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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See definitions of “large"large accelerated filer,” “accelerated filer”" "accelerated filer," "smaller reporting company," and “smaller reporting company”"emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company (as defined in 12b-2 of the Exchange Act). Yes ☐ No ☒
TABLE OF CONTENTS
PART I
Item 1. Business
Overview
World Fuel ServicesKinect Corporation (the “Company”"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 (“2017 10‑K Report”10-K ("2023 10-K Report") as “World"World Kinect," "we," "our," and "us."
In June 2023, the Company changed its name from World Fuel” “we,” “our” Services Corporation to World Kinect Corporation. We believe our new name reflects our ongoing transformation into a more resilient, diversified energy and “us.”solutions provider. Since the name change, our common stock is listed on the New York Stock Exchange under our new name as well as our new ticker symbol, "WKC."
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, managementfulfillment and fulfillmentrelated services and technology solutionsto more than 150,000 customers across the energy product spectrum.aviation, marine, and land-based transportation sectors. We also seek to become a leading transactionsupply natural gas and payment management company, offering payment management solutions to commercial and industrial customers, principallypower in the aviation, land and marine transportation industries.
We have offices throughout the United States and in various foreign jurisdictions, including, but not limited to: Brazil, Costa Rica, Norway, Singapore,Europe along with a growing suite of other sustainability-related products and services.
We are a signatory to the United Kingdom (“U.K.”Nations ("U.N.") Global Compact and are focused on supporting the U.N.'s principles on human rights, labor, the environment and anti-corruption through progressing our goals and objectives. We have implemented enhancements to our policies, processes, and governance structure to further strengthen our support of environmental, health, safety, sustainability, diversity, equity and inclusion and other social responsibility issues and impacts.
We conduct our operations through numerous locations both within the United States (“("U.S.”"). See “Item 2 – Properties” for a list of principal offices by business segment and “Exhibit 21.1 – Subsidiaries of the Registrant” included in this 2017 10‑K Report for a list of our subsidiaries.
As of February 7, 2018, we employed more than 5,000 employees globally.throughout various foreign jurisdictions. Our principal executive office is located at 9800 Northwest 41stN.W. 41st Street, Miami, Florida 33178 and our telephone number at this address is 305‑428‑8000. Our internet address is http:https://www.wfscorp.comwww.world-kinect.com and the investor relations section of our website is located at http:https://ir.wfscorp.com.ir.worldkinect.com. We make available free of charge, on or through the investor relations section of our website, our Annual Reports on Form 10‑K,10-K, Quarterly Reports on Form 10‑Q,10-Q, Current Reports on Form 8‑K,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”"Exchange Act") with the Securities and Exchange Commission (“SEC”("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”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 2017 10‑K2023 10-K Report and are not incorporated by reference in this 2017 10‑K2023 10-K Report.
A reference to a "Note" herein refers to the accompanying Notes to the Consolidated Financial Statements within Part IV. Item 15. – Notes to the Consolidated Financial Statements included in this 2023 10-K Report.
Reportable Segments
We operate in three reportable segments consisting of aviation, land, and marine. Duringmarine, where we offer fuel and related products and services to customers in these transportation industries.
Profit from our segments is generally determined by the volume and the unit margin achieved on fuel resales. 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 credit losses. Corporate expenses are allocated to each segment based on usage, where possible, or other factors according to the nature of the years presented onactivity. We evaluate and manage our business segments using the consolidated statementsperformance measure 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. from operations.
Financial information with respect to our business segments, and the geographic areas of our business and our customers is provided below and within Note 13 to the accompanying consolidated financial statements included in this 2017 10-K Report.14. Business Segments, Geographic Information, and Major Customers.
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 basedfixed-based operators, corporate fleets, charter and fractional operators, and private aircraft. Our aviation‑relatedaviation-related service offerings include fuel management, price risk management, ground handling, 24/7 global dispatch services, and international trip planning services, including flight plans,planning and scheduling, weather reports and overflight permits. We also supply productsfuel and provide
services to U.S. and foreign government intergovernmental and military customers, such as the U.S. Defense Logistics Agency and the North Atlantic Treaty Organization (NATO).customers. In addition, we offer card payment solutions and related processing services, and technology.as well as operate a web-based marketplace platform that facilitates aircraft charter arrangements.
BecauseGiven that fuel is a major component of an aircraft’s operating costs, our customers require cost effectivecost-effective and professional fuel services. We have developed an extensive network consisting of on-airport fueling operations and third‑partythird-party suppliers and service providers that enablesenable us to provide aviation fuel and related services throughout the world. We believe the breadth of our service offeringofferings combined with our global supplier network is a strategic differentiator that allows customers to secure fuel and high‑qualityhigh-quality services in locations worldwide on short notice.
worldwide.
We purchase our aviation fuel from suppliers worldwide, whichworldwide. 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, typically via pipelines or trucks, and held at multiple locations for strategic reasons.in order to meet the needs of our customers. 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‑basedmarket-based formulas or government-controlled prices. Additionally, we have been taking actions designed to increase the availability of renewable and lower-carbon fuels such as sustainable aviation fuel ("SAF") and are working to expand and develop our supply chain to meet customer demand.
Land Segment
In our land segment, we primarily offer fuel, lubricants, heating oil, propane, natural gas, lubricants and related products and services to petroleum distributors operating in the land transportation market, retail petroleum operators, andcommercial, industrial, commercial, residential and government customers. Our land relatedcustomers, as well as retail petroleum operators. We provide energy advisory services, include management servicessustainability solutions, as well as supply fulfillment for the procurement of fuelnatural gas and price risk management.power. We primarily conduct these activities throughout most of the U.S. as well as parts of the United Kingdom ("U.K.") and Brazil. We also offer advisorycontinue to focus on supporting the energy transition through various initiatives and fulfillmentexpanding our sustainability offerings, including renewable fuel products, and carbon management and renewable energy solutions, with respect to power,such as renewable diesel (also known as hydrotreated vegetable oil or "HVO"), biodiesel, and renewable natural gas (biogas). We are continuing to invest in talent in this area, which we believe will help accelerate growth in these activities. We believe our land segment is well-positioned to continue growing market share, both organically and other energy products through Kinect,leveraging the capabilities of our global energy managementacquisitions, including Flyers Energy Group, LLC ("Flyers"), which we acquired in January 2022, serving to further enhance our business to deliver value-added 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 globalto our land fuel procurement, merchant processing services, payment solutions for tolls across Europe, and commercial payment programs.customers.
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, who buycompanies. These transactions may be pursuant to fuel in bulk and do not generally enter into exclusive contractual relationships with us, if they enter into a contractual relationship with us at all.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. Ourthe cost of fuelwhich is generally tied to market‑basedmarket-based formulas.
Finally, we also 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,”"racks," which are owned and operated by our suppliers or other third‑parties.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, dry bulk 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‑timereal-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 and claims management,management. We have also sought to take a leading role in developing a sustainable marine fuel supply chain. Through collaboration with suppliers, customers and card paymentother industry participants, we are actively working to create near-term solutions and related processing services.identify lower carbon alternatives that will enable the acceleration of the energy transition in the maritime industry.
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,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‑basedmarket-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.
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.firms that compete with us in a particular line of business. In our fuel distribution activities, we compete with major oil producerscompanies that market fuel and other energy products directly to the large commercial airlines, shipping companies, and petroleum distributors operating in the land transportation market, as well as fuel resellers.resellers and other commercial and industrial customers. 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 arecan be subject to seasonal variability. Our seasonality resultsmay result from numerous factors, including traditionally higher demand for natural gaschanges related to seasonal travel 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 for the second and third quarters of the year have historically been stronger for our aviation segment and our results for the fourth and first quarters of operations may fluctuate from period to period.the year have historically been stronger for our land segment.
Governmental Regulation
Environment
Supplying fuel safely and securely is a top priority. We monitor and manage our operations through processes and procedures designed to avoid and minimize our effects and impacts on the environment. Our business activities are subject to substantial regulation bynumerous federal, state, local and local government agencies, insideinternational laws, regulations and outside ofadministrative requirements, including those relating to the U.S., which enforce laws and regulations governing thesale, blending, storage, transportation, sale, storagedelivery and disposal of fuel and the collection, transportation, processing, storage, use and disposal of hazardous substances and wastes, including waste oil and petroleum products.wastes. 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;parties; (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 other means; fuel storage terminals or underground storage tanks that we own, lease or operate; or the quality of product under our control may require capital expenditures and increased operating and maintenance costs, particularly as we continue to expand our physical operations. In addition, continuing changes in environmental laws and regulations may also 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. Environmental laws and regulations have historically been subject to frequent change and have tended to become more stringent and costly over time.
We could be subject to joint and several as well as strict liability for environmental contamination or violations of environmental regulations. Some of our current and former properties have been operated by third parties whose handling and management of hazardous materials were not under our control. Pursuant to certain environmental laws, we could be responsible for investigating and remediating contamination, including impacts attributable to prior site occupants or other third parties, and for implementing remedial measures to mitigate the risk of future contamination. In some cases, we may be eligible to receive money from state underground storage tank trust funds to help fund remediation. However, receipt of such payments is subject to stringent eligibility requirements and other limitations that can significantly reduce the availability of such trust fund payments and may delay or increase the duration of associated cleanups. Any such contamination, leaks from storage tanks or other releases of regulated
materials could result in claims against us by governmental authorities and other third parties for fines or penalties, natural resource damages, personal injury and property damage.
From time to time, we are subject to legal and administrative actions governing the investigation and remediation of contamination or spills from current and past operations. The penalties for violations of environmental laws can include injunctive relief,relief; administrative, civil or criminal penalties; recovery of damages for injury to air, water or property,property; and finesthird-party damages. Some environmental laws may also impose strict liability for non‑compliance.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 1AItem 1A. – Risk Factors,”Factors.
Climate Change and “Item 3 – Legal Proceedings.”Sustainability
We may alsoClimate change continues to be affected by new environmental lawsan area of focus at the local, national 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,international levels. As a result, a number of countries have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas (“GHG”("GHG") emissions. In the U.S., the U.S. Environmental Protection Agency ("EPA") 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 addition, several states and geographic regions in the U.S. have also adopted legislation and regulations to reduce emissions of GHGs, such as such as California, Oregon and Washington, which have formally enacted cap-and-trade programs and low carbon fuel standard obligations.
Shortly after taking office in January 2021, President Biden issued a series of executive orders designed to address climate change, including rejoining the Paris Agreement after the U.S. had withdrawn from the international accord in 2020. Additionally, in August 2022 the Inflation Reduction Act of 2022 was signed into law, which appropriates significant federal funding for renewable energy initiatives and imposes a fee on GHG emissions from certain facilities in the oil and natural gas sector. Various provisions of the law are designed to accelerate the transition away from fossil fuels or otherwise could adversely impact the use of petroleum-based fuels. In January 2023, the Biden Administration and various federal agencies, including the EPA and Departments of Energy and Transportation, announced a "blueprint" for decarbonizing the transportation sector in the U.S. to meet the goal of net-zero GHG emissions economy-wide by 2050. The strategy includes promoting wider adoption of electric vehicles and greater use of sustainable fuels to decarbonize forms of transportation that require more energy-dense fuels, such as air transportation and long-haul shipping. At an international level, the European Union ("E.U.") has committed to reducing net GHG emissions by at least 55% by 2030. E.U. member states have implemented a range of subsidies and incentives to achieve the EU’s climate change goals, including through the European Union Emissions Trading System (‘‘EU ETS’’) for industrial emissions. The EU ETS is expected to become progressively more stringent over time, such as by including by reducing the number of allowances to emit GHGs as well as broadening the industries subject to the restrictions. In other non-E.U. 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.
