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EX-31.2 - EXHIBIT 31.2 - WORLD FUEL SERVICES CORPa2016q3ex312.htm
EX-32.1 - EXHIBIT 32.1 - WORLD FUEL SERVICES CORPa2016q3ex321.htm
EX-31.1 - EXHIBIT 31.1 - WORLD FUEL SERVICES CORPa2016q3ex311.htm


 
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, 2016
 
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
logo.jpg
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
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 70,462,000 shares of common stock, par value $0.01 per share, issued and outstanding as of October 20, 2016.

 



Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Part I — Financial Information
 
Item 1.
Financial Statements
 
World Fuel Services Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited - In millions, except per share data)
 
 
 
As of
 
 
 
September 30,

 
December 31,

 
 
2016

 
2015

Assets:
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
872.3

 
$
582.5

Accounts receivable, net
 
2,062.6

 
1,812.6

Inventories
 
484.5

 
359.1

Prepaid expenses
 
57.6

 
57.9

Short-term derivative assets, net
 
34.4

 
220.4

Other current assets
 
241.2

 
208.0

Current assets held for sale
 

 
5.5

Total current assets
 
3,752.5

 
3,246.0

Property and equipment, net
 
260.3

 
225.6

Goodwill
 
720.0

 
675.8

Identifiable intangible and other non-current assets
 
419.7

 
341.4

Non-current assets held for sale
 

 
36.5

Total assets
 
$
5,152.5

 
$
4,525.3

Liabilities:
 
 

 
 

Current liabilities:
 
 

 
 

Short-term debt
 
$
28.8

 
$
25.5

Accounts payable
 
1,558.6

 
1,349.6

Customer deposits
 
106.5

 
118.3

Accrued expenses and other current liabilities
 
254.3

 
255.2

Current liabilities held for sale
 

 
5.6

Total current liabilities
 
1,948.2

 
1,754.2

 
 
 
 
 
Long-term debt
 
1,110.1

 
746.7

Non-current income tax liabilities, net
 
86.0

 
87.7

Other long-term liabilities
 
31.4

 
25.8

Non-current liabilities held for sale
 

 
5.0

Total liabilities
 
3,175.7

 
2,619.4

Commitments and contingencies
 


 


Equity:
 
 

 
 

World Fuel shareholders' equity:
 
 

 
 

Preferred stock, $1.00 par value; 0.1 shares authorized, none issued
 

 

Common stock, $0.01 par value; 100 shares authorized, 70.4 and 70.8 issued and outstanding as of September 30, 2016 and December 31, 2015, respectively
 
0.7

 
0.7

Capital in excess of par value
 
418.0

 
435.3

Retained earnings
 
1,681.2

 
1,569.4

Accumulated other comprehensive loss
 
(138.3
)
 
(109.5
)
Total World Fuel shareholders' equity
 
1,961.6

 
1,895.9

Noncontrolling interest equity
 
15.2

 
10.0

Total equity
 
1,976.8

 
1,905.9

Total liabilities and equity
 
$
5,152.5

 
$
4,525.3

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


1


World Fuel Services Corporation and Subsidiaries
Consolidated Statements of Income and Comprehensive Income
(Unaudited – In millions, except per share data)
 
 
 
For the Three Months Ended
 
 
For the Nine Months Ended
 
 
 
September 30,
 
 
September 30,
 
 
 
2016

 
2015

 
2016

 
2015

Revenue
 
$
7,399.8

 
$
7,810.7

 
$
19,223.6

 
$
23,647.8

Cost of revenue
 
7,163.1

 
7,584.0

 
18,546.9

 
23,017.1

Gross profit
 
236.7

 
226.7

 
676.7

 
630.7

Operating expenses:
 
 

 
 

 
 

 
 

Compensation and employee benefits
 
106.6

 
94.2

 
306.2

 
270.3

Provision for bad debt
 
1.5

 
1.6

 
5.4

 
5.2

General and administrative
 
70.3

 
64.5

 
200.2

 
179.6

 
 
178.4

 
160.3

 
511.9

 
455.1

Income from operations
 
58.2

 
66.4

 
164.8

 
175.6

Non-operating expenses, net:
 
 

 
 

 
 

 
 

Interest expense and other financing costs, net
 
(10.3
)
 
(7.9
)
 
(26.0
)
 
(21.5
)
Other income, net
 
0.5

 
1.9

 
1.2

 
0.5

 
 
(9.8
)
 
(6.0
)
 
(24.8
)
 
(21.0
)
Income before income taxes
 
48.4

 
60.4

 
140.1

 
154.6

Provision for income taxes
 
5.4

 
17.7

 
15.7

 
33.6

Net income including noncontrolling interest
 
43.0

 
42.7

 
124.4

 
121.0

Net income (loss) attributable to noncontrolling interest
 
0.3

 
(1.0
)
 
