Carey International Reservation System ("CIRS"), has a
central reservation system capable of booking reservations on behalf of its
licensees and affiliates. Under most circumstances, central reservations are
billed by the Company to the customer when the Company receives a service
invoice from the licensee or affiliate that provided the service. At such
time, the Company also records the gross revenue for the transaction.
Fees from licensees--The Company charges an initial license fee under its
domestic license agreement and records the fee as revenue on signing of the
agreement. The Company also charges its domestic licensees monthly franchise
and marketing fees equal to stated percentages of monthly revenues, as defined
in the licensing agreement. Monthly fees to domestic licensees are generally
less than 10% of the licensee's monthly revenues. The Company records such
fees as revenues as they are charged to the licensees.
International licensees and the Company's domestic and international
affiliates historically have not paid fees to the Company, but have instead
given a discount on business referred to them through CIRS. Such discounts
reduce the amount of service invoices to the Company from such licensees and
affiliates for services provided to customers whose reservations have been
booked and invoiced centrally by the Company.
Independent operator fees--The Company enters into contracts with
independent operators ("Standard Independent Operator Agreements") to provide
chauffeured vehicle services exclusively to the Company's customers. When
independent operator agreements are executed, the Company defers revenue equal
to the
F-52
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
amount of the one-time fees and recognizes the fees as revenue over the terms
of the contracts or over 20 years for perpetual contracts. Upon termination of
an independent operator agreement, the remaining deferred revenue associated
with the specific contract, less any amounts due from the independent operator
deemed uncollectible, is recognized as revenue.
Income taxes
The provision for income taxes includes income taxes currently payable and
the change during the year in the net deferred tax liabilities or assets.
Deferred income tax liabilities and assets are determined based on the
differences between the financial statement and tax bases of liabilities and
assets using enacted tax rates in effect for the year in which the differences
are expected to reverse. A valuation allowance is provided to reduce the net
deferred tax asset, if any, to a level which, more likely than not, will be
realized.
Pro forma net income per common share
Consistent with Staff Accounting Bulletin IB-2, the Company has recalculated
historical weighted average common shares outstanding and net income per
common share to give effect to the following matters pursuant to the
Recapitalization (see Note 18). The recalculated pro forma net income per
common share is determined by (i) adjusting net income available to common
shareholders to reflect the elimination in interest expense, net of taxes,
resulting from the conversion of $4,867,546 of 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 such debt, as
well as the partial conversion of the Series A Preferred Stock.
Stock-based Compensation
In October 1995, the Financial Accounting Standards Boards issued Statement
of Financial Accounting Standards No. 123 ("SFAS 123") Accounting for Stock-
Based Compensation, which is effective for the Company's financial statements
for fiscal years beginning after December 15, 1995. SFAS 123 allows companies
to either account for stock-based compensation under the new provisions of
SFAS 123 or under the provisions of Accounting Principles Board Option No. 25
("APB 25"), Accounting for Stock Issued to Employees. The Company will
continue to apply the provisions of APB 25 and provide pro forma disclosure in
the notes to the financial statements.
Foreign operations
The Consolidated Balance Sheets include foreign assets and liabilities of
$3.7 million and $2.7 million as of November 30, 1996. The net effects of
foreign currency transactions reflected in income were immaterial. Assets and
liabilities of the Company's foreign operations are translated into United
States dollars using exchange rates in effect at the balance sheet date and
results of operations items are translated using the average exchange rate
prevailing throughout the period.
Reclassifications
Certain accounts in 1994 and 1995 have been reclassified to conform with the
1996 presentation.
3. FEES FROM LICENSEES
The total of all domestic license fees, franchises fees and marketing fees
earned in each of 1994, 1995 and 1996 was $1,466,588, $1,228,472 and
$2,180,540, respectively. Amounts due from licensees of $46,520
F-53
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and $143,041 at November 30, 1995 and 1996, respectively, are included in
accounts receivable in the consolidated balance sheets of the Company.
4. TRANSACTIONS WITH INDEPENDENT OPERATORS
The Company recorded approximately $1,153,000, $1,130,000 and $2,371,000 in
1994, 1995 and 1996, respectively, as deferred revenue relating to fees from
new agreements with independents operators. Amounts of deferred revenue
recognized as revenues in 1994, 1995 and 1996 amounted to approximately
$969,000, $889,000 and $936,000, respectively.
Notes receivable from contracts include approximately $305,000 and $917,000
at November 30, 1995 and 1996, respectively, for amounts due from independent
operators and approximately $548,000 and $255,000 at November 30, 1995 and
1996, respectively, for amounts due from a related party financing company
(see Note 11).
In the normal course of business, the Company's independent operators are
responsible for financing their own vehicles through third parties. From time
to time, the Company has arranged lease and purchase financing for certain
vehicles and has in turn leased back such vehicles to independent operators on
terms and conditions similar to those under which the Company is obligated
(see Note 5).
5. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
Vehicles.............................................. $ 5,352,304 $ 5,026,897
Equipment............................................. 1,801,668 2,303,348
Furniture............................................. 543,782 749,840
Leasehold improvements................................ 263,758 419,232
Land and building..................................... -- 529,634
----------- -----------
7,961,512 9,028,951
Less accumulated depreciation and amortization........ (3,642,801) (3,394,041)
----------- -----------
Net fixed assets...................................... $ 4,318,711 $ 5,634,910
=========== ===========
</TABLE>
The Company is obligated under various vehicle and equipment capital leases.
Vehicles and equipment under capital leases included in fixed assets are as
follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
----------------------
1995 1996
--------- -----------
<S> <C> <C>
Equipment............................................... $ 444,983 $ 1,048,633
Vehicles................................................ 352,796 621,420
--------- -----------
797,779 1,670,053
Less accumulated amortization........................... (536,713) (561,871)
--------- -----------
$ 261,066 $ 1,108,182
========= ===========
</TABLE>
F-54
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Bank revolving credit/term loan dated April 13,
1995, modified December 1, 1996. Collateralized
by accounts receivable of the Company and the
pledge of common stock of the Company's U.S. sub-
sidiaries. Interest only is payable until June
30, 1996; beginning July 1, 1996, quarterly prin-
cipal payments are required in an amount suffi-
cient to amortize the outstanding balance over a
four-year period. Interest is payable monthly at
a floating rate based on the Wall Street Journal
prime plus 1.25% (9.5% at November 30, 1996).
This loan is guaranteed by the Chairman of the
Board and the President of the Company........... $4,500,000 $3,937,500
Note payable dated September 1, 1991, at an annual
rate of interest of 7.74%, collateralized by the
assets of Carey Licensing, Inc. Pursuant to an
agreement with the lender effective November 30,
1996, principal payments of $220,000 are due
quarterly from December 31, 1996 through December
31, 1997 and a final principal payment of
$240,000 due March 1, 1998....................... 2,220,000 1,340,000
Bank line of credit of $1,000,000, dated October
17, 1994, collateralized by accounts receivable
of Carey NY and assignment of license agreement
between the Company and Carey NY; due April 30,
1997. Interest is payable monthly at a variable
interest rate of .75% above the bank's prime rate
(9.0% at November 30, 1996)...................... 990,000 990,000
Various installment notes payable, with interest
rates ranging from 8.75% to 14.5%, collateralized
by certain vehicles and equipment of the
Company's subsidiaries; principal and interest
are payable monthly over 36-month terms.......... 1,514,715 555,834
Notes payable to bank, dated March 26, 1996, at
the prime rate (8.25 at November 30, 1996) plus
1.0% per annum and matures on January 31, 1998.
The notes are collateralized by substantially all
Indy Connection's assets. Under the terms of the
agreement, Carey Limousine Indiana is subject to
various general covenants. The bank also required
the personal guaranty by the former shareholder
of Indy Connection............................... -- 497,582
Discretionary credit agreement with a bank that
allows the Company to purchase revenue earning
vehicles under installment notes. Separate notes
are required for each vehicle purchase with a
maximum term on the note being thirty-six months.
These notes bear interest at rates ranging from
8.9% to 11.0%. The notes are collateralized by
Indy Connection's accounts receivable, inventory
and equipment and is subject to various restric-
tive covenants. The agreement was subsequently
renegotiated at similar terms.................... 845,753 411,402
Two notes payable to bank, with interest at a
fixed rate of 9.25% and a 48 month and 84 month
term, respectively. The notes require monthly
principal and interest payments that total
$4,413. The notes are collateralized by vehicles.
The agreement subjects Indy Connection to various
general covenants and required a personal guar-
anty by the former owners of Indy Connection..... 390,263 363,705
</TABLE>
F-55
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
NOVEMBER 30,
-------------------
1995 1996
--------- ---------
<S> <C> <C>
Installment notes payable to sellers under
acquisition agreements dated various dates from
June 30, 1994 to September 8, 1995. Interest rates
ranges from 7.5% to 8.5%. Interest is generally
payable monthly. Principal is payable in varying
installments....................................... 2,339,418 1,305,574
Convertible note payable to seller under acquisition
agreement dated September 30, 1993 at an annual
rate of 7.5%, interest payable quarterly; principal
due in two equal annual installments of $116,667 on
January 2, 1996 and 1997. The note was repaid in
January 1997....................................... 233,333 116,666
Bank line of credit $200,000, dated October 31, 1995
at variable interest rate (10% at November 30,
1995), collateralized by accounts receivable of
Carey DC. This facility was refinanced by a term
loan with the same bank on March 1, 1996........... 200,000 --
Amount payable to seller under acquisition agreement
dated January 1, 1995. Due 30 days after receipt of
an audit of the predecessor company. Amount of the
payment is subject to reduction based on the
results of the audit. The audit has been completed
and the amount was subsequently reduced in 1996 to
$210,821 and has been repaid....................... 250,000 --
Note payable to bank, dated September 30, 1995,
payable in monthly installments of $4,167 plus
interest. Interest rate is variable at bank's prime
plus 1% (10.0% at November 30, 1996)............... 241,667 191,717
Note payable to bank, dated August 30, 1993,
collateralized by accounts receivable, fixed assets
and intangible assets of Carey DC; monthly payments
of $9,401 for principal and interest are due
through August 31, 1996. Interest rate is fixed at
8%. This note was refinanced on March 1, 1996 by a
term loan with the same bank....................... 90,631 --
Note payable to bank, dated October 17, 1994,
collateralized by accounts receivable and fixed
assets of Carey NY. Principal and interest payments
of $2,848 are payable monthly. Remaining balance is
due October 17, 1999. Interest rate is fixed at
9.25%.............................................. 189,401 149,001
Bank line of credit of $750,000, dated February 26,
1996 collateralized by accounts receivable of Carey
Licensing, Inc.; due March 31, 1997. Interest is
payable monthly at 1% above the Wall Street
Journal's "Prime Rate" (9.25% at November 30,
1996).............................................. -- 750,000
Bank line of credit of $200,000, dated February 26,
1996, collateralized by accounts receivable of
Carey FLA; due March 31, 1997. Interest is payable
monthly at 1% above Wall Street Journal's "Prime
Rate" (9.25% at November 30, 1996)................. -- 200,000
Note payable to bank, dated March 1, 1996,
collateralized by accounts receivable of Carey DC
Monthly payments of $12,735 of principal and
interest through March 1, 2001. Interest is payable
monthly at .5% above the bank's Prime Rate (9.5% at
November 30, 1996)................................. -- 662,053
</TABLE>
F-56
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
NOVEMBER 30,
-----------------------
1995 1996
----------- -----------
<S> <C> <C>
Note payable to bank, dated May 10, 1996,
collateralized by the land and building held by
Carey DC; monthly payments of $3,863 of
principal and interest are due through April
10, 2001 and a balloon payment of $375,468 on
May 10, 2001. Interest fixed at 8.75%.......... -- 423,179
----------- -----------
Total notes payable............................. 14,005,181 11,894,213
Less current installments....................... 5,365,412 5,858,249
----------- -----------
Long-term portion............................... $ 8,639,769 $ 6,035,964
=========== ===========
</TABLE>
Subordinated notes payable consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Subordinated convertible note, dated September 1,
1991, with the principal of $2,000,000 is due on
August 30, 2000; interest payable quarterly as a
fixed rate of 7.74%. After September 1, 1992, this
debt is convertible into shares of common stock of
the Company at the discretion of the holder at a
conversion price of $6.14. A warrant for the
purchase of 86,003 shares of common stock of the
Company was issued in connection with the note. The
warrant is exercisable immediately, expires at the
earlier of the third anniversary of an initial
public offering or November 30, 2001, and has an
exercise price of $6.14 per share. The note contains
certain antidilutive provisions which lower its
conversion price in the event dilutive securities
are subsequently issued by the Company at prices
below the note's conversion price. The warrant has
not been exercised. The terms of the agreement have
been modified as part of the "Recapitalization" (see
Notes 15 and 18).................................... $2,000,000 $2,000,000
Subordinated note dated July 30, 1992, interest only
payable quarterly until September 30, 1995. The
interest rate is fixed at 12%. Principal of $220,000
was paid on September 30, 1995. Pursuant to an
agreement with the lender effective November 30,
1996, principal payments of $220,000 are due from
June 30, 1997 until December 31, 1997; an
installment of principal of $880,000 is due March
31, 1998; and a final payment of principal of
$2,240,000 is due June 30, 1998. A warrant for the
purchase of 616,544 shares of Class A common stock
or common stock was issued in connection with the
note. The warrant is exercisable immediately, has an
exercise price of $6.14 per share and expires at the
earlier fifth anniversary of the repayment of the
note or July 30, 2000. The warrants contain certain
antidilutive provisions which lower their exercise
price in the event dilutive securities are
subsequently issued by the Company at prices below
the warrant's exercise price. The warrant has not
been exercised. The terms of the agreement have been
modified as part of the "Recapitalization" (see Note
18)................................................. 3,780,000 3,780,000
Convertible note payable to seller under acquisition
agreement, dated September 30, 1992; interest
payable quarterly at a fixed rate of 7.74%. The note
was repaid in September 1996........................ 100,000 --
---------- ----------
Total subordinated notes payable..................... 5,880,000 5,780,000
Less current installments............................ 100,000 440,000
---------- ----------
Subordinated notes payable, excluding current
installments........................................ $5,780,000 $5,340,000
========== ==========
</TABLE>
F-57
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future annual principal payments on all notes payable at November 30, 1996
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING NOVEMBER 30:
------------------------
<S> <C>
1997........................................................... $ 6,298,249
1998........................................................... 6,129,209
1999........................................................... 1,691,567
2000........................................................... 924,900
2001 and thereafter............................................ 2,630,288
-----------
$17,674,213
===========
</TABLE>
Certain loan agreements contain restrictive covenants which include
financial ratios related to working capital, debt service coverage, debt to
net worth and maintenance of a minimum tangible net worth, and submission of
audited financial statements, prepared in accordance with generally accepted
accounting principles, within 120 days after the end of the fiscal year.
Additionally, these covenants restrict the Company's capital expenditures and
prohibit the payment of dividends on the Company's common and preferred stock,
except for the Series E preferred stock and Indy Connection preferred stock.
The Company did not meet certain covenants related to the timely submission of
financial statements, working capital, debt to net worth and maintenance of a
minimum tangible net worth at November 30, 1996. The Company obtained waivers
for compliance with these covenants through and including November 30, 1996.
The carrying value of notes payable approximates the current value of the
notes payable at November 30, 1996. (See Note 18 for discussions of the fair
value for the subordinated debt). Interest paid during the years ended
November 30, 1994, 1995, and 1996 was approximately $1,512,000, $1,878,000 and
$1,883,000, respectively.
7. LEASES
The Company has several noncancelable operating leases, primarily for office
space and equipment, that expire over the next five years. Certain of the
Company's facilities are under operating leases which provide for rent
adjustments based on increases of defined indexes, such as the Consumer Price
Index. These agreements also typically include renewal options.
Future minimum lease payments under noncancelable operating leases and the
present value of future minimum capital lease payments as of November 30, 1996
are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING NOVEMBER 30 LEASES LEASES
----------------------- -------- ----------
<S> <C> <C>
1997................................................... $233,778 $1,395,093
1998................................................... 171,653 1,277,009
1999................................................... 155,984 662,698
2000................................................... 155,984 245,746
2001................................................... 138,659 219,128
Thereafter............................................. 138,169 --
-------- ----------
Total minimum lease payments........................... 994,227 $3,799,674
==========
Less estimated executory costs......................... 5,189
--------
989,038
Less amount representing interest (at rates ranging
from 9% to 12%)....................................... 126,784
--------
Present value of net minimum capital lease payments.... 862,254
Less current portion of obligations under capital
lease................................................. 199,224
--------
Obligations under capital leases, excluding current
portion............................................... $663,030
========
</TABLE>
F-58
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the years ended November 30, 1994, 1995 and 1996 the Company
recognized $1,004,818, $508,724 and $252,355, respectively, of sublease rental
revenue under vehicle sublease arrangements with independent operators and
others.
