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, 2001
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________TO __________
COMMISSION FILE NUMBER 1-9533
WORLD FUEL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
Florida 59-2459427
(State or other jurisdiction of (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:
The registrant had a total of 10,463,000 shares of common stock, net of
treasury stock, par value $0.01 per share, issued and outstanding as of
February 4, 2002.
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
- ------ --------------------
The following unaudited, condensed consolidated financial statements of World
Fuel Services Corporation (the "Company" or "World Fuel") 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, 2001, will not be necessarily indicative of the results for
the entire fiscal year ending March 31, 2002. The condensed consolidated
financial statements and notes thereto included in this Form 10-Q should be read
in conjunction with the Company's audited consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended March 31, 2001.
Page 2
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
December 31, March 31,
2001 2001
-------------- ----------------
(UNAUDITED)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 56,179 $ 38,977
Accounts and notes receivable, net of allowance for
bad debts of $11,001 and $11,167, at December 31 and
March 31, 2001, respectively 95,636 125,863
Inventories 2,902 5,009
Prepaid expenses and other current assets 16,391 18,376
-------- --------
Total current assets 171,108 188,225
PROPERTY AND EQUIPMENT, net 5,738 6,131
GOODWILL 29,711 24,598
OTHER ASSETS 3,136 3,211
-------- --------
$209,693 $222,165
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term debt $ 3,370 $ 2,321
Accounts payable 55,694 69,147
Accrued expenses 20,786 28,465
Other current liabilities 10,560 12,506
-------- --------
Total current liabilities 90,410 112,439
-------- --------
LONG-TERM LIABILITIES 5,491 5,866
-------- --------
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;
12,729,000 and 12,541,000 shares issued and outstanding at
December 31 and March 31, 2001, respectively 127 125
Capital in excess of par value 28,720 26,889
Retained earnings 103,148 93,770
Less treasury stock, at cost; 2,271,000 and 2,138,000 shares
at December 31 and March 31, 2001, respectively 18,203 16,924
-------- --------
Total stockholders' equity 113,792 103,860
-------- --------
$209,693 $222,165
======== ========
The accompanying notes to the condensed consolidated financial statements are an
integral part of these condensed consolidated financial statements.
Page 3
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,
-------------------------------------- -------------------------------------
2001 2000 2001 2000
------------------- ------------------ ------------------ ------------------
Revenue $ 325,964 $ 408,567 $ 1,013,781 $ 1,161,180
Cost of revenue 307,115 390,458 958,753 1,109,351
------------------- ------------------ ------------------ ------------------
Gross profit 18,849 18,109 55,028 51,829
------------------- ------------------ ------------------ ------------------
Operating expenses:
Salaries and wages 7,455 7,257 22,445 19,259
Executive severance charge -- -- -- 3,505
Provision for bad debts 1,072 1,359 3,244 7,786
Other 4,761 4,751 14,433 14,598
------------------- ------------------ ------------------ ------------------
13,288 13,367 40,122 45,148
------------------- ------------------ ------------------ ------------------
Income from operations 5,561 4,742 14,906 6,681
------------------- ------------------ ------------------ ------------------
Other income (expense), net:
Interest, net 369 308 1,171 1,064
Non-recurring credit in marine segment -- -- 1,000 --
Non-recurring credit in aviation segment -- -- -- 300
Other, net 210 400 (338) 703
------------------- ------------------ ------------------ ------------------
579 708 1,833 2,067
------------------- ------------------ ------------------ ------------------
Income before income taxes 6,140 5,450 16,739 8,748
Provision for income taxes 1,667 1,538 3,977 1,374
------------------- ------------------ ------------------ ------------------
Income from continuing operations 4,473 3,912 12,762 7,374
Discontinued operations, loss net of taxes -- (496) -- (496)
------------------- ------------------ ------------------ ------------------
Net income $ 4,473 $ 3,416 $ 12,762 $ 6,878
=================== ================== ================== ==================
Basic earnings (loss) per share:
Continuing operations $ 0.43 $ 0.37 $ 1.23 $ 0.69
Discontinued operations -- (0.05) -- (0.05)
------------------- ------------------ ------------------ ------------------
Net income $ 0.43 $ 0.32 $ 1.23 $ 0.64
=================== ================== ================== ==================
Weighted average shares - basic 10,341 10,520 10,378 10,723
=================== ================== ================== ==================
Diluted earnings (loss) per share:
Continuing operations $ 0.42 $ 0.37 $ 1.20 $ 0.69
Discontinued operations -- (0.05) -- (0.05)
------------------- ------------------ ------------------ ------------------
Net income $ 0.42 $ 0.32 $ 1.20 $ 0.64
=================== ================== ================== ==================
Weighted average shares - diluted 10,763 10,520 10,652 10,735
=================== ================== ================== =================
The accompanying notes to the condensed consolidated financial statements are
an integral part of these condensed consolidated financial statements.