Regulatory requirements related to ESG or sustainability reporting have been adopted and may continue to be introduced in various jurisdictions. For example, the EU Corporate Sustainability Reporting Directive became effective in 2023 and applies to both EU and certain non-EU entities. In October 2023, California enacted the Climate Corporate Data Accountability Act and the Climate Related Financial Risk Act that will require large public and private companies that do business within the state to disclose their Scopes 1, 2 and 3 greenhouse gas ("GHG") emissions, with third party assurance of GHG emissions information for certain entities, and issue public reports on their climate-related financial risk and related mitigation measures. In 2023, California also enacted the Voluntary Carbon Market Disclosures Act, which requires companies that operate within the state and make certain climate-related claims to provide enhanced disclosure around the achievement of such claims. We expect regulatory disclosure requirements related to ESG matters to continue to expand globally.
Although the ultimate impact of these or other future measures is difficult to accurately predict, theyadditional legislation or regulations could makeimpose significant additional costs on us, our products more expensivesuppliers, vendors and customers, or reducecould adversely affect demand for petroleumour energy products. The potential increase in our operating costs could include additional costs to operate and maintain our facilities, such as installing new infrastructure or technology to respond to new mandates, or paying taxes related to our GHG emissions, among others. Furthermore, changes in regulatory policies or increased awareness and any adverse publicity in the global marketplace about potential impacts on climate change by us or other companies in our industry could result in a reduction in the demand for hydrocarbon products that are deemed to contribute to GHGs, harm our reputation and adversely impact our sales of fuel products. See Item 1A. – Risk Factors.
Other Regulations
As a global organization with customers and operations around the world, we are subject to an often complicated, multi-jurisdictional matrix of laws and regulations that govern international trade, including laws relating to anti-corruption, anti-money-laundering, export controls, economic sanctions, anti-boycott rules, currency exchange controls and transfer pricing rules. These laws and regulations are administered by, among others, the U.S. Department of Justice, Department of State, SEC, Internal Revenue Service, U.S Department of Commerce and U.S. Department of the Treasury, as well as shift demand toward relatively lower-carbon sources. This,the counterparts of these agencies in turn,foreign countries. As a result of the military conflict in Eastern Europe, countries in which we operate have imposed sanctions on Russia and other individuals and entities with connections to the Russian state. These sanctions continue to evolve and have become significantly more stringent over time. Violations of these sanctions can result in significant penalties and civil and criminal liabilities.
We are also subject to a variety of other U.S. and foreign laws and regulations, relating to:
•labor and employment;
•workplace and driver safety;
•consumer protection;
•data privacy and protection;
•cybersecurity;
•commodities trading, brokerage, derivatives and advisory services;
•credit and payment card processing and payment services;
•petroleum marketing;
•human rights and modern slavery;
•antitrust and competition; and
•other regulatory reporting and licensing requirements.
Due to the complex and technical nature of many 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 affectincrease our operating costs. See Item 1A. – Risk Factors for additional information regarding the impacts of government regulation on our business.
Human Capital Resources
At World Kinect, we believe that our people's passion and expertise are what differentiates us and investing in our people is a top priority. Our comprehensive approach to serving our workforce includes our commitment to promoting a diverse and inclusive environment, as well as focusing on our employees' growth and development, health and safety, and overall well-being. The following charts provide information about our global workforce as of December 31, 2023:
Health and Safety
As a global energy management company, we are committed to doing the right thing in all that we do. We continually seek to minimize the impact of our operations earnings and competitive position.ensure the health and safety of our employees, contractors, customers, suppliers and the communities in which we operate. We are committed to playing a leading role in promoting best practices within the transportation industry and are closely involved in developing, setting, and maintaining health, safety and environment ("HSE") industry standards. We have established a set of "Rules to Live By" to help strengthen our existing Integrated Management System and drive appropriate safety behaviors and practices that we believe are vital to preventing workplace incidents. These rules are designed to ensure we execute our operations safely and securely for all our stakeholders.
We have developed what we believe to be a comprehensive process designed to identify, assess and manage HSE risks in our operations. We set targets for performance improvements, regularly measure, audit and report on our performance, and investigate near misses and incidents to determine root causes to prevent similar incidents from occurring in the future. We also expect our contractors to manage HSE matters in line with our policies and strive to maintain an open dialogue with our stakeholders and within the communities where we operate.
Diversity, Equity and Inclusion
We place a high degree of focus on growth in position and career enhancement paths for our employees by providing professional development opportunities and cultivating a diverse talent pool. In this regard, we are working on increasing transparency across our company, particularly around our talent recruitment, development and retention efforts, as well as our diversity, equity and inclusion initiatives. These initiatives include providing unconscious bias training to our managers, promoting diverse interview panels in our recruiting process and actively participating in veteran programs that provide employment opportunities and educational support to military veterans and their families.
Employee Development and Well-Being
Investing in our employees is a top priority and we continually strive to provide an environment that promotes learning, growth and development to maximize our people's potential. We are committed to creating a learning culture that builds skills needed for the future and develops great leaders. We provide a variety of resources to further our employees' development, including online resources as well as in-person and virtual training programs to develop skills and gain knowledge that advances employees' careers.
We are also committed to supporting the health and well-being of our employees and their families, as we believe that the key to successful business operations is a healthy and competent workforce. We have identified a strong connection between employee well-being and the safety of business operations. Accordingly, we are devoted to supporting employee well-being in all dimensions, which goes beyond their physical well-being and includes support for emotional, financial and social well-being. It is a holistic approach intended to provide support and resources that empower our employees and their families to embrace a healthy lifestyle. We have launched various programs designed to build a global culture that promotes and celebrates employee health and well-being in our locations around the world. The goal of these programs is to integrate employee health and well-being into the World Kinect culture through fun and educational events, webinars, activities and fitness challenges.
Community Engagement
As a global company, we are focused on creating a positive impact, encouraging our employees to support the communities in which they live, and engaging with and supporting charities in all aspects of society. We believe that fostering sustainable growth is about conducting our business in a manner that promotes a healthy environment and strengthens the local communities where we operate.
Forward-Looking Statements
Certain statements made in this reportThis 2023 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, are “forward-looking statements”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"believe," "anticipate," "expect," "estimate," "project," "could," "would," "will," "will be,” “will" "will continue,” “will likely result,” “plan,”" "plan," or words or phrases of similar meaning. Specifically, this 2023 10-K Report includes forward-looking statements regarding (i) expectations regarding inflation and its impact on us, (ii) the conditions in the aviation, land, and marine markets and their impact on our business, (iii) our growth strategies, including the position of our land segment to gain market share, (iv) the impact of fuel prices and our working capital, liquidity, and capital expenditure requirements, (v) our expectations and estimates regarding tax, legal and accounting matters, including the impact on our financial statements, (vi) our hedging strategy, (vii)
estimates regarding the financial impact of our derivative and other trading contracts and (viii) estimated savings arising out of various cost reduction efforts. 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 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. These statements are based on our management’s expectations, beliefs and assumptions concerning future events affecting us, which in turn are based on currently available information.
Examples of forward-looking statements in this 2017 10-K Report include, but are not limited to, our expectations about the conditions in the aviation, land, and marine markets, the timing and impact of our cost reduction initiatives and
restructuring activities, our expectations regarding government-related activity and the related profit contribution, our expectations about the financial and operational impact of acquisitions on our aviation and land segments, the timing and benefits of our multi-year project and upgrade of our Enterprise Resource Planning (“ERP”) platform, our expectations about oversupplied market conditions in the U.S, our ability to drive greater leverage and ratability in our land operating model, our ability to divest or exit certain businesses, our ability to improve cost competitiveness, gain structural efficiencies and rationalize our operating model, our ability to implement a single common technology platform for our land segment, as well as our business strategy, business prospects, operating results, methods of competition, the impact of the Tax Act, effectiveness of internal controls to manage risk, working capital, liquidity, capital expenditure requirements and adequacy of funding to meet such capital expenditures and working capital requirements and future acquisitions. These forward-looking statements are qualified in their entirety by cautionary statements and risk factor disclosures contained in our Securities and Exchange Commission filings. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding our ability to effectively leverage technology and operating systems and realize the anticipated benefits, our ability to successfully execute and achieve efficiencies and other benefits related to our transformation initiatives and address market conditions, our ability to effectively integrate and derive benefits from acquisitions, our ability to capitalize on new market opportunities, the demand for our products, the cost, terms and availability of fuel from suppliers, pricing levels, the timing and cost of capital expenditures, outcome of pending litigation, competitive conditions, general economic conditions and synergies relating to acquisitions, joint ventures and alliances. These assumptions could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect.