During the years ended November 30, 1994, 1995 and 1996, the Company entered
into capital lease obligations of $79,414, $346,666 and $810,993,
respectively, related to the acquisition of vehicles and equipment.
Total rental expense for operating leases in 1994, 1995 and 1996 was
$1,075,029, $1,362,518 and $2,250,335, respectively.
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Included in accounts payable and accrued expenses are the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
----------------------
1995 1996
---------- -----------
<S> <C> <C>
Trade accounts payable............................... $5,273,123 $ 5,385,328
Accrued expenses and other liabilities............... 2,632,204 4,895,495
Gratuities payable................................... 445,985 458,801
Accrued offering costs............................... -- 825,339
---------- -----------
$8,351,312 $11,564,963
========== ===========
</TABLE>
9. INCOME TAXES
The provision for income taxes is composed of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
-----------------------------
1994 1995 1996
-------- -------- -----------
<S> <C> <C> <C>
Federal:
Current..................................... $ 65,558 $139,401 $ 1,368,311
Deferred.................................... 63,000 87,000 (1,197,799)
-------- -------- -----------
128,558 226,401 170,512
-------- -------- -----------
State and local:
Current..................................... 27,252 29,198 128,296
Deferred.................................... 7,000 15,000 (148,758)
-------- -------- -----------
34,252 44,198 (20,462)
-------- -------- -----------
Foreign
Current..................................... -- -- 144,371
-------- -------- -----------
Total income tax provision.................... $162,810 $270,599 $ 294,421
======== ======== ===========
</TABLE>
F-59
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's tax provision for the years ended November 30, 1994, 1995 and
1996, respectively, differs from the statutory rate for federal income taxes
as a result of the tax effect of the following factors:
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
----------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Statutory rate................................. 34.0% 34.0% 34.0%
State income tax, net of federal benefit....... 18.0 7.2 (1.5)
Goodwill amortization.......................... 11.5 6.0 .6
Non-deductible life insurance.................. 8.7 10.9 .3
Meals and entertainment expenses............... 10.8 16.9 1.1
Valuation allowance............................ 11.8 (13.0) (27.6)
Other.......................................... 35.8 11.4 .9
-------- -------- --------
130.6% 73.4% 7.8%
======== ======== ========
</TABLE>
The source and tax effects of temporary differences are composed of the
following:
<TABLE>
<CAPTION>
NOVEMBER 30,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
Allowances for bad debts.............................. $ 108,000 $ 176,000
Net operating losses carry-forward.................... 266,000 --
Capital loss carryforward............................. 119,000 74,000
Deferred revenue...................................... 1,701,000 2,040,000
Deferred state taxes and other........................ 425,000 558,000
----------- -----------
Gross deferred tax asset.............................. 2,619,000 2,848,000
Valuation allowance................................... (1,618,000) (74,000)
----------- -----------
1,001,000 2,774,000
----------- -----------
Amortization of intangible assets..................... (951,000) (1,350,000)
Other................................................. (135,000) (162,000)
----------- -----------
Gross deferred tax liability.......................... (1,086,000) (1,512,000)
----------- -----------
Net deferred tax asset................................ $ (85,000) $ 1,262,000
=========== ===========
</TABLE>
A valuation allowance was provided in 1995 to reduce the net deferred tax
asset to $0. In the fourth quarter of 1996, the Company concluded that it was
more likely than not that substantially all of the deferred tax assets would
be realized and reduced the valuation allowance by $1,499,000.
Income taxes paid during the years ended November 30, 1994, 1995 and 1996
amounted to approximately $0, $187,000 and $616,000, respectively.
F-60
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. PREFERRED STOCK
The Company had the following series of preferred stock:
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Series A, par value $10.00, authorized 43,000 shares,
issued and outstanding 42,070 shares (liquidation
preference of $4,207,000, redeemable at option of the
Company). Non-cumulative dividend of $7.00 per annum
when declared by the Board of Directors................ $ 420,700 $ 420,700
Series B, par value $10.00, authorized 10,000 shares,
issued and outstanding 9,580 shares (liquidation pref-
erence of $958,000). Non-cumulative dividend of $5.00
per annum when declared by the Board of Directors...... 95,800 95,800
Series E, par value $10.00, authorized 50 shares, issued
and outstanding 12.5 shares at November 30, 1995 (liq-
uidation preference of $97,500)........................ 97,500 --
Series F, par value $10.00, authorized 10,000 shares,
issued and outstanding 10,000 shares (liquidation pref-
erence of $1,000,000). Non-cumulative dividend of $5.00
per annum when declared by the Board of Directors...... 100,000 100,000
Series G, par value $10.00, authorized 110,000 shares,
issued and outstanding 49,890 shares, (liquidation
preference of $4,989,900). Non-cumulative dividend of
$5.00 per annum when declared by the Board of Direc-
tors................................................... 498,900 498,900
Class B, par value $4.00, 20,000 shares, authorized, is-
sued and outstanding (all shares were redeemed at Sep-
tember 30, 1996)....................................... 40,000 --
---------- ----------
$1,252,900 $1,115,400
========== ==========
</TABLE>
At the option of the preferred stockholders or upon closing of underwritten
public offering, yielding net proceeds of at least $10,000,000 and having an
offering price of at least $14.81 per share, each share of the series B, F and
G preferred stock is convertible into the number of shares of common stock
equal to 500, 100 and 100 divided by the conversion price, respectively. The
conversion price at November 30, 1996 was $7.216, $7.406 and $7.406 for Series
B, F and G preferred stock, respectively. The Company has reserved 663,759,
135,025 and 633,393 shares of common stock, respectively, for conversion of
the Series B, F and G preferred stock. Antidilutive provisions lower the
conversion price if certain securities are issued by the Company at a price
below the respective conversion prices then in effect. The Company must
redeem, on a pro rata basis, the outstanding shares of Series A preferred
stock plus for $100 per share any declared and unpaid dividends upon the
completion of an initial public offering yielding net proceeds to the Company
of at least $10,000,000. Series A, B, and G preferred stock have voting rights
and Series F preferred stock is non- voting, except to certain circumstances
(see Note 18 for discussion of the Recapitalization, pursuant to which all of
the preferred stock will be redeemed or converted into common stock).
11. RELATED-PARTY TRANSACTIONS
The Company has invested $750,000 in non-voting redeemable preferred stock
of a privately-held finance company formed for the purpose of providing
financing to the chauffeured vehicle service industry. This entity provides
financing to the Company's independent operators, without recourse to the
Company, for both automobiles and amounts due under independent operator
agreements. The Company sold $378,733, $1,762,345 and $1,015,897 of
independent operator notes receivable to this related-party finance company
for cash of $378,733, $1,290,899 and $733,793 and demand promissory notes of
$0, $471,446 and $282,104 in 1994, 1995
F-61
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and 1996, respectively. The unpaid balances of the promissory notes were
$547,930 and $255,664 at November 30, 1995 and 1996, respectively, and are
included in notes receivable from contracts. These promissory notes are due on
demand and, generally, monthly principal payments are received by the Company.
These notes generally bear interest at rates of 7%.
It is not practicable to estimate the fair value of a preferred stock
investment in a privately-held company. As a result, the Company's investment
in the privately-held finance company noted above is carried at its original
cost (less redemptions) of $750,000. At April 30, 1996, the total assets
reported by the privately-held company were $10,502,234 and stockholders'
equity was $1,108,448, revenues were $1,088,720 and net income was $96,681.
Pursuant to a stock ownership agreement between the common stockholders of
the related party finance company and the Company, the Company has an option
to purchase all of the outstanding common stock of the affiliate at $12,500
per common share or market value, if higher. The option is not exercisable
until April 15, 1998.
A guarantee fee of $45,000 has been paid to both the Chairman of the Board
and the President of the Company for guaranteeing certain indebtedness (see
Note 6).
12. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is subject to various legal
actions which are not material to the financial position, the 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 16, 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 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 Act of 1970. A class has not yet been
certified in this case. At the appropriate time, the Company intends to file
an answer denying any liability in connection with this litigation. The
Company has agreed to indemnify and defend its officers and directors who were
named as defendants in the case, subject to conditions imposed by applicable
law. The Company does not believe that this litigation will have a material
adverse effect on its financial condition, results of operations or cash flows
of the Company.
13. ACQUISITIONS
Effective October 31, 1997, in connection with the merger, the Company
issued 721,783 shares of its common stock in exchange for all the outstanding
common stock of The Indy Connection based on a conversion ratio of 1.008
shares (the merger exchange ratio) of the Company's common stock for each
share of Indy Connection common stock, for a total value of approximately
$12.0 million. The merger qualified as a tax-free reorganization and has been
accounted for as a pooling-of-interests. Accordingly, the Company's
supplemental consolidated financial statements have been restated for all
periods prior to the business combination to include the combined financial
results of Carey International, Inc. and Indy Connection. (See Note 2)
F-62
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Revenue net and net income (loss) for the individual companies reported
prior to the merger are as follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenue, net
Carey International, Inc. .......... $35,525,309 $43,483,947 $59,505,698
Indy Connection..................... 4,788,413 5,485,448 6,080,105
Elimination......................... -- -- (40,861)
----------- ----------- -----------
Total............................. $40,313,722 $48,969,395 $65,544,942
=========== =========== ===========
Net Income (loss)
Carey International, Inc............ $ (128,993) $ (195,195) $ 2,816,104
Indy Connection..................... 90,861 293,316 678,863
----------- ----------- -----------
Total............................. $ (38,132) $ 98,121 $ 3,494,967
=========== =========== ===========
</TABLE>
The conforming of the accounting practices of the Company and Indy
Connection resulted in no adjustments to net income (loss) or shareholders'
equity.
The Company estimates that transaction costs associated with the merger will
be approximately $200,000. All fees and transaction expenses related to the
merger and the restructuring of the combined companies will be expensed as
required under the pooling-of-interests accounting method. These expenses have
not been reflected in the supplemental consolidated statements of operations,
but will be reflected in the consolidated statements of operations of the
Company in the fourth quarter of 1997.
In February 1996, the Company acquired certain assets and liabilities of a
chauffeured vehicle service company in London, England for approximately
$1,500,000. The acquisition was financed through the incurrence of $950,000 in
debt and a payment of $550,000. Additional contingent consideration of up to
$1,000,000 may be payable with respect to each of the two years ending
February 28, 1998 based on the level of revenues referred to the acquired
company by the seller. As of November 30, 1996, the Company has paid $278,304
in contingent consideration in the acquisition of the London company. In
addition, the Company is required to pay a standard commission to the seller
of the acquired chauffeured vehicle service company for business referral,
which will be expensed as incurred.
In April 1995, the Company acquired certain assets and liabilities of a
chauffeured vehicle service company in the Washington, DC area and combined
the acquired operations with those of Carey DC.
In January 1995, the Company acquired certain assets and liabilities of the
Carey licensee in San Francisco, California (Carey SF). Subsequently, the
Company acquired the business of two additional chauffeured service companies
(in May and August 1995) and combined the acquired operations with those of
Carey SF.
In December 1994, the Company acquired certain assets and liabilities of a
chauffeured vehicle service company in Boca Raton, Florida and consolidated
the operations within its existing operations in West Palm Beach.
Subsequently, the Company acquired an additional chauffeured vehicle service
company in Boca Raton (in August 1995) and the Carey licensee in Fort
Lauderdale-Miami (in April 1995) and consolidated the two additional
businesses into the Carey Florida operations.
All acquisitions have been accounted for as purchases (except for the
pooling as described above). The net assets acquired and results of operations
have been included in the financial statements as of and from, respectively,
the effective dates of the acquisitions. The total consideration was allocated
to the assets acquired
F-63
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
based upon their estimated fair values with any remaining considerations
allocated to either franchise rights or goodwill, as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------
1994 1995 1996
--------- ---------- ----------
<S> <C> <C> <C>
Net assets purchased
Receivables and other assets................ $ -- $ -- $ 632,554
Fixed assets................................ -- 1,703,521 928,377
Franchise rights............................ -- 1,527,402 89,243
Goodwill.................................... 128,596 5,013,731 447,269
Accounts payable and accrued expenses....... -- -- (367,211)
--------- ---------- ----------
Fair value of assets acquired............... $ 128,596 $8,244,654 $1,730,232
========= ========== ==========
Consideration
Cash (exclusive of $223,695 cash acquired in
1996)...................................... $ 128,596 $3,949,393 $1,730,232
Capital leases assumed related to vehicle
acquisitions............................... -- 346,666 --
Notes assumed related to vehicle
acquisitions............................... -- 895,571 --
Uncollateralized promissory notes issued to
sellers.................................... -- 3,053,024 --
--------- ---------- ----------
Total consideration....................... $ 128,596 $8,244,654 $1,730,232
========= ========== ==========
</TABLE>
Certain of these acquisitions require the payment of contingent
consideration based on percentages of annual net revenue of the acquired
entities over a defined future period. The Company paid $39,521, $315,773 and
$291,755 for the years ended November 30, 1994, 1995 and 1996, respectively,
as contingent consideration (see Note 2) which is reflected in the table
above.
Of the total uncollateralized promissory notes issued to sellers in 1995,
two notes totaling $303,000 were subject to reduction based upon the results
of the acquired entities (see Note 6). The two notes were repaid in 1996 for
approximately $211,000 and the difference of approximately $92,000 reduced
recorded goodwill.
The unaudited pro forma summary consolidated results of operations assuming
the acquisitions had occurred for the purposes of the 1995 summary at the
beginning of fiscal 1995, and for the purposes of the 1996 summary at the
beginning of fiscal 1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenue............................................. $ 56,975,000 $ 66,483,000
Cost of revenue..................................... (38,182,000) (44,515,000)
Other expense, net.................................. (18,109,000) (18,320,000)
Provision for income taxes.......................... (316,000) (235,000)
------------ ------------
Net income.......................................... $ 368,000 $ 3,413,000
============ ============
Net income per common share......................... $ .12 $ 1.09
============ ============
Weighted average common shares outstanding.......... 3,089,895 3,124,314
============ ============
</TABLE>
14. 401(K) PLAN
The Company sponsors (but has made no contributions to) a defined
contribution plan established pursuant to Section 401(k) of the Internal
Revenue Code for the benefit of employees of the Company.
F-64
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. STOCK OPTION PLANS
On December 1, 1987, the Company established a Stock Option Plan (the "1987
Plan") that included all officers and key employees of the Company, non-
employee directors of the Company, and certain persons retained by the Company
as consultants. In accordance with the 1987 Plan, the Company's Board of
Directors may, from time to time, determine the persons to whom the stock
options are to be granted, the number of shares under option, the option price
and the manner in which payment of the option price shall be made. The 1987
Plan provides for the options to be exercised 25% each year beginning after
the year following the grant. The options are exercisable for a period of ten
years after grant date. The total number of options authorized under the 1987
Plan is 195,656.
On July 28, 1992, the Company established a Stock Option Plan (the "1992
Plan") that included all officers and key employees of the Company, non-
employee directors of the Company, and certain persons retained by the Company
as consultants. In accordance with the 1992 Plan, the Company's Board of
Directors may, from time to time, determine the persons to whom the stock
options are to be granted, the number of shares under option, the option
price, the time or times during the exercise period at which each such option
shall become exercisable, and the manner in which payment of the option price
shall be made. The options are exercisable for a period of ten years after
grant date. The total number of options authorized under the 1992 plan is
388,647.
Stock activity under the 1987 Plan and the 1992 Plan is as follows:
<TABLE>
<CAPTION>
1987 PLAN 1992 PLAN
-------------------- ------------------
OPTION OPTION
PRICE PER PRICE PER
SHARES SHARE SHARES SHARE
------- ----------- ------- ---------
<S> <C> <C> <C> <C>
Balance, December 1, 1993............. 64,502 $ 1.44 384,494 $7.40
Granted............................... -- -- 12,040 7.40
Exercised............................. -- -- -- --
Forfeited............................. -- -- (13,287) --
------- ----------- ------- -----
Balance, November 30, 1994............ 64,502 1.44 383,247 7.40
Granted............................... -- -- 21,673 7.40
Exercised............................. (32,681) -- -- --
Forfeited............................. (860) -- (60,985) --
------- ----------- ------- -----
Balance, November 30, 1995............ 30,961 1.44 343,935 7.40
Granted............................... 38,701 4.65 43,578 4.65
Exercised............................. -- -- -- --
Forfeited............................. -- -- (3,011) --
------- ----------- ------- -----
Balance, November 30, 1996............ 69,662 $1.44-$4.65 384,502 $4.65
======= =========== ======= =====
Vested and Exercisable at November 30,
1996................................. 43,861 $1.44-$4.65 341,948 $4.65
======= =========== ======= =====
</TABLE>
In May of 1996, the options granted under the 1992 Plan and a warrant to
purchase 86,003 shares of common stock (see Note 6) were repriced to $4.65.