Page 4
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(UNAUDITED - IN THOUSANDS)
Nine Months Ended
December 31,
----------------------------------
2001 2000
---------------- ----------------
Cash flows from continuing operating activities:
Income from continuing operations $ 12,762 $ 7,374
---------------- ----------------
Adjustments to reconcile income from continuing operations to net cash
provided by continuing operating activities -
Depreciation and amortization 1,296 1,720
Provision for bad debts 3,244 7,786
Deferred income tax (benefit) provision (742) 836
Other non-cash operating credits (469) (215)
Changes in operating assets and liabilities:
Accounts and notes receivable 26,983 (2,303)
Inventories 2,107 3,919
Prepaid expenses and other current assets 1,315 (5,625)
Other assets 430 377
Accounts payable and accrued expenses (21,395) (12,210)
Other liabilities (2,129) 3,895
---------------- ----------------
Total adjustments 10,640 (1,820)
---------------- ----------------
Net cash provided by continuing operating activities: 23,402 5,554
---------------- ----------------
Cash flows from investing activities:
Payment for acquisition of business (3,113) -
Capital expenditures (978) (1,866)
Investment in aviation joint venture - (1,000)
Proceeds from the sale of leasehold property 296 -
---------------- ----------------
Net cash used in investing activities (3,795) (2,866)
---------------- ----------------
Cash flows from financing activities:
Dividends paid on common stock (3,121) (1,634)
Purchases of treasury stock (1,279) (4,404)
Repayment of debt (1,510) (17)
Proceeds from the exercise of stock options 1,755 -
---------------- ----------------
Net cash used in financing activities (4,155) (6,055)
---------------- ----------------
Discontinued operations 1,750 (10,356)
---------------- ----------------
Net increase (decrease) in cash and cash equivalents 17,202 (13,723)
Cash and cash equivalents, at beginning of period 38,977 32,773
---------------- ----------------
Cash and cash equivalents, at end of period $ 56,179 $ 19,050
================ ================
(Continued)
Page 5
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(UNAUDITED - IN THOUSANDS)
(Continued)
Nine Months Ended
December 31,
--------------------------
2001 2000
---------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 265 $ 205
======= =======
Income taxes $ 4,720 $12,990
======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Cash dividends declared, but not yet paid, of $783 thousand and $520 thousand
are included in Accrued expenses as of December 31, 2001 and 2000,
respectively.
In connection with an April 2001 acquisition in the marine segment, the Company
issued $2.0 million in notes payable, of which $1.0 million was included in
each of Short-term debt and Long-term liabilities.
The accompanying notes to the condensed consolidated financial statements are an
integral part of these condensed consolidated financial statements.
Page 6
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, 2001.
(2) NATURE OF ACQUISITIONS
- ---------------------------
In April 2001, the Company made an acquisition in the marine segment for
approximately $5.1 million, consisting of approximately $3.1 million in cash and
the remainder in debt. The acquisition was accounted for as a purchase.
Accordingly, the operations acquired have been included with the results of the
Company since April 1, 2001. The cost in excess of net assets acquired amounted
to $5.1 million, including approximately $64 thousand in acquisition costs, and
was considered goodwill. No other significant intangibles existed at the date of
acquisition. Subsequent to December 31, 2001, the Company made another
acquisition in the marine segment for approximately $8.4 million. This
acquisition will be accounted for in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 141, "Business Combinations."
(3) RECENT ACCOUNTING PRONOUNCEMENTS
- -------------------------------------
Derivatives
- -----------
Effective April 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 138,
"Accounting for Derivative Instruments and Certain Hedging Activities-an
amendment of FASB Statement No. 133." SFAS No. 133, as amended, establishes
accounting and reporting standards for every derivative instrument, including
certain derivative instruments embedded in other contracts. The implementation
of SFAS No. 133, as amended, did not have a material effect on the Company's
financial statements.
Business Combinations
- ---------------------
Effective July 1, 2001, the Company adopted SFAS No. 141, "Business
Combinations." SFAS No. 141 established accounting and reporting standards for
business combinations requiring that all business combinations, within the scope
of SFAS No. 141, are to be accounted for using only the purchase method of
accounting. The adoption of SFAS No. 141 did not have a material effect on the
Company's financial statements.
Page 7
Goodwill
- --------
Effective April 1, 2001, as permitted, the Company elected to early adopt SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 establishes
accounting and reporting for acquired goodwill and other intangible assets, and
states that goodwill shall not be amortized prospectively. Accordingly, no
goodwill amortization was recorded for the three and nine months ended December
31, 2001. As required, the Company has completed the initial step of the
transitional goodwill impairment test for goodwill in each of its reporting
units as of April 1, 2001. This step of the goodwill impairment test, used to
identify potential impairment, compares the fair value of a reporting unit with
its carrying amount, including goodwill. Based on the results of these
comparisons, goodwill in each of the Company's reporting units is not considered
impaired. In accordance with SFAS No. 142, the following proforma information
is presented:
Three Months Ended Nine Months Ended
(In thousands, except December 31, December 31,
---------------------------------- ------------------------------------
per share data) 2001 2000 2001 2000
--------------- ---------------- --------------- ---------------
Reported net income $ 4,473 $ 3,416 $ 12,762 $ 6,878
Add back: Goodwill
amortization, net of tax -- 144 -- 434
--------- ------------ ------------- ------------
Adjusted net income $ 4,473 $ 3,560 $ 12,762 $ 7,312
========= ============ ============= ============
Basic earnings per share:
Reported net income $ 0.43 $ 0.32 $ 1.23 $ 0.64
Goodwill amortization -- 0.01 -- 0.04
--------- ------------ ------------- ------------
Adjusted net income $ 0.43 $ 0.33 $ 1.23 $ 0.68
========= ============ ============= ============
Diluted earnings per share:
Reported net income $ 0.42 $ 0.32 $ 1.20 $ 0.64
Goodwill amortization -- 0.01 -- 0.04
--------- ------------ ------------- ------------
Adjusted net income $ 0.42 $ 0.33 $ 1.20 $ 0.68
========= ============ ============= ============
In addition to the goodwill balance in the accompanying Condensed Consolidated
Balance Sheets as of December 31 and March 31, 2001, equity method goodwill of
$2.9 million is included in Other assets and is related to the Company's
acquisition of a 50% equity interest in PAFCO, L.L.C., an aviation joint venture
("PAFCO"), during the fourth quarter of fiscal 2001.
