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 JUNE 30, 1998
[ ] 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 July 20, 1998, the registrant had a total of 12,512,193 shares of
common stock, par value $0.01 per share, issued and outstanding.
Page 1 of 13
<PAGE>
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 generally accepted accounting principles. 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 months ended June 30, 1998, will not be necessarily
indicative of the results for the entire fiscal year ending March 31, 1999.
Page 2 of 13
<PAGE>
<TABLE>
<CAPTION>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
JUNE 30, 1998 MARCH 31, 1998
------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 9,860,000 $ 14,459,000
Accounts receivable, net of allowance
for bad debts of $4,661,000 and $4,594,000
at June 30 and March 31, 1998, respectively 87,136,000 81,648,000
Inventories 5,569,000 5,504,000
Prepaid expenses and other current assets 10,439,000 5,937,000
------------ ------------
Total current assets 113,004,000 107,548,000
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 1,054,000 1,054,000
Buildings and improvements 3,098,000 3,098,000
Office equipment and furniture 5,703,000 5,286,000
Plant, machinery and equipment 17,663,000 17,458,000
Construction in progress 817,000 230,000
------------ ------------
28,335,000 27,126,000
Less accumulated depreciation
and amortization 9,615,000 9,065,000
------------ ------------
18,720,000 18,061,000
------------ ------------
OTHER ASSETS:
Unamortized cost in excess of net
assets of acquired companies, net of
accumulated amortization 15,282,000 15,402,000
Other 1,715,000 2,248,000
------------ ------------
$148,721,000 $143,259,000
============ ============
(Continued)
Page 3 of 13
<PAGE>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30, 1998 MARCH 31, 1998
------------- -------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 112,000 $ 119,000
Accounts payable and accrued expenses 43,017,000 40,560,000
Customer deposits 2,942,000 2,536,000
Accrued salaries and wages 1,249,000 1,851,000
Income taxes payable 2,110,000 2,381,000
------------ ------------
Total current liabilities 49,430,000 47,447,000
------------ ------------
LONG-TERM LIABILITIES 3,697,000 3,901,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value;
100,000 shares authorized, none issued -- --
Common stock, $0.01 par value;
25,000,000 shares authorized; 12,512,000
and 12,481,000 shares issued and outstanding
at June 30 and March 31, 1998, respectively 125,000 125,000
Capital in excess of par value 26,707,000 26,479,000
Retained earnings 68,819,000 65,364,000
Less treasury stock, at cost 57,000 57,000
------------ ------------
95,594,000 91,911,000
------------ ------------
$148,721,000 $143,259,000
============ ============
</TABLE>
The accompanying notes to the consolidated financial statements are
an integral part of these consolidated balance sheets (unaudited).
Page 4 of 13
<PAGE>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
------------------------------
1998 1997
------------ ------------
Revenue $193,031,000 $186,307,000
Cost of sales 178,175,000 175,233,000
------------ ------------
Gross profit 14,856,000 11,074,000
------------ ------------
Operating expenses:
Salaries and wages 4,957,000 3,697,000
Provision for bad debts 1,238,000 42,000
Other 3,772,000 2,941,000
------------ ------------
9,967,000 6,680,000
------------ ------------
Income from operations 4,889,000 4,394,000
Other income, net 253,000 719,000
------------ ------------
Income before income taxes 5,142,000 5,113,000
Provision for income taxes 1,061,000 1,310,000
------------ ------------
Net income $ 4,081,000 $ 3,803,000
============ ============
Basic earnings per common share $ 0.33 $ 0.31
============ ============
Weighted average shares 12,495,000 12,163,000
============ ============
Diluted earnings per common share $ 0.32 $ 0.31
============ ============
Weighted average shares - diluted 12,752,000 12,373,000
============ ============
The accompanying notes to the consolidated financial statements are
an integral part of these consolidated financial statements (unaudited).
