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, 2000
[ ] 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
incorporation or organization) Identification No.)
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 $74,072,000
(computed by reference to the closing sale price as of May 19, 2000).
The registrant had 10,873,000 outstanding shares of common stock, par value
$.01 per share, as of May 19, 2000.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III - Definitive Proxy Statement for the 2000 Annual Meeting of
Shareholders.
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TABLE OF CONTENTS
PAGE
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ITEM 1. BUSINESS
General 1
History 1
Description of Business 2
Aviation Fuel Services 2
Marine Fuel Services 3
Potential Risks and Insurance 3
Regulation 5
ITEM 2. PROPERTIES 8
ITEM 3. LEGAL PROCEEDINGS 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 11
ITEM 6. SELECTED FINANCIAL DATA 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 22
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 22
ITEM 11. EXECUTIVE COMPENSATION 22
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 22
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 22
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K 23
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PART I
ITEM 1. BUSINESS
GENERAL
World Fuel Services Corporation (the "Company") markets aviation and marine fuel
services. 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 other aviation related services to
passenger, cargo and charter airlines. The Company also offers flight plans and
weather reports to its corporate customers. In its marine fuel services
business, the Company markets marine fuel and related management services to a
broad base of international shipping companies and to the U.S. military.
Services include credit terms, 24-hour around-the-world service and
competitively priced fuel.
Financial information with respect to the Company's business segments and
foreign operations is provided in Note 8 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, and Costa Rica. The Company conducts its marine fuel
services business through nine subsidiaries with principal offices in New
Jersey, California, Washington, England, Denmark, Costa Rica, South Africa,
South Korea, Singapore, and Japan. 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. 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 Florida, to an
international sales company covering airports throughout the world. This
expansion resulted from acquisitions and the establishment of new offices.
In January 1995, the Company further diversified its fuel services operations
through the acquisition of the Trans-Tec Services group of companies, which are
considered leaders in the marine fuel services business. In April 1999, the
Company acquired substantially all of the operations of the privately held
Bunkerfuels group of companies, which significantly increased World Fuel
Services' share of the world marine fuel market. The results of operations of
the Bunkerfuels group were included with the results of the Company from April
1999.
In February 2000, the Company sold its oil recycling business to Dallas-based
EarthCare Company ("EarthCare"). The Company sold the stock of its International
Petroleum Companies, which
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comprised the oil recycling segment, for $28,000,000 in cash and $5,000,000 in
EarthCare common stock. The Company retained all accounts receivable outstanding
as of January 31, 2000. Inventories and certain assets were sold to, and certain
liabilities were assumed by EarthCare Company subsequent to the effective date
of February 1, 2000. The Company anticipates the substantial completion of its
plan of discontinuance by the end of fiscal 2001. For additional information
regarding this transaction, refer to Item 3 of this Report (Legal Proceedings),
and Note 2 to the Consolidated Financial Statements included herein.
See "Potential Risks and Insurance", "Management's Discussion and Analysis of
Financial Condition and Results of Operations", and 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 most 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 storage and delivery of fuel, and related aviation
services.
During the fiscal years ended March 31, 2000, 1999 and 1998, none of the
Company's aviation fuel customers accounted for more than 10% of the Company's
consolidated revenue. The Company currently employs 155 persons in its aviation
fuel services segment.
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MARINE FUEL SERVICES
The Company, through its Trans-Tec Services and Bunkerfuels subsidiaries,
markets marine fuel and services 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, Japan,
England, Denmark, South Africa, South Korea and Costa Rica, the Company 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
continue to outsource their marine fuel purchasing and/or marketing needs, the
Company's value added service has become an integral part of the oil and
transportation industries' push to shed non-core functions. Suppliers use the
Company's global sales, marketing and financial infrastructure to sell a spot or
ratable volume of product to a diverse, international purchasing community. End
customers use the Company's real time analysis of the availability, quality, and
price of marine fuels in ports worldwide to maximize their competitive position.
The Company, in its marine operations, 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 the end user, and expedites the
arrangements for the delivery of fuel. For this service, the Company is paid a
commission from the supplier. The Company 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.
During the fiscal years ended March 31, 2000, 1999 and 1998, none of the
Company's marine fuel customers accounted for more than 10% of the Company's
consolidated revenue. The Company currently employs 88 persons in its marine
fuel services segment.
POTENTIAL RISKS AND INSURANCE
CREDIT. The Company's aviation and marine fueling businesses extend unsecured
credit to most of its customers. The Company's success in attracting business
has been due, in part, to its willingness to extend credit on an unsecured basis
to customers, which exhibit a high credit risk profile and would otherwise be
required to prepay or post letters of credit with their suppliers of fuel and
related services. The Company's management recognizes that extending credit and
setting the appropriate reserves for receivables is a largely subjective
decision based on knowledge of the customer and the industry. Active management
of the Company's credit risk is essential to its success. Diversification of
credit risk is difficult since the Company sells primarily within the aviation
and marine industries. The Company's sales executives and their respective staff
meet regularly to evaluate credit exposure, in the aggregate and by individual
credit. Credit exposure includes the amount of estimated unbilled sales. The
Company also has a credit committee for each of its segments. The credit
committees are responsible for approving credit limits above certain amounts,
and setting and maintaining credit standards and ensuring the overall quality of
the credit portfolio.
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In the Company's aviation segment, the level of credit granted to a customer is
largely influenced by its estimated fuel requirements for thirty to forty-five
days and credit history with the Company. This period represents the average
business cycle of the Company's typical customer. In the Company's marine
segment, the level of credit granted to a customer is influenced by a customer's
credit history with the Company, including claims experience and payment
patterns.
During fiscal 2000, fuel prices increased rapidly and have remained high
relative to prior years. Fuel costs represent a significant part of an airline's
and vessel's operating expenses. Accordingly, the rapid and sustained increase
in fuel prices has to date, and will continue, to adversely affect the Company's
customers.
Most of the Company's transactions are denominated in United States Dollars.
However, a rapid devaluation in currency affecting a customer of the Company
could have an adverse effect on the customer's operations and ability to convert
local currency to U.S. Dollars to make the required payments to the Company.
SENIOR MANAGEMENT. The Company's ability to maintain its competitive position is
dependent largely on the services of its senior management team. The Company may
not be able to retain the existing senior management personnel, or to attract
qualified senior management personnel. The Company provides employment
agreements to its senior management with terms ranging from two to five years.
The employment agreements have non-competitive provisions, which the Company
believes would prevent the individual from competing against the Company for the
period of the non-compete.
REVOLVING LINE OF CREDIT. The Company's revolving credit agreement imposes
certain operating and financial restrictions on the Company. The Company's
failure to comply with the obligations under the revolving credit agreement,
including meeting certain financial ratios, could result in an event of default.
An event of default, if not cured or waived, would permit acceleration of the
indebtedness under the revolving credit facility.
MARKET RISKS. The Company is a provider of aviation fuel and related services
primarily to secondary passenger and cargo airlines, and a provider of marine
fuel and related services to international container and tanker fleets, time
charter operators, and the U.S. military. The Company's fuel services are
provided through relationships with the large independent oil suppliers, as well
as the government owned oil companies. The Company could be adversely affected
by industry consolidation, on the customer side, because of increased merger
activity in the airline and shipping industries and, on the supply side, because
of increased competition from the larger oil companies who could choose to
directly market to smaller airlines and shipping companies or to provide less
advantageous credit and price terms to the Company.
POLLUTION AND THIRD PARTY LIABILITY. In the aviation and marine fuel segments,
the Company utilizes subcontractors which provide various services to customers,
including into-plane fueling at airports, fueling of vessels in-port and at-sea,
and transportation and storage of fuel and fuel products. The Company is subject
to possible claims by customers, regulators and others who may be injured by a
spill or other accident. In addition, the Company may be held liable for damages
to natural resources arising out of such events. 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
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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's domestic and international fueling activities also
subject it to the risks of significant potential liability under federal,
foreign and state statutes, common law and indemnification agreements.
The Company has exited several businesses which handled hazardous and
non-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, or be required
to clean-up facilities previously operated by the Company, in certain
circumstances pursuant to current federal and state laws and regulations.
In connection with the Company's sale of its oil recycling segment, which was
completed in February 2000, the Company agreed to indemnify the buyer,
EarthCare, for liability and losses arising from prior violations of
environmental laws and contamination which may have occurred at the Company's
properties. See Item 3 - Legal Proceedings.
The Company continuously reviews the adequacy of its insurance coverage.
However, the Company lacks coverage for various risks. An uninsured 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 activities, including discontinued operations, are subject to
substantial regulation by federal, foreign, state and local government agencies,
which enforce laws and 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 laws and regulations 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
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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.
THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976 ("RCRA") established a
comprehensive regulatory framework for the management of hazardous waste at
active facilities. 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 permits for
construction, operation and closure of facilities 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.
THE CLEAN AIR ACT OF 1970, as amended in 1977, was the first major federal
environmental law to establish National Ambient Air Quality Standards for
certain air 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.
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.
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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 discharge or
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.
FOREIGN GOVERNMENT REGULATIONS. Many foreign governments impose laws and
regulations relating to the protection of the environment and the discharge of
pollutants in the environment. Such laws and regulations could impose
significant liability on the Company for damages, clean-up costs and penalties
for discharges of pollutants in the environment, as well as injunctive relief.
In addition, some foreign government agencies have established pollution control
programs, which include environmental permitting, monitoring and surveillance,
data collection and environmental impact assessments.
EXCISE TAX ON DIESEL 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 19, 2000. The Company considers its
properties and facilities to be suitable and adequate for its present needs.
<TABLE>
<CAPTION>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES PROPERTIES
OWNER/LESSEE and LOCATION PRINCIPAL USE OWNED or LEASED
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<S> <C> <C>
CORPORATE
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World Fuel Services Corporation Executive offices Leased to October 2002
700 S. Royal Poinciana Blvd., Suite 800
Miami Springs, FL 33166
AVIATION FUELING
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World Fuel Services of FL Administrative, operations Leased to October 2002
700 S. Royal Poinciana Blvd., Suite 800 and sales offices
Miami Springs, FL 33166
World Fuel Services, Inc.