Long-Lived Assets
- -----------------
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets, excluding goodwill. SFAS No. 144 will be effective for the
Company's fiscal year ending March 31, 2003. The Company will adopt SFAS No.
144, effective April 1, 2002, as required. The Company does not believe that
the implementation of SFAS No. 144 will have a material effect on the Company's
financial statements.
Page 8
(4) CREDIT FACILITY
- --------------------
In December 2001, the Company replaced its existing credit facility under more
favorable terms while maintaining the same credit limit of $30 million and
sublimit of $15 million for letters of credit. The agreement for the new credit
facility (the "Credit Agreement") is filed as Exhibit 10(b) of this Form 10-Q.
Approximately $11.2 million in letters of credit were outstanding under the
Credit Agreement as of December 31, 2001. Any outstanding principal and interest
on the Credit Agreement matures on December 7, 2004. The revolving credit
facility bears interest at market rates, as defined under the Credit Agreement.
Interest is payable quarterly in arrears. The Credit Agreement imposes certain
operating and financial restrictions on the Company, including restrictions on
the payment of dividends in excess of specified amounts. See Section 11 of the
Credit Agreement. The Company's failure to comply with its obligations under the
revolving Credit Agreement, including meeting certain financial ratios, could
result in an event of default. An event of default, if not cured or waived,
would permit acceleration of any outstanding indebtedness under the Credit
Agreement, and impair the Company's ability to receive advances. There were no
outstanding principal balances on the Credit Agreement as of December 31, 2001.
As of December 31, 2001, the Company was in compliance with the operating and
financial requirements under the credit facility.
(5) EMPLOYMENT AGREEMENT
- -------------------------
In October 2001, the employment agreement for the Chief Executive Officer of the
Company's marine fuel services segment was amended and restated. The amended and
restated employment agreement will expire on March 31, 2005 and its principal
terms are as follows: (1) a minimum base salary of approximately $438 thousand;
(2) a bonus for the period from January 1, 2001 through December 31, 2001 based
on the bonus formula in the executive's previous employment agreement; (3)
effective January 1, 2002, a bonus calculated as a percent of the executive's
base salary based on the Company's basic earnings per share growth, as specified
in the employment agreement, and as adjusted by the Compensation Committee of
the Company's Board of Directors; (4) the grant of 25,000 shares of restricted
common stock of the Company, which shall vest 25% equally on October 1, 2002,
2003, 2004, and March 31, 2005, subject to certain acceleration provisions, as
specified in the employment agreement; (5) an award of stock options to purchase
55,000 shares of the Company's common stock, with an exercise price of $11.90
per share, of which 25,791 shares will vest in two years and the remaining
shares will vest over three years, subject to certain acceleration provisions,
as specified in the employment agreement; and (6) severance benefits payable
upon a termination for certain reasons specified in the employment agreement.
The foregoing summary is qualified by reference to the employment agreement,
which is filed as Exhibit 10(a) of this Form 10-Q.
Based on the market value of the Company's common stock on the date of grant,
the restricted stock was valued at approximately $298 thousand. The fair value
of the restricted stock was recorded as unearned deferred compensation and is
being amortized over the minimum vesting period. For the three months and nine
months ended December 31, 2001, amortization of deferred compensation of
approximately $39 thousand was recognized related to this restricted stock. As
of December 31, 2001, the remaining unearned deferred compensation was
approximately $259 thousand, and is included in Capital in excess of par value.
Page 9
(6) EMPLOYEE STOCK OPTION PLANS
- --------------------------------
On January 30, 2002, as permitted under the 2001 Omnibus Plan (the "Plan"), the
Company's Board of Directors (the "Board") authorized an increase to the maximum
number of shares of the Company's stock that may be delivered to participants of
the Plan. The increase relates to shares of the Company's stock which are
reacquired by the Company in the open market or in private transactions since
the effective date of the Plan in August 2001. As of December 31, 2001, the
Company had repurchased approximately 133,000 shares since the Plan's effective
date, and accordingly increased the maximum number of shares of the Company's
stock that may be delivered to participants of the Plan by the same number of
shares. On the same date, the Board also amended all of the Company's employee
stock option plans to permit option holders to pay for the exercise price of
options with existing common stock held freely by the optionee for at least six
months.
(7) COMMITMENTS AND CONTINGENCIES
- ----------------------------------
In July 2001, the Company received a Summary Judgment from the United States
District Court for the Southern District of Florida which ordered Donald F.
Moorehead, Jr., Chairman of EarthCare Company ("EarthCare") to pay the Company
compensatory damages of approximately $5.0 million, plus interest from May 1,
2001. This judgment relates to Mr. Moorehead's default on his agreement to
purchase all of the shares of EarthCare stock owned by the Company for
approximately $5.0 million. The Company received the EarthCare stock as part
payment for the sale of the Company's oil recycling operations in February 2000.
As of March 31, 2001, a contract receivable for approximately $5.0 million is
included in Prepaid expenses and other current assets in the accompanying
Condensed Consolidated Balance Sheets. Since March 31, 2001, the Company
received principal and interest payments totaling $700 thousand from Mr.
