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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _________________ TO _________________
COMMISSION FILE NUMBER 1-9533
WORLD FUEL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
Florida 59-2459427
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
700 South Royal Poinciana Blvd., Suite 800, Miami Springs, Florida 33166
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code: (305) 884-2001
Securities Registered Pursuant to Section 12(b) of the Act:
NAME OF EXCHANGES
TITLE OF EACH CLASS: ON WHICH REGISTERED:
- -------------------- --------------------
Common Stock, par New York Stock Exchange
value $.01 per share Pacific Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K [ ]
The aggregate market value of the voting stock (which consists solely of shares
of common stock) held by non-affiliates of the registrant was $126,995,000
(computed by reference to the closing sale price as of May 16, 1996).
The registrant had 8,038,768 outstanding shares of common stock, par value $.01
per share, as of May 16, 1996.
Documents incorporated by reference:
Part III - Definitive Proxy Statement for the 1996 Annual Meeting of
Shareholders.
TABLE OF CONTENTS
PAGE
----
ITEM 1. BUSINESS 1
General 1
History 1
Aviation Fuel Services 2
Marine Fuel Services 3
Oil Recycling 4
Potential Liability and Insurance 4
Regulation 5
ITEM 2. PROPERTIES 9
ITEM 3. LEGAL PROCEEDINGS 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS 11
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER
MATTERS 12
ITEM 6. SELECTED FINANCIAL DATA 13
ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 16
Results of Operations 16
Liquidity and Capital Resources 21
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA 23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 23
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT 24
ITEM 11. EXECUTIVE COMPENSATION 24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT 24
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS 24
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K 25
(i)
PART I
ITEM 1. BUSINESS
GENERAL
World Fuel Services Corporation (the "Company"), is involved in three
principal businesses. The Company markets aviation and marine fuel and recycles
used oil.
In its aviation fueling business, the Company extends credit and
provides around-the-world single-supplier convenience, 24-hour service, and
competitively-priced aviation fuel to passenger, cargo and charter airlines. The
Company sells aviation fuel to its customers at more than 1,100 airports located
throughout the world.
In its marine fueling business, the Company markets marine fuel to a
broad base of international shipping companies and to the U.S. military.
Services include credit terms, 24-hour around-the-world service and
competitively priced fuel.
In its oil recycling business, the Company collects and recycles
non-hazardous petroleum products and petroleum contaminated liquids throughout
the Southern and Mid-Atlantic United States. The Company sells the recycled oil
to industrial and commercial customers.
Financial information with respect to the Company's business segments
and foreign operations is provided in Note 7 in the accompanying financial
statements.
HISTORY
In August 1995, the stockholders of the Company approved a change in
the Company's name from International Recovery Corp. to World Fuel Services
Corporation.
The Company was incorporated in Florida in July 1984. Its executive
offices are located at 700 South Royal Poinciana Boulevard, Suite 800, Miami
Springs, Florida 33166, and its telephone number at this address is (305)
884-2001. The Company presently conducts its aviation fueling business through
five subsidiaries with principal offices in Florida, England, Singapore, and
Costa Rica; the Company conducts its marine fueling business through three
subsidiaries with principal offices in New Jersey, California, England and
Singapore, and its oil recycling business is conducted through five subsidiaries
with offices in Florida, Louisiana, Maryland, and Delaware. See "Item 2 -
Properties" for a list of principal offices by business and "Exhibit 21 -
Subsidiaries of the Registrant".
In December 1986, the Company entered the aviation fueling business
with the acquisition of Advance Petroleum, Inc., now doing business as World
Fuel Services of FL. In October 1989, the Company expanded its aviation fueling
capabilities by acquiring JCo Energy Partners, Ltd., and shortly thereafter
renamed these operations World Fuel Services, Inc.
The Company formed a subsidiary, International Petroleum Corp. of
Delaware, which began operations in April 1993, upon the completion of its used
oil and water recycling plant in Wilmington, Delaware.
-1-
In August 1994, the Company began operations in Ecuador through a joint
venture which enables the Company to provide point-to-point aviation fuel sales
within Ecuador. See Note 6 in the accompanying financial statements for
additional information.
In January 1995, the Company entered the marine fuel business through
the acquisition of the Trans-Tec Services group of companies. See "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 1 in the accompanying financial statements for additional
information.
In June 1995, the Company's common stock was split, on a 3-for-2 basis.
See Note 4 in the accompanying financial statements for additional information.
AVIATION FUEL SERVICES
The Company markets aviation fuel to passenger, cargo and charter
airlines. The Company has developed an extensive network which enables it to
fuel customers at airports throughout the world.
In general, the aviation industry is capital intensive and highly
leveraged. Recognizing the financial risks of the airline industry, fuel
suppliers generally refrain from extending unsecured lines of credit to smaller
airlines and avoid doing business with smaller airlines directly. Consequently,
most carriers either post a cash collateralized letter of credit or prepay for
fuel purchases. This impacts the airlines' working capital. The Company
recognizes that the extension of credit is a risk but also a significant area of
opportunity. Accordingly, the Company extends unsecured credit to many of its
customers.
The Company purchases its aviation fuel from various suppliers
worldwide. The Company's cost of fuel is generally tied to market-based formulas
or is government controlled. The Company is usually extended unsecured trade
credit for its fuel purchases. However, certain suppliers require a letter of
credit. The Company may pre-pay its fuel purchases to take advantage of
financial discounts, or as required to transact business in certain countries.
Outside of the United States, the Company generally does not maintain
fuel inventory and arranges to have the fuel delivered directly into the
customer's aircraft. The Company maintains fuel inventory at various airports in
Ecuador pursuant to a joint venture.
In the United States, sales are made directly into a customer's
aircraft or the customer's designated storage with fuel provided by the
Company's suppliers or delivered from the Company's inventory. Inventory is held
at multiple locations in the United States for competitive reasons and inventory
levels are kept at an operating minimum. The Company has arrangements with its
suppliers and other third parties for the delivery of fuel.
The primary risk in the Company's aviation fueling business is the
extension of unsecured trade credit. The Company's success in attracting
business has been due, in large part, to its willingness to extend credit on an
unsecured basis to customers which exhibit a higher credit risk profile and
would otherwise be required to pre-pay or post cash collateralized letters of
credit with their suppliers of fuel. The Company's management recognizes that
extending credit and setting appropriate reserves for receivables is largely a
subjective decision based on knowledge of the
-2-
customer. Active management of this risk is essential to the Company's success.
A strong capital position and liquidity provide the financial flexibility
necessary to respond to customer needs. Diversification of risk is difficult
since the Company sells primarily within the airline industry. The Company's
management meets regularly to evaluate credit exposure in the aggregate, and by
individual credit. This group is also responsible for setting and maintaining
credit standards and ensuring the overall quality of the credit portfolio.
The level of credit granted to a customer is largely influenced by its
estimated fuel requirements for thirty days. This period of time represents the
average business cycle of the Company's typical customer. The Company regularly
monitors its credit portfolio by reviewing a customer's payment patterns and
estimated overall exposure, including estimated unbilled fuel sales. The Company
considers its credit portfolio to be of acceptable quality and has established
an allowance that in management's judgement is adequate to absorb potential
credit problems inherent in the portfolio as of March 31, 1996.
During the fiscal years ended March 31, 1996, 1995 and 1994, none of
the Company's aviation fuel customers accounted for more than 10% of the
Company's consolidated revenue. The Company currently employs 65 persons in its
aviation fuel services segment.
MARINE FUEL SERVICES
The Company, through its Trans-Tec subsidiaries, markets marine fuel to
a broad base of customers, including international container and tanker
fleets, time charter operators, as well as U.S. military vessels. Fueling
services are provided throughout the world.
With strategic sales offices located in the United States, Singapore,
England, South Korea, South Africa and Costa Rica, Trans-Tec Services affords
its customers global market intelligence and rapid access to quality and
competitively priced marine fuel, 24 hours a day, every day of the year. The
cost of fuel is a major component of a vessel's operating overhead. Therefore,
the need for cost effective and professional fueling services is essential.
As an increasing number of ship owners, time charter operators, and
suppliers look to outsource their marine fuel purchasing and/or marketing needs,
Trans-Tec's value added service has become an integral part of the oil and
transportation industries' push to shed non-core functions. Suppliers use
Trans-Tec Services' global sales, marketing and financial infrastructure to sell
a spot or ratable volume of product to a diverse, international purchasing
community. End customers use Trans-Tec's real time analysis of the availability,
quality, and price of marine fuels in ports worldwide to maximize their
competitive position.
In the majority of its transactions, Trans-Tec acts as a broker and as
a source of market information for the user, negotiates the transaction by
arranging the fuel purchase contract between the supplier and end user, and
expedites the arrangements for the delivery of fuel. For this service, Trans-Tec
is paid a commission from the supplier.
Trans-Tec also acts as a reseller, when it purchases the fuel from a
supplier, marks it up, and resells the fuel to a customer at a profit. The
Company holds no inventory and assumes no price risk; however, in most resale
transactions the Company extends unsecured trade credit.
-3-
The Company's management meets regularly to evaluate credit exposure in
the aggregate, and by individual credit. This group is also responsible for
setting and maintaining credit standards and ensuring the overall quality of the
credit portfolio. The level of credit is largely influenced by a customer's
credit history with the Company, claims experience and payment patterns.
During the fiscal years ended March 31, 1996 and 1995, none of the
Company's marine fuel customers accounted for more than 10% of the Company's
consolidated revenue. The Company currently employs 67 persons in its marine
fueling segment.
OIL RECYCLING
The Company, through its International Petroleum Corporation
subsidiaries ("IPC"), collects, blends, and recycles petroleum products and
petroleum contaminated water. The Company's recycled oil products are sold to
industrial and commercial customers.
IPC collects only non-hazardous waste oil, waste water, anti-freeze and
petroleum contaminated liquids from generators such as service stations, quick
lube shops, automobile dealerships, and industrial, governmental, marine, and
utility generators. The Company uses its own fleet of trucks to collect
approximately 40 percent of its needs from generators within close proximity to
its facilities. The balance is sourced from independent agents. Every shipment
is analyzed on-site or at the Company's laboratories to determine its
specifications and the treatment needed to convert the waste fluid into
marketable fuel products.
The Company has three recycling facilities. The facilities located in
Plant City, Florida and Wilmington, Delaware utilize a closed-loop, two stage
distillation process. The resulting recycled oil product is sold as is, or it
may be blended to customer specification. The Company's products range from
commercial diesel fuel to #6 grade residual oil.
The Company's third recycling facility, located in New Orleans,
Louisiana utilizes a batch recycling process. The Company also has a collection
and transfer facility in Baltimore, Maryland, which has limited processing and
blending capabilities.
The used oil industry is highly fragmented and consists primarily of
small scale operators that collect and resell used oil, many of which lack the
necessary facilities to adequately test and recycle the oil. However, the
industry also consists of a few large-scale operators that have the facilities
to collect, re-refine, and market lubricating products.
During the fiscal years ended March 31, 1996, 1995 and 1994, none of
the Company's recycled fuel customers accounted for more than 10% of the
Company's consolidated revenue. The Company currently employs 117 persons in the
oil recycling segment.
POTENTIAL LIABILITY AND INSURANCE
The Company, through the use of subcontractors and its own operations,
transports, stores, or processes flammable aviation, marine and residual fuel
subjecting it to possible claims by employees, customers, regulators, and others
who may be injured. In addition, the Company may be held liable for the clean-up
costs of spills or releases of materials from its facilities or
-4-
vehicles, or for damages to natural resources arising out of such events. The
Company follows what it believes to be prudent procedures to protect its
employees and customers and to prevent spills or releases of these materials.
The Company's activities subject it to the risks of significant
potential liability under Federal and state statutes, common law, and
contractual indemnification agreements. The Company has general and automobile
liability insurance coverage, including the statutory Motor Carrier Act/MCS 90
endorsement for sudden and accidental pollution.
In the aviation and marine fuel segments, the Company utilizes
subcontractors which provide various services to customers, including intoplane
fueling at airports, fueling of vessels in port and at sea, and transportation
and storage of fuel and fuel products. Although the Company generally requires
its subcontractors to carry liability insurance, not all subcontractors carry
adequate insurance. The Company's liability insurance policy does not cover the
acts or omissions of its subcontractors. If the Company is held responsible for
any liability caused by its subcontractors, and such liability is not adequately
covered by the subcontractor's insurance, the Company's financial position and
results of operations will be adversely affected.
The Company has exited several environmental businesses which handled
hazardous wastes. These wastes were transported to various disposal facilities
and/or treated by the Company. The Company may be held liable as a potentially
responsible party for the clean-up of such disposal facilities in certain cases
pursuant to current Federal and state laws and regulations. The Company is
currently responsible to Federal and Florida environmental agencies for clean-up
costs at a site formerly operated by its subsidiary, Resource Recovery of
America, which has been sold by the Company. Under the terms of the sale, the
Company contractually transferred to the buyer the responsibility for the state
clean-up. The site has also qualified under the state reimbursement program,
which the Company anticipates will cover the cost of the clean-up. The Company
is actively involved in the coordination of clean-up requirements by the EPA and
the state at this site to assure the Company's compliance.
