UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM___________TO__________
COMMISSION FILE NUMBER 1-9533
WORLD FUEL SERVICES CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-2459427
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 SOUTH ROYAL POINCIANA BLVD., SUITE 800
MIAMI SPRINGS, FLORIDA 33166
- ------------------------------------------ ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code: (305) 884-2001
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of October 20, 1999, the registrant had a total of 12,175,000 shares
of common stock, par value $0.01 per share, issued and outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited, condensed consolidated financial statements of World
Fuel Services Corporation (the "Company") have been prepared in accordance with
the instructions to Form 10-Q and, therefore, omit or condense certain footnotes
and other information normally included in financial statements prepared in
accordance with generally accepted accounting principles. In the opinion of
management, all adjustments necessary for a fair presentation of the financial
information for the interim periods reported have been made. Results of
operations for the six months ended September 30, 1999, will not be necessarily
indicative of the results for the entire fiscal year ending March 31, 2000.
Page 2 of 19
<PAGE>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 MARCH 31, 1999
------------------ --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 10,596,000 $ 16,322,000
Accounts and notes receivable, net of allowance
for bad debts of $8,698,000 and $6,829,000
at September 30 and March 31, 1999, respectively 145,243,000 98,678,000
Inventories 7,908,000 6,199,000
Prepaid expenses and other current assets 4,514,000 5,617,000
------------ ------------
Total current assets 168,261,000 126,816,000
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 1,054,000 1,054,000
Buildings and improvements 3,284,000 3,155,000
Office equipment and furniture 9,147,000 8,150,000
Plant, machinery and equipment 19,451,000 19,557,000
Construction in progress 354,000 196,000
------------ ------------
33,290,000 32,112,000
Less accumulated depreciation
and amortization 11,620,000 10,655,000
------------ ------------
21,670,000 21,457,000
------------ ------------
OTHER ASSETS:
Unamortized cost in excess of net
assets of acquired companies, net of
accumulated amortization 23,355,000 15,148,000
Other 3,220,000 2,513,000
------------ ------------
$216,506,000 $165,934,000
============ ============
</TABLE>
(continued)
Page 3 of 19
<PAGE>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 MARCH 31, 1999
------------------ --------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,536,000 $ 125,000
Accounts payable and accrued expenses 87,527,000 49,665,000
Customer deposits 2,497,000 4,074,000
Accrued salaries and wages 1,771,000 2,248,000
Income taxes payable 2,784,000 1,617,000
------------ ------------
Total current liabilities 96,115,000 57,729,000
------------ ------------
LONG-TERM LIABILITIES 18,782,000 7,408,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value;
100,000 shares authorized, none issued -- --
Common stock, $0.01 par value;
25,000,000 shares authorized; 12,537,000 and
12,534,000 shares issued and outstanding at
September 30 and March 31, 1999, respectively 125,000 125,000
Capital in excess of par value 26,800,000 26,769,000
Retained earnings 78,781,000 78,000,000
Less treasury stock, at cost; 346,000 shares
at September 30 and March 31, 1999 4,097,000 4,097,000
------------ ------------
101,609,000 100,797,000
------------ ------------
$216,506,000 $165,934,000
============ ============
</TABLE>
The accompanying note to the consolidated financial statements is
an integral part of these consolidated balance sheets (unaudited).
Page 4 of 19
<PAGE>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
SIX MONTHS ENDED SEPTEMBER 30,
---------------------------------
1999 1998
------------- -------------
Revenue $ 538,179,000 $ 373,351,000
Cost of sales 502,534,000 343,692,000
------------- -------------
Gross profit 35,645,000 29,659,000
------------- -------------
Operating expenses:
Salaries and wages 11,650,000 10,549,000
Provision for bad debts 2,723,000 2,072,000
Special provision for bad debts
in aviation segment 2,122,000 --
Other 8,892,000 7,928,000
------------- -------------
25,387,000 20,549,000
------------- -------------
Income from operations 10,258,000 9,110,000
------------- -------------
Other (expense) income:
Special provision for bad debts
in aviation joint venture (1,593,000) --
Non-recurring charge in
marine segment (3,092,000) --
Other (expense) income, net (451,000) 540,000
------------- -------------
(5,136,000) 540,000
------------- -------------
Income before income taxes 5,122,000 9,650,000
Provision for income taxes 3,122,000 2,049,000
------------- -------------
Net income $ 2,000,000 $ 7,601,000
============= =============
Basic earnings per common share $ 0.16 $ 0.61
============= =============
Weighted average shares 12,189,000 12,496,000
============= =============
Diluted earnings per common share $ 0.16 $ 0.60
============= =============
Weighted average shares - diluted 12,311,000 12,708,000
============= =============
The accompanying note to the consolidated financial statements is
an integral part of these consolidated financial statements (unaudited).
