UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 July 26, 1999, the registrant had a total of 12,189,277 shares of
common stock, par value $0.01 per share, issued and outstanding.
Page 1 of 13
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited, condensed consolidated financial statements of World
Fuel Services Corporation (the "Company") have been prepared in accordance with
the instructions to Form 10-Q and, therefore, omit or condense certain footnotes
and other information normally included in financial statements prepared in
accordance with generally accepted accounting principles. In the opinion of
management, all adjustments necessary for a fair presentation of the financial
information for the interim periods reported have been made. Results of
operations for the three months ended June 30, 1999, will not be necessarily
indicative of the results for the entire fiscal year ending March 31, 2000.
Page 2 of 13
<PAGE>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
June 30, 1999 March 31, 1999
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 10,343,000 $ 16,322,000
Accounts and notes receivable, net of allowance
for bad debts of $7,907,000 and $6,829,000
at June 30 and March 31, 1999, respectively 114,103,000 98,678,000
Inventories 6,340,000 6,199,000
Prepaid expenses and other current assets 4,349,000 5,617,000
------------ ------------
Total current assets 135,135,000 126,816,000
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 1,054,000 1,054,000
Buildings and improvements 3,243,000 3,155,000
Office equipment and furniture 8,882,000 8,150,000
Plant, machinery and equipment 19,457,000 19,557,000
Construction in progress 158,000 196,000
------------ ------------
32,794,000 32,112,000
Less accumulated depreciation
and amortization 11,037,000 10,655,000
------------ ------------
21,757,000 21,457,000
------------ ------------
OTHER ASSETS:
Unamortized cost in excess of net
assets of acquired companies, net of
accumulated amortization 23,535,000 15,148,000
Other 3,713,000 2,513,000
------------ ------------
$184,140,000 $165,934,000
============ ============
</TABLE>
(Continued)
Page 3 of 13
<PAGE>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, 1999 March 31, 1999
------------- --------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,539,000 $ 125,000
Accounts payable and accrued expenses 57,424,000 49,665,000
Customer deposits 3,142,000 4,074,000
Accrued salaries and wages 1,673,000 2,248,000
Income taxes payable 2,498,000 1,617,000
------------ ------------
Total current liabilities 66,276,000 57,729,000
------------ ------------
LONG-TERM LIABILITIES 15,427,000 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; 12,535,000 and
12,534,000 shares issued and outstanding at
June 30 and March 31, 1999, respectively 125,000 125,000
Capital in excess of par value 26,776,000 26,769,000
Retained earnings 79,633,000 78,000,000
Less treasury stock, at cost; 346,000 shares
at June 30 and March 31, 1999 4,097,000 4,097,000
------------ ------------
102,437,000 100,797,000
------------ ------------
$184,140,000 $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 13
<PAGE>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------------
1999 1998
------------- --------------
<S> <C> <C>
Revenue $ 231,550,000 $ 193,031,000
Cost of sales 214,789,000 178,175,000
------------- -------------
Gross profit 16,761,000 14,856,000
------------- -------------
Operating expenses:
Salaries and wages 5,839,000 4,957,000
Provision for bad debts -- 1,238,000
Special provision for bad debts 1,571,000 --
Other 4,311,000 3,772,000
------------- -------------
11,721,000 9,967,000
------------- -------------
Income from operations 5,040,000 4,889,000
------------- -------------
Other (expense) income:
Special provision for bad debts
in aviation joint venture (1,193,000) --
Other expense, net (110,000) 253,000
------------- -------------
(1,303,000) 253,000
------------- -------------
Income before income taxes 3,737,000 5,142,000
Provision for income taxes 1,495,000 1,061,000
------------- -------------
Net income $ 2,242,000 $ 4,081,000
============= =============
Basic earnings per common share $ 0.18 $ 0.33
============= =============
Weighted average shares 12,188,000 12,495,000
============= =============
Diluted earnings per common share $ 0.18 $ 0.32
============= =============
Weighted average shares - diluted 12,311,000 12,752,000
============= =============
</TABLE>
The accompanying note to the consolidated financial statements is an
integral part of these consolidated financial statements (unaudited).
