<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended March 31, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-8664
Circle International Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 94-1740320
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization)Identification No.)
260 Townsend Street,
San Francisco, California 94107
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (415) 978-0600
Inapplicable
(Former name, former address and former fiscal year if changed from
last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No __
At May 14, 1998 the number of shares outstanding of the registrant's
common stock was 16,292,329.
<PAGE> 2
TABLE OF CONTENTS
-----------------
Part I. Financial Information Page
- ------ --------------------- ----
Item 1. Financial Statements:
Condensed Consolidated Income Statements
for the three months ended
March 31, 1998 and 1997 3
Condensed Consolidated Balance Sheets,
March 31, 1998 and December 31, 1997 4
Condensed Consolidated Statements of
Cash Flows for the three months ended
March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 10
Part II. Other Information
- ------- -----------------
Item 6. Exhibits and Reports on Form 8-K 11
<PAGE> 3
I. FINANCIAL INFORMATION
- ------------------------
ITEM 1. FINANCIAL STATEMENTS
CIRCLE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
-------------------------------------------------
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited, in thousands, except per share amounts)
<TABLE>
Three Months Ended
March 31,
---------------------
1998 1997
---- ----
<S> <C> <C>
Revenue $ 155,142 $ 155,452
Freight consolidation costs 89,957 93,786
--------- ---------
Net revenue 65,185 61,666
Other costs and expenses:
Salaries and related 35,029 33,695
Operating, selling and administrative 23,624 22,061
--------- ---------
Total other costs and expenses 58,653 55,756
Income from operations 6,532 5,910
Other income/(expense):
Interest, net 665 (136)
Income from affiliates 1,298 977
Other, net 352 574
--------- ---------
Total other income/expense, net 2,315 1,415
--------- ---------
Income before taxes 8,847 7,325
Taxes on income 3,273 2,734
--------- ---------
Net income $ 5,574 $ 4,591
========= =========
Net income per share:
Basic $ 0.34 $ 0.29
========= =========
Diluted $ 0.34 $ 0.28
========= =========
Weighted average common shares outstanding:
Basic 16,223 15,942
========= =========
Diluted 16,523 16,268
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE> 4
CIRCLE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
-------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share and per share amounts)
<TABLE>
March 31 December 31
1998 1997
---- ----
<S> <C> <C>
ASSETS
------
Current assets:
Cash and equivalents $ 22,739 $ 16,873
Short-term investments 26,366 34,494
Trade receivables, less allowance
for doubtful accounts of:
1998, $7,123; 1997, $6,964 204,335 212,114
Other receivables 4,634 4,954
Other current assets 8,704 11,261
--------- ---------
Total current assets 266,778 279,696
Property 140,621 139,514
Less accumulated depreciation (66,909) (65,523)
--------- ---------
Property - net 73,712 73,991
Marketable securities available for sale 1,289 1,284
Investments in unconsolidated affiliates 41,760 40,487
Goodwill and other assets 25,877 26,362
--------- ---------
Total assets $ 409,416 $ 421,820
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable to banks $ 2,013 $ 2,847
Trade payables 139,687 142,559
Accrued salaries and related costs 10,225 11,217
Dividends payable - 2,189
Income taxes payable 8,044 6,660
Other liabilities 19,417 16,763
--------- ---------
Total current liabilities 179,386 182,235
Deferred income taxes 11,574 12,405
Long-term notes payable 12,499 27,702
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, $1 par:
shares authorized, 1,000,000 - -
Common stock, $1 par: shares
authorized, 40,000,000; shares
issued and outstanding 1998,
16,256,239; 1997, 16,234,011 28,836 28,400
Retained earnings 192,156 186,576
Accumulated other comprehensive income (15,035) (15,498)
--------- ---------
Total stockholders' equity 205,957 199,478
--------- ---------
Total liabilities and stockholders' equity $ 409,416 $ 421,820
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE> 5
CIRCLE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
-------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
Three Months Ended
March 31,
---------------------
1998 1997
---- ----
<S> <C> <C>
Operating activities:
Net income $ 5,574 $ 4,591
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,138 2,800
Gains on sales of assets (10) (593)
Deferred income taxes (830) 2,152
Equity in earnings of affiliates (1,226) (976)
Net effect of changes in working capital 11,101 (3,098)
Other - 188
--------- ---------
Net cash provided by operating activities 17,747 5,064
Investing activities:
Proceeds from sales of property 56 977
Proceeds from sales of marketable securities - 473
Proceeds from sales of short-term
investments, net 8,128 (442)
Capital expenditures (2,403) (3,114)
Acquisitions of businesses (168) (1,776)
Other (1) 76
--------- ---------
Net cash provided by (used in)
investing activities 5,612 (3,806)
Financing activities:
Repayment of long-term notes payable - net (15,203) 4,641
Decrease in notes payable (834) (54)
Payments of dividends (2,193) (1,911)
Proceeds from exercise of stock options 307 1,212
Other - 50
--------- ---------
Net cash (used in) provided by
financing activities (17,923) 3,938
Effect of exchange rate changes on cash 430 (737)
--------- ---------
Increase in cash and equivalents 5,866 4,459
Cash and equivalents at beginning of period 16,873 31,522
--------- ---------
Cash and equivalents at end of period $ 22,739 $ 35,981
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
Note 1 - General
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments (which
include normal recurring accruals) necessary to present fairly the
financial position as of March 31, 1998 and the results of operations
and cash flows for the periods presented in conformity with generally
accepted accounting principles. It is suggested that these unaudited
condensed consolidated financial statements be read in conjunction
with the audited consolidated financial statements and notes thereto
included in the Circle International Group, Inc. (the Company) 1997
Annual Report to Stockholders incorporated by reference in the
Company's 1997 Form 10-K, and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in
this Form 10-Q.
