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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
OR
☐ 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
worldfuellogoa03.jpg
WORLD FUEL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
Florida
59-2459427
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
9800 Northwest 41st Street
Miami, Florida
(Address of principal executive offices)
33178
(Zip Code)

Registrant’s telephone number, including area code: (305) 428-8000
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Common Stock, par value $0.01 per share
Name of each exchange on which registered:
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an "emerging growth company". See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ 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 12b-2 of the Exchange Act). Yes ☐ No ☒
As of June 30, 2018, the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the market price at which the common equity was last sold was $1,356,610,431.



As of February 8, 2019, the registrant had approximately 67,171,776 shares of outstanding common stock, par value $0.01 per share.
Documents incorporated by reference:
Part III -
Specified Portions of the Registrant’s Definitive Proxy Statement for the 2019 Annual Meeting of Shareholders.





TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I
Item 1. Business
Overview
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 Annual Report on Form 10‑K (“2018 10‑K 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. In recent years, we have expanded our product and service offerings to include energy advisory services and supply fulfillment for 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 have offices throughout the United States ("U.S.") and in various foreign jurisdictions, including, but not limited to: Brazil, Costa Rica, Singapore, and the United Kingdom (“U.K.”). See “Item 2 – Properties” for a list of principal offices by business segment and “Exhibit 21.1 – Subsidiaries of the Registrant” included in this 2018 10‑K Report for a list of our subsidiaries.
As of February 22, 2019, we employed more than 5,000 employees globally. Our principal executive office is located at 9800 Northwest 41st Street, Miami, Florida 33178 and our telephone number at this address is 305‑428‑8000. Our internet address is http://www.wfscorp.com and the investor relations section of our website is located at http://ir.wfscorp.com. We make available free of charge, on or through the investor relations section of our website, our Annual Reports on Form 10‑K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K, Proxy Statements and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) with the Securities and Exchange Commission (“SEC”) as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. Also posted on our website are our Code of Conduct (“Code of Conduct”), Board of Directors’ committee charters and Corporate Governance Principles. Our internet website and information contained on our internet website are not part of this 2018 10‑K Report and are not incorporated by reference in this 2018 10‑K Report.
Segments
We operate in three reportable segments consisting of aviation, land and marine. During each of the years presented on the consolidated statements of income and comprehensive income, none of our aviation, land or marine customers accounted for more than 10% of any segment or total consolidated revenue. Financial information with respect to our business segments and the geographic areas of our business is provided below and within Note 13 to the accompanying consolidated financial statements included in this 2018 10-K Report.
Aviation Segment
We provide global aviation fuel supply and comprehensive service solutions to major commercial airlines, second and third-tier airlines, cargo carriers, regional and low-cost carriers, airports, fixed based operators, corporate fleets, fractional operators and private aircraft. Our aviation‑related service offerings include fuel management, price risk management, ground handling, 24/7 global dispatch services, and international trip planning services, including flight plans, weather reports and overflight permits. We also supply products and services to U.S. and foreign government, intergovernmental and military customers, such as the North Atlantic Treaty Organization ("NATO") and the U.S. Defense Logistics Agency (collectively, "government customers"). In addition, we offer card payment solutions and related processing services and technology.
Because fuel is a major component of an aircraft’s operating costs, our customers require cost-effective and professional fuel services. We have developed an extensive network, consisting of on-airport fueling operations and third‑party suppliers and service providers that enable us to provide aviation fuel and related services throughout the world. We believe the breadth of our service offering combined with our global supplier network is a strategic differentiator that allows customers to secure fuel and high‑quality services in locations worldwide on short notice.

1


We purchase our aviation fuel from suppliers worldwide. Fuel may be delivered into our customers’ aircraft or to a designated storage facility located at one of our locations or our suppliers’ locations pursuant to arrangements with them. Inventory is purchased at airport locations or shipped via pipelines and held at multiple locations for strategic reasons. We engage in contract sales, which are sales made pursuant to fuel purchase contracts with customers who commit to purchasing fuel from us over the contract term. We also conduct spot sales, which are sales that do not involve continuing contractual obligations by our customers to purchase fuel from us. Our cost of fuel is generally tied to market‑based formulas or government-controlled prices.
Land Segment
In our land segment, we primarily offer fuel, heating oil, propane, natural gas, lubricants and related products and services to petroleum distributors operating in the land transportation market, retail petroleum operators, and industrial, commercial, residential and government customers. Our land related services include management services for the procurement of fuel and price risk management. We primarily conduct these activities throughout most of the U.S. as well as parts of the U.K. and Brazil. We also offer advisory and fulfillment solutions with respect to power, natural gas and other energy products through Kinect, our global energy management solutions business, with offices in the U.S., Australia and throughout Western Europe. In addition, we offer transaction management services, which include card payment solutions, government payment systems for global fuel procurement, merchant processing services, payment solutions for tolls across Europe, and commercial payment programs. Finally, we also supply products to U.S. and foreign government, intergovernmental and military customers, such as NATO.
In connection with our fuel marketing activities, we distribute fuel under long-term contracts to branded and unbranded distributors, convenience stores and retail fuel outlets operated by third parties. We also distribute heating oil and propane to residential customers and unbranded fuel to numerous other customers, including commercial and industrial customers, such as manufacturing, mining, agriculture, construction, and oil and gas exploration companies. These transactions may be pursuant to fuel purchase contracts or through spot sales. In certain instances, we serve as a reseller, where we purchase fuel from a supplier and contemporaneously resell it to our customers through spot and contract sales. We also maintain inventory in certain strategic locations, including pipelines. Our cost of fuel is generally tied to market‑based formulas.
Finally, we provide transportation logistics for our product deliveries, including arranging for fuel products to be delivered from storage terminals to the appropriate sites through our own fleet of trucks as well as third-party transportation providers. The fuel is generally delivered to our customers directly or to a designated tanker truck loading terminal commonly referred to as “racks,” which are owned and operated by our suppliers or other third‑parties.
Marine Segment
Through our extensive network, we market fuel, lubricants and related products and services to a broad base of marine customers, including international container and tanker fleets, commercial cruise lines, yachts and time-charter operators, U.S. and foreign governments, as well as other fuel suppliers. We provide our customers with real‑time global market intelligence and rapid access to quality, and competitively priced, marine fuel 24 hours a day, every day of the year. Our marine fuel-related services include management services for the procurement of fuel, cost control through the use of price risk management offerings, quality control, claims management, and card payment solutions and related processing services.
We serve primarily as a reseller, where we take delivery for fuel purchased from our supplier at the same place and time as the fuel is sold to our customer. We also sell fuel from our inventory, which we maintain in storage facilities that we own or lease. In certain cases, we serve as a broker and are paid a commission for negotiating the fuel purchase transaction between the supplier and the end user, as well as for expediting delivery of the fuel.  
The majority of our marine segment activity consists of spot sales. Our cost of fuel is generally tied to spot pricing, market‑based formulas, or government-controlled prices. We also contract with third parties to provide various services for our customers, including fueling of vessels in ports and at sea, and transportation and delivery of fuel and fuel-related products.

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Competitors
We operate globally across industries that are highly fragmented with numerous competitors. Our competitors range in size and complexity from large multinational corporations, principally major oil producers, which have significantly greater capital resources than us, to relatively small and specialized firms. In our fuel distribution activities, we compete with major oil producers that market fuel directly to the large commercial airlines, shipping companies and petroleum distributors operating in the land transportation market as well as fuel resellers. We compete, among other things, on the basis of service, convenience, reliability, availability of trade credit and price. We believe that our extensive market knowledge, worldwide footprint, logistics expertise and support, the use of price risk management offerings, and value-added benefits, including single-supplier convenience, fuel quality control and fuel procurement outsourcing, give us the ability to compete within those markets.
Seasonality
Our operating results are subject to seasonal variability. Our seasonality results from numerous factors, including traditionally higher demand for natural gas and home heating oil during the winter months and aviation and land fuel during the summer months, as well as other seasonal weather patterns. As such, our results of operations may fluctuate from period to period.
Environmental
Our business activities are subject to substantial regulation by federal, state and local government agencies, inside and outside of the U.S., which enforce laws and regulations governing the transportation, sale, storage and disposal of fuel and the collection, transportation, processing, storage, use and disposal of hazardous substances and wastes, including waste oil and petroleum products. For example, U.S. federal and state environmental laws applicable to us include statutes that: (i) allocate the cost of remedying contamination among specifically identified parties and prevent future contamination; (ii) impose national ambient standards and, in some cases, emission standards, for air pollutants that present a risk to public health or welfare; (iii) govern the management, treatment, storage and disposal of hazardous wastes; and (iv) regulate the discharge of pollutants into waterways. International treaties also prohibit the discharge of petroleum products at sea. Compliance with existing and future laws that regulate the delivery of fuel by barge, truck, vessel pipeline or car; fuel storage terminals or underground storage tanks that we own, lease or operate; or the quality of product under our control may require significant capital expenditures and increased operating and maintenance costs, particularly as we acquire businesses with more physical assets. The penalties for violations of environmental laws include injunctive relief; administrative, civil or criminal penalties; recovery of damages for injury to air, water or property; and third-party damages. Some environmental laws may also impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject us to liability without regard to whether we were negligent or at fault. See “Item 1A – Risk Factors,” and “Item 3 – Legal Proceedings.”

We may also be affected by increasingly stringent U.S. federal and foreign environmental laws and regulations that will apply to us or our customers in the future, some of which could increase the cost or reduce the demand for our products and services. For example, due to concern over the risk of climate change, a number of countries have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas (“GHG”) emissions. In the U.S., the U.S. Environmental Protection Agency has adopted rules requiring the reporting of GHG emissions by petroleum product suppliers and facilities meeting certain annual emissions thresholds and regulating emissions from major sources of GHGs under the Clean Air Act. In other countries, proposed regulations include the adoption of cap and trade regimes, carbon taxes, restrictive permitting, increased efficiency standards, and incentives or mandates for renewable energy. Although the ultimate impact of these or other future measures is difficult to accurately predict, they could make our products more expensive or reduce demand for petroleum products, as well as shift demand toward relatively lower-carbon sources. This, in turn, could affect our operations, earnings and competitive position.
Forward-Looking Statements
This 2018 10-K Report and the information incorporated by reference in it, or made by us in other reports, filings with the SEC, press releases, teleconferences, industry conferences or otherwise, contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “project,” “could,” “would,” “will,” “will be,” “will continue,” “will likely result,” “plan,” or words or phrases of similar meaning. Specifically, this 2018 10-K Report includes forward-looking statements about (i) our expectations regarding the conditions in the aviation, land, and marine markets, including volume and fuel prices, and the impact on our business, (ii) our expectations about the financial impact of portfolio rationalization and our ability to redeploy such capital into activities with sustainable revenue and expected returns, (iii) our expectations regarding government-related activity, including NATO, and the related profit contribution, (iv) our beliefs regarding our competitive advantages and our ability to capitalize on these to drive

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growth, (v) estimates regarding the short and long-term savings and synergies from our cost-savings initiatives, (vi) our expectations regarding our working capital, liquidity, capital expenditure requirements, (vii) our expectations and estimates regarding certain tax, legal and accounting matters, including the impact on our financial statements, (viii) our expectations regarding the financial and operational impact of our investments in automation and technology, (ix) our expectations regarding the financial impact of previous acquisitions, including estimates of future expenses and our ability to realize estimated synergies, and (x) estimates regarding the financial impact of our derivative contracts. These forward-looking statements are qualified in their entirety by cautionary statements and risk factor disclosures contained in our SEC filings.
These forward-looking statements are estimates and projections reflecting our best judgment and involve risks, uncertainties or other factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect. Our actual results may differ materially from the future results, performance or achievements expressed or implied by the forward-looking statements.
Important factors that could cause actual results to differ materially from the results and events anticipated or implied by such forward-looking statements include, but are not limited to:

customer and counterparty creditworthiness and our ability to collect accounts receivable and settle derivative contracts;
sudden changes in the market price of fuel;
loss of, or reduced sales to a significant government customer, such as NATO;
the availability of cash and sufficient liquidity to fund our working capital and strategic investment needs;
changes in the political, economic or regulatory environment generally and in the markets in which we operate, such as IMO 2020 (defined below);
our failure to effectively hedge certain financial risks and other risks associated with derivatives;
changes in credit terms extended to us from our suppliers;
non-performance of suppliers on their sale commitments and customers on their purchase commitments;
non-performance of third-party service providers;
adverse conditions in the industries in which our customers operate;
our ability to meet financial forecasts associated with our operating plan;
lower than expected valuations associated with our cash flows and revenues, which could impair our ability to realize the value of recorded intangible assets and goodwill;
the impact of cyber and other information security-related incidents;
currency exchange fluctuations and the impacts associated with Brexit;
ability to effectively leverage technology and operating systems and realize the anticipated benefits
failure of fuel and other products we sell to meet specifications;
our ability to effectively integrate and derive benefits from acquired businesses;
our ability to achieve the expected level of benefit from our restructuring activities and cost reduction initiatives;
material disruptions in the availability or supply of fuel;
environmental and other risks associated with the storage, transportation and delivery of petroleum products;
risks associated with operating in high-risk locations, including supply disruptions, border closures and other logistical difficulties that arise when working in these areas;
uninsured losses;
the impact of natural disasters, such as earthquakes and hurricanes;
seasonal variability that adversely affects our revenues and operating results;

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our failure to comply with restrictions and covenants in our senior revolving credit facility (“Credit Facility”) and our senior term loans (“Term Loans”);
declines in the value and liquidity of cash equivalents and investments;
our ability to retain and attract senior management and other key employees;
changes in U.S. or foreign tax laws (including the Tax Cuts and Jobs Act), interpretations of such laws, changes in the mix of taxable income among different tax jurisdictions, or adverse results of tax audits, assessments, or disputes;
our failure to generate sufficient future taxable income in jurisdictions with material deferred tax assets and net operating loss carryforwards;
our ability to comply with U.S. and international laws and regulations including those related to anti-corruption, economic sanction programs and environmental matters;
the outcome of litigation and other proceedings, including the costs associated in defending any actions;
increases in interest rates; and
other risks, including those described in “Item 1A - Risk Factors” and those described from time to time in our other filings with the SEC.

We operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all of those risks, nor can we assess the impact of all of those risks on our business or the extent to which any factor may cause actual results to differ materially from those contained in any forward-looking statement. Further, forward-looking statements speak only as of the date they are made, and unless required by law, we expressly disclaim any obligation or undertaking to publicly update any of them in light of new information, future events, or otherwise. Any public statements or disclosures by us following this report that modify or impact any of the forward-looking statements contained in or accompanying this 2018 10-K Report will be deemed to modify or supersede such forward-looking statements.
For these statements, we claim the protection of the safe harbor for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act.

Item 1A. Risk Factors
We extend credit to most of our customers in connection with their purchase of fuel and services from us, and financial condition, results of operations and cash flows will be adversely affected if we are unable to collect accounts receivable.
Our success in attracting customers has been due, in part, to our willingness to extend credit on an unsecured basis to customers as opposed to requiring prepayment, letters of credit or other forms of credit support. Even in cases where we do obtain credit enhancements, such as guarantees, offset rights, collateral or other forms of security, such rights may not be sufficient or fully collectible depending on the circumstances of the customer at the time of default. Furthermore, the diversification of our credit risk is limited, as we primarily conduct business within the aviation, marine and land transportation industries within which we primarily do business.

