UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-8664
Circle International Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 94-1740320
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
260 Townsend Street,
San Francisco, California 94107
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 978-0600
Inapplicable
(Former name, former address and former fiscal year if changed from
last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
At August 12, 1998 the number of shares outstanding of the registrant's common
stock was 17,112,619.
<PAGE>
TABLE OF CONTENTS
-----------------
Part I. Financial Information Page
- - ------ --------------------- ----
Item 1. Financial Statements:
Condensed Consolidated Income Statements
for the three and six months ended
June 30, 1998 and 1997 3
Condensed Consolidated Balance Sheets,
June 30, 1998 and December 31, 1997 4
Condensed Consolidated Statements of
Cash Flows for the six months ended
June 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 12
Part II. Other Information
- - ------- -----------------
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
<PAGE>
I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIRCLE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
-------------------------------------------------
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited, in thousands, except per share amounts)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
----------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $ 165,909 $ 166,944 $ 321,052 $ 317,281
Freight consolidation costs 96,928 101,349 186,886 190,745
----------- ----------- ----------- -----------
Net revenue 68,981 65,595 134,166 126,536
Other costs and expenses:
Salaries and related 34,478 33,607 69,507 66,939
Operating, selling and
administrative 25,524 23,158 49,148 44,857
----------- ----------- ----------- -----------
Total other costs and
expenses 60,002 56,765 118,655 111,796
Income from operations 8,979 8,830 15,511 14,740
Other income/(expense):
Interest, net 1,163 76 1,829 (59)
Income from affiliates 1,244 1,424 2,542 2,401
Other, net 469 (96) 821 477
----------- ----------- ----------- -----------
Total other income, net 2,876 1,404 5,192 2,819
Income before taxes 11,855 10,234 20,703 17,559
Taxes on income 4,386 3,604 7,660 6,338
----------- ----------- ----------- -----------
Net income $ 7,469 $ 6,630 $ 13,043 $ 11,221
=========== =========== =========== ===========
Net income per share:
Basic $ 0.46 $ 0.41 $ 0.80 $ 0.70
=========== =========== =========== ===========
Diluted $ 0.45 $ 0.40 $ 0.79 $ 0.69
=========== =========== =========== ===========
Weighted average common
shares outstanding:
Basic 16,255 15,998 16,240 15,971
=========== =========== =========== ===========
Diluted 16,612 16,379 16,582 16,348
=========== =========== =========== ===========
Dividends declared per share $ 0.135 $ 0.135 $ 0.135 $ 0.135
=========== =========== =========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
CIRCLE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
-------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share and per share amounts)
<TABLE>
June 30 December 31
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and equivalents $ 27,814 $ 16,873
Short-term investments 18,493 34,494
Trade receivables, less allowance for
doubtful accounts of:
1998, $6,995; 1997, $6,964 218,209 212,114
Other receivables 5,641 4,954
Other current assets 8,845 11,261
----------- -----------
Total current assets 279,002 279,696
Property 148,802 139,514
Less accumulated depreciation (68,133) (65,523)
----------- -----------
Property - net 80,669 73,991
Goodwill 41,506 29,975
Less accumulated amortization (8,851) (7,961)
----------- -----------
Goodwill - net 32,655 22,014
Marketable securities available for sale 1,485 1,284
Investments in unconsolidated affiliates 42,779 40,487
Other assets 3,600 4,348
----------- -----------
Total assets $ 440,190 $ 421,820
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable to banks $ 1,693 $ 2,847
Trade payables 152,671 142,559
Accrued salaries and related costs 10,995 11,217
Dividends payable 2,427 2,189
Income taxes payable 7,978 6,660
Other liabilities 18,247 15,301
----------- -----------
Total current liabilities 194,011 180,773
Minority interest 5,315 1,462
Deferred income taxes 13,436 12,405
Long-term notes payable 17,768 27,702