0.1

 
(3.5
)
Net income attributable to World Fuel
 
$
42.7

 
$
43.7

 
$
124.3

 
$
124.5

 
 
 
 
 
 
 
 
 
Basic earnings per common share
 
$
0.62

 
$
0.62

 
$
1.79

 
$
1.77

 
 
 
 
 
 
 
 
 
Basic weighted average common shares
 
69.1

 
70.0

 
69.4

 
70.5

 
 
 
 
 
 
 
 
 
Diluted earnings per common share
 
$
0.61

 
$
0.62

 
$
1.78

 
$
1.75

 
 
 
 
 
 
 
 
 
Diluted weighted average common shares
 
69.5

 
70.3

 
69.9

 
71.0

 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 

 
 
 
 
 
 
Net income including noncontrolling interest
 
$
43.0

 
$
42.7

 
$
124.4

 
$
121.0

Other comprehensive (loss) income:
 
 

 
 

 
 

 
 
Foreign currency translation adjustments
 
(14.6
)
 
(27.4
)
 
(27.9
)
 
(38.0
)
Derivative instruments, net of income tax benefit of $4.8 and $1.7 for the three and nine months ended September 30, 2016, respectively
 
(7.7
)
 
(1.1
)
 
(2.8
)
 
(1.1
)
Other comprehensive (loss)
 
(22.4
)
 
(28.5
)
 
(30.7
)
 
(39.1
)
Comprehensive income including noncontrolling interest
 
20.7

 
14.2

 
93.7

 
81.9

Comprehensive income (loss) attributable to noncontrolling interest
 
1.4

 
(1.2
)
 
1.9

 
(1.2
)
Comprehensive income attributable to World Fuel
 
$
19.3

 
$
15.4

 
$
91.9

 
$
83.1

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


2


World Fuel Services Corporation and Subsidiaries
Consolidated Statements of Shareholders’ Equity  
(Unaudited - In millions)
 
 
 
Common Stock
 
 
Capital in
Excess of
Par Value

 
Retained
Earnings

 
Accumulated
Other
Comprehensive
Loss

 
Total
World Fuel
Shareholders'
Equity

 
Noncontrolling
Interest
Equity

 
 

 
 
Shares

 
Amount

 
 
 
 
 
 
Total Equity

 
Balance as of December 31, 2015
70.8

 
$
0.7

 
$
435.3

 
$
1,569.4

 
$
(109.5
)
 
$
1,895.9

 
$
10.0

 
$
1,905.9

 
Net income

 

 

 
124.3

 

 
124.3

 
0.1

 
124.4

 
Cash dividends declared

 

 

 
(12.5
)
 

 
(12.5
)
 

 
(12.5
)
 
Distribution of noncontrolling interest

 

 

 

 

 

 
(0.2
)
 
(0.2
)
 
Amortization of share-based payment awards

 

 
14.5

 

 

 
14.5

 

 
14.5

 
Issuance of common stock related to share-based payment awards including income tax benefit of $1.6 million
0.1

 

 
1.6

 

 

 
1.6

 

 
1.6

 
Purchases of common stock tendered by employees to satisfy the required withholding taxes related to share-based payment awards
(0.1
)
 

 
(4.2
)
 

 

 
(4.2
)
 

 
(4.2
)
 
Purchases of common stock
(0.4
)
 

 
(18.4
)
 

 

 
(18.4
)
 

 
(18.4
)
(a)
Acquisition of remaining 49% equity interest

 

 
(10.9
)
 

 

 
(10.9
)
 
7.2

 
(3.7
)
 
Other comprehensive (loss) income

 

 

 

 
(28.9
)
 
(28.9
)
 
(1.8
)
 
(30.7
)
 
Balance as of September 30, 2016
70.4

 
$
0.7

 
$
418.0

 
$
1,681.2

 
$
(138.3
)
 
$
1,961.6

 
$
15.2

 
$
1,976.8

(a)     Relates to Tobras. See Note 3. Acquisitions, Asset and Liabilities Held for Sale. 
 
