<PAGE> 1
1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission File Number 0-8664
Circle International Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 94-1740320
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
260 Townsend Street
San Francisco, California 94107-1719
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 978-0600
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
-------------------
Common Stock, $1.00 par value
Rights to Purchase Series A Junior Participating Preferred Stock
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 ___.
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 Form 10-K. [ ]
At March 5, 1998, the aggregate market value of the registrant's
Common Stock held by non-affiliates of the registrant was approximately
$350,668,265.
At March 5, 1998, the number of shares outstanding of registrant's
Common Stock was 16,243,689.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement dated April 1, 1998 - Part III of this Form 10-K
(Items 10, 11, 12 and 13).
<PAGE> 2
PART I
ITEM 1 - BUSINESS
General
Circle International Group, Inc. (formerly known as the Harper
Group, Inc.) ("the Company") is a leader in providing transportation
and integrated logistics services for the international movement of
goods and the furnishing of value-added information, distribution, and
inventory management services to customers worldwide. The Company is
principally engaged in international air and ocean freight forwarding,
customs brokerage and integrated logistics. The Company provides value-
added services in addition to those customarily provided by traditional
air freight forwarders, ocean freight forwarders and customs brokers.
These services are designed to provide global logistics solutions for
customers in order to streamline their supply chain, reduce their
inventories, improve their logistics information, enhance their
profitability and provide them with more efficient and effective
international distribution strategies.
The Company's global array of services benefits customers by
reducing overall international logistics costs and increasing the speed
and reliability of the delivery of goods worldwide. These services
include: air and ocean export and import freight transportation;
worldwide customs brokerage, duty drawback, Free Trade Zone management
and associated services; global freight tracking; other information
management services such as electronic data interchange ("EDI"),
electronic invoicing and purchase order management; logistics
management; warehousing and distribution services; inventory and
materials management; protective cargo packing; bonded warehousing;
project cargo management; global purchasing and trade finance services;
and marine insurance (ocean and air coverage).
The Company's global services are supplied through its network of
over 300 offices, agents and distribution centers located in over 100
countries on six continents. These facilities are linked by the
Company's real-time, on-line communications network that speeds the two-
way flow of shipment data and related logistics information between
origins and destinations around the world. In addition to its own
operations, the Company utilizes a network of overseas agents for
comprehensive, global coverage of major trade centers.
The Company commenced operations in 1898, was incorporated in
California in 1970, and reincorporated in Delaware in 1987. Until
December 31, 1993, its operating subsidiaries in the United States
included Circle Airfreight Corporation, Inc., its principal
international air freight subsidiary, Harper Robinson & Co., Inc., its
principal international ocean freight forwarding and customs brokerage
subsidiary; Max Gruenhut International, Inc., a full service air and
ocean freight forwarding firm; and Darrell J. Sekin and Co. ("Sekin"),
a full service firm engaged in air and ocean freight forwarding and
customs brokerage.
Effective January 1, 1994, Circle Airfreight Corporation, Inc. and
Max Gruenhut International, Inc. were merged into Harper Robinson &
Co., Inc., which was renamed Circle International, Inc. These domestic
operating subsidiaries were unified in order to achieve economic and
service efficiencies, to provide a common set of standards and
procedures, and to improve the sales and marketing of the Company's
integrated services. Internationally, the Company continues to operate
a number of subsidiaries under the names "Circle Freight International"
and "Max Gruenhut", in addition to the name "Circle International". On
May 13, 1997 the Company changed its name to Circle International
Group, Inc. to align its identity with that of its operating
subsidiaries. Unless the context otherwise requires, references to the
Company or Circle include Circle International Group, Inc. and its
subsidiaries.
Certain information regarding the Company's operations by geographic
regions for the three years in the period ended December 31, 1997 is
contained in Note 12 of the Notes to Consolidated Financial Statements.
<PAGE> 3
The following tables show the approximate amounts of revenue and net
revenue, expressed in dollars and as a percentage, attributable to the
Company's principal services during each of the three years in the
period ended December 31, 1997. Revenue from air and ocean freight
forwarding, where the Company acts in the capacity of a consolidator of
shipments, includes all transportation charges to the customer.
Revenue from air and ocean freight forwarding, where the Company acts
in the capacity of a cargo agent, includes only the commissions charged
to carriers and forwarding and related fees charged to customers.
Revenue earned by the Company as a customs broker includes commissions
and fees charged to customers for those services as well as services
relating to distribution, warehousing, materials management, and other
related services. Net revenue for air and ocean freight forwarding,
which is the equivalent of gross profit in other industries, is
determined by deducting any freight consolidation costs from freight
forwarding revenue. In the opinion of management, net revenue provides
a more accurate measure than revenue of the relative importance of the
Company's principal services.
<TABLE>
Year Ended December 31,
1997 1996 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Revenue:
Air freight forwarding $432,741 65% $375,507 63% $346,624 64%
Ocean freight forwarding 108,530 16% 103,095 17% 93,327 17%
Customs brokerage
and other 127,786 19% 116,831 20% 102,377 19%
------------- ------------- -------------
Total $669,057 100% $595,433 100% $542,328 100%
============= ============= =============
Net Revenue:
Air freight forwarding $ 97,866 37% $ 93,686 38% $ 87,747 40%
Ocean freight forwarding 37,101 14% 35,101 14% 31,687 14%
Customs brokerage
and other 127,786 49% 116,831 48% 102,377 46%
------------- ------------- -------------
Total $262,753 100% $245,618 100% $221,811 100%
============= ============= =============
</TABLE>
Recent Developments
Acquisitions:
- -------------
The Company expanded its operations in 1997 by acquiring businesses
in New Zealand and Kansas City, USA, entering into a joint venture in
Turkey (which became operational in the first quarter of 1998), and
opening offices in Hungary, China, Finland and the Czech Republic. It
also purchased all of the shares of its partner in Circle Gilmex
International, a Belgium company.
In February 1997, the Company combined its owned operations in
Thailand with Worldbridge International to form a new joint venture
company called Circle Worldbridge International (Thailand), owned 55%
by the Company. The purpose of this transaction was to increase market
share in Thailand and improve the level of services offered to
customers in that market.
Information Systems:
- --------------------
The Company continuously enhances its information systems
capabilities in order to meet its customers' changing needs and to
provide first-class information transmission, processing, and
management services. The Company has been a leader in providing its
customers with global shipment tracking and tracing capabilities and
with providing data and reports to better manage the global logistics
process.
<PAGE> 4
The Company is devoted to improving the automation of its services
in order to support the logistics needs of its customers, increase
efficiency and enhance employee productivity. The Company's information
systems allow its customers to track shipments on line, produce
variance reports and analyses helpful to managing their business, and
provide an easy-to-use electronic mail communication system.
The Company has invested considerable effort on its EDI capabilities to
allow electronic transmission of shipment documentation according to
customer requirements. Additionally, the Company maintains a web-site
through which customers can track airfreight shipments. The Company
continues to link future development of its information systems to the
specific requirements of its customers and seeks to connect its
customers to its information systems and Internet tools whenever
possible. New information systems initiatives include implementation of
purchased integrated accounting and operational software within Europe,
internally developed enhancements to the Company's global tracking
systems, and assessment of new accounting and operational software for
the Americas.
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.
Quality Initiatives:
- --------------------
In key global regions the Company maintains personnel focused on
implementing quality initiatives to better serve customers' needs and
improve internal efficiencies. In 1996 and 1997 the Company achieved
ISO 9002 certification at 32 major locations within the USA, covering
approximately 90% of our USA employee population. The Company has
achieved ISO 9001 or 9002 certifications in many locations throughout
Europe, South Africa and in the Asia-Pacific region. The Company's
customers increasingly demand ISO or similar quality certification, and
the Company's quality initiatives improve its ability to attract and
retain business, and to identify ways to improve customer service.
Facilities:
- -----------
The Company continues to modernize and expand its facilities to meet
the increased need for distribution, materials management and warehouse
services. In 1997, the Company expanded its leased facilities in
Singapore, China, the Philippines and the United Kingdom. The Company
expanded or made improvements to several of its existing leased or
owned facilities throughout the USA. In 1997, the Company entered into
a built to suit lease for a 120,000 square foot facility near JFK
airport in New York, which is expected to become operational in 1998.
Additional new facilities are anticipated in 1998 in continuation of
the Company's facilities program.
<PAGE> 5
Description of Business
International Air Freight Forwarding:
- -------------------------------------
The Company believes that it is one of the largest forwarders of
international air freight in the United States. The Company's air
freight forwarding and related logistics services include the
following: inland transportation of freight from point of origin to
distribution center or the carrier's cargo terminal; warehousing; cargo
assembly; export packing and vendor shipment consolidation; global
freight forwarding; charter arrangement and handling; electronic
transmittal of logistics documentation; electronic purchase
order/shipment tracking; expedited document delivery to overseas
destinations for customs clearance; and priority notification to
shipper and consignee of cargo arrival. In addition, the Company
continues to expand the scope of its services, including such services
as logistics services for commercial and governmental projects,
inventory management, EDI and cargo insurance. The Company does not own
or operate aircraft, which management believes gives the Company
increased flexibility to tailor its services to customer requirements.
As a global air freight forwarder, the Company is both a
consolidator of air freight shipments (an indirect air carrier) and an
airline cargo agent. The following table provides certain information
concerning the Company's air freight forwarding business during each of
the three years ended December 31, 1997.
<TABLE>
- -----------------------------------------------------------------------
Year ended December 31,
1997 1996 1995
---- ---- ----
(in thousands, except per shipment data)
<S> <C> <C> <C>
As indirect carrier:
Revenue (1) $ 418,544 $ 359,532 $ 328,597
Revenue net of air freight
consolidation costs (1) $ 83,669 $ 77,710 $ 69,720
Number of shipments 493 383 375
Net revenue per shipment $ 170 $ 203 $ 186
Weight in kilos 169,094 137,937 133,389
Kilos per shipment 343 360 356
As airline agent:
Revenue (1) $ 14,197 $ 15,976 $ 18,027
Number of shipments 100 106 117
Net revenue per shipment $ 142 $ 151 $ 154
Weight in kilos 30,517 32,119 35,887
Kilos per shipment 305 303 307
- -----------------------------------------------------------------------
<FN>
(1) Management believes that revenue, net of air freight
consolidation costs, is a better measure for comparison purposes of
the above two types of air freight forwarding service offered by the
Company because net revenue, like revenue earned by the Company as
an airline agent, does not include the carrier's charge to the
Company for carrying the shipment.
</FN>
</TABLE>
During 1997, the Company's principal air freight forwarding
customers were shippers of computer, electronic and high technology
equipment, automotive products, machinery and machine parts, consumer
goods, clothing, pharmaceuticals, chemicals, and aerospace equipment.
The air freight forwarding business of the Company is not dependent
on any one customer or industry. The Company provides services to
global or multinational customers, as well as regional customers. No
customer accounted for more than 5% of the Company's net air freight
forwarding revenue in 1997.
<PAGE> 6
Indirect Air Carrier: As an indirect air carrier, the Company
procures shipments from its customers, consolidates shipments bound for
a particular destination, determines the routing, selects the direct
carrier (an airline) with which the consolidated lot is to move and
tenders each consolidated lot as a single shipment to the direct
carrier for transportation to a destination. At the destination the
Company or its agent receives the consolidated lot, breaks it into its
component shipments and distributes the individual shipments. During
1997, the Company derived approximately 85% of its net air freight
forwarding revenue from its services as an indirect air carrier.
