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World Fuel
Services
Corporation
2002 Nine-Month Report

Table of contents

  • Page 1
    World Fuel Services Corporation 2 0 0 2 N i n e - M o n t h R e p o r t

  • Page 2
    ... industries, World Fuel Services provides fuel to commercial and corporate aircraft and ships at more than 2,000 airports and seaports worldwide. T he Company's market share is estimated at 1% of the global aviation market and 12% of the global marine market. Mission Statement Our mission is to...

  • Page 3
    ... As of, and for the Nine Months Ended December 31, As of, and for the Year Ended March 31, Change 2002 (In thousands, except earnings per share data and financial ratios) 2001 2002 2001 2000 Income Statement Data Revenue Income from operations Net income Diluted earnings per share Weighted...

  • Page 4
    ...01 billion for the same period a year ago. The revenue increase was the result of higher fuel prices in the marine segment and increases in volume in both the marine and aviation segments. Paul H. Stebbins Chairman and Chief Executive Officer after-tax charges, diluted earnings per share would have...

  • Page 5
    ...'s Jeppesen division. T his alliance of our expertise in fuel services with their flight planning business has added over 100 new customers to our corporate fueling portfolio, including large fractional fleets and management companies whose clients require fuel on short notice all over the world...

  • Page 6
    ...marine and aviation divisions. As we continue to find opportunities for both segments to share resources in the areas of supply, marketing, credit, legal and back-office processing, we will better leverage our resources across the Company. At the same time, we remain focused on our corporate mission...

  • Page 7
    ...9533 WORLD FUEL SERVICES CORPORATION (Exact name of registrant as specified in its charter) Florida (State or other jurisdiction of incorporation or organization) 9800 Northwest 41st Street, Suite 400 Miami, Florida (Address of Principal Executive Offices) 59-2459427 (I.R.S. Employer Identification...

  • Page 8
    ...Item 15. Signatures Certifications Exhibits, Financial Statement Schedules and Reports on Form 8-K 31 67 68 Directors and Executive Officers of the Registrant Executive Compensation Security Ownership of Certain Beneficial Owners and Management Certain Relationships and Related Transactions Controls...

  • Page 9
    ..., Miami, Florida 33178 and our telephone number at this address is (305) 428-8000. Our marine fuel services business is conducted through thirteen subsidiaries with principal offices in the United States, United Kingdom, Denmark, Norway, Costa Rica, South Africa, South Korea, Singapore, Japan, Hong...

  • Page 10
    ...in Dubai, United Arab Emirates; and the Oil Shipping group of companies, with operations in Singapore, the Netherlands and Hong Kong. Since our entry into the marine fuel services business, we have opened various new offices in key strategic markets, such as South Africa, Japan, Denmark, Greece, and...

  • Page 11
    ...years ended March 31, 2002, 2001 and 2000, none of our marine fuel customers accounted for more than 10% of our consolidated revenue. Aviation Fuel Services We market aviation fuel and services to passenger, cargo and charter airlines, as well as corporate customers and the United States and foreign...

  • Page 12
    ...to secondary passenger and cargo airlines, as well as corporate customers and the United States and foreign militaries. Our fuel services are provided through relationships with the large independent oil suppliers, as well as government owned oil companies. We could be adversely affected by industry...

  • Page 13
    ... 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...

  • Page 14
    ... by various U.S. federal and state taxes imposed on the purchase and sale of marine and aviation fuel products. In the United States, federal law imposes a manufacturer's excise tax on sales of marine and aviation fuel. Sales to aircraft and vessels engaged in non-U.S. trade are exempt from this...

  • Page 15
    ... Corporate World Fuel Services Corporation 9800 Northwest 41st Street, Suite 400 Miami, FL 33178, United States Marine Fuel Services Trans-Tec Services, Inc. 9800 Northwest 41st Street, Suite 400 Miami, FL 33178, United States 2 Greenwich Office Park Greenwich, CT 06830, United States 60 East...

  • Page 16
    ... of World Fuel Services (Singapore) Pte., Ltd. Poseidonos 60 Av., Third Floor Glyfada 166-75 Athens, Greece Trans-Tec Services (Japan) Co. K.K. 4th floor, Tozan Building, 4-4-2 Nihonbashi Hon-Cho, Chuo-Ku Tokyo 103-0023, Japan Norse Bunkers AS Niels Juels gate 11 B 0272 Oslo, Norway Marine Energy...