The Company continuously reviews the adequacy of its insurance
coverage. However, the Company lacks coverage for various risks. A claim arising
out of the Company's activities, if successful and of sufficient magnitude,
could have a material adverse effect on the Company's financial position or
results of operations.
REGULATION
The Company's operations are subject to substantial regulation by
Federal, state and local government agencies, including, but not limited to,
regulations which restrict the transportation, storage and disposal of hazardous
waste and the collection, transportation, processing, storage, use and disposal
of waste oil.
-5-
The principal U.S. Federal statutes affecting the business of the
Company and the markets it serves are as follows:
THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY
ACT OF 1980 ("SUPERFUND" OR "CERCLA") establishes a program for Federally
directed response or remedial actions with respect to the uncontrolled discharge
of hazardous substances, pollutants or contaminants, including waste oil, into
the environment. The law authorizes the Federal government either to seek a
binding order directing responsible parties to undertake such actions or
authorizes the Federal government to undertake such actions and then to seek
compensation for the cost of clean-up and other damages from potentially
responsible parties. Congress established a Federally-managed trust fund,
commonly known as the Superfund, to fund response and remedial actions
undertaken by the Federal government. The trust fund is used to fund Federally
conducted actions when no financially able or willing responsible party has been
found.
THE SUPERFUND AMENDMENTS AND REAUTHORIZATION ACT OF 1986 ("SARA")
adopted more detailed and stringent standards for remedial action at Superfund
sites, and clarified provisions requiring damage assessments to determine the
extent and monetary value of injury to natural resources. SARA also provides a
separate funding mechanism for the clean-up of underground storage tanks.
THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976 ("RCRA") established
a comprehensive regulatory framework for the management of hazardous waste at
active facilities, complementing the Superfund program which addresses inactive
and abandoned waste sites. RCRA sets up a "cradle-to-grave" system for the
management of hazardous waste, imposing upon all parties who generate,
transport, treat, store or dispose of waste, above certain minimum quantities,
requirements for performance, testing and record keeping. RCRA also requires new
and existing facilities to obtain permits for construction, operation and
closure and requires 30 years of post-closure care and monitoring. RCRA was
amended in 1984 to increase the scope of RCRA regulation of small quantity waste
generators and waste oil handlers and recyclers; require corrective action at
hazardous waste facilities (including remediation at certain previously closed
solid waste management units); phase in restrictions on land disposal of
hazardous waste; and require the identification and regulation of underground
storage tanks containing petroleum and certain chemicals.
On November 29, 1985, the Environmental Protection Agency ("EPA")
issued final regulations under RCRA which restrict the burning of waste oil.
These regulations prohibit burning waste oil in non-industrial boilers unless
the oil meets certain standards for levels of lead, arsenic, chromium, chlorine,
cadmium, and flashpoint. The regulations do not restrict the burning of waste
oil in industrial boilers and furnaces. These regulations have not had a
significant impact on the Company's business because the Company does not
presently sell burner fuel to non-industrial burners. Industrial burners of
recycled oil, however, must comply with certain notification and administrative
procedures.
THE NATIONAL ENVIRONMENTAL POLICY ACT OF 1970 ("NEPA") requires the
preparation of an environmental impact statement ("EIS") for any major Federal
action significantly affecting the environment or the issuance of Federal
environmental permits for industrial facilities affecting the environment. Such
statements must evaluate and describe the effects of the
-6-
proposed activity on the environment and evaluate alternatives to the proposed
activity. Major energy and mineral developments require construction and
operating permits and may therefore trigger the EIS process.
THE TOXIC SUBSTANCES CONTROL ACT OF 1976 authorizes the EPA to gather
information on the risks of chemicals and to monitor and regulate the
manufacture, distribution, processing, use and disposal of a host of chemicals,
including asbestos and polychlorinated biphenyls.
THE CLEAN AIR ACT OF 1970, as amended in 1977, was the first major
Federal legislation enacted after NEPA became law. The Act authorized the EPA to
establish National Ambient Air Quality Standards for certain pollutants, which
are to be achieved by the individual states through State Implementation Plans
("SIPs"). SIPs typically attempt to meet ambient standards by regulating the
quantity and quality of emissions from specific industrial sources. For toxic
emissions, the Act authorizes the EPA to regulate emissions from industrial
facilities directly. The EPA also directly establishes emissions limits for new
sources of pollution, and is responsible for ensuring compliance with air
quality standards. The Clean Air Act Amendments of 1990 place the primary
responsibility for the prevention and control of air pollution upon state and
local governments. The 1990 amendments require regulated emission sources to
obtain operating permits, which will impose emission limitations, standards, and
compliance schedules.
THE CLEAN WATER ACT OF 1972, as amended in 1987, establishes water
pollutant discharge standards applicable to many basic types of manufacturing
plants and imposes standards on municipal sewage treatment plants. The Act
requires states to set water quality standards for significant bodies of water
within their boundaries and to ensure attainment and/or maintenance of those
standards. Most industrial and government facilities must apply for and obtain
discharge permits, monitor pollutant discharges, and under certain conditions
reduce certain discharges.
THE SAFE DRINKING WATER ACT, as amended in 1986, regulates public water
supplies by requiring EPA to establish primary drinking water standards. These
standards are likely to be further expanded under the EPA's evolving groundwater
protection strategy which is intended to set levels of protection or clean-up of
the nation's groundwater resources. These groundwater quality requirements will
then be applied to RCRA facilities and CERCLA sites, and remedial action will be
required for releases of contaminants into groundwater.
THE INTERNATIONAL CONVENTION FOR THE PREVENTION OF POLLUTION FROM SHIPS
("MARPOL") places strict limitations on the discharge of oil at sea and in port
and requires ships to transfer oily waste to certified reception facilities. The
U.S. Coast Guard has issued regulations effective March 10, 1986 which implement
the requirements of MARPOL. Under these regulations, each terminal and port of
the United States that services oceangoing tankers or cargo ships over 400 gross
tons must be capable of receiving an average amount of oily waste based on the
type and number of ships it serves. The reception facilities may be fixed or
mobile, and may include tank trucks and tank barges.
-7-
THE NATIONAL POLLUTANT DISCHARGE ELIMINATION SYSTEM ("NPDES"), a
program promulgated under the Clean Water Act, permits States to issue permits
for the discharge of pollutants into the waters of the United States in lieu of
Federal EPA regulation. State programs must be consistent with minimum Federal
requirements, although they may always be more stringent. NPDES permits are
required for, among other things, certain industrial discharges of storm water.
THE OIL POLLUTION ACT OF 1990 imposes liability for oil discharges, or
threats of discharge, into the navigable waters of the United States on the
owner or operator of the responsible vessel or facility. Oil is defined to
include oil refuse and oil mixed with wastes other than dredged spoil, but does
not include oil designated as a hazardous substance under CERCLA. The Act
requires the responsible party to pay all removal costs, including the costs to
prevent, minimize or mitigate oil pollution in any case in which there is a
substantial threat or an actual discharge of oil. In addition, the responsible
party may be held liable for damages for injury to natural resources, loss of
use of natural resources and loss of revenues from the use of such resources.
THE OCCUPATIONAL SAFETY AND HEALTH ADMINISTRATION ACT regulates
exposure to toxic substances and other forms of pollution in the workplace. The
law is administered by the Department of Labor. It specifies maximum levels of
toxic substances, such as asbestos, to which employees may be exposed, and under
the "right-to-know" rule requires that workers be informed of, and receive
training relating to, the physical and health risks posed by hazardous materials
in their workplaces.
STATE AND LOCAL GOVERNMENT REGULATION Many states have been authorized
by the EPA to enforce regulations promulgated under RCRA and other Federal
programs. In addition, there are numerous state and local authorities that
regulate the environment, some of which impose stricter environmental standards
than Federal laws and regulations. Some states, including Florida, have enacted
legislation which generally provides for registration, record keeping,
permitting, inspection, and reporting requirements for transporters, collectors
and recyclers of hazardous waste and waste oil. The penalties for violations of
state law include injunctive relief, recovery of damages for injury to air,
water or property and fines for non-compliance. In addition, some local
governments have established local pollution control programs, which include
environmental permitting, monitoring and surveillance, data collection and local
environmental studies.
EXCISE TAX ON DIESEL, AVIATION AND MARINE FUEL The Company's aviation
and marine fueling operations are affected by various Federal and state taxes
imposed on the purchase and sale of aviation and marine fuel products in the
United States. Federal law imposes a manufacturer's excise tax in the amount of
4.3 cents per gallon on sales of aviation and marine fuel. Sales to aircraft and
vessel engaged in foreign trade are exempt from this tax. These exemptions may
be realized either through tax-free or tax-reduced sales, if the seller
qualifies as a producer under applicable regulations, or, if the seller does not
so qualify, through a tax-paid sale followed by a refund to the exempt user.
Several states, where the Company sells aviation and marine fuel, impose excise
and sales taxes on fuel sales; certain sales of the Company qualify for full or
partial exemptions from these state taxes.
-8-
ITEM 2. PROPERTIES
The following page sets forth by segment and subsidiary the principal
properties owned or leased by the Company as of May 16, 1996. The Company
considers its properties and facilities to be suitable and adequate for its
present needs.
The Company generally enters into non-cancelable equipment leases and
installment notes to finance the replacement, upgrade or expansion of its
vehicles and equipment. For additional information with respect to obligations
under the Company's leases and installment notes, see Notes 2 and 5 to the
financial statements appearing elsewhere in this report.
-9-
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
PROPERTIES
OWNER/LESSEE AND LOCATION
- -------------------------
CORPORATE PRINCIPAL USE OWNED OR LEASED
- --------- ------------- ---------------
WORLD FUEL SERVICES CORPORATION Executive offices Leased to June 1998
700 S. Royal Poinciana Blvd. Suite 800
Miami Springs, FL 33166
AVIATION FUELING
- ----------------
ADVANCE PETROLEUM, INC. Administrative, operations Leased to June 1998
D/B/A WORLD FUEL SERVICES OF FL. and sales offices
700 S. Royal Poinciana Blvd. Suite 800
Miami Springs, FL 33166
WORLD FUEL SERVICES, INC. Administrative, operations Leased to June 1998
700 S. Royal Poinciana Blvd. Suite 800 and sales offices
Miami Springs, FL 33166
WORLD FUEL INTERNATIONAL S.A. Administrative, operations Leased to May 1997
Oficentro Ejecutivo La Sabana and sales offices
Edificio #5, Primer Piso
San Jose, Costa Rica
WORLD FUEL SERVICES LTD. Administrative, operations Leased month-to-month
London Gatwick Hilton Suite 1211 and sales offices
Gatwick Airport
West Sussex RH6 0LL
United Kingdom
WORLD FUEL SERVICES (SINGAPORE) Administrative, operations Leased to March 1997
PTE., LTD. and sales offices
5 Shenton Way #12-03/04
UIC Building
Singapore 0106
MARINE FUELING
- --------------
TRANS-TEC SERVICES, INC. Administrative, operations Leased to May 2002
Glenpointe Ctr. West and sales offices
500 Frank Burr Blvd
Teaneck, NJ 07666
60 East Sir Francis Drake, Administrative, operations Leased to December 1999
No. 301 and sales offices
Lakespur, CA 94939
2nd Floor Administrative, operations Leased to December 1997
200 NAEJA-Dong and sales Offices
Chongru-Ku Seoul, Korea
7-1 Centro Colon; Paseo Colon Administrative, operations Leased month-to-month
San Jose, Costa Rica and sales office
Seagram House - 2nd Floor Administrative, operations Leased to September 1998
71 Dock Road, Waterfront and sales office
Capetown, South Africa 8001
TRANS-TEC SERVICES (SINGAPORE) Administrative, operations Leased to March 1997
PTE., LTD. and sales offices
5 Shenton Way #12-03/04
UIC Building
Singapore 0106
TRANS-TEC SERVICES (UK) Ltd. Administrative, operations Leased to December 1997
65 Petty France and sales offices
London SW1H 9EU
OIL RECYCLING
- -------------
INTERNATIONAL PETROLEUM CORPORATION Storage tanks, recycling Leased to August 2001
105 South Alexander Street plant, laboratory, and
Plant City, FL 33566 administrative offices
INTERNATIONAL PETROLEUM CORP.
OF DELAWARE Storage tanks, recycling Owned
505 South Market Street plant, laboratory, and
Wilmington, DE 19801 administrative offices
INTERNATIONAL PETROLEUM CORP. Storage tanks, recycling Leased to August 2001
OF LA plant, laboratory, and
14890 Intracoastal Drive administrative offices
New Orleans, LA 70129
INTERNATIONAL PETROLEUM CORP. Storage tanks, blending Owned
OF MARYLAND facility, and adminis-
6305 E. Lombard Street trative offices
Baltimore, MD 21224
-10-
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings to which the Company or any of
its subsidiaries is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of stockholders, through the
solicitation of proxies or otherwise, during the fourth quarter of fiscal year
1996.
