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 MARCH 31, 2004
| ¨ | 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.) | |
| 9800 N.W. 41st Street, Suite 400 Miami, Florida |
33178 | |
| (Address of Principal Executive Offices) | (Zip Code) | |
Registrant’s Telephone Number, including area code: (305) 428-8000
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 whether the registrant is an accelerated filer (as defined in Rule 12b-12 of the Exchange Act). Yes x No ¨
The registrant had a total of 11,212,000 shares of common stock, par value $0.01 per share, net of treasury stock, outstanding as of May 6, 2004.
The following unaudited, condensed consolidated financial statements and notes thereto 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 March 31, 2004 will not be necessarily indicative of the results for the entire fiscal year. 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 December 31, 2003. World Fuel Services Corporation and Subsidiaries are collectively referred to in this Form 10-Q as “we,” “our” and “us.” Certain amounts in prior periods have been reclassified to conform to the current period presentation.
This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. All statements regarding our expected financial position and operating results, our business strategy, our financing plans and forecasted demographic and economic trends relating to our industry are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as “may,” “will,” “anticipate,” “estimate,” “expect,” or “intend” and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. We cannot promise you that our expectations in such forward-looking statements will turn out to be correct. Factors that impact such forward looking statements include, but are not limited to, quarterly fluctuations in results; the management of growth; fluctuations in world oil prices or foreign currency; 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 our other Securities and Exchange Commission filings. A more detailed description of the principal risks in our business is set forth in “Risk Factors” in our 10-K Report for the year ended December 31, 2003. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.
Page 1 of 20
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
| As of |
||||||||
| March 31, 2004 |
December 31, 2003 |
|||||||
| (Unaudited) | ||||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 76,013 | $ | 76,256 | ||||
| Accounts and notes receivable, net of allowance for bad debts of $10,687 and $10,538 at March 31, 2004 and December 31, 2003, respectively |
245,600 | 192,119 | ||||||
| Inventories |
32,073 | 22,940 | ||||||
| Prepaid expenses and other current assets |
33,245 | 19,706 | ||||||
| Receivable from aviation joint venture partner |
7,171 | — | ||||||
| Total current assets |
394,102 | 311,021 | ||||||
| Property and equipment, net |
6,630 | 6,963 | ||||||
| Other: |
||||||||
| Goodwill, net of amortization of $3,565 at March 31, 2004 and December 31, 2003 |
36,860 | 36,860 | ||||||
| Identifiable intangible asset, net of amortization of $828 and $736 at March 31, 2004 and December 31, 2003, respectively |
1,012 | 1,104 | ||||||
| Other assets |
1,700 | 1,730 | ||||||
| $ | 440,304 | $ | 357,678 | |||||
| Liabilities |
||||||||
| Current liabilities: |
||||||||
| Short-term debt |
$ | 1,502 | $ | 1,600 | ||||
| Accounts payable |
238,841 | 172,885 | ||||||
| Accrued expenses |
15,625 | 9,987 | ||||||
| Other current liabilities |
22,320 | 20,290 | ||||||
| Total current liabilities |
278,288 | 204,762 | ||||||
| Long-term liabilities |
4,629 | 4,537 | ||||||
| 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 at March 31, 2004 and December 31, 2003 |
128 | 128 | ||||||
| Capital in excess of par value |
36,544 | 34,672 | ||||||
| Retained earnings |
138,106 | 132,976 | ||||||
| Unearned deferred compensation |
(2,474 | ) | (2,788 | ) | ||||
| Treasury stock, at cost; shares of 1,771 and 1,973 at March 31, 2004 and and December 31, 2003, respectively |
(14,917 | ) | (16,609 | ) | ||||
| 157,387 | 148,379 | |||||||
| $ | 440,304 | $ | 357,678 | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 2 of 20
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - In thousands, except per share data)
| For the Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Revenue |
$ | 911,797 | $ | 658,000 | ||||
| Cost of revenue |
(884,866 | ) | (630,689 | ) | ||||
| Gross profit |
26,931 | 27,311 | ||||||
| Operating expenses: |
||||||||
| Salaries and wages |
(10,248 | ) | (10,098 | ) | ||||
| Provision for bad debts |
(885 | ) | (2,701 | ) | ||||
| Other |
(8,088 | ) | (7,594 | ) | ||||
| (19,221 | ) | (20,393 | ) | |||||
| Income from operations |
7,710 | 6,918 | ||||||
| Other (expense) income, net: |
||||||||
| Interest income, net |
84 | 142 | ||||||
| Other, net |
91 | (395 | ) | |||||
| 175 | (253 | ) | ||||||
| Income before income taxes |
7,885 | 6,665 | ||||||
| Provision for income taxes |
(1,822 | ) | (1,397 | ) | ||||
| 6,063 | 5,268 | |||||||
| Minority interest |
(109 | ) | — | |||||
| Net income |
$ | 5,954 | $ | 5,268 | ||||
| Basic earnings per share |
$ | 0.55 | $ | 0.50 | ||||
| Basic weighted average shares |
10,805 | 10,584 | ||||||
| Diluted earnings per share |
$ | 0.52 | $ | 0.48 | ||||
| Diluted weighted average shares |
11,485 | 11,034 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
Page 3 of 20
