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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 JUNE 30, 2018
 
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 þ   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 þ   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 þ   Accelerated filer ☐   Non-accelerated filer ☐   Smaller reporting company ☐   Emerging growth company ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes ☐   No þ
 
The registrant had a total of 67,944,090 shares of common stock, par value $0.01 per share, issued and outstanding as of July 19, 2018.
 



Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Part I — Financial Information
 
Item 1.
Financial Statements
 
World Fuel Services Corporation
Consolidated Balance Sheets
(Unaudited - In millions, except per share data)
 
 
 
As of
 
 
June 30,
 
December 31,
 
 
2018
 
2017
Assets:
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
187.6

 
$
372.3

Accounts receivable, net
 
2,951.9

 
2,705.6

Inventories
 
559.2

 
505.0

Prepaid expenses
 
59.8

 
64.4

Short-term derivative assets, net
 
70.6

 
51.1

Other current assets
 
247.8

 
241.9

Total current assets
 
4,076.8

 
3,940.4

Property and equipment, net
 
335.0

 
329.8

Goodwill
 
856.7

 
845.5

Identifiable intangible and other non-current assets
 
488.6

 
472.1

Total assets
 
$
5,757.0

 
$
5,587.8

Liabilities:
 
 

 
 

Current liabilities:
 
 

 
 

Current maturities of long-term debt and capital leases
 
$
33.7

 
$
25.6

Accounts payable
 
2,536.0

 
2,239.7

Customer deposits
 
95.0

 
108.3

Accrued expenses and other current liabilities
 
348.8

 
344.9

Total current liabilities
 
3,013.5

 
2,718.6

Long-term debt
 
731.6

 
884.6

Non-current income tax liabilities, net
 
187.2

 
202.4

Other long-term liabilities
 
49.5

 
44.2

Total liabilities
 
$
3,981.7

 
$
3,849.8

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; 100.0 shares authorized, 67.8 and 67.7 issued and outstanding as of June 30, 2018 and December 31, 2017, respectively
 
0.7

 
0.7

Capital in excess of par value
 
359.3

 
354.9

Retained earnings
 
1,546.3

 
1,492.8

Accumulated other comprehensive loss
 
(146.3
)
 
(126.5
)
Total World Fuel shareholders' equity
 
1,760.0

 
1,721.9

Noncontrolling interest
 
15.3

 
16.0

Total equity
 
1,775.3

 
1,738.0

Total liabilities and equity
 
$
5,757.0

 
$
5,587.8

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


1


World Fuel Services Corporation
Consolidated Statements of Income and Comprehensive Income
(Unaudited – In millions, except per share data)
 
 
 
For the Three Months Ended
 
For the Six Months Ended
 
 
June 30,
 
June 30,
 
 
2018
 
2017
 
2018
 
2017
Revenue
 
$
10,150.8

 
$
8,086.2

 
$
19,332.2

 
$
16,280.4

Cost of revenue
 
9,904.7

 
7,855.2

 
18,842.6

 
15,818.0

Gross profit
 
246.2

 
231.0

 
489.6

 
462.4

Operating expenses:
 
 

 
 

 
 

 
 

Compensation and employee benefits
 
110.2

 
102.3

 
224.1

 
206.8

General and administrative
 
74.9

 
77.4

 
147.2

 
154.0

 
 
185.1

 
179.7

 
371.3

 
360.9

Income from operations
 
61.1

 
51.2

 
118.3

 
101.6

Non-operating expenses, net:
 
 

 
 

 
 

 
 

Interest expense and other financing costs, net
 
(17.9
)
 
(13.8
)
 
(34.2
)
 
(26.5
)
Other expense, net
 
(1.6
)
 
(2.6
)
 
(3.9
)
 
(4.1
)
 
 
(19.5
)
 
(16.4
)
 
(38.1
)
 