-11-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange and
the Pacific Stock Exchange under the symbol INT. The following table sets forth,
for each quarter within the fiscal years ended March 31, 1996 and 1995, the sale
prices of the Company's common stock as reported by the New York Stock Exchange
and the quarterly cash dividends per share of common stock during the periods
indicated. The amounts shown have been restated to reflect a 3-for-2 stock split
of the Company's common stock which was effective June 19, 1995. See Note 4 to
the financial statements included as part of this report.
PRICES CASH
-------------- DIVIDENDS
HIGH LOW PER SHARE
-------- -------- ---------
Year ended March 31, 1996
First quarter.................... $ 15 3/4 $ 11 1/8 $ 0.050
Second quarter................... 16 12 7/8 0.050
Third quarter.................... 15 7/8 13 1/4 0.050
Fourth quarter................... 18 3/8 15 1/8 0.050
Year ended March 31, 1995
First quarter.................... $ 9 3/4 $ 7 3/4 $ 0.033
Second quarter................... 10 7/8 8 1/2 0.033
Third quarter.................... 10 7/8 9 1/3 0.033
Fourth quarter................... 11 5/8 9 3/4 0.100
As of May 16, 1996, there were 348 holders of record of the Company's
common stock. The Board of Directors approved the following cash dividends for
fiscal year 1997:
DECLARATION DATE PER SHARE RECORD DATE PAYMENT DATE
- ----------------- --------- ------------------ ------------
June 5, 1996 $0.075 June 20, 1996 July 3, 1996
September 5, 1996 $0.075 September 20, 1996 October 3, 1996
December 5, 1996 $0.075 December 20, 1996 January 3, 1997
March 5, 1997 $0.075 March 20, 1997 April 3, 1997
The Company's loan agreement with NationsBank restricts the payment of
cash dividends to a maximum of 25% of net income for the preceding four
quarters. The Company's payment of the above dividends is in compliance with the
NationsBank loan agreement.
-12-
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data has been summarized from the
Company's consolidated financial statements set forth in Item 8 of this report.
The selected financial data should be read in conjunction with the notes set
forth at the end of these tables, the consolidated financial statements and the
related notes thereto, and "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations."
SELECTED FINANCIAL DATA
FOR THE YEAR ENDED MARCH 31,
------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(In thousands, except earnings per share data)
Consolidated Income Statement Data
Revenue................... $642,299 $361,891 $250,527 $254,767 $190,574
Cost of sales............. 601,930 334,134 223,576 230,847 170,442
-------- -------- -------- -------- --------
Gross profit..... 40,369 27,757 26,951 23,920 20,132
-------- -------- -------- -------- --------
Operating expenses:
Salaries and wages...... 13,266 8,117 6,558 6,039 5,909
Provision for bad debts. 2,291 2,062 5,063 4,437 1,352
Other................... 9,866 6,329 5,560 5,378 4,622
-------- -------- -------- -------- --------
25,423 16,508 17,181 15,854 11,883
-------- -------- -------- -------- --------
Income from
operations.... 14,946 11,249 9,770 8,066 8,249
Other income (expense), net 1,875 1,774 (1,333) 180 359
-------- -------- -------- -------- --------
Income from continuing
operations before
income taxes..... 16,821 13,023 8,437 8,246 8,608
Provision for income taxes 5,876 4,935 3,242 2,984 2,898
-------- -------- -------- -------- --------
Net income from
continuing operations 10,945 8,088 5,195 5,262 5,710
-------- -------- -------- -------- --------
(Continued)
-13-
SELECTED FINANCIAL DATA
(Continued)
FOR THE YEAR ENDED MARCH 31,
------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(In thousands, except earnings per share data)
Discontinued operations:
(Loss) income from operations
of discontinued environmental
services segment (net of
applicable income taxes) - - - (1,793) 170
Loss on disposal of
environmental services
segment (net of applicable
income taxes)......... - - - (1,922) -
-------- -------- -------- -------- --------
Net (loss) income from
discontinued
operations........ - - - (3,715) 170
-------- -------- -------- -------- --------
Net income.......... $10,945 $ 8,088 $ 5,195 $ 1,547 $ 5,880
======== ======== ======== ======== ========
Earnings (losses) per common
and common equivalent
share:
Income from continuing
operations............. $ 1.35 $ 1.10 $ .73 $ .74 $ .80
(Loss) income from
discontinued operations - - - (.52) .02
------- -------- -------- ------- --------
Net income.......... $ 1.35 $ 1.10 $ .73 $ .22 $ .82
======= ======== ======== ======= ========
Weighted average shares
outstanding ............ 8,100 7,359 7,101 7,124 7,145
======= ======== ======== ======= ========
(Continued)
-14-
SELECTED FINANCIAL DATA
(Continued)
AS OF MARCH 31,
--------------------------------------------
1996 1995 1994 1993 1992
======== ======= ======= ======= =====
(In thousands)
Consolidated Balance Sheet Data
Current assets............. $ 83,252 $58,006 $33,682 $39,263 $34,995
Total assets............... 111,974 89,536 53,687 54,717 53,210
Current liabilities ....... 43,706 30,486 13,141 15,587 17,954
Long-term liabilities...... 4,518 6,984 575 4,760 2,168
Stockholders' equity....... 63,750 52,066 39,971 34,370 32,689
- ---------------------------
Notes:
(1) The consolidated financial statements of the Company as of, and for the
year ended March 31, 1992, have been restated to report separately the
net assets and operating results of the discontinued Environmental
Services segment.
(2) During the first quarter of fiscal year 1996, the Company issued
117,825 shares of the Company's common stock in payment of its portion
of the class action settlement made in February 1994. Accordingly, the
Company reclassified $1,300,000 from current liabilities to accrued
litigation settlement expense, a long-term liability, as of March 31,
1995.
(3) No cash dividends were declared or paid prior to fiscal year 1995. See
Item 5 - Market for Registrant's Common Equity and Related Stockholder
Matters.
(4) Effective January 1, 1995, the Company acquired the Trans-Tec group of
companies. The acquisition was accounted for under the purchase method.
Accordingly, the selected financial information for the year ended
March 31, 1995, includes the results of the Trans-Tec group since
January 1, 1995.
(5) In June 1995, the Board of Directors approved a 3-for-2-stock split for
all shares of common stock outstanding as of June 19, 1995. The shares
were distributed on June 27, 1995. Accordingly, all share and per share
data, as appropriate, have been retroactively adjusted to reflect the
effects of this split.
-15-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Item 6 -
Selected Financial Data," and with the consolidated financial statements and
related notes thereto appearing elsewhere in this report.
RESULTS OF OPERATIONS
In January 1995, the Company entered the marine fuel business through
the acquisition of the Trans-Tec group of companies. The acquisition of the
Trans-Tec group of companies has been accounted for as a purchase by the
Company. Accordingly, the consolidated statement of income for the fiscal year
ended March 31, 1995, includes the results of operations of the Trans-Tec group
of companies from the acquisition date.
Profit from the Company's aviation fuel business is directly related to
the volume and the margins achieved on sales, as well as the extent to which the
Company is required to provision for potential bad debts.
Profit from the Company's marine fuel business is determined primarily
by the volume of brokering business generated and by the volume and margins
achieved on marine fuel sales, as well as the extent to which the Company is
required to provision for potential bad debts.
The Company's profit from oil recycling is principally determined by
the volume and margins of recycled oil sales and collection revenue.
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO
THE FISCAL YEAR ENDED MARCH 31, 1995
The Company's revenue for the fiscal year ended March 31, 1996 was
$642,299,000, an increase of $280,408,000, or 77.5%, as compared to revenue of
$361,891,000 for the prior fiscal year. The Company's revenue during these
periods was attributable to the following segments:
FISCAL YEAR ENDED MARCH 31, PERCENT
1996 1995 INCREASE
------------ ------------ ---------
Aviation Fueling $302,101,000 $288,728,000 4.6%
Marine Fueling 321,216,000 54,578,000 *
Oil Recycling 18,993,000 18,591,000 2.2
Intersegment Eliminations (11,000) (6,000) *
------------ ------------
Total Revenue $642,299,000 $361,891,000 77.5%
============ ============ =====
* Percent not meaningful.
-16-
The aviation fueling segment sold 445,846,000 gallons of fuel and
contributed $302,101,000 of revenue for the fiscal year ended March 31, 1996.
This represented an increase in revenue of $13,373,000, or 4.6%, and a
10,656,000 decrease in gallons as compared to the prior year. This increase in
revenue was due to an increase in the average price per gallon sold. Partially
offsetting was an overall volume decrease caused by a 62,754,000 gallon decline
in narrow margin bulk transactions, while domestic and international volume
increased by 52,098,000 gallons, or 17.5%, in the aggregate. Also contributing
to the decrease was the termination of the fuel terminaling operations conducted
at Miami International Airport, which contract was not renewed effective June
30, 1994.
The marine fueling segment sold 2,674,000 metric tons of fuel and
brokered 5,015,000 metric tons of fuel, contributing $314,495,000 and $3,831,000
of revenue, respectively. The Company also sold 759,000 gallons of marine
lubricants totaling $2,890,000 in revenue.
The oil recycling segment sold 34,354,000 gallons of recycled oil
products and contributed $18,993,000 of revenue for the fiscal year ended March
31, 1996. This was a revenue increase of $402,000, or 2.2%, and a volume
decrease of 661,000 gallons, as compared to the prior year. The revenue increase
was due to higher used oil and waste water collection revenue. Partially
offsetting was an overall volume decrease due primarily to the sale of the
Company's Georgia operations. See Note 1 to the accompanying financial
statements included in this report.
The Company's gross profit of $40,369,000 increased by $12,612,000, or
45.4%, as compared to the prior year. The Company's gross margin decreased from
7.7% for the fiscal year ended March 31, 1995, to 6.3% for the fiscal year ended
March 31, 1996.
The Company's aviation fueling business achieved a 6.7% gross margin
for the fiscal year ended March 31, 1996, as compared to 6.9% achieved for the
same period during the prior fiscal year. The decline in the gross margin was
attributable to the termination of the fuel terminaling operations conducted at
Miami International Airport, which was somewhat offset by an increase in the
average gross profit per gallon resulting from the reduction in narrow margin
bulk transactions.
The Company's marine fueling segment achieved a 4.3% gross margin for
the fiscal year ended March 31, 1996. The gross margin in the Company's oil
recycling segment increased from 30.9% for the fiscal year ended March 31, 1995,
to 33.5% for the fiscal year ended March 31, 1996. This resulted from higher
used oil and waste water collection revenue.
Total operating expenses for the fiscal year ended March 31, 1996 were
$25,423,000, an increase of $8,915,000, or 54.0%, as compared to the prior
fiscal year. Of this increase, $8,430,000 resulted from the full year impact of
operating expenses of the marine fueling segment. Also increasing operating
expenses were $1,065,000 in corporate overhead costs, discussed below. Partially
offsetting was a $471,000 decrease in the aviation segment provision for bad
debts. In relation to revenue, total operating expenses decreased from 4.6% to
4.0%.
-17-
The Company's income from operations for the fiscal year ended March
31, 1996 was $14,946,000, an increase of $3,697,000, or 32.9%, as compared to
the prior fiscal year. Income from operations during these periods was
attributable to the following segments:
FISCAL YEAR ENDED MARCH 31, PERCENT
1996 1995 INCREASE
----------- ----------- --------
Aviation Fueling $12,858,000 $12,304,000 4.5%
Marine Fueling 3,425,000 220,000 *
Oil Recycling 3,976,000 2,973,000 33.7
Corporate Overhead (5,313,000) (4,248,000) 25.1
----------- -----------
Total Income from
Operations $14,946,000 $11,249,000 32.9%
=========== =========== =====
* Percent not meaningful.
Income from operations of the aviation fueling segment increased
$554,000, or 4.5%, for the fiscal year ended March 31, 1996, as compared to the
fiscal year ended March 31, 1995. This improvement resulted from an increase in
the average gross profit per gallon sold, and a decrease in operating expenses
due to a lower provision for bad debts. Partially offsetting were an overall
volume decrease in narrow margin bulk transactions, and the termination of the
Company's fuel terminaling activities.
The marine fueling segment earned $3,425,000 in income from operations
for the fiscal year ended March 31, 1996. The gross profit of this segment was
$13,766,000, reduced by $10,341,000 in operating expenses.
Income from operations of the oil recycling segment increased by
$1,003,000, or 33.7%, for the fiscal year ended March 31, 1996, as compared to
the prior fiscal year. This improvement resulted from lower operating expenses
and higher used oil and waste water collection revenue. Partially offsetting was
a volume decrease due primarily to the sale of the Georgia operations.
Corporate overhead costs not charged to the business segments totalled
$5,313,000 for the fiscal year ended March 31, 1996, an increase of $1,065,000,
or 25.1%, as compared to the prior fiscal year. This increase was due largely to
higher salaries and payroll related costs. In relation to revenue, total
corporate overhead decreased to 0.8% for the fiscal year ended March 31, 1996,
as compared to 1.2% for the prior fiscal year.
For the fiscal year ended March 31, 1996, the Company had other income,
net, of $1,875,000, an increase of $101,000 over the prior fiscal year. This
increase was due to a $1,204,000 increase in equity earnings of the Company's
aviation fueling joint venture in Ecuador. Partially offsetting was a $737,000
decline in foreign currency exchange gains realized in fiscal 1995 and $119,000
in foreign currency exchange losses during fiscal 1996.