The options and warrant were repriced at the determined fair market value as
of the date of repricing (see Note 18).
On February 25, 1997, the Board of Directors adopted the 1997 Equity
Incentive Plan and the Stock Plan for Non-Employee Directors (see Note 18).
F-65
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. REVENUE RECOGNITION METHOD
The Company enters into agreements with independent operators under which
the independent operator contracts to provide chauffeured vehicle services
exclusively to the Company's customers over a contract period pursuant to a
Standard Independent Operator Agreement. Upon signing the Standard Independent
Operator Agreement, the Company is entitled to receive a one-time fee from the
independent operator. Previously, the Company would recognize the one-time fee
as revenue upon signing of the independent operator agreement and when
collection of the fee was reasonably assured. In accordance with APB 20, the
financial statements have been retroactively restated to report such fees as
deferred revenue which are recognized as revenue over the terms of the
contracts. (See Note 2). The effect of such restatements was to reduce 1994
and 1995 revenue, results of operations and stockholders' equity by $665,391
and $1,144,511, respectively (net of income taxes of $0 and $586,680 for 1994
and 1995, respectively).
17. NET INCOME PER COMMON SHARE
Net income per common share, on a historic basis, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------
1994 1995 1996
--------- --------- ----------
<S> <C> <C> <C>
Net income (loss) available to common
shareholders................................. $ (46,882) $ 93,746 $3,494,067
========= ========= ==========
Weighted average common shares outstanding.... 3,093,202 3,089,895 3,125,673
========= ========= ==========
Net income (loss) per common share............ $ (0.02) $ 0.03 $ 1.12
========= ========= ==========
</TABLE>
Common equivalent shares are included in the per share calculations where
the effect of their inclusion would be dilutive. Common equivalent shares
consist of common shares issuable upon (a) conversion of Series B, F and G
preferred stock and (b) the assumed exercise of outstanding stock options and
warrants. Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin (SAB) No. 83, the common equivalent shares issued by the Company
during the twelve months preceding the anticipated effective date of the
Registration Statement relating to the Company's initial public offering,
using the treasury stock method and an assumed public offering price of $11.00
per share, have been included in the calculation of net income per common
share.
Net income (loss) available to common shareholders is the net income (loss)
for the fiscal year less accretion of dividends on the Series E preferred
stock of $8,750 and $4,375 for 1994 and 1995, respectively, and $900 of
preferred dividends from Indy Connection preferred stock in 1996.
In February 1997, the Financial Accounting Standards Boards issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128). FAS
128 simplifies the existing earnings per share (EPS) computations under
Accounting Principles Board Opinion No. 15, "Earnings Per Share," revises
disclosure requirements, and increases the comparability of EPS data on an
international basis. In simplifying the EPS computations, the presentation of
primary EPS is replaced with basic EPS, with the principal difference being
that common stock equivalents are not considered in computing basic EPS. In
addition, FAS 128 requires dual presentation of basic and diluted EPS. FAS 128
is effective for financial statements issued for periods ending after December
15, 1997. The Company's supplemental pro forma basic EPS under FAS 128 for the
year ended November 30, 1996 would have been $2.57 and supplemental dilutive
EPS under FAS 128 would not differ significantly form the reported pro forma
net income per share.
18. SUBSEQUENT EVENTS
On February 25, 1997, pursuant to an agreement reached in May 1996, the
Board of Directors authorized a recapitalization ("Recapitalization Plan"),
which will be implemented at the time of the IPO. Under the
F-66
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Recapitalization, the $2,000,000 subordinated convertible note dated September
1, 1991 and the $3,780,000 subordinated note dated July 30, 1992 will be
converted or exchanged for 1,046,559 shares of common stock and payment of
$912,454. The Series A preferred stock will be converted into 86,003 shares of
common stock and redeemed in part for $2,103,500. All of the Series F
preferred stock and 3,000 shares of Series G preferred stock will be redeemed
for an aggregate of $1,000,000. The remaining preferred stock will be
converted into 1,427,509 shares of common stock. As a result of the
Recapitalization, preferred stock with a liquidation preference of $11,154,900
and subordinated debt with a principal amount of $5,780,000 will be converted
in part into 2,560,071 shares of common stock and repaid or redeemed in part
for $4,015,952 in cash. All of the cash amounts will be paid out of the
proceeds of the IPO.
On February 25, 1997, the Board of Directors adopted the 1997 Equity
Incentive Plan (the "1997 Plan"). A total of 650,000 shares of common stock
are reserved for issuance under the 1997 Plan. The Board of Directors also
granted options to purchase at the IPO price a total of 411,500 shares of
common stock under the 1997 Plan, such grants to be effective upon the
execution of an underwriting agreement in connection with the IPO.
Also on February 25, 1997, the Board of Directors, subject to stockholder
approval, adopted the Stock Plan for Non-Employee Directors (the "Directors'
Plan"). A total of 100,000 shares of common stock of the Company are reserved
for issuance under the Directors' Plan. Options to purchase at the IPO price a
total of 22,500 shares of common stock will be granted under the Directors'
Plan, such grants to be effective upon the execution of an underwriting
agreement in connection with the IPO.
Also on February 25, 1997, the Board of Directors approved amendments to the
Company's Certificate of Incorporation increasing the number of authorized
shares of the Company's Common Stock from 9,512,950 to 20,000,000, and
increasing the number of authorized shares of the Company's preferred stock
from 173,050 to 1,000,000.
On March 1, 1997, the Company entered into an agreement to purchase the
stock of Manhattan International Limousine Network Ltd. and an affiliated
company (collectively, "Manhattan Limousine"). Manhattan Limousine is one of
the largest providers of chauffeured vehicle services in the New York
metropolitan area. The Company expects to consummate the acquisition at the
time of the IPO. If the acquisition of Manhattan Limousine is not completed by
June 2, 1997, the Company has agreed to pay additional purchase price in the
amount of $7,500 for each day after such date until the closing of the
acquisition, up to an aggregate of $675,000.
F-67
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Indy
Connection Limousines, Inc.
We have audited the accompanying consolidated balance sheet of Indy
Connection Limousines, Inc. ("the Company") and subsidiary as of September 30,
1997, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Indy Connection
Limousines, Inc. and subsidiary as of September 30, 1997, and the results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Washington, D.C.
November 14, 1997
F-68
<PAGE>
INDY CONNECTION LIMOUSINES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
<TABLE>
<S> <C>
ASSETS
<CAPTION>
1997
----------
<S> <C>
Current assets:
Cash............................................................. $ 171,013
Accounts receivable.............................................. 364,595
Insurance claim receivable....................................... 40,000
Other current assets............................................. 163,413
----------
Total current assets......................................... 739,021
----------
Property and equipment:
Transportation equipment......................................... 3,285,636
Transportation accessories....................................... 102,938
Office equipment and leasehold improvements...................... 245,450
----------
3,634,024
Accumulated depreciation (809,306)
----------
Property and equipment, net.................................. 2,824,718
----------
Goodwill (net of accumulated amortization of $14,812).............. 22,188
Deposits and licenses.............................................. 32,219
Other assets....................................................... 33,646
----------
Total assets................................................. $3,651,792
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt............................. $ 761,756
Accounts payable, trade.......................................... 85,016
Accrued payroll and related expenses............................. 105,997
Accrued expenses, other.......................................... 195,380
Chauffeur tips and other......................................... 71,807
Customer deposits................................................ 11,100
----------
Total current liabilities.................................... 1,231,056
----------
Long-term debt, less current maturities............................ 709,655
Deferred income taxes.............................................. 90,000
Stockholders' equity:
Preferred Stock, no par value; 250,000 shares authorized
Common stock, no par value; authorized--1,750,000 shares; 727,542
shares issued and outstanding................................... 491,725
Retained earnings................................................ 1,129,356
----------
1,621,081
----------
Total liabilities and stockholders' equity................... $3,651,792
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-69
<PAGE>
INDY CONNECTION LIMOUSINES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Revenues, net....................................................... $6,830,225
Cost of revenues.................................................... 3,411,327
----------
Gross profit...................................................... 3,418,898
Selling, general and administrative expenses........................ 1,798,382
----------
Income from operations............................................ 1,620,516
----------
Other income (expense):
Interest expense, net............................................. (146,875)
Gain of disposals of property and equipment....................... 62,048
Other expense..................................................... (16,105)
----------
Total other expenses, net....................................... (100,932)
----------
Income before income taxes........................................ 1,519,584
Provision for income taxes.......................................... 559,360
----------
Net income.......................................................... $960,224
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-70
<PAGE>
INDY CONNECTION LIMOUSINES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK
---------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at September 30, 1996........ 707,542 $491,525 $270,989 $762,514
Exercise of common stock options..... 20,000 200 -- 200
Common stock dividends ($.14 per
share).............................. -- -- (101,857) (101,857)
Net income........................... -- -- 960,224 960,224
------- -------- ---------- ----------
Balance at September 30, 1997........ 727,542 $491,725 $1,129,356 $1,621,081
======= ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-71
<PAGE>
INDY CONNECTION LIMOUSINES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
1997
-----------
<S> <C>
Cash flows from operating activities:
Net income....................................................... $ 960,224
Add (deduct) items charged against income not affecting cash:
Depreciation and amortization.................................. 849,198
Deferred income taxes.......................................... (3,000)
Gain on disposals of property and equipment.................... (62,048)
Changes in assets and liabilities:
Accounts receivable............................................ (72,192)
Other assets................................................... (17,198)
Accounts payable, trade........................................ 34,971
Accrued expenses............................................... 56,530
Customer deposits.............................................. 8,681
-----------
Net cash flows provided by operating activities.............. 1,755,166
-----------
Cash flows from investing activities:
Proceeds from sales of property and equipment.................... 1,231,940
Purchases of property and equipment.............................. (2,603,567)
-----------
Net cash flows used in investing activities.................. (1,371,627)
-----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt......................... 1,684,150
Repayment of notes payable and long-term debt.................... (1,917,237)
Common stock dividends paid...................................... (116,007)
-----------
Net cash used in financing activities........................ (349,094)
-----------
Net increase in cash............................................... 34,445
Cash and cash equivalents at beginning of year..................... 136,568
-----------
Cash and cash equivalents at end of year........................... $ 171,013
===========
Supplemental disclosures of cash flow information:
Cash payments for interest....................................... $ 151,085
Cash payments for income taxes................................... $ 653,346
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-72
<PAGE>
INDY CONNECTION LIMOUSINES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of Indy
Connection Limousines, Inc., and its wholly-owned subsidiary Transit Tours,
Inc. (the "Company"). The Company provides various ground transportation
services to individuals and businesses in the greater Indianapolis, Indiana
area, by utilizing limousines, sedans, vans and buses. All significant
intercompany transactions have been eliminated.
Accounting estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. The reported amounts of revenue and expenses during the reporting
period may also be affected by the estimates and assumptions management is
required to make. Actual results may differ from the estimates.
Cash and cash equivalents
The Company considers all short-term investments with original maturities of
three months or less to be cash equivalents.
Property and equipment
Furniture, equipment, vehicles and leasehold improvements are stated at
cost. Depreciation is generally computed on straight-line and accelerated
methods for financial statements purposes over the estimated useful lives of
the related assets, generally one to ten years. Depreciation expense for the
year ended September 30, 1997 was $847,348. Gains or losses on sales and
retirements are reflected in results of operations.
Income taxes
Deferred tax assets and liabilities are computed based on the differences
between the financial reporting and income tax bases of assets and liabilities
using the enacted tax rates. Deferred income tax expense is based on the
change in deferred tax assets and liabilities from period to period, subject
to an ongoing assessment of realization.
Goodwill
Goodwill is being amortized over twenty years on the straight-line method.
The Company evaluates the recoverability of its goodwill based on estimated
undiscounted cash flows over the lesser of the remaining amortization periods
or calculated lives, giving consideration to revenue expected to be realized.
This determination is based on an evaluation of such factors as the occurrence
of a significant change in the environment in which the business operates or
the expected future net cash flows (undiscounted and without interest). There
have been no adjustments to the carrying value of goodwill resulting from this
evaluation.
Revenue Recognition
Revenue for ground transportation services is recognized when such services
are provided.
F-73
<PAGE>
INDY CONNECTION LIMOUSINES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. LINES OF CREDIT
Borrowings under lines of credit at September 30, 1997 consist of the
following:
<TABLE>
<S> <C>
NBD Bank, N.A. .................................................. $ 394,940
First of America--Indiana........................................ 1,076,471
----------
1,471,411
Less current portion............................................. (761,756)
----------
$ 709,655
==========
</TABLE>
The Company has a $950,000 discretionary credit agreement ("Agreement") with
NBD Bank, N.A. that allows the Company to purchase revenue earning vehicles
under installment notes. Separate notes are required for each vehicle
purchased with the maximum term on the note ranging from twenty-four to
thirty-six months. These installment notes bear interest at rates ranging from
8.75% to 9.5%. The Agreement is collateralized by the vehicles, and is subject
to various restrictive covenants, the most restrictive of which require the
Company to maintain compliance with certain financial ratios and minimum
tangible net worth. Borrowings under the Agreement are personally guaranteed
by the majority shareholder of the Company. This Agreement expires January 1,
1998. The outstanding balance was repaid on October 8, 1997.
The Company has a $1,000,000 discretionary credit agreement ("Agreement")
with First of America--Indiana that allows the Company to purchase revenue
earning vehicles under installment notes. Separate notes are required for each
vehicle purchased with the maximum term on the note generally ranging from
twenty-four to thirty-six months. These installment notes bear interest at
rates ranging from 8.75% to 10.5%. The Agreement is collateralized by the
vehicles, and is subject to various restrictive covenants, the most
restrictive of which require the Company to maintain compliance with certain
financial ratios and minimum tangible net worth. Borrowings under the
Agreement are personally guaranteed by the majority shareholder of the
Company. The Agreement expires January 31, 1998, however, any borrowings
outstanding at the date would be repaid over the remaining term of the
individual notes.
The Company also maintains a $125,000 working capital line of credit with
First of America-Indiana. There were no borrowings outstanding at September
30, 1997. The line of credit is collateralized by substantially all other
assets of the Company not collateralizing the NBD Bank borrowings. Under the
terms of the line of credit, the Company is subject to various general
covenants. The bank also requires the personal guarantee of the majority
shareholder of the Company.
Annual maturities of all outstanding borrowings at September 30, 1997 are as
follows:
<TABLE>
<S> <C>
1998.............................................................. $ 761,756
1999.............................................................. 385,019
2000.............................................................. 66,614
2001.............................................................. 194,670
2002.............................................................. 31,313
Thereafter........................................................ 32,039
----------
$1,471,411
==========
</TABLE>
3. LEASES
The Company leases office and warehouse space and certain transportation
equipment under various operating leases. Annual rental expense totaled
approximately $46,000 in 1997. At September 30, 1997, the only remaining lease
commitment was for office space through July 31, 1998, with monthly payments
of $3,500.
F-74
<PAGE>
INDY CONNECTION LIMOUSINES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. INCOME TAXES
Deferred tax assets and liabilities at September 30, 1997 were as follows:
<TABLE>
<S> <C>
Capital loss carryforwards........................................ $ 74,000
Property and equipment............................................ (90,000)
Less valuation allowance on capital loss carryforwards............ (74,000)
--------
Net deferred tax liability........................................ $(90,000)
========
</TABLE>
The provision for income taxes for the year ended September 30, 1997
consists of the following:
<TABLE>
<S> <C>
Current:
Federal.......................................................... $468,200
State............................................................ 94,160
--------
562,360
Deferred:
Federal.......................................................... --
State............................................................ (3,000)
--------
Total.......................................................... $559,360
========
</TABLE>
The Company has capital loss carryforwards totaling approximately $216,000,
expiring in various years through September 30, 2000, available to be applied
against future capital gains.
The Company's 1997 effective income tax rate differed from the applicable
Federal rate as follows:
<TABLE>
<S> <C>
Federal statutory rate................................................... 34%
State income taxes, net of federal benefit............................... 4
Other, net............................................................... (1)
---
Effective rate........................................................... 37%
===
</TABLE>
5. RELATED PARTY TRANSACTIONS
The Company has a consulting agreement with a corporation whose sole
stockholder is a principal stockholder, officer and director of the Company.
The Company incurred related consulting fees of $49,052 in 1997.