Page 5 of 19
<PAGE>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------
1999 1998
------------- -------------
Revenue $ 306,629,000 $ 180,320,000
Cost of sales 287,745,000 165,517,000
------------- -------------
Gross profit 18,884,000 14,803,000
------------- -------------
Operating expenses:
Salaries and wages 5,811,000 5,592,000
Provision for bad debts 2,724,000 834,000
Special provision for bad debts
in aviation segment 550,000 --
Other 4,581,000 4,156,000
------------- -------------
13,666,000 10,582,000
------------- -------------
Income from operations 5,218,000 4,221,000
Other (expense) income:
Special provision for bad debts
in aviation joint venture (400,000) --
Non-recurring charge in
marine segment (3,092,000) --
Other (expense) income, net (341,000) 287,000
------------- -------------
(3,833,000) 287,000
------------- -------------
Income before income taxes 1,385,000 4,508,000
Provision for income taxes 1,627,000 988,000
------------- -------------
Net (loss) income $ (242,000) $ 3,520,000
============= =============
Basic (loss) earnings per common share $ (0.02) $ 0.28
============= =============
Weighted average shares 12,190,000 12,497,000
============= =============
Diluted (loss) earnings per common share $ (0.02) $ 0.28
============= =============
Weighted average shares - diluted 12,190,000 12,653,000
============= =============
The accompanying note to the consolidated financial statements is
an integral part of these consolidated financial statements (unaudited).
Page 6 of 19
<PAGE>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,000,000 $ 7,601,000
------------ ------------
Adjustments to reconcile net income
to net cash used in operating activities -
Provision for bad debts 4,845,000 2,072,000
Non-recurring charge in marine segment 3,092,000 --
Depreciation and amortization 1,800,000 1,394,000
Equity in losses (earnings) of aviation joint venture, net 1,728,000 (87,000)
Deferred income tax provision 116,000 170,000
Other non-cash operating charges 21,000 18,000
Changes in assets and liabilities:
(Increase) decrease in -
Accounts and notes receivable (56,731,000) (14,074,000)
Inventories (1,709,000) 36,000
Prepaid expenses and other current assets (557,000) (2,013,000)
Other assets 11,000 510,000
Increase (decrease) in -
Accounts payable and accrued expenses 37,530,000 3,327,000
Customer deposits (1,577,000) (44,000)
Accrued salaries and wages (528,000) 692,000
Income taxes payable 1,149,000 556,000
Deferred compensation (455,000) (282,000)
------------ ------------
Total adjustments (11,265,000) (7,725,000)
------------ ------------
Net cash used in operating activities (9,265,000) (124,000)
------------ ------------
Cash flows from investing activities:
Additions to property, plant and equipment (1,434,000) (2,829,000)
Payment for acquisition of business, net of cash acquired (4,183,000) --
Proceeds from notes receivable 2,533,000 267,000
Advances to aviation joint venture, net (895,000) (200,000)
Issuance of notes receivable -- (300,000)
------------ ------------
Net cash used in investing activities $ (3,979,000) $ (3,062,000)
------------ ------------
</TABLE>
(Continued)
Page 7 of 19
<PAGE>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Continued)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Borrowings under revolving credit facility, net $ 8,800,000 $ 862,000
Dividends paid on common stock (1,218,000) (1,250,000)
Repayment of other long-term debt (74,000) (56,000)
Proceeds from issuance of common stock 10,000 296,000
------------ ------------
Net cash provided by (used in) financing activities 7,518,000 (148,000)
------------ ------------
Net decrease in cash and cash equivalents (5,726,000) (3,334,000)
Cash and cash equivalents, at beginning of period 16,322,000 14,459,000
------------ ------------
Cash and cash equivalents, at end of period $ 10,596,000 $ 11,125,000
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 277,000 $ 74,000
============ ============
Income taxes $ 1,970,000 $ 1,488,000
============ ============
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Cash dividends declared, but not yet paid, totaling $610,000 and $623,000 are
included in accounts payable and accrued expenses as of September 30, 1999 and
1998, respectively.