Net income for the fiscal year ended March 31, 1996 was $10,945,000, an
increase of $2,857,000, as compared to net income for the fiscal year ended
March 31, 1995. Earnings per share of $1.35 for the fiscal year ended March 31,
1996 exhibited a $.25, or 22.7% increase over the $1.10 achieved during the
prior fiscal year.
-18-
FISCAL YEAR ENDED MARCH 31, 1995 COMPARED TO
THE FISCAL YEAR ENDED MARCH 31, 1994.
The Company's revenues for the fiscal year ended March 31, 1995 were
$361,891,000, an increase of $111,364,000, or 44.5%, as compared to revenue of
$250,527,000 for the prior year. The Company's revenue during these periods
were attributable to the following segments:
FISCAL YEAR ENDED MARCH 31, PERCENT
1995 1994 INCREASE
------------ ------------ --------
Aviation Fueling $288,728,000 $233,982,000 23.4%
Marine Fueling 54,578,000 - *
Oil Recycling 18,591,000 16,554,000 12.3
Intersegment Eliminations (6,000) (9,000) *
------------ ------------
Total Revenue $361,891,000 $250,527,000 44.5%
============ ============ =====
* Percent not meaningful.
The aviation fueling segment sold 456,502,000 gallons of fuel and
contributed $288,728,000 of revenue for the fiscal year ended March 31, 1995.
This represented an increase in revenue of $54,746,000, or 23.4%, as compared to
the prior year when the Company sold 321,154,000 gallons of fuel. This increase
in revenue was due to an increase in volume, primarily the result of increased
bulk sales, partially offset by a price related revenue shortfall which reflects
general market conditions. Also offsetting was $4,688,000 in lower fuel
terminaling revenue. The Company's fuel terminaling business, conducted solely
at Miami International Airport pursuant to a month-to-month contract, was
awarded to another company effective June 30, 1994.
The marine fueling segment sold 465,000 metric tons of fuel and
brokered 1,091,000 metric tons of fuel, contributing $53,298,000 and $824,000 in
revenue, respectively. The Company also sold 104,000 gallons in lubricants
totalling $456,000 in revenue.
The oil recycling segment sold 35,015,000 gallons of recycled oil
products and contributed $18,591,000 of revenue for the fiscal year ended March
31, 1995. This was an increase in revenue of $2,037,000, or 12.3%, as compared
to last year when the Company sold 32,756,000 gallons of recycled oil products.
The revenue increase reflects higher used oil and waste water collection
revenue, higher product volume sold, and a price related increase on recycled
product.
The Company's gross profit of $27,757,000 increased by $806,000, or
3.0%, as compared to last year. The Company's gross margin decreased from 10.8%
for the fiscal year ended March 31, 1994 to 7.7% for the fiscal year ended March
31, 1995.
The Company's aviation fueling segment achieved a 6.9% gross margin for
the fiscal year ended March 31, 1995, as compared to 9.8% achieved for the prior
fiscal year. The decline in the gross margin was attributed to a narrower
average gross profit per gallon, as well as a decline in fuel terminaling gross
profit. The decline in the average gross profit per gallon was due to increased
bulk sales.
-19-
The Company's marine fueling segment achieved a 3.9% gross margin for
the fiscal year ended March 31, 1995. The gross margin in the Company's oil
recycling segment increased from 24.8% for fiscal year 1994 to 30.9% for fiscal
year 1995. This resulted from the combined effects of a higher average sales
price of recycled oil, and a lower average cost of collection and processing
used oil, and blending recycled oil. This decrease was primarily attributed to
the higher volume processed by the Company and the lower cost of operating a
batch process in Louisiana.
Total operating expenses for the fiscal year ended March 31, 1995 were
$16,508,000, a decrease of $673,000, or 3.9%, as compared to the same period a
year ago. This decrease resulted from a $3,001,000 decrease in the provision for
bad debts due to a year over year improvement in the quality of accounts
receivable, as well as a $255,000 decline in operating expenses of the Company's
used oil segment. Partially offsetting were the operating expenses of the marine
segment acquired in January 1995, which totalled $1,912,000, and an $877,000
increase in corporate overhead costs, discussed below. In relation to revenue,
total operating expenses decreased from 6.9% to 4.6%.
The Company's income from operations for the fiscal year ended March
31, 1995 was $11,249,000, an increase of $1,479,000, or 15.1%, as compared to
income from operations of $9,770,000 for the fiscal year ended March 31, 1994.
Income from operations during these periods was attributable to the following
segments:
FISCAL YEAR ENDED MARCH 31, PERCENT
1995 1994 INCREASE
----------- ----------- --------
Aviation Fueling $12,304,000 $12,066,000 2.0%
Marine Fueling 220,000 - *
Oil Recycling 2,973,000 1,075,000 176.6
Corporate Overhead (4,248,000) (3,371,000) 26.0
----------- -----------
Total Income from
Operations $11,249,000 $ 9,770,000 15.1%
=========== =========== ======
* Percent not meaningful.
Income from operations of the aviation fueling segment increased
$238,000, or 2.0%, for the fiscal year ended March 31, 1995, as compared to the
fiscal year ended March 31, 1994. This increase resulted from higher product
volume sold, and a decrease in operating expenses due to a lower provision for
bad debts. Partially offsetting were narrower margin fuel sales due to bulk
transactions, and lower operating income from the Company's fuel terminaling
activities.
The marine fueling segment earned $220,000 in income from operations
for fiscal year 1995. The gross profit for this segment was $2,132,000, reduced
by $1,912,000 in operating expenses.
Income from operations of the oil recycling segment increased by
$1,898,000, or 176.6%, for the fiscal year ended March 31, 1995, as compared to
the prior fiscal year. This increase resulted primarily from higher product
volume sold, higher margins on recycled oil and lower operating expenses.
Corporate overhead costs not charged to the business segments totalled
$4,248,000 for the fiscal year ended March 31, 1995, an increase of $877,000, or
26.0%, as compared to the prior fiscal year. The increase was due to
-20-
higher salaries and payroll related costs. In relation to sales, total corporate
overhead decreased to 1.2% for the fiscal year ended March 31, 1995, as compared
to 1.3% for the prior year.
In the fiscal year ended March 31, 1995, the Company had $1,774,000 in
other income, net, an increase of $3,107,000 as compared to $1,333,000 in other
expense, net for the same period a year ago. In fiscal year 1994, the Company
incurred a $1,300,000 expense related to the settlement of a shareholders class
action, originally filed in June 1992. In fiscal year 1995, when compared to the
previous fiscal year, the Company earned $737,000 in foreign currency
transaction gains, $544,000 in equity earnings of a joint venture, and $502,000
in net interest income which is the result of the Company's improved liquidity.
Net income for the fiscal year ended March 31, 1995 was $8,088,000, an
increase of $2,893,000, as compared to net income for the fiscal year ended
March 31, 1994. Earnings per share of $1.10 for the fiscal year ended March 31,
1995 exhibited a $0.37 increase over the $0.73 achieved during the same period
last year.
LIQUIDITY AND CAPITAL RESOURCES
In the Company's aviation and marine fuel businesses, the primary use
of capital is to finance accounts receivable. The Company maintains aviation
fuel inventories in the United States for competitive reasons. On average,
inventory levels represent less than a three week demand. The Company's aviation
and marine fuel businesses historically have not required significant capital
investment in fixed assets as the Company subcontracts fueling services and
maintains inventory at third party storage facilities.
In relation to the Company's aviation and marine fueling segments, the
oil recycling segment capital requirements are for the financing of property,
plant and equipment, and accounts receivable. The Company normally utilizes
internally generated cash to fund capital expenditures, and secondarily the
Company will utilize its available line of credit or enter into leasing or
installment note arrangements to match-fund the useful life of certain long-term
assets with the related debt. The Company's oil recycling operations also
require working capital to purchase and carry an inventory of used oil, as well
as the costs of operating the plant until the proceeds from the re-refined oil
sales are received.
Cash and cash equivalents amounted to $12,856,000 at March 31, 1996, as
compared to $10,907,000 at March 31, 1995. The principal sources of cash during
the fiscal year ended March 31, 1996 were $3,702,000 in net cash provided by
operating activities, $2,046,000 from collections on notes receivable, and
$863,000 from the issuance of common stock in connection with the exercise of
options. Partially offsetting the increase in cash and cash equivalents was
$1,817,000 of repayments on notes payable, $1,854,000 in dividends paid on
common stock and $1,026,000 used for the purchase and construction of plant,
equipment and other capital expenditures, net of proceeds from sales of assets.
Working capital as of March 31, 1996 was $39,546,000, exhibiting a
$12,026,000 increase from working capital as of March 31, 1995. As of March 31,
1996, the Company's accounts receivable, excluding the allowance for bad debts,
amounted to $67,108,000, an increase of $23,742,000 as compared to the March 31,
1995 balance. In the aggregate, accounts payable, accrued expenses and customer
deposits increased $13,382,000. The increase in net trade
-21-
receivables of $10,360,000 was attributed to the marine and aviation segments.
The allowance for doubtful accounts as of March 31, 1996 amounted to $4,363,000,
a decrease of $203,000 as compared to the balance at March 31, 1995. During the
fiscal years ended March 31, 1996 and 1995, the Company charged $2,291,000 and
$2,062,000, respectively, to the provision for bad debts and had charge-offs in
excess of recoveries of $2,494,000 and $210,000, respectively.
Inventories at March 31, 1996 were $878,000 higher as compared to March
31, 1995. This consisted of a $1,206,000 increase in inventories in the aviation
fueling segment, and a $328,000 decrease in the oil recycling segment.
Capital expenditures for the fiscal year ended March 31, 1996,
consisted primarily of $720,000 in office equipment and furniture, as well as
$288,000 to acquire trucks utilized in the collection of used oil and petroleum
contaminated water, and delivery of recycled products. During fiscal year 1997,
the Company anticipates spending approximately $1,000,000 to upgrade the storage
tank facilities of its Louisiana oil recycling plant and an additional
$1,000,000 for the upgrade of plant, machinery and equipment. The Company also
anticipates spending an additional estimated $1,000,000 over the next several
years to clean up contamination which was present at one of the Company's sites
when it was acquired by the Company. The clean up costs will be capitalized as
part of the cost of the site, up to the fair market value of the site.
Other assets decreased $1,474,000, as compared to March 31, 1995. This
resulted from the repayment of $1,595,000 in notes receivable outstanding as of
March 31, 1995.
Accrued salaries and wages increased $1,308,000, principally as the
result of accrued sales and management performance bonuses pursuant to
employment agreements.
Long-term liabilities as of March 31, 1996 were $4,518,000, exhibiting
a $2,466,000 decrease as compared to March 31, 1995. This decrease was primarily
the result of the first installment payment on the promissory notes payable
related to the acquisition of the Trans-Tec group of companies, and the
settlement of the shareholders' class action litigation, described above.
Deferred income taxes increased $1,108,000 over the prior year,
principally due to the excess of tax over financial reporting depreciation and
amortization and the settlement of the shareholders' class action suit.
Stockholders' equity amounted to $63,750,000, or $7.93 per share, at
March 31, 1996, compared to $52,066,000, or $6.67 per share, at March 31, 1995.
This increase of $11,684,000 was due to $10,945,000 in earnings for the period,
$1,300,000 due to the issuance of common stock pursuant to the settlement of the
class action suit, and $863,000 due to the issuance of common stock pursuant to
the exercise of stock options. Partially offsetting was $1,464,000 in cash
dividends declared.
The Company expects to meet its capital investment and working capital
requirements for fiscal year 1997 from existing cash, operations and additional
borrowings, as necessary, under its existing line of credit.
The Company's business has not been significantly affected by inflation
during the periods discussed in this report.
-22-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached hereto and filed as a part of this Form 10-K are the financial
statements required by Regulation S-X and the supplementary data required by
Regulation S-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
No disagreements with accountants on any matter of accounting
principles or practices or financial statement disclosure have been reported on
a Form 8-K within the twenty-four months prior to the date of the most recent
financial statement.
-23-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the directors and executive officers of the
Company set forth under the captions "Election of Directors" and "Information
Concerning Executive Officers", respectively, appearing in the definitive Proxy
Statement of the Company for its 1996 Annual Meeting of Shareholders (the "1996
Proxy Statement"), is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth in the 1996 Proxy Statement under the caption
"Compensation of Officers" and "Board of Directors - Compensation of Directors"
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Principal Stockholders and
Security Ownership of Management" in the 1996 Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Transactions with
Management and Others" in the 1996 Proxy Statement is incorporated herein by
reference.
-24-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements are filed
as a part of this report:
(i) Report of Independent Certified Public
Accountants. 31
(ii) Consolidated Balance Sheets as of March
31, 1996 and 1995. 32
(iii) Consolidated Statements of Income for the
Years Ended March 31, 1996, 1995 and 1994. 34
(iv) Consolidated Statements of Stockholders'
Equity for the Years Ended March 31, 1996,
1995 and 1994. 35
(v) Consolidated Statements of Cash Flows for
the Years Ended March 31, 1996, 1995 and
1994. 36
(vi) Notes to Consolidated Financial Statements. 39
(a)(2) The following consolidated financial statement
schedule is filed as a part of this report:
(i) Schedule II - Valuation and Qualifying
Accounts. 55
Schedules not set forth herein have been omitted
either because the required information is set forth
in the Consolidated Financial Statements or Notes
thereto, or the information called for is not
required.