The Company's rates are based on a per kilo charge that generally
decreases within a certain range as the weight of the shipment
increases. The Company ordinarily charges the shipper a rate less than
the rate which the shipper would be charged by an airline. The rates
that airlines charge to forwarders and others also generally decrease
as the weight of the shipment increases. As a result of the
consolidation of its customers' shipments, the Company generally
obtains lower rates per kilo from airlines than the rates it charges
its customers for individual shipments. This rate differential is the
primary source of the Company's net air freight forwarding revenue. The
Company's practice is to make prompt adjustments in its rates to match
changes in airline rates.
As part of its services, the Company prepares documentation relating
to the international movement of goods; provides handling, packing, and
containerizing services; arranges for the routing and tracing of
shipments when necessary; provides physical breakbulk, delivery and
inland transportation services; and arranges for freight insurance.
Another source of the Company's net air freight forwarding revenue is
the fees which the Company charges for services related to the movement
of goods, which include computer-prepared shipment documentation;
expedited delivery of air waybills, packing lists, commercial invoices,
and other documents; and electronic shipment tracking and tracing. The
Company offers its customers access to its global on-line computer
information system, which acts as a comprehensive source of vital
information for its customers.
Airline Agent: As an authorized cargo sales agent of most airlines
worldwide, the Company arranges for the transportation of individual
shipments and receives from the airline a commission for arranging the
shipment. In addition, the Company provides the shipper with ancillary
services such as export documentation for which it receives a separate
fee. When acting in this capacity, the Company does not consolidate
shipments or have responsibility for shipments once they have been
tendered to the airline. The Company conducts its agency air freight
forwarding operations from the same facilities as its indirect carrier
operations, and services the same regions of the world. During 1997,
the Company derived approximately 15% of its air freight forwarding net
revenue from its services as an airline agent.
Customs Brokerage:
- ------------------
The Company functions as a customs broker with respect to entries of
freight into approximately 55 major destinations in the United States
and in about 250 overseas destinations through its network of offices
and agents.
In its capacity as a customs broker, the Company prepares and files
all formal documentation required for clearance through customs
agencies, obtains customs bonds, in many cases facilitates the payment
of import duties on behalf of the importer, arranges for payment of
collect freight charges, and assists the importer in obtaining the best
commodity classifications and in qualifying for duty drawback refunds.
The Company's customs brokers and support staff have substantial
knowledge of the complex tariff laws and customs regulations governing
the payment of duty, as well as valuation and import restrictions in
their respective countries. Within the U.S. the Company employs a
significant number of personnel holding individual Customs broker
licenses.
The Company believes that it is a leader in the use of computer
technology for customs brokerage activities on behalf of its clients.
The Company has been a leader in the use of the Automated Brokerage
Interface information system, providing an on-line link with the United
States customs agencies. In several global trading centers in addition
to the United States, the Company's offices are connected
electronically to customs agencies for expedited pre-clearance of goods
and centralized import management. Such on-line interface with customs
agencies speeds freight release and provides nationwide control of
clearances at multiple ports and airports of entry.
<PAGE> 7
The Company works with importers to design cost-effective import
programs that utilize the Company's distribution and logistics services
and computer technology. Such services include electronic document
preparation, routing cargo from overseas origins to ports and airports
of entry, bonded warehousing, distribution of the cleared cargo to
inland locations and duty drawback. For consolidated shipments,
containers are devanned, cargo is segregated according to final
destination, and goods are forwarded to final destinations. In many
U.S. and overseas locations, the Company's bonded warehouses enable
importers to defer payment of customs duties and coordinate release of
cargo with their production or distribution schedules. Goods are stored
under Customs Service supervision until the importer is ready to
withdraw or re-export them. The Company receives storage charges for
these in-transit goods and fees for related ancillary services. The
Company also offers Free Trade Zone management and duty drawback
services to provide customers with additional tools to maintain cost-
effective import programs.
As a customs broker operating in the United States, the Company is
licensed by the Treasury Department and regulated by the United States
Customs Service. The Company's fees for acting as a customs broker in
the United States are not regulated and the Company does not have a
fixed fee schedule for customs brokerage services. Instead, its fees
are generally based on the volume of business transacted for a
particular customer, and the type, number and complexity of services
provided. In addition to its fees, the Company bills the importer for
amounts which the Company has paid on the importer's behalf, including
duties, collect freight charges, and similar payments.
International Ocean Freight Forwarding:
- ---------------------------------------
As a global ocean freight forwarder, the Company arranges for the
shipment of freight by ocean carriers and acts as the agent of the
shipper or the importer. The Company's ocean freight forwarding and
related logistics services include inland transportation from point of
origin to distribution facility or port of export; cargo assembly,
packing and consolidation; warehousing; electronic transmittal of
documentation and shipment tracking; expedited document delivery; pre-
alert consignee notification; and cargo insurance.
A number of the Company's facilities provide protective cargo
packing, crating and specialized handling services for retail goods,
government-specification cargo, consumer goods, hazardous cargo, heavy
machinery and assemblies, and perishable cargo. Other facilities are
equipped to handle tons of equipment and material from multiple origins
to overseas "turn-key" projects, such as manufacturing facilities or
government installations. The Company does not own or operate ships or
assume carrier responsibility, preferring to retain the flexibility to
tailor logistics services and options to the customer's requirements.
The Company's compensation for its ocean freight forwarding services
is derived principally from commissions paid by shipping lines and from
forwarding and documentation fees paid by its customers, who are either
shippers or consignees. In 1997, approximately 57% of the Company's net
ocean freight forwarding revenue was attributable to commissions,
forwarding fees, and associated ancillary services.
Ocean Freight Consolidation:
- ----------------------------
The Company's global operations as an indirect ocean carrier or
NVOCC (non-vessel operating common carrier) are similar in some
respects to its air freight consolidation operations. The Company
procures customer freight, consolidates shipments bound for a
particular destination, determines the routing, selects the ocean
carrier or charters a ship, and tenders each consolidated lot as a
single shipment to the direct carrier for transportation to a
distribution point. As a NVOCC, the Company generally derives its
revenue from the spread between the rate specified in a tariff which it
has on file with the Federal Maritime Commission and the ocean
carrier's charge to the Company for carrying the shipment, in addition
to charging for other ancillary services related to the movement of the
freight. Because of the volume of freight controlled and consolidated
by the Company, it is generally able to obtain lower rates from ocean
carriers than the rate which the shipper would be able to procure. In
1997, this service, and associated ancillary services, contributed
approximately 43% of the Company's net ocean freight forwarding
revenue.
<PAGE> 8
Distribution and Materials Management Services:
- -----------------------------------------------
The Company offers a full range of customized distribution and
materials management services in connection with the transportation of
cargo. These services are provided in a number of the Company's owned
logistics facilities in many locations throughout the world, as well as
in premises leased from others. In 1997, the Company continued its
program of building state-of-the-art warehouse and distribution
facilities and new facilities projects are contemplated for 1998. The
Company's distribution and materials management services include
inventory control, order processing, import/export freight staging,
protective and specialized packing and crating, pick and pack
operations, containerization, consolidation and deconsolidation, and
special handling for perishables, hazardous materials, and heavy-lift
equipment. For import shipments, the Company provides bonded warehouse
services and in certain locations Free Trade Zone services. These
warehouse and distribution services complement the other transportation
services, including information systems tools, provided by the Company
and form part of the integrated logistics solutions the Company offers
to its customers.
Insurance:
- ----------
Another transportation service offered to customers is the arranging
of international marine/air cargo insurance in connection with the
Company's air freight and ocean freight forwarding operations.
Insurance coverage frequently is tailored to a customer's shipping
program and is procured for the customer as a component of the
Company's integrated logistics. The Company also arranges for surety
bonds for importers as part of its customs brokerage activities.
Global Projects:
- ----------------
The Company has global project divisions in North America and the
United Kingdom to meet the special requirements of global project
management and heavy lift movements. In addition to logistics advice,
and traditional ocean and air transportation services, the project
divisions provide on-site assistance, vessel chartering services and
consulting regarding large-scale project movements.
Trade Facilitation Services:
- ----------------------------
The Company's wholly - owned subsidiary, Circle Trade Services Ltd.
("CTSL"), offers purchasing, procurement and trade finance services to
companies engaged in global trade. CTSL's mission is to provide
customers requiring the international transportation of cargo with
creative global trade solutions, which enable them to successfully
complete international transactions. Included among its various trade
services, CTSL has developed programs for customers which result in
lower costs by finding new sourcing opportunities, coordinating the
activities of multiple suppliers, and creating trade finance solutions.
CTSL offers international procurement and financing expertise not
offered by traditional logistics companies and works with a global
network to develop this specialized business.
Competition and Business Conditions
The Company's principal businesses are directly related to the
volume of international trade, particularly trade between the United
States and other nations. In general, global trading is expanding as
businesses increasingly seek new sourcing opportunities and penetrate
international markets. The extent of such trade is influenced by many
factors, including economic and political conditions in the United
States and abroad, changes in supply or manufacturing practices, labor
conditions, wars and other armed conflicts, currency fluctuations, and
United States and foreign laws relating to tariffs, trade restrictions,
foreign investments and taxation.
<PAGE> 9
The Company is one of the world's largest international freight
forwarders and integrated logistics providers. In addition to
competition from other freight forwarders and cargo sales agents, the
Company encounters competition from direct carriers which actively
solicit freight from shippers and from integrated transportation
companies that operate their own aircraft and also act as carriers.
Other transportation-related businesses, such as trucking and
distribution companies, have also entered the logistics and freight
forwarding market. In recent years, there has been a trend towards
consolidation in the forwarding industry which, together with pressure
to reduce transportation costs, has led to intensified competition and
lower operating margins. Significant competition comes from large
domestic and foreign firms with substantial capital resources which
have offices in multiple global locations, offer a broad array of
services and provide information systems.
As a customs broker and ocean freight forwarder, the Company
encounters strong competition in every port in which it does business.
The Company has customs brokerage and ocean freight forwarding offices
in most major United States ports, and it competes with large domestic
and foreign firms, as well as local and regional firms.
For several years the Company has offered customers multiple
transportation services, in addition to traditional air and ocean
freight forwarding, in order to meet all of the logistics requirements
of its customers. An extension of its array of multiple services is the
Company's integrated transportation logistics program under which the
Company offers a comprehensive program designed to meet the customer's
total door-to-door transportation requirements. This assists the
customer in creating more efficient global sourcing, financing,
inventory distribution, and warehousing strategies. The value-added
logistics capabilities which support this strategy use the full
spectrum of services offered by the Company, including information
management, materials management, protective packing, vendor
coordination and purchase order processing, ocean or air
transportation, customs brokerage, warehouse and distribution and
global trade services. The Company's transportation logistics program
often relies on the integration of its customers' information systems
with the Company's information systems, frequently using electronic
data interfaces and requiring employees assigned and dedicated
exclusively to the customer's shipment management requirements.
Integrated logistics and related value-added services are, in part,
a response to the growing trend toward the outsourcing of key
distribution functions by businesses requiring international logistics
services and are a response to competitive pressures which have reduced
traditional freight forwarding transportation margins.
Marketing
The Company's worldwide services are marketed primarily by its
senior executives, by its salespersons and by over 400 country,
regional, branch and district managers who divide their time between
marketing, administration and operations. Such persons generally deal
directly with executives in the transportation, finance, logistics,
shipping or purchasing departments of the Company's existing and
potential customers. Their sales efforts are supplemented by the
Company's agents in certain foreign commercial centers in which the
Company does not have an office or terminal. The Company employs a
global sales team targeting multinational customers, regional sales
teams, local sales professionals, the overseas assignments of foreign
employees responsible for targeting specific trade lanes, and the use
of foreign agents. The Company also has Marketing and Global Sales
departments designed to support the Company's sales and marketing
activities.
