World Fuel Services 2004 Annual Report Download - page 35

The marine fuel services segment earned $18.5 million in income from operations for the year ended December 31, 2003, an
increase of $5.1 million, or 38.2%, as compared to the prior year. This increase resulted primarily from a 29.3% increase in gross
profit, partially offset by higher operating expenses. The aviation fuel services segment’ s income from operations was $22.0 million
for the year ended December 31, 2003, an increase of $3.0 million, or 15.9%, as compared to the prior year. This improvement was
due to a 13.5% increase in gross profit, partially offset by an increased provision for bad debts and other operating expenses.
Corporate overhead costs not charged to the business segments totaled $13.1 million for the year ended December 31, 2003, as
compared to $12.3 million during the prior year. For explanations of the increases in operating expenses for the year ended
December 31, 2003 as compared to the prior year, see the above discussion on operating expenses.
Other Income (Expense). During the year ended December 31, 2003, we reported $628 thousand in other income, net, as
compared to other expense, net, of $1.9 million for the prior year. Included in other expense, net, for the year ended December 31,
2002, was a $1.6 million charge in connection with the settlement of the remaining balance due on the sale of our oil recycling
segment. The remaining positive variance of $977 thousand was mainly related to lower net unrealized foreign currency losses
and the recognition of net realized foreign exchange gains for 2003 as opposed to net foreign exchange losses for 2002.
Unrealized foreign currency translation losses and gains resulted from the translation of monetary assets and liabilities of our
foreign entities at the prevailing exchange rates at year-end.
Taxes. For the year ended December 31, 2003, our effective tax rate was 20.8%, for an income tax provision of $5.8 million, as
compared to 21.8% and an income tax provision of $3.9 million for the year ended December 31, 2002. Netted with the income tax
provision for the year ended December 31, 2002 were income tax benefits totaling $2.3 million related to the 2002 executive
severance charges and the 2002 settlement charge in connection with the settlement of the remaining balance due on the sale of
our oil recycling segment to EarthCare.
Net Income and Diluted Earnings per Share. Net income and diluted earnings per share for the year ended December 31, 2003
were $22.2 million and $0.99, respectively, as compared to $14.2 million and $0.65 during the prior year. Included in the results for
the year ended December 31, 2002 were two after-tax charges totaling $3.7 million, or $0.17 per diluted share, of which $2.8
million, or $0.13 per diluted share, related to executive severance, and $970 thousand, or $0.04 per diluted share, related to the
settlement of the remaining balance due from the sale of our oil recycling segment.
Liquidity and Capital Resources
In our marine and aviation fuel services businesses, our primary use of cash is to fund fuel purchases relating to sales of
fuel to our customers. We are usually extended unsecured trade credit from our suppliers for our fuel purchases; however,
certain suppliers require us to provide a letter of credit. Our ability to fund fuel purchases, obtain trade credit from our
suppliers, and provide letters of credit is critical to our business. Increases in oil prices negatively affect liquidity by
increasing the amount of cash needed to fund fuel purchases as well as reducing the amount of fuel which can be purchased on
an unsecured credit basis from our suppliers. Historically, we have not required significant capital investment in fixed assets
for our businesses as we subcontract fueling services and maintain inventory at third party storage facilities.
Our business is funded through cash generated from operations and borrowings under our syndicated revolving credit
facility. We have a syndicated revolving credit facility that permits borrowings of up to $150.0 million with a sublimit of
$60.0 million for the issuance of letters of credit. Our available borrowings under the revolving credit facility are reduced by
the amount of outstanding letters of credit. As of December 31, 2004, our outstanding borrowings under the revolving credit
facility totaled $50.0 million and our issued letters of credit totaled $28.4 million. The credit agreement relating to the
revolving credit facility imposes certain operating and financial restrictions on us. Our failure to comply with these restrictions
could result in an event of default. An event of default, if not cured or waived, would permit acceleration of any outstanding
indebtedness under the credit agreement, and impair our ability to receive advances and issue letters of credit, and thus have a
material adverse effect on our ability to fund operations.
As a result of the restatements described in Note 2 to “Item 8 – Financial Statements and Supplementary Data,” we were
not in compliance with certain financial covenants set forth in our credit facility agreement as of June 30, 2004 and September
30, 2004. We obtained a waiver of the non-compliance from LaSalle Bank National Association, as Administrative Agent, on
March 16, 2005. Currently, we are in compliance with all covenants under the credit agreement.
In April 2004, we obtained a separate $25.0 million credit line for the issuance of letters of credit from one of the banks
participating in our syndicated revolving credit facility. As of December 31, 2004, we had outstanding letters of credit of $8.6
million under this credit line, in addition to the letters of credit outstanding under our revolving credit facility.
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