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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the fiscal year ended November 30, 1999
[_] 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 of incorporation or (I.R.S. Employer
organization) Identification No.)
4530 Wisconsin Avenue, NW, Fifth Floor 20016
Washington, DC (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (202) 895-1200
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01
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 last 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this 10-K. [_]
As of February 24, 2000, an aggregate of 9,733,670 shares of Common Stock,
par value $.01, were outstanding, and the aggregate market value of the
Registrant's Common Stock held by non-affiliates was $166,065,147 based upon
the last sale price of the Common Stock on the Nasdaq National Market on such
date.
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PART 1
Item 1. Business
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 480 cities in 75 countries. The "Carey" brand name has represented
quality chauffeured vehicle services since the 1920's. The Company owns and
operates its service providers in Boston, Chicago, Detroit, Hartford,
Indianapolis, Jacksonville, London, Los Angeles, Miami, New York, Paris,
Philadelphia, San Francisco, Stamford, Washington D.C. and West Palm Beach. 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. The Company has continued to enhance the development of its
reservation and central billing systems and expand its 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 and Europe. The Company
also intends to add to its global presence by establishing strategic alliances
with companies in the Pacific rim of Asia and in Latin America.
The Carey network utilizes chauffeured sedans, limousines, vans, minibuses
and motorcoaches to provide services for airport pick-ups and drop-offs,
inter-office transfers, business and association meetings, conventions, road
shows, 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 chauffeured vehicle service industry serves businesses in virtually all
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 airport or other destination site "meet-
and-greet"services and other efficiency-enhancing services, as well as
productivity tools in vehicles such as cellular telephones. 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.
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 Internal Growth. The Company intends to continue to
generate internal growth by further enhancing its delivery of high quality
service to its customers through automation and training initiatives, by
further investment in its sales and marketing programs and by extending its
services to new industry segments, such as group movement for meetings and
special events.
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Expand Through Acquisitions. The Company 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 and Europe. Carey also intends to
establish strategic alliances with companies in the Pacific rim of Asia and
in Latin America. The Company has acquired 35 chauffeured vehicle service
and related businesses since November 1991.
Increase International Market Share. Approximately 12.4% of the Company's
revenue, net was derived from services performed outside the United States
during its fiscal year ended November 30, 1999. Of these international
revenues, approximately 86.5% was generated by the Company's owned and
operated businesses in London and Paris, approximately 11.8% was generated
by the Company's international licensees and the remainder was generated by
the Company's international affiliates. By enhancing its international
presence, the Company expects to increase its revenues from providing
chauffeured vehicle services to international travelers both visiting the
United States and traveling abroad. Carey believes that its network can
capture a significant portion of the growing international market for
chauffeured vehicle services by intensifying its sales and marketing
efforts, strengthening its relationship with significant domestic and
international business travel arrangers, capitalizing on the capacity of
the CIRS to operate on a global scale and acquiring or licensing additional
chauffeured vehicle service companies and otherwise implementing the Carey
system outside the United States.
Expand Licensee Network Worldwide. The Company intends 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.
Improve Profit Margins. The Company believes that it can improve its
profitability by continuing to deploy enterprise automation systems,
increasing the proportion of hourly business to total revenues and
converting 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 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 Program
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 or establish strategic alliances 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
fifteen of the largest United States travel markets and in London and Paris,
two of the largest European travel markets, and will seek to acquire Carey
licensees in other significant travel markets in North America and Europe, and
establish strategic alliances with companies in the Pacific rim of Asia and in
Latin America. 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.
Generally, the Company believes that there is significant potential for it
to expand its business in each of the markets in which it owns and operates a
chauffeured vehicle service company through acquisitions. The Company expects
to retain key management and sales personnel of the acquired company in
markets in which it
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has existing operations 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 the 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 acquired 35 chauffeured vehicle service and related services
companies since November 1991 and 20 such companies since December 1996. The
following table lists, for each of the 20 companies acquired since December 1,
1996, the date of acquisition, the location of each acquired company and
whether the acquired company was a licensee or affiliate of the Company, or
other chauffeured vehicle service or related services company:
Acquisition History
December 1996--Present
<TABLE>
<CAPTION>
Date Location Acquired Company
---- -------- ----------------
<S> <C> <C>
June 1997............................... New York, NY Other
October 1997............................ Indianapolis, IN Affiliate
October 1997............................ Los Angeles, CA Affiliate
December 1997........................... London, England Other
March 1998.............................. Boston, MA Other
April 1998.............................. Boston, MA Licensee
April 1998.............................. Miami, FL Other
May 1998................................ Boston, MA Other
July 1998............................... Chicago, IL Licensee
September 1998.......................... Chicago, IL Other
January 1999............................ Jacksonville, FL Other
January 1999............................ Miami, FL Other
March 1999.............................. Detroit, MI Other
March 1999.............................. Jacksonville, FL Licensee
June 1999............................... Stamford, CT Other
August 1999............................. Chicago, IL Other
August 1999............................. Paris, France Other
August 1999............................. Hartford, CT Licensee
August 1999............................. London, England Other
February 2000........................... Paris, France Other
</TABLE>
The Company regularly reviews various strategic acquisition opportunities
and periodically engages in discussions regarding such possible acquisitions.
As a result of this review process, negotiations and acquisition agreements
may occur from time to time if appropriate opportunities arise. As
consideration for future acquisitions, the Company intends to use various
combinations of shares of common stock, cash and notes. Some or all of such
shares of common stock issued in connection with acquisitions may be
registered under the Securities Act.
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Service Provider Network
Carey's international network of owned and operated chauffeured vehicle
service companies, licensees and affiliates, serving 480 cities in 75
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. The Company also offers its clients
travel and tour planning services, "meet-and-greet" services, destination
management and 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.
The Company's fleet, primarily vehicles which are owned and operated by
independent operators in the owned and operated locations, contains five types
of vehicles: chauffeured sedans, limousines, vans, minibuses and motor coaches
(some of which can carry up to 52 persons). In addition, the Company
subcontracts from time to time for buses that can carry a greater number of
passengers. The vehicles 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 providing service to Boston, Chicago, Detroit,
Hartford, Indianapolis, Jacksonville, London, Los Angeles, Miami, New York,
Paris, Philadelphia, San Francisco, Stamford, Washington, D.C. and West Palm
Beach. Revenue, net provided by these companies represented approximately
84.4% of the Company's revenue, net in fiscal 1998 and 87.4% in fiscal 1999.
Licensees. The Company has 37 licensees serving 105 cities in the United
States and 19 licensees serving 88 cities outside the United States, all of
which operate under the Carey name. Revenue provided by the Company's
licensees, including revenues from reservations billed centrally by the
Company as well as licensing and marketing fees, represented approximately
13.7% and 11.1% of the Company's revenue, net in fiscal 1998 and 1999,
respectively.
The domestic license fee ranges from $10,000 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 contracting with the Company as domestic
licensees have been in business for at least 10 years prior to the grant of a
license. The term of domestic license agreements entered into prior to January
1, 1996 is perpetual and subsequent to January 1, 1996 ranges from 5 to 15
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. In 1999, the Company began entering into
international license agreements having terms and conditions similar to its
domestic license agreements.
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
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Company has the right to approve the transfer. 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% to 20% of net vehicle revenues for all referred business. The Company's
affiliates are located in 109 cities in the United States and 112 cities
outside the United States. Revenue provided by the Company's affiliates
represented approximately 1.0% of the Company's revenue, net in both fiscal
1998 and 1999.
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 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 charges 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 foreign
currency for 480 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, boards 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 75 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 customers 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 analysis for marketing purposes.
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
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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 50 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
arrangers and the end users. 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 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 recognition,
customer loyalty, service know-how, technology and strategic market
relationship with other leaders in the travel and tourism industry, such as
airlines, travel agencies, credit card companies and central reservation
systems. The Company also is involved in promotional and cooperative
agreements with, among others, 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. In excess of 90%
of the quality assurance cards returned to Carey during the twelve-month
period ended November 30, 1999 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 rather than 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
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.
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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 approximately $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, acquire his or her vehicle and pay all of the
maintenance and operating expenses of the vehicle, including gasoline. The
independent operator agreements entered into by the Company prior to October
1999 generally provide for a term of 15 years, initial fees of $45,000 to
$75,000 and an interest rate of 15.75% per year. Agreements entered into
subsequent to September 1999 generally provide for a term of five years at a
fixed monthly fee, rather than an initial fee and interest.
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 70% 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."
Customers
The Company's customer list exceeds 100,000 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 1999.
The Company's major clients include companies in the airline, travel and
related services, finance, manufacturing, pharmaceutical, 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 it 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 franchisers with state administrative agencies.
The Company is also subject to Federal Trade Commission and state 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 franchisers to
terminate or refuse to renew a franchise. The
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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 franchiser. Due to the scope of the
Company's business and the complexity of franchise regulation, compliance
problems may be encountered from time to time.
Insurance
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 purchases automobile liability, automobile
collision and comprehensive damage, uninsured and under insured motorist
coverage, 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.
Employees and Independent Operators
As of November 30, 1999, the Company had 1,206 full-time employees (361 of
whom were chauffeurs) and 327 part-time employees (185 of whom were
chauffeurs). As of November 30, 1999, the Company also had agreements with
1,067 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 for Carey Transportation, Inc., 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.
Item 2. Properties
The Company leases approximately 19,000 square feet in Washington, D.C. for
its executive and administrative offices and its central reservation
capabilities. The lease expires in 2007. Of the 20 facilities occupied by the
Company's owned and operated chauffeured vehicle and related service companies
on November 30, 1999, 18 were leased and two were owned by the Company or its
subsidiaries. The leased facilities range in size from 1,750 to 38,000 square
feet and provide for annual minimum lease rentals ranging from $30,000 to
$360,000, with the average approximating $80,000 a year. The owned facilities
are located in Long Island City, New York and Alexandria, Virginia.
Item 3. Legal Proceedings
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 or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the Company's fiscal year 1999.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
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>
December 1, 1997 through February 28, 1998................. $19.000 $13.750
March 1, 1998 through May 31, 1998......................... 26.500 18.125
June 1, 1998 through August 31, 1998....................... 29.875 15.500
September 1, 1998 through November 30, 1998................ 18.250 12.250
December 1, 1998 through February 28, 1999................. 22.125 13.813
March 1, 1999 through May 31, 1999......................... 20.000 13.250
June 1, 1999 through August 31, 1999....................... 25.250 17.750
September 1, 1999 through November 30, 1999................ 25.375 19.625
</TABLE>
On February 24, 2000, the last reported sale price of the common stock was
$17.625 and there were approximately 415 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
its 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.
9
<PAGE>
Item 6. Selected Financial Data
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of November 30, 1995,
1996, 1997, 1998 and 1999 and for each of the five years in the period ended
November 30, 1999 have been derived from the consolidated financial statements
of the Company.
The selected 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 document.
