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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014

 

 

 

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

 

Picture 1

 

WORLD FUEL SERVICES CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

 

 

Florida

(State or other jurisdiction of

incorporation or organization)

 

59-2459427

(I.R.S. Employer

Identification No.)

 

 

 

9800 N.W. 41st Street, Suite 400

Miami, Florida

(Address of Principal Executive Offices)

 

33178

(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  No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  Large accelerated filer   Accelerated filer   Non-accelerated filer   Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  No

 

The registrant had a total of 72,064,000 shares of common stock, par value $0.01 per share, issued and outstanding as of October 24, 2014.

 

 

 


 

 

Table of Contents

 

 

 

 

 

Part I. 

Financial Information

 

 

General

1

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

 

Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013

2

 

 

Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months ended September 30, 2014 and 2013

3

 

 

Consolidated Statements of Shareholders’ Equity for the Nine Months ended September 30, 2014 and 2013

4

 

 

Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2014 and 2013

5

 

 

Notes to the Consolidated Financial Statements

7

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34 

 

 

 

 

 

Item 4.

Controls and Procedures

36 

 

 

 

 

Part II. 

Other Information

 

 

 

 

 

 

Item 1.

Legal Proceedings

37 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38 

 

 

 

 

 

Item 6.

Exhibits

39 

 

 

 

 

Signatures 

 

40 

 

 

 

 

 


 

Part I — Financial Information

 

General

 

The following unaudited consolidated financial statements and notes thereto of World Fuel Services Corporation and its subsidiaries have been prepared in accordance with the instructions to Quarterly Reports on 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, which are of a normal and recurring nature, have been made for the interim periods reported. Results of operations for the three and nine months ended September 30, 2014 are not necessarily indicative of the results for the entire fiscal year. The unaudited consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014 (“10-Q Report”) should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (“2013 10-K Report”). World Fuel Services Corporation (“World Fuel” or the “Company”) and its subsidiaries are collectively referred to in this 10-Q Report as “we,” “our” and “us.”

 

1

 


 

 

Item 1.Financial Statements

 

World Fuel Services Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited - In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

    

September 30,

    

December 31,

 

 

2014

 

2013

Assets:

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

388,544 

 

$

292,061 

Accounts receivable, net

 

 

2,837,050 

 

 

2,538,642 

Inventories

 

 

679,512 

 

 

655,046 

Prepaid expenses

 

 

80,897 

 

 

120,205 

Other current assets

 

 

343,374 

 

 

209,547 

Total current assets

 

 

4,329,377 

 

 

3,815,501 

 

 

 

 

 

 

 

Property and equipment, net

 

 

204,794 

 

 

129,685 

Goodwill

 

 

609,915 

 

 

483,591 

Identifiable intangible and other non-current assets

 

 

379,579 

 

 

310,500 

Total assets

 

$

5,523,665 

 

$

4,739,277 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Short-term debt

 

$

16,390 

 

$

14,647 

Accounts payable

 

 

2,455,915 

 

 

2,210,427 

Customer deposits

 

 

152,589 

 

 

111,068 

Accrued expenses and other current liabilities

 

 

223,090 

 

 

178,373 

Total current liabilities

 

 

2,847,984 

 

 

2,514,515 

 

 

 

 

 

 

 

Long-term debt

 

 

750,885 

 

 

449,064 

Non-current income tax liabilities, net

 

 

92,386 

 

 

82,532 

Other long-term liabilities

 

 

20,700 

 

 

14,272 

Total liabilities

 

 

3,711,955 

 

 

3,060,383 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

World Fuel shareholders' equity:

 

 

 

 

 

 

Preferred stock, $1.00 par value; 100 shares authorized, none issued

 

 

 

 

Common stock, $0.01 par value; 100,000 shares authorized, 72,063 and 71,883 issued and outstanding as of September 30, 2014 and December 31, 2013, respectively

 

 

721 

 

 

719 

Capital in excess of par value

 

 

491,408 

 

 

495,199 

Retained earnings

 

 

1,353,963 

 

 

1,207,299 

Accumulated other comprehensive loss

 

 

(37,728)

 

 

(29,319)

Total World Fuel shareholders' equity

 

 

1,808,364 

 

 

1,673,898 

Noncontrolling interest equity

 

 

3,346 

 

 

4,996 

Total equity

 

