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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 of (I.R.S. Employer Identification No.)
incorporation or organization)
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 EACH EXCHANGE
TITLE OF EACH CLASS: ON WHICH REGISTERED:
----------------------- -----------------------------
Common Stock, New York Stock Exchange
par value $0.01 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 definite 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
$149,300,000 (computed by reference to the closing sale price as of May 19,
1999).
The registrant had 12,187,777 outstanding shares of common stock, par
value $.01 per share, as of May 19, 1999.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III - Definitive Proxy Statement for the 1999 Annual Meeting of
Shareholders.
TABLE OF CONTENTS
PAGE
----
ITEM 1. Business
General 1
History 1
Description of Business 2
Aviation Fuel Services 2
Marine Fuel Services 2
Oil Recycling 3
Potential Risks and Insurance 4
Regulation 6
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 14
ITEM 7A Qualitative and Quantitative Disclosures about Market Risk 22
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") markets aviation and marine fuel
services, and recycles used oil. In its aviation fuel services business, the
Company extends credit and provides around-the-world single-supplier
convenience, 24-hour service, and competitively-priced aviation fuel and flight
plans, weather reports, and other aviation related services to passenger, cargo
and charter airlines, as well as corporate customers. In its marine fuel
services business, the Company markets marine fuel and fuel management services
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 to the accompanying financial
statements.
HISTORY
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 fuel services business through ten
subsidiaries and a joint venture, with principal offices in Florida, Texas,
England, Singapore, Mexico, Ecuador and Costa Rica. The Company conducts its
marine fuel services business through nine subsidiaries with principal offices
in New Jersey, California, Washington, England, Costa Rica, South Korea 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 segment and "Exhibit 21
- - Subsidiaries of the Registrant".
The Company began operations in 1984 as a used oil recycler in the southeast
United States. The Company expanded this business through acquisitions, the
development of new processing technology and the establishment of new offices.
In 1986, the Company diversified its operations by entering, through an
acquisition, the aviation fuel services business. This new segment expanded
rapidly, from a business primarily concentrated in the state of Florida, to an
international sales company covering airports throughout the world. This
expansion resulted from acquisitions and the establishment of new offices. In
1995, the Company further diversified its fuel services operations through the
acquisition of a group of companies which are considered leaders in the marine
fuel services business.
In January 1998, the Company purchased all of the outstanding stock of Baseops
International, Inc. and its affiliates ("Baseops"). Baseops provides a
sophisticated array of aviation services to a diversified clientele of
corporate, government, and private aircraft worldwide.
In April 1999, the Company acquired substantially all of the operations of the
privately held Bunkerfuels group of companies, one of the world's leading
providers of bunker services. The
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acquisition will significantly increase World Fuel Services' share of the world
marine fuel market. The results of operations of the Bunkerfuels group will be
included with the results of the Company from April 1999.
See "Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 1 to the accompanying financial statements for
additional information.
DESCRIPTION OF BUSINESS
AVIATION FUEL SERVICES
The Company markets aviation fuel and services to passenger, cargo and charter
airlines, as well as corporate customers. The Company has developed an extensive
network which enables it to provide fuel and aviation related services to
customers at airports throughout the world. The aviation services offered by the
Company include flight plans, weather reports, ground handling, and obtaining
flight permits.
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 are required to 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 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 prepay 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 does not maintain fuel inventory and
arranges to have the fuel delivered directly into the customer's aircraft. 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.
During the fiscal years ended March 31, 1999, 1998 and 1997, none of the
Company's aviation fuel customers accounted for more than 10% of the Company's
consolidated revenue. The Company currently employs 124 persons in its aviation
fuel services segment.
MARINE FUEL SERVICES
The Company, through its Trans-Tec Services and Bunkerfuels subsidiaries,
markets marine fuel and services related to the marine business to a broad base
of customers, including international container
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and tanker fleets, time charter operators, as well as U.S. military vessels.
Fuel and related services are provided throughout the world.
Through strategic sales offices located in the United States, Singapore,
England, Denmark, South Africa, South Korea and Costa Rica, the Company provides
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, the
Company's value added service has become an integral part of the oil and
transportation industries' push to shed non-core functions. Suppliers use the
Company's global sales, marketing and financial infrastructure to sell a spot or
ratable volume of product to a diverse, international purchasing community. End
customers use the Company's real time analysis of the availability, quality, and
price of marine fuels in ports worldwide to maximize their competitive position.
The Company, in its marine operations, acts as a broker and as a source of
market information for the end 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, the Company is paid a
commission from the supplier. The Company 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 inventory in its offshore fueling
operations and thus assumes price risk.
During the fiscal years ended March 31, 1999, 1998 and 1997, none of the
Company's marine fuel customers accounted for more than 10% of the Company's
consolidated revenue. The Company currently employs 97 persons in its marine
fuel services 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 primarily to
industrial and commercial customers. The Company generates revenue from the sale
of its recycled oil products and from fees paid by customers for the collection
of used oil, contaminated water and other non-hazardous liquids.
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 60 percent of its needs from generators within close proximity to
its facilities. The balance is sourced from independent collectors. Every
shipment is analyzed at the collection 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 Company's third recycling facility, located in New
Orleans, Louisiana, utilizes a batch recycling process. The Company
Page 3
also has collection and transfer facilities in Baltimore, Maryland,
Jacksonville, Florida, and Trenton, New Jersey. 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 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
includes a few large-scale operators that have the facilities to collect,
re-refine, and market lubricating products.
During the fiscal years ended March 31, 1999, 1998 and 1997, none of the
Company's recycled fuel customers accounted for more than 10% of the Company's
consolidated revenue. The Company currently employs 177 persons in the oil
recycling segment.
POTENTIAL RISKS AND INSURANCE
CREDIT. The Company's aviation and marine fueling businesses extend unsecured
credit to most of its customers. The Company's success in attracting business
has been due, in part, to its willingness to extend credit on an unsecured basis
to customers, which exhibit a high credit risk profile and would otherwise be
required to prepay or post letters of credit with their suppliers of fuel and
related services. The Company's management recognizes that extending credit and
setting the appropriate reserves for receivables is a largely subjective
decision based on knowledge of the customer. Active management of the Company's
credit risk is essential to its success. Diversification of credit risk is
difficult since the Company sells primarily within the aviation and marine
industries. The Company's sales executives and their respective staff meet
regularly to evaluate credit exposure, in the aggregate and by individual
credit. Credit exposure includes the amount of estimated unbilled sales. This
group is also responsible for setting and maintaining credit standards and
ensuring the overall quality of the credit portfolio.
In the Company's aviation segment, the level of credit granted to a customer is
largely influenced by its estimated fuel requirements for thirty to forty-five
days. This period represents the average business cycle of the Company's typical
customer. In the Company's marine segment, the level of credit granted to a
customer is influenced by a customer's credit history with the Company,
including claims experience and payment patterns.
Most of the Company's transactions are denominated in United States Dollars.
However, a rapid devaluation in currency affecting a customer of the Company
could have an adverse effect on the customer's operations and ability to convert
local currency to U.S. Dollars to make the required payments to the Company.
SENIOR MANAGEMENT. The Company's ability to maintain its competitive position is
dependent largely on the services of its senior management team. The Company may
not be able to retain the existing senior management personnel, or to attract
qualified senior management personnel. The Company provides employment
agreements to its senior management with terms ranging from two to five years.
The employment agreements have non-competitive provisions, which the Company
believes would prevent the individual from competing against the Company for the
period of the non-compete.
Page 4
YEAR 2000 READINESS. The Company's failure to make all of its systems year 2000
("Y2K") compliant before the end of 1999 may result in systems errors and
failures causing disruptions of normal business operations. In addition, the
Company is dependent on third parties to deliver its aviation and marine fuel
services on a global market basis. There can be no assurance that third parties
will be Y2K compliant by the end of 1999. See Liquidity and Capital Resources
section of Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations appearing elsewhere in this Report.
REVOLVING LINE OF CREDIT. The Company's revolving credit agreement imposes
certain operating and financial restrictions. The Company's failure to comply
with the obligations under the revolving credit agreement, including meeting
certain financial ratios, could result in an event of default. An event of
default, if not cured or waived, would permit acceleration of the indebtedness
under the revolving credit facility.
MARKET RISKS. The Company's oil recycling segment was adversely affected by the
significant decline in oil prices during fiscal 1999. Lower fuel prices coupled
with the Company's fixed operating costs in its oil recycling operations
resulted in a decline in income from operations in this segment during fiscal
1999, when compared to the prior fiscal year. See Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations
appearing elsewhere in this Report.
The Company is a provider of aviation fuel services primarily to the secondary
passenger and cargo airlines, and a provider of marine fuel services to the
cargo container shipping lines. The Company's fuel services are provided through
relationships with the large independent oil suppliers, as well as the
government owned oil companies. The Company could be adversely affected by
industry consolidation, on the customer side, because of increased merger
activity in the airline and shipping industries and, on the supply side, because
of increased competition from the larger oil companies who could choose to
directly market to smaller airlines and shipping companies or by providing less
advantageous credit and price terms.
POLLUTION AND THIRD PARTY LIABILITY. 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 by a spill or
other accident. 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 domestic and
international fueling activities also subject it to the risks of significant
potential liability under federal, foreign and state statutes, common law and
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 into-plane 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
Page 5
adequately covered by the subcontractor's insurance and is of sufficient
magnitude, the Company's financial position and results of operations will be
adversely affected.
The Company has exited several environmental businesses which handled hazardous
waste. This waste was 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 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, will have a
material adverse effect on the Company's financial position and results of
operations.
REGULATION
The Company's operations are subject to substantial regulation by federal,
foreign, state and local government agencies, which enforce laws and regulations
which restrict the transportation, storage and disposal of hazardous waste and
the collection, transportation, processing, storage, use and disposal of waste
oil.
The principal laws and regulations 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 RE-AUTHORIZATION 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. 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 permits for
construction, operation and closure of facilities 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
Page 6
certain previously closed solid waste management units); phase in restrictions
on 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 of lead, arsenic, chromium, chlorine, cadmium, and
flashpoint levels. 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
recycled fuel to non-industrial burners. Industrial burners of recycled oil,
however, must comply with certain notification and administrative procedures.
THE CLEAN AIR ACT OF 1970, as amended in 1977, was the first major federal
environmental law to establish National Ambient Air Quality Standards for
certain air 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 could 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 the 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.
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
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United States in lieu of federal EPA regulation. State programs must be
consistent with minimum federal requirements, although they may 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 discharge or
a substantial threat of 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.
