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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003

FOR THE TRANSITION PERIOD FROM                                      TO                                    

COMMISSION FILE NUMBER 1-9533

WORLD FUEL SERVICES CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s Telephone Number, including area code: (305) 428-8000

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 ¨

APPLICABLE ONLY TO CORPORATE ISSUERS:

The registrant had a total of 10,762,189 shares of common stock, par value $0.01 per share, net of treasury stock, outstanding as of August 5, 2003.

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Part I

Item 1. Financial Statements

General

The following unaudited, condensed consolidated financial statements of World Fuel Services Corporation and Subsidiaries have been prepared in accordance with the instructions to Form 10-Q and, therefore, omit or condense certain footnotes and other information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States. In the opinion of management, all adjustments necessary for a fair presentation of the financial information for the interim periods reported have been made. Results of operations for the three and six months ended June 30, 2003, will not be necessarily indicative of the results for the entire fiscal year. The condensed consolidated financial statements and notes thereto included in this Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Transition Report on Form 10-K (“10-K Report”) for the nine months ended December 31, 2002. World Fuel Services Corporation and Subsidiaries are collectively referred to in this Form 10-Q as “we,” “our” and “us.” Certain amounts in prior periods have been reclassified to conform to the current period presentation.

Forward-Looking Statements

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. All statements regarding our expected financial position and operating results, our business strategy, our financing plans and forecasted demographic and economic trends relating to our industry are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as “may,” “will,” “anticipate,” “estimate,” “expect,” or “intend” and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. We cannot promise you that our expectations in such forward-looking statements will turn out to be correct. Factors that impact such forward looking statements include, but are not limited to, quarterly fluctuations in results; the management of growth; fluctuations in world oil prices or foreign currency; 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 our other Securities and Exchange Commission filings. A more detailed description of the principal risks in our business is set forth in “Risk Factors” in our 10-K Report for the nine months ended December 31, 2002. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

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WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED—IN THOUSANDS, EXCEPT PER SHARE DATA)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED—IN THOUSANDS)

(Continued)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Continued)

We paid cash and issued notes payable in connection with certain acquisitions of businesses accounted for under the purchase method during the six months ended June 30, 2002. There were no acquisitions during the six months ended June 30, 2003. The following reconciles the fair values of the assets acquired, liabilities assumed, and promissory notes issued with cash paid:

Supplemental Schedule of Noncash Investing and Financing Activities:

Cash dividends declared, but not yet paid, totaled $807 thousand and $782 thousand at June 30, 2003 and 2002, respectively, and paid in July 2003 and 2002, respectively.

In connection with an acquisition of business in January 2002, we assumed short-term debt of $1.5 million and issued a $3.3 million non-interest bearing promissory note, which was discounted to $3.0 million using an interest rate of approximately 5%, payable annually over three years through January 2005.

During the six months ended June 30, 2003, in connection with the construction of our new corporate office, we recorded leasehold improvements and its related deferred rental credit of $315 thousand, which was paid by the landlord as an office construction allowance. The related deferred rental credit was included in Long-term liabilities. The deferred rental credit is being amortized on a straight-line basis over the lease period of 10 years for the new corporate office.

During the six months ended June 30, 2003, we recorded Unearned deferred compensation totaling $989 thousand relating to shares of restricted common stock granted to our employees and options granted to both our employees and non-employee directors under the 2001 Omnibus Plan. The Unearned deferred compensation was recorded based on the grant date and is being amortized over the minimum vesting period of each individual stock and/or option grant.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1) Summary of Significant Accounting Policies

The accounting polices followed for quarterly financial reporting are the same as those disclosed in Note 1 of the Notes to the Consolidated Financial Statements included in our 10-K Report for the nine months ended December 31, 2002.

(2) Debt

As of June 30, 2003, we borrowed $5.0 million and issued letters of credit of $16.2 million. A majority of these letters of credit, provided to certain suppliers under the normal course of business, expire within one year from their issuance, and expired letters of credit are renewed as needed.

Our debt consisted of the following (in thousands):

As of June 30, 2003, the aggregate annual maturities of debt, net of unamortized imputed discount, are as follows (in thousands):

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(3) Comprehensive Income

There were no significant items of other comprehensive income, and thus, net income is equal to comprehensive income for all periods presented.