 
 
 
Common Stock
 
 
Capital in
Excess of
Par Value

 
Retained
Earnings

 
Accumulated
Other
Comprehensive
Loss

 
Total
World Fuel
Shareholders'
Equity

 
Noncontrolling
Interest
Equity

 
 

 
 
Shares

 
Amount

 
 
 
 
 
 
Total Equity

 
Balance as of December 31, 2014
72.1

 
$
0.7

 
$
496.4

 
$
1,412.0

 
$
(59.2
)
 
$
1,849.9

 
$
9.5

 
$
1,859.4

 
Net income

 

 

 
124.5

 

 
124.5

 
(3.6
)
 
121.0

 
Cash dividends declared

 

 

 
(12.6
)
 

 
(12.6
)
 

 
(12.6
)
 
Investment by noncontrolling interest

 

 

 

 

 

 
0.5

 
0.5

 
Distribution of noncontrolling interest

 

 

 

 

 

 
(0.3
)
 
(0.3
)
 
Amortization of share-based payment awards

 

 
13.0

 

 

 
13.0

 

 
13.0

 
Issuance of common stock related to share-based payment awards
0.3

 

 

 

 

 

 

 

 
Purchases of common stock tendered by employees to satisfy the required withholding taxes related to share-based payment awards
(0.1
)
 

 
(6.8
)
 

 

 
(6.8
)
 

 
(6.8
)
 
Purchases of common stock
(1.6
)
 

 
(70.5
)
 

 

 
(70.5
)
 

 
(70.5
)
 
Other comprehensive (loss) income

 

 

 

 
(43.8
)
 
(43.8
)
 
4.6

 
(39.1
)
 
Other

 

 
(0.1
)
 

 

 
(0.1
)
 
0.1

 

 
Balance as of September 30, 2015
70.8

 
$
0.7

 
$
431.9

 
$
1,523.9

 
$
(103.0
)
 
$
1,853.5

 
$
10.9

 
$
1,864.4

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


3


World Fuel Services Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited - In millions)
 
 
For the Nine Months Ended
 
 
 
September 30,
 
 
 
2016

 
2015

Cash flows from operating activities:
 
 
 
 
Net income including noncontrolling interest
 
$
124.4

 
$
121.0

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

 
 
Depreciation and amortization
 
58.4

 
47.0

Provision for bad debt
 
5.4

 
5.2

Gain on sale of held for sale assets and liabilities
 
(3.8
)
 

Share-based payment award compensation costs
 
14.5

 
13.2

Deferred income tax provision (benefit)
 
(14.5
)
 
6.9

Extinguishment of liabilities, net
 
(5.2
)
 
(6.9
)
Foreign currency losses, net
 
(18.3
)
 
4.0

Other
 
2.6

 
2.3

Changes in assets and liabilities, net of acquisitions:
 
 

 
 
Accounts receivable, net
 
(212.3
)
 
261.9

Inventories
 
(89.3
)
 
22.6

Prepaid expenses
 
(0.2
)
 
(9.9
)
Short-term derivative assets, net
 
192.5

 
119.0

Other current assets
 
(30.4
)
 
(115.6
)
Cash collateral with financial counterparties
 
128.8

 
93.9

Other non-current assets
 
13.6

 
3.2

Accounts payable
 
213.2

 
(213.4
)
Customer deposits
 
(10.5
)
 
(14.5
)
Accrued expenses and other current liabilities
 
(144.5
)
 
(19.2
)
Non-current income tax, net and other long-term liabilities
 
(4.0
)
 
4.7

Total adjustments
 
95.9

 
204.3

Net cash provided by operating activities
 
220.3

 
325.2

Cash flows from investing activities:
 
 

 
 
Acquisition of businesses, net of cash acquired and other investments
 
(266.4
)
 
(82.0
)
Proceeds from sale of business
 
29.3

 

Capital expenditures
 
(28.9
)
 
(36.4
)
Other investing activities, net
 
6.9

 
4.4

Net cash (used in) investing activities
 
(259.2
)
 
(114.0
)
Cash flows from financing activities:
 
 

 
 
Borrowings of debt
 
2,810.6

 
4,169.0

Repayments of debt
 
(2,451.1
)
 
(3,977.6
)
Payments of senior revolving credit facility and senior term loan facility loan costs
 

 
(3.4
)
Dividends paid on common stock
 
(12.5
)
 
(11.1
)
Purchases of common stock
 
(18.4
)
 
(70.5
)
Federal and state tax benefits resulting from tax deductions in excess of the compensation cost recognized for share-based payment awards
 
1.6

 

Purchases of common stock tendered by employees to satisfy the required withholding taxes related to share-based payment awards
 
(4.2
)
 
(6.8
)
Other financing activities, net
 
(0.2
)
 
0.2

Net cash provided by financing activities
 
325.7

 
99.9

Effect of exchange rate changes on cash and cash equivalents
 
3.0

 
(3.8
)
Net increase in cash and cash equivalents
 
289.9

 
307.3

Cash and cash equivalents, as of beginning of period
 
582.5

 
302.3

Cash and cash equivalents, as of end of period
 
$
872.3

 
$
609.6

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



4


Supplemental Schedule of Noncash Investing and Financing Activities:
 
Cash dividends declared, but not yet paid, were $4.2 million as of September 30, 2016 and $4.2 million as of September 30, 2015.
 
