0001628280-19-012982.txt : 20191031 0001628280-19-012982.hdr.sgml : 20191031 20191031164550 ACCESSION NUMBER: 0001628280-19-012982 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 75 CONFORMED PERIOD OF REPORT: 20190930 FILED AS OF DATE: 20191031 DATE AS OF CHANGE: 20191031 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WORLD FUEL SERVICES CORP CENTRAL INDEX KEY: 0000789460 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PETROLEUM & PETROLEUM PRODUCTS (NO BULK STATIONS) [5172] IRS NUMBER: 592459427 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09533 FILM NUMBER: 191184208 BUSINESS ADDRESS: STREET 1: 9800 N.W. 41ST STREET CITY: MIAMI STATE: FL ZIP: 33178 BUSINESS PHONE: 305-428-8000 MAIL ADDRESS: STREET 1: 9800 N.W. 41ST STREET CITY: MIAMI STATE: FL ZIP: 33178 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL RECOVERY CORP DATE OF NAME CHANGE: 19920703 10-Q 1 a2019q310qdoc.htm 10-Q Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q
 
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2019

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
logoa10.jpg
WORLD FUEL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
Florida
9800 N.W. 41st Street,
Miami,
Florida
33178
59-2459427
(State or other jurisdiction of
incorporation or organization)
(Address of Principal Executive Offices) (Zip Code)
(I.R.S. Employer
Identification No.)
 
Registrant’s telephone number, including area code:
 
 
 
(
305
)
428-8000
 
 
Securities registered pursuant to Section 12(b) of the Act
 
Title of each class
Trading Symbol (s)
Name of each exchange on which registered
Common Stock , $0.01 par value
INT
New York Stock Exchange

 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes þ   No ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes þ   No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  Large accelerated filer þ   Accelerated filer ☐   Non-accelerated filer ☐   Smaller reporting company   Emerging growth company
 



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes   No þ
 
The registrant had a total of 65,392,289 shares of common stock, par value $0.01 per share, issued and outstanding as of October 25, 2019.

Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Part I — Financial Information
 
Item 1.
Financial Statements
 
World Fuel Services Corporation
Consolidated Balance Sheets
(Unaudited - In millions, except per share data)
 
 
 
As of
 
 
September 30,
 
December 31,
 
 
2019
 
2018
Assets:
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
218.5

 
$
211.7

Accounts receivable, net
 
2,688.8

 
2,739.6

Inventories
 
582.1

 
523.1

Prepaid expenses
 
68.4

 
65.7

Short-term derivative assets, net
 
67.6

 
155.2

Other current assets
 
344.0

 
279.5

Total current assets
 
3,969.5

 
3,974.8

Property and equipment, net
 
366.5

 
350.3

Goodwill
 
846.9

 
852.7

Identifiable intangible and other non-current assets
 
614.6

 
499.0

Total assets
 
$
5,797.5

 
$
5,676.9

Liabilities:
 
 

 
 

Current liabilities:
 
 

 
 

Current maturities of long-term debt and finance leases
 
$
16.4

 
$
41.1

Accounts payable
 
2,386.9

 
2,399.6

Customer deposits
 
113.2

 
118.2

Accrued expenses and other current liabilities
 
394.1

 
377.0

Total current liabilities
 
2,910.5

 
2,935.9

Long-term debt
 
671.0

 
659.9

Non-current income tax liabilities, net
 
205.4

 
194.6

Other long-term liabilities
 
152.0

 
54.9

Total liabilities
 
$
3,938.9

 
$
3,845.3

Commitments and contingencies
 


 


Equity:
 
 

 
 

World Fuel shareholders' equity:
 
 

 
 

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

 

Common stock, $0.01 par value; 100.0 shares authorized, 65.2 and 67.0 issued and outstanding as of September 30, 2019 and December 31, 2018, respectively
 
