World Fuel Services 2005 Annual Report Download - page 38

The aviation segment’s income from operations was $29.3 million for 2004, an increase of $7.2 million, or
32.6%, as compared to the 2003. This improvement was due to a $14.4 million increase in gross profit partially
offset by an increase in operating expenses of $7.2 million. The increase in aviation segment operating expenses
was attributable to compensation and employee benefits and general and administrative expenses. For detailed
explanations of the changes in total operating expenses for 2004 as compared to 2003, see the above discussion
on operating expenses.
Corporate overhead costs not charged to the business segments totaled $14.6 million for 2004, as compared
to $13.0 million for 2003. The increase in corporate overhead costs was primarily due to higher compensation
and employee benefits as well as an increase in general and administrative expenses. For detailed explanations of
the changes in total operating expenses for 2004 as compared to 2003, see the above discussion on operating
expenses.
Other Income and Expense, net. During 2004, we reported $2.1 million in other expense, net, as compared
to other income, net, of $0.5 million for 2003. This $2.6 million change was primarily due to the recognition of
exchange losses relating to conversion into U.S. dollars of foreign currencies acquired in connection with the
Tramp Oil acquisition, increased interest expense and other financing costs associated with our revolving credit
facility and the effect of the consolidation of our PAFCO aviation joint venture.
Taxes. For 2004, our effective tax rate was 19.4%, for an income tax provision of $7.0 million, as compared
to 20.7% and an income tax provision of $5.8 million for 2003. The lower tax rate resulted primarily from
increased operating income in low tax foreign jurisdictions.
Net Income and Diluted Earnings per Share. Net income for 2004 was $28.6 million, an increase of $6.4
million, or 28.9%, as compared to 2003. Diluted earnings per share for 2004 was $1.22 per share, an increase of
$0.23 per share, or 23.2%, as compared to 2003. Included in the results for 2004 was a charge of $0.8 million, or
$0.04 per basic and diluted share, relating to the inventory write-down in the fourth quarter of 2004 associated
with our exit from the Panamanian market, net of reduced performance based compensation and taxes.
Liquidity and Capital Resources
As of December 31, 2005, we had cash, cash equivalents and short-term investments of $133.3 million as
compared to $64.2 million at December 31, 2004. Additionally, at December 31, 2005, we had short-term
investments of $10.0 million with duration of typically less than 30 days. Our primary use of cash, cash
equivalents and short term investments, is to fund the purchase of inventories and increased receivables to
support business growth 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. However, we have
committed to an enterprise integration project which will result in a new company-wide information system
conversion to support our business growth and complexity of global activities. The total capital expenditures
related to this project are currently estimated to be $13.1 million of which $2.7 million was incurred in 2005 and
the balance of $10.4 million is expected to be incurred in 2006. The estimated capital expenditures include
capitalized internal resources in accordance with Statement of Position 98-1, “Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use.”
Our business is funded through cash generated from operations and borrowings under our revolving credit
facility. Outstanding borrowings under our revolving credit facility and our cash on had fluctuate primarily based
on operating cash flow, most significantly, the timing of receipts from our customers and payments to our
suppliers. Our revolving credit facility permits borrowings of up to $220.0 million with a sublimit of $100.0
million for the issuance of letters of credit. Our available borrowings under the revolving credit facility are
24