(30.6
)
Income before income taxes
 
41.6

 
34.9

 
80.2

 
70.9

Provision for income taxes
 
12.4

 
4.6

 
19.7

 
9.6

Net income including noncontrolling interest
 
29.2

 
30.3

 
60.5

 
61.3

Net income attributable to noncontrolling interest
 
0.5

 
0.2

 
0.6

 

Net income attributable to World Fuel
 
$
28.7

 
$
30.0

 
$
59.9

 
$
61.4

 
 
 
 
 
 
 
 
 
Basic earnings per common share
 
$
0.42

 
$
0.44

 
$
0.89

 
$
0.90

 
 
 
 
 
 
 
 
 
Basic weighted average common shares
 
67.7

 
68.4

 
67.6

 
68.5

 
 
 
 
 
 
 
 
 
Diluted earnings per common share
 
$
0.42

 
$
0.44

 
$
0.88

 
$
0.89

 
 
 
 
 
 
 
 
 
Diluted weighted average common shares
 
68.0

 
68.7

 
67.9

 
68.9

 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 

 
 
 
 
 
 
Net income including noncontrolling interest
 
$
29.2

 
$
30.3

 
$
60.5

 
$
61.3

Other comprehensive income (loss):
 
 

 
 

 
 

 
 
Foreign currency translation adjustments
 
(28.6
)
 
11.2

 
(18.3
)
 
17.6

Cash flow hedges, net of income tax expense of $3.1 for the three months ended June 30, 2018 and net of income tax benefit of $1.1 and income tax expense of $6.6 for the six months ended June 30, 2018 and 2017, respectively
 
6.9

 

 
(2.8
)
 
10.5

Other comprehensive income (loss):
 
(21.7
)
 
11.2

 
(21.1
)
 
28.1

Comprehensive income including noncontrolling interest
 
7.5

 
41.5

 
39.3

 
89.4

Comprehensive (loss) income attributable to noncontrolling interest
 
(1.1
)
 
1.1

 
(1.3
)
 
1.0

Comprehensive income attributable to World Fuel
 
$
8.6

 
$
40.3

 
$
40.7

 
$
88.4

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


2


World Fuel Services Corporation
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, 2017
67.7

 
$
0.7

 
$
354.9

 
$
1,492.8

 
$
(126.5
)
 
$
1,721.9

 
$
16.0

 
$
1,738.0

 
Net income

 

 

 
59.9

 

 
59.9

 
0.6

 
60.5

 
Cash dividends declared

 

 

 
(8.1
)
 

 
(8.1
)
 

 
(8.1
)
 
Amortization of share-based payment awards

 

 
6.5

 

 

 
6.5

 

 
6.5

 
Issuance of common stock related to share-based payment awards
0.2

 

 

 

 

 

 

 

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

 

 
(2.1
)
 

 

 
(2.1
)
 

 
(2.1
)
 
Other comprehensive income (loss)

 

 

 

 
(19.8
)
 
(19.8
)
 
(1.3
)
 
(21.1
)
 
Reclassification of certain tax effects from U.S. Tax Reform

 

 

 
1.6

 

 
1.6

 

 
1.6

 
Balance as of June 30, 2018
67.8

 
$
0.7

 
$
359.3

 
$
1,546.3

 
$
(146.3
)
 
$
1,760.0

 
$
15.3

 
$
1,775.3

    
 
 
 
 
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, 2016
69.9

 
$
0.7

 
$
399.9

 
$
1,679.3

 
$
(154.8
)
 
$
1,925.0

 
$
15.0

 
$
1,940.0

 
Net income

 

 

 
61.4

 

 
61.4

 

 
61.3

 
Cash dividends declared

 

 

 
(8.2
)
 

 
(8.2
)
 

 
(8.2
)
 
Distribution of noncontrolling interest

 

 

 

 

 

 
(0.4
)
 
(0.4
)
 
Amortization of share-based payment awards

 

 
9.3

 

 

 
9.3

 

 
9.3

 
Issuance (cancellation) of common stock related to share-based payment awards
(0.6
)
 