Page 5 of 13
<PAGE>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,242,000 $ 4,081,000
------------ ------------
Adjustments to reconcile net income
to net cash used in operating activities -
Depreciation and amortization 912,000 689,000
Provision for bad debts 1,571,000 1,238,000
Deferred income tax provision 3,000 66,000
Equity in losses (earnings) of aviation joint
venture, net 1,184,000 (68,000)
Other non-cash operating credits (3,000) (11,000)
Changes in assets and liabilities:
(Increase) decrease in -
Accounts and notes receivable (17,967,000) (9,733,000)
Inventories (141,000) (65,000)
Prepaid expenses and other current assets (392,000) (1,569,000)
Other assets (759,000) 591,000
Increase (decrease) in -
Accounts payable and accrued expenses 7,428,000 2,455,000
Customer deposits (932,000) 406,000
Accrued salaries and wages (626,000) (602,000)
Income taxes payable 863,000 (271,000)
Deferred compensation (430,000) (252,000)
------------ ------------
Total adjustments (9,289,000) (7,126,000)
------------ ------------
Net cash used in operating activities (7,047,000) (3,045,000)
------------ ------------
Cash flows from investing activities:
Additions to property, plant and equipment (839,000) (1,218,000)
Proceeds from notes receivable 1,227,000 74,000
Payment for acquisition of business, net of cash acquired (4,183,000) --
------------ ------------
Net cash used in investing activities (3,795,000) (1,144,000)
------------ ------------
</TABLE>
(Continued)
Page 6 of 13
<PAGE>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Continued)
<TABLE>
<CAPTION>
Three Months Ended June 30,
--------------------------------
1999 1998
------------ -------------
<S> <C> <C>
Cash flows from financing activities:
Dividends paid on common stock $ (609,000) $ (624,000)
Proceeds from issuance of common stock 10,000 239,000
Borrowings under revolving credit facitily, net 5,500,000 --
Other (38,000) (25,000)
------------ ------------
Net cash provided by (used in) financing activities 4,863,000 (410,000)
------------ ------------
Net decrease in cash and cash equivalents (5,979,000) (4,599,000)
Cash and cash equivalents, at beginning
of period 16,322,000 14,459,000
------------ ------------
Cash and cash equivalents, at end
of period $ 10,343,000 $ 9,860,000
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 125,000 $ 14,000
============ ============
Income taxes $ 679,000 $ 1,136,000
============ ============
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Cash dividends declared, but not yet paid, totaling $609,000 and $626,000 are
included in Accounts payable and accrued expenses as of June 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 the Company's aviation joint venture totaling $1,723,000 were
reclassified from Prepaid expenses and other current assets to Other assets
as of June 30, 1999.
The accompanying note to the consolidated financial statements is an
integral part of these consolidated financial statements (unaudited).
Page 7 of 13
<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 8 of 13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1998
The Company's revenue for the three months ended June 30, 1999 was
$231,550,000, an increase of $38,519,000, or 20.0%, as compared to revenue of
$193,031,000 for the corresponding period for the prior year. The Company's
revenue during these periods was attributable to the following segments:
Three Months Ended June 30,
1999 1998
------------ -------------
Aviation Fueling $ 92,216,000 $ 85,276,000
Marine Fueling 133,230,000 101,541,000
Oil Recycling 6,104,000 6,214,000
------------ ------------
Total Revenue $231,550,000 $193,031,000
============ =============
The aviation fueling segment contributed $92,216,000 in revenue for the
three months ended June 30, 1999. This represented an increase in revenue of
$6,940,000, or 8.1%, as compared to the same period of the prior year. The
increase in revenue was due to an increase in the average price per gallon sold
and an increase in the quantity of gallons sold. The marine fueling segment
contributed $133,230,000 in revenue for the three months ended June 30, 1999, an
increase of $31,689,000, or 31.2%, over the corresponding period of the prior
year. The increase in revenue was related primarily to the acquisition of
Bunkerfuels, which was effective April 1, 1999, as well as an increase in the
average price and volume of metric tons sold. Partially offsetting the revenue
increase in aviation and marine fueling was a $110,000 decrease in oil recycling
segment revenue.