0.7

 
0.7

Capital in excess of par value
 
284.5

 
340.4

Retained earnings
 
1,711.4

 
1,606.1

Accumulated other comprehensive loss
 
(154.3
)
 
(131.7
)
Total World Fuel shareholders' equity
 
1,842.1

 
1,815.4

Noncontrolling interest
 
16.5

 
16.1

Total equity
 
1,858.6

 
1,831.6

Total liabilities and equity
 
$
5,797.5

 
$
5,676.9

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


1


World Fuel Services Corporation
Consolidated Statements of Income and Comprehensive Income
(Unaudited – In millions, except per share data)
 
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2019
 
2018
 
2019
 
2018
Revenue
 
$
9,322.7

 
$
10,429.5

 
$
27,460.9

 
$
29,761.7

Cost of revenue
 
9,017.0

 
10,162.8

 
26,635.6

 
29,005.4

Gross profit
 
305.7

 
266.7

 
825.3

 
756.3

Operating expenses:
 
 

 
 

 
 

 
 

Compensation and employee benefits
 
129.2

 
117.9

 
353.3

 
342.0

General and administrative
 
82.8

 
70.6

 
232.9

 
217.8

 
 
212.0

 
188.5

 
586.2

 
559.8

Income from operations
 
93.6

 
78.2

 
239.2

 
196.4

Non-operating expenses, net:
 
 

 
 

 
 

 
 

Interest expense and other financing costs, net
 
(19.5
)
 
(18.3
)
 
(59.1
)
 
(52.5
)
Other income (expense), net
 
(3.3
)
 
1.9

 
(0.3
)
 
(2.0
)
 
 
(22.8
)
 
(16.4
)
 
(59.4
)
 
(54.5
)
Income before income taxes
 
70.9

 
61.8

 
179.8

 
142.0

Provision for income taxes
 
21.5

 
23.0

 
55.5

 
42.7

Net income including noncontrolling interest
 
49.4

 
38.7

 
124.3

 
99.2

Net income attributable to noncontrolling interest
 
1.2

 
0.6

 
1.9

 
1.1

Net income attributable to World Fuel
 
$
48.2

 
$
38.2

 
$
122.4

 
$
98.1

 
 
 
 
 
 
 
 
 
Basic earnings per common share
 
$
0.74

 
$
0.57

 
$
1.84

 
$
1.45

 
 
 
 
 
 
 
 
 
Basic weighted average common shares
 
65.3

 
67.5

 
66.4

 
67.5

 
 
 
 
 
 
 
 
 
Diluted earnings per common share
 
$
0.73

 
$
0.56

 
$
1.84

 
$
1.45

 
 
 
 
 
 
 
 
 
Diluted weighted average common shares
 
65.7

 
67.7

 
66.7

 
67.8

 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 

 
 
 
 
 
 
Net income including noncontrolling interest
 
$
49.4

 
$
38.7

 
$
124.3

 
$
99.2

Other comprehensive loss:
 
 

 
 

 
 

 
 
Foreign currency translation adjustments
 
(11.5
)
 
(4.7
)
 
(17.4
)
 
(23.0
)
Cash flow hedges, net of income tax expense of $2.8 and income tax benefit of $3.5 for the three months ended September 30, 2019 and 2018 respectively and net of income tax benefit of $2.4 and $5.2 for the nine months ended September 30, 2019 and 2018, respectively
 
7.9

 
(5.6
)
 
(6.8
)
 
(8.4
)
Other comprehensive loss:
 
(3.6
)
 
(10.3
)
 
(24.2
)
 
(31.4
)
Comprehensive income including noncontrolling interest
 
45.8

 
28.5

 
100.1

 
67.8

Comprehensive income (loss) attributable to noncontrolling interest
 
(0.8
)
 
0.1

 
(1.5
)
 
(1.2
)
Comprehensive income attributable to World Fuel
 
$
46.6

 
$
28.4

 
$
101.6

 
$
69.1

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


2


World Fuel Services Corporation
Consolidated Statements of Shareholders’ Equity  
(Unaudited - In millions)

