<PAGE>
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, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-8664
[OBJECT OMITTED] 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 3, 2000, the number of shares outstanding of the registrant's
Common Stock was 17,774,458.
<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, 2000 and 1999 3
Condensed Consolidated Balance Sheets,
June 30, 2000 and December 31, 1999 4
Condensed Consolidated Statements of
Cash Flows for the six months ended
June 30, 2000 and 1999 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 13
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 2
<PAGE>
I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CIRCLE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited, in thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- --------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenue $ 237,040 $ 195,215 $ 453,201 $ 378,068
Freight consolidation costs 145,896 113,764 277,413 220,451
------------ ----------- ------------ ----------
Net revenue 91,144 81,451 175,788 157,617
Other costs and expenses:
Salaries and related 47,720 42,516 95,584 84,773
Operating, selling and administrative 33,964 33,246 66,116 64,867
------------ ---------- ------------- ----------
Total other costs and expenses 81,684 75,762 161,700 149,640
------------ ---------- ------------- ----------
Income from operations 9,460 5,689 14,088 7,977
Other income (expense):
Interest income (expense), net (405) 98 (667) 173
Income from affiliates, net 758 1,202 1,144 1,706
Other, net 409 602 639 687
------------ ----------- ------------- ----------
Total other income, net 762 1,902 1,116 2,566
------------ ----------- ------------- -----------
Income before taxes 10,222 7,591 15,204 10,543
Taxes on income 3,700 2,771 5,504 3,848
------------ ------------ ------------- ------------
Net income $ 6,522 $ 4,820 $ 9,700 $ 6,695
============ ============ ============= ============
Net income per share
Basic $ 0.37 $ 0.28 $ 0.55 $ 0.39
============ ============ ============= =============
Diluted $ 0.37 $ 0.28 $ 0.55 $ 0.39
============ ============ ============= =============
Weighted average common
shares outstanding:
Basic 17,646 17,148 17,574 17,130
============ ============ ============== =============
Diluted 17,790 17,269 17,741 17,218
============ ============ ============== =============
Dividends declared per share $ 0.135 $ 0.135 $ 0.135 $ 0.135
============ ============ ============== =============
============ ============ ============== =============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
Page 3
<PAGE>
<TABLE>
CIRCLE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share amounts)
June 30, December 31,
2000 1999
---------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 52,490 $ 40,347
Short-term investments 11,260 14,366
Trade receivables, less allowance for doubtful
accounts of: 2000, $7,267; 1999, $7,835 292,369 284,504
Other receivables 9,204 10,415
Other current assets 7,334 8,402
---------------- ----------------
Total current assets 372,657 358,034
Property: 195,142 186,807
Less accumulated depreciation (89,381) (83,953)
---------------- ----------------
Property, net 105,761 102,854
Investments in unconsolidated affiliates 45,630 48,207
Goodwill, net 31,001 31,166
Other assets 6,540 5,131
---------------- ----------------
Total assets $ 561,589 $ 545,392
================ ================
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 1,447 $ 7,801
Trade payables 196,146 187,724
Accrued salaries and related costs 15,938 17,008
Dividends payable 2,389 2,349
Income taxes payable 4,028 8,161
Other liabilities 26,999 27,350
---------------- ----------------
Total current liabilities 246,947 250,393
Minority interests 9,325 5,809
Deferred income taxes 12,820 12,602
Capital lease obligation 3,178 3,369
Long-term notes payable 40,257 32,244
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, $1 par: shares authorized, 1,000,000;
none issued - -
Common stock, $1 par: shares authorized, 40,000,000;
shares issued and outstanding
2000, 17,679,890; 1999, 17,419,001 40,918 35,612
Retained earnings 227,737 220,437
Accumulated other comprehensive loss (19,593) (15,074)
---------------- ----------------
Total stockholders' equity 249,062 240,975
---------------- ----------------
Total liabilities and stockholders' equity $ 561,589 $ 545,392
================ ================
================ ================
</TABLE>
See Notes to Condensed Consolidated Financial Statements
Page 4
<PAGE>
<TABLE>
CIRCLE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Six Months Ended
June 30,
2000 1999
----------------- -----------------
<S> <C> <C>
Operating activities:
Net income $ 9,700 $ 6,695
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 9,791 7,494
Provision for doubtful accounts 2,289 1,849
Deferred income taxes 311 420
Gains on sales of assets (797) (762)