The Company's gross profit of $16,761,000 for the three months ended
June 30, 1999, increased $1,905,000, or 12.8%, as compared to the same period of
the prior year. The Company's gross margin decreased from 7.7% for the three
months ended June 30, 1998, to 7.2% for the three months ended June 30, 1999.
The Company's aviation fueling business achieved a 10.4% gross margin for the
three months ended June 30, 1999, as compared to 9.2% achieved for the same
period during the prior year. This resulted from an increase in the average
gross profit per gallon sold. The Company's marine fueling segment achieved a
4.1% gross margin for the three months ended June 30, 1999, as compared to a
5.1% gross margin for the same period of the prior year, the result of lower
gross profit per metric ton sold and brokered, and a mix change toward brokered
transactions related to the newly acquired Bunkerfuels business. The gross
margin in the Company's oil recycling segment decreased from 29.2% for the three
months ended June 30, 1998, to 28.0% for the three months ended June 30, 1999.
This decrease resulted from a lower gross profit per gallon of recycled oil sold
and a decrease in service revenue.
Total operating expenses for the three months ended June 30, 1999 were
$11,721,000, an increase of $1,754,000, or 17.6%, as compared to the same period
of the prior year. The increase resulted primarily from a $1,571,000 special
charge to the provision for bad debts related to the deteriorating economic
Page 9 of 13
<PAGE>
conditions in Ecuador, and the operating expenses associated with the newly
acquired Bunkerfuels operations.
The Company's income from operations for the three months ended June
30, 1999 was $5,040,000, an increase of $151,000, or 3.1%, as compared to the
same period of the prior year. Income from operations during these periods was
attributable to the following segments:
Three Months Ended June 30,
1999 1998
----------- ------------
Aviation Fueling $ 4,339,000 $ 3,531,000
Marine Fueling 1,124,000 1,527,000
Oil Recycling 794,000 1,013,000
Corporate Overhead (1,217,000) (1,182,000)
----------- -----------
Total Income from Operations $ 5,040,000 $ 4,889,000
=========== ===========
The aviation fueling segment's income from operations was $4,339,000
for the three months ended June 30, 1999, an increase of $808,000, or 22.9%, as
compared to the three months ended June 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 special provision for bad debts
related to the deteriorating economic conditions in Ecuador. The marine fueling
segment earned $1,124,000 in income from operations for the three months ended
June 30, 1999, a decrease of $403,000 or 26.4% over the corresponding period of
the prior year. This decrease was primarily the result of a narrower margin on
trade and brokered transactions. Income from operations of the oil recycling
segment decreased by $219,000, or 21.6%, for the three months ended June 30,
1999, as compared to the same period of the prior year. This resulted from a
decrease in gross profit and higher operating expenses.
During the three months ended June 30, 1999, the Company reported
$1,303,000 in other expense, net, compared to other income, net, of $253,000,
for the same quarter a year ago. This $1,556,000 increase in other expense, net,
was the result of a special charge to the provision for bad debts in the
Company's aviation joint venture in Ecuador related to the deteriorating
economic conditions in that country. This special charge was in addition to the
special provision for bad debts described in the preceding paragraphs. Also
contributing to the increase in other expense, net, was an increase in interest
expense due to borrowings on the Company's line of credit. The acquisition of
Bunkerfuels, the Company's stock repurchase program and the investment in the
financial system, increased the Company's borrowing requirements. The Company's
effective income tax rate for the three months ended June 30, 1999 was 40.0%, as
compared to 20.6% for the same period of the prior year. The increase is
primarily the result of the provision for bad debts, special or otherwise, for
which the Company does not receive a tax benefit and favorable U.S. income tax
true ups recorded in the first quarter a year ago.
Net income for the three months ended June 30, 1999 was $2,242,000, a
decrease of $1,839,000, or 45.1%, as compared to net income of $4,081,000 for
the three months ended June 30, 1998. Diluted
Page 10 of 13
<PAGE>
earnings per share of $0.18 for the three months ended June 30, 1999 exhibited a
$0.14, or 43.8% decrease over the $0.32 achieved during the same period of the
prior year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents amounted to $10,343,000 at June 30, 1999, as
compared to $16,322,000 at March 31, 1999. The principal uses of cash and cash
equivalents during the first three months of fiscal year 2000 were $7,047,000
used in operating activities, $4,183,000 for the acquisition of Bunkerfuels,
$839,000 for capital expenditures and $609,000 in dividends paid on common
stock. Partially offsetting these uses was $5,500,000 in net borrowings on the
Company's line of credit. Other components of changes in cash and cash
equivalents are detailed in the Consolidated Statements of Cash Flows.
