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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
 
FORM 10-Q
 
(Mark One)
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    
 
SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
 
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    
 
SECURITIES EXCHANGE ACT OF 1934
 
FOR THE TRANSITION PERIOD FROM                     TO                    
 
COMMISSION FILE NUMBER 1-9533
 
 
WORLD FUEL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
 
Florida
  
59-2459427
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification No.)
 
700 South Royal Poinciana Blvd., Suite 800
Miami Springs, Florida
  
33166
(Address of Principal Executive Offices)
  
(Zip Code)
 
Registrant’s Telephone Number, including area code: (305) 884-2001
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  ¨
 
APPLICABLE ONLY TO CORPORATE ISSUERS:
 
The registrant had a total of 10.4 million shares of common stock (net of treasury stock), par value $0.01 per share, as of July 22, 2002.
 

 
PART I.     FINANCIAL INFORMATION
 
Item 1.    Financial Statements
 
The following unaudited, condensed consolidated financial statements of World Fuel Services Corporation and Subsidiaries have been prepared in accordance with the instructions to Form 10-Q and, therefore, omit or condense certain footnotes and other information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States. In the opinion of management, all adjustments necessary for a fair presentation of the financial information for the interim periods reported have been made. Results of operations for the three months ended June 30, 2002, will not be necessarily indicative of the results for the entire fiscal year ending March 31, 2003. The condensed consolidated financial statements and notes thereto included in this Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K (“10-K Report”) for the year ended March 31, 2002. World Fuel Services and Subsidiaries are collectively referred to in this Form 10-Q as “we,” “our” and “us.”

2

 
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
    
June 30,
   
March 31,
    
2002
   
2002
    
(UNAUDITED)
     
ASSETS
              
Current assets:
              
Cash and cash equivalents
   
$
47,697
   
$
58,172
Accounts and notes receivable, net of allowance for
bad debts of $11,049 and $11,012 at June 30 and
March 31, 2002, respectively
   
 
165,659
   
 
132,586
Inventories
   
 
5,455
   
 
2,219
Prepaid expenses and other current assets
   
 
20,975
   
 
20,162
    
  
Total current assets
   
 
239,786
   
 
213,139
Property and equipment, net
   
 
5,465
   
 
5,618
Other assets:
              
Goodwill, net
   
 
34,003
   
 
34,003
Identifiable intangible asset, net
   
 
1,656
   
 
1,748
Other
   
 
3,275
   
 
3,415
    
  
    
$
284,185
   
$
257,923
    
  
LIABILITIES
              
Current liabilities:
              
Short-term debt
   
$
3,953
   
$
5,710
Accounts payable
   
 
102,972
   
 
82,904
Accrued expenses
   
 
37,411
   
 
30,806
Other current liabilities
   
 
12,625
   
 
14,431
    
  
Total current liabilities
   
 
156,961
   
 
133,851
    
  
Long-term liabilities
   
 
6,396
   
 
7,633
    
  
Commitments and contingencies
              
STOCKHOLDERS’ EQUITY
              
Preferred stock, $1.00 par value; shares of 100 authorized, none issued
   
 
—  
   
 
—  
Common stock, $0.01 par value; shares of 25,000 authorized;
shares of 12,765 issued and outstanding
   
 
128
   
 
128
Capital in excess of par value
   
 
29,924
   
 
29,575
Retained earnings
   
 
110,466
   
 
106,841
Less treasury stock, at cost; shares of 2,339 and 2,388 at
June 30 and March 31, 2002, respectively
   
 
19,690
   
 
20,105
    
  
               
    
 
120,828
   
 
116,439
    
  
    
$
284,185
   
$
257,923
    
  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

3

 
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED—IN THOUSANDS, EXCEPT PER SHARE DATA)
 
    
Three Months Ended
  
    
June 30,
  
    
2002
     
2001
  
Revenue
   
$
458,909
 
   
$
338,107
 
Cost of revenue
   
 
438,803
 
   
 
319,810
 
    
  
Gross profit
   
 
20,106
 
   
 
18,297
 
    
  
Operating expenses:
                  
Salaries and wages
   
 
7,644
 
   
 
7,624
 
Provision for bad debts
   
 
641
 
   
 