Equity in earnings of affiliates,
net of dividends received (1,154) (639)
Net effect of changes in working capital 1,914 (15,524)
----------------- -----------------
Net cash provided by (used in) operating activities 22,054 (467)
----------------- -----------------
Investing activities:
Proceeds from sales of property 1,957 2,399
Proceeds from sales of marketable equity securities 7 500
Net proceeds from sales (purchases)
of short-term investments 4,285 (723)
Capital expenditures (14,861) (9,526)
Acquisitions of businesses (4,189) (1,878)
Cash from newly consolidated subsidiary 5,582 -
----------------- -----------------
Net cash used in investing activities (7,219) (9,228)
----------------- -----------------
Financing activities:
Issuance of long-term notes payable 7,834 5,950
Repayment of short-term notes payable (12,003) (4,682)
Dividends (2,360) (2,313)
Proceeds from issuance of stock 5,018 1,022
----------------- -----------------
Net cash used in financing activities (1,511) (23)
Effect of exchange rate changes on cash (1,181) (1,363)
----------------- -----------------
Increase (decrease) in cash and equivalents 12,143 (11,081)
Cash and equivalents at beginning of period 40,347 44,586
----------------- -----------------
Cash and equivalents at end of period $ 52,490 $ 33,505
================= =================
================= =================
</TABLE>
See Notes to Condensed Consolidated Financial Statements
Page 5
<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,
2000 and the results of operations and cash flows for the periods presented in
conformity with generally accepted accounting principles generally accepted in
the United States of America. 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.(Circle) 1999 Annual Report to Stockholders
incorporated by reference in Circle's 1999 Form 10-K, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this Form 10-Q. Certain 1999 amounts have been
reclassified to conform to the 2000 presentation.
Note 2 - Comprehensive Income
Other comprehensive income represents foreign currency translation adjustments
and unrealized gains and losses on marketable securities classified as
available-for-sale incurred during the respective quarters.
Circle's total comprehensive income was as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2000 1999 2000 1999
(in thousands) (in thousands)
<S> <C> <C>
Net Income $ 6,522 $ 4,820 $ 9,700 $ 6,695
Other comprehensive income (loss):
Change in cumulative translation adjustments (2,521) (489) (4,522) (3,025)
Unrealized gains (losses) on marketable securities, net (2) (1) 2 39
------------- ------------- ------------- -------------
Comprehensive income (loss) $ 3,999 $ 4,330 $ 5,180 $ 3,709
============= ============= ============= =============
============= ============= ============= =============
</TABLE>
Note 3 - New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which defines
derivatives, requires that derivatives be carried at fair value and provides
for hedge accounting when certain conditions are met. This statement is
effective for Circle beginning in the year 2001. Circle believes adoption of
this statement will not have a material impact on its consolidated financial
statements.
Note 4 - New Staff Accounting Bulletin
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which provides the SEC staff's views on selected revenue
recognition issues. The guidance in SAB 101 must be adopted during the
Company's quarter ended December 31, 2000 and the effects, if any, are required
to be recorded through a retroactive, cumulative-effect adjustment as of the
beginning of the fiscal year, with a restatement of all prior interim quarters
in the year. Management has not completed its evaluation of the effects, if
any, that SAB 101 will have on the Company's income statement presentation,
operating results or financial position.
Page 6
<PAGE>
Note 5 - Acquisitions
Effective January 1, 2000, the Company acquired an additional 1% interest in
Circle Freight International (Taiwan) Ltd. and began consolidating this
subsidiary, recognizing a 49% minority interest.
Note 6 - Subsequent Events
On July 2, 2000 the Company signed a definitive agreement to merge with EGL,
Inc. ("EGL"), a provider of air freight forwarding and other transportation and
logistics services. In conjunction with the agreement, each share of the
Company's common stock will be converted into one share of EGL common stock.
When complete, EGL shareholders will own approximately 63 percent and Circle
shareholders will own approximately 37 percent of the combined company's
outstanding shares. The business combination is expected to be accounted for
as a pooling of interests. Following the merger, Circle will be a wholly
owned subsidiary of EGL. Consummation of the merger is conditioned upon,
among other things, the approval of a majority of the Company and EGL's
outstanding shares and other customary conditions.