Certain 1997 amounts have been reclassified to conform to the 1998
presentation.
Note 2 - Business Segment Information
The Company operates in the international logistics services
industry, which encompasses air freight forwarding, ocean freight
forwarding, customs brokerage and other logistics services. Certain
information regarding the Company's operations by region is
summarized as follows:
<TABLE>
Europe & Asia & Elimi- Consoli-
Americas Middle East South Pacific Corporate nations dated
------ ------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Three months ended
March 31, 1998:
Total revenue $ 85,942 $ 35,349 $ 37,573 $ - $ (3,722) $155,142
Transfers between
regions (1,578) (653) (1,491) - 3,722 -
-------- -------- -------- -------- -------- --------
Revenues from
customers $ 84,364 $ 34,696 $ 36,082 $ - $ - $155,142
======== ======== ======== ======== ======== ========
Net revenue $ 35,609 $ 17,986 $ 11,590 $ - $ - $ 65,185
======== ======== ======== ======== ======== ========
Income (loss)
from operations $ 3,737 $ 2,268 $ 2,016 $ (1,489) $ - $ 6,532
======== ======== ======== ======== ======== ========
Three months ended
March 31, 1997:
Total Revenue $ 94,853 $ 32,843 $ 32,142 $ - $ (4,386) $155,452
Transfers between
regions (1,850) (1,136) (1,400) - 4,386 -
-------- -------- -------- -------- -------- --------
Revenues from
customers $ 93,003 $ 31,707 $ 30,742 $ - $ - $155,452
======== ======== ======== ======== ======== ========
Net revenue $ 34,389 $ 16,604 $ 10,673 $ - $ - $ 61,666
======== ======== ======== ======== ======== ========
Income (loss)
from operations $ 3,491 $ 2,003 $ 1,719 $ (1,303) $ - $ 5,910
======== ======== ======== ======== ======== ========
</TABLE>
Revenue from transfers between regions represents approximate amounts
that would be charged if the services were provided by an
unaffiliated company. Total regional revenue is reconciled with total
consolidated revenue by eliminating inter-regional revenue.
<PAGE> 7
Note 3 - Changes in Accounting Principles
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". This
Statement requires that all items recognized under accounting
standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as
other annual financial statements. This Statement also requires that
an entity classify items of other comprehensive income by their
nature in a financial statement. Other comprehensive income for the
Company includes foreign currency translation adjustments, and
unrealized gains and losses on marketable securities classified as
available-for-sale.
The Company's total comprehensive income was as follows:
<TABLE>
Three Months Ended
March 31,
1998 1997
---- ----
(in thousands)
<S> <C> <C>
Net income $ 5,574 $ 4,591
Other comprehensive income (loss):
Change in foreign currency
translation adjustment 460 (2,547)
Unrealized gains on marketable
securities 3 297
-------- --------
Comprehensive income $ 6,037 $ 2,341
======== ========
</TABLE>
Note 4 - New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information". SFAS No. 131 establishes annual and interim reporting
standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and major
customers. Adoption of this Statement will not impact the Company's
consolidated financial position, results of operations or cash flows,
and any effect will be limited to the form and content of
disclosures. The year-end reporting requirements of this Statement
are effective for fiscal years beginning after December 15, 1997,
with earlier application permitted. The interim reporting
requirements of SFAS No. 131 are effective in subsequent fiscal
years.
