UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM___________TO__________
COMMISSION FILE NUMBER 1-9533
WORLD FUEL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
Florida 59-2459427
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 South Royal Poinciana Blvd., Suite 800
Miami Springs, Florida 33166
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code: (305) 884-2001
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:
As of February 9, 2001, the registrant had a total of 10,403,000 shares of
common stock, par value $0.01 per share, issued and outstanding.
Page 1 of 17
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
- ------ --------------------
The following unaudited, condensed consolidated financial statements of
World Fuel Services Corporation (the "Company") 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 nine months ended
December 31, 2000, will not be necessarily indicative of the results for the
entire fiscal year ending March 31, 2001.
Page 2 of 17
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
December 31, March 31,
2000 2000
-------------- ------------
(UNAUDITED)
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents
Accounts and notes receivable, net of allowance for bad debts of $12,175 $ 19,050 $ 32,773
and $15,202, at December 31 and March 31, 2000, respectively
Inventories 137,154 142,250
Prepaid expenses and other current assets 6,499 10,418
Current net assets of discontinued operations 18,113 9,829
3,362 -
--------- ---------
Total current assets 184,178 195,270
--------- ---------
PROPERTY AND EQUIPMENT, net 5,817 5,120
--------- ---------
OTHER ASSETS:
Cost in excess of net assets of acquired companies, net
Other 22,433 23,040
3,145 3,346
--------- ---------
$ 215,573 $ 226,776
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,923 $ 17
Accounts payable 68,194 80,404
Accrued expenses 30,752 26,316
Other current liabilities 8,571 7,994
Current net liabilities of discontinued operations - 6,498
--------- ---------
Total current liabilities 109,440 121,229
--------- ---------
LONG-TERM LIABILITIES 5,516 5,886
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 100,000 shares authorized,
none issued - -
Common Stock, $0.01 par value; 25,000,000 shares authorized; 12,540,000 and
and 12,537,000 shares issued and outstanding at December 31 and
March 31, 2000, respectively 125 125
Capital in excess of par value 26,882 26,800
Retained earnings 90,534 85,256
Less treasury stock, at cost; 2,138,000 and 1,540,000 shares
at December 31 and March 31, 2000, respectively 16,924 12,520
--------- ---------
100,617 99,661
--------- ---------
$ 215,573 $ 226,776
========= =========
The accompanying notes to the condensed consolidated financial statements are an
integral part of these condensed consolidated balance sheets.
Page 3 of 17
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(UNAUDITED - IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended
December 31, December 31,
---------------------------- ------------------------------
2000 1999 2000 1999
------------- -------------- --------------- --------------
Revenue $ 408,567 $ 323,063 $1,161,180 $848,268
Cost of revenue 390,458 307,779 1,109,351 801,189
--------- --------- ---------- --------
Gross profit 18,109 15,284 51,829 47,079
--------- --------- ---------- --------
Operating expenses:
Salaries and wages 7,257 5,480 19,259 15,977
Executive severance charge - - 3,505 -
Provision for bad debts 1,359 3,948 7,786 8,754
Other 4,751 4,107 14,598 12,116
--------- --------- ---------- --------
13,367 13,535 45,148 36,847
--------- --------- ---------- --------
Income from operations 4,742 1,749 6,681 10,232
--------- --------- ---------- --------
Other income (expense), net:
Special provision for bad debts in aviation joint
venture in Ecuador - - - (1,593)
Non-recurring charge in marine segment - - - (3,092)
Non-recurring (charge) credit in aviation segment - (953) 300 (953)
Other, net 708 97 1,767 (350)
--------- --------- ---------- --------
708 (856) 2,067 (5,988)
--------- --------- ---------- --------
Income from continuing operations before income taxes 5,450 893 8,748 4,244
Provision for income taxes 1,538 224 1,374 2,664
--------- --------- ---------- --------
Income from continuing operations 3,912 669 7,374 1,580
Discontinued operations, net of tax (496) 530 (496) 1,619
--------- --------- ---------- --------
Net income $ 3,416 $ 1,199 $ 6,878 $ 3,199
========= ========= ========== ========
Basic earnings (loss) per share:
Continuing operations $ 0.37 $ 0.06 $ 0.69 $ 0.13
Discontinued operations (0.05) 0.04 (0.05) 0.13
--------- --------- ---------- --------
Net income $ 0.32 $ 0.10 $ 0.64 $ 0.26
========= ========= ========== ========
Weighted average shares - basic 10,520 12,152 10,723 12,177
========= ========= ========== ========
Diluted earnings (loss) per share:
Continuing operations $ 0.37 $ 0.06 $ 0.69 $ 0.13
Discontinued operations (0.05) 0.04 (0.05) 0.13
--------- --------- ---------- --------
Net income $ 0.32 $ 0.10 $ 0.64 $ 0.26
========= ========= ========== ========
Weighted average shares - diluted 10,520 12,178 10,735 12,248
========= ========= ========== ========
The accompanying notes to the condensed consolidated financial statements are
an integral part of these condensed consolidated financial statements.
