UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 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
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(Exact name of registrant as specified in its charter)
FLORIDA 59-2459427
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
700 SOUTH ROYAL POINCIANA BLVD., SUITE 800
MIAMI SPRINGS, FLORIDA 33166
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code: (305) 884-2001
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS: ON WHICH REGISTERED:
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Common Stock, New York Stock Exchange
par value $0.01 per share Pacific Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definite proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to the Form 10-K [ ].
The aggregate market value of the voting stock (which consists solely of
shares of common stock) held by non-affiliates of the registrant was
$223,195,000 (computed by reference to the closing sale price as of May 22,
1998).
The registrant had 12,486,411 outstanding shares of common stock, par
value $.01 per share, as of May 22, 1998.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III - Definitive Proxy Statement for the 1998 Annual Meeting
of Shareholders.
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TABLE OF CONTENTS
PAGE
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ITEM 1. Business
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General 1
History 1
Description of Business 2
Aviation Fuel Services 2
Marine Fuel Services 3
Oil Recycling 4
Potential Liability and Insurance 4
Regulation 5
ITEM 2. Properties 8
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ITEM 3. Legal Proceedings 11
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ITEM 4. Submission of Matters to a Vote of Security Holders 11
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ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters 12
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ITEM 6. Selected Financial Data 13
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ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 14
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ITEM 8. Financial Statements and Supplementary Data 20
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ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 20
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ITEM 10. Directors and Executive Officers of the Registrant 21
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ITEM 11. Executive Compensation 21
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ITEM 12. Security Ownership of Certain Beneficial Owners and
Management 21
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ITEM 13. Certain Relationships and Related Transactions 21
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ITEM 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 22
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i
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PART I
ITEM 1. BUSINESS
GENERAL
World Fuel Services Corporation (the "Company") markets aviation and marine fuel
services, and recycles used oil. In its aviation fuel services business, the
Company extends credit and provides around-the-world single-supplier
convenience, 24-hour service, and competitively-priced aviation fuel and flight
plans, weather reports, and other aviation related services to passenger, cargo
and charter airlines, as well as corporate customers. In its marine fuel
services business, the Company markets marine fuel and fuel management services
to a broad base of international shipping companies and to the U.S. military.
Services include credit terms, 24-hour around-the-world service and
competitively priced fuel. In its oil recycling business, the Company collects
and recycles non-hazardous petroleum products and petroleum contaminated liquids
throughout the southern and mid-atlantic United States. The Company sells the
recycled oil to industrial and commercial customers.
Financial information with respect to the Company's business segments and
foreign operations is provided in Note 7 to the accompanying financial
statements.
HISTORY
The Company was incorporated in Florida in July 1984. Its executive offices are
located at 700 South Royal Poinciana Boulevard, Suite 800, Miami Springs,
Florida 33166 and its telephone number at this address is (305) 884-2001. The
Company presently conducts its aviation fuel services business through ten
subsidiaries and a joint venture, with principal offices in Florida, Texas,
England, Singapore, Mexico, Ecuador and Costa Rica. The Company conducts its
marine fuel services business through six subsidiaries with principal offices in
New Jersey, California, Washington, England, Costa Rica, South Korea and
Singapore, and its oil recycling business is conducted through five subsidiaries
with offices in Florida, Louisiana, Maryland and Delaware. See "Item 2 -
Properties" for a list of principal offices by business segment and "Exhibit 21
- - Subsidiaries of the Registrant".
The Company began operations in 1984 as a used oil recycler in the southeast
United States. The Company expanded this business through acquisitions, the
development of new processing technology and the establishment of new offices.
In 1986, the Company diversified its operations by entering, through an
acquisition, the aviation fuel services business. This new segment expanded
rapidly, from a business primarily concentrated in the state of Florida, to an
international sales company covering airports throughout the world. This
expansion resulted from acquisitions and the establishment of new offices.
In 1995, the Company further diversified its fuel services operations through
the acquisition of a group of companies which are considered leaders in the
marine fuel services business. This new segment provided the Company with
operational and supplier side synergies and entry into fast growing markets in
the Far East and Eastern Europe.
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In January 1998, the Company purchased all of the outstanding stock of Baseops
International, Inc. and its affiliates ("Baseops"). Baseops provides a
sophisticated array of aviation services to a diversified clientele of
corporate, government, and private aircraft worldwide.
See "Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 1 to the accompanying financial statements for
additional information.
DESCRIPTION OF BUSINESS
AVIATION FUEL SERVICES
The Company markets aviation fuel and services to passenger, cargo and charter
airlines, as well as corporate customers. The Company has developed an extensive
network which enables it to provide fuel and aviation related services to
customers at airports throughout the world. The aviation services offered by the
Company include flight plans, weather reports, ground handling, and obtaining
flight permits.
In general, the aviation industry is capital intensive and highly leveraged.
Recognizing the financial risks of the airline industry, fuel suppliers
generally refrain from extending unsecured lines of credit to smaller airlines
and avoid doing business with smaller airlines directly. Consequently, most
carriers are required to post a cash collateralized letter of credit or prepay
for fuel purchases. This impacts the airlines' working capital. The Company
recognizes that the extension of credit is a risk but also a significant area of
opportunity. Accordingly, the Company extends unsecured credit to many of its
customers.
The Company purchases its aviation fuel from suppliers worldwide. The Company's
cost of fuel is generally tied to market-based formulas or is government
controlled. The Company is usually extended unsecured trade credit for its fuel
purchases. However, certain suppliers require a letter of credit. The Company
may prepay its fuel purchases to take advantage of financial discounts, or as
required to transact business in certain countries.
Outside of the United States, the Company does not maintain fuel inventory and
arranges to have the fuel delivered directly into the customer's aircraft. In
the United States, sales are made directly into a customer's aircraft or the
customer's designated storage with fuel provided by the Company's suppliers or
delivered from the Company's inventory. Inventory is held at multiple locations
in the United States for competitive reasons and inventory levels are kept at an
operating minimum. The Company has arrangements with its suppliers and other
third parties for the delivery of fuel.
The primary risk in the Company's aviation fueling business is the extension of
unsecured trade credit. The Company's success in attracting business has been
due, in large part, to its willingness to extend credit on an unsecured basis to
customers which exhibit a higher credit risk profile and would otherwise be
required to prepay or post cash collateralized letters of credit with their
suppliers of fuel. The Company's management recognizes that extending credit and
setting appropriate reserves for receivables is largely a subjective decision
based on knowledge of the customer. Active management of this risk is essential
to the Company's success. A strong capital position and liquidity provide the
financial flexibility necessary to respond to customer needs. Diversification of
risk is difficult since the
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Company sells primarily within the airline industry. The Company's management
meets regularly to evaluate credit exposure in the aggregate, and by individual
credit. This group is also responsible for setting and maintaining credit
standards and ensuring the overall quality of the credit portfolio.
The level of credit granted to a customer is largely influenced by its estimated
fuel requirements for thirty to forty-five days. This period of time represents
the average business cycle of the Company's typical customer. The Company
regularly monitors its credit portfolio by reviewing a customer's payment
patterns and estimated overall exposure, including estimated unbilled fuel
sales.
During the fiscal years ended March 31, 1998, 1997 and 1996, none of the
Company's aviation fuel customers accounted for more than 10% of the Company's
consolidated revenue. The Company currently employs 128 persons in its aviation
fuel services segment.
MARINE FUEL SERVICES
The Company, through its Trans-Tec Services subsidiaries, markets marine fuel
and services related to the marine business to a broad base of customers,
including international container and tanker fleets, time charter operators, as
well as U.S. military vessels. Fuel and related services are provided throughout
the world.
Through strategic sales offices located in the United States, Singapore,
England, Denmark, South Africa, South Korea and Costa Rica, Trans-Tec Services
provides its customers global market intelligence and rapid access to quality
and competitively priced marine fuel, 24-hours a day, every day of the year. The
cost of fuel is a major component of a vessel's operating overhead. Therefore,
the need for cost effective and professional fueling services is essential.
As an increasing number of ship owners, time charter operators, and suppliers
look to outsource their marine fuel purchasing and/or marketing needs, Trans-Tec
Services' value added service has become an integral part of the oil and
transportation industries' push to shed non-core functions. Suppliers use
Trans-Tec Services' global sales, marketing and financial infrastructure to sell
a spot or ratable volume of product to a diverse, international purchasing
community. End customers use Trans-Tec Services' real time analysis of the
availability, quality, and price of marine fuels in ports worldwide to maximize
their competitive position.
Trans-Tec Services acts as a broker and as a source of market information for
the end user, negotiates the transaction by arranging the fuel purchase contract
between the supplier and end user, and expedites the arrangements for the
delivery of fuel. For this service, Trans-Tec Services is paid a commission from
the supplier. Trans-Tec Services also acts as a reseller, when it purchases the
fuel from a supplier, marks it up, and resells the fuel to a customer at a
profit. The Company holds inventory in its offshore fueling operations and
assumes minimal price risk; however, in most resale transactions the Company
extends unsecured trade credit.
The Company's management meets regularly to evaluate credit exposure in the
aggregate and by individual credit. This group is also responsible for setting
and maintaining credit standards and ensuring the overall quality of the credit
portfolio. The level of credit is largely influenced by a customer's credit
history with the Company, including claims experience and payment patterns.
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During the fiscal years ended March 31, 1998, 1997 and 1996, none of the
Company's marine fuel customers accounted for more than 10% of the Company's
consolidated revenue. The Company currently employs 72 persons in its marine
fuel services segment.
OIL RECYCLING
The Company, through its International Petroleum Corporation subsidiaries
("IPC"), collects, blends, and recycles petroleum products and petroleum
contaminated water. The Company's recycled oil products are sold primarily to
industrial and commercial customers. The Company generates revenue from the sale
of its recycled oil products and from fees paid by customers for the collection
of used oil, contaminated water and other non-hazardous liquids.
IPC collects only non-hazardous waste oil, waste water, anti-freeze and
petroleum contaminated liquids from generators such as service stations, quick
lube shops, automobile dealerships, and industrial, governmental, marine, and
utility generators. The Company uses its own fleet of trucks to collect
approximately 60 percent of its needs from generators within close proximity to
its facilities. The balance is sourced from independent collectors. Every
shipment is analyzed at the collection site or at the Company's laboratories to
determine its specifications and the treatment needed to convert the waste fluid
into marketable fuel products.
The Company has three recycling facilities. The facilities located in Plant
City, Florida and Wilmington, Delaware utilize a closed-loop, two stage
distillation process. The Company's third recycling facility, located in New
Orleans, Louisiana, utilizes a batch recycling process. The Company also has
collection and transfer facilities in Baltimore, Maryland, Jacksonville,
Florida, and Trenton, New Jersey. The resulting recycled oil product is sold as
is, or it may be blended to customer specification. The Company's products range
from commercial diesel fuel to #6 grade residual oil.
The used oil industry is highly fragmented and consists primarily of small scale
operators that collect and resell used oil, many of which lack the necessary
facilities to adequately test and recycle the oil. However, the industry also
includes a few large-scale operators that have the facilities to collect,
re-refine, and market lubricating products.
During the fiscal years ended March 31, 1998, 1997 and 1996, none of the
Company's recycled fuel customers accounted for more than 10% of the Company's
consolidated revenue. The Company currently employs 164 persons in the oil
recycling segment.
POTENTIAL LIABILITY AND INSURANCE
The Company, through the use of subcontractors and its own operations,
transports, stores or processes flammable aviation, marine and residual fuel
subjecting it to possible claims by employees, customers, regulators and others
who may be injured. In addition, the Company may be held liable for the clean-up
costs of spills or releases of materials from its facilities or vehicles, or for
damages to natural resources arising out of such events. The Company follows
what it believes to be prudent procedures to protect its employees and customers
and to prevent spills or releases of these materials. The Company's domestic and
international fueling activities also subject it to the risks of significant
potential liability under federal and state statutes, common law and
indemnification agreements. The
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Company has general and automobile liability insurance coverage, including the
statutory Motor Carrier Act/MCS 90 endorsement for sudden and accidental
pollution.
In the aviation and marine fuel segments, the Company utilizes subcontractors
which provide various services to customers, including intoplane fueling at
airports, fueling of vessels in port and at sea, and transportation and storage
of fuel and fuel products. Although the Company generally requires its
subcontractors to carry liability insurance, not all subcontractors carry
adequate insurance. The Company's liability insurance policy does not cover the
acts or omissions of its subcontractors. If the Company is held responsible for
any liability caused by its subcontractors, and such liability is not adequately
covered by the subcontractor's insurance and is of sufficient magnitude, the
Company's financial position and results of operations will be adversely
affected.
The Company has exited several environmental businesses which handled hazardous
waste. This waste was transported to various disposal facilities and/or treated
by the Company. The Company may be held liable as a potentially responsible
party for the clean-up of such disposal facilities in certain cases pursuant to
current federal and state laws and regulations.
The Company continuously reviews the adequacy of its insurance coverage.