(4) Earnings Per Share

Basic earnings per share are computed based on the weighted average number of common shares outstanding. Diluted earnings per share are based on the sum of the weighted average number of common shares outstanding, non-vested restricted common stock and common stock equivalents arising out of employee stock options and non-employee stock options and warrants. Our net income is the same for basic and diluted earnings per share calculations.

Shares used to calculate earnings per share are as follows (in thousands):

(5) Employee and Non-Employee Directors Stock Options

Effective April 1, 2002, we adopted the accounting provision of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment of FASB Statement No. 123,” to account for stock options granted to our employees and non-employee directors using the prospective method. Under the fair value recognition provision, as of the grant date, we recorded the fair value of the stock options granted as Unearned deferred compensation, which is amortized over the minimum vesting period of each individual award as compensation cost. For stock options granted prior to April 1, 2002, we continued using the intrinsic value method of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employee,” and related interpretations. Accordingly, no compensation expense has been recognized for such stock options when the exercise price was at or above market price of our common stock on the date of grant. As required, the following table reflects pro forma net income and

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earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period (in thousands, except earnings per share):

(6) Business Segments

We market fuel and related services, and have two reportable operating segments: marine and aviation fuel services. In our marine fuel services business, we market marine fuel and related management services to a broad base of international shipping companies and to governmental and multilateral entities. Services include credit terms, 24-hour around-the-world service, fuel management services, and competitively priced fuel. In our aviation fuel services business, we extend credit and provide 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, as well as to governmental and multilateral entities. We also offer flight plans and weather reports to our corporate customers.

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. We employ 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).

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Information concerning our operations by business segment is as follows (in thousands):

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with “Item 1. Financial Statements” appearing elsewhere in this Form 10-Q, as well as our Form 10-K Report for the nine months ended December 31, 2002.

Reportable Segments

We have two reportable operating businesses: marine and aviation fuel services. In our marine fuel services business, we market marine fuel and related management services to a broad base of international shipping companies and to governmental and multilateral entities. Services include credit terms, 24-hour around-the-world service, fuel management services, and competitively priced fuel. In our aviation fuel services business, we extend credit and provide 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, as well as to governmental and multilateral entities. We also offer flight plans and weather reports to our corporate customers.

Performance measurement and resource allocation for the reportable operating segments are based on many factors. Two of our primary financial measures used are revenue and income from operations. Our marine fuel business accounted for approximately 65% and 72% of our total revenue for the three months ended June 30, 2003 and 2002, respectively, and approximately 62% and 73% of our total revenue for the six months ended June 30, 2003 and 2002, respectively. Our aviation fuel business accounted for the remaining 35% and 28% of total revenue for the three months ended June 30, 2003 and 2002, respectively, and approximately 38% and 27% of our total revenue for the six months ended June 30, 2003 and 2002, respectively. The shift of the revenue percentage between our marine and aviation segment is primarily due to new commercial and government businesses and increases in both our wholesale activities and our fuel management business. Excluding corporate overhead, our marine and aviation fuel services contributed 52% and 48%, respectively, of operating income for the three months ended June 30, 2003, as compared to 40% and 60% for the three months ended June 30, 2002, respectively. For the six months ended June 30, 2003, excluding corporate overhead, our marine and aviation fuel services contributed equally approximately 50% of operating income. As a comparison, our marine and aviation fuel services contributed 42% and 58% of operating income for the six months ended June 30, 2002, respectively. The shift of the contribution percentage of operating income between our marine and aviation segments is due to improvement of our gross profit in marine relating, in part, to the economic recovery of the shipping industry.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to bad debts, income taxes, goodwill and identifiable intangible asset, and certain accrued liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We have identified the policies below as critical to our business operations and the understanding of our results of operations. For a detailed discussion on the application of these and other accounting policies, see Note 1 of the “Notes to the Consolidated Financial Statements” in Item 1 of our 10-K Report for the nine months ended December 31, 2002.

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Revenue Recognition

Revenue is generally recorded in the period when the sale is made or as the services are performed. We contract with unrelated third parties to provide the fuel and/or deliver most services. This causes delays in receiving the necessary information for invoicing to our customers. Accordingly, revenue may be recognized in a period subsequent to when the actual delivery of 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 delivery or performance.