Page 4 of 17
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(UNAUDITED - IN THOUSANDS)
Nine Months Ended
December 31,
--------------------------
2000 1999
---------- ---------
Cash flows from continuing operating activities:
Income from continuing operations $ 7,374 $ 1,580
---------- ---------
Adjustments to reconcile income from continuing operations to net cash
provided by (used in) continuing operating activities -
Depreciation and amortization 1,720 1,820
Provision for bad debts 7,786 8,754
Non-recurring charge in aviation segment - 953
Non-recurring charge in marine segment - 3,092
Deferred income tax provision (benefit) 836 (371)
Equity in (earnings) losses of aviation joint venture in Ecuador, net (297) 1,963
Other non-cash operating charges 82 21
Changes in operating assets and liabilities, net of acquisition:
Accounts and notes receivable (2,303) (56,527)
Inventories 3,919 (8,357)
Prepaid expenses and other current assets (5,625) (944)
Other assets 377 355
Accounts payable (12,210) 27,684
Accrued expenses and other current liabilities 3,895 12,131
---------- ---------
Total adjustments (1,820) (9,426)
---------- ---------
Net cash provided by (used in) continuing operating activities 5,554 (7,846)
---------- ---------
Cash flows from investing activities:
Capital expenditures (1,866) (1,604)
Investment in aviation joint venture (1,000) -
Advances to aviation joint venture in Ecuador - (895)
Payment for acquisition of business, net of cash acquired - (4,189)
---------- ---------
Net cash used in investing activities (2,866) (6,688)
---------- ---------
Cash flows from financing activities:
Dividends paid on common stock (1,634) (1,828)
Purchases of treasury stock (4,404) (529)
Borrowings under revolving credit facitily, net - 9,300
Other (17) (22)
---------- ---------
Net cash (used in) provided by financing activities (6,055) 6,921
---------- ---------
Discontinued operations (10,356) 1,858
---------- ---------
Net decrease in cash and cash equivalents (13,723) (5,755)
Cash and cash equivalents, at beginning of period 32,773 16,527
---------- ---------
Cash and cash equivalents, at end of period $ 19,050 $ 10,772
========== =========
(Continued)
Page 5 of 17
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(UNAUDITED - IN THOUSANDS)
(Continued)
Nine Months Ended
December 31,
------------------------------
2000 1999
-------------- ---------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (including $19 in fiscal 2000 for discontinued operations) $ 205 $ 434
========= =========
Income taxes (including $8,702 and $267 in fiscal 2001 and 2000, respectively,
for discontinued operations) $ 12,990 $ 3,565
========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Cash dividends declared, but not yet paid, totaling $520 thousand and $606
thousand are included in Accrued expenses as of December 31, 2000 and 1999,
respectively.
In connection with the April 1, 1999 acquisition of the Bunkerfuels group of
companies, the Company issued $4.25 million in notes payable.
During the nine months ended December 31, 2000, the Company reclassified $2.5
million of EarthCare Company common stock, received by the Company pursuant
to the sale of the oil recycling segment, from Other assets to Prepaid
expenses and other current assets.
During the nine months ended December 31, 1999, the Company reclassified
approximately $1.7 million from Prepaid expenses and other current assets to
Other assets.
In connection with the December 31, 2000 joint venture investment in Page
Avjet Fuel Co., L.L.C. of $3.5 million, the Company issued a non-interest
bearing note payable for $2.5 million, which the Company recorded at the
discounted amount of approximately $1.9 million. The Company included $500
thousand and $1.4 million of this note payable in Current maturities of long-
term debt and Long-term liabilities, respectively. See Note 4 in the Notes to
the Condensed Consolidated Financial Statements for additional information.
The accompanying notes to the condensed consolidated financial statements are an
integral part of these condensed consolidated financial statements.
Page 6 of 17
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 the Company's Annual Report on Form 10-K for the year
ended March 31, 2000.