In conjunction with these sales and marketing efforts, the Company
continues to invest significant resources in enhancing its information
systems to make these systems more responsive to customers and other
users in managing their international transportation needs. The use of
EDI applications and dial up visibility to a customer's shipments via
the Internet also serve as important sales tools.
Employees
As of December 31, 1997, the Company employed over 3,900 persons, of
whom approximately 775 were engaged in managerial and sales activities,
and the balance were engaged in operations or were general office
employees.
<PAGE> 10
Executive Officers
The Company's executive officers are as follows:
Name Age Position
Peter Gibert 55 Chairman of the Board, President and Chief
Executive Officer
Robert J. Diaz 55 Senior Vice President, Chief Financial
Officer and Treasurer
Kim E. Wertheimer 44 Vice President (and Executive Vice
President of Circle International, Inc.)
Robert H. Kennis 45 Vice President, Secretary and General
Counsel
Mr. Gibert assumed the position of Chief Operating Officer in May
1991, following the Company's acquisition of Darrell J. Sekin & Co.
("Sekin"). Mr. Gibert originally joined the Company in 1965 and served
in numerous positions within the Company until January 1984, when he
joined Sekin as its President. In May 1992, he became Chief Executive
Officer of the Company, and in May 1993 he was elected Chairman of the
Board of Directors. Mr. Gibert was first elected to the Board of
Directors at the 1992 Annual Meeting of Shareholders and serves as a
Class I director.
Mr. Diaz originally joined the Company in April 1992. He served as
its Vice President and Chief Financial Officer until October 1992, when
he joined Coors Brewing Company as its Vice President, Corporate
Controller, and later served as its Principal Financial Officer. Mr.
Diaz returned to the Company in December 1994 as its Senior Vice
President and Chief Financial Officer. From mid-1991 to April 1992,
Mr. Diaz served as President of Com-Pro International, a company
engaged in the distribution of computer products to Latin America. From
1982 to August 1990 Mr. Diaz worked for the Clorox Company, serving as
Corporate Vice President-International from 1988 to August 1990.
Mr. Wertheimer joined the Company in May 1991, following the
Company's acquisition of Sekin Transport International. In May 1995, he
was elected Vice President of the Company and also serves as Executive
Vice President for Circle International, Inc. He presently has
management responsibilities for the Company's North American integrated
logistics operations and leads logistics programs with major customers
on a worldwide basis. From 1988 to 1991, Mr. Wertheimer was Vice
President of Planning and Development at Sekin Transport International.
Prior to 1988, Mr. Wertheimer was a consultant with McKinsey & Company,
an international management consulting firm.
Mr. Kennis joined the Company in 1989. He serves as Vice President
and Secretary, and is the Company's Chief Legal Officer. Prior to
joining the Company, he was Vice President and Legal Counsel for The
Consolidated Capital Companies for four years. From 1978 to 1984, he
was with the law firm of Bronson, Bronson & McKinnon as an associate
and first-level partner.
ITEM 2 - PROPERTIES
The properties used in the Company's domestic and foreign operations
consist principally of air and ocean freight forwarding offices,
customs brokerage offices, and warehouse and distribution facilities.
In the United States, almost all freight forwarding operations and
customs brokerage offices are conducted from the same facility. The
Company's foreign offices are principally engaged in customs brokerage
and ocean and air freight forwarding; additionally, other
transportation management services such as warehousing, distribution,
packing, containerization, and inland transportation are offered at
many offices.
<PAGE> 11
The following table sets forth certain information as of December
31, 1997 concerning the Company's domestic and foreign facilities and
freight handling terminals.
<TABLE>
Number of Facilities
Owned Leased Total
----- ----- -----
<S> <C> <C> <C>
Domestic 12 50 62
Foreign 51 114 165
--- --- ---
Total 63 164 227
=== === ===
</TABLE>
The Company owns its headquarters building in San Francisco.
Under many of its leases, the Company, in addition to rental
payments, is responsible for payment of property taxes, maintenance and
insurance. In 1997, the aggregate rental expense for all of the
Company's leased facilities was approximately $16.3 million.
For further information concerning the Company's lease commitments,
see Note 5 of the Notes to Consolidated Financial Statements.
ITEM 3 - LEGAL PROCEEDINGS
The Company is party to routine litigation incident to its
business, primarily relating to claims for goods lost or damaged in
transit or improperly shipped. Many of the lawsuits to which the
Company is a party are covered by insurance and are being defended by
the Company's insurance carriers. The Company has established reserves
and it is management's opinion that the resolution of such litigation
will not have a material adverse effect on the Company's consolidated
financial statements taken as a whole.
During 1997, the Company successfully concluded all of the audits
with the Internal Revenue Service for the years 1986 through 1992, with
no material effect on the financial statements.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
<PAGE> 12
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The Company's common stock is traded over the counter under the
symbol CRCL. The following table sets forth the closing prices in the
NASDAQ national market system for the Company's common stock for the
calendar periods indicated, as reported by NASDAQ.
<TABLE>
High Low
---- ----
<S> <C> <C>
1997
Fourth Quarter $ 32.38 $ 22.94
Third Quarter $ 31.38 $ 24.88
Second Quarter $ 27.75 $ 21.63
First Quarter $ 23.50 $ 21.00
1996
Fourth Quarter $ 25.75 $ 20.50
Third Quarter $ 21.88 $ 18.50
Second Quarter $ 23.00 $ 17.00
First Quarter $ 19.25 $ 16.50
</TABLE>
As of March 2, 1998, the approximate number of stockholders of record
of the Company's common stock, excluding stockholders whose stock is
held as nominee or in street name by brokers, was 371.
Dividends Declared
Dividends declared per common share during 1997 and 1996 were:
1997 1996
- ---- ----
June 30 $ .135 June 24 $ .120
December 15 .135 December 20 .120
The Board of Directors considers payment of cash dividends on a semi-
annual basis subject to the availability of earnings, the financial
condition of the Company and other relevant factors.
<PAGE> 13
<TABLE>
ITEM 6 - SELECTED FINANCIAL DATA
Circle International Group, Inc. and Subsidiaries
(in thousands except per share and employee amounts)
Year Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue:
Air freight
forwarding $432,741 65% $375,507 63% $346,624 64% $313,012 67% $282,031 66%
Ocean
freight
forwarding 108,530 16% 103,095 17% 93,327 17% 78,842 17% 85,841 20%
Customs
brokerage
and other 127,786 19% 116,831 20% 102,377 19% 77,694 16% 62,066 14%
------------- ------------- ------------- ------------- -------------
$669,057 100% $595,433 100% $542,328 100% $469,548 100% $429,938 100%
============= ============= ============= ============= =============
Net Revenue:
Air freight
forwarding $ 97,866 37% $ 93,686 38% $ 87,747 40% $ 87,467 45% $ 86,322 47%
Ocean
freight
forwarding 37,101 14% 35,101 14% 31,687 14% 28,978 15% 34,065 19%
Customs
brokerage
and other 127,786 49% 116,831 48% 102,377 46% 77,694 40% 62,066 34%
------------- ------------- ------------- ------------- -------------
$262,753 100% $245,618 100% $221,811 100% $194,139 100% $182,453 100%
============= ============= ============= ============= =============
Income from
operations $ 31,842 $ 29,538 $ 27,229 $ 23,739 $ 15,166
Net
income(A) 25,871 21,615 18,872 16,706 19,094
Net income
per share (B):
Basic (A) 1.61 1.36 1.18 1.02 1.15
Diluted (A) 1.58 1.34 1.16 1.01 1.15
Dividends
declared
per share .27 .24 .22 .21 .20
At December 31:
Working
capital $ 97,461 $ 71,666 $ 73,007 $ 42,674 $ 32,241
Marketable
securities 1,284 7,799 36,544 41,660 47,869
Total
assets 421,820 393,330 336,743 324,464 302,920
Long-term
obligations 27,702 28,963 30,053 31,867 22,561
Stockholders'
equity 199,478 181,744 165,456 151,349 145,175
Number of
employees 3,910 3,607 3,214 3,150 3,025
<FN>
(A) 1993 includes an after-tax gain on the sale of an equity
investment of $2.9 million ($0.17 per share) and an after tax gain
on the sale of real property in Hong Kong of $1.8 million
($0.11 per share).
(B) Net income per share amounts have been restated to reflect the
adoption of Statement of Financial Accounting Standards No. 128.
See Note 1 of Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE> 14
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion contains certain forward-looking statements
reflecting the Company's current expectations that are dependent on
certain risks and uncertainties including but not limited to such
factors as market demand, pricing, risks associated with operations
outside of the U.S., changing economic conditions, the effect of the
Company's accounting policies and other risk factors detailed herein.
There can be no assurances that the Company's actual future performance
will meet such expectations. There may also be important, unforeseen
risks not described herein.
Results of Operations:
1997 versus 1996
- ----------------
Revenue in 1997 increased by $73.6 million or 12% over 1996:
Air freight revenue increased by $57.2 million or 15% over 1996 as a
result of revenue increases in Asia and the Americas. Increases were
due to higher kilo volumes and increased number of consolidation export
shipments, offset slightly by lower direct agency shipments. This is
due to shifting more share of the business to consolidations and higher
kilo global accounts. Management believes this strategy will result in
the ability to expand the range of services sold in the future.
Customs brokerage and other revenue, which includes warehousing,
distribution and other fee based services, increased $11.0 million or
9% over 1996. The improvement was a result of increases in the number
of customs entries processed and in warehousing and distribution
services.
Ocean freight revenue increased $5.4 million or 5% over 1996 as a
result of an increase in the number of shipments in the Americas.
Net revenue in 1997 increased by $17.1 million or 7% over 1996:
Air freight net revenue increased $4.2 million or 4% over the prior
year due to an increase in the number of shipments in Asia and the
Americas. Significant volume increases in these regions were offset by
fewer direct agency shipments and downward pressure on air freight
yields as a result of intense competition.
Ocean freight net revenue increased $2 million or 6% over the prior
year as a result of an increase in the number of shipments.
The net revenue increase of $17.1 million included a negative impact
from foreign exchange of approximately $6.8 million resulting from
converting foreign currency into U.S. Dollars for financial reporting
purposes.
Salaries and related costs increased $4.3 million or 3% over the prior
year as a result of an increase in the number of employees due to
increased business, but declined as a percentage of net revenue due to
administrative cost controls and productivity initiatives.
Operating, selling and administrative costs increased $10.5 million or
13% as a result of costs related to processing higher transaction
volumes and increases in occupancy expense on additional leased
facilities. New facilities have been added to support the growth in
warehousing and distribution services.
Other income - net increased $3.3 million or 63% from prior year
primarily due to strong earnings from our unconsolidated affiliates and
higher foreign exchange gains resulting from U.S. dollar denominated
transactions in Asia. These gains were partially offset by higher
minority partner expense associated with our consolidated joint
ventures as well as lower interest income and higher interest expense
due to the sale of marketable securities during 1996 and additional
debt incurred in the third quarter of 1996 to acquire 40% of TDS
Logistics, Inc.
The effective income tax rates for 1997 and 1996 were 35.9% and 37.9%,
respectively. The Company's effective tax rate fluctuates due to
changes in foreign tax rates and regulations and the level of pre-tax
profit in foreign countries. In 1997, the Company benefited from the
favorable resolution of IRS audits of the years 1986 through 1992,
resulting in net refunds in excess of amounts previously anticipated.