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;
•changes in the market prices of energy or commodities or extremely high or low fuel prices that continue for an extended periodsperiod of low oil pricestime;
•adverse conditions in the industries in which our customers operate;
•our inability to effectively mitigate certain financial risks and limited market volatility;other risks associated with derivatives and our physical fuel products;
•our ability to achieve the expected level of benefit from our restructuring activities and cost reduction initiatives;
•relationships with our employees and potential labor disputes associated with employees covered by collective bargaining agreements;
•our failure to comply with restrictions and covenants governing our outstanding indebtedness;
•the impact of cyber and other information security related incidents;
•changes in the political, economic or regulatory conditionsenvironment generally and in the markets in which we operate;
our failure to effectively hedge certain financial risksoperate, such as the current conflicts in Eastern Europe and the useMiddle East;
•greenhouse gas reduction programs and other environmental and climate change legislation adopted by governments around the world, including cap and trade regimes, carbon taxes, increased efficiency standards and mandates for renewable energy, each of derivatives;which could increase our operating and compliance costs as well as adversely impact our sales of fuel products;
non-performance by counterparties or customers to derivative contracts;
•changes in credit terms extended to us from our suppliers;
•non-performance of suppliers on their sale commitments and customers on their purchase commitments;
loss of, or reduced sales to a significant government customer;
sudden changes in the market price of fuel;
•non-performance of third-party service providers;
adverse conditions in the industries in which •our customers operate;ability to effectively integrate and derive benefits from acquired businesses;
•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 impactavailability of cybercash and other information security-related incidents;sufficient liquidity to fund our working capital and strategic investment needs;
•currency exchange fluctuations;
currency•inflationary pressures and othertheir impact on our customers or the global market impacts associated with the U.K. referendum vote to exit from the European Union;economy, including sudden or significant increases in interest rates or a global recession;
failure of fuel and other products we sell to meet specifications;
our ability to manage growth;
•our ability to effectively integrateleverage technology and derive benefits from acquired businesses;operating systems and realize the anticipated benefits;
•failure to meet fuel and other product specifications agreed with our ability to achieve the expected level of benefit from our restructuring activities and cost reduction initiatives;customers;
our ability to successfully manage the implementation of an upgrade to our ERP platform;
our ability to effectively compete in our markets;
material disruptions in the availability or supply of fuel;
•environmental and other risks associated with the storage, transportation and delivery of petroleum products;
•reputational harm from adverse publicity arising out of spills, environmental contamination or public perception about the impacts on climate change by us or other companies in our industry;
•risks associated with operating in high risk locations;high-risk locations, including supply disruptions, border closures and other logistical difficulties that arise when working in these areas;
•uninsured or underinsured losses;
our ability to realize the benefit of any cost savings;
the impact of natural disasters, such as earthquakes and hurricanes;
•seasonal variability that adversely affects our revenues and operating results;results, as well as the impact of natural disasters, such as earthquakes, hurricanes and wildfires;
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 Act), interpretations of such laws, or changes in the mix of taxable income among different tax jurisdictions;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;
•changes in multilateral conventions, treaties, tariffs or other arrangements between or among sovereign nations, including the U.K.'s exit from the E.U.;
•our ability to comply with U.S. and international laws and regulations, including those related to anti-corruption, economic sanction programs and environmental matters;
increased levels of competition;
•the outcome of litigation, regulatory investigations and other proceedings,legal matters, including the costs associated in defending any actions;legal and other costs; and
the liquidity and solvency of banks within our Credit Facility and Term Loans;
increases in interest rates; and
•other risks, including those described in “Item 1A -Item 1A. – Risk Factors”Factors in this 2023 10-K Report 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. The forward-looking statements in this 2017 10-K Report are based on assumptions management believes are reasonable. However, due to the uncertainties associated with forward-looking statements, you should not place undue reliance on any forward-looking statements. 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 20172023 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 Securities Exchange Act.Act, as amended.
Item 1A. Risk Factors
You should carefully consider each of the following risks and all the other information contained in this 2023 10-K Report in evaluating us and our common stock. Although the risks are organized by headings, and each risk is discussed separately, many are interrelated. Our business, financial condition, results of operations and cash flows could be materially and adversely affected by these risks, and, as a result, the trading price of our common stock could decline. We have in the past been adversely affected by certain of, and may in the future be affected by, these risks. You should not interpret the disclosure of any risk factor to imply that the risk has not already materialized.
Strategic & Operational Risks
We extend credit to mostmany of our customers in connection with their purchase of fuel and services from us, and our business, 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 partly due in part, to our willingness to extend credit on an unsecured basis to customers as opposed toinstead of 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 orto ensure amounts owed to us are fully collectible depending on the circumstances of the customer at the time of default. While no single customer represents more than 10% ofcollectible. Furthermore, our total consolidated revenue, diversification of credit risk is limited toconcentrated in the aviation, marineland and landmarine transportation industries, within which we primarily do business.exposes us to greater risk when there are global impacts to these industries.
Our exposure to credit losses will dependdepends primarily on the financial condition of our customers and other macroeconomic factors beyond our control, such as deteriorating conditionscontrol. Such factors include decreased demand for travel and other transportation services, weakness in the world economy or in the industries we serve, significant changes in oil prices and political instability. Whileinstability, among others. Sudden and unexpected negative changes in the financial condition of our customers, including insolvency or bankruptcy, could have a negative impact on our sales, make it more difficult to collect on receivables, and may cause us to incur bad debt expense at levels higher than we activelyhave historically experienced.
Our efforts to manage our credit exposure and work to respond to both changes in our customers’customers' financial conditions orcondition and other macroeconomic events there canmay not be no guarantee we will be ablesufficient to successfully mitigate all of these risks. Substantial credit losses could have a material and adverse effect on our business, financial condition, results of operations and cash flows.
Changes in the market prices of energy and commodities may have a material adverse effect on our business.
Energy and commodity prices are volatile and can be impacted by many factors beyond our control, including: expectations about future supply and demand for petroleum products; oil and gas production levels set and maintained by the Organization of Petroleum Exporting Countries ("OPEC") as well as non-OPEC countries; global economic and political conditions that impact or create uncertainty in the global energy markets, such as the ongoing military conflicts in Eastern Europe and the Middle East, threatened or actual acts of terrorism, war or civil unrest; laws, regulations or taxes related to environmental matters, including those mandating or incentivizing alternative energy sources or otherwise addressing global climate change; energy conservation efforts and technological advances affecting energy consumption or supply; regulatory changes in commodities markets; and extreme weather and other natural disasters.
As described above, we extend credit to many of our customers in connection with their purchase of fuel and services from us. During periods of high fuel prices, our customers may not be able to purchase the same volumes of fuel from us because of their financial credit limits with us. An inability to purchase fuel from us or other suppliers can have an adverse impact on their business, causing them to be unable to make payments owed to us for fuel they previously purchased on credit. In addition, high fuel prices can impact our own credit limits with our suppliers, preventing us from purchasing enough fuel to meet customer demand unless we provide additional credit support for fuel purchases, such as letters of credit, bank guarantees or prepayments, any of which could adversely impact our liquidity and increase our working capital costs.
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 can occur due to many factors, such as reduced demand for our price risk management products and decreased sales to our customers involved in the oil exploration sector. Low fuel prices also facilitate increased competition by reducing financial barriers to entry and enabling existing, lower-capitalized competitors to conduct more business because of the lower working capital requirements.
We may also experience negative results in volatile market pricing environments experiencing severe disruption. For example, in the first six months of 2022, our aviation segment was significantly and adversely affected by severe backwardation, a market condition in which oil futures forward prices trade at lower levels than the current market price. Our efforts to limit our exposure to this type of market risk may not be fully effective in the future.
Finally, we maintain fuel inventories for competitive and logistical reasons. Significant variations in the market prices of products held in our inventories may require us to record inventory valuation charges. Our inventory is principally valued using the weighted average cost methodology and is stated at the lower of average cost or net realizable value. The hedging transactions we undertake to limit the financial effects of commodity price fluctuations 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 may be required to 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.
Conditions and events affecting the aviation, marine and land transportation industries can affect our business.
Our business is dependentfocused 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, suppliersthe marketing of energy and other parties as an important source of liquidity for capital requirements not satisfiedrelated products and services primarily to the aviation, land and marine transportation industries, which are generally affected by our operating cash flow. Future market volatility, generally,economic cycles and persistent weakness inother 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 couldevents. Weak economic conditions that have a negative impact on our liquidity,customers' business financial condition, and cash flows, as well asmay, in turn, have an adverse effect on our future development and growth. Furthermore,business. Additionally, our business isand that of our customers can be adversely impacted by political instability, terrorist activities, piracy, military action, transportation, terminal or pipeline capacity constraints, natural disasters and other weather-related events that disrupt shipping, flight operations, land transportation or the availability of trade creditfuel, which may negatively impact sales of our products and services. Certain of our customers are affected by variations in demand for business and leisure travel. Business travel can be impacted
by increased use of conferencing and collaboration technology, increased remote work and cost-driven business travel limitations, while leisure travel demand can be impacted by reductions in consumer discretionary income and other economic factors. Our customers may also choose to fundreduce the amount of fuel purchases and an actual or perceived declinethey consume in their operations. For example, our liquidity or operations could cause our suppliers to seek credit supportcustomers in the form of additional collateral, limitshipping industry may elect to sail their vessels at reduced speeds, known as "slow steaming," to conserve fuel and reduce emissions. Additionally, political or governmental developments or other global health concerns or crises in the extension of trade credit,countries in which we or otherwise materially modify their payment terms. Adverse changesour customers operate, could also result in our payment terms from principal suppliers, including shortened payment cycles, decreased credit linesfurther social, economic or requiring prepayment couldlabor instability. Further, personnel or other shortages can impact our liquidity, business, resultscustomers’ ability to meet demand, which may in turn adversely affect their demand for our fuel products. Accordingly, the effects of operationsany of the foregoing risks and cash flows.
Finally, if we are unable to obtain debt or other forms of financing and instead raise capital through an equity issuance, existing shareholders would be diluted. Even if we are able to obtain financing, the restrictions our creditors may placeuncertainties on our operationsus or our increased interest expense and leverage could limit our ability to grow.
Sales to government customers involve unique risks that could have a material adverse effect on our business, results of operations and financial condition.
Our business may also be adversely affected by consolidation in the aviation, land or marine transportation industries, which may reduce the number of customers that purchase our products and services. Larger shipping companies and airlines often have greater leverage and have a greater ability to buy directly from major oil companies and suppliers. Accordingly, this can negatively impact our value proposition to these types of customers and increases the risk of disintermediation.
Our operations are subject to business interruptions and casualty losses.
Our operations are subject to business interruptions and casualty losses, such as fires, floods and other catastrophic incidents or events; vehicle collisions, injuries and loss of life; spills, discharges, contaminations and other releases; severe damage and destruction of property and equipment; and loss of product and business interruption.
Any of the foregoing can 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 or the properties of others. The occurrence of any of these events could also damage our reputation, which could adversely affect our business, whether or not we are ultimately held financially liable for such event. While we keep business continuity plans to address these types of contingencies, our failure to timely or properly implement these plans could exacerbate the impact on the business. Certain losses may exceed our insurance coverage limits or be outside the scope of our coverage. If we are held liable for any material damages, and the liability is not adequately covered by insurance, our financial position and results of operations would likely be adversely affected.
In addition, as we invest more heavily in physical assets in certain locations, our ability to quickly reposition our business in the event of a downturn in the economy of a particular geographic area becomes increasingly difficult. Accordingly, we may be forced to incur significant costs in maintaining or even exiting a physical location, which would have an adverse effect on our results of operations.
In additionInformation technology 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 normal business risks, our supplyincreased operating costs, and expose us to litigation.
We rely heavily on the proper functioning and availability of productsboth internal and third-party information technology systems, including network infrastructure and cloud applications and services, to U.S.support a variety of business processes and foreign government, intergovernmentalactivities across our global operations. All information technology systems are subject to disruptions, outages, failures, and militarysecurity breaches or incidents. Cybersecurity incidents may arise from employee or contractor error or misuse or unauthorized use of information technology systems or confidential information, to individual attempts to gain unauthorized access to these information systems, to sophisticated cybersecurity attacks, known as advanced persistent threats, any of which may target us directly or indirectly through our customers, (“government customers”) subjectssuppliers or third-party service providers.
Cybersecurity attacks are increasing in number, attackers are increasingly organized and well-financed, and at times supported by state-sponsored actors, and attacks often target critical infrastructure. Cybersecurity incidents can remain undetected for a period of time despite efforts to detect and respond to them in a timely manner. Cybersecurity incidents can also affect third-party networks outside of our control that are required to operate trading platforms, pipelines, and other infrastructure we rely on to conduct our business. For example, in 2021, Colonial Pipeline Company temporarily shut down its pipeline system following a ransomware attack on its systems. While this shutdown did not have a material adverse impact on us or our operations, future cyberattacks affecting pipelines or other critical fuel delivery infrastructure could significantly impact our ability to procure supply or deliver our fuel products to customers.