Accounts Receivable and Allowance for Bad Debts

Credit extension, monitoring and collection are performed by each of our business segments. Each segment has a credit committee. 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. We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer’s current credit worthiness, as determined by our review of our customer’s credit information. We extend credit on an unsecured basis to many of our customers.

We continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. Such allowances can be either specific to a particular customer or general to all customers in each of our two business segments. As of June 30, 2003 and December 31, 2002, we had accounts and notes receivable of $145.9 million and $177.4 million, respectively, net of allowance for bad debts. The allowance for bad debt as of June 30, 2003 was $11.8 million and included a specific allowance of $2.5 million for one aviation customer representing the entire accounts receivable balance for that customer. The allowance for bad debt as of December 31, 2002 was $11.1 million and included a specific allowance of $3.0 million for the same one aviation customer. The decrease of the specific allowance since year-end was due to charge-off. Our remaining allowance of $9.3 and $8.1 million as of June 30, 2003 and December 31, 2002, respectively, is general for all other customers.

We believe the level of our allowance for bad debts is reasonable based on our experience and our analysis of the net realizable value of our trade receivables at June 30, 2003. We cannot guarantee that we will continue to experience the same credit loss rates that we have experienced in the past since adverse changes in the marine and aviation industries, or changes in the liquidity or financial position of our customers, could have a material adverse effect on the collectability of our accounts receivable and our future operating results. If credit losses exceed established allowances, our results of operation and financial condition may be adversely affected. For additional information on the credit risks inherent in our business, see “Risk Factors” in Item 1 of our 10-K Report for the nine months ended December 31, 2002.

Goodwill, Identifiable Intangible Asset and Investment Goodwill

Goodwill and investment goodwill represent our cost or investment in excess of net assets, including identifiable intangible asset, of the acquired companies. Investment goodwill of $2.9 million was included in Other assets in the accompanying Condensed Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002. The identifiable intangible asset for customer relations existing at the date of acquisition was recorded and is being amortized over its useful life of five years. We accounted for goodwill, identifiable intangible asset and investment goodwill in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” Among other provisions, SFAS No. 142 states that goodwill shall not be amortized prospectively. Accordingly, for the three and six months ended June 30, 2003 and 2002, no goodwill amortization was recorded. For the identifiable intangible asset, we amortized $92 thousand and $184 thousand for the three and six months ended June 30, 2003.

In accordance with SFAS No. 142, goodwill must be reviewed annually (or more frequently under certain circumstances) for impairment. The initial step of the goodwill impairment test compares the fair value of a

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reporting unit with its carrying amount, including goodwill. Based on results of these comparisons, goodwill in each of our reporting units is not considered impaired. Accordingly, no impairment charges were recognized.

Income Taxes

Our provision for income taxes was determined by taxable jurisdiction. We file a consolidated U.S. federal income tax return, which includes all of our U.S. companies. Our non-U.S. companies file income tax returns in their respective countries of incorporation, as required. We do not provide for U.S. federal and state income taxes, and non-U.S. withholding taxes on the undistributed earnings of our non-U.S. companies. The distribution of these earnings would result in additional U.S. federal and state income taxes to the extent they are not offset by foreign tax credits and non-U.S. withholding taxes. It is our intention to reinvest undistributed earnings of our non-U.S. companies indefinitely and thereby postpone their remittance. Accordingly, no provision has been made for taxes that could result from the remittance of such earnings.

We provide for deferred income taxes on temporary differences arising from assets and liabilities whose bases 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. No valuation allowance was recorded in the accompanying Consolidated Balance Sheets.

Results of Operations

Profit from our 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 sales, as well as the overall level of operating expenses, which may be significantly affected to the extent that we are required to provision for potential bad debts. Profit from our 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 we are required to provision for potential bad debts.

Comparing the six-month periods ended June 30, 2003 and 2002, our profitability was favorably impacted in 2003 by increases in metric tons sold in marine and sales volume in aviation, and increases in the gross profit per metric ton traded and brokered in marine. Earnings were adversely affected by a decrease in gross profit per gallon sold in aviation, and increases in all three expense categories of ‘salaries and wages’, the ‘provision for bad debts’ and ‘other operating expenses.’