 

1,811,710 

 

 

1,678,894 

Total liabilities and equity

 

$

5,523,665 

 

$

4,739,277 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

2

 


 

 

World Fuel Services Corporation and Subsidiaries

Consolidated Statements of Income and Comprehensive Income

(Unaudited - In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months ended

 

For the Nine Months ended

 

 

September 30,

 

September 30,

 

   

2014

   

2013

   

2014

   

2013

Revenue

 

$

11,713,463 

 

$

10,493,661 

 

$

33,606,834 

 

$

31,157,294 

Cost of revenue

 

 

11,498,855 

 

 

10,307,320 

 

 

33,012,678 

 

 

30,600,116 

Gross profit

 

 

214,608 

 

 

186,341 

 

 

594,156 

 

 

557,178 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

 

85,171 

 

 

72,184 

 

 

233,609 

 

 

214,358 

Provision for bad debt

 

 

1,193 

 

 

1,863 

 

 

3,533 

 

 

5,675 

General and administrative

 

 

54,141 

 

 

48,091 

 

 

158,795 

 

 

137,265 

 

 

 

140,505 

 

 

122,138 

 

 

395,937 

 

 

357,298 

Income from operations

 

 

74,103 

 

 

64,203 

 

 

198,219 

 

 

199,880 

Non-operating expenses, net:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense and other financing costs, net

 

 

(8,785)

 

 

(4,580)

 

 

(17,826)

 

 

(12,818)

Other income (expense), net

 

 

2,583 

 

 

(1,135)

 

 

5,921 

 

 

(1,207)

 

 

 

(6,202)

 

 

(5,715)

 

 

(11,905)

 

 

(14,025)

Income before income taxes

 

 

67,901 

 

 

58,488 

 

 

186,314 

 

 

185,855 

Provision for income taxes

 

 

13,441 

 

 

8,191 

 

 

34,964 

 

 

32,090 

Net income including noncontrolling interest

 

 

54,460 

 

 

50,297 

 

 

151,350 

 

 

153,765 

Net (loss) income attributable to noncontrolling interest

 

 

(1,200)

 

 

(1,175)

 

 

(3,263)

 

 

2,552 

Net income attributable to World Fuel

 

$

55,660 

 

$

51,472 

 

$

154,613 

 

$

151,213 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.79 

 

$

0.72 

 

$

2.18 

 

$

2.12 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average common shares

 

 

70,796 

 

 

71,371 

 

 

70,770 

 

 

71,387 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

 

$

0.78 

 

$

0.72 

 

$

2.17 

 

$

2.10 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average common shares

 

 

71,346 

 

 

71,877 

 

 

71,340 

 

 

71,970 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Net income including noncontrolling interest

 

$

54,460 

 

$

50,297 

 

$

151,350 

 

$

153,765 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(17,300)

 

 

121 

 

 

(8,409)

 

 

(8,975)

Cash flow hedges, net of income taxes of $2 and $25 for the three and nine months ended September 30, 2013, respectively

 

 

 —

 

 

(10)

 

 

 —

 

 

(85)

Other comprehensive (loss) income

 

 

(17,300)

 

 

111 

 

 

(8,409)

 

 

(9,060)

Comprehensive income including noncontrolling interest

 

 

37,160 

 

 

50,408 

 

 

142,941 

 

 

144,705 

Comprehensive (loss) income attributable to noncontrolling interest

 

 

(1,200)

 

 

(1,175)

 

 

(3,263)

 

 

2,552 

Comprehensive income attributable to World Fuel

 

$

38,360 

 

$

51,583 

 

$

146,204 

 

$

142,153 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

3

 


 

 

World Fuel Services Corporation and Subsidiaries

Consolidated Statements of Shareholders’ Equity  

(Unaudited - In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

           

 

               

 

                  

 

                    

 

                          

 

                        

 

                         

 

                     

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital in

 

 

 

 

Other

 

World Fuel

 

Noncontrolling

 

 

 

 

 

Common Stock

 

Excess of

 

Retained

 

Comprehensive

 

Shareholders'

 

Interest

 

 

 

 

    

Shares

    

Amount

    

ParValue

    

Earnings

    

Loss

    

Equity

    

Equity

    

Total Equity

Balance as of December 31, 2013

 

71,883 

 

$

719 

 

$

495,199 

 