(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. In February
2000, the Company sold all of the issued and outstanding stock of its oil
recycling subsidiaries, the International Petroleum Corporation group ("IPC"),
to EarthCare Company ("EarthCare"). 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, price protection and escrow
agreements. The lock-up agreement with EarthCare permits the Company to sell up
to $2,500,000 of its EarthCare stock starting February 16, 2001, and the balance
commencing August 16, 2001. Pursuant to the Company's escrow agreement with
EarthCare, 150,092 of the Company's EarthCare shares are held in escrow as
security for any obligations of the Company to indemnify EarthCare under the
stock purchase agreement. As described below, EarthCare has asserted indemnity
claims against the Company in a pending arbitration proceeding. Therefore, the
shares subject to the escrow are being held pending the conclusion of the
arbitration, which is scheduled for March 2001. The Company intends to sell
its other EarthCare shares as soon as permitted under the lock-up agreement
described above. Accordingly, the Company has classified its EarthCare shares
as "other currents assets."
The Company entered into a price protection agreement for the EarthCare
shares with Donald F. Moorehead, Jr., EarthCare's Chairman. Pursuant to this
agreement, Mr. Moorehead has personally agreed to pay the Company the difference
between (i) $5,000,000, and (ii) the proceeds received by the Company from the
sale of its EarthCare stock. Accordingly, the Company is using the cost method
to value the investment as of December 31, 2000.
In April 2000, the Company filed a Demand for Arbitration with the
American Arbitration Association, against EarthCare to collect approximately
$3,827,000 in cash due pursuant to the Stock Purchase Agreement. On May 23,
2000, EarthCare filed a response to the Company's action which asserts defenses
and counterclaims against the Company as a result of alleged breaches by the
Company of certain representations under the Stock Purchase Agreement. In
October 2000, the Company received notice that the arbitration hearing is set
for March 2001. See Part II, Item 1 (Legal Proceedings) of this Form 10-Q. There
can be no assurance that the Company will prevail on the above legal proceeding
and management cannot estimate the exposure or recovery to the Company if it
does not prevail in the proceeding and counterclaims pending against the
Company.
For the three and nine months ended December 31, 1999, the Company
recognized net income from discontinued operations of $530,000 and $1,619,000,
respectively. For the three and nine months ended December 31, 2000, the Company
recorded additional income taxes of $496,000 in discontinued operations based on
the actual fiscal 2000 income tax returns filed. Potential costs which could not
be reasonably estimated include expenses associated with the indemnifications
provided by the Company as part of the purchase agreement. See Part II, Item 1
(Legal Proceedings) of this Form 10-Q.
Page 7 of 17
The Company reported current net assets of discontinued operations of
$3,362,000 as of December 31, 2000 and net current liabilities of discontinued
operations of $6,498,000 as of March 31, 2000. As of December 31, 2000, the
current net assets of discontinued operations consisted primarily of amounts
due from EarthCare. The net current liabilities of discontinued operations, as
of March 31, 2000, consisted of income taxes payable related to the ten months
of operations and the gain on sale, partially offset by current net assets of
discontinued opeations. For the three and nine months ended December 31, 1999,
revenue applicable to the discontinued operations was $7,215,000 and
$20,189,000, respectively. Income from operations of the discontinued
operations was $826,000 and $2,601,000, respectively, for the three and nine
months ended December 31, 1999.
The Company anticipates substantial completion of its plan of
discontinuance by the end of fiscal 2001, and believes that the remaining net
assets will be realized.
(3) COMMITMENTS AND CONTINGENCIES
- ----------------------------------
On December 11, 2000, the United States District Court for the Southern
District of Florida dismissed the shareholders class action filed against the
Company and its executive officers. The lawsuit alleged violations of federal
securities laws and sought an unspecified amount of damages arising from the
decrease in the Company's stock price which occurred on January 31, 2000.
The Company is also involved in litigation and administrative proceedings
primarily arising in the normal course of its business. In the opinion of
management, the Company's liability, if any and except as set forth above in
Note 2, under any pending litigation or administrative proceedings will not
materially affect its financial condition or results of operations. See Part II,
Item 1 (Legal Proceedings) of this Form 10-Q.