<TABLE>
<CAPTION>
Fiscal Year Ended November 30,
--------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Opera-
tions Data(1):
Revenue, net................... $48,969 $65,545 $86,378 $123,218 $191,058
Cost of revenue................ 33,027 43,649 57,890 81,973 128,345
------- ------- ------- -------- --------
Gross profit................... 15,942 21,896 28,488 41,245 62,713
Selling, general and
administrative expense........ 14,081 16,727 20,112 27,680 41,761
------- ------- ------- -------- --------
Operating income............... 1,861 5,169 8,376 13,565 20,952
Interest income (expense) and
other income (expense), net... (1,492) (1,380) (690) 727 (579)
------- ------- ------- -------- --------
Income before provision for
income taxes.................. 369 3,789 7,686 14,292 20,373
Provision for income taxes..... 271 294 3,163 5,941 8,606
------- ------- ------- -------- --------
Net income..................... $ 98 $ 3,495 $ 4,523 $ 8,351 $ 11,767
======= ======= ======= ======== ========
Net income per weighted average
common share- basic (2)....... $ 0.07 $ 2.57 $ 1.00 $ 0.97 $ 1.23
======= ======= ======= ======== ========
Net income per weighted average
common share- diluted (2)..... $ 0.03 $ 1.01 $ 0.77 $ 0.92 $ 1.17
======= ======= ======= ======== ========
Weighted average common shares-
basic (2)..................... 1,333 1,359 4,506 8,634 9,591
======= ======= ======= ======== ========
Weighted average common shares-
diluted (2)................... 2,817 3,794 6,137 9,094 10,057
======= ======= ======= ======== ========
<CAPTION>
1995 1996 1997 1998 1999
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Working capital (deficit)...... $(1,948) $(2,188) $ 4,999 $ 13,737 $ 16,496
Total assets................... 38,729 43,967 85,394 129,212 178,137
Long-term debt and capital
leases, less current
maturities.................... 14,502 12,039 4,132 2,457 26,497
Deferred revenue (3)........... 4,726 6,181 13,396 15,085 14,858
Total stockholders' equity..... 4,197 7,573 48,300 90,139 104,652
</TABLE>
- --------
(1) The results of operations of chauffeured vehicle service companies
acquired by the Company have been included in the statement of operations
data from their respective dates of acquisition.
(2) Net income per common share has been restated to comply with SFAS No. 128,
Earnings per Share. See Note 2 to the Company's Consolidated Financial
Statements.
(3) 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.
10
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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 appearing elsewhere in this
document. 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 1998 and 1999, approximately 84.4% and 87.8%, respectively, of the
Company's revenue, net was generated by chauffeured vehicle services provided
by the Company's owned and operated businesses, approximately 13.0% and 10.2%,
respectively, was generated by chauffeured vehicle services provided by the
Company's licensees and billed by the Company, and approximately 1.0% in both
years 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 1998 and 1999, approximately
1.6% and 1.0%, 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.
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 70%) of the charges for services provided, net of
discounts and commissions. Cost of revenue also includes payments to service
providers unaffiliated with the Company ("farmouts") to whom the Company
refers work when business levels exceed the capacity of independent operators
and employed chauffeurs. Such amounts generally include the charges for
services provided less referral fees ranging from 15% to 25% of net vehicle
service revenue. 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. Cost of revenue includes costs associated with owning
and maintaining the vehicles owned by the Company, telecommunications expense,
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 intangible assets recorded
in connection with 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 certain licensees and other chauffeured vehicle service
companies. Since December 1, 1996, Carey has acquired twenty chauffeured
vehicle service or related services companies. Nineteen of these acquisitions
were made for cash, the issuance or assumption of notes and/or issuance of
common stock and were 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 or franchise rights (if a licensee was
acquired). In addition, in October 1997, the Company completed a merger with a
chauffeured vehicle service company in Indianapolis which was accounted for as
a pooling-of-interests.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
The results of operations for the acquired companies accounted for by the
purchase method have been included in the Company's consolidated financial
statements from their respective dates of acquisition. Carey generally 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 nine 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.
<TABLE>
<CAPTION>
Fiscal Year Ended November 30,
----------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Revenue, net............................. 100.0% 100.0% 100.0%
Cost of revenue.......................... 67.0 66.5 67.2
---------- ---------- ----------
Gross profit............................. 33.0 33.5 32.8
Selling, general and administrative ex-
pense................................... 23.3 22.5 21.8
---------- ---------- ----------
Operating income......................... 9.7 11.0 11.0
Interest and other income (expense),
net..................................... (0.8) (0.6) (0.3)
---------- ---------- ----------
Income before provision for income tax-
es...................................... 8.9 11.6 10.7
Provision for income taxes............... 3.7 4.8 4.5
---------- ---------- ----------
Net income............................... 5.2% 6.8% 6.2%
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Year Ended November 30, 1999 Compared to Year Ended November 30, 1998
Revenue, Net. Revenue, net increased approximately $67.8 million or 55.1%
from $123.2 million in 1998 to $191.1 million in 1999. Of the increase,
approximately $20.9 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
$46.9 million was due to revenues of companies which were acquired.
Cost of Revenue. Cost of revenue increased approximately $46.4 million or
56.6% from $82.0 million in 1998 to $128.3 million in 1999. The increase was
primarily attributable to higher costs due to increased business levels and to
cost of revenue of acquired businesses. Cost of revenue increased as a
percentage of revenue, net from 66.5% in 1998 to 67.2% in 1999 as a result of
reliance on farmouts to service peak periods of demand for the Company's
services, the time required to assimilate acquired businesses, the service mix
of which emphasized point-to-point service rather than all day assignments,
and the timing of driver conversion and other transition activities in various
acquisitions.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased approximately $14.1 million or 50.9% from
$27.7 million in 1998 to $41.8 million in 1999. The increase was largely due
to higher administrative costs associated with additional personnel, increased
marketing expenses and higher amortization of intangibles as a result of
acquisitions. Selling, general and administrative expense decreased as a
percentage of revenue, net from 22.5% in 1998 to 21.8% in 1999 as a result of
an increase in revenue without a corresponding increase in administrative
costs.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
Interest Expense. Interest expense increased from approximately $566,000 in
1998 to $1.2 million in 1999, primarily as a result of the use of debt to fund
acquisitions during 1999. Interest income decreased from $1.0 million in 1998
to approximately $406,000 in 1999, primarily as a result of the use of cash to
fund acquisitions completed in mid 1998 through early 1999.
Provision for Income Taxes. The provision for income taxes increased from
$5.9 million in 1998 to $8.6 million in 1999. The increase was the result of
the increase in income before the provision for income taxes of the Company.
The Company's effective tax rate was 41.6% in 1998 and 42.2% in 1999.
Net Income. As a result of the foregoing, the Company's net income increased
from $8.4 million in 1998 to $11.8 million in 1999.
Year Ended November 30, 1998 Compared to Year Ended November 30, 1997
Revenue, Net. Revenue, net increased approximately $36.8 million or 42.6%
from $86.4 million in 1997 to $123.2 million in 1998. Of the increase,
approximately $19.6 million resulted from expanded use of the Carey network,
including an increase in business from corporate travel customers and business
travel arrangers and approximately $23.0 million was due to revenues from
companies acquired.
Cost of Revenue. Cost of revenue increased approximately $24.1 million or
41.6% from $57.9 million in 1997 to $82.0 million in 1998. The increase was
primarily attributable to higher costs due to increased business levels and to
cost of revenue of acquired corporations. Cost of revenue decreased as a
percentage of revenue, net from 67.0% in 1997 to 66.5% in 1998 as a result of
spreading the Company's cost of revenue over a larger revenue base.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased approximately $7.6 million or 37.6% from
$20.1 million in 1997 to $27.7 million in 1998. The increase was largely due
to higher administrative costs associated with additional personnel, increased
marketing expenses and higher amortization of intangibles as a result of
acquisitions. Selling, general and administrative expense decreased as a
percentage of revenue, net from 23.3% in 1997 to 22.5% in 1998 as a result of
an increase in revenue without a corresponding increase in administrative
costs.
Interest Expense. Interest expense decreased from $1.1 million in 1997 to
approximately $566,000 in 1998, primarily as a result of the use of proceeds
from the Company's 1997 initial public offering ("IPO") to repay outstanding
debt and the conversion of subordinated and certain other debt to common stock
in connection with the IPO.
Provision for Income Taxes. The provision for income taxes increased from
$3.2 million in 1997 to $5.9 million in 1998. The increase was the result of
the increase in pre-tax income of the Company. The Company's effective tax
rate was 41.1% in 1997 and 41.6% in 1998.
Net Income. As a result of the foregoing, the Company's net income increased
from $4.5 million in 1997 to $8.4 million in 1998.
Quarterly Results
The following tables present unaudited quarterly financial information for
1997, 1998 and 1999. 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.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------
1997
-------------------------------
Feb. 28 May 31 Aug. 31 Nov. 30
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue, net.................................. $15,595 $18,690 $22,932 $29,161
Gross profit.................................. 5,126 6,495 7,574 9,293
Operating income.............................. 912 1,990 2,022 3,452
Net income.................................... 366 1,008 1,180 1,969
Net income per weighted average common share-
basic........................................ 0.27 0.67 0.16 0.26
Net income per weighted average common share-
diluted...................................... 0.11 0.26 0.15 0.25
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------
1998
-------------------------------
Feb. 28 May 31 Aug. 31 Nov. 30
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue, net.................................. $23,651 $30,800 $30,347 $38,421
Gross profit.................................. 7,474 10,118 10,046 13,608
Operating income.............................. 1,625 3,197 3,186 5,558
Net income.................................... 917 1,888 2,186 3,361
Net income per weighted average common share-
basic........................................ 0.12 0.23 0.23 0.34
Net income per weighted average common share-
diluted...................................... 0.11 0.22 0.22 0.34
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------
1999
--------------------------------
Feb. 28 May 31 Aug. 31 Nov. 30
------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenue, net................................. $36,440 $45,215 $ 48,776 $60,627
Gross profit................................. 12,037 15,397 15,679 19,599
Operating income............................. 2,805 5,094 4,893 8,160
Net income................................... 1,653 2,880 2,701 4,533
Net income per weighted average common share-
basic....................................... 0.17 0.30 0.28 0.48
Net income per weighted average common share-
diluted..................................... 0.17 0.29 0.27 0.45
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
------------------------------
1997
------------------------------
Feb. 29 May 31 Aug. 31 Nov. 30
------- ------ ------- -------
<S> <C> <C> <C> <C>
Revenue, net..................................... 100% 100% 100% 100%
Gross profit..................................... 32.9 34.8 33.0 31.9
Operating income................................. 5.8 10.6 8.8 11.8
Net income....................................... 2.3% 5.4% 5.1% 6.8%
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
------------------------------
1998
------------------------------
Feb. 28 May 31 Aug. 31 Nov. 30
------- ------ ------- -------
<S> <C> <C> <C> <C>
Revenue, net..................................... 100% 100% 100% 100%
Gross profit..................................... 31.6 32.8 33.1 35.4
Operating income................................. 6.9 10.4 10.5 14.5
Net income....................................... 3.9% 6.1% 7.2% 8.7%
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
------------------------------
1999
------------------------------
Feb. 28 May 31 Aug. 31 Nov. 30
------- ------ ------- -------
<S> <C> <C> <C> <C>
Revenue, net..................................... 100% 100% 100% 100%
Gross profit..................................... 33.0 34.1 32.1 32.3
Operating income................................. 7.7 11.3 10.0 13.5
Net income....................................... 4.5% 6.4% 5.5% 7.5%
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
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 decreased approximately $5.9 million from $14.5
million at November 30, 1998 to $8.6 million at November 30, 1999. Operating
activities provided net cash of $9.9 million during 1999. The overall net
decrease in cash and cash equivalents in 1999 over 1998 primarily related to
the use of cash to acquire chauffeured vehicle service companies, including
vehicles, and to fund software development and purchase computer equipment and
other fixed assets.