  • Page 17
    ... Ejécutivo La Sabana Sur Edificio #5, Primer Piso San José, Costa Rica World Fuel Services Ltd. Baseops Europe Ltd. AirData Limited Kingfisher House, Northwood Park, Gatwick Rd. Crawley, West Sussex, RH10 2XN United Kingdom World Fuel Services (Singapore) Pte., Ltd. 101 Thomson Road #13-03/04...

  • Page 18
    ... indemnification obligations of Signature as to PAFCO, and the County as to World Fuel Services Corporation and our other subsidiaries. There can be no assurance that we will prevail on the above legal proceedings and management cannot estimate the exposure if we do not prevail. A ruling against us...

  • Page 19
    ...II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Our common stock is traded on the New York Stock Exchange ("NYSE") under the symbol INT. In May 2001, our Board of Directors approved a resolution to delist our stock from the Pacific Stock Exchange. In August 2002, we...

  • Page 20
    ...Furthermore, pursuant to the 2001 Plan and upon our Board of Directors' authorization in January 2002, any shares of our common stock that are reacquired by us in the open market or in private transactions after the effective date of the 2001 Plan, were added to the limitation on the total shares of...

  • Page 21
    ... Internal Revenue Code of 1986, as amended, or stock appreciation rights, or other stock or non-stock-based awards, including but not limited to stock units, performance units, or dividend equivalent payments. The 2001 Plan is unlimited in duration and, in the event of its termination, the 2001 Plan...

  • Page 22
    ... financial statements and the related notes thereto, and "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations." SELECTED FINANCIAL DATA (In thousands, except earnings per share data) For the Nine Months Ended December 31, 2002 2001 (unaudited) 2002...

  • Page 23
    ... 141,213 46,546 2,756 91,911 NOTES TO SELECTED FINANCIAL DATA Since 1995, we have declared and paid cash dividends. See "Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters." In October 1997, our Board of Directors approved a 3-for-2 stock split for all shares of common...

  • Page 24
    ... compensation for restricted common stock issued to our employees was approximately $1.7 million. For the nine months ended December 31, 2002, executive severance charges of $4.5 million relating to the termination of employment of our former Chief Executive Officer, Chief Financial Officer, Chief...

  • Page 25
    ..., we market marine fuel and related management services to a broad base of international shipping companies and to the United States and foreign militaries. Services include credit terms, 24-hour around-the-world service, fuel management services, and competitively priced fuel. In our aviation fuel...

  • Page 26
    ... at December 31, 2002. We cannot guarantee that we will continue to experience the same credit loss rates that we have experienced in the past since adverse changes in the marine and aviation industries, or changes in the liquidity or financial position of our customers, could have a material...

  • Page 27
    ... related to increased competitive pressures. We may experience decreases in future sales volume and margins as a result of deterioration in the world economy, or in the shipping or aviation industries, the continued conflicts and instability in the Middle East, Asia and Latin America, and military...

  • Page 28
    ... to increased competitive pressures, higher operating expenses related to the marine acquisition in January 2002, and an executive severance charge, partially offset by lower salaries and a reimbursement of legal fees associated with prior years' insurance claims. The aviation fuel services segment...

  • Page 29
    ...For the Year Ended March 31, 2002 2001 Marine fuel services Aviation fuel services Total $ $ 983,986 381,079 1,365,065 $ $ 1,004,572 524,670 1,529,242 Our marine fuel services segment contributed $984.0 million in revenue for the year ended March 31, 2002, a decrease of $20.6 million, or 2.0%, over...

  • Page 30
    ... the following segments (in thousands): For the Year Ended March 31, 2002 2001 Marine fuel services $ 14,964 $ 13,161 Aviation fuel services 13,709 11,790 Corporate overhead (7,384) (10,799) Total $ 21,289 $ 14,152 The marine fuel segment earned $15.0 million in income from operations for the year...

  • Page 31
    ...world oil prices. Our revenue during these periods was attributable to the following segments (in thousands): For the Year Ended March 31, 2001 2000 Marine fuel services Aviation fuel services... compensation, professional fees, and information technology spending, and a $3.5 million executive ...

