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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, 2001
[ ] 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 incorporation or organization) (I.R.S. Employer Identification No.)
700 South Royal Poinciana Blvd., Suite 800
Miami Springs, Florida 33166
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code: (305) 884-2001
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class: on which registered:
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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_____.
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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
$116,049,000 (computed by reference to the closing sale price as of June 7,
2001).
The registrant had 10,403,000 outstanding shares of common stock, par value
$.01 per share, as of June 7, 2001.
Documents incorporated by reference:
Part III - Definitive Proxy Statement for the 2001 Annual Meeting of
Shareholders.
TABLE OF CONTENTS
Page
ITEM 1. Business
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General 1
History 1
Description of Business
Aviation Fuel Services 2
Marine Fuel Services 2
Potential Risks 3
Regulation 4
ITEM 2. Properties 6
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ITEM 3. Legal Proceedings 8
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ITEM 4. Submission of Matters to a Vote of Security Holders 9
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ITEM 5. Market for Registrant's Common Equity and Related
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ITEM 6. Selected Financial Data 11
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ITEM 7. Management's Discussion and Analysis of Financial Condition and
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ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 18
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ITEM 8. Financial Statements and Supplementary Data 18
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ITEM 9. Changes in and Disagreements with Accountants on Accounting and
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ITEM 10. Directors and Executive Officers of the Registrant 19
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ITEM 11. Executive Compensation 19
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ITEM 12. Security Ownership of Certain Beneficial Owners and Management 19
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ITEM 13. Certain Relationships and Related Transactions 19
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ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 20
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i
PART I
ITEM 1. BUSINESS
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General
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World Fuel Services Corporation ("World Fuel") markets aviation and marine fuel
services. In its aviation fuel services business, World Fuel extends credit and
provides around-the-world single-supplier convenience, 24-hour service, and
competitively-priced aviation fuel and other aviation related services,
including fuel management services, to passenger, cargo and charter airlines.
World Fuel also offers flight plans and weather reports to its corporate
customers. In its marine fuel services business, World Fuel markets marine fuel
and related services to a broad base of international shipping companies and to
the U.S. military. World Fuel offers 24-hour around-the-world service, credit
terms, and competitively priced fuel.
Financial information with respect to World Fuel's business segments and
geographic information is provided in Note 8 to the accompanying consolidated
financial statements.
History
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World Fuel 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. World
Fuel presently conducts its aviation fuel services business through ten
subsidiaries, with principal offices in Florida, Texas, United Kingdom,
Singapore, Mexico, and Costa Rica. World Fuel conducts its marine fuel services
business through eleven subsidiaries with principal offices in New Jersey,
California, Washington, United Kingdom, Denmark, Norway, Costa Rica, South
Africa, South Korea, Singapore, Japan, and Dubai, United Arab Emirates. See
"Item 2 - Properties" for a list of principal offices by business segment and
"Exhibit 21 - Subsidiaries of the Registrant".
World Fuel, which began operations in 1984 as a used oil-recycler in the
southeast United States, exited this segment in February 2000 through the sale
of the stock of its International Petroleum Corporation subsidiaries, to Dallas-
based EarthCare Company ("EarthCare"). For additional information regarding this
transaction, refer to Note 2 to the consolidated financial statements, included
herein, and "Item 3 - Legal Proceedings." In 1986, World Fuel diversified its
operations by entering, through an acquisition, the aviation fuel services
business. This new segment expanded rapidly, from a business primarily
concentrated in Florida, to an international sales company covering airports
throughout most of the world. This expansion resulted from acquisitions and the
establishment of new offices.
In January 1995, World Fuel further diversified its fuel services operations and
entered the marine fuel business by acquiring the Trans-Tec Services group of
companies. In April 1999, World Fuel acquired the operations of the Bunkerfuels
group of companies, increasing World Fuel Services' share of the world marine
fuel market. During the fourth quarter of fiscal 2001 and the beginning of the
first quarter of fiscal 2002, World Fuel continued its expansion of the marine
business through the acquisitions of Norse Bunkers, based in Oslo, Norway, and
Marine Energy, located in Dubai, United Arab Emirates, respectively. Since its
entry into the marine business, World Fuel has opened various new offices in key
strategic markets, such as South Africa, Japan, Denmark, and Seattle,
Washington. In December 2000, World Fuel acquired a 50% interest in PAFCO L.L.C.
("PAFCO") from Signature Flight Support Services Corporation. PAFCO markets
aviation fuel and related services. For additional information on the PAFCO
transaction, refer to Note 1 and 7 to the consolidated financial statements
included in this report.
For additional information regarding World Fuel's acquisitions since April 1999,
refer to Note 1 to the consolidated financial statements, included herein.
See "Potential Risks", "Management's Discussion and Analysis of Financial
Condition and Results of Operations", and the accompanying consolidated
financial statements for additional information.
Page 1
Description of Business
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Aviation Fuel Services
World Fuel markets aviation fuel and services to passenger, cargo and charter
airlines, as well as corporate customers. World Fuel has developed an extensive
network which enables it to provide fuel and aviation related services to
customers at airports throughout most of the world. The aviation services
offered by World Fuel include fuel management, 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. World Fuel
recognizes that the extension of credit is a risk, but also a significant area
of opportunity. Accordingly, World Fuel extends unsecured credit to most of its
customers.
World Fuel purchases its aviation fuel from suppliers worldwide. World Fuel's
cost of fuel is generally tied to market-based formulas or is government
controlled. World Fuel is usually extended unsecured trade credit for its fuel
purchases. However, certain suppliers require a letter of credit. World Fuel 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, World Fuel 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 World Fuel's suppliers or
delivered from World Fuel's inventory. Inventory is held at multiple locations
in the United States for competitive reasons and inventory levels are kept at an
operating minimum. World Fuel has arrangements with its suppliers and other
third parties for the storage and delivery of fuel, and related aviation
services.
During the fiscal years ended March 31, 2001, 2000 and 1999, none of World
Fuel's aviation fuel customers accounted for more than 10% of World Fuel's
consolidated revenue. World Fuel currently employs 181 persons in its aviation
fuel services segment.
Marine Fuel Services
World Fuel markets marine fuel and services to a broad base of customers,
including international container and tanker fleets, time charter operators, as
well as U.S. military vessels. Fuel and related services are provided throughout
most of the world.
Through its vast network of strategically located sales offices, World Fuel
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
continue to outsource their marine fuel purchasing and/or marketing needs, World
Fuel's value added service has become an integral part of the oil and
transportation industries' push to shed non-core functions and reduce costs.
Suppliers use World Fuel'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 World Fuel's real time analysis of the
availability, quality, and price of marine fuels in ports worldwide to maximize
their competitive position.
World Fuel, 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 the end user, and expedites the
arrangements for the delivery of fuel. For this service, World Fuel is paid a
commission from the supplier. World Fuel 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.
During the fiscal years ended March 31, 2001, 2000 and 1999, none of World
Fuel's marine fuel customers accounted for more than 10% of World Fuel's
consolidated revenue. World Fuel currently employs 97 persons in its marine fuel
services segment.
Page 2
Potential Risks
Credit. World Fuel's aviation and marine fueling businesses extend unsecured
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credit to most of their customers. World Fuel'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. World Fuel's management recognizes that extending credit and
setting the appropriate reserves for receivables is a largely subjective
decision based on knowledge of the customer and the industry. Active management
of World Fuel's credit risk is essential to its success. World Fuel does not
insure its receivables, and diversification of credit risk is difficult since
World Fuel sells primarily within the aviation and marine industries. World
Fuel's sales executives and their respective staff meet regularly to evaluate
credit exposure, in the aggregate and by individual credit. Credit exposure also
includes the amount of estimated unbilled sales. World Fuel also has a credit
committee for each of its segments. The credit committees are responsible for
approving credit limits above certain amounts, setting and maintaining credit
standards, and ensuring the overall quality of the credit portfolio.
In World Fuel'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 and its credit history with World Fuel. This period represents the average
business cycle of World Fuel's typical customer. In World Fuel's marine segment,
the level of credit granted to a customer is influenced by a customer's credit
history with World Fuel, including claims experience and payment patterns.
During fiscal 2001, world oil prices continued to exhibit volatility and have
remained high. Fuel costs represent a significant part of an airline's and
vessel's operating expenses. Accordingly, the increase in fuel prices has to
date, and will continue to adversely affect World Fuel's customers.
Most of World Fuel's transactions are denominated in United States Dollars.
However, a rapid devaluation in currency affecting a customer of World Fuel
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 World Fuel.
World Fuel may also incur credit losses due to other causes, including
deteriorating conditions in the world economy, or in the aviation or shipping
industries. Any credit losses, if significant, will have a material adverse
effect on World Fuel's financial position and results of operations.
Senior Management. World Fuel's ability to maintain its competitive position is
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dependent largely on the services of its senior management team. World Fuel may
not be able to retain the existing senior management personnel, or to attract
qualified senior management personnel. World Fuel provides employment agreements
to its senior management with terms ranging from two to five years. The
employment agreements have non-compete provisions, which World Fuel believes
would prevent the individual from competing against World Fuel for the period of
the non-compete.
Revolving Line of Credit. World Fuel's revolving credit agreement imposes
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certain operating and financial restrictions, including limitations on the
amount of dividends that may be paid. World Fuel's failure to comply with the
obligations under the revolving credit agreement, including meeting certain
financial ratios, could result in an event of default. Such an event of default,
if not cured or waived, would permit acceleration of any outstanding
indebtedness under the revolving credit facility, or impair World Fuel's ability
to receive advances and may have a material adverse effect on World Fuel.
Market Risks. World Fuel is a provider of aviation fuel and related services
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primarily to secondary passenger and cargo airlines, and a provider of marine
fuel and related services to international container and tanker fleets, time
charter operators, and the U.S. military. World Fuel's fuel services are
provided through relationships with the large independent oil suppliers, as well
as government owned oil companies. World Fuel 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 may choose to
directly market to smaller airlines and shipping companies or to provide less
advantageous credit and price terms to World Fuel.
Competition. The Company is subject to aggressive competition in all areas of
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its business. The Company's competitors are numerous, ranging from large
multinational corporations to relatively small and specialized firms. The
Company competes primarily on the basis of credit, price, reliability, customer
service and support.
Page 3
Pollution and Third Party Liability. In the aviation and marine fuel segments,
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World Fuel 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. World Fuel is subject
to possible claims by customers, regulators and others who may be injured by a
spill or other accident. In addition, World Fuel may be held liable for damages
to the environment arising out of such events. Although World Fuel generally
requires its subcontractors to carry liability insurance, not all subcontractors
carry adequate insurance. World Fuel's liability insurance policy does not cover
the acts or omissions of its subcontractors. If World Fuel 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, World Fuel's financial position and results of operations will be
adversely affected. See "Item 3 - Legal Proceedings."
World Fuel has exited several businesses which handled hazardous and non-
hazardous waste. World Fuel treated and/or transported this waste to various
disposal facilities. World Fuel may be held liable as a potentially responsible
party for the clean-up of such disposal facilities, or be required to clean-up
facilities previously operated by World Fuel, in certain circumstances,
pursuant to current U.S. federal and state laws and regulations.
World Fuel continuously reviews the adequacy of its insurance coverage. However,
World Fuel lacks coverage for various risks. An uninsured claim arising out of
World Fuel's activities, if successful and of sufficient magnitude, will have a
material adverse effect on World Fuel's financial position and results of
operations.
Regulation
World Fuel's activities, including discontinued operations, are subject to
substantial regulation by federal, state and local government agencies, both in
and outside the United States, which enforce laws and regulations governing the
transportation, sale, storage and disposal of fuel and the collection,
transportation, processing, storage, use and disposal of hazardous substances
and wastes, including waste oil.
The principal laws and regulations affecting the business of World Fuel and the
markets it serves are as follows:
The Comprehensive Environmental Response, Compensation and Liability Act of 1980
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("Superfund" or "CERCLA") establishes a program for federally directed response
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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 U.S. federal government either to seek a
binding order directing responsible parties to undertake such actions or
authorizes the U.S. federal government to undertake such actions and then to
seek compensation for the cost of clean-up and other damages from potentially
responsible parties. U.S. Congress established a federally managed trust fund,
commonly known as the Superfund, to fund response and remedial actions
undertaken by the U.S. 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
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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 the environment. 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
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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 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.
The Clean Water Act of 1972, as amended in 1987, establishes water pollutant
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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.
Page 4
The Safe Drinking Water Act, as amended in 1986, regulates public water supplies
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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
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("MARPOL") places strict limitations on the discharge of oil at sea and in port
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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
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promulgated under the Clean Water Act, permits states to issue permits for the
discharge of pollutants into the waters of the United States in lieu of federal
EPA regulation. State programs must be consistent with minimum U.S. 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
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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
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EPA to enforce regulations promulgated under RCRA and other U.S. federal
programs. In addition, there are numerous state and local authorities that
regulate the environment, some of which impose stricter environmental standards
than U.S. federal laws and regulations. Some states, including Florida, have
enacted legislation which generally provides for registration, record keeping,
permitting, inspection, and reporting requirements for transporters, collectors
and recyclers of hazardous waste and waste oil. The penalties for violations of
state law include injunctive relief, recovery of damages for injury to air,
water or property and fines for non-compliance. In addition, some local
governments have established local pollution control programs, which include
environmental permitting, monitoring and surveillance, data collection and local
environmental studies.
Non U.S. Government Regulations. Many non-U.S. governments impose laws and
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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 World Fuel for damages, clean-up costs and penalties
for discharges of pollutants in the environment, as well as injunctive relief.
In addition, some non-U.S. government agencies have established pollution
control programs, which include environmental permitting, monitoring and
surveillance, data collection and environmental impact assessments.
U.S. Federal, State, and Non-U.S. Taxes on Fuel. World Fuel's aviation and
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marine fueling operations are affected by various U.S. 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 non-U.S.
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 World
Fuel sells aviation and marine fuel, impose excise and sales taxes on fuel
sales; certain sales of fuel by World Fuel qualify for full or partial
exemptions from these state taxes. Non-U.S. jurisdictions also impose certain
taxes on fuel, such as VAT and excise taxes. World Fuel continuously reviews its
compliance with U.S. and non-U.S. laws which impose taxes on World Fuel's
operations. Sales and excise taxes on fuel are generally added to the sales
price and passed on to World Fuel's customer. However, in certain cases World
Fuel may be responsible for these taxes, including cases where the customer
fails to reimburse World Fuel or where World Fuel or the customer does not
qualify for an exemption believed to be available at the time of the sale.
Page 5
ITEM 2. PROPERTIES
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The following pages set forth by segment and subsidiary the principal properties
owned or leased by World Fuel as of June 7, 2001. World Fuel considers its
properties and facilities to be suitable and adequate for its present needs.
WORLD FUEL SERVICES CORPORATION and SUBSIDIARIES
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PROPERTIES
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Owner/Lessee and Location Principal Use Owned or Leased
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Corporate
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World Fuel Services Corporation Executive and administrative Leased to October 2002
700 S. Royal Poinciana Blvd., Suite 800 offices
Miami Springs, FL 33166
200 Lanidex Plaza Administrative office Leased to September 2001
Parsippany, NJ 07054
Aviation Fuel Services
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World Fuel Services of FL Executive, administrative, Leased to October 2002
World Fuel Services, Inc. operations, and sales offices
700 S. Royal Poinciana Blvd., Suite 800
Miami Springs, FL 33166
4995 East Anderson Avenue Administrative, operations Leased month-to-month
Fresno, CA 93727 and sales offices
World Fuel International S.R.L. Administrative, operations Leased to April 2002
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 2007
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 2003
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)
Page 6
WORLD FUEL SERVICES CORPORATION and SUBSIDIARIES
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PROPERTIES
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(Continued)
Owner/Lessee and Location Principal Use Owned or Leased
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Marine Fuel Services
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Trans-Tec Services, Inc.