Page 5 of 13
<PAGE>
<TABLE>
<CAPTION>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,081,000 $ 3,803,000
----------- -----------
Adjustments to reconcile net income
to net cash (used in) provided by operating activities -
Depreciation and amortization 689,000 596,000
Provision for bad debts 1,238,000 42,000
Deferred income tax provision (benefit) 66,000 (189,000)
Other non-cash operating credits (79,000) (61,000)
Changes in assets and liabilities:
(Increase) decrease in -
Accounts receivable (9,733,000) 1,505,000
Inventories (65,000) 1,122,000
Prepaid expenses and other current assets (1,569,000) 607,000
Other assets 591,000 (41,000)
Increase (decrease) in -
Accounts payable and accrued expenses 2,455,000 1,836,000
Customer deposits 406,000 (328,000)
Accrued salaries and wages (602,000) (1,322,000)
Income taxes payable (271,000) 1,398,000
Deferred compensation (252,000) (157,000)
----------- -----------
Total adjustments (7,126,000) 5,008,000
----------- -----------
Net cash (used in) provided by operating activities (3,045,000) 8,811,000
----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment (1,218,000) (1,366,000)
Proceeds from notes receivable 74,000 352,000
Other -- 106,000
----------- -----------
Net cash used in investing activities $(1,144,000) $ (908,000)
----------- -----------
(Continued)
Page 6 of 13
<PAGE>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Continued)
THREE MONTHS ENDED JUNE 30,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Dividends paid on common stock $ (624,000) $ (608,000)
Proceeds from issuance of common stock 239,000 --
Other (25,000) (34,000)
------------ ------------
Net cash used in financing activities (410,000) (642,000)
------------ ------------
Net (decrease) increase in cash
and cash equivalents (4,599,000) 7,261,000
Cash and cash equivalents, at beginning
of period 14,459,000 11,035,000
------------ ------------
Cash and cash equivalents, at end
of period $ 9,860,000 $ 18,296,000
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 14,000 $ 16,000
============ ============
Income taxes $ 1,136,000 $ 193,000
============ ============
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Cash dividends declared, but not yet paid, totaling $626,000 and $607,000 are
included in accounts payable and accrued expenses as of June 30, 1998 and 1997,
respectively.
During the quarter ended June 30, 1998, the Company reclassified approximately
$3,007,000 from accounts receivable to notes receivable. The notes receivable
are shown in the Prepaid and other current assets section of the balance sheet.
The accompanying notes to the consolidated financial statements are
an integral part of these consolidated financial statements (unaudited).
Page 7 of 13
<PAGE>
WORLD FUEL SERVICES AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SIGNIFICANT ACCOUNTING POLICIES
The accounting policies 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, 1998.
(2) NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 is effective for fiscal years beginning after June 15,
1999. The Company believes that the implementation of SFAS No. 133 will not have
a material effect on the Company's financial position or results of operations.
Page 8 of 13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1997
The Company's revenue for the three months ended June 30, 1998 was
$193,031,000, an increase of $6,724,000, or 3.6%, as compared to revenue of
$186,307,000 for the corresponding period for the prior year. The Company's
revenue during these periods was attributable to the following segments:
THREE MONTHS ENDED JUNE 30,
1998 1997
------------ ------------
Aviation Fueling $ 85,276,000 $ 96,117,000
Marine Fueling 101,541,000 84,282,000
Oil Recycling 6,214,000 5,908,000
------------ ------------
Total Revenue $193,031,000 $186,307,000
============ ============
The aviation fueling segment contributed $85,276,000 in revenue for the
three months ended June 30, 1998. This represented a decrease in revenue of
$10,841,000, or 11.3%, as compared to the same period of the prior year. The
decrease in revenue was due to a decrease in the average price per gallon sold,
which resulted from a decrease in the world market price of fuels. Partially
offsetting was an increase in the quantity of gallons sold. The marine fueling
segment contributed $101,541,000 in revenue for the three months ended June 30,
1998, an increase of $17,259,000, or 20.5%, over the corresponding period of the
prior year. The increase in revenue was related primarily to an increase in the
volume of metric tons sold and business expansion, partially offset by a
decrease in the average sales price per metric ton sold. The oil recycling
segment contributed $6,214,000 in revenue for the three months ended June 30,
1998, an increase of $306,000, or 5.2%, as compared to the same period of the
prior year. The increase in revenue was due to an increase in volume of recycled
oil sold, partially offset by a decrease in the average sales price per gallon
of recycled oil sold.