STATE AND LOCAL GOVERNMENT REGULATIONS. 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, recordkeeping, 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.
FOREIGN GOVERNMENT REGULATIONS. Many foreign governments impose laws and
regulations relating to the protection of the environment and the discharge of
pollutants in the environment. Such laws and regulations could impose
significant liability on the Company for damages, clean-up costs and penalties
for discharges of pollutants in the environment, as well as injunctive relief.
In addition, some foreign government agencies have established pollution control
programs, which include environmental permitting, monitoring and surveillance,
data collection and environmental impact assessments.
EXCISE TAX ON DIESEL 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 on sales of aviation and marine fuel. Sales to
aircraft and vessels 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.
Page 8
ITEM 2. PROPERTIES
The following pages set forth by segment and subsidiary the principal properties
owned or leased by the Company as of May 19, 1999. The Company considers its
properties and facilities to be suitable and adequate for its present needs.
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
PROPERTIES
OWNER/LESSEE AND LOCATION PRINCIPAL USE OWNED OR LEASED
- ------------------------- ------------- ---------------
CORPORATE
World Fuel Services Corporation Executive offices Leased to December 2002
700 S. Royal Poinciana Blvd., Suite 800
Miami Springs, FL 33166
AVIATION FUELING
World Fuel Services of FL Administrative, operations Leased to December 2002
700 S. Royal Poinciana Blvd., Suite 800 and sales offices
Miami Springs, FL 33166
World Fuel Services, Inc.
700 S. Royal Poinciana Blvd., Suite 800 Administrative, operations Leased to December 2002
Miami Springs, FL 33166 and sales offices
4995 East Anderson Avenue Administrative, operations Leased month-to-month
Fresno, CA 93727 and sales offices
World Fuel International S.A. Administrative, operations Leased to April 2000
Petroservicios de Costa Rica S.A. and sales offices
Oficentro Ejecutivo La Sabana Sur
Edificio #5, Primer Piso
San Jose, Costa Rica
World Fuel Services Ltd. Administrative, operations Leased to December 2002
Baseops Europe Ltd. and sales offices
AirData Limited
Kingfisher House, Northwood Park, Gatwick Rd.
Crawley, West Sussex, RH10 2XN
United Kingdom
World Fuel Services (Singapore) Pte., Ltd. Administrative, operations Leased to June 2000
101 Thomson Road #09-03, United Square and sales offices
Singapore 307591
PetroServicios de Mexico S.A. de C.V. Administrative, operations Leased month-to-month
Servicios Auxiliares de Mexico S.A. de C.V. and sales offices
Avenida Fuerza Aerea Mexicana No. 465
Colonia Federal
15700 Mexico, D.F.
Baseops International, Inc. Administrative, operations Leased to February 2006
333 Cypress Run #200 and sales offices
Houston, Texas 77094
(Continued)
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WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
PROPERTIES
(Continued)
OWNER/LESSEE AND LOCATION PRINCIPAL USE OWNED OR LEASED
- ------------------------- ------------- ---------------
MARINE FUELING
Trans-Tec Services, Inc.
Glenpointe Center West Administrative, operations Leased to May 2002
500 Frank W. Burr Blvd. and sales offices
Teaneck, NJ 07666
60 East Sir Francis Drake, No. 301 Administrative, operations Leased to December 1999
Larkspur, CA 94939 and sales offices
2nd Floor Kipun Building Administrative, operations Leased to December 1999
200 Naeja-Dong and sales offices
Chongru-Ku
Seoul, South Korea
Seagram House, 2nd Floor Administrative, operations Leased to September 1999
71 Dock Road, Waterfront and sales offices
Capetown, South Africa 8001
Trans-Tec Services (UK) Ltd.
Millbank Tower, 21/24 Millbank Administrative, operations Leased to November 2002
London SW1P 4QP United Kingdom and sales offices
Gammelbyved 2 Administrative, operations Leased month-to-month
Karise, Denmark 4653 and sales offices
Trans-Tec International S.A. Administrative, operations Leased to April 2000
Casa Petro S.A. and sales offices
Atlantic Fuel Services, S.A.
Oficentro Ejecutivo La Sabana Sur
Edificio #5, Primer Piso
San Jose, Costa Rica
Trans-Tec Services (Singapore) PTE., LTD. Administrative, operations Leased to June 2000
101 Thomson Road #09-03, United Square and sales offices
Singapore 307591
Pacific Horizon Petroleum Services, Inc. Administrative, operations Leased to July 2000
2025 First Ave., Suite 1110 and sales offices
Seattle, WA 98121
(Continued)
Page 10
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
PROPERTIES
(Continued)
OWNER/LESSEE AND LOCATION PRINCIPAL USE OWNED OR LEASED
- ------------------------- ------------- ---------------
MARINE FUELING-CONTINUED
Bunkerfuels Corporation Administrative, operations Leased to March 2001
45 Wyckoff's Mills Road and sales offices
Cranbury, NJ 08512
Three Harbor Drive, Suite 101 Administrative, operations Leased to April 2001
Sausalito, CA 94965 and sales offices
Room 2504, Jangkyo Bldg., 1 Jangko-Dong Administrative, operations Leased to April 2000
Seoul, Korea and sales offices
Bunkerfuels UK Limited Administrative, operations Owned
8 City Business Centre, Lower Road and sales offices
Rotherhithe, London SE16 2XB United Kingdom
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. of LA Storage tanks, recycling Partially owned;
14890 Intracostal Drive plant, laboratory and Partially leased to August 2001
New Orleans, LA 70129 administrative offices
International Petroleum Corp. of Maryland Collection and transfer Owned
6305 East Lombard Street facility and administrative
Baltimore, MD 21224 offices
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are from time to time involved in litigation
relating to claims arising out of their operations in the normal course of
business. Neither the Company nor its subsidiaries are currently involved in any
litigation that the Company believes is likely to have, individually or in the
aggregate, a material adverse effect on the financial condition or results of
operation of the Company or its subsidiaries.
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 1999.
Page 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, 1999 and 1998, 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 declared 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 November 17, 1997.
See Note 4 to the financial statements included as part of this report.
Price Cash
---------------------------- Dividends
High Low Per Share
------------- ------------- --------------
Year ended March 31, 1999
First quarter $ 21 5/8 $ 16 1/4 $0.05
Second quarter 17 7/8 10 5/8 0.05
Third quarter 14 9 1/2 0.05
Fourth quarter 11 7/8 10 1/4 0.05
Year ended March 31, 1998
First quarter $ 14 13/16 $ 11 3/16 $0.05
Second quarter 16 7/8 13 7/16 0.05
Third quarter 21 15 11/16 0.05
Fourth quarter 23 9/16 18 13/16 0.05
As of May 19, 1999, there were 330 shareholders of record of the Company's
common stock. On March 3, 1999, the Company's Board of Directors approved the
following cash dividend schedule for the 2000 fiscal year:
Declaration Date Per Share Record Date Payment Date
--------------------- ---------- ---------------------- ---------------
June 3, 1999 $ 0.05 June 18, 1999 July 6, 1999
September 2, 1999 $ 0.05 September 17, 1999 October 5, 1999
December 2, 1999 $ 0.05 December 17, 1999 January 7, 2000
March 2, 2000 $ 0.05 March 17, 2000 April 5, 2000
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.
During fiscal year 1999, the Company issued 39,845 shares of its common stock in
connection with the exercise of certain stock options. The aforementioned
issuance of common stock was made without registration under the Securities Act
of 1933, as amended (the "Securities Act"), in reliance upon the
Page 12
exemptions from registration afforded by section 4(2) of the Securities Act. The
Company also began a stock grant program whereby each non-employee member of the
Board of Directors would be given an annual stock grant of 500 shares of the
Company's common stock.
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
FISCAL YEAR ENDED MARCH 31,
----------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------- ---------------- ---------------- ---------------- ---------------
(In thousands, except earnings per share data)
CONSOLIDATED INCOME STATEMENT DATA
Revenue $ 744,182 $801,763 $772,618 $642,299 $361,891
Cost of sales 684,776 751,368 725,991 601,930 334,134
--------- -------- -------- -------- --------
Gross profit 59,406 50,395 46,627 40,369 27,757
Operating expenses 42,008 31,868 31,001 25,423 16,508
--------- -------- -------- -------- --------
Income from operations 17,398 18,527 15,626 14,946 11,249
Other income 1,506 2,219 2,243 1,875 1,774
--------- -------- -------- -------- --------
Income before income taxes 18,904 20,746 17,869 16,821 13,023
Provision for income taxes 3,797 4,893 4,604 5,876 4,935
--------- -------- -------- -------- --------
Net income $ 15,107 $ 15,853 $ 13,265 $ 10,945 $ 8,088
========= ======== ======== ======== ========
Basic earnings per common share $ 1.22 $ 1.30 $ 1.10 $ 0.92 $ 0.74
========= ======== ======== ======== ========
Weighted average shares 12,375 12,230 12,068 11,945 10,957
========= ======== ======== ======== ========
Diluted earnings per common share $ 1.21 $ 1.27 $ 1.08 $ 0.90 $ 0.73
========= ======== ======== ======== ========
Weighted average shares - diluted 12,533 12,528 12,295 12,150 11,038
========= ======== ======== ======== ========
(Continued)
Page 13
SELECTED FINANCIAL DATA
(Continued)
AS OF MARCH 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- ----------- ----------- ------------ -------------
(In thousands)
CONSOLIDATED BALANCE SHEET DATA
Current assets $ 126,816 $107,548 $ 93,436 $ 83,252 $ 58,006
Total assets 165,934 143,259 123,139 111,974 89,536
Current liabilities 57,729 47,447 44,851 43,706 30,486
Long-term liabilities 7,408 3,901 3,030 4,518 6,984
Stockholders' equity 100,797 91,911 75,258 63,750 52,066
NOTES TO SELECTED FINANCIAL DATA
The Company declared and paid cash dividends beginning in fiscal year
1995. See "Item 5 - Market for Registrant's Common Equity and Related
Stockholder Matters."
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.
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. In October 1997, the Board of Directors
approved a 3-for-2 stock split for all shares of common stock outstanding as
of November 17, 1997. The shares were distributed on December 1, 1997.
Accordingly, all share and per share data, as appropriate, have been
retroactively adjusted to reflect the effects of these splits.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share" ("SFAS 128"). The Company adopted this standard as
of December 31, 1997. Earnings per share information for all prior periods
presented have been restated to conform to the requirements of SFAS 128.