In connection with the acquisition of the Bunkerfuels group of companies, the
Company issued $4,250,000 in notes payable. See note for additional information.
Advances to and earnings from the Company's aviation joint venture totaling
$1,723,000 were reclassified from Prepaid expenses and other current assets to
Other assets during the six months ended September 30, 1999.
During the six months ended September 30, 1998, the Company borrowed $1,238,000
for the repurchase of the Company's common stock. The repurchased common stock
is shown in the treasury stock section of the balance sheet. The stock purchases
were made pursuant to an August 1998 Board of Directors authorization to
repurchase up to $6,000,000 of the Company's common stock.
The accompanying note to the consolidated financial statements is
an integral part of these consolidated financial statements (unaudited).
Page 8 of 19
<PAGE>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
NOTE TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed for quarterly financial reporting are
the same as those disclosed in Note 1 of the Notes to the Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended March 31, 1999.
ORGANIZATION AND NATURE OF ACQUISITIONS
In April 1999, the Company acquired substantially all of the operations
of the privately held Bunkerfuels group of companies. The acquisition was
accounted for as a purchase. Accordingly, the results of operations of the
Bunkerfuels group ("Bunkerfuels") are included with the results of the Company
from April 1, 1999. The aggregate purchase price of the acquisition was
approximately $8,641,000, including an estimated $72,000 in acquisition costs.
The Company paid approximately $4,183,000 in cash, net of cash acquired,
$4,250,000 in the form of 7 3/4% promissory notes, payable over three years, of
which $1,410,000 is due within one year, and $208,000 in short term payables due
to the sellers. The promissory notes are collateralized by letters of credit.
The difference between the purchase price and the $67,000 fair value of the net
assets of the acquired companies, which amounted to approximately $8,574,000,
was allocated to goodwill, and is being amortized using the straight-line method
over 35 years. The Company determined that no other intangible assets exist.
Page 9 of 19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In April 1999, the Company acquired substantially all of the operations
of the privately held Bunkerfuels group of companies. Bunkerfuels forms part of
the Company's worldwide marine fuel marketing segment. Through the first half of
fiscal 2000, Bunkerfuels contributed $54,730,000 in revenue, and a combined
3,082,000 in metric tons brokered and traded. The total metric tons for the
segment during the same period were 7,178,000.
The Company's profitability during the six months ended September 30,
1999 was adversely affected by charges to the provision for bad debts, primarily
in the aviation segment, both special and otherwise. Earnings were additionally
affected by a non-recurring charge in the marine segment pertaining to the theft
by diversion of product off the coast of Nigeria.
THE SIX MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE SIX MONTHS ENDED
SEPTEMBER 30, 1998
The Company's revenue for the six months ended September 30, 1999 was
$538,179,000, an increase of $164,828,000, or 44.1%, as compared to revenue of
$373,351,000 for the corresponding period of the prior year. The revenue
increase is due largely to an increase in world oil prices and the Bunkerfuels
acquisition. The Company's revenue during these periods was attributable to the
following segments:
SIX MONTHS ENDED SEPTEMBER 30,
1999 1998
------------ ------------
Aviation Fueling $199,889,000 $162,577,000
Marine Fueling 325,316,000 198,514,000
Oil Recycling 12,974,000 12,260,000
------------ ------------
Total Revenue $538,179,000 $373,351,000
============ ============
The aviation fueling segment contributed $199,889,000 in revenue for
the six months ended September 30, 1999. This represented an increase in revenue
of $37,312,000, or 23.0%, as compared to the same period of the prior year. The
increase in revenue was due to increases in the volume and average price per
gallon sold. The marine fueling segment contributed $325,316,000 in revenue for
the six months ended September 30, 1999, an increase of $126,802,000, or 63.9%,
over the corresponding period of the prior year. The increase in revenue was
related primarily to the acquisition of Bunkerfuels, as well as increases in the
volume and average price per metric ton sold. The oil recycling segment
contributed $12,974,000 in revenue for the six months ended September 30, 1999,
an increase of $714,000, or 5.8%, as compared to the same period of the prior
year. The higher revenue resulted from increases in the volume and average sales
price per gallon of recycled oil sold, as well as higher used oil and waste
water collection revenue.