The lower gross profit per gallon sold in aviation was primarily due to increased wholesale activities and fuel management business, which are higher credit quality and lower margin activities and business. Partially offsetting the impact of these lower margin activities and business on gross profit in aviation were new commercial and government businesses. The increase in salaries and wages was primarily due to new hires to support our business expansion, the front-end cost of some business process improvement initiatives, and payments and accruals for achieved and potentially achieved performance based incentive compensation payouts. Accrued incentive compensation accounts for the largest part of the salaries and wages increase. The increase in the provision for bad debts is primarily due to additional general provision for bad debts and the write-off of receivables from two international airlines that filed for bankruptcy. The increase in other operating expenses was also primarily related to the business process improvement and business expansion initiatives, as well as to higher overall operating costs relating to insurance, office rent, telecommunication, depreciation and amortization, independent directors’ compensation, and professional services, such as consulting and legal.

We may experience decreases in future sales volume and margins as a result of continued conflicts and instability in the Middle East, Asia and Latin America, and additional military actions in response to the terrorist attacks of September 11th, as well as possible future terrorist activity and military conflicts. In addition, since the sharp decline in world oil prices soon after September 11th, world oil prices have been very volatile. We expect continued volatility in world oil prices as a result of the instability and conflicts in the Middle East. The

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volatility in world oil prices can adversely affect our customers’ business, and consequently our results of operations. See “Risk Factors” in Item 1 of our 10-K Report for the nine months ended December 31, 2002.

Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002

Our revenue for the three months ended June 30, 2003 was $645.9 million, an increase of $187.0 million, or 40.8%, as compared to revenue of $458.9 million for the same period of 2002. Our revenue during these periods was attributable to the following segments (in thousands):

Our marine fuel services segment contributed $417.1 million in revenue for the three months ended June 30, 2003, an increase of $84.9 million, or 25.6%, over the corresponding period of 2002. The increase in revenue was due to a 12.2% increase in the average price per metric ton sold, a 12.6% increase in the volume of metric tons sold and a 1.3% increase in the volume of metric tons brokered. Our aviation fuel services segment contributed $228.8 million in revenue for the three months ended June 30, 2003, an increase of $102.1 million as compared to the same period of 2002. The increase in revenue was due to an increase in the volume sold of 99.3 million gallons and a 3.7% increase in the average price per gallon sold. The increase in aviation sales volume was due to new commercial and government businesses and increases in wholesale activities and fuel management business.

Our gross profit of $25.5 million for the three months ended June 30, 2003 increased $5.4 million, or 26.7%, as compared to the corresponding period of 2002. Our gross margin decreased to 3.9% for the three months ended June 30, 2003, from 4.4% for the three months ended June 30, 2002. Our marine fuel services segment achieved a 3.3% gross margin for the three months ended June 30, 2003, an improvement of 16.1% over the same period of 2002. Our aviation fuel services business achieved a 5.2% gross margin for the three months ended June 30, 2003, as compared to 8.5% for the same period of the prior year. The decrease in aviation gross margin reflects increases in our wholesale activities and fuel management business, which are higher credit quality, lower margin activities and business.

Total operating expenses for the three months ended June 30, 2003 were $19.7 million, an increase of $5.5 million, or 38.4%, as compared to the same period of 2002. The increase in operating expenses was in all three categories of expenses: salaries and wages, provision for bad debts, and other operating expenses. The increase in salaries and wages was primarily due to new hires to support our business expansion, the front-end cost of some business process improvement initiatives, and payments and accruals for performance based incentive compensation payouts. Accrued incentive compensation accounts for the largest part of the salaries and wages increase. The increase in the provision for bad debts is primarily due to additional general provision for bad debts resulting from the write-off of receivables from one international airline that filed for bankruptcy. The increase in other operating expenses was also primarily related to the business process improvement and business expansion initiatives, as well as to higher overall operating costs relating to insurance, telecommunication, depreciation and amortization, independent directors’ compensation, and professional services, such as consulting and legal.