Moorehead. As of December 31, 2001, the balance due from Mr. Moorehead,
excluding interest, was approximately $4.3 million and is included in Prepaid
expenses and other current assets in the accompanying Condensed Consolidated
Balance Sheets. The Company continues to vigorously pursue collection of its
judgment, and currently is seeking to have a receiver appointed by the court to
administer Mr. Moorehead's assets and to sell those assets. The Company believes
that it will recover the remaining amount of the receivable. For additional
information regarding this proceeding, refer to Part II, Item 1 (Legal
Proceedings) of this Form 10-Q.
The Company is also involved in other legal and administrative proceedings
primarily arising in the normal course of its business. In the opinion of
management, except as set forth in the Company's Annual Report on Form 10-K for
the year ended March 31, 2001, or the quarterly reports on Form 10-Q for the
periods ended September 30, 2001 and June 30, 2001, the Company's liability, if
any, under any such legal or administrative proceedings, is not expected to
materially affect its financial condition or results of operations. See Part II,
Item 1 (Legal Proceedings) of this Form 10-Q.
(8) COMPREHENSIVE INCOME
- -------------------------
There were no significant items of other comprehensive income, and thus, net
income is equal to comprehensive income for all periods presented.
Page 10
(9) EARNINGS PER SHARE
- -----------------------
Basic earnings per share is computed based on the weighted average number of
common shares outstanding. Diluted earnings per share is based on the sum of
the weighted average number of common shares outstanding plus non-vested
restricted common stock and common stock equivalents, arising out of employee
stock options and non-employee stock options and warrants. Shares used to
calculate earnings per share are as follows:
Three Months Ended Nine Months Ended
December 31, December 31,
----------------------- ----------------------
(In thousands) 2001 2000 2001 2000
---------- --------- --------- ---------
Basic weighted average shares 10,341 10,520 10,378 10,723
Restricted stock weighted average shares 22 -- 7 --
Common stock equivalents 400 -- 267 12
------ ------ ------ ------
Diluted weighted average shares used in the
calculation of diluted earnings per share 10,763 10,520 10,652 10,735
====== ====== ====== ======
Weighted average shares of stock options
and warrants included in the determination
of common stock equivalents for the
calculation of diluted earnings per share 1,531 122 1,524 127
====== ====== ====== ======
Weighted average shares of stock options which are
not included in the calculation of diluted
earnings per share because their impact is
antidilutive 399 998 474 987
====== ====== ====== ======
(10) BUSINESS SEGMENTS
- -----------------------
The Company markets fuel services and has two reportable operating segments:
marine and aviation fuel services. In its marine fuel services business, the
Company markets marine fuel and related management services to a broad base of
international shipping companies and to the U.S. military. In its aviation fuel
services business, the Company markets aviation fuel and other aviation related
services to passenger, cargo and charter airlines. The Company also offers
flight plans and weather reports to its corporate customers. Services in both
business segments include credit terms, 24-hour around-the-world service, fuel
management services, and competitively priced fuel.
Performance measurement and resource allocation for the reportable operating
segments are based on many factors. One of the primary financial measures used
is income from operations. The Company employs shared-service concepts to
realize economies of scale and efficient use of resources. The costs of shared
services and other corporate center operations managed on a common basis are
allocated to the segments based on usage, where possible, or on other factors
according to the nature of the activity.
Page 11
Information concerning the Company's operations by business segment is as
follows:
Three Months Ended Nine Months Ended
December 31, December 31,
-------------- -------------- ------------ -------------
(In thousands) 2001 2000 2001 2000
-------------- -------------- ------------ -------------
Revenue
- -------
Marine fuel services $ 240,336 $ 276,916 $ 727,035 $ 769,166
Aviation fuel services 85,628 131,651 286,746 392,014
----------- ----------- ----------- -----------
Total $ 325,964 $ 408,567 $ 1,013,781 $ 1,161,180
=========== =========== =========== ===========
Income (loss) from operations
- -----------------------------
Marine fuel services $ 4,298 $ 4,025 $ 11,288 $ 7,730
Aviation fuel services 3,353 3,128 8,950 8,039
Corporate overhead (2,090) (2,411) (5,332) (9,088)
----------- ----------- ----------- -----------
Total $ 5,561 $ 4,742 $ 14,906 $ 6,681
=========== =========== =========== ===========
As of
--------------------------------
December 31, March 31,
(In thousands) 2001 2001
----------- -----------
Accounts and notes receivable
- -----------------------------
Marine fuel services, net of allowance for bad
debts of $5,139 and $5,157, at December 31
and March 31, 2001, respectively $ 67,370 $ 77,898
Aviation fuel services, net of allowance for bad
debts of $5,862 and $6,010, at December 31
and March 31, 2001, respectively 28,266 47,965
----------- -----------
Total $ 95,636 $ 125,863
=========== ===========
Goodwill
- --------
Marine fuel services $ 24,359 $ 19,246
Aviation fuel services 5,352 5,352
----------- -----------
Total $ 29,711 $ 24,598
=========== ===========
Assets
- ------
Marine fuel services $ 116,225 $ 113,798
Aviation fuel services 66,392 75,830
Corporate, includes discontinued operations
of $1,750 at March 31, 2001 27,076 32,537
----------- -----------
Total $ 209,693 $ 222,165
=========== ===========
Page 12
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 World Fuel's management concerning
anticipated results, and are subject to significant business, economic and
competitive risks and contingencies, many of which are beyond management's
control. Factors that could cause results to differ include, but are not limited
to, quarterly fluctuations in results; the management of growth; fluctuations in
world oil prices or foreign currency; major changes in political, economic,
regulatory or environmental conditions; the loss of key customers, suppliers or
members of senior management; uninsured losses; competition; credit risk
associated with accounts, notes and contracts receivable; and other risks
detailed in this report and in World Fuel's other Securities and Exchange
Commission filings. Actual results may differ materially from any forward-
looking statements set forth herein.