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, $1 par:
shares authorized, 1,000,000 - -
Common stock, $1 par: shares authorized,
40,000,000; shares issued and outstanding
1998, 16,295,982; 1997, 16,234,011 29,513 28,400
Retained earnings 197,241 186,576
Unrealized loss in value of marketable
securities, net (10) (9)
Cumulative translation adjustments (17,084) (15,489)
----------- -----------
Total stockholders' equity 209,660 199,478
----------- -----------
Total liabilities and stockholders' equity $ 440,190 $ 421,820
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
CIRCLE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
-------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
Six Months Ended
June 30,
------------------
1998 1997
---- ----
<S> <C> <C>
Operating activities:
Net income $ 13,043 $ 11,221
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 6,405 5,796
Gains on sales of assets (142) (629)
Deferred income taxes 1,031 948
Equity in earnings of affiliates,
net of dividends received (2,042) (2,172)
Net effect of changes in working capital 12,017 (2,376)
---------- ----------
Net cash provided by operating activities 30,312 12,788
Investing activities:
Proceeds from sales of property 588 1,135
Proceeds from sales of marketable securities - 3,759
Proceeds from sales of short-term
investments, net 16,001 -
Capital expenditures (4,984) (6,019)
Acquisitions of businesses (12,722) (1,776)
Other 68 (326)
---------- ----------
Net cash used in investing activities (1,049) (3,227)
Financing activities:
(Repayment) issuance of long-term
notes payable - net (15,298) 5,220
Decrease in notes payable (1,154) -
Payments of dividends (2,193) (1,915)
Proceeds from exercise of stock options 935 2,451
---------- ----------
Net cash (used in) provided by financing
activities (17,710) 5,756
Effect of exchange rate changes on cash (612) (649)
---------- ----------
Increase in cash and equivalents 10,941 14,668
Cash and equivalents at beginning of period 16,873 31,522
---------- ----------
Cash and equivalents at end of period $ 27,814 $ 46,190
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
Note 1 - General
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements include all adjustments (which include normal recurring
accruals) necessary to present fairly the financial position as of June 30, 1998
and the results of operations and cash flows for the periods presented in
conformity with generally accepted accounting principles. It is suggested that
these unaudited condensed consolidated financial statements be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the Circle International Group, Inc. (the Company) 1997 Annual
Report to Stockholders incorporated by reference in the Company's 1997 Form
10-K, and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this Form 10-Q. Certain prior income
statement amounts for the three months ended June 30, 1997 have been
reclassified from previously reported amounts. The reclassification had
no effect on the six months ended June 30, 1997 results. Other 1997 amounts have
been reclassified to conform to the 1998 presentation.
Note 2 - New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". SFAS No.
131 establishes annual and interim reporting standards for an enterprise's
operating segments and related disclosures about its products, services,
geographic areas and major customers. Adoption of this Statement will not impact
the Company's consolidated financial position, results of operations or cash
flows, and any effect will be limited to the form and content of disclosures.
The year-end reporting requirements of this Statement are effective for the
Company's fiscal year ending December 31, 1998, with earlier application
permitted. The interim reporting requirements of SFAS No. 131 are effective in
subsequent fiscal years.
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income". This Statement requires
that all items recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other annual financial statements. This Statement also
requires that an entity classify items of other comprehensive income by their
nature in a financial statement. Other comprehensive income for the Company
includes foreign currency translation adjustments, and unrealized gains and
losses on marketable securities classified as available-for-sale.