In August 1998, the Company's Board of Directors authorized a stock
repurchase program whereby the Company could repurchase up to $6,000,000 of
the Company's common stock. During fiscal 1999, the Company repurchased
324,000 shares at an aggregate cost of $3,902,000.
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
Profit from the Company's aviation fuel services 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 services business is determined primarily by the volume
and commission rate of brokering business generated and by the volume and
margins achieved on trade 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 used oil and waste water collection revenue.
Page 14
During fiscal year 1999, world oil prices declined substantially. The effects of
this decrease on the Company's results of operations caused revenue decreases
across all of the Company's segments. In addition, the gross margin in the
Company's used oil segment and offshore marine operations narrowed as a result
of the fixed costs associated with each of these businesses.
FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO THE FISCAL YEAR ENDED
MARCH 31, 1998
The Company's revenue for fiscal 1999 was $744,182,000, a decrease of
$57,581,000, or 7.2%, as compared to revenue of $801,763,000 for the prior
fiscal year. The revenue decrease is due to a substantial decline in world oil
prices. The Company's revenue during these periods was attributable to the
following segments:
FISCAL YEAR ENDED MARCH 31,
1999 1998
-------------- -------------
Aviation Fueling $ 327,844,000 $ 383,010,000
Marine Fueling 392,717,000 393,607,000
Oil Recycling 23,621,000 25,146,000
------------- -------------
Total Revenue $ 744,182,000 $ 801,763,000
============= =============
The aviation fueling segment contributed $327,844,000 in revenue for fiscal
1999. This represented a decrease in revenue of $55,166,000, or 14.4%, as
compared to the prior fiscal year. The decrease in revenue was due to a lower
average price per gallon and volume of gallons sold. The marine fueling segment
contributed $392,717,000 in revenue for fiscal 1999, a decrease of $890,000 over
the prior fiscal year. The decrease in revenue was related primarily to a lower
average sales price per metric ton sold, partially offset by an increase in the
volume of metric tons sold. The oil recycling segment contributed $23,621,000 in
revenue for fiscal 1999, a decrease of $1,525,000, or 6.1%, as compared to the
prior fiscal year. The decrease in revenue was due to a lower average sales
price per gallon of recycled oil sold, partially offset by higher used oil and
waste water collection revenue.
The Company's gross profit for the fiscal year ended March 31, 1999 was
$59,406,000, an increase of $9,011,000, or 17.9%, as compared to the prior
fiscal year. The Company's gross margin increased from 6.3% for fiscal 1998 to
8.0% for fiscal 1999, largely a result of the decline in the average price of
fuel.
The Company's aviation fueling business achieved a 9.7% gross margin for fiscal
1999, as compared to 6.1% achieved for the prior fiscal year. This resulted
principally from a decline in the average price per gallon sold, as well as an
increase in the average gross profit per gallon and the addition of Baseops, an
aviation services company which the Company acquired effective January 1998. The
Company's marine fueling segment achieved a 5.4% gross margin for fiscal 1999,
as compared to a 5.1% gross margin for the prior fiscal year. This was the
result of a lower average sales price per metric ton sold and a narrower average
gross profit per ton. The gross margin in the Company's oil recycling
Page 15
segment decreased from 28.5% for fiscal 1998, to 26.0% for fiscal 1999. This
decrease resulted from a lower gross profit per gallon of recycled oil sold,
partially offset by an increase in service revenue.
Total operating expenses for fiscal 1999 were $42,008,000, an increase of
$10,140,000, or 31.8%, as compared to the prior fiscal year. The increase
resulted primarily from the inclusion of operating expenses for the Baseops
companies, higher salaries and wages related principally to staff additions and
performance bonuses, an increase in the provision for bad debts in the aviation
and marine segments, and expenses incurred in business expansion activities.
The Company's income from operations for fiscal 1999 was $17,398,000, a decrease
of $1,129,000, or 6.1%, as compared to the prior fiscal year. Income from
operations during these periods was attributable to the following segments:
Fiscal Year Ended March 31,
1999 1998
------------ ------------
Aviation Fueling $ 13,331,000 $ 12,558,000
Marine Fueling 7,515,000 7,403,000
Oil Recycling 2,593,000 4,155,000
Corporate Overhead (6,041,000) (5,589,000)
------------ ------------
Total Income from Operations $ 17,398,000 $ 18,527,000
============ ============
The aviation fueling segment's income from operations was $13,331,000 for fiscal
1999, an increase of $773,000, or 6.2%, as compared to the prior fiscal year.
The increase in the average gross profit per gallon sold offset the effects of a
decrease in the volume of gallons sold and an increase in operating expenses, as
previously discussed. The marine fueling segment earned $7,515,000 in income
from operations for fiscal 1999, an increase of $112,000, or 1.5%, as compared
to the prior fiscal year. This increase was primarily the result of a higher
volume of metric tons traded, largely offset by a narrower gross profit per
metric ton and higher operating expenses, as previously discussed. The oil
recycling segment contributed $2,593,000 in income from operations for fiscal
1999, a decrease of $1,562,000, or 37.6%, as compared to the prior fiscal year.
This resulted from a decrease in gross profit and higher operating expenses.
Corporate overhead costs not charged to the business segments totaled $6,041,000
in fiscal 1999, an increase of $452,000, or 8.1%, as compared to the prior
fiscal year. This increase resulted from higher salaries and wages related
principally to staff additions and performance bonuses.
Other income for fiscal 1999 decreased $713,000 or 32.1% compared to the prior
fiscal year, as a result of lower earnings from the Company's aviation joint
venture in Ecuador. The Company's effective income tax rate for fiscal 1999 was
20.1%, as compared to 23.6% for the prior fiscal year. This decrease is the
result of a true-up of U.S. income taxes for overaccruals in prior periods and
an overall increase in the Company's foreign operations, which are taxed at
rates lower than that of the U.S.
Page 16
Net income for fiscal 1999 was $15,107,000, a decrease of $746,000, or 4.7%, as
compared to net income of $15,853,000 for fiscal 1998. Diluted earnings per
share of $1.21 for fiscal 1999 exhibited a $0.06, or 4.7%, decrease over the
$1.27 achieved during the prior fiscal year.
FISCAL YEAR ENDED MARCH 31, 1998 COMPARED TO THE FISCAL YEAR ENDED
MARCH 31, 1997
The Company's revenue for fiscal 1998 was $801,763,000, an increase of
$29,145,000, or 3.8%, as compared to revenue of $772,618,000 for the prior
fiscal year. The Company's revenue during these periods was attributable to the
following segments:
FISCAL YEAR ENDED MARCH 31,
1998 1997
------------- -------------
Aviation Fueling $ 383,010,000 $ 381,236,000
Marine Fueling 393,607,000 368,470,000
Oil Recycling 25,146,000 22,912,000
------------- -------------
Total Revenue $ 801,763,000 $ 772,618,000
============= =============
The aviation fueling segment contributed $383,010,000 in revenue for fiscal
1998. This represented an increase in revenue of $1,774,000, or 0.5%, as
compared to the prior fiscal year. The increase in revenue was due to a higher
volume of gallons sold, largely offset by a decrease in the average price per
gallon sold, which resulted primarily from a decrease in the world market price
of fuels. The marine fueling segment contributed $393,607,000 in revenue for
fiscal 1998, an increase of $25,137,000, or 6.8%, over the prior fiscal year.
The increase in revenue was related primarily to an increase in the volume of
metric tons traded, partially offset by a decrease in the average sales price of
metric tons traded. The oil recycling segment contributed $25,146,000 in revenue
for fiscal 1998, an increase of $2,234,000, or 9.7%, as compared to the prior
fiscal year. The increase in revenue was due to an increase in volume of
recycled oil sold and higher used oil and waste water collection revenue,
partially offset by a decrease in the average sales price per gallon of recycled
oil sold.
The Company's gross profit for fiscal 1998 was $50,395,000, an increase of
$3,768,000, or 8.1%, as compared to the prior fiscal year. The Company's gross
margin increased from 6.0% for fiscal 1997 to 6.3% for fiscal 1998.
The Company's aviation fueling business achieved a 6.1% gross margin for fiscal
1998, as compared to 6.0% achieved for the prior fiscal year. This resulted from
the decline in the average price per gallon sold. The Company's marine fueling
segment achieved a 5.1% gross margin for fiscal 1998, as compared to a 4.4%
gross margin for the prior fiscal year. This resulted from an increase in the
average gross profit per metric ton traded and lower fuel prices. The gross
margin in the Company's oil recycling segment decreased from 33.4% for fiscal
1997, to 28.5% for fiscal 1998. This decrease
Page 17
resulted from a lower gross profit per gallon of recycled oil sold, due
primarily to lower world oil prices.
Total operating expenses for fiscal 1998 were $31,868,000, an increase of
$867,000, or 2.8%, as compared to the prior fiscal year. The increase resulted
from higher salaries and wages related principally to staff additions and
performance bonuses, and higher operating expenses in the aviation and marine
segments related to business expansion, partially offset by a lower provision
for bad debts over the corresponding period during the prior year. In relation
to revenue, total operating expenses remained unchanged at 4.0%.
The Company's income from operations for fiscal 1998 was $18,527,000, an
increase of $2,901,000, or 18.6%, as compared to the prior fiscal year. Income
from operations during these periods was attributable to the following segments:
FISCAL YEAR ENDED MARCH 31,
1998 1997
------------ -------------
Aviation Fueling $ 12,558,000 $ 10,620,000
Marine Fueling 7,403,000 5,013,000
Oil Recycling 4,155,000 5,020,000
Corporate Overhead (5,589,000) (5,027,000)
------------ ------------
Total Income from Operations $ 18,527,000 $ 15,626,000
============ ============
The aviation fueling segment's income from operations was $12,558,000 for fiscal
1998, an increase of $1,938,000, or 18.2%, as compared to the prior fiscal year.
This resulted from a higher volume of gallons sold and a decrease in operating
expenses, principally in the provision for bad debts, partially offset by a
decrease in average gross profit per gallon sold. The marine fueling segment
earned $7,403,000 in income from operations for fiscal 1998, an increase of
$2,390,000, or 47.7%, as compared to the prior fiscal year. The increase was due
to a higher volume and average gross profit per metric ton sold, partially
offset by an increase in operating expenses. The oil recycling segment
contributed $4,155,000 in income from operations for fiscal 1998, a decrease of
$865,000, or 17.2%, for fiscal 1998, as compared to the prior fiscal year. The
decrease is mostly the result of lower world oil prices, which caused a decrease
in gross profit per recycled gallon sold. Corporate overhead costs not charged
to the business segments totaled $5,589,000 for fiscal 1998, an increase of
$562,000, or 11.2%, as compared to the prior fiscal year. The increase resulted
from higher salaries and wages related principally to staff additions and
performance bonuses.