700 S. Royal Poinciana Blvd., Suite 800 Administrative, operations Leased to October 2002
Miami Springs, FL 33166 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 2001
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 2003
101 Thomson Road #09-03, United Square and sales offices
Singapore 307591
PetroServicios de Mexico S.A. de C.V. Administrative, operations Leased month-to-month
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>
(Continued)
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<TABLE>
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WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES PROPERTIES
(Continued)
OWNER/LESSEE AND LOCATION PRINCIPAL USE OWNED or LEASED
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<S> <C> <C>
MARINE FUELING
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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 Blvd., Suite 301 Administrative, operations Leased to January 2004
Larkspur, CA 94939 and sales offices
2nd Floor Kipun Building Administrative, operations Leased month-to-month
200 Naeja-Dong and sales offices
Chongru-Ku
Seoul, South Korea
Seagram House, 2nd Floor Administrative, operations Leased to September 2000
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 2001
Casa Petro S.A. and sales offices
Oficentro Ejecutivo La Sabana Sur
Edificio #5, Primer Piso
San Jose, Costa Rica
Trans-Tec Services (Singapore) PTE., Ltd. Administrative, operations Leased to June 2003
101 Thomson Road #09-03, United Square and sales offices
Singapore 307591
Trans-Tec Services (Japan) Co. Ltd Administrative, operations Leased month-to-month
6th floor, Tozan Building, 4-4-2 and sales offices
Nihonbashi Hon-Cho, Chuo-Ku
Tokyo 103-0023, Japan
Pacific Horizon Petroleum Services, Inc. Administrative, operations Leased to July 2000
2025 First Ave., Suite 1110 and sales offices
Seattle, WA 98121
</TABLE>
(Continued)
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<TABLE>
<CAPTION>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES PROPERTIES
(Continued)
OWNER/LESSEE and LOCATION PRINCIPAL USE OWNED or LEASED
------------------------- ------------- ---------------
<S> <C> <C>
MARINE FUELING-continued
------------------------
Bunkerfuels Corporation Administrative, operations Leased to March 2001
45 Wyckoff's Mills Road and sales offices
Cranbury, NJ 08512
700 Irwin St., Suite 202 Administrative, operations Leased to July 2001
San Rafael, CA 94901 and sales offices
Room 2504, Jangkyo Bldg., 1 Jangkyo-Dong Administrative, operations Leased month-to-month
Seoul, Korea and sales offices
Bunkerfuels UK Limited Administrative, operations Owned
8 City Business Centre, Lower Road and sales offices
Rotherhithe, London SE16 2XB United Kingdom
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
In February and March 2000, two shareholders filed class action lawsuits against
the Company and four of its executive officers in the United States District
Court for the Southern District of Florida. The lawsuits allege violations of
federal securities laws and seek an unspecified amount of damages arising from
the decrease in the Company's stock price, which occurred on January 31, 2000.
Management of the Company believes that the claims made in these lawsuits are
without merit and intends to vigorously defend these actions.
In February 2000, the Company filed a lawsuit against American Home Assurance
Company ("AHAC"), a subsidiary of AIG, seeking recovery under the Company's
insurance policies for the Company's loss of product by theft off the coast of
Nigeria. Six of the Company's shipments of marine fuel, with a total value of
approximately $2,683,000, were converted in the course of transhipment to
Nigeria, and were never received by the Company's intended customer. The Company
believes that this loss is covered by insurance which was in effect at the time
of the loss. AHAC is contesting the Company's insurance claim, but has not yet
filed an answer in the pending legal proceedings which sets forth specific
defenses. The Company intends to vigorously prosecute its action against AHAC.
On April 19, 2000, the Company filed arbitration proceedings against EarthCare
to collect approximately $3,721,000 due to the Company pursuant to the stock
purchase agreement between EarthCare and the Company relating to the sale of the
Company's oil recycling segment. On May 23, 2000, EarthCare filed a response to
the Company's action which acknowledges the amounts due to the Company, but
asserts defenses and counterclaims against the Company as a result of alleged
breaches by the Company of certain representations under the purchase agreement.
The Company believes that EarthCare's allegations are without merit and intends
to vigorously prosecute its action against EarthCare.
Page 10
<PAGE>
There can be no assurance that the Company will prevail in the above legal
proceedings and management cannot estimate the exposure or recovery to the
Company if it does not prevail in the proceedings and counterclaims pending
against the Company.
The Company is also 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 and except as set forth above, under
any pending litigation or administrative proceedings, will not materially affect
its financial condition or results of operations.
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 2000.
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, 2000 and 1999, 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.
PRICE CASH
------------------------------ DIVIDENDS
HIGH LOW PER SHARE
---------- ---------- --------------
Year ended March 31, 2000
First quarter $ 14 3/4 $ 10 3/4 $0.05
Second quarter 15 5/8 9 1/2 0.05
Third quarter 10 3/8 7 3/16 0.05
Fourth quarter 9 6 0.05
Year ended March 31, 1999
First quarter $ 21 5/8 $ 16 1/4 $0.05
Second quarter 17 7/8 10 5/8 0.05
Third quarter 14 9 1/2 0.05
Fourth quarter 11 7/8 10 1/4 0.05
As of May 19, 2000, there were 311 shareholders of record for the Company's
common stock. On March 29, 2000, the Company's Board of Directors approved the
following cash dividend schedule for the 2001 fiscal year:
DECLARATION DATE PER SHARE RECORD DATE PAYMENT DATE
------------------ --------- ------------------ ---------------
June 1, 2000 $ 0.05 June 16, 2000 July 6, 2000
September 1, 2000 $ 0.05 September 15, 2000 October 5, 2000
December 1, 2000 $ 0.05 December 15, 2000 January 4, 2001
March 1, 2001 $ 0.05 March 16, 2001 April 5, 2001
Page 11
<PAGE>
The Company's loan agreement with Bank of America 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 Bank of
America loan agreement.
During fiscal 2000, the Company issued 1,500 shares of its common stock in
connection with the exercise of certain stock options. The aforementioned
issuance of common stock was 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. The Company also
has a stock grant program whereby each non-employee member of the Board of
Directors is given an annual stock grant of 500 shares of the Company's common
stock.
In August 1998, the Company's Board of Directors authorized a stock repurchase
program whereby the Company could repurchase up to $6,000,000 of the Company's
common stock. In January 2000, the Company's Board of Directors authorized a
stock repurchase program whereby the Company could repurchase up to an
additional $10,000,000 of the Company's common stock. Pursuant to these
programs, the Company repurchased 324,000 shares at an aggregate cost of
$3,902,000, or an average price of $12.04 per share during fiscal 1999, and
1,194,000 shares at an aggregate cost of $8,423,000, or an average price of
$7.05 per share during fiscal 2000.
Page 12
<PAGE>
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,
------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(In thousands, except earnings per share data)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA
Revenue $ 1,200,297 $ 720,561 $ 776,617 $ 749,706 $ 623,306
Cost of sales 1,136,052 667,302 733,379 710,721 589,294
----------- ----------- ----------- ----------- -----------
Gross profit 64,245 53,259 43,238 38,985 34,012
Operating expenses 57,327 38,198 28,455 27,877 22,653
----------- ----------- ----------- ----------- -----------
Income from operations 6,918 15,061 14,783 11,108 11,359
Other (expense) income (5,646) 1,539 2,260 2,245 1,957
----------- ----------- ----------- ----------- -----------
Income from continuing operations before income taxes 1,272 16,600 17,043 13,353 13,316
Provision for income taxes 1,444 2,910 3,467 2,865 4,527
----------- ----------- ----------- ----------- -----------
(Loss) income from continuing operations (172) 13,690 13,576 10,488 8,789
Discontinued operations, net of tax:
Income from operations of oil recycling segment 1,564 1,417 2,277 2,777 2,156
Gain on sale of oil recycling segment 8,243 -- -- -- --
----------- ----------- ----------- ----------- -----------
Income from discontinued operations 9,807 1,417 2,277 2,777 2,156
----------- ----------- ----------- ----------- -----------
Net income $ 9,635 $ 15,107 $ 15,853 $ 13,265 $ 10,945
=========== =========== =========== =========== ===========
Basic earnings per share:
Continuing operations $ (0.01) $ 1.11 $ 1.11 $ 0.87 $ 0.74
Discontinued operations 0.13 0.11 0.19 0.23 0.18
Gain on sale of discontinued operations 0.68 -- -- -- --
----------- ----------- ----------- ----------- -----------
Net income $ 0.80 $ 1.22 $ 1.30 $ 1.10 $ 0.92
=========== =========== =========== =========== ===========
Weighted average shares 12,045 12,375 12,230 12,068 11,945
=========== =========== =========== =========== ===========
Diluted earnings per share:
Continuing operations $ (0.01) $ 1.10 $ 1.09 $ 0.85 $ 0.72
Discontinued operations 0.13 0.11 0.18 0.23 0.18
Gain on sale of discontinued operations 0.68 -- -- -- --
----------- ----------- ----------- ----------- -----------
Net income $ 0.80 $ 1.21 $ 1.27 $ 1.08 $ 0.90
=========== =========== =========== =========== ===========
Weighted average shares - diluted 12,101 12,533 12,528 12,295 12,150
=========== =========== =========== =========== ===========
</TABLE>
(Continued)
Page 13
<PAGE>
SELECTED FINANCIAL DATA
(Continued)
<TABLE>
<CAPTION>
AS OF MARCH 31,
----------------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Current assets $195,270 $128,012 $107,755 $ 93,837 $ 84,021
Total assets 226,776 164,394 141,213 121,354 110,683
Current liabilities 121,229 56,741 46,546 43,930 43,138
Long-term liabilities 5,886 6,856 2,756 2,166 3,795
Stockholders' equity 99,661 100,797 91,911 75,258 63,750
</TABLE>
NOTES TO SELECTED FINANCIAL DATA
The Company declared and paid cash dividends beginning in fiscal 1995. See
"Item 5 - Market for Registrant's Common Equity and Related Stockholder
Matters."
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 this split.
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.
In August 1998, the Company's Board of Directors authorized a stock
repurchase program whereby the Company could repurchase up to $6,000,000 of
the Company's common stock. In January 2000, the Company's Board of
Directors authorized a stock repurchase program whereby the Company could
repurchase up to an additional $10,000,000 of the Company's common stock.