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
1996 versus 1995
- ----------------
Revenue in 1996 increased by $53.1 million or 10% over 1995:
Air freight revenue increased by $28.9 million or 8% over 1995 as a
result of revenue increases from North America, Europe, and South
Pacific. The increase resulted primarily from an increase in the number
of shipments in these regions, but was offset by declines in the
business where the Company acts as airline agent for customers and
declines in the average revenue per kilo, due to shifting more share of
the business to consolidations and higher kilo global accounts.
Management believes this strategy will result in the ability to expand
the range of services sold in the future.
Customs brokerage and other revenue, which includes warehousing,
distribution and other fee based services, increased $14.5 million or
14% over 1995. The improvement was a result of an increase in import
related services, warehousing and distribution services, as well as an
increase in the number of customs entries processed. These increases
included the impact of the acquisition of the customer list of
Celadon/Jacky Maeder, Ltd., a U.S. based international freight
forwarder and customs brokerage company.
Ocean freight revenue increased $9.8 million or 10% over 1995 as a
result of an increase in the number of shipments in Asia and the
Americas.
Net revenue in 1996 increased by $23.8 million or 11% over 1995:
Air freight net revenue increased $5.9 million or 7% over the prior
year due to an increase in revenue per shipment and improvements in air
freight yield in the Middle East, South Pacific and parts of Asia.
However, the Company continues to experience yield pressures in other
regions, as the available lift capacity is not as profitable in all the
trade lanes where kilos are growing.
Ocean freight net revenue increased $3.4 million or 11% over the
prior year as a result of yield increases in Latin America, Middle East
and Asia. The increase is offset by a slight reduction in yields in
other regions.
Salaries and related costs increased $13.3 million or 11% over the
prior year as a result of an increase in the number of employees hired
to serve new customers, and due to increased business from
acquisitions. Salaries as a percentage of net revenue are consistent
with prior year levels.
Operating, selling and administrative costs increased $8.2 million or
11% as a result of processing higher transaction volumes and additional
occupancy costs of new facilities and facilities sold and leased back.
New facilities have been added to support the growth in warehousing and
distribution services.
Other income - net increased $1.9 million or 59% from prior year
primarily as a result of higher equity earnings from unconsolidated
affiliates, lower interest expense due to lower average debt during the
year, and foreign currency losses on the Japanese Yen in 1995 that did
not recur in 1996. In order to minimize this type of risk, in the
latter part of 1995 the Company implemented a hedging program for
certain foreign currency payables. The proceeds from sales of
marketable securities were used for the acquisition of TDS Logistics,
Inc. and other corporate purposes.
The effective income tax rates for 1996 and 1995 were 37.9% and 38.2%,
respectively. The Company's effective tax rate fluctuates due to
changes in foreign tax rates and regulations and the level of pre-tax
profit in foreign countries.
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources:
1997 and 1996
- -------------
Commercial paper issued and outstanding at the end of 1997 was $25
million which is supported by a $40 million back-up facility line of
credit. In addition, the Company had short term and long term notes
payable totaling $5.5 million and $11.7 million at the end of 1997 and
1996, respectively. At December 31, 1997 the Company had authorized
borrowing capacity of $50 million, of which $25 million had been
utilized. Management believes its borrowing capacity is adequate to
supplement cash flows from operations, fund its capital expenditures
and pay dividends.
Net cash provided by operating activities increased to $33.1
million in 1997 from $30.8 million in 1996. The Company continues to
augment its reporting, training and measurement systems that were
designed to improve the Company's trade working capital position and
cash flow from operations in relation to its increase in billings to
customers. The Company believes these efforts continue to improve the
Company's ability to generate cash.
Capital expenditures for 1997 and 1996 were $14 million and $21
million, respectively, representing investments in information
technology and investments in new facilities. The Company expects to
incur capital expenditures in 1998 at levels comparable to 1997,
depending on lease vs. buy opportunities.
The semi-annual dividend if $0.120 per share declared in December
1996 was paid in the first quarter of 1997 for a total of $1.9 million.
The Board of Directors authorized an increase in the semi-annual cash
dividend from $0.120 to $0.135 per share on June 30, 1997. Total
dividends paid to common shareholders for the 12 months ended December
31, 1997 were $4.1 million.
During the year ended December 31, 1997, the Company received $7.6
million in tax refunds and accrued interest from the Internal Revenue
Service relating to the settlement of numerous issues through 1992. The
majority of these tax refunds had been anticipated.
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.
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.
<PAGE> 17
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not yet applicable.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is set forth at the pages
indicated in Item 14(a) of this Annual Report.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Inapplicable.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference
from the sections of the Company's Proxy Statement dated April 1, 1998
entitled "Election of Directors" and "Section 16(a) Information". Also
see "Executive Officers" under Item 1 above.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference
from the sections of the Company's Proxy Statement dated April 1, 1998
entitled "Compensation of Executive Officers", "Options Granted to
Executive Officers", and "Employment Agreements".
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated by reference
from the section of the Company's Proxy Statement dated April 1, 1998
entitled "Ownership of Management and Principal Stockholders".
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference
from the sections of the Company's Proxy Statement dated April 1, 1998
entitled "Transactions with the Company" and "Compensation Committee
Interlocks and Insider Participation".
<PAGE> 18
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following are filed as part of this report:
PAGE
(1) (2)Consolidated Financial Statements of the Company:
Consolidated Income Statements for the years ended
December 31, 1997, 1996 and 1995 F-1
Consolidated Balance Sheets, December 31, 1997 and 1996 F-2
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1997, 1996, and 1995 F-3
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996, and 1995 F-4
Notes to Consolidated Financial Statements F-5 - F-16
Independent Auditors' Report F-17
(3) Exhibits: See the attached Exhibit Index on pages 19 and 20.
(b) Form 8-K:
No reports on Form 8-K were filed during the 12 months ended
December 31, 1997.
<PAGE> 19
EXHIBIT INDEX
Exhibit
Number EXHIBIT PAGE
- ------ ------- ----
3.1 Certificate of Incorporation of the Harper Group, Inc.,
a Delaware corporation. (Incorporated by reference to
Exhibit 4.2 to Registration Statement No. 33-40826
filed on May 24, 1991.)
3.1.2 Certificate of Amendment to Certificate of
Incorporation dated May 13, 1997. 39
3.2 Registrant's by-laws, as heretofore amended.
(Incorporated by reference to Exhibit 3.2.1 to Annual
Report on Form 10-K for the fiscal year ended
December 31, 1986, filed on or about March 31, 1987.)
3.2.1 Amendments to Article IV, Sections 2,3,4,5 and 6 of
Registrant's by-laws, effective as of May 23, 1991.
(Incorporated by reference to Exhibit 3.2.1 to Annual
Report on Form 10-K for the fiscal year ended
December 31, 1991, filed on or about March 31, 1992.)
3.2.2 Sections 2 and 3 of Registrant's by-laws effective
as of May 31, 1992. (Incorporated by reference to
Exhibit 3.2.2 to Annual Report on Form 10-K for the
fiscal year ended December 31, 1992 filed on or about
March 31, 1993.)
4.1 Specimen certificate of Registrant's Common Stock.
(Incorporated by reference to Exhibit 4.1 to
Registration Statement No. 2-59017, filed on
May 16, 1977.)
4.2 Rights Agreement, dated as of October 24, 1994,
between The Harper Group, Inc. and Chemical Trust
Company of California, which includes as Exhibit A
thereto the Certificate of Designation, Preferences and
Rights of Series A Junior Participating Preferred Stock,
as Exhibit B thereto the Form of Rights Certificate and
as Exhibit C thereto a Summary of Rights to Purchase
Common Stock. (Incorporated by reference to the
Form 8-A Registration Statement filed on or about
October 24, 1994.)
10.1 Agreement of Merger between Registrant and the Harper
Group, a California corporation, providing for the
reincorporation of Registrant in Delaware.
(Incorporated by reference to Exhibit A to Registrant's
Proxy Statement dated April 1, 1987, filed on or about
April 10, 1987.)
10.3 Form of indemnity agreement between Registrant and each
of its directors (Incorporated by reference to
Exhibit 10.3 to Annual Report on Form 10-K for the
fiscal year ended December 31, 1988, filed on or about
March 31, 1989.)
10.4 Agreement and Plan of Reorganization dated as of
April 23, 1992, with exhibits attached, including
Registration Rights Agreement, Employment Agreement
between Registrant and Peter Gibert and Indemnification
Agreement. (Incorporated by reference to Exhibit 2.1.
to Current Report on Form 8-K, dated May 21, 1991, filed
on or about May 23, 1991.)
<PAGE> 20
Exhibit
Number EXHIBIT PAGE
- ------ ------- ----
10.4.1 Amendments to May 1991 Employment Agreement of Peter
Gibert (Incorporated by reference to Exhibit 10.4.1 to
Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.) *
10.4.2 Amendment dated October 27, 1997 to Employment
Agreement of Peter Gibert * 40
10.5 1990 Stock Option Plan. (Incorporated by reference
to Exhibit 10.5 to Annual Report on Form 10-K for
the fiscal year ended December 31, 1992, filed on or
about March 31, 1993.) *
10.6 Stock Option Plan for Non-Employee Directors.
(Incorporated by reference to Exhibit 10.6 to Annual
Report on Form 10-K for the fiscal year ended
December 31, 1992, filed on or about March 31, 1993.)*
10.8 Credit Agreement dated October 15, 1993 between
Registrant and Bank of America National Trust and
Savings Association. (Incorporated by reference to
Pages 14-103 to Form 10-Q for the nine months ended
September 30, 1993, filed on or about November 10,
1993.)
10.9 1994 Omnibus Equity Incentive Plan (Incorporated by
reference to the Form S-8 Registration Statement filed
on or about May 9, 1994) *
10.9.1 Amendment No. 1 to 1994 Omnibus Equity Incentive Plan
(Incorporated by reference to Exhibit 10.11.1 to Annual
Report on Form 10-K for fiscal year ended December 31,
1995.) *
10.10 1995 Stock Option Plan For Non-Employee Directors
(Incorporated by reference to Exhibit 10.12 to Annual
Report on Form 10-K for the fiscal year ended
December 31, 1995.) *
10.11 Employment Agreement with Kim Wertheimer (Incorporated
by reference to Exhibit 10.13 to Annual Report on
Form 10-K for the fiscal year ended December 31, 1995.) *
10.12 Agreement dated July 31, 1997 with Steven Leonard * 42
11.1 Computation of Earnings per Share 44
21.1 List of Subsidiaries 45
23.1 Consent of Deloitte & Touche LLP 46
27 Financial Data Schedule 47
____________________________
* Indicates, as required by Item 14(a)(3), a management contract or
compensatory plan required to be filed as an exhibit to this Form 10-K.
<PAGE> 21
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.
Date: March 5, 1998
CIRCLE INTERNATIONAL GROUP, INC.
By: /S/ Peter Gibert
----------------------------------------------
Peter Gibert
Chairman of the Board, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on March 5, 1998.
Signature Title
/s/ Peter Gibert Chairman of the Board, President
- ------------------------------ and Chief Executive Officer
(Peter Gibert) (Principal Executive Officer)
/s/ Robert J. Diaz Senior Vice President and Chief
- ------------------------------ Financial Officer (Principal
(Robert J. Diaz) Financial Officer and
Principal Accounting Officer)
/s/ Wesley J. Fastiff Director
- ------------------------------
(Wesley J. Fastiff)
/s/ Edwin J. Holman Director
- ------------------------------
(Edwin J. Holman)
/s/ John M. Kaiser Director
- ------------------------------
(John M. Kaiser)
/s/ John M. Lillie Director
- ------------------------------
(John M. Lillie)
/s/ Ray C. Robinson, Jr. Director
- ------------------------------
(Ray C. Robinson, Jr.)