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Our income from operations for the three months ended June 30, 2003 was $5.8 million, as compared to $5.9 million for the corresponding period of the prior year. Income from operations during these periods was attributable to the following segments (in thousands):

The marine fuel services segment earned $5.1 million in income from operations for the three months ended June 30, 2003, an increase of $2.0 million, or 67.0%, as compared to $3.1 million for the corresponding period of the prior year. This increase resulted primarily from a 46% increase in gross profit partially offset by higher operating expenses relating to salaries and wages, and other operating expenses. The aviation fuel services segment’s income from operations was $4.7 million for the three months ended June 30, 2003, an increase of $58 thousand, or 1.3%, as compared to the same period of the prior year. This improvement was due to a higher gross profit, largely offset by higher operating expenses in all three categories of operating expenses. Corporate overhead costs not charged to the business segments totaled $4.0 million for the three months ended June 30, 2003, as compared to $1.8 million during the same period of the prior year. For explanations of the increases in operating expenses for the three months ended June 30, 2003 as compared to the same period a year ago, see above discussion on operating expenses.

During the three months ended June 30, 2003, we reported $482 thousand in other income, net, as compared to other expense, net, of $311 thousand for the same period of the prior year. This positive variance is primarily related to a net foreign exchange gain for the three months ended June 30, 2003 as compared to a net foreign exchange loss for the three months ended June 30, 2002. Partially offsetting the foreign exchange turnaround was a decrease in net interest income relating to lower interest rates.

For the three months ended June 30, 2003, our effective tax rate was 13.1%, for an income tax provision of $820 thousand, as compared to 20.7% and an income tax provision of $1.2 million for the three months ended June 30, 2002. The lower effective tax rate for the three months ended June 30, 2003 results from income tax benefits that stem from US operating losses at a tax rate of approximately 35% and increased operating income in low tax jurisdictions, as well as lower statutory tax rates on certain types of foreign income.

Net income and diluted earnings per share for the three months ended June 30, 2003 were $5.4 million and $0.49, respectively. Net income increased $1.0 million, or 23.5%, as compared to $4.4 million for the corresponding three months of 2002. Diluted earnings per share increased $0.08, or 19.9%, as compared to $0.41 per share during the three months ended June 30, 2002.

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Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002

Our revenue for the six months ended June 30, 2003 was $1.3 billion, an increase of $493.7 million, or 60.9%, as compared to revenue of $810.2 million for the corresponding six months of 2002. Our revenue during these periods was attributable to the following segments (in thousands):

Our marine fuel services segment contributed $814.5 million in revenue for the six months ended June 30, 2003, an increase of $225.4 million, or 38.3%, over the same period in 2002. The increase in revenue was due to a 35.9% increase in the average price per metric ton sold and a 2.4% increase in the volume of metric tons sold, which more than offset a 9.1% decrease in the volume of metric tons brokered. Our aviation fuel services segment contributed $489.4 million in revenue for the six months ended June 30, 2003, an increase of $268.3 million as compared to the same period of the prior year. The increase in revenue was due to an increase in the volume sold of 221.5 million gallons and a 15.0% increase in the average price per gallon sold. The increase in aviation sales volume was due to new commercial and government businesses and increases in wholesale activities and fuel management business.

Our gross profit of $52.8 million for the six months ended June 30, 2003 increased $11.5 million, or 28.0%, as compared to the corresponding six months of 2002. Our gross margin decreased to 4.0% for the six months ended June 30, 2003, from 5.1% for the six months ended June 30, 2002. Our marine fuel services segment achieved a 3.4% gross margin for the six months ended June 30, 2003, which increased slightly from 3.3% over the same period in 2002. Our aviation fuel services business achieved a 5.1% gross margin for the six months ended June 30, 2003, as compared to 9.8% for the first six months of 2002. The decrease in aviation gross margin reflects increases in our wholesale activities and fuel management business, which are higher credit quality, lower margin activities and business.

Total operating expenses for the six months ended June 30, 2003 were $40.1 million, an increase of $11.1 million, or 38.3%, as compared to the same period in 2002. The increase in operating expenses was in all three categories of expenses: salaries and wages, provision for bad debts and other operating expenses. The increase in salaries and wages was primarily due to new hires to support our business expansion, the front-end cost of some business process improvement initiatives, and payments and accruals for performance based incentive compensation payouts. Accrued incentive compensation accounts for the largest part of the salaries and wages increase. The increase in the provision for bad debts is primarily due to additional general provision for bad debts and the write-off of receivables from two international airlines that filed for bankruptcy. The increase in other operating expenses was also primarily related to the business process improvement and business expansion initiatives, as well as to higher overall operating costs relating to insurance, office rent, telecommunication, depreciation and amortization, independent directors’ compensation, and professional services, such as consulting and legal.