Prior to the acquisition of the remaining 49% of the outstanding equity interest of Tobras Distribuidora de Combustiveis Limitada (“Tobras”) from the minority owners, the Company completed a $17.7 million non-cash settlement related to two promissory notes outstanding between the Company and Tobras which were offset and settled.
 
The proceeds from the sale of fixed assets for the nine months ended September 30, 2015 were in connection with a sale-leaseback arrangement.
 
In connection with our acquisitions, the following table presents the assets acquired, net of cash and liabilities assumed (in millions):
 
 
For the Nine Months Ended

For the Nine Months Ended

 
September 30, 2016

September 30, 2015

Assets acquired, net of cash
$
321.6

$
100.1

 
 
 
Liabilities assumed
$
59.2

$
22.3

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


5


World Fuel Services Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
(Unaudited) 
1. Basis of Presentation and Significant Accounting Policies
 
Basis of Presentation
 
We prepared the consolidated financial statements following the requirements of the Unites States (U.S.) Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States of America (U.S. GAAP) can be condensed or omitted. Unless the context requires otherwise, references to “World Fuel”, “the Company”, “we”, “us”, or “our” in this Quarterly Report on Form 10-Q (“10-Q Report”)  refer to World Fuel Services Corporation and its subsidiaries.
 
Revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be representative of those for the full year. As further discussed in Note 2, certain 2015 amounts contained in this 10-Q Report have been updated to reflect corrections to our previously issued financial statements. In the opinion of management, all adjustments necessary for a fair statement of the financial information, which are of a normal and recurring nature, have been made for the interim periods reported. The information included in this 10-Q Report should be read in conjunction with the consolidated financial statements and accompanying notes included in our 2015 Annual Report on Form 10-K (“2015 10-K Report”). Certain amounts in the consolidated financial statements and associated notes may not add due to rounding. All percentages have been calculated using unrounded amounts.
 
Significant Accounting Policies
 
The significant accounting policies we use for quarterly financial reporting are disclosed in Note 1 of the “Notes to the Consolidated Financial Statements” included in our 2015 10‑K Report, and as updated in our 10-Q Report for the quarter ended March 31, 2016, “Item 2. Management’s Discussion and Analysis of Financial Condition”.
 
Adoption of New Accounting Standards
 
The following accounting standards updates were recently adopted by the Company:
 
Business Combinations: Simplifying the Accounting for Measurement – Period Adjustments.  In September 2015, the Financial Accounting Standards Board (‘FASB”) issued an Accounting Standards Update (“ASU”), to simplify the accounting for adjustments made to provisional amounts recognized in a business combination; the amendments eliminate the requirement to retrospectively account for those adjustments. The ASU requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. It also requires the acquirer to record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.  This update became effective at the beginning of our 2016 fiscal year. The adoption of this ASU did not have a significant impact on our consolidated financial statements and disclosures. 
  
Interest—Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs. In April 2015, the FASB issued an ASU which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. This update became effective at the beginning of our 2016 fiscal year.  The adoption of this ASU did not have a significant impact on our consolidated financial statements and disclosures.
 
Consolidation: Amendments to the Consolidation Analysis.  In February 2015, the FASB issued an ASU which is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures. This update became effective at the beginning of our 2016 fiscal year.  The adoption of this ASU did not have a significant impact on our consolidated financial statements and disclosures.
 
Income Statement-Extraordinary and Unusual Items: Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. In January 2015, the FASB issued an ASU which eliminates the concept of extraordinary items. This update became effective at the beginning of our 2016 fiscal year.  The adoption of this ASU did not have a significant impact on our consolidated financial statements and disclosures.
 

6


Derivatives and Hedging: Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity. In November 2014, the FASB issued an ASU which clarifies how current generally accepted accounting principles in the United States should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share.  This update became effective at the beginning of our 2016 fiscal year.  The adoption of this ASU did not have a significant impact on our consolidated financial statements and disclosures.
 
Going Concern: In August 2014, the FASB issued an ASU 2014-15, Presentation of Financial Statements-Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, 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 the annual period ending after December 15, 2016, and for annual and interim periods thereafter. We do not believe the adoption of this new guidance will have an impact on our financial statement disclosures.

Compensation - Stock Compensation: Accounting for Share-Based Payments when the Terms of an Award Provide that a Performance Target could be Achieved after the Requisite Service Period. In June 2014, the FASB issued an ASU which includes guidance that requires a performance target that affects vesting and that could be achieved after the requisite service period to be treated as a performance condition. This update became effective at the beginning of our 2016 fiscal year. The adoption of this ASU did not have a significant impact on our consolidated financial statements and disclosures.
 