Our reliance on email transmissions over public networks also exposes us to unique risks manyassociated with the failure of which are beyond our control. Theseemployees, customers, business partners and other third parties to use appropriate controls to protect sensitive information, due to risks include:associated with social engineering (e.g., phishing and impersonation), fraud and email
scams. External parties may attempt to fraudulently induce employees, customers, suppliers 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. We may also face increased cybersecurity risk for a period of time after acquisitions as we transition the acquired entity’s historical systems and networks to our standards.
In addition, due to the large number of transactions that run through our systems each day, significant system downtime or disruption could have a material impact on government spending on defense programs, which canour, and in the case of our technology offerings, our customers', ability to conduct business, process and record transactions, make operational and financial decisions or damage our reputation with customers or suppliers, particularly in the event of billing errors or payment delays. Similarly, if ours or any of our cloud service providers' access to cloud-based platforms and services is disrupted for any reason and leads to disruptions in our critical systems, our operations and ability to manage our business could be negatively affected by budgetary constraints, changesadversely impacted. While we seek to obtain contractual protections in defense spending policies, government shutdownsour agreements with these providers, we may not have sufficient recourse against these parties in the event they experience a significant cybersecurity attack or other security breach affecting our or our customers' data.
Our cybersecurity and changes in military policies or priorities;
Contract awardsinfrastructure protection technologies, disaster recovery plans and systems, employee training and vendor risk management that are typically made through a competitive bidding process, which can involve substantial costs and managerial timewe use to prepare and submit bids for contracts thatmitigate cybersecurity threats may not be awardedsufficient to us;
Expensedefend us against all unauthorized attempts to access our information or impact our systems. As cybersecurity threats continue to evolve, we may be required to dedicate significant additional resources and delaysincur substantial costs to modify or enhance our security measures or to investigate and remediate any vulnerabilities. Despite these efforts, we may be unable to fully anticipate or implement adequate preventive measures or mitigate potential harm. We and our third party providers have experienced, and expect to continue to experience, cybersecurity incidents. To our knowledge, we have not experienced any material losses relating to cybersecurity attacks. However, there can be no assurance that may arise if our competitors protest or challenge contract awards madewe will not suffer material losses in the future. We currently maintain insurance to us;
Contracts for indefinite delivery, such that there are no guarantees on the quantity the government will buy or when it will buyprotect us 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 andlosses arising as a varietyresult 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, 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 allocatedcybersecurity incidents, but this insurance may not be reimbursable,sufficient to cover the financial, legal, business or reputational losses that may result from such incidents. Any of the adverse effects described above could damage our brand, competitiveness and ability to the extent already reimbursed, may needconduct our business, impact our credit and risk exposure decisions, cause us to be refunded and couldlose customers or revenues, subject us to a variety of government claims. Also, any inadequacies in our systemssignificant remediation costs, litigation or regulatory actions, fines 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.
A material portion of our profitability is derived from our government business, and the loss or material reduction in business from our government customers couldotherwise have a material adverse effect on our cash flows, financial condition or results of operations and cash flows.
Sales to government customers, which includes sales to the U.S. Defense Logistics Agency and the North Atlantic Treaty Organization (NATO), have accounted for a material portion of our profitability in recent years, and we expect this to continue in the foreseeable future. The profitability associated with our government business can be materially impacted by 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. Our sales to government customers may fluctuate significantly from time to time as a result of the foregoing factors, as well as 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. Furthermore, changes in military policies or priorities, such as the decision to withdraw or reduce armed force levels in different geographies, can be sudden, subjecting us to losses or higher expenses associated with disposing of unused inventory, removal or abandonment of equipment and relocation of employees.
As a result of complex supply logistics, the indefinite nature of government contracts, and other associated risks, sales of products and services to government customers often carry higher margins than sales to our other customers. Consequently, a decrease in sales or increase in supply costs to our government customers would contribute disproportionately to a reduction in our gross margin and overall profitability and such decrease could be sudden. The loss of a key government customer or a material reduction in sales to government customers would adversely affect our business, financial condition, results of operations and cash flows.operations.
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 to customers various pricing structures for the purchase of fuel,energy products, including derivatives products designed to hedge exposure to fluctuations in fuelenergy 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 fuelenergy products 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.the underlying energy product. 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 fuelenergy 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”"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, ifIf we are unable to recover such losses from a defaulting counterparty, we could sustain substantial losses that would likely have a material adverse effect on our business, financial condition, results of operations and cash flows. Additionally, 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 trading activities and 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 fuelenergy products, to offer our customers fuelenergy 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,Despite our efforts to mitigate risks associated with these transactions, we remain subject to substantial energy price and exchange rate risks.
Our efforts to hedge our exposure to fuel pricefluctuations in energy prices and exchange rate fluctuationsrates may also be ineffective in certain instances.when the prices of historically correlated commodities diverge from their historical correlations. 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 StatesU.S. or gasoil in Europe or Asia). If the price of aviation jet fuel at a specific location experiences a divergence todiverges from 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, as a component of our overall business strategy, increase or decrease from time to time our use of such derivative financial instruments in the future.
We may also enter into proprietary derivative transactions whichthat are not intended to hedge our own risk but ratherare instead intended to make a profit by capitalizing on arbitrage opportunities associated with basis, time, quality or geographic spreads related to fuelthe energy products we sell. Proprietary derivative transactions, by their nature, expose us to changes in the underlying commodity prices in relation toof 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, derivative and other trading transactions, including our energy trading transactions, are subject to employee and system risks. For example, our employees failingmay fail to comply with our policies and procedures, with respect to hedging or proprietary trading, such as engagingmay engage in unauthorized trading activity, failing to hedge a specific price risk or failingmay fail to comply with our internal limits on exposure or any applicable statutory or regulatory requirements, or may otherwise make errors in connection with the trading process. These and other risks may result in substantial losses. For example, as previously disclosed in a Form 8-K filed with the SEC on November 27, 2023, in November 2023, one of our subsidiaries submitted an erroneous bid in the Finnish power market. During the fourth quarter of 2023, the Company recognized related extraordinary losses totaling $48.8 million. See Note 11. Commitments and Contingencies for additional information.
Furthermore, the enforceability of our 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, as well as penalties and fines. 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 we therefore may recognizepurposes. 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 statementsConsolidated Statements of incomeIncome and comprehensive income.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 resultbecause of gains or losses may cause our earnings to fluctuate from period to period.
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;
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• | regulatory reporting and licensing.
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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 serious 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.
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. The impact of this income tax concession decreased (increased) foreign income taxes by $1.3 million, $2.7 million and $(7.7) million for 2017, 2016 and 2015, respectively. The impact of the income tax concession on a diluted earnings per common share basis was $0.02 for 2017, $0.04 for 2016 and $(0.11) for 2015. Changes in U.S. and foreign tax laws, our failure to comply with such laws 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, the U.S., Brazil, Denmark and South Korea, where the amounts under controversy may be material. We are in the process of challenging a number of these 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 adversely 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, we earn a material amount of our operating income from outside the U.S., and any repatriation of funds currently held in foreign jurisdictions to the U.S. may result in higher effective income tax rates for us. Further, 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 acknowledged their intent to implement the actions and update their local tax laws. The extent (if any) 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.
Recent 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 changes 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. The legislation is unclear in certain respects and will require 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 continue to evaluate 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 are allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. GILTI inclusions as a current period expense when incurred (the “period cost method”) or (2) factoring such amounts into our measurement of our deferred taxes (the “deferred method”). Our selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing our global income and our global structure to determine whether we expect to have future U.S. inclusions in taxable income related to GILTI and the impacts thereof. We are currently analyzing this provision and have not made any adjustment related to potential GILTI tax in our financial statements and have not made a policy decision regarding whether to record deferred tax on GILTI since a reasonable amount cannot be determined.
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 accordance with Staff Accounting Bulletin No. 118 regarding application of ASC Topic 740, we anticipate that we will finalize our provisional estimates and determine the impact of any potential deferred tax related to GILTI during the measurement period and reflect any necessary adjustments in the subsequent periods. Any material revisions in our computations could adversely affect our results of operations.
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.
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, including but not limited to 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, and other damage to our properties and the properties of others. 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.
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 slowdown in the future, we could experience a significant disruption of our operations, which could interfere with our ability to transport and deliver products on a timely basis and could have other negative effects, such as 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 environmental risks and 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, including those relating to fuel storage and distribution, terminals, underground storage tanks, the release or discharge of regulated materials into the air, water and soil, the generation, storage, handling, use, transportation and disposal of hazardous materials, the exposure of persons to regulated materials, and the health and safety of our employees. 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 regulating the delivery of fuel by barge, truck, vessel, pipeline or railcar; that regulate fuel storage terminals or underground storage tanks that we own, lease or operate; or that regulate 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. In addition, mandatory fuel standards have been adopted in many jurisdictions, such as amendments to the International Convention for the Prevention of Pollution from Ships, or MARPOL, which established a phased reduction of the sulfur content in fuel oil and allows for stricter sulfur limits in designated emission control areas, will be effective in January 2020. Further changes in laws and regulations applicable to international and national maritime trade are expected over the coming years. These and future changes to applicable standards or other more stringent requirements in the industries we serve could reduce our ability to procure product, 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, our business and result of operations would be adversely affected.
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 constantly 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. 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.
Third parties who fail to provide products or services to us or our customers as agreed, it could harmadversely affect our business.
We purchaseOur business depends on the availability and supply of fuel and otherfuel-related products, from suppliers and resell to customers.as well as the satisfactory performance of services by us or third parties on our behalf. If the fuel and other products we sell or the services we provide, whether directly or through a third party, fail to meet the specificationsrequirements we have agreed to with customers or those mandated by law or regulation, whether due to contamination, arising in connection with our advisory services or otherwise, our relationship with our customers can be adversely affected and we may be subject to material claims and liabilities. Changes in product quality specifications or blending requirements could reduce demand, impact our throughput volume, require us to incur additional costs or require capital expenditures. We may also incur material liabilities if suchour 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 decisionthe assertion of substantial claims of civil liability against us. In addition, our relationship with our customers could be adversely affected and adverse publicity about any allegations of contaminated products may negatively affect us,impact our business, regardless of whether thesuch allegations are true.