700 S. Royal Poinciana Blvd., Suite 800 Executive and administrative Leased to October 2002
Miami Springs, FL 33166 offices
Heights Plaza Administrative, operations Leased to October 2001
777 Terrace Ave., 5th Floor and sales offices
Hasbrouck Heights, NJ 07604
60 East Sir Francis Drake Blvd., Suite 301 Administrative, operations Leased to January 2004
Larkspur, CA 94939 and sales offices
2nd Floor Kipun Building Sales office Leased month-to-month
200 Naeja-Dong
Chongru-Ku
Seoul, South Korea
Seagram House, 2nd Floor Sales office Leased to March 2002
71 Dock Road, Waterfront
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 Sales office Leased month-to-month
Karise, Denmark 4653
Trans-Tec International S.R.L. Administrative, operations Leased to April 2002
Casa Petro S.A. and sales offices
Oficentro Ejecutivo La Sabana Sur
Edificio #5, Primer Piso
San Jose, Costa Rica
Trans-Tec Services (Singapore) PTE., Ltd. Administrative, operations Leased to June 2003
101 Thomson Road #09-03, United Square and sales offices
Singapore 307591
Trans-Tec Services (Japan) Co. K.K. Sales office Leased month-to-month
6th floor, Tozan Building, 4-4-2
Nihonbashi Hon-Cho, Chuo-Ku
Tokyo 103-0023, Japan
Pacific Horizon Petroleum Services, Inc. Administrative, operations Leased to December 2005
2025 First Ave., Suite 1110 and sales offices
Seattle, WA 98121
(Continued)
Page 7
WORLD FUEL SERVICES CORPORATION and SUBSIDIARIES
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PROPERTIES
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(Continued)
Owner/Lessee and Location Principal Use Owned or Leased
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Marine Fuel Services, Continued
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Bunkerfuels Corporation Administrative, operations Leased month-to-month
45 Wyckoff's Mills Road and sales offices
Cranbury, NJ 08512
700 Irwin St., Suite 202 Administrative, operations Leased to July 2001
San Rafael, CA 94901 and sales offices
Room 2504, Jangkyo Bldg., 1 Jangkyo-Dong Sales office Leased month-to-month
Seoul, Korea
Bunkerfuels UK Limited Administrative, operations Owned
8 City Business Centre, Lower Road and sales offices
Rotherhithe, London SE16 2XB United Kingdom
Norse Bunkers Administrative, operations Leased to February 2003
Niels Juels gate 11 B and sales offices
0272 Oslo, Norway
Marine Energy Arabia Sales office Leased to December 2001
City Tower 1
Dubai, United Arab Emirates
ITEM 3. LEGAL PROCEEDINGS
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In February and March 2000, two shareholders filed class action lawsuits against
World Fuel and four of its executive officers in the United States District
Court for the Southern District of Florida. The lawsuits were subsequently
consolidated. The lawsuit alleged violations of U.S. federal securities laws
and sought an unspecified amount of damages arising from the decrease in World
Fuel's stock price on January 31, 2000. In June 2000, the plaintiffs amended
their complaint to delete two of the claims made therein and to drop two of
World Fuel's officers as defendants. In December 2000, the United States
District Court of the Southern District of Florida dismissed the lawsuit filed
against World Fuel and its executive officers and in April 2001, the same Court
denied the plaintiffs' motion to alter and/or amend the case dismissal judgment.
In February 2000, World Fuel filed a lawsuit against American Home Assurance
Company ("AHAC"), a subsidiary of AIG, seeking recovery under World Fuel's
insurance policies for World Fuel's loss of product by theft off the coast of
Nigeria. Six of World Fuel's shipments of marine fuel, with a total value of
approximately $2,683,000, were diverted in the course of transshipment to
Nigeria, and were never received by World Fuel's intended customer. AHAC is
contesting World Fuel's insurance claim. World Fuel intends to vigorously
prosecute its action against AHAC.
In March 2001, World Fuel and EarthCare entered into a settlement agreement
which resolved their differences with respect to the sale of World Fuel's oil-
recycling segment, dismissed all pending proceedings and released each other
from other obligations arising from the sale. In connection with the settlement
agreement, World Fuel received a settlement payment of $1,750,000 in April 2001.
In addition, as part of the settlement agreement, Donald F. Moorehead, Jr.,
Chairman of EarthCare, agreed to purchase the EarthCare stock owned by World
Fuel for $4,979,000. On May 1, 2001, Mr. Moorehead defaulted on his agreement
to purchase those shares. World Fuel has commenced legal proceedings against
Mr. Moorehead to enforce his contract to purchase the EarthCare stock owned by
World Fuel.
In April 2001, Miami-Dade County in Florida (the "County") filed suit (the
"County Suit") against 17 defendants to seek reimbursement from such parties for
the cost of remediating environmental contamination at Miami International
Airport
Page 8
(the "Airport"). One of those defendants is Page Avjet Fuel Corporation, now
known as PAFCO L.L.C. ("PAFCO"). On or about December 31, 2000, World Fuel
acquired a 50% interest in PAFCO from Signature Flight Support Corporation
("Signature"). Pursuant to the acquisition agreement, dated December 22, 2000,
relating to the PAFCO transaction, Signature agreed to indemnify World Fuel for
all liabilities of PAFCO arising prior to the closing ("Closing") of World
Fuel's purchase of its interest in PAFCO. Because the Airport contamination
occurred prior to Closing, World Fuel believes that the County Suit is covered
by Signature's indemnification obligation. World Fuel has notified Signature of
the County Suit, as stipulated in the acquisition agreement. World Fuel expects
Signature to defend this claim on behalf of PAFCO and at Signature's expense.
On or about April 9, 2001, the County sent a letter to approximately 250
potentially responsible parties ("PRP's"), including World Fuel and a
subsidiary, advising them of their potential liability for the clean-up costs
which are the subject of the County Suit. The County has threatened to add the
PRP's as defendants in the County Suit, unless they agree to share in the cost
of the environmental clean-up at the Airport. On May 4, 2001, World Fuel advised
the County that: (1) neither World Fuel nor any of its subsidiaries were
responsible for any environmental contamination at the Airport, and (2) to the
extent World Fuel or any subsidiary was so responsible, their liability was
subject to indemnification by the County pursuant to the indemnity provisions
contained in the lease agreement with the County.
World Fuel intends to vigorously defend all claims asserted by the County
relating to environmental contamination at the Airport. World Fuel believes its
liability in these matters (if any) should be adequately covered by the
indemnification obligations of Signature as to PAFCO, and the County as to the
other World Fuel companies.
There can be no assurance that World Fuel will prevail on the above legal
proceedings and management cannot estimate the exposure or recovery to World
Fuel if it does not prevail. A ruling against World Fuel in any of the
proceedings described above may have a material adverse effect on World Fuel's
financial condition and results of operation. World Fuel is also involved in
litigation and administrative proceedings primarily arising in the normal course
of its business. In the opinion of management, except as set forth above, World
Fuel's liability, if any and except as set forth above, under any pending
litigation or administrative proceedings, will not materially affect its
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matter was submitted to a vote of shareholders, through the solicitation of
proxies or otherwise, during the fourth quarter of fiscal year 2001.
Page 9
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
World Fuel's common stock is traded on the New York Stock Exchange and the
Pacific Stock Exchange under the symbol INT. In May 2001, World Fuel's Board of
Directors approved a resolution to delist World Fuel from the Pacific Stock
Exchange. The following table sets forth, for each quarter within the fiscal
years ended March 31, 2001 and 2000, the closing sales prices of World Fuel'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.
Price Cash
------------------------ Dividends
High Low Per Share
------------------------ -------------
Year ended March 31, 2001
First quarter $ 8.88 $ 6.56 $0.05
Second quarter 9.44 7.38 0.05
Third quarter 8.13 6.19 0.05
Fourth quarter 9.70 7.38 0.05
Year ended March 31, 2000
First quarter $14.75 $10.75 $0.05
Second quarter 15.63 9.50 0.05
Third quarter 10.38 7.19 0.05
Fourth quarter 9.00 6.00 0.05
World Fuel's loan agreement with Bank of America restricts the payment of cash
dividends to a maximum of 25% of net income for the preceding four quarters.
For fiscal 2001, World Fuel's payment of the above dividends was in compliance
with the Bank of America loan agreement. For additional information, see Note 3
to the consolidated financial statements.
As of June 7, 2001, there were 276 shareholders of record for World Fuel's
common stock. On May 31, 2001, World Fuel's Board of Directors approved the
following cash dividend schedule for the 2002 fiscal year:
Declaration Date Per Share Record Date Payment Date
- ---------------- --------- ----------- ------------
May 31, 2001 * $0.175 June 15, 2001 July 3, 2001
August 31, 2001 $0.075 September 14, 2001 October 4, 2001
November 30, 2001 $0.075 December 14, 2001 January 3, 2002
March 1, 2002 $0.075 March 15, 2002 April 4, 2002
* Includes a $0.10 per share special cash dividend.
During fiscal 2000, World Fuel issued 1,500 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 exemptions from
registration afforded by section 4(2) of the Securities Act. During fiscal
2001, no shares of World Fuel's common stock were issued in connection with the
exercise of stock options.
During fiscal 2001 and 2000, World Fuel issued 2,500 and 2,000 shares,
respectively, of common stock to its non-employee directors pursuant to a stock
grant program whereby each non-employee director is given an annual stock grant
of 500 shares of World Fuel's common stock. In addition, during fiscal 2001,
the non-employee Chairman of the Audit and the Compensation Committees of the
Board of Directors received an additional stock grant of 1,000 shares of World
Fuel's common stock for additional services performed by the individual in his
capacity as Chairman of these two committees.
Page 10
World Fuel's Board of Directors, from time to time, has authorized certain stock
repurchase programs whereby World Fuel could repurchase World Fuel's common
stock, subject to certain restrictions pursuant to World Fuel's credit facility.
The Board of Directors resolved that the repurchased shares may be reissued for
any proper corporate purpose, without limitation and including future
acquisitions. The following summarizes the status of World Fuel's common stock
repurchase programs:
Repurchases Remaining
Authorized -------------------------------------------------- Authorized
Stock Aggregate Average Stock
Stock Repurchase Programs Repurchases Shares Cost Price Repurchases
---------------------------- ----------------- -------------- ----------------- --------------- --------------
August 1998 $ 6,000,000 616,000 $ 6,000,000 $9.74 $ -
January 2000 $10,000,000 1,391,000 $10,000,000 $7.19 $ -
September 2000 $10,000,000 109,000 $ 730,000 $6.70 $9,270,000
--------- -----------
2,116,000 $16,730,000
========= ===========
Pursuant to these programs, World Fuel repurchased 324,000 shares at an
aggregate cost of $3,902,000; 1,194,000 shares at an aggregate cost of
$8,423,000; and 598,000 shares at an aggregate cost of $4,404,000 during fiscal
1999, 2000, and 2001, respectively.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The following selected financial data has been summarized from World Fuel'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."
For the year ended March 31,
----------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------- ------------- ------------- ------------- -------------
(In thousands, except earnings per share data)
Consolidated Income Statement Data
- ----------------------------------
Revenue $1,529,242 $1,200,297 $720,561 $776,617 $749,706
Cost of sales 1,457,500 1,136,052 667,302 733,379 710,721
---------- ---------- -------- -------- --------
Gross profit 71,742 64,245 53,259 43,238 38,985
Operating expenses 57,590 57,327 38,198 28,455 27,877
---------- ---------- -------- -------- --------
Income from operations 14,152 6,918 15,061 14,783 11,108
Other income (expense) 2,191 (5,646) 1,539 2,260 2,245
---------- ---------- -------- -------- --------
Income from continuing operations before income taxes 16,343 1,272 16,600 17,043 13,353
Provision for income taxes 4,557 1,444 2,910 3,467 2,865
---------- ---------- -------- -------- --------
Income (loss) from continuing operations 11,786 (172) 13,690 13,576 10,488
Discontinued operations, net of tax:
Income from operations of oil-recycling segment - 1,564 1,417 2,277 2,777
(Loss) gain on sale of oil-recycling segment (1,152) 8,243 - - -
---------- ---------- -------- -------- --------
(Loss) income from discontinued operations (1,152) 9,807 1,417 2,277 2,777
---------- ---------- -------- -------- --------
Net income $ 10,634 $ 9,635 $ 15,107 $ 15,853 $ 13,265
========== ========== ======== ======== ========
(Continued)
Page 11
SELECTED FINANCIAL DATA
(Continued)
As of, for the year ended March 31,
-----------------------------------------------------------------------------
2001 2000 1999 1998 1997
-------------- ------------- ------------ ------------- -------------
(In thousands, except earnings per share data)
Consolidated Income Statement Data, Continued
- ---------------------------------------------
Basic earnings (loss) per share:
Continuing operations $ 1.11 $ (0.01) $ 1.11 $ 1.11 $ 0.87
Discontinued operations - 0.13 0.11 0.19 0.23
(Loss) gain on sale of discontinued operations (0.11) 0.68 - - -
-------- -------- -------- -------- --------
Net income $ 1.00 $ 0.80 $ 1.22 $ 1.30 $ 1.10
======== ======== ======== ======== ========
Weighted average shares - basic 10,644 12,045 12,375 12,230 12,068
======== ======== ======== ======== ========
Diluted earnings (loss) per share:
Continuing operations $ 1.11 $ (0.01) $ 1.10 $ 1.09 $ 0.85
Discontinued operations - 0.13 0.11 0.18 0.23
(Loss) gain on sale of discontinued operations (0.11) 0.68 - - -
-------- -------- -------- -------- --------
Net income $ 1.00 $ 0.80 $ 1.21 $ 1.27 $ 1.08
======== ======== ======== ======== ========
Weighted average shares - diluted 10,663 12,045 12,533 12,528 12,295
======== ======== ======== ======== ========
Consolidated Balance Sheet Data
- -------------------------------
Current assets $188,225 $196,409 $128,012 $107,755 $ 93,837
Total assets 222,165 227,915 164,394 141,213 121,354
Current liabilities 112,439 122,368 56,741 46,546 43,930
Long-term liabilities 5,866 5,886 6,856 2,756 2,166
Stockholders' equity 103,860 99,661 100,797 91,911 75,258
NOTES TO SELECTED FINANCIAL DATA
World Fuel declared and paid cash dividends beginning in fiscal 1995. See
"Item 5 - Market for Registrant's Common Equity and Related Stockholder
Matters."
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, were retroactively adjusted to reflect the effects of this split.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128").
World Fuel adopted this standard as of December 31, 1997. Earnings per share
information for fiscal 1997 was restated to conform to the requirements of SFAS
128.
Pursuant to various stock repurchase programs, World Fuel repurchased 324,000
shares at an aggregate cost of $3,902,000; 1,194,000 shares at an aggregate
cost of $8,423,000; and 598,000 shares at an aggregate cost of $4,404,000
during fiscal 1999, 2000, and 2001, respectively. See "Item 5 - Market for
Registrant's Common Equity and Related Stockholder Matters" for additional
information.