(4) AVIATION JOINT VENTURE
- ---------------------------
On December 31, 2000, the Company acquired a 50% equity interest in Page
Avjet Fuel Co., L.L.C. ("PAFCO") from Signature Flight Support Corporation
("Signature") for $1,000,000 in cash and a $2,500,000 note payable, which is
payable in five equal annual installments of $500,000 beginning on January 5,
2002. The total purchase price of $3,500,000 is subject to a downward purchase
price adjustment based on an audit of PAFCO's financial statements for the
fiscal year ended December 31, 2000. The non-interest bearing promissory note
was discounted at 9% and recorded at $1,942,000, of which $500,000 and
$1,442,000 was included in Current maturities of long-term debt and Long-term
liabilities, respectively, in the accompanying condensed consolidated balance
sheet as of December 31, 2000. The investment cost in excess of 50% of the net
assets of PAFCO amounting to $2,942,000 was included in Other assets in the
accompanying condensed consolidated balance sheet as of December 31, 2000 and
will be amortized over 10 years using the straight-line method.
In accordance with the joint venture Operating Agreement, for each fiscal
year of the joint venture, the Company will be allocated 80% of PAFCO's net
income. 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.
The Company will begin to recognize its share of PAFCO's results effective
January 1, 2001.
Page 8 of 17
(5) EMPLOYMENT AGREEMENTS
- --------------------------
On December 21, 2000, the Company's Board of Directors approved an
amendment to the employment agreements of its Chairman of the Board and
President related to their respective promotions to their current positions. The
amendments 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. For the Chairman of the Board, the amended and restated
employment agreement will expire on March 31, 2004 and will provide the
following: (1) a base salary of $600,000, effective April 1, 2000; (2) a bonus
for fiscal year 2001 based on the bonus formula in the executive's current
employment agreement with a maximum annual bonus of $650,000; (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
will be awarded on January 2, 2001, at an exercise price of 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 increases in earnings per share; and
(5) severance payment at three times average salary and bonus during the five
year period preceding the executive's termination. For the President, the
amended and restated employment agreement will expire on March 31, 2005 and will
provide 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
current employment agreement; (3) stock options to purchase 150,000 shares which
will vest over three years, 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 will be awarded on January 2, 2001 at 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 increases in
earnings per share; and (5) severance payments at three times average salary and
bonus in the event of a change of control, and two times for all other
terminations. The retroactive adjustments of the base salary of the Chairman of
the Board and the President, as set forth above, have been reflected in the
operating results for three and nine months ended December 31, 2000.
(6) RECENT ACCOUNTING PRONOUNCEMENTS
- -------------------------------------
In June 1998, June 1999, and June 2000, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities", SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of
Effective Date of FASB No. 133-as amendment of FASB Statement No. 133", and SFAS
No. 138, "Accounting for Derivative Instruments and Certain Hedging Activities-
an amendment of FASB Statement No. 133", respectively. SFAS No. 137 defers for
one year the effective date of SFAS No. 133, as amended with SFAS No. 138. As a
result, SFAS No. 133, as amended, is effective for the Company's fiscal year
ending March 31, 2002. SFAS No. 133, as amended, establishes accounting and
reporting standards requiring that every derivative instrument (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. The
Company believes that the adoption of SFAS No. 133, as amended, will not have a
material impact on its financial statements.
In March 2000, the Emerging Issues Task Force ("EITF") reached a consensus
on Issue No. 00-2, "Accounting for Web Site Development Costs" ("EITF Issue No.
00-2"), 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
AICPA Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use".
Page 9 of 17
Accordingly, certain web site development costs that are expensed as incurred
may be capitalized and amortized. The Company adopted EITF Issue No. 00-2 during
the three months ended December 31, 2000. The adoption of EITF Issue No. 00-2
did not have a material effect on the financial statements of the Company.
(7) BUSINESS SEGMENTS
- ----------------------
The Company's continuing operations have two reportable business segments:
aviation and marine fueling. The Company evaluates performance based on income
from operations which does not include income taxes, interest income (expense)
or other income (expense).