However, the Company lacks coverage for various risks. A claim arising out of
the Company's activities, if successful and of sufficient magnitude, will have a
material adverse effect on the Company's financial position and results of
operations.
REGULATION
The Company's operations are subject to substantial regulation by federal, state
and local government agencies, including, but not limited to, regulations which
restrict the transportation, storage and disposal of hazardous waste and the
collection, transportation, processing, storage, use and disposal of waste oil.
The principal U.S. federal statutes affecting the business of the Company and
the markets it serves are as follows:
THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF 1980
("SUPERFUND" OR "CERCLA") establishes a program for federally directed response
or remedial actions with respect to the uncontrolled discharge of hazardous
substances, pollutants or contaminants, including waste oil, into the
environment. The law authorizes the federal government either to seek a binding
order directing responsible parties to undertake such actions or authorizes the
federal government to undertake such actions and then to seek compensation for
the cost of clean-up and other damages from potentially responsible parties.
Congress established a federally-managed trust fund, commonly known as the
Superfund, to fund response and remedial actions undertaken by the federal
government. The trust fund is used to fund federally conducted actions when no
financially able or willing responsible party has been found.
THE SUPERFUND AMENDMENTS AND RE-AUTHORIZATION ACT OF 1986 ("SARA") adopted more
detailed and stringent standards for remedial action at Superfund sites, and
clarified provisions requiring damage assessments to determine the extent and
monetary value of injury to natural resources. SARA also provides a separate
funding mechanism for the clean-up of underground storage tanks.
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THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976 ("RCRA") established a
comprehensive regulatory framework for the management of hazardous waste at
active facilities, complementing the Superfund program which addresses inactive
and abandoned waste sites. RCRA sets up a "cradle-to-grave" system for the
management of hazardous waste, imposing upon all parties who generate,
transport, treat, store or dispose of waste, above certain minimum quantities,
requirements for performance, testing and record keeping. RCRA also requires new
and existing facilities to obtain permits for construction, operation and
closure and requires 30 years of post-closure care and monitoring. RCRA was
amended in 1984 to increase the scope of RCRA regulation of small quantity waste
generators and waste oil handlers and recyclers; require corrective action at
hazardous waste facilities (including remediation at certain previously closed
solid waste management units); phase in restrictions on disposal of hazardous
waste; and require the identification and regulation of underground storage
tanks containing petroleum and certain chemicals.
On November 29, 1985, the Environmental Protection Agency ("EPA") issued final
regulations under RCRA which restrict the burning of waste oil. These
regulations prohibit burning waste oil in non-industrial boilers unless the oil
meets certain standards for levels of lead, arsenic, chromium, chlorine,
cadmium, and flashpoint. The regulations do not restrict the burning of waste
oil in industrial boilers and furnaces. These regulations have not had a
significant impact on the Company's business because the Company does not
presently sell recycled fuel to non-industrial burners. Industrial burners of
recycled oil, however, must comply with certain notification and administrative
procedures.
THE CLEAN AIR ACT OF 1970, as amended in 1977, was the first major federal
legislation enacted after NEPA became law. The Act authorized the EPA to
establish National Ambient Air Quality Standards for certain pollutants, which
are to be achieved by the individual states through State Implementation Plans
("SIPs"). SIPs typically attempt to meet ambient standards by regulating the
quantity and quality of emissions from specific industrial sources. For toxic
emissions, the Act authorizes the EPA to regulate emissions from industrial
facilities directly. The EPA also directly establishes emissions limits for new
sources of pollution, and is responsible for ensuring compliance with air
quality standards. The Clean Air Act Amendments of 1990 place the primary
responsibility for the prevention and control of air pollution upon state and
local governments. The 1990 amendments require regulated emission sources to
obtain operating permits, which could impose emission limitations, standards,
and compliance schedules.
THE CLEAN WATER ACT OF 1972, as amended in 1987, establishes water pollutant
discharge standards applicable to many basic types of manufacturing plants and
imposes standards on municipal sewage treatment plants. The Act requires states
to set water quality standards for significant bodies of water within their
boundaries and to ensure attainment and/or maintenance of those standards. Most
industrial and government facilities must apply for and obtain discharge
permits, monitor pollutant discharges, and under certain conditions reduce
certain discharges.
THE SAFE DRINKING WATER ACT, as amended in 1986, regulates public water supplies
by requiring the EPA to establish primary drinking water standards. These
standards are likely to be further expanded under the EPA's evolving groundwater
protection strategy which is intended to set levels of protection or clean-up of
the nation's groundwater resources. These groundwater quality requirements will
then be applied to RCRA facilities and CERCLA sites, and remedial action will be
required for releases of contaminants into groundwater.
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THE INTERNATIONAL CONVENTION FOR THE PREVENTION OF POLLUTION FROM SHIPS
("MARPOL") places strict limitations on the discharge of oil at sea and in port
and requires ships to transfer oily waste to certified reception facilities. The
U.S. Coast Guard has issued regulations effective March 10, 1986 which implement
the requirements of MARPOL. Under these regulations, each terminal and port of
the United States that services oceangoing tankers or cargo ships over 400 gross
tons must be capable of receiving an average amount of oily waste based on the
type and number of ships it serves. The reception facilities may be fixed or
mobile, and may include tank trucks and tank barges.
THE NATIONAL POLLUTANT DISCHARGE ELIMINATION SYSTEM ("NPDES"), a program
promulgated under the Clean Water Act, permits states to issue permits for the
discharge of pollutants into the waters of the United States in lieu of federal
EPA regulation. State programs must be consistent with minimum federal
requirements, although they may be more stringent. NPDES permits are required
for, among other things, certain industrial discharges of storm water.
THE OIL POLLUTION ACT OF 1990 imposes liability for oil discharges, or threats
of discharge, into the navigable waters of the United States on the owner or
operator of the responsible vessel or facility. Oil is defined to include oil
refuse and oil mixed with wastes other than dredged spoil, but does not include
oil designated as a hazardous substance under CERCLA. The Act requires the
responsible party to pay all removal costs, including the costs to prevent,
minimize or mitigate oil pollution in any case in which there is a substantial
threat of an actual discharge of oil. In addition, the responsible party may be
held liable for damages for injury to natural resources, loss of use of natural
resources and loss of revenues from the use of such resources.
STATE AND LOCAL GOVERNMENT REGULATIONS. Many states have been authorized by the
EPA to enforce regulations promulgated under RCRA and other federal programs. In
addition, there are numerous state and local authorities that regulate the
environment, some of which impose stricter environmental standards than federal
laws and regulations. Some states, including Florida, have enacted legislation
which generally provides for registration, recordkeeping, permitting,
inspection, and reporting requirements for transporters, collectors and
recyclers of hazardous waste and waste oil. The penalties for violations of
state law include injunctive relief, recovery of damages for injury to air,
water or property and fines for non-compliance. In addition, some local
governments have established local pollution control programs, which include
environmental permitting, monitoring and surveillance, data collection and local
environmental studies.
EXCISE TAX ON DIESEL, AVIATION AND MARINE FUEL. The Company's aviation and
marine fueling operations are affected by various federal and state taxes
imposed on the purchase and sale of aviation and marine fuel products in the
United States. Federal law imposes a manufacturer's excise tax on sales of
aviation and marine fuel. Sales to aircraft and vessels engaged in foreign trade
are exempt from this tax. These exemptions may be realized either through
tax-free or tax-reduced sales, if the seller qualifies as a producer under
applicable regulations, or, if the seller does not so qualify, through a
tax-paid sale followed by a refund to the exempt user. Several states, where the
Company sells aviation and marine fuel, impose excise and sales taxes on fuel
sales; certain sales of the Company qualify for full or partial exemptions from
these state taxes.
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ITEM 2. PROPERTIES
The following pages set forth by segment and subsidiary the principal properties
owned or leased by the Company as of May 15, 1998. The Company considers its
properties and facilities to be suitable and adequate for its present needs.
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<TABLE>
<CAPTION>
WORLD FUEL SERVICES CORPORATION AND SUSIDIARIES
PROPERTIES
OWNER/LESSEE AND LOCATION PRINCIPAL USE OWNED OR LEASED
- ------------------------- ------------- ---------------
<S> <C> <C>
CORPORATE
World Fuel Services Corporation Executive offices Leased to December 2002
700 S. Royal Poinciana Blvd., Suite 800
Miami Springs, FL 33166
AVIATION FUELING
World Fuel Services of FL Administrative, operations Leased to December 2002
700 S. Royal Poinciana Blvd., Suite 800 and sales offices
Miami Springs, FL 33166
World Fuel Services, Inc. Administrative, operations Leased to December 2002
700 S. Royal Poinciana Blvd., Suite 800 and sales offices
Miami Springs, FL 33166
333 Cypress Run #200 Administrative, operations Leased to February 2006
Houston, Texas 77094 and sales offices
4995 East Anderson Avenue Administrative, operations Leased month-to-month
Fresno, CA 93727 and sales offices
World Fuel International S.A. Administrative, operations Leased to April 1999
Petroservicios de Costa Rica S.A. and sales offices
Oficentro Ejecutivo La Sabana Sur
Edificio #5, Primer Piso
San Jose, Costa Rica
World Fuel Services Ltd. Administrative, operations Leased to December 2002
Baseops Europe Ltd. and sales offices
AirData Limited
Kingfisher House, Northwood Park
Gatwick Rd.
Crawley, West Sussex, RH10 2XN
United Kingdom
World Fuel Services (Singapore) Pte., Ltd. Administrative, operations Leased to June 2000
101 Thomson Road #09-03A, United Square and sales offices
Singapore 307591
PetroServicios de Mexico S.A. de C.V. Administrative operations Leased to March 1999
Servicios Auxiliares de Mexico S.A. de C.V. and sales offices
Avenida Fuerza Aerea Mexicana No. 465
Colonia Federal
15700 Mexico, D.F.
Baseops International, Inc. Administrative, operations Leased to February 2006
333 Cypress Run #200 and sales offices
Houston, Texas 77094
</TABLE>
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<TABLE>
<CAPTION>
WORLD FUEL SERVICES CORPORATION AND SUSIDIARIES
PROPERTIES
OWNER/LESSEE AND LOCATION PRINCIPAL USE OWNED OR LEASED
- ------------------------- ------------- ---------------
<S> <C> <C>
MARINE FUELING
Trans-Tec Services, Inc.
Glenpointe Center West Administrative, operations Leased to May 2002
500 Frank W. Burr Blvd. and sales offices
Teaneck, NJ 07666
60 East Sir Francis Drake, No. 301 Administrative, operations Leased to December 1999
Larkspur, CA 94939 and sales offices
2nd Floor Kipun Building Administrative, operations Leased to December 1998
200 Naeja-Dong and sales offices
Chongru-Ku
Seoul, South Korea
Seagram House, 2nd Floor Administrative, operations Leased to September 1998
71 Dock Road, Waterfront and sales offices
Capetown, South Africa 8001
Trans-Tec Services (UK) Ltd.
Millbank Tower, 21/24 Millbank Administrative, operations Leased to November 2002
London SW1P 4QP United Kingdom and sales offices
Gammelbyved 2 Administrative, operations Leased month-to-month
Karise, Denmark 4653 and sales offices
Trans-Tec International S.A. Administrative, operations Leased to April 1999
Casa Petro S.A. and sales offices
Oficentro Ejecutivo La Sabana Sur
Edificio #5, Primer Piso
San Jose, Costa Rica
Pacific Horizon Petroleum Services, Inc. Administrative, operations Leased to July 2000
2025 First Ave., Suite 1110 and sales offices
Seattle, WA 98121
Trans-Tec Services (Signapore) PTE., LTD. Administrative, operations Leased to June 2000
101 Thomson Road #09-03A, United Square and sales offices
Singapore 307591
OIL RECYCLING
International Petroleum Corporation Storage tanks, recycling Leased to August 2001
105 South Alexander Street plant, laboratory and
Plant City, FL 33566 administrative offices
International Petroleum Corp. of Delaware Storage tanks, recycling Owned
505 South Market Street plant, laboratory and
Wilmington, DE 19801 administrative offices
International Petroleum Corp. of LA Storage tanks, recycling Partially owned;
14890 Intercoastal Drive plant, laboratory and Partially leased to August 2001
New Orleans, LA 70129 administrative offices
International Petroleum Corp. of Maryland Collection and transfer Owned
6305 East Lombard Street facility and administrative
Baltimore, MD 21224 offices
</TABLE>
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ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings to which the Company or any of its
subsidiaries is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of stockholders, through the solicitation of
proxies or otherwise, during the fourth quarter of fiscal year 1998.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange and the
Pacific Stock Exchange under the symbol INT. The following table sets forth, for
each quarter within the fiscal years ended March 31, 1998 and 1997, the sale
prices of the Company's common stock as reported by the New York Stock Exchange
and the quarterly cash dividends per share of common stock declared during the
periods indicated. The amounts shown have been restated to reflect a 3-for-2
stock split of the Company's common stock which was effective November 17, 1997.
See Note 4 to the financial statements included as part of this report.