Results of Operations
- ---------------------
Profit from World Fuel's marine fuel services business is determined primarily
by the volume and commission rate of brokering business generated and by the
volume and gross profit achieved on trade sales, as well as the overall level of
operating expenses. Profit from World Fuel's aviation fuel services business is
directly related to the volume and the gross profit achieved on sales, as well
as the overall level of operating expenses. Operating expenses in both segments
may be significantly affected to the extent that World Fuel is required to
provision for potential bad debts.
World Fuel's profitability during the comparable three and nine months ended
December 31, 2001 was favored by an increase in metric tons traded and brokered
in marine, an improvement in the gross profit per gallon sold in aviation, a
lower provision for bad debts for both marine and aviation, and lower corporate
overhead expenses. The nine months ended December 31, 2001 also did not include
the executive severance charge of $3.5 million recorded in the same period of
the previous fiscal year. In addition, profitability for the nine months ended
December 31, 2001 was favored by the insurance recovery during the first quarter
related to the loss of product off the coast of Nigeria. Also contributing to
the three and nine months profitability was the gain on the sale of a leasehold
property during the third quarter. During the same three and nine months
periods, earnings were adversely affected by a decrease in the gross profit per
metric ton traded in marine, a decline in aviation sales volume, and increases
in salaries and other operating expenses. Also contributing to the nine months
variance was a non-recurring credit related to the closure in fiscal 2001 of the
aviation joint venture in Ecuador.
The decline in aviation sales volume reflects management's decision to reduce
its credit exposure and increase margins. The decrease in aviation sales volume
is also related to lower demand resulting from a general slowdown in economic
activity. For marine, the decrease in the gross profit per metric ton traded is
due to competitive pressures stemming from the current recessionary economic
environment, and by the recent acquisitions in the marine segment which resulted
in the addition of lower margin trading and brokerage business. World Fuel may
experience decreases in future sales volume, in both segments, as a result of
the current deterioration in the economy, the military actions in response to
the September 11th terrorist attacks, as well as possible future terrorist
activity.
Page 13
The increase in expenses is related, in part, to the business initiatives
implemented during the latter part of fiscal years 2001 and 2002. These
initiatives include the launch of World Fuel's new fuel management and fuel risk
management divisions in the aviation segment, as well as increased spending in
connection with information technology. Expenses have also increased due to the
hiring of additional management personnel and the acquisitions in the marine
segment.
The Three Months Ended December 31, 2001 Compared to the Three Months Ended
- ---------------------------------------------------------------------------
December 31, 2000
- -----------------
World Fuel's revenue for the three months ended December 31, 2001 was $326.0
million, a decrease of $82.6 million, or 20.2%, as compared to revenue of $408.6
million for the corresponding period of the prior year. This decrease is
primarily attributed to a sharp decline in fuel prices soon after the September
11th terrorist attacks and lower volume of aviation gallons sold. World Fuel's
revenue during these periods was attributable to the following segments:
Three Months Ended December 31,
(In thousands) 2001 2000
------------- --------------
Marine Fuel Services $ 240,336 $ 276,916
Aviation Fuel Services 85,628 131,651
----------- ------------
Total Revenue $ 325,964 $ 408,567
=========== ============
The marine fuel services segment contributed $240.3 million in revenue for the
three months ended December 31, 2001, a decrease of $36.6 million, or 13.2%,
over the corresponding period of the prior year. The decrease in revenue was due
to a lower average price per metric ton sold, partially offset by a higher
volume of metric tons sold. The increase in volume is attributable to increased
sales by World Fuel's existing subsidiaries, as well as the addition of sales
from the marine companies acquired in February and April 2001. The aviation fuel
services segment contributed $85.6 million in revenue for the three months ended
December 31, 2001. This represented a decrease in revenue of $46.0 million, or
35.0%, as compared to the same period of the prior year. The decrease in revenue
was due to an 11.9% decrease in the volume of gallons sold and a 26.2% decrease
in the average price per gallon sold. The decrease in sales volume reflects
management's decision to reduce its credit exposure and increase margins, which
began in the third quarter of fiscal 2001. Sales volume also decreased because
of a general slowdown in economic activity.
World Fuel's gross profit of $18.8 million for the three months ended December
31, 2001 increased $740 thousand, or 4.1%, as compared to the same period of the
prior year. World Fuel's gross margin increased to 5.8% for the three months
ended December 31, 2001 from 4.4% for the same period of the prior year. World
Fuel's marine fuel services segment achieved a 4.1% gross margin for the three
months ended December 31, 2001, as compared to 3.5% for the same period of the
prior year. This gross margin increase resulted from a drop in the average price
per metric ton traded, which offset a lower gross profit per metric ton traded.