 

 

 

 

 

 

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

 

 
(3.9
)
 

 

 
(3.9
)
 

 
(3.9
)
 
Purchases of common stock
(0.9
)
 

 
(31.9
)
 

 

 
(31.9
)
 

 
(31.9
)
 
Other comprehensive income (loss)

 

 

 

 
27.0

 
27.0

 
1.1

 
28.1

 
Balance as of June 30, 2017
68.6

 
$
0.7

 
$
373.3

 
$
1,732.4

 
$
(127.8
)
 
$
1,978.6

 
$
15.7

 
$
1,994.3

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


3


World Fuel Services Corporation
Consolidated Statements of Cash Flows
(Unaudited - In millions)
 
 
For the Six Months Ended
 
 
June 30,
 
 
2018
 
2017
Cash flows from operating activities:
 
 
 
 
Net income including noncontrolling interest
 
$
60.5

 
$
61.3

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

 
 
Depreciation and amortization
 
38.4

 
43.3

Provision for bad debt
 
4.0

 
3.9

Share-based payment award compensation costs
 
6.4

 
9.2

Deferred income tax benefit
 
(1.0
)
 
(8.0
)
Foreign currency gains, net
 
(2.5
)
 
(6.5
)
Other
 
0.4

 
(1.8
)
Changes in assets and liabilities, net of acquisitions:
 
 

 
 
Accounts receivable, net (reduced by beneficial interests received in exchange for accounts receivables sold of $122.5 million and $83.2 million for the three months ended June 30, 2018 and 2017, respectively, and $241.5 million and $157.1 million for the six months ended June 30, 2018 and 2017, respectively.)
 
(499.7
)
 
(47.7
)
Inventories
 
(56.7
)
 
15.2

Prepaid expenses
 
2.1

 
0.3

Short-term derivative assets, net
 
(22.0
)
 
14.2

Other current assets
 
(32.2
)
 
3.1

Cash collateral with financial counterparties
 
41.7

 
(5.9
)
Other non-current assets
 
(32.8
)
 
(12.4
)
Accounts payable
 
301.0

 
12.8

Customer deposits
 
(12.2
)
 
(1.0
)
Accrued expenses and other current liabilities
 
(22.5
)
 
(72.7
)
Non-current income tax, net and other long-term liabilities
 
(1.4
)
 
(8.1
)
Total adjustments
 
(289.1
)
 
(61.9
)
Net cash used in operating activities
 
(228.6
)
 
(0.6
)
Cash flows from investing activities:
 
 

 
 
Cash receipts of retained beneficial interests in receivable sales
 
241.9

 
156.4

Acquisition of businesses, net of cash acquired
 
(21.0
)
 
(88.4
)
Capital expenditures
 
(28.9
)
 
(31.5
)
Other investing activities, net
 
7.6

 
(0.4
)
Net cash provided by investing activities
 
199.5

 
36.0

Cash flows from financing activities:
 
 

 
 
Borrowings of debt
 
2,875.0

 
1,991.8

Repayments of debt
 
(3,019.5
)
 
(2,111.1
)
Dividends paid on common stock
 
(8.1
)
 
(8.2
)
Purchases of common stock tendered by employees to satisfy the required withholding taxes related to share-based payment awards
 
(2.1
)
 
(3.9
)
Purchases of common stock
 

 
(31.9
)
Other financing activities, net
 

 
(0.4
)
Net cash used in financing activities
 
(154.7
)
 
(163.7
)
Effect of exchange rate changes on cash and cash equivalents
 
(1.1
)
 
5.2

Net decrease in cash and cash equivalents
 
(184.8
)
 
(123.0
)
Cash and cash equivalents, as of beginning of period
 
372.3

 
698.6

Cash and cash equivalents, as of end of period
 
$
187.6

 
$
575.6

 
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 $4.1 million as of June 30, 2018 and 2017, respectively.