Our exposure to credit losses depends on the financial condition of our customers and other macroeconomic factors beyond our control, such as deteriorating conditions in the world economy or in the industries we serve, changes in oil prices and political instability. While we actively manage our credit exposure and work to respond to both changes in our customers’ financial conditions or macroeconomic events, there can be no guarantee we will be able to mitigate all of these risks successfully. Substantial credit losses could have a material adverse effect on our financial condition, results of operations and cash flows.

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Our business is dependent on our ability to adequately finance our capital requirements and fund our investments, which, if not available to us, would impact our ability to conduct our operations.
We rely on credit arrangements with banks, suppliers and other parties as an important source of liquidity for capital requirements not satisfied by our operating cash flow. Future market volatility, generally, and persistent weakness in global energy markets may adversely affect our ability to access capital and credit markets or to obtain funds at low interest rates or on other advantageous terms. If we are unable to obtain credit as and when we need it on commercially reasonable terms or at all, such as in the event there is a substantial tightening of the global credit markets or a substantial increase in interest rates, it could have a negative impact on our liquidity, business, financial condition, and cash flows, as well as our future development and growth. Furthermore, our business is impacted by the availability of trade credit to fund fuel purchases and an actual or perceived decline in our liquidity or operations could cause our suppliers to seek credit support in the form of additional collateral, limit the extension of trade credit, or otherwise materially modify their payment terms. Adverse changes in our payment terms from principal suppliers, including shortened payment cycles, decreased credit lines or requiring prepayment could impact our liquidity, business, results of operations and cash flows.
Finally, if we are unable to obtain debt or other forms of financing and instead raise capital through equity issuance, existing shareholders would be diluted. Even if we can obtain financing, the restrictions our creditors may place on our operations or our increased interest expense and leverage could limit our ability to grow.
A material portion of our profitability is derived from our government business, and the loss or material reduction in business from our government customers could have a material adverse effect on our results of operations and cash flows.
Sales to government customers, which principally consist of sales to NATO in support of military operations in Afghanistan, accounted for approximately 15% of our consolidated gross profit in 2018. Our sales to government customers may fluctuate significantly as a result of the level of troop deployments and related activity in a particular region or area or the commencement, extension, renewal or completion of existing and new government contracts. Recently, the U.S. government announced that it is considering withdrawing U.S. troops from Afghanistan, including the troops supporting NATO, although the timing and extent of any such withdrawal is currently uncertain. In addition, our current contract with NATO expires in December 2019, with three one-year renewal options at NATO’s discretion. Sales to government customers can also be materially impacted by factors such as supply disruptions, border closures, road blockages, hostility-related product losses, inventory shortages and other logistical difficulties that can arise when sourcing and delivering fuel in areas that are actively engaged in war or other military conflicts.
As a result of complex supply logistics, the indefinite nature of government contracts, and associated risks of doing business in areas engaged in war or military conflict, sales of products and services to government customers in support of military operations typically carry significantly higher net margins than sales to commercial customers. Accordingly, a decrease in sales to our government customers would contribute disproportionately to a reduction in our consolidated operating income. To the extent such a reduction in sales is significant, it could have a material adverse effect on our financial condition, results of operations and cash flows.
Sales to government customers involve unique risks that could have a material adverse effect on our business and results of operations.
In addition to normal business risks, our supply of products and services to government customers subjects us to unique risks, many of which are beyond our control. These risks include:
Dependence on government spending on defense programs, which can be negatively affected by budgetary constraints, changes in defense spending policies, government shutdowns and changes in military policies or priorities;
Contract awards that are typically made through a competitive bidding process, which can involve substantial costs and managerial time to prepare and submit bids for contracts that may not be awarded to us;
Expense and delays that may arise if our competitors protest or challenge contract awards made to us;
Contracts for indefinite delivery, such that there are no guarantees on the quantity or timing of the government customer’s purchase from us; and
The ability for government customers to unilaterally modify certain terms and conditions in existing contracts or terminate existing contracts for their convenience.

Furthermore, government customer contracts are subject to specific procurement regulations and a variety of other complex requirements, which affect how we transact business with our government customers and can impose additional costs on our business operations. Numerous laws and regulations affect our U.S. government contracts,

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including the Federal Acquisition Regulation, which governs the formation, administration and performance of government contracts, and the federal False Claims Act, which provides for substantial criminal and civil penalties and treble damages where a contractor presents a false or fraudulent claim to the U.S. government for payment. Similar laws and regulations also may apply to our contracts with foreign government and intergovernmental agency customers.
Government customers routinely audit government contractors to review contract performance, cost structure and compliance with applicable laws, regulations, and standards, as well as the adequacy of and compliance with internal control systems and policies. Any costs found to be misclassified or inaccurately allocated may not be reimbursable, and to the extent already reimbursed, may need to be refunded and could subject us to a variety of government claims. Also, any inadequacies in our systems and policies could result in payments being withheld, penalties and reduced future business. Improper or illegal activities, including those caused by our subcontractors, could subject us to civil or criminal penalties or administrative sanctions, including contract termination, fines, forfeiture of fees, suspension of payment and suspension or debarment from doing business with government agencies, any of which could materially adversely affect our reputation, business, financial condition and results of operations.
Our failure to comply with U.S. or foreign tax laws or a government challenging our tax position could adversely affect our business and future operating results.
We are affected by various U.S. and foreign taxes, including income taxes and taxes imposed on the purchase and sale of aviation, marine and land fuel products, such as sales, excise, value-added tax (“VAT”), energy, environmental and other taxes. From time to time, we may also benefit from special tax concessions in certain jurisdictions. For example, we have operated under a special income tax concession in Singapore since 2008 which is conditional upon our meeting certain employment and investment thresholds which, if not met in accordance with our agreement, may eliminate the benefit beginning with the first year in which the conditions are not satisfied. The income tax concession reduces the income tax rate on qualified sales and derivative gains and losses. Changes in the U.S. and foreign tax laws, our failure to comply with such regulations or the loss of tax concessions could adversely affect our business, financial condition, results of operations and cash flows.
Furthermore, significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Our tax expense includes estimates of additional tax that may be incurred for tax exposures and reflects various estimates and assumptions, including assessments of future earnings that could affect the valuation of our net deferred tax assets. Our operating results could be adversely affected by changes in the effective tax rate as a result of a change in the mix of earnings in countries with differing statutory tax rates, changes in our overall profitability, changes in tax legislation, the results of audits and examinations of previously filed tax returns and continuing assessments of our income tax exposures.
From time to time, we are under review by the Internal Revenue Service (“IRS”) and various other domestic and foreign tax authorities with regards to income tax and indirect tax matters and are involved in various challenges and litigation in a number of countries, including, in particular, Brazil, Denmark, South Korea and the U.S., where the amounts under controversy may be material. We are in the process of challenging a number of tax assessments in several administrative and legal proceedings, which are at various stages of appeal. In addition, in some jurisdictions, these challenges require the posting of collateral or payment of the contested amount which may affect our flexibility in operating our business or our liquidity. If these challenges are ultimately determined unfavorably to us, these proceedings may have a material adverse effect on our business, results of operations, financial condition or prospects. Furthermore, any failure to comply with applicable laws and regulations or appropriately resolve these challenges could subject us to administrative, civil, and criminal remedies, including fines, penalties, disgorgement, injunctions and damage to our reputation. See notes 9 and 11 of the accompanying consolidated financial statements for additional details regarding certain tax matters.
Finally, recent developments including investigations by the European Commission on illegal state aid, the project by the Organisation for Economic Co-operation and Development (“OECD”) on Base Erosion and Profit Shifting (“BEPS”) and other initiatives, could adversely affect our worldwide effective tax rate. With the finalization of specific actions contained within the OECD’s BEPS study, many OECD countries have begun to implement the actions and update their local tax laws. The extent to which countries in which we operate adopt and implement these actions could have a material adverse impact on our effective tax rate, income tax expense, financial condition, and results of operations and cash flows.

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U.S. tax legislation, as well as future substantial changes that may be made by the Trump Administration to regulatory, fiscal and trade policies, may materially adversely affect our financial condition, results of operations and cash flows.
On December 22, 2017, the U.S. President signed into law tax legislation known as the Tax Cuts and Jobs Act (the “Tax Act”). This legislation significantly changed the U.S. Internal Revenue Code, including taxation of U.S. corporations, by, among other things, limiting interest deductions, reducing the U.S. corporate income tax rate, altering the expensing of capital expenditures, adopting elements of a territorial tax system, taxing global intangible low-taxed income (“GILTI”), assessing a repatriation tax or “toll-charge” on undistributed earnings and profits of U.S.-owned foreign corporations, and introducing certain base erosion and anti-abuse minimum tax provisions. Since the Tax Act was signed into law, various notices, proposed regulations, and other clarifications of the law have been issued by the IRS and the Treasury Department. The legislation will require further interpretations and implementing regulations by the IRS, as well as state tax authorities, and the legislation could be subject to potential amendments and technical corrections, any of which could increase certain adverse impacts of the legislation.
Because of the complexity of the GILTI tax rules effective in 2018, we evaluated this provision of the Tax Act and the application of Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 740, Income Taxes (“ASC Topic 740”). Under accounting principles generally accepted in the United States of America (“U.S. GAAP”), we made an accounting policy choice to treat taxes due on future U.S. GILTI inclusions as a current period expense when incurred (the “period cost method”).
The changes included in the Tax Act are broad and complex. The final transition impacts of the Tax Act may differ from our estimates, possibly materially, due to, among other items, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to current year earnings and tax estimates.
In addition, there may be other material adverse effects resulting from the legislation that we have not yet identified. If we are unable to successfully take actions to manage the adverse impacts of the new tax legislation, or if additional interpretations, regulations, amendments or technical corrections exacerbate the adverse impacts of the legislation, the legislation could have a material adverse effect on our financial condition, results of operations and cash flows.
If we fail to comply with laws or other government regulations applicable to our operations, we could suffer penalties or costs that could have a material adverse effect on our business.
We are required to comply with extensive and complex laws and other regulations in the countries in which we operate at the international, federal, state/provincial and local government levels relating to, among other things:
the transportation, handling and delivery of fuel and fuel products;
the operation of fuel storage, blending and distribution facilities;
workplace safety;
fuel spillage or seepage;
environmental protection, carbon emissions and hazardous waste disposal;
consumer protection;
data privacy and protection;
commodities trading, brokerage, derivatives and advisory services;
credit and payment card processing and payment services;
government contracting and procurement;
antitrust and competition;
anti-money laundering, financial services, and funds transmission; and
regulatory reporting and licensing.

Due to the complex and technical nature of these laws and regulations, inadvertent violations may occur. If we fail to comply with these laws or regulations for any reason, we would be required to correct or implement measures to prevent a recurrence of any violations, which could increase our operating costs. If more severe violations were to occur, we could be subject to substantial fines or penalties, or to civil or criminal liability. Any substantial fines and costs incurred as a result of a violation of such regulations could have a material adverse effect on our business and results of operations.


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Our physical operations have inherent risks that could negatively impact our business, financial condition and results of operations.
We provide various products and services to customers, directly or through third parties on our behalf, including into-plane fueling at airports, fueling of vessels in port and at sea, on the ground fueling of customer storage tanks and vehicles, and transportation, delivery and storage of fuel and fuel products. Operating fuel storage and distribution terminals and transporting fuel products involve inherent risks, such as:
fires, collisions and other catastrophic disasters;
traffic accidents, injuries and loss of life;
spills, discharges, contaminations and other releases;
severe damage to and destruction of property and equipment; and
loss of product and business interruption.

Any of the foregoing could result in distribution difficulties and disruptions, environmental pollution, government-imposed fines or clean-up obligations, personal injury or wrongful death claims, or damage to our properties and the properties of others. While we keep business continuity plans to address these types of contingencies, our failure to timely implement these continuity plans could exacerbate the impact on the business. Although we generally maintain liability insurance for these types of events, such insurance may be insufficient to cover certain losses which may be in excess of coverage limits or outside the scope of the coverage. If we are held liable for any damages, and the liability is not adequately covered by insurance, our financial position and results of operations will be adversely affected. Furthermore, the occurrence of any of these events could result in negative media coverage and damage to our reputation, whether or not we were ultimately held financially liable for such event, which could adversely affect our business.
In addition, some of our employees are represented by labor unions under collective bargaining agreements, including certain of our truck drivers that transport and deliver fuel and fuel-related products. Employees who are not currently represented by labor unions may seek union representation in the future, and any renegotiation of current collective bargaining agreements may result in terms that are less favorable to us. Although we believe that our relations with our employees are good, if our unionized workers were to engage in a strike, work stoppage or other slowdowns in the future, we could experience a significant disruption of our operations. Such disruption could interfere with our ability to transport and deliver products on a timely basis and could have other negative effects, including decreased productivity and increased labor costs. A significant labor dispute with our own union employees, or by the union employees of third parties who provide services for our business, could have a material adverse effect on our results of operations and cash flows.
Our operations are subject to extensive laws and regulations pertaining to environmental protection, health, safety and security that can result in material costs and liabilities.
Our business is subject to numerous federal, state, local and foreign environmental laws and regulations. A violation of, liability under, or noncompliance with these laws and regulations, or any future environmental law or regulation, could result in significant liability, including administrative, civil or criminal penalties, remediation costs for natural resource damages as well as third-party damages. Furthermore, some environmental laws impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject us to liability without regard to whether we were negligent or at fault. In our marine segment we utilize fuel delivery barges and store refined products adjacent to water, thereby potentially subjecting us to strict, joint, and potentially unlimited liability for removal costs and other consequences of an oil spill where the spill is into navigable waters, along shorelines or in the exclusive economic zone of the United States. Any of these occurrences and any resulting negative media coverage could have a material adverse effect on our stock price and on our business, financial condition, results of operations and cash flows.
Further, increasingly stringent U.S. federal and foreign environmental regulations have resulted and will likely continue to increase our overall cost of business. For example, compliance with existing and future laws that regulate the delivery of fuel by barge, truck, vessel, pipeline or railcar; or fuel storage terminals or underground storage tanks that we own, lease or operate may require significant capital expenditures and increased operating and maintenance costs, particularly as we acquire businesses with more physical assets.

In addition, mandatory fuel standards have been adopted in many jurisdictions which can be costly to implement and maintain compliance. For example, the International Maritime Organization has set January 1, 2020 as the implementation date for ships to comply with new low sulfur fuel oil requirements (“IMO 2020”). Shipping companies may comply with this requirement by either using fuel with low sulfur content, which is more expensive than standard marine fuel, or by upgrading vessels to provide cleaner exhaust emissions, such as by installing “scrubbers” or retrofitting

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vessels to be powered by liquefied natural gas (“LNG”). The cost of compliance with these regulatory changes may be significant for shipping companies and it is uncertain how the availability and price of fuel globally will be affected by the implementation of the IMO 2020 regulations as refineries adjust their capacity to increase production of compliant fuels. These and future changes to applicable standards or other more stringent requirements in the industries we serve could reduce our ability to procure product, increase fuel prices, require us to incur additional handling costs and/or require the expenditure of capital. To the extent these expenditures, as with all costs, are not ultimately reflected in the prices of our products or we are unable to adequately source compliant fuels, our business and result of operations would be adversely affected.

