<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 May 31, 2000 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
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4530 Wisconsin Avenue, NW, Suite 500, Washington, DC 20016
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(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 9,848,729 shares of the registrant's common stock, par
value $0.01 per share, outstanding at July 13, 2000.
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
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PART I: FINANCIAL INFORMATION
Item 1: Financial Statements (unaudited):
Consolidated balance sheets as of November 30, 1999 and
May 31, 2000
Consolidated statements of operations for the three and six month
periods ended May 31, 1999 and 2000
Consolidated statements of cash flows for the six
months ended May 31, 1999 and 2000
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
(Unaudited)
<TABLE>
<CAPTION>
November 30, May 31,
1999 2000
---------- ----------
(In thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 8,595 $ 10,063
Accounts receivable, net 32,418 40,029
Notes receivable from contracts, current portion 1,739 1,634
Prepaid expenses and other current assets 1,630 2,648
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Total current assets 44,382 54,374
Notes receivable from contracts, excluding current portion 9,098 9,187
Fixed assets, net 27,358 31,628
Franchise rights, net 11,405 11,169
Goodwill and other intangible assets, net 76,971 88,282
Trade name, trademark and contract rights, net 6,111 6,015
Deposits and other assets 2,812 2,436
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Total assets $ 178,137 $ 203,091
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of notes payable $ 3,014 $ 2,576
Current portion of capital leases 584 712
Accounts payable and accrued expenses 24,289 30,006
---------- ----------
Total current liabilities 27,887 33,294
Notes payable, excluding current portion 25,070 38,527
Capital leases, excluding current portion 1,427 1,832
Deferred taxes and other long-term liabilities 4,242 4,188
Deferred revenue 14,859 14,800
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; authorized 20,000,000
shares, 9,680,380 and 9,741,274 issued and
outstanding shares at November 30, 1999 and May 31, 2000
respectively 97 97
Additional paid-in capital 81,509 82,690
Retained earnings 23,046 27,663
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Total stockholders' equity 104,652 110,450
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Total liabilities and stockholders' equity $ 178,137 $ 203,091
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
1
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
-------------------------- -------------------------
May 31, May 31, May 31, May 31,
1999 2000 1999 2000
-------- -------- -------- ----------
(In thousands, except (In thousands, except
per share data) per share data)
<S> <C> <C> <C> <C>
Revenue, net $ 45,215 $ 67,009 $ 81,654 $ 115,888
Cost of revenue 29,817 44,883 54,220 79,119
-------- -------- -------- ----------
Gross profit 15,398 22,126 27,434 36,769
Selling, general and administrative expense 10,304 15,111 19,536 27,732
-------- -------- -------- ----------
Operating income 5,094 7,015 7,898 9,037
Other income (expense):
Interest expense (207) (590) (313) (1,031)
Interest income 87 80 203 174
Gain (loss) on sales of fixed assets (4) 19 28 72
-------- -------- -------- ----------
Income before provision for income taxes 4,970 6,524 7,816 8,252
Provision for income taxes 2,090 2,740 3,283 3,466
-------- -------- -------- ----------
Net income $ 2,880 $ 3,784 4,533 $ 4,786
======== ======== ======== ==========
Net income per common share - basic $ 0.30 $ 0.39 $ 0.48 0.49
======== ======== ======== ==========
Net income per common share - diluted $ 0.29 $ 0.38 $ 0.45 0.47
======== ======== ======== ==========
Weighted average common shares used in
computing net income per common share - basic 9,579 9,739 9,534 9,723
======== ======== ======== ==========
Weighted average common shares used in
computing net income per common share - diluted 10,001 10,020 9,974 10,221
======== ======== ======== ==========
</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
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
------------------------
May 31, May 31,
1999 2000
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(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,533 $ 4,786
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization of fixed assets 1,665 2,783
Amortization of intangible assets 1,416 1,818
Gain on sales of fixed assets (28) (72)
Provision for deferred taxes 917 -
Change in deferred revenue (423) (59)
Changes in operating assets and liabilities:
Accounts receivable (6,233) (6,525)
Notes receivable from contracts 233 16
Prepaid expenses, deposits and other assets (1,016) (684)
Accounts payable and accrued expenses 3,275 4,741
Deferred taxes and other long-term liabilities (5) (54)
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Net cash provided by operating activities 4,334 6,750
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Cash flows from investing activities:
Proceeds from sales of fixed assets 906 1,199
Purchases of fixed assets (4,737) (7,072)
Acquisitions of chauffeured vehicle service companies (9,152) (10,218)
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Net cash used in investing activities (12,983) (16,091)
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Cash flows from financing activities:
Principal payments under capital lease obligations (745) (452)
Payments of notes payable (2,456) (1,433)
Proceeds from notes payable 5,501 12,552
Issuance of common stock 380 142
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Net cash provided by financing activities 2,680 10,809
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Net increase (decrease) in cash and cash equivalents (5,969) 1,468
Cash and cash equivalents at beginning of period 14,456 8,595
---------- ----------
Cash and cash equivalents at end of period $ 8,487 $10,063
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
CAREY INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Background and organization
General
Carey International, Inc. (the "Company") provides chauffeured
vehicle and related services through a worldwide network of owned and
operated companies, licensees and affiliates serving 480 cities in 75
countries. The Company owns and operates service providers in the form
of wholly-owned subsidiaries in the following cities: Boston, Chicago,
Detroit, Hartford, Indianapolis, Jacksonville, London, Los Angeles,
Miami, New York, Paris, Philadelphia, San Francisco, Stamford,
Washington, D.C., West Palm Beach and White Plains. 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 and related businesses. The chauffeured vehicle service
and related 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 trade name and service mark, and
affiliates of the Company. In February 2000, the Company acquired a
chauffeured vehicle service company in Paris. In March 2000, the Company
acquired a chauffeured vehicle service company in White Plains, New
York.
2. Summary of significant accounting policies
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 1999, and should be read in conjunction with those 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.
New accounting standard
In March 2000, FASB Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation, an Interpretation of APB
Opinion No. 25, (FIN 44) was issued. The interpretation is intended to
clarify the accounting treatment for certain activities arising in
connection with stock options since the issuance of APB 25 in October
1972.
During the three months ended May 31, 2000 the Company repriced
options to acquire 346,147 shares at $8.25, the market price at the date
of repricing. In accordance with FIN 44, to the extent that the
Company's common share price increases in the future, the Company will
be required to record compensation expense in connection with the
vested portion of such repriced options.
4
<PAGE>
CAREY INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. Acquisitions
In the periods ended May 31, 1999 and May 31, 2000, the following
acquisition activity was recorded by the Company:
<TABLE>
<CAPTION>
Six months ended
-------------------------
May 31, May 31,
1999 2000
--------- ----------
<S> <C> <C>
Net assets purchased: (In thousands)
Receivables and other assets $ 742 $ 1,127
Fixed assets 2,420 494
Franchise rights 304 -
Goodwill and other intangibles assets 9,269 12,711
Other assets 227 -
Accounts payable and accrued expenses (396) (806)
--------- ----------
$ 12,566 $ 13,526
========= ==========
Consideration:
Cash payments $ 9,152 $ 10,218
Notes assumed related to vehicle acquisitions 2,305 369
Notes payable - 1,900
Issuance of common stock (65,216 and 48,626
shares in 1999 and 2000, respectively) 1,109 1,039
--------- ----------
$ 12,566 $ 13,526
========= ==========
</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 three-year Revolving
Credit Facility consisting of an unsecured revolving line of credit of
$75.0 million (the "Credit Facility"). Loans made under the Credit
Facility 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 May 31, 2000, the Company
had borrowed $33.4 million under the Credit Facility.
5. Commitments and contingencies
The Company is from time to time a party to litigation arising in
the ordinary course 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.