Although in most casesof our agreements with suppliers provide that we have recourse against our suppliersthem for products that fail to meet contractual specifications, ifsuch recourse may be time-barred or otherwise insufficient to adequately cover the terms of such agreements are not adequate to protect our interests,liability we may not be ableincur and our ability to enforce such recourse. In the event we are able to pursue it, such recourse cannot be assured and may be costly to enforce.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, then weWe may incur the additionalsubstantial costs of determiningin seeking to enforce our rights and obligations under the agreement, under applicable foreign laws, and enforcing an agreementagainst a local supplier in a foreign jurisdiction.jurisdiction and the ultimate outcome can be unpredictable. In certain markets, we also rely on a single or limited
number of suppliers to sell us fuel or provide services on our behalf. We may have limited alternatives if such supplier fails to meet applicable standards or requirements. Any of the foregoing can result in material liability in excess ofliabilities that may exceed any applicable insurance coverage or other form of recourse and ultimately, could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We also use third partiesmay be unable to provide various services tosuccessfully integrate our customers, including into plane fueling at airports, fuelingacquisitions or fully realize the anticipated benefits of vessels in portour acquisitions and at seaother strategic transactions.
As part of our business strategy, we may pursue acquisition and delivering land-based fuel.other strategic transactions. The failureintegration of these third parties to perform these services in accordance with contractual terms for any reason, such as their inability to supply specified fuel or an interruption of their business because of weather, environmental or labor difficulties or political unrest, could affect our relationshipsacquired businesses with our customersexisting business can be complex, costly and subject ustime-consuming. We have incurred, and expect to claims and other liabilities that could have a material adverse effect on our business, financial condition, resultscontinue incurring, expenses related to the integration 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 asbusinesses 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 are also subject to cybersecurity attacks including malware, other malicious software, phishing email attacks, attempts to gain unauthorized access to our data, the unauthorized release, corruption or lossacquire. The success of our data, loss or damage to our data delivery systems, and other electronic security breaches. Due to the large number of transactions that run through our systems each day, significant system down-time or slow-down could have a material impactacquisitions depends on our ability to conduct business, process and record transactions, as well as make operational and financial decisions. In addition, as we continue to grow the volume of transactions in our businesses,successfully combine our existing IT systems infrastructure, applicationsbusiness with acquired businesses and related functionality may be unable to effectively support a larger scale operation, which can causerealize the information being processed to be unreliableanticipated benefits from such acquisitions, including synergies, cost savings, earnings growth, and impact our decision-making or damage our reputation with customers. We have also been increasing our use of cloud-based technologyoperational efficiencies.
Acquiring and computing platforms operated by third parties. If our use of these cloud services is disrupted either due to system failures, denial of service or other cyberattacks 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.
In addition to our own 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 on-line 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 in order 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 and remediate or otherwise resolve these issues, which 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 variousintegrating businesses we operate, such as 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.
Failure to adequately protect this information could lead to substantial fines, penalties, third party liability, remediation costs, potential cancellation of existing contracts and 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 through the General Data Protection Regulation that will go into effect in May 2018). Substantial changes in applicable regulations may require us to make costly changes to our systems. Although we have taken steps to address these concerns by implementing network security and internal control measures, these steps may 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.
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,unexpected expenses, some of which we have experienced in the past and which we may experience in the future, including:
our ability to effectively•increased operating costs and difficulties in efficiently integrateintegrating the operations, financial reporting, IT systems, technology, and personnel of acquired businesses and manageor of new business operations;
•challenges managing acquired businesses or strategic investments, while maintaining uniform standards, controls and controls;risk management processes appropriate for a public company;
•using estimates and judgments when evaluating the various risks and opportunities of the acquired business that may ultimately prove to be incorrect;
•diversion of management’smanagement's time and attention from other business concerns, the potentially concerns;
•negative impactimpacts of changes in management on existing business relationships and other disruptions of ourthe acquired business;
the risks associated with entering•entry into businesses or markets in which we may have no or limited direct prior experience;
the potential loss of•challenges in retaining key employees, customers or suppliers of the acquired businesses;
a decrease in our•reduced liquidity resulting fromor increased indebtedness if we use 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 fund 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,businesses; and no
•limited indemnities, or limitedsecurity supporting such indemnities, from sellers in an acquisition or ongoing indemnity obligations to purchasers; and
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• | the need to implement internal controls, procedures and policies appropriate for a public company at companies that prior to the acquisition lacked such controls, procedures and policiespurchasers in a divestiture..
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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 investmentsWe may result in us incurring substantial additional indebtedness and other expenses or consummating potentiallyalso undertake dilutive issuances of equity securities to fund the required capital investment.purchase or ongoing operations of the acquired business. This could adversely affect the market price of our common stock, inhibit our ability to pay dividends or otherwise restrict our operations.
Our sales to government customers subject us to additional risks.
We supply fuel and provide equipment and services to U.S. and foreign government and military customers. Government sales can be materially impacted by factors such as administration policy changes, supply disruptions, inventory shortages and other logistical difficulties that can arise when conducting business in areas with active military conflicts, natural disasters or other severe circumstances. Moreover, there can be a risk of serious injury or loss of life for our employees or subcontractors when operating in high-risk locations. We may not be able to fully recognize the anticipated benefitstherefore incur substantial operating costs as a result 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, onhostility-related product losses, utilizing alternate supply routes or increased security requirements, particularly where our due diligence, representationsfacilities are likely to be subject to terrorist activity or extreme weather-related impacts.
In addition, complying with government contracting rules and warranties of the sellers, financial statementsregulations is complex and records of target businessesgovernment customers routinely audit contractors to establish the anticipated revenuesreview performance, cost structure and expenses and whether the acquisitions or strategic investments will meet our internal guidelines for current and future potential returns. Our due 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 accordancecompliance 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 tangiblelaws, regulations, and intangible assets and liabilities acquired as of the acquisition date. As of December 31, 2017, we had goodwill of $845.5 million and net intangible assets of $279.7 million. 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, 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, however, 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.
During the fourth quarter of 2017, we recorded an impairment charge of $91.9 million, of which $72.3 million was attributable to the write-off of goodwill in our marine segment, and $7.9 million associated with intangible assets, primarily customer relationships. The impairment within our marine segment was driven principally by growing competitive pressures in maritime markets, including the decline of maritime shipping volumes along with lower demand for price risk management products and our ultimate decision in the fourth quarter to exit our marine business in certain international markets. See Note 7 in the accompanying Notes to Consolidated Financial Statements for more information. 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.
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 that disrupts shipping, flight operations or land transportation or natural disasters and other weather-related events, will adversely affect our customers and may reduce the demand for our products and services. For example, during 2017, an earthquake in Mexico and Hurricanes Irma and Harvey resulted in business interruptions and supply disruptions which negatively impacted our results of operations. Our business could also be adversely affected by increased merger activity in the aviation, marine or land transportation industries, which may reduce the number of customers that purchase our products and services,standards, as well as the prices we are able to charge for such productsadequacy of and services. For example, the shipping industry has gone through a period of significant consolidationcompliance with internal control systems and policies. Any inadequacies in recent years, 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 fuelour systems and have 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, marinepolicies could result in payments being withheld, penalties and land transportation industries are subject to continuing changes in laws and regulations,reduced future business. Improper or illegal activities, 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 expendituresthose caused by our customerssubcontractors, could also subject us to civil or otherwise increase our customers’ operating costs,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 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.
Our business is subject to seasonal variability, which can cause our revenues and operating results to fluctuate andmaterially 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 in our aviation segment tend to be the strongest and our results for the fourth and first quarters of the year in our land segment tend to be the strongest. However, extremereputation, business, financial condition or unseasonable weather conditions can substantially reduce demand for our products and services which can, in turn, adversely impact our results of operations. There can be no assuranceSee Part I. Item 1. – Business of this 2023 10-K Report for additional details regarding applicable laws and regulations.
Some of our workforce is unionized, and we may face labor disruptions and cost increases that seasonal variability factors will continue in future periods. Accordingly, results for any one quarter may not necessarily be indicative of the results that may be achieved for any other quarter or for the full fiscal year. These seasonal fluctuations in our quarterly operating results may adversely affect the market priceour business.
Some of our shares.
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 fitemployees, including many 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 anddrivers that transport fuel products, are likely to, in the future, divest of certain non-core assets, exit lines of businesses that are not achieving the desired return on investment, or otherwise restructure certainrepresented by labor unions under collective bargaining agreements. Additional unionization of our operations in an effort to improve cost competitiveness and profitability. For example, we exited our rail business in the fourth quarterworkforce, wage negotiations with unions or renegotiation of 2017. We also engaged in cost reduction initiatives, principally in our marine segment in 2016 and throughout our organization in 2017, and restructuring activities during the fourth quarter of 2017. We continue to evaluate additional restructuring activities, cost reduction opportunities and 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. We may also materially alter various aspects of our business, or our business model, and there can be no assurance that any such changes will be successful or that they will not ultimately have a negative effect on our business and results of operations. Finally, restructuring activities and divestiturescollective bargaining agreements may result in restructuring charges and material write-offs, including those relatedincreased labor costs or other terms that are less favorable to goodwill andus, or a strike or work stoppage. Any strike, work stoppage or other intangibledispute with unions representing our employees (or representing employees of third parties who provide us services or operate assets any ofor upon which we otherwise rely to distribute products or deliver services) could have a material adverse effect on our results of operations and financial condition.
Changes in the market price of fuelcash flows. Our customers 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 andalso experience strikes or other labor disputes that could reduce their demand for fuel;our products and services or their ability to pay for products and services already provided.
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.
If fuel prices increase, 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. They may also choose to reduce the amount of fuel they consume in their operations to reduce costs or comply with new environmental regulations to obtain associated incentives. For example, in the shipping industry a number of container ships sail at reduced speeds, known as “slow steaming,” to conserve fuel and reduce carbon emissions. 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. 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 impair our liquidity.
Conversely, extended periods of low fuel prices, particularly when coupled with low price volatility, such as we experienced during 2016 and 2017, can also have an adverse effect on our results of operations and overall profitability. This outcome can be due to a number of 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.
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 although we may manage or hedge this price exposure with derivatives. Our inventory is valued using the weighted average cost methodology and is stated at the lower of average cost or market. A rapid decline in fuel prices could cause our inventory value to be higher than market, resulting in our inventory being marked down to market 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.Financial, Economic & Market Risks
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:internationally, such as:
•trade protection measures and import, export and other licensing requirements, which could increase our costs or prevent us from doing certain business internationally;
the•higher costs ofassociated with 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 restrictingthat restrict us from repatriating profits earned from our activities within certain foreign countries, including making distributions;countries;
•fluctuations in foreign currency exchange rates and severe currency devaluations;
•governmental actions that may result in expropriation, 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;governments, corruption and uncertain regulatory environments;
•changes in multilateral conventions, treaties, tariffs or other arrangements between or among sovereign nations, including, for example, the U.K.'s exit from the E.U., which can increase costs and lead to legal uncertainties and potentially divergent national laws and regulations with regard to tax, licensing and other regulatory rights and obligations; and
•terrorism, war, civil unrest, and natural disasters and other severe weather-related events.
In particular, we operate in certain international markets which have been plagued by corruption and have uncertain regulatory environments, eitherThere can be no assurance that any or all of which couldthese events will not have a negative impactmaterial adverse effect 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 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. We cannot predict the impact, if any, of these or other proposed changes to our business. However, it is possible that these proposed changes could adversely affect our business financial condition andoperations, results of operations. It is likely that some policies adopted by the new administration will benefit usoperations and others will negatively affect us. Until we know what changes are enacted, we will not know whether in total we benefit from, or are negatively affected by such changes.financial condition.
