<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 March 31, 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 May 11, 2000, the number of shares outstanding of the registrant's
Common Stock was 17,642,417.
<PAGE>
TABLE OF CONTENTS
Part I. Financial Information Page
Item 1. Financial Statements:
Condensed Consolidated Income
Statements for the three months ended
March 31, 2000 and 1999 3
Condensed Consolidated Balance Sheets,
March 31, 2000 and December 31, 1999 4
Condensed Consolidated Statements of
Cash Flows for the three months ended
March 31, 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 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 11
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Page 2
<PAGE>
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CIRCLE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited, in thousands, except per share amounts)
Three Months Ended
March 31,
2000 1999
<S> <C> <C>
Revenue $ 216,161 $ 182,853
Freight consolidation costs 131,517 106,687
-------------- --------------
Net revenue 84,644 76,166
Other costs and expenses:
Salaries and related 47,864 42,257
Operating, selling and administrative 32,152 31,621
-------------- --------------
Total other costs and expenses 80,016 73,878
-------------- --------------
Income from operations 4,628 2,288
Other income (expense):
Interest income (expense), net (262) 75
Income from affiliates, net 386 504
Other, net 230 86
-------------- --------------
Total other income, net 354 665
-------------- --------------
Income before taxes 4,982 2,953
Taxes on income 1,804 1,078
-------------- --------------
Net income $ 3,178 $ 1,875
============== ==============
Net income per share
Basic $ 0.18 $ 0.11
============== ==============
Diluted $ 0.18 $ 0.11
============== ==============
Weighted average common
shares outstanding:
Basic 17,515 17,109
============== ==============
Diluted 17,708 17,164
============== ==============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
Page 3
<PAGE>
<TABLE>
CIRCLE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share amounts)
March 31, December 31,
2000 1999
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 58,465 $ 40,347
Short-term investments 10,843 14,366
Trade receivables, less allowance for doubtful
accounts of: 2000, $7,866; 1999, $7,835 274,189 284,504
Other receivables 9,876 10,415
Other current assets 8,145 8,402
--------------- ---------------
Total current assets 361,518 358,034
Property: 194,757 186,807
Less accumulated depreciation (86,824) (83,953)
--------------- ---------------
Property, net 107,933 102,854
Equity securities 771 770
Investments in unconsolidated affiliates 44,855 48,207
Goodwill, net 31,527 31,166
Other assets 5,700 4,361
--------------- ---------------
Total assets $ 552,304 $ 545,392
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 4,593 $ 7,801
Trade payables 187,547 187,724
Accrued salaries and related costs 14,364 17,008
Dividends payable - 2,349
Income taxes payable 4,942 8,161
Other liabilities 25,902 27,350
--------------- ---------------
Total current liabilities 237,348 250,393
Minority interests 9,866 5,809
Deferred income taxes 12,896 12,602
Capital lease obligation 3,275 3,369
Long-term notes payable 42,591 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, 17,629,382; 1999, 17,419,001 39,794 35,612
Retained earnings 223,605 220,437
Accumulated other comprehensive loss (17,071) (15,074)
--------------- ---------------
Total stockholders' equity 246,328 240,975
--------------- ---------------
Total liabilities and stockholders' equity $ 552,304 $ 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)
<CAPTION>
Three Months Ended
March 31,
2000 1999
---------------- ---------------
<S> <C> <C>
Operating activities:
Net income $ 3,178 $ 1,875
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,761 3,790
Provision for doubtful accounts 1,004 879
Deferred income taxes 308 69
Gains on sales of assets (413) (70)
Equity in earnings (losses) of affiliates,
net of dividends received 40 (244)
Net effect of changes in working capital 10,167 (3,154)
---------------- ---------------
Net cash provided by operating activities 19,045 3,145
---------------- ---------------
Investing activities:
Proceeds from sales of property 911 100
Proceeds from sales of marketable equity securities 7 500
Net proceeds from sales of short-term investments 4,702 524
Capital expenditures (10,623) (4,297)
Acquisitions of businesses (4,172) (117)
Cash from newly consolidated susidiary 5,582 -
---------------- ---------------
Net cash used in investing activities (3,593) (3,290)
---------------- ---------------
Financing activities:
Issuance of long-term notes payable 10,346 10,439
Repayment of short-term notes payable (8,857) (6,081)
Dividends (2,360) (2,313)
Proceeds from issuance of stock 3,909 92
---------------- ---------------
Net cash provided by financing activities 3,038 2,137
Effect of exchange rate changes on cash (372) (1,276)
---------------- ---------------
Increase in cash and equivalents 18,118 716
Cash and equivalents at beginning of period 40,347 44,586
---------------- ---------------
Cash and equivalents at end of period $ 58,465 $ 45,302
================ ===============
</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
March 31, 2000 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. (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
March 31,
2000 1999
(in thousands)
<S> <C> <C>
Net Income $ 3,178 $ 1,875
Other comprehensive income (loss):
Change in cumulative translation adjustments (2,001) (2,536)
Unrealized gains on marketable securities, net 4 40
--------------- --------------
Comprehensive income (loss) $ 1,181 $ (621)
=============== ==============
</TABLE>
Note 3 - New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which was amended by SFAS 137. SFAS No.