On July 28, 2000 the Federal Trade Commission and the Department of Justice
granted a request for early termination of the 15-day waiting period under the
Hart-Scott-Rodino Antitrust Improvement Acts in connection with the impending
merger.
Page 7
<PAGE>
Note 7 - Business Segment Information
Circle's reportable segments are geographic segments that offer similar
products and services. They are managed separately because each segment
requires close customer contact and each segment is affected by similar
economic conditions. Certain information regarding Circle's operations by
region is summarized below.
<TABLE>
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Europe & Asia & Elimi- Consoli-
Americas Middle East South Pacific Corporate nations dated
-----------------------------------------------------------------------------------------
Three months ended June 30, 2000
Total revenue $ 98,083 $ 54,102 $ 94,065 $ - $ (9,210) $ 237,040
Transfers between regions (3,502) (2,678) (3,030) - 9,210 -
-----------------------------------------------------------------------------------------
Revenues from customers $ 94,581 $ 51,424 $ 91,035 $ - $ - $ 237,040
=========================================================================================
Net revenue $ 46,024 $ 24,333 $ 20,787 $ - $ - $ 91,144
=========================================================================================
Income (loss) from operations $ 8,361 $ 5,243 $ 3,342 $ (7,486) $ - $ 9,460
=========================================================================================
=========================================================================================
Three months ended June 30, 1999
Total revenue $ 90,328 $ 45,390 $ 65,391 $ - $ (5,894) $ 195,215
Transfers between regions (2,138) (1,307) (2,449) - 5,894 -
-----------------------------------------------------------------------------------------
Revenues from customers $ 88,190 $ 44,083 $ 62,942 $ - $ - $ 195,215
=========================================================================================
Net revenue $ 41,646 $ 21,457 $ 18,348 $ - $ - $ 81,451
=========================================================================================
Income (loss) from operations $ 6,112 $ 3,506 $ 3,869 $ (7,798) $ - $ 5,689
=========================================================================================
=========================================================================================
Six months ended June 30, 2000
Total revenue $ 190,687 $ 103,137 $ 176,110 $ - $ (16,733) $ 453,201
Transfers between regions (6,230) (4,895) (5,608) - 16,733 -
-----------------------------------------------------------------------------------------
Revenues from customers $ 184,457 $ 98,242 $ 170,502 $ - $ - $ 453,201
=========================================================================================
Net revenue $ 89,619 $ 46,632 $ 39,537 $ - $ - $ 175,788
=========================================================================================
Income (loss) from operations $ 13,275 $ 8,328 $ 5,951 $ (13,466) $ - $ 14,088
=========================================================================================
=========================================================================================
Six months ended June 30, 1999
Total revenue $ 180,586 $ 86,603 $ 121,842 $ - $ (10,963) $ 378,068
Transfers between regions (3,351) (2,990) (4,622) - 10,963 -
-----------------------------------------------------------------------------------------
Revenues from customers $ 177,235 $ 83,613 $ 117,220 $ - $ - $ 378,068
=========================================================================================
Net revenue $ 80,738 $ 41,414 $ 35,465 $ - $ - $ 157,617
=========================================================================================
Income (loss) from operations $ 11,157 $ 5,967 $ 6,710 $ (15,857) $ - $ 7,977
=========================================================================================
</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 8
<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 report 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, and other risk factors detailed in this and other of Circle's
SEC filings.
Results of Operations
Circle's principal services are international air freight forwarding, ocean
freight forwarding, and customs brokerage and other value added logistics
services. The following table provides the revenue and net revenue, in
thousands of dollars and percentages, attributable to Circle'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 Circle's principal services.