The Company's total comprehensive income was as follows:
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Net income $ 7,469 $ 6,630 $ 13,043 $ 11,221
Other comprehensive income (loss):
Change in foreign currency
translation adjustment (2,055) 274 (1,595) (2,273)
Unrealized gains (losses)
on marketable securities (4) 10 (1) 307
--------- --------- --------- ---------
Comprehensive income $ 5,410 $ 6,914 $ 11,447 $ 9,255
========= ========= ========= =========
</TABLE>
<PAGE>
Note 3 - Business Segment Information
The Company operates in the international logistics services industry, which
encompasses air freight forwarding, ocean freight forwarding, customs brokerage
and other logistics services. Certain information regarding the Company's
operations by region is summarized as follows:
<TABLE>
Europe & Asia &
Middle South Elimi- Consoli-
Americas East Pacific Corporate nations dated
--------- --------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Three months ended
June 30, 1998:
Total revenue $ 85,917 $ 39,715 $ 44,364 $ - $ (4,087) $165,909
Transfers
between regions (1,581) (1,032) (1,474) - 4,087 -
--------- --------- --------- --------- --------- ---------
Revenues
from customers $ 84,336 $ 38,683 $ 42,890 $ - $ - $165,909
========= ========= ========= ========= ========= =========
Net revenue $ 36,101 $ 19,718 $ 13,162 $ - $ - $ 68,981
========= ========= ========= ========= ========= =========
Income (loss)
from operations $ 5,226 $ 3,484 $ 2,148 $ (1,879) $ - $ 8,979
========= ========= ========= ========= ========= =========
Three months ended
June 30, 1997:
Total revenue $ 94,647 $ 37,116 $ 39,913 $ - $ (4,732) $166,944
Transfers
between regions (1,610) (1,127) (1,995) - 4,732 -
--------- --------- --------- --------- --------- ---------
Revenues
from customers $ 93,037 $ 35,989 $ 37,918 $ - $ - $166,944
========= ========= ========= ========= ========= =========
Net revenue $ 35,655 $ 17,690 $ 12,250 $ - $ - $ 65,595
========= ========= ========= ========= ========= =========
Income (loss)
from operations $ 5,713 $ 3,111 $ 2,383 $ (2,377) $ - $ 8,830
========= ========= ========= ========= ========= =========
Six months ended
June 30, 1998:
Total revenue $171,859 $ 75,062 $ 81,940 $ - $ (7,809) $321,052
Transfers
between regions (3,159) (1,684) (2,966) - 7,809 -
--------- --------- --------- --------- --------- ---------
Revenues
from customers $168,700 $ 73,378 $ 78,974 $ - $ - $321,052
========= ========= ========= ========= ========= =========
Net revenue $ 71,711 $ 37,704 $ 24,751 $ - $ - $134,166
========= ========= ========= ========= ========= =========
Income (loss)
from operations $ 8,963 $ 5,751 $ 4,164 $ (3,367) $ - $ 15,511
========= ========= ========= ========= ========= =========
Six months ended
June 30, 1997:
Total revenue $184,387 $ 69,959 $ 72,054 $ - $ (9,119) $317,281
Transfers
between regions (3,462) (2,263) (3,394) - 9,119 -
--------- --------- --------- --------- --------- ---------
Revenues
from customers $180,925 $ 67,696 $ 68,660 $ - $ - $317,281
========= ========= ========= ========= ========= =========
Net revenue $ 69,319 $ 34,294 $ 22,923 $ - $ - $126,536
========= ========= ========= ========= ========= =========
Income (loss)
from operations $ 9,204 $ 5,114 $ 4,102 $ (3,680) $ - $ 14,740
========= ========= ========= ========= ========= =========
</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>
Note 4 - Acquisitions
During the three months ended June 30, 1998, the Company made two separate
acquisitions of the stock and assets of freight forwarders and customs brokers
for an aggregate purchase price, net of cash acquired, of $12.3 million. In
connection with these acquisitions, the Company recorded goodwill of $11.1
million that is being amortized over estimated useful lives of up to 20 years.
The fair value of assets and liabilities acquired are based on preliminary
estimates and are subject to change. In addition, the final purchase price of
these acquisitions, and related goodwill, is subject to change based on the
resolution of certain pre-acquisition contingencies and earn-out provisions.