Economic, political and other risks associated with international sales and operations could adversely affect our business and future operating results.
Because we offer fuel products and services on a worldwide basis, our business is subject to risks associated with doing business internationally. Our business and future operating results could be harmed by a variety of factors, including, but not limited to:
trade protection measures and import, export and other licensing requirements, which could increase our costs or prevent us from doing certain business internationally;
the costs of hiring and retaining senior management for overseas operations;
difficulty in staffing and managing widespread operations, which could reduce our productivity;
changes in regulatory requirements, which may be costly and require significant time to implement;
laws restricting us from repatriating profits earned from our activities within foreign countries, including making distributions;
governmental actions that may result in the deprivation of our contractual rights or the inability to obtain or retain authorizations required to conduct our business;
political risks, including changes in governments; and
terrorism, war, civil unrest and natural disasters and other weather-related events.

In particular, we operate in certain international markets which have been plagued by corruption and have uncertain regulatory environments, either of which could have a negative impact on our operations there. Furthermore, many countries in which we operate have historically been, and may continue to be, susceptible to recessions or currency devaluation.
We also operate in certain high-risk locations, such as Iraq and Afghanistan, that have been experiencing military action, terrorist activity or continued unrest which could disrupt the supply of fuel or otherwise disrupt our operations in those areas. An act of terror could result in disruptions of fuel supply and oil markets, and our facilities could be direct or indirect targets. Terrorist activity may also hinder our ability to transport fuel if our means of transportation become damaged as a result of an attack. In these high-risk locations, we may also incur substantial operating costs, including maintaining the safety of our personnel. Furthermore, we cannot guarantee the safety of our personnel in these locations and there is a risk of serious injury or loss of life of employees or subcontractors.
Finally, the U.S. may potentially withdraw from or renegotiate various trade agreements and take other actions that would change current trade policies of the U.S. Recently, the U.S. government imposed tariffs on a variety of imports from China, as well as increased tariffs on certain goods imported from Mexico and Canada. If additional tariffs or trade restrictions are implemented by the U.S. or other countries, whether as retaliation or in connection with a global trade war, global trade may be significantly reduced, which can adversely affect the demand for our products and services. We cannot predict the magnitude of the impact to our business as a result of these or other proposed changes to trade policies and treaties, however, to the extent these actions intensify or continue for an extended period of time, they could adversely affect our business, financial condition and results of operations.
Adverse conditions or events affecting the aviation, marine and land transportation industries may have a material adverse effect on our business.
Our business is focused on the marketing of fuel and other related products and services primarily to the aviation, marine and land transportation industries, which are generally affected by economic cycles. Therefore, weak economic conditions can have a negative impact on the business of our customers which may, in turn, have an adverse effect on our business. For example, our marine segment has been significantly impacted by the economic conditions adversely affecting the maritime industry. In addition, any political instability, terrorist activity, military action, natural disasters and other weather-related events that disrupt shipping, flight operations or land transportation, will adversely affect us and our customers and may reduce the demand for our products and services. Our business could also be adversely affected by increased merger activity in the aviation, marine or land transportation industries, which may

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reduce the number of customers that purchase our products and services, as well as the prices we are able to charge for such products and services. For example, the shipping industry has gone through a period of significant consolidation, which has created a concentration of volume among a smaller number of shipping companies. Larger shipping companies often have greater leverage, are more sophisticated purchasers of fuel and have a greater ability to buy directly from major oil companies, which can negatively impact our value proposition to these types of customers.
In addition, the aviation, marine and land transportation industries are subject to continuing changes in laws and regulations, including environmental regulations mandating or incentivizing alternative energy sources or attempting to control or limit emissions and pollution. Complying with these and other laws and regulations may require capital expenditures by our customers or otherwise increase our customers’ operating costs, which could in turn, reduce the demand for our products and services or impact the pricing or availability of the products we sell. Although the ultimate impact of any regulations is difficult to predict accurately, they could have a material adverse effect on our business or on the businesses of our customers.
Implementation of our growth strategy may place a strain on our management, operational and financial resources, as well as our information systems.
A key element of our business strategy has been the growth of our business through acquisitions and strategic investments. However, this growth strategy may place a strain on our management, operational and financial resources, as well as our information systems and expose us to additional business and operating risks and uncertainties, including:
our ability to effectively and efficiently integrate the operations, financial reporting, and personnel of acquired businesses and manage acquired businesses or strategic investments, while maintaining uniform standards and controls;
the diversion of management’s time and attention from other business concerns, the potentially negative impact of changes in management on existing business relationships and other disruptions of our business;
the risks associated with entering into transactions or markets in which we may have no or limited direct prior experience;
the potential loss of key employees, customers or suppliers of the acquired businesses;
a decrease in our liquidity resulting from a material portion of our available cash or borrowing capacity being used to fund acquisitions and a corresponding increase in our interest expense or financial leverage if we incur additional debt to finance acquisitions;
the ability to integrate the IT systems and technology of acquired businesses into our existing infrastructure and manage those systems and technologies that cannot be effectively integrated;
the requirement to write down acquired assets in the event the acquired business or strategic investment is worth less than we paid for or invested in it;
capital expenditure requirements exceeding our estimates;
the assumption of material liabilities, exposure to litigation, regulatory noncompliance or unknown liabilities associated with the acquired businesses, and no or limited indemnities from sellers or ongoing indemnity obligations to purchasers; and
the need to implement internal controls, procedures and policies appropriate for a public company at companies that before the acquisition lacked such controls, procedures and policies.

These risks may result in an adverse effect on our results of operations or financial condition or result in costs that outweigh the financial benefit of such opportunities. Furthermore, these acquisitions or strategic investments may result in us incurring substantial additional indebtedness and other expenses or consummating potentially dilutive issuances of equity securities to fund the required capital investment. This could adversely affect the market price of our common stock, inhibit our ability to pay dividends or otherwise restrict our operations.
We may not be able to fully recognize the anticipated benefits of our acquisitions and other strategic investments.
As part of our growth strategy, we have been pursuing acquisition opportunities complementary to our business portfolio. From time to time, we may also enter into strategic investments such as joint venture arrangements or equity investments intended to complement or expand a portion of our business. Our ability to successfully implement our growth strategy depends on our ability to find attractive acquisition candidates or strategic investments and consummate such transactions on economically acceptable terms. Before making acquisitions or other strategic investments, we conduct due diligence that we deem reasonable and appropriate based on the facts and circumstances applicable to each investment. We rely, among other things, on our due diligence, representations and warranties of the sellers, financial statements and records of target businesses to establish the anticipated revenues and expenses and whether the acquisitions or strategic investments will meet our internal guidelines for current and future potential returns. Our due

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diligence investigation and other information we rely on with respect to any opportunity may not reveal or highlight all relevant risks and issues that may be necessary or helpful in evaluating such opportunity. Consequently, these transactions could result in (i) an adverse impact on our overall profitability if the acquisitions or strategic investments do not achieve the projected financial results, (ii) unanticipated costs that may impact our results of operations, and (iii) increased demands on our cash resources that may, among other things, impact our ability to explore other opportunities. If our acquisitions or strategic investments do not achieve the financial results anticipated, it could adversely affect our revenues and results of operations.

Integration difficulties, or any other factors that make operating the acquired businesses more challenging following the completion of the acquisitions, may also prevent us from realizing the benefits from the recent acquisitions or any future acquisitions to the extent, or in the time frame, anticipated by us. We have incurred, and expect to continue incurring, expenses related to the integration of acquisitions. These transaction and integration expenses could, particularly in the near term, exceed the savings and synergies that we expect to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings related to the integration of the acquired businesses following the completion of the recent acquisitions. Any of these factors could have an adverse effect on our business, financial condition, results of operations and cash flows.
As a result of our acquisition activity, our goodwill and intangible assets have increased substantially in recent years and we have incurred, and may continue to incur, impairments to goodwill or intangible assets.
When we acquire a business, a substantial portion of the purchase price of the acquisition is allocated to goodwill and other identifiable intangible assets. In accordance with applicable acquisition accounting rules, we are required to record as goodwill on our consolidated balance sheet the amount by which the purchase price exceeds the net fair value of the tangible and intangible assets and liabilities acquired as of the acquisition date. We review our indefinite-lived intangible assets, including goodwill, for impairment annually in the fourth fiscal quarter or whenever events or changes in circumstances indicate that a potential impairment exists. Factors that may be considered in assessing whether goodwill or intangible assets may be impaired include a decline in our stock price or market capitalization, changes in our marketing or branding strategy, reduced estimates of future cash flows in our annual operating plan and slower growth rates in our industry.

Our valuation methodology for assessing impairment requires management to make judgments and assumptions based on a number of factors including industry experience, internal benchmarks, and the economic environment. We also rely heavily on projections of future operating performance. If our annual operating plan is not achieved or if there are other variations to our estimates and assumptions, particularly in the expected growth rates and profitability embedded in our cash flow projections or the discount rate used, there is the potential for a partial or total impairment of the carrying amount of goodwill within one or more of our reporting units.

In the past, we have recorded impairment charges in connection with various factors such as exiting certain markets or lines of business. Due to continual changes in market and general business conditions, we cannot predict whether, and to what extent, our goodwill and long-lived intangible assets may be impaired in future periods. Any resulting impairment loss would have a negative effect on our results of operations. See Note 7 in the accompanying Notes to Consolidated Financial Statements for more information.
We may be unable to realize the level of benefit that we expect from our restructuring activities and cost reduction initiatives which may hurt our profitability and our business otherwise might be adversely affected.
We continually assess the strategic fit of our existing businesses and seek the most cost-effective means and efficient structure to serve our customers and suppliers and respond to changes in the markets in which we operate. In line with this commitment, we have in the past and may, in the future, divest of certain non-core assets, exit lines of businesses that are not achieving the desired return on investment or generate low or highly variable economic value, or otherwise restructure certain of our operations to improve operating efficiencies, cost competitiveness and profitability. We have also engaged in various cost reduction initiatives and restructuring activities throughout 2017 and 2018 and expect to continue to evaluate areas for additional restructuring and cost reduction opportunities, as well as potential divestitures.
We may not be able to achieve the level of benefit that we expect to realize from our past or future restructuring activities or divestitures. For example, we may be unable to produce returns on the reinvestment of proceeds that are greater than that of the divested activity. We may also materially alter various aspects of our business, or our business model, and we cannot provide any assurances that such changes will be successful or that they will not ultimately have a negative effect on our business and results of operations. Further, these types of restructuring activities could result in unintended consequences such as diversion of our management and employees’ attention from ongoing business

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operations, business disruption, attrition beyond any planned reduction in workforce, potential loss of key customers, inability to attract or retain key personnel and reduced employee productivity or morale, which could adversely affect our business. Finally, restructuring activities and divestitures may result in restructuring charges and material write-offs, including those related to goodwill and other intangible assets, as well as ongoing indemnity obligations to purchasers, any of which could have a material adverse effect on our results of operations and financial condition.
Third parties who fail to provide products or services to our customers as agreed or to us could harm our business.
We purchase fuel and other products from suppliers and resell to customers. If the fuel and other products we sell fail to meet the specifications we have agreed to with customers, we could incur material liabilities if such products cause physical damage to a vessel or aircraft, bodily injury or result in other losses such that a customer initiates a claim or a lawsuit for which we settle or results in a decision against us. Also, our relationship with our customers could be adversely affected, and adverse publicity about any allegations of contaminated products may negatively impact us, regardless of whether the allegations are true. Although in most cases our agreements with suppliers provide that we have recourse against them for products that fail to meet contractual specifications, such recourse may not be sufficient to adequately cover the liability we incur and our ability to enforce such recourse may be limited or costly. For example, several of our supply agreements are with foreign entities, including foreign governments, and are governed by the laws of foreign jurisdictions. If a supplier breaches such agreement, the cost of enforcing our rights against a local supplier in a foreign jurisdiction may be substantial and the ultimate outcome can be unpredictable. Any material liability in excess of any applicable insurance coverage could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We also use third parties to provide various services to our customers, including into-plane fueling at airports, fueling of vessels in ports and at sea and delivering land-based fuel products. The failure of these third parties to perform these services in accordance with contractual terms for any reason, such as their inability to supply specified fuel at the requisite time or an interruption of their business because of weather, environmental or labor difficulties or political unrest, could affect our relationships with our customers and subject us to claims and other liabilities that could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Changes in the market price of fuel may have a material adverse effect on our business.
Fuel prices are impacted by many factors beyond our control, including:
global economic conditions;
changes in global crude oil and natural gas prices;
expected and actual supply and demand for fuel;
the ability or willingness of the Organization of Petroleum Exporting Countries (“OPEC”) to set and maintain production levels for oil;
oil and gas production levels by non-OPEC countries;
geopolitical conditions;
laws and regulations related to environmental matters, including those mandating or incentivizing alternative energy sources or otherwise addressing global climate change;
changes in pricing or production controls by various organizations and oil producing countries;
technological advances affecting energy consumption or supply;
energy conservation efforts;
price and availability of alternative fuels and energy sources; and
weather.

During times of high fuel prices, our customers may not be able to purchase as much fuel from us because of their credit limits with us and the resulting adverse impact on their business could cause them to be unable to make payments owed to us for fuel purchased on credit. In addition, if fuel prices increase, our own credit limits could prevent us from purchasing enough fuel from our suppliers to meet our customers’ demands or could require us to prepay for fuel purchases which would adversely impact our liquidity.
Conversely, extended periods of low fuel prices, particularly when coupled with low price volatility, can also have an adverse effect on our results of operations and overall profitability. This outcome can be due to many factors, including reduced demand from our customers involved in the oil exploration sector and for our price risk management products. Low fuel prices also facilitate increased competition by reducing financial barriers to entry and enabling existing, lower-capitalized competitors to conduct more business as a result of lower working capital requirements.