Beneficial interests obtained in exchange for accounts receivable sold were $241.5 million and $157.1 million as of June 30, 2018 and 2017, respectively.

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


5


World Fuel Services Corporation
Notes to the Consolidated Financial Statements
(Unaudited) 
1. Basis of Presentation and Significant Accounting Policies
 
World Fuel Services Corporation (the “Company”) was incorporated in Florida in July 1984 and along with its consolidated subsidiaries is referred to collectively in this Quarterly Report on Form 10‑Q ("10-Q Report") as “World Fuel,” “we,” “our” and “us.”

We are a leading global fuel services company, principally engaged in the distribution of fuel and related products and services in the aviation, marine and land transportation industries. We have expanded our product and service offerings to include energy advisory services and supply fulfillment with respect to natural gas and power and transaction and payment management solutions to commercial and industrial customers. Our intention is to become a leading global energy management company offering a full suite of energy advisory, management and fulfillment services and technology solutions across the energy product spectrum. We also seek to become a leading transaction and payment management company, offering payment management solutions to commercial and industrial customers, principally in the aviation, land and marine transportation industries.

We prepared the consolidated financial statements following the requirements of the United 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 U.S. (“U.S. GAAP”) can be condensed or omitted.

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. In our opinion, all adjustments necessary for a fair statement of the financial statements, 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 2017 Annual Report on Form 10-K (“2017 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.

There have been no significant changes, other than those related to the adopted new accounting standards below, in the Company's accounting policies from those disclosed in our 2017 10‑K Report. 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 2017 10‑K Report, and in the adopted accounting standards below.

Adoption of New Accounting Standard
Revenue Recognition (Topic 606): Revenue from Contracts with Customers. In May 2014, ASU 2014-09 was issued. Under this ASU and subsequently issued amendments, we recognize the amount of revenue when delivery is made and our customer obtains control, and we are entitled to compensation for performance completed. The updated standard replaced most existing revenue recognition guidance in U.S. GAAP. We adopted this standard as of January 1, 2018 using the modified retrospective adoption approach, and elected to apply it only to those contracts that were not considered completed contracts as of this adoption date. This approach required us to recognize the cumulative effect of initially applying the new standard as an adjustment to the opening balance of retained earnings. This cumulative adjustment did not have a material impact on our financial statements.

Income Statement - Reporting Comprehensive Income (Topic 220). In February 2018 ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, was issued. ASU 2018-02 provides the option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate tax rate in the Tax Cuts and Jobs Act is recorded. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted. This updated standard allows for adoption in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. We adopted this updated standard in the first quarter of 2018, and subsequently reclassified the tax rate disparity to retained earnings.

Income Taxes (Topic 740). In March 2018 ASU 2018-05, Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, was issued. ASU 2018-05 amends certain SEC material in Topic 740 for the income tax accounting implications of the recently issued Tax Cuts and Jobs Act (Act). We have adopted these amendments and where the accounting under Topic 740 is incomplete for certain specific income tax effects of the Act, we reported provisional amounts.


6


Business Combinations (Topic 805): Clarifying the Definition of a Business. In January 2017, ASU 2017-01 was issued. The update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses after adoption. This standard was effective at the beginning of our 2018 fiscal year and did not have a material impact on our consolidated financial statements and disclosures.

Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. In August 2017, ASU 2017-12 was issued. The ASU is targeted at simplifying hedge accounting requirements, creating more transparency around how economic results are presented and disclosed on the consolidated financial statements and accompanying footnote disclosures. We early adopted this updated standard, which did not have a material impact on our consolidated financial statements. We have provided updated disclosures in Note 3. Derivatives.

Cash Flows: Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. In August 2016 ASU 2016-15 was issued. The ASU provides guidance on classification of eight specific cash flows items. This standard is effective at the beginning of our 2018 fiscal year and we have provided an updated line item attributable to retained beneficial interests associated with our receivables purchase agreements on our consolidated statements of cash flows. The adoption resulted in a $157.1 million retrospective reclassification of the beneficial interest received in exchange for accounts receivable sales for the six months ended June 30, 2017 from cash flows from operating activities to cash flows from investing activities.

Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory. In October 2016, ASU 2016-16 was issued. The update prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This standard is effective at the beginning of our 2018 fiscal year. The adoption of this ASU did not have a material impact on our consolidated financial statements and disclosures.

Cash Flows: Statement of Cash Flows (Topic 230): Restricted Cash. In November 2016, ASU 2016-18 was issued. The update requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This standard is effective at the beginning of our 2018 fiscal year. The adoption of this ASU did not have a material impact on our consolidated financial statements and disclosures.

Accounting Standards Issued but Not Yet Adopted 
Leases (Topic 842). In February 2016, ASU 2016-02, Leases, was issued.  The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for direct financing and operating leases. Upon adoption, this standard will require all lessees to recognize a right of use asset and a liability to make lease payments (lease liability) on the balance sheet, except for leases with durations of twelve months or less. Lessees (for capital and operating leases) must apply a modified retrospective transition approach for leases existing at or after the beginning of the earliest comparative period presented in the consolidated financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. This standard is effective at the beginning of our 2019 fiscal year. In preparation for adoption of the standard, we developed a cross-functional team and engaged a third-party service provider to assist us throughout our evaluation. We continue to evaluate the overall impact the adoption of this new guidance will have on our consolidated financial statements and related disclosures.

2. Acquisitions
 
2018 Acquisition

During the first quarter of 2018, we completed one acquisition in the land segment. The financial position, results of operations and cash flows of the 2018 acquisition has been included in our consolidated financial statements since its acquisition date and did not have a material impact on our consolidated revenue and net income for the six months ended June 30, 2018.

2017 Acquisitions

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 ("U.K."), Germany, Italy, France, Australia and New Zealand. During 2016, we completed the acquisitions of the aviation fueling operations in Canada, the U.K. and France. During the first quarter of 2017, we completed the acquisition of substantially all of the remaining airport locations in Italy, Germany, Australia and New Zealand.

In addition to the above acquisitions, we completed two acquisitions during the first quarter of 2017 which were not significant individually or in the aggregate.

7



The following table summarizes the aggregate consideration paid for acquisitions during the six months ended June 30, 2017 and the amounts of the assets acquired and liabilities assumed, recognized at the acquisition date.

(In millions)
 
 
Cash paid for acquisition of businesses
 
$
87.6

Non-monetary consideration
 
4.3

Purchase price
 
$
91.9

 
 
 
Assets acquired:
 
 
Property and equipment
 
11.2

Goodwill and identifiable intangible assets
 
79.4

Other current and long-term assets
 
8.0

 
 
 
Liabilities assumed:
 
 
Long-term liabilities and deferred tax liabilities
 
(6.7
)
Purchase price
 
$
91.9


The goodwill assigned, of which $22.4 million is anticipated to be deductible for tax purposes, is attributable primarily to the expected synergies and other benefits that we believe will result from combining the operations acquired with the operations of our aviation segment. The identifiable intangible assets consists of $40.1 million of customer relationships with weighted average lives of 6.9 years.

The financial position, results of operations and cash flows of the 2017 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 six months ended June 30, 2017. Pro forma information for the 2017 acquisitions has not been provided as the impact is not material.

3. Derivatives  

We enter into financial derivative contracts to mitigate the risk of market price fluctuations in aviation, land and marine fuel, to offer our customers fuel pricing alternatives to meet their needs and to mitigate the risk of fluctuations in foreign currency exchange rates. If the derivative instrument is not designated in a hedge relationship, changes in the estimated fair market value are recognized as a component of revenue, cost of revenue, or other income (expense) in the consolidated statements of income and comprehensive income.