Note 5 - Subsequent Events
On August 1, 1998, the Company acquired 100% of the outstanding shares of Alrod
International, Inc. (Alrod), through an exchange of 770,462 shares of the
Company's common stock for Alrod's common stock. Alrod is a privately owned
international freight forwarding and customs brokerage company based on the West
Coast of the U.S. The total purchase consideration was $21.0 million, of which
$1.0 million is to be held in escrow subject to the resolution of certain
pre-acquisition contingencies. It is expected that this transaction will be
accounted for using the "pooling of interests" method. Alrod has offices and
bonded facilities in San Francisco, Los Angeles, Dallas, Houston and San Diego,
and in Guadalajara and Tijuana, Mexico.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for historical information contained herein, the matters set forth in
this release are forward-looking statements that are dependent on certain risks
and uncertainties including but not limited to such factors as market demand,
risks associated with operations outside of the U.S. including currency
fluctuations, information technology uncertainties, changing economic conditions
including international laws, the concentration of business towards large
accounts, the effect of the Company's accounting policies, and other risk
factors detailed in the Company's SEC filings.
The Company's principal services are international air freight forwarding, ocean
freight forwarding, and customs brokerage and other value added logistics
services. The following table shows the revenue and net revenue, in dollars and
percentages, attributable to the Company's principal services during the periods
indicated. Revenue for air freight and ocean freight consolidations (indirect
shipments) includes the cost of such freight, whereas net revenue does not.
Revenue for air freight and ocean freight agency or direct shipments, customs
brokerage and import services, includes only the fees or commissions for these
services. A comparison of net revenue best measures the relative importance of
the Company's principal services.
<TABLE>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenue
- - -------
Air freight
forwarding $105,782 64% $106,941 64% $205,201 64% $202,208 64%
Ocean freight
forwarding 26,945 16% 28,249 17% 50,814 16% 54,244 17%
Customs brokerage
and other 33,182 20% 31,754 19% 65,037 20% 60,829 19%
-------------- -------------- -------------- --------------
Total $165,909 100% $166,944 100% $321,052 100% $317,281 100%
============== ============== ============== ==============
Net Revenue
- - -----------
Air freight
forwarding $ 26,446 38% $ 24,746 38% $ 50,998 38% $ 47,602 38%
Ocean freight
forwarding 9,353 14% 9,095 14% 18,131 14% 18,105 14%
Customs brokerage
and other 33,182 48% 31,754 48% 65,037 48% 60,829 48%
-------------- -------------- -------------- --------------
Total $ 68,981 100% $ 65,595 100% $134,166 100% $126,536 100%
============== ============== ============== ==============
</TABLE>
Results of Operations
- - ---------------------
Three Months ended June 30, 1998 vs 1997:
- - -----------------------------------------
Revenue for the quarter was $165.9 million compared to $166.9 million for the
same period in 1997. Net revenue, which represents revenue less freight
consolidation costs, was up 5% to $69.0 million compared to $65.6 million in the
second quarter of 1997. Net revenue increased despite a negative foreign
exchange effect of approximately 7% resulting from a stronger U.S. dollar when
converting foreign currency net revenues into U.S. dollars for financial
reporting purposes. Net income rose 13% to $7.5 million as compared to $6.6
million for the three months ended June 30, 1997.
Air freight forwarding revenue for the second quarter was $105.8 million
compared with $106.9 million for the comparable period in 1997. Air freight
forwarding net revenue increased 7% or $1.7 million over the prior period due
primarily to improved margins and shipments. In Asia Pacific and Europe, the
Company handled higher volumes with higher margins. In North America, decreases
in export activity to Asia Pacific more than offset increases in volume shipped
to other parts of the world. This resulted in an overall reduction in air
freight forwarding revenue and net revenue for the region.
<PAGE>
Worldwide, the air freight revenue generated was reduced 1% due primarily to a
decline in North America exports to Asia Pacific. This reduction in revenue was
offset by lower carrier costs thereby producing an increase in net revenue of
7%.