The following tables set forth information concerning the Company's
continuing operations by business segments:
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------------------------- ---------------------------------------
2000 1999 2000 1999
------------------ ------------------ ------------------- ------------------
REVENUE
Aviation fueling segment $ 131,651,000 $ 114,347,000 $ 392,014,000 $ 314,236,000
Marine fueling segment 276,916,000 208,716,000 769,166,000 534,032,000
-------------- -------------- --------------- -------------
Total $ 408,567,000 $ 323,063,000 $ 1,161,180,000 $ 848,268,000
============== ============== =============== =============
INCOME FROM OPERATIONS
Aviation fueling segment $ 3,128,000 $ 1,169,000 $ 8,039,000 $ 8,923,000
Marine fueling segment 4,025,000 1,816,000 7,730,000 5,024,000
Corporate (2,411,000) (1,236,000) (9,088,000) (3,715,000)
-------------- -------------- --------------- -------------
Total $ 4,742,000 $ 1,749,000 $ 6,681,000 $ 10,232,000
============== ============== =============== =============
December 31, March 31,
2000 2000
------------------- ------------------
ACCOUNTS AND NOTES RECEIVABLE, NET
Aviation fueling segment (net of allowance for bad debts of $ 53,013,000 $ 56,953,000
$6,131,000 and $12,163,000, respectively)
Marine fueling segment (net of allowance for bad debts of
$6,044,000 and $3,039,000, respectively) 84,141,000 85,297,000
--------------- --------------
Total $ 137,154,000 $ 142,250,000
=============== ==============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- -----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
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 the
Company'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
Page 10 of 17
foreign currency; major changes in political, economic, regulatory or
environmental conditions; the loss of key customers, suppliers or members of
senior management; uninsured losses; competition; credit risk associated with
accounts and notes receivable; and other risks detailed in this report and in
the Company's other Securities and Exchange Commission filings. Actual results
may differ materially from any forward-looking statements set forth herein.
Introduction
- ------------
During the three and nine months ended December 31, 2000, world oil prices
continued to exhibit volatility and have remained high, in particular when
compared to the same periods in the prior year. The rapid and sustained increase
in fuel prices has to date, and will continue to, adversely affect the Company's
customers. The Company's profitability during the comparable nine months of
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 the Company's aviation segment, and the
severance expense related to the settlement of the employment agreement with the
Company'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.
The Three Months Ended December 31, 2000 Compared to the Three Months Ended
- ---------------------------------------------------------------------------
December 31, 1999
- -----------------
The Company's revenue for the three months ended December 31, 2000 was
$408,567,000, an increase of $85,504,000, or 26.5%, as compared to revenue of
$323,063,000 for the corresponding period of the prior year. The revenue
increase is due to a substantial increase in world oil prices. The Company's
revenue during these periods was attributable to the following segments:
Three Months Ended December 31,
2000 1999
--------------- ---------------
Aviation Fueling $ 131,651,000 $ 114,347,000
Marine Fueling 276,916,000 208,716,000
------------- -------------
Total Revenue $ 408,567,000 $ 323,063,000
============== =============
The aviation fueling segment contributed $131,651,000 in revenue for the
three months ended December 31, 2000. This represented an increase in revenue of
$17,304,000, or 15.1%, as compared to the same period of the prior year. The
increase in revenue resulted from a 43 cents, or 48.3% increase in the average
price per gallon sold, partially offset by a 22.4% decrease in gallons sold. The
marine fueling segment contributed $276,916,000 in revenue for the three months
ended December 31, 2000, an increase of $68,200,000, or 32.7%, over the
corresponding period of the prior year. The increase in revenue was related to a
25.3% increase in the average price per metric ton sold, as well as a 6.4%
increase in the volume of metric tons sold, partially offset by an 11.9%
decrease in the volume of metric tons brokered.
The Company's gross profit of $18,109,000 for the three months ended
December 31, 2000 increased $2,825,000, or 18.5%, as compared to the same period
of the prior year. The Company's gross margin decreased from 4.7% for the three
months ended December 31, 1999, to 4.4% for the three months ended December 31,
2000. The Company's aviation fueling business achieved a 6.4% gross margin for
the three months ended December 31, 2000, as compared to 7.4% achieved for the
same period during the prior year. This decrease resulted from an increase in
the average price of fuel sold. The Company's marine fueling segment achieved a
Page 11 of 17
3.5% gross margin for the three months ended December 31, 2000, as compared to
3.3% for the same period of the prior 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 as a result of better pricing and
minimizing low margin business activity.
Total operating expenses for the three months ended December 31, 2000 were
$13,367,000, a decrease of $168,000, or 1.2%, as compared to the same period of
the prior year. The decrease resulted from a reduction in the provision for bad
debts, partially offset by higher compensation, in part due to staff additions
and performance based pay incentives, professional fees, and information
technology spending.