846
 
Other
   
 
5,952
 
   
 
5,193
 
    
  
    
 
14,237
 
   
 
13,663
 
    
  
Income from operations
   
 
5,869
 
   
 
4,634
 
    
  
Other (expense) income, net:
                  
Interest income, net
   
 
385
 
   
 
409
 
Non-recurring credit in the marine segment
   
 
—  
 
   
 
1,000
 
Other, net
   
 
(696
)
   
 
(173
)
    
  
    
 
(311
)
   
 
1,236
 
    
  
Income before income taxes
   
 
5,558
 
   
 
5,870
 
Provision for income taxes
   
 
1,152
 
   
 
1,183
 
    
  
Net income
   
$
4,406
 
   
$
4,687
 
    
  
Basic earnings per share
   
$
0.42
 
   
$
0.45
 
    
  
Basic weighted average shares
   
 
10,372
 
   
 
10,403
 
    
  
Diluted earnings per share
   
$
0.41
 
   
$
0.44
 
    
  
Diluted weighted average shares
   
 
10,794
 
   
 
10,558
 
    
  
 
The accompanying notes are an integral part of these condensed consolidated financial statements

4

 
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED-IN THOUSANDS)
 
    
Three Months Ended
June 30,
  
    
2002
     
2001
  
Cash flows from continuing operating activities:
                  
Net income
   
$
4,406
 
   
$
4,687
 
    
  
Adjustments to reconcile net income to net cash used in continuing operating activities—  
                  
Depreciation and amortization
   
 
669
 
   
 
422
 
Provision for bad debts
   
 
641
 
   
 
846
 
Deferred income tax benefit
   
 
(119
)
   
 
(411
)
Earnings from aviation joint ventures, net
   
 
(93
)
   
 
(122
)
Other non-cash operating charges
   
 
142
 
   
 
9
 
Changes in operating assets and liabilities:
                  
Accounts and notes receivable
   
 
(33,714
)
   
 
4,550
 
Inventories
   
 
(3,236
)
   
 
1,206
 
Other current assets
   
 
(684
)
   
 
(292
)
Other assets
   
 
140
 
   
 
350
 
Accounts payable and accrued expenses
   
 
26,670
 
   
 
(9,127
)
Other current liabilities
   
 
(1,573
)
   
 
(2,162
)
Deferred compensation
   
 
(118
)
   
 
(224
)
    
  
Total adjustments
   
 
(11,275
)
   
 
(4,955
)
    
  
Net cash used in continuing operating activities
   
 
(6,869
)
   
 
(268
)
    
  
Cash flows from investing activities:
                  
Capital expenditures
   
 
(430
)
   
 
(504
)
Payment for acquisition of business
   
 
—  
 
   
 
(3,064
)
    
  
Net cash used in investing activities
   
 
(430
)
   
 
(3,568
)
    
  
Cash flows from financing activities:
                  
Dividends paid on common stock
   
 
(778
)
   
 
(520
)
Proceeds from exercise of stock options
   
 
432
 
   
 
—  
 
Repayment of debt
   
 
(2,830
)
   
 
(1,408
)
    
  
Net cash used in financing activities
   
 
(3,176
)
   
 
(1,928
)
    
  
Discontinued operations
   
 
—  
 
   
 
1,750
 
    
  
Net decrease in cash and cash equivalents
   
 
(10,475
)
   
 
(4,014
)
Cash and cash equivalents, at beginning of period
   
 
58,172
 
   
 
38,977
 
    
  
Cash and cash equivalents, at end of period
   
$
47,697
 
   
$
34,963
 
    
  
 
(Continued)
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

5

 
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED-IN THOUSANDS)
(Continued)
 
    
Three Months
Ended
June 30,
    
2002
   
2001
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
              
Cash paid during the period for:
              
Interest
   
$
260
   
$
277
    
  
Income taxes
   
 
2,518
   
$
1,108
    
  
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
              
 
During the three months ended June 30, 2002 and 2001, we declared cash dividends of $782 thousand and $1.8 million, and paid those dividends in July 2002 and 2001, respectively.
 