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Except for historical information contained herein, the matters set
forth in this release are forward-looking statements that are
dependent on certain risks and uncertainties including but not
limited to such factors as market demand, risks associated with
operations outside of the U.S. including currency fluctuations,
information technology uncertainties, changing economic conditions
including international laws, the concentration of business towards
large accounts, the effect of the Company's accounting policies, and
other risk factors detailed in the Company's SEC filings.
The Company's principal services are international air freight
forwarding, ocean freight forwarding, and customs brokerage and other
value added logistics services. The following table shows the revenue
and net revenue, in dollars and percentages, attributable to the
Company's principal services during the periods indicated. Revenue
for air freight and ocean freight consolidations (indirect shipments)
includes the cost of such freight, whereas net revenue does not.
Revenue for air freight and ocean freight agency or direct shipments,
customs brokerage and import services, includes only the fees or
commissions for these services. A comparison of net revenue best
measures the relative importance of the Company's principal services.
<TABLE>
Three Months Ended March 31,
1998 1997
---- ----
(in thousands)
<S> <C> <C>
Revenue
- -------
Air freight forwarding $ 99,418 64% $ 99,373 64%
Ocean freight forwarding 23,869 15% 27,004 17%
Customs brokerage and other 31,855 21% 29,075 19%
-------------- --------------
$155,142 100% $155,452 100%
============== ==============
Net Revenue
- -----------
Air freight forwarding $ 24,552 38% $ 23,568 38%
Ocean freight forwarding 8,778 13% 9,023 15%
Customs brokerage and other 31,855 49% 29,075 47%
-------------- --------------
$ 65,185 100% $ 61,666 100%
============== ==============
</TABLE>
Results of Operations
- ---------------------
Three Months ended March 31, 1998 Vs 1997:
- ------------------------------------------
Revenue remained substantially unchanged at $155.1 million in 1998
from $155.5 million reported in 1997. Net revenue, which represents
revenue less freight consolidation costs, was up 6% to $65.2 million
compared to $61.7 million in the first quarter of 1997. Net revenue
increased despite a negative foreign exchange effect of approximately
$4.2 million or 7% resulting from a stronger U.S. Dollar when
converting foreign currency net revenues into U.S. Dollars for
financial reporting purposes. Net income rose 21% to $5.6 million as
compared to $4.6 million in the first three months of 1997.
Air freight forwarding revenue remained unchanged at $99.4 million.
Air freight forwarding net revenue increased 4% or $1.0 million over
the prior period due to both increased volumes and improved margins.
In Asia, the Company handled higher volumes with higher margins. In
Europe, higher volumes were handled mainly due to increased intra-
Europe activity, which has lower margins than other trade lanes. In
North America, the same level of weight was exported but due to a
shift in destination locations, the revenue generated was reduced.
This reduction in revenue was offset by lower carrier costs thereby
producing a higher overall margin.
<PAGE> 9
Ocean freight forwarding revenue decreased 12% or $3.1 million over
the prior year, while ocean freight forwarding net revenue decreased
3% or $0.2 million. The Company's North America operations
experienced lower volumes as well as a shift of export activity from
Asia to other parts of the world, resulting in a revenue decrease.
This decrease was partially offset by effective management of carrier
costs.
Customs brokerage and other net revenue increased 10%, or $2.8
million in the quarter, driven by higher import activity in all
regions except Asia Pacific where imports were dampened by the
weakened local currencies.
Salaries and related costs increased 4% as a result of hiring more
employees to serve new customers and to handle business growth.
However, salaries as a percentage of net revenues dropped 1%.
Operating, selling, and administrative expenses increased $1.6
million due in part to an increase in occupancy costs related to
additional warehousing and distribution facilities as well as an
increase in depreciation related to the upgrading of computer
systems. There were also higher communication costs across all
regions, due to a higher volume of transactions.
Total other income/expense, net increased 64%. Effective cash
management enabled the company to reduce debt and report interest
income of $0.7 million for the first quarter of this year compared to
interest expense of $0.1 million last year. In addition, income from
affiliates increased 33% over last year.
The effective income tax rate of 37% was unchanged from last year.
The effective tax rate for 1998 is estimated based on the geographic
mix of income.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operations increased to $17.7 million for the
three months ended March 31, 1998 from $5.1 million during the same
period last year. The Company received $8.1 million from the sale of
short-term investments for the three months ended March 31, 1998. The
Company reduced commercial paper issued and outstanding by $15
million, from $25 million as of December 31, 1997 to $10 million as
of March 31, 1998.
Working capital decreased $11.1 million during the three months ended
March 31, 1998. This is primarily attributable to a reduction in
trade receivables associated with lower revenue and collection
efforts, as well as a reduction in other current assets.
Capital expenditures for the Company for the three months ended March
31, 1998 were $2.4 million. Capital expenditures for the year are
expected to be comparable to 1997, depending on lease vs. buy
opportunities.