Ocean freight forwarding revenue decreased 5% or $1.3 million over the prior
year, while ocean freight forwarding net revenue increased 3% or $0.3 million.
The Company's North America operations experienced lower volumes as well as a
shift of export activity from Asia Pacific to other parts of the world,
resulting in a revenue decrease. This decrease was partially offset by lower
carrier costs.
Customs brokerage and other net revenue increased 5%, or $1.4 million in the
quarter, driven by higher import activity, primarily in Europe. In Asia Pacific,
imports declined due to weakened local currencies.
Salaries and related costs increased 3% as a result of hiring more employees to
serve new customers and to handle business growth. However, salaries as a
percentage of net revenues dropped one percentage point.
Operating, selling, and administrative expenses increased 10% or $2.4 million
due in part to an increase in occupancy costs related to additional warehousing
and distribution facilities as well as an increase in professional fees and
depreciation related to the upgrading of computer systems and relocation of the
information technology group supporting the North America operations. There were
also higher communication costs across all regions, due to a higher volume of
transactions. Increases in travel costs and bad debt expense were also
experienced.
Total Other income/(expense), net increased $1.5 million. The Company reported
Interest, net of $1.2 million for the second quarter of this year compared to
$0.1 million last year. The increase in Interest, net was attributable to
interest income on IRS tax refunds and to a reduction in the Company's debt
levels. Income from affiliates during the quarter was lower than the same period
last year due, in part, to the impact of the General Motors strike and the
downturn in the Venezuela economy on the Company's automotive logistics
affiliate. Other, net increased $0.6 million due primarily to overall foreign
currency exchange net gains in Asia Pacific.
The effective income tax rate for the second quarter was 37% compared to 35.2%
for the comparable period of 1997. The effective tax rate for 1998 is estimated
based on the geographic mix of taxable income.
Six Months ended June 30, 1998 vs 1997:
- - ---------------------------------------
Revenue for the first six months was $321.1 million compared to $317.3 million
for the same period in 1997. Net revenue, which represents revenue less freight
consolidation costs, was up 6% to $134.2 million compared to $126.5 million for
the same period in 1997. Net revenue increased despite a negative foreign
exchange effect of approximately 7% resulting from a stronger U.S. dollar when
converting foreign currency net revenues into U.S. dollars for financial
reporting purposes. Net income rose 16% to $13.0 million as compared to $11.2
million for the six months ended June 30, 1997.
Air freight forwarding revenue for the first six months was $205.2 million
compared with $202.2 million for the comparable period in 1997. Air freight
forwarding net revenue increased 7% or $3.4 million over the prior period due
primarily to improved margins. In Asia Pacific, the Company handled higher
volumes with higher margins. In Europe, revenue and net revenue increased due to
higher volumes handled. In North America, decreases in export activity to Asia
Pacific more than offset increases in volume shipped to other parts of the
world. This resulted in an overall reduction in air freight forwarding revenue
and net revenue for the region.
Worldwide, the air freight revenue generated increased 1% due to growth in all
regions except North America. Effective management of carrier costs produced an
increase in net revenue of 7%.
Ocean freight forwarding revenue decreased 6% or $3.4 million over the prior
year, while ocean freight forwarding net revenue was substantially unchanged.
The Company's North America operations experienced lower volumes as well as a
shift of export activity from Asia Pacific to other parts of the world,
resulting in a revenue decrease. The overall revenue decrease was offset by
effective management of carrier costs resulting in flat net revenue.
Customs brokerage and other net revenue increased 7%, or $4.2 million for the
first six months, driven by higher import activity, primarily in Europe. In Asia
Pacific, imports declined due to weakened local currencies.
<PAGE>
Salaries and related costs increased 4% as a result of hiring more employees to
serve new customers and to handle business growth. However, salaries as a
percentage of net revenues dropped one percentage point.