Pursuant to these programs, the Company repurchased 324,000 shares at an
aggregate cost of $3,902,000 during fiscal 1999, and 1,194,000 shares at an
aggregate cost of $8,423,000 during fiscal 2000.
In February 2000, the Company sold its oil recycling segment. Accordingly,
as of December 31, 1999, the Company reported its oil recycling segment as a
discontinued operation. The consolidated financial statements of the Company
have been restated to report separately the net assets and operating results
of these discontinued operations for all periods presented. Financial
results for periods prior to the dates of discontinuance have been restated
to reflect continuing operations.
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 gross profit 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 and commission rate of brokering business generated and by the volume and
gross profit achieved on trade sales, as well as the extent to which the Company
is required to provision for potential bad debts.
Page 14
<PAGE>
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. During fiscal 2000,
Bunkerfuels contributed $125,922,000 in revenue, and a combined 6,071,000 in
metric tons brokered and traded. Total metric tons for the segment during the
same period were 14,063,000.
In February 2000, the Company sold its oil recycling segment to Dallas-based
EarthCare Company. The Company reported its oil recycling segment as a
discontinued operation as of December 31, 1999.
During fiscal 2000, the Company experienced a rapid increase in revenue and
accounts receivable, as a result of significantly higher world oil prices. The
Company's profitability during fiscal 2000 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, and in the aviation segment for the write-down of the Company's
investment in and advances to its aviation joint venture based in Ecuador. The
catastrophic political and economic conditions in Ecuador caused the charge in
the fiscal year.
FISCAL YEAR ENDED MARCH 31, 2000 COMPARED TO THE FISCAL YEAR ENDED
MARCH 31, 1999
The Company's revenue for fiscal 2000 was $1,200,297,000, an increase of
$479,736,000, or 66.6%, as compared to revenue of $720,561,000 for the prior
fiscal year. The revenue increase is due to a substantial increase in world oil
prices, and the acquisition of Bunkerfuels. The Company's revenue during these
periods was attributable to the following segments:
FISCAL YEAR ENDED MARCH 31,
2000 1999
-------------- --------------
Aviation Fueling $ 461,740,000 $ 327,844,000
Marine Fueling 738,557,000 392,717,000
-------------- --------------
Total Revenue $1,200,297,000 $ 720,561,000
============== ==============
The aviation fueling segment contributed $461,740,000 in revenue for fiscal
2000. This represented an increase in revenue of $133,896,000, or 40.8%, as
compared to the prior fiscal year. The increase in revenue was due mostly to an
increase in the average price per gallon sold. The marine fueling segment
contributed $738,557,000 in revenue for fiscal 2000, an increase of $345,840,000
over the prior fiscal year. The increase in revenue was related primarily to an
increase in the average price per metric ton sold and the acquisition of
Bunkerfuels.
Page 15
<PAGE>
The Company's gross profit for the fiscal year ended March 31, 2000 was
$64,245,000, an increase of $10,986,000, or 20.6%, as compared to the prior
fiscal year. The Company's gross margin decreased from 7.4% for fiscal 1999 to
5.4% for fiscal 2000, largely as a result of the increase in the average price
of fuel.
The Company's aviation fueling business achieved a 8.2% gross margin for fiscal
2000, as compared to 9.7% achieved for the prior fiscal year. This resulted from
an increase in the average price per gallon sold, partially offset by an
increase in the average gross profit per gallon sold. The Company's marine
fueling segment achieved a 3.6% gross margin for fiscal 2000, as compared to a
5.4% gross margin for the prior fiscal year. This was the result of an increase
in the average price per metric ton traded, and a lower gross profit per metric
ton sold and brokered.
Total operating expenses for fiscal 2000 were $57,327,000, an increase of
$19,129,000, or 50.1%, as compared to the prior fiscal year. The increase was
mostly due to a $14,171,000 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 fiscal 2000 was $6,918,000, a decrease
of $8,143,000, or 54.1%, as compared to the prior fiscal year. Income from
operations during these periods was attributable to the following segments:
FISCAL YEAR ENDED MARCH 31,
2000 1999
------------ ------------
Aviation Fueling $ 4,440,000 $ 13,331,000
Marine Fueling 7,516,000 7,515,000
Corporate Overhead (5,038,000) (5,785,000)
------------ ------------
Total Income from Operations $ 6,918,000 $ 15,061,000
============ ============
The aviation fueling segment's income from operations was $4,440,000 for fiscal
2000, a decrease of $8,891,000, or 66.7%, as compared to the prior fiscal year.
This resulted from an increase in operating expenses due to a higher provision
for bad debts, partially offset by an increase in gross profit. The marine
fueling segment earned $7,516,000 in income from operations for fiscal 2000,
consistent with the prior fiscal year. A decrease in the Company's core business
was offset by the contribution of Bunkerfuels. Corporate overhead costs not
charged to the business segments totaled $5,038,000 in fiscal 2000, a decrease
of $747,000, or 12.9%, as compared to the prior fiscal year. This decrease
resulted from lower general and administrative expenses.
During fiscal 2000, the Company reported $5,646,000 in other expense, net
compared to other income, net, of $1,539,000, for fiscal 1999. This change was
the result of the non-recurring charges in the aviation and marine segments. The
aviation charge relates to a $953,000 write-down of the Company's
Page 16
<PAGE>
investment in and advances to its aviation joint venture in Ecuador, the result
of catastrophic political and economic conditions in that country. The marine
charge of $3,092,000 was due to theft of product in Nigeria. Also contributing
to the change was 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 and an increase in interest expense due to borrowings on the
Company's line of credit prior to the closing of the sale of the Company's oil
recycling segment in February 2000. 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 effective income tax rate for fiscal 2000 increased substantially
because of the impact of the non-recurring charges and the special provisions,
for which the Company does not receive a tax benefit.
Net loss from continuing operations for the year ended March 31, 2000 was
$172,000, as compared to net income from continuing operations of $13,690,000
for the year ended March 31, 1999. Diluted loss per share on income from
continuing operations was $0.01 for the year ended March 31, 2000, as compared
to $1.10 in earnings per share achieved during the same period of the prior
year. In the aggregate, the product loss in Nigeria, the write-down of the
Company's investment in and advances to its aviation joint venture, and the
charges related to the Ecuador based customers had a $0.54 impact on diluted
earnings per share for fiscal 2000.
The Company's net income from discontinued operations for the year ended March
31, 2000 was $9,807,000, as compared to $1,417,000 for the same period of the
prior year. Net income from discontinued operations included $1,564,000 for the
oil recycling segment income for the ten months ended January 31, 2000, the
measurement date, and $8,243,000 for the gain on sale of the segment, including
a provision for losses during the phase-out period. Diluted earnings per share
on income from discontinued operations was $0.81 for the year ended March 31,
2000, as compared to $0.11 achieved during the same period of the prior year.
The increase in the market price of oil benefited the oil recycling business,
while operating expenses increased modestly during the comparative periods.
Net income for fiscal 2000 was $9,635,000, a decrease of $5,472,000, or 36.2%,
as compared to net income of $15,107,000 for fiscal 1999. Diluted earnings per
share of $0.80 for fiscal 2000 exhibited a $0.41, or 33.9%, decrease over the
$1.21 achieved during the prior fiscal year.
Page 17
<PAGE>
FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO THE FISCAL YEAR ENDED
MARCH 31, 1998
The Company's revenue for fiscal 1999 was $720,561,000, a decrease of
$56,056,000, or 7.2%, as compared to revenue of $776,617,000 for the prior
fiscal year. The revenue decrease was primarily due to a substantial decline in
world oil prices. The Company's revenue during these periods was attributable to
the following segments:
FISCAL YEAR ENDED MARCH 31,
1999 1998
------------ ------------
Aviation Fueling $327,844,000 $383,010,000
Marine Fueling 392,717,000 393,607,000
------------ ------------
Total Revenue $720,561,000 $776,617,000
============ ============
The aviation fueling segment contributed $327,844,000 in revenue for fiscal
1999. This represented a decrease in revenue of $55,166,000, or 14.4%, as
compared to the prior fiscal year. The decrease in revenue was due to a lower
average price per gallon and volume of gallons sold. The marine fueling segment
contributed $392,717,000 in revenue for fiscal 1999, a decrease of $890,000 over
the prior fiscal year. The decrease in revenue was related primarily to a lower
average sales price per metric ton sold, partially offset by an increase in the
volume of metric tons sold.
The Company's gross profit for the fiscal year ended March 31, 1999 was
$53,259,000, an increase of $10,021,000, or 23.2%, as compared to the prior
fiscal year. The Company's gross margin increased from 5.6% for fiscal 1998 to
7.4% for fiscal 1999, largely a result of the decline in the average price of
fuel.
The Company's aviation fueling business achieved a 9.7% gross margin for fiscal
1999, as compared to 6.1% achieved for the prior fiscal year. This resulted
principally from a decline in the average price per gallon sold, as well as an
increase in the average gross profit per gallon and the addition of Baseops, an
aviation services company which the Company acquired effective January 1998. The
Company's marine fueling segment achieved a 5.4% gross margin for fiscal 1999,
as compared to a 5.1% gross margin for the prior fiscal year. This was the
result of a lower average sales price per metric ton sold, which offset a
narrower average gross profit per ton.
Total operating expenses for fiscal 1999 were $38,198,000, an increase of
$9,743,000, or 34.2%, as compared to the prior fiscal year. The increase
resulted primarily from the inclusion of operating expenses for the Baseops
companies, higher salaries and wages related principally to staff additions and
performance bonuses, an increase in the provision for bad debts in the aviation
and marine segments, and expenses incurred in business expansion activities.
Page 18
<PAGE>
The Company's income from operations for fiscal 1999 was $15,061,000, an
increase of $278,000, or 1.9%, as compared to the prior fiscal year. Income from
operations during these periods was attributable to the following segments:
FISCAL YEAR ENDED MARCH 31,
1999 1998
------------ ------------
Aviation Fueling $ 13,331,000 $ 12,558,000
Marine Fueling 7,515,000 7,403,000
Corporate Overhead (5,785,000) (5,178,000)
------------ ------------
Total Income from Operations $ 15,061,000 $ 14,783,000
============ ============
The aviation fueling segment's income from operations was $13,331,000 for fiscal
1999, an increase of $773,000, or 6.2%, as compared to the prior fiscal year.