In February 2000, World Fuel sold its oil-recycling segment. Accordingly, as
of December 31, 1999, World Fuel reported its oil-recycling segment as a
discontinued operation. The consolidated financial statements of World Fuel
were reclassified to report separately the net assets and operating results of
the discontinued operation for all periods presented. Financial results for
periods prior to the dates of discontinuance have been reclassified to reflect
continuing operations.
Page 12
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.
Forward-looking Disclosure
- --------------------------
This document includes forward-looking statements. The words believes, intends,
expects, anticipates, projects, estimates, predicts, and similar expressions are
intended to identify forward-looking statements. Such statements, estimates, and
projections reflect various assumptions by World Fuel's management concerning
anticipated results, and are subject to significant business, economic and
competitive risks and contingencies, many of which are beyond management's
control. Factors that could cause results to differ include, but are 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 World Fuel's other Securities and Exchange Commission filings.
Actual results may differ materially from any forward-looking statements set
forth herein.
Results of Operations
- ---------------------
Profit from World Fuel's aviation fuel services business is directly related to
the volume and the gross profit achieved on sales, as well as the overall level
of operating expenses, which may be significantly affected to the extent that
World Fuel is required to provision for potential bad debts. Profit from World
Fuel's marine fuel services business is determined primarily by the volume and
commission rate of brokering business generated and by the volume and gross
profit achieved on trade sales, as well as the overall level of operating
expenses, which may be significantly affected to the extent that World Fuel is
required to provision for potential bad debts.
In April 1999, World Fuel acquired the operations of the Bunkerfuels group of
companies. Bunkerfuels forms part of World Fuel's worldwide marine fuel
marketing segment. In February 2000, World Fuel sold its oil-recycling segment
to EarthCare. World Fuel reported its oil-recycling segment as a discontinued
operation as of December 31, 1999. In October 2000, the aviation joint venture
in Ecuador ceased operations.
During fiscal 2000 and 2001, world oil prices continued to exhibit volatility
and have remained high. The increase in fuel prices has to date, and will
continue to adversely affect World Fuel's customers. World Fuel's profitability
during the comparable fiscal 2001 versus fiscal 2000 was favored by an
improvement in the gross profit per gallon in aviation, and metric ton in
marine, as well as a lower provision for bad debts. During the same comparable
periods, earnings were affected by a decline in overall volume principally in
aviation, and the severance expense related to the termination of the employment
agreement with World Fuel's former Chairman of the Board. The decline in
aviation volume reflects consolidation within the aviation industry, as well as
management's decision to refine its credit practices.
Fiscal Year Ended March 31, 2001 Compared to the Fiscal Year Ended March 31,
- ----------------------------------------------------------------------------
2000
- ----
World Fuel's revenue for fiscal 2001 was $1,529,242,000, an increase of
$328,945,000, or 27.4%, as compared to revenue of $1,200,297,000 for the prior
fiscal year. The revenue increase is due to a substantial increase in world oil
prices. World Fuel's revenue during these periods was attributable to the
following segments:
Fiscal Year Ended March 31,
2001 2000
-------------- --------------
Aviation Fueling $ 524,670,000 $ 461,740,000
Marine Fueling 1,004,572,000 738,557,000
-------------- --------------
Total Revenue $1,529,242,000 $1,200,297,000
============== ==============
Page 13
The aviation fueling segment contributed $524,670,000 in revenue for fiscal
2001. This represented an increase in revenue of $62,930,000, or 13.6%, as
compared to the prior fiscal year. The increase in revenue results from a 36.2%
increase in the average price per gallon sold, partially offset by a 16.6%
decrease in the volume of gallons sold. The marine fueling segment contributed
$1,004,572,000 in revenue for fiscal 2001, an increase of $266,015,000, or
36.0%, over the prior fiscal year. The increase in revenue for the marine
segment was related to 31.5% and 8% increases in the average price per metric
ton sold and brokered, respectively. Also contributing to the increase in
revenue for the marine segment was an increase in the volume of metric tons sold
of 3.8%.
World Fuel's gross profit of $71,742,000 for fiscal 2001 increased $7,497,000,
or 11.7%, as compared to the prior fiscal year. World Fuel's gross margin
decreased from 5.4% for fiscal 2000 to 4.7% for fiscal 2001. World Fuel's
aviation fueling business achieved a 6.6% gross margin for fiscal 2001, as
compared to 8.2% achieved for the prior fiscal year. This decrease resulted from
an increase in the average price per gallon sold, partially offset by an
increase in the average gross profit per gallon sold. World Fuel's marine
fueling segment achieved a 3.7% gross margin for fiscal 2001, as compared to a
3.6% gross margin for the prior fiscal year. The marine segment increased its
gross margin despite higher fuel prices, due to an increase in the average gross
profit per metric ton sold and brokered, the result of better pricing and
reduction in low margin business activity.
Total operating expenses for fiscal 2001 were $57,590,000, an increase of
$263,000, or 0.5%, as compared to the prior fiscal year. The increase resulted
from higher compensation, professional fees, and information technology
spending, and a $3,505,000 executive severance charge incurred in terminating
the employment agreement with World Fuel's former Chairman of the Board. Largely
offsetting was an $11,341,000 decrease in the provision for bad debts.
World Fuel's income from operations for fiscal 2001 was $14,152,000, an increase
of $7,234,000, or 104.6%, as compared to the prior fiscal year. Income from
operations during these periods was attributable to the following segments:
Fiscal Year Ended March 31,
2001 2000
------------ -----------
Aviation Fueling $ 11,790,000 $ 4,440,000
Marine Fueling 13,161,000 7,516,000
Corporate Overhead (10,799,000) (5,038,000)
------------ -----------
Total Income from Operations $ 14,152,000 $ 6,918,000
============ ===========
The aviation fueling segment's income from operations was $11,790,000 for fiscal
2001, an increase of $7,350,000, or 165.5%, as compared to the prior fiscal
year. This increase resulted from a decrease in the provision for bad debts and
an improvement in the gross profit per gallon sold; partially offset by a
decrease in gallons sold and an increase in compensation and other operating
expenses. The marine fueling segment earned $13,161,000 in income from
operations for fiscal 2001, an increase of $5,645,000, or 75.1%, as compared to
the prior fiscal year. The increase in the marine segment resulted from an
improved gross profit per metric ton on traded and brokered transactions and a
volume increase in metric tons sold. Partially offsetting was a volume decrease
in metric tons brokered and increases in operating expenses, including the
provision for bad debts. Corporate overhead costs not charged to the business
segments totaled $10,799,000 in fiscal 2001, an increase of $5,761,000, or
114.4%, as compared to the prior fiscal year. The increase resulted from an
executive severance charge incurred in terminating the employment agreement with
World Fuel's former Chairman of the Board, and higher compensation, professional
fees, and information technology spending.
During fiscal 2001, World Fuel reported $2,191,000 in other income, net,
compared to other expense, net, of $5,646,000, for the prior fiscal year. In
fiscal 2000, World Fuel recorded a $3,092,000 non-recurring charge in the marine
segment due to the theft of product in Nigeria, a $953,000 non-recurring charge
in the aviation segment related to a substantial write-down of World Fuel's
investment in and advances to its aviation joint venture in Ecuador, and a
$1,593,000 special charge to the provision for bad debts in World Fuel's
aviation joint venture in Ecuador related to certain customers based in Ecuador.
Also contributing to the variance were foreign exchange gains, increases in net
interest income of $1,240,000, and a recovery of $365,000 on the previously
provisioned write-down in World Fuel's aviation joint venture in Ecuador.
Page 14
Income taxes for fiscal 2001 reflect the impact of the executive severance and
the provision for bad debts, for which World Fuel received an income tax
benefit. Income taxes for fiscal 2000 reflect the impact of the provision for
bad debts and non-recurring losses in aviation and marine, for which World Fuel
did not receive an income tax benefit. Thus, World Fuel's effective income tax
rate for fiscal 2001 decreased substantially as compared to the prior fiscal
year.
Net income from continuing operations for fiscal 2001 was $11,786,000, as
compared to a net loss of $172,000 for the prior fiscal year. Diluted income per
share on income from continuing operations was $1.11 for fiscal 2001, as
compared to a loss per share of $0.01 in the prior year.
In fiscal 2001, World Fuel incurred a net loss from discontinued operations of
$1,152,000, or $0.11 per diluted share, as compared to net income of $9,807,000,
or $0.81 per diluted share, for the prior fiscal year. During fiscal 2001, World
Fuel recorded additional income taxes of $496,000 related to the gain on the
sale of the oil-recycling segment, and a $656,000 reduction of the amount of
assets World Fuel ultimately realized in connection with the discontinuance of
its used oil-recycling business.
Including discontinued operations, net income for fiscal 2001 was $10,634,000,
an increase of $999,000, or 10.4%, as compared to net income of $9,635,000 for
the prior fiscal year. Diluted earnings per share of $1.00 for fiscal 2001
increased $0.20, or 25.0%, over the $0.80 achieved during the prior fiscal year.
Fiscal Year Ended March 31, 2000 Compared to the Fiscal Year Ended March 31,
- ----------------------------------------------------------------------------
1999
- ----
World Fuel's revenue for fiscal 2000 was $1,200,297,000, an increase of
$479,736,000, or 66.6%, as compared to revenue of $720,561,000 for the prior
fiscal year. The revenue increase was due to a substantial increase in world oil
prices and the Bunkerfuels acquisition. World Fuel's revenue during these
periods was attributable to the following segments:
Fiscal Year Ended March 31,
2000 1999
-------------- ------------
Aviation Fueling $ 461,740,000 $327,844,000
Marine Fueling 738,557,000 392,717,000
-------------- ------------
Total Revenue $1,200,297,000 $720,561,000
============== ============
The aviation fueling segment contributed $461,740,000 in revenue for fiscal
2000. This represented an increase in revenue of $133,896,000, or 40.8%, as
compared to the prior fiscal year. The increase in revenue was due largely to an
increase in the average price per gallon sold. The marine fueling segment
contributed $738,557,000 in revenue for fiscal 2000, an increase of $345,840,000
over the prior fiscal year. The increase in revenue was mostly related to an
increase in the average price per metric ton sold and the acquisition of
Bunkerfuels.
World Fuel's gross profit for fiscal 2000 was $64,245,000, an increase of
$10,986,000, or 20.6%, as compared to the prior fiscal year. World Fuel's gross
margin decreased from 7.4% for fiscal 1999 to 5.4% for fiscal 2000, the result
of a substantial increase in the average price of fuel.
World Fuel's aviation fueling business achieved an 8.2% gross margin for fiscal
2000, as compared to 9.7% achieved for the prior fiscal year. This resulted from
an increase in the average price per gallon sold, partially offset by an
increase in the average gross profit per gallon sold. World Fuel's marine
fueling segment achieved a 3.6% gross margin for fiscal 2000, as compared to a
5.4% gross margin for the prior fiscal year. An increase in the average price
per metric ton traded, and a lower gross profit per metric ton sold and brokered
caused the margin reduction.
Total operating expenses for fiscal 2000 were $57,327,000, an increase of
$19,129,000, or 50.1%, as compared to the prior fiscal year. The increase was
mostly due to a $14,171,000 higher provision for bad debts principally
attributed to World Fuel's aviation segment, which included a $2,122,000 special
charge related to certain customers based in Ecuador. Also contributing to the
increase were the operating expenses associated with the Bunkerfuels operations
and the implemented financial systems.
Page 15
World Fuel's income from operations for fiscal 2000 was $6,918,000, a decrease
of $8,143,000, or 54.1%, as compared to the prior fiscal year. Income from
operations during these periods was attributable to the following segments:
Fiscal Year Ended March 31,
2000 1999
----------- -----------
Aviation Fueling $ 4,440,000 $13,331,000
Marine Fueling 7,516,000 7,515,000
Corporate Overhead (5,038,000) (5,785,000)
----------- -----------
Total Income from Operations $ 6,918,000 $15,061,000
=========== ===========
The aviation fueling segment's income from operations was $4,440,000 for fiscal
2000, a decrease of $8,891,000, or 66.7%, as compared to the prior fiscal year.
This resulted from an increase in the provision for bad debts, partially offset
by an increase in gross profit. The marine fueling segment earned $7,516,000 in
income from operations for fiscal 2000, consistent with the prior fiscal year. A
decrease in marine's core business was offset by the contribution of
Bunkerfuels. Corporate overhead costs not charged to the business segments
totaled $5,038,000 in fiscal 2000, a decrease of $747,000, or 12.9%, as compared
to the prior fiscal year. This decrease resulted from lower general and
administrative expenses.
During fiscal 2000, World Fuel reported $5,646,000 in other expense, net,
compared to other income, net, of $1,539,000, for fiscal 1999. This variance was
the result of the non-recurring charges in the aviation and marine segments, and
the special charge to the provision for bad debts in World Fuel's aviation joint
venture in Ecuador which were recorded during fiscal 2000. Also contributing to
the variance was an increase in interest expense due to borrowings on World
Fuel's line of credit prior to the closing of the sale of World Fuel's oil-
recycling segment in February 2000. The increase in fuel prices, the acquisition
of Bunkerfuels, World Fuel's stock repurchase program and the investment in
World Fuel's new financial system increased World Fuel's borrowing requirements.
World Fuel's effective income tax rate for fiscal 2000 increased substantially
because of the impact of the non-recurring charges and the special provisions
for bad debts, for which World Fuel did not receive a tax benefit.
The net loss from continuing operations for fiscal 2000 was $172,000, as
compared to net income from continuing operations of $13,690,000 for fiscal
1999. Loss per share on income from continuing operations was $0.01 for the year
ended March 31, 2000, as compared to $1.10 in diluted earnings per share
achieved during the same period of the prior year. In the aggregate, the product
theft in Nigeria, the write-down of World Fuel's investment in and advances to
its aviation joint venture in Ecuador, and the charges related to the Ecuador
based customers had a $0.54 impact on diluted earnings per share for fiscal
2000.
World Fuel's net income from discontinued operations for fiscal 2000 was
$9,807,000, or $0.81 per diluted share, as compared to $1,417,000, or $0.11 per
diluted share, for the prior fiscal year. Net income from discontinued
operations included $1,564,000 in income from operations of the oil-recycling
segment, and $8,243,000 for the gain on sale of the segment. The increase in the
market price of oil benefited the oil-recycling business, while operating
expenses increased modestly during the comparative periods.
Net income for fiscal 2000 was $9,635,000, a decrease of $5,472,000, or 36.2%,
as compared to net income of $15,107,000 for fiscal 1999. Diluted earnings per
share of $0.80 for fiscal 2000 exhibited a $0.41, or 33.9%, decrease over the
$1.21 achieved during the prior fiscal year.
Liquidity and Capital Resources
- -------------------------------
In World Fuel's aviation and marine fuel businesses, the primary use of working
capital is to finance receivables. World Fuel maintains aviation fuel
inventories at certain locations in the United States, mostly for competitive
reasons. World Fuel's aviation and marine fuel businesses historically have not
required significant capital investment in fixed assets as World Fuel
subcontracts fueling services and maintains inventories at third party storage
facilities.