  • Page 32
    ... and Capital Resources In our marine and aviation fuel businesses, the primary use of working capital is to finance receivables. We maintain aviation fuel inventories at certain locations in the United States, mostly for competitive reasons. Our marine and aviation fuel businesses historically...

  • Page 33
    ... business activity in both our marine and aviation segments. Long-term debt and short-term debt, in the aggregate, decreased by $6.6 million due to repayment of our debt and deferred compensation payments. Stockholders' equity amounted to $127.7 million at December 31, 2002, as compared to $116...

  • Page 34
    ... Market Risk," included in this Form 10-K, for a discussion of our purchase and sale commitments and derivatives. Employment Agreements In July 2002, our Board of Directors elected a new Chairman of the Board of Directors ("Chairman") and Chief Executive Officer ("CEO") and appointed a new President...

  • Page 35
    ... or compensation, or a breach by us), or resigns for any reason following a change of control; or (c) we elect not to renew the executive's employment agreement upon expiration, for any reason other than cause. The severance payment is equal to two times the executive's average salary and bonus...

  • Page 36
    ... 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...

  • Page 37
    ... financial statements included herein. We conduct the vast majority of our business transactions in U.S. dollars. However, in certain markets, primarily in Mexico, payments to our aviation fuel supplier are denominated in local currency. In addition, in Mexico, payments from some of our customers...

  • Page 38
    .... Item 11. Executive Compensation The information set forth in the 2003 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...

  • Page 39
    ... and restated By-laws as of February 19, 2003. (4) Instruments defining rights of security holders: (.1) 1986 Employee Stock Option Plan is incorporated by reference to our Registration Statement on Form S-18 filed February 3, 1986. (.2) 1993 Non-Employee Directors Stock Option Plan is incorporated...

  • Page 40
    .... Paul Stebbins, Chairman to the Board of Directors and Chief Executive Officer, dated July 26, 2003. (.2) Amended and Restated Employment Agreement with Mr. Michael Kasbar, President and Chief Operating Officer, dated July 26, 2003. (.3) Credit Agreement, excluding schedules and exhibits as listed...

  • Page 41
    ..., the consolidated financial statements listed in the accompanying index appearing under item 15(a)(1) on page 31 present fairly, in all material respects, the financial position of World Fuel Services Corporation and subsidiaries (the "Company") at December 31, 2002 and March 31, 2002, and the...

  • Page 42
    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, 2001 and 2000, and the related consolidated statements of ...

  • Page 43
    ... in progress - corporate office Less accumulated depreciation and amortization Other: Goodwill, net of amortization of $3,490 Identifiable intangible asset, net of amortization of $368 at December 31, 2002 and $92 at M arch 31, 2002 Other assets $ Liabilities Current liabilities: Short-term debt...

  • Page 44
    WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA) For the Nine Months Ended December 31, 2002 2001 (Unaudited) Revenue Cost of sales Gross profit Operating expenses: Salaries and wages Executive severance charges Provision for ...

  • Page 45
    WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS) Capital in Excess of Par Value $ 26,769 31 26,800 89 26,889 297 Unearned Deferred Compensation (298) 182 Common Stock Shares Amount Balance at March 31, 1999 Net income Cash dividends ...

  • Page 46
    WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) For the Nine Months Ended December 31, 2002...Customer deposits Accrued salaries and wages Income taxes payable Deferred compensation...Investment in aviation joint venture Advances to aviation joint ...

  • Page 47
    WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (Continued) For the Nine Months Ended December 31, 2002 2001 (Unaudited) Supplemental Disclosures of Cash Flow Information Cash paid during the period for: Interest Income taxes $ 761 $ $ 265 4,720 ...

  • Page 48
    WORLD FUEL SERVICES CORPORATION AND SUBSIDIAIRES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Supplemental Schedule of Noncash Investing and Financing Activities Cash dividends declared, but not yet paid, totaled $806 thousand at December 31, 2002, $783 thousand at December 31, 2001, $778 ...

  • Page 49
    ... in April 2001 and January 2002 with the stock acquisitions of Marine Energy Arabia Establishment Ltd., a British Virgin Islands ("BVI") corporation, and the Oil Shipping group of companies, respectively. Both of these companies sell and market marine fuel services. The aggregate purchase price of...