/s/ Frank J. Wezniak Director
- ------------------------------
(Frank J. Wezniak)
<PAGE> F-1
<TABLE>
CIRCLE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(in thousands except per share amounts)
Year ended December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenue $ 669,057 $ 595,433 $ 542,328
Freight consolidation costs 406,304 349,815 320,517
--------- --------- ---------
Net revenue 262,753 245,618 221,811
Other costs and expenses:
Salaries and related 137,525 133,228 119,967
Operating, selling
and administrative 93,386 82,852 74,615
--------- --------- ---------
Total other costs
and expenses 230,911 216,080 194,582
--------- --------- ---------
Income from operations 31,842 29,538 27,229
Other income-net 8,535 5,252 3,307
--------- --------- ---------
Income before taxes 40,377 34,790 30,536
Taxes on income 14,506 13,175 11,664
--------- --------- ---------
Net income $ 25,871 $ 21,615 $ 18,872
========= ========= =========
Net income per share:
Basic $ 1.61 $ 1.36 $ 1.18
========= ========= =========
Diluted $ 1.58 $ 1.34 $ 1.16
========= ========= =========
Weighted average common
shares outstanding:
Basic 16,052 15,900 16,021
========= ========= =========
Diluted 16,420 16,155 16,255
========= ========= =========
</TABLE>
[FN]
See Notes to Consolidated Financial Statements
<PAGE> F-2
<TABLE>
CIRCLE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
December 31,
1997 1996
---- ----
<S> <C> <C>
Assets
Current assets:
Cash and equivalents $ 16,873 $ 31,522
Short-term investments 34,494 6,469
Trade Receivables, less allowance
for doubtful accounts of:
1997, $6,964; 1996, $4,970 212,114 196,070
Other receivables 4,954 5,616
Other current assets 11,261 8,993
--------- ---------
Total current assets 279,696 248,670
Property:
Land 14,021 14,564
Buildings and improvements 56,164 56,812
Equipment and furniture 69,329 68,137
--------- ---------
Total 139,514 139,513
Less accumulated depreciation (65,523) (62,171)
--------- ---------
Property - net 73,991 77,342
Marketable securities available for sale 1,284 7,799
Investments in unconsolidated affiliates 40,487 34,489
Goodwill, net 22,014 20,028
Other assets 4,348 5,002
--------- ---------
Total assets $421,820 $393,330
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 2,847 $ 7,731
Trade payables 142,559 134,272
Accrued salaries and related costs 11,217 11,485
Dividends payable 2,189 1,912
Income taxes payable 6,660 6,082
Other liabilities 16,763 15,522
--------- ---------
Total current liabilities 182,235 177,004
Deferred income taxes 12,405 5,619
Long-term notes payable 27,702 28,963
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
(including treasury shares )
1997, 16,234,011; 1996, 16,392,848 28,400 22,627
Treasury stock, at cost:
1996, 500,000 shares - (8,947)
Retained earnings 186,576 173,224
Unrealized loss in value
of marketable securities, net (9) (407)
Cumulative translation adjustments (15,489) (4,753)
--------- ---------
Total stockholders' equity 199,478 181,744
--------- ---------
Total liabilities and
stockholders' equity $421,820 $393,330
========= =========
</TABLE>
[FN]
See Notes to Consolidated Financial Statements
<PAGE> F-3
<TABLE>
CIRCLE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands except share amounts)
For the years ended December 31, 1997, 1996 and 1995
Unrealized
Change in
Common Stock Treasury Stock Cumulative Value of Total
------------ -------------- Retained Translation Marketable Stockholders'
Shares Amount Shares Amount Earnings Adjustments Securities Equity
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance
December 31, 1994 16,132,678 $ 18,600 - $ - $140,063 $ (4,657) $ (2,657) $151,349
Net income - - - - 18,872 - - 18,872
Cash dividends
($.22 per share) - - - - (3,508) - - (3,508)
Exercise of
stock options,
including tax
benefit 117,991 1,356 - - - - - 1,356
Purchase of
treasury stock - - (287,000) (4,890) - - - (4,890)
Change in the
value of
marketable
securities, net - - - - - - 1,851 1,851
Foreign currency
translation - - - - - 426 - 426
--------------------------------------------------------------------------------------
Balance
December 31, 1995 16,250,669 $ 19,956 (287,000) $(4,890) $155,427 $ (4,231) $ (806) $165,456
Net income - - - - 21,615 - - 21,615
Cash dividends
($.24 per share) - - - - (3,818) - - (3,818)
Issuance of stock
for acquisition 20,469 496 - - - - - 496
Exercise of
stock options,
including tax
benefit 121,710 2,175 - - - - - 2,175
Purchase of
treasury stock - - (213,000) (4,057) - - - (4,057)
Change in the
value of
marketable
securities, net - - - - - - 399 399
Foreign currency
translation - - - - - (522) - (522)
--------------------------------------------------------------------------------------
Balance
December 31, 1996 16,392,848 $ 22,627 (500,000) $(8,947) $173,224 $ (4,753) $ (407) $181,744
Net income - - - - 25,871 - - 25,871
Cash dividends
($.27 per share) - - - - (4,363) - - (4,363)
Issuance of stock
for acquisition 32,958 785 - - - - - 785
Issuance of
Restricted Stock 24,615 626 - - - - - 626
Exercise of
stock options,
including
tax benefit 283,590 5,153 - - - - - 5,153
Retirement of
Treasury Stock (500,000) (791) 500,000 8,947 (8,156) - - -
Change in the
value of
marketable
securities, net - - - - - - 398 398
Foreign currency
translation - - - - - (10,736) - (10,736)
--------------------------------------------------------------------------------------
Balance
December 31, 1997 16,234,011 $ 28,400 - - $186,576 $(15,489) $ (9) $199,478
======================================================================================
</TABLE>
[FN]
See Notes to Consolidated Financial Statements
<PAGE> F-4
<TABLE>
CIRCLE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended December31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income $ 25,871 $ 21,615 $ 18,872
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 11,930 11,730 10,700
Provision for doubtful accounts 4,355 2,767 3,130
Deferred income taxes 6,531 (1,527) 653
Gains on sales of real property,
investment and equipment (613) (1,153) (911)
Equity in undistributed earnings
of affiliates (5,785) (1,062) (947)
Minority interest 1,286 456 268
Other - 456 461
Net effect of changes in:
Trade receivables (18,086) (31,759) (18,862)
Other receivables 788 (1,168) 670
Other current assets (1,621) (1,935) (1,967)
Trade payables 7,832 28,301 8,225
Other liabilities 593 4,124 1,949
--------- --------- ---------
Net cash provided by operating activities 33,081 30,845 22,241
Investing activities:
Proceeds from sales of property 1,468 9,231 19,720
Proceeds from sales of marketable securities 6,669 29,225 7,108
Purchases of marketable securities (26) (655) -
Short-term investments - net (27,527) 5,327 (8,482)
Capital expenditures (14,144) (21,019) (12,690)
Acquisitions of businesses (3,731) (41,276) (2,772)
Other (111) (207) 11
--------- --------- ---------
Net cash provided by (used in)
investing activities (37,402) (19,374) 2,895
Financing activities:
Repayment of long-term notes payable - net (1,261) (1,090) (1,814)
Increase (decrease) in notes payable (4,884) 4,833 (11,487)
Payments of dividends (4,085) (3,729) (3,551)
Proceeds from exercise of stock options 4,360 1,679 1,206
Common stock repurchase - (4,057) (4,890)
--------- --------- ---------
Net cash used in financing activities (5,870) (2,364) (20,536)
Effect of exchange rate changes on cash (4,458) (24) (296)
--------- --------- ---------
Increase (decrease) in cash and equivalents (14,649) 9,083 4,304
Cash and equivalents at beginning of year 31,522 22,439 18,135
--------- --------- ---------
Cash and equivalents at end of year $ 16,873 $ 31,522 $ 22,439
========= ========= =========
Supplemental Cash Flow Information:
Cash paid for interest $ 2,821 $ 2,649 $ 3,448
========= ========= =========
Cash paid for income taxes $ 6,604 $ 12,748 $ 10,246
========= ========= =========
Non-cash transactions:
Issuance of stock for acquisitions $ 785 $ 496 $ -
========= ========= =========
</TABLE>
[FN]
See Notes to Consolidated Financial Statements
<PAGE> F-5
CIRCLE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Significant Accounting Policies
Nature of Operations - Circle International Group, Inc. (the
Company), is an international transportation and logistics service
provider. Effective in May 1997, the Company changed its name from
the Harper Group, Inc. to Circle International Group, Inc. The
Company's services are provided through its network of over 300
offices, distribution centers, and agents located in over 100
countries on six continents. The Company's principal lines of
business are air freight forwarding, ocean freight forwarding,
customs brokerage and value added services in the materials
management area, such as warehousing, distribution and insurance.
The principal markets for all lines of business are North America,
Europe and the Far East with significant operations in the Middle
East, Latin America and the South Pacific (see Note 12).
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities 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.
Risk Factors - The Company's operations are influenced by many
factors, including economic and political conditions around the
world, international laws, and currency exchange rates. The impact of
these risk factors is reduced by having customers in a wide range of
industries located throughout the world.
Principles of Consolidation - The accompanying consolidated financial
statements include Circle International Group, Inc. and its majority-
owned subsidiaries. Investments in 50% or less owned affiliates over
which the Company has significant influence are accounted for by the
equity method (see Note 10). All significant intercompany balances
and transactions have been eliminated.
Cash and Equivalents include demand deposits and investments with
original maturities of three months or less.
Short-term Investments include deposits of cash in interest bearing
securities which have original maturities of greater than 90 days and
less than one year. Such investments are classified as available for
sale and the carrying value approximates fair value.
Trade Receivables include disbursements made by the Company 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. Management establishes reserves based on the expected
ultimate recovery of these receivables. Write-offs during 1997, 1996
and 1995 were $2.4 million, $2.6 million and $2.7 million
respectively.
Property and Equipment are stated at cost. Depreciation is computed
principally by the straight-line method at rates based on the
estimated useful lives of the various classes of property as follows:
building, 20-50 years; leasehold improvements, life of the lease or
estimated useful life if shorter; equipment and furniture, 3-10
years.
Goodwill, representing the excess of purchase price over the fair
value of net assets acquired, is being amortized on a straight-line
basis over the period of expected benefit not exceeding 40 years.
The carrying value of goodwill is reviewed periodically based on the
projected undiscounted cash flows of the related business unit over
the remaining amortization period. If the cash flow analysis
indicates that the goodwill is not recoverable, the carrying value
will be reduced by the estimated shortfall of the cash flows. No
reduction in goodwill was necessary for 1997 and 1996.
<PAGE> F-6
Impairment of Long-Lived Assets - Statement of Financial Accounting
Standards ("SFAS") No.121, "Accounting for the Impairment of Long
Lived Assets", requires that long-lived assets, and certain
identifiable intangibles related to those assets be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Management
believes that there is no impairment of long-lived assets as of
December 31, 1997.
Revenue Recognition - Revenue and freight consolidation costs are
recognized at the time the freight departs the terminal of origin.
Customs brokerage and other revenue are recognized upon completing
the documents necessary for customs clearance.
Revenue realized as an indirect air carrier or an ocean freight
consolidator includes the direct carrier's charges to the Company for
carrying the shipment. Revenue realized in other capacities includes
only the commissions and fees received.
Net Income per Share - In the fourth quarter of 1997, the Company
adopted SFAS No. 128, "Earnings Per Share", which requires that net
income per share be presented on both a basic and diluted basis.
Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding during the
period. Diluted net income per share includes the potential dilution
from the exercise of stock options using the treasury stock method.
The difference between weighted average shares outstanding for basic
and diluted is the dilutive effect of outstanding stock options.
Diluted earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding including the
dilutive effect of outstanding stock options.
Taxes on Income - The Company provides a deferred tax expense or
benefit equal to the change in the deferred tax assets and
liabilities during the year. Deferred income taxes represent tax
credit carry forwards and future tax effects resulting from temporary
differences between the financial statement and the tax basis of
assets and liabilities using current or enacted tax rates in effect
for the year in which the differences are expected to reverse.
Foreign Currency Translation - Assets and liabilities of the
Company's foreign subsidiaries are translated into U.S. dollars at
year-end rates of exchange, and income and expenses are translated at
average rates during the year. Adjustments resulting from translating
financial statements into U.S. dollars are reported as cumulative
translation adjustments and are shown net of applicable income taxes
as a separate component of stockholders' equity. Gains and losses
from foreign exchange transactions are included in net income.
Fair Value of Financial Instruments - The fair values presented
throughout these financial statements have been estimated using
appropriate valuation methodologies and market information available
at December 31, 1997 and 1996. However, considerable judgment is
required in interpreting market data to develop estimates of fair
value and the estimates presented are not necessarily indicative of
the amounts that the Company could realize in a current market
exchange. The use of different market assumptions or estimation
methodologies could have a material effect on the estimated fair
values. Additionally, the fair values presented throughout these
financial statements have not been estimated since December 31, 1997.
Current estimates of fair value may differ significantly from the
amounts presented.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
Cash and equivalents, receivables and payables, short-term
investments and notes payable to banks - The carrying amount
approximates fair value.
Marketable securities - The fair value is based on quoted market
prices. As discussed in Note 3 to the Consolidated Financial
Statements, these securities are recorded at fair value.
Borrowings - The fair value of the Company's long-term debt is
estimated based on quoted market prices for the same or similar
issues or on the current rates offered to the Company for debt of
the same remaining maturities. The carrying amounts approximate
their fair value.
<PAGE> F-7
Foreign Currency Forward Contracts - The Company uses foreign
currency forward contracts to hedge foreign currency exposure on
trade payable transactions in certain currencies. These contracts do
not subject the Company to risk due to exchange rate movements
because gains and losses on these contracts offset gains and losses
on the payable being hedged. Gains and losses on such contracts are
recognized currently in the carrying amount of the related payable.
At December 31, 1997, no foreign currency forward contracts were
outstanding. Realized gains and losses on the contracts for 1997 and
1996 were insignificant.
Stock Based Compensation - The Company accounts for stock based
awards to employees using the intrinsic value method in accordance
with Accounting Principles Board No. 25 ("APB No. 25"), "Accounting
for Stock Issued to Employees".
New Accounting Standards - In June 1997, the Financial Accounting
Standards Board issued SFAS No.130, "Reporting Comprehensive Income",
which requires that an enterprise report, by major components and as
a single total, the change in its net assets during the period from
non-owner sources; and SFAS No. 131, "Disclosures about Segments of
an Enterprise", which established 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 these statements 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. Both statements are effective for fiscal years beginning
after December 15, 1997, with earlier application permitted.
Reclassification - Certain 1996 and 1995 amounts have been
reclassified to conform with the 1997 presentation.
Note 2 - Acquisitions
During 1997, the Company acquired the assets of various freight
forwarders and customs brokers for an aggregate purchase price of
$4.9 million, including $0.8 million in the Company's common stock.
These acquisitions were accounted for as purchases. In connection
with these acquisitions, the Company recorded $3.4 million of
goodwill, which is being amortized over estimated useful lives of up
to 20 years.
Had all the 1997 acquisitions occurred on January 1, 1997, the effect
on revenues and net income would have been immaterial.
During 1996, the Company acquired the assets of various freight
forwarders and customs brokers for an aggregate purchase price of
$11.0 million, including $0.5 million in the Company's common stock.
These acquisitions were accounted for under the purchase method. The
excess of cost over the sum of identifiable net assets acquired has
been allocated to goodwill, to be amortized over estimated lives of
up to 20 years.
In August 1996, the Company acquired a 40% interest in TDS Logistics,
Inc. ("TDS") for $30 million. TDS provides specialty packaging and
services for automotive exports. The investment in TDS is recorded in
investments in unconsolidated affiliates and as of the acquisition
date included $28.1 million of excess purchase price over net assets,
which is being amortized over 37 years. The Company has an option to
purchase the other 60% interest in TDS at a price to be determined
when the option is exercised. The option is exercisable between
October 1, 1999 and December 31, 1999. If the Company elects not to
exercise its options, other TDS shareholders have the right to sell
their shares and can require the Company to sell its shares in the
same manner. (See Note 10, "Investments in Unconsolidated
Affiliates".)
Note 3 - Long-term Marketable Securities
SFAS No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" requires that debt and equity securities be classified
into one of three categories: held to maturity, available for sale or
trading. Management has designated marketable debt and equity
securities as available for sale. Changes in the fair value of
available for sale securities, net of deferred taxes, are excluded
from income and presented in the stockholders' equity section of the
balance sheet under the caption "Unrealized loss in value of
marketable securities, net". In 1997 and 1996, the Company sold debt
and equity securities and realized losses of $20,000 and $189,000
respectively. Total unrealized loss on marketable securities before
deferred taxes was $15,000 and $667,000 as of December 31, 1997 and
1996 respectively.
<PAGE> F-8
At December 31, 1997, 1996 and 1995, the aggregate fair value
(individual unrealized gains and losses are immaterial), gross
unrealized (gains) losses, and amortized cost of marketable
securities were as follows (in thousands):
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Debt Securities
Fair value $ - $ 403 $29,692
Amortized cost - 402 29,901
-------- -------- --------
Unrealized (gain) loss $ - $ (1) $ 209
======== ======== ========
Equity Securities
Fair value $ 1,284 $ 7,799 $ 6,852
Cost 1,299 8,467 7,965
-------- -------- --------
Unrealized loss $ 15 $ 668 $ 1,113
======== ======== ========
</TABLE>
Note 4 - Borrowings
Long-term notes payable included commercial paper of $25 million at
December 31, 1997 and 1996. The commercial paper is supported by a
$40 million backup facility line of credit which expires on June 30,
1999. The backup facility line of credit requires the Company to
comply with certain financial covenants. Although the commercial
paper is issued on a short-term basis, it is classified as long-term
because the Company intends to, and has the ability to reissue
such paper as it matures. At December 31, 1997 and 1996, the weighted
average interest rate of outstanding commercial paper was 6.1% and
5.5%, respectively.
At December 31, 1997 and 1996, the Company had long-term notes
payable of approximately $2.7 and $4.0 million, respectively
(excluding current portion), with a weighted average interest rate of
7.1% and 7.6%, respectively. These notes are secured by real
property.
Principal payments of $2.8 million on long-term notes that mature in
1998 are classified as notes payable to banks. Principal payments for
1999 through 2002 are approximately $0.6 million, $0.8 million, $0.9
million, and $0.3 million, respectively. Principal repayments
thereafter are approximately $0.1 million.
At December 31, 1997, the Company had unused borrowing capacity from
its commercial paper program and lines of credit totaling $25
million.
Note 5 - Lease Commitments
At December 31, 1997, commitments on long-term operating lease
agreements for facilities require the following minimum annual
rentals (in thousands):
<TABLE>
<S> <C>
1998 $ 14,500
1999 10,644
2000 8,213
2001 6,985
2002 5,717
2003 and thereafter 48,392
---------
Total $ 94,451
=========
</TABLE>
Rental expense under such leases was $16.3 million in 1997, $9.9
million in 1996 and $7.8 million in 1995, net of rents from subleases
of $1.0 million, $0.8 million and $1.3 million, respectively. Total
rental expense (including leases on equipment) was $17.9 million in
1997, $11.6 million in 1996 and $9.4 million in 1995.
<PAGE> F-9
Note 6 - Contingencies
The Company is party to routine litigation incidental to its
business, which primarily involve claims for goods lost or damaged in
transit or improperly shipped. Many of the lawsuits to which the
Company is a party are covered by insurance and are being defended by
the Company's insurance carriers. The Company has established
reserves and it is management's opinion that the resolution of such
litigation will not have a material adverse effect on the Company's
consolidated financial statements taken as a whole.
Note 7 - Common Stock
Stock Repurchase Program:
The Company purchased 213,000 and 287,000 shares of its outstanding
common stock in 1996 and 1995, respectively, at an average purchase
price of $19.05 and $17.04 per share, respectively. These 500,000
shares were held as treasury stock until July 29, 1997, when they
were retired. In February 1997, the Board of Directors approved the
repurchase of an additional 100,000 shares, however no shares were
repurchased in 1997.
Shareholder Rights Plan:
In October 1994, the Company adopted a Shareholder Rights Plan and
declared a dividend distribution of one preferred share purchase
Right for each outstanding share of the Company's common stock. Each
Right will entitle stockholders to buy one one-hundredth of a share
of a new series of junior participating preferred stock at an
exercise price of $53.00.
The Rights will become exercisable if, without approval of the Board
of Directors, a person or group acquires 20% or more of the Company's
common stock (or a lesser percentage set by the Board in the case of
a person determined to present certain specific risks to the Company
and its stockholders, as defined in the plan) or announces a tender
offer the consummation of which would result in ownership of 20% or
more of the common stock. If a person or group does acquire 20% or
more of the Company's stock (or such lesser percentage as has been
set with respect to a specific person) each Right unless redeemed
will entitle its holder to purchase, at the Right's then current
exercise price, a number of the common shares of the Company having a
market value at that time of twice the Right's exercise price.
The Company will be entitled to redeem the Rights at 0.01 cents per
Right at any time before a 20% position (or such lesser percentage as
has been set with respect to a specific person) has been acquired.
Until the Rights become exercisable, Rights certificates will not be
sent to stockholders and the Rights will automatically trade with the
common stock.
Stock Option Plans:
The 1982 Stock Option Plan and the 1990 Stock Option Plan provide for
the granting of non-qualified or incentive stock options to officers
and key employees for a maximum of 956,250 common shares at not less
than fair market value on the date of grant. The Human Resources,
Compensation and Nominating Committee of the Board of Directors
determines the exercise period for the options. Under these plans,
Stock Options generally have been issued with the restriction that no
option may be exercised before three years from date of grant nor
later than eight years from date of grant.
The 1994 Omnibus Equity Incentive Plan provides for the granting of
stock options, stock appreciation rights, restricted stock awards,
performance unit awards and performance share awards to key employees
and consultants of the Company and its subsidiaries for a maximum of
2,000,000 common shares. Stock options under this plan are generally
issued at an option price at not less than fair market value on the
date of grant. (To date, no incentive or non-qualifying stock options
have been granted below fair market value.) Stock options under this
plan are generally issued with the restriction that no option may be
exercised before one year from the date of grant nor later than eight
years from the date of grant. During 1997, 24,615 restricted share
grants were issued which vest within one to three years.