133 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 2001. Circle has not assessed
the impact of this new statement.
Note 4 - Acquisition
Effective January 1, 2000, the Company acquired an additional 1%
interest in Circle Freight International (Taiwan) Ltd. and began consolidating
this subsidiary and recognizing a 49% minority interest.
Page 6
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Note 5 - 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 March 31, 2000
Total revenue $ 92,604 $ 49,035 $ 82,045 $ - $ (7,523) $ 216,161
Transfers between regions (2,728) (2,217) (2,578) - 7,523 -
----------------------------------------------------------------------------------------
Revenues from customers $ 89,876 $ 46,818 $ 79,467 $ - $ - $ 216,161
========================================================================================
Net revenue $ 43,595 $ 22,299 $ 18,750 $ - $ - $ 84,644
========================================================================================
Income (loss) from operations $ 4,914 $ 3,085 $ 2,609 $ (5,980) $ - $ 4,628
========================================================================================
Three months ended March 31, 1999
Total revenue $ 90,259 $ 41,212 $ 56,451 $ - $ (5,069) $ 182,853
Transfers between regions (1,214) (1,682) (2,173) - 5,069 -
----------------------------------------------------------------------------------------
Revenues from customers $ 89,045 $ 39,530 $ 54,278 $ - $ - $ 182,853
========================================================================================
Net revenue $ 39,092 $ 19,957 $ 17,117 $ - $ - $ 76,166
========================================================================================
Income (loss) from operations $ 5,045 $ 2,461 $ 2,841 $ (8,059) $ - $ 2,288
========================================================================================
</TABLE>
Revenue from transfers between regions represents approximate amounts that
would be charged if the services were provided by an unaffiliated company.
Total regional revenue is reconciled with total consolidated revenue by
eliminating inter-regional revenue.
Page 7
<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>
Three Months Ended
March 31,
<S> <C> <C> <C> <C>
2000 1999
Revenue
Air freight forwarding $ 137,774 64% $ 119,216 65%
Ocean freight forwarding 37,456 17% 27,396 15%
Customs brokerage and other 40,931 19% 36,241 20%
------------------ ------------------
Total $ 216,161 100% $ 182,853 100%
================== ==================
<S> <C> <C> <C> <C>
Net Revenue
Air freight forwarding $ 32,080 38% $ 29,634 39%
Ocean freight forwarding 11,633 14% 10,291 13%
Customs brokerage and other 40,931 48% 36,241 48%
------------------ ------------------
Total $ 84,644 100% $ 76,166 100%
================== ==================
</TABLE>
Three Months ended March 31, 2000 vs 1999:
Revenue for the quarter increased 18% to $216.2 million compared to $182.9
million for the same period in 1999. Net Revenue, which represents revenue
less freight consolidation costs, increased 11% to $84.6 million compared to
$76.2 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 $13.9 million
and net revenue of $1.5 million was recognized from the consolidation of
Taiwan. Overall, revenue and net revenue were both negatively impacted by
depressed activity levels in January as customers utilized surplus inventory
built up at the end of 1999.
Airfreight forwarding revenue increased 16% or $18.6 million over 1999 as a
result of volume increases in all regions. Air freight forwarding net
revenue increased 8% or $2.4 million. The amounts reported by Taiwan for the
quarter for air freight forwarding revenue and net revenue were $12.3 million
and $0.9 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 1.6 percentage points, from 24.9% in the first
quarter of 2000 to 23.3% as compared to the same period in 1999.
Page 8
<PAGE>
Ocean freight forwarding revenue increased 37% or $10.1 million over 1999
while ocean freight forwarding net revenue increased 13% or $1.3 million to
$11.6 million for the first quarter of 2000. The increases were principally
due to substantial volume increases in Asia Pacific. The ocean freight
margin declined 6.5 percentage points from 37.6% for the first quarter of 1999
to 31.1% for the same period this year. This decline reflected the conversion
of direct shipment to consolidation, the inclusion of Taiwan activity and
yield pressures associated with higher carrier costs.