 
 
Common Stock
 
Capital in
Excess of
Par Value
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
World Fuel
Shareholders'
Equity
 
Noncontrolling
Interest
Equity
 
 
 
 
Shares
 
Amount
 
 
 
 
 
 
Total Equity
 
Balance as of December 31, 2018
67.0

 
$
0.7

 
$
340.4

 
$
1,606.1

 
$
(131.7
)
 
$
1,815.4

 
$
16.1

 
$
1,831.6

 
Net income

 

 

 
37.2

 

 
37.2

 
0.1

 
37.3

 
Cash dividends declared

 

 

 
(4.0
)
 

 
(4.0
)
 

 
(4.0
)
 
Amortization of share-based payment awards

 

 
4.0

 

 

 
4.0

 

 
4.0

 
Issuance (cancellation) of common stock related to share-based payment awards
0.1

 

 

 

 

 

 

 

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

 

 
(1.4
)
 

 

 
(1.4
)
 

 
(1.4
)
 
Other comprehensive loss

 

 

 

 
(11.0
)
 
(11.0
)
 
(0.8
)
 
(11.7
)
 
Balance as of March 31, 2019
67.1

 
$
0.7

 
$
343.0

 
$
1,639.3

 
$
(142.7
)
 
$
1,840.3

 
$
15.5

 
$
1,855.8

 
Net income

 

 

 
37.0

 

 
37.0

 
0.6

 
37.6

 
Cash dividends declared

 

 

 
(6.6
)
 

 
(6.6
)
 

 
(6.6
)
 
Amortization of share-based payment awards

 

 
3.5

 

 

 
3.5

 

 
3.5

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

 

 
0.7

 

 

 
0.7

 

 
0.7

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

 

 
(1.2
)
 

 

 
(1.2
)
 

 
(1.2
)
 
Purchases of common stock
(2.1
)
 

 
(65.4
)
 

 

 
(65.4
)
 

 
(65.4
)
 
Other comprehensive loss

 

 

 

 
(8.9
)
 
(8.9
)
 

 
(8.9
)
 
Balance as of June 30, 2019
65.2

 
$
0.7

 
$
280.7

 
$
1,669.7

 
$
(151.6
)
 
$
1,799.4

 
$
16.1

 
$
1,815.6

 
Net income

 

 

 
48.2

 

 
48.2

 
1.2

 
49.4

 
Cash dividends declared

 

 

 
(6.5
)
 

 
(6.5
)
 

 
(6.5
)
 
Amortization of share-based payment awards

 

 
3.9

 

 

 
3.9

 

 
3.9

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

 

 

 

 

 

 

 

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

 

 
(0.1
)
 

 

 
(0.1
)
 

 
(0.1
)
 
Purchases of common stock

 

 

 

 

 

 

 

 
Other comprehensive loss

 

 

 

 
(2.8
)
 
(2.8
)
 
(0.8
)
 
(3.6
)
 
Balance as of September 30, 2019
65.2

 
$
0.7

 
$
284.5

 
$
1,711.4

 
$
(154.3
)
 
$
1,842.1

 
$
16.5

 
$
1,858.6

    







 
 

3


 
 
Common Stock
 
Capital in
Excess of
Par Value
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
World Fuel
Shareholders'
Equity
 
Noncontrolling
Interest
Equity
 
 
 
 
Shares
 
Amount
 
 
 
 
 
 
Total Equity
 
Balance as of December 31, 2017
67.7

 
$
0.7

 
$
354.9

 
$
1,492.8

 
$
(126.5
)
 
$
1,721.9

 
$
16.0

 
$
1,738.0

 
Net income

 

 

 
31.2

 

 
31.2

 
0.1

 
31.3

 
Cash dividends declared

 

 

 
(4.0
)
 

 
(4.0
)
 

 
(4.0
)
 