Net income for fiscal 1998 was $15,853,000, an increase of $2,588,000, or 19.5%,
as compared to net income of $13,265,000 for fiscal 1997. Diluted earnings per
share of $1.27 for fiscal 1998 exhibited a $0.19, or 17.6%, increase over the
$1.08 achieved during the prior fiscal year.
Page 18
LIQUIDITY AND CAPITAL RESOURCES
In the Company's aviation and marine fuel businesses, the primary use of capital
is to finance receivables. The Company maintains aviation fuel inventories at
certain locations in the United States for competitive reasons, but inventory
levels are kept at an operating minimum. The Company also maintains inventory in
its offshore fueling operations. 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 contrast to the Company's aviation and marine fueling segments, the oil
recycling segment's capital requirements are for the financing of property,
plant and equipment, and accounts receivable. The Company generally 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. 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 $16,322,000 at March 31, 1999, as compared
to $14,459,000 at March 31, 1998. The principal uses of cash during the fiscal
year ended March 31, 1999 were $5,658,000 for capital expenditures and
$2,486,000 in dividends paid on common stock. Partially offsetting these cash
uses were $6,481,000 in net cash provided by operating activities and $3,780,000
from collections on notes receivable. Other components of changes in cash and
cash equivalents are detailed in the Consolidated Statements of Cash Flows.
Working capital as of March 31, 1999 was $69,087,000, exhibiting a $8,986,000
increase from working capital as of March 31, 1998. As of March 31, 1999, the
Company's accounts receivable and notes receivable, excluding the allowance for
bad debts, amounted to $106,820,000, an increase of $18,417,000 as compared to
the March 31, 1998 balance. In the aggregate, accounts payable, accrued expenses
and customer deposits increased $10,643,000. The net increase in trade credit of
$7,774,000 was attributed to the aviation segment and offshore marine
operations. The allowance for doubtful accounts as of March 31, 1999 amounted to
$6,829,000, an increase of $2,235,000 compared to the March 31, 1998 balance.
This increase is in response to the adverse economic conditions principally in
South America, which caused a slowdown in the payment of accounts receivable and
the extension of payment terms with certain customers. During the fiscal years
ended March 31, 1999 and 1998, the Company charged $5,133,000 and $1,417,000,
respectively, to the provision for bad debts and had charge-offs in excess of
recoveries of $2,898,000 and $1,301,000, respectively.
Capital expenditures, which amounted to $5,658,000 for the fiscal year ended
March 31, 1999, consisted primarily of $2,290,000 for the implementation of a
new financial system, $2,246,000 in plant, machinery and equipment related
primarily to the Company's recycled oil segment, and $746,000 for computer
equipment. During fiscal year 2000, the Company anticipates spending
approximately $700,000 to complete the implementation of the financial system
and $2,000,000 to upgrade existing plant, machinery and equipment. The Company
may also spend an estimated $1,000,000 sometime in the future, if required 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 will be capitalized as part of
the cost of the site, up to the fair market value of the site.
Page 19
Long-term liabilities as of March 31, 1999 were $7,408,000, exhibiting a
$3,507,000 increase as compared to March 31, 1998. This increase was the result
of borrowings under the Company's revolving credit facility of $4,000,000,
mainly for the purchase of the Company's common stock, as discussed below. For a
description of the Company's revolving credit facility and borrowings capacity,
refer to Note 2 of the Consolidated Financial Statements included as part of
this Report.
Stockholders' equity amounted to $100,797,000, or $8.27 per share, at March 31,
1999, compared to $91,911,000, or $7.36 per share, at March 31, 1998. This
increase of $8,886,000 was due to $15,107,000 in earnings for the period.
Partially offsetting was $2,471,000 in cash dividends declared and $3,902,000
for the purchase of treasury stock.
The Company expects to meet its capital investment and working capital
requirements for fiscal year 2000 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.
EURO CURRENCY
On January 1, 1999, eleven of fifteen members of the European Union launched a
common legal currency called the Euro. The Euro trades on currency exchanges and
is available for business transactions. The conversion to the Euro will
eliminate currency exchange risk between the member countries. Beginning January
1, 2002, the participating countries will issue new Euro denominated bills and
coins for use in cash transactions, and the legal currencies will be withdrawn
from circulation.
The Company's functional currency for business throughout Europe is the U.S.
Dollar. Fuel suppliers invoice the Company in U.S. Dollars and the Company
invoices its customers in U.S. Dollars. The Company is currently implementing a
new financial accounting system, which is Euro ready and should address the
preparation of accounting and tax reports for filing with the U.K. authorities.
However, as a result of competitive pressures or regulatory requirements, there
can be no assurance that in the coming years the Euro will not replace the U.S.
Dollar as the Company's functional currency in Europe. If the Euro were to
replace the U.S. Dollar, the Company will be required to address currency risk
and strategies concerning continuity of existing arrangements with customers and
suppliers.
Based on its experience to date, the Company does not believe that the
implementation of the Euro will have a material adverse effect on the results of
operations or financial position.
YEAR 2000 READINESS DISCLOSURE
GENERAL. Because computers frequently use only two digits to recognize years, on
January 1, 2000, many computer systems, as well as equipment that uses embedded
computer chips, may be unable to distinguish between 1900 and 2000. If not
remediated, this problem could create systems errors and failures resulting in
the disruption of normal business operations. Since Year 2000 is a leap year,
there could also be business disruptions as a result of the inability of many
computer systems to recognize February 29, 2000.
Page 20
In the first quarter of 1998, the Company's Information Technology Group began
to address these issues, as they pertain to the internal information and
telecommunications systems. This group continues to work on solving problems
related to the Year 2000, which include identification and analysis, and
correction and testing of computer systems throughout the Company. This group
has also taken inventory of equipment that uses embedded computer chips (i.e.,
non-information technology systems) and have scheduled remediation or
replacement of this equipment, as necessary.
STATE OF READINESS. The Company's Year 2000 efforts are generally divided into
phases for identification, remediation, and testing. In the identification
phase, the Company identifies systems that have Year 2000 issues and determines
the steps necessary to remediate these issues. In the remediation phase, the
Company replaces, modifies or retires systems, as necessary. During the testing
phase, the Company performs testing to determine whether the remediated systems
accurately process and identify dates.
As of March 31, 1999, the Company had identified all network software, end-user
computing programs and telephone systems at all of the Company's office
locations. The main Year 2000 non-compliant systems and equipment identified
were the Company's centralized financial systems and the vast majority of
personal computers.
During the remediation phase, the Company committed, and is in the process of
completing the implementation of a new financial system, which is Year 2000
compliant. In addition, the Company is making the necessary investment to
replace existing Year 2000 non-compliant hardware. Year 2000 Compliant
certificates were requested of vendors for products purchased by the Company. To
the extent that vendors either fail to provide the required compliancy
certificate, or have not made their products or systems Year 2000 ready, the
product is replaced to meet Year 2000 requirements. The Company believes that
approximately 75% of the vendor programs are Year 2000 compliant as of March 31,
1999. The Company has implemented the financial accounting system in two of its
three segments. The aviation segment implementation is scheduled for August
1999. The Company is currently undergoing implementation of Year 2000 compliant
telecommunications systems, as required.
The testing phase is scheduled for completion during September 1999. The testing
phase is intended to test only the systems and equipment utilized internally by
the Company throughout its offices worldwide. All clock driven systems and
equipment devices will be forwarded to December 31, 1999.
Ultimately, the potential impact of Year 2000 issues will depend not only on the
corrective measures taken by the Company, but also on the way in which Year 2000
issues are addressed by governmental agencies, third party fuel service
providers and other businesses which provide goods and services to the Company,
and provide data to, or receive data from the Company. In addition, the
Company's business may be affected by the corrective measures taken by the
landlords of office space leased by the Company.
COSTS. The Company currently estimates that the total cost of the Year 2000
project will be less than one million dollars, excluding the investment in the
new financial system. Of this estimated amount, the Company has already spent
approximately 75%.
Page 21
CONTINGENCY PLANS. Once the testing phase is completed, the Company will
estimate the likelihood that certain systems or equipment devices may not be
Year 2000 compliant by December 31, 1999. The Company will develop the necessary
contingency plan to cover the compliance gaps.
RISKS. Although the Company's remediation efforts are directed at reducing its
Year 2000 exposure, there can be no assurance that these efforts will fully
mitigate the effect of Year 2000 issues and it is likely that one or more events
may disrupt the Company's normal business operations. In the event that the
Company fails to identify or correct a material Year 2000 problem, there could
be disruptions in normal business operations, which could have a material
adverse effect on the Company's results of operations, liquidity or financial
condition. In addition, there can be no assurance that significant foreign or
domestic vendors, customers and other third parties will adequately address
their Year 2000 issues. Further, there may be some parties, such as governmental
agencies, utilities, telecommunication companies, financial services vendors,
third parties contracted by the Company to deliver fuel to its customers, and
other providers, where alternative arrangements or resources may not be
available. Also, risks associated with some foreign third parties may be greater
since there is a general concern that some entities operating outside the United
States are not addressing the Year 2000 issues on a timely basis.
The Company is also subject to additional credit and performance risks to the
extent that customers and suppliers, respectively, fail to adequately address
Year 2000 issues. Although it is not possible to quantify the potential impact
of these risks at this time, there may be increases in account receivable
write-offs, as well as the risk of litigation and potential losses from
litigation related to the foregoing.
Forward-looking statements contained in this Year 2000 Readiness Disclosure
subsection, should be read in conjunction with the cautionary statements
included elsewhere in this Report.
FORWARD-LOOKING STATEMENTS
Except for the historical information contained herein, this document includes
forward-looking statements that involve risk and uncertainties, including, but
not limited to quarterly fluctuations in results; the management of growth;
fluctuations in world oil prices or foreign currency; major changes in
political, economic, regulatory or environmental conditions; the loss of key
customers, suppliers or members of senior management; uninsured losses;
competition; credit risk associated with accounts and notes receivable; and
other risks detailed in this Report and in the Company's other Securities and
Exchange Commission filings. Actual results may differ materially from any
forward-looking statements set forth herein.
ITEM 7A. QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK
The Company conducts the vast majority of its business transactions in U.S.
Dollars. However, in certain markets, mainly in Ecuador through its aviation
joint venture and in Mexico for payments to its aviation fuel supplier, the
Company conducts its business in local currency. This subjects the Company to
foreign currency exchange risk, which may adversely affect its results of
operations and financial condition. The Company seeks to minimize the risks from
currency exchange rate fluctuations through its regular operating and financing
activities.