CASH
PRICE DIVIDENDS
------------------------- PER
HIGH LOW SHARE
--------- --------- ---------
Year ended March 31, 1998
First quarter $14 13/16 $11 3/16 $0.05
Second quarter 16 7/8 13 7/16 0.05
Third quarter 21 15 11/16 0.05
Fourth quarter 23 9/16 18 13/16 0.05
Year ended March 31, 1997
First quarter $13 1/16 $11 1/16 $0.05
Second quarter 12 7/16 10 7/16 0.05
Third quarter 15 10 11/16 0.05
Fourth quarter 15 1/16 11 3/4 0.05
As of May 12, 1998, there were 359 shareholders of record of the Company's
common stock. On March 19, 1998 the Company's Board of Directors approved the
following cash dividend schedule for the 1999 fiscal year:
DECLARATION DATE PER SHARE RECORD DATE PAYMENT DATE
- ---------------- --------- ----------- ------------
June 4, 1998 $0.05 June 19, 1998 July 7, 1998
September 3, 1998 $0.05 September 18, 1998 October 7, 1998
December 3, 1998 $0.05 December 18, 1998 January 8, 1999
March 4, 1999 $0.05 March 19, 1999 April 7, 1999
The Company's loan agreement with NationsBank restricts the payment of cash
dividends to a maximum of 25% of net income for the preceding four quarters. The
Company's payment of the above dividends is in compliance with the NationsBank
loan agreement.
In January 1998, the Company issued 150,000 shares of its Common Stock in
connection with the acquisition of Baseops. During the fourth quarter of fiscal
year 1998, the Company issued 70,386 shares of its Common Stock in connection
with the exercise of certain employee incentive stock
Page 12
<PAGE>
options. Each of the aforementioned issuances of Common Stock were made without
registration under the Securities Act of 1933, as amended (the "Securities
Act"), in reliance upon the exemptions from registration afforded by section
4(2) of the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data has been summarized from the Company's
consolidated financial statements set forth in Item 8 of this report. The
selected financial data should be read in conjunction with the notes set forth
at the end of these tables, the consolidated financial statements and the
related notes thereto, and "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
FISCAL YEAR ENDED MARCH 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(In thousands, except earnings per share data)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA
Revenue $ 801,763 $ 772,618 $ 642,299 $ 361,891 $ 250,527
Cost of Sales 751,368 725,991 601,930 334,134 223,576
--------- --------- --------- --------- ---------
Gross profit 50,395 46,627 40,369 27,757 26,951
Operating Expenses 31,868 31,001 25,423 16,508 17,181
--------- --------- --------- --------- ---------
Income from operations 18,527 15,626 14,946 11,249 9,770
Other income (expense), net 2,219 2,243 1,875 1,774 (1,333)
--------- --------- --------- --------- ---------
Income before income taxes 20,746 17,869 16,821 13,023 8,437
Provision for income taxes 4,893 4,604 5,876 4,935 3,242
--------- --------- --------- --------- ---------
Net income $ 15,853 $ 13,265 $ 10,945 $ 8,088 $ 5,195
========= ========= ========= ========= =========
Basic earnings per common share $ 1.30 $ 1.10 $ 0.92 $ 0.74 $ 0.49
========= ========= ========= ========= =========
Weighted average shares 12,230 12,068 11,945 10,957 10,582
========= ========= ========= ========= =========
Diluted earnings per common share $ 1.27 $ 1.08 $ 0.90 $ 0.73 $ 0.49
========= ========= ========= ========= =========
Weighted average shares - diluted 12,528 12,295 12,150 11,038 10,652
========= ========= ========= ========= =========
</TABLE>
(Continued)
Page 13
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(Continued)
AS OF MARCH 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Current assets $107,548 $ 93,436 $ 83,252 $ 58,006 $ 33,682
Total assets 143,259 123,139 111,974 89,536 53,687
Current liabilities 47,447 44,851 43,706 30,486 13,141
Long-term liabilities 3,901 3,030 4,518 6,984 575
Stockholders' equity 91,911 75,258 63,750 52,066 39,971
</TABLE>
NOTES TO SELECTED FINANCIAL DATA
The Company declared and paid cash dividends beginning in fiscal year 1995.
See "Item 5 - Market for Registrant's Common Equity and Related Stockholder
Matters."
Effective January 1, 1995, the Company acquired the Trans-Tec group of
companies. The acquisition was accounted for under the purchase method.
Accordingly, the selected financial information for the year ended March 31,
1995, includes the results of the Trans-Tec group since January 1, 1995.
In June 1995, the Board of Directors approved a 3-for-2-stock split for all
shares of common stock outstanding as of June 19, 1995. The shares were
distributed on June 27, 1995. In October 1997, the Board of Directors
approved a 3-for-2 stock split for all shares of common stock outstanding as
of November 17, 1997. The shares were distributed on December 1, 1997.
Accordingly, all share and per share data, as appropriate, have been
retroactively adjusted to reflect the effects of these splits.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share" ("SFAS 128"). The Company adopted this standard as
of December 31, 1997. Earnings per share information for all prior periods
presented have been restated to conform to the requirements of SFAS 128.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Item 6 - Selected
Financial Data," and with the consolidated financial statements and related
notes thereto appearing elsewhere in this report.
RESULTS OF OPERATIONS
Profit from the Company's aviation fuel services business is directly related to
the volume and the margins achieved on sales, as well as the extent to which the
Company is required to provision for potential bad debts. Profit from the
Company's marine fuel services business is determined primarily by the volume of
brokering business generated and by the volume and margins achieved on trade
sales, as well as the extent to which the Company is required to provision for
potential bad debts. The Company's profit from oil recycling is principally
determined by the volume and margins of recycled oil sales and used oil
collection revenue.
Page 14
<PAGE>
FISCAL YEAR ENDED MARCH 31, 1998 COMPARED TO THE FISCAL YEAR ENDED
MARCH 31, 1997
The Company's revenue for the fiscal year ended March 31, 1998 was $801,763,000,
an increase of $29,145,000, or 3.8%, as compared to revenue of $772,618,000 for
the prior fiscal year. The Company's revenue during these periods was
attributable to the following segments:
FISCAL YEAR ENDED MARCH 31,
---------------------------
1998 1997
------------ ------------
Aviation Fueling $383,010,000 $381,236,000
Marine Fueling 393,607,000 368,470,000
Oil Recycling 25,146,000 22,912,000
------------ ------------
Total Revenue $801,763,000 $772,618,000
============ ============
The aviation fueling segment contributed $383,010,000 in revenue for the fiscal
year ended March 31, 1998. This represented an increase in revenue of
$1,774,000, or 0.5%, as compared to the prior fiscal year. The increase in
revenue was due to a higher volume of gallons sold, largely offset by a decrease
in the average price per gallon sold, which resulted primarily from a decrease
in the world market price of fuels. The marine fueling segment contributed
$393,607,000 in revenue for the fiscal year ended March 31, 1998, an increase of
$25,137,000, or 6.8%, over the prior fiscal year. The increase in revenue was
related primarily to an increase in the volume of metric tons traded, partially
offset by a decrease in the average sales price of metric tons traded. The oil
recycling segment contributed $25,146,000 in revenue for the fiscal year ended
March 31, 1998, an increase of $2,234,000, or 9.7%, as compared to the prior
fiscal year. The increase in revenue was due to an increase in volume of
recycled oil sold and higher used oil and waste water collection revenue,
partially offset by a decrease in the average sales price per gallon of recycled
oil sold.
The Company's gross profit for the fiscal year ended March 31, 1998 was
$50,395,000, an increase of $3,768,000, or 8.1%, as compared to the prior fiscal
year. The Company's gross margin increased from 6.0% for the fiscal year ended
March 31, 1997 to 6.3% for the fiscal year ended March 31, 1998.
The Company's aviation fueling business achieved a 6.1% gross margin for the
fiscal year ended March 31, 1998, as compared to 6.0% achieved for the prior
fiscal year. This resulted from the decline in the average price per gallon
sold. The Company's marine fueling segment achieved a 5.1% gross margin for the
fiscal year ended March 31, 1998, as compared to a 4.4% gross margin for the
prior fiscal year. This resulted from an increase in the average gross profit
per metric ton traded and lower fuel prices. The gross margin in the Company's
oil recycling segment decreased from 33.4% for the fiscal year ended March 31,
1997, to 28.5% for the fiscal year ended March 31, 1998. This decrease resulted
from a lower gross profit per gallon of recycled oil sold, due primarily to
lower world oil prices.
Page 15
<PAGE>
Total operating expenses for the fiscal year ended March 31, 1998 were
$31,868,000, an increase of $867,000, or 2.8%, as compared to the prior fiscal
year. The increase resulted from higher salaries and wages related principally
to staff additions and performance bonuses, and higher operating expenses in the
aviation and marine segments related to business expansion, partially offset by
a $3,690,000 lower provision for bad debts over the corresponding period during
the prior year. In relation to revenue, total operating expenses remained
unchanged at 4.0%.
The Company's income from operations for the fiscal year ended March 31, 1998
was $18,527,000, an increase of $2,901,000, or 18.6%, as compared to the prior
fiscal year. Income from operations during these periods was attributable to the
following segments:
FISCAL YEAR ENDED MARCH 31,
---------------------------
1998 1997
------------ ------------
Aviation Fueling $ 12,558,000 $ 10,620,000
Marine Fueling 7,403,000 5,013,000
Oil Recycling 4,155,000 5,020,000
Corporate Overhead (5,589,000) (5,027,000)
------------ ------------
Total Income from Operations $ 18,527,000 $ 15,626,000
============ ============
The aviation fueling segment's income from operations was $12,558,000 for the
fiscal year ended March 31, 1998, an increase of $1,938,000, or 18.2%, as
compared to the prior fiscal year. This resulted from a higher volume of gallons
sold and a decrease in operating expenses, principally in the provision for bad
debts, partially offset by a decrease in average gross profit per gallon sold.
The marine fueling segment earned $7,403,000 in income from operations for the
fiscal year ended March 31, 1998, an increase of $2,390,000, or 47.7%, as
compared to the prior fiscal year. The increase was due to a higher volume and
average gross profit per metric ton sold, partially offset by an increase in
operating expenses. The oil recycling segment contributed $4,155,000 in income
from operations for fiscal year 1998, a decrease of $865,000, or 17.2%, for the
fiscal year ended March 31, 1998, as compared to the prior fiscal year. The
decrease is mostly the result of lower world oil prices, which caused a decrease
in gross profit per recycled gallon sold. Corporate overhead costs not charged
to the business segments totaled $5,589,000 for the fiscal year ended March 31,
1998, an increase of $562,000, or 11.2%, as compared to the prior fiscal year.
The increase resulted from higher salaries and wages related principally to
staff additions and performance bonuses.
Net income for the fiscal year ended March 31, 1998 was $15,853,000, an increase
of $2,588,000, or 19.5%, as compared to net income of $13,265,000 for the fiscal
year ended March 31, 1997. Basic earnings per share of $1.30 for the fiscal year
ended March 31, 1998 exhibited a $0.20, or 18.2%, increase over the $1.10
achieved during the prior fiscal year.
Page 16
<PAGE>
FISCAL YEAR ENDED MARCH 31, 1997 COMPARED TO THE FISCAL YEAR ENDED
MARCH 31, 1996
The Company's revenue for the fiscal year ended March 31, 1997 was $772,618,000,
an increase of $130,319,000, or 20.3%, as compared to revenue of $642,299,000
for the prior fiscal year. The Company's revenue during these periods was
attributable to the following segments:
FISCAL YEAR ENDED MARCH 31,
---------------------------
1997 1996
------------ ------------
Aviation Fueling $381,236,000 $302,101,000
Marine Fueling 368,470,000 321,216,000
Oil Recycling 22,912,000 18,993,000
Intersegment Eliminations -- (11,000)
------------ ------------
Total Revenue $772,618,000 $642,299,000
============ ============
The aviation fueling segment contributed $381,236,000 in revenue for the fiscal
year ended March 31, 1997. This represented an increase in revenue of
$79,135,000, or 26.2%, as compared to the prior fiscal year. The increase in
revenue was due to an increase in volume and the average price per gallon sold.
The marine fueling segment contributed $368,470,000 in revenue for the fiscal
year ended March 31, 1997, an increase of $47,254,000, or 14.7%, over the prior
fiscal year. The increase in revenue was related to an increase in the average
price per metric ton sold and brokered, partially offset by a decrease in the
volume of metric tons brokered. The oil recycling segment contributed
$22,912,000 in revenue for the fiscal year ended March 31, 1997, an increase of
$3,919,000, or 20.6%, as compared to the prior fiscal year. The increase in
revenue was due to an increase in volume and the average sales price per gallon
of recycled oil sold, and higher used oil and waste water collection revenue.
The Company's gross profit for the fiscal year ended March 31, 1997, was
$46,627,000, an increase of $6,258,000, or 15.5%, as compared to the prior
fiscal year. The Company's gross margin decreased from 6.3% for the fiscal year
ended March 31, 1996 to 6.0% for the fiscal year ended March 31, 1997. The
decrease resulted primarily from an overall increase in the average sales price
per gallon sold in the Company's aviation segment, despite an increase in the
average gross profit per gallon sold.