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Our income from operations for the six months ended June 30, 2003 was $12.7 million, as compared to $12.3 million for the corresponding period of the prior year. Income from operations during these periods was attributable to the following segments (in thousands):

The marine fuel services segment earned $9.7 million in income from operations for the six months ended June 30, 2003, an increase of $3.0 million, or 44.2%, as compared to the corresponding period of 2002. This increase resulted primarily from a 42.3% increase in gross profit partially offset by higher operating expenses in all three categories of expenses. The aviation fuel services segment’s income from operations was $9.7 million for the six months ended June 30, 2003, an increase of $321 thousand, or 3.4%, as compared to the same period in 2002. This improvement was due to a 15.2% growth in gross profit, partially offset by higher operating expenses in all three categories of expenses. Corporate overhead costs not charged to the business segments totaled $6.7 million for the six months ended June 30, 2003, as compared to $3.9 million during the same period of the prior year. For explanations of the increases in operating expenses for the six months ended June 30, 2003 as compared to the same period in 2002, see above discussion on operating expenses.

During the six months ended June 30, 2003, we reported $229 thousand in other income, net, as compared to other expense, net, of $207 thousand for the same period of the prior year. This positive variance is primarily related to a net foreign exchange gain for the six months ended June 30, 2003 as compared to a net foreign exchange loss for the six months ended June 30, 2002. Partially offsetting the foreign exchange turnaround was a decrease in net interest income relating to lower interest rates and a decrease in equity earnings in our PAFCO aviation fuel joint venture.

For the six months ended June 30, 2003, our effective tax rate was 17.1%, for an income tax provision of $2.2 million, as compared to 26.3% and an income tax provision of $3.2 million for the six months ended June 30, 2002. The lower effective tax rate for the three months ended June 30, 2003 results from income tax benefits that stem from US operating losses at a tax rate of approximately 35% and increased operating income in low tax jurisdictions, as well as lower statutory tax rates on certain types of foreign income.

Net income and diluted earnings per share for the six months ended June 30, 2003 were $10.7 million and $0.97, respectively. Net income increased $1.8 million, or 20.6%, as compared to $8.9 million for the corresponding six months of 2002. Diluted earnings per share increased $0.15, or 17.7%, as compared to $0.82 per share during the six months ended June 30, 2002.

Liquidity and Capital Resources

In our marine and aviation fuel businesses, the primary use of working capital is to finance receivables. We maintain aviation fuel inventories at certain locations in the United States, mostly for competitive reasons. Our marine and aviation fuel businesses historically have not required significant capital investment in fixed assets as we subcontract fueling services and maintain inventories at third party storage facilities. We have funded our operations primarily with cash flow generated from operations. As of June 30, 2003, we had $67.6 million of cash and cash equivalents as compared to $57.8 million at December 31, 2002.

We also have a revolving credit facility that permits borrowings of up to $40.0 million with a sublimit of $30.0 million for the issuance of letters of credit. Our available borrowings under the credit facility are reduced by the amount of outstanding letters of credit. The credit facility imposes certain operating and financial

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restrictions, including restrictions on the payment of dividends in excess of specified amounts. Our failure to comply with the obligations under the 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, impair our ability to receive advances and issue letters of credit, and may have a material adverse effect on us. As of June 30, 2003, we have borrowed $5.0 million and issued letters of credit of $16.2 million under the credit facility.

Net cash provided by operating activities totaled $10.8 million for the six months ended June 30, 2003, an increase of $6.9 million as compared to the corresponding six months of 2002. The increase in cash flows from operating activities resulted from an increase in net income of $1.8 million, an increase in non-cash operating expenses of $3.8 million, and a decrease in net operating assets of $1.3 million. The increase in non-cash operating expenses was primarily due to higher provision for bad debts and depreciation and amortization. The decrease in net operating assets was primarily related to decreases in accounts receivable and accounts payable and accrued expenses.