2. Correction of Previously Issued Financial Information
 
During the second quarter of 2016, we identified a correction to our provision for income taxes for certain prior periods, due to the accounting for the tax effects of foreign currency translation changes on intercompany loans that are considered to be of a long-term investment nature.  The Company determined that it had incorrectly applied the accounting guidance in ASC 740, Income Taxes and recorded a deferred tax asset related to foreign currency translation losses in the provision for income taxes, resulting in the Company reporting a lower provision for income taxes in the periods that were impacted.
 
In accordance with Staff Accounting Bulletin (“SAB”) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, management evaluated the materiality of the error from qualitative and quantitative perspectives, and concluded the error was not material to its previously issued annual and interim financial statements. The cumulative amounts of the corrections were approximately $20.0 million, of which approximately $12.5 million was attributable to the year ended December 31, 2015. The cumulative amount of the prior period adjustments would have been material to our Statement of Income and Comprehensive Income for the quarter ended June 30, 2016, had we made the correction in that period. Accordingly, we have revised our previously issued financial statements prospectively to correct these errors.
 
The corrections associated with the provision for income taxes line items as well as other immaterial adjustments are reflected in this 10-Q Report for all periods presented and those corrections will be reflected in our future fillings.

7


The following table presents the effect of the correction on the previously reported consolidated balance sheet as of December 31, 2015 and the statements of income and comprehensive income for the three and nine months ended September 30, 2015:

Consolidated Balance Sheets
(Unaudited - In millions, except per share data)
 
As of December 31, 2015
 
 
As Reported

 
Adjustment

 
Revised

Assets:
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
582.5

 

 
$
582.5

Accounts receivable, net
1,812.6

 

 
1,812.6

Inventories
359.1

 

 
359.1

Prepaid expenses
57.9

 

 
57.9

Short-term derivative assets, net
227.2

 
(6.8
)
 
220.4

Other current assets
209.8

 
(1.8
)
 
208.0

Current assets held for sale
5.5

 

 
5.5

Total current assets
3,254.6

 
(8.6
)
 
3,246.0

 
 
 
 
 
 
Property and equipment, net
225.6

 

 
225.6

Goodwill
675.8

 

 
675.8

Identifiable intangible and other non-current assets
356.9

 
(15.5
)
 
341.4

Non-current assets held for sale
36.5

 

 
36.5

Total assets
$
4,549.4

 
(24.1
)
 
$
4,525.3

 
 
 
 
 
 
Liabilities:
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Short-term debt
$
25.5

 

 
$
25.5

Accounts payable
1,349.6

 

 
1,349.6

Customer deposits
118.3

 

 
118.3

Accrued expenses and other current liabilities
263.8

 
(8.6
)
 
255.2

Current liabilities held for sale
5.6

 

 
5.6

Total current liabilities
1,762.8

 
(8.6
)
 
1,754.2

 
 
 
 
 
 
Long-term debt
746.7

 

 
746.7

Non-current income tax liabilities, net
87.7

 

 
87.7

Other long-term liabilities
25.8

 

 
25.8

Non-current liabilities held for sale
5.0

 

 
5.0

Total liabilities
$
2,628.0

 
(8.6
)
 
$
2,619.4

 
 
 
 
 
 
Commitments and contingencies


 

 


 
 
 
 
 
 
Equity:
 
 
 
 
 
World Fuel shareholders' equity:
 
 
 
 
 
Preferred stock, $1.00 par value; 0.1 shares authorized, none issued

 

 

Common stock, $0.01 par value; 100 shares authorized, 70.8 issued and outstanding as of December 31, 2015
0.7

 

 
0.7

Capital in excess of par value
435.3

 

 
435.3

Retained earnings
1,588.6

 
(19.2
)
 
1,569.4

Accumulated other comprehensive loss
(113.2
)
 
3.7

 
(109.5
)
Total World Fuel shareholders' equity
1,911.4

 
(15.5
)
 
1,895.9

Noncontrolling interest equity
10.0

 

 
10.0

Total equity
1,921.4

 
(15.5
)
 
1,905.9

Total liabilities and equity
$
4,549.4

 
(24.1
)
 
$
4,525.3


8


Consolidated Statement of Income and Comprehensive Income
(Unaudited - In millions, except per share data)

 
 
For the Three Months Ended
 
 
For the Nine Months Ended
 
 
 
September 30, 2015
 
 
September 30, 2015
 
 
 
As Reported

 
Adjustment

 
Revised

 
As Reported

 
Adjustment

 
Revised

Revenue
 
$
7,810.7

 

 
$
7,810.7

 
$
23,647.8

 

 
$
23,647.8

Cost of revenue
 
7,584.0

 

 
7,584.0

 
23,015.2

 
1.9

 
23,017.1

Gross profit
 
226.7

 

 
226.7

 
632.6

 
(1.9
)
 