Derivatives which qualify for hedge accounting may be designated as either a fair value or cash flow hedge. For our fair value hedges, changes in the estimated fair market value of the hedging instrument and the hedged item are recognized in the same line item as the underlying transaction type in the consolidated statements of income and comprehensive income. The gains or losses on derivative instruments designated as cash flow hedges of forecasted transactions are initially reported as a component of accumulated other comprehensive income and subsequently reclassified into earnings once the future transactions affect earnings.
Cash flows for our hedging instruments are classified in the same category as the underlying hedged items. If for any reason hedge accounting is discontinued, then any cash flows subsequent to the date of discontinuance will be classified in a manner consistent with the nature of the instrument.

The following describes our derivative classifications:

Fair Value Hedges. Includes derivative contracts we hold to hedge the risk of changes in the price of our inventory.

Cash Flow Hedges. Includes certain derivative contracts we execute to mitigate the risk of price or foreign currency volatility in forecasted transactions.

Non-designated Derivatives. Includes derivatives we primarily transact to mitigate the risk of market price fluctuations in the form of swaps or futures contracts, certain forward fixed price purchase and sale contracts, and for portfolio optimization. In addition, non-designated derivatives are held to hedge the risk of currency rate fluctuations.

8



The following table presents the gross fair value of our derivative instruments and their locations on the consolidated balance sheets (in millions):
 
 
 
 
Gross Derivative Assets
 
Gross Derivative Liabilities
 
 
 
As of
 
As of
 
 
 
June 30,
 
December 31,
 
June 30,
 
December 31,
 
 
 
2018
 
2017
 
2018
 
2017
Derivative Instruments
Consolidated Balance Sheets location
 
 
 
 
 
 
 
 
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
   Commodity contracts
Short-term derivative assets, net
 
$
23.9

 
$
0.4

 
$
45.5

 
$
0.5

 
Accrued expenses and other current liabilities
 

 
2.3

 
0.1

 
43.1

 
 
 
$
23.9

 
$
2.7

 
$
45.5

 
$
43.6

 
 
 
 
 
 
 
 
 
 
   Foreign currency contracts
Short-term derivative assets, net
 
$
7.1

 
$

 
$
2.4

 
$

 
Accrued expenses and other current liabilities
 

 

 
1.2

 

 
 
 
$
7.1

 
$

 
$
3.6

 
$

Total derivatives designated as hedging instruments
 
$
30.9

 
$
2.7

 
$
49.2

 
$
43.6

 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
   Commodity contracts
Short-term derivative assets, net
 
$
373.4

 
$
191.4

 
$
292.8

 
$
123.3

 
Identifiable intangible and other non-current assets
 
67.5

 
18.2

 
43.4

 
5.2

 
Accrued expenses and other current liabilities
 
25.6

 
86.1

 
114.5

 
138.2

 
Other long-term liabilities
 
24.6

 
5.2

 
44.2

 
13.5

 
 
 
$
491.2

 
$
300.9

 
$
494.8

 
$
280.2

 
 
 
 
 
 
 
 
 
 
   Foreign currency contracts
Short-term derivative assets, net
 
$
11.3

 
$
4.5

 
$
4.5

 
$
2.8

 
Accrued expenses and other current liabilities
 
0.4

 
3.9

 
0.7

 
5.7

 
Other long-term liabilities
 

 

 

 
0.2

 
 
 
$
11.8

 
$
8.5

 
$
5.2

 
$
8.7

Total derivatives not designated as hedging instruments
 
$
503.0

 
$
309.4

 
$
500.0

 
$
288.9

 
 
 
 
 
 
 
 
 
 
Total derivatives
 
 
$
533.9

 
$
312.0

 
$
549.2

 
$
332.5


For information regarding our derivative instruments measured at fair value after netting and collateral see Note 6.