In connection with an acquisition in the marine segment in April 2001, we issued a $2.0 million promissory note bearing interest at 7%, payable over two years with the first installment due and paid in April 2002.
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

6

 
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
(1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
The accounting polices followed for quarterly financial reporting are the same as those disclosed in Note 1 of the Notes to the Consolidated Financial Statements included in our 10-K Report for the year ended March 31, 2002.
 
(2)    COMMITMENTS AND CONTINGENCIES
 
In July 2001, we received a Summary Judgment from the United States District Court for the Southern District of Florida which ordered Donald F. Moorehead, Jr., Chairman of EarthCare Company (“EarthCare”) to pay us compensatory damages of approximately $5.0 million, plus interest from May 1, 2001. This judgment relates to Mr. Moorehead’s default on his agreement to purchase all of the shares of EarthCare stock owned by us for approximately $5.0 million. We received the EarthCare stock as part payment for the sale of our oil recycling operations in February 2000. From August 2001 to October 2001, we received principal and interest payments totaling $700 thousand from Mr. Moorehead. As of June 30 and March 31, 2002, the receivable from Mr. Moorehead for approximately $4.4 million and $4.3 million, respectively, was included in Prepaid expenses and other current assets in the accompanying Condensed Consolidated Balance Sheets. We have been pursuing collection of this judgment and, in May 2002, the court appointed a receiver to take possession and control of all nonexempt assets and property interests of Mr. Moorehead. The receiver is empowered to perform any and all acts necessary and appropriate in order to take possession and control of Mr. Moorehead’s assets and property interests, and to collect, sell or otherwise liquidate those assets and property interests to satisfy our judgment. Since May 2002, the receiver has been assessing the situation, and based upon his analysis and experience, is expected to develop a plan of action to liquidate Mr. Moorehead’s assets. As a result of the receiver’s activities, we have received several settlement offers from Mr. Moorehead to settle his remaining debt. However, no settlement agreement has been signed as of the date of this Form 10-Q. Management cannot estimate at this time the amount of remaining debt which is unrecoverable, if any. Although management believes that the entire outstanding debt will be recovered, our ability to recover the full amount remains subject to customary collection risks, including the risk that Mr. Moorehead may file for personal bankruptcy, and that his saleable assets will not produce sufficient proceeds to satisfy the debt. Most of Mr. Moorehead’s assets are subject to liens in favor of other creditors, which will make it more difficult to sell the assets and realize sufficient proceeds to satisfy our judgment. Subsequent to the court’s appointment of a receiver, we received another interest payment of $100 thousand in May 2002 from Mr. Moorehead.
 
There can be no assurance that we will prevail on the above matter and management cannot estimate the exposure or recovery to us if we do not prevail. If we do not collect a significant portion of the debt described above, our financial condition and results of operation may be adversely affected.
 
We are involved in other material legal proceedings described in Item 3 of our 10-K Report for the year ended March 31, 2002. There has been no material development in those proceedings since the filing of our 10-K Report.
 
In addition to the matters described above and in our 10-K Report for the year ended March 31, 2002, we are also involved in litigation and administrative proceedings primarily arising in the normal course of our business. In the opinion of management, except as set forth above or in our Annual Report on Form 10-K for the year ended March 31, 2002, our liability, if any, under any pending litigation or administrative proceedings will not materially affect our financial condition or results of operations.

7

 
(3)    RECENT ACCOUNTING PRONOUNCEMENTS
 
Effective April 2002, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets, excluding goodwill. The adoption of SFAS No. 144 did not have a material effect on our consolidated financial statements.
 
(4)    COMPREHENSIVE INCOME
 
There were no significant items of other comprehensive income, and thus, net income is equal to comprehensive income for all periods presented.
 
(5)    EARNINGS PER SHARE
 
Basic earnings per share is computed based on the weighted average number of common shares outstanding. Diluted earnings per 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 non-employee stock options and warrants. Shares used to calculate earnings per share are as follows:
 
    
Three Months Ended
June 30,
    
2002
   
2001
    
(In thousands)
Basic weighted average shares
   
10,372
   
10,403
Restricted stock weighted average shares
   
25
   
—  
Common stock equivalents
   
397
   
155
    
  
Diluted weighted average shares used in the calculation of diluted earnings per share