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. In the periods ended May 31,1999 and 2000,
comprehensive income did not materially differ from net income.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three Months Ended May 31, 2000 (the "2000 Period") Compared to Three Months
Ended May 31, 1999 (the "1999 Period")
Revenue, Net. Revenue, net increased $21.8 million or 48.2% from $45.2
million in the 1999 Period to $67.0 million in the 2000 Period. Of the increase,
$10.6 million resulted from expanded use of the Carey network, including an
increase in business from corporate travel customers and business travel
arrangers. A further $11.2 million of the increase was due to revenues from
companies acquired by the Company subsequent to the 1999 Period.
Cost of Revenue. Cost of revenue increased $15.1 million or 50.5% from
$29.8 million in the 1999 Period to $44.9 million in the 2000 Period. The
increase was primarily attributable to higher costs due to increased business
levels and to higher costs associated with businesses acquired by Carey
subsequent to the 1999 Period. Cost of revenue increased as a percentage of
revenue, net from 65.9% in the 1999 Period to 67.0% in the 2000 Period,
primarily reflecting the effect of acquisitions made since the 1999 Period as
the Company continues its assimilation of such acquisitions and, also, the
Company's continuing reliance on farm-outs to service peak revenue
demands with correspondingly narrower margins than those achieved with
independent operators.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased $4.8 million or 46.7% from $10.3 million in the
1999 Period to $15.1 million in the 2000 Period. The increase was largely 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 related to acquired
businesses. Selling, general and administrative expenses decreased as a
percentage of revenue, net, from 22.8% in the 1999 Period to 22.6% in
the 2000 Period.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS --(Continued)
Three Months Ended May 31, 2000 (the "2000 Period") Compared to Three Months
Ended May 31, 1999 (the "1999 Period")
Interest Expense. Interest expense increased from approximately $207,000
in the 1999 Period to approximately $590,000 in the 2000 Period, primarily as a
result of the use of debt to fund acquisitions during 1999 and 2000.
Provision for Income Taxes. The provision for income taxes increased
approximately $650,000 from $2.1 million in the 1999 Period to $2.7 in the 2000
Period. The increase primarily was a result of the increase in pre-tax income of
the Company from $5.0 million in the 1999 Period to $6.5 million in the 2000
Period.
Net Income. As a result of the foregoing, the Company's net income
increased approximately $904,000 or 31.4% from $2.9 million in the 1999 Period
to $3.8 million in the 2000 Period.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS --(Continued)
Six Months Ended May 31, 2000 (the "2000 Six-Month Period") Compared to Six
Months Ended May 31, 1999 (the "1999 Six-Month Period")
Revenue, Net. Revenue, net increased $34.2 million or 41.9% from $81.7
million in the 1999 Six-Month Period to $115.9 million in the 2000 Six-Month
Period. Of the increase, $17.4 million resulted from expanded use of the Carey
network, including an increase in business from corporate travel customers and
business travel arrangers. A further $16.8 million of the increase was due to
revenues from companies acquired by the Company subsequent to the 1999 Six-Month
Period.
Cost of Revenue. Cost of revenue increased $24.9 million or 45.9% from
$54.2 million in the 1999 Six-Month Period to $79.1 million in the 2000 Six-
Month Period. The increase was primarily attributable to higher costs due to
increased business levels and to higher costs associated with businesses
acquired by Carey subsequent to the 1999 Six-Month Period. Cost of revenue
increased as a percentage of revenue, net from 66.4% in the 1999 Six-Month
Period to 68.3% in the 2000 Six-Month Period, primarily reflecting increased
reliance on farm-outs to service peak revenue demands and correspondingly
narrower margins than those achieved with independent operators, seasonal and
other reductions in revenues in the first three months of the 2000 Six-Month
Period not offset by reduced costs of revenues and unrecovered cost increases in
the Company's central reservations and central billing functions as investments
in these areas grew to meet the demands of the revenue growth of the Company.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased $8.2 million or 42.0% from $19.5 million in the
1999 Six-Month Period to $27.7 million in the 2000 Six-Month 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 related
to acquired businesses. Selling, general and administrative expense remained the
same as a percentage of revenue, net at 23.9% for the 1999 and 2000 Six-Month
Periods.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS --(Continued)
Six Months Ended May 31, 2000 (the "2000 Six-Month Period") Compared to Six
Months Ended May 31, 1999 (the "1999 Six-Month Period")
Interest Expense. Interest expense increased from approximately $313,000
in the 1999 Six-Month Period to $1.0 million in the 2000 Six-Month Period,
primarily as a result of the use of debt to fund acquisitions during 1999 and
2000.