The Company's aviation fueling business achieved a 6.0% gross margin for the
fiscal year ended March 31, 1997, as compared to 6.7% achieved for the prior
fiscal year. The Company's marine fueling segment achieved a 4.4% gross margin
for the fiscal year ended March 31, 1997, as compared to a 4.3% gross margin for
the prior fiscal year. The gross margin in the Company's oil recycling segment
remained relatively constant at 33.4% for the fiscal year ended March 31, 1997,
as compared to 33.5% for the prior fiscal year.
Total operating expenses for the fiscal year ended March 31, 1997 were
$31,001,000, an increase of $5,578,000, or 21.9%, as compared to the prior
fiscal year. Operating expenses increased partly as a result of the Company's
international expansion. During this period, the Company devoted substantial
resources to the expansion of its international infrastructure, adding
professional staff, implementing telecommunications, sales, operational and
accounting systems, and establishing an international
Page 17
<PAGE>
headquarters office in Costa Rica. The increase in operating expenses also
resulted from an increase of $2,398,000 in the provision for bad debts in the
aviation fueling segment.
The Company's income from operations for the fiscal year ended March 31, 1997
was $15,626,000, an increase of $680,000, or 4.5%, as compared to the prior
fiscal year. Income from operations during these periods was attributable to the
following segments:
FISCAL YEAR ENDED MARCH 31,
---------------------------
1997 1996
------------ ------------
Aviation Fueling $ 10,620,000 $ 12,858,000
Marine Fueling 5,013,000 3,425,000
Oil Recycling 5,020,000 3,976,000
Corporate Overhead (5,027,000) (5,313,000)
------------ ------------
Total Income from Operations $ 15,626,000 $ 14,946,000
============ ============
The aviation fueling segment's income from operations was $10,620,000 for the
fiscal year ended March 31, 1997, a decrease of $2,238,000, or 17.4%, as
compared to the prior fiscal year. This resulted from an increase in operating
expenses, due to expenses incurred in the Company's international expansion and
a higher provision for bad debts. The increase in operating expenses was
partially offset by an increase in the volume and gross profit of product sold.
The marine fueling segment earned $5,013,000 in income from operations for the
fiscal year ended March 31, 1997, an increase of $1,588,000, or 46.4%, as
compared to the prior fiscal year. The increase was related primarily to an
increase in the average gross profit per metric ton sold, partially offset by a
decrease in the volume of metric tons brokered and higher operating expenses.
Income from operations of the oil recycling segment increased by $1,044,000, or
26.3%, for the fiscal year ended March 31, 1997, as compared to the prior fiscal
year. This improvement resulted from an increase in the volume and average gross
profit per gallon of recycled oil sold. Corporate overhead costs not charged to
the business segments totaled $5,027,000 for the fiscal year ended March 31,
1997, a decrease of $286,000, or 5.4%, as compared to the prior fiscal year.
The Company's effective income tax rate for the fiscal year ended March 31, 1997
was 25.8%, as compared to 34.9% for the prior fiscal year. The decrease resulted
largely from an overall decline in foreign income taxes.
Net income for the fiscal year ended March 31, 1997 was $13,265,000, an increase
of $2,320,000, or 21.2%, as compared to net income of $10,945,000 for the fiscal
year ended March 31, 1996. Basic earnings per share of $1.10 for the fiscal year
ended March 31, 1997 exhibited a $0.18, or 19.6%, increase over the $0.92
achieved during the prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
In the Company's aviation and marine fuel businesses, the primary use of capital
is to finance accounts receivable. The Company maintains aviation fuel
inventories at certain locations in the United States
Page 18
<PAGE>
for competitive reasons, but inventory levels are kept at an operating minimum.
The Company also maintains inventory in its offshore fueling operations. The
Company's aviation and marine fuel businesses historically have not required
significant capital investment in fixed assets as the Company subcontracts
fueling services and maintains inventory at third party storage facilities.
In contrast to the Company's aviation and marine fueling segments, the oil
recycling segment capital requirements are for the financing of property, plant
and equipment, and accounts receivable. The Company generally utilizes
internally generated cash to fund capital expenditures, and secondarily the
Company will utilize its available line of credit or enter into leasing or
installment note arrangements to match-fund the useful life of certain long-term
assets. The Company's oil recycling operations also require working capital to
purchase and carry an inventory of used oil, as well as the costs of operating
the plant until the proceeds from the re-refined oil sales are received.
Cash and cash equivalents amounted to $14,459,000 at March 31, 1998, as compared
to $11,035,000 at March 31, 1997. The principal uses of cash during the fiscal
year ended March 31, 1998 were $4,245,000 of repayments on notes payable,
$2,432,000 in dividends paid on common stock, $3,484,000 used for the purchase
and construction of plant, equipment and other capital expenditures, and
$807,000 net cash paid for the acquisition of the Baseops group of companies.
Partially offsetting these cash uses were $12,894,000 in net cash provided by
operating activities, $809,000 from collections on notes receivable and
$1,158,000 from the issuance of common stock in connection with the exercise of
options.
Working capital as of March 31, 1998 was $60,101,000, exhibiting a $11,516,000
increase from working capital as of March 31, 1997. As of March 31, 1998, the
Company's accounts receivable, excluding the allowance for bad debts, amounted
to $86,242,000, an increase of $11,063,000 as compared to the March 31, 1997
balance. In the aggregate, accounts payable, accrued expenses and customer
deposits increased $2,905,000. The net increase in trade credit of $8,158,000
was attributed to the marine segment's business expansion and the acquisition of
Baseops. The allowance for doubtful accounts as of March 31, 1998 amounted to
$4,594,000, an increase of $234,000 compared to the March 31, 1997 balance.
During the fiscal years ended March 31, 1998 and 1997, the Company charged
$1,417,000 and $5,107,000, respectively, to the provision for bad debts and had
charge-offs in excess of recoveries of $1,301,000 and $5,110,000, respectively.
Inventories at March 31, 1998 were $945,000 lower as compared to March 31, 1997.
This decrease was principally due to decreases in the Company's aviation
inventories, partially offset by the Company's marine offshore fueling
operations. Prepaid expenses and other current assets as of March 31, 1998 were
$5,937,000, exhibiting an increase of $804,000 over the March 31, 1997 balance.
This is primarily related to the reclassification of a note receivable from
other assets to current assets.
Capital expenditures, which amounted to $3,484,000 for the fiscal year ended
March 31, 1998, consisted primarily of $1,505,000 in office and computer
equipment and $1,681,000 in plant, machinery and equipment related primarily to
the Company's recycled oil segment. During fiscal year 1999, the Company
anticipates spending approximately $3,000,000 for the expansion of the Company's
business and the upgrade of existing plant, machinery and equipment. The Company
also anticipates spending an additional 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.
Page 19
<PAGE>
The clean up cost will be capitalized as part of the cost of the site, up to the
fair market value of the site.
Long-term liabilities as of March 31, 1998 were $3,901,000, exhibiting a
$871,000 increase as compared to March 31, 1997. This increase was primarily the
result of a $556,000 increase in deferred compensation and a $379,000 increase
in deferred income taxes.
Stockholders' equity amounted to $91,911,000, or $7.36 per share, at March 31,
1998, compared to $75,258,000, or $6.19 per share, at March 31, 1997. This
increase of $16,653,000 was due to $15,853,000 in earnings for the period,
$1,158,000 due to the issuance of common stock pursuant to the exercise of stock
options, and $2,090,000 due to the issuance of common stock pursuant to the
Baseops acquisition. Partially offsetting was $2,448,000 in cash dividends
declared.
The Company expects to meet its capital investment and working capital
requirements for fiscal year 1999 from existing cash, operations and additional
borrowings, as necessary, under its existing line of credit. The Company's
business has not been significantly affected by inflation during the periods
discussed in this report.
The Company has completed a risk assessment of the ability of its information
systems to operate in light of the "year 2000 issue." Based on the assessment,
the Company has developed an action plan, which primarily consists of replacing
existing non-compliant systems with new systems. The Company believes it is
feasible to acquire such new systems before the year 2000 and that the cost of
such systems are within its capital cost budget and financing capabilities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached hereto and filed as a part of this Form 10-K are the financial
statements required by Regulation S-X and the supplementary data required by
Regulation S-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
No disagreements with accountants on any matter of accounting principles or
practices or financial statement disclosure have been reported on a Form 8-K
within the twenty-four months prior to the date of the most recent financial
statement.
Page 20
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the directors and executive officers of the Company
set forth under the captions "Election of Directors" and "Information Concerning
Executive Officers", respectively, appearing in the definitive Proxy Statement
of the Company for its 1998 Annual Meeting of Shareholders (the "1998 Proxy
Statement"), is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth in the 1998 Proxy Statement under the caption
"Compensation of Officers" and "Board of Directors - Compensation of Directors"
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information set forth under the caption "Principal Stockholders and Security
Ownership of Management" in the 1998 Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Transactions with Management and
Others" in the 1998 Proxy Statement is incorporated herein by reference.
Page 21
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) The following consolidated financial statements are filed as a part of
this report:
(i) Report of Independent Certified Public Accountants. 25
(ii) Consolidated Balance Sheets as of March 31, 1998 and 1997. 26
(iii) Consolidated Statements of Income for the Years Ended
March 31, 1998, 1997 and 1996. 28
(iv) Consolidated Statements of Stockholders' Equity for the Years
Ended March 31, 1998, 1997 and 1996. 29
(v) Consolidated Statements of Cash Flows for the Years Ended
March 31, 1998, 1997 and 1996. 30
(vi) Notes to Consolidated Financial Statements. 32
(a)(2) The following consolidated financial statement schedule is filed as a
part of this report:
(I) Schedule II - Valuation and Qualifying Accounts. 48
Schedules not set forth herein have been omitted either because the
required information is set forth in the Consolidated Financial
Statements or Notes thereto, or the information called for is not
required.
(a)(3) The exhibits set forth in the following index of exhibits are filed as a
part of this report:
EXHIBIT NO. DESCRIPTION
- ----------- ------------
(3) Articles of Incorporation and By-laws:
(a) Articles of Incorporation are incorporated by reference to the
Company's Registration Statement on Form S-18 filed February
3, 1986.
(b) By-laws are incorporated by reference to the Company's
Registration Statement on Form S-18 filed February 3, 1986.
(4) Instruments defining rights of security holders:
(a) 1986 Employee Stock Option Plan is incorporated by reference
to the Company's Registration Statement on Form S-18 filed
February 3, 1986.
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<PAGE>
(b) 1993 Non-Employee Directors Stock Option Plan is incorporated
by reference to the Company's Schedule 14A filed June 28,
1994.
(c) 1996 Employee Stock Option Plan is incorporated by reference
to the Company's Schedule 14A filed June 18, 1997.
(10) Material Contracts:
(a) Material contracts incorporated by reference to the Company's
Report on Form 10-K filed May 20, 1997:
(i) Amended and Restated Credit Agreement, dated February
21, 1997, by and among World Fuel Services Corporation
and NationsBank, N.A. (South).
(ii) Promissory note, dated February 21, 1997, executed by
World Fuel Services Corporation and its subsidiaries in
favor of NationsBank, N.A. (South).
(b) Material contracts filed with this Form 10-K:
(i) Amendment to Employment Agreement with Jerrold Blair,
dated April 29, 1997
(ii) Amendment to Employment Agreement with Ralph Weiser,
dated April 29, 1997
(21) Subsidiaries of the Registrant.
(27) Financial Data Schedule.
(b) No reports on Form 8-K were filed during the fourth quarter of the Company's
fiscal year ended March 31, 1998.
Page 23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WORLD FUEL SERVICES CORPORATION
Dated: May 19, 1998 By:/s/ JERROLD BLAIR
------------------------
Jerrold Blair, President
Dated: May 19, 1998 By:/s/ CARLOS A. ABAUNZA
---------------------
Carlos A. Abaunza, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Dated: May 19, 1998 By: /s/ RALPH R. WEISER
----------------------------
Ralph R. Weiser, Director
Dated: May 19, 1998 By: /s/ JERROLD BLAIR
----------------------------
Jerrold Blair, Director
Dated: May 19, 1998 By: /s/ PHILLIP S. BRADLEY
----------------------------
Phillip S. Bradley, Director
Dated: May 19, 1998 By: /s/ RALPH FEUERRING
----------------------------
Ralph Feuerring, Director
Dated: May 19, 1998 By: /s/ JOHN R. BENBOW
----------------------------
John R. Benbow, Director
Dated: May 19, 1998 By: /s/ MYLES KLEIN
----------------------------
Myles Klein, Director
Dated: May 19, 1998 By: /s/ MICHAEL J. KASBAR
----------------------------
Michael J. Kasbar, Director
Dated: May 19, 1998 By: /s/ PAUL H. STEBBINS
----------------------------
Paul H. Stebbins, Director
Dated: May 19, 1998 By: /s/ LUIS R. TINOCO
----------------------------
Luis R. Tinoco, Director
Page 24
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of World Fuel Services Corporation:
We have audited the accompanying consolidated balance sheets of World Fuel
Services Corporation (a Florida corporation) and subsidiaries as of March 31,
1998 and 1997, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
1998. These consolidated financial statements and the schedule referred to below
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and the schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of World Fuel Services Corporation
and subsidiaries as of March 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1998 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule II is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ Arthur Andersen LLP
-------------------
ARTHUR ANDERSEN LLP
Miami, Florida,
May 18, 1998.