The increase in the average gross profit per gallon sold offset the effects of a
decrease in the volume of gallons sold and an increase in operating expenses, as
previously discussed. The marine fueling segment earned $7,515,000 in income
from operations for fiscal 1999, an increase of $112,000, or 1.5%, as compared
to the prior fiscal year. This increase was primarily the result of a higher
volume of metric tons traded, largely offset by a narrower gross profit per
metric ton and higher operating expenses, as previously discussed. Corporate
overhead costs not charged to the business segments totaled $5,785,000 in fiscal
1999, an increase of $607,000, or 11.7%, as compared to the prior fiscal year.
This increase resulted from higher salaries and wages related principally to
staff additions and performance bonuses.
Other income for fiscal 1999 decreased $721,000, or 31.9%, when compared to the
prior fiscal year, as a result of lower earnings from the Company's aviation
joint venture in Ecuador. The Company's effective income tax rate for fiscal
1999 reflects a true-up of U.S. income taxes for overaccruals in prior periods
and an overall increase in the Company's foreign operations, which are taxed at
rates lower than that of the U.S.
Net income from continuing operations for the year ended March 31, 1999 was
$13,690,000 as compared to $13,576,000 for the year ended March 31, 1998.
Diluted earnings per share on income from continuing operations was $1.10 for
the year ended March 31, 1999, as compared to the $1.09 achieved during the
prior year.
The Company's net income from discontinued operations for the year ended March
31, 1999 was $1,417,000, a decrease of $860,000, or 37.8%, as compared to
$2,277,000 for the prior year. Diluted earnings per share on income from
discontinued operations was $0.11 for the year ended March 31, 1999, a decrease
of $0.07 or 38.9%, as compared to the $0.18 achieved during the prior year. The
decrease in the market price of oil negatively affected the oil recycling
business.
Page 19
<PAGE>
Net income for fiscal 1999 was $15,107,000, a decrease of $746,000, or 4.7%, as
compared to net income of $15,853,000 for fiscal 1998. Diluted earnings per
share of $1.21 for fiscal 1999 exhibited a $0.06, or 4.7%, decrease over the
$1.27 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 receivables. The Company maintains aviation fuel inventories at
certain locations in the United States mostly for competitive reasons. 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 inventories at third party storage facilities.
Cash and cash equivalents amounted to $32,773,000 at March 31, 2000, as compared
to $16,527,000 at March 31, 1999. The principal sources of cash during the
fiscal year ended March 31, 2000 were $28,000,000 from the sale of the Company's
recycling business and $6,366,000 from collections on notes receivable.
Partially offsetting these cash sources were $6,137,000 to fund the increase in
net trade credit and inventory, mainly the result of higher world oil prices,
$4,184,000 for the acquisition of Bunkerfuels, $3,178,000 for capital
expenditures (including $1,318,000 for the oil recycling business), $8,423,000
for the repurchase of the Company's common stock, and $2,434,000 in dividends
paid on common stock. Other components of changes in cash and cash equivalents
are detailed in the accompanying Consolidated Statements of Cash Flows.
Working capital as of March 31, 2000 was $74,041,000, exhibiting a $2,770,000
increase compared to the Company's working capital as of March 31, 1999. As of
March 31, 2000, the Company's accounts receivable and notes receivable,
excluding the allowance for bad debts, and inventories, amounted to
$168,392,000, an increase of $59,616,000 as compared to the March 31, 1999
balance. In the aggregate, accounts payable, accrued expenses and customer
deposits increased $56,808,000. The allowance for doubtful accounts as of March
31, 2000 amounted to $15,202,000, an increase of $8,493,000 compared to the
March 31, 1999 balance. During the fiscal years ended March 31, 2000 and 1999,
the Company charged $19,250,000 and $5,079,000, respectively, to the provision
for bad debts and had charge-offs in excess of recoveries of $10,757,000 and
$2,883,000, respectively.
Capital expenditures of $3,178,000 for the fiscal year ended March 31, 2000,
consisted primarily of $927,000 to complete the implementation of the new
financial system, $791,000 to upgrade other computer equipment, and $1,318,000
related to the oil recycling segment's operations during the ten months ended
January 31, 2000. Other assets decreased by $5,280,000 as a result of the
$13,870,000 decrease in non-current assets of discontinued operations and the
$953,000 non-recurring write-down of the Company's investment in and advances to
its aviation joint venture, partially offset by $8,575,000 in goodwill related
to the acquisition of Bunkerfuels and the March 31, 2000 deferred tax asset of
$233,000.
Long-term liabilities of $5,886,000, as of March 31, 2000 included $2,961,000 in
acquisition debt related to Bunkerfuels and $2,925,000 in deferred compensation.
Stockholders' equity amounted to $99,661,000, or $9.06 per share, at March 31,
2000, compared to $100,797,000, or $8.27 per share, at March 31, 1999. The
repurchase of the Company's common stock
Page 20
<PAGE>
and cash dividends declared offset the increase in stockholders' equity from the
Company's net income. Book value per share increased as a result of the
Company's stock repurchase.
The Company expects to meet its capital investment and working capital
requirements for fiscal year 2001 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 did not experience significant systems
problems at the turn of the millennium nor has it experienced any material
effects on its financial operations.
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company conducts the vast majority of its business transactions in U.S.
Dollars. However, in certain markets, mainly in Mexico, payments to its aviation
fuel supplier are denominated in local currency. This subjects the Company to
foreign currency exchange risk, which may adversely affect its results of
operations and financial condition. The Company seeks to minimize the risks from
currency exchange rate fluctuations through its regular operating and financing
activities.
The Company's borrowings pursuant to its revolving credit facilities provide for
various market driven variable interest rate options. These interest rates are
subject to interest rate changes in the United States and the Eurodollar market.
The Company does not currently use, nor has it historically used, derivative
financial instruments to manage or reduce interest rate risk. See Note 3 to the
accompanying financial statements for additional information.
To take advantage of 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, 2000, the
Company did not have any outstanding fuel purchase commitments.
The Company offers its customers in the marine business swaps and caps as part
of its fuel management services. The Company simultaneously enters into a
commodity based derivative instrument 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
Page 21
<PAGE>
by dealing with customers meeting additional credit criteria. As of March 31,
2000, all swap and cap contracts related to fiscal 2000 were completed and the
results reflected in the fiscal 2000 financial statements.
The Company's policy is to not use financial instruments for speculative
purposes.
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.
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 2000 Annual Meeting of Shareholders (the "2000 Proxy
Statement"), is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth in the 2000 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 2000 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 2000 Proxy Statement is incorporated herein by reference.
Page 22
<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. 26
(ii) Consolidated Balance Sheets as of March 31, 2000
and 1999. 27
(iii) Consolidated Statements of Income for the Years Ended
March 31, 2000, 1999 and 1998. 29
(iv) Consolidated Statements of Stockholders' Equity for
the Years Ended March 31, 2000, 1999 and 1998. 30
(v) Consolidated Statements of Cash Flows for the Years Ended
March 31, 2000, 1999 and 1998. 31
(vi) Notes to Consolidated Financial Statements. 33
(a)(2) The following consolidated financial statement schedule is filed as a
part of this report:
(I) Schedule II - Valuation and Qualifying Accounts. 53
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.
Page 23
<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 filed with this Form 10-K:
(a) Revolving Credit and Reimbursement Agreement, dated
June 4, 1999, by and among World Fuel Services
Corporation, Trans-Tec International, S.A., and World
Fuel International, S.A., as borrowers, and Bank of
America (f/k/a NationsBank, N.A.)
(b) Amendment Agreement No. 1 to Revolving Credit and
Reimbursement Agreement, dated October 8, 1999, by
and among World Fuel Services Corporation, Trans-Tec
International, S.A., and World Fuel International,
S.A., as borrowers, and Bank of America (f/k/a
NationsBank, N.A.)
(21) Subsidiaries of the Registrant.
(27) Financial Data Schedule.
(b) A Form 8-K was filed during the fourth quarter ended March 31, 2000, to
report the sale of the Company's oil recycling segment.
Page 24
<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 24, 2000 By: /s/ JERROLD BLAIR
-----------------------------------
Jerrold Blair, President
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 24, 2000 By: /s/ RALPH R. WEISER
-------------------------------------------
Ralph R. Weiser, Chairman of the Board
Dated: May 24, 2000 By: /s/ JERROLD BLAIR
-------------------------------------------
Jerrold Blair, President and Director
Dated: May 24, 2000 By: /s/ CARLOS A. ABAUNZA
-------------------------------------------
Carlos A. Abaunza, Chief Financial Officer
Dated: May 24, 2000 By: /s/ PHILLIP S. BRADLEY
-------------------------------------------
Phillip S. Bradley, Director
Dated: May 24, 2000 By: /s/ RALPH FEUERRING
-------------------------------------------
Ralph Feuerring, Director
Dated: May 24, 2000 By: /s/ JOHN R. BENBOW
-------------------------------------------
John R. Benbow, Director
Dated: May 24, 2000 By: /s/ MYLES KLEIN
-------------------------------------------
Myles Klein, Director
Dated: May 24, 2000 By: /s/ MICHAEL J. KASBAR
-------------------------------------------
Michael J. Kasbar, Director
Dated: May 24, 2000 By: /s/ PAUL H. STEBBINS
-------------------------------------------
Paul H. Stebbins, Director
Dated: May 24, 2000 By: /s/ LUIS R. TINOCO
-------------------------------------------
Luis R. Tinoco, Director
Page 25
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To 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,
2000 and 1999, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
2000. 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 auditing standards generally accepted
in the United States. 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 consolidated 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, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended March 31, 2000 in conformity with accounting principles generally accepted
in the United States.
Our audits were made for the purpose of forming an opinion on the basic
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 a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Miami, Florida,
May 17, 2000.