$

1,207,299 

 

$

(29,319)

 

$

1,673,898 

 

$

4,996 

 

$

1,678,894 

Net income (loss)

 

 

 

 

 

 

 

154,613 

 

 

 

 

154,613 

 

 

(3,263)

 

 

151,350 

Cash dividends declared

 

 

 

 

 

 

 

(7,949)

 

 

 

 

(7,949)

 

 

 

 

(7,949)

Initial noncontrolling interest upon acquisition of joint venture

 

 

 

 

 

 

 

 

 

 

 

 

 

1,855 

 

 

1,855 

Distribution of noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

(242)

 

 

(242)

Amortization of share-based payment awards

 

 

 

 

 

10,668 

 

 

 

 

 

 

10,668 

 

 

 

 

10,668 

Issuance of common stock related to  share-based payment awards

 

449 

 

 

 

 

(4)

 

 

 

 

 

 

 

 

 

 

Purchases of common stock tendered by  employees to satisfy the required withholding taxes related to share-based payment awards

 

(42)

 

 

 

 

(4,458)

 

 

 

 

 

 

(4,458)

 

 

 

 

(4,458)

Purchases of common stock

 

(227)

 

 

(2)

 

 

(9,997)

 

 

 

 

 

 

(9,999)

 

 

 

 

(9,999)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

(8,409)

 

 

(8,409)

 

 

 

 

(8,409)

Balance as of September 30, 2014

 

72,063 

 

$

721 

 

$

491,408 

 

$

1,353,963 

 

$

(37,728)

 

$

1,808,364 

 

$

3,346 

 

$

1,811,710 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

           

 

               

 

                  

 

                    

 

                          

 

                        

 

                         

 

                     

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital in

 

 

 

 

Other

 

World Fuel

 

Noncontrolling

 

 

 

 

 

Common Stock

 

Excess of

 

Retained

 

Comprehensive

 

Shareholders'

 

Interest

 

 

 

 

    

Shares

    

Amount

    

Par Value

    

Earnings

    

Loss

    

Equity

    

Equity

    

Total Equity

Balance as of December 31, 2012

 

72,147 

 

$

721 

 

$

517,589 

 

$

1,014,882 

 

$

(16,018)

 

$

1,517,174 

 

$

24,450 

 

$

1,541,624 

Net income

 

 

 

 

 

 

 

151,213 

 

 

 

 

151,213 

 

 

2,552 

 

 

153,765 

Cash dividends declared

 

 

 

 

 

 

 

(8,013)

 

 

 

 

(8,013)

 

 

 

 

(8,013)

Investment by noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

10,019 

 

 

10,019 

Distribution of noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,497)

 

 

(14,497)

Amortization of share-based payment awards

 

 

 

 

 

12,371 

 

 

 

 

 

 

12,371 

 

 

 

 

12,371 

Issuance of common stock related to share-based payment awards, including income tax benefit of $2,692

 

681 

 

 

 

 

2,685 

 

 

 

 

 

 

2,692 

 

 

 

 

2,692 

Purchases of common stock tendered by employees to satisfy the required withholding taxes related to share-based  payment awards

 

(15)

 

 

 

 

(6,645)

 

 

 

 

 

 

(6,645)

 

 

 

 

(6,645)

Purchases of common stock 

 

(536)

 

 

(5)

 

 

(19,995)

 

 

 

 

 

 

(20,000)

 

 

 

 

 

(20,000)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

(9,060)

 

 

(9,060)

 

 

 

 

(9,060)

Balance as of September 30, 2013

 

72,277 

 

$

723 

 

$

506,005 

 

$

1,158,082 

 

$

(25,078)

 

$

1,639,732 

 

$

22,524 

 

$

1,662,256 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

4

 


 

World Fuel Services Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited - In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months ended

 

 

September 30,

 

    

2014

    

2013

Cash flows from operating activities:

 

 

 

 

 

 

Net income including noncontrolling interest

 

$

151,350 

 

$

153,765 

Adjustments to reconcile net income including noncontrolling interest to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

41,865 

 

 

32,812 

Provision for bad debt

 

 

3,533 

 

 

5,675 

Share-based payment award compensation costs

 

 

11,281 

 

 

12,578 

Deferred income tax provision (benefit)

 

 

8,305 

 

 

(113)