Page 22
The Company's borrowings pursuant to its revolving credit facility provides for
various market driven variable interest rate options. These interest rates are
subject to interest rate changes in the United States and the Eurodollar market.
The Company does not currently use, nor has it historically used, derivative
financial instruments to manage or reduce market risk. See Note 2 to the
accompanying financial statements for additional information.
Recognizing favorable market conditions or for competitive reasons, the Company
may enter into short-term fuel purchase commitments for the physical delivery of
product in the United States. The Company simultaneously may hedge the physical
delivery through a commodity based derivative instrument, to minimize the
effects of commodity price fluctuations. As of March 31, 1999, the Company did
not have any outstanding purchase commitments.
The Company offers its customers swaps and caps as part of its fuel management
services. Typically, the Company simultaneously enters into the commodity based
derivative instruments with its customer and a counterparty. The counterparties
are major oil companies and derivative trading firms. Accordingly, the Company
does not anticipate non-performance by such conterparties. Pursuant to these
transactions, the Company is not affected by market price fluctuations since the
contracts have the same terms and conditions except for the fee or spread earned
by the Company. Performance risk under these contracts is considered a credit
risk. This risk is minimized by dealing with customers meeting additional credit
criteria. As of March 31, 1999, the Company had outstanding swap contracts for
65,000 metric tons expiring by December 1999, and $61,000 in deferred cap fees.
Gains on these contracts are recognized at the completion of each transaction.
The Company's policy is to not use financial instruments for speculative
purposes.
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.
Page 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 1999 Annual Meeting of Shareholders (the "1999 Proxy
Statement"), is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth in the 1999 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 1999 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 1999 Proxy Statement is incorporated herein by reference.
Page 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. 28
(ii) Consolidated Balance Sheets as of March 31, 1999 and 1998. 29
(iii) Consolidated Statements of Income for the Years Ended
March 31, 1999, 1998 and 1997. 31
(iv) Consolidated Statements of Stockholders' Equity for the Years
Ended March 31, 1999, 1998 and 1997. 32
(v) Consolidated Statements of Cash Flows for the Years Ended
March 31, 1999, 1998 and 1997. 33
(vi) Notes to Consolidated Financial Statements. 35
(a)(2) The following consolidated financial statement schedule is filed as a
part of this report:
(I) Schedule II - Valuation and Qualifying Accounts. 51
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
----------- -----------
(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) 1986 Employee Stock Option Plan is incorporated by reference to
the Company's Registration Statement on Form S-18 filed
February 3, 1986.
Page 25
(b) 1993 Non-Employee Directors Stock Option Plan is incorporated by
reference to the Company's Schedule 14A filed June 28, 1994.
(c) 1996 Employee Stock Option Plan is incorporated by reference to
the Company's Schedule 14A filed June 18, 1997.
(10) Material contracts filed with this Form 10-K:
(a) Amendment to Employment Agreement with Mr. Jerrold Blair, dated
April 11, 1999.
(b) Amendment to Employment Agreement with Mr. Ralph Weiser, dated
April 13, 1999.
(c) Revolving Credit and Reimbursement Agreement, dated November 30,
1998, by and among World Fuel Services Corporation and
NationsBank, N.A. (South).
(d) Promissory note, dated November 30, 1998, executed by World Fuel
Services Corporation, as borrower, and certain subsidiaries, as
guarantors in favor of NationsBank, N.A. (South).
(e) Revolving Credit and Reimbursement Agreement, dated November 30,
1998, by and among World Fuel International, S.A. and Trans-Tec
International, S.A., as borrowers, World Fuel Services
Corporation and certain subsidiaries, as guarantors, and
NationsBank, N.A. (South).
(f) Promissory note, dated November 30, 1998, executed by World
Fuel International, S.A. and Trans-Tec International, S.A., as
borrowers, World Fuel Services Corporation and a certain
subsidiary, as guarantor, in favor of NationsBank, N.A. (South).
(21) Subsidiaries of the Registrant.
(27) Financial Data Schedule.
(b) No reports on Form 8-K were filed during the fourth quarter of the Company's
fiscal year ended March 31, 1999.
Page 26
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: June 2, 1999 By: /s/ JERROLD BLAIR
-------------------------------------
Jerrold Blair, President
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: June 2, 1999 By: /s/ RALPH R. WEISER
--------------------------------------
Ralph R. Weiser, Chairman of the Board
Dated: June 2, 1999 By: /s/ JERROLD BLAIR
--------------------------------------
Jerrold Blair, President and Director
Dated: June 2, 1999 By: /s/ CARLOS A. ABAUNZA
-------------------------------------
Carlos A. Abaunza, Chief Financial
Officer
Dated: June 2, 1999 By: /s/ PHILLIP S. BRADLEY
--------------------------------------
Phillip S. Bradley, Director
Dated: June 2, 1999 By: /s/ RALPH FEUERRING
--------------------------------------
Ralph Feuerring, Director
Dated: June 2, 1999 By: /s/ JOHN R. BENBOW
--------------------------------------
John R. Benbow, Director
Dated: June 2, 1999 By: /s/ MYLES KLEIN
--------------------------------------
Myles Klein, Director
Dated: June 2, 1999 By: /s/ MICHAEL J. KASBAR
--------------------------------------
Michael J. Kasbar, Director
Dated: June 2, 1999 By: /s/ PAUL H. STEBBINS
--------------------------------------
Paul H. Stebbins, Director
Dated: June 2, 1999 By: /s/ LUIS R. TINOCO
--------------------------------------
Luis R. Tinoco, Director
Page 27
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To 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,
1999 and 1998, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
1999. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1999 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Miami, Florida,
May 25, 1999.
Page 28
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31,
------------------------------
1999 1998
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 16,322,000 $ 14,459,000
Accounts receivable, net of allowance
for bad debts of $6,829,000 and $4,594,000
at March 31, 1999 and 1998, respectively 92,888,000 81,648,000
Inventories 6,199,000 5,504,000
Notes receivable 5,790,000 1,496,000
Prepaid expenses and other current assets 5,617,000 4,441,000
------------ ------------
Total current assets 126,816,000 107,548,000
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 1,054,000 1,054,000
Buildings and improvements 3,155,000 3,098,000
Office equipment and furniture 8,150,000 5,286,000
Plant, machinery and equipment 19,557,000 17,458,000
Construction in progress 196,000 230,000
------------ ------------
32,112,000 27,126,000
Less accumulated depreciation
and amortization 10,655,000 9,065,000
------------ ------------
21,457,000 18,061,000
------------ ------------
OTHER ASSETS:
Unamortized cost in excess of net
assets of acquired companies, net of
accumulated amortization 15,148,000 15,402,000
Other 2,513,000 2,248,000
------------ ------------
$165,934,000 $143,259,000
============ ============
(Continued)
Page 29
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31,
------------------------------
1999 1998
------------ ------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 125,000 $ 119,000
Accounts payable and accrued expenses 49,665,000 40,560,000
Customer deposits 4,074,000 2,536,000
Accrued salaries and wages 2,248,000 1,851,000
Income taxes payable 1,617,000 2,381,000
------------ ------------
Total current liabilities 57,729,000 47,447,000
------------ ------------
LONG-TERM LIABILITIES 7,408,000 3,901,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value;
100,000 shares authorized, none issued -- --
Common stock, $0.01 par value;
25,000,000 shares authorized; 12,534,000 and
12,492,000 shares issued and outstanding
at March 31, 1999 and 1998, respectively 125,000 125,000
Capital in excess of par value 26,769,000 26,479,000
Retained earnings 78,000,000 65,364,000
Less treasury stock, at cost; 346,000 and 11,000 shares
at March 31, 1999 and 1998, respectively 4,097,000 57,000
------------ ------------
100,797,000 91,911,000
------------ ------------
$165,934,000 $143,259,000
============ ============
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated balance sheets.
Page 30
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Year Ended March 31,
------------------------------------------------
1999 1998 1997
------------ ------------ ------------
Revenue $744,182,000 $801,763,000 $772,618,000
Cost of sales 684,776,000 751,368,000 725,991,000
------------ ------------ ------------
Gross profit 59,406,000 50,395,000 46,627,000
------------ ------------ ------------
Operating expenses:
Salaries and wages 20,857,000 17,382,000 14,795,000
Provision for bad debts 5,133,000 1,417,000 5,107,000
Other 16,018,000 13,069,000 11,099,000
------------ ------------ ------------
42,008,000 31,868,000 31,001,000
------------ ------------ ------------
Income from operations 17,398,000 18,527,000 15,626,000
------------ ------------ ------------
Other income, net:
Equity in earnings of
aviation joint venture 199,000 1,100,000 1,773,000
Other, net 1,307,000 1,119,000 470,000
------------ ------------ ------------
1,506,000 2,219,000 2,243,000
------------ ------------ ------------
Income before income taxes 18,904,000 20,746,000 17,869,000
Provision for income taxes 3,797,000 4,893,000 4,604,000
------------ ------------ ------------
Net income $ 15,107,000 $ 15,853,000 $ 13,265,000
============ ============ ============
Basic earnings per common share $ 1.22 $ 1.30 $ 1.10
============ ============ ============
Weighted average shares 12,375,000 12,230,000 12,068,000
============ ============ ============
Diluted earnings per common share $ 1.21 $ 1.27 $ 1.08
============ ============ ============
Weighted average shares - diluted 12,533,000 12,528,000 12,295,000
============ ============ ============
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated financial statements.
Page 31
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, 1996 12,069,000 $ 121,000 $ 22,574,000 $ 41,112,000 $ (57,000)
Exercise of options 105,000 1,000 660,000 -- --
Cash dividends declared -- -- -- (2,418,000) --
Net income -- -- -- 13,265,000 --
----------- ------------ ------------ ------------ ------------
Balance at March 31, 1997 12,174,000 122,000 23,234,000 51,959,000 (57,000)
Exercise of options 168,000 2,000 1,156,000 -- --
Issuance of shares
for acquisition 150,000 1,000 2,089,000 -- --
Cash dividends declared -- -- -- (2,448,000) --
Net income -- -- -- 15,853,000 --
----------- ------------ ------------ ------------ ------------
Balance at March 31, 1998 12,492,000 125,000 26,479,000 65,364,000 (57,000)
Exercise of options 40,000 -- 297,000 -- --
Purchases of stock -- -- -- -- (3,902,000)
Cash dividends declared -- -- -- (2,471,000) --
Other 2,000 -- (7,000) -- (138,000)
Net income -- -- -- 15,107,000 --
----------- ------------ ------------ ------------ ------------
Balance at March 31, 1999 12,534,000 $ 125,000 $ 26,769,000 $ 78,000,000 $ (4,097,000)
=========== ============ ============ ============ ============
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated financial statements.