Cash used in investing activities increased by $25.0 million over 1998. Cash
of $8.2 million was used in 1998 to acquire chauffeured vehicle service
companies, and purchase fixed assets, net of cash received from the sale of
fixed assets, whereas $33.2 million of cash was used in 1999 to acquire
chauffeured vehicle service companies, fund software development and purchase
computer equipment and other fixed assets, net of cash received from the sale
of vehicles.
Cash provided by financing activities increased by $10.6 million over 1998,
primarily as a result of borrowing to fund acquisitions and the issuance of
common stock in connection with the Company's stock option plans, net of
payments on borrowings.
At November 30, 1999, the Company had debt outstanding of $28.1 million,
approximately $3.0 million 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 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 on the ratio of the Company's debt to equity.
Committment 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 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, 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 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 the CIRS 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 overlapped with its plans to address the Year 2000
Problem, as described below, and replaced the need for on-going investments in
its current systems that would otherwise have occurred in the absence of the
program of enhancements and upgrades. The Company is currently committed to or
anticipates spending approximately $6.0 to $8.0 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 Company also has undertaken an initiative to upgrade its web
site on the world wide web and to integrate an e-commerce capability with its
program of enchancements and upgrades. The Company anticipates spending
approximately $2.0 to $3.0 million on these further initiatives over the next
12 to 18 months.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
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. The Company 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, were inventoried and assessed, and necessary
systems modifications or replacements were made. All necessary changes to
critical systems were completed during fiscal 1999. The Company experienced no
problems in connection with the introduction of calendar year 2000
transactions to its operating, financial and other systems, nor has it
experienced difficulties from the effect, if any, of the Year 2000 Problem on
its customers and suppliers. Costs to the Company to remedy the Year 2000
Problem amounted to approximately $350,000.
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-4 (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.
16
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
17
<PAGE>
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
<TABLE>
<CAPTION>
Financial Statements Page No.
- -------------------- --------
<S> <C>
Carey International, Inc. and Subsidiaries
Audited Consolidated Financial Statements
Report of Independent Accountants.................................... 19
Balance Sheets as of November 30, 1998 and 1999...................... 20
Statements of Operations for the years ended November 30, 1997, 1998
and 1999............................................................ 21
Statements of Changes in Stockholders' Equity for the years ended No-
vember 30, 1997, 1998 and 1999...................................... 22-23
Statements of Cash Flows for the years ended November 30, 1997, 1998
and 1999............................................................ 24
Notes to Consolidated Financial Statements........................... 25-39
Financial Statement Schedule
- ----------------------------
Schedule VIII Valuation and Qualifying Accounts...................... 40
</TABLE>
All other schedules are omitted because they are not applicable, not required
or the required information is included in the consolidated financial
statements or notes thereto.
18
<PAGE>
Report of Independent Accountants
To the Stockholders and Board of Directors of
Carey International, Inc.:
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Carey International, Inc. and subsidiaries at November 30, 1999
and 1998, and the results of their operations and their cash flows for each of
the three years in the period ended November 30, 1999, in conformity with
accounting principles generally accepted in the United States. In addition, in
our opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements and financial statement schedule
based on our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States, which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Washington, D.C.
February 1, 2000
19
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 30,
-------------------------
ASSETS 1998 1999
------ ------------ ------------
<S> <C> <C>
Cash and cash equivalents............................ $ 14,456,241 $ 8,595,112
Accounts receivable, net of allowance for doubtful
accounts of $736,000 in 1998 and $1,342,000 in
1999................................................ 17,864,127 32,418,038
Notes receivable from contracts, current portion..... 1,249,117 1,739,006
Prepaid expenses and other current assets............ 1,291,508 1,630,597
------------ ------------
Total current assets............................... 34,860,993 44,382,753
Fixed assets, net of accumulated depreciation of
$5,988,000 in 1998 and $8,429,000 in 1999........... 12,912,287 27,357,747
Notes receivable from contracts, excluding current
portion............................................. 9,538,856 9,097,919
Franchise rights, net of accumulated amortization of
$2,301,000 in 1998 and $2,754,000 in 1999........... 10,863,968 11,404,942
Trade name, trademark and contract rights, net of ac-
cumulated amortization of $1,355,000 in 1998 and
$1,547,000 in 1999.................................. 6,305,359 6,110,806
Goodwill and other intangible assets, net of accumu-
lated amortization of $2,857,000 in 1998 and
$5,180,000 in 1999.................................. 53,273,552 76,970,670
Deposits and other assets............................ 1,456,871 2,812,200
------------ ------------
Total assets....................................... $129,211,886 $178,137,037
============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current portion of notes payable..................... $ 2,652,754 $ 3,013,887
Current portion of capital leases.................... 384,511 583,883
Accounts payable and accrued expenses................ 18,086,507 24,289,337
------------ ------------
Total current liabilities.......................... 21,123,772 27,887,107
Notes payable, excluding current portion............. 1,665,194 25,070,544
Capital leases, excluding current portion............ 792,143 1,426,422
Deferred income taxes and other long-term liabili-
ties................................................ 406,835 4,242,372
Deferred revenue..................................... 15,085,118 14,858,375
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; authorized
1,000,000 shares, none issued and outstanding..... - -
Common stock, $0.01 par value; authorized
20,000,000 shares; issued and outstanding
9,463,614 in 1998 and 9,680,380 shares in 1999... 94,636 96,804
Additional paid-in capital......................... 78,668,859 81,509,395
Retained earnings.................................. 11,375,329 23,046,018
------------ ------------
Total stockholders' equity......................... 90,138,824 104,652,217
------------ ------------
Total liabilities and stockholders' equity......... $129,211,886 $178,137,037
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
20
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended November 30,
----------------------------------------
1997 1998 1999
----------- ------------ -------------
<S> <C> <C> <C>
Revenue, net........................ $86,378,313 $123,218,301 $ 191,057,863
Cost of revenue..................... 57,890,393 81,973,011 128,345,134
----------- ------------ -------------
Gross profit...................... 28,487,920 41,245,290 62,712,729
Selling, general and administrative
expense............................ 20,111,590 27,680,111 41,760,548
----------- ------------ -------------
Operating income.................. 8,376,330 13,565,179 20,952,181
Other income (expense):
Interest expense.................. (1,141,946) (566,432) (1,160,526)
Interest income................... 231,384 1,040,623 405,938
Gain on sales of fixed assets..... 220,004 252,322 175,483
----------- ------------ -------------
Income before provision for income
taxes............................ 7,685,772 14,291,692 20,373,076
Provision for income taxes.......... 3,162,282 5,940,846 8,605,680
----------- ------------ -------------
Net income........................ $ 4,523,490 $ 8,350,846 $ 11,767,396
=========== ============ =============
Net income per weighted average com-
mon share-basic.................... $ 1.00 $ 0.97 $ 1.23
=========== ============ =============
Net income per weighted average com-
mon share-diluted.................. $ 0.77 $ 0.92 $ 1.17
=========== ============ =============
Weighted average common shares-ba-
sic................................ 4,506,108 8,634,239 9,590,546
=========== ============ =============
Weighted average common shares-di-
luted.............................. 6,137,418 9,093,632 10,056,530
=========== ============ =============
Pro forma net income per common
share-basic........................ $ 0.81
===========
Pro forma net income per common
share-diluted...................... $ 0.76
===========
Pro forma weighted average common
shares-basic....................... 5,819,145
===========
Pro forma weighted average common
shares-diluted..................... 6,180,773
===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
21
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Series A Series B Series F Series G
preferred preferred preferred preferred
stock stock stock stock
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance at November 30, 1996........... $420,700 $95,800 $100,000 $498,900
Issuance of common stock and
redemption of preferred stock under
Recapitalization Plan................. (420,700) (95,800) (100,000) (498,900)
Issuance of common stock in initial
public offering....................... - - - -
Issuance of common stock in purchases
of chauffeured vehicle companies...... - - - -
Issuance of common stock under
option plans.......................... - - - -
Conversion of debt for common stock.... - - - -
Payment of common stock dividends...... - - - -
Currency translation gain.............. - - - -
Net income............................. - - - -
-------- ------- -------- --------
Balance at November 30, 1997........... - - - -
Issuance of common stock in
public offering....................... - - - -
Issuance of common stock in purchase of
chauffeured vehicle companies......... - - - -
Issuance of common stock under
option plans.......................... - - - -
Currency translation loss.............. - - - -
Net income............................. - - - -
-------- ------- -------- --------
Balance at November 30, 1998........... - - - -
Issuance of common stock in purchase of
chauffeured vehicle companies......... - - - -
Issuance of common stock under
option and other stock plans.......... - - - -
Currency translation loss.............. - - - -
Net income............................. - - - -
-------- ------- -------- --------
Balance at November 30, 1999........... $ - $ - $ - $ -
======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
22
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained
Common Stock Additional earnings Total
----------------- paid-in (accumulated stockholders'
Shares $ capital deficit) equity
--------- ------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at November 30,
1996................... 1,377,556 $13,776 $ 7,841,371 $(1,397,463) $ 7,573,084
Issuance of common stock
and redemption of
preferred stock under
Recapitalization Plan.. 2,560,071 25,601 2,853,841 - 1,764,042
Issuance of common stock
in initial public
offering............... 3,335,000 33,350 30,580,511 - 30,613,861
Issuance of common stock
in purchases of
chauffeured vehicle
companies.............. 292,066 2,920 3,397,080 - 3,400,000
Issuance of common stock
under option plans..... 17,207 172 53,514 - 53,686
Conversion of debt for
common stock........... 48,107 481 447,019 - 447,500
Payment of common stock
dividends.............. - - - (101,857) (101,857)
Currency translation
gain................... - - - 26,418 26,418
Net income.............. - - - 4,523,490 4,523,490
--------- ------- ----------- ----------- ------------
Balance at November 30,
1997................... 7,630,007 76,300 45,173,336 3,050,588 48,300,224
Issuance of common stock
in public offering..... 1,450,000 14,500 29,357,385 - 29,371,885
Issuance of common stock
in purchase of
chauffeured vehicle
companies.............. 182,535 1,825 3,491,970 - 3,493,795
Issuance of common stock
under option plans..... 201,072 2,011 646,168 - 648,179
Currency translation
loss................... - - - (26,105) (26,105)
Net income.............. - - - 8,350,846 8,350,846
--------- ------- ----------- ----------- ------------
Balance at November 30,
1998................... 9,463,614 $94,636 $78,668,859 $11,375,329 $ 90,138,824
Issuance of common stock
in purchase of
chauffeured vehicle
companies.............. 65,216 652 1,108,263 - 1,108,915
Issuance of common stock
under option and other
stock plans............ 151,550 1,516 1,732,273 - 1,733,789
Currency translation
loss................... - - - (96,707) (96,707)
Net income.............. - - - 11,767,396 11,767,396
--------- ------- ----------- ----------- ------------
Balance at November 30,
1999................... 9,680,380 $96,804 $81,509,395 $23,046,018 $104,652,217
========= ======= =========== =========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
23
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended November 30,
-------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 4,523,490 $ 8,350,846 $11,767,396
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization of
fixed assets....................... 2,039,968 2,465,736 3,977,198
Amortization of intangible assets... 1,313,456 1,944,983 3,112,534
Gain on sales of fixed assets....... (220,004) (252,322) (175,483)
Provision for deferred income
taxes.............................. 799,650 1,027,357 3,746,239
Change in operating assets and
liabilities, net of assets acquired
and liabilities assumed in business
combinations:
Accounts receivable............... (5,234,779) (356,679) (11,629,949)
Notes receivable from contracts... (1,063,192) (1,953,370) (218,910)
Prepaid expenses, deposits and
other assets..................... (912,875) (278,066) (918,049)
Accounts payable and accrued
expenses......................... 542,789 (1,040,084) 338,921
Deferred revenue.................. 565,997 1,689,014 (226,743)
Other long-term liabilities....... 1,082,296 (1,152,757) 89,298
----------- ----------- -----------
Net cash provided by operating
activities..................... 3,436,796 10,444,658 9,862,452
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of fixed assets.... 1,486,780 1,841,962 2,292,429
Purchases of fixed assets............. (4,089,417) (4,473,830) (14,093,858)
Partial redemption of investment...... - 100,000 -
Acquisitions of chauffeured vehicle
service companies.................... (8,396,017) (5,647,427) (21,351,423)
----------- ----------- -----------
Net cash used in investing
activities..................... (10,998,654) (8,179,295) (33,152,852)
----------- ----------- -----------
Cash flows from financing activities:
Principal payments under capital lease
obligations.......................... (237,359) (1,039,709) (978,756)
Principal payments of notes payable... (19,164,223) (22,122,879) (6,367,011)
Proceeds from notes payable........... 2,704,162 - 23,041,249
Issuance of common stock.............. 30,842,778 30,020,064 1,733,789
Payments under Recapitalization....... (4,015,952) - -
Common stock dividends................ (101,857) - -
----------- ----------- -----------
Net cash provided by financing
activities..................... 10,027,549 6,857,476 17,429,271
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ 2,465,691 9,122,839 (5,861,129)
Cash and cash equivalents at beginning
of year................................ 2,867,711 5,333,402 14,456,241
----------- ----------- -----------
Cash and cash equivalents at end of
year................................... $ 5,333,402 $14,456,241 $ 8,595,112
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
24
<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 480
cities in 75 countries. The Company owns and operates service providers in the
form of wholly-owned subsidiaries in: Boston, Chicago, Detroit, Hartford,
Indianapolis, Jacksonville, London, Los Angeles, Miami, New York, Paris,
Philadelphia, San Francisco, Stamford, Washington, D.C. and West Palm Beach.