Material disruptions in the availability or supply of fuel would adversely affect our business.
The success of ourOur business depends on our ability to purchase, selladequately finance our capital requirements and coordinate delivery of fuel and related servicesfund our investments, which, if not available to us, would impact our customers. Political instability, natural disastersability to conduct our operations.
We rely on credit arrangements with banks, suppliers and other weather-related events, transportation, terminal or pipeline capacity constraints, terrorist activity, piracy, military action or other similar conditions or eventsparties as an important source of liquidity for capital requirements that are not satisfied by our operating cash flow. Future market volatility, inflation, and persistent weakness in global energy markets 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 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 unwillingability to supply us on commercially reasonable terms, our business would be adversely affected.
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 greateraccess capital resources than we do, to relatively small and specialized firms. Industry developments, such as fuel price transparency, procurement technology tools 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. Although many major oil companies have been divesting their downstream assets, some continue to compete with us in certain markets while others may decide to reenter the market in the future. Our business could be adversely affected because of increased competition from these oil companies, who may choose to increase their direct marketing in order to compete with us or provide less advantageous price and credit termsmarkets or to us than to our fuel reseller competitors.
obtain funds at low interest rates or on other advantageous terms. If we are unable to retainobtain credit on acceptable terms or at all, perhaps due to a substantial tightening of the global credit markets, our senior managementliquidity, business, financial condition, and key employees,cash flows, as well as our businessfuture development and results of operationsgrowth 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. Ifnegatively impacted. In addition, if we are unable to retainobtain debt or other forms of financing and resort to raising capital through equity issuances, our existing senior management and key personnel,shareholders would be diluted.
Our business is also impacted by the availability of trade credit to fund our fuel purchases from suppliers. An actual or to attract other qualified senior management and key personnel on terms satisfactory to us,perceived decline in our liquidity or business could be adversely affected. While we maintain key man life insurance with respectcause our suppliers to certain members of senior management,reduce 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 insurancecredit lines, seek credit support in the future.form of additional collateral, or otherwise materially modify their payment terms. Adverse changes in our payment terms from principal suppliers, including shortened payment cycles or requiring prepayment, could impact our liquidity, business, results of operations and cash flows.
Our failure to comply with
Certain of the requirements ofagreements governing 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 thatcredit arrangements impose certain operating andand/or 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)and sell assets, and (v) engage in mergers or acquisitions.a material amount of assets. Our failure or inability to comply with thethese 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 defaultscross-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, any of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our business is subject to seasonal variability, which can cause our financial results to fluctuate and can adversely affect the market price of our shares.
Our operating results can be subject to seasonal variability. Seasonality results from numerous factors, including demand changes related to seasonal travel and weather patterns. As such, our results for the second and third quarters of the year have historically been stronger for our aviation segment and our results for the fourth and first quarters of the year have historically been stronger for our land segment. However, extreme or unseasonable weather conditions can affect seasonal demand patterns and the prices of the 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.
A material impairment of our goodwill or intangible assets could reduce our earnings or adversely impact our results of operations.
When we acquire a business, a substantial portion of the purchase price of the acquisition may be allocated to goodwill and other identifiable intangible assets. Factors that could affect 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 us to make judgments and assumptions based on several factors including industry experience, the economic environment, and our projections of future operating performance. If our estimates and assumptions prove to be incorrect, we may be required to impair some or all of the carrying amount of goodwill and intangible assets within one or more of our reporting units.
In the past, we have recorded impairment charges in connection with actions 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. Our operating results may be negatively affected by both the impairment and the underlying business trends that triggered the impairment. See Note 6. Goodwill and Identifiable Intangible Assets.
Significant inflation and higher interest rates may adversely affect our business and financial condition.
Inflation in the United States and other jurisdictions in which we do business increased significantly in late 2021 into 2022, driven in part by supply chain disruptions, labor shortages and increased commodity prices, which has generally resulted in higher costs in 2022 and 2023. A significant or prolonged period of high inflation, particularly when combined with rising interest rates due to actions taken by governments to attempt to control inflation, could adversely impact our results if costs, including employee compensation driven by competitive job market conditions, were to increase at a rate greater than the increase in the revenues we generate. Higher interest rates also typically increase the interest expense associated with our credit arrangements with banks and other parties that serve as important sources of liquidity for us, which can therefore negatively impact our results of operations for a particular period. For additional information on the effects of inflation on our business, see Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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 reduction in prices, either of which can result in lower revenues and profits. We have numerous competitors, ranging from large multinational corporations, which have significantly greater capital resources than we do, to relatively small and specialized firms that compete with us in a particular line of business. 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 risks associated with competition. In addition, we rely on a single or limited 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.
In addition to competing with resellers, we also compete with the major oil producers that market fuel and other energy products directly to large commercial airlines, shipping companies, petroleum distributors operating in the land transportation market, fuel resellers, and other commercial and industrial customers. In recent years, a lower fuel price environment 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 our customers to compete with us or provide less advantageous price and credit terms to us than to our other competitors.
We are subject to counterparty risk with respect to the bond hedge transactions which serve to mitigate the dilutive impact of our Convertible Notes.
In connection with our offering of Convertible Notes in June 2023, we entered into bond hedge transactions with multiple financial institutions, which increased the effective conversion price of the Convertible Notes to approximately $40.14 (from the nominal conversion price of $28.43). Consequently, the bond hedge transaction is expected to reduce the potential dilution upon conversion of the Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of the Convertible Notes upon their conversion. We also entered into warrant transactions with the bond hedge counterparties, which could have a dilutive effect on our common stock to the extent that the market price per share of our common stock exceeds the strike price of the warrants.
Our exposure to the credit risk of the bond hedge counterparties is not secured by legislationany collateral. Global economic conditions have, from time-to-time, resulted in the actual or perceived failure or financial difficulties of several financial institutions. If any bond hedge counterparty becomes subject to insolvency proceedings, we would become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under the bond hedge transaction. If any of these counterparties were to fail to comply with their contractual obligations under bond hedge transactions, we would (i) be exposed to greater dilution with respect to their respective portion of the hedge, to the extent that our stock price exceeded the nominal conversion price upon conversion, (ii) may suffer adverse tax consequences, or (iii) incur additional costs associated with entering into a replacement bond hedge transaction with a different bond hedge counterparty.
Legal & Regulatory Risks
Climate change and competitionthe market and regulatory responses relating to GHG emissions could have a significant impact on our business operations and financial results.
Climate change continues to attract considerable public and scientific attention in the U.S. and in foreign countries. As a result, numerous proposals have been adopted and will likely continue to be made at various levels of governments globally to monitor and limit GHG emissions, reduce the use of hydrocarbon-based fuels or require substantial additional and costly disclosure relating to emissions. These include the adoption of cap-and-trade regimes, carbon taxes, trade tariffs, minimum renewable usage requirements, restrictive permitting, increased efficiency standards, and incentives or mandates for renewable energy.
In the U.S., various federal, state and local laws and regulations have been enacted relating to GHG emissions. However, the direction of future U.S. climate change regulations is difficult to predict given the potential for policy changes under different Presidential administrations and Congressional leadership. President Biden has signed executive orders recommitting the U.S. to the Paris Agreement and calling for the federal government to begin formulating emissions reduction goals and increasing the emphasis on climate-related risk across governmental agencies and economic sectors.
Additionally, in August 2022 the Inflation Reduction Act of 2022 was signed into law, which appropriates significant federal funding for renewable energy initiatives and, for the first time, imposes a fee on GHG emissions from certain facilities in the oil and natural gas sector. The emissions fee and renewable and low carbon energy funding provisions of the law could accelerate the transition away from fossil fuels or otherwise adversely impact the use of petroleum-based motor fuels, which could in turn have an indirect adverse effect on our business and results of operations. Under the Biden Administration, it is anticipated that efforts by the EPA or other energy sources andfederal agencies to restrict GHG emissions will continue. It is unclear the extent to which any new environmental laws or advanced technology.regulations, or any repeal of existing environmental laws or regulations, will impact our business or that of our customers.
Fuel competes with other sources of energy, some of which are less costly on an equivalent energy basis. There have also been significant governmental incentives and consumer pressures to increase the use of alternative fuels in the United StatesU.S. and abroad. A number of automotive,throughout the world. Automotive, industrial and power generation manufacturers
are developing more fuel efficientfuel-efficient engines, hybrid engines and alternative clean power systems. Several automobile manufacturers have announced goals to substantially increase the proportion of their new vehicle sales from battery electric, fuel cell and plug-in hybrid vehicles. Further, in August 2022, the California Air Resources Board finalized its Advanced Clean Cars II (ACC II) program, including requiring an increasing percentage of new passenger vehicles sold in the state to be zero emission vehicles for the 2026-2035 model years, ending with a 100% sales target in the 2035 model year. Additional U.S. jurisdictions could adopt similar requirements. The more successfulprevalent these alternativesvehicles 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 fuel 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 andAdditional changes in regulatory policies that potentially burden the development of energy resources. It remains unclear how and to what extent these executive actions will 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 may enact legislation or regulations that attempt to control or limit GHGs such as carbon dioxide. 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 customersany adverse publicity 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. Finally, the focusglobal marketplace about our potential impact on climate change or the impact of other companies in our industry could also negativelylead to a reduction in the demand for products that are deemed to contribute to GHGs, harm our reputation and adversely impact our sales of fuel products. Finally, the potential physical impacts of climate change on our operations are highly uncertain and vary amongst the geographic areas in which we operate. These may include changes in rainfall and storm patterns and intensities, hurricanes, changing sea levels, and changing temperatures that may impact the reputationseasonality of our fuel products or services.business, such as our heating oil business in the U.K. The occurrence of any of the foregoing eventsfactors 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.
Insurance coverageChanges in U.S. or foreign tax laws or adverse outcomes from governmental challenges to our tax position could adversely affect our business and future operating results.
As a global company, we are subject to 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"), mineral oil, energy, environmental and other taxes. We are also subject to a variety of tax collection obligations including obligations to withhold or collect these types of taxes or other taxes or other requirements that may result in liability for third party obligations. We may recognize additional tax expense and be subject to additional tax liabilities, including other liabilities for tax collection obligations due to changes in laws, regulations, administrative practices, and interpretations related to tax. Our results of operations and cash flows could be adversely affected by additional carbon or other taxes imposed on us prospectively or retroactively or additional taxes and penalties resulting from the failure to comply with any collection obligations or failure to provide information about our customers, suppliers, and other third parties for tax reporting purposes to various government agencies. In some cases, we also may not have sufficient notice to enable us to timely build systems and adopt sufficient processes to timely comply with new reporting or collection obligations.
We may recognize additional tax expense and be subject to additional tax liabilities, including other liabilities for tax collection obligations due to changes in laws, regulations, administrative practices, and interpretations related to tax. Our results of operations and cash flows could be adversely affected by additional carbon or other taxes imposed on us prospectively or retroactively or additional taxes and penalties resulting from the failure to comply with any collection obligations or failure to provide information about our customers, suppliers, and other third parties for tax reporting purposes to various government agencies. In some cases, we also may not have sufficient notice to enable us to timely build systems and adopt sufficient processes to timely comply with new reporting or collection obligations.