Cash and cash equivalents amounted to $38,977,000 at March 31, 2001, as compared
to $32,773,000 at March 31, 2000. The principal source of cash during fiscal
2001 was $28,137,000 in net cash provided by continuing operating activities,
after deducting $4,522,000 for the payment of severance and deferred
compensation to World Fuel's former Chairman of the
Page 16
Board. Partially offsetting this cash source were net cash used in discontinued
operations of $9,813,000, which is primarily related to the payment of income
taxes associated with the gain on the sale of the oil-recycling business,
$4,404,000 for the purchase of treasury stock, $2,684,000 for capital
expenditures, $2,154,000 in dividends paid on common stock, and $2,860,000
related to the fiscal 2001 acquisitions made by World Fuel. Other components of
changes in cash and cash equivalents are detailed in the accompanying
Consolidated Statements of Cash Flows.
Working capital as of March 31, 2001 was $75,786,000, exhibiting a $1,745,000
increase compared to World Fuel's working capital as of March 31, 2000. As of
March 31, 2001, World Fuel's accounts receivable and notes receivable, excluding
the allowance for bad debts, and inventories, amounted to $142,039,000, a
decrease of $26,353,000 as compared to the March 31, 2000 balance. This decrease
is mostly related to the refinement of World Fuel's credit practices that
resulted in an overall improvement in Days Sales Outstanding, and improved
inventory management. In the aggregate, short-term debt, accounts payable,
accrued expenses, customer deposits, and accrued salaries and wages decreased
$3,593,000. The allowance for doubtful accounts as of March 31, 2001 amounted to
$11,167,000, a decrease of $4,035,000 compared to the March 31, 2000 balance.
During fiscal 2001 and 2000, World Fuel charged $7,909,000 and $19,250,000,
respectively, to the provision for bad debts and had charge-offs in excess of
recoveries of $11,944,000 and $10,757,000, respectively.
Capital expenditures of $2,684,000 for fiscal 2001 consisted primarily of
$1,421,000 for the purchase of computer equipment and $1,101,000 in computer
software development costs. Other assets increased by $1,423,000 as a result of
$4,462,000 in goodwill, related to the fiscal 2001 acquisitions, net of
amortization; partially offset by the reclassification of $522,000 of certain
notes receivable and $2,500,000 of EarthCare common stock, received by World
Fuel pursuant to the sale of the oil-recycling segment, to other current assets.
See Note 2 to the consolidated financial statements included in this report, and
"Item 3 - Legal Proceedings." Long-term liabilities of $5,866,000, as of March
31, 2001, included $3,050,000 in acquisition debt, $2,045,000 in deferred
compensation, and $663,000 in deferred income tax liabilities.
Stockholders' equity amounted to $103,860,000, or $9.98 per share, at March 31,
2001, compared to $99,661,000, or $9.06 per share, at March 31, 2000. This
increase of $4,199,000 was due to $10,634,000 in earnings for fiscal 2001,
partially offset by the declaration of dividends of $2,120,000 and purchases of
treasury stock of $4,404,000.
World Fuel expects to meet its working capital and capital expenditures
requirements for fiscal year 2002 from existing cash, operations and additional
borrowings, as necessary, under its existing credit facility. World Fuel's
business has been, and will continue to be affected by the increases in fuel
prices.
Page 17
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
World Fuel conducts the vast majority of its business transactions in U.S.
Dollars. However, in certain markets, primarily in Mexico, payments to its
aviation fuel supplier are denominated in local currency. This subjects World
Fuel to foreign currency exchange risk, which may adversely affect its results
of operations and financial condition. World Fuel seeks to minimize the risks
from currency exchange rate fluctuations through its regular operating and
financing activities.
World Fuel's borrowings pursuant to its 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. World
Fuel does not currently use, nor has it historically used, derivative financial
instruments to manage or reduce interest rate risk. See Note 3 to the
accompanying consolidated financial statements for additional information.
To take advantage of favorable market conditions or for competitive reasons,
World Fuel enters into short-term cancelable fuel purchase commitments for the
physical delivery of product in the United States. World Fuel simultaneously may
hedge the physical delivery through a commodity based derivative instrument, to
minimize the effects of commodity price fluctuations.
World Fuel offers swaps and caps to customers in the marine business as part of
its fuel management services. World Fuel simultaneously enters into a commodity
based derivative instrument with its customer and a counterparty. The
counterparties are major oil companies and derivative trading firms.
Accordingly, World Fuel does not anticipate non-performance by such
conterparties. Pursuant to these transactions, World Fuel is not affected by
market price fluctuations since the contracts have the same terms and conditions
except for the fee or spread earned by World Fuel. 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, 2001, World Fuel
had one outstanding swap contract for 45,000 metric tons expiring on December
31, 2001.
World Fuel's policy is to not use derivative 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 18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information concerning the directors and executive officers of World Fuel
set forth under the captions "Election of Directors" and "Information Concerning
Executive Officers", respectively, appearing in the definitive Proxy Statement
of World Fuel for its 2001 Annual Meeting of Shareholders (the "2001 Proxy
Statement"), is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information set forth in the 2001 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 Shareholders and Security
Ownership of Management" in the 2001 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 2001 Proxy Statement is incorporated herein by reference.
Page 19
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. 23
(ii) Consolidated Balance Sheets as of March 31, 2001 and 2000. 24
(iii) Consolidated Statements of Income for the Years Ended March 31, 2001, 2000 and 1999. 25
(iv) Consolidated Statements of Stockholders' Equity for the Years Ended
March 31, 2001, 2000 and 1999. 26
(v) Consolidated Statements of Cash Flows for the Years Ended March 31, 2001, 2000 and 1999. 27
(vi) Notes to the Consolidated Financial Statements. 29
(a)(2) The following consolidated financial statement schedule is filed as a part of this report:
(I) Schedule II - Valuation and Qualifying Accounts. 49
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 World
Fuel's Registration Statement on Form S-18 filed February 3,
1986.
(b) By-laws are incorporated by reference to World Fuel'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
World Fuel's Registration Statement on Form S-18 filed February
3, 1986.
(b) 1993 Non-Employee Directors Stock Option Plan is incorporated by
reference to World Fuel's Schedule 14A filed June 28, 1994.
(c) 1996 Employee Stock Option Plan is incorporated by reference to
World Fuel's Schedule 14A filed June 18, 1997.
Page 20
(10) Material contracts filed with this Form 10-K:
(a) Amendment to Employment Agreement with Mr. Jerrold Blair,
Chairman of the Board of Directors and Chief Executive Officer,
dated January 31, 2001, effective as of April 1, 2000.
(b) Amended and Restated Employment Agreement with Mr. Paul Stebbins,
President and Chief Operating Officer, dated January 3, 2001,
effective as of August 1, 2000.
(c) Amendment Agreement No. 2 to Revolving Credit and Reimbursement
Agreement, dated June 22, 2000, by and among World Fuel
Services Corporation, Trans-Tec International, S.A., and World
Fuel International, S.A., as borrowers, and Bank of America,
N.A., successor by merger of NationsBank, N.A.
(21) Subsidiaries of the Registrant.
(b) No reports on Form 8-K were filed during the fourth quarter of World Fuel's
fiscal year ended March 31, 2001.
Page 21
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 12, 2001 By: /S/ Paul H. Stebbins
------------------------
Paul H. Stebbins, Director, President, and
Chief Operating Officer
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 12, 2001 By: /S/ Jerrold Blair
-----------------
Jerrold Blair, Chairman of the Board
of Directors
and Chief Executive Officer
Dated: June 12, 2001 By: /S/ Paul H. Stebbins
--------------------
Paul H. Stebbins, Director, President, and
Chief Operating Officer
Dated: June 12, 2001 By: /S/ Carlos A. Abaunza
---------------------
Carlos A. Abaunza, Chief Financial Officer and
Treasurer (Principal Financial and Accounting
Officer)
Dated: June 12, 2001 By: /S/ Phillip S. Bradley
----------------------
Phillip S. Bradley, Director and Chief
Executive
Officer of Aviation Fuel Services
Dated: June 12, 2001 By: /S/ Michael J. Kasbar
---------------------
Michael J. Kasbar, Director and Chief Executive
Officer of Marine Fuel Services
Dated: June 12, 2001 By: /S/ John R. Benbow
------------------
John R. Benbow, Director
Dated: June 12, 2001 By: /S/ Ralph Feuerring
-------------------
Ralph Feuerring, Director
Dated: June 12, 2001 By: /S/ Myles Klein
---------------
Myles Klein, Director
Dated: June 12, 2001 By: /S/ Jerome Sidel
----------------
Jerome Sidel, Director
Dated: June 12, 2001 By: /S/ Luis R. Tinoco
------------------
Luis R. Tinoco, Director
Page 22
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,
2001 and 2000, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
2001. 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 auditing standards generally accepted
in the United States. 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 consolidated 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, 2001 and 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended March 31, 2001 in conformity with accounting principles generally accepted
in the United States.
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 the audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
/S/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Miami, Florida,
May 30, 2001.
Page 23
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
March 31,
---------------------------------
2001 2000
------------- -------------
ASSETS
-------
Current assets:
Cash and cash equivalents $ 38,977,000 $ 32,773,000
Accounts and notes receivable, net of allowance for bad debts of $11,167,000
and $15,202,000 at March 31, 2001 and 2000, respectively 125,863,000 142,250,000
Inventories 5,009,000 10,418,000
Prepaid expenses and other current assets 18,376,000 10,968,000
------------- -------------
Total current assets 188,225,000 196,409,000
------------- -------------
Property and equipment:
Leasehold and improvements 357,000 335,000
Office equipment, computer equipment and software 9,803,000 9,074,000
Computer software development in progress 1,101,000 -
------------- -------------
11,261,000 9,409,000
Less accumulated depreciation and amortization 5,130,000 4,289,000
------------- -------------
6,131,000 5,120,000
------------- -------------
Other assets:
Cost in excess of net assets of acquired companies, net of accumulated
amortization 24,598,000 23,040,000
Other 3,211,000 3,346,000
------------- -------------
$ 222,165,000 $ 227,915,000
============= =============
LIABILITIES
-----------
Current liabilities
Short-term debt $ 2,321,000 $ 17,000
Accounts payable 69,147,000 80,404,000
Accrued expenses 28,465,000 27,455,000
Customer deposits 5,781,000 3,017,000
Accrued salaries and wages 5,144,000 3,558,000
Income taxes payable 1,581,000 1,419,000
Net liabilities of discontinued operations - 6,498,000
------------- -------------
Total current liabilities 112,439,000 122,368,000
------------- -------------
Long-term liabilities 5,866,000 5,886,000
------------- -------------
118,305,000 128,254,000
------------- -------------
Commitments and contingencies (Note 6)
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, 12,541,000 and
12,537,000 shares issued and outstanding at March 31, 2001 and 2000,
respectively 125,000 125,000
Capital in excess of par value 26,889,000 26,800,000
Retained earnings 93,770,000 85,256,000
Less treasury stock, at cost; 2,138,000 and 1,540,000 shares at March 31,
2001 and 2000, respectively 16,924,000 12,520,000
------------- -------------
103,860,000 99,661,000
------------- -------------
$ 222,165,000 $ 227,915,000
============= =============
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated balance sheets.
Page 24
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
For the Year Ended March 31,
--------------------------------------------------------
2001 2000 1999
--------------- --------------- --------------
Revenue $ 1,529,242,000 $ 1,200,297,000 $ 720,561,000
Cost of sales 1,457,500,000 1,136,052,000 667,302,000
--------------- --------------- --------------
Gross profit 71,742,000 64,245,000 53,259,000
--------------- --------------- --------------
Operating expenses:
Salaries and wages 26,299,000 21,587,000 18,842,000
Executive severance charge 3,505,000 - -
Provision for bad debts 7,909,000 19,250,000 5,079,000
Other 19,877,000 16,490,000 14,277,000
--------------- --------------- --------------
57,590,000 57,327,000 38,198,000
--------------- --------------- --------------
Income from operations 14,152,000 6,918,000 15,061,000
--------------- --------------- --------------
Other income (expense), net:
Interest, net 1,617,000 377,000 1,601,000
Earnings (losses) from aviation joint ventures, net 24,000 (362,000) 199,000
Non-recurring credit (charge) in aviation and marine segment 365,000 (4,045,000) -
Special provision for bad debts in aviation joint venture
in Ecuador - (1,593,000) -
Other, net 185,000 (23,000) (261,000)
--------------- --------------- --------------
2,191,000 (5,646,000) 1,539,000
--------------- --------------- --------------
Income from continuing operations before income taxes 16,343,000 1,272,000 16,600,000
Provision for income taxes 4,557,000 1,444,000 2,910,000
--------------- --------------- --------------
Income (loss) from continuing operations 11,786,000 (172,000) 13,690,000
Discontinued operations, net of tax:
Income from operations of oil-recycling segment - 1,564,000 1,417,000
(Loss) gain on sale of oil-recycling segment (1,152,000) 8,243,000 -
--------------- --------------- --------------
(Loss) income from discontinued operations (1,152,000) 9,807,000 1,417,000
--------------- --------------- --------------
Net income $ 10,634,000 $ 9,635,000 $ 15,107,000
=============== =============== ==============
Basic earnings (loss) per share:
Continuing operations $ 1.11 $ (0.01) $ 1.11
Discontinued operations - 0.13 0.11
(Loss) gain on sale of discontinued operations (0.11) 0.68 -
--------------- --------------- --------------
Net income $ 1.00 $ 0.80 $ 1.22
=============== =============== ==============
Weighted average shares - basic 10,644,000 12,045,000 12,375,000
=============== =============== ==============
Diluted earnings (loss) per share:
Continuing operations $ 1.11 $ (0.01) $ 1.10
Discontinued operations - 0.13 0.11
(Loss) gain on sale of discontinued operations (0.11) 0.68 -
--------------- --------------- --------------
Net income $ 1.00 $ 0.80 $ 1.21
=============== =============== ==============
Weighted average shares - diluted 10,663,000 12,045,000 12,533,000
=============== =============== ==============
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated financial statements.
Page 25
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
------------------------------------------------
Common Stock Capital in Treasury Stock
------------------------ Excess of Retained -------------------------
Shares Amount Par Value Earnings Shares Amount Total
----------- ----------- -------------- -------------- ----------- -------------- ---------------
Balance at March 31, 1998 12,492,000 $ 125,000 $ 26,479,000 $ 65,364,000 11,000 $ (57,000) $ 91,911,000
Purchases of stock - - - - 324,000 (3,902,000) (3,902,000)
Cash dividends declared - - - (2,471,000) - - (2,471,000)
Other 42,000 - 290,000 - 11,000 (138,000) 152,000
Net income - - - 15,107,000 - - 15,107,000
---------- --------- ------------ ------------ --------- ------------- -------------
Balance at March 31, 1999 12,534,000 125,000 26,769,000 78,000,000 346,000 (4,097,000) 100,797,000
Purchases of stock - - - - 1,194,000 (8,423,000) (8,423,000)
Cash dividends declared - - - (2,379,000) - - (2,379,000)
Other 3,000 - 31,000 - - - 31,000
Net income - - - 9,635,000 - - 9,635,000
---------- --------- ------------ ------------ --------- ------------- -------------
Balance at March 31, 2000 12,537,000 125,000 26,800,000 85,256,000 1,540,000 (12,520,000) 99,661,000
Purchases of stock - - - - 598,000 (4,404,000) (4,404,000)
Cash dividends declared - - - (2,120,000) - - (2,120,000)
Other 4,000 - 89,000 - - - 89,000
Net income - - - 10,634,000 - - 10,634,000
---------- --------- ------------ ------------ --------- ------------- -------------
Balance at March 31, 2001 12,541,000 $ 125,000 $ 26,889,000 $ 93,770,000 2,138,000 $ (16,924,000) $ 103,860,000
========== ========= ============ ============ ========= ============= =============
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated financial statements.
