<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended February 28, 1999
-----------------
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________ to
________
COMMISSION FILE NUMBER 000-22551
CAREY INTERNATIONAL, INC.
-------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 52-1171965
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4530 WISCONSIN AVENUE, NW, SUITE 500, WASHINGTON, DC 20016
----------------------------------------------------------
(Address of principal executive offices, including zip code)
(202) 895-1200
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _______
------
There were 9,579,664 shares of the registrant's common stock, par value $.01 per
share, outstanding at April 13, 1999.
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
-----
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements (unaudited)
Consolidated balance sheets as of November 30, 1998 and
February 28, 1999
Consolidated statements of operations for the three
month periods ended February 28, 1999 and 1998
Consolidated statements of cash flows for the three
month periods ended February 28, 1999 and 1998
Notes to consolidated financial statements
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 30, February 28,
1998 1999
----------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 14,456,241 $ 8,945,424
Accounts receivable, net 17,864,127 20,393,572
Notes receivable from contracts, current portion 1,249,117 1,198,898
Prepaid expenses and other current assets 1,291,508 2,220,142
---------------- --------------
Total current assets 34,860,993 32,758,036
Fixed assets, net 12,912,287 15,819,584
Notes receivable from contracts, excluding current portion 9,538,856 9,584,679
Franchise rights, net 10,863,968 11,025,242
Trade name, trademark and contract rights, net 6,305,359 6,254,388
Goodwill and other intangible assets, net 53,273,552 60,185,600
Deposits and other assets 1,456,871 1,717,622
---------------- --------------
Total assets $ 129,211,886 $ 137,345,151
================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of notes payable $ 2,652,754 $ 3,330,251
Current portion of capital leases 384,511 103,818
Accounts payable and accrued expenses 18,086,507 17,931,056
---------------- ---------------
Total current liabilities 21,123,772 21,365,125
Notes payable, excluding current portion 1,665,194 6,258,782
Capital leases, excluding current portion 792,143 371,716
Deferred taxes and other long-term liabilities 406,835 1,311,404
Deferred revenue 15,085,118 14,972,902
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; 20,000,000 authorized
shares, and 9,463,614 and 9,571,735 issued and
outstanding shares in 1998 and 1999, respectively 94,636 95,717
Additional paid-in capital 78,668,859 79,940,159
Retained earnings 11,375,329 13,029,346
---------------- --------------
Total stockholders' equity 90,138,824 93,065,222
---------------- --------------
Total liabilities and stockholders' equity $ 129,211,886 $ 137,345,151
================ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended February 28,
-----------------------------------------
1998 1999
------------------ ------------------
(Unaudited)
<S> <C> <C>
Revenue, net $ 23,650,588 $ 36,439,933
Cost of revenue 16,176,915 24,402,960
---------------- -----------------
Gross profit 7,473,673 12,036,973
Selling, general and administrative expense 5,848,261 9,232,467
---------------- -----------------
Operating income 1,625,412 2,804,506
Other income (expense):
Interest expense (114,420) (107,758)
Interest income 54,794 116,623
Gain on sales of fixed assets 32,198 32,485
---------------- -----------------
Income before provision for income taxes 1,597,984 2,845,856
Provision for income taxes 680,741 1,192,760
---------------- -----------------
Net income $ 917,243 $ 1,653,096
================ =================
Net income per common share - basic $ 0.12 $ 0.17
================ =================
Net income per common share - diluted $ 0.11 $ 0.17
================ =================
Weighted average common shares used in computing net income
per common share - basic 7,651,953 9,487,846
================ =================
Weighted average common shares used in computing net income
per common share - diluted 8,064,323 9,886,268
================ =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended February 28,
--------------------------------------
1998 1999
---------------- ---------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 917,243 $ 1,653,096
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization of fixed assets 633,310 765,575
Amortization of intangible assets 409,702 694,363
Gain on sales of fixed assets (32,198) (32,485)
Provision for deferred taxes (74,756) 907,260
Change in deferred revenue 241,975 (112,216)
Changes in operating assets and liabilities:
Accounts receivable 3,230,432 (1,787,415)
Notes receivable from contracts (338,912) 4,396
Prepaid expenses, deposits and other assets (483,683) (993,997)
Accounts payable and accrued expenses (3,361,407) (550,802)
Deferred rent and other long-term liabilities (737,445) (2,691)
---------------- --------------
Net cash provided by operating activities 404,261 545,084
---------------- --------------