6. 401(K) RETIREMENT PLAN
The Company has a defined contribution retirement savings plan which covers
substantially all eligible employees, as defined. Participants may contribute
up to 15% of their gross compensation, as defined annually. The Company may
contribute matching amounts as determined annually by the Board of Directors.
For 1997 the Company contributed an amount equal to 25% of the participant's
contributions up to 5% of the participant's eligible compensation, as defined.
The Company may make additional discretionary contributions as determined
annually by the Board of Directors. Total retirement plan expenses in 1997
were approximately $15,000.
F-75
<PAGE>
INDY CONNECTION LIMOUSINES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. STOCK OPTION PLAN
During December 1995, the Company adopted a stock option plan intended to
promote a close identity of interest between the Company and its directors and
officers, as well as to provide a means to attract and retain outstanding
management. The Company made available 100,000 shares of common stock to be
granted. There were no outstanding options as of September 30, 1997.
8. SUBSEQUENT EVENT
On October 10, 1997, the Company entered into an Agreement and Plan of
Merger (subsequently amended) with Carey International, Inc. ("Carey") to
exchange substantially all of its outstanding common shares for common shares
of Carey. At a special meeting of the stockholders held on October 27, 1997,
the Amended Agreement and Plan of Merger was ratified by the Board of
Directors and 99% of the Companies stockholders. On October 31, 1997, the
transaction closed and the Company's stockholders received for each share of
common stock held; (1) .99211 shares of Carey's common stock valued at $16.625
per share and (2) cash for fractional shares remaining. On November 1, 1997
the Company's operations continued as Carey Limousine Indiana, Inc., a wholly-
owned subsidiary of Carey.
F-76
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders
Manhattan International Limousine Network Ltd. and Affliliate
We have audited the accompanying combined balance sheet of Manhattan
International Limousine Network Ltd. and Affliliate (collectively, the
"Company") as of September 30, 1996, and the related combined statements of
operations and retained earnings (accumulated deficit) and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audit provides a reasonable basis for
our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Manhattan
International Limousine Network Ltd. and Affliliate as of September 30, 1996,
and the combined results of their operations and their cash flows for the year
then ended in conformity with generally accepted accounting principles.
As discussed in Note 10 to the combined financial statements, the
accompanying combined balance sheet as of September 30, 1996, and the related
combined statement of operations and retained earnings (accumulated deficit)
and cash flows for the year then ended have been restated.
COOPERS & LYBRAND L.L.P.
Washington, D.C.
March 1, 1997, except
for Note 10 as to which
the date is April 22, 1997
F-77
<PAGE>
MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, APRIL 30,
1996 1997
------------- -----------
(UNAUDITED)
ASSETS
<S> <C> <C>
Cash and cash equivalents........................... $ 130,494 $ 77,275
Accounts receivable, net of allowances for doubtful
accounts of $181,000 and $194,000, respectively.... 2,466,134 1,781,923
Receivables from independent operators, current por-
tion............................................... 271,086 368,335
Prepaid expenses and other current assets........... 51,499 51,499
----------- -----------
Total current assets............................. 2,919,213 2,279,032
Fixed assets, net................................... 805,724 644,264
Receivables from independent operators, less current
portion............................................ 7,375,219 7,638,554
Other assets........................................ 1,221,885 1,282,872
----------- -----------
Total assets........................................ $12,322,041 $11,844,722
=========== ===========
<CAPTION>
LIABILITIES
<S> <C> <C>
Current portion of notes payable.................... $ 1,232,457 $ 1,958,293
Accounts payable, trade............................. 1,520,295 1,526,330
Accounts payable, independent operators............. 1,738,072 1,809,248
Accrued expenses.................................... 529,761 456,233
Other current liabilities........................... 240,059 232,002
----------- -----------
Total current liabilities........................ 5,260,644 5,982,106
Notes payable, less current portion................. 4,523,171 3,266,567
Other liabilities................................... 862,875 783,491
Deferred revenue.................................... 6,801,965 6,940,762
Commitments and contingencies
<CAPTION>
STOCKHOLDERS' DEFICIENCY
<S> <C> <C>
MILN common stock, $1 par value, 200 shares autho-
rized, 100 shares issued and outstanding........... 100 100
ILN common stock, $1 par value, 200 shares autho-
rized, 200 shares issued and outstanding........... 1,000 1,000
MILN additional paid-in capital..................... 176,940 176,940
<CAPTION>
Retained earnings (accumulated deficit):
<S> <C> <C>
MILN.............................................. (5,439,073) (5,477,392)
ILN............................................... 134,419 171,148
----------- -----------
Total stockholders' deficiency................... (5,126,614) (5,128,204)
----------- -----------
Total liabilities and stockholders' deficiency... $12,322,041 $11,844,722
=========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-78
<PAGE>
MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE
COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
FOR THE SEVEN
FOR THE YEAR ENDED MONTHS ENDED
SEPTEMBER 30, APRIL 30,
1996 1997
------------------ -------------
(UNAUDITED)
<S> <C> <C>
Revenues:
Service revenues, net....................... $17,218,728 $10,819,794
Interest from independent operator financ-
ing........................................ 1,219,819 690,700
----------- -----------
Total revenues.............................. 18,438,547 11,510,494
Cost of revenues.............................. 11,040,017 7,011,225
----------- -----------
Gross profit................................ 7,398,530 4,499,269
Selling, general and administrative expenses.. 5,821,899 3,536,845
----------- -----------
Operating income............................ 1,576,631 962,424
Interest expense.............................. (881,854) (575,937)
Interest income............................... 66,000 16,500
----------- -----------
Income before provision for income taxes.... 760,777 402,987
Provision for income taxes.................... 55,014 37,839
----------- -----------
Net income.................................. 705,763 365,148
Accumulated deficit, beginning of period...... (5,907,417) (5,304,654)
Distribution to S corporation stockholder..... (103,000) (366,738)
----------- -----------
Accumulated deficit, end of period............ ($5,304,654) ($5,306,244)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-79
<PAGE>
MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SEVEN
FOR THE YEAR ENDED MONTHS ENDED
SEPTEMBER 30, 1996 APRIL 30, 1997
------------------ --------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................. $705,763 $ 365,148
Adjustments necessary to reconcile net
income
to net cash provided by operating
activities:
Depreciation and amortization.............. 258,439 164,823
Change in deferred revenue................. (279,625) 138,797
Changes in operating assets and
liabilities:
Accounts receivable....................... (377,793) 684,211
Receivables from independent operators.... 139,363 (360,584)
Other assets.............................. (103,240) (60,987)
Accounts payable and accrued expenses..... (152,519) (67,493)
Accounts payable, independent operators... 293,731 71,176
Other liabilities......................... (193,582) (87,441)
-------- ---------
Net cash provided by operating
activities.............................. 290,537 847,650
-------- ---------
Cash flows from investing activities:
Purchases of fixed assets................... (256,248) (3,363)
-------- ---------
Net cash used in investing activities.... (256,248) (3,363)
-------- ---------
Cash flows from financing activities:
Proceeds from advances from officer of com-
pany....................................... -- 224,093
Net borrowings (payments) on line of
credit..................................... 261,802 (595,361)
Proceeds from borrowings under notes
payable.................................... 310,000 800,000
Principal payments on notes payable......... (412,643) (959,500)
Distribution to S corporation stockholder... (103,000) (366,738)
-------- ---------
Net cash provided by (used in) financing
activities.............................. 56,159 (897,506)
-------- ---------
Net change in cash and cash equivalents...... 90,448 (53,219)
Cash and cash equivalents, beginning of
period...................................... 40,046 130,494
-------- ---------
Cash and cash equivalents, end of period..... $130,494 $ 77,275
======== =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-80
<PAGE>
MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BACKGROUND AND ORGANIZATION
Manhattan International Limousine Network Ltd. and its wholly-owned
subsidiary (collectively, "MILN") are engaged primarily in the business of
providing chauffeured vehicle services in New York City and the surrounding
areas, and providing reservation and billing services to both individual and
corporate customers worldwide through an affiliation with a network of
independent chauffeured vehicle service companies. International Limousine
Network Ltd. ("ILN") is an affiliated company (the "Affiliate") engaged in
sales and marketing activities exclusively on behalf of MILN.
The accompanying financial statements combine the accounts of MILN and ILN
because such entities are under common control. All intercompany transactions
have been eliminated. The combined entities are referred to herein as the
"Company."
ILN operates on a calendar year. As a result, the accompanying financial
statements as of and for the year ended September 30, 1996 include the effects
of combining the financial statements of ILN as of and for the year ended
December 31, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all short-term investments with original maturities of
three months or less to be cash equivalents.
Receivables from Independent Operators and Accounts Payable, Independent
Operators
The Company enters into agreements with independent operators (franchisees)
under which the independent operator contracts to provide chauffeured vehicle
services exclusively to the Company's customers over the contract period. Upon
signing the agreement, the Company is entitled to receive a one-time fee from
the independent operator.
The Company generally receives a minimal down payment from the independent
operator together with a promissory note (see Note 3) and records the note as
a receivable from the independent operator, but does not recognize revenue at
that time. (See Revenue Recognition.) In addition, the Company collects all
billings for services rendered by the independent operator and has the right
to withhold and remit, from the independent operator's earnings, all payments
due to the Company and certain third parties for, among other things, note
payments, two-way radio charges and lease obligations on vehicles, on a
monthly basis. The Company is then obligated to remit the balance of the
independent operator's earnings on a monthly basis. The unpaid balance due to
independent operators at the end of a given period is reflected as accounts
payable, independent operators in the accompanying balance sheet.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk include cash and cash equivalents, accounts
receivable and receivables from independent operators. The Company maintains
its cash and cash equivalents with various financial institutions. Accounts
receivable are generally diversified due to the large number of entities
comprising the Company's customer base and their dispersion across many
different industries. The Company performs ongoing credit evaluations of its
customers, and may require credit card documentation or prepayment of certain
transactions. Receivables from independent operators are supported by the
underlying base of revenues serviced by each respective independent operator.
The Company performs ongoing evaluations of the productivity and payment
capacity of each independent operator in order to manage its credit risk.
F-81
<PAGE>
MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Fixed Assets
Fixed assets are stated at cost. Depreciation on furniture, equipment,
vehicles and leasehold improvements is calculated on the declining balance
method over the estimated useful lives of the assets or the leaseholds,
generally three to five years. Buildings and improvements are depreciated on
the straight line method over 20 years. Sales and retirements of fixed assets
are recorded by removing the cost and accumulated depreciation from the
accounts. Gains and losses on sales of property are reflected in the results
of operations.
Intangible Assets
The Company owns Federal Communications Commission licenses to three radio
frequencies which it uses in the dispatch of vehicles used in its business.
The licenses have been fully amortized in prior years.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Service revenues include fees derived from chauffeured vehicle services
provided by the Company's independent operators. Revenue is recorded for
chauffeured vehicle services when those services are provided.
When the Company enters into an agreement with an independent operator, the
Company defers revenue equal to the amount of the contract and recognizes
those fees over the term of the contract, typically 20 years. Amortization of
deferred revenue is also included in independent operator service revenues in
the accompanying combined statements of operations. Upon termination of an
agreement, the remaining deferred revenue associated with the contract, less
any amounts due from the independent operators deemed uncollectible, is
recognized as revenue immediately.
As described above, the Company typically provides extended financing terms
to its independent operators for payment of the independent operator fee.
Interest income is recognized as earned over the term of the loan agreement
with the independent operator.
The Company provides reservation services to its customers for service in
other locations through its affiliation with a network of independent service
companies. Revenue related to services provided by a member of the network is
recognized as chauffeured vehicle service revenue when a gross service bill is
received from the member. The corresponding liability to the member, reduced
by the Company's discount, is recorded as a cost of revenue by the Company at
such time.
Income Taxes
For MILN, the provision for income taxes includes income taxes currently
payable and the change during the year in the net deferred tax assets or
liabilities. Deferred income tax assets and liabilities are determined based
on the differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. A valuation allowance is provided to
reduce the net deferred tax asset, if any, to a level which, more likely than
not, will be realized.
F-82
<PAGE>
MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
ILN has elected to be treated as an "S corporation" under provisions of the
Internal Revenue Code. As such, the income tax effects of ILN's operations are
borne directly by the stockholder, and no provision for ILN income taxes is
recorded in the accompanying financial statements.
Unaudited Interim Financial Statements
The combined financial statements as of and for the seven-month period ended
April 30, 1997 are unaudited. In the opinion of management, those unaudited
financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present the financial statements on a
basis substantially consistent with the annual audited financial statements
contained herein. All disclosures herein related to April 30, 1997 and for the
seven-month period ended April 30, 1997 are unaudited.
3. TRANSACTIONS WITH INDEPENDENT OPERATORS
At the time the Company enters into an agreement with an independent
operator, the Company is entitled to receive a one-time fee. Those fees are
typically financed by the Company over 20 years at an interest rate of 15.75%
per annum. Independent operator fees are recognized as revenue ratably over
the terms of the agreements. In the opinion of management, the carrying value
of the loans approximates their fair value. Revenue recognized from
independent operator fees was $514,632 and $288,787 for the year ended
September 30, 1996 and for the seven-month period ended April 30, 1997,
respectively.
The Company's independent operators are responsible for financing their own
vehicles through third parties. Under programs the Company has established
with several automotive leasing organizations, the Company guarantees lease
payments until the independent operator has made twelve monthly lease
payments. As of September 30, 1996, the Company's independent operators had
aggregate lease obligations of $2,203,158 under these programs.
4. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, APRIL 30,
1996 1997
------------- ----------
<S> <C> <C>
Land................................................ $ 62,569 $ 62,569
Buildings and improvements.......................... 676,730 677,557
Furniture, fixtures and equipment................... 3,086,224 3,088,760
Vehicles............................................ 344,170 344,170
---------- ----------
4,169,693 4,173,056
Less accumulated depreciation....................... 3,363,969 3,528,792
---------- ----------
Net fixed assets.................................... $ 805,724 $ 644,264
========== ==========
</TABLE>
Depreciation expense was $258,439 and $164,823 for the year ended September
30, 1996 and for the seven-month period ended April 30, 1997, respectively.
F-83
<PAGE>
MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
5. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, APRIL 30,
1996 1997
------------- ----------
<S> <C> <C>
Line of credit of up to $2,000,000 under agreement dated
December 27, 1994, collateralized by substantially all of
the Company's assets; availability up to 80% of eligible
accounts receivable at any date; interest payable monthly
at prime plus 6%. In addition to interest obligations,
agreement requires payment of annual facility fee equal
to 1% of total line, as well as monthly and quarterly
administration fees. The agreement terminates on December
27, 1997, after which it is automatically renewable
unless terminated by either party as of any anniversary
date, with 60 days prior written notice. Certain
stockholders of the Company are guarantors on the
Company's behalf......................................... $1,864,967 $1,269,606
First mortgage note on headquarters premises dated April
12, 1989, original principal of $1,200,000, subject to
fixed monthly installments of principal, and interest at
a rate of 14.75%......................................... 310,000 --
First mortgage note on headquarters premises dated January 17,
1997, original principal of $800,000, interest at 10.75%
for the first year, after which rate becomes variable at
prime plus 2.5%. Interest and principal payments due
monthly based on 15-year amortization, with balloon
payment due on fifth anniversary......................... -- 770,000
Various installment notes payable with interest rates
ranging from 10.75% to 14.75%, and collateralized by
certain independent operator agreements and receivables
from independent operators of the Company. Principal and
interest payments are due monthly over 60-month terms.... 3,228,364 2,719,650
Advances from officer of the company..................... -- 224,093
Notes payable, collateralized by certain equipment,
principal and interest due monthly over terms of 24-39
months................................................... 352,297 241,511
---------- ----------
5,755,628 5,224,860
Less current portion 1,232,457 1,958,293
---------- ----------
Notes payable, less current portion $4,523,171 $3,266,567
========== ==========
</TABLE>
In the opinion of management, the carrying amount of the notes payable
approximates their fair value. Aggregate principal payments under the Company's
note payable arrangements as of September 30, 1996 are due as follows:
<TABLE>
<S> <C>
1997.............................. $1,232,457
1998.............................. 2,747,898
1999.............................. 542,673
2000.............................. 588,368
2001.............................. 175,732
Thereafter........................ 468,500
----------
Total............................. $5,755,628
==========
</TABLE>
F-84
<PAGE>
MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE SEVEN
ENDED MONTHS ENDED
SEPTEMBER 30, APRIL 30,
1996 1997
------------- --------------
<S> <C> <C>
Federal--Current................................ $ 15,845 $ --
State and local--Current........................ 39,169 37,839
--------- ---------
Total income tax provision...................... $ 55,014 $ 37,839
========= =========
</TABLE>
The Company's effective income tax rates differed from the applicable
Federal statutory rate due to the following:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED FOR THE SEVEN
SEPTEMBER 30, MONTHS ENDED
1996 APRIL 30, 1997
------------- --------------
<S> <C> <C>
Federal statutory rate......................... 34% 34%
State and local income taxes................... 13 13
Effect of income of S corporation.............. (9) (54)
Effect of changes in deferred tax asset valua-
tion allowance................................ (43) 2
Other, primarily nondeductible travel and en-
tertainment................................... 12 14
--- ---
Effective income tax rate...................... 7% 9%
=== ===
</TABLE>
As of September 30, 1996, for federal income tax purposes, the Company had
net operating loss (NOL) carryforwards of $1,959,595 available to offset
future taxable income, which expire from 2004 to 2010.