Page 26
<PAGE>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 32,773,000 $ 16,527,000
Accounts and notes receivable, net of allowance
for bad debts of $15,202,000 and $6,709,000
at March 31, 2000 and 1999, respectively 142,250,000 95,436,000
Inventories 10,418,000 5,318,000
Prepaid expenses and other current assets 9,829,000 7,528,000
Current net assets of discontinued operations -- 3,203,000
------------ ------------
Total current assets 195,270,000 128,012,000
------------ ------------
PROPERTY AND EQUIPMENT, at cost:
Leasehold and improvements 335,000 223,000
Office equipment and furniture 9,074,000 8,004,000
------------ ------------
9,409,000 8,227,000
Less accumulated depreciation
and amortization 4,289,000 3,511,000
------------ ------------
5,120,000 4,716,000
------------ ------------
OTHER ASSETS:
Unamortized cost in excess of net
assets of acquired companies, net of
accumulated amortization 23,040,000 15,148,000
Non-current net assets of discontinued operations -- 13,870,000
Other 3,346,000 2,648,000
------------ ------------
$226,776,000 $164,394,000
============ ============
</TABLE>
(Continued)
Page 27
<PAGE>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 17,000 $ 28,000
Accounts payable 80,404,000 33,355,000
Accrued expenses 26,316,000 15,500,000
Customer deposits 3,017,000 4,074,000
Accrued salaries and wages 3,558,000 2,167,000
Income taxes payable 1,419,000 1,617,000
Current net liabilities of discontinued operations 6,498,000 --
------------ ------------
Total current liabilities 121,229,000 56,741,000
------------ ------------
LONG-TERM LIABILITIES 5,886,000 6,856,000
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 6)
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 March 31, 2000 and 1999, respectively 125,000 125,000
Capital in excess of par value 26,800,000 26,769,000
Retained earnings 85,256,000 78,000,000
Less treasury stock, at cost; 1,540,000 and 346,000
shares at March 31, 2000 and 1999, respectively 12,520,000 4,097,000
------------ ------------
99,661,000 100,797,000
------------ ------------
$226,776,000 $164,394,000
============ ============
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated balance sheets.
Page 28
<PAGE>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
------------------------------------------------------
2000 1999 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenue $ 1,200,297,000 $ 720,561,000 $ 776,617,000
Cost of sales 1,136,052,000 667,302,000 733,379,000
--------------- --------------- ---------------
Gross profit 64,245,000 53,259,000 43,238,000
--------------- --------------- ---------------
Operating expenses:
Salaries and wages 21,587,000 18,842,000 15,546,000
Provision for bad debts 17,128,000 5,079,000 1,319,000
Special provision for bad debts in aviation segment 2,122,000 -- --
Other 16,490,000 14,277,000 11,590,000
--------------- --------------- ---------------
57,327,000 38,198,000 28,455,000
--------------- --------------- ---------------
Income from operations 6,918,000 15,061,000 14,783,000
--------------- --------------- ---------------
Other (expense) income, net:
Special provision for bad debts in aviation joint venture (1,593,000) -- --
Non-recurring charge in aviation segment (953,000) -- --
Non-recurring charge in marine segment (3,092,000) -- --
Equity in (losses) earnings of aviation joint venture (362,000) 199,000 1,100,000
Other, net 354,000 1,340,000 1,160,000
--------------- --------------- ---------------
(5,646,000) 1,539,000 2,260,000
--------------- --------------- ---------------
Income from continuing operations before income taxes 1,272,000 16,600,000 17,043,000
Provision for income taxes 1,444,000 2,910,000 3,467,000
--------------- --------------- ---------------
(Loss) income from continuing operations (172,000) 13,690,000 13,576,000
Discontinued operations, net of tax:
Income from operations of oil recycling segment 1,564,000 1,417,000 2,277,000
Gain on sale of oil recycling segment, including a
provision of $92,000 for losses during the phase-out period 8,243,000 -- --
--------------- --------------- ---------------
Income from discontinued operations 9,807,000 1,417,000 2,277,000
--------------- --------------- ---------------
Net income $ 9,635,000 $ 15,107,000 $ 15,853,000
=============== =============== ===============
Basic earnings per share:
Continuing operations $ (0.01) $ 1.11 $ 1.11
Discontinued operations 0.13 0.11 0.19
Gain on sale of discontinued operations 0.68 -- --
--------------- --------------- ---------------
Net income $ 0.80 $ 1.22 $ 1.30
=============== =============== ===============
Weighted average shares 12,045,000 12,375,000 12,230,000
=============== =============== ===============
Diluted earnings per share:
Continuing operations $ (0.01) $ 1.10 $ 1.09
Discontinued operations 0.13 0.11 0.18
Gain on sale of discontinued operations 0.68 -- --
--------------- --------------- ---------------
Net income $ 0.80 $ 1.21 $ 1.27
=============== =============== ===============
Weighted average shares - diluted 12,101,000 12,533,000 12,528,000
=============== =============== ===============
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated financial statements.
Page 29
<PAGE>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN
---------------------------- EXCESS OF RETAINED TREASURY
SHARES AMOUNT PAR VALUE EARNINGS STOCK
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1997 12,174,000 $ 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 12,492,000 125,000 26,479,000 65,364,000 (57,000)
Exercise of options 40,000 -- 297,000 -- --
Purchases of stock -- -- -- -- (3,902,000)
Cash dividends declared -- -- -- (2,471,000) --
Other 2,000 -- (7,000) -- (138,000)
Net income -- -- -- 15,107,000 --
---------- ------------ ------------ ------------ ------------
Balance at March 31, 1999 12,534,000 125,000 26,769,000 78,000,000 (4,097,000)
Exercise of options 1,000 -- 10,000 -- --
Purchases of stock -- -- -- -- (8,423,000)
Cash dividends declared -- -- -- (2,379,000) --
Other 2,000 -- 21,000 -- --
Net income -- -- -- 9,635,000 --
---------- ------------ ------------ ------------ ------------
Balance at March 31, 2000 12,537,000 $ 125,000 $ 26,800,000 $ 85,256,000 $(12,520,000)
========== ============ ============ ============ ============
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated balance sheets.
Page 30
<PAGE>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
--------------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 9,635,000 $ 15,107,000 $ 15,853,000
------------ ------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities -
Gain on sale of oil recycling segment (8,243,000) -- --
Non-recurring charge in aviation segment 953,000 -- --
Non-recurring charge in marine segment 3,092,000 -- --
Depreciation and amortization 2,430,000 1,703,000 1,391,000
Provision for bad debts 19,250,000 5,079,000 1,319,000
Deferred income tax benefit (2,762,000) (889,000) (6,000)
Equity in losses (earnings) of aviation joint venture, net 1,955,000 (199,000) (526,000)
Other non-cash operating charges (credits) 21,000 (7,000) --
Changes in assets and liabilities, net of acquisitions
and dispositions:
(Increase) decrease in -
Accounts and notes receivable (68,174,000) (20,728,000) (9,587,000)
Inventories (5,100,000) (605,000) 1,197,000
Prepaid expenses and other current assets 1,348,000 (1,302,000) 21,000
Other assets 50,000 483,000 20,000
Net assets of discontinued operations 162,000 (1,639,000) (1,214,000)
Increase (decrease) in -
Accounts payable and accrued expenses 57,589,000 8,917,000 1,224,000
Customer deposits (1,057,000) 1,538,000 (93,000)
Accrued salaries and wages 9,000 516,000 (426,000)
Income taxes payable (233,000) (764,000) 2,081,000
Deferred compensation 77,000 126,000 556,000
------------ ------------ ------------
Total adjustments 1,367,000 (7,771,000) (4,043,000)
------------ ------------ ------------
Net cash provided by operating activities 11,002,000 7,336,000 11,810,000
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from the sale of oil recycling segment 28,000,000 -- --
Payment for acquisition of business, net of cash acquired (4,184,000) -- (807,000)
Additions to property and equipment (1,860,000) (3,451,000) (1,696,000)
Repayments from (advances to) aviation joint venture, net (409,000) 77,000 (319,000)
------------ ------------ ------------
Net cash provided by (used in) investing activities 21,547,000 (3,374,000) (2,822,000)
------------ ------------ ------------
</TABLE>
(Continued)
Page 31
<PAGE>
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
--------------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Dividends paid on common stock $ (2,434,000) $ (2,486,000) $ (2,432,000)
Purchases of common stock (8,423,000) (3,902,000) --
(Payments) borrowings under revolving credit facility, net (4,000,000) 4,000,000 --
Repayment of long-term notes payable (1,410,000) -- (4,257,000)
Repayment of long-term debt (46,000) (23,000) --
Proceeds from issuance of common stock 10,000 297,000 1,158,000
------------ ------------ ------------
Net cash used in financing activities (16,303,000) (2,114,000) (5,531,000)
------------ ------------ ------------
Net increase in cash and cash equivalents 16,246,000 1,848,000 3,457,000
Cash and cash equivalents, at beginning of period 16,527,000 14,679,000 11,222,000
------------ ------------ ------------
Cash and cash equivalents, at end of period $ 32,773,000 $ 16,527,000 $ 14,679,000
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 838,000 $ 257,000 $ 288,000
============ ============ ============
Income taxes $ 4,280,000 $ 5,088,000 $ 2,516,000
============ ============ ============
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Cash dividends declared, but not yet paid, totaling $554,000, $609,000 and
$624,000 are included in accrued expenses as of March 31, 2000, 1999 and 1998,
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.
Pursuant to an indemnification agreement, the Company received 10,754 shares of
its common stock from the sellers of Baseops in settlement for $138,000 of
uncollectible accounts receivable.
In connection with the acquisition of the Bunkerfuels group of companies, the
Company issued $4,250,000 in long-term notes payable. See Notes 1 and 3, in the
Notes to the Consolidated Financial Statements, for additional information.
During the fourth quarter of fiscal 2000, the Company received $5,000,000 of
EarthCare stock, with a Price Protection Agreement signed by a principal
shareholder of EarthCare Company, pursuant to the sale of the oil recycling
segment. Of this amount, $2,500,000 is included in Prepaid expenses and other
current assets and $2,500,000 is included in Other assets in the Consolidated
Balance Sheets. See Notes 1 and 2, in the Notes to the Consolidated Financial
Statements, for additional information.
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated balance sheets.