The Company's gross profit of $35,645,000 for the six months ended
September 30, 1999 increased $5,986,000, or 20.2%, as compared to the same
period of the prior year. The Company's gross margin decreased from 7.9% for the
six months ended September 30, 1998, to 6.6% for the six months ended September
30, 1999. The Company's aviation fueling business achieved a 9.8% gross margin
for the
Page 10 of 19
<PAGE>
six months ended September 30, 1999, as compared to 9.1% achieved for the same
period during the prior year. This resulted from an increase in the average
gross profit per gallon sold, which offset the effect of a 14.8% increase in the
average sales price per gallon sold. The Company's marine fueling segment
achieved a 3.7% gross margin for the six months ended September 30, 1999, as
compared to a 5.9% gross margin for the same period of the prior year, the
result of a 23.4% increase in the average price per metric ton traded, and a
lower gross profit per metric ton sold and brokered. The gross margin in the
Company's oil recycling segment increased from 25.3% for the six months ended
September 30, 1998, to 29.7% for the six months ended September 30, 1999. This
increase resulted from a higher gross profit per gallon of recycled oil sold,
due primarily to higher fuel prices, and higher used oil and wastewater
collection revenue.
Total operating expenses for the six months ended September 30, 1999
were $25,387,000, an increase of $4,838,000, or 23.5%, as compared to the same
period of the prior year. The increase was mostly due to a $2,773,000 higher
provision for bad debts principally attributed to the Company's aviation
segment, which included a $2,122,000 special charge related to certain customers
based in Ecuador. Also contributing to the increase were the operating expenses
associated with the Bunkerfuels operations and the newly implemented financial
systems.
The Company's income from operations for the six months ended September
30, 1999 was $10,258,000, an increase of $1,148,000, or 12.6%, as compared to
the same period of the prior year. Income from operations during these periods
was attributable to the following segments:
SIX MONTHS ENDED SEPTEMBER 30,
1999 1998
------------ ------------
Aviation Fueling $ 7,754,000 $ 6,282,000
Marine Fueling 3,208,000 4,065,000
Oil Recycling 1,972,000 1,413,000
Corporate Overhead (2,676,000) (2,650,000)
------------ ------------
Total Income from Operations $ 10,258,000 $ 9,110,000
============ ============
The aviation fueling segment's income from operations was $7,754,000
for the six months ended September 30, 1999, an increase of $1,472,000, or
23.4%, as compared to the six months ended September 30, 1998. This resulted
from an increase in the volume and average gross profit per gallon sold.
Partially offsetting was an increase in operating expenses due to a higher
provision for bad debts related, in part, to the deteriorating economic
conditions in Ecuador. The marine fueling segment earned $3,208,000 in income
from operations for the six months ended September 30, 1999, a decrease of
$857,000, or 21.1%, over the corresponding period of the prior year. This
decrease was primarily the result of a narrower gross profit per metric ton sold
and brokered in the Company's core business, partially offset by the
contribution of Bunkerfuels. Income from operations of the oil recycling segment
increased by $559,000, or 39.6%, for the six months ended September 30, 1999, as
compared to the same period of the prior year. This resulted from an increase in
gross profit, partially offset by higher operating expenses.