Amortization of share-based payment awards

 

 
4.2

 

 

 
4.2

 

 
4.2

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

 

 
(0.3
)
 

 

 
(0.3
)
 

 
(0.3
)
 
Purchases of common stock tendered by employees to satisfy the required withholding taxes related to share-based payment awards

 

 
(0.3
)
 

 

 
(0.3
)
 

 
(0.3
)
 
Other comprehensive (loss) income

 

 

 

 
0.8

 
0.8

 
(0.3
)
 
0.5

 
Reclassification of certain tax effects from U.S. Tax Reform

 

 

 
1.6

 

 
1.6

 

 
1.6

 
Balance as of March 31, 2018
67.7

 
$
0.7

 
$
358.6

 
$
1,521.6

 
$
(125.7
)
 
$
1,755.1

 
$
15.9

 
$
1,771.0

 
Net income

 

 
$

 
28.7

 

 
28.7

 
0.5

 
29.2

 
Cash dividends declared

 

 

 
(4.1
)
 

 
(4.1
)
 

 
(4.1
)
 
Amortization of share-based payment awards

 

 
2.3

 

 

 
2.3

 

 
2.3

 
Issuance (cancellation) of common stock related to share-based payment awards
0.1

 

 
0.3

 

 

 
0.3

 

 
0.3

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

 

 
(1.8
)
 

 

 
(1.8
)
 

 
(1.8
)
 
Purchases of common stock

 

 

 


 


 

 


 

 
Other comprehensive loss

 

 

 

 
(20.6
)
 
(20.6
)
 
(1.1
)
 
(21.7
)
 
Balance as of June 30, 2018
67.8

 
$
0.7

 
$
359.3

 
$
1,546.3

 
$
(146.3
)
 
$
1,760.0

 
$
15.3

 
$
1,775.3

 
Net income

 

 

 
38.2

 

 
38.2

 
0.6

 
38.7

 
Cash dividends declared

 

 

 
(4.1
)
 

 
(4.1
)
 

 
(4.1
)
 
Amortization of share-based payment awards

 

 
1.5

 

 

 
1.5

 

 
1.5

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

 

 

 

 

 

 

 

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

 

 
(0.1
)
 

 

 
(0.1
)
 

 
(0.1
)
 
Purchases of common stock
(0.7
)
 

 
(20.0
)
 

 

 
(20.0
)
 

 
(20.0
)
 
Other comprehensive (loss) income

 

 

 

 
(10.4
)
 
(10.4
)
 
0.1

 
(10.3
)
 
Balance as of September 30, 2018
67.0

 
0.7

 
340.8

 
1,580.4

 
(156.7
)
 
1,765.2

 
16.0

 
1,781.2



Cash Dividends

During the nine months ended September 30, 2019, the Company's Board of Directors declared quarterly cash dividends of $0.06, $0.10 and $0.10 per common share, representing $4.0 million, $6.6 million and $6.5 million in total dividends, which were paid on April 12, 2019, July 5, 2019, and October 11, 2019 respectively. The Company's Board of Directors declared quarterly dividends of $0.06 per common share for each of the first three quarters of 2018, representing $4.0 million , $4.1 million and $4.1 million in total dividends, which were paid on April 6, 2018 , July 6, 2018 and October 12, 2018, respectively.

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


4


World Fuel Services Corporation
Consolidated Statements of Cash Flows
(Unaudited - In millions)
 
 
For the Nine Months Ended
 
 
September 30,
 
 
2019
 
2018
Cash flows from operating activities:
 
 
 
 
Net income including noncontrolling interest
 
$
124.3

 
$
99.2

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

 
 
Depreciation and amortization
 
64.2

 
59.0

Provision for bad debt
 
19.6

 
7.6

Share-based payment award compensation costs
 
12.4

 
8.0

Deferred income tax expense (benefit)
 
1.4

 
(1.8
)
Foreign currency losses, net
 
(0.5
)
 
4.9

Other
 
0.3

 
(0.8
)
Changes in assets and liabilities, net of acquisitions:
 
 

 
 
Accounts receivable, net (reduced by beneficial interests received in exchange for accounts receivables sold of $115.6 and $357.5 for the three and nine months ended September 30, 2018, respectively.)
 