630.7

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Compensation and employee benefits
 
94.2

 

 
94.2

 
270.5

 
(0.2
)
 
270.3

Provision for bad debt
 
1.6

 

 
1.6

 
5.2

 

 
5.2

General and administrative
 
64.5

 

 
64.5

 
177.6

 
2.0

 
179.6

 
 
160.3

 

 
160.3

 
453.3

 
1.8

 
455.1

Income from operations
 
66.4

 

 
66.4

 
179.3

 
(3.7
)
 
175.6

Non-operating expenses, net:
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense and other financing costs, net
 
(7.9
)
 

 
(7.9
)
 
(21.5
)
 

 
(21.5
)
Other income, net
 
1.9

 

 
1.9

 
0.5

 

 
0.5

 
 
(6.0
)
 

 
(6.0
)
 
(21.0
)
 

 
(21.0
)
Income before income taxes
 
60.4

 

 
60.4

 
158.3

 
(3.7
)
 
154.6

Provision for income taxes
 
11.8

 
5.9

 
17.7

 
26.8

 
6.8

 
33.6

Net income including noncontrolling interest
 
48.6

 
(5.9
)
 
42.7

 
131.5

 
(10.5
)
 
121.0

Net (loss) attributable to noncontrolling interest
 
(1.0
)
 

 
(1.0
)
 
(3.6
)
 
0.1

 
(3.5
)
Net income attributable to World Fuel
 
$
49.6

 
(5.9
)
 
$
43.7

 
$
135.1

 
(10.6
)
 
$
124.5

 
 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings per common share
 
$
0.71

 
(0.09
)
 
$
0.62

 
$
1.92

 
(0.15
)
 
$
1.77

 
 
 
 
 
 
 
 
 
 
 
 
 
Basic weighted average common shares
 
70.0

 

 
70.0

 
70.5

 

 
70.5

 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per common share
 
$
0.71

 
(0.09
)
 
$
0.62

 
$
1.90

 
(0.15
)
 
$
1.75

 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted weighted average common shares
 
70.3

 

 
70.3

 
71.0

 

 
71.0

 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income including noncontrolling interest
 
$
48.6

 
(5.9
)
 
$
42.7

 
$
131.5

 
(10.5
)
 
$
121.0

Other comprehensive income (loss):
 
 
 


 
 

 
 
 


 
 
Foreign currency translation adjustments
 
(31.0
)
 
3.6

 
(27.4
)
 
(42.8
)
 
4.8

 
(38.0
)
Derivative instruments, net of income tax benefit of $0.7 for the three and nine months ended September 30, 2015, respectively
 
(1.1
)
 

 
(1.1
)
 
(1.1
)
 

 
(1.1
)
 
 
(32.1
)
 
3.6

 
(28.5
)
 
(43.9
)
 
4.8

 
(39.1
)
Comprehensive income including noncontrolling interest
 
16.5

 
(2.3
)
 
14.2

 
87.6

 
(5.7
)
 
81.9

Comprehensive income (loss) attributable to noncontrolling interest
 
1.1

 
(2.3
)
 
(1.2
)
 
1.0

 
(2.2
)
 
(1.2
)
Comprehensive income attributable to World Fuel
 
$
15.4

 

 
$
15.4

 
$
86.6

 
(3.5
)
 
$
83.1

 
3. Acquisitions, Assets and Liabilities Held for Sale
 
2016 Acquisitions
 
On July 1, 2016, we completed the acquisition of all of the outstanding capital stock of PAPCO, Inc. (“PAPCO”) and Associated Petroleum Products, Inc (“APP”). PAPCO, headquartered in Virginia Beach, VA and APP, headquartered in Tacoma, WA are leading distributors of gasoline, diesel, lubricants, propane and related services in the Mid-Atlantic and the Pacific Northwest region of the United States, respectively. These acquisitions combined with the Company’s existing land segment operations, will serve to further enhance our commercial and industrial platforms to deliver value-added solutions to customers across the United States.

9



In addition to the above acquisitions, we completed five acquisitions in our land segment in the first nine months of 2016 which were not significant individually or in the aggregate.

The following table summarizes the aggregate consideration paid for all 2016 acquisitions and the provisional amounts of the assets acquired and liabilities assumed recognized at the acquisition date. The Company is in the process of finalizing the valuations of certain acquired assets and assumed liabilities; thus, the provisional measurements of these acquired assets and assumed liabilities are subject to change and will be finalized no later than one year from the acquisition date.