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Finally, we maintain fuel inventories for competitive or logistical reasons. Because fuel is a commodity, we have no control over the changing market value of our inventory though we may manage or hedge this price exposure with derivatives. Our inventory is principally valued using the weighted average cost methodology and is stated at the lower of average cost or net realizable value. A rapid decline in fuel prices could cause a reduction in our inventory valuation, resulting in our inventory being marked down to net realizable value or the inventory itself sold at lower prices. While we attempt to mitigate these fluctuations through hedging, such hedges may not be fully effective. Accordingly, if the market value of our inventory is less than our average cost and to the extent our hedges are not effective at mitigating fluctuations in prices, we could record a write-down of inventory on hand and incur a non-cash charge or suffer losses as fuel is sold, which could adversely impact our earnings.
Our operations may be adversely affected by legislation and competition from other energy sources and new or advanced technology.
Fuel competes with other sources of energy, some of which are less costly on an equivalent energy basis. There have been significant governmental incentives and consumer pressures to increase the use of alternative fuels in the United States and abroad. A number of automotive, industrial and power generation manufacturers are developing more fuel-efficient engines, hybrid engines and alternative clean power systems. The more successful these alternatives become as a result of governmental incentives or regulations, technological advances, consumer demand, improved pricing or otherwise, the greater the potential negative impact on pricing and demand for our products and services and accordingly, our profitability.
On March 28, 2017, the U.S. President signed an executive order directing the Environmental Protection Agency (“EPA”) and other executive agencies to review their existing regulations, orders, guidance documents and policies that potentially burden the development of energy resources. It remains unclear how and to what extent these executive actions may impact the regulation of GHG emissions at the federal level. Even if federal efforts in this area are slow, state, local and/or foreign governments have been enacting legislation or regulations that attempt to control or limit GHGs such as carbon dioxide. For instance, on September 10, 2018, California enacted SB-100, which requires California to transition to a fully renewable energy grid devoid of fossil fuels by 2045 and utility providers to generate 60% of their power from renewable sources by 2030. Such laws or regulations could impose costs tied to carbon emissions, operational requirements or restrictions, or additional charges to fund energy efficiency activities. They could also provide a cost advantage to alternative energy sources, result in other costs or requirements, such as costs associated with the adoption of new infrastructure and technology to respond to new mandates, or impose costs or restrictions on end users of fuel. For example, some of our customers in the transportation industry may be required to purchase allowances or offsets or incur other costs to comply with existing or future requirements relating to GHG. Our customers may also implement new technologies that increase fuel efficiency or enable the use of alternative fuel sources, which may result in decreased demand for the products and services we provide. For example, commercial airlines continue to acquire more fuel efficient planes to lower their operating costs and improve profitability. A significant decline in passenger demand or reduction in the number of flights on certain routes would therefore negatively impact our sales volume to these customers and we may not be able to replace lost volumes with new or existing customers.
Finally, the focus on climate change could also negatively impact the reputation of our fuel products or services. The occurrence of any of the foregoing events could put upward pressure on the cost of fuel relative to other energy sources, increase our costs and the prices we charge our customers, reduce the demand for our products, and therefore adversely affect our business, financial condition, results of operations and cash flows.
Information technology (IT) failures and data security breaches, including as a result of cybersecurity attacks, could negatively impact our results of operations and financial condition, subject us to increased operating costs, and expose us to litigation.
We rely heavily on our computer systems, information technology and network infrastructure across our operations, particularly as we seek to grow our technology offerings, digitize our business and drive internal efficiencies. Despite our implementation of security and back-up measures, our technology systems are vulnerable to damage, disability or failures due to physical theft, fire, power loss, telecommunications failure, operational error, or other catastrophic events. Our technology systems, and those of third party service providers, are also subject to cybersecurity attacks including malware, other malicious software, social engineering attacks (such as phishing email attacks and impersonation), attempts to gain unauthorized access to our data, the unauthorized release, corruption or loss of our data, loss or damage to our data delivery systems, and other electronic security breaches. The techniques and sophistication used to conduct cybersecurity attacks and breaches of IT systems, as well as the sources and targets of these attacks, change frequently and at times are not recognized until they have been in place for a period of time, which can exacerbate the effects of such attacks.

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Furthermore, due to the large number of transactions that run through our systems each day, significant system downtime or slow-down could have a material impact on our ability to conduct business, process and record transactions, as well as make operational and financial decisions. As we continue to grow the volume of transactions in our businesses, our existing IT systems infrastructure, applications and related functionality may be unable to effectively support a larger scale operation, which can cause the information being processed to be unreliable and impact our decision-making or damage our reputation with customers. We have also been increasing our use of cloud-based technology and computing platforms operated by third parties. If our use of these cloud services, or the third party service providers who operate them, is disrupted either due to system failures, denial of service or other cyber attacks and computer viruses, or if the infrastructure which allows us to connect to the third party systems is interrupted, it could adversely impact our operations and our business. Further, we cannot guarantee that our third party service providers will effectively protect and handle our IT systems infrastructure, which can result in disruptions to our business operations. Finally, we may not have adequate recourse against these third parties in the event they experience a cybersecurity attack or other security breach.
In addition to our vulnerabilities, our reliance on email transmissions over public networks to process certain transactions exposes us to risks associated with the failure of our customers, business partners and other third parties to use appropriate controls to protect sensitive information, as well as to risks of online fraud and email scams. Furthermore, despite our efforts to ensure the integrity of our systems and prevent future cybersecurity attacks, it is possible that our business, financial and other systems could be compromised, especially because such attacks can originate from a wide variety of sources including persons involved in organized crime or associated with external service providers. Those parties may also attempt to fraudulently induce employees, customers or other users of our systems to disclose sensitive information to gain access to our data or use electronic means to induce us to enter into fraudulent transactions. Past and future occurrences of such attacks could damage our reputation and our ability to conduct our business, impact our credit and risk exposure decisions, cause us to lose customers or revenues, subject us to litigation and require us to incur substantial expenses to address, remediate, and/or enhance the security measures we employ to resolve these issues. Any of the foregoing, if of sufficient magnitude, could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We currently maintain insurance to protect against cybersecurity risks and incidents. However, insurance coverage may not be available in the future on commercially reasonable terms or at commercially reasonable rates. In addition, insurance coverage may be insufficient or may not cover certain of these cybersecurity risks and, even if available, the insurance proceeds received for any loss or damage may be insufficient to cover our losses or liabilities without materially adversely affecting our business, financial condition and results of operations.
The personal information that we collect may be vulnerable to breach, theft, loss or misuse that could increase operational costs, result in regulatory penalties and adversely affect our results of operation and financial condition.
In connection with various businesses we operate, including our transaction management and payment processing businesses, we have access to sensitive, confidential or personal data or information from our employees, customers (both corporate and individual consumers), suppliers and other third parties, some of which may be subject to privacy and security laws, regulations and customer-imposed controls. In the ordinary course of business, we collect, process, transmit and retain sensitive information regarding these parties. Despite our efforts to protect this information, our facilities and systems and those of our third party service providers may be vulnerable to security breaches, theft, misplaced or lost data and programming and human errors that could potentially lead to such information being compromised.

In addition, substantial changes in applicable regulations may require us to make costly changes to our IT systems to properly protect sensitive, personal information. Failure to adequately protect this information could lead to substantial fines, penalties, third-party liability, remediation costs, potential cancellation of existing contracts and the inability to compete for future business. Due to legislative and regulatory rules, we may be required to notify the owners of such information of any data breaches, which could harm our business relationships, reputation and financial results, as well as subject us to litigation or actions by regulatory authorities. Furthermore, there has been heightened legislative and regulatory focus on data security in the U.S. and abroad, particularly in the European Union (“E.U.”) through the enactment of the General Data Protection Regulation (“GDPR”) that went into effect in May 2018. GDPR governs the collection, use, retention, security, processing and transfer of personally identifiable information of residents of E.U. countries and imposes a broad range of compliance obligations with significant fines and sanctions for violations. We have substantial operations in the E.U., particularly in the U.K., and are therefore subject to these heightened standards. Although we have taken steps to address the requirements of GDPR and other data privacy regulations applicable to our operations, including implementing enhanced network security and internal control measures, these steps may

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not prevent a data security breach and any data security breach may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Due to our international operations, we are subject to U.S. and international laws, including U.S. economic sanctions, the Foreign Corrupt Practices Act (“FCPA”) and similar anti-bribery laws, which can impose substantial compliance costs and subject us to civil or criminal penalties for non-compliance.
Doing business on a global basis requires us to comply with the laws and regulations in jurisdictions worldwide that can impose substantial compliance costs and subject us to civil or criminal penalties for non-compliance. In particular, our global operations are subject to anti-corruption laws, such as the FCPA, anti-money laundering laws, international trade controls, and antitrust and competition laws. The FCPA prohibits us from providing anything of value to foreign officials for the purposes of improperly influencing official decisions or improperly obtaining or retaining business. Where applicable, the U.K. Bribery Act prohibits bribery both in the U.K. and internationally, including bribery across both public and private sectors. As part of our business, we regularly deal with state-owned enterprises, the employees of which may be considered foreign officials for purposes of the FCPA, the U.K. Bribery Act, and other applicable anti-bribery laws. In addition, some of the international jurisdictions in which we operate lack a developed legal system and have higher than normal levels of corruption. Our activities in these countries may increase the risk of improper payment demands made to, or offers made by, one of our employees or other parties acting on our behalf, and the rejection of demands to make such improper payments may also negatively impact our activities in those countries.

Furthermore, international trade controls, including economic sanctions such as those administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), export controls and anti-boycott regulations are complex, restrict our business dealings with certain countries and individuals, and are continually changing. Additional restrictions may be enacted, amended, enforced or interpreted in a manner that materially impacts our operations. From time to time, certain of our subsidiaries have limited business dealings in countries subject to comprehensive OFAC administered sanctions. These business dealings currently represent an immaterial amount of our consolidated revenue and income and are undertaken pursuant to general and/or specific licenses issued by OFAC or as otherwise permitted by applicable sanctions regulations. However, as a result of the above activities, we are exposed to a heightened risk of violating trade control regulations.
We have established policies and procedures designed to assist with our compliance with these laws and regulations, but such policies and procedures may not always prevent us from violations. Violations of these laws are punishable by fines and expose us and/or employees to criminal sanctions and civil suits and subject us to other adverse consequences including the denial of export privileges, injunctions, asset seizures, debarment from government contracts, revocations or restrictions of licenses. In addition, non-compliance with laws could adversely affect, among other things, our reputation, business, financial condition, results of operations and cash flows. Violations of law could also cause an event of default under our Credit Facility, which if not waived, could result in the acceleration of any outstanding indebtedness, could trigger cross-defaults under other agreements to which we are a party (such as certain derivative contracts), and would impair our ability to obtain working capital advances and letters of credit. Such events could adversely affect our business, financial condition, results of operations and cash flows.
Our business is subject to seasonal variability, which has caused our revenues and operating results to fluctuate and can adversely affect the market price of our shares.
Our operating results are subject to seasonal variability. Seasonality results from numerous factors, including traditionally higher demand for natural gas and home heating oil during the winter months and for aviation and land fuel during the summer months, as well as other seasonal weather patterns. As such, our results for the second and third quarters of the year tend to be the strongest for our aviation segment and our results for the fourth and first quarters of the year tend to be the strongest for our land segment. However, extreme or unseasonable weather conditions can substantially reduce the demand for our products and services or significantly increase the prices of the fuel products we sell which can, in turn, adversely impact our results of operations. Furthermore, we cannot provide any assurances that the seasonal variability will continue in future periods. Accordingly, results for any one quarter may not necessarily be indicative of the results that may be achieved for such quarter the following year or for the full fiscal year. These seasonal fluctuations in our quarterly operating results can therefore adversely affect the market price of our shares.
Material disruptions in the availability or supply of fuel would adversely affect our business.
The success of our business depends on our ability to purchase, sell and coordinate delivery of fuel and related services to our customers. Political instability, natural disasters and other weather-related events, transportation, terminal or pipeline capacity constraints, terrorist activity, piracy, military action or other similar conditions or events may disrupt the availability or supply of fuel. Decreased availability or supply of fuel or other petroleum products may have a negative impact on our sales and margins and adversely affect our operating results. In addition, we rely on a single or limited

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number of suppliers for the provision of fuel and related products and services in certain markets. These parties may have significant negotiating leverage over us, and if they are unable or unwilling to supply us on commercially reasonable terms, our business would be adversely affected.
The U.K.’s proposed withdrawal from the E.U. could harm our business and financial results.
On June 23, 2016, the U.K. held a referendum in which British voters approved an exit from the E.U., commonly referred to as “Brexit”. On March 29, 2017, the U.K. government initiated the exit process under Article 50 of the Treaty of the European Union, commencing a period of up to two years for the U.K. and the other E.U. member states to negotiate the terms of the withdrawal. By law, the U.K. is due to leave the E.U. on March 29, 2019 regardless of whether there is a deal with the E.U. or not unless extended by the European Council in agreement with the U.K. Uncertainty over the terms of the U.K’s departure from the E.U. could cause political and economic uncertainty in the U.K. and the rest of Europe, which could harm our business and financial results. A withdrawal could, among other outcomes, disrupt the free movement of goods, services and people between the U.K. and the E.U., undermine bilateral cooperation in key geographic areas and significantly disrupt trade between the U.K. and the E.U. or other nations as the U.K. pursues independent trade relations. These factors pose a risk to the overall U.K. economy and as a result, our operations in the U.K., particularly in our land segment, as well as our global operations, could be adversely impacted.
Finally, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which E.U. laws to replace or replicate. We may incur additional costs and expenses as we adapt to such potentially divergent regulatory frameworks. The effects of Brexit will depend on any agreements the U.K. makes to retain access to E.U. or other markets either during a transitional period or more permanently. Given the lack of comparable precedent, it is unclear what financial, trade and legal implications the withdrawal of the U.K. from the E.U. would have and how such withdrawal would affect us. In addition, Brexit may lead other E.U. member countries to consider referendums regarding their E.U. membership. Adverse consequences concerning Brexit or the E.U. could include deterioration in global economic conditions, instability in global financial markets, political uncertainty, continued volatility in currency exchange rates, or adverse changes in the cross-border agreements currently in place, any of which could have an adverse impact on our financial results in the future.
Our derivative transactions with customers, suppliers, merchants and financial institutions expose us to price and credit risks, which could have a material adverse effect on our business.
As part of our price risk management services, we offer customers various pricing structures for the purchase of fuel, including derivatives products designed to hedge exposure to fluctuations in fuel prices. In the ordinary course of business, we enter into fixed forward contracts with some of our counterparties under which we agree to sell or purchase certain volumes of fuel at fixed prices. In addition, we may act as a counterparty in over-the-counter swap transactions with some of our customers where the customer may be required to pay us in connection with changes in the price of fuel. Further, we may use derivatives to hedge price risks associated with our fuel inventories and purchase and sale commitments. We typically hedge our price risk in any of the foregoing types of transactions by entering into derivative instruments with large energy companies, trading houses and financial institutions.
If we have not required a customer to post collateral in connection with a fixed forward contract or swap transaction and there is an outstanding mark-to-market liability owing, we will have effectively extended unsecured credit to that customer and such amounts could be substantial. Based on the volatility of fuel prices, our counterparties may not be willing or able to fulfill their obligations to us under their fixed forward contracts or swap transactions. In such cases, we would be exposed to potential losses or costs associated with any resulting default. For example, in the event the spot market price of fuel at the time of delivery is substantially less than the fixed price of the contract with the customer, a customer could default on its purchase obligation to us and purchase the fuel at a lower “spot” market price from another supplier. Meanwhile, we may have entered into a corresponding commitment with a supplier to offer our customer specified fixed pricing or terms and would be obligated to perform our fixed price purchase obligations to such supplier. Similarly, the counterparties with whom we may hedge our price risk exposure may not be willing or able to fulfill their obligations to us under their swap transactions.
While we monitor and manage our credit exposures to our counterparties, credit defaults may still occur and the actual recovery will depend on the financial condition of that counterparty and our ability to enforce any obligation owed to us. Accordingly, if we are unable to recover such losses from a defaulting counterparty, we could sustain substantial losses that would have a material adverse effect on our business, financial condition, results of operations and cash flows.