Cash flows from investing activities:
Proceeds from sales of fixed assets 518,584 281,825
Purchases of fixed assets (749,530) (1,558,288)
Acquisitions of chauffeured vehicle service companies (1,171,636) (7,210,419)
---------------- --------------
Net cash used in investing activities (1,402,582) (8,486,882)
---------------- --------------
Cash flows from financing activities:
Principal payments under capital lease obligations (248,733) (701,120)
Payments of notes payable (474,802) (1,546,551)
Proceeds from notes payable - 4,500,000
Issuance of common stock 174,987 178,652
---------------- --------------
Net cash provided by (used in) financing activities (548,548) 2,430,981
---------------- --------------
Net decrease in cash and cash equivalents (1,546,869) (5,510,817)
Cash and cash equivalents at beginning of period 5,333,402 14,456,241
---------------- --------------
Cash and cash equivalents at end of period $ 3,786,533 $ 8,945,424
================ ==============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
<PAGE>
CAREY INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND AND ORGANIZATION
General
Carey International, Inc. (the "Company") provides services through a
worldwide network of owned and operated companies, licensees and affiliates
serving 465 cities in 65 countries. The Company owns and operates service
providers in the form of wholly-owned subsidiaries in the following cities:
Boston, Chicago, Indianapolis, Jacksonville, London, Los Angeles, Miami,
New York, Philadelphia, San Francisco, Washington, D.C. and West Palm
Beach. 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. The chauffeured vehicle service businesses that the
Company seeks to acquire 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 three months of
1999, the Company acquired three chauffeured vehicle service companies in
Miami and Jacksonville. (See Note 3)
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, 1998 and
1997, and should be read in conjunction with those 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 consolidated financial statements included herein have not been
audited. However, in the opinion of management, the consolidated financial
statements reflect all adjustments (consisting 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.
4
<PAGE>
CAREY INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. ACQUISITIONS
In the periods ended 1998 and 1999, the following acquisition activity
was recorded by the Company:
<TABLE>
<CAPTION>
Three months ended February 28,
---------------------------------
1998 1999
------------ -----------
<S> <C> <C>
Net assets purchased:
Receivables and other assets $ 551,281 $ 969,295
Fixed assets 815,616 2,379,449
Franchise rights - 271,467
Goodwill and other intangibles assets 1,171,787 7,397,845
Accounts payable and accrued expenses (975,657) (396,272)
Deferred taxes 160,000 -
Capital leases (551,391) -
-------------- -----------
$ 1,171,636 $10,621,784
============== ===========
Consideration:
Cash payments $ 1,171,636 $ 7,210,419
Notes assumed related to vehicle acquisitions - 2,317,636
Issuance of stock (0 and 64,437 shares of common
stock in 1998 and 1999, respectively) - 1,093,729
-------------- -----------
$ 1,171,636 $10,621,784
============== ===========
</TABLE>
5
<PAGE>
CAREY INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
4. REVOLVING CREDIT FACILITY
In January 1999, the Company entered into a new three-year Revolving
Credit Facility consisting of an unsecured revolving line of credit of
$75.0 million (the "Credit Facility"). The terms of the Credit Facility
provide for two one-year extensions to its duration, subject to approval by
the Company and the participating banks. Loans made under the Credit
Facility will bear interest at the Company's option at either the bank's
prime rate or at a varying rate above the LIBOR rate, depending on the
ratio of the Company's debt to equity. Commitment fees equal to 0.375% per
annum are payable on the unused portion of the Credit Facility. The terms
of the Credit 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 subordinate to the borrowings
under the Credit Facility and (iii) require the Company to comply with
certain financial covenants. As of February 28, 1999, the Company had
borrowed $4.5 million under the Credit Facility.
5. COMMITMENTS AND CONTINGENCIES
The Company is from time to time a party to litigation arising in the
ordinary of business. Management believes that no pending legal proceeding
will have a material adverse effect on the business, financial condition,
results of operations or cash flows of the Company.
One of the corporations acquired by the Company has been examined by
the Internal Revenue Service ("IRS") for periods prior to the acquisition
date. The IRS has notified the acquired corporation of challenges to its
methods of accounting and the tax treatment of certain items in those tax
returns. The Company believes that any assessments ultimately sustainable
by the IRS in this matter would be offset by Net Operating Loss
Carryforwards (NOLs) of the acquired corporation and indemnification
payments under the acquisition agreements, and would not have a material
effect on the financial position, results of operations or cash flows of
the Company.