The semi-annual dividend of $0.135 per share declared in December
1997 was paid during the first quarter of 1998 for a total of $2.2
million.
The Company makes significant disbursements on behalf of its
customers for transportation costs and customs duties. The billings
to customers for these disbursements, which are several times the
amount of revenue and fees derived from these transactions, are not
recorded as revenue and expense on the Company's income statement,
but are reflected in the Company's Trade Receivables and Trade
Payables.
Management believes that operating cash flow, the Company's current
financial structure and borrowing capacity will be adequate to fund
its operations, finance capital expenditures and acquisitions, and
pay dividends to stockholders.
<PAGE> 10
Year 2000
- ---------
The Company is currently engaged in an enterprise wide project to
upgrade its information, accounting and operational computer software
to provide a more integrated and cost effective means of conducting
its business. This process involves modifying or replacing certain
hardware or software. An important factor in this project is ensuring
the software programs purchased or designed internally will
consistently recognize the Year 2000. The Company anticipates that
all hardware and software which is integral to the Company's ability
to effectively operate and manage its business will be replaced,
modified or upgraded by the Year 2000.
The Company is communicating with all of its significant suppliers
and large customers to determine the extent to which the Company
would be vulnerable to those parties' failure to remedy their own
Year 2000 issues. The Company can give no guarantees that the systems
of other companies will be converted on time or that a failure to
convert by another company would not have a material adverse effect
on the Company.
The Company will utilize both internal and external resources to
reprogram, replace and test software. The Company anticipates
completing the project not later than September 1999, which is prior
to any anticipated Year 2000 impact on its operating systems. The
Company is currently assessing the related overall costs and
determining whether such costs will be material to its financial
position, results of operations or its cash flows. Purchased hardware
and software will be capitalized in accordance with normal policy.
The costs and completion date of the project are based on
management's best estimates. However, due to the interdependent
nature of worldwide computer systems, both internal and external to
the Company, there can be no assurances that the Company will not be
adversely affected in the Year 2000.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not yet applicable.
<PAGE> 11
II. OTHER INFORMATION
- ----------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 11.1, Computation of Earnings Per Share, Page
12, EDGAR filing only.
Exhibit 27, Financial Data Schedule, Page 13, EDGAR
filing only.
(b) Form 8-K:
The Company filed the following report on Form 8-K on
March 31, 1998:
Item 5 - Other Events:
Filed amendments to Financial Data Schedules
(Exhibit 27) for the years ended December 31,
1995 and 1996 and for each of the quarters of
fiscal years 1996 and 1997, to reflect diluted
earnings per share as required by SFAS No. 128,
"Earnings per Share".
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CIRCLE INTERNATIONAL GROUP, INC.
-------------------------------
Registrant
Dated: May 14, 1998
/S/ Peter Gibert
-------------------------------
Peter Gibert, Chairman of the Board
President and Chief Executive Officer
/S/ Janice Kerti
-------------------------------
Janice Kerti, Senior Vice President
and Chief Financial Officer
<PAGE> 12
<TABLE>
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
Three Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Net income $ 5,574 $ 4,591
-------- --------
Average shares of common stock
outstanding during the period 16,223 15,942
-------- --------
Net income per share - basic $ 0.34 $ 0.29
======== ========
Average shares of common stock
outstanding during the period 16,223 15,942
Incremental number of shares from
assumed exercise of stock options 300 326
-------- --------
16,523 16,268
Net income per share - diluted $ 0.34 $ 0.28
======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
FINANCIAL DATA SCHEDULE
Circle International Group, Inc., and Subsidiaries
(in thousands, except per share amounts)
This schedule contains summary financial information extracted from
the condensed consolidated financial statements from the Company's
form 10-Q for the quarterly period ending March 31, 1998, and is
qualified in its entirety by reference to such financial statements.
<S> <C>
<MULTIPLIER> 1000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 22739
<SECURITIES> 26366
<RECEIVABLES> 204335
<ALLOWANCES> 7123
<INVENTORY> 0
<CURRENT-ASSETS> 266778
<PP&E> 140621
<DEPRECIATION> 66909
<TOTAL-ASSETS> 409416
<CURRENT-LIABILITIES> 179386
<BONDS> 0
0
0
<COMMON> 28836
<OTHER-SE> 177121
<TOTAL-LIABILITY-AND-EQUITY> 409416
<SALES> 0
<TOTAL-REVENUES> 155142
<CGS> 0
<TOTAL-COSTS> 89957
<OTHER-EXPENSES> 58653
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 373
<INCOME-PRETAX> 8847
<INCOME-TAX> 3273
<INCOME-CONTINUING> 5574
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5574
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