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Finally, our hedging activities also result in additional costs and can require cash deposits for margin calls. If there is a sudden a significant change in fuel prices, the amount of cash necessary to cover margin calls can be material and impact our liquidity.
We are exposed to various risks in connection with our use of derivatives which could have a material adverse effect on our results of operations.
We enter into financial derivative contracts primarily to mitigate the risk of market price fluctuations in fuel products, to offer our customers fuel pricing alternatives to meet their needs, to manage price exposures associated with our inventories, and to mitigate the risk of fluctuations in foreign currency exchange rates. However, our efforts to hedge our exposure to fuel price and exchange rate fluctuations may be ineffective in certain instances. For example, we hedge jet fuel prices with derivatives tied to other petroleum products that have historically been correlated to aviation jet fuel (e.g. heating oil in the United States or gasoil in Europe or Asia). If the price of aviation jet fuel at a specific location experiences a divergence to historical correlations, our attempts to mitigate price risk associated with our aviation business may not be effective. Moreover, there may be times where the change in the price of jet fuel at a specific location is disrupted (e.g. hurricanes) and is not correlated to the underlying hedges when compared to historical prices.
We may also enter into proprietary derivative transactions, which are not intended to hedge our own risk but rather make a profit by capitalizing on arbitrage opportunities associated with basis, time, quality or geographic spreads related to fuel products we sell. Proprietary derivative transactions, by their nature, expose us to changes in the underlying commodity prices of the proprietary positions taken. Although we have established limits on such exposure, any adverse changes could result in losses which can be further exacerbated by volatility in the financial and other markets. In addition, our employees may fail to comply with our policies and procedures with respect to hedging or proprietary trading, such as engaging in unauthorized trading activity, failing to hedge a specific price risk or failing to comply with our internal limits on exposure or any applicable statutory or regulatory requirements. Furthermore, the enforceability of our derivative transactions may depend on our compliance with applicable statutory, commodity and other regulatory requirements, which if violated could lead to our derivative transaction being voided. The impact of any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Finally, many of our derivative transactions are not designated as hedges for accounting purposes, and therefore, changes in the fair market value of these derivatives are reflected as a component of revenue or cost of revenue (based on the underlying transaction type) in our consolidated statements of income and comprehensive income. Since the fair market value of these derivatives is marked to market at the end of each quarter, changes in the value of our derivative instruments as a result of gains or losses may cause our earnings to fluctuate from period to period.
We face intense competition and, if we are not able to effectively compete in our markets, our revenues and profits may decrease.
Competitive pressures in our markets could adversely affect our competitive position, leading to a possible loss of market share or a decrease in prices, either of which could result in decreased revenues and profits. Our competitors are numerous, ranging from large multinational corporations, which have significantly greater capital resources than we do, to relatively small and specialized firms. Industry developments, such as fuel price transparency, procurement technology tools, increased regulation and increasing customer sophistication may, over time, reduce demand for our services and thereby exacerbate the competition. In addition to competing with resellers, we also compete with the major oil producers that market fuel and other energy products directly to the large commercial airlines, shipping companies and commercial and industrial users. In recent years, a low fuel price environment has caused many major oil companies to remain in or re-enter the downstream markets. Our business could be adversely affected and subject to the risk of disintermediation if our suppliers choose to increase their direct marketing to compete with us or provide less advantageous price and credit terms to us than to our fuel reseller competitors.
Our failure to comply with the requirements of our Credit Facility and Term Loans could adversely affect our operating flexibility.
We have the ability to borrow money pursuant to a Credit Facility and Term Loans that impose certain operating and financial covenants on us, which, among other things, restrict our ability to (i) pay dividends or make certain other restricted payments, (ii) incur additional debt, (iii) create liens, (iv) sell assets, and (v) engage in mergers or acquisitions. Our failure or inability to comply with the requirements of these facilities, including meeting certain financial ratios or other covenants, could limit the availability under our Credit Facility or result in an event of default. An event of default, if not cured or waived, would permit acceleration of any outstanding indebtedness under these facilities, could trigger cross-defaults under other agreements to which we are a party (such as certain derivative contracts), and would impair

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our ability to obtain working capital advances and letters of credit, any of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
If we are unable to retain our senior management and key employees, our business and results of operations could be harmed.
Our ability to maintain our competitive position is largely dependent on the services of our senior management and key personnel. Although we have employment or severance agreements with certain of our key employees, these agreements do not prevent those individuals from ceasing their employment with us at any time. If we are unable to retain existing senior management and key personnel, or to attract other qualified senior management and key personnel on terms satisfactory to us, our business could be adversely affected. While we maintain key man life insurance with respect to certain members of senior management, our coverage levels may not be sufficient to offset any losses we may incur and there is no assurance that we will continue to maintain key man life insurance in the future.
Insurance coverage for some of our operations may be insufficient to cover losses, which may have a material adverse effect on our financial condition and results of operations.
We maintain insurance to cover various risks associated with the operation of our business. Certain risks, however, such as environmental risks, are not fully insurable and our insurance coverage does not cover all potential losses, costs, or liabilities. Accordingly, our insurance policies may not adequately cover or may have exclusions of coverage for certain losses. Therefore, our insurance coverage may not be available or, if available, may not be adequate to cover claims that may arise.
Furthermore, our ability to obtain and maintain adequate insurance and the cost of such insurance may be affected by significant claims and conditions in the insurance market over which we have no control. If the cost of insurance increases, we may decide to discontinue certain insurance coverage, reduce our level of coverage or increase our deductibles/retentions to offset the cost increase. In addition, our existing types and levels of insurance coverage could become difficult or impossible to obtain in the future. The occurrence of an event that is not fully covered by insurance, the loss of insurance coverage or a material increase in the cost of insurance could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Current and future litigation could have a material adverse effect on our business and results of operations.
We are currently, and may in the future be, involved in legal proceedings that arise in the ordinary course of our business. Lawsuits and other administrative or legal proceedings, as well as any governmental investigations, can involve substantial costs, including the costs associated with investigation, litigation and possible settlement, judgment, penalty or fine. Although we generally maintain insurance to mitigate certain exposures, costs associated with lawsuits or other legal proceedings may exceed the limits of insurance policies, which could adversely impact our results of operations. Furthermore, our business, financial condition, results of operations and cash flows could be adversely affected if a judgment, penalty or fine is not fully covered by insurance.
Fluctuations in foreign exchange rates could materially affect our results of operations.
The majority of our business transactions are denominated in U.S. dollars. In particular markets, however, payments to certain of our fuel suppliers and from certain of our customers are denominated in local currency. We also have certain liabilities, primarily for local operations, including income and transactional taxes, which are denominated in foreign currencies. This subjects us to foreign currency exchange risk. For example, the strengthening of the U.S. dollar relative to the British pound and other currencies may harm our results of operations as the local currency results of our U.K. operations may translate into fewer U.S. dollars. Currency fluctuations could also impact our customers based outside of the U.S., who may closely monitor their costs and reduce their spending budgets on our products and services, which in turn, may adversely affect our business, results of operations.
Although we generally use hedging strategies to manage and minimize the impact of foreign currency exchange risk when available, these hedges may be costly and at any given time, only a portion of this risk may be hedged. Accordingly, our exposure to this risk may be substantial and fluctuations in foreign exchange rates could adversely affect our profitability.
Derivatives legislation and rulemaking could have a material adverse effect on our business.
The Dodd-Frank Wall Street Transparency and Accountability Act of 2010 (the “Dodd-Frank Act”) provides for federal regulation of the over the counter derivative markets both for commodities and securities, and gives the U.S. Commodity Futures Trading Commission (“CFTC”) and the SEC broad authority to regulate such markets and their participants. This includes, among others, derivative transactions linked to crude oil, refined products and natural gas prices. The Dodd-Frank Act and the rules being promulgated thereunder subject certain swap participants to capital and margin

19


requirements and business conduct standards. If we or our derivatives counterparties are subject to additional requirements imposed as a result of the Dodd-Frank Act, this may increase our transaction costs or make it more difficult for us to enter into hedging transactions on favorable terms. Our inability to enter into hedging transactions on favorable terms, or at all, could increase our operating expenses and put us at increased exposure to risks of adverse changes in energy commodities prices. Further, on December 30, 2016, the CFTC re-proposed new position limits rules for public comment, which would limit trading in options, futures, and swaps contracts related to certain agricultural, metal, and energy commodities, including energy commodities in which we currently engage in derivative transactions, and solicited public comment. These rules have not been finalized, and we cannot currently predict whether or when the re-proposed rules will be adopted, in what form the rules will be adopted, or the effect of the final rules, if any, on our businesses. Any such regulations could also subject our derivatives counterparties to limits on commodity positions and thereby have an adverse effect on our ability to hedge risks associated with our business or on the cost of our hedging activity.
In addition, other legislation regulating the use of derivatives that certain foreign jurisdictions have adopted or are in the process of adopting could have a material adverse effect on our business. One of the most significant pieces of E.U. financial services legislation in recent years, the Markets in Financial Instruments Directive II (“MiFID II”) and the Markets in Financial Instruments Regulation (“MiFIR”), went into effect on January 3, 2018. As a result of the available exemptions from MiFID II licensing, we have experienced minimal disruption in our ability to continue to conduct our business since these regulations took effect in the E.U., although we will continue to evaluate the availability of these exemptions as our business grows or changes in the future. In addition, new rules have been enacted on “position limits,” which places a limit on the number of commodity derivative contracts we can hold at one time that are traded on a “E.U. trading venue,” which includes E.U. Regulated Markets/Exchanges. Although we do not believe these limits pose an immediate threat on our ability to hedge risk or carry out our existing business activities, we will continue to evaluate whether these limits may have any adverse business impact in the future.
Any new (or newly implemented) regulations and international legislation could:
materially increase the cost of our derivative contracts (including through requirements to post collateral, which could adversely affect our cash flows and liquidity, or require us to obtain licenses and subject us directly or indirectly to additional reporting and other requirements);
materially alter the terms of our derivative contracts;
reduce our ability to offer derivative and other price management products to our customers;
require that we limit our derivatives activities to avoid being subject to burdensome requirements and regulations;
reduce the demand for our price risk management services;
reduce the availability of derivatives to protect against risks we encounter;
increase price volatility in the commodities we buy and sell (and derivatives related to those commodities);
affect cash flow and liquidity due to margin calls;
reduce our ability to monetize or restructure our existing commodity price contracts; and
increase our exposure to less creditworthy counterparties.

If the increased cost of derivative contracts is substantial or we reduce or limit our derivatives activities as a result of any such legislation or rules, our profitability and results of operations could be adversely affected. Any of these consequences could have a material adverse effect on us, our financial condition, and our results of operations and cash flows.

Item 1B. Unresolved Staff Comments
None.

20


Item 2. Properties
The following table sets forth our principal properties, the majority of which are leased, as of February 8, 2019. We consider all of our properties and facilities to be suitable and adequate for our present needs and do not anticipate that we will experience difficulty in renewing or replacing those leases that expire in 2019 in any material respect.
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
PROPERTIES 
Location
 
Principal Use
 
Lease Expiration
 
 
 
 
 
9800 Northwest 41st Street
Miami, FL 33178, USA
 
Executive, administrative, operations and sales office for corporate, aviation, land and marine segments
 
August 2031
 
 
 
 
 
62 Buckingham Gate
London, United Kingdom SW1E 6AJ
 
Administrative, operations and sales office for aviation, land and marine segments
 
June 2028
 
 
 
 
 
238A Thompson Road #08-01/10
Novena Square Tower A
Singapore 307684
 
Administrative, operations and sales office for aviation and marine segments
 
March 2020
 
 
 
 
 
Office No. 2003, Swiss Tower
Plot No. Y3, Jumeirah Lakes Towers
Dubai, United Arab Emirates
 
Sales and marketing office for aviation and marine segments
 
March 2022
 
 
 
 
 
Praia do Flamengo, 200, 22nd floor
Rio de Janeiro, Brazil 22210 030
 
Administrative, operations and sales office for aviation, land and marine segments
 
November 2021
 
 
 
 
 
Forum 2, Building N, Level 4, Radial
Santa Ana Belén (Lindoral), Pozos,
Santa Ana San José, Costa Rica
 
Administrative, operations and sales office for aviation and marine segments
 
December 2019
 
 
 
 
 
605 North Highway 169, Suites 1100 & 1200
Plymouth, MN 55441, USA
 
Administrative, operations and sales office for land segment
 
June 2023
 
 
 
 
 
25 Mill Street
Parish, NY 13131, USA
 
Administrative, operations and sales office for aviation segment
 
March 2020
 
 
 
 
 
Strommen 6
9400 Norresundby, Denmark
 
Administrative, operations and sales office for aviation and land segments
 
Month-to-month
 
 
 
 
 
6000 Metcalf Avenue
Overland Park, KS 66202, USA
 
Administrative, operations and sales office for land segment
 
August 2024
 
 
 
 
 
8650 College Boulevard
Overland Park, KS 66210, USA
 
Administrative, operations and sales office for aviation, land and marine segments
 
August 2024
 
 
 
 
 
Causeway End, Brinkworth,
Chippenham SN15 5DN, United Kingdom
 
Administrative, operations and sales office for land segment
 
Owned
 
 
 
 
 
300 Flint Ridge Road
Webster, Texas 77598, USA
 
Administrative, operations and sales office for aviation segment
 
Owned
 
 
 
 
 
Fantoftvegen 38, 5072
Bergen, Norway
 
Administrative, operations and sales office for land segment
 
November 2023
 
 
 
 
 
2320 Milwaukee Way,
Tacoma, Washington 98421, USA
 
Administrative, operations and sales office for land segment
 
June 2026
 
 
 
 
 
4920 Southern Boulevard
Virginia Beach, VA 23462, USA
 
Administrative, operations and sales office for land segment
 
Owned
 
 
 
 
 
1B North Mole Road (C.P. No. 1360)
Gibraltar
 
Administrative, operations and sales office for marine segment
 
May 2021
 
 
 
 
 
Lange Kleiweg 28, 8th Floor
Rijswijk, Netherlands 2228
 
Administrative, operations and sales office for aviation, land and marine segments
 
September 2022
 
 
 
 
 

21


Item 3. Legal Proceedings 
On July 20, 2016, we were informed that the U.S. Department of Justice (the “DOJ”) is conducting an investigation into the aviation fuel supply industry, including certain activities by us and other industry participants at an airport in Central America. In connection therewith, we were served with formal requests by the DOJ about our activities at that airport and our aviation fuel supply business more broadly. We are cooperating with the investigation.
From time to time, we are under review by the IRS and various other domestic and foreign tax authorities with regards to income tax and indirect tax matters and are involved in various challenges and litigation in a number of countries, including, in particular, U.S., Brazil, Denmark and South Korea, where the amounts under controversy may be material. See Notes 9 and 11 of the accompanying consolidated financial statements for additional details regarding certain tax matters.
We are a party to various claims, complaints and proceedings arising in the ordinary course of our business including, but not limited to, environmental claims, commercial and governmental contract claims, such as property damage, demurrage, personal injury, billing and fuel quality claims, as well as bankruptcy preference claims and administrative claims. We are not currently a party to any such claim, complaint or proceeding that we expect to have a material adverse effect on our business or financial condition. However, any adverse resolution of one or more such claims, complaints or proceedings during a particular reporting period could have a material adverse effect on our consolidated financial statements or disclosures for that period.

Item 4. Mine Safety Disclosures
Not applicable.

22


PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol INT. As of December 31, 2018, the closing price of our stock on the NYSE was $21.41.
As of February 8, 2019, there were 254 shareholders of record of our common stock.
Cash Dividends
The following table sets forth the amount, the declaration date, record date and payment date for each quarterly cash dividend declared in 2018 and 2017.
 