Operating, selling, and administrative expenses increased 10% or $4.3 million
due in part to an increase in occupancy costs related to additional warehousing
and distribution facilities as well as an increase in professional fees and
depreciation related to the upgrading of computer systems and relocation of the
information technology group supporting the North America operations. There were
also higher communication costs across all regions, due to a higher volume of
transactions. Increases in travel costs and bad debt expense were also
experienced.
Total Other income/(expense), net increased $2.4 million. The Company reported
interest income of $1.8 million for the first six months of this year compared
to interest expense of $0.1 million last year. The increase in Interest, net was
attributable to interest income on IRS tax refunds and to a reduction in the
Company's debt levels. Income from affiliates for the first six months was 6%
higher than the same period last year due to 33% higher income during the first
quarter of this year compared to last year. This growth was partially offset
during the second quarter by the impact of the General Motors strike and the
downturn in the Venezuela economy on the Company's automotive logistics
affiliate. Other, net increased $0.3 million due primarily to overall foreign
currency exchange net gains in Asia Pacific.
The effective income tax rate for the first six months was 37% compared to 36.1%
for the comparable period of 1997. The effective tax rate for 1998 is estimated
based on the geographic mix of taxable income.
Liquidity and Capital Resources
- - -------------------------------
Net cash provided by operations increased to $30.3 million for the six months
ended June 30, 1998, from $12.8 million during the same period last year. The
Company received $16.0 million from the sale of short-term investments for the
six months ended June 30, 1998. The Company used cash of $12.7 million cash to
acquire businesses for the six months ended June 30, 1998. The Company reduced
commercial paper issued and outstanding by $15.0 million, from $25.0 million as
of December 31, 1997 to $10.0 million as of June 30, 1998.
Working capital decreased $12.0 million during the six months ended June 30,
1998. This is primarily attributable to a reduction in other current assets,
and an increase in trade payables and other liabilities.
Capital expenditures for the Company for the six months ended June 30, 1998,
were $5.0 million. Capital expenditures for the year are expected to be
comparable to 1997, depending on lease vs. buy opportunities.
The semi-annual dividend of $0.135 per share declared in December 1997 was paid
during the first quarter of 1998 for a total of $2.2 million.
The Company makes significant disbursements on behalf of its customers for
transportation costs and customs duties. The billings to customers for these
disbursements, which are several times the amount of revenue and fees derived
from these transactions, are not recorded as revenue and expense on the
Company's income statement, but are reflected in the Company's Trade Receivables
and Trade Payables.
Management believes that operating cash flow, the Company's current financial
structure and borrowing capacity will be adequate to fund its operations,
finance capital expenditures and acquisitions, and pay dividends to
stockholders.
<PAGE>
Year 2000
- - ---------
As an international freight forwarder, customs broker and supply chain logistics
provider operating in many countries, the Company is dependent on computer
systems and applications to conduct its business. The Company is currently
engaged in a project to upgrade its information, accounting and operational
systems to provide a more integrated and cost effective means of conducting its
business. A critical factor in this project is ensuring the software programs
purchased or designed internally are Year 2000 compliant.
The Company has substantially completed the inventory phase for its purchased
and internally developed software applications. The assessment and remediation
stages are currently underway. This phase is expected to be substantially
complete by March 31, 1999. Testing and certification is targeted for completion
by September, 1999.
In addition, the Company has begun an evaluation of certain facilities'
infrastructure components.
The Company has initiated communications with its critical external
relationships to determine the extent to which the Company's interface systems
are vulnerable to those third parties' failure to remediate their own Year 2000
issues. However, there can be no guarantee that the systems of other companies
on which the Company relies will be timely converted and would not have an
adverse effect on the Company's operations.
The costs of the Year 2000 compliance efforts are being funded with cash flows
from operations. Some of these costs relate solely to the modification of
existing systems, while others are for new systems which will improve business
efficiency. In total, these costs are not expected to be substantially different
from the normal, recurring costs that are incurred for systems development and
implementation. As a result, these costs are not expected to have a material
adverse effect on the Company's overall results of operations or cash flows.