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. 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 trade name and
service mark and affiliates of the Company. In 1997, the Company acquired
chauffeured vehicle service companies in New York, Los Angeles, and
Indianapolis. In 1998, the Company acquired chauffeured vehicle service
companies in West Palm Beach, Boston and Chicago. In 1999, the Company
acquired chauffeured vehicle service and other companies in Chicago, Detroit,
Hartford, Jacksonville, London, Miami, Paris and Stamford.
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 June 2, 1997, the
Company also effected a Recapitalization (the "Recapitalization"), which is
more fully described in Note 16.
2. Summary of significant accounting policies
Basis of presentation
The consolidated financial statements of Carey International, Inc. and
subsidiaries 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, the
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.
25
<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 70% of
revenues, as defined in the agreement.
Until October 1999, each new operator agreed to pay a one-time fee ranging
from $45,000 to $75,000 to the Company under the terms of the Standard
Independent Operator Agreement (See "Revenue recognition"). The Company
typically received 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 4) and recorded the note in notes receivable from
contracts. In October 1999, the Company adopted a revised Standard Independent
Operator Agreement under which a one-time fee is no longer required but which
requires a specified monthly fee over the five-year life of the agreement.
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 10).
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 of the equipment 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
buildings owned by the Company are 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.
The Company capitalizes internal as well as external software development
costs relating to computerized systems which include applications for
reservations, dispatch, billing and accounting functions. Amortization of
these costs occurs over their estimated economic life of 5-7 years and
commences upon the successful deployment of the software.
26
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Intangible assets
Effective September 1, 1991, the Company acquired the Carey name and service
mark and the contract rights to all royalty fee payments by various Carey
licensees for a purchase price of $7 million. These assets are being amortized
over 40 years.
The Company has acquired chauffeured vehicle service companies, all but one
of which have been accounted for as purchases. For each licensee of the
Company that is acquired, 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 at least annually by comparing
estimated undiscounted cash flows over the remaining amortization periods to
the unamortized net book value of the intangible assets. 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 these
evaluations.
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 and affiliates-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 the charges 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. For independent
operator agreements executed prior to October 1999, the Company deferred
revenue equal to the amount of the one-time fees charged to the independent
operator 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 amount due from the independent operator deemed
uncollectible, is recognized as revenue. Agreements entered into subsequent to
September 1999 generally provide for a fixed monthly fee, recognized as
revenue each month, over a five-year term.
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
27
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
Net income per common share
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("FAS 128"), which establishes standards
for computing and presenting basic and diluted earnings per share. Previously
presented earnings per share data for the year ended November 30, 1997 have
been restated to conform with the provisions of FAS 128.
Consistent with Staff Accounting Bulletin IB-2, the Company has recalculated
the historical weighted average of common shares outstanding and net income
per common share for 1997 to give effect to the Recapitalization (see Note
16). 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 $4,867,546 of subordinated debt into common stock and (ii) increasing the
weighted average common shares 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. SFAS 123 allows companies to either account for stock-
based compensation under the fair value method of SFAS 123 or under the
provisions of Accounting Principles Board Opinion No. 25 ("APB 25"),
Accounting for Stock Issued to Employees. The Company has continued to apply
the provisions of APB 25 and has provided pro forma disclosure in the notes to
the financial statements (see Note 14).
Foreign operations
The consolidated financial statements include foreign assets, liabilities,
revenues and operating profit of $18.3 million, $8.0 million, $20.3 million
and $3.0 million, respectively, as of and for the year ended November 30,
1999. The consolidated financial statements include foreign assets,
liabilities, revenues and operating profit of $6.8 million, $3.9 million,
$11.2 million and $1.1 million, respectively, as of and for the year ended
November 30, 1998. Assets, liabilities, revenues and operating profit relating
to the Company's foreign operations do not exceed 10% in any given country.
The net effects of foreign currency transactions reflected in operations 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.
3. Fees from licensees
The total of all domestic license fees, franchises fees and marketing fees
earned in each of 1997, 1998 and 1999 was $2,479,503, $1,776,541 and
$1,536,114, respectively. Amounts due from licensees of $270,916 and $164,193
at November 30, 1998 and 1999, respectively, are included in accounts
receivable in the consolidated balance sheets of the Company.
4. Transactions with independent operators
The Company recorded approximately $1.8 million, $3.3 million and $2.7
million in 1997, 1998 and 1999, respectively, as deferred revenue relating to
fees from new agreements with independent operators. Amounts of deferred
revenue recognized as revenues in 1997, 1998 and 1999 were approximately $.9
million, $1.2 million and $1.3 million, respectively.
28
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Notes receivable from contracts include approximately $10,589,000 and
$10,798,000 at November 30,1998 and 1999, respectively, for amounts due from
independent operators.
5. Fixed assets
Fixed assets consist of the following:
<TABLE>
<CAPTION>
November 30,
-----------------------
1998 1999
----------- -----------
<S> <C> <C>
Vehicles............................................ $ 6,235,903 $13,492,718
Software development costs.......................... 4,850,973 12,120,587
Equipment........................................... 4,105,400 5,506,154
Furniture........................................... 1,426,578 1,934,431
Leasehold improvements.............................. 696,166 981,320
Land and building................................... 1,585,064 1,751,649
----------- -----------
18,900,084 35,786,859
Less accumulated depreciation and amortization...... 5,987,797 8,429,112
----------- -----------
Net fixed assets.................................... $12,912,287 $27,357,747
=========== ===========
The Company is obligated under various vehicle and equipment capital leases.
Vehicles and equipment under capital leases included in fixed assets are as
follows:
<CAPTION>
November 30,
-----------------------
1998 1999
----------- -----------
<S> <C> <C>
Equipment........................................... $ 1,185,368 $ 1,046,204
Vehicles............................................ 1,310,913 2,284,556
----------- -----------
2,496,281 3,330,760
Less accumulated amortization....................... 1,253,301 748,319
----------- -----------
$ 1,242,980 $2,582,441
=========== ===========
</TABLE>
29
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Notes payable
Notes payable consist of the following:
<TABLE>
<CAPTION>
November 30,
----------------------
1998 1999
---------- -----------
<S> <C> <C>
Revolving Credit Facility with four banks, dated Janu-
ary 15, 1999, consisting of an unsecured revolving
line of credit of $75.0 million (the "Credit Facili-
ty"). 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 (8.5% at November 30, 1999
and 8.0% at November 30, 1998), 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 revolving line of credit. Prior to the third anni-
versary of the Credit Facility, outstanding balances
under the Credit Facility may be extended for two suc-
cessive one year terms upon mutual consent of the par-
ties.................................................. $ - $20,906,688
Note payable to bank, with an interest rate of LIBOR
plus 1.95% (9.512% at November 30, 1998 and 7.2% at
November 30, 1999) payable in quarterly principal and
interest installments of approximately $70,000........ 1,061,276 814,026
Various installment notes payable, with interest rates
ranging from 7.75% to 14.5%, collateralized by certain
vehicles and equipment of the Company's subsidiaries;
principal and interest are payable monthly over 36 to
48-month terms........................................ 869,043 4,415,798
Notes payable to bank, dated December 1, 1997, at the
prime rate plus 1.0% per annum which matured on Novem-
ber 30, 1999. The notes were collateralized by certain
vehicles.............................................. 206,519 -
Notes payable to bank, with interest at a fixed rate of
9.25% and various payment terms. The notes require
monthly principal and interest payments of approxi-
mately $7,800. The notes are collateralized by vehi-
cles.................................................. 313,980 225,057
Installment notes payable to sellers under acquisition
agreements dated various dates from September 30, 1993
to August 21, 1999. Interest rates range from 5.0% to
8.5%. Interest is generally payable monthly. Principal
is payable in varying installments.................... 315,206 1,330,206
Note payable to sellers due and paid January 1, 1999,
with interest at 7.5%................................. 1,000,000 -
Note payable to seller due and paid in April 1999, with
interest at 8.0%...................................... 148,250 -
Note payable to bank, dated May 10, 1996,
collateralized by certain land and building; monthly
payments of $3,863 of principal and interest are due
through April 10, 2001 and a balloon payment of
$375,468 is due on May 10, 2001. Interest fixed at
8.75%................................................. 403,674 392,656
---------- -----------
Total notes payable.................................... 4,317,948 28,084,431
Less current portion of notes payable.................. 2,652,754 3,013,887
---------- -----------
Notes payable, excluding current portion............... $1,665,194 $25,070,544
========== ===========
</TABLE>
30
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Future annual principal payments on all notes payable at November 30, 1999
are as follows:
<TABLE>
<CAPTION>
Year ending November 30:
------------------------
<S> <C> <C>
2000............................................ $ 3,013,887
2001............................................ 2,386,494
2002............................................ 22,218,588
2003............................................ 465,462
-----------
$28,084,431
===========
Certain loan agreements contain restrictive covenants relating to interest
coverage and total debt outstanding, maintenance of minimum net worth and
capital expenditures, and prohibit the payment of dividends on the Company's
common and preferred stock. Also, with certain exceptions, the Company is
prevented from incurring or assuming other indebtedness that is not
subordinated to borrowings under the Credit Facility.