6
<PAGE>
CAREY INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
6. COMPREHENSIVE INCOME
In 1999, the Company adopted SFAS No. 130, Comprehensive Income.
Comprehensive income for the Company is calculated by adjusting "Net
income" for the change in the unrealized gains or losses from foreign
currency translations. For 1998 and 1999, comprehensive net income did not
materially differ from net income.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
THREE MONTHS ENDED FEBRUARY 28, 1999 (THE "1999 PERIOD") COMPARED TO THREE
MONTHS ENDED FEBRUARY 28, 1998 (THE "1998 PERIOD")
Revenue, Net. Revenue, net increased $12.8 million or 54.1% from $23.7
million in the 1998 Period to $36.4 million in the 1999 Period. Of the increase,
$3.4 million resulted from expanded use of the Carey network, including an
increase in business from corporate travel customers and business travel
arrangers. A further $9.4 million of the increase was due to the revenues from
companies acquired by the Company.
Cost of Revenue. Cost of revenue increased $8.2 million or 50.9% from $16.2
million in the 1998 Period to $24.4 million in the 1999 Period. The increase was
primarily attributable to higher costs due to increased business levels and to
increased costs associated with businesses acquired by Carey subsequent to the
1998 Period. Cost of revenue decreased as a percentage of revenue, net from
68.4% in the 1998 Period to 67.0% in the 1999 Period, primarily reflecting
relatively lower reliance on subcontractors, or "farm-outs," to service higher
levels of business during peak periods as well as a reduction of costs for
businesses acquired that were not previously fully integrated into the Company's
operations.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased $3.4 million or 57.9% from $5.8 million in
the 1998 Period to $9.2 million in the 1999 Period. The increase largely was due
to the costs associated with higher business levels and costs of acquired
businesses including personnel costs, administrative expenses and marketing
expenses, and an increase in amortization of intangibles. Selling, general and
administrative expense increased as a percentage of revenue, net from 24.7% in
the 1998 Period to 25.3% in the 1999 Period as a result of platform acquisitions
still in assimilation under the Company's acquisition transition program and
incremental investment in infrastructure personnel and processes in the area of
sales and marketing, technology, customer service and employee education and
training.
Provision for Income Taxes. The provision for income taxes increased
approximately $512,000 from approximately $681,000 in the 1998 Period to $1.2
million in the 1999 Period. The increase primarily was a result of the increase
in pre-tax income of the Company from $1.6 million in the 1998 Period to $2.8
million in the 1999 Period. As a result, the Company's effective tax rate was
42.6% in the 1998 Period and 41.9 in the 1999 Period.
Net Income. As a result of the foregoing, the Company's net income
increased approximately $736,000 or 80.2% from approximately $917,000 million in
the 1998 Period to $1.7 million in the 1999 Period.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS --(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased approximately $5.5 million from $14.5
million at November 30, 1998 to $8.9 million at February 28, 1999. Operating
activities provided net cash of approximately $545,000 during the 1999 Period
compared to $404,000 in the 1998 Period. The overall net decrease in cash and
cash equivalents at February 28, 1999 from November 30,1998 primarily related to
the cash proceeds to the Company from its issuance of notes payable and net cash
provided by chauffeured vehicle service operations, offset by the use of such
cash to acquire chauffeured vehicle service companies and retire debt.
Cash used in investing activities during the 1999 Period increased by $7.1
million over the 1998 Period. Cash of $1.4 million was used in the 1998 Period
to acquire chauffeured vehicle service companies and purchase fixed assets, net
of cash from sale of fixed assets, whereas $8.5 million of cash was used in the
1999 Period to acquire chauffeured vehicle service companies and purchase fixed
assets, net of cash from sale of fixed assets.
Cash provided by financing activities increased by $3.0 million over 1998,
primarily as a result of the net notes payable activity used in financing new
acquisitions.
At February 28, 1999, the Company had debt outstanding of $9.6 million,
approximately $3.3 of which is to be repaid over the next 12 months.
In January 1999, the Company entered into a new three-year Revolving Credit
Facility consisting of an unsecured revolving line of credit of $75.0 million
(the "Credit Facility"). The Credit Facility provides for two one-year
extensions to its duration, subject to approval by the Company and the
participating banks. The Credit Facility will be used for acquisitions and
working capital. Loans made under the Credit Facility will bear interest at the
Company's option at either the banks' prime lending rate or at a varying rate
above the LIBOR rate depending upon the ratio of the Company's debt to equity.