The Company's income from operations for the three months ended December
31, 2000 was $4,742,000, as compared to $1,749,000 for the same period of the
prior year. Income from operations during these periods was attributable to the
following segments:
Three Months Ended December 31,
2000 1999
-------------- --------------
Aviation Fueling $ 3,128,000 $ 1,169,000
Marine Fueling 4,025,000 1,816,000
Corporate Overhead (2,411,000) (1,236,000)
----------- -----------
Total Income from Operations $ 4,742,000 $ 1,749,000
=========== ===========
The aviation fueling segment's income from operations was $3,128,000 for
the three months ended December 31, 2000, an increase of $1,959,000, or 168%, as
compared to the three months ended December 31, 1999. This resulted from an
improvement in the gross profit per gallon sold and a decrease in the provision
for bad debts. Partially offsetting was a decrease in volume of gallons sold.
The marine fueling segment earned $4,025,000 in income from operations for the
three months ended December 31, 2000, an increase of $2,209,000, or 122%, over
the corresponding period of the prior year. This increase resulted primarily
from a higher gross profit per metric ton sold and brokered. The improved gross
profit in both segments reflect better pricing and minimizing low margin
business activity.
During the quarter ended December 31, 2000, the Company reported $708,000
in other income, net, compared to other expense, net, of $856,000 for the same
quarter a year ago. For the three months ended December 31, 1999, the Company
recorded a $953,000 non-recurring charge in the aviation segment related to a
substantial write-down of the Company's investment in and advances to its
aviation joint venture in Ecuador. Also contributing to the variance were
increases in net interest income and foreign exchange gains during the quarter
ended December 31, 2000.
Net income from continuing operations for the three months ended December
31, 2000 was $3,912,000, an increase of $3,243,000 as compared to net income
from continuing operations of $669,000 for the same period of the prior year.
Diluted earnings per share on income from continuing operations was $0.37, an
increase of $0.31 as compared to the same period of the prior year.
During the three months ended December 31, 2000, the Company recorded
additional income taxes of $496,000 in discontinued operations related to the
gain on the sale of the oil recycling segment. Such additional taxes were
recorded based on the actual fiscal 2000 income tax returns filed. The net loss
from discontinued
Page 12 of 17
operations for the three months ended December 31, 2000 was $496,000, or $0.05
per share, as compared to net income of $530,000, or $0.04 per diluted share for
the same period of the prior year.
Including discontinued operations, net Income for the three months ended
December 31, 2000 and 1999 was $3,416,000 and $1,199,000, respectively, an
increase of $2,217,000. Diluted earnings per share, including discontinued
operations, was $0.32 for the three months ended December 31, 2000, an increase
of $0.22 over the $0.10 achieved during the same period of the prior year.
The Nine Months Ended December 31, 2000 Compared to the Nine Months Ended
- -------------------------------------------------------------------------
December 31, 1999
- -----------------
The Company's revenue for the nine months ended December 31, 2000 was
$1,161,180,000, an increase of $312,912,000, or 36.9%, as compared to revenue of
$848,268,000 for the corresponding period of the prior year. The revenue
increase is due to a substantial increase in world oil prices. The Company's
revenue during these periods was attributable to the following segments:
Nine Months Ended December 31,
2000 1999
--------------------------------------
Aviation Fueling $ 392,014,000 $ 314,236,000
Marine Fueling 769,166,000 534,032,000
--------------- -------------
Total Revenue $ 1,161,180,000 $ 848,268,000
=============== =============
The aviation fueling segment contributed $392,014,000 in revenue for the
nine months ended December 31, 2000. This represented an increase in revenue of
$77,778,000, or 24.8%, as compared to the same period of the prior year. The
increase in revenue resulted from a 50.3% increase in the average price per
gallon sold, partially offset by a 17.0% decrease in gallons sold. The marine
fueling segment contributed $769,166,000 in revenue for the nine months ended
December 31, 2000, an increase of $235,134,000, or 44.0%, over the corresponding
period of the prior year. The increase in revenue was related to a 46.4%
increase in the average price per metric ton sold, partially offset by a
decrease in the volume of metric tons sold and brokered of 1.2% and 3.7%,
respectively.
The Company's gross profit of $51,829,000 for the nine months ended
December 31, 2000 increased $4,750,000, or 10.1%, as compared to the same period
of the prior year. The Company's gross margin decreased from 5.6% for the nine
months ended December 31, 1999, to 4.5% for the nine months ended December 31,
2000. The Company's aviation fueling business achieved a 6.3% gross margin for
the nine months ended December 31, 2000, as compared to 8.9% achieved for the
same period during the prior year. This decrease resulted from an increase in
the average price of fuel sold, partially offset by an increase in the average
gross profit per gallon. The Company's marine fueling segment achieved a 3.5%
gross margin for the nine months ended December 31, 2000, as compared to a 3.6%
gross margin for the same period of the prior year. The marine segment's gross
margin decreased due to higher fuel prices, largely offset by increases in the
average gross profit per metric ton sold and brokered.