(a)(3) The exhibits set forth in the following index of
exhibits are filed as a part of this report:
EXHIBIT NO. DESCRIPTION
----------- -----------
(2) Plan of acquisition, reorganization, arrangement,
liquidation or succession:
(a) Acquisition Agreement dated December 9,
1994 among International Recovery Corp. (now
known as World Fuel Services Corporation),
Trans-Tec Services, Inc., Trans-Tec
Servicios, S.A., Theofilos A. Vatis, Michael
J. Kasbar, Paul H. Stebbins, and Stacey A.
Polites is incorporated by reference to the
Company's Form 8-K filed January 18, 1995.
-25-
(3) Articles of Incorporation and By-laws:
(a) Articles of Incorporation are incorporated
by reference to the Company's Registration
Statement on Form S-18 filed February 3,
1986.
(b) By-laws are incorporated by reference to the
Company's Registration Statement on Form
S-18 filed February 3, 1986.
(4) Instruments defining rights of security holders:
(a) Employee Stock Option Plan is incorporated
by reference to the Company's Registration
Statement on Form S-18 filed February 3,
1986.
(b) 1993 Non-Employee Directors Stock Option
Plan is incorporated by reference to the
Company's Schedule 14A filed June 28, 1994.
(10) Material Contracts:
(a) Material contracts incorporated by reference
to the Company's Report on Form 10-K filed
June 17, 1991:
(i) Revolving Loan Agreement and Credit
Facility, dated March 1, 1991, among
The Citizens & Southern National
Bank (now known as NationsBank,
N.A. (South)), International
Recovery (now known as World Fuel
Services Corporation) and its
subsidiaries.
(ii) Promissory Note, dated March 1,
1991, executed by International
Recovery Corp. (now known as World
Fuel Services Corporation) and its
subsidiaries in favor of The
Citizens & Southern National Bank
(now known as NationsBank,
(South) N.A.)
(b) Material contracts incorporated by reference
to the Company's Report on Form 10-K filed
May 9, 1994:
(i) Consolidated Amendment No. 2 dated
January 21, 1994, among NationsBank
of Florida, N.A. (now known as
NationsBank, N.A. (South)),
International Recovery Corp. (now
known as World Fuel Services
Corporation) and its subsidiaries.
(ii) Promissory Note, dated January 21,
1994, executed by International
Recovery Corp. (now known as World
Fuel Services Corporation) and its
subsidiaries in favor of NationsBank
of Florida, N.A. (now known as
NationsBank, N.A. (South))
-26-
(c) Material contracts incorporated by reference to the
Company's Report on Form 10-K filed May 30, 1995:
(i) Consolidated Amendment No. 3 dated
May 5, 1995, among NationsBank of
Florida, N.A. (now known as
NationsBank, N.A. (South)), and
International Recovery Corp. (now
known as World Fuel Services
Corporation) and its subsidiaries.
(ii) Promissory Note, dated January 3,
1995, executed by International
Recovery Corp. (now known as World
Fuel Services Corporation) in favor
of Theofilos A. Vatis.
(iii) Promissory Note, dated January 3,
1995, executed by International
Recovery Corp. (now known as World
Fuel Services Corporation) in favor
of Michael J. Kasbar.
(iv) Promissory Note, dated January 3,
1995, executed by International
Recovery Corp. (now known as World
Fuel Services Corporation) in favor
of Paul H. Stebbins.
(v) Promissory Note, dated January 3,
1995, executed by International
Recovery Corp. (now known as World
Fuel Services Corporation) in favor
of Stacey A. Polites.
(d) Material contracts filed with this Form 10-K:
(i) Amendment to Employment Agreement
with Jerrold Blair, dated
February 15, 1996.
(ii) Amendment to Employment Agreement
with Ralph Weiser, dated
February 15, 1996.
(iii) Amendment to Employment Agreement
with Jerrold Blair, dated
March 31, 1996.
(iv) Amendment to Employment Agreement
with Ralph Weiser, dated
March 31, 1996.
(v) Amendment to Employment Agreement
with Phillip S. Bradley, dated
June 2, 1995.
(vi) Consolidated Amendment No. 4 dated
September 25, 1995, among
NationsBank of Florida, N.A. (now
known as NationsBank, N.A.(South)),
World Fuel Services Corporation
and its subsidiaries.
-27-
(vii) Consolidated Amendment No. 5 dated
May 15, 1996, among NationsBank
N.A., (South), and World Fuel
Services Corporation and its
subsidiaries.
(21) Subsidiaries of the Registrant
(23) Consent of Independent Certified
Public Accountants
(27) Financial Data Schedule
(b) No reports on Form 8-K were filed during the Company's fiscal year
ended March 31, 1996.
-28-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WORLD FUEL SERVICES CORPORATION
Dated: May 21, 1996 By: /S/ Jerrold Blair
------------------------
Jerrold Blair, President
Dated: May 21, 1996 By: /S/ Carlos A. Abaunza
------------------------
Carlos A. Abaunza, Chief
Financial Officer
-29-
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Dated: May 21, 1996 By: /S/ Ralph R. Weiser
-------------------------
Ralph R. Weiser, Director
Dated: May 21, 1996 By: /S/ Jerrold Blair
-------------------------
Jerrold Blair, Director
Dated: May 21, 1996 By: /S/ Phillip S. Bradley
-------------------------
Phillip S. Bradley, Director
Dated: May 21, 1996 By: /S/ Ralph Feuerring
-------------------------
Ralph Feuerring, Director
Dated: May 21, 1996 By: /S/ John R. Benbow
-------------------------
John R. Benbow, Director
Dated: May 21, 1996 By: /S/ Celestin Durand III
-------------------------
Celestin Durand III, Director
Dated: May 21, 1996 By: /S/ Myles Klein
-------------------------
Myles Klein, Director
Dated: May 21, 1996 By: /S/ Michael J. Kasbar
-------------------------
Michael J. Kasbar, Director
Dated: May 21, 1996 By: /S/ Paul H. Stebbins
-------------------------
Paul H. Stebbins, Director
-30-
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
World Fuel Services Corporation:
We have audited the accompanying consolidated balance sheets of World Fuel
Services Corporation (a Florida corporation) and subsidiaries as of March 31,
1996 and 1995, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
1996. These consolidated financial statements and the schedule referred to below
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and the schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of World Fuel Services Corporation
and subsidiaries as of March 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1996 in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in Item 14 (a)(2) is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Miami, Florida,
May 16, 1996.
-31-
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31,
----------------------------
1996 1995
============ ===========
CURRENT ASSETS:
Cash and cash equivalents $ 12,856,000 $10,907,000
Accounts receivable, net of allowance
for bad debts of $4,363,000 and
$4,566,000 at March 31, 1996 and
1995, respectively 62,745,000 38,800,000
Inventories 4,592,000 3,714,000
Prepaid expenses and other current assets 3,059,000 4,585,000
------------ -----------
Total current assets 83,252,000 58,006,000
------------ -----------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 601,000 705,000
Buildings and improvements 2,890,000 2,929,000
Office equipment and furniture 2,645,000 2,394,000
Plant, machinery and equipment 14,171,000 15,052,000
Construction in progress 67,000 184,000
------------ -----------
20,374,000 21,264,000
Less accumulated depreciation
and amortization 5,856,000 5,680,000
------------ -----------
14,518,000 15,584,000
------------ -----------
OTHER ASSETS:
Unamortized cost in excess of net
assets of acquired companies,
net of accumulated amortization 12,123,000 12,391,000
Other 2,081,000 3,555,000
------------ -----------
$111,974,000 $89,536,000
============ ===========
(Continued)
-32-
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31,
-----------------------------
1996 1995
============ ===========
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,944,000 $ 2,128,000
Accounts payable and accrued expenses 37,808,000 24,334,000
Customer deposits 1,467,000 1,559,000
Accrued salaries and wages 2,055,000 747,000
Income taxes payable 432,000 1,718,000
------------ -----------
Total current liabilities 43,706,000 30,486,000
------------ -----------
LONG-TERM LIABILITIES:
Long-term debt, net of current maturities 2,103,000 4,447,000
Accrued litigation settlement expense - 1,300,000
Deferred compensation 1,572,000 1,237,000
Deferred income taxes 843,000 -
------------ -----------
4,518,000 6,984,000
------------ -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value;
100,000 shares authorized,
none issued - -
Common stock, $.01 par value;
10,000,000 shares authorized,
8,039,000 and 7,805,000 shares
issued and outstanding at March
31, 1996 and 1995, respectively 80,000 78,000
Capital in excess of par value 22,615,000 20,414,000
Retained earnings 41,112,000 31,631,000
Less treasury stock, at cost 57,000 57,000
------------ -----------
63,750,000 52,066,000
------------ -----------
$111,974,000 $89,536,000
============ ===========
The accompanying notes to the consolidated
financial statements are an integral part
of these consolidated balance sheets.
-33-
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED MARCH 31,
------------------------------------------
1996 1995 1994
============ ============ ============
Revenue $642,299,000 $361,891,000 $250,527,000
Cost of sales 601,930,000 334,134,000 223,576,000
------------ ------------ ------------
Gross profit 40,369,000 27,757,000 26,951,000
------------ ------------ ------------
Operating expenses:
Salaries and wages 13,266,000 8,117,000 6,558,000
Provision for bad debts 2,291,000 2,062,000 5,063,000
Other 9,866,000 6,329,000 5,560,000
------------ ------------ ------------
25,423,000 16,508,000 17,181,000
------------ ------------ ------------
Income from operations 14,946,000 11,249,000 9,770,000
------------ ------------ ------------
Other income (expense):
Litigation settlement - - (1,300,000)
Equity in earnings of
aviation joint venture 1,748,000 544,000 -
Other, net 127,000 1,230,000 (33,000)
------------ ------------ ------------
1,875,000 1,774,000 (1,333,000)
------------ ------------ ------------
Income before income taxes 16,821,000 13,023,000 8,437,000
Provision for income taxes 5,876,000 4,935,000 3,242,000
------------ ------------ ------------
Net income $ 10,945,000 $ 8,088,000 $ 5,195,000
============ ============ ============
Net income per share $ 1.35 $ 1.10 $ .73
============ ============ ============
Weighted average shares
outstanding 8,100,000 7,359,000 7,101,000
============ ============ ============
The accompanying notes to the consolidated
financial statements are an integral part
of these consolidated statements.
-34-
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK CAPITAL IN
---------------- EXCESS OF RETAINED TREASURY
SHARES AMOUNT PAR VALUE EARNINGS STOCK
--------- ------- ----------- ----------- ---------
Balance at March 31,
1993 7,056,000 $71,000 $14,442,000 $19,857,000 $ -
Exercise of warrants 59,000 - 463,000 - -
Repurchase of common
stock (8,000) - - - (57,000)
Net income - - - 5,195,000 -
--------- ------- ----------- ----------- --------
Balance at March 31,
1994 7,107,000 71,000 14,905,000 25,052,000 (57,000)
Exercise of warrants 57,000 - 463,000 - -
Exercise of options 60,000 - 455,000 - -
Issuance of shares
for acquisition 581,000 7,000 4,577,000 - -
Cash dividends
declared - - - (1,509,000) -
Net income - - - 8,088,000 -
Other - - 14,000 - -
--------- ------- ----------- ----------- --------
Balance at March 31,
1995 7,805,000 78,000 20,414,000 31,631,000 (57,000)
Exercise of options 116,000 1,000 862,000 - -
Issuance of shares
for litigation
settlement 118,000 1,000 1,299,000 - -
Cash dividends
declared - - - (1,464,000) -
Net Income - - - 10,945,000 -
Other - - 40,000 - -
--------- ------- ----------- ----------- --------
Balance at March 31,
1996 8,039,000 $80,000 $22,615,000 $41,112,000 ($57,000)
========= ======= =========== =========== ========
The accompanying notes to the consolidated
financial statements are an integral part
of these consolidated statements.