Page 26
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
For the Year Ended March 31,
--------------------------------------------------------
2001 2000 1999
------------------ ----------------- -----------------
Cash flows from continuing operating activities:
Income (loss) from continuing operations $ 11,786,000 $ (172,000) $ 13,690,000
-------------- -------------- ----------------
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by continuing operating
activities -
Provision for bad debts 7,909,000 19,250,000 5,079,000
Depreciation and amortization 2,350,000 2,430,000 1,703,000
Deferred income tax benefit (743,000) (2,762,000) (889,000)
(Earnings) losses from aviation joint ventures, net (24,000) 1,955,000 (199,000)
Non-recurring (credit) charge in aviation and marine segment (365,000) 4,045,000 -
Other non-cash operating charges (credits) 155,000 21,000 (7,000)
Changes in assets and liabilities, net of acquisitions
and dispositions:
Accounts and notes receivable 9,000,000 (68,174,000) (20,728,000)
Inventories 5,409,000 (5,100,000) (605,000)
Prepaid expenses and other current assets (1,106,000) 1,348,000 (1,302,000)
Other assets 347,000 50,000 483,000
Accounts payable and accrued expenses (10,213,000) 57,589,000 8,917,000
Customer deposits 2,764,000 (1,057,000) 1,538,000
Accrued salaries and wages 1,586,000 9,000 516,000
Income taxes payable 162,000 (233,000) (764,000)
Deferred compensation (880,000) 77,000 126,000
-------------- -------------- --------------
Total adjustments 16,351,000 9,448,000 (6,132,000)
-------------- -------------- --------------
Net cash provided by continuing operating activities 28,137,000 9,276,000 7,558,000
-------------- -------------- --------------
Cash flows from investing activities:
Capital expenditures (2,684,000) (1,860,000) (3,451,000)
Payment for acquisition of businesses, net of cash acquired (1,824,000) (4,184,000) -
Investment in aviation joint venture (1,036,000) - -
Proceeds from the sale of oil-recycling segment - 28,000,000 -
(Advances to) repayment from aviation joint venture, net - (409,000) 77,000
-------------- -------------- --------------
Net cash (used in) provided by investing activities (5,544,000) 21,547,000 (3,374,000)
-------------- -------------- --------------
Cash flows from financing activities:
Dividends paid on common stock (2,154,000) (2,434,000) (2,486,000)
Purchases of treasury stock (4,404,000) (8,423,000) (3,902,000)
Repayment of debt (18,000) (1,456,000) (23,000)
(Payments) borrowings under revolving credit facility, net - (4,000,000) 4,000,000
Proceeds from issuance of common stock - 10,000 297,000
-------------- -------------- --------------
Net cash used in financing activities (6,576,000) (16,303,000) (2,114,000)
-------------- -------------- --------------
Discontinued operations (9,813,000) 1,726,000 (222,000)
-------------- -------------- --------------
Net increase in cash and cash equivalents 6,204,000 16,246,000 1,848,000
Cash and cash equivalents, at beginning of period 32,773,000 16,527,000 14,679,000
-------------- -------------- --------------
Cash and cash equivalents, at end of period $ 38,977,000 $ 32,773,000 $ 16,527,000
============== ============== ==============
(Continued)
Page 27
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Continued)
For the Year Ended March 31,
----------------------------------------------------
2001 2000 1999
-------------- -------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 254,000 $ 838,000 $ 257,000
============= ============= ============
Income taxes $ 14,752,000 $ 4,280,000 $ 5,088,000
============= ============= ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Cash dividends declared, but not yet paid, totaling $520,000, $554,000 and
$609,000 are included in accrued expenses as of March 31, 2001, 2000 and
1999, respectively.
In connection with the sale of the oil-recycling segment in February 2000,
World Fuel Services Corporation (the "Company") received $5,000,000 of
EarthCare Company ("EarthCare") stock, subject to lock-up and price
protection agreements. Pursuant to these agreements, half of the EarthCare
stock could be sold after February 15, 2001, and the balance could be sold
after August 15, 2001. As of March 31, 2000, the Company recorded the
EarthCare stock as an investment. The current portion of $2,500,000 was
included in Prepaid expenses and other current assets and the long-term
portion of $2,500,000 was included in Other assets. In March 2001, as part
of the settlement agreement between the Company, EarthCare, and Donald F.
Moorehead, Jr., Chairman of EarthCare, Mr. Moorehead agreed to purchase the
EarthCare stock owned by the Company for $4,979,000, representing the
balance after deducting $21,000 received by the Company on a previous sale
of 10,000 shares of EarthCare stock. As of March 31, 2001, the payment due
from Mr. Moorehead is included in Prepaid expenses and other current
assets. For additional information, see Note 2 and 6 in the Notes to the
consolidated financial statements.
In connection with the April 1999 acquisition of the Bunkerfuels group of
companies, the Company issued 7 3/4% promissory notes totaling $4,250,000,
payable over three years. See Notes 1 and 3, in the Notes to the
consolidated financial statements, for additional information.
In connection with the December 2000 joint venture agreement for PAFCO,
L.L.C., the Company issued a non-interest bearing promissory note of
$2,500,000, payable over five years. See Notes 1, 3 and 7, in the Notes to
the consolidated financial statements, for additional information.
In connection with the February 2001 acquisition of certain assets of Norse
Bunker A.S., the Company issued a 7% promissory note of $540,000, payable
in one year. See Notes 1 and 3, in the Notes to the consolidated financial
statements, for additional information.
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated financial statements.
Page 28
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------------------
Organization and Nature of Acquisitions
- ---------------------------------------
World Fuel Services Corporation began operations in 1984 as a used oil-recycler
in the southeast United States. However, after sixteen years, the Company sold
its oil-recycling business in February 2000. 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 Florida, to an international sales company covering airports
throughout most of the world through acquisitions and the establishment of new
offices. In 1995, the Company further diversified its fuel services operations
by entering the marine fuel services business through the acquisition of the
Trans-Tec Services group of companies.
In April 1999, the Company continued the expansion of its global presence in the
marine fuel services business by acquiring the operations of the Bunkerfuels
group of companies. The acquisition was accounted for as a purchase.
Accordingly, the results of operations of the Bunkerfuels group of companies are
included with the results of the Company from April 1, 1999. The Company paid
approximately $4,184,000 in cash, $4,250,000 in the form of 7 3/4% promissory
notes, payable over three years, of which $1,410,000 was paid in March 2000 and
$1,403,000 was paid in April 2001, and $197,000 in short term payables, which
were paid to the sellers at closing. The outstanding balance of the promissory
notes is collateralized by outstanding letters of credit. The cost in excess of
net assets acquired amounted to approximately $8,520,000, including an estimated
$78,000 in acquisition costs, and is being amortized over 35 years using the
straight-line method. No other significant intangible assets existed at the date
of acquisition.
In December 2000, the Company entered into a joint venture agreement with
Signature Flight Support Corporation ("Signature"), a Delaware corporation,
through the acquisition of a 50% equity interest in PAFCO, L.L.C. ("PAFCO") from
Signature for $1,000,000 in cash, and $2,500,000 in the form of a non-interest
bearing promissory note, payable over five years. PAFCO markets aviation fuel
and related services. Under the equity method of accounting, the Company has
recorded its share of PAFCO's results since January 1, 2001. The investment cost
in excess of 50% of the net assets of PAFCO amounted to $2,978,000, after
discounting the promissory note at 9% and including an estimated $36,000 in
acquisition costs. The investment cost is being amortized over 10 years using
the straight-line method. No other significant intangible assets existed at the
date of acquisition. See Note 7 for additional information.
In February 2001 and March 2001, the Company acquired Norse Bunker A.S., a
Norway corporation, and TransportEdge, Inc., a Delaware corporation,
respectively, for an aggregate purchase price of approximately $2,364,000,
including an estimated $64,000 in acquisition costs. These acquisitions were
accounted for as purchases. Accordingly, the operations of these acquisitions
have been included in the results of the Company since their respective dates of
acquisition. The cost in excess of net assets acquired, or goodwill, for these
acquisitions amounted to approximately $2,364,000. The goodwill is being
amortized over 20 years for Norse Bunker A.S., a marine fuel marketer, and 7
years for TransportEdge, Inc., a software development company, using the
straight-line method. No other significant intangible assets existed at the
dates of these acquisitions. Subsequent to March 31, 2001, the Company made
another acquisition for approximately $5,000,000, and this acquisition will be
accounted for as a purchase.
Basis of Consolidation
- ----------------------
The accompanying consolidated financial statements and related notes to the
consolidated financial statements include the accounts of the Company and its
majority owned or controlled subsidiaries, after elimination of all significant
intercompany accounts, transactions, and profits. Investments in non-majority
controlled subsidiaries representing ownership of at least 20%, but less than
50%, are accounted for under the equity method. Accordingly, the Company uses
the equity method of accounting to record its share of the earnings and losses
of its aviation joint ventures.
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
interest earning cash and cash equivalents amounted to $37,398,000 and
$31,212,000 at March 31, 2001 and 2000, respectively, consisting principally of
bank repurchase agreements collateralized by the United
Page 29
States Government, bank money market accounts, and commercial paper rated A1P1.
Interest income, included in Interest, net, in the accompanying Consolidated
Statements of Income, totaled $1,965,000, $1,330,000 and $1,851,000 for the
years ended March 31, 2001, 2000 and 1999, respectively.
Inventories
- -----------
Inventories are stated at the lower of cost (principally, first-in, first-out)
or market. Components of inventory cost include fuel purchase costs, and the
related transportation costs and storage fees. Also included in inventories are
costs not yet billed, consistent with the Company's revenue recognition
policies.
Property and Equipment
- ----------------------
Property 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
----------
Leasehold and improvements 10
Office equipment, computer equipment and software 3 - 8
Costs of major additions and improvements, including appropriate interest, are
capitalized and expenditures for maintenance and repairs which do not extend the
life of the asset are expensed. Upon sale or disposition of property 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. Long-lived assets held and used by the Company are reviewed
based on market factors and operational considerations for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.
Computer software costs are accounted for under Statement of Position ("SOP")
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 established criteria for determining which costs of
developing or obtaining internal-use computer software should be charged to
expense and which should be capitalized. In March 2000, the Emerging Issues Task
Force ("EITF") reached a consensus on Issue No. 00-2, "Accounting for Web Site
Development Costs", which applies to all web site development costs incurred for
quarters beginning after June 30, 2000. The consensus states that the accounting
for specific web site development costs should be based on a model consistent
with SOP 98-1. As of March 31, 2001 and 2000, capitalized computer software
costs, including web site development costs, amounted to $2,605,000 and
$2,791,000, net of accumulated amortization of $1,099,000 and $522,000,
respectively, and were included in Office equipment, computer equipment and
software in the accompanying Consolidated Balance Sheets. In addition, as of
March 31, 2001, capitalized computer software development costs in progress,
including web site development cost, amounted to $1,101,000.
Cost in Excess of Net Assets of Acquired Companies
- --------------------------------------------------
Cost in excess of net assets of acquired companies is being amortized over 7-40
years using the straight-line method. For the years ended March 31, 2001, 2000,
and 1999, the Company recorded amortization expense of $750,000, $730,000, and
$481,000, respectively. As of March 31, 2001 and 2000, accumulated amortization
amounted to $3,490,000 and $2,740,000, 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 each
business segment, 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
based on the amount, if any, by which the carrying value exceeds fair value.
Revenue Recognition
- -------------------
Revenue is generally recorded in the period when the sale is made or as the
services are performed. The Company contracts with third parties to provide the
fuel and/or delivery of most services. This causes delays in receiving the
necessary information for invoicing. Accordingly, revenue may be recognized in a
period subsequent to when the actual delivery of
Page 30
fuel or service was performed. This policy does not result in reported results
that are materially different than if the revenue were recognized in the period
of actual performance.
In December 1999, the staff of the Securities and Exchange Commission (the
"SEC") published Staff Accounting Bulletin 101, "Topic 13: Revenue Recognition,"
("SAB 101") to provide guidance on the recognition, presentation and disclosure
of revenue in financial statements. SAB 101 also provides guidance on
disclosures that should be made for revenue recognition policies and the impact
of events and trends on revenue. The Company adopted SAB 101, effective June 30,
2000, as required. The implementation of SAB 101 did not have a material effect
on the Company's financial position or results of operations.
Accounting for Derivatives
- --------------------------
Premiums received or paid for fuel price cap agreements are amortized to premium
revenue and expense, respectively, over the term of the caps. Unamortized
premiums are included in 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.
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," and SFAS No. 138, "Accounting
for Derivative Instruments and Certain Hedging Activities-an amendment of FASB
Statement No. 133," are effective for the Company's fiscal year ending March 31,
2002. SFAS No. 133, as amended, establishes accounting and reporting standards
requiring that qualifying derivative instruments (including certain derivative
instruments embedded in other contracts) be recorded on the balance sheet as
either an asset or a liability measured at its fair value. Adoption of SFAS No.
133, as amended, is not expected to have a material effect on its financial
position or results of operations.
Income Taxes
- ------------
The Company and its U.S. subsidiaries file a consolidated U.S. federal income
tax return. The Company's non-U.S. subsidiaries file income tax returns in their
respective countries of incorporation, where applicable. The Company provides
for deferred income taxes on temporary differences arising from assets and
liabilities whose basis are different for financial reporting and U.S. federal,
state and non-U.S. income tax purposes. A valuation allowance is recorded to
reduce deferred income tax assets when it is more likely than not that an income
tax benefit will not be realized. For the periods herein presented, no valuation
allowance was recorded.
Foreign Currency Translation
- ----------------------------
The Company's primary functional currency is the U.S. Dollar, which also serves
as its reporting currency. Most non-U.S. 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. For the fiscal years ended
March 31, 2001, 2000, and 1999, the Company recorded net foreign currency
translation losses, which are included in Other, net, of $127,000, $428,000, and
$167,000, respectively, relating to the translation of non-U.S. entities'
assets, liabilities, income, and expense.
Some of the Company's purchases, from certain aviation fuel suppliers, are
denominated in local currency. Foreign currency exchange gains and losses on
transactions are included in Other, net, in the period incurred, and amounted to
a net gain of $376,000 and $312,000 for the years ended March 31, 2001 and 2000,
respectively, and a net loss of $89,000 for the year ended March 31, 1999.
Earnings Per Share
- ------------------
Basic earnings per share is computed based on the weighted average number of
common shares outstanding. Diluted earnings per 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 non-employee stock options
and warrants. The Company's net income is the same for basic and diluted
earnings per share calculations.
Page 31
The Company had approximately 1,226,000, 1,088,000, and 406,000 options and
warrants outstanding for the fiscal years ended March 31, 2001, 2000, and 1999,
respectively, which were not included in the calculation of diluted earnings per
share because their impact was antidilutive.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
Cash and cash equivalents, accounts and notes receivable, net, and accounts
payable 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, 2001, the carrying value of the long-term
debt approximated the fair value of such instruments.
Comprehensive Income
- ---------------------
Effective April 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". 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 significant
items of other comprehensive income, and, thus, net income is equal to
comprehensive income for all periods presented.
Reclassifications
- -----------------
Certain prior year amounts have been reclassified to conform to the fiscal 2001
presentation.