Extinguishment of liabilities

 

 

(3,741)

 

 

(4,918)

Other

 

 

(1,793)

 

 

4,569 

Changes in assets and liabilities, net of acquisitions:

 

 

 

 

 

 

Accounts receivable, net

 

 

(57,685)

 

 

(294,271)

Inventories

 

 

(11,580)

 

 

(40,192)

Prepaid expenses

 

 

44,923 

 

 

40,532 

Other current assets

 

 

(102,246)

 

 

(28,563)

Cash collateral with financial counterparties

 

 

(30,915)

 

 

19,793 

Other non-current assets

 

 

(9,081)

 

 

(7,455)

Accounts payable

 

 

9,957 

 

 

316,003 

Customer deposits

 

 

26,004 

 

 

5,852 

Accrued expenses and other current liabilities

 

 

35,239 

 

 

(5,015)

Non-current income tax, net and other long-term liabilities

 

 

13,649 

 

 

2,695 

Total adjustments

 

 

(22,285)

 

 

59,982 

Net cash provided by operating activities

 

 

129,065 

 

 

213,747 

Cash flows from investing activities:

 

 

 

 

 

 

Acquisition of businesses, net of cash acquired and other investments

 

 

(230,715)

 

 

(40,412)

Capital expenditures

 

 

(37,102)

 

 

(50,286)

Escrow payment related to an assumed obligation of an acquired business

 

 

(21,724)

 

 

 —

Purchase of investments

 

 

(1,206)

 

 

(21,588)

Proceeds from the sale of short-term investments

 

 

 —

 

 

21,588 

Issuances of notes receivable

 

 

 —

 

 

(469)

Repayment of notes receivable

 

 

566 

 

 

 —

Net cash used in investing activities

 

 

(290,181)

 

 

(91,167)

Cash flows from financing activities:

 

 

 

 

 

 

Borrowings under senior revolving credit facility

 

 

4,726,000 

 

 

3,433,500 

Repayments under senior revolving credit facility and senior term loans

 

 

(4,431,000)

 

 

(3,349,000)

Borrowings of other debt

 

 

12,086 

 

 

3,393 

Repayments of acquisition promissory notes and other debt

 

 

(24,509)

 

 

(12,713)

Dividends paid on common stock

 

 

(7,948)

 

 

(8,020)

Investment by noncontrolling interest

 

 

 —

 

 

10,019 

Distribution of noncontrolling interest

 

 

(242)

 

 

(14,497)

Purchases of common stock 

 

 

(9,999)

 

 

(20,000)

Federal and state tax benefits resulting from tax deductions in excess of the compensation cost recognized for share-based payment awards

 

 

 —

 

 

2,692 

Purchases of common stock tendered by employees to satisfy the required withholding taxes related to share-based payment awards

 

 

(4,458)

 

 

(6,645)

Net cash provided by financing activities

 

 

259,930 

 

 

38,729 

Effect of exchange rate changes on cash and cash equivalents

 

 

(2,331)

 

 

(826)

Net increase in cash and cash equivalents

 

 

96,483 

 

 

160,483 

Cash and cash equivalents, as of beginning of period

 

 

292,061 

 

 

172,740 

Cash and cash equivalents, as of end of period

 

$

388,544 

 

$

333,223 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements

5

 


 

Supplemental Schedule of Noncash Investing and Financing Activities:

 

Cash dividends declared, but not yet paid, were $2.6 million as of September 30, 2014 and $2.7 million as of September 30, 2013.

 

As of September 30, 2013, we had accrued capital expenditures totaling $2.8 million, which were recorded in accounts payable.

 

In connection with our acquisitions, the following table presents the assets acquired, net of cash and liabilities assumed (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months ended

 

 

September 30,

 

    

2014

    

2013

Assets acquired, net of cash

 

$

542,143 

 

$

54,998 

 

 

 

 

 

 

 

Liabilities assumed

 

$

317,932 

 

$

30,286 

 

In connection with our acquisitions during the nine months ended September 30, 2014, we issued $9.0 million of promissory notes.  In connection with our acquisitions during the nine months ended September 30, 2013, we issued $3.0 million of promissory notes and recorded an amount payable to sellers related to a purchase price adjustment of $2.0 million.