The source and tax effects of temporary differences are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, APRIL 30,
1996 1997
------------- -----------
<S> <C> <C>
NOL carryforwards.................................. $ 914,574 $ 916,694
Revenue recognition of independent operator fees... 857,606 773,517
Other.............................................. -- 116,138
Valuation allowance................................ (1,772,180) (1,806,349)
----------- -----------
Net deferred tax asset (liability)................. $ -- $ --
=========== ===========
</TABLE>
Income taxes paid amounted to $14,505 and $0 for the year ended September
30, 1996 and for the seven-month period ended April 30, 1997, respectively.
F-85
<PAGE>
MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
7. RELATED PARTY TRANSACTIONS
Included in other noncurrent liabilities are loans from officers of the
Company with remaining principal balances of $358,444 as of September 30,
1996. The loans have interest rates of 12.5% and are payable in equal
installments of principal and interest over terms of 15 years. Aggregate
principal payments under the loans were due as follows as of September 30,
1996:
<TABLE>
<S> <C>
1997.............................. $ 77,786
1998.............................. 10,781
1999.............................. 12,209
2000.............................. 13,825
2001.............................. 15,656
Thereafter........................ 228,187
--------
Total............................. $358,444
========
</TABLE>
During the year ended September 30, 1996 and the seven-month period ended
April 30, 1997, the Company took one-time charges related to advances to a
non-combined affiliate of approximately $218,000 and $7,000, respectively,
which are included in selling, general and administrative expenses.
8. CONTINGENCIES
The Company is involved in various legal actions which arise in the normal
course of business. Management of the Company does not believe the ultimate
resolution of these actions will have a material effect on the financial
position, results of operations or cash flows of the Company.
9. MAJOR CUSTOMER
The Company has one customer which accounted for approximately 18.0% of
service revenues for the year and seven-month periods ended September 30, 1996
and April 30, 1997, respectively.
10. RESTATEMENTS
The Company enters into agreements with independent operators under which
the independent operator contracts to provide chauffeured vehicle services
exclusively to the Company's customers over a contract period. Upon signing
the contract, the Company is entitled to receive a one-time fee from the
independent operator. Previously, the Company recognized the one-time fee as
revenue upon signing of the agreement. In accordance with Opinion No. 20 of
the Accounting Principles Board, "Accounting Changes", the financial
statements have been retroactively restated to report such fees as deferred
revenue which are recognized as revenue over the terms of the contracts (see
Note 2). The effects of such restatements were to increase results of
operations and stockholders' equity by $5,996 for the year ended September 30,
1996. The Company uses a network of independent service companies to provide
chauffeured vehicle services to its customers. Certain previously unrecognized
costs related to these services have been retroactively recorded. The effects
of such restatements were to decrease results of operations by $301,984 for
the year ended September 30, 1996, and to increase stockholders' deficiency by
$432,671 as of September 30, 1996.
11. SUBSEQUENT EVENT
On June 2, 1997, the stockholders of MILN and ILN sold their stock to Carey
International, Inc., a company providing chauffeured vehicle services.
F-86
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors of Camelot Barthropp Limited (formerly Speed 6060 Limited):
We have audited the accompanying balance sheet of Camelot Barthropp Limited
as of December 31, 1995, and the related statement of operations for the
period from August 4, 1995 to December 31, 1995, all expressed in pounds
sterling. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. These standards require that we plan and perform
our 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 presentation of the financial statements. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Camelot Barthropp Limited as of December
31, 1995, and the results of its operations for the period from August 4, 1995
to December 31, 1995, in conformity with accounting principles generally
accepted in the United Kingdom (which differ in certain respects from
generally accepted accounting principles in the United States--see note 16).
Coopers & Lybrand
Chartered Accountants and Registered
Auditors
London, England
February 26, 1996, except notes 15 and 16
which are dated February 25, 1997
F-87
<PAGE>
CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
NOTE 1995
---- ---------
(Pounds)
<S> <C> <C>
Revenues--continuing operations.................................. 1,266,924
Other operating income........................................... 4 7,700
---------
1,274,624
Expenditures--continuing operations
Vehicle operating costs........................................ 97,119
Other external charges......................................... 362,520
Staff costs.................................................... 3 423,286
Depreciation................................................... 4 114,914
Other operating charges........................................ 4 163,363
---------
1,161,202
---------
Net income on ordinary activities before taxation................ 113,422
Tax on ordinary activities....................................... 5 60,256
---------
Net income on ordinary activities after taxation................. 53,166
Dividends payable................................................ --
---------
Net income retained.............................................. 53,166
=========
</TABLE>
The Company has no recognized gains or losses other than the income above and
therefore no separate statement of total recognized gains and losses has been
presented.
There is no difference between the income on ordinary activities before
taxation and the retained income for the period stated above and their
historical cost equivalents.
The Company was incorporated on August 4, 1995, and as a result, there are no
comparative figures.
The accompanying notes are an integral part of these financial statements.
F-88
<PAGE>
CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED)
BALANCE SHEET AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
NOTE 1995
---- ---------
(Pounds)
<S> <C> <C>
Fixed assets
Tangible assets................................................ 6 659,293
---------
Current assets
Inventories.................................................... 7 9,747
Receivables.................................................... 8 548,103
Called up share capital not paid............................... 911,000
Cash at bank and in hand....................................... 366,912
---------
1,835,762
Current liabilities.............................................. 9 1,530,889
---------
Net current assets............................................... 304,873
---------
964,166
=========
Represented by:
Shareholders' equity
Called up share capital........................................ 11 92,000
Share premium account.......................................... 11 819,000
Retained earnings.............................................. 12 53,166
---------
Total shareholders' equity................................... 964,166
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-89
<PAGE>
CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995
1. BASIS OF PREPARATION
The accompanying financial statements of Camelot Barthropp Limited
(previously Speed 6060 Limited) have been prepared in conformity with
accounting principles generally accepted in the United Kingdom ("U.K. GAAP"),
and are presented under the historical cost convention. These principles
differ in certain material respects from generally accepted accounting
principles in the United States ("U.S. GAAP"); see note 16. All amounts are
expressed in pounds sterling ("(Pounds)").
The accompanying financial statements do not represent the U.K. statutory
financial statements of Camelot Barthropp Limited, as certain
reclassifications and changes in presentation and disclosure have been made to
the U.K. financial statements prepared on a statutory basis in order to
conform, more closely with accounting presentation and disclosure requirements
applicable in the United States. The financial statements of Camelot Barthropp
Limited for the period from August 4, 1995 to December 31, 1995, on which the
auditors' report was unqualified, were the first prepared since its
incorporation. These were not full statutory financial statements and
therefore have not been delivered to the Registrar of Companies in England and
Wales.
The ultimate parent undertaking of Camelot Barthropp Limited was The Savoy
Hotel PLC, a company incorporated under the laws of England throughout the
period from August 4, 1995 to December 31, 1995, of these financial
statements.
2. ACCOUNTING POLICIES
USE OF ESTIMATES
Preparation of financial statements in conformity with U.K. GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses for an accounting period. Such estimates and assumptions could
change in the future as more information becomes known or circumstances alter,
such that Camelot Barthropp Limited's actual results may differ from the
amounts reported and disclosed in the financial statements.
DEPRECIATION
Depreciation is provided so as to write off the cost being the market value
of motor vehicles acquired from a fellow subsidiary undertaking less the
estimated residual value of fixed assets over their expected useful lives.
Depreciation on a straight line basis, mainly at the following annual rates:
<TABLE>
<S> <C>
Motor vehicles --25%
Furniture and equipment --10%-20%
Improvements to premises --10%
</TABLE>
INVENTORIES
Inventories are valued at the lower of cost or net realizable value.
DEFERRED TAXATION
Provision is made for deferred taxation using the liability method at
current taxation rates on all material timing differences to the extent that
it is probable that a liability or asset will crystallize.
REVENUES
Revenues represent the invoiced value of services provided, excluding sales
related taxes.
F-90
<PAGE>
CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995
FOREIGN CURRENCIES
Assets and liabilities in foreign currencies have been translated into
sterling at the rates ruling at the balance sheet date.
OPERATING LEASES
Rentals paid under operating leases are charged to operations on a straight
line basis over the lease term.
PENSION COSTS
The Company contributes into both defined benefit and defined contribution
schemes. An appropriate share of the costs of the pension schemes administered
by the parent undertaking, which are a defined benefit scheme and a defined
contribution scheme, are charged to operations for this Company in respect of
staff who are members of these schemes. Full details of these schemes are
disclosed in the financial statements of The Savoy Hotel PLC. The pension cost
charge for defined contribution schemes represents the amounts payable to
insurance companies in respect of the funds for the year to December 31.
F-91
<PAGE>
CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995
3. STAFF COSTS
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 4, 1995 TO
DECEMBER 31, 1995
-------------------
(Pounds)
<S> <C>
Wages and salaries.......................................... 391,924
Social security costs....................................... 28,242
Pension costs............................................... 3,120
---------------
(Pounds)423,286
===============
Pension costs comprise:
Payments to funded defined contribution schemes........... 320
Charges in respect of group scheme........................ 2,800
---------------
(Pounds) 3,120
===============
The average weekly number of employees during the period was as follows:
NUMBER
---------------
Chauffeurs and support staff................................ 43
Administration.............................................. 6
---------------
49
===============
Directors' remuneration was as follows:
Remuneration as executives................................ Nil
Pension contributions..................................... Nil
Compensation for loss of office........................... Nil
---------------
(Pounds) Nil
===============
Emoluments excluding pension:
Chairman's emoluments..................................... (Pounds) Nil
===============
Highest paid director's emoluments........................ (Pounds) Nil
===============
</TABLE>
The number of directors (including the chairman and highest paid director)
who received emoluments (excluding pension contributions) in the following
ranges was:
<TABLE>
<S> <C>
NUMBER
------
(Pounds)0-(Pounds)5,000............. 4
======
</TABLE>
No director waived emoluments in respect of the period ended December 31,
1995.
The statement of operations for the period from August 4, 1995 to December
31, 1995 includes no head office management recharges from the parent
undertaking in respect to the services provided by the directors of Camelot
Barthropp Limited and other corporate overheads.
F-92
<PAGE>
CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995
4. INCOME ON ORDINARY ACTIVITIES BEFORE TAXATION
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 4, 1995 TO
DECEMBER 31, 1995
------------------
(Pounds)
<S> <C>
The income on ordinary activities before taxation is stated
after charging:
Marketing recharge from parent........................... 27,484
Depreciation............................................. 114,914
Operating leases--hire of plant and machinery............ 4,217
--other operating leases................................. 10,000
=======
and after crediting:
Rent receivable.......................................... 5,526
Sundry income............................................ 417
Gain on disposal of tangible fixed assets................ 1,757
Other operating income................................... 7,700
=======
</TABLE>
5. TAXATION
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 4, 1995 TO
DECEMBER 31, 1995
------------------
(Pounds)
<S> <C>
UK corporation tax on ordinary activities for the period at
33%....................................................... 60,256
======
</TABLE>
6. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
SHORT LEASEHOLD MOTOR FURNITURE AND
PREMISES VEHICLES EQUIPMENT TOTAL
--------------- -------- ------------- --------
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Cost
At August 4, 1995............ -- -- -- --
Additions.................... 7,591 763,686 57,952 829,229
Disposals.................... -- (55,022) -- (55,022)
----- ------- ------ -------
At December 31, 1995......... 7,591 708,664 57,952 774,207
----- ------- ------ -------
Accumulated depreciation
At August 4, 1995............ -- -- -- --
Charge for the Year.......... 770 104,144 10,000 114,914
Disposals.................... -- -- -- --
----- ------- ------ -------
At December 31, 1995......... 770 104,144 10,000 114,914
----- ------- ------ -------
Net Book Value
At December 31, 1995......... 6,821 604,520 47,952 659,293
===== ======= ====== =======
</TABLE>
F-93
<PAGE>
CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995
7.INVENTORIES
<TABLE>
<CAPTION>
1995
---------
(Pounds)
<S> <C>
Raw materials and consumables:
Vehicle spare parts.............................................. 5,369
Petrol and oil................................................... 4,378
---------
9,747
=========
8.RECEIVABLES--AMOUNTS FALLING DUE WITHIN ONE YEAR
Trade receivables.................................................. 337,960
Amounts owed by parent undertaking................................. 155,164
Other receivables.................................................. 4,784
Prepayments and accrued income..................................... 50,195
---------
548,103
=========
9.CURRENT LIABILITIES--AMOUNTS FALLING DUE WITHIN ONE YEAR
Trade accounts payable............................................. 95,414
Borrowings from parent undertaking................................. 230,607
Borrowings from fellow subsidiary.................................. 936,674
Corporation tax.................................................... 60,256
Other taxes and social security.................................... 73,542
Other creditors.................................................... 5,605
Accruals........................................................... 128,791
---------
1,530,889
=========
</TABLE>
10.DEFERRED TAXES
Provision for deferred taxes has been made in the financial statements in
accordance with the Company's accounting policy. The provision and the full
potential liability are as follows:
<TABLE>
<CAPTION>
1995
------------------------
POTENTIAL
PROVISION LIABILITY
--------- --------------
<S> <C> <C>
Accelerated capital allowances..................... -- (Pounds)17,875
=== ==============
</TABLE>
11.SHARE CAPITAL AND SHARE PREMIUM
<TABLE>
<CAPTION>
1995
--------
(Pounds)
<S> <C>
Authorized:
Ordinary Shares of (Pounds)1...................................... 100,000
=======
</TABLE>
F-94
<PAGE>
CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995
The Company was incorporated on August 4, 1995 with 1,000 Ordinary Shares of
(Pounds)1 each. On August 30, 1995 the authorized share capital of the Company
was increased by 99,000 Ordinary Shares of (Pounds)1 each.
<TABLE>
<CAPTION>
NUMBER NOMINAL SHARE TOTAL
ISSUED VALUE PREMIUM CONSIDERATION
------ ------- ------- -------------
<S> <C> <C> <C> <C>
Allotted, called up and fully paid:
Ordinary Shares of (Pounds)1............ 92,000 92,000 819,000 911,000
====== ====== ======= =======
</TABLE>
On August 8, 1995, 1,000 shares were issued to The Savoy Hotel PLC at par.
On August 30, a further 91,000 shares were issued to The Savoy Hotel PLC at a
price of (Pounds)10.00 per share
12. RETAINED EARNINGS
<TABLE>
<CAPTION>
1995
--------
(Pounds)
<S> <C>
At August 4, 1995................................................... --
Retained income for the period...................................... 53,166
-------
At December 31, 1995................................................ 53,166
=======
13. RECONCILIATION OF MOVEMENTS ON SHAREHOLDERS' EQUITY
<CAPTION>
1995
--------
(Pounds)
<S> <C>
Opening shareholders' equity........................................ --
Issue of share capital.............................................. 92,000
Share premium....................................................... 819,000
Total recognized gains for the period............................... 53,166
-------
Closing shareholders' equity........................................ 964,166
=======
</TABLE>
14. FINANCIAL COMMITMENTS
a) The Company has annual commitments under operating leases as set out
below:
<TABLE>
<CAPTION>
1995
------------------
LAND AND
BUILDINGS OTHER
--------- --------
(Pounds) (Pounds)
<S> <C> <C>
Leases which expire:
In the next year...................................... -- 3,363
In the second to fifth years.......................... -- 5,504
After five years...................................... -- --
--- -----
-- 8,867
=== =====
</TABLE>
b) Capital commitments:
<TABLE>
<CAPTION>
1995
--------
(Pounds)
<S> <C>
Capital expenditure contracted for but not provided in the fi-
nancial statements............................................ --
===
Capital expenditure approved by the directors but not con-
tracted for................................................... --
===
</TABLE>
F-95
<PAGE>
CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995
15. POST BALANCE SHEET EVENTS
The parent undertaking sold Camelot Barthropp Limited to Carey
International, Inc. for an initial consideration of (Pounds)788,843. Further
consideration of (Pounds)672,752 will become payable on the parent undertaking
providing certain thresholds of business for Camelot Barthropp Limited are
achieved during the period to March 31, 1998.