During the six months ended September 30, 1999, the Company reported
$5,136,000 in other expense, net, compared to other income, net, of $540,000,
for the same period a year ago. This $5,676,000
Page 11 of 19
<PAGE>
change was the result of the non-recurring charge in the marine segment due to
the theft of product in Nigeria, and a special charge to the provision for bad
debts in the Company's aviation joint venture in Ecuador related to certain
customers based in Ecuador. This special charge was in addition to the special
provision for bad debts described in the preceding paragraphs. Also contributing
to the charge was an increase in interest expense due to borrowings on the
Company's line of credit. The increase in fuel prices, the acquisition of
Bunkerfuels, the Company's stock repurchase program and the investment in the
new financial system, increased the Company's borrowing requirements. The
Company's tax provision for the six months ended September 30, 1999 reflects the
product loss incurred in Nigeria and the special provisions associated with
Ecuador, for which the Company does not receive a tax benefit.
Net income for the six months ended September 30, 1999 was $2,000,000,
a decrease of $5,601,000, or 73.7%, as compared to net income of $7,601,000 for
the six months ended September 30, 1998. Diluted earnings per share of $0.16 for
the six months ended September 30, 1999, exhibited a $0.44, or 73.3% per share
decrease versus the $0.60 achieved during the same period of the prior year. The
impact on earnings per share associated with the product loss in Nigeria and the
special provisions related to the Ecuador based customers were $0.24 and $0.23,
respectively.
THE THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
The Company's revenue for the three months ended September 30, 1999 was
$306,629,000, an increase of $126,309,000, or 70.0%, as compared to revenue of
$180,320,000 for the corresponding period of the prior year. The revenue
increase is due largely to an increase in world oil prices and the Bunkerfuels
acquisition. The Company's revenue during these periods was attributable to the
following segments:
THREE MONTHS ENDED SEPTEMBER 30,
1999 1998
------------ ------------
Aviation Fueling $107,673,000 $ 77,301,000
Marine Fueling 192,086,000 96,973,000
Oil Recycling 6,870,000 6,046,000
------------ ------------
Total Revenue $306,629,000 $180,320,000
============ ============
The aviation fueling segment contributed $107,673,000 in revenue for
the three months ended September 30, 1999. This represented an increase in
revenue of $30,372,000, or 39.3%, as compared to the same period of the prior
year. The increase in revenue was due to increases in the volume and average
price per gallon sold. The marine fueling segment contributed $192,086,000 in
revenue for the three months ended September 30, 1999, an increase of
$95,113,000, or 98.1%, over the corresponding period of the prior year. The
increase in revenue was related primarily to the acquisition of Bunkerfuels, as
well as an increase in the volume and average price per metric ton sold. The oil
recycling segment contributed $6,870,000 in revenue for the three months ended
September 30, 1999, an increase of $824,000, or 13.6%, as compared to the same
period of the prior year. The higher revenue was due to an increase in the
volume and average sales price per gallon of recycled oil sold, as well as
higher used oil and waste water collection revenue.
Page 12 of 19
<PAGE>
The Company's gross profit of $18,884,000 for the three months ended
September 30, 1999, increased $4,081,000, or 27.6%, as compared to the same
period of the prior year. The Company's gross margin decreased from 8.2% for the
three months ended September 30, 1998, to 6.2% for the three months ended
September 30, 1999. The Company's aviation fueling business achieved a 9.3%
gross margin for the three months ended September 30, 1999, as compared to 9.0%
achieved for the same period during the prior year. This resulted from an
increase in the average gross profit per gallon sold, which offset the effect of
a 25.4% increase in the average sales price per gallon sold. The Company's
marine fueling segment achieved a 3.5% gross margin for the three months ended
September 30, 1999, as compared to a 6.8% gross margin for the same period of
the prior year, the result of a 51.7% increase in the average price per metric
ton traded, and a lower gross profit per metric ton sold and brokered. The gross
margin in the Company's oil recycling segment increased from 21.3% for the three
months ended September 30, 1998, to 31.2% for the three months ended September
30, 1999. This increase resulted from a higher gross profit per gallon of
recycled oil sold, due primarily to higher fuel prices, and higher used oil and
wastewater collection revenue.
Total operating expenses for the three months ended September 30, 1999
were $13,666,000, an increase of $3,084,000, or 29.1%, as compared to the same
period of the prior year. The increase was mostly due to a $2,440,000 higher
provision for bad debts principally attributed to the Company's aviation
segment. Also contributing to the increase were the operating expenses
associated with Bunkerfuels operations and the newly implemented financial
system.