Per Share Amount
 
Declaration Date
 
Record Date
 
Payment Date
2018
 
 
 
 
 
 
 
First quarter
$
0.0600

 
March 1, 2018
 
March 16, 2018
 
April 6, 2018
Second quarter
0.0600

 
May 24, 2018
 
June 8, 2018
 
July 6, 2018
Third quarter
0.0600

 
September 6, 2018
 
September 21, 2018
 
October 12, 2018
Fourth quarter
0.0600

 
November 30, 2018
 
December 14, 2018
 
January 7, 2019
 
 
 
 
 
 
 
 
2017
 
 
 
 
 
 
 
First quarter
$
0.0600

 
March 3, 2017
 
March 17, 2017
 
April 7, 2017
Second quarter
0.0600

 
May 25, 2017
 
June 9, 2017
 
July 7, 2017
Third quarter
0.0600

 
October 4, 2017
 
October 16, 2017
 
November 6, 2017
Fourth quarter
0.0600

 
December 1, 2017
 
December 15, 2017
 
January 5, 2018
Our Credit Facility and Term Loans restrict the payment of cash dividends to a maximum of the sum of (i) $100.0 million plus (ii) 50% of the cumulative consolidated net income for each fiscal quarter beginning with the fiscal quarter ended March 31, 2016, plus (iii) 100% of the net proceeds of all equity issuances made after October 2013. For additional information regarding our Credit Facility and Term Loans, see Note 8 to the accompanying consolidated financial statements, included herein, and “Liquidity and Capital Resources” in “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Stock Performance
This graph compares the total shareholder return on our common stock with the total return on the Russell 2000 Index and the S&P Energy Index for the five‑year period from December 31, 2013 through December 31, 2018. The cumulative return includes reinvestment of dividends.


23


cumtotreturna04.jpg

Equity Compensation Plans

The following table summarizes securities authorized for issuance related to outstanding restricted stock units (“RSUs”) and stock‑settled stock appreciation rights (“SSAR Awards”) under our 2016 omnibus plan (the “2016 Plan”) and available for future issuance under our 2016 Plan as of December 31, 2018 (in millions, except weighted average price data), as well as the 2006 omnibus plan, as amended and restated (the “2006 Plan”):
Plan name or description
(a) Maximum number of securities to be issued upon exercise of outstanding RSUs and SSAR Awards
 
(b) Weighted average exercise price of outstanding RSUs and SSAR Awards(1)
 
(c) Number of securities remaining available for future issuance under equity compensation plan (excluding securities reflected in column (a))
2016 Plan
2.0

 
$
20.46

 
3.6

2006 Plan
0.8

 
$
4.35

 

(1)
Calculated without taking into account shares of common stock subject to the RSUs reported in column (a) and that will become issuable following vesting of such RSUs without any cash consideration or other payment required.

24


Issuer Purchases of Equity Securities
The following table presents information with respect to repurchases of common stock made by us during the quarterly period ended December 31, 2018 (in thousands, except average price per share):
Period
Total Number of Shares Purchased (1)
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
10/1/2018 - 10/31/2018

 
$
29.42

 

 
$
79,986

11/1/2018 - 11/30/2018

 

 

 
79,986

12/1/2018 - 12/31/2018

 

 

 
79,986

Total

 
$
29.42

 

 
$
79,986

(1)
These amounts include shares purchased as part of our publicly announced programs and shares owned and tendered by employees to satisfy the required withholding taxes related to share-based payment awards, which are not deducted from shares available to be purchased under publicly announced programs.
(2)
In October 2017, our Board of Directors approved a new common stock repurchase program which replaced the remainder of the existing program and authorized the purchase of up to $100.0 million in common stock (the “Repurchase Program”). The Repurchase Program does not require a minimum number of shares of common stock to be purchased, has no expiration date and may be suspended or discontinued at any time. As of December 31, 2018, $80.0 million remains available for purchase under the Repurchase Program. The timing and amount of shares of common stock to be repurchased under the Repurchase Program will depend on market conditions, share price, securities law and other legal requirements and factors.
For information on repurchases of common stock for the first three quarters of 2018, see the corresponding Quarterly Report on Form 10-Q.

25


Item 6. Selected Financial Data
The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and related notes thereto and Part II, Item 7 of this report appearing under the caption, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial data and “Risk Factors” included elsewhere in this 2018 10‑K Report. The historical results are not necessarily indicative of the operating results to be expected in the future. All financial information presented has been prepared in U.S. dollars and in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(In millions, except earnings and dividends per share data)
 
For the Year ended December 31,
 
2018
 
2017
 
2016
 
2015
 
2014
 
Revenue
$
39,750.3

 
$
33,695.5

 
$
27,015.8

 
$
30,381.4

 
$
43,391.8

 
Cost of revenue
38,731.8

 
32,763.3

 
26,116.8

 
29,520.4

 
42,572.7

 
Gross profit
1,018.5

 
932.2

 
899.0

 
861.0

 
819.1

 
Operating expenses
758.8

 
886.6

 
710.1

 
615.3

 
542.4

 
Income from operations
259.7

 
45.6

 
188.9

 
245.7

 
276.7

 
Non-operating expenses, net
(74.8
)
 
(66.7
)
 
(46.7
)
 
(27.9
)
 
(1.9
)
 
Income (loss) before income taxes
184.9

 
(21.1
)
 
142.1

 
217.7

 
274.8

 
Provision for income taxes
55.9

 
149.2

 
15.7

 
47.2

 
53.6

 
Net income (loss) including noncontrolling interest
129.0

 
(170.3
)
 
126.4

 
170.5

 
221.1

 
Net income (loss) attributable to noncontrolling interest
1.3

 
(0.1
)
 

 
(3.9
)
 
(3.3
)
 
Net income (loss) attributable to World Fuel
$
127.7

 
$
(170.2
)
 
$
126.5

 
$
174.5

 
$
224.5

 
Basic earnings (loss) per common share
$
1.89

 
$
(2.50
)
 
$
1.82

 
$
2.49

 
$
3.17

 
Basic weighted average common shares
67.4

 
68.1

 
69.3

 
70.2

 
70.8

 
Diluted earnings (loss) per common share
$
1.89

 
$
(2.50
)
 
$
1.81

 
$
2.47

 
$
3.15

 
Diluted weighted average common shares
67.7

 
68.1

 
69.8

 
70.7

 
71.3

 
Cash dividends declared per common share
$
0.24

 
$
0.24

 
$
0.24

 
$
0.24

 
$
0.15

 
 
As of December 31,
 
2018
 
2017
 
2016
 
2015
 
2014
 
Cash and cash equivalents
$
211.7

 
$
372.3

 
$
698.6

 
$
582.5

 
$
302.3

 
Accounts receivable, net
2,739.6

 
2,705.6

 
2,344.0

 
1,812.6

 
2,308.2

 
Total current assets
3,974.8

 
3,940.4

 
3,836.6

 
3,246.0

 
3,675.2

 
Total assets
5,676.9

 
5,587.8

 
5,412.6

 
4,525.3

 
4,878.1

 
Total current liabilities
2,935.9

 
2,718.6

 
2,182.7

 
1,754.2

 
2,241.9

 
Total long-term liabilities
909.3

 
1,131.3

 
1,290.1

 
865.3

 
776.8

 
Total equity
1,831.6

 
1,738.0

 
1,940.0

 
1,905.9

 
1,859.4

 

26


(1)
We completed one acquisition in 2018 which was not material. The financial position and results of operations of this acquisition have been included in our consolidated financial statements since its acquisition date.
(2)
In 2017, we acquired the assets of certain ExxonMobil affiliates in Italy, Germany, Australia and New Zealand and completed five additional acquisitions which were not material, individually or in the aggregate. The financial position and results of operations of these acquisitions have been included in our consolidated financial statements since their respective acquisition dates.
(3)
Operating expenses for 2017 includes goodwill and other impairments of $91.9 million and restructuring related charges of $59.6 million. Provision for income taxes for 2017 consists of a $143.7 million expense related to the one-time transition tax on accumulated foreign earnings recorded as a result of the Tax Act.
(4)
In 2016, we acquired the assets of certain ExxonMobil affiliates in Canada and two airports in France on November 1st, and the U.K. and one airport in France on December 1st, as well as all of the outstanding stock of PAPCO, Inc. and Associated Petroleum Products, Inc. on July 1st. We also completed six additional acquisitions which were not material, individually or in the aggregate. The financial position and results of operations of these acquisitions have been included in our consolidated financial statements since their respective acquisition dates.
(5)
Certain prior period amounts have been revised to reflect the impact of adjustments made to our provision for income taxes.
(6)
In 2015, we acquired all the outstanding stock of Pester Marketing Company on September 1st and completed four additional acquisitions which were not material, individually or in the aggregate. The financial position and results of operations of these acquisitions have been included in our consolidated financial statements since their respective acquisition dates.
(7)
In 2014, we acquired i) all of the outstanding stock of Watson Petroleum Limited (now known as WFL (UK) Limited) on March 7th, ii) all of the outstanding stock of Colt International, L.L.C. on July 29th, and iii) completed three additional acquisitions which were not material, individually or in the aggregate. The financial position and results of operations of these acquisitions have been included in our consolidated financial statements since their respective acquisition dates.
(8)
Included in operating expenses are total non‑cash compensation costs associated with share‑based payment awards of $7.7 million for 2018, $21.2 million for 2017, $19.3 million for 2016, $17.0 million for 2015, and $15.8 million for 2014 and intangible amortization expense of $35.9 million for 2018, $41.9 million for 2017, $39.7 million for 2016, $30.4 million for 2015, and $27.0 million for 2014.
(9)
Included in non-operating income (expenses), net for 2014 is a gain of $18.1 million related to the sale of our crude oil joint venture interests. The after-tax gain, net of certain related operating expenses was $9.9 million, or $0.14 per basic and diluted share.
(10)
In 2018, we repurchased 0.7 million shares of common stock for an aggregate value of $20.0 million. In 2017, we repurchased 1.7 million shares of common stock for an aggregate value of $61.9 million. In 2016, we repurchased 1.0 million shares of our common stock for an aggregate value of $41.2 million. In 2015, we repurchased 1.6 million shares of our common stock for an aggregate value of $70.5 million. In 2014, we repurchased 0.2 million shares of our common stock for an aggregate value of $10.0 million.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with “Item 6 – Selected Financial Data,” and with the accompanying consolidated financial statements and related notes thereto appearing elsewhere in this 2018 10‑K Report. The following discussion may contain forward‑looking statements, and our actual results may differ materially from the results suggested by these forward‑looking statements. Some factors that may cause our results to differ materially from the results and events anticipated or implied by such forward‑ looking statements are described in “Item 1A – Risk Factors” and under “Forward-Looking Statements.”

27


Business Overview

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. In recent years, 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. We endeavor 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.
The overall aviation market remains strong, benefiting from continued growth in global passenger demand, while airline profitability remains healthy, notwithstanding increased costs from higher average fuel prices experienced during 2018. Our aviation segment has benefited from our increased logistics capability and we have expanded our aviation fueling operations footprint into additional international territories and airport locations. The aviation segment has also benefited from continued strong demand from government customers, principally NATO in Afghanistan. Sales to government customers account for a material portion of our aviation segment's profitability, and while we expect our government-related activity to remain strong through 2019, we believe the related profit contribution will decrease as compared to 2018. Global events and military-related activities, as well as the level of troop deployments and related activity, drive sales to government customers and therefore can vary significantly from period to period and materially impact our results of operations.
Our land segment has grown primarily through acquisitions as we seek to build out our land fuel distribution capabilities in the U.S. and the U.K. Recently, our land segment has been negatively impacted by our decision to reposition the portfolio and reduce certain supply and trading activities which were not generating a sufficient or predictable economic return as a result of market conditions. In addition, our operating results in the U.S. and U.K. have been adversely impacted in the past by unseasonably warm winter weather conditions and accordingly, our results will continue to be impacted by future weather patterns. Meanwhile, our land segment has benefited from strong sales to government customers, including NATO in Afghanistan, and we expect such activity to remain generally consistent in 2019. We continue to focus on rationalizing our portfolio, exiting certain non-core activities, and reorienting our activities towards supplying more sustainable end-user demand to provide greater leverage and ratability in our operating model. We are also focused on driving operational excellence, realizing the synergies associated with our previous acquisitions, and improving our technology platform to reduce transaction processing costs.

Our marine segment results have improved over the course of 2018 despite the weak overall conditions within the global shipping markets. We believe overall volumes in our marine segment have stabilized and higher average fuel prices, combined with the effects of our cost savings initiatives, have improved profitability. The implementation of mandatory fuel standards, such as the IMO's regulations limiting sulfur in fuel oil used on ships that will be effective on January 1, 2020, may provide additional opportunities for us to create value-added solutions for our customers and further enhance profitability.
 
As a result of the challenges in the markets where we operate, we continue to rationalize our operating model and portfolio of businesses to gain efficiencies through various initiatives that are ongoing throughout the company. We are investing in automation and technology throughout our businesses, which we expect will ultimately lower our cost, reduce cycle time and improve scalability. Furthermore, we continue to implement our enterprise-wide restructuring plan, designed to streamline the organization and reallocate resources to align more effectively our organizational structure and costs with our ultimate strategy to improve operating efficiencies. The restructuring program involves rationalizing non-core businesses and investments, refining our organizational structure, and advancing business prospects in the markets we serve, as well as exiting certain business activities and reinventing our core businesses to improve scalability. We expect this portfolio rationalization will free up additional capital to invest in activities with sustainable revenue and adequate returns while we continue to manage our working capital and inventory in a volatile fuel price environment.


28


Reportable Segments

We operate in three reportable segments consisting of aviation, land and marine. In our aviation segment, we offer fuel and related products and services to major commercial airlines, second and third-tier airlines, cargo carriers, regional and low cost carriers, airports, fixed based operators, corporate fleets, fractional operators, private aircraft, military fleets and the U.S. and foreign governments as well as intergovernmental organizations. In our land segment, we offer fuel, lubricants, power and natural gas solutions and related products and services to customers including petroleum distributors operating in the land transportation market, retail petroleum operators, and industrial, commercial, residential and government customers. Our marine segment product and service offerings include fuel, lubricants and related products and services to a broad base of customers, including international container and tanker fleets, commercial cruise lines, yachts and time-charter operators, offshore rig owners and operators, the U.S. and foreign governments as well as other fuel suppliers. Within each of our segments, we may enter into derivative contracts to mitigate the risk of market price fluctuations and also to offer our customers fuel pricing alternatives to meet their needs.
In our aviation and land segments, we primarily purchase and resell fuel and other products. Profit from our aviation and land segments is primarily determined by the volume and the gross profit achieved on fuel sales and related services. In our marine segment, we primarily purchase and resell fuel and also act as brokers for others. Profit from our marine segment is determined mostly by the volume and gross profit achieved on fuel resales and by the volume and commission rate of the brokering business. Profitability in our segments also depends on our operating expenses, which may be materially affected to the extent that we are required to provide for potential bad debt.
Corporate expenses are allocated to each segment based on usage, where possible, or other factors according to the nature of the activity. We evaluate and manage our business segments using the performance measurement of income from operations.
Selected financial information with respect to our business segments is provided in Note 13 to the accompanying consolidated financial statements included in this 2018 10‑K Report.

Results of Operations

2018 compared to 2017
Revenue. Our revenue for 2018 was $39.8 billion, an increase of $6.1 billion, or 18.0%, as compared to 2017. Our revenue during these periods was attributable to the following segments (in millions):
 
2018
 
2017
 
$ Change
Aviation segment
$
19,119.7

 
$
14,538.2

 
$
4,581.4

Land segment
11,381.1

 
10,958.0

 
423.1

Marine segment
9,249.5

 
8,199.3

 
1,050.3

Total
$
39,750.3

 
$
33,695.5

 
$
6,054.8

Revenues in our aviation segment were $19.1 billion for the year ended 2018, an increase of $4.6 billion, or 31.5% as compared to 2017. The increase in aviation revenues was driven by higher average jet fuel prices during the year ended 2018, where the average price per gallon sold was $2.33, as compared to $1.83 in 2017. The overall increase in revenue was also driven by higher volumes, principally in our international fueling operations. Total volume in our aviation segment for the year ended 2018 were 8.2 billion gallons, an increase of 3.2%, as compared to 2017.
Revenues in our land segment were $11.4 billion for the year ended 2018, an increase of $0.4 billion, or 3.9%, as compared to 2017. The increase in land revenues was driven primarily by higher average fuel prices during the year ended 2018, where the average price per gallon sold was $2.04, as compared to $1.84 in 2017. Volume in our land segment for the year ended 2018 were 5.6 billion gallons, a decrease of 5.9%, as compared to 2017, driven principally by our decision to reposition the portfolio and exit certain non-core supply and trading activities in North America which were not generating a sufficient economic return. The volume decline was partially offset by growth in commercial and industrial activity in the U.S. and Kinect, our global energy services platform.