-35-
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED MARCH 31,
----------------------------------------------------------------
1996 1995 1994
=========== =========== ===========
Cash flows from operating activities:
Net income $10,945,000 $ 8,088,000 $ 5,195,000
----------- ----------- -----------
Adjustments to reconcile net income
to net cash provided by
operating activities-
Depreciation and amortization 1,656,000 1,373,000 1,502,000
Provision for bad debts 2,291,000 2,062,000 5,063,000
Litigation settlement - - 1,300,000
Deferred income tax
provision (benefit) 1,108,000 181,000 (176,000)
Equity in earnings of aviation
joint venture, net (354,000) (544,000) -
Other non-cash operating
(credits) charges (83,000) 35,000 (4,000)
Changes in assets and liabilities,
net of acquisitions and dispositions:
(Increase) decrease in-
Accounts receivable (26,286,000) 1,959,000 223,000
Inventories (953,000) (933,000) 165,000
Prepaid expenses and
other current assets 1,371,000 (72,000) (1,347,000)
Other assets 11,000 (15,000) 332,000
Net cash provided by
discontinued operations - - 2,431,000
Increase (decrease) in-
Accounts payable and
accrued expenses 13,731,000 (4,290,000) (1,903,000)
Customer deposits (92,000) 166,000 152,000
Deferred compensation 335,000 (24,000) -
Accrued salaries
and wages 1,308,000 461,000 (299,000)
Income taxes payable (1,286,000) 852,000 (1,510,000)
----------- ----------- ------------
Total adjustments (7,243,000) 1,211,000 5,929,000
----------- ----------- -----------
Net cash provided by operating
activities 3,702,000 9,299,000 11,124,000
----------- ----------- -----------
(Continued)
-36-
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
FOR THE YEAR ENDED MARCH 31,
------------------------------------
1996 1995 1994
=========== =========== =========
Cash flows from investing activities:
Additions to property, plant and
equipment (1,407,000) (2,194,000) (3,114,000)
Proceeds from sales of assets 381,000 585,000 77,000
Payment for acquisition of
business, net of cash acquired (40,000) (3,184,000) -
Purchase of short-term investments - (3,500,000) -
Proceeds from short-term investments - 3,500,000 -
Proceeds from notes receivable 2,046,000 768,000 -
Repayments from (advances to)
aviation joint venture 338,000 (338,000) -
----------- ----------- ---------
Net cash provided by (used in)
investing activities 1,318,000 (4,363,000) (3,037,000)
----------- ----------- ----------
Cash flows from financing activities:
Net repayments under the revolving
line of credit - - (4,000,000)
Repayment of long-term debt (263,000) (286,000) (489,000)
Repayment of notes payable (1,817,000) (1,643,000) -
Proceeds from issuance of
common stock 863,000 918,000 463,000
Repurchase of common stock - - (57,000)
Dividends paid on common stock (1,854,000) (717,000) -
----------- ----------- ----------
Net cash used in
financing activities (3,071,000) (1,728,000) (4,083,000)
----------- ----------- ----------
Net increase in cash
and cash equivalents 1,949,000 3,208,000 4,004,000
Cash and cash equivalents, at
beginning of year 10,907,000 7,699,000 3,695,000
----------- ----------- ----------
Cash and cash equivalents, at
end of year $12,856,000 $10,907,000 $7,699,000
=========== =========== ==========
(Continued)
-37-
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
FOR THE YEAR ENDED MARCH 31,
------------------------------------
1996 1995 1994
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of capitalized
interest $ 613,000 $ 129,000 $ 149,000
========== ========== ==========
Income taxes $6,368,000 $3,714,000 $3,219,000
========== ========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
In connection with the January 1995 acquisition of the Trans-Tec group
of companies, the Company issued 581,000 shares of its common stock valued at
$4,584,000, and $6,000,000 in notes payable.
In April 1995, the Company paid $1,300,000, representing its share of a
litigation settlement, by issuing 117,825 shares of the Company's common stock
at an agreed upon price of $11.03 per share (restated to reflect the 3-for-2
stock split).
As partial consideration for the sale of certain assets on June 1,
1995, the Company received a $979,000 note receivable with an original maturity
date of July 1, 2007. In October 1995, the entire outstanding principal balance
was collected in cash, net of a $98,000 pre-payment discount.
Cash dividends declared, but not yet paid, totaling $402,000 and
$792,000, are included in accounts payable and accrued expenses as of March 31,
1996 and 1995, respectively.
The accompanying notes to the consolidated
financial statements are an integral
part of these consolidated statements.
-38-
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In August 1995, the stockholders of the Company approved a change in the
Company's name from International Recovery Corp. to World Fuel Services
Corporation (the "Company"). The Company was incorporated in July 1984. The
Company markets aviation and marine fuel and recycles used oil.
ORGANIZATION AND NATURE OF ACQUISITIONS AND DIVESTITURES
In December 1986, the Company entered the aviation fueling business with the
acquisition of Advance Petroleum, Inc. ("Advance"). In October 1989, the
Company expanded its aviation fueling capabilities by acquiring JCo Energy
Partners, Ltd. and shortly thereafter renamed these operations World Fuel
Services, Inc.
The Company formed a subsidiary, Air-Terminaling, Inc. ("ATI") which began
operations in December 1991. ATI managed the fuel storage facilities owned by
the Metropolitan Dade County, Florida Aviation Department Authority which are
used to distribute aviation fuel at Miami International Airport. On May 3, 1994,
the Metropolitan Dade County Board of Commissioners voted to award the fuel
management contract to another company effective June 30, 1994.
In December 1992, the Board of Directors approved the Company's exit from the
environmental services sector. The Company substantially completed its plan of
discontinuance in fiscal year 1994.
The Company formed a subsidiary, International Petroleum Corp. of Delaware which
began operations in April 1993, upon the completion of its used oil and water
recycling plant in Wilmington, Delaware.
In August 1994, the Company began aviation fueling operations in Ecuador through
a joint venture which enables the Company to provide point-to-point aviation
fuel sales within Ecuador. See Note 6 for additional information.
In January 1995, the Company entered the marine fueling business with the
acquisition of the Trans-Tec group of companies. The following unaudited
pro-forma results of operations for the fiscal years ended March 31, 1995 and
1994 assume that the Company acquired the Trans-Tec companies on April 1, 1993.
FOR THE YEAR ENDED
MARCH 31,
------------------------------
1995 1994
------------ ------------
Revenue $524,893,000 $388,094,000
============ ============
Net income $ 8,585,000 $ 6,117,000
============ ============
Net income per share $ 1.10 $ 0.79
============ ============
-39-
Effective June 1, 1995, the Company sold substantially all of the operating
assets and liabilities of International Petroleum Corporation of Georgia
("IPC-GA"), a subsidiary of the Company engaged in the used oil recycling
business, to Universal Refining, LLC ("URL") and Mr. Barry Paul. URL's president
is Mr. Barry Paul, the former president of IPC-GA and of the entity from which
IPC-GA initially purchased these assets in August 1990. Mr. Paul is the cousin
of the Company's President. The sales price was $1,179,000, which closely
approximated the Company's carrying values of the net assets sold. At closing, a
cash payment of $200,000 and a note receivable for $979,000, with an original
maturity date of July 1, 2007, were received. In October 1995, the entire
outstanding principal balance of the note receivable was collected in cash, net
of a $98,000 pre-payment discount.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. The Company uses the equity
method of accounting to record its proportionate share of the earnings of its
aviation joint venture.
CASH AND CASH EQUIVALENTS
The Company classifies as cash equivalents all highly liquid investments with a
maturity of three months or less from the date of purchase. The Company's
investments at March 31, 1996 and 1995 amounted to $11,395,000 and $8,863,000
respectively, and consisted principally of bank repurchase agreements
collateralized by United States Government Securities. Investment maturities do
not exceed 30 days and are not rated lower than A1-P1 by Standard & Poor's
Corporation - Moody's Investors Services, Inc. Interest income, which is
included in Other, net, in the accompanying statements of income, totalled
$1,029,000, $765,000 and $182,000 for the years ended March 31, 1996, 1995 and
1994, respectively.
INVENTORIES
Inventories are stated at the lower of cost (principally, first-in, first-out)
or market. Components of inventory cost include oil and fuel purchase cost,
direct materials, direct and indirect labor and factory overhead.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost less accumulated depreciation
and amortization. Depreciation and amortization are calculated on a
straight-line basis over the estimated useful lives of the assets as follows:
YEARS
=====
Buildings and improvements 10-40
Office equipment and furniture 3-8
Plant, machinery and equipment 3-40
-40-
Costs of major additions and improvements are capitalized and expenditures for
maintenance and repairs which do not extend the lives of the assets are
expensed. Upon sale or disposition of property, plant and equipment, the cost
and related accumulated depreciation and amortization are eliminated from the
accounts and any resultant gain or loss is credited or charged to income.
UNAMORTIZED COST IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES
Unamortized cost in excess of net assets of acquired companies is being
amortized over 35-40 years using the straight-line method. Accumulated
amortization amounted to $775,000 and $413,000, as of March 31, 1996 and 1995,
respectively. Subsequent to an acquisition, the Company continually evaluates
whether later events and circumstances have occurred that indicate the remaining
estimated useful life of this asset may warrant revision or that the remaining
balance of this asset may not be recoverable.
The Company's policy is to assess any impairment in value by making a comparison
of the current and projected undiscounted cash flows associated with the
acquired companies to the carrying amount of the unamortized cost in excess of
the net assets of the acquired companies. Such carrying amount would be
adjusted, if necessary, to reflect an impairment in the value of the asset.
REVENUE RECOGNITION
Revenue is generally recorded in the period when the sale is made or as the
services are performed. In the Company's aviation and marine fueling segments,
the Company contracts third parties to provide the fuel and/or intoplane
services. This may cause delays in receiving the necessary information for
invoicing. Accordingly, revenue may be recognized in a period subsequent to when
the delivery of fuel took place. Costs not yet billed are classified as current
assets and are included under Inventories. The Company's revenue recognition
policy with respect to the aviation and marine fueling segment does not result
in amounts that are materially different than accounting under generally
accepted accounting principles.
INCOME TAXES
The Company and its United States subsidiaries file consolidated income tax
returns. In addition, the Company's foreign subsidiaries file income tax returns
in their respective countries of incorporation.
FOREIGN CURRENCY TRANSLATION
The Company's primary functional currency is the U.S. Dollar which also serves
as its reporting currency. Most foreign entities translate monetary assets and
liabilities at fiscal year-end exchange rates while non-monetary items are
translated at historical rates. Income and expense accounts are translated at
the average rates in effect during the year, except for depreciation which is
translated at historical rates. The Company's aviation joint venture uses the
Company's reporting currency as the functional currency (as it operates in a
highly inflationary economy) and translates net assets at fiscal year-end rates
while income and expense accounts are translated at average exchange rates.
Gains or losses from changes in exchange rates are recognized in consolidated
income in the year of occurrence and are included in Other, net.
The Company's purchases from certain aviation fuel suppliers are denominated in
local currency. Foreign currency exchange gains and losses resulting from
-41-
payments to aviation fuel suppliers are included in Other, net, in the period
incurred, and amounted to net losses of $119,000 and net gains of $737,000 for
the fiscal years ended March 31, 1996 and 1995, respectively. There were no
significant foreign currency gains or losses in fiscal year 1994.
EARNINGS PER SHARE
Earnings per common and common equivalent share have been computed by dividing
net income by the weighted average number of shares of common stock and common
stock equivalents outstanding. Common stock equivalents include all potentially
dilutive outstanding stock options and warrants applying the treasury stock
method. Primary and fully diluted earnings per share are not materially
different.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments" requires that the Company disclose the estimated
fair value of financial instruments, both assets and liabilities recognized and
not recognized in the accompanying consolidated balance sheets, for which it is
practicable to estimate fair value. The estimated fair values of financial
instruments which are presented herein have been determined by the Company's
management using available market information and appropriate valuation
methodologies. However, considerable judgement is required in interpreting
market data to develop estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of amounts the Company could
realize in a current market exchange.
Cash and cash equivalents, accounts receivable and accounts payable and accrued
expenses are reflected in the accompanying balance sheets at amounts considered
by management to reasonably approximate fair value due to their short-term
nature.
The Company estimates the fair value of its long-term debt generally using
discounted cash flow analysis based on the Company's current borrowing rates for
similar types of debt. At March 31, 1996, the carrying value of the long-term
debt and the fair value of such instruments was not considered to be
significantly different.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121").
SFAS No. 121 will apply to the Company for the fiscal year ending March 31,
1997. The Company does not believe that SFAS No. 121 would have a material
effect on its financial position or the results of its operations had it been
applied in the fiscal year ended March 31, 1996.
-42-
(2) LONG-TERM DEBT
Long-term debt consists of the following at March 31:
1996 1995
========== ==========
Promissory notes issued in connection
with the acquisition of the Trans-tec
group of companies, payable annually
through January 1998, bearing interest
at 9%, unsecured $3,928,000 $6,000,000
Capitalized lease obligations, payable
through August 1996, interest at rates
ranging from 10.19% to 10.70% (secured
by property with a net book value of
$30,000 and $263,000 at March 31, 1996
and 1995, respectively) 18,000 251,000
Equipment notes, payable monthly through
May 1998, interest rates ranging from
6.76% to 7.00%, secured by equipment 101,000 147,000
Mortgage note, transferred effective June
1, 1995, to the buyer of IPC-GA - 177,000
---------- ----------
4,047,000 6,575,000
Less current maturities 1,944,000 2,128,000
---------- ----------
$2,103,000 $4,447,000
========== ==========
The Company has an unsecured credit facility providing a $25,000,000 revolving
line of credit with sublimits of $8,000,000 and $6,000,000 for standby letters
of credit and documentary letters of credit, respectively. Approximately
$5,760,000 in standby letters of credit were outstanding as of March 31, 1996
under the credit facility. The Company also has $100,000 outstanding in standby
letters of credit from other financing institutions and has pledged $100,000 of
cash as collateral on these letters of credit.