Total operating expenses for the nine months ended December 31, 2000 were
$45,148,000 an increase of $8,301,000, or 22.5%, as compared to the same period
of the prior year. The increase resulted from higher compensation, professional
fees, and information technology spending, and an executive severance charge in
settlement of the employment agreement with the Company's former Chairman of the
Board. Partially offsetting was a decrease in the provision for bad debts.
Page 13 of 17
The Company's income from operations for the nine months ended December 31,
2000 was $6,681,000, a decrease of $3,551,000, or 34.7%, as compared to the same
period of the prior year. Income from operations during these periods was
attributable to the following segments:
Nine Months Ended December 31,
2000 1999
------------ -------------
Aviation Fueling $ 8,039,000 $ 8,923,000
Marine Fueling 7,730,000 5,024,000
Corporate Overhead (9,088,000) (3,715,000)
------------ -------------
Total Income from Operations $ 6,681,000 $ 10,232,000
============ =============
The aviation fueling segment's income from operations was $8,039,000 for
the nine months ended December 31, 2000, a decrease of $884,000, or 9.9%, as
compared to the nine months ended December 31, 1999. This resulted from a volume
decrease in gallons sold and increased professional fees, partially offset by a
decrease in the provision for bad debts. The marine fueling segment earned
$7,730,000 in income from operations for the nine months ended December 31,
2000, an increase of $2,706,000, or 53.9%, over the corresponding period of the
prior year. This increase resulted from an improved gross profit per metric ton
on trade and brokered transactions. Partially offsetting were a volume decrease
in metric tons sold and increases in compensation and provision for bad debts.
During the nine months ended December 31, 2000, the Company reported
$2,067,000 in other income, net, compared to other expense, net, of $5,988,000,
for the same period a year ago. For the nine months ended December 31, 1999, the
Company recorded a non-recurring charge in the marine segment due to the theft
of product in Nigeria, a non-recurring charge in the aviation segment related to
a substantial write-down of the Company's investment in and advances to its
aviation joint venture in Ecuador, and a special charge to the provision for bad
debts in the aviation joint venture in Ecuador. Also contributing to the
variance were increases in net interest income, foreign exchange gains, and a
reduction to the previously provisioned write-down in the Company's aviation
joint venture during the nine months ended December 31, 2000.
Income taxes for the nine months ended December 31, 2000, reflect the
impact of the executive severance and the provision for bad debts, for which the
Company received an income tax benefit. Income taxes for the nine months ended
December 31, 1999 reflect the impact of the provision for bad debts and the non-
recurring losses in aviation and marine, for which the Company did not receive
an income tax benefit.
Net income from continuing operations for the nine months ended December
31, 2000 was $7,374,000, an increase of $5,794,000 from the same period of the
prior year. Diluted earnings per share on income from continuing operations was
$0.69, an increase of $0.56 from the same period of the prior year.
Net loss from discontinued operations was $496,000, or $0.05 per diluted
share, for the nine months ended December 31, 2000, as compared to net income of
$1,619,000, or $0.13 per diluted share for the same period of the prior year.
Including discontinued operations, net income for the nine months ended
December 31, 2000 and 1999 was $6,878,000 and $3,199,000, respectively, an
increase of $3,679,000. Diluted earnings per share, including discontinued
operations, was $0.64 for the nine months ended December 31, 2000, an increase
of $0.38 over the $0.26 achieved during the same period of the prior year.
Page 14 of 17
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents amounted to $19,050,000 at December 31, 2000, as
compared to $32,773,000 at March 31, 2000. The principal uses of cash and cash
equivalents during the nine months of fiscal 2001 were $8,702,000 for the
payment of income taxes related to the discontinued operations, $4,404,000 for
the purchase of treasury stock, $1,866,000 for capital expenditures, $1,634,000
in dividends paid on common stock, and $1,000,000 related to the purchase of a
50% equity interest in Page Avjet Fuel Co., L.L.C. from Signature Flight Support
Corporation. Partially offsetting these uses of cash and cash equivalents was
$5,554,000 in net cash provided by continuing operating activities, net of
$4,522,000 for the payment of severance and deferred compensation to the
Company's former Chairman of the Board. Other components of changes in cash and
cash equivalents are detailed in the Condensed Consolidated Statements of Cash
Flows.