The carrying value of notes payable approximates the current value of the
notes payable at November 30, 1999. Interest paid during the years ended
November 30, 1997, 1998, and 1999 was approximately $1,274,000, $555,000 and
$1,123,000 respectively.
7. Leases
The Company has several noncancellable 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 in defined indexes, such as the Consumer Price Index. These
agreements also typically include renewal options.
Future minimum lease payments under noncancellable operating leases and the
present value of future minimum capital lease payments as of November 30, 1999
are as follows:
<CAPTION>
Capital Operating
Year ending November 30 leases leases
----------------------- ----------- -----------
<S> <C> <C>
2000............................................ $ 765,282 $ 3,793,195
2001............................................ 602,637 3,191,741
2002............................................ 975,673 1,936,737
2003............................................ 136,086 1,353,464
2004............................................ - 957,696
Thereafter...................................... - 2,852,879
----------- -----------
Total minimum lease payments.................... 2,479,678 $14,085,712
===========
Less amount representing interest (at rates
ranging from 9% to 12%)........................ 469,373
-----------
Present value of net minimum capital lease pay-
ments.......................................... 2,010,305
Less current portion of obligations under capi-
tal leases..................................... 583,883
-----------
Obligations under capital leases, excluding cur-
rent portion................................... $ 1,426,422
===========
</TABLE>
During the years ended November 30, 1997, 1998 and 1999, the Company
recognized $278,218, $310,223 and $617,286, respectively, of sublease rental
revenue under vehicle sublease arrangements with independent operators and
others.
31
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During the years ended November 30, 1997, 1998 and 1999, the Company entered
into capital lease obligations of $875,187, $186,397 and $1,529,214,
respectively, related to the acquisition of vehicles and equipment.
Total rental expense for operating leases in 1997, 1998 and 1999 was
$2,103,037, $3,555,944 and $6,496,305, respectively.
8. Accounts payable and accrued expenses
Accounts payable and accrued expenses include the following:
<TABLE>
<CAPTION>
November 30,
-----------------------
1998 1999
----------- -----------
<S> <C> <C> <C>
Trade accounts payable...................... $10,800,691 $14,979,488
Federal taxes payable....................... - 2,155,579
Accrued expenses and other liabilities...... 6,718,737 6,795,948
Gratuities payable.......................... 567,079 358,322
----------- -----------
$18,086,507 $24,289,337
=========== ===========
9. Income taxes
The provision for income taxes is composed of the following:
<CAPTION>
November 30,
----------------------------------
1997 1998 1999
----------- ----------- ----------
<S> <C> <C> <C>
Federal:
Current................................... $ 1,967,356 $ 3,999,443 $3,175,229
Deferred.................................. 794,593 793,737 3,164,307
----------- ----------- ----------
2,761,949 4,793,180 6,339,536
----------- ----------- ----------
State and local:
Current................................... 253,896 558,193 674,612
Deferred.................................. 5,057 233,620 581,932
----------- ----------- ----------
258,953 791,813 1,256,544
----------- ----------- ----------
Foreign
Current................................... 141,380 355,853 1,009,600
----------- ----------- ----------
Total income tax provision.................. $ 3,162,282 $ 5,940,846 $8,605,680
=========== =========== ==========
</TABLE>
The Company's tax provision for the years ended November 30, 1997, 1998 and
1999, 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,
----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Statutory rate................................... 34.0% 34.0% 34.0%
State income tax, net of federal benefit......... 3.4 5.5 6.2
Goodwill amortization............................ 1.0 1.0 .7
Non-deductible life insurance.................... .4 - -
Meals and entertainment expenses................. .6 .7 .5
Other............................................ 1.7 .4 .8
-------- -------- --------
41.1% 41.6% 42.2%
======== ======== ========
</TABLE>
32
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The source and tax effects of temporary differences are composed of the
following:
<TABLE>
<CAPTION>
November 30,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Allowance for bad debts........................... $ - $ 199,000
Acquired net operating losses..................... 2,662,000 1,350,000
Capital loss carryforward......................... 74,000 74,000
Deferred revenue.................................. 3,007,000 3,137,000
Other............................................. 131,000 -
----------- -----------
Gross deferred tax assets......................... 5,874,000 4,760,000
Valuation allowance............................... (2,736,000) (1,424,000)
----------- -----------
3,138,000 3,336,000
----------- -----------
Allowance for bad debts........................... (102,000) -
Fixed assets...................................... (178,000)
Amortization of intangible assets................. (2,035,000) (2,746,000)
Software development costs........................ (1,279,000) (3,759,000)
Other............................................. - (496,000)
----------- -----------
Gross deferred tax liabilities.................... (3,416,000) (7,179,000)
----------- -----------
Net deferred tax liability........................ $ (278,000) $(3,843,000)
=========== ===========
</TABLE>
In 1997, companies with approximately $6.7 million of net operating loss
carryforwards were acquired. A valuation allowance was provided for the full
amount of the related deferred tax asset. The acquired net operating loss
carryforwards were reduced by approximately $1.35 million as a result of
Federal and state tax audits.
Income taxes paid during the years ended November 30, 1997, 1998 and 1999
amounted to approximately $2,021,000, $4,563,000, and $2,421,000,
respectively.
10. Investment
In 1993, the Company invested $850,000 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. The Company invested an
additional $657,000 in such preferred stock in a non-cash conversion of notes
and other receivables from this company during the year ended November 30,
1999. 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. From 1993 through 1996, certain notes
receivable from independent operators were purchased from the Company by this
entity for cash or demand notes on a non-recourse basis. The unpaid balances
of such promissory notes were $198,986 and $39,103 at November 30, 1998 and
1999, 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 with interest at rates of 7% to 10%.
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 this finance company is carried at its cost (less redemptions) of
$1,306,000. At April 30, 1999, the total assets reported by this company were
$17.3 million, stockholders' equity was $2.1 million (including the Company's
preferred stock investment), revenues were $1.9 million and net income was
$248,000.
33
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pursuant to a stock ownership agreement between the common stockholders of
this finance company and the Company, the Company has an option to purchase
all of the outstanding common stock of the finance company at a purchase price
equal to the greater of $187,500 or the finance company's liquidating value as
determined by an independent appraisal.
11. 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 or results of operations of the Company.
12. Acquisitions
In the years ended November 30, 1997, 1998 and 1999, the Company made two,
seven and nine acquisitions, respectively, all related to extending the
Company's operations to cities where the Company did not previously have an
owned and operated location or adding operations in cities where such
locations previously existed. Each of these acquisitions was accounted for as
a purchase.
In addition, effective October 31, 1997, in connection with a merger, the
Company issued 721,783 shares of its common stock in exchange for all the
outstanding common stock of a chauffeured vehicle service company in
Indianapolis based on a conversion ratio of 1.008 shares (the merger exchange
ratio) of the Company's common stock for each share of the common stock of the
merged company, 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. The Company's consolidated financial statements have
been restated for all periods prior to the business combination to include the
combined financial results of the Company and the merged company.
34
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the acquisitions 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, and to either franchise rights or goodwill, as follows:
<TABLE>
<CAPTION>
November 30,
-------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net assets purchased:
Receivables and other assets....... $ 324,964 $ 1,678,470 $ 3,669,230
Notes from contracts............... 6,599,459 - -
Fixed assets....................... 1,800,441 3,277,300 4,879,014
Franchise rights................... - 6,087,264 993,837
Goodwill........................... 24,480,299 23,631,696 26,019,419
Accounts payable and accrued
expenses.......................... (5,796,692) (2,267,868) (5,767,202)
Deferred revenue................... (6,648,960) - -
----------- ----------- -----------
Fair value of net assets acquired.... $20,759,511 $32,406,862 $29,794,298
=========== =========== ===========
Consideration:
Cash (exclusive of $275,000, $0,
and $3,670,000 of cash acquired in
1997, 1998 and 1999,
respectively)..................... $ 8,396,017 $ 5,647,427 $21,351,423
Capital leases assumed related to
vehicles.......................... 161,549 613,410 241,714
Notes assumed related to vehicles.. 3,061,945 2,652,230 4,252,246
Uncollateralized promissory notes
issued to sellers................. 5,740,000 20,000,000 2,840,000
Common stock....................... 3,400,000 3,493,795 1,108,915
----------- ----------- -----------
Total consideration.................. $20,759,511 $32,406,862 $29,794,298
=========== =========== ===========
</TABLE>
The acquisition agreements for the above-noted acquisitions, which were
accounted for as purchases, include provisions for contingent consideration of
up to $5.8 million, payable in stock or in cash. Such consideration is based
on the financial performance of the acquired companies. The Company paid
$610,872, $296,589 and $1,093,729 during the years ended November 30, 1997,
1998 and 1999, respectively, as contingent consideration which is reflected in
the table above.
35
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The unaudited pro forma summary consolidated results of operations assuming
the acquisitions accounted for as purchases had occurred, for the purposes of
the 1998 summary, at the beginning of fiscal 1998, and for purposes of the
1999 summary, at the beginning of fiscal 1999, are as follows:
<TABLE>
<CAPTION>
November 30,
--------------------------
1998 1999
------------ ------------
<S> <C> <C>
Revenue, net................................... $144,093,000 $206,429,000
Cost of revenue................................ (96,189,000) (139,580,000)
Other expense, net............................. (33,475,000) (46,480,000)
Provision for income taxes..................... (5,998,000) (8,604,000)
------------ ------------
Net income..................................... $ 8,431,000 $ 11,765,000
============ ============
Pro forma net income per common share-basic.... $ 0.97 $ 1.23
============ ============
Pro forma net income per common share-diluted.. $ 0.92 $ 1.17
============ ============
Pro forma weighted average common shares-
basic......................................... 8,671,026 9,590,907
============ ============
Pro forma weighted average common shares-
diluted....................................... 9,130,419 10,056,891
============ ============
</TABLE>
13. 401(k) Plan
The Company sponsors a defined contribution plan established pursuant to
Section 401(k) of the Internal Revenue Code for the benefit of employees of
the Company. The Company made contributions to the plan of $60,162 in 1997,
$113,073 in 1998 and $294,428 in 1999.