  • Page 50
    ...-line method. The BVI company sells and markets marine fuel services through Marine Energy Arabia Co, LLC, a United Arab Emirates ("Dubai") corporation. The BVI company owns 49% of the Dubai company. In accordance with local laws, the Dubai entity is 51% owned by a Dubai citizen, referred to as...

  • Page 51
    ... and allowance for bad debts in our marine and aviation segments, see "Business Segments" in Note 8. 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...

  • Page 52
    .... In February 2003, we moved our corporate office from 700 South Royal Poinciana Boulevard in Miami Springs to 9800 Northwest 41st Street in Miami. As of December 31, 2002, leasehold improvements for our new corporate office, office equipment and furniture totaling approximately $1.9 million...

  • Page 53
    ... the actual delivery of fuel or service was performed. This policy does not result in reported results that are materially different than if the revenue were recognized in the period of actual delivery or performance. In December 1999, the staff of the Securities and Exchange Commission (the "SEC...

  • Page 54
    ... for the year ended March 31, 2002, respectively. Some of our aviation fuel purchases are denominated in local currency. Realized foreign currency exchange gains and losses on transactions were included in Other, net in the accompanying Consolidated Statements of Income, in the period incurred...

  • Page 55
    ... 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...

  • Page 56
    .... Financial results for periods prior to the dates of discontinuance have been reclassified to reflect continuing operations. In February 2000, we sold the stock of our oil-recycling subsidiaries, the International Petroleum Corporation group ("IPC"), to EarthCare Company. Pursuant to the stock...

  • Page 57
    ...certain financial ratios, could result in an event of default. An event of...aviation joint venture: Non-interest bearing promissory note of $2.5 million, payable annually through January 2006, net of unamortized imputed discount (at 9%) of $226 at December 31, 2002, and $335 and $513 at March 31, 2002...

  • Page 58
    As of December 31, 2002, the aggregate annual maturities of debt, net of unamortized imputed ...country of incorporation of World Fuel Services Corporation and subsidiaries, consist of the following (in thousands): For the Nine Months Ended December 31, 2002 2001 (unaudited) United States Non-U.S. $...

  • Page 59
    ... 31, 2002 Excess of provision for bad debts over charge-offs Income tax credits Net operating loss Excess of tax over financial reporting for depreciation of fixed assets Excess of tax over financial reporting amortization of of identifiable intangibles and goodwill Accrued compensation expenses...

  • Page 60
    ...March 31, 2002, the Internal Revenue Service ("IRS") completed an examination of our consolidated U.S. Federal income tax returns for the years ended March 31, 1999 and 1998. The results of the IRS examination did not have a material effect on our consolidated financial statements. 5. Stockholders...

  • Page 61
    ...Furthermore, pursuant to the 2001 Plan and upon our Board of Directors' authorization in January 2002, any shares of our common stock that are reacquired by us in the open market or in private transactions after the effective date of the 2001 Plan, were added to the limitation on the total shares of...

  • Page 62
    ... issuance under equity outstanding options, outstanding options, compensation plans (excluding Plan name or description and warrant and warrant securities reflected in column (a)) 2001 Plan 117 $ 16.21 559 1996 Plan 923 13.11 1986 Plan 57 6.89 Directors Plan 80 15.33 6 1995 non-qualified options...

  • Page 63
    ... thousand for employee and non-employee director compensation cost. As of December 31, 2002, the unearned deferred compensation for stock options granted to our employees and non-employee directors was $156 thousand. For stock options granted prior to April 1, 2002, we continued using the intrinsic...

  • Page 64
    ...At December 31, 2002, there were 115 thousand shares of unvested restricted stock, which will vest between October 2003 and September 2007. Warrant In July 2000, we granted a warrant to an investment-banking firm in connection with the engagement of such firm to provide advisory services to us. The...

  • Page 65
    ... of the surety bonds posted relate to our aviation fuel services business. As of December 31, 2002, we had $9.8 million in outstanding bonds. Concentration of Credit Risk Our marine and aviation fueling businesses extend unsecured credit to most of their customers. Part of our success in attracting...

  • Page 66
    ...may also incur credit losses due to other causes, including deteriorating conditions in the world economy, or in the shipping or aviation industries, continued conflicts and instability in the Middle East, Asia and Latin America, and military actions in response to the terrorist attacks of September...