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

6

 


 

World Fuel Services Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

(Unaudited)

 

1.Acquisitions and Significant Accounting Policies

 

Acquisitions

 

2014 Acquisitions

 

On July 29, 2014, we completed the acquisition of all of the outstanding stock of Colt International, L.L.C. (“Colt”) a leading provider of contract fuel and international trip planning services in the general aviation marketplace. Colt is headquartered in Houston, Texas and offers services at more than 3,000 locations.

 

On March 7, 2014, we completed the acquisition of all of the outstanding stock of Watson Petroleum Limited (“Watson Petroleum”) a leading distributor of gasoline, diesel, heating oil, lubricants and other products and related services. Watson Petroleum is headquartered in Brinkworth, England and is one of the largest fuel distributors in the United Kingdom. 

 

In addition to the above acquisitions, in June 2014, we completed an acquisition in our aviation segment which was not significant.

 

The estimated aggregate purchase price for the 2014 acquisitions was $238.5 million, and is subject to change based on the final value of the net assets acquired. The following reconciles the estimated aggregate purchase price for the 2014 acquisitions to the cash paid for the acquisitions, net of cash acquired (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Estimated purchase price

     

$

238,523 

Less: Cash acquired

 

 

16,167 

Estimated purchase price, net of cash acquired

 

 

222,356 

Less: Promissory notes issued

 

 

9,000 

Less: Amounts due to sellers

 

 

789 

Cash paid for acquisition of businesses

 

$

212,567 

 

The estimated purchase price of the 2014 acquisitions was allocated to the assets acquired and liabilities assumed based on their estimated fair value as of the acquisition date. Since the valuations of the assets acquired and liabilities assumed in connection with the 2014 acquisitions have not been finalized, the allocation of the purchase price of these acquisitions may change. The estimated purchase price allocation for the 2014 acquisitions is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

Assets acquired:

 

 

 

Cash and cash equivalents

    

$

16,167 

Accounts receivable

 

 

256,627 

Inventories

 

 

14,412 

Property and equipment

 

 

61,960 

Identifiable intangible assets

 

 

61,031 

Goodwill

 

 

126,962 

Other current and long-term assets

 

 

21,275 

Liabilities assumed:

 

 

 

Accounts payable

 

 

(247,377)

Accrued expenses and other current liabilities

 

 

(58,771)

Other long-term liabilities

 

 

(11,908)

 

 

 

 

Initial noncontrolling interest upon acquisition of joint venture

 

 

(1,855)

Estimated purchase price

 

$

238,523 

 

7

 


 

Upon the completion of the acquisition of Watson Petroleum, we made a payment of £13.0 million ($21.7 million) to an escrow account related to an assumed obligation.  As of September 30, 2014, the escrow account balance and corresponding assumed obligation of £13.0 million ($21.1 million) are included in other current assets and accrued expenses and other current liabilities, respectively, in the accompanying consolidated balance sheets.

 

In connection with the 2014 acquisitions, we recorded goodwill of $127.0 million of which $20.5 million is anticipated to be deductible for tax purposes. The identifiable intangible assets consisted of $51.9 million of customer relationships and $3.3 million of other identifiable intangible assets with weighted average lives of 4.2 years and 2.5 years, respectively, as well as $5.8 million of indefinite-lived trademark/trade name rights.

 

The following presents the unaudited pro forma results for 2014 and 2013 as if the 2014 acquisitions had been completed on January 1, 2013 (in thousands, except per share data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months ended

 

For the Nine Months ended

 

 

September 30,

 

September 30,

 

    

2014

    

2013

    

2014

    

2013

 

 

(pro forma)

 

(pro forma)

 

(pro forma)

 

(pro forma)

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

11,748,457 

 

$

11,127,729 

 

$

34,289,238 

 

$

33,031,887 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to World Fuel

 

$

56,350 

 

$

51,786 

 

$

158,778 

 

$

160,417 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.80 

 

$

0.73 

 

$

2.24 

 

$

2.25 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

$

0.79 

 

$

0.72 

 

$

2.23 

 

$

2.23 

 

The financial position, results of operations and cash flows of the 2014 acquisitions have been included in our consolidated financial statements since their respective acquisition dates and did not have a significant impact on our results for the three and nine months ended September 30, 2014.

 

Significant Accounting Policies

 

Except as updated below, the significant accounting policies we use for quarterly financial reporting are the same as those disclosed in Note 1 of the “Notes to the Consolidated Financial Statements” included in our 2013 10‑K Report.