The narrower gross profit per metric ton traded was caused by competitive
pressures, and by the recent acquisitions in the marine segment which resulted
in the addition of lower margin trading and brokerage business. By integrating
these acquisitions into World Fuel's existing global network, World Fuel intends
to use better buying practices and value-added services to maximize the gross
profit of the newly acquired companies. World Fuel's aviation fuel services
business achieved a 10.6% gross margin for the three months ended December 31,
2001, as compared to 6.4% for the same period during the prior year. This
increase resulted from an overall increase in the gross profit per gallon sold
and the decline in
Page 14
the average price per gallon sold. The improvement in gross profit per gallon
resulted, in part, from a revision in World Fuel's pricing strategy.
Total operating expenses for the three months ended December 31, 2001 were $13.3
million, a decrease of $79 thousand, or 0.6%, as compared to the same period of
the prior year. This decrease resulted from a $287 thousand reduction in the
provision for bad debts and the adoption of Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets," which eliminated the
amortization of goodwill effective April 1, 2001. Partially offsetting these
improvements were operating expenses of the newly acquired companies, staff
additions, and various business initiatives implemented over the past year.
World Fuel's income from operations for the three months ended December 31, 2001
was $5.6 million, an increase of $819 thousand, as compared to $4.7 million 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,
(In thousands) 2001 2000
------------- --------------
Marine Fuel Services $ 4,298 $ 4,025
Aviation Fuel Services 3,353 3,128
Corporate Overhead (2,090) (2,411)
----------- ------------
Total Income from Operations $ 5,561 $ 4,742
=========== ============
The marine fuel services segment earned $4.3 million in income from operations
for the three months ended December 31, 2001, an increase of $273 thousand, or
6.8%, over the corresponding period of the prior year. This increase resulted
primarily from a decrease in compensation. The aviation fuel services segment's
income from operations was $3.4 million for the three months ended December 31,
2001, an increase of $225 thousand, or 7.2%, as compared to the same period of
the prior year. This improvement is due to a higher gross profit and lower
provision for bad debts, partially offset by increased compensation and other
operating expenses as a result of staff additions and various business
initiatives which were implemented over the past year. The decrease in corporate
overhead is due to lower consulting and telecommunications expenses.
During the three months ended December 31, 2001, Other income, net, was $579
thousand, a decrease of $129 thousand, compared to $708 thousand for the
corresponding period of the prior year. This decrease is mainly due to foreign
exchange losses for the three months ended December 31, 2001 as opposed to
foreign exchange gains in the same period of the prior year. Partially
offsetting were the equity in earnings of the PAFCO aviation joint venture, an
increase in interest income, and a gain on the sale of a leasehold property.
World Fuel's effective tax rate for the three months ended December 31, 2001 was
27.1%, resulting in an income tax provision of $1.7 million, as compared to
28.2% and $1.5 million for the same quarter last year.
Net income from continuing operations for the three months ended December 31,
2001 was $4.5 million, an increase of $561 thousand as compared to net income
from continuing operations of $3.9 million for the same period of the prior
year. Diluted earnings per share on income from continuing operations was
$0.42, an increase of $0.05 as compared to the same period of the prior year.
Page 15
During the three months ended December 31, 2000, the Company recorded additional
income taxes of $496 thousand in discontinued operations related to the gain on
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
operations for the three months ended December 31, 2000 was $496 thousand, or
$0.05 per share. No expenses from discontinued operations were incurred for the
three months ended December 31, 2001.
Net income for the three months ended December 31, 2001 was $4.5 million, an
increase of $1.1 million, as compared to $3.4 million for the same period of the
prior year. Diluted earnings per share, including discontinued operations, was
$0.42, an increase of $0.10, as compared to $0.32 for the same period of the
prior year.
The Nine Months Ended December 31, 2001 Compared to the Nine Months Ended
- -------------------------------------------------------------------------
December 31, 2000
- -----------------
World Fuel's revenue for the nine months ended December 31, 2001 was $1.01
billion, a decrease of $147.4 million, or 12.7%, as compared to revenue of $1.16
billion for the corresponding period of the prior year. This decrease is
primarily attributed to a decline in fuel prices and a decrease in sales volume
for the aviation fuel services segment. World Fuel's revenue during these
periods was attributable to the following segments:
Nine Months Ended December 31,
(In thousands) 2001 2000
------------- --------------
Marine Fuel Services $ 727,035 $ 769,166
Aviation Fuel Services 286,746 392,014
----------- ------------
Total Revenue $1,013,781 $ 1,161,180
=========== ============
The marine fuel services segment contributed $727.0 million in revenue for the
nine months ended December 31, 2001, a decrease of $42.1 million, or 5.5%, over
the corresponding period of the prior year. The decrease in revenue was due to a
lower average price per metric ton sold, partially offset by an increase in the
volume of metric tons sold. The aviation fuel services segment contributed
$286.7 million in revenue for the nine months ended December 31, 2001, a
decrease in revenue of $105.3 million, or 26.9%, as compared to the same period
of the prior year. The revenue decline was due to an 18.4% decrease in the
volume of gallons sold, and a 12.3% decrease in the average price per gallon
sold. The decrease in sales volume reflects management's decision to reduce its
credit exposure and increase margins, which began in the third quarter of fiscal
2001. Sales volume also decreased because of a general slowdown in economic
activity.
World Fuel's gross profit of $55.0 million for the nine months ended December
31, 2001 increased $3.2 million, or 6.2%, as compared to the same period of the
prior year. World Fuel's gross margin increased to 5.4% for the nine months
ended December 31, 2001 from 4.5% for the same period of the prior year. World
Fuel's marine fuel services segment achieved a 3.9% gross margin for the nine
months ended December 31, 2001, as compared to a 3.5% gross margin for the same
period of the prior year. The increase resulted from a drop in the average price
per metric ton traded, which offset a lower gross profit per metric ton traded.