(2) DISCONTINUED OPERATIONS
- ------------------------------
In January 2000, the Company's Board of Directors authorized the sale of its
oil-recycling segment. Accordingly, as of December 31, 1999, the Company
reported its oil-recycling segment as a discontinued operation. The consolidated
financial statements of the Company from prior to December 31, 1999 have been
reclassified to report separately the net assets and operating results of the
discontinued operation for all periods presented. Financial results for periods
prior to the dates of discontinuance have been reclassified to reflect
continuing operations.
In February 2000, the Company sold the stock of its oil-recycling subsidiaries,
the International Petroleum Corporation group ("IPC"), to EarthCare Company.
Pursuant to the stock purchase agreement between the parties, the Company
received $28,000,000 in cash and $5,000,000 in EarthCare common stock, subject
to lock-up and price protection agreements. In addition to the $33 million
purchase price, after the sale, EarthCare was to pay the Company the value of
certain assets employed in the oil-recycling business through the collection of
the Company's accounts receivable by EarthCare and the sale of inventory,
prepaids and other assets to EarthCare. EarthCare failed to pay the Company the
amounts due after closing of the sale, and the Company commenced legal
proceedings to collect these amounts.
Page 32
In March 2001, the Company entered into a settlement agreement with EarthCare
(the "Settlement Agreement") which dismissed the pending proceedings. Pursuant
to this settlement, in April 2001, the Company received $1,750,000 from
EarthCare, in settlement of amounts due to the Company. The Settlement Agreement
also released the Company from all indemnifications previously provided to
EarthCare, including environmental indemnifications, as stated in the original
purchase agreement for the IPC companies. The settlement resulted in a reduction
in the amount of assets the Company ultimately realized in connection with the
discontinuance of its used oil-recycling business. Accordingly, this was
reflected in a non-recurring after-tax charge of $656,000 to the Company's
discontinued operations for the year ended March 31, 2001. The Company also
recorded additional income taxes of $496,000 in discontinued operations based on
the actual fiscal 2000 income tax returns filed. As of March 31, 2001, the
$1,750,000 settlement is included in Prepaid expenses and other current assets
in the accompanying Consolidated Balance Sheets.
As part of the Settlement Agreement, Donald F. Moorehead, Jr., Chairman of
EarthCare, agreed to purchase the EarthCare stock owned by the Company for
$4,979,000, representing the balance after deducting $21,000 received by the
Company from a previous sale of 10,000 shares of EarthCare stock. On May 1,
2001, Mr. Moorehead defaulted on his agreement to purchase those shares. The
Company has commenced legal proceedings against Mr. Moorehead to enforce his
contract to purchase the EarthCare stock owned by the Company. The Company
believes it will recover the full amount due under the contract. See Note 6,
Commitments and Contingencies - Legal Matters. As of March 31, 2001, the payment
due from Mr. Moorehead is included in Prepaid expenses and other current assets
in the accompanying Consolidated Balance Sheets. As of March 31, 2000, the
Company recorded the EarthCare stock as an investment. Pursuant to the lock-up
and price protection agreements, half of the EarthCare stock could be sold
after February 15, 2001, and the balance could be sold after August 15, 2001.
Accordingly , the current portion, or $2,500,000 was included in Prepaid
expenses and other current assets and the long-term portion, or $2,500,000 was
included in Other assets in the accompanying Consolidated Balance Sheets.
During fiscal 2000, the Company recognized net income of $9,807,000 on the
disposal of its oil-recycling segment. Net income from discontinued operations
included $1,564,000, net of $980,000 in taxes, for the oil-recycling segment
operating income for the ten months ended January 31, 2000, the measurement
date, and $8,243,000, net of $5,218,000 in taxes and $92,000 in provision for
certain costs during the phase-out period, for the gain on sale of the segment.
At March 31, 2000, the Company reported current net liabilities of discontinued
operations of $6,498,000, which consisted of $9,168,000 in income taxes payable,
partially offset by $2,670,000 of current net assets of discontinued operations.
Revenue applicable to the discontinued operations was $22,462,000 and
$23,621,000 for fiscal 2000 and 1999, respectively. Income from operations of
the discontinued operations for the years ended March 31, 2000 and 1999, was
$2,537,000 and $2,337,000, respectively.
(3) DEBT OBLIGATIONS
- -------------------------
Short-term debt consisted of the following at March 31:
2001 2000
----------------- -----------------
7.00% promissory note issued in connection with business acquisition,
payable on February 12, 2002 $ 540,000 $ -
Current maturities of long-term debt 1,781,000 17,000
----------------- -----------------
Total short-term debt $ 2,321,000 $ 17,000
================= =================
Page 33
Long-term debt consisted of the following at March 31:
2001 2000
----------------- -----------------
Promissory notes issued in connection with business acquisitions:
7.75% promissory note, payable annually through April 2, 2002, secured
by letters of credit $ 2,832,000 $ 2,840,000
Non-interest bearing promissory note of $2,500,000, payable annually through
January 5, 2006, net of unamortized imputed discount (at 9%) of $513,000 at
March 31, 2001 1,987,000 -
Other 120,000 138,000
-------------- ---------------
Long-term debt 4,939,000 2,978,000
Less current maturities of long-term debt (1,781,000) (17,000)
-------------- --------------
Total long-term debt $ 3,158,000 $ 2,961,000
============== ==============
The Company has a $30,000,000 unsecured revolving credit facility with a
sublimit of $15,000,000 for letters of credit. Approximately $10,658,000 in
letters of credit were outstanding under the credit facility as of March 31,
2001. Any outstanding principal and interest matures on November 29, 2003. The
revolving credit facility bears interest at market rates, as defined under the
credit facility. Interest is payable quarterly in arrears. The credit facility
imposes certain operating and financial restrictions. The Company's failure to
comply with the obligations under the revolving credit facility, 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 any outstanding
indebtedness under the credit facility, or impair the Company's ability to
receive advances. The Company also had a $10,000,000, 364-day unsecured
revolving credit facility which matured on April 7, 2001. There were no
outstanding principal balances on the credit facilities at March 31, 2001. As of
March 31, 2001, the Company was in compliance with the operating and financial
requirements under the credit facilities.
Aggregate annual maturities of long-term debt as of March 31, 2001, are as
follows:
Fiscal year ending March 31,
----------------------------
2002 $ 1,781,000
2003 1,796,000
2004 398,000
2005 433,000
2006 471,000
Thereafter 60,000
------------
$ 4,939,000
============
Interest expense, which is included in Interest, net, in the accompanying
Consolidated Statements of Income, is as follows for the years ended March 31:
2001 2000 1999
-------------- -------------- ---------------
Interest cost $ 377,000 $ 953,000 $ 325,000
Less capitalized interest on capital expenditures 29,000 - 76,000
------------- ------------- --------------
Interest expense $ 348,000 $ 953,000 $ 249,000
============= ============= ==============
Page 34
(4) INCOME TAXES
- -------------------
United States and non-U.S. income (loss) from continuing operations before
income taxes, based on the country of incorporation of the Company and its
subsidiaries, consist of the following for the years ended March 31:
2001 2000 1999
--------------- --------------- -------------
United States $ (5,014,000) $ (1,769,000) $ 902,000
Non-U.S. 21,357,000 3,041,000 15,698,000
--------------- --------------- -------------
$ 16,343,000 $ 1,272,000 $ 16,600,000
=============== =============== =============
The provision (benefit) for income taxes related to continuing operations
consist of the following components for the years ended March 31:
2001 2000 1999
----------- ----------- -----------
Current:
U.S. federal $ 106,000 $ 584,000 $ 549,000
State (99,000) (386,000) 283,000
Non-U.S. 5,293,000 4,008,000 2,967,000
----------- ----------- -----------
5,300,000 4,206,000 3,799,000
----------- ----------- -----------
Deferred:
U.S. federal (1,109,000) (479,000) (749,000)
State 233,000 (139,000) (80,000)
Non-U.S. 133,000 (2,144,000) (60,000)
----------- ----------- -----------
(743,000) (2,762,000) (889,000)
----------- ----------- -----------
Total $ 4,557,000 $ 1,444,000 $ 2,910,000
=========== =========== ===========
The difference between the reported income tax provision and the provision
computed by applying the statutory U.S. federal income tax rate currently in
effect to income from continuing operations before income taxes for each of the
three years ended March 31, 2001, is primarily due to state income taxes and the
effect of non-U.S. income tax rates and foreign tax credits.
The Company's share of undistributed earnings of non-U.S. 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
$39,505,000 and $41,187,000 at March 31, 2001 and 2000, 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.
During fiscal 2001, the Company's non-U.S. subsidiaries remitted $21,500,000 of
earnings to the Company. The distribution of these earnings did not result in
any significant additional U.S. federal income taxes for the year ended March
31, 2001 due to foreign income tax credits and previously provided U.S. federal
income taxes.
Page 35
The temporary differences which comprise the Company's net deferred income tax
assets are as follows:
March 31,
----------------------------------
2001 2000
-------------- -------------
Excess of provision for bad debts over charge-offs $ 4,330,000 $ 4,921,000
Accrued expenses recognized for financial reporting
purposes, not currently tax deductible 1,005,000 1,090,000
Excess of tax over financial reporting amortization
of identifiable intangibles (963,000) (657,000)
Foreign income tax credits 2,491,000 -
Other, net (481,000) (128,000)
------------ ------------
Total deferred income tax assets, net $ 6,382,000 $ 5,226,000
============ ============
Deferred income tax assets, current $ 7,045,000 $ 4,993,000
============ ============
Deferred income tax assets, non-current $ - $ 233,000
============ ============
Deferred income tax liabilities, non-current $ 663,000 $ -
============ ============
The deferred current and non-current income tax assets, and deferred non-current
income tax liabilities are included in Prepaid expenses and other current
assets, Other assets, and Long-term liabilities in the accompanying Consolidated
Balance Sheets, respectively. The Company's foreign income tax credits will
expire after fiscal 2006.
During fiscal 2000, the Internal Revenue Service commenced an examination of the
Company's consolidated U.S. Federal Income Tax returns for the fiscal years
ended March 31, 1999 and 1998. The Company does not anticipate that the results
of such examination will have a material adverse impact on its result of
operations or financial position.
(5) STOCKHOLDERS' EQUITY
- ---------------------------
Treasury Stock
- --------------
The Company's Board of Directors, from time to time, has authorized certain
stock repurchase programs whereby the Company could repurchase the Company's
common stock, subject to certain restrictions pursuant to the Company's credit
facility. The Board of Directors resolved that the repurchased shares may be
reissued for any proper corporate purpose, without limitation and including
future acquisitions. The following summarizes the status of the Company's
common stock repurchase programs:
Repurchases Remaining
Authorized ----------------------------------------------- Authorized
Stock Aggregate Average Stock
Stock Repurchase Programs Repurchases Shares Cost Price Repurchases
----------------------------- ---------------- -------------- -------------- ------------ ---------------
August 1998 $ 6,000,000 616,000 $ 6,000,000 $ 9.74 $ -
January 2000 $10,000,000 1,391,000 $ 10,000,000 $ 7.19 $ -
September 2000 $10,000,000 109,000 $ 730,000 $ 6.70 $ 9,270,000
--------- ------------
2,116,000 $ 16,730,000
========= ============
Pursuant to these programs, the Company repurchased 324,000 shares at an
aggregate cost of $3,902,000; 1,194,000 shares at an aggregate cost of
$8,423,000; and 598,000 shares at an aggregate cost of $4,404,000 during fiscal
1999, 2000, and 2001, respectively.
Page 36
Dividends
- ---------
The Company declared cash dividends of $0.20 per share of common stock during
each of the three fiscal years ended March 31, 2001. On May 30, 2001, the
Company's Board of Directors approved a special cash dividend of $0.10 per share
and an increase to its annual regular cash dividend from $0.20 per share to
$0.30 per share. The special cash dividend of $0.10 per share and the regular
cash dividend for the first quarter of fiscal 2002 of $0.075 were declared on
May 31, 2001.
Warrants
- --------
On July 1, 2000, the Company granted a warrant to an investment-banking firm in
connection with the engagement of such firm to provide advisory services to the
Company. The warrant entitles the holder to purchase up to 50,000 shares of the
Company's common stock at an exercise price of $9.50 per share, for a period of
three years. In accordance with EITF Issue No. 96-18, "Accounting for Equity
Instruments That Are Issued through Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services," the Company determined the fair
value of this warrant to be approximately $60,000 based on the Black-Scholes
option-pricing model. On October 2000, the Company terminated its relationship
with the investment-banking firm. Accordingly, the Company expensed the entire
estimated value of this warrant during the year ended March 31, 2001.
Employee Stock Option Plans
- ---------------------------
In August 1996, the Company's Board of Directors authorized 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. As of March 31, 2001, options to purchase 1,212,910 shares of the
Company's common stock remain outstanding under the 1996 Plan and 37,090 shares
are available for future grant. Subsequent to March 31, 2001, additional options
to purchase 10,000 shares of the Company's stock were granted.
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. A majority of the ISOs and NSOs granted vest over two years.
The following summarizes the status of the 1996 Plan and the related
transactions for the years ended March 31, 2001, 2000, and 1999:
Options Outstanding Options Exercisable
------------------------------- -----------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Options Price Options Price
--------------- ------------- ------------- --------------
Options outstanding at March 31, 1998 360,500 $ 13.76 17,516 $ 11.42
Granted 457,500 17.98
---------
Options outstanding at March 31, 1999 818,000 16.12 242,504 11.85
Granted 53,500 11.44
Forfeited/expired (15,000) 15.32
---------
Options outstanding at March 31, 2000 856,500 15.84 380,578 14.48
Granted 402,500 8.22
Forfeited/expired (46,090) 15.36
---------
Options outstanding at March 31, 2001 1,212,910 $ 13.33 909,631 $ 14.23
========= ========= ======= =========
Page 37
The following table summarizes information about stock options outstanding at
March 31, 2001 under the 1996 Plan:
Options Outstanding Options Exercisable
-------------------------------------------------- -----------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Contractual Exercise Exercise
Range of Exercise Prices Options Life (Years) Price Options Price
----------------------------- --------------- ---------------- -------------- ------------- -------------
$ 7.40 to $ 9.25 402,500 9.7 $ 8.22 200,000 $ 7.40
$10.75 to $19.38 450,724 6.5 11.94 372,382 12.00
$20.25 to $21.63 359,686 7.0 20.79 337,249 20.75
--------- -------
Total 1,212,910 $ 13.33 909,631 $ 14.23
========= =========== ======= ========
In May 2001, the Company's Board of Directors authorized the 2001 Omnibus Plan,
subject to stockholders' approval at the next annual shareholders' meeting.
Under the provisions of the 2001 Omnibus Plan, the Company's Compensation
Committee of the Board of Directors is authorized to grant various stock based
awards to employees, including stock options, to purchase up to an aggregate of
500,000 shares of the Company's common stock.