During the six months ended June 30, 2003, net cash used in investing activities was $2.4 million, a decrease of $4.0 million as compared to the same period in 2002. This decrease reflects the acquisition of the Oil Shipping group of companies in January 2002, partially offset with an increase in capital expenditures.

Net cash provided by financing activities was $1.3 million for the six months ended June 30, 2003, as compared to net cash used in financing activities of $6.1 million for the corresponding six months of 2002. The variance in cash flows from financing activities of $7.4 million reflects $5.0 million in net borrowings under our revolving credit facility during the six months ended June 30, 2003 and the repurchase of treasury stock under our treasury stock repurchase programs of $2.0 million during the six months ended June 30, 2002. The remaining variance was primarily due to decreases in the repayment of debt and proceeds from exercises of stock options.

Working capital at June 30, 2003 was $94.0 million, representing an increase of $11.8 million from working capital at December 31, 2002. Our accounts and notes receivable, at June 30, 2003, excluding the allowance for bad debts, amounted to $157.7 million, a decrease of $30.8 million, as compared to the balance at December 31, 2002. At June 30, 2003, the allowance for bad debts of $11.8 million increased by $684 thousand from the balance at December 31, 2002. During the six months ended June 30, 2003, we charged $3.9 million to the provision for bad debts, as compared to $1.3 million for the first six months of 2002. We have charge-offs in excess of recoveries of $3.3 million for the six months ended June 30, 2003, as compared to $1.3 million for the six months ended June 30, 2002. The increase in the charge-offs in excess of recoveries primarily related to receivables from two international airlines.

As of June 30, 2003, prepaid expenses and other current assets of $21.2 million decreased $1.1 million from December 31, 2002. This decrease was due to a lower receivable recorded for the fair market value of our outstanding derivatives, partially offset by an increase in prepaid fuel. Net goodwill, identifiable intangible asset, and investment goodwill decreased $184 thousand, to $38.1 million, due to the amortization of the identifiable intangible asset.

Our other current liabilities increased $5.7 million due to increases in both our income taxes payable and accruals for performance based incentive compensation payouts. Long-term debt and short-term debt, in the aggregate, increased by $2.5 million due to borrowings of $5.0 million from our credit facilities, partially offset primarily by payment of our debt.

Stockholders’ equity amounted to $137.8 million at June 30, 2003, as compared to $127.7 million at December 31, 2002. The increase in stockholders’ equity was primarily due to $10.7 million in earnings and $467 thousand received from the exercise of stock options, partially offset by the declaration of dividends of $1.6 million and the amortization of unearned deferred compensation of $358 thousand.

We believe that available funds from existing cash and cash equivalents, our credit facility, and cash flows

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generated by operations will be sufficient to fund our working capital and capital expenditure requirements for the next twelve months. Our opinions concerning liquidity and our ability to obtain financing are based on currently available information. To the extent this information proves to be inaccurate, or if circumstances change, future availability of trade credit or other sources of financing may be reduced and our liquidity would be adversely affected. Factors that may affect the availability of trade credit, or other financing, include our performance (as measured by various factors including cash provided from operating activities), the state of worldwide credit markets, and our levels of outstanding debt. In addition, we may decide to raise additional funds to respond to competitive pressures or to acquire complementary businesses. Accordingly, we cannot guarantee that financing will be available when needed or desired on terms favorable to us.

Contractual Obligations, Commercial Commitments and Off-Balance Sheet Arrangements

Except for changes in our letters of credit and purchase and sale commitments and derivatives, as described below, our contractual obligations and commercial commitments did not change materially from December 31, 2002 to June 30, 2003. For a discussion of these matters, refer to “Contractual Obligations, Commercial Commitments and Off-Balance Sheet Arrangements” in Item 7 of our 10-K Report for the nine months ended December 31, 2002.

Letters of Credit

In the normal course of business, we are required to provide letters of credit to certain suppliers. A majority of these letters of credit expire within one year from their issuance, and expired letters of credit are renewed as needed. As of June 30, 2003, we had letters of credit outstanding of $16.2 million, as compared to $14.4 million in letters of credit outstanding as of December 31, 2002. The letters of credit were issued under our revolving credit facility, and count against the $40.0 million limit on total borrowings under this facility. For additional information on our revolving credit facility and letters of credit, see the discussion thereof in “Liquidity and Capital Resources,” above.