<TABLE>
<CAPTION>
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2000 1999 2000 1999
Revenue
Air freight forwarding $ 149,845 63% $ 125,829 64% $ 287,619 63% $ 245,046 65%
Ocean freight forwarding 42,172 18% 32,009 17% 79,628 18% 59,404 16%
Customs brokerage and other 45,023 19% 37,377 19% 85,954 19% 73,618 19%
---------------------- ---------------------- ---------------------- ---------------------
Total $ 237,040 100% $ 195,215 100% $ 453,201 100% $ 378,068 100%
====================== ====================== ====================== =====================
====================== ====================== ====================== =====================
Net Revenue
Air freight forwarding $ 33,543 37% $ 31,980 39% $ 65,623 37% $ 61,615 39%
Ocean freight forwarding 12,578 14% 12,094 15% 24,211 14% 22,384 14%
Customs brokerage and other 45,023 49% 37,377 46% 85,954 49% 73,618 47%
---------------------- ---------------------- ---------------------- ---------------------
Total $ 91,144 100% $ 81,451 100% $ 175,788 100% $ 157,617 100%
====================== ====================== ====================== =====================
====================== ====================== ====================== =====================
</TABLE>
Three Months ended June 30, 2000 vs 1999:
Revenue for the quarter increased 21% to $237.0 million compared to $195.2
million for the same period in 1999. Net revenue, which represents revenue
less freight consolidation costs, increased 12% to $91.1 million compared to
$81.5 million in 1999. Both revenue and net revenue benefited from the
consolidation of the accounts of Circle Freight International (Taiwan) Ltd.
("Taiwan"), formerly an unconsolidated affiliate whose results in prior years
were shown in the income from affiliates category. Revenue of $15.8 million
and net revenue of $1.5 million was recognized from the consolidation of Taiwan
in the second quarter of 2000.
Air freight forwarding revenue increased 19% or $24.0 million over 1999 as a
result of volume increases in all regions. Air freight forwarding net revenue
increased 5% or $1.6 million. The air freight forwarding revenue and net
revenue reported by Taiwan for the second quarter of 2000 were $13.8 million
and $1.0 million, respectively. The overall revenue increases were offset by
yield pressure associated with higher carrier costs. As a result, air freight
forwarding margins declined by 3.0 percentage points, from 25.4% in the second
quarter of 1999 to 22.4% for the same period in 2000.
Ocean freight forwarding revenue increased 32% or $10.2 million over 1999 while
ocean freight forwarding net revenue increased 4% or $0.5 million to $12.6
million for the second quarter of 2000. The increases were due to substantial
volume increases, primarily in Asia Pacific. The ocean freight margin declined
8.0 percentage points from 37.8% for the second quarter of 1999 to 29.8% for
the same period in 2000. This decline reflected the conversion of direct
shipments to consolidations, the inclusion of Taiwan activity and yield
pressures associated with higher carrier costs.
Page 9
<PAGE>
Customs brokerage and other revenue, which includes warehousing, distribution
and value-added logistics services increased 20% or $7.6 million. Custom
brokerage and import revenue increased due to higher inbound activity in
all regions and the addition of significant national account customers in the
USA. Warehousing and distribution revenue increased markedly as a result of
warehouse expansion efforts as well as additional revenue from outsourcing
trends.
Salaries and related costs increased 12% or $5.2 million over the second
quarter of 1999. As a percentage of net revenue, salaries and related costs in
the second quarter of 2000 were 52.4%, which was consistent with 52.2%
reflected during the same period in 1999. Operating, selling and
administrative expenses increased by 2% or $0.7 million. The operating margin
improved from 7.0% in the second quarter of 1999 to 10.4% for the same period
in 2000. This was mainly due to the absence of $3.0 million of Year 2000
preparedness expenses incurred in the second quarter of 1999, with $2.7 million
of this amount attributable to the operating, selling and administrative
expense category.
Total other income, net decreased to $0.8 million in the second quarter of 2000
from $1.9 million in the second quarter of 1999. The decrease was due, in
part, to a combination of a lower level of interest income resulting from
reduced short-term investments that were liquidated to fuel expansion
activity and higher interest expense from increased borrowings. Income from
affiliates declined primarily due to the change in reporting of Taiwan results
from an unconsolidated affiliate where Circle owned 50% in prior years to a
consolidated subsidiary with a minority interest of 49% in 2000. This change
resulted in lower income from affiliates and higher minority interest expense,
which is reported in the other, net category. For the second quarter of 1999,
the income from affiliates amount attributed to Taiwan was $0.3 million. For
the second quarter of 2000, the minority interest expense attributed to Taiwan
was $0.2 million. Other, net decreased by $0.2 million due to the fact that
second quarter 1999 results included a gain of $0.8 million on the sale of a
perishables distribution business. This decrease was partially offset by
higher foreign currency transaction gains in the second quarter of 2000.