The Company's 1986 Employee Stock Option Plan (the "1986 Plan") expired in
January 1996. Options granted, but not yet exercised, survive the 1986 Plan
until the options expire. As of March 31, 2001, the exercise prices of these
options ranged from $6.67 to $8.39. The weighted average remaining contractual
life of these options is 3.9 years at March 31, 2001. The following summarizes
the status of the 1986 Plan and the related transactions for the years ended
March 31, 2001, 2000, and 1999:
Options Outstanding Options Exercisable
------------------------------- -----------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Options Price Options Price
--------------- ------------- ------------- --------------
Options outstanding at March 31, 1998 175,091 $ 7.16 155,670 $ 7.00
Exercised (32,344) 6.89
-------
Options outstanding at March 31, 1999 142,747 7.22 142,747 7.22
Exercised (1,500) 6.89
Forfeited/expired (5,624) 6.22
-------
Options outstanding at March 31, 2000 135,623 7.26 135,623 7.26
Forfeited/expired (4,125) 6.89
-------
Options outstanding at March 31, 2001 131,498 $ 7.27 131,498 $ 7.27
======= ======== ======= ========
In addition to the options shown in the above tables, prior to 1996, the Company
issued certain non-qualified options outside of the 1986 Plan. As of March 31,
2001, such non-qualified stock options are exercisable and entitle the holders
thereof to purchase a total of 45,898 shares of the Company's common stock at
exercise prices ranging from $6.89 to $8.39 per share. As of March 31, 2001, the
weighted average exercise price and remaining contracted life of these options
are $7.56 and 3.9 years, respectively.
Non-Employee Directors Stock Option Plan
- ----------------------------------------
In August 1994, at the annual shareholders' meeting, the 1993 Non-Employee
Directors Stock Option Plan (the "1993 Directors Plan") was adopted. The 1993
Directors Plan, as amended in August 1997 and September 2000, permits the
issuance of options to purchase up to an aggregate of 150,000 shares of the
Company's common stock.
Page 38
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 5,000 shares when such person is first elected to the Board
of Directors and will receive a non-qualified option to purchase 5,000 shares
each year that the individual is re-elected. The stock option grant was
increased from 2,500 shares to 5,000 shares during fiscal 2001, when the
Company's Board of Directors authorized an amendment to the 1993 Directors Plan.
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 price 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. As of March 31, 2001, options to purchase 67,500 shares of the
Company's common stock remain outstanding under the 1993 Directors Plan and
61,250 shares are available for future grant. The exercise price of the options
granted and outstanding under the 1993 Directors Plan ranged from $7.00 to
$14.88. The weighted average remaining contractual life of these options is 2.9
years at March 31, 2001.
The following summarizes the status of the 1993 Directors Plan and the related
transactions for the years ended March 31, 2001, 2000, and 1999:
Options Outstanding Options Exercisable
------------------------------- -----------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Options Price Options Price
--------------- ------------- ------------- --------------
Options outstanding at March 31, 1998 46,875 $ 11.19 31,875 $ 9.46
Granted 10,000 14.88
Exercised (7,500) 9.92
------
Options outstanding at March 31, 1999 49,375 12.13 39,375 11.44
Granted 10,000 13.69
Forfeited/expired (9,375) 8.37
------
Options outstanding at March 31, 2000 50,000 13.15 40,000 13.02
Granted 25,000 7.94
Forfeited/expired (7,500) 9.25
------
Options outstanding at March 31, 2001 67,500 $ 11.65 42,500 $ 13.84
====== ========= ====== ========
Stock Options Pro forma Disclosures
- -----------------------------------
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations in accounting for options
granted under the Company's stock option plans. Accordingly, no compensation
expense has been recognized for stock options granted to employees and non-
employee directors when the exercise price is at or above fair market value. As
required by SFAS No. 123, "Accounting for Stock-Based Compensation," the Company
has determined the pro forma effects of these stock options under the fair value
method, which would be to reduce the Company's net income by $435,000, $483,000
and $399,000 for fiscal 2001, 2000 and 1999, respectively, with a corresponding
reduction in basic and diluted earnings per share of $0.04 for fiscal 2001 and
2000, and $0.03 for fiscal 1999.
The weighted average fair value of options granted in fiscal 2001, 2000 and 1999
was $1.12, $2.48 and $3.39, respectively. The fair value of each option granted
is estimated using the Black-Scholes option pricing model with the following
weighted average assumptions: expected life of 4 years for fiscal 2001, 2000 and
1999; dividend yields of 1.74%, 1.45% and 1.39% for fiscal 2001, 2000 and 1999,
respectively; and risk-free interest rates of 5.04%, 5.06% and 5.40% for fiscal
2001, 2000 and 1999, respectively. In addition, the Company utilized an expected
volatility assumption of 20% for fiscal 2001 and 2000, and 15% for fiscal 1999.
Page 39
(6) COMMITMENTS AND CONTINGENCIES
- ------------------------------------
Lease Commitments
- -----------------
At March 31, 2001, the future minimum lease payments under operating leases with
an initial non-cancelable term in excess of one year are as follows:
Fiscal year ending March 31,
----------------------------
2002 $ 1,005,000
2003 733,000
2004 305,000
2005 253,000
2006 227,000
Thereafter 166,000
-----------
$ 2,689,000
===========
Rental expense under operating leases with an initial non-cancelable term in
excess of one year was $1,101,000, $1,176,000, and $1,081,000 for the years
ended March 31, 2001, 2000 and 1999, respectively.
Service Contract Commitments
- ----------------------------
In the normal course of business, the Company has entered into service contracts
with minimum service fee commitments for telecommunication, and computer data
and document storage. At March 31, 2001, the future minimum payments under these
service contracts with an initial non-cancelable term in excess of one year are
as follows:
Fiscal year ending March 31,
----------------------------
2002 $ 798,000
2003 129,000
2004 32,000
----------
$ 959,000
==========
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 fuel services business. As of March 31, 2001, the Company
had $10,200,000 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 customers. In the aviation
fuel services segment, the Company's largest credit line to a single customer is
$3,000,000. In the marine fuel services segment, the Company has extended lines
of credit to certain customers in amounts exceeding $5,000,000. 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 high credit
risk profile and otherwise would be required to prepay or post cash
collateralized letters of credit with their suppliers of fuel. The Company does
not insure its receivables and diversification of credit risk is difficult since
the Company sells primarily in the aviation and marine industries. In addition,
during fiscal 2001, world oil prices continued to exhibit volatility and have
remained high. Fuel costs represent a significant part of an airline's and
vessel's operating expenses. Accordingly, the increase in fuel prices has to
date, and will continue to adversely affect the Company's customers.
Page 40
The Company's management recognizes that extending credit and setting
appropriate reserves for receivables is largely a subjective decision based on
knowledge of the customer and the industry. Active management of this risk is
essential to the Company's success. The Company's sales executives and their
respective staff meet regularly to evaluate credit exposure in the aggregate,
and by individual credit. Credit exposure also includes the amount of estimated
unbilled sales. The Company also has a credit committee for each of its
segments. The credit committees are responsible for approving credit limits
above certain amounts, setting and maintaining credit standards, and ensuring
the overall quality of the credit portfolio.
Pollution and Third Party Liability
- -----------------------------------
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. The Company is subject to possible claims by
customers, regulators and others who may be injured by a spill or other
accident. In addition, the Company may be held liable for damages to the
environment arising out of such events. 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
and non-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, or
required to clean up facilities previously operated by the Company, in certain
cases pursuant to current U.S. federal and state laws and regulations.
The Company continuously reviews the adequacy of its insurance coverage.
However, the Company lacks coverage for various risks. An uninsured 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
- -------------
In February and March 2000, two shareholders filed class action lawsuits against
the Company and four of its executive officers in the United States District
Court for the Southern District of Florida. The lawsuits were subsequently
consolidated. The lawsuit alleged violations of U.S. federal securities laws and
sought an unspecified amount of damages arising from the decrease in the
Company's stock price on January 31, 2000. In June 2000, the plaintiffs amended
their complaint to delete two of the claims made therein and to drop two of the
Company's officers as defendants. In December 2000, the United States District
Court of the Southern District of Florida dismissed the lawsuit filed against
the Company and its executive officers and in April 2001, the same Court denied
the plaintiffs' motion to alter and/or amend the case dismissal judgment.
In February 2000, the Company filed a lawsuit against American Home Assurance
Company ("AHAC"), a subsidiary of AIG, seeking recovery under the Company's
insurance policies for the Company's loss of product by theft off the coast of
Nigeria. Six of the Company's shipments of marine fuel, with a total value of
approximately $2,683,000, were diverted in the course of transshipment to
Nigeria, and were never received by the Company's intended customer. AHAC is
contesting the Company's insurance claim. The Company intends to vigorously
prosecute its action against AHAC.
In March 2001, the Company and EarthCare entered into a Settlement Agreement
which resolved their differences with respect to the sale of the Company's oil-
recycling segment, dismissed all pending proceedings and released each other
from other obligations arising from the sale. In connection with the Settlement
Agreement, the Company received a settlement payment from EarthCare of
$1,750,000 in April 2001. In addition, as part of the Settlement Agreement,
Donald F. Moorehead, Jr., Chairman of EarthCare, agreed to purchase the
EarthCare stock owned by the Company for $4,979,000. On May 1, 2001, Mr.
Moorehead defaulted on his agreement to purchase those shares. The Company has
commenced legal proceedings against Mr. Moorehead to enforce his contract to
purchase the EarthCare stock owned by the Company.
Page 41
In April 2001, Miami-Dade County in Florida (the "County") filed suit (the
"County Suit") against 17 defendants to seek reimbursement from such parties for
the cost of remediating environmental contamination at Miami International
Airport (the "Airport"). One of those defendants is Page Avjet Fuel Corporation,
now known as PAFCO L.L.C. ("PAFCO"). On or about December 31, 2000, the Company
acquired a 50% interest in PAFCO from Signature Flight Support Corporation
("Signature"). Pursuant to the acquisition agreement, dated December 22, 2000,
relating to the PAFCO transaction, Signature agreed to indemnify the Company for
all liabilities of PAFCO arising prior to the closing ("Closing") of the
Company's purchase of its interest in PAFCO. Because the Airport contamination
occurred prior to Closing, the Company believes that the County Suit is covered
by Signature's indemnification obligation. The Company has notified Signature of
the County Suit, as stipulated in the acquisition agreement. The Company expects
Signature to defend this claim on behalf of PAFCO and at Signature's expense.
On or about April 9, 2001, the County sent a letter to approximately 250
potentially responsible parties ("PRP's") including the Company and a
subsidiary, advising them of their potential liability for the clean-up costs
which are the subject of the County Suit. The County has threatened to add the
PRP's as defendants in the County Suit, unless they agree to share in the cost
of the environmental clean-up at the Airport. On May 4, 2001, the Company
advised the County that: (1) neither the Company nor any of its subsidiaries
were responsible for any environmental contamination at the Airport, and (2) to
the extent the Company or any subsidiary was so responsible, their liability was
subject to indemnification by the County pursuant to the indemnity provisions
contained in the lease agreement with the County.
The Company intends to vigorously defend all claims asserted by the County
relating to environmental contamination at the Airport. The Company believes its
liability in these matters (if any) should be adequately covered by the
indemnification obligations of Signature as to PAFCO, and the County as to the
other World Fuel companies.
There can be no assurance that the Company will prevail on the above legal
proceedings and management cannot estimate the exposure or recovery to the
Company if it does not prevail. A ruling against the Company in any of the
proceedings described above may have a material adverse effect on the Company's
financial condition and results of operation. The Company is also involved in
litigation and administrative proceedings primarily arising in the normal course
of its business. In the opinion of management, except as set forth above, 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 (Derivatives)
- ---------------------------------------------------------------------
To take advantage of favorable market conditions or for competitive reasons, the
Company enters into short-term cancelable 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.
The Company offers its marine 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, 2001, the Company
had one outstanding swap contract for 45,000 metric tons expiring on December
31, 2001. Gains or losses on these contracts are recognized at the completion of
each transaction.
Page 42
Employment Agreements
- ---------------------
On July 31, 2000, the Company's Board of Directors terminated the employment of
its Chairman ("Former Chairman"). Pursuant to the terms of the Former Chairman's
employment agreement, the Company was required to pay severance equal to three
times the executive's average salary and bonus during the five-year period
preceding termination, plus all deferred compensation. Accordingly, during the
year ended March 31, 2001, the Company recorded an executive severance charge of
$3,505,000 and, in August 2000, paid the Former Chairman $4,522,000, including
deferred compensation of $1,017,000.
During fiscal 2001, the employment agreements for the Company's newly appointed
Chairman of the Board and President were amended and restated to reflect their
respective promotions. The amended and restated employment agreements provided a
higher base salary as well as a bonus structure based on the Company's earnings
per share growth along with the granting of additional employee stock options.
The amended and restated employment agreements will expire on March 31, 2005.
The Company and the executives may mutually agree to extend the employment
agreements for subsequent one-year periods. For the Chairman of the Board, the
amended and restated employment agreement provides the following: (1) a base
salary of $600,000, effective April 1, 2000; (2) a bonus for fiscal 2001 based
on the bonus formula in the executive's previous employment agreement with a
maximum annual bonus of $638,000, which the executive earned for the year ended
March 31, 2001; (3) stock options to purchase 200,000 shares; half of which have
an exercise price of $7.40 per share and were awarded and vested on December 21,
2000, and the remaining half were awarded on January 2, 2001, at an exercise
price of $9.25, which was 125% of the market price on that date, and will vest
in one year; (4) effective with the fiscal year beginning April 1, 2001, a bonus
as a percent of the executive's base salary which shall be calculated based on
basic earnings per share growth, year over year, as adjusted by the Company's
Compensation Committee of the Board of Directors; and (5) a termination
severance payment, as specified in the employment agreement. For the President,
the amended and restated employment agreement provides the following: (1) a base
salary of $500,000, effective August 1, 2000; (2) a bonus for calendar year 2000
based on the bonus formula in the executive's previous employment agreement; (3)
stock options to purchase 150,000 shares which will vest in two years for ISOs
and over three years for NSOs, of which 100,000 options have an exercise price
of $7.40 per share and were awarded on December 21, 2000, and the remaining
50,000 options were awarded on January 2, 2001 at an exercise price of $9.25,
which was 125% of the market price on that date; (4) effective with the fiscal
year beginning April 1, 2001, a bonus as a percent of the executive's base
salary which shall be calculated on basic earnings per share growth, year over
year, as adjusted by the Company's Compensation Committee of the Board of
Directors; and (5) a termination severance payment, as specified in the
employment agreement.
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 U.S. 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, the
deferred portion of any bonus, including any interest earned thereon, shall be
paid to the executive within ten days of such death, termination or expiration.
As of March 31, 2001, $1,331,000 was deferred under the Chairman's employment
agreement, and is included in Long-term liabilities in the accompanying
Consolidated Balance Sheets. As of March 31, 2000, $1,972,000 was deferred under
the employment agreements of the Company's Former Chairman and previous
President, and was included in Long-term liabilities in the accompanying
Consolidated Balance Sheets.
In addition to the Chairman of the Board and the President, the Company and its
subsidiaries have also entered into employment, consulting and non-compete
agreements with certain of their executive officers and employees. The
agreements provide for minimum salary levels, and for certain executive officers
and employees, bonus formulas which are payable if specified performance goals
are attained.
During the years ended March 31, 2001, 2000 and 1999, approximately $18,564,000,
$11,696,000, and $11,402,000, respectively, was expensed under the terms of the
above described agreements. The fiscal 2001 amount includes the Former
Chairman's severance.