Purchase and Sale Commitments and Derivatives

See “Item 3—Quantitative and Qualitative Disclosures About Market Risk,” included in this Form 10-Q, for a discussion of our purchase and sale commitments and derivatives.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

To take advantage of favorable market conditions or for competitive reasons, we enter into short-term cancelable fuel purchase commitments for the physical delivery of product. We simultaneously may hedge the physical delivery of fuel through a commodity based derivative instrument, to minimize the effects of commodity price fluctuations.

As part of our price risk management services, we offer to our marine and aviation customers fixed fuel prices on future sales with, or without, physical delivery of fuel. Typically, we simultaneously enter into a commodity based derivative instrument with a counterparty to hedge our variable fuel price on related future purchases with, or without, physical delivery of fuel. The counterparties are major oil companies and derivative trading firms. Accordingly, we do not anticipate non-performance by such counterparties. Pursuant to these transactions, we are not affected by market price fluctuations since the contracts have the same terms and conditions except for the fee or spread earned by us. Performance risk by the customer under these contracts is considered a credit risk. This risk is minimized by entering into these contracts and transactions only with customers meeting stricter credit criteria.

As of June 30, 2003, we had 70 outstanding swaps contracts totaling approximately 66 thousand metric tons of marine fuel, expiring through December 2005. As of June 30, 2003, we have recorded our derivatives, which consisted of swap contracts to hedge fixed fuel prices on future sales to our customers with, or without, physical delivery of fuel at their fair market value of $1.8 million. In the accompanying Condensed Consolidated

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Balance Sheets, such amount was included as Prepaid expenses and other current assets with an offsetting amount in Accrued expenses.

We conduct the vast majority of our business transactions in U.S. dollars. However, in certain markets, primarily in Mexico, payments to our aviation fuel supplier are denominated in local currency. In addition, in Mexico, payments from some of our customers are also denominated in local currency. This subjects us to foreign currency exchange risk, which may adversely affect our results of operations and financial condition. We seek to minimize the risks from currency exchange rate fluctuations through our regular operating and financing activities.

Our policy is to not use derivative financial instruments for speculative purposes.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

We have evaluated our disclosure controls and procedures during the last 90 days. Based on such evaluation, our Chief Executive Officer (“CEO”), Chief Operating Officer (“COO”) and Chief Financial Officer (“CFO”) believe that such controls and procedures are effective to achieve the above objectives.

Changes in Internal Controls

Our CEO, COO and CFO have determined, based upon our most recent evaluation, that there have been no significant changes in our internal controls that could significantly affect our internal controls and procedures subsequent to that evaluation.

Limitations on the Effectiveness of Controls

Our management, including our CEO, COO and CFO, does not expect that our disclosure controls or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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Part II

Item 1. Legal Proceedings

As described in Item 3 of our 10-K Report for the nine months ended December 31, 2002, we are involved in certain material legal proceedings. There has been no material development in those proceedings since the filing of our 10-K Report.

In addition to the matters described in our 10-K Report for the nine months ended December 31, 2002, we are also involved in litigation and administrative proceedings primarily arising in the normal course of our business. In the opinion of management, except as set forth in our 10-K Report for the nine months ended December 31, 2002, our liability, if any, under any pending litigation or administrative proceedings will not materially affect our financial condition or results of operations.

Item 2. Changes in Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

Our annual meeting of stockholders was held on May 27, 2003. The matters voted on at the annual meeting was 1) the election of directors, and 2) the approval of an amendment to increase the number of shares authorized for issuance under the 1993 Non-Employee Directors Stock Option Plan (the “1993 Plan”) and extend the term of the 1993 Plan. All of our director nominees were elected and the amendment to the 1993 Plan was approved.

The following table sets forth the voting results for the matters voted on by the shareholders at the annual meeting:

Election of Directors

The Amendment to the 1993 Plan

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Item 5. Other Information

None

Item 6. Exhibits and reports on Form 8-K

(a) The exhibits set forth in the following index of exhibits are filed as part of this Form 10-Q:

(b) Reports on Form 8-K.

On May 6, 2003, we filed a Current Report on Form 8-K to report the results of operations for the three months ended March 31, 2003.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 6, 2003

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