Provision for Income Taxes. The provision for income taxes increased
approximately $183,000 from $3.3 million in the 1999 Six-Month Period to $3.5
million in the 2000 Six-Month Period. The increase primarily was a result of the
increase in pre-tax income of the Company from $7.8 million in the 1999 Six-
Month Period to $8.3 million in the 2000 Six-Month Period.
Net Income. As a result of the foregoing, the Company's net income
increased approximately $253,000 or 5.6% from $4.5 million in the 1999 Six-Month
Period to $4.8 million in the 2000 Six-Month Period.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS --(Continued)
Liquidity and Capital Resources
Cash and cash equivalents increased $1.5 million during the 2000 Six-Month
Period from $8.6 million at November 30, 1999 to $10.1 million at May 31, 2000.
Operating activities increased net cash by approximately $6.8 million during the
2000 Six-Month Period compared to approximately $4.3 million in the 1999 Six-
Month Period. The overall net increase in cash and cash equivalents at May 31,
2000 from November 30, 1999 primarily related to net cash provided by
chauffeured vehicle service operations and borrowings to fund acquisitions and
the use of cash to acquire chauffeured vehicle service companies, purchase fixed
assets and retire debt.
Cash used in investing activities during the 2000 Six-Month Period
increased by $3.1 million over the 1999 Six-Month Period. Cash of $16.1 million
was used in the 2000 Six-Month Period to acquire chauffeured vehicle service
companies and purchase fixed assets, net of cash from sale of fixed assets,
whereas cash of $13.0 million was used in the 1999 Six-Month Period to acquire
chauffeured vehicle service companies and purchase fixed assets, net of cash
from sale of fixed assets.
Cash provided by financing activities during the 2000 Six-Month Period
increased by approximately $8.1 million over the 1999 Six-Month Period,
primarily as a result of the net notes payable activity used in financing new
acquisitions.
At May 31, 2000, the Company had notes payable outstanding of $41.1
million, of which approximately $2.6 million is to be repaid over the next 12
months.
In January 1999, the Company entered into a three-year Revolving Credit
Facility consisting of an unsecured revolving line of credit of $75.0 million
(the "Credit Facility"). The Credit Facility is used for acquisitions and
working capital. Loans made under the Credit Facility 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. As of May 31, 2000, the Company had borrowed
$33.4 million under the Credit Facility.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS --(Continued)
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.
While the Company has financed many acquisitions primarily with cash over the
past twelve months, 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 also has undertaken an initiative
to upgrade its web site on the worldwide web and to integrate an e-commerce
capability with its program of enhancements and upgrades. The Company is
currently committed to or anticipates spending approximately $7 to $10 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 and worldwide web initiatives.
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.
12
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit:
27 Financial Data Schedule (for the six months ended May 31,
2000)
(b) Reports on Form 8-K
None
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Carey International, Inc.
Date: July 17, 2000 By: /s/ Vincent A. Wolfington
-------------------------
Vincent A. Wolfington
Chairman, Chief Executive Officer
Date: July 17, 2000 By: /s/ David H. Haedicke
---------------------
David H. Haedicke
Executive Vice President,
Chief Financial Officer
14
<PAGE>
EXHIBIT INDEX
NUMBER DESCRIPTION
27 Financial Data Schedule (for the six months ended May 31, 2000)
15