Page 25
<PAGE>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31,
---------------------------
1998 1997
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 14,459,000 $ 11,035,000
Accounts receivable, net of allowance
for bad debts of $4,594,000 and $4,360,000
at March 31, 1998 and 1997, respectively 81,648,000 70,819,000
Inventories 5,504,000 6,449,000
Prepaid expenses and other current assets 5,937,000 5,133,000
------------ ------------
Total current assets 107,548,000 93,436,000
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 1,054,000 601,000
Buildings and improvements 3,098,000 2,998,000
Office equipment and furniture 5,286,000 3,331,000
Plant, machinery and equipment 17,458,000 16,310,000
Construction in progress 230,000 135,000
------------ ------------
27,126,000 23,375,000
Less accumulated depreciation
and amortization 9,065,000 7,094,000
------------ ------------
18,061,000 16,281,000
------------ ------------
OTHER ASSETS:
Unamortized cost in excess of net
assets of acquired companies, net of
accumulated amortization 15,402,000 11,785,000
Other 2,248,000 1,637,000
------------ ------------
$143,259,000 $123,139,000
============ ============
(Continued)
Page 26
<PAGE>
<TABLE>
<CAPTION>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 119,000 $ 2,191,000
Accounts payable and accrued expenses 40,560,000 37,950,000
Customer deposits 2,536,000 2,241,000
Accrued salaries and wages 1,851,000 2,187,000
Income taxes payable 2,381,000 282,000
------------ ------------
Total current liabilities 47,447,000 44,851,000
------------ ------------
LONG-TERM LIABILITIES 3,901,000 3,030,000
------------ ------------
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
at March 31, 1998;
12,481,000 and 12,163,000 shares issued and
outstanding at March 31, 1998 and 1997, respectively 125,000 122,000
Capital in excess of par value 26,479,000 23,234,000
Retained earnings 65,364,000 51,959,000
Less treasury stock, at cost 57,000 57,000
------------ ------------
91,911,000 75,258,000
------------ ------------
$143,259,000 $123,139,000
============ ============
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated balance sheets.
Page 27
<PAGE>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED MARCH 31,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
Revenue $801,763,000 $772,618,000 $642,299,000
Cost of sales 751,368,000 725,991,000 601,930,000
------------ ------------ ------------
Gross profit 50,395,000 46,627,000 40,369,000
------------ ------------ ------------
Operating expenses:
Salaries and wages 17,382,000 14,795,000 13,266,000
Provision for bad debts 1,417,000 5,107,000 2,291,000
Other 13,069,000 11,099,000 9,866,000
------------ ------------ ------------
31,868,000 31,001,000 25,423,000
------------ ------------ ------------
Income from operations 18,527,000 15,626,000 14,946,000
------------ ------------ ------------
Other income, net:
Equity in earnings of
aviation joint venture 1,100,000 1,773,000 1,748,000
Other, net 1,119,000 470,000 127,000
------------ ------------ ------------
2,219,000 2,243,000 1,875,000
------------ ------------ ------------
Income before income taxes 20,746,000 17,869,000 16,821,000
Provision for income taxes 4,893,000 4,604,000 5,876,000
------------ ------------ ------------
Net income $ 15,853,000 $ 13,265,000 $ 10,945,000
============ ============ ============
Basic earnings per common share $ 1.30 $ 1.10 $ 0.92
============ ============ ============
Weighted average shares 12,230,000 12,068,000 11,945,000
============ ============ ============
Diluted earnings per common share $ 1.27 $ 1.08 $ 0.90
============ ============ ============
Weighted average shares - diluted 12,528,000 12,295,000 12,150,000
============ ============ ============
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated financial statements.
Page 28
<PAGE>
<TABLE>
<CAPTION>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK CAPITAL IN
---------------------------- EXCESS OF RETAINED TREASURY
SHARES AMOUNT PAR VALUE EARNINGS STOCK
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1995 11,707,000 $ 117,000 $ 20,375,000 $ 31,631,000 $ (57,000)
Exercise of options 174,000 2,000 861,000 -- --
Issuance of shares for
litigation settlement 177,000 2,000 1,298,000 -- --
Cash dividends declared -- -- -- (1,464,000) --
Net Income -- -- -- 10,945,000 --
Other -- -- 40,000 -- --
---------- ------------ ------------ ------------ ------------
Balance at March 31, 1996 12,058,000 121,000 22,574,000 41,112,000 (57,000)
Exercise of options 105,000 1,000 660,000 -- --
Cash dividends declared -- -- -- (2,418,000) --
Net Income -- -- -- 13,265,000 --
---------- ------------ ------------ ------------ ------------
Balance at March 31, 1997 12,163,000 122,000 23,234,000 51,959,000 (57,000)
Exercise of options 168,000 2,000 1,156,000 -- --
Issuance of shares
for acquisition 150,000 1,000 2,089,000 -- --
Cash dividends declared -- -- -- (2,448,000) --
Net Income -- -- -- 15,853,000 --
---------- ------------ ------------ ------------ ------------
Balance at March 31, 1998 12,481,000 $ 125,000 $ 26,479,000 $ 65,364,000 $ (57,000)
========== ============ ============ ============ ============
</TABLE>
The accompanying notes to the consolidated financial statements are
an integral part of these consolidated financial statements.
Page 29
<PAGE>
<TABLE>
<CAPTION>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED MARCH 31,
--------------------------------------------
1998 1997 1996
------------ ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 15,853,000 $ 13,265,000 $ 10,945,000
------------ ----------- ------------
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 2,418,000 1,938,000 1,656,000
Provision for bad debts 1,417,000 5,107,000 2,291,000
Deferred income tax (benefit) provision 379,000 (369,000) 1,108,000
Equity in earnings of aviation joint venture, net (526,000) (675,000) (354,000)
Other non-cash operating credits -- (19,000) (123,000)
Changes in assets and liabilities, net of acquisitions
and dispositions:
(Increase) decrease in -
Accounts receivable (8,889,000) (13,181,000) (26,286,000)
Inventories 945,000 (1,857,000) (953,000)
Prepaid expenses and other current assets (1,834,000) (2,067,000) 1,371,000
Other assets (231,000) 250,000 11,000
Increase (decrease) in -
Accounts payable and accrued expenses 1,154,000 (64,000) 13,731,000
Customer deposits (93,000) 774,000 (92,000)
Accrued salaries and wages (336,000) 132,000 1,308,000
Income taxes payable 2,081,000 (150,000) (1,286,000)
Deferred compensation 556,000 594,000 335,000
------------ ----------- ------------
Total adjustments (2,959,000) (9,587,000) (7,283,000)
------------ ----------- ------------
Net cash provided by operating activities 12,894,000 3,678,000 3,662,000
------------ ----------- ------------
Cash flows from investing activities:
Additions to property, plant and equipment (3,484,000) (3,199,000) (1,407,000)
(Advances to) repayments from aviation joint venture, net (319,000) (106,000) 338,000
Proceeds from disposition of assets -- 43,000 381,000
Proceeds from notes receivable 809,000 774,000 2,046,000
Payment for acquisition of business, net of cash acquired (807,000) -- --
------------ ----------- ------------
Net cash (used in) provided by investing activities (3,801,000) (2,488,000) 1,358,000
------------ ----------- ------------
</TABLE>
(Continued)
Page 30
<PAGE>
<TABLE>
<CAPTION>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
FOR THE YEAR ENDED MARCH 31,
--------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Dividends paid on common stock (2,432,000) (2,212,000) (1,854,000)
Repayment of notes payable (4,245,000) (1,872,000) (1,817,000)
Repayment of long-term debt (150,000) (74,000) (263,000)
Proceeds from issuance of long-term debt -- 486,000 --
Proceeds from issuance of common stock 1,158,000 661,000 863,000
------------ ------------ ------------
Net cash used in financing activities (5,669,000) (3,011,000) (3,071,000)
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents 3,424,000 (1,821,000) 1,949,000
Cash and cash equivalents, at beginning
of period 11,035,000 12,856,000 10,907,000
------------ ------------ ------------
Cash and cash equivalents, at end of period $ 14,459,000 $ 11,035,000 $ 12,856,000
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 288,000 $ 423,000 $ 613,000
============ ============ ============
Income taxes $ 2,516,000 $ 5,182,000 $ 6,368,000
============ ============ ============
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
In April 1995, the Company paid $1,300,000, representing its share of a
litigation settlement, by issuing 176,737 shares of the Company's common stock
at an agreed upon price of $7.36 per share (restated to reflect the 3-for-2
stock splits).
As partial consideration for the sale of certain assets on June 1, 1995, the
Company received a $979,000 note receivable, with an original maturity date of
July 1, 2007. In October 1995, the entire outstanding principal balance was
collected in cash, net of a $98,000 pre-payment discount.
Cash dividends declared, but not yet paid, totaling $624,000, $608,000 and
$402,000 are included in accounts payable and accrued expenses as of March 31,
1998, 1997 and 1996, respectively.
In January 1998, the Company issued 150,000 shares of its common stock valued
at $2,090,000 in connection with the acquisition of the Baseops group of
companies.
During fiscal year 1998, the Company reclassified approximately $1,000,000
from accounts receivable to notes receivable. The notes receivable are shown
in the prepaid and other current assets, and other assets sections of the
balance sheet.
The accompanying notes to the consolidated financial statements are an
integral part of these consolidated financial statements.
Page 31
<PAGE>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF ACQUISITIONS
World Fuel Services Corporation (the "Company") began operations in 1984 as a
used oil recycler in the southeast United States. The Company expanded this
business through acquisitions, the development of new processing technology and
the establishment of new offices. In 1986, the Company diversified its
operations by entering, through an acquisition, the aviation fuel services
business. This new segment expanded rapidly, from a business primarily
concentrated in the state of Florida, to an international sales company covering
airports throughout the world. This expansion resulted from acquisitions and the
establishment of new offices.
In 1995, the Company further diversified its fuel services operations through
the acquisition of a group of companies which are considered leaders in the
marine fuel services business. This new segment provided the Company with
operational and supplier side synergies and entry into fast growing markets in
the Far East and Eastern Europe.
In January 1998, the Company purchased all the outstanding stock of Baseops
International, Inc. and its affiliates ("Baseops"). Baseops provides a
sophisticated array of aviation services to a diversified clientele of
corporate, government, and private aircraft worldwide. The acquisition of
Baseops by the Company has been accounted for as a purchase. The aggregate
purchase price of the acquisition was approximately $2,897,000, including
$77,000 in acquisition costs. The Company paid approximately $807,000 in cash
and 150,000 shares of the Company's common stock valued at $2,090,000 ($13.93
per share, or approximately 65% of the quoted market price) in the Company's
restricted stock. The newly issued shares of the Company's common stock issued
in connection with the acquisition were valued by the Company's Board of
Directors. In accordance with the acquisition agreement, 75,000 shares are being
held in escrow until the second anniversary of the closing date. The escrow
shares are pledged to the Company to secure the seller's obligation to indemnify
the Company pursuant to the acquisition agreement. The sum of the purchase price
and the $1,110,000 fair value of the net liabilities of the acquired companies,
which amounted to $4,007,000, has been allocated to goodwill, and is being
amortized over a period of 35 years. The Company determined that no other
identifiable intangible assets existed.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. The Company uses the equity
method of accounting to record its proportionate share of the earnings of its
aviation joint venture.
CASH AND CASH EQUIVALENTS
The Company classifies as cash equivalents all highly liquid investments with a
maturity of three months or less from the date of purchase. The Company's
investments at March 31, 1998 and 1997
Page 32
<PAGE>
amounted to $11,988,000 and $8,461,000 respectively, consisting principally of
bank repurchase agreements collateralized by United States Government Securities
and bank money market accounts which invest primarily in A1P1 commercial paper.
Interest income, which is included in Other, net in the accompanying
consolidated statements of income, totaled $1,460,000, $862,000 and $1,029,000
for the years ended March 31, 1998, 1997 and 1996, respectively.
INVENTORIES
Inventories are stated at the lower of cost (principally, first-in, first-out)
or market. Components of inventory cost include oil and fuel purchase costs,
direct materials, direct and indirect labor and refining overhead related to the
Company's used oil recycling.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost less accumulated depreciation
and amortization. Depreciation and amortization are calculated on a
straight-line basis over the estimated useful lives of the assets as follows:
YEARS
----------
Buildings and improvements 10 - 40
Office equipment and furniture 3 - 8
Plant, machinery and equipment 3 - 40
Costs of major additions and improvements are capitalized and expenditures for
maintenance and repairs which do not extend the lives of the assets are
expensed. Upon sale or disposition of property, plant and equipment, the cost
and related accumulated depreciation and amortization are eliminated from the
accounts and any resultant gain or loss is credited or charged to income.