The Company's income from operations for the three months ended
September 30, 1999 was $5,218,000, an increase of $997,000, or 23.6%, as
compared to the same period of the prior year. Income from operations during
these periods was attributable to the following segments:
THREE MONTHS ENDED SEPTEMBER 30,
1999 1998
----------- -----------
Aviation Fueling $ 3,415,000 $ 2,751,000
Marine Fueling 2,084,000 2,538,000
Oil Recycling 1,178,000 400,000
Corporate Overhead (1,459,000) (1,468,000)
----------- -----------
Total Income from Operations $ 5,218,000 $ 4,221,000
=========== ===========
The aviation fueling segment's income from operations was $3,415,000
for the three months ended September 30, 1999, an increase of $664,000, or
24.1%, as compared to the three months ended September 30, 1998. This resulted
from an increase in the volume and average gross profit per gallon sold,
partially offset by an increase in operating expenses due to a higher provision
for bad debts. The marine fueling segment earned $2,084,000 in income from
operations for the three months ended September 30, 1999, a decrease of
$454,000, or 17.9%, over the corresponding period of the prior year. This
decrease was primarily the result of a narrower average gross profit per metric
ton sold and brokered in the Company's core business, partially offset by the
contribution of Bunkerfuels. Income from operations of the oil recycling segment
increased by $778,000, or 194.5%, for the three months ended September 30, 1999,
as
Page 13 of 19
<PAGE>
compared to the same period of the prior year. This resulted from an increase
in the volume and average gross profit of recycled oil sold due to higher world
oil prices, as well as higher used oil and waste water collection revenue.
During the quarter ended September 30, 1999, the Company reported an
increase of $4,120,000 in other expense, net, over the same period a year ago,
primarily as a result of the non-recurring charge in the marine segment and the
special charge in the Company's aviation joint venture. The Company's tax
provision for the three months ended September 30, 1999, reflects the product
loss incurred in Nigeria and the special provisions associated with Ecuador, for
which the Company does not receive a tax benefit.
Net loss for the three months ended September 30, 1999 was $242,000, a
decrease of $3,762,000, or 106.9%, as compared to net income of $3,520,000 for
the three months ended September 30, 1998. Diluted loss per share of $0.02 for
the three months ended September 30, 1999, exhibited a $0.30, or 107.1% decrease
versus the $0.28 achieved during the same period of the prior year. The impact
on earnings per share associated with the loss in Nigeria and the special
provisions related to the Ecuador based customers were $0.24 and $0.06,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents amounted to $10,596,000 at September 30,
1999, as compared to $16,322,000 at March 31, 1999. The principal uses of cash
and cash equivalents during the first six months of fiscal year 2000 were
$13,858,000 to fund the increase in net trade credit and inventory, mainly the
result of higher world oil prices, $4,183,000 for the acquisition of
Bunkerfuels, $1,434,000 for capital expenditures and $1,218,000 in dividends
paid on common stock. These uses of funds were partially funded through
earnings, net borrowings of $8,800,000 under the line of credit, and the
repayment of notes receivable. Other components of changes in cash and cash
equivalents are detailed in the Consolidated Statements of Cash Flows.
Working capital as of September 30, 1999 was $72,146,000, exhibiting a
$3,059,000 increase from working capital as of March 31, 1999. As of September
30, 1999, the Company's accounts receivable and the current portion of the notes
receivable, excluding the allowance for bad debts, amounted to $153,941,000, an
increase of $48,434,000, as compared to the March 31, 1999 balance. In the
aggregate, accounts payable, accrued expenses and customer deposits increased
$36,285,000. The allowance for bad debts as of September 30, 1999 amounted to
$8,698,000, an increase of $1,869,000 compared to the March 31, 1999 balance.
During the first half of fiscal year 2000, the Company charged $4,845,000 to the
provision for bad debts and had charge-offs in excess of recoveries of
$2,976,000. The Company increased the allowance for bad debts, recognizing the
deteriorating economic conditions in Latin America, particularly in Ecuador.