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - In thousands)
| For the Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 5,954 | $ | 5,268 | ||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities - Provision for bad debts |
841 | 2,701 | ||||||
| Depreciation and amortization |
792 | 878 | ||||||
| Deferred income tax benefits |
(241 | ) | (37 | ) | ||||
| Earnings from aviation joint venture, net |
— | (381 | ) | |||||
| Unearned deferred compensation amortization |
274 | 157 | ||||||
| Other non-cash operating charges |
4 | 201 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts and notes receivable |
(54,322 | ) | (8,254 | ) | ||||
| Inventories |
(9,132 | ) | (9,206 | ) | ||||
| Prepaid expenses and other current assets |
(13,540 | ) | (302 | ) | ||||
| Receivable from aviation joint venture partner |
(7,171 | ) | — | |||||
| Other assets |
29 | (262 | ) | |||||
| Accounts payable and accrued expenses |
71,575 | (14,028 | ) | |||||
| Other current liabilities |
3,964 | 2,140 | ||||||
| Deferred compensation and other long-term liabilities |
1,831 | 301 | ||||||
| Total adjustments |
(5,096 | ) | (26,092 | ) | ||||
| Net cash provided by (used in) operating activities |
858 | (20,824 | ) | |||||
| Cash flows from investing activities: |
||||||||
| Capital expenditures |
(366 | ) | (994 | ) | ||||
| Net cash used in investing activities |
(366 | ) | (994 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Dividends paid on common stock |
(828 | ) | (797 | ) | ||||
| Proceeds from exercise of stock options |
1,693 | 166 | ||||||
| Borrowings under revolving credit facility, net |
— | 16,000 | ||||||
| Repayment of debt |
(1,600 | ) | (1,527 | ) | ||||
| Net cash (used in) provided by financing activities |
(735 | ) | 13,842 | |||||
| Net decrease in cash and cash equivalents |
(243 | ) | (7,976 | ) | ||||
| Cash and cash equivalents, at beginning of period |
76,256 | 57,776 | ||||||
| Cash and cash equivalents, at end of period |
$ | 76,013 | $ | 49,800 | ||||
| (Continued) | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 4 of 20
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - In thousands)
(Continued)
| For the Three Months Ended March 31, | ||||||
| 2004 |
2003 | |||||
| Supplemental Disclosures of Cash Flow Information: |
||||||
| Cash paid during the period for: |
||||||
| Interest |
$ | 197 | $ | 16 | ||
| Income taxes |
$ | 1,528 | $ | 1,691 | ||
Supplemental Schedule of Noncash Investing and Financing Activities:
Cash dividends declared, but not yet paid, totaled $825 thousand and $803 thousand at March 31, 2004 and March 31, 2003, respectively, and were paid in April 2004 and April 2003, respectively.
During the three months ended March 31, 2003, in connection with the construction of our new corporate office, we recorded leasehold improvements and its related deferred rental credit of $315 thousand, which was paid by the landlord as an office construction allowance. The related deferred rental credit was included in Long-term liabilities. The deferred rental credit is being amortized on a straight-line basis over the lease period of 10 years for the new corporate office.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 5 of 20
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Interim period data are Unaudited)
1. Recent Acquisitions and Significant Accounting Policies
Recent Acquisition
On April 2, 2004 (the “Closing Date”), we acquired all of the outstanding shares (the “THL Shares”) of Tramp Holdings Limited (“THL”) and the shares of Tramp Group Limited, a subsidiary of THL, which were not otherwise held by THL (the “TGL Shares”). The aggregate purchase price for the THL Shares and the TGL Shares was approximately $83.8 million, including acquisition cost of approximately $500 thousand, and may increase or decrease subject to certain post-closing adjustments. The aggregate purchase price will be paid in cash, of which approximately $75.5 million was paid on the Closing Date and the remaining payment will be made in accordance with the THL Shares acquisition agreement. The Tramp group of companies primarily sells and markets marine fuel services. The acquisition was funded through our cash reserves and borrowings under our existing $100.0 million syndicated revolving credit facility, as amended on March 31, 2004. See Exhibit 10.1 for the amendment to credit agreement.
Significant Accounting Policies
Except as described below, the significant 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 fiscal year ended December 31, 2003.
Basis of Consolidation
The accompanying consolidated financial statements and related notes to the condensed consolidated financial statements include our accounts, those of our majority owned or controlled subsidiaries and those of our aviation joint venture, after elimination of all significant intercompany accounts, transactions, and profits. Prior to January 2004, we used the equity method of accounting to record our share of the earnings and losses of our aviation joint venture.
Recent Accounting Pronouncement
In January 2003, the Financial Accounting Standard Board (“FASB”) issued Interpretation No. 46 (“FIN No. 46”), “Consolidation of Variable Interest Entities.” FIN No. 46 expands upon and strengthens existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. A variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors tha