 

Goodwill

 

During the first nine months of 2014, we recorded goodwill of $100.4 million in our land segment and goodwill of $26.6 million in our aviation segment in connection with the 2014 acquisitions and we increased land segment goodwill by $0.4 million as a result of a reduction in identifiable intangible assets based on our ongoing fair value assessment of certain of our 2013 acquisitions.  Additionally, we had goodwill decreases of $0.7 million, $0.3 million and $0.1 million as a result of foreign currency translation adjustments of our non-U.S. dollar functional currency subsidiaries in our land, marine and aviation segments, respectively.

 

Other Investments

 

As of September 30, 2014 and December 31, 2013, we had other investments, consisting primarily of equity investments, net of basis adjustments, of $106.4 million and $83.8 million, respectively, which are included within identifiable intangible and other non-current assets in the accompanying consolidated balance sheets.

 

8

 


 

Recent Accounting Pronouncements

 

Presentation of Financial Statements-Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.  In August 2014, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) which requires management of the Company to evaluate whether there is substantial doubt about the Company’s ability to continue as a going concern. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption permitted. We do not expect the adoption of this new guidance to have an impact on our financial statement disclosures.

 

Compensation-Stock Compensation.  In June 2014, the FASB issued an ASU which includes guidance which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015.  We do not believe the adoption of this new guidance will have a significant impact on our consolidated financial statements and disclosures.

 

Transfers and Servicing: Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures.  In June 2014, the FASB issued an ASU which changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. It also requires additional disclosures about repurchase agreements and other similar transactions. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. We do not believe the adoption of this new guidance will have a significant impact on our consolidated financial statements and disclosures.

 

Revenue from Contracts with Customers.  In May 2014, the FASB issued an ASU which provides guidance for revenue recognition for any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. We are currently evaluating whether the adoption of this new guidance will have a significant impact on our consolidated financial statements and disclosures.

 

Presentation of Financial Statements and Property, Plant, and Equipment: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.  In April 2014, the FASB issued an ASU which changes the criteria for reporting discontinued operations while enhancing disclosures in this area. It also addresses sources of confusion and inconsistent application related to financial reporting of discontinued operations guidance. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014.  We do not believe the adoption of this new guidance will have a significant impact on our consolidated financial statements and disclosures.

 

Presentation of an Unrecognized Tax Benefit When a Net Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.  In July 2013, the FASB issued an ASU on the presentation of an unrecognized tax benefit when a net operating loss carryforward exists. Under this guidance, an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward.  This update became effective at the beginning of our 2014 fiscal year. The adoption of this ASU did not have a significant impact on our consolidated financial statements and disclosures.

 

Foreign Currency Matters Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Foreign Subsidiaries.  In March 2013, the FASB issued an ASU aimed at resolving the diversity in practice of accounting for the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. In addition, the amendments in this ASU resolve the diversity in practice for the treatment of business combinations achieved in stages (sometimes also referred to as step acquisitions) involving a foreign entity.  This update became effective at the beginning of our 2014 fiscal year.  The adoption of this ASU did not have a significant impact on our consolidated financial statements and disclosures.

 

 

 

9

 


 

Disclosure Obligations Resulting from Joint and Several Liability Arrangements.  In February 2013, the FASB issued an ASU clarifying the guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this ASU is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP.  This update became effective at the beginning of our 2014 fiscal year.  The adoption of this ASU did not have a significant impact on our consolidated financial statements and disclosures.

 

Reclassifications

 

Certain amounts in prior periods have been reclassified to conform to the current period’s presentation.

 

2.Derivatives

 

We enter into financial derivative contracts in order to mitigate the risk of market price fluctuations in aviation, marine and land fuel, to offer our customers fuel pricing alternatives to meet their needs and to mitigate the risk of fluctuations in foreign currency exchange rates.  We also enter into proprietary derivative transactions, primarily intended to capitalize on arbitrage opportunities related to basis or time spreads related to fuel products we sell.  We have applied the normal purchase and normal sales exception (“NPNS”), as provided by accounting guidance for derivative instruments and hedging activities, to certain of our physical forward sales and purchase contracts.  While these contracts are considered derivative instruments under the guidance for derivative instruments and hedging activities, they are not recorded at fair value, but rather are recorded in our consolidated financial statements when physical settlement of the contracts occurs.  If it is determined that a transaction designated as NPNS no longer meets the scope of the exception, the fair value of the related contract is recorded as an asset or liability on the consolidated balance sheet and the difference between the fair value and the contract amount is immediately recognized through earnings.