Capital expenditures for the first six months of fiscal year 2000
consisted primarily of $472,000 for the implementation of a new financial system
and $434,000 in plant, machinery and equipment related to the oil recycling
segment. During the balance of fiscal year 2000, the Company anticipates
spending approximately $300,000 to complete the implementation of the financial
system and $1,000,000 to upgrade plant, machinery and equipment. The Company
also anticipates spending an estimated $1,000,000 sometime in the future, if
required, to clean up contamination which was present at one of the Company's
Page 14 of 19
<PAGE>
sites when it was acquired by the Company. The clean up costs will be
capitalized as part of the cost of the site, up to the fair market value of the
site. Other assets increased by $8,914,000 as a result of the $8,574,000 in
goodwill related to the acquisition of Bunkerfuels.
Stockholders' equity amounted to $101,609,000, or $8.33 per share at
September 30, 1999, compared to $100,797,000, or $8.27 per share at March 31,
1999. This increase of $812,000 was due to $2,000,000 in earnings for the six
months ended September 30, 1999, partially offset by $1,219,000 in declared
dividends.
The Company's working capital requirements are not expected to vary
substantially for the balance of fiscal year 2000. The Company expects to meet
its cash requirements for the balance of fiscal year 2000 from existing cash,
operations and additional borrowings, as necessary, under its existing credit
facility. On October 8, 1999, the Company's credit facility was increased to $40
million in response to the higher market fuel prices. The additional $10 million
facility is for a period of 364 days, and increases the letter of credit
sublimit to $20 million, with other terms and conditions consistent with the
existing credit facility. The Company's business has not been significantly
affected by inflation during the periods discussed in this report.
YEAR 2000 ISSUE
In the Company's Form 10-K for the year ended March 31, 1999, the
Company provided its Year 2000 Readiness Disclosure. The following is an update
to the previously presented State of Readiness of the Company through October
1999.
The Company has received certification from software and hardware
vendors, or has conducted the necessary tests, whenever possible, to assure Year
2000 compliance. The Company also completed the aviation segment implementation
of the newly acquired Year 2000 compliant financial system. Accordingly, all of
the Company's financial systems are now Year 2000 compliant. The Company
replaced all significant telecommunications hardware and software with Year 2000
compliant products.
The Company has completed the testing phase of its compliance program
and, in all material respects relative to its internal systems and equipment
devices, the Company is Year 2000 ready. The Company does not anticipate
spending significant amounts during the balance of 1999, to complete its Year
2000 readiness.
Ultimately, the potential impact of Year 2000 issues will depend not
only on the corrective measures taken by the Company, but also on the way in
which Year 2000 issues are addressed by governmental agencies, third party fuel
service providers and other businesses which provide goods and services to the
Company, and provide data to, or receive data from the Company. In addition, the
Company's business may be affected by the corrective measures taken by the
landlords of office space leased by the Company.
Although the Company's remediation efforts are directed at reducing its
Year 2000 exposure, there can be no assurance that these efforts will fully
mitigate the effect of Year 2000 issues and it is likely that one or more events
may disrupt the Company's normal business operations. In the event that
Page 15 of 19
<PAGE>
the Company fails to identify or correct a material Year 2000 problem, there
could be disruptions in normal business operations, which could have a material
adverse effect on the Company's results of operations, liquidity or financial
condition. In addition, there can be no assurance that significant foreign or
domestic vendors, customers and other third parties will adequately address
their Year 2000 issues. Further, there may be some parties, such as governmental
agencies, utilities, telecommunication companies, financial services vendors,
third parties contracted by the Company to deliver fuel to its customers, and
other providers, where alternative arrangements or resources may not be
available. Also, risks associated with some foreign third parties may be greater
since there is a general concern that some entities operating outside the United
States are not addressing the Year 2000 issues on a timely basis.
The Company is also subject to additional credit and performance risks
to the extent that customers and suppliers, respectively, fail to adequately
address Year 2000 issues. Although it is not possible to quantify the potential
impact of these risks at this time, there may be increases in accounts
receivable write-offs, as well as the risk of litigation and potential losses
from litigation related to the foregoing.
Forward-looking statements contained in this Year 2000 Readiness
Disclosure subsection should be read in conjunction with the cautionary
statements included elsewhere in this Report.