The following table summarizes the gross notional values of our commodity and foreign currency exchange derivative contracts used for risk management purposes that were outstanding as of June 30, 2018 (in millions):

 
 
As of June 30,
Derivative Instruments
 
Units
 
2018
Commodity contracts
 
 
 
 
Buy / Long
 
BBL
 
77.5

Sell / Short
 
BBL
 
(87.7
)
 
 
 
 
 
Foreign currency exchange contracts
 
 
 
 
Sell U.S. dollar, buy other currencies
 
USD
 
(275.6
)
Buy U.S. dollar, sell other currencies
 
USD
 
401.2




9


As of June 30, 2018, and December 31, 2017, the following amounts were recorded on the consolidated balance sheets related to cumulative basis adjustments for fair value hedges (in million):

Line item in the Consolidated Balance Sheets in which the hedged item is included
 
Carrying Amount of Hedged Asset/(Liabilities)
 
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Asset/(Liabilities)
 
 
As of
 
As of
 
 
June 30, 2018
 
December 31, 2017
 
June 30, 2018
 
December 31, 2017
Inventory
 
$
56.4

 
$
50.9

 
$
1.9

 
$
2.7




The following table presents the effect of fair value and cash flow hedges on income and expense line items in our Consolidated Statements of Income and Comprehensive Income (in millions):
 
 
 
Location and Amount of Gain and (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
 
 
 
For the Three Months Ended
 
 
 
June 30, 2018
 
June 30, 2017
 
 
Revenue
 
Cost of Revenue
 
Revenue
 
Cost of Revenue
Total amounts of income and expense line items in which the effects of fair value or cash flow hedged are recorded
 
$
10,150.8

 
$
9,904.7

 
$
8,086.2

 
$
7,855.2

Gains or Loss on fair value hedge relationships
 
 
 
 
 
 
 
 
   Commodity contracts
 
 
 
 
 
 
 
 
 
 
Hedged Item
 

 
11.3

 

 
1.5

 
Derivatives designated as hedging instruments
 

 
(10.9
)
 

 
1.4

Gains or Loss on cash flow hedge relationships
 
 
 
 
 
 
 
 
   Commodity contracts
 
 
 
 
 
 
 
 
 
 
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
 
(20.3
)
 
10.2

 
15.9

 
(10.6
)
Total amount of income and expense line items excluding the impact of hedges
 
$
10,171.2

 
$
9,915.2

 
$
8,070.2

 
$
7,847.5

 
 
 
 
 
 
 
 
 
 
 
 
 
Location and Amount of Gain and (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
 
 
 
For the Six Months Ended
 
 
 
June 30, 2018
 
June 30, 2017
 
 
Revenue
 
Cost of Revenue
 
Revenue
 
Cost of Revenue
Total amounts of income and expense line items in which the effects of fair value or cash flow hedged are recorded
 
$
19,332.2

 
$
18,842.6

 
$
16,280.4

 
$
15,818.0

Gains or Loss on fair value hedge relationships
 
 
 
 
 
 
 
 
   Commodity contracts
 
 
 
 
 
 
 
 
 
 
Hedged Item
 

 
16.7

 

 
(2.0
)
 
Derivatives designated as hedging instruments
 

 
(16.5
)
 

 
6.7

Gains or Loss on cash flow hedge relationships
 
 
 
 
 
 
 
 
   Commodity contracts
 
 
 
 
 
 
 
 
 
 
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
 
(23.9
)
 
28.4

 
5.8

 
(3.8
)
Total amount of income and expense line items excluding the impact of hedges
 
$
19,356.1

 
$
18,871.2

 
$
16,274.7

 
$
15,818.9


For the three and six months ended June 30, 2018 and 2017, there were no gains or losses recognized in earnings related to our fair value or cash flow hedges that were excluded from the assessment of hedge effectiveness.


10


The following table presents the effect and financial statement location of our derivative instruments in cash flow hedging relationships on our accumulated other comprehensive income, Consolidated Statements of Income and Comprehensive Income (in millions):
Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Income
For the Three Months Ended
 
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
For the Three Months Ended
June 30,
 
June 30,
Derivative Instruments
2018
 
2017
 
Location
2018
 
2017