16. SUMMARY OF DIFFERENCES BETWEEN U.K. AND U.S. GAAP
The financial statements are prepared in accordance with accounting
principles generally accepted in the United Kingdom ("U.K. GAAP"). These
accounting principles differ in certain material respects from the accounting
principles generally accepted in the United States ("U.S. GAAP"). Described
below are the material differences between U.K. GAAP and U.S. GAAP affecting
the net income and shareholders' equity which are set forth in the tables that
follow.
TRANSFER OF ASSETS BETWEEN FELLOW SUBSIDIARIES
Under U.K. GAAP, assets can be transferred from one subsidiary to a fellow
subsidiary with the same parent undertaking, at their fair value. The
difference between the fair value and the historical cost of these assets will
result in an intragroup gain or loss in the statement of operations of the
subsidiary selling the assets. The assets would remain at their fair value in
the subsidiary that acquired the assets and the associated depreciation charge
would be provided on these fair values. Under U.S. GAAP, assets can only be
transferred from one subsidiary to a fellow subsidiary with the same parent
undertaking, at their historical cost. As a result, under U.S. GAAP, no
intragroup gain or loss would arise from the transaction, the assets would
remain at historical cost and the associated depreciation charge would be
provided on these historical costs.
ALLOCATION OF EXPENSES IN A "CARVE OUT" SITUATION
Under U.K. GAAP, certain costs incurred by the parent undertaking may not be
reflected in the subsidiary financial statements; however, disclosure of this
fact is generally provided in the subsidiary financial statements. Under U.S.
GAAP, historical income statements of a subsidiary should reflect all costs
incurred by the parent undertaking on its behalf, such as officer salaries and
corporate overheads.
DEFERRED TAXES
Under U.K. GAAP, deferred taxation is accounted for using the liability
method to the extent that it is considered probable that a liability will
crystallize in the foreseeable future. Under U.S. GAAP, deferred taxation is
provided for on all temporary differences and carryforwards. Deferred tax
assets are recognised to the extent that it is more likely than not that they
will be realized. Where doubt exists as to whether a deferred tax asset will
be realized, an appropriate valuation allowance is established.
STOCK SUBSCRIPTIONS
Under U.K. GAAP the amount of the shares issued, including those issued
pursuant to a stock subscription receivable, is shown on the face of the
balance sheet. Any subscription receivable due on these shares would be shown
separately in the balance sheet. Under U.S. GAAP, the net amount of the shares
being the amount of the shares issued after deducting any subscriptions
receivable therefrom, is shown on the face of the balance sheet.
F-96
<PAGE>
CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995
The effect of the above noted differences between U.K. and U.S. GAAP are as
follows:
(A)NET INCOME
The approximate effects on net income of material differences between U.K.
and U.S. GAAP are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
AUGUST 4, 1995 TO
DECEMBER 31, 1995
--------------------
(Pounds)
<S> <C>
Net income reported under U.K. GAAP................... 53,166
Transfer of assets -- depreciation adjustment......... 15,590
Allocation of expenses................................ (21,170)
Deferred taxes........................................ (17,875)
Tax effect of U.S. GAAP reconciling adjustments....... 1,844
--------
Net income reported in accordance with U.S. GAAP...... 31,555
========
(B)SHAREHOLDERS' EQUITY
The approximate effects on shareholders' equity of material differences
between U.K. and U.S. GAAP are as follows:
<CAPTION>
AT DECEMBER 31, 1995
--------------------
(Pounds)
<S> <C>
Shareholders' equity reported under U.K. GAAP......... 964,166
Gain on transfer of assets--fixed assets.............. (112,500)
--amounts payable..................................... 112,500
--depreciation adjustment............................. 15,590
Allocation of expenses................................ (21,170)
Stock subscriptions................................... (911,000)
Deferred taxes........................................ (17,875)
Tax effect of U.S. GAAP reconciling adjustments....... 1,844
--------
Shareholders' equity reported in accordance with U.S.
GAAP................................................. 31,555
========
</TABLE>
F-97
<PAGE>
CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995
(C)STATEMENTS OF CASH FLOWS
Under U.K. GAAP, wholly owned subsidiaries of a parent undertaking that are
established under the law of any European Community State are exempt from
including a statement of cash flows in their financial statements. Under U.S.
GAAP, the statement of cash flows is required and therefore is shown below:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
AUGUST 4, 1995
TO DECEMBER 31, 1995
--------------------
(Pounds)
<S> <C>
Cash flows from operating activities
Net income.......................................... 31,555
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of fixed assets..... 99,324
Gain on sale of fixed assets...................... (1,757)
Change in operating assets and liabilities:
Receivables..................................... (548,103)
Inventories..................................... (9,747)
Current liabilities............................. 738,861
--------
Net cash provided by operating activities..... 310,133
--------
Cash flows from investing activities:
Proceeds from gain of fixed assets.................. 56,779
--------
Net cash provided by investing activities..... 56,779
--------
Net increase in cash and cash equivalents............. 366,912
Cash and cash equivalents at beginning of year........ --
--------
Cash and cash equivalents at end of year.............. 366,912
========
</TABLE>
F-98
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors of Speed 6060 Limited (formerly Camelot Barthropp Limited):
We have audited the accompanying balance sheets of Speed 6060 Limited as of
December 31, 1994 and 1995, and the related statements of operations for each
of the two years in the period ended December 31, 1995, all expressed in
pounds sterling. 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 United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. These standards require that we plan and perform
our 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 presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Speed 6060 Limited as of December 31, 1994
and 1995, and the results of its operations for each of the two years in the
period ended December 31, 1995, in conformity with accounting principles
generally accepted in the United Kingdom (which differ in certain respects
from generally accepted accounting principles in the United States--see note
16).
Coopers & Lybrand
Chartered Accountants and Registered
Auditors
London, England
February 26, 1996, except note 16
which is dated February 28, 1997
F-99
<PAGE>
SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
NOTE 1994 1995
---- --------- ---------
(Pounds) (Pounds)
<S> <C> <C> <C>
Revenues--discontinued operations................... 2,694,693 1,849,242
Other operating income.............................. 4 79,056 38,142
--------- ---------
2,773,749 1,887,384
--------- ---------
Expenditures--discontinued operations
Vehicle operating costs........................... 329,701 216,200
Other external charges............................ 537,423 403,330
Staff costs....................................... 3 1,086,203 710,084
Other operating charges........................... 4 647,327 509,688
--------- ---------
2,600,654 1,839,302
--------- ---------
Operating income.................................... 173,095 48,082
Gain on the disposal of fixed assets to a fellow
subsidiary......................................... -- 112,500
--------- ---------
Income on ordinary activities before tax............ 173,095 160,582
Tax on ordinary activities.......................... 5 62,252 30,604
--------- ---------
Net income on ordinary activities after taxation.... 110,843 129,978
Dividend payable.................................... 110,000 275,000
--------- ---------
Net income (loss) retained.......................... 843 (145,022)
========= =========
</TABLE>
The Company has no recognized gains or losses other than the income (losses)
above and therefore no separate statement of total recognized gains and losses
has been presented.
There is no difference between the income on ordinary activities before
taxation for the years stated above and their historical cost equivalents.
The Company ceased trading at close of business on August 31, 1995 and
consequently the statement of operations for 1995 only reflects the results to
this date.
The accompanying notes are an integral part of these financial statements.
F-100
<PAGE>
SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED)
BALANCE SHEETS AT DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
NOTE 1994 1995
---- --------- --------
(Pounds) (Pounds)
<S> <C> <C> <C>
Fixed assets
Tangible assets..................................... 6 848,058 --
--------- -------
Current assets
Inventories......................................... 7 19,650 --
Receivables......................................... 8 377,519 936,674
Cash at bank and in hand............................ 220,248 --
--------- -------
617,417 936,674
Current liabilities--amounts falling due within one
year................................................. 9 415,112 31,333
--------- -------
Net current assets.................................... 202,305 905,341
--------- -------
Total assets less current liabilities............. 1,050,363 905,341
========= =======
Represented by:
Shareholders' equity
Called up share capital............................. 11 43,329 43,329
Retained earnings................................... 12 1,007,034 862,012
--------- -------
Total shareholders' equity........................ 1,050,363 905,341
========= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-101
<PAGE>
SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
1. BASIS OF PREPARATION
The accompanying financial statements of Speed 6060 Limited (formerly
Camelot Barthropp Limited) have been prepared in conformity with accounting
principles generally accepted in the United Kingdom ("U.K. GAAP"), and are
presented under the historical cost convention. These principles differ in
certain material respects from generally accepted accounting principles in the
United States ("U.S. GAAP"); see note 16. All amounts are expressed in pounds
sterling ("(Pounds)").
The accompanying financial statements do not represent the U.K. statutory
financial statements of Speed 6060 Limited, as certain reclassifications and
changes in presentation and disclosure have been made to the U.K. financial
statements prepared on a statutory basis in order to conform, more closely
with accounting presentation and disclosure requirements applicable in the
United States. The financial statements of Speed 6060 Limited for the year
ended December 31, 1995, on which the auditors' report was unqualified, were
the latest financial statements to have been delivered to the Registrar of
Companies in England and Wales.
The ultimate parent undertaking of Speed 6060 Limited was The Savoy Hotel
PLC, a company incorporated under the laws of England throughout the period
being January 1, 1994 to December 31, 1995, of these financial statements.
2. ACCOUNTING POLICIES
USE OF ESTIMATES
Preparation of financial statements in conformity with U.K. GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses for an accounting period. Such estimates and assumptions could
change in the future as more information becomes known or circumstances alter,
such that Speed 6060 Limited's actual results may differ from the amounts
reported and disclosed in the financial statements.
DEPRECIATION
Depreciation is provided so as to write off the cost less estimated residual
value of fixed assets over their expected useful lives.
Depreciation is provided on a straight line basis, mainly at the following
annual rates:
<TABLE>
<S> <C>
Motor vehicles --25%
Furniture and equipment --10%-20%
Improvements to premises --10%
</TABLE>
INVENTORIES
Inventories are valued at the lower of cost or net realizable value.
DEFERRED TAXATION
Provision is made for deferred taxation using the liability method at
current taxation rates on all material timing differences to the extent that
it is probable that a liability or asset will crystallize.
F-102
<PAGE>
SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
REVENUES
Revenues represent the invoiced value of services provided, excluding sales
related taxes.
FOREIGN CURRENCIES
Assets and liabilities in foreign currencies have been translated into
sterling at the rates ruling at the balance sheet date.
LEASES
Assets held under capital leases are capitalized in the balance sheet and
are depreciated over their useful lives. The interest element of the
repayments is charged to operations over the period of the contract on a
straight line basis. Rentals paid under operating leases are charged to
operations on a straight line basis over the lease term.
PENSION COSTS
The Company contributes into both defined benefit and defined contribution
schemes. An appropriate share of the costs of the pension schemes administered
by the Parent Undertaking, which are a defined benefit scheme and a defined
contribution scheme, are charged to operations for this Company in respect of
staff who are members of these schemes. Full details of these schemes are
disclosed in the financial statements of The Savoy Hotel PLC. The pension cost
charge for defined contribution schemes represents the amounts payable to
insurance companies in respect of the funds for the year to December 31.
F-103
<PAGE>
SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
3.STAFF COSTS
<TABLE>
<CAPTION>
1994 1995
----------------- ---------------
(Pounds) (Pounds)
<S> <C> <C>
Wages and salaries....................... 1,002,012 653,498
Social security costs.................... 74,588 50,508
Other pension costs...................... 9,603 6,078
----------------- ---------------
(Pounds)1,086,203 (Pounds)710,084
================= ===============
Other pension costs comprise:
Payments to funded defined contribution
schemes................................. 1,160 640
Charges in respect of group scheme....... 8,443 5,438
----------------- ---------------
(Pounds) 9,603 (Pounds) 6,078
================= ===============
The average weekly number of employees during the year was as follows:
<CAPTION>
NUMBER NUMBER
----------------- ---------------
<S> <C> <C>
Chauffeurs and support staff........... 40 39
Administration......................... 6 5
----------------- ---------------
46 44
================= ===============
Directors' remuneration was as follows:
Remuneration as executives............. Nil Nil
Pension contributions.................. Nil Nil
Compensation for loss of office........ Nil Nil
----------------- ---------------
(Pounds) Nil (Pounds) Nil
----------------- ---------------
Emoluments excluding pension scheme contributions:
Chairman's emoluments.................. (Pounds) Nil (Pounds) Nil
================= ===============
Highest paid directors' emoluments..... (Pounds) Nil (Pounds) Nil
================= ===============
</TABLE>
The number of directors (including the chairman and highest paid director)
who received emoluments (excluding pension contributions) in the following
ranges was:
<TABLE>
<CAPTION>
NUMBER NUMBER
------ ------
<S> <C> <C>
(Pounds)0-(Pounds)5,000........................................ 5 4
=== ===
</TABLE>
No director waived emoluments in respect of the years ended December 31,
1994 and 1995.
The statements of operations for the years ended December 31, 1994 and 1995
include no head office management recharges from the parent undertaking in
respect to the services provided by the directors of Speed 6060 Limited and
other corporate overheads.
F-104
<PAGE>
SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
4.INCOME ON ORDINARY ACTIVITIES BEFORE TAXATION
The income on ordinary activities before taxation is stated after charging:
<TABLE>
<CAPTION>
1994 1995
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Auditors' remuneration...................................... 10,000 6,000
Marketing recharge from parent.............................. -- 49,001
Depreciation................................................ 343,428 215,588
Operating leases--hire of plant and machinery............... 9,332 6,155
--other............................................... 35,250 20,000
======= =======
and after crediting:
Rent receivable............................................. 14,182 9,027
Sundry income............................................... 1,388 438
Gain on disposal of tangible fixed assets................... 63,486 28,677
Other operating income...................................... 79,056 38,142
======= =======
5.TAXATION
UK corporation tax on income on ordinary activities for the
years at 33%............................................... 63,000 31,333
UK corporation tax credit in respect of previous years...... (748) (729)
------- -------
62,252 30,604
======= =======
</TABLE>
In 1995, the primary reason for the difference between the effective tax
rate (19%) and the nominal rate of UK corporation tax (33%) is that the
transfer of the traded assets of the Company was intra-group and therefore not
subject to corporation tax.
F-105
<PAGE>
SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
6.TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
SHORT FURNITURE
LEASEHOLD MOTOR AND
PREMISES VEHICLES EQUIPMENT TOTAL
--------- ---------- --------- ----------
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Cost
At January 1, 1994............... 36,675 1,464,752 92,233 1,593,660
Additions........................ -- 402,593 49,053 451,646
Disposals........................ -- (382,634) (249) (382,883)
Fully depreciated assets......... (11,355) -- (34,031) (45,386)
------- ---------- -------- ----------
At December 31, 1994............. 25,320 1,484,711 107,006 1,617,037
------- ---------- -------- ----------
Additions........................ -- 115,800 8,075 123,875
Disposals........................ (25,320) (1,600,511) (115,081) (1,740,912)
------- ---------- -------- ----------
At December 31, 1995............. -- -- -- --
======= ========== ======== ==========
Accumulated Depreciation
At January 1, 1994............... 25,234 709,265 54,039 788,538
Charge for the year.............. 2,310 319,191 21,927 343,428
Disposals........................ -- (317,352) (249) (317,601)
Fully depreciated assets......... (11,355) -- (34,031) (45,386)
------- ---------- -------- ----------
At December 31, 1994............. 16,189 711,104 41,686 768,979
Charge for the year.............. 1,540 197,965 16,083 215,588
Disposals........................ (17,729) (909,069) (57,769) (984,567)
------- ---------- -------- ----------
At December 31, 1995............. -- -- -- --
======= ========== ======== ==========
Net Book Value
At December 31, 1994............. 9,131 773,607 65,320 848,058
======= ========== ======== ==========
At December 31, 1995............. -- -- -- --
======= ========== ======== ==========
</TABLE>
In 1995, in accordance with the transfer agreement whereby the assets and
business of the Company were transferred, an exceptional gain on disposal of
(Pounds)112,500 was made. This gain specifically related to the transfer of
motor vehicles which were transferred at fair market value. All other assets
were transferred at net book value.