<PAGE> F-10
A summary of stock option transactions for the three years ended
December 31, 1997 follows:
<TABLE>
Shares Weighted average
under option exercise price
------- -------
<S> <C> <C>
Outstanding at December 31, 1994 764,319 $ 13.82
Granted 380,634 17.19
Exercised (117,991) 11.76
Cancelled (38,249) 13.85
----------
Outstanding at December 31, 1995 988,713 14.89
Granted 570,589 19.67
Exercised (121,710) 13.76
Cancelled (35,750) 14.85
----------
Outstanding at December 31, 1996 1,401,842 16.60
Granted 422,950 23.29
Exercised (283,590) 15.40
Cancelled (143,923) 16.73
----------
Outstanding at December 31, 1997 1,397,279 $ 18.93
==========
</TABLE>
<TABLE>
December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Options available for grant 841,718 1,123,570 203,687
Options exercisable 441,567 354,683 228,552
Weighted average fair value of
options granted during the year $ 8.37 $ 5.41 $ 6.68
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1997:
<TABLE>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- ---------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercisable Number Remaining Exercise Number Exercise
Prices of shares Life (in years) Price of shares Price
------ --------- --------------- ----- --------- -----
<S> <C> <C> <C> <C> <C>
$12.75 - $14.00 271,100 4.54 $13.38 161,003 $13.35
$14.25 - $17.31 321,454 4.45 $16.43 172,439 $16.30
$17.31 - $20.75 302,625 4.82 $19.06 87,000 $18.57
$21.63 - $25.25 308,250 7.32 $23.46 21,125 $22.74
$25.50 - $26.63 193,850 7.75 $26.36 - $ -
--------- --------
$12.75 - $26.63 1,397,279 5.55 $18.93 441,567 $15.98
========= ========
</TABLE>
<PAGE> F-11
SFAS No. 123 Pro Forma Disclosures:
The Company applies APB No. 25 and related interpretations in
accounting for its Stock Options Plan described previously.
Accordingly, no compensation cost has been recognized for its options
granted that are not exercised. Had compensation cost for the
Company's stock option plans been determined based on the fair value
at the grant dates of the stock options, consistent with the method
suggested in SFAS No. 123, "Accounting for Stock Based Compensation"
the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below (in thousands except
per share amounts):
<TABLE>
Year Ended
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net Income: As reported $ 25,871 $ 21,615 $ 18,872
Pro forma 24,682 20,878 18,356
Net income per share:
Basic - As reported $ 1.61 $ 1.36 $ 1.18
Pro forma 1.54 1.31 1.15
Diluted - As reported $ 1.58 $ 1.34 $ 1.16
Pro forma 1.50 1.29 1.13
</TABLE>
The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option-pricing model which requires
subjective assumptions such as future stock price volatility and
expected time to exercise. These assumptions greatly affect the
calculated values.
The Company's calculations are based on a multiple option valuation
approach and cancellations are estimated based on a historical
pattern. However, in accordance with SFAS No. 123, the impact of
outstanding unvested stock options granted prior to 1995 has been
excluded from the pro forma calculation; accordingly, the 1997, 1996
and 1995 pro forma adjustments are not indicative of future period
pro forma adjustments. The following weighted-average assumptions
were used:
<TABLE>
Year Ended
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Expected dividend yield 1.00% 1.00% 1.00%
Expected volatility 37% 36% 36%
Risk-free interest rate 5.62% 5.67% 5.31%
Expected lives (years from vesting) .7 .5 .5
</TABLE>
<PAGE> F-12
Note 8 - Taxes on Income
Taxes on income include the following (in thousands):
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal: Current $ (709) $ 6,448 $ 5,728
Deferred 6,535 (1,237) (667)
State: Current 1,370 1,167 978
Deferred (363) - -
Foreign: Current 7,315 7,073 4,305
Deferred 358 (276) 1,320
--------- -------- --------
Total $ 14,506 $ 13,175 $ 11,664
========= ======== ========
</TABLE>
Significant components of the Company's net deferred tax liability
are as follows (in thousands):
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Deferred tax liabilities:
Undistributed earnings
of subsidiaries $ 9,714 $ 7,893
Accelerated depreciation 5,131 4,270
Gain on sale of property 2,250 2,502
Incentive compensation - 55
Investment in subsidiary 273 232
--------- --------
$ 17,368 $ 14,952
========= ========
Deferred tax assets:
Intercompany billings $ 1,596 $ 5,885
Bad debts 1,613 1,206
Vacation pay 608 751
Incentive compensation 57 -
Insurance claims reserves 882 671
Valuation of marketable securities 6 261
Other 201 559
--------- --------
$ 4,963 $ 9,333
========= ========
Net deferred tax liability $ 12,405 $ 5,619
========= ========
</TABLE>
Taxes on income were different than the amount computed by applying
the United States federal statutory income tax rate. Such differences
are summarized as follows (in thousands):
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax computed at 35%
statutory rate $ 14,132 $ 12,177 $ 10,688
Increases (decreases)
resulting from:
Foreign taxes lower
than federal rate (1,184) (861) (411)
State taxes on income,
net of federal income
tax effect 655 758 636
Non-deductible items 1,212 775 711
Other (309) 326 40
--------- -------- --------
Total $ 14,506 $ 13,175 $ 11,664
========= ======== ========
</TABLE>
<PAGE> F-13
Taxes on income include deferred income taxes on undistributed
earnings (not considered permanently invested) of consolidated
subsidiaries, net of applicable foreign tax credits. At December 31,
1997, cumulative earnings of consolidated foreign subsidiaries
designated as permanently invested were approximately $63 million.
Deferred income taxes are not provided on permanently invested
earnings.
Sources of pretax income are summarized as follows (in thousands):
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Domestic $ 18,411 $ 16,205 $ 14,513
Foreign 21,966 18,585 16,023
--------- -------- --------
Total $ 40,377 $ 34,790 $ 30,536
========= ======== ========
</TABLE>
Federal Tax Litigation:
During 1997, the Company successfully concluded the 1986 through 1992
Internal Revenue Service audits, with no material effect on the
financial statements.
Note 9 - Other Income-Net
Other income-net includes the following (in thousands):
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Investment income $ 4,125 $ 4,485 $ 4,877
Interest expense (2,922) (2,658) (3,346)
Gain on sales of assets 633 1,060 1,057
Equity in earnings of affiliates 5,785 1,563 947
Minority interests (1,286) (456) (268)
Net foreign exchange gains 2,162 1,258 40
Other 38 - -
--------- -------- --------
Total $ 8,535 $ 5,252 $ 3,307
========= ======== ========
</TABLE>
<PAGE> F-14
Note 10 - Investments in Unconsolidated Affiliates
Investments in net assets of affiliated companies accounted for under
the equity method amounted to $40.5 million and $34.5 million at
December 31, 1997 and 1996, respectively. This includes the Company's
40% investment in TDS Logistics, Inc. ("TDS") of $35.3 million and
$30.8 million as of December 31, 1997 and 1996, respectively. The TDS
investment balance includes the excess of purchase price over net
assets of $27.1 million and $27.9 million as of December 31, 1997 and
1996, respectively. The results of operations and financial position
of TDS as of December 31, 1997 and 1996 are summarized below (in
thousands):
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Condensed Income Statement Information:
Gross revenue $ 95,981 $ 50,115
Income from operations 23,929 6,438
Net income 12,983 3,297
Condensed Balance Sheet Information:
Current assets $ 25,035 $ 13,584
Non-current assets 34,695 37,419
Current liabilities 13,216 8,495
Non-current liabilities 25,418 33,843
Stockholders' equity 21,096 8,665
</TABLE>
Note 11 - Employee Benefit Plans
The Company has a 401(k) Savings Plan under which an employee with
six months of service at the beginning of a calendar quarter
generally may contribute up to 15% of base salary to the plan. For
every dollar contributed to the plan, the Company will match 50
cents, up to a maximum of 6% of the employee's base salary excluding
incentive compensation. The Company's contributions for the years
ended December 31, 1997, 1996 and 1995 were $0.9 million, $0.8
million and $0.7 million, respectively. The Company's contributions
vest over a four year period.
<PAGE> F-15
Note 12 - Business Segment Information
The Company operates in the international freight forwarding
industry, which encompasses air freight forwarding, customs
brokerage, ocean freight forwarding and other services. No customer
accounted for ten percent or more of consolidated revenue.
Certain information regarding the Company's operations by regions is
summarized below.
<TABLE>
Europe & Asia & Elimi- Consoli-
Americas Middle East South Pacific Corporate nations dated
-------- ---------- ----------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Year ended
December 31, 1997:
Total revenue $374,219 $147,628 $167,053 $ - $ (19,843) $669,057
Transfers
between regions (7,442) (3,613) (8,788) - 19,843 -
--------- --------- --------- --------- --------- ---------
Revenues
from customers $366,777 $144,015 $158,265 $ - $ - $669,057
========= ========= ========= ========= ========= =========
Net revenue $143,764 $ 71,065 $ 47,924 $ - $ - $262,753
========= ========= ========= ========= ========= =========
Income (loss)
from operations $ 19,579 $ 10,408 $ 9,169 $ (7,314) $ - $ 31,842
========= ========= ========= ========= ========= =========
Identifiable assets $201,941 $117,432 $102,098 $123,914 $(123,565) $421,820
========= ========= ========= ========= ========= =========
Year ended
December 31, 1996:
Total revenue $353,103 $142,405 $114,332 $ - $ (14,407) $595,433
Transfers
between regions (6,091) (3,396) (4,920) - 14,407 -
--------- --------- --------- --------- --------- ---------
Revenues
from customers $347,012 $139,009 $109,412 $ - $ - $595,433
========= ========= ========= ========= ========= =========
Net revenue $134,070 $ 70,465 $ 41,083 $ - $ - $245,618
========= ========= ========= ========= ========= =========
Income (loss)
from operations $ 17,337 $ 11,077 $ 7,644 $ (6,520) $ - $ 29,538
========= ========= ========= ========= ========= =========
Identifiable assets $163,392 $118,287 $ 96,041 $123,835 $(108,225) $393,330
========= ========= ========= ========= ========= =========
Year ended
December 31, 1995:
Total revenue $309,778 $124,809 $120,791 $ - $ (13,050) $542,328
Transfers
between regions (4,801) (3,402) (4,847) - 13,050 -
--------- --------- --------- --------- --------- ---------
Revenue
from customers $304,977 $121,407 $115,944 $ - $ - $542,328
========= ========= ========= ========= ========= =========
Net revenue $115,731 $ 67,570 $ 38,510 $ - $ - $221,811
========= ========= ========= ========= ========= =========
Income (loss)
from operations $ 17,512 $ 9,577 $ 5,502 $ (5,362) $ - $ 27,229
========= ========= ========= ========= ========= =========
Identifiable assets $140,703 $105,267 $ 94,334 $ 90,294 $ (93,855) $336,743
========= ========= ========= ========= ========= =========
</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> F-16
Note 13 - Quarterly Data (unaudited)
<TABLE>
(in thousands except per share amounts)
Net Net Net Income per Share Dividends
Revenue Revenue Income Basic Diluted per share
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
1997 Quarters:
4th Quarter $182,212 $ 70,323 $ 7,598 $ .47 $ .46 $ .135
3rd Quarter 169,564 65,894 7,052 .44 .43 -
2nd Quarter 161,829 64,870 6,630 .41 .40 $ .135
1st Quarter 155,452 61,666 4,591 .29 .28 -
1996 Quarters:
4th Quarter $161,313 $ 66,327 $ 6,567 $ .41 $ .40 $ .120
3rd Quarter 155,498 64,063 5,928 .37 .37 -
2nd Quarter 146,176 60,336 5,362 .34 .33 .120
1st Quarter 132,446 54,892 3,758 .24 .23 -
</TABLE>
<PAGE> F-17
Independent Auditors' Report
The Board of Directors and Stockholders of Circle International
Group, Inc.:
We have audited the accompanying consolidated balance sheets of
Circle International Group, Inc. and subsidiaries, formerly the
Harper Group, Inc., (the "Company") as of December 31, 1997 and 1996,
and the related consolidated income statements and consolidated
statements of stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Circle
International Group, Inc. and subsidiaries as of December 31, 1997
and 1996, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
/S/ DELOITTE & TOUCHE LLP
San Francisco, California
March 13, 1998
<PAGE> 39
EXHIBIT 3.1.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
* * * * *
The Harper Group, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the
State of Delaware, DOES HEREBY CERTIFY:
FIRST: That at a meeting of its Board of Directors
resolutions were duly adopted setting forth a proposed amendment to
the Certificate of Incorporation of said corporation, declaring said
amendment to be advisable and calling a meeting of the stockholders
of said corporation for consideration thereof. The resolution
setting forth the proposed amendment is as follows:
NOW, THEREFORE, BE IT RESOLVED, that subject to
ratification and approval by this Corporation's stockholders, Article
FIRST, of the Certificate of Incorporation of this Corporation be
amended to read as follows:
FIRST: The name of this corporation is: CIRCLE
INTERNATIONAL GROUP, INC.