The narrower gross profit per metric ton traded was caused by competitive
pressures, and by the recent acquisitions in the marine segment, as noted in the
analysis of the results of the quarter. World Fuel's aviation fuel services
business achieved a 9.4% gross margin for the nine months ended December 31,
2001, as compared to 6.3% for the same period during the prior year. This
increase
Page 16
resulted from a higher gross profit per gallon sold and a lower average price
per gallon sold. The improvement in gross profit per gallon resulted, in part,
from a revision in World Fuel's pricing strategy.
Total operating expenses for the nine months ended December 31, 2001 were $40.1
million, a decrease of $5.0 million, or 11.1%, as compared to the same period of
the prior year. This decrease resulted from a $4.5 million decrease in the
provision for bad debts, a $3.5 million executive severance charge in the prior
year, and the adoption of Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets," which eliminated the amortization of
goodwill effective April 1, 2001. Partially offsetting this improvement were
operating expenses of the newly acquired companies, staff additions, and various
business initiatives implemented over the past year.
World Fuel's income from operations for the nine months ended December 31, 2001
was $14.9 million, an increase of $8.2 million, or 123.1%, 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,
(In thousands) 2001 2000
------------ --------------
Marine Fuel Services $ 11,288 $ 7,730
Aviation Fuel Services 8,950 8,039
Corporate Overhead (5,332) (9,088)
---------- ---------
Total Income from Operations $ 14,906 $ 6,681
========== =========
The marine fuel services segment earned $11.3 million in income from operations
for the nine months ended December 31, 2001, an increase of $3.6 million, or
46.0%, over the corresponding period of the prior year. This increase resulted
from a $3.8 million lower provision for bad debts and a higher gross profit,
partially offset by operating expenses of the newly acquired companies and staff
additions. The aviation fuel services segment's income from operations was $9.0
million for the nine months ended December 31, 2001, an increase of $911
thousand, or 11.3%, as compared to the same period of the prior year. This
improvement is due to a higher gross profit and lower provision for bad debts,
partially offset by increased operating expenses related to staff additions and
various business initiatives which were implemented over the past year. The
improvement in corporate overhead is due to the $3.5 million executive severance
charge incurred in the second quarter of the prior year and lower consulting and
telecommunications expenses, partially offset by staff additions and higher
compensation.
During the nine months ended December 31, 2001, Other income, net, was $1.8
million, a decrease of $234 thousand, or 11.3%, as compared to the nine months
ended December 31, 2000. This decrease is mainly due to foreign exchange losses
for the nine months ended December 31, 2001 as opposed to foreign exchange gains
in the same period of the prior year, and a non-recurring credit recorded last
year relating to the closure of the aviation joint venture in Ecuador. Largely
offsetting were the equity in earnings of the PAFCO aviation joint venture, an
increase in interest income, a gain on the sale of a leasehold property, and the
insurance settlement recovery relating to the loss of product off the coast of
Nigeria.
For the nine months ended December 31, 2001, our effective tax rate was 23.8%,
for an income tax provision of $4.0 million, as compared to a tax rate of 15.7%
and an income tax provision of $1.4 million for the same period a year ago.
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 World Fuel
received an income tax benefit.
Page 17
Net income from continuing operations for the nine months ended December 31,
2001 was $12.8 million, an increase of $5.4 million from the same period of the
prior year. Diluted earnings per share on income from continuing operations was
$1.20, an increase of $0.51, or 73.9% from the same period of the prior year.
Net loss from discontinued operations for the nine months ended December 31,
2000 was $496 thousand, or $0.05 per diluted share. No expenses from
discontinued operations were incurred for the three months ended December 31,
2001.
Net income for the nine months ended December 31, 2001 was $12.8 million, an
increase of $5.9 million, or 85.5%, as compared to the same period of the prior
year. Diluted earnings per share was $1.20, an increase of $0.56, or 87.5%, as
compared to the same period of the prior year.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents amounted to $56.2 million at December 31, 2001, as
compared to $39.0 million at March 31, 2001. For the nine months ended December
31, 2001, cash provided by operations was $23.4 million, plus approximately $1.8
million each from stock options exercised and discontinued operations. The
principal uses of cash were $3.1 million for an acquisition in the marine
segment, $1.5 million for the repayment of debt, $3.1 million in dividends, $1.3
million for the repurchase of the Company's stock, and $978 thousand in capital
purchases. Components of changes in cash and cash equivalents, for the nine
months ended December 31, 2001 and 2000, are detailed in the Condensed
Consolidated Statements of Cash Flows. In connection with the January 2002
acquisition in the marine segment, the Company paid cash of approximately $5.4
million plus working capital funding of approximately $2.0 million in January
2002.
Working capital as of December 31, 2001 was $80.7 million, representing an
increase of $4.9 million from working capital as of March 31, 2001. As of
December 31, 2001, World Fuel's accounts and notes receivable, excluding the
allowance for bad debts, amounted to $106.6 million, a decrease of $30.4
million, as compared to the balance at March 31, 2001. This decrease is mostly
related to the decline in fuel prices. The allowance for bad debts as of
December 31, 2001 amounted to $11.0 million as compared to $11.2 million at
March 31, 2001. During the nine months ended December 31, 2001, World Fuel
charged $3.2 million to the provision for bad debts and had charge-offs in
excess of recoveries of $3.4 million.