The effective income tax rate for the second quarter of 2000 decreased slightly
to 36.2% compared to 36.5% for the same period in 1999. Circle's effective tax
rate fluctuates due to changes in the level of pre-tax income in foreign
countries that operate with different tax rates.
Six Months ended June 30, 2000 vs 1999:
Revenue for the first six months increased 20% to $453.2 million compared to
$378.1 million for the same period in 1999. Net revenue, which represents
revenue less freight consolidation costs, increased 12% to $175.8 million
compared to $157.6 million in the same period in 1999. Freight consolidation
costs increased 26% or $57.0 million over 1999. Both revenue and net revenue
in 2000 benefited from the consolidation of the accounts of Taiwan, formerly an
unconsolidated affiliate, by $29.8 million and $3.0 million, respectively.
Air freight forwarding revenue increased 17% or $42.6 million over 1999 as a
result of volume increases in all regions. Air freight forwarding net revenue
increased 7% or $4.0 million. The air freight forwarding revenue and net
revenue amounts reported by Taiwan for the six months ended June 30, 2000 were
$26.1 million and $1.9 million, respectively. The overall revenue increases
were offset by lower yields due to higher carrier costs, which included fuel
surcharges. As a result, air freight forwarding margins for the first six
months of 2000 declined by 2.3 percentage points, from 25.1% in 1999 to 22.8%
for the same period in 2000.
Ocean freight forwarding revenue increased 34% or $20.2 million over 1999 while
ocean freight forwarding net revenue increased 8% or $1.8 million to $24.2
million for the six months ended June 30, 2000. This product offering
benefited from volume increases generated predominantly in Asia Pacific. The
ocean freight margin declined 7.3 percentage points from 37.7% for the first
six months of 1999 to 30.4% for the same period in 2000. This decline
reflected conversion of direct shipments to consolidations and higher carrier
costs.
Customs brokerage and other revenue, which includes warehousing, distribution
and value-added logistics services, increased 17% or $12.3 million for the six
months ended June 30, 2000 compared to the same period in 1999. Custom
brokerage and import revenue increased $4.1 million or 9% due to higher inbound
activity reported by all regions and an increase in the number of entries filed
with regulatory authorities. Warehousing, distribution and logistics revenue
increased 31% or $8.3 million over 1999 as a result of expanded warehousing
facilities.
Page 10
<PAGE>
For the six months ended June 30, 2000, salaries and related costs increased
13% or $10.8 million compared to the same period in 1999. As a percentage of
net revenue, salaries and related costs were 54.4% in 2000 compared to 53.8% in
1999, reflecting additional labor hired on a transitional basis to support
specific customer projects. Operating, selling and administrative expenses
increased by 2% or $1.2 million. The operating margin improved from 5.1% in
1999 to 8.0% in 2000. This was mainly due to the absence of $6.2 million of
Year 2000 preparedness expenses incurred in the first six months of 1999, with
$5.7 million of this amount attributable to operating, selling and
administrative expenses.
Total other income, net decreased to $1.1 million in the first six months of
2000 from $2.6 million for the same period in 1999. The decrease was due, in
part, to a combination of a lower level of interest income resulting from
reduced short-term investments coupled with higher interest expense from
increased borrowings to support capital expenditures and working capital
demands. Income from affiliates declined primarily due to the change in
reporting of Taiwan, from an unconsolidated affiliate in prior years to a
consolidated subsidiary with a minority interest of 49%. This change resulted
in lower income from affiliates and higher minority interest expense, which is
reported in the other, net category. For the first six months of 1999, the
income from affiliates amount attributed to Taiwan was $0.5 million. For the
comparable period in 2000, the minority interest expense attributed to Taiwan
was $0.5 million. Other, net for the six months ended June 30, 2000 compared
to the same period in 1999 reflected a $0.8 million decrease resulting from a
gain on the sale of a perishables distribution business recognized in 1999,
offset by higher foreign currency transaction gains in 2000.
The effective income tax rate for the first six months of 2000 decreased
slightly to 36.2% compared to 36.5% for the same period in 1999. Circle's
effective tax rate fluctuates due to changes in the level of pre-tax income in
foreign countries that operate with different tax rates.
Merger with EGL, Inc.
On July 2, 2000 the Company signed a definitive agreement to merge with EGL,
Inc. ("EGL"), a provider of air freight forwarding and other transportation
and logistics services. In conjunction with the agreement, each share of the
Company's common stock will be converted into one share of EGL common stock.