14. Stock option plans
The Company currently maintains the 1987 Stock Option Plan (the "1987 Plan")
and the 1992 Stock Option Plan (the "1992 Plan"), under which the Company has
awarded 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 1,550,000 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 that
are valued by reference to the value of the common stock. The Company also
maintains the 1998 Non-Qualified Stock Option Plan (the "1998 Plan"), which
provides for the issuance of up to 500,000 shares of common stock in the form
of non-statutory stock options. The 1987 Plan, 1992 Plan, 1997 Plan and 1998
Plan are hereinafter referred to collectively as the "Equity Plans".
Of the options granted in 1998, options to purchase 747,000 shares are
performance options (the "Performance Options") and vest (i) after the price
of common stock on the Nasdaq or any exchange on which it may be traded
exceeds for 30 consecutive trading days the following benchmark prices; $25,
$30, $35, $40, $45 and $50 or, if earlier, (ii) on April 29, 2006. Each time
one of the price benchmarks is exceeded, the Performance Options vest with
respect to one-sixth of the shares for which they were originally exercisable.
As of November 30, 1999, options were outstanding to purchase an aggregate
of 1,846,217 shares of common stock under the Equity Plans, and approximately
170,500 shares of common stock are authorized but have not yet been granted
under awards made pursuant to such plans.
Officers, key employees, non-employee directors of and consultants to the
Company are eligible to participate in the Equity Plans, except for the 1998
Plan in which directors and officers are not eligible to participate. The
Equity Plans are administered by the Compensation Committee of the Board of
Directors.
36
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
Activity involving options on the Company's common stock under each option
plan follows:
<TABLE>
<CAPTION>
1987 Plan 1992 Plan 1997 Plan 1998 Plan
---------------------- --------------------- -------------------------- ------------------------
Option price Option price Option price Option price
Shares per Share Shares per Share Shares per Share Shares per Share
------- ------------- ------- ------------ --------- --------------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, November 30,
1996................... 69,662 $1.44 - $4.65 384,502 $4.65 - -
Granted................. - - - - 505,389 $10.50 - $15.00
Exercised............... (12,042) $1.44 (3,167) $4.65 - -
------- ------------- ------- ----- --------- ---------------
Balance, November 30,
1997................... 57,620 $1.44 - $4.65 381,335 $4.65 505,389 $10.50 - $15.00 - -
Granted................. - - - - 1,024,104 $13.75 - $28.50 70,500 $13.75 - $13.90
Exercised............... (31,520) $1.44 - $4.65 (90,078) $4.65 (9,166) $10.50 - -
Forfeited............... - - (11,500) $4.65 (1,000) $10.50 - -
------- ------------- ------- ----- --------- --------------- ------- ---------------
Balance, November 30,
1998................... 26,100 $4.65 279,757 $4.65 1,519,327 $10.50 - $28.50 70,500 $13.75 - $13.90
Granted................. - - 9,704 $4.65 37,805 $15.00 - $15.50 60,000 $15.50 - $17.75
Exercised............... (8,900) $4.65 (66,443) $4.65 (73,467) $10.50 - $17.00 (500) $13.75
Forfeited............... - - - - (7,666) $28.50 - -
------- ------------- ------- ----- --------- --------------- ------- ---------------
Balance, November 30,
1999................... 17,200 $4.65 223,018 $4.65 1,475,999 $10.50 - $22.00 130,000 $13.75 - $17.75
======= ============= ======= ===== ========= =============== ======= ===============
Vested and exercisable
at
November 30, 1998....... 17,200 $4.65 223,018 $4.65 585,312 $10.50 - $22.00 33,498 $13.75 - $17.75
======= ============= ======= ===== ========= =============== ======= ===============
</TABLE>
Information with respect to stock options outstanding at November 30, 1999
is as follows:
<TABLE>
<CAPTION>
Weighted
average
remaining
Number contractual
Price/Range of options life
----------- ---------- -----------
<S> <C> <C>
$4.65.............................................. 247,743 3.6
$10.50............................................. 365,096 7.5
$13.75-14.25....................................... 112,500 8.7
$15.00............................................. 1,026,290 8.4
$15.50-22.00....................................... 94,588 9.0
--------- ---
$4.65-22.00........................................ 1,846,217 7.6
========= ===
</TABLE>
37
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information with respect to stock options outstanding at November 30, 1999
is as follows:
<TABLE>
<CAPTION>
Weighted
average
Year of option Number of exercise
expiration options price Price range
-------------- --------- -------- ---------------
<S> <C> <C> <C>
2002................................... 175,448 $ 4.65 $ 4.65
2003................................... 12,870 $ 4.65 $ 4.65
2004................................... 645 $ 4.65 $ 4.65
2005................................... 12,900 $ 4.65 $ 4.65
2006................................... 45,880 $ 4.65 $ 4.65
2007................................... 442,886 $11.26 $10.50 - $15.00
2008................................... 1,093,088 $14.96 $13.75 - $22.00
2009 .................................. 62,500 $16.39 $15.50 - $18.25
--------- ------ ---------------
All Years.............................. 1,846,217 $12.74 $ 4.65 - $22.00
========= ====== ===============
</TABLE>
In May 1996, the options granted under the 1992 Plan and a warrant to
purchase 86,003 shares of common stock were repriced to $4.65. In 1999, the
Performance Options and certain other options granted in 1998 were repriced to
$15.00, the determined fair market value as of the date of repricing.
The Company also has a Customer Service Stock Bonus Plan (the "Bonus Plan"),
the purpose of which is to enable the Company to attract and retain employees
and independent operators who are in a position to make important
contributions to the success of the Company. Officers and directors of the
Company are not eligible to participate. The total number of shares authorized
under the Bonus Plan is 50,000. As of November 30, 1999, 2,870 shares of
Common Stock had been issued under the Bonus Plan.
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for stock awards issued pursuant to its stock option plans. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards in 1997,
1998, and 1999 under those plans consistent with FASB Statement No. 123, the
Company's net income and income per share would have been reduced to the pro
forma amounts presented below:
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ -------
(Dollars in
thousands, except per
share amounts)
<S> <C> <C> <C> <C>
Net income............................. As reported $4,523 $8,351 $11,767
Pro forma 4,320 6,189 9,915
Net income per common share-basic...... As reported $ 1.00 $ 0.97 $ 1.23
Pro forma 0.96 0.72 1.03
Net income per common share-diluted.... As reported $ 0.77 $ 0.92 $ 1.17
Pro forma 0.73 0.68 0.99
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions:
<CAPTION>
1997 1998 1999
------ ------ -------
<S> <C> <C> <C> <C>
Expected life (years).................. 6 4.6 4.1
Interest rate.......................... 6.66% 5.30% 5.01%
Volatility............................. 40.0 44.2 59.1
Dividend yield......................... 0.00% 0.00% 0.00%
Weighted average fair value............ $ 5.56 $ 9.43 $ 9.45
</TABLE>
38
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. Net income per common share
Basic net income per common share has been computed by dividing net income
by the weighted average number of common shares outstanding during the period.
Diluted net income per common share has been computed by dividing net income
by the weighted average number of common shares outstanding plus an assumed
increase in common shares outstanding for dilutive securities. Dilutive
securities consist of convertible securities which are dilutive, preferred
stock, and options and warrants to acquire common stock.
<TABLE>
<CAPTION>
Years ended November 30,
---------------------------------
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
Net income available to common
stockholders............................... $4,523,490 $8,350,846 $11,767,396
Effect of conversion of subordinated debt... 176,436 - -
---------- ---------- -----------
Net income available to common stockholders
plus effect of conversions................. $4,699,926 $8,350,846 $11,767,396
========== ========== ===========
Weighted average common shares-basic........ 4,506,108 8,634,239 9,590,546
Dilutive effect of:
Stock options............................. 288,078 372,652 413,885
Warrants.................................. 73,550 86,741 52,099
Convertible preferred stock:
Series B preferred stock................ 334,609 - -
Series F preferred stock................ 68,067 - -
Series G preferred stock................ 339,588 - -
Effect of conversion of subordinated
debt..................................... 527,418 - -
---------- ---------- -----------
Weighted average common shares-diluted...... 6,137,418 9,093,632 10,056,530
========== ========== ===========
Net income per common share-basic........... $ 1.00 $ 0.97 $ 1.23
========== ========== ===========
Net income per common share-diluted......... $ 0.77 $ 0.92 $ 1.17
========== ========== ===========
</TABLE>
16. Recapitalization
On February 25, 1997, pursuant to an agreement reached in May 1996, the
Board of Directors authorized a recapitalization plan ("Recapitalization"),
which was 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 were converted or exchanged
for 1,046,559 shares of common stock and payment of $912,452. The Series A
preferred stock was 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 was redeemed for an aggregate of $1,000,000. The
remaining preferred stock was converted into 1,427,509 shares of common stock.
As a result of the Recapitalization, preferred stock which had a liquidation
preference of $11,154,900 and subordinated debt with a principal amount of
$5,780,000 was 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
were paid out of the proceeds of the IPO.
39
<PAGE>
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Balance Balance
at Charged to acquired as Balance at
Beginning Costs and part of Deductions End of
Description of Period Expense acquisition Write-Offs Period
----------- --------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended November 30,
1999
Reserve and allowance
from asset accounts:
Allowance for doubtful
accounts............... $736,229 $1,331,817 $ - $(725,566) $1,342,480
Year ended November 30,
1998
Reserve and allowance
from asset accounts:
Allowance for doubtful
accounts............... $639,405 $ 727,848 $ - $(631,024) $ 736,229
Year ended November 30,
1997
Reserve and allowance
from asset accounts:
Allowance for doubtful
accounts............... $535,408 $ 425,157 $188,636 $(509,796) $ 639,405
</TABLE>
40
<PAGE>
PART III
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There are no events to report under this item.
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth certain information pertaining to the
Company's directors and executive officers.
<TABLE>
<CAPTION>
Name Age Current Position
---- --- ----------------
<S> <C> <C>
Vincent A. Wolfington... 59 Chairman of the Board and Chief Executive Officer
Don R. Dailey........... 62 President and Director
Richard A. Anderson,
Jr..................... 54 Executive Vice President--Sales and Marketing
David H. Haedicke....... 53 Executive Vice President and Chief Financial Officer
Guy C. Thomas........... 61 Executive Vice President--Operations
Devin J. Murphy......... 33 Senior Vice President--Operations
Sally A. Snead.......... 40 Senior Vice President--Information Systems
Eugene S. Willard....... 49 Senior Vice President--Technology, Strategy and Planning
John C. Wintle.......... 53 Senior Vice President--Europe
Robert W. Cox........... 62 Director
Dennis I. Meyer......... 64 Director
Nicholas J. St. George.. 61 Director
Joseph V. Vittoria...... 64 Director
</TABLE>
Set forth below is a description of the backgrounds of each of the directors
and executive officers 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, a global organization of the chief executive
officers of companies engaged in all sectors of the travel and tourism
industry.