Page 32
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED MARCH 31,
--------------------------------------------------
1999 1998 1997
------------- ------------- ------------
Cash flows from operating activities:
Net income $ 15,107,000 $ 15,853,000 $ 13,265,000
------------ ------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 2,799,000 2,418,000 1,938,000
Provision for bad debts 5,133,000 1,417,000 5,107,000
Deferred income tax (benefit) provision (504,000) 379,000 (369,000)
Equity in earnings of aviation joint venture, net (199,000) (526,000) (675,000)
Other non-cash operating credits (7,000) -- (19,000)
Changes in assets and liabilities, net of acquisitions
and dispositions:
(Increase) decrease in -
Accounts receivable (24,663,000) (10,889,000) (13,181,000)
Inventories (695,000) 945,000 (1,857,000)
Prepaid expenses and other current assets (1,391,000) (64,000) (2,067,000)
Other assets 484,000 (1,000) 250,000
Increase (decrease) in -
Accounts payable and accrued expenses 9,120,000 1,154,000 (64,000)
Customer deposits 1,538,000 (93,000) 774,000
Accrued salaries and wages 397,000 (336,000) 132,000
Income taxes payable (764,000) 2,081,000 (150,000)
Deferred compensation 126,000 556,000 594,000
------------ ------------ ------------
Total adjustments (8,626,000) (2,959,000) (9,587,000)
------------ ------------ ------------
Net cash provided by operating activities 6,481,000 12,894,000 3,678,000
------------ ------------ ------------
Cash flows from investing activities:
Additions to property, plant and equipment (5,658,000) (3,484,000) (3,156,000)
Repayments from (advances to) aviation joint venture, net 77,000 (319,000) (106,000)
Issuance of notes receivable (617,000) -- --
Proceeds from notes receivable 3,780,000 809,000 774,000
Payment for acquisition of business, net of cash acquired -- (807,000) --
------------ ------------ ------------
Net cash used in investing activities (2,418,000) (3,801,000) (2,488,000)
------------ ------------ ------------
(Continued)
Page 33
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
FOR THE YEAR ENDED MARCH 31,
----------------------------------------------------
1999 1998 1997
------------ -------------- ---------------
Cash flows from financing activities:
Dividends paid on common stock $ (2,486,000) $ (2,432,000) $ (2,212,000)
Borrowings under revolving credit facility, net 98,000 -- --
Repayment of notes payable -- (4,245,000) (1,872,000)
Repayment of long-term debt (109,000) (150,000) (74,000)
Proceeds from issuance of long-term debt -- -- 486,000
Proceeds from issuance of common stock 297,000 1,158,000 661,000
------------ ------------ ------------
Net cash used in financing activities (2,200,000) (5,669,000) (3,011,000)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 1,863,000 3,424,000 (1,821,000)
Cash and cash equivalents, at beginning of period 14,459,000 11,035,000 12,856,000
------------ ------------ ------------
Cash and cash equivalents, at end of period $ 16,322,000 $ 14,459,000 $ 11,035,000
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 257,000 $ 288,000 $ 423,000
============ ============ ============
Income taxes $ 5,088,000 $ 2,516,000 $ 5,182,000
============ ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Cash dividends declared, but not yet paid, totaling $609,000, $624,000 and
$608,000 are included in accounts payable and accrued expenses as of March
31, 1999, 1998 and 1997, respectively.
In January 1998, the Company issued 150,000 shares of its common stock valued
at $2,090,000 in connection with the acquisition of the Baseops group of
companies. Pursuant to an indemnification agreement, the Company received
10,754 shares of its common stock from the sellers of Baseops in settlement
for $138,000 of uncollectible accounts receivable.
During the year ended March 31, 1999, the Company borrowed $3,902,000 for the
repurchase of the Company's common stock. The repurchased common stock is
shown in the treasury stock section of the balance sheets. The stock
purchases were made pursuant to an August 1998 Board of Directors
authorization to repurchase up to $6,000,000 of the Company's common stock.
During fiscal year 1999 and 1998, the Company reclassified approximately
$8,290,000 and $1,000,000, respectively, from accounts receivable to notes
receivable. The notes receivable are shown in the prepaid expenses and other
current assets, and other assets sections of the balance sheets.
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated financial statements.
Page 34
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF ACQUISITIONS
World Fuel Services Corporation (the "Company") began operations in 1984 as a
used oil recycler in the southeast United States. The Company expanded this
business through acquisitions, the development of new processing technology and
the establishment of new offices. In 1986, the Company diversified its
operations by entering, through an acquisition, the aviation fuel services
business. This new segment expanded rapidly, from a business primarily
concentrated in the state of Florida, to an international sales company covering
airports throughout the world. This expansion resulted from acquisitions and the
establishment of new offices.
In 1995, the Company further diversified its fuel services operations through
the acquisition of a group of companies which are considered leaders in the
marine fuel services business. This new segment provided the Company with
operational and supplier side synergies and entry into fast growing markets in
the Far East and Eastern Europe.
In April 1999, the Company acquired substantially all of the operations of the
privately held Bunkerfuels Group of companies, one of the world's leading
providers of bunker services, which will significantly increase the Company's
share of the world marine fuel market. The acquisition will be accounted for as
a purchase. Accordingly, the results of operations of the Bunkerfuels Group will
be included with the results of the Company from April 1, 1999. The aggregate
purchase price of the acquisition was approximately $9,064,000, including an
estimated $150,000 in acquisition costs. The Company paid approximately
$4,617,000 in cash, $4,250,000 in the form of 7 3/4% promissory notes, payable
over three years, of which $1,410,000 is due within one year, and $197,000 in
short term payables due to sellers. The promissory notes are collateralized by
letters of credit. The difference between the purchase price and the $408,000
fair value of the net assets of the acquired companies, which amounted to
approximately $8,656,000, will be allocated to goodwill, and will be amortized
using the straight-line method over 35 years. The Company determined that no
other intangible assets exist.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AcSEC") issued Statement of Position
("SOP") 98-5, "Reporting on the Costs of Start-up Activities". SOP 98-5
establishes standards for the reporting and disclosure of start-up costs,
including organization costs. The Company adopted SOP 98-5 effective April 1,
1999, as required. The Company believes that the implementation of SOP 98-5 will
not have a material effect on the Company's financial position or results of
operations.
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.
Page 35
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, 1999 and 1998 amounted to $5,784,000 and $11,988,000
respectively, consisting principally of bank repurchase agreements
collateralized by United States Government Securities and bank money market
accounts which invest primarily in A1P1 commercial paper. Interest income, which
is included in Other, net in the accompanying consolidated statements of income,
totaled $1,851,000, $1,460,000 and $862,000 for the years ended March 31, 1999,
1998 and 1997, 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 costs,
transportation costs, direct materials, direct and indirect labor and refining
overhead related to the Company's used oil recycling. Also included in
inventories are costs not yet billed, consistent with the Company's revenue
recognition policies.
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
Costs of major additions and improvements, including appropriate interest, 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 resulting gain or loss is credited or
charged to income.
In March 1998, the AcSEC issued SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". SOP 98-1 establishes criteria
for determining which costs of developing or obtaining internal-use computer
software should be charged to expense and which should be capitalized. The
Company adopted SOP 98-1 prospectively, effective April 1, 1999, as required.
The Company believes that the implementation of SOP 98-1 will not have a
material effect on the Company's financial position or results of operations.
Page 36
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 $2,010,000 and $1,529,000, as of March 31, 1999 and
1998, respectively. Subsequent to an acquisition, the Company continually
evaluates whether events and circumstances have occurred that indicate the
remaining 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 costs in excess of
the net assets of the acquired companies. Such carrying amount would be
adjusted, if necessary, to reflect any 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 with third parties to provide the fuel and/or delivery
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. 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.
ACCOUNTING FOR DERIVATIVES
Premiums received or paid for fuel price cap agreements are amortized to premium
revenue and expense, respectively, over the terms of the caps. Unamortized
premiums are included in Accounts payable and accrued expenses on a net basis.
Accounts receivable or payable under fuel price swap agreements related to the
physical delivery of product are recognized as deferred gains or losses, which
are included in Prepaid expenses and other current assets on a net basis, until
the underlying physical delivery transaction is recognized in income. The
Company follows the accrual method for fuel price swap agreements which do not
involve physical delivery. Under the accrual method, each net receipt due or
payment owed under the derivative instrument is recognized in income as fee
income or expense, respectively, during the period to which the receipt or
payment relates.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument be recorded
in the balance sheet as either an asset or liability measured at its fair value,
including certain derivative instruments embedded in other contracts. SFAS No.
133 is effective for fiscal years beginning after June 15, 2000. The Company
believes that the implementation of SFAS No. 133 will not have a material effect
on the Company's financial position or results of operations or disclosures.
Page 37
INCOME TAXES
The Company and its United States subsidiaries file consolidated income tax
returns. 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 assets and
liabilities 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 Ecuador
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 are included in
Other, net, in the period incurred, and there were no significant foreign
currency gains or losses in fiscal years 1999, 1998 or 1997.
EARNINGS PER SHARE
Basic earnings per common share is computed based on the weighted average shares
outstanding. Diluted earnings per common share is based on the sum of the
weighted average number of common shares outstanding plus common stock
equivalents arising out of employee stock options and benefit plans. The
Company's net income is the same for basic and diluted earnings per share
calculations.
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, 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. Such estimates primarily relate to the realizability of accounts and
notes receivable, and unsettled transactions and events as of the date of the
financial statements. Accordingly, actual results could differ from estimated
amounts.
FAIR VALUE OF FINANCIAL INSTRUMENTS
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
judgment 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.
Page 38
Cash and cash equivalents, accounts receivable, notes receivable and accounts
payable and accrued expenses are reflected in the accompanying consolidated
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, 1999, the carrying value of the long-term
debt and the fair value of such instruments was not considered to be
significantly different.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"), effective April 1, 1998. SFAS
No. 130 establishes standards for the reporting and disclosure of comprehensive
income and its components, which are presented in association with a company's
financial statements. There were no items of comprehensive income, and, thus,
net income is equal to comprehensive income for all periods presented.