Working capital at December 31, 2000 was $74,738,000, representing a
$697,000 increase from working capital at March 31, 2000. As of December 31,
2000, the Company's total accounts and notes receivable, excluding the allowance
for bad debts, amounted to $149,464,000, a decrease of $8,510,000, as compared
to the balance at March 31, 2000. In the aggregate, accounts payable, accrued
expenses and customer deposits decreased $6,056,000. The allowance for bad debts
as of December 31, 2000 amounted to $12,175,000, a decrease of $3,027,000 as
compared to the balance at March 31, 2000. During the nine months of fiscal
2001, the Company charged $7,786,000 to the provision for bad debts and had
charge-offs in excess of recoveries of $10,813,000.
Prepaid and other current assets as of December 31, 2000 were $18,113,000,
an increase of $8,284,000 from the March 31, 2000 balance. The increase was
primarily related to the reclassification of $2,500,000 EarthCare common stock
from Other assets, an increase in the current and deferred income taxes
receivable of $1,613,000, and increases in prepaid fuel balances with certain
suppliers of $1,854,000.
Capital expenditures for the nine months ended December 31, 2000 consisted
primarily of $1,181,000 for the purchase of computer equipment and $635,000 in
computer software development costs. During the next twelve months, the Company
also anticipates spending an estimated $2,000,000 for the purchase and
development of computer equipment and software.
Stockholders' equity amounted to $100,617,000, or a book value of $9.67 per
share at December 31, 2000, compared to $99,661,000, or a book value of $9.06
per share at March 31, 2000. This increase of $956,000 was primarily due to
$6,878,000 in earnings for the nine months ended December 31, 2000, partially
offset by the declaration of dividends of $1,600,000 and purchases of treasury
stock of $4,404,000.
The Company expects to meet its working capital and other requirements,
including capital expenditures, from existing cash, operations and borrowings,
as necessary, under its existing credit facilities. The Company's business has
been, and will continue to be affected by the rapid and sustained increase in
fuel prices.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
The Company has no material changes to the disclosure made on this matter
in the Company's annual report on Form 10-K for the year ended March 31, 2000.
Page 15 of 17
PART II. OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
- ------ -----------------
On December 11, 2000, the United States District Court for the Southern
District of Florida dismissed the shareholders class action filed against the
Company and its executive officers. The lawsuit alleged violations of federal
securities laws and sought an unspecified amount of damages arising from the
decrease in the Company's stock price which occurred on January 31, 2000.
In April 2000, the Company filed arbitration proceedings against EarthCare
Company ("EarthCare") to collect approximately $3.8 million due to the Company
pursuant to the Stock Purchase Agreement between EarthCare and the Company
relating to the sale of the Company's oil recycling segment. In May 2000,
EarthCare filed a response to the Company's action which asserts defenses and
counterclaims against the Company as a result of alleged breaches by the Company
of certain representations under the stock purchase agreement. The Company
believes that EarthCare's allegations are without merit and is vigorously
prosecuting its action against EarthCare. In October 2000, the Company received
notice that the arbitration hearing is set for March 2001. There can be no
assurance that the Company will prevail in this arbitration and management
cannot estimate the exposure or recovery to the Company if it does not prevail.
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 and in the Company's annual report on Form
10-K for the year ended March 31, 2000 and quarterly reports on Form 10-Q for
the quarterly periods ended June 30, 2000 and September 30, 2000, the Company's
liability, if any, under any pending litigation or administrative proceedings
will not materially affect its 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
- ------ ---------------------------------------------------
None
ITEM 5. OTHER INFORMATION
- ------ -----------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------ --------------------------------
(a) Reports on Form 8-K.
During the quarter ended December 31, 2000, the Company did not file
any reports on Form 8-K.
Page 16 of 17
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: February 12, 2001 WORLD FUEL SERVICES CORPORATION
----------------- -------------------------------
/S/ Paul H. Stebbins
-------------------------------
PAUL H. STEBBINS
PRESIDENT and CHIEF OPERATING OFFICER
/S/ Carlos A. Abaunza
-------------------------------
CARLOS A. ABAUNZA
CHIEF FINANCIAL OFFICER and TREASURER
(Principal Financial and Accounting
Officer)
Page 17 of 17