21.1

 
(775.5
)
Inventories
 
(53.4
)
 
(177.1
)
Prepaid expenses
 
(7.2
)
 
(17.2
)
Short-term derivative assets, net
 
127.2

 
(35.7
)
Other current assets
 
(58.4
)
 
(36.9
)
Cash collateral with financial counterparties
 
(3.1
)
 
40.0

Other non-current assets
 
28.1

 
(39.3
)
Accounts payable
 
36.6

 
554.0

Customer deposits
 
(3.8
)
 
(1.1
)
Accrued expenses and other current liabilities
 
(59.7
)
 
(6.4
)
Non-current income tax, net and other long-term liabilities
 
(80.2
)
 
3.2

Total adjustments
 
44.4

 
(415.2
)
Net cash provided by (used in) operating activities
 
168.7

 
(316.0
)
Cash flows from investing activities:
 
 

 
 
Cash receipts of retained beneficial interests in receivable sales
 

 
357.5

Acquisition of businesses, net of cash acquired
 

 
(21.0
)
Capital expenditures
 
(59.5
)
 
(44.7
)
Other investing activities, net
 
4.5

 
7.3

Net cash (used in) provided by investing activities
 
(55.1
)
 
299.0

Cash flows from financing activities:
 
 

 
 
Borrowings
 
4,452.4

 
4,663.5

Repayments of debt
 
(4,468.4
)
 
(4,841.2
)
Dividends paid on common stock
 
(14.6
)
 
(12.1
)
Repurchases of common stock
 
(65.4
)
 
(20.0
)
Other financing activities, net
 
(7.1
)
 
(2.2
)
Net cash (used in) financing activities
 
(103.1
)
 
(212.0
)
Effect of exchange rate changes on cash and cash equivalents
 
(3.7
)
 
(1.3
)
Net increase (decrease) in cash and cash equivalents
 
6.7

 
(230.3
)
Cash and cash equivalents, as of the beginning of the period
 
211.7

 
372.3

Cash and cash equivalents, as of the end of the period
 
$
218.5

 
$
142.1

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



5


Supplemental Schedule of Noncash Investing and Financing Activities:
 
Cash dividends declared, but not yet paid, were $6.5 million and $4.1 million as of September 30, 2019 and 2018, respectively.

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


6


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

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

We prepared the consolidated financial statements following the requirements of the United States (“U.S.”) Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the U.S. (“U.S. GAAP”) can be condensed or omitted.

Revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be representative of those for the full year. In our opinion, all adjustments necessary for a fair statement of the financial statements, which are of a normal and recurring nature, have been made for the interim periods reported. The information included in this 10-Q Report should be read in conjunction with the consolidated financial statements and accompanying notes included in our 2018 Annual Report on Form 10-K (“2018 10-K Report”). Certain amounts in the consolidated financial statements and associated notes may not add due to rounding. All percentages have been calculated using unrounded amounts.

Our net income for the nine months ending September 30, 2019 of $122.4 million, or $1.84 per diluted common share, includes net discrete tax benefits of $6.6 million ($3.17 million recorded in March 2019 and 3.48 million recorded in September 2019) with respect to foreign tax filings and $3.4 million of operating income ($2.3 million after-tax) recorded in March 2019. All of these amounts should have been recognized in prior periods. Excluding these misstatements, which we have determined were not material to the three months ending March 31, 2019, three and nine months ending September 30, 2019 and 2018, our net income would have been $113.5 million, or $1.70 per diluted common share for the nine months ending September 30, 2019.