When complete, EGL shareholders will own approximately 63 percent and Circle
shareholders will own approximately 37 percent of the combined company's
outstanding shares. The business combination is expected to be accounted for
as a pooling of interests. Following the merger, Circle will be a wholly
owned subsidiary of EGL. Consummation of the merger is conditioned upon, among
other things, the approval of a majority of the Company and EGL's outstanding
shares and other customary conditions.
On July 28, 2000 the Federal Trade Commission and the Department of Justice
granted a request for early termination of the 15-day waiting period under the
Hart-Scott-Rodino Antitrust Improvement Acts in connection with the impending
merger.
Liquidity and Capital Resources
Circle makes significant disbursements on behalf of its customers for
transportation costs and customs duties. The billings to customers for these
disbursements, which may be several times the amount of revenue and fees
derived from these transactions, are not recorded as revenue and expense on
Circle's income statement; rather, they are reflected in Circle's trade
receivables and trade payables.
Net cash provided by operating activities was $22.1 million for the six months
ended June 30, 2000 compared to $0.5 million used in operating activities
during the same period in 1999 due to a decrease in net working capital of
$1.9 million in 2000 versus an increase in working capital of $15.5 million
during the same period in 1999. The change was due to timing of receipts and
disbursements.
Cash used in investing activities for the six months ended June 30, 2000 was
$7.2 million compared to $9.2 million in the same period in 1999. Circle
incurred capital expenditures of $14.9 million during the first six months of
2000 mainly in conjunction with information technology initiatives and general
facilities expansion in North America and Europe. The Company recorded $5.6
million of cash upon the consolidation of Taiwan, and made an installment
payment for an acquisition completed in 1998. Circle liquidated $4.3 million
of short-term investments mainly to fund the installment acquisition payment.
Page 11
<PAGE>
Cash used in financing activities for the six months ended June 30, 2000 was
$1.5 million versus $23 thousand during the same period in 1999. Long-term
notes payable increased $7.8 million due primarily to an increase of commercial
paper issued and outstanding, from $25.0 million as of December 31, 1999 to
$33.0 million as of June 30, 2000. Short-term notes payable decreased $12.0
million mainly due to fluctuations in overnight loan balances used to cover
daily cash positions at certain locations. The semi-annual dividend of $0.135
per share declared in December 1999 totaling $2.4 million was paid in the first
quarter of 2000. A semi-annual dividend of $0.135 per share declared in June
2000 will be paid in September 2000. Proceeds from the issuance of stock
amounted to $5.0 million.
Management believes that operating cash flows, Circle's current financial
structure and borrowing capacity will be adequate to fund its operations,
finance capital expenditures and acquisitions, and pay dividends to
stockholders over the coming year.
New Accounting Pronouncements
See Note 3 and 4 of the Notes to Condensed Consolidated Financial Statements
for a description of new accounting pronouncements and Staff Accounting
Bulletins that includes management's discussion and analysis of new accounting
pronouncements and Staff Accounting Bulletins.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in exposure to market risk from that
discussed in Circle's 1999 annual report.
II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on May 16, 2000.
Ray C. Robinson, Jr. and John M. Kaiser were elected as
directors, as tabulated below:
Against or
Election of Directors For Percent Withheld Percent
Ray C. Robinson, Jr 15,183,493 97.69 359,266 2.31
John M. Kaiser 15,184,987 97.70 357,772 2.30
In addition, Peter Gibert, Edwin J. Holman and Wesley J. Fastiff continue as
directors.
Additionally, the voting results of a proposal to approve the adoption of the
2000 Stock Option Plan for Non-Employee Directors were as follows:
For: 12,276,299 78.98%
Against: 1,548,616 9.97%
Abstain: 1,717,844 11.05%
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27, Financial Data Schedule, EDGAR filing only.
(b) Form 8-K:
The Company filed the following report on Form 8-K on
May 15, 2000:
Item 5 - Other Events:
Announced the resignation of Chairman and Chief Executive
Officer David I. Beatson, and the appointment of Peter
Gibert as Interim Chairman and Chief Executive Officer.
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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 8, 2000
/S/ Peter Gibert
and Chief Executive Officer
/S/ Janice Kerti
Janice Kerti, Senior Vice President
and Chief Financial Officer
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