29


Revenues in our marine segment were $9.2 billion for the year ended 2018, an increase of $1.1 billion, or 12.8%, as compared to 2017. The increase was driven primarily by higher average bunker fuel prices during the year ended 2018, where the average price per metric ton sold was $390.00, as compared to $308.88 in 2017. Volume in our marine segment for the year ended 2018 were 23.7 million metric tons, a decrease of 2.8 million metric tons or 10.7%, as compared to 2017, driven principally by lower volumes in our core resale operations resulting from our decision to discontinue certain low margin, low return activities.
Gross Profit. Our gross profit for the year ended 2018 was $1.0 billion, an increase of $86.3 million, or 9.3%, as compared to 2017. Our gross profit was attributable to the following segments (in millions):
 
2018
 
2017
 
$ Change
Aviation segment
$
507.8

 
$
440.5

 
$
67.3

Land segment
364.9

 
365.8

 
(0.9
)
Marine segment
145.8

 
126.0

 
19.9

Total
$
1,018.5

 
$
932.2

 
$
86.3

Our aviation segment gross profit for the year ended 2018 was $507.8 million, an increase of $67.3 million, or 15.3%, as compared to 2017. The increase in aviation gross profit was due to growth in our international fueling operations as well as increased activity in our government-related business, and a return to normalized profitability in North America, which was negatively impacted by hurricanes Harvey and Irma in 2017.
Our land segment gross profit for the year ended 2018 was $364.9 million, a decrease of $0.9 million, or 0.2%, as compared to 2017. The decrease in land segment gross profit was primarily driven by lower profitability in our government business due to reduced margins, continued weakness in Brazil, and the exit of certain non-core activities in 2017. These decreases were offset by higher profitability associated with growth in commercial and industrial activity in the U.S. and Kinect, including the impact of recently acquired businesses, and higher profits from MultiService, our payment solutions business.
Our marine segment gross profit for the year ended 2018 was $145.8 million, an increase of $19.9 million, or 15.8%, as compared to 2017. The gross profit increase was principally driven by higher profitability as a result of higher average bunker fuel prices in our core resale business during the second half of 2018, including the impact of certain seasonal activities.
Operating Expenses. Total operating expenses for 2018 were $758.8 million, a decrease of $127.8 million, or 14.4%, as compared to 2017. The following table sets forth our expense categories (in millions):
 
2018
 
2017
 
$ Change
Compensation and employee benefits
$
442.1

 
$
428.2

 
$
13.8

General and administrative
299.6

 
306.9

 
(7.2
)
Goodwill and other impairments

 
91.9

 
(91.9
)
Restructuring charges
17.1

 
59.6

 
(42.5
)
Total
$
758.8

 
$
886.6

 
$
(127.8
)
The decrease in operating expenses was due to a decrease of $41.3 million in general and administrative costs and base compensation as a result of our ongoing cost initiatives, a $42.5 million decrease in restructuring charges as compared to 2017, as well as the impact of goodwill and other impairments experienced in 2017. The reduction in these expenses was partially offset by a $47.9 million increase in variable incentive compensation and the expenses of acquired businesses. 

30


Income (loss) from Operations. Our income from operations for 2018 was $259.7 million, an increase of $214.1 million, or 469.6%, as compared to 2017. Income from operations during these periods was attributable to the following segments (in millions):
 
2018
 
2017
 
$ Change
Aviation segment
$
250.6

 
$
192.9

 
$
57.7

Land segment
47.8

 
(7.9
)
 
55.8

Marine segment
37.8

 
(57.8
)
 
95.7

 
336.3

 
127.2

 
209.1

Corporate overhead - unallocated
76.6

 
81.6

 
(5.0
)
Total
$
259.7

 
$
45.6

 
$
214.1

Our income from operations, including unallocated corporate overhead, for the year ended 2018 was $259.7 million, an increase of $214.1 million as compared to 2017
Income from operations in our aviation segment for the year ended 2018 was $250.6 million, an increase of $57.7 million as compared to 2017. The increase in aviation income from operations was due to increased activity in our government-related business and growth in our international fueling operations.
In our land segment, income from operations for the year ended 2018 was $47.8 million, an increase of $55.8 million as compared to 2017. The increase resulted from higher profitability associated with Kinect, including the impact of recently acquired businesses, higher profitability in Europe and higher profits from MultiService, our payment solutions business.
Our marine segment income from operations for the year ended 2018 was $37.8 million, an increase of $95.7 million as compared to 2017. The increase was driven by higher profitability as a result of higher average bunker fuel prices in our core resale business, as well as the impact of certain seasonal activities.
Non-Operating Expenses, net. We had non-operating expenses of $74.8 million and $66.7 million, for the year ended 2018 and 2017, respectively. The increase of $8.2 million as compared to 2017 was driven principally by interest and fees associated with our receivable purchase programs.
Income Taxes. For the year ended 2018, our effective income tax rate was 30.2% and our income tax provision was $55.9 million, as compared to an effective income tax rate of (707.1)% and an income tax provision of $149.2 million in 2017. During the year ended 2018, we finalized our estimate of the impact of the Tax Act resulting in a $145.5 million one-time transition tax for the year ended 2017, which is an increase of $1.8 million from the 2017 estimate, and a net tax payable of $94.8 million which included the use of our U.S. federal net operating losses. This net payable will be paid over eight years, for which the first payment of $8.1 million was made in 2018. In 2017, we recorded a preliminary estimate of $143.7 million of one-time transition tax, payable over eight years. Without the one-time tax charge, the effective tax rate for 2017 would have been (25.9)%.

Net Income and Diluted Earnings per Common Share. Our net income for the year ended 2018 was $127.7 million as compared to net loss of $170.2 million in 2017. Diluted earnings per common share for the year ended 2018 was $1.89 per common share as compared to diluted loss per common share of $2.50 in 2017.

31


2017 compared to 2016
Revenue. Our revenue for 2017 was $33.7 billion, an increase of $6.7 billion, or 24.7%, as compared to 2016. Our revenue during these periods was attributable to the following segments (in millions):
 
2017
 
2016
 
$ Change
Aviation segment
$
14,538.2

 
$
10,914.4

 
$
3,623.9

Land segment
10,958.0

 
8,918.8

 
2,039.1

Marine segment
8,199.3

 
7,182.5

 
1,016.7

Total
$
33,695.5

 
$
27,015.8

 
$
6,679.7

Revenues in our aviation segment were $14.5 billion for the year ended 2017, an increase of $3.6 billion, or 33.2% as compared to 2016. The increase in aviation revenues was driven by higher average jet fuel prices during the year ended 2017, where the average price per gallon sold was $1.83, as compared to $1.53 in 2016. The overall increase in revenue was also driven by higher volumes from government-related business and our international fueling operations, where total volumes for the year ended 2017 were 7.9 billion gallons, an increase of 11.4%, as compared to 2016.
Revenues in our land segment were $11.0 billion for the year ended 2017, an increase of $2.0 billion, or 22.9%, as compared to 2016. The increase in land revenues primarily resulted from a higher average fuel prices during the year ended 2017, where the average price per gallon sold was $1.84, as compared to $1.66 in 2016. The increase was also due to an increase in volumes from acquired businesses, where volumes for the year ended 2017 were 5.9 billion gallons, an increase of 10.7%, as compared to 2016.
Revenues in our marine segment were $8.2 billion for the year ended 2017, an increase of $1.0 billion, or 14.2%, as compared to 2016. The increase was driven primarily by a 34.8% increase in the average price per metric ton sold, to $308.88 for the year ended 2017, as compared to $229.2 in 2016. Volumes in our marine segment for the year ended 2017 were 26.5 million metric tons, a decrease of 4.8 million metric tons or 15.3%, as compared to 2016, driven principally by lower volumes in Asia.
Gross Profit. Our gross profit for 2017 was $932.2 million, an increase of $33.3 million, or 3.7%, as compared to 2016. Our gross profit was attributable to the following segments (in millions):
 
2017
 
2016
 
$ Change
Aviation segment
$
440.5

 
$
401.0

 
$
39.5

Land segment
365.8

 
348.5

 
17.3

Marine segment
126.0

 
149.5

 
(23.5
)
Total
$
932.2

 
$
899.0

 
$
33.3

Our aviation segment gross profit for the year ended 2017 was $440.5 million, an increase of $39.5 million, or 9.9%, as compared to 2016. The increase in aviation gross profit was due to increased activity from our government-related business, including certain spot government supply opportunities and increased volumes and profitability from our international fueling operations. These increases were partially offset by lower gross profit per gallon sold in our physical inventory business, as a result of unfavorable jet fuel price movements.
Our land segment gross profit for the year ended 2017 was $365.8 million, an increase of $17.3 million, or 5.0%, as compared to 2016. The increase in land segment gross profit was primarily driven by the benefit derived from recently acquired businesses and was partially offset by continued lower profits from our supply and trading activities in North America.
Our marine segment gross profit for the year ended 2017 was $126.0 million, a decrease of $23.5 million, or 15.7%, as compared to 2016. Over the course of 2017, the marine segment continued to be adversely impacted by the prolonged weakness in the overall maritime industry, lower overall volumes and profitability in our core resale business, primarily in the Asia Pacific region, and our decision to exit certain markets, combined with further declines in profits from the sale of price risk management products globally.

32


Operating Expenses. Total operating expenses for 2017 were $886.6 million, an increase of $176.5 million, or 24.9%, as compared to 2016. The following table sets forth our expense categories (in millions):
 
2017
 
2016
 
$ Change
Compensation and employee benefits
$
428.2

 
$
413.3

 
$
14.9

General and administrative
306.9

 
296.8

 
10.1

Goodwill and other impairments
91.9

 

 
91.9

Restructuring charges
59.6

 

 
59.6

Total
$
886.6

 
$
710.1

 
$
176.5

The $14.9 million increase in compensation and employee benefits and the $10.1 million increase in general and administrative expenses was principally due to the inclusion of expenses of acquired businesses.
Goodwill and other impairments of $91.9 million were primarily attributable to the $72.3 million impairment of goodwill in our marine segment, $7.9 million associated with intangible assets, primarily customer relationships in both the marine and land segments and certain impairments of property and equipment within our marine segment. The restructuring charges of $59.6 million were comprised primarily of costs associated with exiting two business activities, our railcar business, and an underperforming capital-intensive distributor program.
Income (loss) from Operations. Our income from operations for 2017 was $45.6 million, a decrease of $143.3 million, or 75.9%, as compared to 2016. Income from operations during these periods was attributable to the following segments (in millions):
 
2017
 
2016
 
$ Change
Aviation segment
$
192.9

 
$
160.5

 
$
32.4

Land segment
(7.9
)
 
70.8

 
(78.8
)
Marine segment
(57.8
)
 
30.2

 
(88.1
)
 
127.2

 
261.5

 
(134.4
)
Corporate overhead - unallocated
81.6

 
72.7

 
8.9

Total
$
45.6

 
$
188.9

 
$
(143.3
)
Our income from operations, including unallocated corporate overhead, for the year ended 2017 was $45.6 million, a decrease of $143.3 million as compared to 2016. The decline was primarily attributable to our marine and land segments, specifically as a result of the impairment of goodwill, intangible assets and the restructuring charges recorded in 2017. In our marine segment, loss from operations for the year ended 2017 was $57.8 million, a decrease of $88.1 million as compared to 2016. Our marine segment continued to be adversely impacted by the prolonged weakness in the overall maritime industry. Limited fuel price volatility continued to result in decreased demand for our price risk management offerings. The lower fuel price environment resulted in lower overall unit margins in 2017 as compared to 2016. In our land segment, loss from operations for the year ended 2017 was $7.9 million, a decrease of $78.8 million as compared to 2016. Our land segment continued to be adversely impacted by lower profits from our supply and trading activities in North America, as well as increased acquisition-related costs that were directly attributable to our acquired businesses. The declines in our income from operations in our marine and land segments were partially offset by an increase in our aviation segment of $32.4 million, or 20.2%, where our aviation segment benefited from increased profitability from our government-related business and increased volumes and profitability from our international fueling operations.
Non-Operating Expenses, net. We had non-operating expenses, net of $66.7 million and $46.7 million, for the year ended 2017 and 2016, respectively, driven principally by higher average borrowings, fees associated with our receivable purchase program and interest rates.
Income Taxes. For the year ended 2017, our effective income tax rate was (707.1)% and our income tax provision was $149.2 million, as compared to an effective income tax rate of 11.0% and an income tax provision of $15.7 million in 2016. The higher effective income tax rate for 2017, as compared to 2016, resulted principally from the effects of the Tax Act's $143.7 million one-time transition tax on historical accumulated foreign earnings. Without the one-time tax charge, the effective tax rate for 2017 would have been (25.9)%.

33




Net Loss and Diluted Earnings per Common Share. Our net loss for the year ended 2017 was $170.2 million as compared to net income of $126.5 million in 2016. Diluted loss per common share for the year ended 2017 was $2.50 per common share as compared to diluted earnings per common share of $1.81 in 2016.
Liquidity and Capital Resources
Our liquidity, consisting of cash and cash equivalents and availability under the Credit Facility, fluctuates based on a number of factors, including the timing of receipts from our customers and payments to our suppliers, as well as changes in fuel prices. Availability under our Credit Facility is also limited by, among other things, our financial leverage ratio, which limits the total amount of indebtedness we may incur, and may, therefore, fluctuate from period to period.
In a high fuel price environment, cash and liquidity is a significant priority for us. Our primary use of cash and liquidity is to fund working capital and strategic investments. Increases in fuel prices can negatively affect liquidity by increasing the amount of cash required to fund fuel purchases. In addition, while we are usually extended unsecured trade credit from our suppliers for our fuel purchases, rising fuel prices may reduce the amount of fuel we can purchase on an unsecured basis, and in certain cases, we may be required to prepay fuel purchases, which would negatively impact our liquidity. Fuel price increases may also negatively impact our customers, where they may not be able to purchase as much fuel from us because of their credit limits with us and the resulting adverse impact on their business could cause them to be unable to make payments owed to us for fuel purchased on credit. They may also choose to reduce the amount of fuel they consume in their operations to reduce costs. In any such event, the volume of orders from our customers may thereafter decrease and we may not be able to replace lost volumes with new or existing customers.
We believe that our cash and cash equivalents as of December 31, 2018 and available funds from our Credit Facility, together with cash flows generated by operations, remain sufficient to fund our working capital and capital expenditure requirements for at least the next twelve months. In addition, to further enhance our liquidity profile, we may choose to raise additional funds which may or may not be needed for additional working capital, capital expenditures or other strategic investments. Our opinions concerning liquidity are based on currently available information. To the extent this information proves to be inaccurate, or if circumstances change, future availability of trade credit or other sources of financing may be reduced and our liquidity would be adversely affected. Factors that may affect the availability of trade credit or other forms of financing include our financial performance (as measured by various factors, including cash provided by operating activities), the state of worldwide credit markets, and our levels of outstanding debt. Depending on the severity and direct impact of these factors on us, financing may be limited or unavailable on terms favorable to us.
Cash Flows
The following table reflects the major categories of cash flows for 2018, 2017 and 2016. For additional details, please see the consolidated statements of cash flows in the consolidated financial statements.
 