The Company's gross profit of $14,856,000 for the three months ended
June 30, 1998, increased $3,782,000, or 34.2%, as compared to the same period of
the prior year. The Company's gross margin increased from 5.9% for the three
months ended June 30, 1997, to 7.7% for the three months ended June 30, 1998.
The Company's aviation fueling business achieved a 9.2% gross margin for the
three months ended June 30, 1998, as compared to 5.4% achieved for the same
period during the prior year. This resulted principally from the decline in the
average price per gallon sold, as well as from an increase in the average gross
profit per gallon sold and the addition of Baseops, which the Company acquired
effective January 1998. The Company's marine fueling segment achieved a 5.1%
gross margin for the three months ended June 30, 1998, as compared to a 4.5%
gross margin for the same period of the prior year, the result of lower world
oil prices and sustained average gross profit per metric ton sold and brokered.
The gross margin in the Company's oil recycling segment decreased from 35.4% for
the three months ended June 30, 1997, to 29.2% for the three months ended June
30, 1998. This decrease resulted from a lower gross profit per gallon of
recycled oil sold, due primarily to lower world oil prices.
Page 9 of 13
<PAGE>
Total operating expenses for the three months ended June 30, 1998 were
$9,967,000, an increase of $3,287,000, or 49.2%, as compared to the same period
of the prior year. The increase resulted primarily from higher salaries and
wages relating principally to staff additions and performance bonuses, higher
operating expenses in the aviation and marine segments related to business
expansion, and a $1,196,000 higher provision for bad debts over the
corresponding period during the prior year.
The Company's income from operations for the three months ended June
30, 1998 was $4,889,000, an increase of $495,000, or 11.3%, as compared to the
same period of the prior year. Income from operations during these periods was
attributable to the following segments:
THREE MONTHS ENDED JUNE 30,
1998 1997
----------- -----------
Aviation Fueling $ 3,531,000 $ 3,174,000
Marine Fueling 1,527,000 1,023,000
Oil Recycling 1,013,000 1,367,000
Corporate Overhead (1,182,000) (1,170,000)
----------- -----------
Total Income from
Operations $ 4,889,000 $ 4,394,000
=========== ===========
The aviation fueling segment's income from operations was $3,531,000
for the three months ended June 30, 1998, an increase of $357,000, or 11.2%, as
compared to the three months ended June 30, 1997. This resulted from an increase
in the volume and average gross profit per gallon sold. Partially offsetting was
an increase in operating expenses due to a higher provision for bad debts and
expenses related to business expansion. The marine fueling segment earned
$1,527,000 in income from operations for the three months ended June 30, 1998,
an increase of $504,000 or 49.3% over the corresponding period of the prior
year. This increase was primarily the result of higher volume, partially offset
by higher operating expenses due to business expansion and a higher provision
for bad debts. Income from operations of the oil recycling segment decreased by
$354,000, or 25.9%, for the three months ended June 30, 1998, as compared to the
same period of the prior year. This resulted from a decrease in gross profit due
to lower world oil prices.
Other income decreased $466,000 over the first quarter a year ago, as a
result of lower earnings from the Company's aviation joint venture and lower
interest income. The Company's effective income tax rate for the three months
ended June 30, 1998 was 20.6%, as compared to 25.6% for the same period of the
prior year. The decrease is primarily the result of a true-up of U.S. income
taxes for overaccruals in prior periods.
Net income for the three months ended June 30, 1998 was $4,081,000, an
increase of $278,000, or 7.3%, as compared to net income of $3,803,000 for the
three months ended June 30, 1997. Basic earnings per share of $0.33 for the
three months ended June 30, 1998 exhibited a $0.02, or 6.5% increase over the
$0.31 achieved during the same period of the prior year.
Page 10 of 13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents amounted to $9,860,000 at June 30, 1998, as
compared to $14,459,000 at March 31, 1998. The principal uses of cash and cash
equivalents during the first three months of fiscal year 1999 were $3,045,000
used in operating activities, $1,218,000 for capital expenditures and $624,000
in dividends paid on common stock. Other components of changes in cash and cash
equivalents are detailed in the Consolidated Statements of Cash Flows.