Page 32
<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. 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 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 the Trans-Tec services group of companies which are
considered leaders in the marine fuel services business. In April 1999, the
Company acquired substantially all of the operations of the privately held
Bunkerfuels Group of companies, one of the world's leading providers of bunker
services, which significantly increased the Company's share of the world marine
fuel market. The acquisition was accounted for as a purchase. Accordingly, the
results of operations of the Bunkerfuels Group are included with the results of
the Company from April 1, 1999. The aggregate purchase price of the acquisition
was approximately $8,647,000, including an estimated $78,000 in acquisition
costs. The Company paid approximately $4,184,000 in cash, $4,250,000 in the form
of 7 3/4% promissory notes, payable over three years, of which $1,410,000 was
paid on March 31, 2000, and $197,000 in short term payables, which was paid to
the sellers. The outstanding balance of the promissory notes is collateralized
by letters of credit. The difference between the purchase price and the $72,000
fair value of the net assets of the acquired companies, which amounted to
approximately $8,575,000, 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.
In February 2000, the Company sold its oil recycling business to EarthCare
Company ("EarthCare"). See Note 2 for additional information.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AcSEC") issued Statement of Position
("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. The Company adopted SOP 98-5 effective April 1,
1999, as required. The implementation of SOP 98-5 did not have a material effect
on the Company's financial position or results of operations.
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
Page 33
<PAGE>
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
interest earning cash and cash equivalents at March 31, 2000 and 1999 amounted
to $31,212,000 and $5,784,000, respectively, consisting principally of
commercial paper rated A1P1, bank repurchase agreements collateralized by United
States Government Securities and bank money market accounts which invest
primarily in commercial paper rated A1P1. Interest income, included in Other,
net in the accompanying consolidated statements of income, totaled $1,330,000,
$1,851,000 and $1,460,000 for the years ended March 31, 2000, 1999 and 1998,
respectively.
INVESTMENTS
Investments consist of $5,000,000 in EarthCare stock that the Company received
as part of the sale of its oil recycling segment to EarthCare. Refer to Note 2
of these Notes to the Consolidated Financial Statements. The disposition of such
stock is restricted, and management intends to dispose of the stock as the
restrictions lapse, accordingly, the Company has classified $2,500,000 as other
current assets and $2,500,000 as other assets. Additionally, the value of the
investment is secured pursuant to the Price Protection Agreement. Accordingly,
the Company is using the cost method to value the investment as of March 31,
2000.
INVENTORIES
Inventories are stated at the lower of cost (principally, first-in, first-out)
or market. Components of inventory cost include fuel purchase costs, and the
related transportation costs and storage fees. Also included in inventories are
costs not yet billed, consistent with the Company's revenue recognition
policies.
PROPERTY AND EQUIPMENT
Property 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
---------
Leasehold and improvements 10
Office equipment and furniture 3 - 8
Costs of major additions and improvements, including appropriate interest, 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 and
equipment, the cost and related accumulated depreciation and amortization are
eliminated from the accounts and any resulting gain or loss is credited or
charged to income.
Page 34
<PAGE>
In March 1998, the AcSEC issued 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. The
Company adopted SOP 98-1 prospectively, effective April 1, 1999, as required.
The implementation of SOP 98-1 did not have a material effect on the Company's
financial position or results of operations.
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 $2,740,000 and $2,010,000, as of March 31, 2000 and
1999, 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. The Company contracts with third parties to provide the
fuel and/or delivery of most services. This causes delays in receiving the
necessary information for invoicing. Accordingly, revenue may be recognized in a
period subsequent to when the delivery of fuel or service took place. The
Company's revenue recognition policy does not result in amounts that are
materially different than accounting under generally accepted accounting
principles.
In December 1999, the staff of the Securities and Exchange Commission (the
"SEC") published Staff Accounting Bulletin 101, "Topic 13: Revenue Recognition,"
("SAB 101") to provide guidance on the recognition, presentation and disclosure
of revenue in financial statements. SAB 101 becomes effective for the Company
during the three months ended June 30, 2000. SAB 101 also provides guidance on
disclosures that should be made for revenue recognition policies and the impact
of events and trends on revenue. The adoption of SAB 101 is not expected to have
a material impact on the financial statements of the Company.
ACCOUNTING FOR DERIVATIVES
Premiums received or paid for fuel price cap agreements are amortized to premium
revenue and expense, respectively, over the term 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
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<PAGE>
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.
In June 1998 and June 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS 133") and Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the effective date of FASB No. 133" ("SFAS 137"),
respectively. They are effective for the Company's fiscal year ending March 31,
2002. These pronouncements establish accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded on the balance sheet as
either an asset or a liability measured at its fair value. The Company believes
that the adoption of SFAS 133 will not have a material impact on its financial
statements.
INCOME TAXES
The Company and its United States subsidiaries file consolidated income tax
returns. 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 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 gain of $312,000 for
the fiscal year ended March 31, 2000. There were no significant foreign currency
gains or losses in fiscal years 1999 or 1998.
EARNINGS PER SHARE
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.
The Company had 898,000, 406,000, and 226,000 options outstanding for the fiscal
years ended March 31, 2000, 1999, and 1998, respectively, which were not
included in the calculation of diluted earnings per share because their impact
was antidilutive.
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, liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
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<PAGE>
statements and the reported amounts of revenue and expenses during the reporting
period. Such estimates primarily relate to the realizability of accounts and
notes receivable, and unsettled transactions and events as of the date of the
financial statements. Accordingly, actual results could differ from estimated
amounts.
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, notes 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, 2000, the carrying value of the long-term
debt approximated the fair value of such instruments.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"), effective April 1, 1998. SFAS
No. 130 establishes standards for the reporting and disclosure of comprehensive
income and its components, which are presented in association with a company's
financial statements. There were no items of comprehensive income, and, thus,
net income is equal to comprehensive income for all periods presented.
(2) DISCONTINUED OPERATIONS
On January 10, 2000, the Company's Board of Directors authorized the sale of its
oil recycling segment. Accordingly, as of December 31, 1999, the Company
reported its oil recycling segment as a discontinued operation. The consolidated
financial statements of the Company have been restated to report separately the
net assets and operating results of the discontinued operation for all periods
presented. Financial results for periods prior to the dates of discontinuance
have been restated to reflect continuing operations.
In February 2000, the Company sold all of the issued and outstanding stock of
its oil recycling subsidiaries, the International Petroleum Corporation group
("IPC"), to EarthCare. Pursuant to the Stock Purchase Agreement between the
parties, the Company received $28,000,000 in cash and $5,000,000 in EarthCare
common stock, subject to Lock-up, Price Protection and Escrow Agreements.
In fiscal 2000, the Company recognized net income of $9,807,000 on disposal of
its oil recycling segment. Net income from discontinued operations included
$1,564,000, net of $980,000 in taxes, for the oil recycling segment operating
income for the ten months ended January 31, 2000, the
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<PAGE>
measurement date, $8,335,000, net of $5,218,000 in taxes, for the gain on sale
of the segment, and a $92,000 provision for certain costs during the phase-out
period. Potential costs which could not be reasonably estimated include expenses
associated with the indemnifications provided by the Company as part of the
purchase agreement.
The Company reported current net liabilities of discontinued operations of
$6,498,000 as of March 31, 2000 and current net assets of discontinued
operations of $3,203,000 and non-current net assets of discontinued operations
of $13,870,000 as of March 31, 1999. As of March 31, 2000, net liabilities of
discontinued operations consist of $9,168,000 in income taxes payable related to
the ten months of operations and the gain on sale, partially offset by
$2,670,000 of current net assets of discontinued operations. As of March 31,
1999, the net assets of discontinued operations consisted of current assets;
property, plant and equipment; other non-current assets; and current and
non-current liabilities. Revenues applicable to the discontinued operations were
$22,462,000, $23,621,000 and $25,146,000 for the fiscal years 2000, 1999, and
1998, respectively. Income from operations of the discontinued operations were
$2,537,000, $2,337,000 and $3,744,000 for the fiscal years 2000, 1999, and 1998,
respectively.
In April 2000, the Company filed a Demand for Arbitration with the American
Arbitration Association, against EarthCare to collect approximately $3,721,000
in cash due pursuant to the Purchase Agreement. On May 23, 2000, EarthCare filed
a response to the Company's action which acknowledges the amounts due to the
Company, but asserts defenses and counterclaims against the Company as a result
of alleged breaches by the Company of certain representations under the purchase
agreement. See Note 6.
The Company anticipates substantial completion of its plan of discontinuance by
the end of fiscal 2001.
(3) LONG-TERM DEBT
Long-term debt consisted of the following at March 31:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Promissory notes issued in connection with the
acquisition of the Bunkerfuels group of
Companies, payable annually through March 31,
2002, bearing interest at 7 3/4%, secured
by letters of credit $2,840,000 $ --
Borrowings on revolving credit facilities -- 4,000,000
Other 138,000 36,000
---------- ----------
2,978,000 4,036,000
Less current maturities 17,000 28,000
---------- ----------
$2,961,000 $4,008,000
========== ==========
</TABLE>
The Company has $40,000,000 in unsecured revolving credit facilities with an
overall sublimit of $20,000,000 for letters of credit. Approximately $12,624,000
in letters of credit were outstanding as of
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<PAGE>
March 31, 2000 under the credit facilities. The revolving lines of credit bear
interest at market rates, as defined under the credit facilities. Interest is
payable quarterly in arrears. Any outstanding principal and interest will mature
on November 29, 2003, under the $30 million facility and October 6, 2000 under
the $10 million 364 day facility. As of March 31, 2000, the Company was in
compliance with the requirements under the credit facilities. The credit
facilities impose certain operating and financial restrictions. The Company's
failure to comply with the obligations under the revolving lines of credit,
including meeting certain financial ratios, could result in an event of default.
An event of default, if not cured or waived, would permit acceleration of the
indebtedness under the credit facilities.