UNAMORTIZED COST IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES
Unamortized cost in excess of net assets of acquired companies is being
amortized over 35-40 years using the straight-line method. Accumulated
amortization amounted to $1,529,000 and $1,138,000, as of March 31, 1998 and
1997, respectively. Subsequent to an acquisition, the Company continually
evaluates whether events and circumstances have occurred that indicate the
remaining useful life of this asset may warrant revision or that the remaining
balance of this asset may not be recoverable.
The Company's policy is to assess any impairment in value by making a comparison
of the current and projected undiscounted cash flows associated with the
acquired companies, to the carrying amount of the unamortized costs in excess of
the net assets of the acquired companies. Such carrying amount would be
adjusted, if necessary, to reflect any impairment in the value of the asset.
REVENUE RECOGNITION
Revenue is generally recorded in the period when the sale is made or as the
services are performed. In the Company's aviation and marine fueling segments,
the Company contracts third parties to provide the fuel and/or delivery
services. This may cause delays in receiving the necessary information for
invoicing. Accordingly, revenue may be recognized in a period subsequent to when
the delivery of fuel
Page 33
<PAGE>
took place. Costs not yet billed are classified as current assets and are
included under Inventories. The Company's revenue recognition policy with
respect to the aviation and marine fueling segment does not result in amounts
that are materially different than accounting under generally accepted
accounting principles.
ACCOUNTING FOR DERIVATIVES
Premiums received or paid for fuel price cap agreements are amortized to premium
revenue and expense, respectively, over the terms of the caps. Unamortized
premiums are included in Accounts payable and accrued expenses on a net
basis. Accounts receivable or payable under fuel price swap agreements related
to the physical delivery of product are recognized as deferred gains or losses,
which are included in Prepaid expenses and other current assets on a net basis,
until the underlying physical delivery transaction is recognized in income. The
Company follows the accrual method for fuel price swap agreements which do not
involve physical delivery. Under the accrual method, each net receipt due or
payment owed under the derivative instrument is recognized in income as fee
income or expense, respectively, during the period to which the receipt or
payment relates.
INCOME TAXES
The Company and its United States subsidiaries file consolidated income tax
returns. In addition, the Company's foreign subsidiaries file income tax returns
in their respective countries of incorporation.
FOREIGN CURRENCY TRANSLATION
The Company's primary functional currency is the U.S. Dollar which also serves
as its reporting currency. Most foreign entities translate monetary assets and
liabilities at fiscal year-end exchange rates while non-monetary assets and
liabilities are translated at historical rates. Income and expense accounts are
translated at the average rates in effect during the year, except for
depreciation which is translated at historical rates. The Company's Ecuador
joint venture uses the Company's reporting currency as the functional currency
(as it operates in a highly inflationary economy) and translates net assets at
fiscal year-end rates while income and expense accounts are translated at
average exchange rates. Gains or losses from changes in exchange rates are
recognized in consolidated income in the year of occurrence and are included in
Other, net.
The Company's purchases from certain aviation fuel suppliers are denominated in
local currency. Foreign currency exchange gains and losses are included in
Other, net, in the period incurred, and amounted to a net loss of $119,000 for
the fiscal year ended March 31, 1996. There were no significant foreign currency
gains or losses in fiscal years 1998 or 1997.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). The
Company adopted this standard as of December 31, 1997. Earnings per share
information for all prior periods have been restated to conform to the
requirements of SFAS 128.
Page 34
<PAGE>
Basic earnings per common share is computed based on the weighted average shares
outstanding. Diluted earnings per common share is based on the sum of the
weighted average number of common shares outstanding plus common stock
equivalents arising out of employee stock options and benefit plans. The
Company's net income is the same for basic and diluted earnings per share
calculations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments which are presented herein
have been determined by the Company's management using available market
information and appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of amounts the Company could realize in a current market exchange.
Cash and cash equivalents, accounts receivable and accounts payable and accrued
expenses are reflected in the accompanying consolidated balance sheets at
amounts considered by management to reasonably approximate fair value due to
their short-term nature.
The Company estimates the fair value of its long-term debt generally using
discounted cash flow analysis based on the Company's current borrowing rates for
similar types of debt. At March 31, 1998, the carrying value of the long-term
debt and the fair value of such instruments was not considered to be
significantly different.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS No. 130 establishes standards for the reporting and disclosure of
comprehensive income and its components which will be presented in association
with a company's financial statements. Comprehensive income is defined as the
change in a business enterprise's equity during a period arising from
transactions, events, or circumstances relating to non-owner sources, such as
foreign currency translation adjustments and unrealized gains or losses on
available-for-sale securities. It includes all changes in equity during a period
except those resulting from investments by or distributions to owners. SFAS No.
130 is effective for fiscal years beginning after December 15, 1997.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS No. 131"), superseding SFAS No. 14,
"Financial Reporting of Segments of a Business Enterprise."
Page 35
<PAGE>
SFAS No. 131 establishes new standards for reporting operating segment
information in annual and interim financial statements. The new standard
requires reporting of operating segment information based on the way that
financial operations for the entity is organized by senior management for
performance evaluation and resource allocation. The standard is effective for
fiscal year 1999 and need not be applied to interim financial statements in that
year.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("ACSEC") issued Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use". SOP 98-1 establishes criteria for determining which
costs of developing or obtaining internal-use computer software should be
charged to expense and which should be capitalized. SOP 98-1 is effective for
all transactions entered into in fiscal years beginning after December 15, 1998.
In April 1998, the ACSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities". SOP 98-5 establishes standards for the reporting and disclosure of
start-up costs, including organization costs. SOP 98-5 is effective for
financial statements issued after December 15, 1998.
The Company believes that the implementation of the above mentioned accounting
pronouncements will not have a material effect on the Company's financial
position or results of operations or disclosures.
(2) LONG-TERM DEBT
Long-term debt consisted of the following at March 31:
1998 1997
------- ---------
Equipment notes, payable monthly through
January 2002, interest rates ranging from
6.76% to 11.00%, secured by equipment $451,000 $ 529,000
Promissory notes issued in connection with the
acquisition of the Trans-Tec group of
companies, paid off in January 1998 -- 2,058,000
-------- ---------
451,000 2,587,000
Less current maturities 119,000 2,191,000
-------- ---------
$332,000 $ 396,000
======== =========
The Company has an unsecured credit facility providing a $25,000,000 revolving
line of credit with sublimits of $10,000,000 for standby letters of credit and
documentary letters of credit. Approximately $5,693,000 in standby letters of
credit were outstanding as of March 31, 1998 under the credit facility. The
Company also has $100,000 outstanding in standby letters of credit from other
financing institutions and has pledged $100,000 of cash as collateral on these
letters of credit.
Page 36
<PAGE>
The revolving line of credit bears interest, at the Company's option, at the
NationsBank Prime rate, or LIBOR, as defined under the credit facility. Interest
is payable quarterly in arrears. The credit facility, in addition to other
restrictions, requires the maintenance of certain financial ratios. As of March
31, 1998 and 1997, there were no amounts outstanding under the revolving line of
credit. Any outstanding principal and interest will mature on March 1, 2001. As
of March 31, 1998, the Company was in compliance with the requirements under the
credit facility.
Aggregate annual maturities of long-term debt as of March 31, 1998, are as
follows:
1999 $ 119,000
2000 126,000
2001 111,000
2002 95,000
-----------
$ 451,000
===========
Interest expense, which is included in Other, net, in the accompanying
consolidated statements of income, is as follows for the years ended March 31:
1998 1997 1996
--------- --------- --------
Interest expense $ 284,000 $ 395,000 $ 565,000
========= ========= =========
(3) INCOME TAXES
The provision for income taxes consists of the following components for the
years ended March 31:
1998 1997 1996
----------- ----------- -----------
Current:
Federal $ 1,976,000 $ 3,061,000 $ 3,568,000
State 251,000 417,000 567,000
Foreign 2,287,000 1,495,000 633,000
----------- ----------- -----------
4,514,000 4,973,000 4,768,000
----------- ----------- -----------
Deferred:
Federal 403,000 (157,000) 998,000
State 50,000 (22,000) 138,000
Foreign (74,000) (190,000) (28,000)
----------- ----------- -----------
379,000 (369,000) 1,108,000
----------- ----------- -----------
Total $ 4,893,000 $ 4,604,000 $ 5,876,000
=========== =========== ===========
The difference between the reported tax provision and the provision computed by
applying the statutory U.S. federal income tax rate currently in effect to
income before income taxes for each of the
Page 37
<PAGE>
three years ended March 31, 1998, is primarily due to state income taxes and the
effect of foreign income tax rates.
The Company's share of undistributed earnings of foreign subsidiaries not
included in its consolidated U.S. federal income tax return that could be
subject to additional U.S. federal income taxes if remitted, was approximately
$23,467,000 and $13,065,000 at March 31, 1998 and 1997, respectively. The
distribution of these earnings would result in additional U.S. federal income
taxes to the extent they are not offset by foreign tax credits. No provision has
been recorded for the U.S. taxes that could result from the remittance of such
earnings since the Company intends to reinvest these earnings outside the U.S.
indefinitely and it is not practicable to estimate the amount of such taxes.
The temporary differences which comprise the Company's net deferred tax
liability are as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Excess of provision for bad debts over charge-offs $ 1,308,000 $ 1,522,000
Excess of Tax over financial reporting depreciation
and amortization (2,481,000) (2,006,000)
Accrued expenses recognized for financial reporting
purposes, not currently tax deductible 775,000 290,000
Excess of tax over financial reporting amortization
of identifiable intangibles (504,000) (428,000)
Other, net 55,000 154,000
----------- -----------
Total deferred tax liability $ (847,000) $ (468,000)
=========== ===========
</TABLE>
(4) STOCKHOLDERS' EQUITY
COMMON STOCK ACTIVITY
In August 1997, at the annual meeting of stockholders of the Company, the
Company's Articles of Incorporation were amended to increase the number of
authorized shares of Common Stock from 10,000,000 shares to 25,000,000 shares.
On October 30, 1997, the Board of Directors approved a 3-for-2 stock split for
all shares of common stock outstanding as of November 17, 1997. The shares were
distributed on December 1, 1997. Accordingly, all share and per share data, as
appropriate, have been retroactively adjusted to reflect the effect of this
split.
Page 38
<PAGE>
DIVIDENDS
The Company declared cash dividends of $0.20 per share of common stock for
fiscal years 1998 and 1997 (restated to reflect the 3-for-2 stock split).
EMPLOYEE STOCK OPTION ACTIVITY
The Company has adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), which was effective for
the Company's 1997 fiscal year, and relates to the accounting for stock-based
transactions with non-employees. The Company has evaluated the proforma effects
of SFAS 123 and determined the effects of SFAS 123 are not material to the
Company's consolidated financial position or results of operations. Accordingly,
the disclosure provisions of SFAS 123 have been omitted. The Company accounts
for its stock-based transactions with employees under the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), as permitted by SFAS 123.
In August 1996, the Company's Board of Directors authorized the establishment of
the 1996 Employee Stock Option Plan (the "1996 Plan"), which received
stockholder approval at the Company's 1997 annual shareholders' meeting. Under
the provisions of the 1996 Plan, the Company's Board of Directors is authorized
to grant Incentive Stock Options ("ISO") to employees of the Company and its
subsidiaries and Non-Qualified Stock Options ("NSO") to employees, independent
contractors and agents. The plan permits the issuance of options to purchase up
to an aggregate of 750,000 shares of the Company's common stock, adjusted to
reflect the three-for-two stock split. The minimum price at which any option may
be exercised will be the fair market value of the stock on the date of grant;
provided, however, that with respect to ISOs granted to an individual owning
more than 10% of the Company's outstanding common stock, the minimum exercise
price will be 110% of the fair market value of the common stock on the date of
grant. All ISOs granted pursuant to the 1996 Plan must be exercised within ten
years after the date of grant, except that ISOs granted to individuals owning
more than 10% of the Company's outstanding common stock and NSOs must be
exercised within five years after the date of grant.