(2) LONG-TERM DEBT
Long-term debt consisted of the following at March 31:
1999 1998
----------- -----------
Borrowings on revolving credit facility $ 4,000,000 $ --
Equipment notes, payable monthly through
January 2002, interest rates ranging from
6.76% to 11.00%, secured by equipment 342,000 451,000
----------- -----------
4,342,000 451,000
Less current maturities 125,000 119,000
----------- -----------
$ 4,217,000 $ 332,000
=========== ===========
The Company has a $30,000,000 unsecured revolving credit facility with sublimits
of $15,000,000 for letters of credit. Approximately $10,364,000 in letters of
credit were outstanding as of March 31, 1999 under the credit facility. The
revolving line of credit bears interest at market rates, as defined under the
credit facility. Interest is payable quarterly in arrears. Any outstanding
principal and interest will mature on November 29, 2003. As of March 31, 1999,
the Company was in compliance with the requirements under the credit facility.
The credit facility imposes certain operating and financial restrictions. The
Company's failure to comply with the obligations under the revolving line of
credit, including meeting certain financial ratios, could result in an event of
default. An event of default, if not cured or waived, would permit accelerating
of the indebtedness under the credit facility.
Page 39
Aggregate annual maturities of long-term debt as of March 31, 1999, are as
follows:
2000 $ 125,000
2001 113,000
2002 104,000
2003 --
2004 4,000,000
-----------
$ 4,342,000
===========
Interest expense, which is included in Other, net, in the accompanying
consolidated statements of income, is as follows for the years ended March 31:
1999 1998 1997
--------------- --------------- ------------
Interest cost $ 353,000 $ 284,000 $ 395,000
Less capitalized interest on capital expenditures 76,000 -- --
--------------- --------------- ------------
Interest expense $ 277,000 $ 284,000 $ 395,000
=============== =============== ============
(3) INCOME TAXES
The provision for income taxes consists of the following components for the
years ended March 31:
1999 1998 1997
----------- ------------ -------------
Current:
Federal $ 992,000 $ 1,976,000 $ 3,061,000
State 342,000 251,000 417,000
Foreign 2,967,000 2,287,000 1,495,000
----------- ----------- -----------
4,301,000 4,514,000 4,973,000
----------- ----------- -----------
Deferred:
Federal (409,000) 403,000 (157,000)
State (35,000) 50,000 (22,000)
Foreign (60,000) (74,000) (190,000)
----------- ----------- -----------
(504,000) 379,000 (369,000)
----------- ----------- -----------
Total $ 3,797,000 $ 4,893,000 $ 4,604,000
=========== =========== ===========
Paqe 40
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, 1999, is
primarily due to state income taxes and the effect of foreign income tax rates.
The Company's share of undistributed earnings of foreign subsidiaries not
included in its consolidated U.S. federal income tax return that could be
subject to additional U.S. federal income taxes if remitted, was approximately
$36,513,000 and $23,467,000 at March 31, 1999 and 1998, 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.
The temporary differences which comprise the Company's net deferred tax
liability, included in Long-term Liabilities in the accompanying consolidated
balance sheets are as follows:
March 31,
--------------------------------
1999 1998
------------- -------------
Excess of provision for bad debts over charge-offs $ 1,979,000 $ 1,308,000
Excess of tax over financial reporting depreciation
and amortization (2,827,000) (2,481,000)
Accrued expenses recognized for financial reporting
purposes, not currently tax deductible 1,034,000 775,000
Excess of tax over financial reporting amortization
of identifiable intangibles (574,000) (504,000)
Other, net 45,000 55,000
----------- -----------
Total deferred tax liability $ (343,000) $ (847,000)
=========== ===========
(4) STOCKHOLDERS' EQUITY
COMMON STOCK ACTIVITY
In October 1997, the Board of Directors approved a 3-for-2 stock split for all
shares of common stock outstanding as of November 17, 1997. The shares were
distributed on December 1, 1997. Accordingly, all share and per share data, as
appropriate, have been retroactively adjusted to reflect the effect of this
split.
In August 1998, the Board of Directors authorized the repurchase of up to
$6,000,000 of the Company's common stock. As of March 31, 1999, the Company has
repurchased 324,000 shares at an average price per share of $12.04, or
$3,902,000 in aggregate.
Page 41
DIVIDENDS
The Company declared cash dividends of $0.20 per share of common stock for
fiscal years 1999, 1998, and 1997.
EMPLOYEE STOCK OPTION ACTIVITY
The Company has adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), which was effective for
the Company's 1997 fiscal year, and relates to the accounting for stock-based
transactions with non-employees. The Company has evaluated the proforma effects
of SFAS 123 and determined the effects of SFAS 123 are not material to the
Company's consolidated financial position or results of operations. Accordingly,
the disclosure provisions of SFAS 123 have been omitted. The Company accounts
for its stock-based transactions with employees under the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), as permitted by SFAS 123.
In August 1996, the Company's Board of Directors authorized the establishment of
the 1996 Employee Stock Option Plan (the "1996 Plan"), which received
stockholder approval at the Company's 1997 annual shareholders' meeting. Under
the provisions of the 1996 Plan, the Company's Board of Directors is authorized
to grant Incentive Stock Options ("ISO") to employees of the Company and its
subsidiaries and Non-Qualified Stock Options ("NSO") to employees, independent
contractors and agents. The 1996 Plan, as amended in August 1998, permits the
issuance of options to purchase up to an aggregate of 1,250,000 shares of the
Company's common stock, adjusted to reflect the 3-for-2 stock split. 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 ISOs
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 ISOs granted pursuant to the 1996
Plan must be exercised within ten years after the date of grant, except that
ISOs granted to individuals owning more than 10% of the Company's outstanding
common stock and NSOs must be exercised within five years after the date of
grant. The following summarizes the status of the 1996 Plan at, and for the year
ended, March 31:
1999 1998 1997
-------------------- -------------------- --------------------
Granted 457,500 117,500 243,000
Per Share Price Range $10.75 - $21.75 $11.67 - $21.00 $11.42
Increase in Plan 500,000
Outstanding 818,000 360,500 243,000
Per Share Price Range $10.75 - $21.75 $11.42 - $21.00 $11.42
Weighted Average Per Share Price $16.12 $13.76 $11.42
Weighted Average Contractual Life 8.6 years 8.8 years 9.4 years
Available for future grant 432,000 389,500 507,000
Exercisable 242,504 17,516 None
Per Share Price Range $11.42 - $21.00 $11.42
Weighted Average Per Share Price $11.85 $11.42
Page 42
The Company's 1986 Employee Stock Option Plan expired in January 1996. Options
granted, but not yet exercised, survive the 1986 Employee Stock Option Plan
until the options expire. The following summarizes the status of the 1986
Employee Stock Option Plan at, and for the year ended, March 31:
1999 1998 1997
--------------------- -------------------- --------------------
Expired None None 5,250
Exercised 32,344 167,634 54,375
Per Share Price Range $6.89 $6.55 - $8.39 $9.08 - $9.33
Proceeds received by the Company $223,000 $1,158,000 $499,000
Outstanding 142,747 175,091 342,725
Per Share Price Range $6.22 - $8.39 $6.22 - $8.39 $9.33 - $12.58
Weighted Average Per Share Price $7.22 $7.16 $10.55
Weighted Average Contractual Life 5.8 years 6.9 years 6.4 years
Exercisable 142,747 155,670 202,588
Per Share Price Range $6.22 - $8.39 $6.22 - $8.39 $9.33 - $10.33
Weighted Average Per Share Price $7.22 $7.00 $10.29
In addition to the options shown in the above tables, prior to 1996, the Company
issued certain non-qualified options outside of the 1986 and 1996 stock option
plans. As of March 31, 1999, such non-qualified stock options entitled the
holders thereof to purchase a total of 45,898 shares of the Company's common
stock at an exercise price ranging from $6.89 to $8.39 per share. All such
options are currently exercisable. As of March 31, 1999, the weighted average
per share price and contracted life of these options is $7.56 and 3.2 years,
respectively.
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. The 1993 Directors Plan, as amended in August 1997, permits the
issuance of options to purchase up to an aggregate of 100,000 shares of the
Company's common stock.
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 that the individual is re-elected. As of March 31, 1999, options to
purchase 45,625 shares of the Company's common stock remain outstanding under
the 1993 Directors Plan and 29,375 shares are available for future grant.
Page 43
The exercise price for options granted under the 1993 Directors 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 1993 Directors 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.
(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 $104,000 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 office space and
railroad tank cars from unrelated third parties.
At March 31, 1999, the future minimum lease payments under operating leases with
an initial non-cancelable term in excess of one year were as follows:
Operating
Leases
-----------------
2000 $1,234,000
2001 947,000
2002 742,000
2003 529,000
2004 139,000
Thereafter 269,000
-----------------
Total minimum lease payments $ 3,860,000
=================
Rental expense under operating leases with an initial non-cancellable term in
excess of one year was $1,362,000, $1,106,000, and $843,000 for the years ended
March 31, 1999, 1998 and 1997, respectively.
CAPITAL EXPENDITURES
During fiscal year 2000, the Company anticipates spending approximately $700,000
to complete the implementation of the financial sales system and $2,000,000 to
upgrade plant, machinery and equipment. The Company may spend an estimated
$1,000,000 sometime in the future, if required 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.
Page 44
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, 1999, the Company had
$5,723,000 in outstanding bonds.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to credit risk
consist primarily of trade accounts receivable and notes 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 $3,000,000. The
Company's success in attracting business has been due, in part, to its
willingness to extend credit on an unsecured basis to customers which exhibit a
higher credit risk profile and otherwise would be required to prepay or post
cash collateralized letters of credit with their suppliers of fuel.
Diversification of credit risk is difficult since the Company sells primarily in
the aviation and marine industries. The Company's management recognizes that
extending credit and setting appropriate reserves for accounts receivable 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 sales executives and their respective staff meet
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.
In response to adverse economic conditions principally in South America, the
Company increased the allowance for bad debts during the fourth quarter of
fiscal 1999. The Company also extended repayment terms with certain customers,
converting approximately $8,290,000 from accounts receivable to notes
receivable. As of March 31, 1999, the Company had $7,103,000 in outstanding
notes receivable with maturities ranging from 1 month to 3.6 years, interest
rates ranging from 5% to 10%, and individual balances ranging from $17,000 to
$2,305,000. Of this amount, 5,790,000 is included in Notes receivable and
1,313,000 is included in Other assets in the accompanying consolidated balance
sheets.
POLLUTION AND THIRD PARTY LIABILITY
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 domestic and
international fueling activities also 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
Page 45
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 and is
of sufficient magnitude, the Company's financial position and results of
operations will be adversely affected.