There have been no significant changes, other than those related to the adopted new accounting standards below, in the Company's accounting policies from those disclosed in our 2018 10‑K Report. The significant accounting policies we use for quarterly financial reporting are disclosed in Note 1 of the “Notes to the Consolidated Financial Statements” included in our 2018 10‑K Report, and in the adopted accounting standards below.

Adoption of New Accounting Standard
Leases (Topic 842). In February 2016, ASU 2016-02 was issued. The primary objective of the new standard, which amends the existing lease guidance and adds additional disclosures, is to increase transparency and comparability among organizations by recognizing nearly all lease assets and lease liabilities on the balance sheet, including operating leases that under the prior standard were off-balance sheet.

Topic 842 defines a lease as a contract that conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of the identified asset means that the customer has the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.

ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) and early adoption is permitted. The Company adopted ASU 2016-02 in the first quarter of 2019 utilizing the modified retrospective transition method and applying the transition provisions at the effective date. We implemented the new standard using the package of practical expedients under the transition provisions that allows us not to reassess whether a contract contains a lease, how the lease is classified and if initial direct costs can be capitalized. For all the lessee arrangements, we have elected an accounting policy

7


to combine non-lease components with the related lease components and treat the combined items as a lease for accounting purposes. Lastly, we have elected not to recognize the lease asset and related lease liability for leases with a lease term of 12 months or less.

As of the date of implementation on January 1, 2019, the impact of the adoption of the new lease standard resulted in the recognition of the right of use assets of $167.3 million and lease liability of $173.6 million on the Company’s consolidated balance sheet. The difference between the right of use assets and lease liabilities is primarily the result of accrued lease payments and cumulative lease prepayments, as well as the remaining balance of lease incentives received. Subsequent to adoption, the Company does not anticipate the impact on its results of operations and cash flows to be material.

Accounting Standards Issued but Not Yet Adopted

Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. In June 2016, ASU 2016-13 was issued. The amendments in this update will change how entities account for credit impairment from trade and other receivables, net investments arising from sales-type and direct financing leases, debt securities, purchased-credit impaired financial assets and other instruments in addition to loans. ASU 2018-19 issued in November 2018, clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. For receivables and certain other instruments that are not measured at fair value, entities will be required to estimate expected credit losses. Under the expected loss model, an entity recognizes a loss upon initial recognition of the asset that reflects all future events that will lead to a loss being realized, regardless of whether it is probable that the future event will occur.

The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. An entity will apply most of the amendments in this update using a modified-retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. We are currently evaluating the impact that the new standard would have on our consolidated financial statements and disclosures.



8


2. Accounts Receivable

We have receivables purchase agreements (“RPAs”) with Wells Fargo and Citibank that allow for the sale of up to an aggregate limit of $725.0 million of our accounts receivable. For the nine months ended September 30, 2019 and 2018, cash payments to the owners of accounts receivable were $6.3 billion and $6.1 billion respectively, and cash proceeds from the sale of accounts receivable were $6.3 billion and $6.0 billion, respectively. The fees and financing costs under the RPAs were $20.4 million and $14.2 million for the nine months ended September 30, 2019 and 2018, respectively. As of September 30, 2019 and December 31, 2018, our sold accounts receivable under the RPAs were $453.8 million and $508.2 million, respectively.



3. Acquisitions
 
2018 Acquisitions

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

4. Derivatives  

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

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

The following describes our derivative classifications:

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

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

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

9



The following table presents the gross fair value of our derivative instruments and their locations on the consolidated balance sheets (in millions):
 
 
 
 
Gross Derivative Assets
 
Gross Derivative Liabilities
 
 
 
As of
 
As of
 
 
 
September 30,
 
December 31,
 
September 30,
 
December 31,
 
 
 
2019
 
2018
 
2019
 
2018
Derivative Instruments
Consolidated Balance Sheet location
 
 
 
 
 
 
 
 
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
   Commodity contracts
Short-term derivative assets, net
 
$

 
$
168.5