  • Page 67
    ... plus deferred compensation, including accrued interest. In July 2002, our Board of Directors elected a new Chairman of the Board of Directors ("Chairman") and Chief Executive Officer ("CEO"), and agreed to employ our former Chairman and CEO as an advisor to the new Chairman for a term of two...

  • Page 68
    ... the promotion of our new Chairman and Chief Executive Officer ("CEO") and new President and Chief Operating Officer ("COO") to their respective positions, in July 2002, they received increases in their base salary, grants of restricted common stock, an extension of their employment period to July...

  • Page 69
    ...March 31, 2002, 2001 and 2000, respectively. Deferred Compensation Plans Our Deferred Compensation Plan ("Deferred Plan") relates to the marine segment and it is administered by a Deferred Plan Committee appointed by the Board of Directors of Trans-Tec Services, Inc. The Deferred Plan was suspended...

  • Page 70
    ...the Ecuador Venture by $953 thousand and recorded a special provision for bad debts of $1.6 million as a result of the political and economic conditions in Ecuador. ... May 2002, and the second installment of $500 thousand was paid in January 2003. PAFCO markets aviation fuel and related services. The...

  • Page 71
    ..., we market marine fuel and related management services to a broad base of international shipping companies and to the United States and foreign militaries. Services include credit terms, 24-hour around-the-world service, fuel management services, and competitively priced fuel. In our aviation fuel...

  • Page 72
    ..., 2002 2001 (Unaudited) Revenue: Marine fuel services Aviation fuel services Total Income from operations: Marine fuel services Aviation fuel services Corporate overhead Total Depreciation and amortization: Marine fuel services Aviation fuel services Corporate Total Capital expenditures: Marine fuel...

  • Page 73
    ... of incorporation (in thousands): For the Nine Months Ended December 31, 2002 2001 (Unaudited) Revenue: United States United Kingdom Singapore Other non-U.S. countries Total Income (loss) from operations: United States United Kingdom Singapore Other non-U.S. countries Total $ 843,543 194,398 235,399...

  • Page 74
    ... to the nine months ended December 31, 2002. (2) Includes two non-recurring, after-tax charges totaling $3.7 million, or $0.36 per basic share and $0.34 per diluted share, relating to judgment settlement and executive severances. See Legal Matters and Employment Agreements in Note 5 for additional...

  • Page 75
    ... registrant and in the capacities and on the dates indicated. Signature /s/ Paul H. Stebbins Paul H. Stebbins Title Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Director, President, and Chief Operating Officer Executive Vice President and Chief Financial Officer...

  • Page 76
    ... certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls...

  • Page 77
    ... certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls...

  • Page 78
    ... certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls...

  • Page 79
    ...- World Fuel ApS, a Denmark corporation (3) - World Fuel International S.R.L., a Costa Rica corporation - World Fuel Singapore Holding Company I Pte. Ltd., a Singapore corporation - Baseops Europe Ltd., a United Kingdom corporation - AirData Limited, a United Kingdom corporation - Trans-Tec Services...

  • Page 80
    C orporate Information

  • Page 81
    ... Paul H. Stebbins Chairman and Chief Executive Officer DIRECT ORY OF OFFICES Aviation Fuel Services World Fuel Services of FL World Fuel Services, Inc. 9800 N.W. 41st Street , Suite 400 Miami, FL 33178 (305) 428-8001 (305) 392-5621 (fax) World Fuel Services Ltd. Baseops Europe Ltd. AirData Limited...

  • Page 82
    ... OCK LIST ING New York Stock Exchange (NYSE) Symbol: INT WEBSIT E Additional information on the Company can be obtained at www.wfscorp.com Trans-Tec Korea Rm 403, Anglican Church Bldg. 3-7, Chung-dong, Chung-ku Seoul 100-120 Korea (822) 739-0437 (822) 739-0599 (fax) Trans-Tec South Africa 129 Beach...

  • Page 83
    ...Operating Officer Michael S. Clementi President and Chief Operating Officer Aviation Division Francis X. Shea Executive Vice President and Chief Financial Officer Robert S. Tocci President and Chief Operating Officer Marine Division Ileana de Armas Vice President of Human Resources and Corporate...

  • Page 84
    9800 N.W. 41st Street (305) 428-8001 • • Suite 400 • • Miami, Florida 33178 • (305) 392-5621 Fax www.wfscorp.com (NYSE: INT )