The Company's current estimate of the amount of time and costs necessary to
remediate and test its computer systems are based on the facts and circumstances
existing at this time. The estimates were derived using assumptions of future
events including the continued availability of certain resources, third party
modification plans and implementation success and other factors. However, there
can be no guarantee that these estimates will be achieved, and actual results
could differ materially from these estimates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not yet applicable.
<PAGE>
II. OTHER INFORMATION
- - ----------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on May 11, 1998. Peter
Gibert and Edwin J. Holman were elected as directors, as tabulated
below:
Against or
Election of Directors For Withheld
--- --------
Peter Gibert 14,054,301 37,106
Edwin J. Holman 14,054,010 37,397
In addition, Wesley J. Fastiff, John M. Kaiser, John M. Lille, Ray
C. Robinson, Jr. and Frank J. Wezniak will continue as directors.
Additionally, the voting results of a proposal to approve the
addition of 500,000 shares to the 1994 Omnibus Equity Incentive
Plan were as follows:
Against or
For Withheld
--- --------
Addition of 500,000 shares
to the 1994 Omnibus Equity
Incentive Plan. 8,567,857 5,523,550
ITEM 5. OTHER INFORMATION
In accordance with Rule 14a-4(c)(1) promulgated by the Securities
and Exchange Commission, management proxies intend to use their
discretionary voting authority with respect to any shareholder
proposal raised at the Company's annual meeting as to which the
proponent fails to notify the Company on or before February 10,
1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 11.1, Computation of Earnings Per Share, EDGAR filing
only. Exhibit 27, Financial Data Schedule, EDGAR filing only.
(b) Form 8-K:
The Company did not file any reports on Form 8-K during the
three months ended June 30, 1998.
<PAGE>
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CIRCLE INTERNATIONAL GROUP, INC.
--------------------------------
Registrant
Dated: August 14, 1998
/S/ Peter Gibert
-------------------------------
Peter Gibert,
Chairman of the Board
/S/ Janice Kerti
-------------------------------
Janice Kerti, Senior Vice President
and Chief Financial Officer
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 7,469 $ 6,630 $ 13,043 $ 11,221
--------- --------- --------- ---------
Average shares of common
stock outstanding
during the period 16,255 15,998 16,240 15,971
--------- --------- --------- ---------
Net income per share - basic $ 0.46 $ 0.41 $ 0.80 $ 0.70
========= ========= ========= =========
Average shares of common
stock outstanding
during the period 16,255 15,998 16,240 15,971
Incremental number of
shares from assumed
exercise of stock options 357 381 342 377
--------- --------- --------- ---------
16,612 16,379 16,582 16,348
Net income per share - diluted $ 0.45 $ 0.40 $ 0.79 $ 0.69
========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
FINANCIAL DATA SCHEDULE
Circle International Group, Inc., and Subsidiaries
(in thousands, except per share amounts)
This schedule contains summary financial information extracted from the
condensed consolidated financial statements from the Company's form 10-Q for the
six month period ending June 30, 1998, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 27814
<SECURITIES> 18493
<RECEIVABLES> 218209
<ALLOWANCES> 6995
<INVENTORY> 0
<CURRENT-ASSETS> 279002
<PP&E> 148802
<DEPRECIATION> 68133
<TOTAL-ASSETS> 440190
<CURRENT-LIABILITIES> 194011
<BONDS> 0
0
0
<COMMON> 29513
<OTHER-SE> 180147
<TOTAL-LIABILITY-AND-EQUITY> 440190
<SALES> 0
<TOTAL-REVENUES> 321052
<CGS> 0
<TOTAL-COSTS> 186886
<OTHER-EXPENSES> 118655
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 926
<INCOME-PRETAX> 20703
<INCOME-TAX> 7660
<INCOME-CONTINUING> 13043
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13043
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0.79
</TABLE>