SECOND: That thereafter, pursuant to resolution of its
Board of Directors, an annual meeting of the stockholders of said
corporation was duly called and held, upon notice in accordance with
Section 222 of the General Corporation Law of the State of Delaware,
at which meeting the necessary number of shares as required by
statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in
accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said corporation has caused this
certificate to be signed by Peter Gibert, its Chairman and Chief
Executive Officer and attested by Robert H. Kennis, its Secretary
this 13th day of May, 1997.
THE HARPER GROUP, INC.
By: /S/ Peter Gibert
-----------------------
Peter Gibert
Chairman and Chief Executive Officer
ATTEST:
By: /S/ Robert H. Kennis
---------------------------
Robert H. Kennis, Secretary
<PAGE> 40
EXHIBIT 10.4.2
October 27, 1997
Mr. Peter Gibert
Chairman and Chief Executive Officer
260 Townsend Street
San Francisco, California 94107
Dear Peter,
This letter confirms that Circle International Group's
("Circle") existing employment contract with you, which expires on
December 31, 1997, will be extended on the following terms:
Term: 4 years, from January 1, 1998 through
December 31, 2001
Annual base salary: 1998: $375,000
1999: $275,000
2000: $275,000
2001: $275,000
Incentive: 1998: Pursuant to the company incentive
formula to be approved by the Board
prior to year-end 1997. If an incentive
plan is not implemented, then at a
minimum you should be entitled to a
bonus of $100,000.
1999: $100,000
2000: $0
2001: $0
Your minimum bonus for 1998 and 1999 shall be $100,000 on the
condition that you are Chairman at the end of each year, otherwise
the minimum bonus shall be pro-rated by the number of months worked
in the year. The Board reserves the right in the exercise of its
complete discretion to award an incentive to you exceeding the
amounts reflected above if deemed appropriate by the Board in view of
your and the Company's performance.
Car allowance: $750 per month through December 31, 1999.
Medical coverage: As per company policy.
The company agrees to provide medical coverage
to you under its group health insurance plan
until you reach age 65, as long as your
employment has not been terminated for cause and
you have not been re-employed in the United
States.
Stock Options: 1998: 50,000 Shares
1999: 50,000 Shares
Total 100,000
The above 100,000 options shall be awarded
effective as of the execution of this agreement,
and will vest in equal annual installments over
24 months.
<PAGE> 41
Termination: If your employment is terminated by the Company
before December 31, 2001 for any reason other
than for cause, then you shall be entitled to
receive an immediate lump sum buy-out payment of
base salary and minimum bonus, if any, for the
balance of the term of this agreement.
Any unvested stock options will immediately
accelerate in the event your employment is
terminated by the Company without cause. You
will have 90 days after the termination of your
employment to exercise such options. If there is
a change-in-control in the Company, then either
you or the Company may terminate your employment.
In which case you would be entitled to receive a
lump sum payment equal to your base salary over
the remaining term of the agreement. Additionally,
the stock option agreement will contain the
standard acceleration language for change-in-
control events.
We are pleased to have reached the foregoing extension of your
agreement, and look forward to your further contributions. All other
terms presently contained in your May 21, 1991 employment agreement
will remain in full force and effect unless either superceded by the
terms of this letter or a change is mutually agreed to in writing by
you and the Company.
Please sign a copy of this letter indicating your agreement with
all of its terms.
Very truly yours,
/S/ John Kaiser
------------------------
JOHN KAISER
Chairman of the Human Resources,
Compensation and Nominating Committee
AGREED
/S/ Peter Gibert
- -------------------
PETER GIBERT
<PAGE> 42
EXHIBIT 10.12
MEMORANDUM
TO: Steve Leonard
FROM: Bob Kennis
DATE: July 31, 1997
This sets forth our agreement.
1. You will remain as an officer of the subsidiary Circle
International, Inc. in the position of President and C.E.O.,
Global Transportation Resources reporting to the Company
Chairman. You will not be a corporate officer. This position
will be available through November 30, 1997, and you will be
entitled to your present base salary and car allowance.
2. As of December 1, 1997 or your obtaining other employment,
whichever is earlier, you shall resign your position with the
Company. Other than as set forth in paragraphs 3, 4, 5 and 6
below the Company will have no further obligation to you.
3. From December 1, 1997 (or the earlier date if you leave the
Company voluntarily) through July 31, 1998 you shall be a non-
exclusive consultant to the Company providing advice as
available on global purchasing, pricing and carrier and other
strategic issues. You and the Company will enter into a
consulting agreement memorializing this, which will also contain
provisions regarding confidentiality, the prohibition of
soliciting employees and accounts (for freight forwarding
purposes, not airline carrier purposes), non-disparagement
internally and externally (this will be a mutual obligation),
litigation cooperation and assistance, and a mutual release of
all claims.
4. During the period of your employment through the period of the
consultancy agreement, you shall be entitled to exercise at any
time subject to standard legal restrictions 41,666 vested
options to purchase stock. From May 1, 1998 through
July 31, 1998 only, you shall be entitled to exercise another
25,000 options pursuant to the terms of your existing option
agreement on the condition that you have substantially complied
with the covenants of the consulting agreement. You shall have
no other rights under that agreement. If the Company terminates
the consulting agreement, then these options shall accelerate
and you shall have thirty days within the notice of termination
to exercise any unexercised options, including the 25,000
options referenced above.
5. During the consulting period referred to above, the Company
shall pay your Cobra and Life Insurance conversion costs,
through the earlier of your obtaining other employment or July
31, 1998
6. The balance outstanding under the Promissory Note attached as
Exhibit 1 shall be paid the earlier of either your selling your
residence in Woodside or your exercising all of your options.
Interest will continue to accrue under the note. As security,
you will provide the Company with a deed of trust against your
residence.
7. Other than as set forth in this Agreement, Circle International
Group, Inc. and its subsidiaries and officers (the "Company")
will have no further obligations to you, and you will have no
further obligations to the Company. Any other previous
agreements are superseded by this Agreement. The Company and
Leonard hereby mutually waive and release any and all claims
against the other, except for claims arising from a breach of
this Agreement.
8. The terms of this Agreement shall remain strictly confidential,
unless Leonard or the Company deems that it is required to make
an appropriate disclosure under SEC rules.
<PAGE> 43
9. Each party agrees that this agreement is enforceable without
defense, is voluntarily entered into, and is the result of
amicable settlement discussions.
Each party has signed below indicating full agreement to the
above.
/S/ Robert Kennis /S/ Steve Leonard
- ----------------------- ------------------------
Robert Kennis for Steve Leonard
Circle International Group, Inc.
and its subsidiaries
<PAGE> 44
<TABLE>
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
(in thousands except share amounts and per share amounts)
Year Ended December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income $ 25,871 $ 21,615 $ 18,872
-------- -------- --------
Average shares of common stock
outstanding during the period 16,052 15,900 16,021
-------- -------- --------
Net income per share - basic $ 1.61 $ 1.36 $ 1.18
======== ======== ========
Average shares of common stock
outstanding during the period 16,052 15,900 16,021
Incremental number of shares from
assumed exercise of stock options 368 255 234
-------- -------- --------
16,420 16,155 16,255
-------- -------- --------
Net income per share - diluted $ 1.58 $ 1.34 $ 1.16
======== ======== ========
</TABLE>
<PAGE> 45
EXHIBIT 21.1
LIST OF SUBSIDIARIES
The following table sets forth certain information concerning the
principal subsidiaries of the Company as of December 31, 1997.
<TABLE>
State or other
jurisdiction of
Name incorporation
<S> <C>
Circle International, Inc. Delaware
Circle Airfreight Japan, Ltd. California
Circle Air Freight de Mexico C.V. Mexico
Circle Espana S.A. Spain
Circle Freight International
Speditionsgesellschaft GmbH Germany
Circle Fretes Internacionais Do
Brasil Ltda. Brazil
Circle Freight International (Argentina) S.A Argentina
Circle Freight International Belgium S.A. Belgium
Circle Freight International (Canada) Ltd Canada
Circle Freight International (Holland) B.V. Holland
Circle Freight International (India) Pty. Ltd. India
Circle Freight International (Italia) SRL Italy
Circle Freight International Japan Japan
Circle International Korea Limited Korea
Circle Freight International (NZ) Ltd. New Zealand
Circle Freight International
Philippines Ltd., Inc. Philippines
Circle Freight International (Singapore) Pte., Ltd. Singapore
Circle International (Aust.) Pty., Ltd. Australia
Circle International (Hong Kong) Ltd. Hong Kong
Circle International Limited United Kingdom
Circle International (Sweden) AB Sweden
Circle Worldbridge (Thailand) Ltd. Thailand
Darrell J. Sekin & Co. Texas
Harper Logistics International France
J.R. Michels Incorporated Texas
Max Gruenhut B.V. Holland
Max Gruenhut GmbH Germany
Regga Holdings Limited Bermuda
Regga Insurance Limited Bermuda
The names of certain subsidiaries have been omitted because such
unnamed subsidiaries, considered in the aggregate, would not
constitute a significant subsidiary as that term is defined in
Regulation S-X.
</TABLE>
<PAGE> 46
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Circle International
Group, Inc. and subsidiaries (formerly the Harper Group, Inc.)
Registration Statements No. 33-44357, No. 33-35272, No. 33-53557, No.
33-17601, No. 333-04139 and No. 333-04141 of our report dated
March 13, 1998 included in this Annual Report on Form 10-K of Circle
International Group, Inc. for the year ended December 31, 1997.
/S/ DELOITTE & TOUCHE LLP
San Francisco, California
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
FINANCIAL DATA SCHEDULE
Circle International Group, Inc., and Subsidiaries
(in thousands)
This schedule contains summary financial information extracted from
the consolidated financial statements from the Company's Annual
Report to Stockholders for the fiscal year ending December 31, 1997,
and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Dec-31-1997
<PERIOD-TYPE> YEAR
<CASH> 16873
<SECURITIES> 34494
<RECEIVABLES> 217068
<ALLOWANCES> 6964
<INVENTORY> 0
<CURRENT-ASSETS> 279696
<PP&E> 139514
<DEPRECIATION> 65523
<TOTAL-ASSETS> 421820
<CURRENT-LIABILITIES> 182235
<BONDS> 0
0
0
<COMMON> 28400
<OTHER-SE> 186576
<TOTAL-LIABILITY-AND-EQUITY> 421820
<SALES> 0
<TOTAL-REVENUES> 669057
<CGS> 0
<TOTAL-COSTS> 406304
<OTHER-EXPENSES> 230911
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2922
<INCOME-PRETAX> 40377
<INCOME-TAX> 14506
<INCOME-CONTINUING> 25871
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25871
<EPS-PRIMARY> 1.61
<EPS-DILUTED> 1.58
</TABLE>