Prepaid expenses and other current assets decreased $2.0 million, due to the
settlement payment received by World Fuel from EarthCare in April 2001 related
to the sale of the recycling operations, and a decrease in prepaid fuel in the
aviation fuel services segment. Partially offsetting was an increase in
deferred income tax assets and the equity in earnings in the PAFCO aviation
joint venture.
Capital expenditures for the nine months ended December 31, 2001 consisted
primarily of computer equipment purchases and computer software development
costs. Goodwill increased by $5.1 million during the nine months ended December
31, 2001, to $29.7 million, due to the marine acquisition consummated in April
2001. As a result of the January 2002 acquisition in the marine segment, the
Company anticipates recording approximately $6.0 million in intangible assets.
In the aggregate, accounts payable, accrued expenses and other current
liabilities decreased $23.1 million. Short-term debt and long-term liabilities,
in the aggregate, increased by $674 thousand as a result of the marine segment's
April 2001 acquisition, partially offset by the second installment paid on the
Bunkerfuels acquisition.
Page 18
Stockholders' equity amounted to $113.8 million, or $10.88 in book value per
share at December 31, 2001, compared to $103.9 million, or $9.98 in book value
per share at March 31, 2001. The $9.9 million increase in stockholders' equity
was due to $12.8 million in earnings and $1.8 million received from the exercise
of stock options, partially offset by the declaration of dividends of $3.4
million and $1.3 million for the repurchase of the Company's stock.
World Fuel expects to meet its working capital and capital expenditure
requirements from existing cash, operations and additional borrowings, as
necessary, under its existing revolving credit facility. World Fuel's business
has been, and will continue to be, affected by fluctuations in fuel prices.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
World Fuel offers swaps and caps to customers in its marine and aviation
businesses, as part of its fuel management services. World Fuel simultaneously
enters into a commodity based derivative instrument with its customer and a
counter-party. The counter-parties are major oil companies and derivative
trading firms. Accordingly, World Fuel does not anticipate non-performance by
such counter-parties. Pursuant to these transactions, World Fuel is not affected
by market price fluctuations since the contracts have the same terms and
conditions except for the fee or spread earned by World Fuel. Performance risk
under these contracts is considered a credit risk. This risk is minimized by
additional credit criteria established for these customers. As of December 31,
2001, World Fuel held eleven outstanding swap contracts for approximately 16
thousand metric tons, expiring monthly through March 31, 2002, and eight
outstanding swap contracts for approximately 5.3 million gallons, expiring
monthly through April 30, 2002.
The Company's policy is to not use derivative financial instruments for
speculative purposes.
PART II. OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
- ------ -----------------
In July 2001, World Fuel received a Summary Judgment from the United States
District Court for the Southern District of Florida which ordered Donald F.
Moorehead, Jr., Chairman of EarthCare Company ("EarthCare") to pay World Fuel
compensatory damages of approximately $5.0 million, plus interest from May 1,
2001. This judgment relates to Mr. Moorehead's default on his agreement to
purchase all of the shares of EarthCare stock owned by World Fuel for
approximately $5.0 million. World Fuel received the EarthCare stock as part
payment for the sale of World Fuel's oil recycling operations in February 2000.
As of March 31, 2001, a contract receivable for approximately $5.0 million is
included in Prepaid expenses and other current assets in the accompanying
Condensed Consolidated Balance Sheets. Since March 31, 2001, World Fuel
received principal and interest payments totaling $700 thousand from Mr.
Moorehead. As of December 31, 2001, the balance due from Mr. Moorehead,
excluding interest, was approximately $4.3 million and is included in Prepaid
expenses and other current assets in the accompanying Condensed Consolidated
Balance Sheets. World Fuel continues to vigorously pursue collection of its
judgment and currently is seeking to have a receiver appointed by the court to
administer Mr. Moorehead's assets and to sell these assets. Although World Fuel
believes that it will recover the remaining amount of the debt, our ability to
recover the full amount remains subject to customary collection risks, including
the risk that Mr. Moorhead may file for personal bankruptcy, and that his
saleable assets will not produce sufficient sales proceeds to satisfy the debt.
Page 19
World Fuel is also involved in other legal and administrative proceedings
primarily arising in the normal course of its business. In the opinion of
management, except as set forth in World Fuel's Annual Report on Form 10-K for
the year ended March 31, 2001, or the quarterly reports on Form 10-Q for the
periods ended September 30, 2001 and June 30, 2001, World Fuel's liability, if
any, under any such legal or administrative proceedings, is not expected to
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) The exhibit set forth in the following index of exhibits are filed as
part of this report:
EXHIBIT NO. DESCRIPTION
----------- ------------
(10) Material contracts filed with this Form 10-Q:
(a) Amended and Restated Employment Agreement with Mr.
Michael Kasbar, Chief Executive Officer of the
Marine Fuel Services Segment, dated October 11,
2001.
(b) Credit Agreement, dated as of December 7, 2001,
between World Fuel Services Corporation and
LaSalle Bank National Association.
(b) Reports on Form 8-K.
During the quarter ended December 31, 2001, World Fuel did not file any
reports on Form 8-K.
Page 20
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 6, 2002 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 21
Index to Exhibits
EXHIBIT NO. DESCRIPTION
----------- -----------
10 (a) Amended and Restated Employment Agreement with Mr.
Michael Kasbar, Chief Executive Officer of the
Marine Fuel Services Division, dated October 11,
2001.
10 (b) Credit Agreement, dated as of December 7, 2001,
between World Fuel Services Corporation and
LaSalle Bank National Association.