Working capital as of June 30, 1999 was $68,859,000, exhibiting a
$228,000 decrease from working capital as of March 31, 1999. As of June 30,
1999, the Company's accounts receivable and the current portion of the notes
receivable, excluding the allowance for bad debts, amounted to $122,010,000, an
increase of $16,503,000, as compared to the March 31, 1999 balance. In the
aggregate, accounts payable, accrued expenses and customer deposits increased
$6,827,000. The net increase in trade credit of $8,572,000, was primarily
attributable to the acquisition of Bunkerfuels, higher fuel prices and an
increase in the offshore marine fuel receivables. The allowance for bad debts as
of June 30, 1999 amounted to $7,907,000, an increase of $1,078,000 compared to
the March 31, 1999 balance. During the first three months of fiscal year 2000,
the Company charged $1,571,000 to the provision for bad debts and had
charge-offs in excess of recoveries of $493,000. The Company increased the
allowance for bad debts recognizing the deteriorating economic conditions in
Latin America, particularly in Ecuador.
Capital expenditures for the first three months of fiscal year 2000
consisted primarily of $433,000 for the implementation of a new financial system
and $142,000 in plant, machinery and equipment related to the recycled oil
segment. During the balance of fiscal year 2000, the Company anticipates
spending an additional $300,000 for the implementation of the financial system
and approximately $1,000,000 to upgrade plant, machinery and equipment. The
Company may also spend an estimated $1,000,000 sometime in the future, if
required, to clean up contamination which was present at one of the Company's
sites when it was acquired by the Company. The clean up costs will be
capitalized as part of the cost of the site, up to the fair market value of the
site.
Stockholders' equity amounted to $102,437,000, or $8.40 per share at
June 30, 1999, compared to $100,797,000, or $8.27 per share at March 31, 1999.
This increase of $1,640,000 was due to $2,242,000 in first quarter earnings,
partially offset by the declaration of first quarter cash dividends of $609,000.
The Company expects to meet its capital investment and working capital
requirements for fiscal year 2000 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.
Page 11 of 13
<PAGE>
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 Report and in the Company's other Securities and
Exchange Commission filings. Actual results may differ materially from any
forward-looking statements set forth herein.
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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (included in electronic filing only).
(b) During the three months ended June 30, 1999, the Company did not
file any reports on Form 8-K.
Page 12 of 13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: JULY 29, 1999 WORLD FUEL SERVICES CORPORATION
------------- -------------------------------
/s/ JERROLD BLAIR
-------------------------------
JERROLD BLAIR
PRESIDENT
/s/ CARLOS A. ABAUNZA
--------------------------------
CARLOS A. ABAUNZA
CHIEF FINANCIAL OFFICER
(Principal Financial and Accounting Officer)
Page 13 of 13
<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 JUNE 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> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 10,343,000
<SECURITIES> 0
<RECEIVABLES> 122,010,000
<ALLOWANCES> 7,907,000
<INVENTORY> 6,340,000
<CURRENT-ASSETS> 135,135,000
<PP&E> 32,794,000
<DEPRECIATION> 11,037,000
<TOTAL-ASSETS> 184,140,000
<CURRENT-LIABILITIES> 66,276,000
<BONDS> 0
0
0
<COMMON> 125,000
<OTHER-SE> 102,312,000
<TOTAL-LIABILITY-AND-EQUITY> 184,140,000
<SALES> 231,550,000
<TOTAL-REVENUES> 231,550,000
<CGS> 214,789,000
<TOTAL-COSTS> 214,789,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,571,000
<INTEREST-EXPENSE> 239,000
<INCOME-PRETAX> 3,737,000
<INCOME-TAX> 1,495,000
<INCOME-CONTINUING> 2,242,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,242,000
<EPS-BASIC> 0.18
<EPS-DILUTED> 0.18
</TABLE>