Customs brokerage and other net revenue, which includes warehousing,
distribution and other logistics services increased 13% or $4.7 million.
Custom brokerage revenue increased due to higher inbound activity to
North America and the addition of significant national account customers in
the USA. Warehousing and distribution revenue increased principally in
North America and Europe as a result of expansion of warehousing facilities in
1999 and additional revenue resulting from the greater number of companies
outsourcing logistics activity.
Salaries and related costs increased 13% or $5.6 million. As a percentage of
net revenue, salaries and related costs were 56.5% in the first quarter of
2000 compared to 55.5% in the same period of 1999. The percentage increase is
attributed to reduced activity levels in January 2000 resulting from Y2K
inventory build up in 1999. Operating, selling and administrative expenses
increased by 2% or $0.5 million. The operating margin improved from 3.0% to
5.5%. This was mainly due to the absence of $3.2 million of Y2K preparedness
expenses incurred in the first quarter of 1999 with $2.9 million of this
amount attributable to the operating, selling and administrative expense
category.
Total other income, net decreased to $0.4 million in the first quarter of
2000 from $0.7 million in the first 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 due to the change in reporting of Taiwan, from an
unconsolidated affiliate where Circle owned 50% 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 quarter of 1999, the
income from affiliates amount attibuted to Taiwan was $0.3 million. For the
first quarter of 2000, the minority interest expense attributed to Taiwan was
$0.3 million. Other, net increased due to additional foreign currency
transactional gains which were partially offset by the additional minority
interest expense for Taiwan.
The effective income tax rate for the first 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.
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 are 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 $19.0 million for the three
months ended March 31, 2000 compared to $3.1 million during the same period in
1999. The increase in 2000 was primarily due to a decrease in net working
capital of $10.2 million in the three months ended March 31, 2000 versus an
increase in working capital of $3.2 million during the same period in 1999.
The change was due to timing of receipts and disbursements.
Cash used in investing activities for the three months ended March 31, 2000
was $3.6 million compared to $3.3 million in the same period last year.
Circle incurred capital expenditures of $10.6 million during the first quarter
of 2000 mainly due to information technology initiatives and general
facilities expansion mainly in North America. The Company acquired cash from
the acquisition of Taiwan, and made an installment payment for an acquisition
completed in 1998. Circle liquidated $4.7 million of short-term investments
mainly to fund the installment acquisition payment.
Page 9
<PAGE>
Cash provided by financing activities for the three months ended March 31,
2000 was $3.0 million versus $2.1 million during the same period last year.
Long-term notes payable increased $10.3 million due primarily to an increase
of commercial paper issued and outstanding, from $25.0 million as of
December 31, 1999 to $35.0 million as of March 31, 2000. Short-term notes
payable decreased $8.9 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. Proceeds from the
issuance of stock amounted to $3.9 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 of the Notes to Condensed Consolidated Financial Statements for
a description of new accounting pronouncements that includes management's
discussion and analysis of new accounting pronouncements.
Page 10
<PAGE>
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
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27, Financial Data Schedule, EDGAR filing
only.
(b) Form 8-K:
Circle did not file any reports on Form 8-K
during the three months ended March 31, 2000.
Page 11
<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: May 15, 2000
/S/ David I. Beatson
David I. Beatson, President
and Chief Executive Officer
/S/ Janice Kerti
Janice Kerti, Senior Vice President
and Chief Financial Officer
Page 12
<PAGE>
<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 Circle's form 10-Q for the
three month period ending March 31, 2000, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000045674
<NAME> CIRCLE INTERNATIONAL GROUP, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 58,465
<SECURITIES> 10,843
<RECEIVABLES> 274,189
<ALLOWANCES> 7,866
<INVENTORY> 0
<CURRENT-ASSETS> 361,518
<PP&E> 194,757
<DEPRECIATION> 86,824
<TOTAL-ASSETS> 552,304
<CURRENT-LIABILITIES> 237,348
<BONDS> 0
0
0
<COMMON> 39,794
<OTHER-SE> 240,676
<TOTAL-LIABILITY-AND-EQUITY> 552,304
<SALES> 0
<TOTAL-REVENUES> 216,161
<CGS> 0
<TOTAL-COSTS> 131,517
<OTHER-EXPENSES> 80,016
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 893
<INCOME-PRETAX> 4,982
<INCOME-TAX> 1,804
<INCOME-CONTINUING> 3,178
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,178
<EPS-BASIC> 0.18
<EPS-DILUTED> 0.18
</TABLE>