Aggregate annual maturities of long-term debt as of March 31, 2000, are as
follows:
2001 $ 17,000
2002 1,424,000
2003 1,443,000
2004 13,000
2005 and thereafter 81,000
-----------
$ 2,978,000
===========
Interest expense, which is included in Other, net, in the accompanying
consolidated statements of income, is as follows for the years ended March 31:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Interest cost $953,000 $325,000 $241,000
Less capitalized interest on capital expenditures -- 76,000 --
-------- -------- --------
Interest expense $953,000 $249,000 $241,000
======== ======== ========
</TABLE>
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<PAGE>
(4) INCOME TAXES
The provision for income taxes consists of the following components for the
years ended March 31:
2000 1999 1998
----------- ----------- -----------
Current:
Federal $ 584,000 $ 549,000 $ 1,057,000
State (386,000) 283,000 129,000
Foreign 4,008,000 2,967,000 2,287,000
----------- ----------- -----------
4,206,000 3,799,000 3,473,000
----------- ----------- -----------
Deferred:
Federal (479,000) (749,000) 63,000
State (139,000) (80,000) 5,000
Foreign (2,144,000) (60,000) (74,000)
----------- ----------- -----------
(2,762,000) (889,000) (6,000)
----------- ----------- -----------
Total $ 1,444,000 $ 2,910,000 $ 3,467,000
=========== =========== ===========
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 three years ended March 31, 2000, 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
$41,187,000 and $36,513,000 at March 31, 2000 and 1999, 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.
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<PAGE>
The temporary differences which comprise the Company's net deferred tax asset,
included in Other current assets and Other assets in the accompanying
consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Excess of provision for bad debts over charge-offs $ 4,921,000 $ 1,979,000
Accrued expenses recognized for financial reporting
purposes, not currently tax deductible 1,090,000 1,034,000
Excess of tax over financial reporting amortization
of identifiable intangibles (657,000) (574,000)
Other, net (128,000) 25,000
----------- -----------
Total deferred tax asset $ 5,226,000 $ 2,464,000
=========== ===========
Deferred current tax asset $ 4,993,000 $ 2,184,000
=========== ===========
Deferred non-current tax asset $ 233,000 $ 280,000
=========== ===========
</TABLE>
During fiscal 2000, the Internal Revenue Service commenced an examination of the
Company's U.S. Federal Income Tax returns for the fiscal years ended March 31,
1999 and 1998. The Company does not anticipate a material adjustment for
financial reporting purposes as a result of the above examination.
(5) STOCKHOLDERS' EQUITY
COMMON STOCK ACTIVITY
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.
In August 1998, the Company's Board of Directors authorized a stock repurchase
program whereby the Company could repurchase up to $6,000,000 of the Company's
common stock. In January 2000, the Company's Board of Directors authorized a
stock repurchase program whereby the Company could repurchase up to an
additional $10,000,000 of the Company's common stock. Pursuant to these
programs, the Company repurchased 324,000 shares at an aggregate cost of
$3,902,000 during fiscal 1999, and 1,194,000 shares at an aggregate cost of
$8,423,000 during fiscal 2000.
DIVIDENDS
The Company declared cash dividends of $0.20 per share of common stock during
each of the three fiscal years ending March 31, 2000.
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<PAGE>
EMPLOYEE STOCK OPTION ACTIVITY
The Company has adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). The Company has
evaluated the proforma effects of SFAS 123 and determined that 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 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 1996 Plan, as amended in August 1998, permits the issuance of
options to purchase up to an aggregate of 1,250,000 shares of the Company's
common stock, adjusted to reflect the 3-for-2 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 Plan at, and for the year ended,
March 31:
<TABLE>
<CAPTION>
2000 1999 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
Granted 53,500 457,500 117,500
Per Share Price Range $11.44 $10.75 - $21.75 $11.67 - $21.00
Increase in Plan 500,000
Expired 15,000
Outstanding 856,500 818,000 360,500
Per Share Price Range $10.75 - $21.63 $10.75 - $21.75 $11.42 - $21.00
Weighted Average Per Share Price $15.84 $16.12 $13.76
Weighted Average Contractual Life 7.7 years 8.6 years 8.8 years
Available for future grant 378,500 432,000 389,500
Exercisable 380,578 242,504 17,516
Per Share Price Range $11.42 - $21.63 $11.42 - $21.00 $11.42
Weighted Average Per Share Price $14.48 $11.85 $11.42
</TABLE>
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<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>
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Expired 5,624 None None
Exercised 1,500 32,344 167,634
Per Share Price Range $6.89 $6.89 $6.55 - $8.39
Proceeds received by the Company $10,000 $223,000 $1,158,000
Outstanding 135,623 142,747 175,091
Per Share Price Range $6.67 - $8.39 $6.22 - $8.39 $6.22 - $8.39
Weighted Average Per Share Price $7.26 $7.22 $7.16
Weighted Average Contractual Life 4.9 years 5.8 years 6.9 years
Exercisable 135,623 142,747 155,670
Per Share Price Range $6.67 - $8.39 $6.22 - $8.39 $6.22 - $8.39
Weighted Average Per Share Price $7.26 $7.22 $7.00
</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, 2000, such non-qualified stock options are exercisable
and 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. As of March 31, 2000, the weighted average per share price and contracted
life of these options is $7.56 and 4.9 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, as amended in August 1997, permits the
issuance of options to purchase up to an aggregate of 100,000 shares of the
Company's common stock.
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 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, 2000, options to
purchase 50,000 shares of the Company's common stock remain outstanding under
the 1993 Directors Plan and 19,375 shares are available for future grant.
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<PAGE>
The exercise price for options granted under the 1993 Directors 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 1993 Directors 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.
(6) COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
At March 31, 2000, the future minimum lease payments under operating leases with
an initial non-cancelable term in excess of one year were as follows:
2001 $ 959,000
2002 812,000
2003 638,000
2004 188,000
2005 145,000
Thereafter 124,000
-----------
Total minimum lease payments $ 2,866,000
===========
Rental expense under operating leases with an initial non-cancellable term in
excess of one year was $1,176,000, $1,081,000, and $836,000 for the years ended
March 31, 2000, 1999 and 1998, respectively.
On January 12, 2000, the Company exercised its options to purchase the leased
properties in New Orleans, Louisiana and Plant City, Florida from Trusts
established for the benefit of the children of Jerrold Blair, the President and
a Director of the Company. The Company exercised these options pursuant to the
Stock Purchase Agreement between the Company and EarthCare. Accordingly, the
right to purchase the properties was transferred to EarthCare as part of the
stock sale.
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, 2000, the Company had
$4,871,000 in outstanding bonds.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to credit risk
consist primarily of trade accounts receivable and notes receivable. The Company
extends credit on an unsecured basis to many of its customers, some of which
have a line of credit in excess of $5,000,000. The Company's success
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<PAGE>
in attracting business has been due, in part, to its willingness to extend
credit on an unsecured basis to customers which exhibit a high credit risk
profile and otherwise would be required to prepay or post cash collateralized
letters of credit with their suppliers of fuel. Diversification of credit risk
is difficult since the Company sells primarily in the aviation and marine
industries. In addition, during fiscal 2000, fuel prices increased rapidly and
have remained high relative to prior years. Fuel costs represent a significant
part of an airline's and vessel's operating expenses. Accordingly, the rapid and
sustained increase in fuel prices has to date, and will continue to, adversely
affect the Company's customers.
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 and the industry. Active management of this risk is
essential to the Company's success. The Company's sales executives and their
respective staff meet regularly to evaluate credit exposure in the aggregate,
and by individual credit. Credit exposure includes the amount of estimated
unbilled sales. The Company also has a credit committee for each of its
segments. The credit committees are responsible for approving credit limits
above certain amounts, and setting and maintaining credit standards and ensuring
the overall quality of the credit portfolio.
POLLUTION AND THIRD PARTY LIABILITY
In the aviation and marine fuel segments, the Company utilizes subcontractors
which provide various services to customers, including into-plane fueling at
airports, fueling of vessels in-port and at-sea, and transportation and storage
of fuel and fuel products. The Company is subject to possible claims by
customers, regulators and others who may be injured by a spill or other
accident. In addition, the Company may be held liable for damages to natural
resources arising out of such events. 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's domestic and international fueling activities also
subject it to the risks of significant potential liability under federal,
foreign and state statutes, common law and indemnification agreements.
The Company has exited several environmental businesses which handled hazardous
and non-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, or
required to clean up facilities previously operated by the Company, in certain
cases pursuant to current federal and state laws and regulations.
In connection with the Company's sale of its oil recycling segment, which was
completed in February 2000, the Company agreed to indemnify the buyer,
EarthCare, for liability and losses arising from prior violations of
environmental laws and contamination which may have occurred at the Company's
properties.
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<PAGE>
The Company continuously reviews the adequacy of its insurance coverage.
However, the Company lacks coverage for various risks. An uninsured 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
In February and March 2000, two shareholders filed class action lawsuits against
the Company and four of its executive officers in the United States District
Court for the Southern District of Florida. The lawsuits allege violations of
federal securities laws and seek an unspecified amount of damages arising from
the decrease in the Company's stock price, which occurred on January 31, 2000.
Management of the Company believes that the claims made in these lawsuits are
without merit and intends to vigorously defend these actions.
In February 2000, the Company filed a lawsuit against American Home Assurance
Company ("AHAC"), a subsidiary of AIG, seeking recovery under the Company's
insurance policies for the Company's loss of product by theft off the coast of
Nigeria. Six of the Company's shipments of marine fuel, with a total value of
approximately $2,683,000, were converted in the course of transhipment to
Nigeria, and were never received by the Company's intended customer. The Company
believes that this loss is covered by insurance which was in effect at the time
of the loss. AHAC is contesting the Company's insurance claim, but has not yet
filed an answer in the pending legal proceedings which sets forth specific
defenses. The Company intends to vigorously prosecute its action against AHAC.
On April 19, 2000, the Company filed arbitration proceedings against EarthCare
to collect approximately $3,721,000 due to the Company pursuant to the stock
purchase agreement between EarthCare and the Company relating to the sale of the
Company's oil recycling segment. On May 23, 2000, EarthCare filed a response to
the Company's action which acknowledges the amounts due to the Company, but
asserts defenses and counterclaims against the Company as a result of alleged
breaches by the Company of certain representations under the purchase agreement.
The Company believes that EarthCare's allegations are without merit and intends
to vigorously prosecute its action against EarthCare. At March 31, 2000, in
addition to the $3,721,000 under arbitration, the Company has an investment in
EarthCare common stock of $5,000,000 which the Company received as part of the
purchase agreement.
There can be no assurance that the Company will prevail on the above legal
proceedings and management cannot estimate the exposure or recovery to the
Company if it does not prevail in the proceedings and counterclaims pending
against the Company.