The following summarizes the status of the 1996 Employee Stock Option Plan at,
and for the year ended, March 31:
1998 1997
--------------- ------------
Granted 117,500 243,000
Per Share Price Range $11.67 - $21.00 $11.42
Outstanding 360,500 243,000
Per Share Price Range $11.42 - $21.00 $11.42
Weighted Average Per
Share Price $13.76 $11.42
Weighted Average
Contractual Life 8.8 years 9.4 years
Available for future grant 389,500 507,000
Exercisable 17,516 None
Per Share Price Range $11.42
Weighted Average Per
Share Price $11.42
Page 39
<PAGE>
The Company's 1986 Employee Stock Option Plan expired in January 1996. Options
granted, but not yet exercised, survive the 1986 Employee Stock Option Plan
until the options expire. The following summarizes the status of the 1986
Employee Stock Option Plan at, and for the year ended, March 31:
<TABLE>
<CAPTION>
1998 1997 1996
---------------- --------------- ---------------
<S> <C> <C> <C>
Granted None None 98,091
Per Share Price Range $10.33 - $12.58
Adjustment for 3:2 stock split 114,243 None 86,464
Expired None 5,250 None
Exercised 167,634 54,375 69,375
Per Share Price Range $6.55 - $8.39 $9.08 - $9.33 $2.00 - $9.33
Proceeds received by the Company $1,158,000 $499,000 531,000
Outstanding 175,091 228,482 288,107
Per Share Price Range $6.22 - $8.39 $9.33 - $12.58 $9.08 - $12.58
Weighted Average Per Share Price $7.16 $10.55 $ 10.29
Weighted Average Contractual Life 6.9 years 6.4 years 7.3 years
Available for future grant None None 153,489
Exercisable 155,670 202,588 120,707
Per Share Price Range $6.22 - $8.39 $9.33 - $10.33 $9.33 - $9.83
Weighted Average Per Share Price $7.00 $10.29 $9.60
</TABLE>
In addition to the options shown in the above tables, prior to 1996 the Company
issued certain non-qualified options outside of the 1986 and 1996 stock option
plans. As of March 31, 1998, such non-qualified stock options entitled the
holders thereof to purchase a total of 45,898 shares of the Company's common
stock at an exercise price ranging from $6.89 to $8.39 per share. All such
options are currently exercisable. As of March 31, 1998, the weighted average
per share price and contractual life of these options is $7.56 and 4.2 years,
respectively.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
In August, 1994, at the annual meeting of the stockholders of the Company, the
1993 Non-Employee Directors Stock Option Plan ("1993 Directors Plan") was
adopted. The 1993 Directors Plan was amended in August 1997 by stockholders'
vote to increase the number of shares reserved for issuance from 50,000 shares
to 100,000 shares.
Under the 1993 Directors Plan, members of the Board of Directors who are not
employees of the Company or any of its subsidiaries or affiliates will receive
annual stock options to purchase common stock in the Company pursuant to the
following formula. Each non-employee director will receive a non-qualified
option to purchase 2,500 shares when such person is first elected to the Board
of
Page 40
<PAGE>
Directors and will receive a non-qualified option to purchase 2,500 shares
each year that the individual is re-elected. As of March 31, 1998, options to
purchase 46,875 shares of the Company's common stock remain outstanding under
the 1993 Directors Plan and 39,375 shares are available for future grant.
The exercise price for options granted under the Plan may not be less than the
fair market value of the common stock, which is defined as the closing bid
quotation for the common stock at the end of the day preceding the grant.
Options granted under the Plan become fully exercisable one year after the date
of grant. All options expire five years after the date of grant. The exercise
price must be paid in cash or in common stock, subject to certain restrictions.
(5) COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases premises in New Orleans, Louisiana and Plant City, Florida
from trusts co-managed by the President of the Company under two operating
leases with rent aggregating $101,000 per year. The leases expire in August
2001. The Company has an option to purchase the properties at current market
value at any time during the lease term. The Company intends to exercise the
purchase options on both leases. The Company also leases office space and
railroad tank cars from unrelated third parties.
At March 31, 1998, the future minimum lease payments under operating leases with
an initial non-cancelable term in excess of one year were as follows:
OPERATING
LEASES
----------
1999 $1,357,000
2000 1,186,000
2001 1,046,000
2002 909,000
2003 545,000
thereafter 409,000
----------
Total minimum lease payments $ 5,452,000
===========
Rental expense under operating leases with an initial non-cancellable term in
excess of one year was $1,106,000, $843,000, and $722,000 for the years ended
March 31, 1998, 1997 and 1996, respectively.
CAPITAL EXPENDITURES
During fiscal year 1999, the Company anticipates spending approximately
$3,000,000 for the upgrade of plant, machinery and equipment. The Company
intends to spend 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
Page 41
<PAGE>
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.
SURETY BONDS
In the normal course of business, the Company is required to post bid,
performance and garnishment bonds. The majority of the bonds issued relate to
the Company's aviation fueling business. As of March 31, 1998, the Company had
$5,429,000 in outstanding bonds.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to credit risk
consist primarily of trade accounts receivable. The Company extends credit on an
unsecured basis to many of its aviation and marine customers, some of which have
a line of credit in excess of $2,000,000. The Company's management recognizes
that extending credit and setting appropriate reserves for accounts receivable
is largely a subjective decision based on knowledge of the customer. Active
management of this risk is essential to the Company's success. A strong capital
position and liquidity provide the financial flexibility necessary to respond to
customer needs. The Company's management meets regularly to evaluate credit
exposure in the aggregate, and by individual credit. This group is also
responsible for setting and maintaining credit standards and ensuring the
overall quality of the credit portfolio.
POTENTIAL LIABILITY AND INSURANCE
The Company, through the use of subcontractors and its own operations,
transports, stores or processes flammable aviation, marine and residual fuel
subjecting it to possible claims by employees, customers, regulators and others
who may be injured. In addition, the Company may be held liable for the clean-up
costs of spills or releases of materials from its facilities or vehicles, or for
damages to natural resources arising out of such events. The Company follows
what it believes to be prudent procedures to protect its employees and customers
and to prevent spills or releases of these materials. The Company's domestic and
international fueling activities also subject it to the risks of significant
potential liability under federal and state statutes, common law and contractual
indemnification agreements. The Company has general and automobile liability
insurance coverage, including the statutory Motor Carrier Act/MCS 90 endorsement
for sudden and accidental pollution.
In the aviation and marine fuel segments, the Company utilizes subcontractors
which provide various services to customers, including intoplane fueling at
airports, fueling of vessels in port and at sea, and transportation and storage
of fuel and fuel products. Although the Company generally requires its
subcontractors to carry liability insurance, not all subcontractors carry
adequate insurance. The Company's liability insurance policy does not cover the
acts or omissions of its subcontractors. If the Company is held responsible for
any liability caused by its subcontractors, and such liability is not adequately
covered by the subcontractor's insurance and is of sufficient magnitude, the
Company's financial position and results of operations will be adversely
affected.
The Company has exited several environmental businesses which handled hazardous
waste. This waste was transported to various disposal facilities and/or treated
by the Company. The Company may be held liable as a potentially responsible
party for the clean-up of such disposal facilities in certain cases pursuant to
current federal and state laws and regulations.
Page 42
<PAGE>
The Company continuously reviews the adequacy of its insurance coverage.
However, the Company lacks coverage for various risks. A claim arising out of
the Company's activities, if successful and of sufficient magnitude, will have a
material adverse effect on the Company's financial position and results of
operations.
LEGAL MATTERS
The Company is 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, under any pending litigation or administrative
proceedings, will not materially affect its financial condition or operations.
PURCHASE COMMITMENTS AND OFF-BALANCE SHEET TRANSACTIONS
Recognizing favorable market conditions or for competitive reasons, the Company
may enter into short term fuel purchase commitments for the physical delivery of
product in the United States. The Company simultaneously may hedge the physical
delivery through a commodity based derivative instrument, to minimize the
effects of commodity price fluctuations. As of March 31, 1998, the Company did
not have any outstanding purchase commitments.
The Company offers its customers swaps and caps as part of its fuel management
services. Typically, the Company simultaneously enters into the commodity based
derivative instruments with its customer and a counterparty. The counterparties
are major oil companies and derivative trading firms. Accordingly, the Company
does not anticipate non-performance by such conterparties. Pursuant to these
transactions, the Company is not affected by market price fluctuations since the
contracts have the same terms and conditions except for the fee or spread earned
by the Company. Performance risk under these contracts is considered a credit
risk. This risk is minimized by dealing with customers meeting additional credit
criteria. As of March 31, 1998, the Company had outstanding swap contracts for
22,500 metric tons and 20,000 barrels, expiring December 31, 1998 and May 31,
1998, respectively, and $87,000 in deferred cap fees. Gains on these contracts
are recognized at the completion of each month.
EMPLOYMENT AGREEMENTS
The Company's amended and restated employment agreements with its Chairman of
the Board and President expire on March 31, 2002. Each agreement provides for a
fixed salary and an annual bonus equal to 5% of the Company's income before
income taxes in excess of $2,000,000. In addition, the payment of any portion of
the bonus causing the executive's compensation to exceed $1,000,000 during any
fiscal year will be deferred and accrue interest at the Prime rate, until a
fiscal year during the employment term in which the executive earns less than
$1,000,000; provided, however, that in the event of the executive's death, the
termination of the executive for any reason, or the expiration of the employment
agreement, any excess amount, including any interest earned thereon, shall be
paid to the executive within ten (10) days of such death, termination or
expiration. As of March 31, 1998 and 1997, $1,121,000 and $473,000,
respectively, including accrued interest, was deferred under the agreements. The
agreements also provide that, if the Company terminates the employment of the
executive for reasons other than death, disability, or cause, or, if the
executive terminates employment
Page 43
<PAGE>
with the Company for good reason, including under certain circumstances, a
change in control of the Company, the Company will pay the executive
compensation of up to three times his average salary and bonus during the five
year period preceding his termination.
The Company and its subsidiaries have also entered into employment, consulting
and non-competition agreements with certain of their executive officers, and
previous and current employees. The agreements provide for minimum salary
levels, as well as bonuses which are payable if specified management goals are
attained. During the years ended March 31, 1998, 1997 and 1996, approximately
$10,411,000, $9,136,000 and $7,632,000, respectively, was expensed under the
terms of the above described agreements.
The future minimum commitments under employment agreements, excluding bonuses,
as of March 31, 1998 are as follows:
1999 $6,214,000
2000 4,861,000
2001 3,058,000
2002 1,569,000
2003 839,000
Thereafter 454,000
----------
$16,995,000
===========
DEFERRED COMPENSATION PLANS
The Company's Deferred Compensation Plan ("Plan") was suspended effective August
1, 1997 by the Plan Committee. This plan provided incentive compensation to
certain key personnel whose performance contributed to the profitability and
growth of the existing Trans-Tec group of companies. The Plan is unfunded and is
not a qualified plan under the Internal Revenue Code. Under the Plan,
participants were awarded units equal to 20% of the Trans-Tec group's annual net
income, excluding the incentive compensation expense, and earn interest on their
deferred amounts. The Plan allows for distributions of vested amounts over a
five year period, subject to certain requirements, during and after employment
with the Company. Participants become fully vested over a five year period.
Fully vested participants must wait two years from the year of contribution to
be eligible for the distribution of deferred account balances. Through July 31,
1997, the Company expensed $234,000 for deferred compensation under the Plan. As
of March 31, 1998, the Company's liability under the plan was $1,657,000.
The Plan is administered by a Plan Committee appointed by the Board of Directors
of Trans-Tec Services, Inc. The Plan Committee has the authority to suspend or
terminate the plan, as well as the responsibility to allocate the amount of
incentive compensation among participants, during each plan year. The Plan's
fiscal year corresponds to the Company's fiscal year.
The Company maintains a 401(k) defined contribution plan which covers all
employees who meet minimum requirements and elect to participate. Participants
may contribute up to 15% of their compensation, subject to certain limitations.
During fiscal year 1998, the Company made matching contributions of 25% of the
participants' contributions up to 4% of the participant's compensation. Annual
contributions are made at the Company's sole discretion. During the fiscal years
ended March
Page 44
<PAGE>
31, 1998, 1997 and 1996, approximately $96,000, $82,000 and $52,000,
respectively, was expensed as Company contributions.
YEAR 2000 ISSUE
The Company has completed a risk assessment of the ability of its information
systems to operate in light of the "year 2000 issue." Based on the assessment,
the Company has developed an action plan, which primarily consists of replacing
existing non-compliant systems with new systems. The Company believes it is
feasible to acquire such new systems before the year 2000 and that the cost of
such systems are within its capital cost budget and financing capabilities.
(6) AVIATION JOINT VENTURE
In August 1994, the Company began operation of a joint venture with Petrosur, an
Ecuador corporation. The joint venture was organized to distribute jet fuel in
Ecuador pursuant to a contract with the nationally owned oil company and the
airport authority. The contract with the government entities may be terminated
at any time. The joint venture arrangement has a term of five years and will
automatically renew for a similar term unless one of the partners objects at
least ninety days prior to the end of the term.
The Company's current ownership interest in the joint venture is 50%.
Accordingly, the Company uses the equity method of accounting to record its
proportionate share of joint venture earnings. The amount of the investment in
and advances to the joint venture totaled $2,271,000 and $1,681,000 at March 31,
1998 and 1997, respectively. Of these amounts, $1,171,000 and $1,681,000 are
included in Prepaid expenses and other current assets as of March 31, 1998 and
1997, respectively, and $1,100,000 is included in Other assets as of March 31,
1998.