Commitment fees equal to 0.375% per annum are payable on the unused portion of
the Credit Facility. The terms of the Credit 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 the
borrowings under the Credit 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, cash and cash equivalents and funds from the Credit Facility will be
adequate to meet the Company's capital requirements for the next 12 months.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS --(CONTINUED)
While the Company historically has financed many 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.
The Company is in the process of upgrading its central and subsidiary
reservation systems as well as its financial and certain other computer software
and hardware systems. The upgrades are expected to provide significant
enhancements to the Company's customer service and management information
capabilities along with increased opportunities for more efficient processing
and distribution of information. The Company's program of enhancements and
upgrades overlaps with its plans to address the Year 2000 Problem, as described
in the following three paragraphs, and replaces the need for on-going
investments in its current systems that would otherwise occur in the absence of
the program of enhancements and upgrades. The Company is currently committed to
or anticipates spending an aggregate of approximately $6 to $8 million over the
next 12 to 18 months on designing, developing and deploying software and
replacing or upgrading computer-related hardware as part of its program of
enhancements and upgrades.
The Year 2000 Problem, which is common to most corporations, concerns the
inability of certain information systems, primarily computer software programs,
to properly recognize and process date sensitive information related to the year
2000 and beyond. While the Company anticipates that the upgrades referred to in
the preceding paragraph will result in systems that are Year 2000 compliant, the
Company has also developed plans to address the possible exposures of its
existing systems to the Year 2000 Problem. Key financial, management information
and operational systems, including equipment with embedded microprocessors, have
been inventoried and assessed, and plans are in place for the necessary systems
modifications or replacements. Progress against these plans is monitored and
reported to senior management on a regular basis. Implementation of necessary
changes to critical systems is expected to be completed during fiscal 1999.
Costs to remedy the Year 2000 Problem for certain key financial and
operational systems are expected to total approximately $175,000, of which
approximately 75% has been spent to date, and are charged to expense as
incurred. The Company intends to remedy its Year 2000
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS --(CONTINUED)
Problem in its computer-related hardware and other commercially available
software as part of its overall systems upgrade discussed above. The Company is
also assessing the potential impact on operations if key third parties are not
successful in making their systems Year 2000 compliant in a timely manner. The
effect, if any, on the Company's results of operations if the Company's
customers or its suppliers are not fully Year 2000 compliant is not reasonably
estimable.
The Company's emergency backup and recovery procedures to be followed in
the event of a failure of a business-critical system will be expanded to include
specific procedures for potential Year 2000 issues. Contingency plans to protect
the business from Year 2000-related interruptions are being developed and are
expected to be complete by June 1999.
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. 333-59599) 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.
11
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit:
27 Financial Data Schedule (for the three months ended
February 28, 1998 and 1999)
(b) Reports on Form 8-K
The Company filed a current Report on Form 8-K on
December 15, 1998 providing certain financial information
with respect to an acquired business, the acquisition of
which was reported in the Company's Quarterly Report on
Form 10-Q for the quarter ended August 31, 1998.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Carey International, Inc.
Date: April 14, 1999 By: /s/ Vincent A. Wolfington
--------------------------
Vincent A. Wolfington
Chairman, Chief Executive Officer
Date: April 14, 1999 By: /s/ David H. Haedicke
----------------------
David H. Haedicke
Executive Vice President,
Chief Financial Officer
13
<PAGE>
EXHIBIT INDEX
NUMBER DESCRIPTION
27 Financial Data Schedule (for the three months ended
February 28, 1998 and 1999)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 8,945,424
<SECURITIES> 0
<RECEIVABLES> 21,592,470
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 32,758,036
<PP&E> 15,819,584
<DEPRECIATION> 0
<TOTAL-ASSETS> 137,345,151
<CURRENT-LIABILITIES> 21,365,125
<BONDS> 0
0
0
<COMMON> 95,717
<OTHER-SE> 79,940,159
<TOTAL-LIABILITY-AND-EQUITY> 137,345,151
<SALES> 0
<TOTAL-REVENUES> 36,439,933
<CGS> 24,402,960
<TOTAL-COSTS> 33,635,427
<OTHER-EXPENSES> (149,108)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107,758
<INCOME-PRETAX> 2,845,856
<INCOME-TAX> 1,192,760
<INCOME-CONTINUING> 1,653,096
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,653,096
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