The Company has exited several environmental businesses which handled hazardous
waste. This waste was 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 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, will have a
material adverse effect on the Company's financial position and results of
operations.
LEGAL MATTERS
The Company is involved in 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 pending litigation or administrative
proceedings, will not materially affect its financial condition or results of
operations.
PURCHASE COMMITMENTS AND OFF -BALANCE SHEET TRANSACTIONS
Recognizing favorable market conditions or for competitive reasons, the Company
may enter into short term fuel purchase commitments for the physical delivery of
product in the United States. The Company simultaneously may hedge the physical
delivery through a commodity based derivative instrument, to minimize the
effects of commodity price fluctuations. As of March 31, 1999, the Company did
not have any outstanding purchase commitments.
The Company offers its customers swaps and caps as part of its fuel management
services. Typically, the Company simultaneously enters into the commodity based
derivative instruments with its customer and a counterparty. The counterparties
are major oil companies and derivative trading firms. Accordingly, the Company
does not anticipate non-performance by such counterparties. Pursuant to these
transactions, the Company is not affected by market price fluctuations since the
contracts have the same terms and conditions except for the fee or spread earned
by the Company. Performance risk under these contracts is considered a credit
risk. This risk is minimized by dealing with customers meeting additional credit
criteria. As of March 31, 1999, the Company had outstanding swap contracts for
65,000 metric tons expiring by December 1999, and $61,000 in deferred cap fees.
Gains on these contracts are recognized at the completion of each transaction.
EMPLOYMENT AGREEMENTS
The Company's amended and restated employment agreements with its Chairman of
the Board and President expire on March 31, 2004. Each agreement provides for a
fixed salary and an annual bonus
Page 46
equal to 5% of the Company's income before income taxes in excess of $2,000,000
through fiscal year 2002, and $7,000,000 with a maximum bonus of $750,000, for
the balance of the employment term. 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 accrue 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 the 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, 1999 and 1998, $1,467,000 and $1,065,000,
respectively, was deferred under the agreement and is included in Long-term
Liabilities in the accompanying consolidated balance sheets. Additionally,
accrued interest of $152,000 and $56,000, 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.
The Company and its subsidiaries have also entered into employment, consulting
and non-competition agreements with certain of their executive officers and
current employees. The agreements provide for minimum salary levels, and for
certain executive officers and employees, bonus formulas which are payable if
specified management goals are attained. During the years ended March 31, 1999,
1998 and 1997, approximately $11,447,000, $10,411,000, and $9,136,000,
respectively, was expensed under the terms of the above described agreements.
The future minimum commitments under employment agreements, excluding bonuses,
as of March 31, 1999 are as follows:
2000 $ 6,906,000
2001 5,317,000
2002 2,975,000
2003 2,503,000
2004 1,834,000
Thereafter 1,050,000
---------------
$ 20,585,000
===============
DEFERRED COMPENSATION PLANS
The Company's Deferred Compensation Plan ("Deferred Plan") is administered by a
Deferred Plan Committee appointed by the Board of Directors of Trans-Tec
Services, Inc. The Deferred Plan was suspended effective August 1, 1997 by the
Deferred Plan Committee. The Deferred Plan is unfunded and is not a qualified
plan under the Internal Revenue Code. The Deferred 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. Fully vested participants must wait two years from the
year of contribution to be eligible for the distribution of deferred account
balances. As of March 31, 1999, the Company's liability under the Deferred Plan
was $1,381,000, and is included in Long-term Liabilities in the accompanying
consolidated balance sheets.
Page 47
The Company maintains a 401(k) defined contribution plan which covers all United
States employees who meet minimum requirements and elect to participate.
Participants may contribute up to 15% of their compensation, subject to certain
limitations. During fiscal year 1999, the Company made matching contributions of
25% of the participants' contributions up to 4% of the participant's
compensation. Annual contributions are made at the Company's sole discretion.
During the fiscal years ended March 31, 1999, 1998 and 1997, approximately
$101,000, $96,000 and $82,000, respectively, was expensed as Company
contributions.
(6) AVIATION JOINT VENTURE
In August 1994, the Company began operation of an aviation joint venture with
Petrosur, an Ecuador corporation. The aviation 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 aviation joint venture arrangement has a term
of five years ending in May 2001 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 current ownership interest in the aviation joint venture is 50%.
Accordingly, the Company uses the equity method of accounting to record its
proportionate share of aviation joint venture earnings. The amount of the
investment in and advances to the aviation joint venture totaled $2,493,000 and
$2,271,000 at March 31, 1999 and 1998, respectively. Of these amounts,
$1,730,000 and $1,171,000 are included in Prepaid expenses and other current
assets as of March 31, 1999 and 1998, respectively, and $763,000 and $1,100,000
is included in Other assets as of March 31, 1999 and 1998, respectively.
Page 48
(7) BUSINESS SEGMENTS, FOREIGN OPERATIONS AND MAJOR CUSTOMERS
BUSINESS SEGMENTS
The Company has adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS No.
131"), which was effective for the Company's 1999 fiscal year. SFAS No. 131
establishes new standards for reporting operating segment information in annual
and interim financial statements. The Company evaluates performance for internal
management purposes in a manner consistent with reporting for external purposes.
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:
AS OF AND FOR THE YEAR ENDED MARCH 31,
-----------------------------------------------------
1999 1998 1997
------------- ------------- -------------
REVENUE
Aviation fueling $ 327,844,000 $ 383,010,000 $ 381,236,000
Marine fueling 392,717,000 393,607,000 368,470,000
Oil recycling 23,621,000 25,146,000 22,912,000
------------- ------------- -------------
Consolidated revenue $ 744,182,000 $ 801,763,000 $ 772,618,000
============= ============= =============
INCOME FROM OPERATIONS
Aviation fueling $ 13,331,000 $ 12,558,000 $ 10,620,000
Marine fueling 7,515,000 7,403,000 5,013,000
Oil recycling 2,593,000 4,155,000 5,020,000
Corporate (6,041,000) (5,589,000) (5,027,000)
------------- ------------- -------------
Consolidated income from operations $ 17,398,000 $ 18,527,000 $ 15,626,000
============= ============= =============
IDENTIFIABLE ASSETS
Aviation fueling $ 68,765,000 $ 57,867,000 $ 54,129,000
Marine fueling 69,250,000 53,819,000 43,013,000
Oil recycling 21,077,000 19,055,000 17,574,000
Corporate 6,842,000 12,518,000 8,423,000
------------- ------------- -------------
Consolidated identifiable assets $ 165,934,000 $ 143,259,000 $ 123,139,000
============= ============= =============
CAPITAL EXPENDITURES
Aviation fueling $ 419,000 $ 218,000 $ 369,000
Marine fueling 200,000 609,000 208,000
Oil recycling 2,238,000 1,793,000 2,383,000
Corporate 2,801,000 864,000 196,000
------------- ------------- -------------
Consolidated capital expenditures $ 5,658,000 $ 3,484,000 $ 3,156,000
============= ============= =============
DEPRECIATION AND AMORTIZATION
Aviation fueling $ 543,000 $ 312,000 $ 189,000
Marine fueling 695,000 708,000 599,000
Oil recycling 1,097,000 1,021,000 916,000
Corporate 464,000 377,000 234,000
------------- ------------- -------------
Consolidated depreciation and amortization $ 2,799,000 $ 2,418,000 $ 1,938,000
============= ============= =============
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FOREIGN OPERATIONS
A summary of financial data for foreign operations is shown below as of, and for
the fiscal years ended, March 31, 1999, 1998 and 1997. Non-U.S. operations of
the Company and its subsidiaries are conducted primarily from offices in the
United Kingdom, Singapore, Mexico, South Africa, South Korea, Denmark and Costa
Rica. Income from operations is before the allocation of corporate general and
administrative expenses and income taxes.
1999 1998 1997
------------ ------------ ------------
Revenue $371,104,000 $419,701,000 $287,589,000
============ ============ ============
Income from operations $ 16,349,000 $ 10,774,000 $ 7,753,000
============ ============ ============
Identifiable assets $ 63,718,000 $ 43,524,000 $ 37,313,000
============ ============ ============
MAJOR CUSTOMERS
No customer accounted for more than 10% of total consolidated revenue for the
years ended March 31, 1999, 1998 and 1997.
(8) QUARTERLY INFORMATION (UNAUDITED)
FOR THE THREE MONTHS ENDED
------------------------------------------------------------------------
June 30, September 30, December 31, March 31,
1998 1998 1998 1999
-------------- -------------- --------------- ------------
Revenue $ 193,031,000 $ 180,320,000 $ 187,809,000 $183,022,000
============== ============== ============== ============
Gross profit $ 14,856,000 $ 14,803,000 $ 14,215,000 $ 15,532,000
============== ============== ============== ============
Net income $ 4,081,000 $ 3,520,000 $ 3,979,000 $ 3,527,000
============== ============== ============== ============
Basic earnings per share $ 0.33 $ 0.28 $ 0.32 $ 0.29
============== ============== ============== ============
Diluted earnings per share $ 0.32 $ 0.28 $ 0.32 $ 0.29
============== ============== ============== ============
FOR THE THREE MONTHS ENDED
------------------------------------------------------------------------
June 30, September 30, December 31, March 31,
1997 1997 1997 1998
-------------- -------------- --------------- ------------
Revenue $ 186,307,000 $ 205,792,000 $ 208,879,000 $200,785,000
============== ============== ============== ============
Gross profit $ 11,074,000 $ 12,233,000 $ 12,455,000 $ 14,633,000
============== ============== ============== ============
Net income $ 3,803,000 $ 4,125,000 $ 4,148,000 $ 3,777,000
============== ============== ============== ============
Basic earnings per share $ 0.31 $ 0.34 $ 0.34 $ 0.31
============== ============== ============== ============
Diluted earnings per share $ 0.31 $ 0.33 $ 0.33 $ 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, 1999
Allowance for bad debts $4,594,000 $ -- $5,133,000 $ 917,000 $3,815,000 $6,829,000
========== ============= ========== ========== ========== ==========
Year Ended March 31, 1998
Allowance for bad debts $4,360,000 $ 118,000 $1,417,000 $ 919,000 $2,220,000 $4,594,000
========== ============= ========== ========== ========== ==========
Year Ended March 31, 1997
Allowance for bad debts $4,363,000 $ -- $5,107,000 $ 415,000 $5,525,000 $4,360,000
========== ============= ========== ========== ========== ==========
Notes:
(1) Recoveries of bad debts and reclassifications.
(2) Accounts determined to be uncollectible.
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