Our effective tax rate is subject to significant variation due to numerous factors, including variability in our pre-tax and taxable income and loss, changes to our corporate structure, changes in the mix of earnings in countries with differing statutory tax rates, foreign currency fluctuations, intercompany transactions, changes in the valuation of deferred tax assets and liabilities, changes in tax laws or in their interpretation or enforcement, and the applicability of tax concessions. For example, we have benefited from an income tax concession in Singapore since 2008, which reduces the income tax rate on qualified sales and derivative gains and losses. We renewed the concession for an additional five-year period beginning January 1, 2023. The concession remains conditioned upon our meeting certain employment and investment thresholds which, if not met, may eliminate the benefit beginning with the first year in which the conditions are not satisfied. Our effective tax rate can be volatile based on the amount of pre-tax income or loss. For example, the impact of discrete items and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower.
Tax rates in the various jurisdictions in which we and our subsidiaries are organized and conduct operations may be insufficientalso change significantly because of political or economic factors beyond our control. Ongoing developments regarding the projects by the Organisation for Economic Co-operation and Development ("OECD") including global minimum tax and other initiatives, could adversely affect our worldwide effective tax rate. Countries have begun the process to cover losses,introduce the OECD model rules on a global minimum tax and other OECD initiatives into their tax
regimes. The extent to which maycountries in which we operate adopt and implement these rules and actions could have a material adverse effectimpact on our income tax expense, effective tax rate, financial condition, and results of operations.operations and cash flows. We are continuing to review and evaluate the potential impact of these rules as additional guidance and clarification becomes available.
Furthermore, significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. 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 realizability of our net deferred tax assets.
We maintain insurance to coverare regularly audited by various risks associated with the operationdomestic and foreign tax authorities and are involved in various inquiries, audits, challenges and litigation in a number 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 insurancecountries, including Brazil, Denmark, South Korea and the cost of such insuranceU.S., where the amounts under controversy may be affected by significant claimsmaterial. 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.
Although we believe our tax estimates are reasonable, the final determination of tax audits and conditionsany related litigation could be materially different than what is reflected in the insurance market over which we have no control.our income tax provisions and accruals. If the cost of insurance
increases, wethese challenges are ultimately determined unfavorably to us, these proceedings may decide to discontinue certain insurance coverage, reduce our level of coverage or increase our deductibles/retentions in order 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. Furthermore, any failure to comply with applicable laws and regulations or appropriately resolve these challenges could subject us to administrative, civil or criminal penalties, including fines, penalties, disgorgement, injunctions and damage to our reputation. See Notes 10. Income Taxes and 11. Commitments and Contingencies for additional details regarding certain tax matters.
CurrentIncreasing attention to environmental, social and governance issues, including those related to climate change and sustainability, may increase our costs and impose difficult and expensive compliance requirements.
Customers, consumers, investors, and other stakeholders are increasingly focusing on environmental, social and governance (“ESG”) matters, including climate, water use and other sustainability concerns. Furthermore, numerous institutional investors and financial institutions have indicated a focus on matters affecting the environment, which may result in reduced investments in, or financing available to, industries that emit GHG emissions. Many of these groups believe that climate change will significantly influence companies' long-term prospects and have developed ESG standards and guidelines to measure companies' performance.
We, along with many of our customers and suppliers, are seeking to reduce carbon emissions throughout our supply chains. The achievement of initiatives we may undertake relating to the reduction of GHG emissions or other ESG matters, however, may increase our costs, particularly if they require significant changes to our operations, infrastructure or businesses. If our ESG initiatives fail to satisfy our investors, customers, suppliers, or other stakeholders, our reputation, ability to sell products and services to customers, our ability to attract or retain employees, and our attractiveness as an investment or business partner could be negatively impacted.
In addition, various governmental authorities, as well as voluntary sustainability initiatives and organizations, have promulgated different environmental and social responsibility laws, regulations, policies, and initiatives, which are under active development, can be unpredictable and conflicting, and may change rapidly in future periods. For example, the EU Corporate Sustainability Reporting Directive became effective in 2023 and applies to both EU and certain non-EU entities. In October 2023, California enacted the Climate Corporate Data Accountability Act and the Climate Related Financial Risk Act that will require large public and private companies that do business within the state to disclose their Scopes 1, 2 and 3 greenhouse gas ("GHG") emissions, with third party assurance of GHG emissions information for certain entities, and issue public reports on their climate-related financial risk and related mitigation measures. In 2023, California also enacted the Voluntary Carbon Market Disclosures Act, which requires companies that operate within the state and make certain climate-related claims to provide enhanced disclosures around the achievement of such claims. Unfavorable ratings under or non-compliance with these evolving laws, standards and benchmarks could adversely impact our reputation, business, stock price or access to capital. Non-compliance with any applicable laws, regulations or standards may also result in potential cost increases, litigation, fines, penalties, sales restrictions or loss of customers.
Our business is subject to extensive laws and regulations, including environmental protection, health and safety, that can result in material costs and liabilities.
We are required to comply with extensive and complex laws and other regulations at the international, federal, state/provincial and local government levels in the countries in which we operate. See Part I. Item 1. – Business for additional information about laws and regulations applicable to our business. Laws and regulations relating to environmental protection and occupational safety and health can be particularly complex and can impose strict
liability on us for remediation of spills and releases of oil and hazardous substances without regard to whether we were negligent or at fault. Violations of these laws and regulations, or any future environmental law or regulation, could result in significant liability, including administrative, civil or criminal penalties, fines, injunctions, or the suspension or termination of our operations at an affected area. We may also be held responsible for remediation costs for natural resource damages as well as third-party damages. 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 where a spill is into navigable waters, along shorelines or in the exclusive economic zone of the U.S. 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.
In addition, increasingly stringent U.S. and foreign environmental laws and regulations have resulted and will likely continue to increase our operating costs. For example, compliance with existing and future litigationlaws 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, continuing changes in environmental laws and regulations may also 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, the occurrence of any of the foregoing could have an adverse effect on our business or on the businesses of our customers.
The data that we collect may be vulnerable to breach, loss or misuse, and our handling of such data may be impacted by changes in data privacy and protection laws and regulations, which could increase operational costs or result in regulatory penalties or litigation.
We have access to sensitive, confidential or personal data from our employees, customers (both corporate and individual consumers), suppliers and other third parties, some of which is subject to privacy, security or residency laws, regulations and customer-imposed controls. In the ordinary course of business, we collect, retain, process, and transmit such data across national boundaries. Despite our efforts to properly handle and protect this information in compliance with such requirements, 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, procedural or human errors that may lead to such information being compromised or handled improperly.
There has been increased public attention regarding the use of personal data and security of data transfers, accompanied by legislation and regulations intended to strengthen data protection, information security and consumer and personal privacy. The evolving nature of privacy laws in the U.S., the European Union ("E.U."), Australia, Brazil and other countries where we have operations and customers, could impact our processing of this data, including requiring us to make costly changes to our IT systems to properly handle such data. For example, the E.U.'s General Data Protection Regulation imposes strict rules on handling personal data related to the E.U. and imposes significant sanctions for violations. We have substantial operations in the E.U. and are therefore subject to these heightened standards. Similarly, the California Consumer Privacy Act grants certain rights to California residents with respect to their personal data and requires that companies take or refrain from taking certain actions. Several other U.S. states have enacted similar data privacy legislation that has gone into effect in 2023, and additional states have passed or are considering additional privacy laws that are expected to take effect in the near future.
Our failure to adequately comply with these requirements could lead to substantial fines, penalties, third-party liability, remediation costs, potential cancellation of existing contracts and the inability to compete for future business. Any significant breach of data privacy-related regulations or related customer requirements 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 proceedingsreputation, as well as any governmental investigationsour financial condition, results of operations and cash flows.
Our international operations subject us to international trade control, anti-money laundering and anti-corruption laws that can involveimpose substantial compliance costs and expose us to civil and/or criminal penalties.
Our global operations are subject to applicable anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010, anti-money laundering laws, international trade controls, and competition laws. Anti-corruption laws generally prohibit us from providing anything of value to foreign officials for the purposes of improperly influencing official decisions or improperly obtaining or retaining business and may also apply to commercial bribery.
As part of our business, we operate in countries with a high degree of corruption and frequently interact with state-owned enterprises and government officials. This may increase the risk of improper payments being demanded of, offered by, or made by one of our employees or a party acting on our behalf. The risk of enforcement has also grown in recent years as more of the countries in which we operate have passed anti-corruption laws and prioritized enforcement of those laws which can result in significant fines and penalties.
International trade controls, including economic sanctions such as those administered by the U.S. Treasury's Office of Foreign Assets Control ("OFAC") or the U.K.'s HM Treasury, export controls and anti-boycott regulations, restrict our business dealings with certain countries and individuals, are complex, may conflict with each other, are continually changing and may be adopted quickly. For example, as a result of the military conflict in Eastern Europe, the U.S., the E.U., the U.K. and other countries in which we operate have imposed sanctions on Russia and certain other individuals and entities with connections to the Russian state.
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. While such activities 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, these activities, as well as rapidly changing sanctions regimes across the globe, may expose us 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. Such policies and procedures may not always prevent us, our employees or parties acting on our behalf from violating these laws and regulations. Violations may expose us to criminal or civil penalties, or other adverse consequences including the denial of export privileges, injunctions, asset seizures, debarment from government contracts, and/or revocations or restrictions of licenses. In addition, the costs associated with responding to a government investigation litigation and possible settlement, judgment, penaltyremediating any violations can be substantial. Furthermore, violations could trigger an event of default under our Credit Agreement, which if not waived, could result in the acceleration of any outstanding indebtedness, cause cross-defaults under other agreements to which we are a party, and impair our ability to obtain working capital advances or fine. Although we generally maintain insurance to mitigate certain exposures, costs associated with lawsuits or other legal proceedings may exceed the limitsletters of insurance policies, whichcredit. Accordingly, violations could adversely impactaffect, among other things, our results of operations. Furthermore, ourreputation, 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.flows.
Fluctuations in foreign exchange rates could materially affect our financial condition and results of operations.General Risks
The majority of our business transactions are denominated in U.S. dollars. In particular markets, however, paymentsWe face various risks related 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 poundpandemics, epidemics and other currencies may harm our resultsoutbreaks 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,infectious disease, which in turn, may adversely affect our business, results of operations and financial condition.
Although we generally use hedging strategiesWe face a wide variety of risks related to managepandemics, epidemics and minimizeother outbreaks of infectious diseases, which have in the past contributed to business slowdowns or shutdowns, labor shortages, supply chain challenges, changes in government spending and requirements, regulatory challenges, inflationary pressures and market volatility. Public health crises, such as the COVID-19 pandemic, have impacted our operations directly and may in the future impact of foreign currency exchange risk when available, these hedgesus directly, or may be costly and at any given time, only a portiondisrupt the operations 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.