 

The following describes our derivative classifications:

 

Cash Flow Hedges.  Includes certain of our foreign currency forward contracts we enter into in order to mitigate the risk of currency exchange rate fluctuations.

 

Fair Value Hedges.  Includes derivatives we enter into in order to hedge price risk associated with our inventory and certain firm commitments relating to fixed price purchase and sale contracts.

 

Non-designated Derivatives.  Includes derivatives we primarily enter into in order to mitigate the risk of market price fluctuations in aviation, marine and land fuel in the form of swaps or futures as well as certain fixed price purchase and sale contracts and proprietary trading. In addition, non-designated derivatives are also entered into to hedge the risk of currency rate fluctuations.

10

 


 

As of September 30, 2014, our derivative instruments, at their respective fair value positions were as follows (in thousands, except weighted average fixed price and weighted average mark-to-market amount): 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

Mark-to-

 

 

 

 

 

Settlement

 

                                                                   

 

 

 

 

 

Average

 

Market

 

Fair Value

Hedge Strategy

    

Period

    

Derivative Instrument

    

Notional

    

Unit

    

Fixed Price

    

Amount

    

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Hedge

 

2014

 

Commodity contracts for inventory hedging (long)

 

267 

 

BBL

 

$

106.35 

 

$

(2.850)

 

$

(761)

 

 

2014

 

Commodity contracts for inventory hedging (short)

 

4,853 

 

BBL

 

 

72.52 

 

 

2.912 

 

 

14,130 

 

 

2015

 

Commodity contracts for inventory hedging (short)

 

10 

 

BBL

 

 

113.17 

 

 

1.300 

 

 

13 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

13,382 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Designated

 

2014

 

Commodity contracts (long)

 

14,323 

 

BBL

 

$

81.37 

 

$

(4.211)

 

$

(60,319)

 

 

2014

 

Commodity contracts (short)

 

13,783 

 

BBL

 

 

91.92 

 

 

5.316 

 

 

73,275 

 

 

2015

 

Commodity contracts (long)

 

17,690 

 

BBL

 

 

70.99 

 

 

(1.803)

 

 

(31,900)

 

 

2015

 

Commodity contracts (short)

 

12,864 

 

BBL

 

 

98.41 

 

 

3.234 

 

 

41,604 

 

 

2016

 

Commodity contracts (long)

 

744 

 

BBL

 

 

91.37 

 

 

(3.231)

 

 

(2,404)

 

 

2016

 

Commodity contracts (short)

 

392 

 

BBL

 

 

95.86 

 

 

3.926 

 

 

1,539 

 

 

2017

 

Commodity contracts (long)

 

56 

 

BBL

 

 

24.20 

 

 

(0.214)

 

 

(12)

 

 

2017

 

Commodity contracts (short)

 

11 

 

BBL

 

 

70.94 

 

 

5.909 

 

 

65 

 

 

2018

 

Commodity contracts (long)

 

18 

 

BBL

 

 

25.66 

 

 

 —

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,848 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

Foreign currency contracts (long)

 

10,746 

 

AUD

 

 

0.93 

 

 

(0.060)

 

 

(641)

 

 

2014

 

Foreign currency contracts (short)

 

8,664 

 

AUD

 

 

0.91 

 

 

0.051 

 

 

445 

 

 

2014

 

Foreign currency contracts (long)

 

5,183 

 

BRL

 

 

2.28 

 

 

(0.030)

 

 

(157)

 

 

2014

 

Foreign currency contracts (long)

 

7,690 

 

CAD

 

 

1.09 

 

 

(0.026)

 

 

(201)

 

 

2014

 

Foreign currency contracts (short)

 

36,225 

 

CAD

 

 

1.09 

 

 

0.028 

 

 

1,014 

 

 

2014

 

Foreign currency contracts (long)

 

1,847,698 

 

CLP

 

 

587.54 

 

 

(0.000)

 

 

(180)

 

 

2014

 

Foreign currency contracts (short)

 

2,385,660 

 

CLP