The Company is also 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 and except as set forth above, under
any pending litigation or administrative proceedings, will not materially affect
its financial condition or results of operations.
PURCHASE COMMITMENTS AND OFF -BALANCE SHEET TRANSACTIONS
To take advantage of 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.
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<PAGE>
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, 2000, all swap and cap contracts related to fiscal
2000 were completed and the results reflected in the fiscal 2000 financial
statements.
The Company offers its marine 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
counterparties. 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, 2000, the Company
had no outstanding swap contracts and no deferred cap fees.
EMPLOYMENT AGREEMENTS
The Company's amended and restated employment agreements with its Chairman of
the Board and President expire on March 31, 2004. 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 through fiscal 2002, and $7,000,000 with a
maximum bonus of $750,000, for the balance of the employment term. 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 days of such
death, termination or expiration. In aggregate, as of March 31, 2000 and 1999,
$1,972,000 and $1,619,000, respectively, was deferred under the agreements and
is included in long-term liabilities in the accompanying consolidated balance
sheets. 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 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 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
employees. The agreements provide for minimum salary levels, and for certain
executive officers and employees, bonus formulas which are payable if specified
performance goals are attained. During the years ended March 31, 2000, 1999 and
1998, approximately $11,696,000, $11,402,000, and $10,411,000, respectively, was
expensed under the terms of the above described agreements.
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<PAGE>
The future minimum commitments under employment agreements, excluding bonuses,
as of March 31, 2000 are as follows:
2001 $ 7,108,000
2002 4,117,000
2003 2,818,000
2004 1,735,000
2005 210,000
Thereafter 840,000
-----------
$16,828,000
===========
DEFERRED COMPENSATION PLANS
The Company's Deferred Compensation Plan ("Deferred Plan") is administered by a
Deferred Plan Committee appointed by the Board of Directors of Trans-Tec
Services, Inc. The Deferred Plan was suspended effective August 1, 1997 by the
Deferred Plan Committee. The Deferred Plan is unfunded and is not a qualified
plan under the Internal Revenue Code. The Deferred 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. As of March 31, 2000 and 1999, the Company's liability under the
Deferred Plan was $953,000 and $1,381,000, respectively, and is included in
long-term liabilities in the accompanying consolidated balance sheets.
The Company maintains a 401(k) defined contribution plan which covers all United
States employees who meet minimum requirements and elect to participate.
Participants may contribute up to 15% of their compensation, subject to certain
limitations. During fiscal 2000, the Company made matching contributions of 25%
of the participants' contributions up to 1% of the participant's compensation.
Annual contributions are made at the Company's sole discretion. During the
fiscal years ended March 31, 2000, 1999 and 1998, approximately $50,000, $74,000
and $74,000, respectively, was expensed as Company contributions.
(7) AVIATION JOINT VENTURE
In August 1994, the Company began operation of an aviation joint venture with
Petrosur, an Ecuador corporation. The aviation 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 aviation joint venture arrangement has a term
of five years ending in May 2001 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 aviation joint venture is 50%.
Accordingly, the Company uses the equity method of accounting to record its
proportionate share of aviation joint venture earnings. During fiscal year 2000,
the Company wrote down the investment in and advances to the aviation joint
venture by $953,000, and recorded a special provision for bad debts of
$1,593,000 as a result of the catastrophic political and economic conditions in
Ecuador. The amount of the investment in and advances to the aviation joint
venture was zero and $2,493,000 at March 31, 2000
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<PAGE>
and 1999, respectively. As of March 31, 1999, prepaid expenses and other current
assets, and other assets included $1,730,000 and $763,000, respectively, for the
investments in and advances to its aviation joint venture. Beginning in January
2000, the Company has limited its operations in Ecuador to foreign airlines and
all fuel sales are made in U.S. dollars.
(8) BUSINESS SEGMENTS, FOREIGN OPERATIONS AND MAJOR CUSTOMERS
BUSINESS SEGMENTS
The Company has adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS No.
131"), which was effective for the Company's 1999 fiscal year. SFAS No. 131
establishes new standards for reporting operating segment information in annual
and interim financial statements. The Company evaluates performance for internal
management purposes in a manner consistent with reporting for external purposes.
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<PAGE>
The Company's continuing operations are in two business segments: aviation and
marine fueling. Information concerning the Company's operations by business
segment is as follows:
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED MARCH 31,
-----------------------------------------------------------
2000 1999 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
REVENUE
Aviation fueling $ 461,740,000 $ 327,844,000 $ 383,010,000
Marine fueling 738,557,000 392,717,000 393,607,000
--------------- --------------- ---------------
Consolidated revenue $ 1,200,297,000 $ 720,561,000 $ 776,617,000
=============== =============== ===============
INCOME FROM OPERATIONS
Aviation fueling $ 4,440,000 $ 13,331,000 $ 12,558,000
Marine fueling 7,516,000 7,515,000 7,403,000
Corporate (5,038,000) (5,785,000) (5,178,000)
--------------- --------------- ---------------
Consolidated income from operations $ 6,918,000 $ 15,061,000 $ 14,783,000
=============== =============== ===============
IDENTIFIABLE ASSETS
Aviation fueling $ 78,639,000 $ 68,765,000 $ 57,867,000
Marine fueling 107,258,000 69,250,000 53,819,000
Discontinued operations, net -- 17,073,000 15,311,000
Corporate 40,879,000 9,306,000 14,216,000
--------------- --------------- ---------------
Consolidated identifiable assets $ 226,776,000 $ 164,394,000 $ 141,213,000
=============== =============== ===============
CAPITAL EXPENDITURES
Aviation fueling $ 240,000 $ 419,000 $ 218,000
Marine fueling 211,000 200,000 609,000
Corporate 1,409,000 2,832,000 869,000
--------------- --------------- ---------------
Consolidated capital expenditures $ 1,860,000 $ 3,451,000 $ 1,696,000
=============== =============== ===============
DEPRECIATION AND AMORTIZATION
Aviation fueling $ 528,000 $ 543,000 $ 312,000
Marine fueling 923,000 695,000 708,000
Corporate 979,000 465,000 371,000
--------------- --------------- ---------------
Consolidated depreciation and amortization $ 2,430,000 $ 1,703,000 $ 1,391,000
=============== =============== ===============
</TABLE>
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<PAGE>
FOREIGN OPERATIONS
A summary of financial data for foreign operations is shown below as of, and for
the fiscal years ended, March 31, 2000, 1999 and 1998. Non-U.S. operations of
the Company and its subsidiaries are conducted primarily from offices in the
United Kingdom, Singapore, Mexico, Japan, South Africa, South Korea, Denmark and
Costa Rica. Income from operations is before the allocation of corporate general
and administrative expenses and income taxes.
2000 1999 1998
------------ ------------ ------------
Revenue $746,027,000 $371,104,000 $419,701,000
============ ============ ============
Income from operations $ 10,273,000 $ 16,349,000 $ 10,774,000
============ ============ ============
Identifiable assets $ 75,080,000 $ 63,718,000 $ 43,524,000
============ ============ ============
MAJOR CUSTOMERS
No customer accounted for more than 10% of total consolidated revenue for the
years ended March 31, 2000, 1999 and 1998.
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<PAGE>
(9) QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1999 1999 1999 2000
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenue $ 225,446,000 $ 299,759,000 $ 323,063,000 $ 352,029,000
=============== =============== =============== ===============
Gross profit $ 15,052,000 $ 16,743,000 $ 15,284,000 $ 17,166,000
=============== =============== =============== ===============
Net income (loss) $ 2,242,000 $ (242,000) $ 1,199,000 $ 6,436,000
=============== =============== =============== ===============
Basic earnings (loss) per share:
Continuing Operations 0.15 (0.07) 0.06 (0.15)
Discontinued Operations 0.03 0.05 0.04 0.70
--------------- --------------- --------------- ---------------
Net Income $ 0.18 $ (0.02) $ 0.10 $ 0.55
=============== =============== =============== ===============
Diluted earnings (loss) per share:
Continuing Operations 0.15 (0.07) 0.06 (0.15)
Discontinued Operations 0.03 0.05 0.04 0.70
--------------- --------------- --------------- ---------------
Net Income $ 0.18 $ (0.02) $ 0.10 $ 0.55
=============== =============== =============== ===============
<CAPTION>
FOR THE THREE MONTHS ENDED
-------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1998 1998 1998 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenue $ 186,817,000 $ 174,274,000 $ 181,912,000 $ 177,558,000
=============== =============== =============== ===============
Gross profit $ 13,043,000 $ 13,515,000 $ 12,591,000 $ 14,110,000
=============== =============== =============== ===============
Net income $ 4,081,000 $ 3,520,000 $ 3,979,000 $ 3,527,000
=============== =============== =============== ===============
Basic earnings per share:
Continuing Operations 0.28 0.26 0.30 0.26
Discontinued Operations 0.05 0.02 0.02 0.03
--------------- --------------- --------------- ---------------
Net Income $ 0.33 $ 0.28 $ 0.32 $ 0.29
=============== =============== =============== ===============
Diluted earnings per share:
Continuing Operations 0.28 0.26 0.30 0.26
Discontinued Operations 0.04 0.02 0.02 0.03
--------------- --------------- --------------- ---------------
Net Income $ 0.32 $ 0.28 $ 0.32 $ 0.29
=============== =============== =============== ===============
</TABLE>
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<PAGE>
SCHEDULE II
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
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, 2000
Allowance for bad debts $ 6,709,000 $ -- $19,250,000 $ 486,000 $11,243,000 $15,202,000
=========== ============ =========== =========== =========== ===========
Year Ended March 31, 1999
Allowance for bad debts $ 4,513,000 $ -- $ 5,079,000 $ 895,000 $ 3,778,000 $ 6,709,000
=========== ============ =========== =========== =========== ===========
Year Ended March 31, 1998
Allowance for bad debts $ 4,301,000 $ 118,000 $ 1,319,000 $ 850,000 $ 2,075,000 $ 4,513,000
=========== ============ =========== =========== =========== ===========
</TABLE>
Notes:
(1) Recoveries of bad debts and reclassifications.
(2) Accounts determined to be uncollectible.
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