Page 43
The future minimum commitments under employment agreements, excluding
discretionary and performance bonuses, as of March 31, 2001 are as follows:
Fiscal year ending March 31,
- ----------------------------
2002 $ 9,195,000
2003 5,034,000
2004 2,737,000
2005 1,577,000
2006 421,000
Thereafter 630,000
-----------
$19,594,000
===========
Deferred Compensation Plans
- ---------------------------
The Company's Deferred Compensation Plan ("Deferred Plan") relates to the marine
segment and it 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 allowed for distributions of vested amounts over a five-year
period, subject to certain requirements, during and after employment with the
Company. Participants became 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, 2001 and
2000, the Company's liability under the Deferred Plan was $714,000 and $953,000,
respectively, and is included in Long-term liabilities in the accompanying
Consolidated Balance Sheets. As of March 31, 2001, all participants in the
Deferred Plan are vested.
The Company maintains a 401(k) defined contribution plan which covers all U.S.
employees who meet minimum requirements and elect to participate. Participants
may contribute up to 15% of their compensation, subject to certain limitations.
During fiscal 2001, the Company made matching contributions of 25% of the
participants' contributions up to 1% of the participant's compensation. Annual
contributions by the Company are made at its sole discretion. During the fiscal
years ended March 31, 2001, 2000 and 1999, approximately $60,000, $50,000 and
$74,000, respectively, was expensed as Company contributions.
Certain non-U.S. subsidiaries of the Company have defined contribution benefit
plans, which allow for voluntary contributions by the employees. The non-U.S.
subsidiaries paid all general and administrative expenses of the plans and in
some cases made employer contributions on behalf of the employees. During the
fiscal years ended March 31, 2001, 2000 and 1999, approximately $77,000, $67,000
and $73,000, respectively, was expensed as Company contributions.
Severance Benefit Payable
- -------------------------
In accordance with local laws of certain non-U.S. subsidiaries, the Company has
accrued $496,000 in employee severance benefits payable as of March 31, 2001.
(7) AVIATION JOINT VENTURES
- ------------------------------
In August 1994, the Company began operation of an aviation joint venture in
Ecuador (the "Ecuador Venture"). The Ecuador Venture was organized to distribute
jet fuel pursuant to a contract with the nationally owned oil company and the
airport authority. In October 2000, the Ecuador Venture ceased operations.
The Company's ownership interest in the Ecuador Venture was 50%. Accordingly,
the Company used the equity method of accounting to record its proportionate
share of the Ecuador Venture's earnings or losses. During fiscal year 2000, the
Company wrote down the investment in and advances to the Ecuador Venture by
$953,000, and recorded a special provision for bad debts of $1,593,000 as a
result of the catastrophic political and economic conditions in Ecuador. During
fiscal 2001, the Company completed the closure of the Ecuador Venture,
recovering approximately $365,000, of the previously provisioned investment
write down.
Page 44
In December 2000, the Company acquired a 50% equity interest in PAFCO from
Signature for $1,000,000 in cash and a $2,500,000 note, payable in five equal
annual installments of $500,000 beginning on January 5, 2002. The non-interest
bearing promissory note was discounted at 9% and the discount of $558,000 is
being amortized as interest expense over five years using the interest method.
For the year ended March 31, 2001, the Company recorded interest expense of
$45,000, which is included in Earnings (losses) from aviation joint ventures in
the accompanying Consolidated Statements of Income. The investment cost in
excess of 50% of the net assets of PAFCO amounted to $2,978,000, including an
estimated $36,000 in acquisition costs, and is being amortized over 10 years
using the straight-line method. As of, and for the year ended March 31, 2001,
the unamortized investment cost of $2,904,000 and the amortization expense of
$74,000, are included in Other assets in the accompanying Consolidated Balance
Sheets and in Earnings (losses) from aviation joint ventures in the accompanying
Consolidated Statements of Income, respectively.
In accordance with the joint venture operating agreement, the Company is
entitled to 80% of PAFCO's results. The higher allocation percentage versus the
ownership percentage is in consideration of the risks assumed by the Company
with respect to credit losses on PAFCO's accounts receivable. The Company is
required to purchase, without recourse, PAFCO's accounts receivable that are 120
days past due, subject to certain requirements. Net losses, including infrequent
or unusual losses, and interest expense incurred by PAFCO, and any gain
resulting from the liquidation of the joint venture, will be allocated 50%
between the Company and Signature. For the three months since acquisition,
ending March 31, 2001, the Company did not purchase any of PAFCO's accounts
receivable. As of March 31, 2001, the amount due from PAFCO of $161,000, related
to the Company's share of PAFCO's results, is included in Other assets in the
accompanying Consolidated Balance Sheets. For the three months ended March 31,
2001, the Company's net earnings from the PAFCO joint venture amounted to
$42,000, and are included in Earnings (losses) from aviation joint ventures in
the accompanying Consolidated Statements of Income.
(8) BUSINESS SEGMENTS, GEOGRAPHIC INFORMATION, AND MAJOR CUSTOMERS
- ---------------------------------------------------------------------
Business Segments
- -----------------
The Company markets fuel services and has two reportable operating segments:
aviation and marine fuel services. In its aviation fuel services business, the
Company extends credit and provides around-the-world single-supplier
convenience, 24-hour service, fuel management services, and competitively priced
aviation fuel and other aviation related services to passenger, cargo and
charter airlines. The Company also offers flight plans and weather reports to
its corporate customers. In its marine fuel services business, the Company
markets marine fuel and related 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, fuel management services, and
competitively priced fuel.
Performance measurement and resource allocation for the reportable operating
segments are based on many factors. One of the primary financial measures used
is income from operations. The Company employs shared-service concepts to
realize economies of scale and efficient use of resources. The costs of shared
services and other corporate center operations managed on a common basis are
allocated to the segments based on usage, where possible, or on other factors
according to the nature of the activity. The accounting policies of the
reportable operating segments are the same as those described in the Summary of
Significant Accounting Policies (see Note 1).
Page 45
Information concerning the Company's operations by business segment is as
follows:
As of, and for the year ended March 31,
---------------------------------------------------------------
2001 2000 1999
------------------- -------------------- --------------------
Revenue
- -------
Aviation fuel services $ 524,670,000 $ 461,740,000 $ 327,844,000
Marine fuel services 1,004,572,000 738,557,000 392,717,000
----------------- ----------------- ----------------
Total $ 1,529,242,000 $ 1,200,297,000 $ 720,561,000
================= ================= ================
Income from operations
- ----------------------
Aviation fuel services $ 11,790,000 $ 4,440,000 $ 13,331,000
Marine fuel services 13,161,000 7,516,000 7,515,000
Corporate overhead (10,799,000) (5,038,000) (5,785,000)
----------------- ----------------- ----------------
Total $ 14,152,000 $ 6,918,000 $ 15,061,000
================= ================= ================
Depreciation and amortization
- -----------------------------
Aviation fuel services $ 435,000 $ 528,000 $ 543,000
Marine fuel services 822,000 923,000 695,000
Corporate 1,093,000 979,000 465,000
----------------- ----------------- ----------------
Total $ 2,350,000 $ 2,430,000 $ 1,703,000
================= ================= ================
Accounts and notes receivable, net
- ----------------------------------
Aviation fuel services, net of allowance for bad debts
of $6,010,000, $12,163,000, and $4,417,000 at
March 31, 2001, 2000, and 1999, respectively $ 47,965,000 $ 56,953,000 $ 50,398,000
Marine fuel services, net of allowance for bad debts
of $5,157,000, $3,039,000, and $2,292,000 at
March 31, 2001, 2000, and 1999, respectively 77,898,000 85,297,000 45,038,000
----------------- ----------------- ----------------
Total $ 125,863,000 $ 142,250,000 $ 95,436,000
================= ================= ================
Assets
- ------
Aviation fuel services $ 75,830,000 $ 79,778,000 $ 68,765,000
Marine fuel services 113,798,000 107,258,000 69,250,000
Corporate 30,787,000 40,879,000 9,306,000
Discontinued operations, net 1,750,000 - 17,073,000
----------------- ----------------- ----------------
Total $ 222,165,000 $ 227,915,000 $ 164,394,000
================= ================= ================
Capital expenditures
- --------------------
Aviation fuel services $ 251,000 $ 240,000 $ 419,000
Marine fuel services 1,276,000 211,000 200,000
Corporate 1,157,000 1,409,000 2,832,000
----------------- ----------------- ----------------
Total $ 2,684,000 $ 1,860,000 $ 3,451,000
================= ================= ================
Page 46
Geographic Information
- ----------------------
A summary of financial data segregated between US and non-U.S. countries is
shown below as of, and for the fiscal years ended, March 31, 2001, 2000 and
1999. This information is presented based on the country of incorporation where
the revenue and assets are recorded. Income (loss) from operations is before
other income (expense) and provision for income taxes.
2001 2000 1999
-------------- -------------- --------------
United States
- ------------------------------------
Revenue $ 940,036,000 $ 615,951,000 $ 405,755,000
============== ============== ==============
Income (loss) from operations $ (4,933,000) $ (776,000) $ 79,000
============== ============== ==============
Assets $ 137,655,000 $ 151,795,000 $ 100,800,000
============== ============== ==============
United Kingdom
- ------------------------------------
Revenue $ 204,409,000 $ 239,150,000 $ 106,221,000
============== ============== ==============
Income from operations $ 5,896,000 $ 2,851,000 $ 3,393,000
============== ============== ==============
Assets $ 27,746,000 $ 27,364,000 $ 17,823,000
============== ============== ==============
Singapore
- ------------------------------------
Revenue $ 191,937,000 $ 146,828,000 $ 79,178,000
============== ============== ==============
Income from operations $ 6,761,000 $ 2,363,000 $ 4,313,000
============== ============== ==============
Assets $ 23,863,000 $ 14,138,000 $ 13,949,000
============== ============== ==============
Other non-U.S. countries
- ------------------------------------
Revenue $ 192,860,000 $ 198,368,000 $ 129,407,000
============== ============== ==============
Income from operations $ 6,428,000 $ 2,480,000 $ 7,276,000
============== ============== ==============
Assets $ 32,901,000 $ 34,618,000 $ 31,822,000
============== ============== ==============
Total
- ------------------------------------
Revenue $1,529,242,000 $1,200,297,000 $ 720,561,000
============== ============== ==============
Income from operations $ 14,152,000 $ 6,918,000 $ 15,061,000
============== ============== ==============
Assets $ 222,165,000 $ 227,915,000 $ 164,394,000
============== ============== ==============
Major Customers
- ---------------
No customer accounted for more than 10% of total consolidated revenue for the
years ended March 31, 2001, 2000 and 1999.
Page 47
(9) QUARTERLY INFORMATION (UNAUDITED)
- ----------------------------------------
For the three months ended
--------------------------------------------------------------------------------------
June 30, September 30, December 31, March 31,
2000 2000 2000 2001
----------------- ---------------- ---------------- ----------------
Revenue $ 374,530,000 $ 378,083,000 $ 408,567,000 $ 368,062,000
================= ================ ================ ================
Gross profit $ 17,068,000 $ 16,652,000 $ 18,109,000 $ 19,913,000
================= ================ ================ ================
Net income (loss):
Continuing operations $ 3,247,000 $ 215,000 (1) $ 3,912,000 $ 4,412,000
Discontinued operations - - (496,000) (656,000)
----------------- ---------------- ---------------- ----------------
Net income $ 3,247,000 $ 215,000 $ 3,416,000 $ 3,756,000
================= ================= ================ ================
Basic earnings (loss) per share:
Continuing operations $ 0.30 $ 0.02 (1) $ 0.37 $ 0.42
Discontinued operations - - (0.05) (0.06)
----------------- ---------------- ---------------- ----------------
Net income $ 0.30 $ 0.02 $ 0.32 $ 0.36
================= ================ ================ ================
Diluted earnings (loss) per share:
Continuing operations $ 0.30 $ 0.02 (1) $ 0.37 $ 0.42
Discontinued operations - - (0.05) (0.06)
----------------- ---------------- ---------------- ----------------
Net income $ 0.30 $ 0.02 $ 0.32 $ 0.36
================= ================ ================ ================
For the three months ended
--------------------------------------------------------------------------------------
June 30, September 30, December 31, March 31,
1999 1999 1999 2000
----------------- --------------- ---------------- ----------------
Revenue $ 225,446,000 $ 299,759,000 $ 323,063,000 $ 352,029,000
================= =============== ================ ================
Gross profit $ 15,052,000 $ 16,743,000 $ 15,284,000 $ 17,166,000
================= =============== ================ ================
Net income (loss):
Continuing operations $ 1,807,000 (2) $ (896,000) (3) $ 669,000 (4) $ (1,752,000)
Discontinued operations 435,000 654,000 530,000 8,188,000
----------------- --------------- ---------------- ----------------
Net income (loss) $ 2,242,000 $ (242,000) $ 1,199,000 $ 6,436,000
================= =============== ================ ================
Basic earnings (loss) per share:
Continuing operations $ 0.15 (2) $ (0.07) (3) $ 0.06 (4) $ (0.15)
Discontinued operations (5) 0.03 0.05 0.04 0.70
----------------- --------------- ---------------- ----------------
Net income (loss) $ 0.18 $ (0.02) $ 0.10 $ 0.55
================= =============== ================ ================
Diluted earnings (loss) per share:
Continuing operations $ 0.15 (2) $ (0.07) (3) $ 0.06 (4) $ (0.15)
Discontinued operations (5) 0.03 0.05 0.04 0.70
----------------- --------------- ---------------- ----------------
Net income (loss) $ 0.18 $ (0.02) $ 0.10 $ 0.55
================= =============== ================ ================
(1) Includes a $1,920,000 after-tax charge, or $0.18 per basic and diluted
share, for the executive severance charge incurred in terminating the
employment agreement with the Company's Former Chairman of the Board.
(2) Includes after-tax charges totaling $2,279,000, or $0.19 per basic and
diluted share, for special provisions of bad debts in the aviation fuel
services segment for certain accounts receivable related to customers
based in Ecuador.
(3) Includes after-tax charges totaling $3,872,000, or $0.32 per basic and
diluted share, for the marine fuel services segment due to the theft of
product in Nigeria and special provisions of bad debts in the aviation
fuel services segment for certain accounts receivable related to customers
based in Ecuador.
(4) Includes an after-tax charge of $953,000, or $.08 per basic and diluted
share, for the write-down in the aviation fuel services segment's joint
venture in Ecuador.
(5) The earnings per share on the Consolidated Statements of Income differs
from the sum of each of the quarterly per share data because of a
significantly large concentration of repurchases of the Company's stock,
pursuant to the stock repurchase programs, during the three months ended
March 31, 2000, as compared to the total fiscal 2000 stock repurchases. Of
the total shares repurchased by the Company during fiscal 2000, 1,132,000
shares, or 94.8%, were repurchased in the 4th quarter of fiscal 2000.
Page 48
SCHEDULE II
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Additions
-----------------------------------
Balance at Charged to Charged to Balance at
beginning costs and other end
of period expenses accounts (1) Deductions (2) of period
============== =============== ============= =============== ==============
Year Ended March 31, 2001
- --------------------------------
Allowance for bad debts $ 15,202,000 $ 7,909,000 $ 201,000 $ 12,145,000 $ 11,167,000
============== =============== ============= =============== ==============
Year Ended March 31, 2000
- --------------------------------
Allowance for bad debts $ 6,709,000 $ 19,250,000 $ 486,000 $ 11,243,000 $ 15,202,000
============== =============== ============= =============== ==============
Year Ended March 31, 1999
- --------------------------------
Allowance for bad debts $ 4,513,000 $ 5,079,000 $ 895,000 $ 3,778,000 $ 6,709,000
============== =============== ============= =============== ==============
Notes:
(1) Recoveries of bad debts.
(2) Uncollectible accounts written off.
Page 49