 
 
 Total

Cash paid for acquisition of businesses
 
$
247.9

Amounts due to sellers
 
14.5

Estimated purchase price
 
$
262.4

 
 
 
Assets acquired:
 
 
Accounts and notes receivable
 
$
60.4

Inventories
 
33.7

Property and equipment
 
44.2

Goodwill and identifiable intangible assets
 
172.0

Other current and long-term assets
 
11.2

 
 


Liabilities assumed:
 


Accounts payable
 
(33.0
)
Accrued expenses and other current liabilities
 
(25.9
)
Long-term liabilities and deferred tax liabilities
 
(0.3
)
Estimated purchase price
 
$
262.4


All of the goodwill was assigned to the land segment and is attributable primarily to the expected synergies and other benefits that we believe will result from combining the operations of PAPCO and APP with the operations of World Fuel Services' land segment. The identifiable intangible assets consists of customer relationships and other identifiable intangible assets.

The following presents the unaudited pro forma results for 2016 and 2015 as if 2016 acquisitions had been completed on January 1, 2015:
 
 
Unaudited Supplemental Pro Forma Consolidated Results
 
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
 
September 30,
 
 
September 30,
 
(In millions, except per share data)
 
2016

 
2015

 
2016

 
2015

Revenues
 
$
7,399.8

 
$
8,315.4

 
$
19,797.6

 
$
25,202.0

Net income attributable to World Fuel
 
42.7

 
49.2

 
133.2

 
142.3

 
 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
 
Basic earnings per common share
 
$
0.62

 
$
0.70

 
$
1.92

 
$
2.02

Diluted earnings per common share
 
$
0.61

 
$
0.70

 
$
1.91

 
$
2.00


The financial position, results of operations and cash flows of the 2016 acquisitions have been included in our consolidated financial statements since their respective acquisition dates and did not have a significant impact on our revenue and net income for the three and nine months ended September 30, 2016.




10


Tobras Distribuidora de Combustiveis Limitada (“Tobras”)
On June 23, 2016, we acquired the remaining 49% of the outstanding equity interest of Tobras Distribuidora de Combustiveis Limitada (“Tobras”) from the minority owners for an aggregate purchase price of approximately $3.7 million in cash (the “Tobras Acquisition”).  Prior to the Tobras Acquisition, we owned 51% of the outstanding shares of Tobras and exercised control, and as such, we consolidated Tobras in our financial statements. As a result of the acquisition of the remaining equity interest of Tobras, we recorded a $10.9 million adjustment to capital in excess of par value on our consolidated balance sheets, which consisted of $3.7 million of cash paid and $7.2 million of non-controlling interest equity.

ExxonMobil
In the first quarter of 2016, we signed a definitive agreement to acquire from certain ExxonMobil affiliates their aviation fueling operations at more than 80 airport locations in Canada, the United Kingdom, Germany, Italy, France, Australia and New Zealand. The total purchase price is approximately $260 million and is expected to be fully funded with cash on hand. The transaction will close in phases and we expect to complete the Canada, France and U.K. locations during the fourth quarter of 2016. The remaining locations are expected to be completed during the first half of 2017. The transaction is subject to customary regulatory consents and closing conditions, including securing third party consents.

2015 Acquisitions

On September 1, 2015, we completed the acquisition of all of the outstanding stock of Pester Marketing Company (“Pester”), a leading distributor, transporter, and blender of branded motor fuels and lubricants to wholesale, industrial, commercial and agricultural customers. Pester is headquartered in Denver, Colorado and is also a leading operator of retail convenience stores in the Rocky Mountain region.

In addition to the above acquisition, in September 2015, we completed an acquisition in our aviation segment which was not significant.

The following presents the unaudited pro forma results for 2015 as if the 2015 acquisitions had been completed on January 1, 2015 (in millions, except per share data):
 
 
Three Months Ended

 
 
Nine Months Ended

 
 
September 30,

 
 
September 30,

(In millions, except per share data)
 
2015

 
 
2015

Revenues
 
$
7,948.7

 
 
$
24,071.1

Net income attributable to World Fuel
 
52.0

 
 
139.9

 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
Basic earnings per common share
 
$
0.74

 
 
$
1.98

Diluted earnings per common share
 
$
0.74

 
 
$
1.97


 
Assets and Liabilities Held for Sale
 
In connection with the acquisition of all of the outstanding stock of Pester Marketing Company (“Pester”) on September 1, 2015, we committed to a plan to sell certain assets and liabilities of Pester’s fuel retail business.  On May 1, 2016, we completed the sale of Pester’s retail business for $32.3 million, resulting in a gain of $3.8 million, which is included in other income, net in the consolidated statements of income and comprehensive income.
 
4. 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 in 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

11


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 sheets 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 commodity contracts we enter into to mitigate the risk of price volatility in forecasted purchases and sales.
 
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 entered into to hedge the risk of currency rate fluctuations.