The revolving line of credit bears interest, at the Company's option, at the
NationsBank Prime rate, or LIBOR, adjusted for the Bank's reserve requirement,
plus a margin ranging from .875% to 1.125%, depending on the Company's
consolidated fixed charge ratio as defined under the credit facility. Interest
is payable quarterly in arrears. As of March 31, 1996 and 1995, there were no
amounts outstanding under the revolving line of credit. Any outstanding
principal and interest will mature on March 31, 1998. The credit facility, in
addition to other restrictions, requires the maintenance of certain financial
ratios and account balances, limits cash outlays for capital expenditures,
places certain restrictions on additional borrowings outside of NationsBank and
restricts the payment of dividends, except for the Company's quarterly dividend
which complies with the NationsBank facility. As of March 31, 1996, the Company
was in compliance with its debt covenants.
-43-
Aggregate annual maturities of long-term debt as of March 31, 1996, are as
follows:
1997 $1,944,000
1998 2,099,000
1999 4,000
----------
$4,047,000
==========
Interest expense, which is included in Other, net, in the accompanying
consolidated statements of income, is as follows for the years ended March 31:
1996 1995 1994
======== ======== ========
Interest expense $565,000 $263,000 $175,000
Capitalized interest - - (32,000)
-------- -------- --------
Interest expense, net $565,000 $263,000 $143,000
======== ======== ========
(3) INCOME TAXES
The provision for income taxes consists of the following components for the
years ended March 31:
1996 1995 1994
========== ========== ==========
Current:
Federal $3,568,000 $3,540,000 $2,595,000
State 567,000 614,000 402,000
Foreign 633,000 600,000 152,000
---------- ---------- ----------
4,768,000 4,754,000 3,149,000
---------- ---------- ----------
Deferred:
Federal 998,000 217,000 158,000
State 138,000 39,000 24,000
Foreign (28,000) (75,000) (89,000)
---------- ---------- ----------
1,108,000 181,000 93,000
---------- ---------- ----------
Total $5,876,000 $4,935,000 $3,242,000
========== ========== ==========
The difference between the reported tax provision and the provision computed by
applying the statutory U.S. federal income tax rate currently in effect to
income before income taxes for each of the three years ended March 31, 1996, is
primarily due to state income taxes.
The Company's share of undistributed earnings of foreign subsidiaries not
included in its consolidated federal income tax return that could be subject to
additional income taxes if remitted, was approximately $6,007,000 and $4,888,000
at March 31, 1996 and March 31, 1995, respectively. The distribution of these
earnings would result in additional U.S. federal income taxes to the extent they
are not offset by foreign tax credits. No provision has been recorded for the
U.S. taxes that could result from the remittance of such earnings since the
Company intends to reinvest these earnings outside the U.S. indefinitely and it
is not practicable to estimate the amount of such taxes.
-44-
The temporary differences which comprise the Company's net deferred tax
(liability) asset are as follows:
MARCH 31,
--------------------------------
1996 1995
----------- -----------
Excess of provision for
bad debts over charge-offs $ 1,537,000 $ 1,340,000
Excess of tax over financial
reporting depreciation and
amortization (1,989,000) (1,284,000)
Accrued expenses recognized for
financial reporting purposes,
not currently deductible 161,000 481,000
Excess of tax over financial
reporting amortization of
identifiable intangibles (365,000) (248,000)
Other, net (187,000) (24,000)
----------- -----------
$ (843,000) $ 265,000
=========== ===========
The net deferred tax asset at March 31, 1995, is included in Other assets in the
accompanying consolidated balance sheets.
(4) STOCKHOLDERS' EQUITY
COMMON STOCK ACTIVITY
On June 5, 1995, the Board of Directors approved a 3-for-2 stock split for all
shares of common stock outstanding as of June 19, 1995. The shares were
distributed on June 27, 1995. Accordingly, all share and per share data, as
appropriate, have been retroactively adjusted to reflect the effects of this
split.
In April 1995, the Company paid $1,300,000, representing its share of the
stockholders class action settlement, by issuing 117,825 shares of the Company's
common stock at an agreed upon price of $11.03 per share (restated to reflect
the 3-for-2 stock split).
EMPLOYEE STOCK OPTIONS ACTIVITY
In January 1986, the stockholders approved an employee stock option plan under
the terms of which the Board of Directors is authorized to grant options to
full-time employees of the Company and its subsidiaries. The plan permits the
issuance of options to purchase up to an aggregate of 300,000 (increased to
600,000 in August 1995) shares of the Company's common stock. The minimum price
at which any option may be exercised will be the fair market value of the stock
on the date of grant; provided, however, that with respect to an option granted
to an individual owning more than 10% of the Company's outstanding common stock,
the minimum exercise price will be 110% of the fair market value of the common
stock on the date of grant. All options granted pursuant to the employee stock
-45-
plan must be exercised within ten years after the date of grant, except that
options granted to individuals owning more than 10% of the Company's outstanding
common stock must be exercised within five years after the date of grant.
In October 1995, the Financial Accounting Standards Board adopted SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS 123 will apply
to the Company for the fiscal year ending March 31, 1997. The Company does not
believe that this Statement would have a material effect on its financial
position or the results of its operations had it been applied in the fiscal year
ended March 31, 1996.
The following summarizes the status of the employee stock option plan at, and
for the year ended March 31:
1996 1995 1994
=============== =============== ===============
Granted 98,091 46,206 None
Per Share $10.33 - $12.58 $14.88 - $15.50
Adjustment for
3:2 stock split 85,714 None None
Expired None 20,000 None
Exercised 69,375 None None
Per Share $ 2.00 - $9.33
Outstanding 285,857 171,427 145,221
Per Share $9.08 - $12.58 $3.00 - $15.50 $3.00 - $14.75
Available for
future grant 153,489 37,294 63,500
Exercisable 120,707 125,221 63,721
Per Share $9.33 - $9.83 $3.00 - $14.75 $3.00 - $14.75
During fiscal year 1996, the Board of Directors granted options to several
executive officers for the purchase of 38,841 shares of the Company's common
stock under the employee stock option plan at an exercise price of $12.58 per
share. The Board of Directors also granted options to various employees for the
purchase of 59,250 shares of the Company's common stock under the employee stock
option plan at an exercise price of $10.33 per share. Options granted during the
1996 fiscal year have been adjusted to reflect the 3-for-2 stock split.
The adjustment for the 3-for-2 stock split of 85,714 shares of common stock
reflects the effect of the stock split on the 171,427 shares of common stock
outstanding under the employee stock option plan as of March 31, 1995.
In November 1995, previously granted options under the employee stock option
plan for the purchase of 69,375 shares of the Company's common stock were
exercised at prices ranging from $2.00 to $9.33 per share. The proceeds received
by the Company from the exercise of these options totalled $531,000.
In June 1994, the Company extended through December 31, 1995, the non-qualified
option of an executive officer and director of the Company, for the purchase
-46-
of 37,500 shares of the Company's common stock, at an exercise price of $6.67
per share. The difference between the fair market value on the extension date of
$12.13, and the option price, was amortized over 1995 as compensation expense.
In May 1995, the Board of Directors granted a non-qualified option to an
executive officer to purchase 13,659 shares of the Company's common stock at an
exercise price of $12.58 per share. In November 1995, previously granted
non-qualified stock options for the purchase of 46,875 shares of the Company's
common stock were exercised at prices ranging from $6.67 to $10.08. The proceeds
received by the Company from the exercise of these options totalled $332,000. As
of March 31, 1996, non-qualified stock options to purchase a total of 63,089
shares of the Company's common stock at exercise prices ranging from $9.33 to
$13.88 per share, remain outstanding.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
In August, 1994, at the annual meeting of the stockholders of the Company, the
1993 Non-Employee Directors Stock Option Plan ("1993 Directors Plan") was
adopted. An aggregate of 50,000 shares of the Company's common stock have been
reserved for issuance under the 1993 Directors Plan.
Under the 1993 Directors Plan, members of the Board of Directors who are not
employees of the Company or any of its subsidiaries or affiliates will receive
annual stock options to purchase common stock in the Company pursuant to the
following formula. Each non-employee director will receive a non-qualified
option to purchase 2,500 shares when such person is first elected to the Board
of Directors and will receive a non-qualified option to purchase 2,500 shares
each year, starting in August 1995, that the individual is re-elected. As of
March 31, 1996, options to purchase 23,125 shares of the Company's common stock
remain outstanding under the 1993 Directors Plan and 25,000 shares are available
for future grant.
The exercise price for options granted under the Plan may not be less than the
fair market value of the common stock, which is defined as the closing bid
quotation for the common stock at the end of the day preceding the grant.
Options granted under the Plan become fully exercisable one year after the date
of grant. All options expire five years after the date of grant. The exercise
price must be paid in cash or in common stock, subject to certain restrictions.
DIVIDEND DECLARATIONS
The Company declared and paid the following cash dividends for fiscal years 1996
and 1995, respectively (restated to reflect the 3-for-2 stock split):
DECLARATION DATE PER SHARE RECORD DATE PAYMENT DATE
- ----------------- --------- ------------------ ------------
June 5, 1995 $0.050 June 19, 1995 June 27, 1995
September 6, 1995 $0.050 September 22, 1995 October 16, 1995
December 8, 1995 $0.050 December 22, 1995 January 17, 1996
March 8, 1996 $0.050 March 22, 1996 April 15, 1996
DECLARATION DATE PER SHARE RECORD DATE PAYMENT DATE
- ----------------- --------- ------------------ ------------
May 9, 1994 $0.033 June 22, 1994 July 15, 1994
September 9, 1994 $0.033 September 22, 1994 October 14, 1994
December 9, 1994 $0.033 December 22, 1994 January 12, 1995
January 19, 1995 $0.033 March 22, 1995 April 13, 1995
February 22, 1995 $0.067 March 22, 1995 April 13, 1995
-47-
(5) COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases premises in New Orleans, Louisiana and Plant City, Florida
from trusts co-managed by the President of the Company under two operating
leases with rent aggregating $90,000 per year. The leases expire in August 2001.
The Company has an option to purchase the properties at current market value at
any time during the lease term. The Company intends to exercise the purchase
options on both leases.
The Company also leases additional office space and railroad tank cars from
unrelated third parties.
At March 31, 1996, the future minimum lease payments under capital leases and
operating leases with an initial noncancellable term in excess of one year,
were as follows:
CAPITAL OPERATING
LEASES LEASES
======= ==========
1997 $19,000 $ 726,000
1998 - 585,000
1999 - 260,000
2000 - 226,000
2001 - 226,000
------- ----------
Total Minimum lease payments 19,000 $2,023,000
==========
Less amounts representing interest 1,000
-------
Present value of minimum lease
payments $18,000
=======
Rental expense under operating leases with an initial noncancellable term in
excess of one year was $722,000, $535,000, and $461,000 for the years ended
March 31, 1996, 1995 and 1994, respectively.
CAPITAL EXPENDITURES
During fiscal year 1997, the Company anticipates spending approximately
$1,000,000 to upgrade the storage tank facilities of its Louisiana oil recycling
plant and an additional $1,000,000 for the upgrade of plant, machinery and
equipment. The Company intends to spend an estimated $1,000,000 over the next
several years to clean up contamination which was present at one of the
Company's sites when it was acquired by the Company. The clean up cost up will
be capitalized as part of the cost of the site, up to the fair market value of
the site.
SURETY BONDS
In the normal course of business, the Company is required to post bid,
performance and garnishment bonds. The majority of the bonds issued relate to
the Company's aviation fueling business. As of March 31, 1996, the Company had
$2,401,000 in outstanding bonds.
-48-
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to credit risk
consist primarily of trade accounts receivable. The Company extends credit on an
unsecured basis to many of its aviation and marine customers, some of which have
a line of credit in excess of $2,000,000. The Company's management recognizes
that extending credit and setting appropriate reserves for receivables is
largely a subjective decision, based on knowledge of the customer. Active
management of this risk is essential to the Company's success. A strong capital
position and liquidity provide the financial flexibility necessary to respond to
customer needs. The Company's management meets regularly to evaluate credit
exposure in the aggregate, and by individual credit. This group is also
responsible for setting and maintaining credit standards and ensuring the
overall quality of the credit portfolio.
POTENTIAL LIABILITY AND INSURANCE
The Company, through the use of subcontractors and its own operations,
transports, stores, or processes flammable aviation, marine and residual fuel
subjecting it to possible claims by employees, customers, regulators, and others
who may be injured. In addition, the Company may be held liable for the clean-up
costs of spills or releases of materials from its facilities or vehicles, or for
damages to natural resources arising out of such events. The Company follows
what it believes to be prudent procedures to protect its employees and customers
and to prevent spills or releases of these materials.
The Company's activities subject it to the risks of significant potential
liability under Federal and state statutes, common law, and contractual
indemnification agreements. The Company has general and automobile liability
insurance coverage, including the statutory Motor Carrier Act/MCS 90 endorsement
for sudden and accidental pollution.
In the aviation and marine fuel segments, the Company utilizes subcontractors
which provide various services to customers, including intoplane fueling at
airports, fueling of vessels in port and at sea, and transportation and storage
of fuel and fuel products. Although the Company generally requires its
subcontractors to carry liability insurance, not all subcontractors carry
adequate insurance. The Company's liability insurance policy does not cover the
acts or omissions of its subcontractors. If the Company is held responsible for
any liability caused by its subcontractors, and such liability is not adequately
covered by the subcontractor's insurance, the Company will be adversely
affected.