2018
 
2017
 
2016
Net cash used in operating activities
$
(182.5
)
 
$
(133.6
)
 
$
50.7

Net cash provided by investing activities
286.0

 
158.7

 
(274.0
)
Net cash used in financing activities
(257.1
)
 
(361.6
)
 
340.9

2018 compared to 2017
At the beginning of 2018, accounting standards update 2016-15 (“ASU 2016-15”) became effective for us and provided revised guidance on the presentation of certain items, including those associated with retained beneficial interests in accounts receivable sale programs. Under the terms of our receivables purchase agreements (“RPAs”) with Wells Fargo and Citibank, we were entitled to retained beneficial interests, which gave us the right to receive additional cash consideration of either 10% or 6%, as a result of receiving cash consideration equal to either 90% or 94%, respectively of the total accounts receivables balance. Under the revised guidance, previously disclosed cash inflows attributable to held beneficial interests are no longer treated as a component of accounts receivables, net in operating activities, but instead are classified separately as an investing activity. However, during the quarter ended September 30, 2018, we amended the RPAs with Wells Fargo and Citibank to remove the retained beneficial interests, allowing us to sell 100% of our outstanding qualifying accounts receivable balances and receive cash consideration equal to the total balance, less a discount margin equal to LIBOR plus 1% to 3%.

34


Operating Activities. Net cash used in operating activities in 2018 was $182.5 million as compared to $133.6 million in 2017. The $48.9 million increase in cash used in operating activities was principally due to an increase in cash receipts of retained beneficial interests in receivables sales reclassified to investing activities and year-over-year changes in accounts receivables and accounts payable. The decrease in cash flow from accounts receivable and accounts payable was primarily associated with higher average fuel prices and the timing of collections and payments.
Investing Activities. Net cash provided by investing activities in 2018 was $286.0 million as compared to net cash provided by investing activities of $158.7 million in 2017. The $127.3 million increase in cash provided by investing activities was principally due to increased cash receipts of retained beneficial interests in receivables sales and decreased cash used for the acquisition of businesses.
Financing Activities. Net cash used in financing activities in 2018 was $257.1 million as compared to $361.6 million in 2017. The $104.5 million change was primarily due to a $58.1 million increase in net borrowings of debt under our credit facility as compared to 2017 and by $41.9 million net cash decrease in cash used for common stock repurchases in 2018 as compared to 2017.  
2017 compared to 2016
Operating Activities. Net cash provided by operating activities was $205.2 million in each of 2016 and 2017. Cash flows related to cash collateral with financial counterparties decreased $175.9 million as a result of reduced hedging activity. This change was offset by increased cash flows from net accounts receivable and accounts payable balances, which were $168.0 million higher primarily as a result of higher fuel prices during 2017, as compared to 2016. Operating cash flow impact of the year over year net income decrease of $296.7 million was primarily offset by increased income taxes payable and deferred income tax liabilities as a result of the Tax Act, including the one-time transition tax on accumulated foreign earnings recorded in 2017 and the non-cash operating expenses related to the goodwill and other impairment charges recorded in 2017.
Investing Activities. For 2017, net cash used in investing activities was $180.1 million as compared to $428.5 million for 2016. The $248.4 million decrease in cash used in investing activities was principally due to a decrease in the cash used for the acquisition of businesses in 2017 as compared to 2016.
Financing Activities. For 2017, net cash used in financing activities was $361.6 million as compared to $340.9 million net cash provided by financing activities for 2016. The $702.5 million change was principally due to a $684.7 million decrease in net borrowing under our credit facility in 2017 as compared to 2016. This reduction in borrowing was facilitated by the ability to use foreign cash without incurring additional U.S. tax costs as a result of the recently enacted Tax Act. Additionally, cash used for common stock repurchases increased $20.8 million in 2017 as compared to 2016.
Other Liquidity Measures
Cash and Cash Equivalents. As of December 31, 2018 and 2017, we had cash and cash equivalents of $211.7 million and $372.3 million, respectively. Our primary uses of cash and cash equivalents are to make strategic investments, primarily acquisitions, and to purchase inventory. We are provided unsecured trade credit by nearly all of our suppliers for our fuel purchases; however, a small number of suppliers require us to either prepay or provide a letter of credit. Increases in oil prices can negatively affect liquidity by increasing the amount of cash needed to fund fuel purchases as well as reducing the amount of fuel which we can purchase on an unsecured basis from our suppliers.
Credit Facility and Term Loans. On January 30, 2018, we amended our Credit Facility and elected to prepay $300.0 million of our outstanding Term Loans and decrease the borrowing capacity of our Credit Facility to $1.16 billion. We had $514.8 million and $835.8 million in Term Loans outstanding as of December 31, 2018 and 2017, respectively. Our Credit Facility includes a sub-limit of $400.0 million for the issuance of letters of credit and bankers' acceptances. Under the Credit Facility, we have the right to request increases in available borrowings up to an additional $200.0 million, subject to the satisfaction of certain conditions. The credit facility matures in October 2021. We had outstanding borrowings under our Credit Facility totaling $170.0 million and $60.0 million as of December 31, 2018 and 2017, respectively. Our issued letters of credit under the Credit Facility totaled $4.1 million and $8.6 million as of December 31, 2018 and 2017, respectively. As of December 31, 2018 and 2017, the unused portion of our Credit Facility was $985.9 million and $1.2 billion, respectively. The unused portion of our Credit Facility is limited by, among other things, our financial leverage ratio, which limits the total amount of indebtedness we may incur, and may therefore fluctuate from period to period.

35


Borrowings under our Credit Facility and Term Loans related to base rate loans or Eurodollar rate loans bear floating interest rates plus applicable margins. As of December 31, 2018, the applicable margins for base rate loans and Eurodollar rate loans were 1.25% and 2.25%, respectively.
Our liquidity, consisting of cash and cash equivalents and availability under the Credit Facility, fluctuates based on a number of factors, including the timing of receipts from our customers and payments to our suppliers as well as commodity prices. Availability under our Credit Facility is principally limited by the ratio of adjusted total debt to adjusted EBITDA, as defined in the agreement, which limits the total amount of indebtedness we may incur to not more than 3.5 to 1. Accordingly, our availability under the Credit Facility may fluctuate from period to period.
Our Credit Facility and our Term Loans contain certain financial and other covenants with which we are required to comply. Our failure to comply with the covenants contained in our Credit Facility and our Term Loans could result in an event of default. An event of default, if not cured or waived, would permit acceleration of any outstanding indebtedness under the Credit Facility and our Term Loans, trigger cross‑defaults under certain other agreements to which we are a party and impair our ability to obtain working capital advances and issue letters of credit, which would have a material adverse effect on our business, financial condition, results of operations and cash flows. As of December 31, 2018, we were in compliance with all financial and other covenants contained in our Credit Facility and our Term Loans.
Other Credit Lines and Receivables Purchase Agreements. Additionally, we have other uncommitted credit lines primarily for the issuance of letters of credit, bank guarantees and bankers’ acceptances. These credit lines are renewable on an annual basis and are subject to fees at market rates. As of December 31, 2018 and 2017, our outstanding letters of credit and bank guarantees under these credit lines totaled $303.6 million and $272.0 million respectively. We also have RPAs that allow for the sale of our accounts receivable. We had sold accounts receivable of $508.2 million and $377.3 million under the RPAs, as of December 31, 2018 and 2017, respectively.
Short-Term Debt. As of December 31, 2018, our short-term debt of $41.1 million primarily represents the current maturities (within the next twelve months) of Term Loan borrowings, certain promissory notes related to acquisitions and capital lease obligations.
Contractual Obligations and Off‑Balance Sheet Arrangements
Our contractual obligations and off‑balance sheet arrangements are set forth below. For additional information on any of the following and other contractual obligations and off‑balance sheet arrangements, see Notes 8 and 9 in the notes to the consolidated financial statements in Item 15 of this 2018 10‑K Report.
Contractual Obligations
Debt and Interest Obligations. These obligations include principal and interest payments on fixed‑rate and variable‑rate, fixed‑term debt based on the expected payment dates.
Other Obligations. These obligations primarily consist of deferred compensation arrangements.
Unrecognized Income Tax Liabilities. As of December 31, 2018, our gross liabilities for unrecognized income tax benefits (“Unrecognized Tax Liabilities”), including penalties and interest, were $70.2 million. The timing of any settlement of our Unrecognized Tax Liabilities with the respective taxing authority cannot be reasonably estimated.
As of December 31, 2018, our contractual obligations were as follows (in millions):
 
Total
 
< 1 year
 
1-3 years
 
3-5 years
 
> 5 years
Debt and interest obligations
$
788.6

 
$
50.7

 
$
546.8

 
$
189.4

 
$
1.7

Operating lease obligations
208.6

 
50.7

 
67.8

 
41.5

 
48.5

Employment agreement obligations
0.9

 
0.9

 

 

 

Derivatives obligations
123.2

 
95.3

 
27.9

 

 

Purchase commitment obligations
51.4

 
44.9

 
6.5

 

 

Other obligations
4.0

 
0.2

 
0.9

 
0.9

 
2.0

Total
$
1,176.7

 
$
242.9

 
$
649.9

 
$
231.7

 
$
52.2


36


Additionally, we have certain purchase contracts, that run through 2026, under which we agreed to purchase annually between 1.76 million barrels and 2.02 million barrels of aviation fuel at future market prices.
Off-Balance Sheet Arrangements
Letters of Credit and Bank Guarantees. In the normal course of business, we are required to provide letters of credit to certain suppliers. A majority of these letters of credit expire within one year from their issuance, and expired letters of credit are renewed as needed.
As of December 31, 2018, we had issued letters of credit and bank guarantees totaling $307.7 million under our Credit Facility and other uncommitted credit lines. For additional information on our Credit Facility and other credit lines, see the discussion in “Liquidity and Capital Resources” above.
Surety Bonds. In the normal course of business, we are required to post bid, performance and other surety-related bonds. The majority of the surety bonds posted relate to our aviation and land segments. We had outstanding bonds that were executed to satisfy various security requirements of $73.0 million as of December 31, 2018.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements included elsewhere in this 2018 10‑K Report, which has been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to unbilled revenue and associated costs of sales, bad debt, goodwill and identifiable intangible assets, certain accrued liabilities, and income taxes. We base our estimates on historical experience and on other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We have identified the policies below as critical to our business operations and the understanding of our results of operations. For a detailed discussion on the application of these and other significant accounting policies, see Note 1 to the accompanying consolidated financial statements included in this 2018 10-K Report.
Accounts Receivable and Allowance for Bad Debt
We extend credit on an unsecured basis to most of our customers. Credit extension, monitoring and collection are performed for each of our business segments. Each business segment has a credit function that is responsible for establishing initial credit limits, approving limits changes from previously approved credit limits, as well as managing the overall quality of the credit portfolio. We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer’s current creditworthiness, as determined by our review of our customer’s credit information. Accounts receivable payment terms are based on customer creditworthiness along with the contractual terms agreed to with our customers. Our accounts receivables credit terms are generally 30-60 days, although certain markets and customers may warrant longer payment terms. Accounts receivable balances that are not paid within the terms of the sales agreement are generally subject to finance fees, based on the outstanding balance. Although we analyze customers’ payment history and creditworthiness, we cannot predict with certainty that the customers to whom we extend credit will be able to remit payments on a timely basis, or at all. Because we extend credit on an unsecured basis to most of our customers, there is a possibility that any accounts receivable not collected will ultimately need to be written off.

The health of accounts receivable is continuously monitored, taking into consideration both the timeliness and predictability of collections and payments from our customers. We maintain a provision for estimated credit losses based upon our historical experience with our customers, along with any specific customer collection issues that we have identified. Principally based on these factors, an internally derived risk-based reserve is established and applied to all accounts receivable portfolios, on a quarterly basis. Customer account balances that are deemed to be at high risk of collectability are reserved at higher rates than customer account balances which we deem expected to be collected without issue.

Historical payment trends may not be an accurate indicator of current or future creditworthiness of our customers, particularly in difficult economic and financial markets. As a result of the limited predictability inherent in estimating which customers are less likely or unlikely to remit amounts owed to us, our provision for estimated credit losses may not be sufficient. Any write-off of accounts receivable in excess of our provision for expected credit losses would have

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an adverse effect on our results of operations. If credit losses exceed established allowances, our business, financial condition, results of operations and cash flows may be adversely affected. For additional information on the credit risks inherent in our business, see “Item 1A – Risk Factors” in this 2018 10‑K Report.

Inventories
Inventories are measured primarily using weighted average cost, and first-in-first-out in certain limited locations, and are measured at the lower of cost or net realizable value. When evidence exists that the net realizable value of inventory is lower than its cost, the difference is recognized as a loss in earnings in the period in which it occurs. We utilize a variety of fuel indices and other indicators of market value. Sharp negative changes in these indices can result in a reduction of our inventory valuation, which could have an adverse impact on our results of operations in the period in which we take the adjustment. These adjustments may have a material impact on our consolidated statements of operations. Components of inventory include fuel purchase costs, the related transportation costs and changes in the estimated fair market values for inventories included in a fair value hedge relationship.
Business Combinations
Before we apply the acquisition method, we determine whether a transaction meets the definition of a business combination. For a transaction to meet the definition of a business combination, the entity or net assets acquired must meet the definition of a business in ASC 805. If the assets acquired are not a business, we account for the transaction or other event as an asset acquisition. We account for business combinations using the acquisition method of accounting, under which the purchase price of the acquisition is allocated to all identifiable assets acquired, liabilities assumed and any noncontrolling interest at the fair value as of the acquisition date. We generally calculate the fair value using the income approach. The estimated future cash flows are based on the best information available to us at the time, acquisition-related costs incurred in connection with a business combination are expensed as incurred.

Goodwill and Identifiable Intangible Assets
Goodwill arises because the purchase price paid reflects numerous factors, including the strategic fit and expected synergies these acquisitions bring to our existing operations. Goodwill is recorded at fair value and is reviewed at least annually at year-end (or more frequently under certain circumstances) for impairment.
Goodwill is evaluated for impairment at the reporting unit level and is initially based on an assessment of qualitative factors to determine whether it is more likely than not that the fair value of any individual reporting unit is less than its carrying amount. Such events or circumstances could include limited market volatility, which adversely impacts our supply and trading activities, or material and sustained adverse changes in macroeconomic conditions or in the industries and markets where we operate, overall financial performance, and our market capitalization, among others. There was significant volatility in the stock market during the fourth quarter 2018 including a significant decline in the Company’s market capitalization which was below book value at December 31, 2018. Management conducts an impairment test as of December 31 of each year, or more frequently if events or circumstances indicate that the carrying value of goodwill may be impaired, as further described below. Based on the quantitative impairment test as of December 31, 2018, there were no impairments recorded for any of our reporting units. 
To determine whether goodwill is impaired, we would compare the fair value of the reporting units to which goodwill was assigned to their respective carrying values to measure the amount of goodwill impairment, if any. In calculating fair value, we use a combination of both an income and market approach as our primary indicator of fair value. Under th