7.INVENTORIES
<TABLE>
<CAPTION>
1994 1995
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Raw materials and consumables:
Vehicle spare parts........................................... 15,605 --
Petrol and oil................................................ 4,045 --
------- -------
19,650 --
======= =======
8.RECEIVABLES--AMOUNTS FALLING DUE WITHIN ONE YEAR
Trade receivables............................................. 184,969 --
Amounts owed by parent undertaking............................ 104,027 --
Amounts owed by fellow subsidiary............................. -- 936,674
Other receivables............................................. 4,224 --
Prepayments and accrued income................................ 84,299 --
------- -------
377,519 936,674
======= =======
</TABLE>
F-106
<PAGE>
SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
9.CURRENT LIABILITIES--AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1994 1995
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Trade accounts payable..................................... 76,057 --
Borrowings from parent undertaking......................... 34,915 --
Corporation tax............................................ 63,000 31,333
Other taxes and social security............................ 49,699 --
Other creditors............................................ 11,299 --
Capital lease installments................................. 4,638 --
Accruals................................................... 65,504 --
Dividends payable.......................................... 110,000 --
------- ------
415,112 31,333
======= ======
</TABLE>
10.DEFERRED TAXES
Provision for deferred taxes has been made in the financial statements in
accordance with the Company's accounting policy. The provision and the full
potential liability are as follows:
<TABLE>
<CAPTION>
1994 1995
------------------------- -------------------
POTENTIAL POTENTIAL
PROVISION LIABILITY PROVISION LIABILITY
--------- --------------- --------- ---------
<S> <C> <C> <C> <C>
Accelerated capital
allowances................. -- (Pounds) 15,534 -- --
</TABLE>
11.SHARE CAPITAL
<TABLE>
<CAPTION>
1994 1995
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Authorized:
"A' Ordinary Shares of (Pounds)1......................... 20,000 20,000
"B' Ordinary Shares of (Pounds)1......................... 30,000 30,000
------ ------
50,000 50,000
====== ======
Allotted, called up and fully paid:
"A' Ordinary Shares of (Pounds)1......................... 17,329 17,329
"B' Ordinary Shares of (Pounds)1......................... 26,000 26,000
------ ------
43,329 43,329
====== ======
</TABLE>
12.RETAINED EARNINGS
<TABLE>
<CAPTION>
1994 1995
--------- ---------
(Pounds) (Pounds)
<S> <C> <C>
At January 1.......................................... 1,006,191 1,007,034
Transfer to (from) retained earnings.................. 843 (145,022)
--------- ---------
At December 31........................................ 1,007,034 862,012
========= =========
13.RECONCILIATION OF MOVEMENTS ON SHAREHOLDERS' EQUITY
<CAPTION>
1994 1995
--------- ---------
(Pounds) (Pounds)
<S> <C> <C>
Opening shareholders' equity.......................... 1,049,520 1,050,363
Total recognized (losses)/gains for the financial
year................................................. 843 (145,022)
--------- ---------
Closing shareholders' equity.......................... 1,050,363 905,341
========= =========
</TABLE>
F-107
<PAGE>
SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
14.FINANCIAL COMMITMENTS
a) The Company has annual commitments under operating leases as set out
below:
<TABLE>
<CAPTION>
1994 1995
------------------ ------------------
LAND AND LAND AND
BUILDINGS OTHER BUILDINGS OTHER
--------- -------- --------- --------
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Leases which expire:
In the next year.................... 30,000 360 -- --
In the second to fifth years........ -- 9,038 -- --
After five years.................... -- -- -- --
------ ----- --- ---
30,000 9,398 -- --
====== ===== === ===
</TABLE>
b) Capital commitments:
The Company has no capital commitments at December 31, 1994 and 1995
15.GUARANTEE
The Company has entered into a Composite Accounting Agreement with Barclays
Bank PLC under which it has executed an unlimited guarantee in respect of the
bank overdraft and other banking facility of the Parent Undertaking and
certain Fellow Subsidiary Undertakings.
16.SUMMARY OF DIFFERENCES BETWEEN U.K. AND U.S. GAAP
The financial statements are prepared in accordance with accounting
principles generally accepted in the United Kingdom ("U.K. GAAP"). These
accounting principles differ in certain material respects from the accounting
principles generally accepted in the United States ("U.S. GAAP"). Described
below are the material differences between U.K. GAAP and U.S. GAAP affecting
the net income and shareholders' equity which are set forth in the tables that
follow:
Transfer of assets between fellow subsidiaries
Under U.K. GAAP, assets can be transferred from one subsidiary to a fellow
subsidiary with the same parent undertaking, at their fair value. The
difference between the fair value and the historical cost of these assets will
result in an intragroup gain or loss in the statement of operations of the
subsidiary selling the assets. The assets would remain at their fair value in
the subsidiary that acquired the assets. Under U.S. GAAP, assets can only be
transferred from one subsidiary to a fellow subsidiary with the same parent
undertaking, at their historical cost. As a result, under U.S. GAAP no
intragroup gain or loss would arise from the transaction, and the assets would
remain at historical cost.
Allocation of expenses in a "carve out" situation
Under U.K. GAAP, certain costs incurred by the parent undertaking may not be
reflected in the subsidiary financial statements; however, disclosure of the
fact is generally provided in the subsidiary financial statements. Under U.S.
GAAP, historical statements of operations of a subsidiary should reflect all
costs incurred by the parent undertaking on its behalf, such as officer
salaries and corporate overheads.
F-108
<PAGE>
SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
Deferred taxes
Under U.K. GAAP, deferred taxation is accounted for using the liability
method to the extent that it is considered probable that a liability will
crystallize in the foreseeable future. Under U.S. GAAP, deferred taxation is
provided for on all temporary differences and carryforwards. Deferred tax
assets are recognised to the extent that it is more likely than not that they
will be realized. Where doubt exists as to whether a deferred tax asset will
be realized, an appropriate valuation allowance is established.
Proposed dividends
Under U.K. GAAP dividends paid and proposed are usually shown on the face of
the statement of operations as an appropriation of current year earnings.
Proposed dividends are provided on the basis of recommendation by the
directors and may include dividends that are subject to subsequent approval by
shareholders before they are declared. Under U.S. GAAP, only dividends
approved during the current year are included in the statement of operations.
The effect of the above noted differences between U.K. and U.S. GAAP are as
follows:
(A) NET INCOME
The approximate effects on net income (loss) of material differences between
U.K. and U.S. GAAP are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
--------------------
1994 1995
--------- ---------
(Pounds) (Pounds)
<S> <C> <C>
Net income reported under U.K. GAAP....................... 110,843 129,978
Gain on transfer of assets................................ -- (112,500)
Allocation of expenses.................................... (68,350) (42,341)
Deferred taxes............................................ 2,161 15,534
Tax effect of U.S. GAAP reconciling adjustments........... 22,556 13,973
-------- ---------
Net income reported in accordance with U.S. GAAP.......... 67,210 4,644
======== =========
</TABLE>
(B) SHAREHOLDERS' EQUITY
The approximate effects on shareholders' equity of material differences
between U.K. and U.S. GAAP are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1994 1995
--------- --------
(Pounds) (Pounds)
<S> <C> <C>
Shareholders' equity reported under U.K. GAAP............ 1,050,363 905,341
Gain on transfer of assets............................... -- (112,500)
Allocation of expenses................................... (68,350) (110,691)
Deferred taxes........................................... (15,534) --
Proposed dividend........................................ 110,000 --
Tax effect of U.S. GAAP reconciling adjustments.......... 22,556 36,529
--------- --------
Shareholders' equity reported in accordance with U.S.
GAAP.................................................... 1,099,035 718,679
========= ========
</TABLE>
F-109
<PAGE>
SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
(C) STATEMENTS OF CASH FLOWS
Under U.K. GAAP, wholly owned subsidiaries of a parent undertaking that are
established under the law of any European Community State are exempt from
including a statement of cash flows in their financial statements. Under U.S.
GAAP, the statement of cash flows is required and therefore is shown below:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995
----------------- -----------------
(Pounds) (Pounds)
<S> <C> <C>
Cash flows from operating activities:
Net income................................ 67,210 4,644
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of fixed as-
sets..................................... 343,428 215,588
Gain on sale of fixed assets.............. (63,486) (28,677)
Change in operating assets and liabili-
ties:
Receivables............................. 54,058 166,047
Inventories............................. 3,797 19,650
Current liabilities..................... (79,729) (156,918)
-------- --------
Net cash provided by operating activi-
ties................................. 325,278 220,334
-------- --------
Cash flows from investing activities:
Proceeds from sale of fixed assets........ 128,768 68,293
Purchases of fixed assets................. (451,646) (123,875)
Net cash used in financing activi-
ties................................. (322,878) (55,582)
-------- --------
Cash flows from financing activities:
Dividends paid.......................... -- (385,000)
Net cash used in financing activi-
ties................................. -- (385,000)
-------- --------
Net increase (decrease) in cash and cash
equivalents.............................. 2,400 (220,248)
Cash and cash equivalents at beginning of
year..................................... 217,848 220,248
-------- --------
Cash and cash equivalents at end of year.. 220,248 --
======== ========
</TABLE>
F-110
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Delaware corporation. Reference is made to Section 145 of
the DGCL, as amended, which provides that a corporation may indemnify any
person who was or is a party to or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he or she is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding if he or she acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceedings, had no reasonable cause to believe his or her conduct was
unlawful. Section 145 further provides that a corporation similarly may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the fact that
he or she is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection with the defense or settlement
of such action or suit if he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite an adjudication of liability, but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper. The Company's Restated Certificate of
Incorporation further provides that the Company shall indemnify its directors
and officers to the full extent permitted by the law of the State of Delaware.
The Company's Certificate of Incorporation provides that the Company's
directors shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except to the extent that
exculpation from liability is not permitted under the DGCL as in effect at the
time such liability is determined.
The Certificate of Incorporation also provides that each person who was or
is made a party to, or is involved in, any action, suit, proceeding or claim
by reason of the fact that he or she is or was a director, officer or employee
of the Registrant (or is or was serving at the request of the Registrant as a
director, officer, trustee employee or agent of any other enterprise including
service with respect to employee benefit plans) shall be indemnified and held
harmless by the Registrant, to the full extent permitted by Delaware law, as
in effect from time to time, against all expenses (including attorneys' fees
and expenses), judgments, fines, penalties and amounts to be paid in
settlement incurred by such person in connection with the investigation,
preparation to defend or defense of such action, suit, proceeding or claim.
The rights to indemnification and the payment of expenses provided by the
Certificate of Incorporation do not apply to any action, suit, proceeding or
claim initiated by or on behalf of a person otherwise entitled to the benefit
of such provisions. Any person seeking indemnification under the Certificate
of Incorporation shall be deemed to have met the standard of conduct required
for such indemnification unless the contrary shall be established. Any repeal
or modification of such indemnification provisions shall not adversely affect
any right or protection of a director or officer with respect to any conduct
of such director or officer occurring prior to such repeal or modification.
The Company maintains an indemnification insurance policy covering all
directors and officers of the Company and its subsidiaries.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS.
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- ----------
<S> <C> <C>
*2.1 Stock Purchase Agreement dated as of March 1, 1997,
by and among Carey International, Inc., Alfred J.
Hemlock and Lupe C. Hemlock
*2.2 Agreement and Plan of Merger dated as of March 1,
1997, by and among Carey International, Inc.,
Manhattan International Limousine Network Ltd., MLC
Acquisition Corporation and Michael Hemlock
*2.3 Form of Stockholder Action by Written Consent Adopted
in Connection with the Recapitalization
++2.4 Amended and Restated Agreement of Plan of Merger made
as of October 10, 1997 by and amoung Carey
International, Inc., Carey Limousine Indiana, Inc.,
Indy Connection Limousines, Inc., Transit Tours,
Inc., K.D. & Associates Professional Corporation,
Craig Del Fabro and Kim Del Fabro
*3.1 Form of Amended and Restated Certificate of
Incorporation of the Company
*3.2 Amended and Restated Bylaws of the Company
*4.1 Specimen Stock Certificate
*4.2 Form of Warrants
*4.3 Carey International, Inc. Common Stock Purchase
Warrant dated September 1, 1991, issued to Yerac
Associates, L.P.
*4.4 Form of Registration Rights Agreement between Carey
International, Inc. and Michael Hemlock
**5 Opinion of Nutter, McClennen & Fish, LLP
*10.1 1997 Equity Incentive Plan
*10.2 1992 Stock Option Plan
*10.3 1987 Stock Option Plan
*10.4 Stock Plan for Non-Employee Directors
*10.5 Lease dated July 5, 1989 for 4530 Wisconsin Avenue,
Washington, D.C., between Carey International, Inc.
and 4530 Wisconsin Associates, as lessor, including
Addendum, Exhibit B and Exhibit C; and Second
Amendment to Lease dated August 6, 1993, including
Exhibit A
*10.6 Form of Escrow Agreement by and among Michael
Hemlock, Alfred J. Hemlock, Lupe C. Hemlock and a
bank to be named
*10.7 Current form of Standard Master License Agreement
*10.8 Current form of Standard International License
Agreement
*10.9 Form of Promissory Notes in connection with
Acquisition of Manhattan Limousine
*10.10 Current form of Standard Independent Operator
Agreement
+10.11 Form of Revolving Credit and Term Loan Agreement by
and among Carey International, Inc., certain of its
direct and indirect wholly-owned subsidiaries, and
Fleet Bank, N.A., Banco Popular de Puerto Rico and
George Mason Bank
+11 Statements Regarding Computation of Per Share
Earnings
*21 Subsidiaries of the Registrant
+23.1 Consent of Coopers & Lybrand L.L.P.
+23.2 Consent of Coopers & Lybrand L.L.P.
+23.3 Consent of Coopers & Lybrand L.L.P.
+23.4 Consent of Coopers & Lybrand L.L.P.
+23.5 Consent of Coopers & Lybrand, Chartered Accountants
and Registered Auditors
+23.6 Consent of Coopers & Lybrand, Chartered Accountants
and Registered Auditors
**23.7 Consent of Nutter, McClennen & Fish, LLP (contained
in Exhibit 5)
**24 Power of Attorney (contained in the signature page to
this Registration Statement)
</TABLE>
- --------
* Incorporated by reference to the Company's Registration Statement on Form S-1
(File No. 333-22651).
** Previously filed.
+ Filed herewith.
++ Incorporated by reference to the Company's Current Report on Form 8-K dated
October 31, 1997.
II-2
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULE:
The following Financial Statement Schedule is filed as part of this
Registration Statement.
Report of Independent Accountants
Schedule VIII--Valuation and Qualifying Accounts
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(5) That every prospectus (i) that is filed pursuant to paragraph (4)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(6) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of Form
S-4, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(7) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WASHINGTON, THE
DISTRICT OF COLUMBIA, ON THE DAY OF JANUARY 1998.
Carey International, Inc.
/s/ David H. Haedicke
By: _________________________________
DAVID H. HAEDICKE
CHIEF FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Vincent A. Wolfington* Chairman of the January 21, 1998
- ------------------------------------- Board and Chief
VINCENT A. WOLFINGTON Executive Officer
/s/ Don R. Dailey* President and January 21, 1998
- ------------------------------------- Director
DON R. DAILEY
/s/ David H. Haedicke Chief Financial January 21, 1998
- ------------------------------------- Officer
DAVID H. HAEDICKE
/s/ Paul A. Sandt* Principal Accounting January 21, 1998
- ------------------------------------- Officer
PAUL A. SANDT
/s/ David McL. Hillman* Director January 21, 1998
- -------------------------------------
DAVID MCL. HILLMAN
Director January 21, 1998
- -------------------------------------
WILLIAM R. HAMBRECHT
/s/ Robert W. Cox* Director January 21, 1998
- -------------------------------------
ROBERT W. COX
/s/ Nicholas J. St. George* Director January 21, 1998
_____________________________________
NICHOLAS J. ST. GEORGE
/s/ David H. Haedicke
By: _________________________________
DAVID H. HAEDICKE
ATTORNEY-IN-FACT
</TABLE>
* Powers of Attorney have been filed with this Registration Statement.
II-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Carey International, Inc.
In connection with our audits of the consolidated financial statements of
Carey International, Inc. and Subsidiaries as of November 30, 1995 and 1996,
and for each of the three years in the period ended November 30, 1996, which
financial statements are included in the Prospectus, we have also audited the
consolidated financial statement schedule listed in Item 16(b) of Part II of
the Registration Statement herein.
In our opinion, this consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the information required
to be included therein.
Coopers & Lybrand L.L.P.
Washington, D.C.