FORWARD-LOOKING STATEMENTS
Except for the historical information contained herein, this document
includes forward-looking statements that involve risk and uncertainties,
including, but not limited to quarterly fluctuations in results; the management
of growth; fluctuations in world oil prices or foreign currency; major changes
in political, economic, regulatory or environmental conditions; the loss of key
customers, suppliers or members of senior management; uninsured losses;
competition; credit risk associated with accounts and notes receivable; and
other risks detailed in this Form 10-Q and in the Company's other Securities and
Exchange Commission filings. Actual results may differ materially from any
forward-looking statements set forth herein.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no material changes to the disclosure made on this
matter in the Company's annual report on Form 10-K for the year ended March 31,
1999.
Page 16 of 19
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On August 16, 1999, the Company issued 500 shares of Common Stock and
options to purchase 2,500 shares of Common Stock to each of John
Benbow, Ralph Feuerring, Myles Klein and Luis Tinoco, the non-employee
directors of the Company, pursuant to plans previously adopted by the
Board of Directors. The options have an exercise price of $13.6875 per
share. The options fully vest and are exercisable within 12 months
after the date of grant. The shares and options were issued to such
persons in reliance upon section 4(2) of the Securities Act of 1933.
Such persons represented to the Company their intention to acquire the
securities for investment purposes only and not with a view to sell
the securities in connection with any distribution thereof. Such
persons had adequate access to information about the Company. The
Company believes that such persons are accredited investors as defined
in Rule 501 promulgated under the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held on August 16,
1999.
The matter voted on at the annual meeting was to elect the Directors
of the Company. All of the Company's director nominees were elected.
ELECTION OF DIRECTORS
NAME OF DIRECTOR VOTES FOR VOTES AGAINST
---------------- --------- -------------
1. Ralph R. Weiser 10,849,980 164,884
2. Jerrold Blair 10,855,605 159,259
3. Ralph R. Feuerring 10,855,550 159,314
4. John R. Benbow 10,855,700 159,164
5. Phillip S. Bradley 10,958,502 56,362
6. Myles Klein 10,895,306 119,558
7. Michael J. Kasbar 10,959,552 55,312
8. Paul H. Stebbins 10,959,552 55,312
9. Luis R. Tinoco 10,855,700 159,164
Page 17 of 19
<PAGE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 -- Financial Data Schedule (included in electronic
filing only).
(b) During the three months ended September 30, 1999, the Company did
not file any reports on Form 8-K.
Page 18 of 19
<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.
DATE: November 1, 1999 WORLD FUEL SERVICES CORPORATION
By: /s/ Jerrold Blair
------------------------
JERROLD BLAIR
PRESIDENT
By: /s/ Carlos A. Abaunza
------------------------
CARLOS A. ABAUNZA
CHIEF FINANCIAL OFFICER
(Principal Financial and Accounting Officer)
Page 19 of 19
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
27 Financial Data Schedule (included in electronic filing only).
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S SEPTEMBER 30, 1999 UNAUDITED FINANCIAL STATEMENTS FILED ON FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> SEP-30-1999
<CASH> 10,596,000
<SECURITIES> 0
<RECEIVABLES> 153,941,000
<ALLOWANCES> 8,698,000
<INVENTORY> 7,908,000
<CURRENT-ASSETS> 168,261,000
<PP&E> 33,290,000
<DEPRECIATION> 11,620,000
<TOTAL-ASSETS> 216,506,000
<CURRENT-LIABILITIES> 96,115,000
<BONDS> 0
0
0
<COMMON> 125,000
<OTHER-SE> 101,484,000
<TOTAL-LIABILITY-AND-EQUITY> 216,506,000
<SALES> 538,179,000
<TOTAL-REVENUES> 538,179,000
<CGS> 502,534,000
<TOTAL-COSTS> 502,534,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,845,000
<INTEREST-EXPENSE> 510,000
<INCOME-PRETAX> 5,122,000
<INCOME-TAX> 3,122,000
<INCOME-CONTINUING> 2,000,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,000,000
<EPS-BASIC> 0.16
<EPS-DILUTED> 0.16
</TABLE>