Don R. Dailey, a co-founder of the Company, has served as the President and
a director of the Company 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 Association,
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). Mr. Dailey is currently a member of
the Travel Business Round Table, a United States organization of executive
officers of companies engaged in all sectors of the travel and tourism
industry.
Richard A. Anderson, Jr. has served as Executive Vice President--Sales and
Marketing of the Company since July 1998. Mr. Anderson previously served as
Senior Vice President of the Company from December 1988 to July 1998 and was
Chief Operating Officer of Carey Limousine NY, Inc., a subsidiary of the
Company, 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.
David H. Haedicke has served as 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
41
<PAGE>
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.
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.
Devin J. Murphy has served as Senior Vice President-Operations since May
1998. Previously, from April 1997 to May 1998, Mr. Murphy served as Senior
Vice President and Chief Development Officer, and from May 1996 to April 1997
he served as Vice President-Corporate Development. From 1988 to 1994, Mr.
Murphy held sales and marketing positions at several high tech companies.
Sally A. Snead has served as the Company's Senior Vice President-Information
Systems since June 1996. From June 1993 to June 1996, she was Executive Vice
President and General Manager of Carey Limousine L.A., Inc. From January 1987
to June 1993, she was Executive Vice President and General Manager of Carey
Limousine DC, 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.
Eugene S. Willard has served as the Company's Senior Vice President-
Technology, Strategy and Planning since February 1999. Mr. Willard has over
nineteen years experience in systems development and strategic systems
planning. From 1985 to February 1999, Mr. Willard held senior level positions
in systems development and strategic planning in the areas of reservations,
revenue management and loyalty program marketing systems for Marriot
International.
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.
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 is
Chairman Emeritus of Baker & McKenzie. Mr. Cox currently is a director of Hon
Industries, Inc. and Homebase, Inc.
Dennis I. Meyer has served as a director of the Company since June 1998. Mr.
Meyer has been a partner in the law firm of Baker & McKenzie since 1965. Mr.
Meyer has previously served as Chairman of the Executive Committee and
Managing Partner of Baker & McKenzie. Mr. Meyer serves as a director of
Oakwood Homes Corporation as well as United Financial Banking Companies, Inc.,
Jordan Kitt's Music, Inc. and Daily Express, Inc.
Nicholas J. St. George has served as a director of the Company since June
1997. Currently, Mr. St. George serves as a consultant to Oakwood Homes
Corporation, a manufacturer and retailer of manufactured homes. From February
1979 to September 1999, Mr. St. George served as Chairman and Chief Executive
Officer of Oakwood Homes Corporation. Mr. St. George serves as a director of
Legg Mason, Inc.
Joseph V. Vittoria has served as a director of the Company since June 1998.
Mr. Vittoria has been the Chairman and Chief Executive Officer of Travel
Services International, Inc. ("Travel Services") since Travel Services
completed its initial public offering in July 1997. From September 1987 to
February 1997, Mr. Vittoria
42
<PAGE>
was the Chairman and Chief Executive Officer of Avis, Inc. ("Avis"), a
multinational auto rental company where he was employed for over 26 years. Mr.
Vittoria was responsible for the purchase of Avis by its employees in 1987 by
creating one of the world's largest Employee Stock Ownership Plans. He was a
founding member of the World Travel and Tourism Council. Mr. Vittoria serves
as a director of Sirius Satellite Radio, Inc., Transmedia Asia, Puradyn Filter
Technologies, Inc. and various non-profit associations.
Section 16(a) Beneficial Ownership Reporting Compliance
Mr. Murphy filed a Form 4 with the Securities and Exchange Commission on May
13, 1999 for shares purchased on the open market on February 4, 1999. Paul A.
Sandt filed a Form 4 with the Securities and Exchange Commission on October
26, 1999 for shares purchased pursuant to the exercise of a stock option and
the sale of those shares on July 21, 1999. Mr. Haedicke filed a Form 4 with
the Securities and Exchange Commission on January 13, 2000 for shares
purchased pursuant to the exercise of stock options and the sale of those
shares on November 12, 1999.
Item 11. Executive Compensation
Compensation of Directors
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 $20,000 for serving on the Board, plus a
fee of $1,000 for each Board of Directors' meeting attended and $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.
At his or her elections, a director may defer all or a portion of the fees
paid to him or her by the Company. If such an election is made, the deferred
fees are credited to the director's account at the end of each fiscal quarter
in the form of phantom shares of Common Stock. Each phantom share is equal to
one share of Common Stock, and the total number of phantom shares credited to
the account during any fiscal quarter is determined based on the average
closing price of the Common Stock on the Nasdaq National Market during the
last 20 trading days of such fiscal quarter. The account reaches maturity on
the last day of the Company's fiscal year in which the director ceases to be a
member of the Board of Directors. Upon maturity, payment will be made at the
director's election either in cash, shares of Common Stock equal to the number
of phantom shares in the director's account, or a combination of the two. If
all or a portion of the payment is made in cash, the value of the phantom
shares at maturity is determined based on the average closing price of the
Common Stock on the Nasdaq National Market during the last 20 days of the
Company's fiscal quarter in which maturity occurs. To date, election to defer
all or a portion of fees have been made by Messrs. Cox, Meyer, St. George and
Vittoria.
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 5,000 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
43
<PAGE>
termination of service of a director, options granted under the Directors'
Plan will remain exercisable until the 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 will 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 that at the
time may be permitted by law.
44
<PAGE>
Executive Compensation
Summary Compensation Table
The following table contains a summary of the compensation paid or accrued
during the fiscal years ended November 30, 1997, 1998 and 1999 to the Chief
Executive Officer of the Company and the four other most highly compensated
executive officers (the "Named Executive Officers").
<TABLE>
<CAPTION>
Annual Compensation Long-Term
---------------------------------- Compensation
Name and Principal Other Annual Awards Shares All Other
Position Year Salary Bonus Compensation Underlying Options Compensation
- ------------------ ---- -------- ------- ------------ ------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Vincent A. Wolfington... 1999 $256,950 $50,000 $ - 80,000 $71,509(1)
Chairman and Chief
Executive 1998 231,620 - - 180,000(2) 71,774
Officer 1997 231,620 85,000 - 100,000 12,000
Don R. Dailey........... 1999 226,667 50,000 - 80,000 64,337(1)
President and Director 1998 205,000 - - 180,000(2) 35,150
1997 205,001 70,000 - 100,000 12,000
David H. Haedicke....... 1999 151,250 30,000 - - -
Executive Vice
President and 1998 135,000 - - 120,000 -
Chief Financial Officer 1997 135,000 45,000 - 30,000 -
Guy C. Thomas........... 1999 115,000 12,000 13,020(3) 24,000 19,456(1)
Executive Vice
President 1998 115,000 - 13,020(3) 60,000(2) 10,995
Operations 1997 115,000 25,000 13,020(3) 15,000 9,900
John C. Wintle(4)....... 1999 101,767 47,933 - - -
Senior Vice President 1998 87,599 63,019 - 6,000 -
1997 89,668 44,817 - 10,000 -
</TABLE>
- --------
(1) Represents the premium payment on life insurance policies for
beneficiaries designated by the Named Executive Officers.
(2) Excludes options granted in April 1998 to Messrs. Wolfington, Dailey and
Thomas to purchase 100,000, 100,000 and 30,000 shares, respectively, which
April 1998 options were replaced by the options shown for 1999.
(3) Represents a car allowance.
(4) Amounts reported for Mr. Wintle reflect the application of British Pound
to U.S. Dollar exchange ratios as of November 30, 1999, 1998 and 1997 of
1.5985, 1.6510 and 1.6900, respectively.
45
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth certain information regarding options granted
during the fiscal year ended November 30, 1999 by the Company to each of the
Named Executive Officers (the options shown are repriced options originally
granted in April 1998):
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Rates of Stock
Price Appreciation For
Individual Grants Option Term
----------------------------------------------- ---------------------------
Number of
Shares % of Total
Underlying Options Granted Exercise
Options to Employees Price Expiration
Name Granted in Fiscal Year ($/Share) Date 5% 10%
---- ---------- --------------- --------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Vincent A. Wolfington... 80,000 32.8% $15.00 4/29/08 $ 754,674 $ 1,912,491
Don R. Dailey........... 80,000 32.8 15.00 4/29/08 754,674 1,912,491
Guy C. Thomas........... 24,000 9.8 15.00 4/29/08 226,402 573,747
</TABLE>
Aggregated Options Exercised in the Last Fiscal Year and Year-End Stock Option
Values
The following table sets forth certain information regarding the aggregate
number and dollar value of all options exercised by each of the Named
Executive Officers during the fiscal year ended November 30, 1999 and the
aggregate number and value of all unexercised options held by each of the
Named Executive Officers at November 30, 1999.
<TABLE>
<CAPTION>
Number of Shares
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
November 30, 1999 November 30, 1999(2)
------------------------- -------------------------
Shares Number of Number of
Acquired Value Exercisable Unexercisable Exercisable Unexercisable
Name On Exercise Realized(1) Shares Shares Value Value
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Vincent A. Wolfington... - $ - 285,706 180,000 $3,365,433 $1,147,500
Don R. Dailey........... - - 235,707 180,000 2,529,200 1,147,500
David H. Haedicke....... 6,200 75,995 39,600 130,000 574,560 873,750
Guy C. Thomas........... 32,018 582,060 34,000 65,000 261,750 436,875
John C. Wintle ......... 7,933 106,240 7,633 9,334 108,164 74,507
</TABLE>
- --------
(1) Value is calculated based upon the difference between the option exercise
price and the closing market price of the Company's Common Stock on the
Nasdaq National Market on the date of exercise.
(2) Value of unexercised in-the-money options based upon $21.375, the closing
price of the Company's Common Stock on the Nasdaq National Market on
November 30, 1999.
Equity Incentive Plans
The Company currently maintains the 1987 Stock Option Plan (the "1987 Plan")
and the 1992 Stock Option Plan (the "1992 Plan"), under which the Company has
awarded incentive and non-statutory stock options. The Company also maintains
the 1997 Equity Incentive Plan (the "1997 Plan"), which currently provides for
the award of up to 1,550,000 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 that are
valued by reference to the value of the Common Stock. In addition, the Company
maintains the 1998 Non-Qualified Stock Option Plan (the "1998 Plan"), which
provides for the award of up to 500,000 shares of Common Stock in the form of
non-statutory stock options. The 1987 Plan, the 1992 Plan, the 1997 Plan and
the 1998 Plan are hereinafter referred to collectively as the "Equity Plans".
46
<PAGE>
As of November 30, 1999, options were outstanding to purchase an aggregate
of 1,846,217 shares of Common Stock under the Equity Plans, and approximately
170,500 shares of Common Stock are authorized but have not been granted under
options pursuant to the Equity Plans.
Officers, key employees, non-employee directors of and consultants to the
Company are eligible to participate in the Equity Plans, except officers and
directors are not eligible to participate in the 1998 Plan. 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 the Equity 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 1997 Plan
and the 1998 Plan provide that in the event of a merger or other transaction
that results or will result in the Company's Common Stock not being registered
under Section 12 of the Securities Exchange Act of 1934, as amended, any
unexercisable options or awards will become fully exercisable 20 days prior to
the effective date of the merger or other transaction.