January 31, 1997, except for
Notes 1, 2 and 18 as to
which the date is March 1, 1997
1
<PAGE>
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
BALANCE AT BEGINNING CHARGED TO COSTS DEDUCTIONS-- BALANCE AT END
DESCRIPTION OF PERIOD AND EXPENSE WRITE-OFFS OF PERIOD
----------- -------------------- ---------------- ------------ --------------
<S> <C> <C> <C> <C>
Year ended November 30,
1996
Reserve and allowance
from asset accounts:
Allowance for doubtful
accounts............. $293,796 $498,786 $(257,174) $535,408
Year ended November 30,
1995
Reserve and allowance
from asset accounts:
Allowance for doubtful
accounts............. $203,872 $391,964 $(302,040) $293,796
Year ended November 30,
1994
Reserve and allowance
from asset accounts:
Allowance for doubtful
accounts............. $219,979 $251,733 $(267,840) $203,872
</TABLE>
2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- ----------
<S> <C> <C>
*2.1 Stock Purchase Agreement dated as of March 1, 1997,
by and among Carey International, Inc., Alfred J.
Hemlock and Lupe C. Hemlock
*2.2 Agreement and Plan of Merger dated as of March 1,
1997, by and among Carey International, Inc.,
Manhattan International Limousine Network Ltd., MLC
Acquisition Corporation and Michael Hemlock
*2.3 Form of Stockholder Action by Written Consent Adopted
in Connection with the Recapitalization
++2.4 Amended and Restated Agreement of Plan of Merger made
as of October 10, 1997 by and amoung Carey
International, Inc., Carey Limousine Indiana, Inc.,
Indy Connection Limousines, Inc., Transit Tours,
Inc., K.D. & Associates Professional Corporation,
Craig Del Fabro and Kim Del Fabro.
*3.1 Form of Amended and Restated Certificate of
Incorporation of the Company
*3.2 Amended and Restated Bylaws of the Company
*4.1 Specimen Stock Certificate
*4.2 Form of Warrants
*4.3 Carey International, Inc. Common Stock Purchase
Warrant dated September 1, 1991, issued to Yerac
Associates, L.P.
*4.4 Form of Registration Rights Agreement between Carey
International, Inc. and Michael Hemlock
**5 Opinion of Nutter, McClennen & Fish, LLP
*10.1 1997 Equity Incentive Plan
*10.2 1992 Stock Option Plan
*10.3 1987 Stock Option Plan
*10.4 Stock Plan for Non-Employee Directors
*10.5 Lease dated July 5, 1989 for 4530 Wisconsin Avenue,
Washington, D.C., between Carey International, Inc.
and 4530 Wisconsin Associates, as lessor, including
Addendum, Exhibit B and Exhibit C; and Second
Amendment to Lease dated August 6, 1993, including
Exhibit A
*10.6 Form of Escrow Agreement by and among Michael
Hemlock, Alfred J. Hemlock, Lupe C. Hemlock and a
bank to be named
*10.7 Current Form of Standard Master License Agreement
*10.8 Form of Standard International License Agreement
*10.9 Form of Promissory Notes in connection with
Acquisition of Manhattan Limousine
*10.10 Current Form of Standard Independent Operator
Agreement
*10.11 Form of Revolving Credit and Term Loan Agreement by
and among Carey International, Inc., certain of its
direct and indirect wholly-owned subsidiaries, and
Fleet Bank, N.A, Banco Popular de Puerto Rico and
George Mason Bank
+11 Statements Regarding Computation of Per Share
Earnings
*21 Subsidiaries of the Registrant
+23.1 Consent of Coopers & Lybrand L.L.P.
+23.2 Consent of Coopers & Lybrand L.L.P.
+23.3 Consent of Coopers & Lybrand L.L.P.
+23.4 Consent of Coopers & Lybrand L.L.P.
+23.5 Consent of Coopers & Lybrand, Chartered Accountants
and Registered Auditors
+23.6 Consent of Coopers & Lybrand, Chartered Accountants
and Registered Auditors
**23.7 Consent of Nutter, McClennen & Fish, LLP (contained
in Exhibit 5)
**24 Power of Attorney (contained in the signature page to
this Registration Statement)
</TABLE>
- --------
* Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 333-22651).
** Previously filed.
+ Filed herewith.
++ Incorporated by reference to the Company's Current Report on Form 8-K dated
October 31, 1997.
<PAGE>
Exhibit 11
STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS
HISTORICAL EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the nine months ended
For the year ended November 30, August 31,
------------------------------------------ ----------------------------
1994 1995 1996 1996 1997
----------- ----------- ------------ ----------------------------
<S> <C> <C> <C> <C> <C>
Net income (loss) available to common
shareholders:
Net income (loss) $ (128,993) $ (195,195) $ 2,816,104 $ 930,670 $ 1,747,247
Preferred stock dividends (8,750) (4,375) -- -- --
----------- ----------- ------------ ----------- --------------
Net income (loss) available to common
shareholders $ (137,743) $ (199,570) $ 2,816,104 $ 930,670 $ 1,747,247
=========== =========== ============ =========== ==============
Common stock and common stock
equivalents:
Weighted average shares outstanding 623,092 630,938 655,773 655,773 2,753,939
Convertible Securities:
Series B Preferred Stock 663,761 663,761 663,761 663,761 445,738
Series F Preferred Stock 135,025 135,025 135,025 135,025 90,674
Series G Preferred Stock 673,638 673,638 673,638 673,638 452,370
Options (calculated on Treasury
Method) 1987 Plan 24,561 11,790 21,374 21,374 16,956
Options and warrants issued within
one year of the offering (calculated
on Treasury Method):
Vested options repriced or granted 207,020 207,020 207,020 207,020 296,162
Warrants repriced 65,782 65,782 65,782 65,782 80,391
----------- ----------- ------------ ----------- --------------
272,802 272,802 272,802 272,802 376,553
----------- ----------- ------------ ----------- --------------
Total common stock and common
stock equivalents 2,392,879 2,387,954 2,422,373 2,422,373 4,136,230
=========== =========== ============ =========== ==============
Net income per common share $ (0.06) $ (0.08) $ 1.16 $ 0.38 $ 0.42
=========== =========== ============ =========== ==============
</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 year For the nine
ended months ended
November 30, 1996 August 31, 1997
----------------- ---------------
<S> <C> <C>
Pro forma net income:
Net income $ 2,816,104 $ 1,747,427
Add back interest (tax affected at 40%) on debt included in
Recapitalization:
$2,000,000 subordinated note (7.74%) converted to stock
in Recapitalization 92,879 46,440
$2,867,546 portion of subordinated note (12.0%)
converted to stock in Recapitalization
206,464 103,232
---------------- ---------------
Pro forma net income $ 3,115,447 $ 1,897,099
================ ===============
Common stock and common stock equivalents:
Historical weighted average shares outstanding 2,422,373 4,136,230
Less common stock equivalents included in historical
earnings per share:
Series B Preferred Stock (663,761) (445,738)
Series F Preferred Stock (135,025) (90,674)
Series G Preferred Stock (673,638) (452,370)
Add effect of Recapitalization:
Series A Preferred Stock 86,003 57,754
Series B Preferred Stock 663,761 445,738
Series F & G Preferred Stock 763,748 512,882
Shares for $2,867,546 of subordinated debt 616,544 414,030
Shares for $2,000,000 of subordinated debt 430,015 288,769
----------------- ---------------
Total pro forma common stock and common stock
equivalents 3,510,020 4,866,621
================ ===============
Pro forma net income per common share $ 0.89 $ 0.39
================ ===============
</TABLE>
<PAGE>
STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS (CONTINUED)
PRO FORMA EARNINGS PER SHARE
TO GIVE EFFECT TO THE RECAPITALIZATION AND THE OFFERING
(Presented on the face of the Pro Forma Statement of Operations)
<TABLE>
<CAPTION>
November 30, August 31,
1996 1997
------------ ----------
<S> <C> <C>
Pro forma net income............................... $ 3,798,601 $ 3,007,733
============ ===========
Common Stock and Common Stock Equivalents:
Outstanding shares of the Company................ 655,773 6,842,729
Shares used to convert subordinated debt:
Shares for $2,867,546 of subordinated debt..... 616,544 --
Shares for $2,000,000 of subordinated debt..... 430,015 --
Shares used to convert preferred stock:
Series A Preferred Stock..................... 86,003 --
Series B Preferred Stock..................... 663,761 --
Series F Preferred Stock..................... 763,748 --
------------ ----------
Total outstanding shares
of the Company............ 3,215,844 6,842,729
------------ ----------
Shares issued in acquisition of Indy Connection.. 721,783 721,783
------------ ----------
Shares issued in acquisition of Manhattan
Limousine...................................... 228,571 --
------------ ----------
Conversion of debt............................... 48,107 --
------------ ----------
Shares from offering:
Shares to pay off debt in connection with the
offering..................................... 841,810 --
Shares used to provide cash for purchase of
Manhattan Limousine.......................... 722,991 --
Shares used to pay off debt from acquisition
of Manhattan Limousine....................... 485,407 --
Shares used to pay off debt assumed in
Manhattan Limousine acquisition.............. 383,789 --
Shares used to pay off debt and redeem
preferred stock as part of Recapitalization.. 411,260 --
------------ ----------
Shares used in offering..... 2,845,257 --
------------ ----------
Total shares outstanding........................... 7,059,562 7,564,512
------------ ----------
Common stock equivalents (calculated on Treasury
Method):
Vested Options outstanding....................... 207,020 296,162
Warrants outstanding............................. 65,782 80,391
------------ ----------
Common stock equivalents.... 272,802 376,553
------------ ----------
Total common stock and common stock equivalents.... 7,332,364 7,941,065
============ ==========
Pro forma earnings per common share................ $ 0.52 $ 0.38
============ ==========
</TABLE>
<PAGE>
STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS (Continued)
SUPPLEMENTAL HISTORICAL EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the nine months ended
August 31,
November 30, November 30, November 30, --------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net income (loss) available to common
shareholders:
Net income (loss)............................... $ (38,132) $ 98,121 $ 3,494,967 $ 1,466,604 $ 2,553,720
Preferred stock dividends....................... (8,750) (4,375) (900) (900) --
------------ ------------ ------------ ------------ ------------
Net income (loss) available to common
shareholders.................................. $ (46,882) $ 93,746 $ 3,494,067 $ 1,465,704 $ 2,553,720
============ ============ ============ ============ ============
Common Stock and Common Stock Equivalents:
Weighted average shares outstanding............. 1,323,415 1,332,879 1,359,073 1,357,714 3,475,722
Convertible Securities
Series B Preferred Stock...................... 663,761 663,761 663,761 663,761 445,738
Series F Preferred Stock...................... 135,025 135,025 135,025 135,025 90,674
Series G Preferred Stock...................... 673,638 673,638 673,638 673,638 452,370
Options (calculated on Treasury Method) 1987
Plan.......................................... 24,561 11,790 21,374 21,374 16,956
Options and warrants issued within one year of
the offering (calculated on Treasury Method):
Vested options repriced or granted............ 207,020 207,020 207,020 207,020 296,162
Warrants repriced............................. 65,782 65,782 65,782 65,782 80,391
------------ ------------ ------------ ------------ ------------
272,802 272,802 272,802 272,802 376,553
------------ ------------ ------------ ------------ ------------
Total common stock and common stock
equivalents............................... 3,093,202 3,089,895 3,125,673 3,124,314 4,858,013
============ ============ ============ ============ ============
Earnings (loss) per common share.................. (0.02) 0.03 1.12 $ 0.47 $ 0.53
============ ============ ============ ============ ============
</TABLE>
<PAGE>
STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS (CONTINUED)
SUPPLEMENTAL PRO FORMA EARNINGS PER SHARE
TO GIVE EFFECT TO THE RECAPITALIZATION
(Presented on the face of the November 30, 1996,
and August 31, 1997 Historical Supplemental Statements of Operations)
<TABLE>
<CAPTION>
For the nine
November 30, months ended
1996 August 31, 1997
---------------- ---------------
<S> <C> <C>
Pro forma net income:
Net income available to common shareholder.............. $ 3,494,067 $ 2,553,720
Add back interest (tax affected) on debt included in
Recapitalization:
$2,000,000 subordinated note (7.74%) converted to
stock in Recapitalization............................. 92,879 46,440
$2,867,546 subordinated note (12.0%) converted
to stock in Recapitalization.......................... 206,464 103,232
---------------- ---------------
Pro forma net income.................................... $ 3,793,410 $ 2,703,392
================ ===============
Common Stock and Common Stock Equivalents:
Historical weighted average shares outstanding.......... 3,142,376 4,858,013
Add back:
Less common stock equivalents included in historical
earnings per share:
Series B Preferred Stock.............................. (663,761) (445,738)
Series F Preferred Stock.............................. (135,025) (90,674)
Series G Preferred Stock.............................. (673,638) (452,370)
Add effect of Recapitalization:
Series A Preferred Stock.............................. 86,003 57,754
Series B Preferred Stock.............................. 663,761 445,738
Series F & G Preferred Stock.......................... 763,748 512,882
Shares for $2,867,546 of subordinated debt............ 616,544 414,030
Shares for $2,000,000 of subordinated debt............ 430,015 288,769
---------------- ---------------
Total pro forma common stock and common stock
equivalents............................................ 4,230,023 5,588,404
================ ===============
Pro forma earnings per common share....................... $ 0.90 $ 0.48
================ ===============
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated January 31, 1997, except for Notes 1, 2 and 18, as to which the
date is March 1, 1997, on our audits of the consolidated financial statements
and financial statement schedule of Carey International, Inc. and subsidiaries
as of November 30, 1996 and 1995, and for each year in the three year period
ended November 30, 1996. The report on the consolidated financial statements
includes an explanatory paragraph relating to a restatement for a change in the
revenue recognition method. We also consent to the reference to our firm under
the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
Washington, D.C.
January 20, 1998
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4
of our report dated January 31, 1997, except for Note 18, as to which the date
is March 1, 1997, and Notes 1, 2 and 13 and the fourth paragraph of our report,
as to which the date is January 9, 1998, on our audits of the supplemental
consolidated financial statements of Carey International, Inc. and Subsidiaries
as of November 30, 1996 and 1995, and for each year in the three year period
ended November 30, 1996. The report on the supplemental consolidated financial
statements includes an explanatory paragraph relating to a restatement for a
change in the revenue recognition method. We also consent to the reference to
our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
Washington, D.C.
January 20, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of our
report dated November 14, 1997, on our audit of the consolidated financial
statements of Indy Connection Limousines, Inc. and subsidiary as of September
30, 1997, and for the year then ended. We also consent to the reference to our
firm under the caption "Experts".
/s/ Coopers & Lybrand
-------------------------
COOPERS & LYBRAND
Washington, D.C.
Janaury 20, 1998
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of our
report dated March 1, 1997, except for Note 10, as to which the date is April
22, 1997, on our audit of the combined financial statements of Manhattan
International Limousine Network, Ltd. and Affiliate as of September 30, 1996,
and for the year then ended, which includes as explanatory paragraph relating to
a restatement for a change in the revenue recognition method and to record
previously unrecorded costs related to services provided by independent service
companies. We also consent to the reference to our firm under the caption
"Experts".
/s/ Coopers & Lybrand L.L.P.
-----------------------------
COOPERS & LYBRAND LLP
Washington, D.C.
January 20, 1998
<PAGE>
Exhibit 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of our
report dated February 26, 1996, except for Notes 15 and 16 which are dated
February 25, 1997, on our audit of the financial statements of Camelot Barthropp
Limited (formerly Speed 6060 Limited) for the years ended December 31, 1995. We
also consent to the reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
-----------------------------
COOPERS & LYBRAND LLP
London, United Kingdom
January 20, 1998
<PAGE>
Exhibit 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of our
report dated February 26, 1996, except for Note 16 which is dated February 28,
1997, on our audits of the financial statements of Speed 6060 Limited (formerly
Camelot Barthropp Limited) for the years ended December 31, 1994 and 1995. We
also consent to the reference to our firm under the caption "Experts."
COOPERS & LYBRAND LLP
London, United Kingdom
January 20, 1998
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> AUG-31-1997
<CASH> 5,277,921
<SECURITIES> 0
<RECEIVABLES> 9,874,396
<ALLOWANCES> 410,028
<INVENTORY> 0
<CURRENT-ASSETS> 16,468,734
<PP&E> 4,589,016
<DEPRECIATION> 2,917,186
<TOTAL-ASSETS> 74,044,283
<CURRENT-LIABILITIES> 13,297,687
<BONDS> 0
0
0
<COMMON> 68,427
<OTHER-SE> 43,612,338
<TOTAL-LIABILITY-AND-EQUITY> 74,044,283
<SALES> 52,050,523
<TOTAL-REVENUES> 52,050,523
<CGS> 35,597,997
<TOTAL-COSTS> 48,500,854
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 904,896
<INCOME-PRETAX> 2,974,610
<INCOME-TAX> 1,227,183
<INCOME-CONTINUING> 1,747,427
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,747,427
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0
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