Working capital as of June 30, 1998 was $63,574,000, exhibiting a
$3,473,000 increase from working capital as of March 31, 1998. As of June 30,
1998, the Company's accounts receivable, excluding the allowance for bad debts,
amounted to $91,797,000, an increase of $5,555,000, as compared to the March 31,
1998 balance. In the aggregate, accounts payable, accrued expenses and customer
deposits increased $2,863,000. The net increase in trade credit of $2,692,000,
was primarily attributable to the marine segment. The allowance for bad debts as
of June 30, 1998 amounted to $4,661,000, an increase of $67,000 compared to the
March 31, 1998 balance. During the first three months of fiscal year 1999, the
Company charged $1,238,000 to the provision for bad debts and had charge-offs in
excess of recoveries of $1,171,000.
Prepaid and other current assets as of June 30, 1998, were $10,439,000,
exhibiting an increase of $4,502,000 from the March 31, 1998 balance. The
increase was largely related to the reclassification of accounts receivable to
notes receivable. Accrued salaries and wages decreased $602,000 during the first
quarter of the 1999 fiscal year, resulting from the payment of sales and
management performance bonuses accrued for the 1998 fiscal year.
Capital expenditures for the first three months of fiscal year 1999
consisted primarily of $522,000 for the implementation of a new financial and
sales system and $362,000 in plant, machinery and equipment related to the
recycled oil segment. During the balance of fiscal year 1999, the Company
anticipates spending an additional $1,500,000 for the implementation of the
financial and sales system and approximately $2,000,000 to upgrade plant,
machinery and equipment. The Company also anticipates spending an estimated
$1,000,000 over the next several years to clean up contamination which was
present at one of the Company's sites when it was acquired by the Company. The
clean up costs will be capitalized as part of the cost of the site, up to the
fair market value of the site.
Stockholders' equity amounted to $95,594,000, or $7.64 per share at
June 30, 1998, compared to $91,911,000, or $7.36 per share at March 31, 1998.
This increase of $3,683,000 was due to $4,081,000 in first quarter earnings and
$239,000 due to the issuance of common stock pursuant to the exercise of stock
options, partially offset by the declaration of first quarter cash dividends of
$626,000.
The Company's working capital requirements are not expected to vary
substantially for the balance of fiscal year 1999. The Company expects to meet
its cash requirements for the balance of fiscal year 1999 from existing cash,
operations and additional borrowings, as necessary, under its existing credit
facility. The Company's business has not been significantly affected by
inflation during the periods discussed in this report.
Page 11 of 13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
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) During the three months ended June 30, 1998, the Company did not
file any reports on Form 8-K.
Page 12 of 13
<PAGE>
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: July 29, 1998 WORLD FUEL SERVICES CORPORATION
/s/ JERROLD BLAIR
---------------------------
JERROLD BLAIR
PRESIDENT
/s/ Carlos A. Abaunza
--------------------------
CARLOS A. ABAUNZA
CHIEF FINANCIAL OFFICER
(Principal Financial and Accounting
Officer)
Page 13 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S JUNE 30, 1998 UNAUDITED FINANCIAL STATEMENTS FILED ON FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 9,860,000
<SECURITIES> 0
<RECEIVABLES> 91,797,000
<ALLOWANCES> 4,661,000
<INVENTORY> 5,569,000
<CURRENT-ASSETS> 113,004,000
<PP&E> 28,335,000
<DEPRECIATION> 9,615,000
<TOTAL-ASSETS> 148,721,000
<CURRENT-LIABILITIES> 49,430,000
<BONDS> 0
0
0
<COMMON> 125,000
<OTHER-SE> 95,469,000
<TOTAL-LIABILITY-AND-EQUITY> 148,721,000
<SALES> 193,031,000
<TOTAL-REVENUES> 193,031,000
<CGS> 178,175,000
<TOTAL-COSTS> 178,175,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,238,000
<INTEREST-EXPENSE> 38,000
<INCOME-PRETAX> 5,142,000
<INCOME-TAX> 1,061,000
<INCOME-CONTINUING> 4,081,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,081,000
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.32
</TABLE>