The Compensation Committee may amend, modify or terminate any outstanding
award under the 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.
47
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of February 24, 2000
with respect to the beneficial ownership of Common Stock by (i) each director
of the Company, (ii) each the Named Executive Officer, (iii) each beneficial
owner of more than 5% of the Company's Common Stock and (iv) all directors and
executive officers of the Company as a group. As of February 24, 2000, there
were 9,733,670 shares of the Company's Common Stock outstanding. 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
Owned(1)
---------------------
Directors, Nominees and Executive Officers Number Percent
- ------------------------------------------ --------- -------
<S> <C> <C>
Vincent A. Wolfington.................................. 386,069(1) 3.9
Don R. Dailey.......................................... 375,176(2) 3.8
David H. Haedicke...................................... 39,600(3) *
Guy C. Thomas.......................................... 76,782(4) *
John C. Wintle......................................... 7,633(3) *
Robert W. Cox.......................................... 29,400(3) *
Dennis I. Meyer........................................ 14,000(5) *
Nicholas J. St. George................................. 21,500(6) *
Joseph V. Vittoria..................................... 9,000(3) *
Alliance Capital Management L.P........................ 1,681,900(7) 17.3
1290 Avenue of the Americas
New York, New York 10104
Gilder Gagnon Howe & Co. LLC .......................... 1,568,448(8) 16.1
1775 Broadway, 26th Floor
New York, New York 10019
J. & W. Seligman & Co. Incorporated.................... 1,129,805(9) 11.6
100 Park Avenue
New York, New York 10017
Kaufman Fund, Inc...................................... 520,000(10) 5.3
140 East 45th Street
43rd Floor
New York, New York 10017
All directors and executive officers as a group (12
persons).............................................. 1,026,561(11) 9.8
</TABLE>
- --------
* Less than 1%.
(1) Includes options to purchase 285,706 shares of Common Stock. Also includes
(i) 1,183 shares of Common Stock currently held by a company controlled by
Mr. Wolfington, (ii) 1,560 shares held by a limited partnership which are
attributable to Mr. Wolfington's wife (780 shares) and one of his children
(780 shares) and (iii) 430 shares held by one of his children. 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.
(2) Includes options to purchase 235,707 shares of Common Stock.
(3) Represents options to purchase shares of Common Stock.
(4) Includes options to purchase 34,000 shares of Common Stock.
(5) Includes options to purchase 9,000 shares of Common Stock. Also includes
5,000 shares held by Mr. Meyer's wife as to which Mr. Meyer disclaims
beneficial ownership.
(6) Includes options to purchase 16,500 shares of Common Stock. Also includes
5,000 shares held by Mr. St. George's wife as to which Mr. St. George
disclaims beneficial ownership.
(7) Includes 44,000 shares of Common Stock over which Alliance Capital
Management L.P. has sole voting power, 1,637,900 shares of Common Stock
over which Alliance Capital Management L.P. has shared voting
48
<PAGE>
power and 1,681,900 shares of Common Stock over which Alliance Capital
Management L.P. has sole dispositive power. This information is based upon
the Schedule 13G filed by AXA Conseil Vie Assurance Mutuelle, AXA
Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, AXA Courtage
Assurance Mutuelle, AXA and AXA Financial, Inc., as a group, with the
Securities and Exchange Commission on February 14, 2000.
(8) Includes 5,025 shares of Common Stock over which Gilder Gagnon Howe & Co.
LLC has sole voting and 1,568,448 shares of Common Stock over which
Gilder Gagnon Howe & Co. LLC has shared dispositive power. This
information is based upon the Schedule 13G filed by Gilder Gagnon Howe &
Co. LLC with the Securities and Exchange Commission on February 14, 2000.
(9) Includes 1,011,600 shares of Common Stock over which J. & W. Seligman &
Co. Incorporated has shared voting power and 1,129,805 shares of Common
Stock over which J. & W. Seligman & Co. Incorporated has shared
dispositive power. William C. Morris, as the owner of a majority of the
outstanding voting securities of J. & W. Seligman & Co. Incorporated, may
be deemed to beneficially own the shares held by J. & W. Seligman & Co.
Incorporated. This information is based upon the Schedule 13G filed by J.
& W. Seligman & Co. Incorporated and William C. Morris, as a group, with
the Securities and Exchange Commission on February 10, 2000.
(10) This information is based upon the Schedule 13G filed by Kaufman Fund,
Inc. with the Securities Exchange Commission on August 20, 1999.
(11) See Notes 1 through 6. Also includes options to purchase 48,481 shares
of Common Stock and 18,920 shares of Common Stock beneficially owned by
executive officers not listed in the table above.
Item 13. Certain Relationships and Related 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. During 1999, the Company
acquired, for an aggregate purchase price of approximately $657,000, paid for
through the conversion of outstanding loans and deposits with CLI Fleet, a
further 65.634 shares of CLI Fleet's non-voting redeemable preferred stock. 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. During 1998, 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 payments of
$100,000 annually on May 30, 2001 through 2009 with a final payment of
$406,340 on May 30, 2010. Under the terms of an agreement with CLI Fleet,
commencing 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. The Company is a party to three ten-year leases of
administrative offices from CLI Fleet. During 1999, the aggregate rent expense
paid to CLI Fleet pursuant to the leases was approximately $139,000.
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. From 1993
to 1996, CLI Fleet purchased from the Company notes receivable due from
independent operators in exchange for cash or demand notes on a non-recourse
basis.
49
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements. See Item 8 for a list of Financial Statements.
2. Financial Statement Schedules. See Item 8 for a list of the
Financial Statement Schedules.
3. Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
2.1 Amended and Restated Purchase Agreement dated as of October 2,
1998 by and among Carey International, Inc., Airport Limousine
Acquisition Corp., Airport Limousine Partners, Inc. d/b/a/
American Airport Limousine Corporation, American Limousine Repair
Services, Inc., George Jacobs, Aubrey Jacobs, Hyma Levin and
Harriet Jacobs (incorporated by reference from the Company's
Quarterly Report on Form 10-Q dated October 15, 1998).
3.1 Form of Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference from the Company's Registration
Statement on Form S-1 (File No. 333-22651)).
3.2 Amended and Restated Bylaws of the Company (incorporated by
reference from the Company's Registration Statement on Form S-1
(File No. 333-22651)).
4.1 Specimen Stock Certificate (incorporated by reference from the
Company's Registration Statement on Form S-1 (File
No. 333-22651)).
10.1 1997 Equity Incentive Plan, as amended (incorporated by reference
from the Company's definitive Proxy Statement dated May 6, 1998).
10.2 1992 Stock Option Plan (incorporated by reference from the
Company's Registration Statement on Form S-1 (File
No. 333-22651)).
10.3 1987 Stock Option Plan (incorporated by reference from the
Company's Registration Statement on Form S-1 (File
No. 333-22651)).
10.4 Stock Plan for Non-Employee Directors (incorporated by reference
from the Company's Registration Statement on Form S-1 (File
No. 333-22651)).
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 (incorporated by reference from the Company's
Registration Statement on Form S-1 (File No. 333-22651)).
10.6 Current form of Standard Master License Agreement (incorporated by
reference from the Company's Registration Statement on Form S-1
(File No. 333-22651)).
10.7 Current form of Standard International License Agreement
(incorporated by reference from the Company's Registration
Statement on Form S-1 (File No. 333-22651)).
10.8 Current form of Standard Independent Operator Agreement
(incorporated by reference from the Company's Registration
Statement on Form S-1 (File No. 333-22651)).
10.9 Form of Director's Deferment of Compensation Agreement
(incorporated by reference from the Company's Registration
Statement on Form S-1 (File No. 333-50245)).
10.10 1998 Non-Qualified Stock Option Plan (incorporated by reference
from the Company's Registration Statement on Form S-8 (File
No. 333-59631)).
10.11 1998 Customer Service Stock Bonus Plan (incorporated by reference
from the Company's Registration Statement on Form S-8 (File
No. 333-66155)).
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.12 Amended and Restated Revolving Credit Agreement dated as of
January 15, 1999 among Carey International, Inc., Fleet Bank,
N.A., NationsBank, N.A., First Union National Bank and United Bank
(incorporated by reference from the Company's Annual Report on
Form 10-K for the fiscal year ended November 30, 1998).
21 Subsidiaries of the Registrant (incorporated by reference from the
Company's Annual Report on Form 10-K for the fiscal year ended
November 30, 1998).
23.1 Consent of PricewaterhouseCoopers LLP (filed herewith).
27 Financial Data Schedule (filed herewith).
</TABLE>
(b) Reports on Form 8-K.
None.
51
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CAREY INTERNATIONAL, INC.
/s/ Vincent A. Wolfington
By: _________________________________
Vincent A. Wolfington
Chairman of the Board and
Chief Executive Officer
Date: February 28, 2000
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and to the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Vincent A. Wolfington Chairman of the Board and February 28, 2000
______________________________________ Chief Executive Officer
Vincent A. Wolfington
/s/ Don R. Dailey President and Director February 28, 2000
______________________________________
Don R. Dailey
/s/ David H. Haedicke Chief Financial Officer February 28, 2000
______________________________________ and Principal Accounting
David H. Haedicke Officer
/s/ Robert W. Cox Director February 28, 2000
______________________________________
Robert W. Cox
/s/ Dennis I. Meyer Director February 28, 2000
______________________________________
Dennis I. Meyer
/s/ Nicholas J. St. George Director February 28, 2000
______________________________________
Nicholas J. St. George
/s/ Joseph V. Vittoria Director February 28, 2000
______________________________________
Joseph V. Vittoria
</TABLE>
52
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
on Forms S-8 (File Nos. 333-66155, 333-59631, 333-59629 and 333-32335) and on
Form S-4 (File No. 333-59599) of Carey International, Inc. of our report dated
February 1, 2000, relating to the consolidated financial statements and
financial statement schedule, which appears in this Annual Report on Form 10-
K.
PricewaterhouseCoopers LLP
Washington, D.C.
February 28, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> NOV-30-1999
<CASH> 8,595,112
<SECURITIES> 0
<RECEIVABLES> 33,760,038
<ALLOWANCES> 1,342,000
<INVENTORY> 0
<CURRENT-ASSETS> 44,382,753
<PP&E> 35,786,747
<DEPRECIATION> 8,429,000
<TOTAL-ASSETS> 178,137,037
<CURRENT-LIABILITIES> 27,887,107
<BONDS> 25,070,544
0
0
<COMMON> 96,804
<OTHER-SE> 104,555,413
<TOTAL-LIABILITY-AND-EQUITY> 178,137,037
<SALES> 0
<TOTAL-REVENUES> 191,057,863
<CGS> 0
<TOTAL-COSTS> 128,345,134
<OTHER-EXPENSES> 40,962,982
<LOSS-PROVISION> 1,331,817
<INTEREST-EXPENSE> 1,160,526
<INCOME-PRETAX> 20,373,076
<INCOME-TAX> 8,605,680
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,767,396
<EPS-BASIC> 1.23
<EPS-DILUTED> 1.17
</TABLE>