The Company has exited several environmental businesses which handled hazardous
wastes. These wastes were transported to various disposal facilities and/or
treated by the Company. The Company may be held liable as a potentially
responsible party for the clean-up of such disposal facilities in certain cases
pursuant to current Federal and state laws and regulations. The Company is
currently responsible to Federal and Florida environmental agencies for clean-up
costs at a site formerly operated by its subsidiary, Resource Recovery of
America, which has been sold by the Company. Under the terms of the sale, the
Company contractually transferred to the buyer the responsibility for the state
clean-up. The site has also qualified under the state reimbursement program,
which the Company anticipates will cover the cost of the clean-up. The Company
is actively involved in the coordination of clean-up requirements by the EPA and
the state to assure the Company's compliance.
-49-
The Company's policy, which is in accordance with Statement of Financial
Accounting Standards No. 5, "Accounting for Contingencies," is to recognize
estimated losses resulting from potential environmental contingencies, as a
charge to income, if information available to the Company prior to issuance of
the financial statements indicates that it is probable that an environmental
liability has been incurred and the amount of the loss can be reasonably
estimated. As of March 31, 1996, the Company had a remaining accrued liability
of $11,000 related to clean-up costs associated with the Company's discontinued
operations. The Company did not identify any potential environmental
contingencies, which would require a charge to income, during the current fiscal
year.
The Company continuously reviews the adequacy of its insurance coverage.
However, the Company lacks coverage for various risks. A claim arising out of
the Company's activities, if successful and of sufficient magnitude, could have
a material adverse effect on the Company's financial position or results of
operations.
LEGAL MATTERS
In December 1995, the Company settled a lawsuit filed in January 1993, by
Hillsborough County and other plaintiffs, arising from alleged environmental
contamination at the County's Sidney Mine disposal facility. The Company paid
$350,000, of which $175,000 was reimbursed by another potentially responsible
party. The net cost of the settlement to the Company was $175,000.
The Company is involved in other litigation and administrative proceedings
primarily arising in the normal course of its business. In the opinion of
management, the Company's liability, if any, under any other pending litigation
or administrative proceedings, would not materially affect its financial
condition or operations.
EMPLOYMENT AGREEMENTS
The Company amended its employment agreements with the Chairman of the Board and
the President which expire on March 31, 2001. Each agreement provides for a
fixed salary and an annual bonus equal to 5% of the Company's income before
income taxes and bonus in excess of $2,000,000. In addition, the payment of any
portion of the bonus causing the executive's compensation to exceed $1,000,000
during any fiscal year will be deferred and earn interest at the Prime rate,
until a fiscal year during the employment term in which the executive earns less
than $1,000,000; provided, however, that in the event of executive's death, the
termination of the executive for any reason, or the expiration of the employment
agreement, any excess amount, including any interest earned thereon, shall be
paid to the executive within ten (10) days of such death, termination, or
expiration. As of March 31, 1996, $170,800 was deferred under the agreements.
The agreements also provide that if the Company terminates the employment of the
executive for reasons other than death, disability, or cause, or, if the
executive terminates employment with the Company for good reason, including
under certain circumstances, a change in control of the Company, the Company
will pay the executive compensation of up to three times his average salary and
bonus during the five year period preceding his termination.
-50-
The Company and its subsidiaries have also entered into employment, consulting
and non-competition agreements with certain of their executive officers and
previous and current employees. The agreements provide for minimum salary
levels, as well as bonuses which are payable if specified management goals are
attained.
During the years ended March 31, 1996, 1995 and 1994, approximately $4,407,000,
$3,963,000 and $3,124,000, respectively, was expensed under the terms of the
above described agreements.
The future minimum commitments under employment agreements, excluding bonuses,
at March 31, 1996 are as follows:
1997 $ 4,283,000
1998 3,671,000
1999 1,202,000
2000 533,000
2001 533,000
----------
$10,222,000
===========
DEFERRED COMPENSATION PLANS
The Company has an incentive compensation plan which provides incentive
compensation to certain key personnel whose performance contributes to the
profitability and growth of the Trans-Tec group of companies. The plan is
unfunded and is not a qualified plan under the Internal Revenue Code. Under the
plan, participants are awarded units for the allocation of 20% of the Trans-Tec
group's net income, excluding the incentive compensation expense, and earn
interest on their deferred amounts. The plan allows for distributions of vested
amounts over a five year period, subject to certain requirements, during and
after employment with the Company. Participants become fully vested over a five
year period of employment. Fully vested participants must wait two years from
the year of contribution to be eligible for the distribution of deferred account
balances. The plan is administered by a plan committee appointed by the Board of
Directors of Trans-Tec Services, Inc.
The plan committee has the authority to suspend or terminate the plan, as well
as the responsibility to allocate the amount of incentive compensation among
participants, during each plan year. The plan's fiscal year corresponds to the
Company's fiscal year.
The Company maintains a 401(k) defined contribution plan which covers all
employees who meet minimum requirements and elect to participate. Participants
may contribute up to 15% of their compensation, subject to certain limitations.
The Company makes matching contributions of 25% of the participants'
contributions up to the first 4% contributed. The Company may also make annual
additional contributions at its sole discretion. During the fiscal years ended
March 31, 1996 and 1995, approximately $52,000 and $11,000, respectively, was
expensed as Company contributions. The Company did not make matching
contributions prior to fiscal year 1995.
-51-
(6) AVIATION JOINT VENTURE
In August 1994, the Company, through its wholly-owned subsidiary World Fuel
Services, Inc., began operation of a joint venture with Petrosur, an Ecuador
corporation. The joint venture was organized to distribute jet fuel in Ecuador
pursuant to a contract with the nationally owned oil company and the airport
authority. The contract with the government entities may be terminated at any
time. The joint venture arrangement has a term of five years and will
automatically renew for a similar term unless one of the partners objects at
least ninety days prior to the end of the term.
The Company's original ownership interest in the joint venture was 42% through
September 30, 1995. Effective October 1, 1995, the Company's ownership interest
was increased to 51%. As part of this new ownership agreement, the Company
agreed to a requirement of at least a 75% positive vote by the joint venture
owners on all significant decisions, as defined. Since this new arrangement
precluded the Company from having control under generally accepted accounting
principles, the Company continued to use the equity method of accounting to
record its proportionate share of joint venture earnings. Effective January 1,
1996, the Company's ownership interest in the joint venture was decreased to
50%.
The Company's proportionate share of the net earnings of the joint venture
amounted to $1,748,000 and $544,000 for the fiscal years ended March 31, 1996
and 1995, respectively. The amount of the investment in the joint venture
totalled $882,000 at March 31, 1996, as compared to $544,000 for the prior year,
and is included in Other assets in the accompanying consolidated balance sheet.
A summary of selected financial information for the joint venture is as follows:
AS OF MARCH 31, 1996
--------------------
BALANCE SHEET DATA:
Current assets $ 5,531,000
Noncurrent assets 47,000
Current liabilities 3,778,000
FOR THE YEAR ENDED MARCH 31, 1996
---------------------------------
INCOME STATEMENT DATA:
Revenue $ 39,406,000
Gross Profit 3,844,000
Income from operations 3,565,000
Net Income 3,966,000
-52-
(7) BUSINESS SEGMENTS, FOREIGN OPERATIONS AND MAJOR CUSTOMERS
BUSINESS SEGMENTS
The Company operates in three business segments: aviation fueling, marine
fueling and oil recycling. Information concerning the Company's operations by
business segment is as follows:
FOR THE YEAR ENDED MARCH 31,
-------------------------------------------
1996 1995 1994
============ ============ ============
REVENUE:
Aviation fueling $302,101,000 $288,728,000 $233,982,000
Marine fueling 321,216,000 54,578,000 -
Oil recycling 18,993,000 18,591,000 16,554,000
Intersegment eliminations (11,000) (6,000) (9,000)
------------ ------------ ------------
Consolidated revenue $642,299,000 $361,891,000 $250,527,000
============ ============ ============
INCOME FROM OPERATIONS:
Aviation fueling $ 12,858,000 $ 12,304,000 $ 12,066,000
Marine fueling 3,425,000 220,000 -
Oil recycling 3,976,000 2,973,000 1,075,000
Corporate (5,313,000) (4,248,000) (3,371,000)
------------ ------------ ------------
Consolidated income
from operations $ 14,946,000 $ 11,249,000 $ 9,770,000
============ ============ ============
IDENTIFIABLE ASSETS:
Aviation fueling $ 42,345,000 $ 27,920,000 $ 26,535,000
Marine fueling 39,948,000 34,313,000 -
Oil recycling 15,567,000 17,557,000 16,548,000
Corporate 14,114,000 9,746,000 10,604,000
------------ ------------ ------------
Consolidated identifiable
assets $111,974,000 $ 89,536,000 $ 53,687,000
============ ============ ============
CAPITAL EXPENDITURES:
Aviation fueling $ 66,000 $ 27,000 $ 101,000
Marine fueling 424,000 104,000 -
Oil recycling 623,000 1,901,000 3,078,000
Corporate 294,000 162,000 155,000
------------ ------------ ------------
Consolidated capital
expenditures $ 1,407,000 $ 2,194,000 $ 3,334,000
============ ============ ============
DEPRECIATION AND
AMORTIZATION:
Aviation fueling $ 116,000 $ 236,000 $ 194,000
Marine fueling 535,000 140,000 -
Oil recycling 819,000 824,000 1,150,000
Corporate 186,000 173,000 158,000
------------ ------------ ------------
Consolidated depreciation
and amortization $ 1,656,000 $ 1,373,000 $ 1,502,000
============ ============ ============
For the year ended March 31, 1995, the marine fueling segment reflects activity
from January 1, 1995 to March 31, 1995.
Net assets of the discontinued operations were transferred to continuing
operations as of March 31, 1994.
-53-
FOREIGN OPERATIONS
A summary of financial data for foreign operations is shown below at, and for
the fiscal years ended March 31, 1996, 1995 and 1994. Non-U.S. operations of the
Company and its subsidiaries are conducted primarily in the United Kingdom and
Singapore. Income from operations is before the allocation of corporate general
and administrative expenses and income taxes.
1996 1995 1994
============ =========== ===========
Revenue $141,578,000 $47,045,000 $28,382,000
============ =========== ===========
Income from operations $ 2,099,000 $ 1,572,000 $ 190,000
============ =========== ===========
Identifiable assets $ 13,360,000 $11,770,000 $ 1,872,000
============ =========== ===========
MAJOR CUSTOMERS
No customer accounted for more than 10% of total consolidated revenue for the
years ended March 31, 1996, 1995 and 1994.
(8) QUARTERLY INFORMATION (UNAUDITED)
FOR THE THREE MONTHS ENDED,
--------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1995 1995 1995 1996
============ ============ ============ ============
Revenue $138,960,000 $145,658,000 $166,671,000 $191,010,000
============ ============ ============ ============
Gross profit $ 9,174,000 $ 9,911,000 $ 10,328,000 $ 10,956,000
============ ============ ============ ============
Net income $ 2,545,000 $ 2,655,000 $ 2,861,000 $ 2,884,000
============ ============ ============ ============
Earnings per
common and common
equivalent share $ 0.32 $ 0.33 $ 0.35 $ 0.35
============ ============ ============ ============
FOR THE THREE MONTHS ENDED,
--------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1994 1994 1994 1995
============ ============ ============ ============
Revenue $ 72,524,000 $ 76,660,000 $ 78,103,000 $134,604,000
============ ============ ============ ============
Gross profit $ 7,242,000 $ 5,731,000 $ 5,802,000 $ 8,982,000
============ ============ ============ ============
Net income $ 1,944,000 $ 1,760,000 $ 2,054,000 $ 2,330,000
============ ============ ============ ============
Earnings per
common and common
equivalent share $ 0.27 $ 0.25 $ 0.28 $ 0.30
============ ============ ============ ============
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SCHEDULE II
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Additions
-------------------------------------
Balance at Charged to Charged to Balance at
beginning Acquisition costs and other end
of period of business expenses accounts (1) Deductions(2) of period
========== =========== ========== ============ ============= ==========
Year Ended March 31, 1996
- -------------------------
Allowance for bad debts $4,566,000 $ -- $2,291,000 $ 785,000 $3,279,000 $4,363,000
========== ========== ========== ========== ========== ==========
Year Ended March 31, 1995
- -------------------------
Allowance for bad debts $2,464,000 $250,000 $2,062,000 $2,408,000 $2,618,000 $4,566,000
========== ========== ========== ========== ========== ==========
Year Ended March 31, 1994
- -------------------------
Allowance for bad debts $2,635,000 $ -- $5,063,000 $ 867,000 $6,101,000 $2,464,000
========== ========== ========== ========== ========== ==========
Notes:
(1) Recoveries of bad debts and reclassifications. In fiscal year 1995,
allowance for bad debts totaling $130,000 was transferred from the
Company's discontinued operations to continued operations.
(2) Accounts determined to be uncollectible.
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