Page 45
<PAGE>
(7) BUSINESS SEGMENTS, FOREIGN OPERATIONS AND MAJOR CUSTOMERS
BUSINESS SEGMENTS
The Company operates in three business segments: aviation fueling, marine
fueling and oil recycling. Information concerning the Company's operations by
business segment is as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MARCH 31,
-----------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
REVENUE
Aviation fueling $ 383,010,000 $ 381,236,000 $ 302,101,000
Marine fueling 393,607,000 368,470,000 321,216,000
Oil recycling 25,146,000 22,912,000 18,993,000
Intersegment eliminations (11,000)
------------- ------------- -------------
Consolidated revenue $ 801,763,000 $ 772,618,000 $ 642,299,000
============= ============= =============
INCOME FROM OPERATIONS
Aviation fueling $ 12,558,000 $ 10,620,000 $ 12,858,000
Marine fueling 7,403,000 5,013,000 3,425,000
Oil recycling 4,155,000 5,020,000 3,976,000
Corporate (5,589,000) (5,027,000) (5,313,000)
------------- ------------- -------------
Consolidated income from operations $ 18,527,000 $ 15,626,000 $ 14,946,000
============= ============= =============
IDENTIFIABLE ASSETS
Aviation fueling $ 57,867,000 $ 54,129,000 $ 42,345,000
Marine fueling 53,819,000 43,013,000 39,948,000
Oil recycling 19,055,000 17,574,000 15,567,000
Corporate 12,518,000 8,423,000 14,114,000
------------- ------------- -------------
Consolidated identifiable assets $ 143,259,000 $ 123,139,000 $ 111,974,000
============= ============= =============
CAPITAL EXPENDITURES
Aviation fueling $ 218,000 $ 369,000 $ 66,000
Marine fueling 609,000 208,000 424,000
Oil recycling 1,793,000 2,426,000 623,000
Corporate 864,000 196,000 294,000
------------- ------------- -------------
Consolidated capital expenditures $ 3,484,000 $ 3,199,000 $ 1,407,000
============= ============= =============
DEPRECIATION AND AMORTIZATION
Aviation fueling $ 312,000 $ 189,000 $ 116,000
Marine fueling 708,000 599,000 535,000
Oil recycling 1,021,000 916,000 819,000
Corporate 377,000 234,000 186,000
------------- ------------- -------------
Consolidated depreciation and amortization $ 2,418,000 $ 1,938,000 $ 1,656,000
============= ============= =============
</TABLE>
Page 46
<PAGE>
FOREIGN OPERATIONS
A summary of financial data for foreign operations is shown below as of, and for
the fiscal years ended, March 31, 1998, 1997 and 1996. Non-U.S. operations of
the Company and its subsidiaries are conducted primarily from offices in the
United Kingdom, Singapore, Mexico, South Africa, South Korea, Denmark and Costa
Rica. Income from operations is before the allocation of corporate general and
administrative expenses and income taxes.
1998 1997 1996
------------ ------------- -------------
Revenue $419,701,000 $287,589,000 $184,768,000
============ ============= ============
Income from operations $ 10,774,000 $ 7,753,000 $ 2,555,000
============ ============= ============
Identifiable assets $ 43,524,000 $ 37,313,000 $ 13,506,000
============ ============ ============
MAJOR CUSTOMERS
No customer accounted for more than 10% of total consolidated revenue for the
years ended March 31, 1998, 1997 and 1996.
(8) QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1997 1997 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $186,307,000 $205,792,000 $208,879,000 $200,785,000
============ ============ ============ ============
Gross Profit $ 11,074,000 $ 12,233,000 $ 12,455,000 $ 14,633,000
============ ============ ============ ============
Net Income $ 3,803,000 $ 4,125,000 $ 4,148,000 $ 3,777,000
============ ============ ============ ============
Basic earnings per share $ 0.31 $ 0.34 $ 0.34 $ 0.31
============ ============ ============ ============
Diluted earnings per share $ 0.31 $ 0.33 $ 0.33 $ 0.30
============ ============ ============ ============
FOR THE THREE MONTHS ENDED
------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1996 1996 1996 1997
------------ ------------ ------------ ------------
Revenue $170,694,000 $180,349,000 $207,665,000 $213,910,000
============ ============ ============ ============
Gross Profit $ 11,632,000 $ 11,626,000 $ 11,716,000 $ 11,653,000
============ ============ ============ ============
Net Income $ 3,104,000 $ 3,253,000 $ 3,395,000 $ 3,513,000
============ ============ ============ ============
Basic earnings per share $ 0.26 $ 0.27 $ 0.28 $ 0.29
============ ============ ============ ============
Diluted earnings per share $ 0.25 $ 0.27 $ 0.27 $ 0.28
============ ============ ============ ============
</TABLE>
Page 47
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
--------------------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING ACQUISITION COSTS AND OTHER END
OF PERIOD OF BUSINESS EXPENSES ACCOUNTS (1) DEDUCTIONS (2) OF PERIOD
=============== =========== ============= ============== ============== ==============
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31, 1998
- -------------------------
Allowance for bad debts $ 4,360,000 $ 118,000 $ 1,417,000 $ 919,000 $ 2,220,000 $ 4,594,000
============== =========== ============= ============== ============= =============
YEAR ENDED MARCH 31, 1997
- -------------------------
Allowance for bad debts $ 4,363,000 $ - $ 5,107,000 $ 415,000 $ 5,525,000 $ 4,360,000
============== =========== ============= ============== ============= =============
YEAR ENDED MARCH 31, 1996
- ------------------------
Allowance for bad debts $ 4,566,000 $ - $ 2,291,000 $ 785,000 $ 3,279,000 $ 4,363,000
============== =========== ============= ============== ============= =============
<FN>
- ----------
Notes:
(1) Recoveries of bad debts and reclassifications.
(2) Accounts determined to be uncollectible.
</FN>
</TABLE>
Page 48
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10B(1) Amendment to Employment Agreement with Jerrold Blair,
dated April 29, 1997
10B(2) Amendment to Employment Agreement with Ralph Weiser,
dated April 29, 1997
21 Subsidiaries of the Registrant
27 Financial Data Schedule
EXHIBIT 10.B(1)
[LOGO]
April 29, 1997
Mr. Jerrold Blair
World Fuel Services Corporation
700 S. Royal Poinciana Boulevard
Suite 800
Miami Springs, FL 33166
Dear Jerry:
Pursuant to the minutes of the meeting of the Compensation Committee of April
29, 1997, this letter is intended to extend your employment agreement (the
"Agreement") dated March 31, 1996 with World Fuel Services Corporation (the
"Company"). According to the terms of the Agreement, the Company has agreed to
employ you until March 31, 2001, and you have agreed not to compete with the
Company, on the terms and conditions set forth in the Agreement. In this regard,
for good and valuable consideration, the Company agrees as follows:
2. The Company agreed to extend the term of Executive's employment with the
Company for one additional year, so that it now expires on March 31, 2002.
Except for the modifications of the agreement set forth above, all of the terms,
provisions and conditions set forth in the Agreement, including without
limitations the Covenant Against Unfair competition set forth in Section 6 of
the Agreement, shall remain in full force and effect.
Sincerely yours,
By: /s/ JOHN R. BENBOW
- ----------------------
Chairman of the Compensation Committee
WITNESSES: ACCEPTED AND AGREED:
By: /s/ JANET D. RUSAKOV By: /s/ JERROLD BLAIR
- ------------------------ ---------------------
By: /s/ SONIA ASENCIO
- ---------------------
[LETTERHEAD]
EXHIBIT 10.B(2)
[LOGO]
April 29, 1997
Mr. Ralph Weiser
World Fuel Services Corporation
700 S. Royal Poinciana Boulevard
Suite 800
Miami Springs, FL 33166
Dear Ralph:
Pursuant to the minutes of the meeting of the Compensation Committee of April
29, 1997, this letter is intended to extend your employment agreement (the
"Agreement") dated March 31, 1996 with World Fuel Services Corporation (the
"Company"). According to the terms of the Agreement, the Company has agreed to
employ you until March 31, 2001, and you have agreed not to compete with the
Company, on the terms and conditions set forth in the Agreement. In this regard,
for good and valuable consideration, the Company agrees as follows:
1. The Company agreed to extend the term of Executive's employment with the
Company for one additional year, so that it now expires on March 31, 2002.
Except for the modifications of the agreement set forth above, all of the terms,
provisions and conditions set forth in the Agreement, including without
limitations the Covenant Against Unfair competition set forth in Section 6 of
the Agreement, shall remain in full force and effect.
Sincerely yours,
By: /s/ JOHN R. BENBOW
- ----------------------
Chairman of the Compensation Committee
WITNESSES: ACCEPTED AND AGREED:
By: /s/ SONIA ASENCIO By: /s/ RALPH WEISER
- --------------------- --------------------
By: /s/ JANET D. RUSAKOV
- ------------------------
[LETTERHEAD]
Exhibit 21 - Subsidiaries of the Registrant
Advance Petroleum, Inc., a Florida corporation (1)
Advance Aviation Services, Inc., a Florida corporation (10)
AirData Limited, a United Kingdom corporation (2)
Air Terminaling, Inc., a Florida corporation (10)
Baseops Europe Ltd., a United Kingdom corporation (3)
Baseops International, Inc., a Texas corporation
Casa Petro S.A., a Costa Rica corporation
Cherokee Group, Inc., a Florida corporation
International Environmental Services, Inc., a Florida corporation
International Petroleum Corporation, a Florida corporation (4)
International Petroleum Corporation of LA, a Louisiana corporation (4)
International Petroleum Corporation of Lafayette, a Louisiana corporation
International Petroleum Corporation of Maryland, a Maryland corporation (4)
International Petroleum Corp. of Delaware, a Delaware corporation (4)
International Petroleum Corp. of Georgia, a Georgia corporation (10)
International Petroleum Corp. of Pennsylvania, a Pennsylvania corporation (10)
Pacific Horizon Petroleum Corporation, a Delaware corporation
PetroServicios de Costa Rica S.A., a Costa Rica corporation (5)
PetroServicios de Mexico S.A. de C.V., a Mexico corporation (6)
PetroServicios WFS del Peru, S.A., a Peru corporation (9)(10)
Resource Recovery Atlantic, Inc., a Delaware corporation (7)(10)
Resource Recovery Mid South, Inc., a Virginia corporation (7)(10)
Resource Recovery of America, Inc., a Florida corporation (10)
Servicios Auxiliares de Mexico S.A. de C.V., a Mexico corporation (6)
Trans-Tec Argentina S.A., an Argentina corporation (10)
Trans-Tec International S.A., a Costa Rica corporation
Trans-Tec Services, Inc., a Delaware corporation
Trans-Tec Services (UK) Ltd., a United Kingdom corporation
Trans-Tec Services (Singapore) PTE. Ltd., a Singapore corporation (8)
World Fuel International S.A., a Costa Rica corporation
World Fuel Miami, Inc., a Florida corporation (10)
World Fuel Services, Inc., a Texas corporation
World Fuel Services, Ltd., a United Kingdom corporation
World Fuel Services (Singapore) PTE. Ltd., a Singapore corporation
World Fuel Services of Chile S.A., a Chile corporation (6)(10)
World Fuel Services del Peru, S.A., a Peru corporation (9)(10)
(1) Advance Petroleum, Inc., operates under the name "World Fuel Services of FL.
(2) This corporation is a wholly-owned subsidiary of Baseops Europe Ltd.
(3) This corporation is a wholly-owned subsidiary of Baseops International, Inc.
(4) These corporations collect and purchase used oil under the name
"International Oil Service."
(5) This corporation is owned 55% by Casa Petro S.A. and 45% by World Fuel
Services Corporation.
(6) This corporation is owned 50% by Advance Aviation Services, Inc. and 50% by
Air Terminaling, Inc.
(7) These corporations are wholly-owned subsidiaries of Resource Recovery of
America, Inc.
(8) This corporation is a wholly-owned subsidiary of Trans-Tec Services (UK)
Ltd.
(9) These corporations are owned 99% by World Fuel Services Corporation and 1%
by Advance Aviation Services, Inc.
10) Inactive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S MARCH 31, 1998 AUDITED FINANCIAL STATEMENTS FILED ON FORM 10-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 14,459,000
<SECURITIES> 0
<RECEIVABLES> 86,242,000
<ALLOWANCES> 4,594,000
<INVENTORY> 5,504,000
<CURRENT-ASSETS> 107,548,000
<PP&E> 27,126,000
<DEPRECIATION> 9,065,000
<TOTAL-ASSETS> 143,259,000
<CURRENT-LIABILITIES> 47,447,000
<BONDS> 0
0
0
<COMMON> 125,000
<OTHER-SE> 91,786,000
<TOTAL-LIABILITY-AND-EQUITY> 143,259,000
<SALES> 801,763,000
<TOTAL-REVENUES> 801,763,000
<CGS> 751,368,000
<TOTAL-COSTS> 751,368,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,417,000
<INTEREST-EXPENSE> 284,000
<INCOME-PRETAX> 20,746,000
<INCOME-TAX> 4,893,000
<INCOME-CONTINUING> 15,853,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,853,000
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.27
</TABLE>