As of September 30, 2016, our derivative instruments, at their respective fair value positions were as follows (in millions, except weighted average fixed price and weighted average mark-to-market amount):
 
 
Settlement
 
 
 
 
 
 
 
Weighted
Average

 
Weighted
Average
Mark-to-
Market

 
Fair Value

Hedge Strategy
 
Period
 
Derivative Instrument
 
Notional

 
Unit
 
Fixed Price

 
Amount

 
Amount

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value Hedge 
 
2016
 
Commodity contracts for inventory hedging
 
2.2

 
BBL
 
$
58.523

 
$
(3.491
)
 
$
(7.8
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(7.8
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value Hedge
 
2016
 
Commodity contracts for firm commitment hedging
 
0.3

 
BBL
 
$
57.448

 
$
7.489

 
$
1.9

 
 
2017
 
Commodity contracts for firm commitment hedging
 
0.5

 
BBL
 
59.095

 
7.346

 
3.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
5.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash Flow Hedge
 
2016
 
Commodity contracts for inventory hedging
 
6.7

 
BBL
 
$
52.523

 
$
(0.480
)
 
$
(3.2
)
 
 
2017
 
Commodity contracts for inventory hedging
 
1.6

 
BBL
 
59.604

 
(6.731
)
 
(11.0
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(14.3
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Designated
 
2016
 
Commodity contracts (long)
 
33.4

 
BBL
 
$
34.940

 
$
(3.061
)
 
$
(102.3
)
 
 
2016
 
Commodity contracts (short)
 
33.7

 
BBL
 
34.464

 
2.726

 
92.0

 
 
2017
 
Commodity contracts (long)
 
26.8

 
BBL
 
29.038

 
2.151

 
57.6

 
 
2017
 
Commodity contracts (short)
 
23.0

 
BBL
 
33.297

 
(2.109
)
 
(48.5
)
 
 
2018
 
Commodity contracts (long)
 
5.1

 
BBL
 
18.332

 
1.427

 
7.3

 
 
2018
 
Commodity contracts (short)
 
4.3

 
BBL
 
19.216

 
(0.806
)
 
(3.4
)
 
 
2019
 
Commodity contracts (long)
 
0.8

 
BBL
 
17.327

 
0.299

 
0.2

 
 
2019
 
Commodity contracts (short)
 
0.6

 
BBL
 
25.329

 
0.614

 
0.4

 
 
2020
 
Commodity contracts (long)
 
0.4

 
BBL
 
32.226

 
0.285

 
0.1

 
 
2020
 
Commodity contracts (short)
 
0.5

 
BBL
 
28.724

 
0.909

 
0.4

 
 
2021
 
Commodity contracts (long)
 
0.7

 
BBL
 
18.987

 
1.320

 
1.0

 
 
2021
 
Commodity contracts (short)
 
0.8

 
BBL
 
17.155

 
(1.129
)
 
(1.0
)
 
 
2022
 
Commodity contracts (long)
 
0.7

 
BBL
 

 
1.634

 
1.2

 
 
2022
 
Commodity contracts (short)
 
0.8

 
BBL
 
18.006

 
(1.404
)
 
(1.2
)
 
 
2023
 
Commodity contracts (long)
 
0.7

 
BBL
 

 
1.973

 
1.5

 
 
2023
 
Commodity contracts (short)
 
0.8

 
BBL
 
18.916

 
(1.701
)
 
(1.4
)
 
 
2016
 
Foreign currency contracts (long)
 
8.0

 
AED
 
3.676

 

 

 
 
2016
 
Foreign currency contracts (long)
 
8.3

 
AUD
 
0.752

 
(0.024
)
 
(0.2
)
 
 
2016
 
Foreign currency contracts (long)
 
0.3

 
BRL
 
3.308

 
(0.003
)
 


12


 
 
2016
 
Foreign currency contracts (long)
 
76.4

 
CAD
 
1.304

 
0.002

 
0.2

 
 
2016
 
Foreign currency contracts (long)
 
0.8

 
CHF
 
0.970

 
(0.009
)
 

 
 
2016
 
Foreign currency contracts (long)
 
3,098.0

 
CLP
 
665.565

 

 
(0.1
)
 
 
2016
 
Foreign currency contracts (long)
 
60,727.0

 
COP
 
2,979.994

 

 
(0.3
)
 
 
2016
 
Foreign currency contracts (long)
 
111.2

 
DKK
 
6.651

 
(0.001
)
 
(0.1
)
 
 
2016
 
Foreign currency contracts (long)
 
95.6

 
EUR
 
1.120

 
(0.006
)
 
(0.6
)
 
 
2016
 
Foreign currency contracts (long)
 
139.1

 
GBP
 
1.342

 
0.025

 
3.4

 
 
2016
 
Foreign currency contracts (long)
 
97.0

 
INR
 
68.091