The U.K.’s proposed withdrawal from the European Union (“E.U.”) could harm our business partners, suppliers and financial results.
On June 23, 2016, the U.K. held a referendumcustomers 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. Uncertainty over the terms of the U.K’s departure from the E.U.ways that 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.
Current and proposed 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 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 beand financial condition.
To the extent that a pandemic, epidemic or other outbreak of infectious disease adversely affected. Anyaffects our business, results of these consequencesoperations and financial condition, it may also have the effect of exacerbating many of the other risks discussed in this 2023 10-K Report or any of our other periodic reports, which could have a material adverse effect on us our financial condition, and our results of operations and cash flows.operations.
Item 1B. UnresolvedStaff Comments
None.
Item 1C. Cybersecurity
Cybersecurity and Data Privacy
Our commitment to cybersecurity risk management and sound governance of cybersecurity and other information security-related risks is reflected at the highest levels of our company. This commitment begins with our Board of Directors, which plays a key role in providing oversight of our business practices and related risks, while remaining informed as we evolve and new risks emerge over time.
Governance – Roles of our Board of Directors and Management
Our Board has delegated both the Audit Committee and Technology & Operations Committee with responsibility for monitoring and oversight of the information technology and cybersecurity components of our risk assessment and risk management programs. The independent directors comprising our Audit Committee and our Technology & Operations Committee:
•regularly review our cybersecurity and related information technology risks, controls and procedures, including data protection and privacy and our plans to mitigate cybersecurity risks and to respond to data breaches;
•provide expertise and insight regarding technology and operations systems and processes that relate to or affect our internal control systems, information security, data protection and privacy, fraud and cybersecurity risks; and
•assist management in developing our risk management methodologies and the steps taken to identify, monitor and control such exposures.
Our Chief Information Officer ("CIO") and our Chief Information Security Officer ("CISO") are responsible for our company’s overall information security activities and cyber risk programs. Our CISO reports to the CIO and leads our cyber and data-related incident response activities. Our current CIO and CISO each have more than 25 years of experience in the digital and information technology field.
We have a cross-functional approach to addressing cybersecurity risk, with our information technology, legal, and internal audit functions regularly presenting to the Audit Committee and Technology & Operations Committee on key cybersecurity topics. Our CISO, together with our CIO and other members of the senior leadership in our information technology organization, also provide the Audit Committee and Technology & Operations Committee with regular updates on at least a quarterly basis, and more often as needed. These reports include topics such as analyses of recent cybersecurity threats and incidents across the industry, as well as a review of our own security controls, assessments and program maturity, and risk mitigation status.
Cybersecurity Risk Management & Strategy
We define a cybersecurity event as any anomalous activity on or conducted through our information systems that may result in adverse effects on the confidentiality, integrity or availability of our information systems or any information residing therein. We have strategically integrated cybersecurity risk management into our broader enterprise risk management program to ensure cybersecurity risks are identified, evaluated and addressed alongside our operational objectives. Overall, we seek to address cybersecurity risks through a comprehensive, cross-functional approach that is focused on preserving the confidentiality, integrity and availability of our data and information by identifying, preventing and mitigating cybersecurity threats and being prepared to effectively respond to cybersecurity incidents when they occur.
Our cybersecurity policies, standards, processes, and practices are robust and comprehensive, aligning with the National Institute of Standards and Technology ("NIST") Cybersecurity Framework. We have achieved ISO 27001 certification, demonstrating our commitment to security. Our cybersecurity program also includes a detailed control catalog that maps to several other frameworks, providing a broad and thorough approach to managing cyber risks.
We proactively conduct internal vulnerability scans, penetration tests, and breach simulation exercises, reinforcing our controls and our readiness to respond to potential threats. Recognizing the complexity and evolving nature of cybersecurity threats, we regularly engage with a range of external experts, including cybersecurity consultants, auditors and advisers, in evaluating and testing our risk management systems. Our collaboration with these third parties includes cybersecurity audits and testing, threat assessments and tabletop exercises, along with regular consultation on security enhancements.
We have implemented processes designed to mitigate risks related to data breaches or other security incidents originating from third parties. With our vendors, we conduct thorough security assessments of key third-party providers before engagement and maintain ongoing monitoring to ensure their compliance with our cybersecurity standards.
Through our cybersecurity training program, employees and contractors are provided with cybersecurity training upon hire and thereafter on an annual basis. In addition, training and awareness campaigns continue throughout the year, where we employ various methods such as conducting mock phishing tests, live training sessions and informational articles.
Data Privacy
As a global company, we are also committed to respecting individual privacy and complying with applicable data privacy laws throughout the world, such as the European Union’s General Data Protection Regulation ("GDPR"), UK Data Protection Act and the California Consumer Privacy Act ("CCPA"). To that end, to protect our data, including personal data, we maintain comprehensive information security and data privacy programs, with a balanced portfolio of defenses designed to prevent, detect and respond to cybersecurity threats.
Notwithstanding our cybersecurity efforts, we may not be successful in preventing or mitigating a cybersecurity incident that could have a material adverse effect on us. While we maintain cybersecurity insurance, the costs related to cybersecurity threats or disruptions may not be fully insured. See Item 1A. – Risk Factors for a discussion of cybersecurity risks.
Item 2. Properties
The following table sets forthOur principal properties consist primarily of administrative offices and inventory storage facilities, none of which are individually material. We lease our corporate headquarters in Miami, Florida as well as administrative office space in London, Singapore and other strategic locations throughout the world.
As of February 16, 2024, the majority of our principal properties the majority of which are leased ason commercially reasonable terms and we do not anticipate that we will experience difficulty in renewing or replacing any leases upon expiration in any material respect. Our properties are often utilized by one or more of February 7, 2018. Weour business segments and 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 2018 in any material respect.current needs.
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 2018 |
| | | | |
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 |
| | | | |
The Docks, Falmouth, Cornwall, TR11 4NR, United Kingdom | | Administrative, operations and sales office for marine segment | | February 2037 |
| | | | |
|
| | | | |
Location | | Principal Use | | Lease Expiration |
Huskisson Dock No.1 Regent Road Liverpool, United Kingdom | | Administrative, operations and sales office for marine segment | | February 2029 |
| | | | |
Lange Kleiweg 28, 8th Floor Rijswijk, Netherlands 2228 | | Administrative, operations and sales office for aviation, land and marine segments | | September 2022 |
| | | | |
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 its activities at that airport and its 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 inquiries, audits, 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 910. Income Taxes and 11 of the accompanying consolidated financial statements11. Commitments and Contingencies for additional details regarding certain tax matters.
We are also 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.
In addition, Item 103 of Regulation S-K promulgated by the SEC requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions, unless we reasonably believe that the matter will result in no monetary sanctions, or in monetary sanctions, exclusive of interest and costs, of less than a specified threshold. We have elected to use a threshold of $1 million for purposes of determining whether the disclosure of any such environmental proceeding is required.
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 statementsConsolidated Financial Statements or disclosures for that period. See Note 11. Commitments and Contingencies for additional information.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Marketfor Registrant’s Common Equity, Related ShareholderStockholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded on the New York Stock Exchange (“NYSE”("NYSE") under the symbol INT.WKC. As of December 29, 2017,2023, the closing price of our stock on the NYSE was $28.14. The following table sets forth, for each quarter in 2017 and 2016, the high and low sales prices of our common stock as reported by the NYSE.
|
| | | | | | | |
| Price |
| High | | Low |
2017 | | | |
First quarter | $ | 47.49 |
| | $ | 34.79 |
|
Second quarter | 38.67 |
| | 34.64 |
|
Third quarter | 40.16 |
| | 32.28 |
|
Fourth quarter | 36.64 |
| | 25.80 |
|
| | | |
2016 | | | |
First quarter | $ | 49.50 |
| | $ | 35.13 |
|
Second quarter | 51.01 |
| | 42.95 |
|
Third quarter | 49.38 |
| | 44.14 |
|
Fourth quarter | 47.30 |
| | 38.79 |
|
$22.78.As of February 7, 2018,16, 2024, there were 37072 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 2017 and 2016.
|
| | | | | | | | | |
| Per Share Amount | | Declaration Date | | Record Date | | Payment Date |
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 |
| | | | | | | |
2016 | | | | | | | |
First quarter | $ | 0.0600 |
| | March 3, 2016 | | March 18, 2016 | | April 8, 2016 |
Second quarter | 0.0600 |
| | May 26, 2016 | | June 10, 2016 | | July 1, 2016 |
Third quarter | 0.0600 |
| | September 12, 2016 | | September 23, 2016 | | October 12, 2016 |
Fourth quarter | 0.0600 |
| | November 30, 2016 | | December 16, 2016 | | January 6, 2017 |
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 500 Energy Index for the five‑year period from December 31, 20122018 through December 31, 2017.2023. The cumulative return includes reinvestment of dividends.
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, 2017 (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 | 1.0 |
| | $ | 14.68 |
| | 3.4 |
|
2006 Plan | 1.2 |
| | $ | 9.71 |
| | — |
|
| |
(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. |
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, 2017periods presented (in thousands, except average price paid per share):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased | | 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 (1) |
10/1/2023 - 10/31/2023 | | — | | | $ | — | | | — | | | $ | 147,053 | |
11/1/2023 - 11/30/2023 | | 511 | | | 19.65 | | | 511 | | | $ | 137,002 | |
12/1/2023 - 12/31/2023 | | 1 | | | 20.00 | | | 1 | | | $ | 136,986 | |
Total | | 512 | | | $ | 19.65 | | | 512 | | | $ | 136,986 | |
|
| | | | | | | | | | | | | |
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) |
10/1/2017 - 10/31/2017 | — |
| | $ | — |
| | — |
| | $ | 100,000 |
|
11/1/2017 - 11/30/2017 | — |
| | — |
| | — |
| | 100,000 |
|
12/1/2017 - 12/31/2017 | — |
| | — |
| | — |
| | 100,000 |
|
Total | — |
| | $ | — |
| | — |
| | $ | 100,000 |
|
(1)In March 2020, the Board approved a stock repurchase program authorizing $200.0 million in common stock repurchases (the "2020 Repurchase Program"). Our 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, 2023, approximately $137.0 million remains available for purchase under the 2020 Repurchase Program. The timing and amount of shares of common stock to be repurchased under the 2020 Repurchase Program will depend on market conditions, share price, securities law and other legal requirements and factors. | |
(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, 2017, $100.0 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 2017,2023, see the corresponding Quarterly ReportReports on Form 10-Q.
Item 6. Selected FinancialData[Reserved]
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 2017 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, |
| 2017 | (1)(2) | 2016 | (3)(4) | 2015 | (4)(5) | 2014 | (4)(6) | 2013 | (4)(7) |
Revenue | $ | 33,695.5 |
| | $ | 27,015.8 |
| | $ | 30,381.4 |
| | $ | 43,391.8 |
| | $ | 41,559.9 |
| |
Cost of revenue | 32,763.3 |
| | 26,116.8 |
| | 29,520.4 |
| | 42,572.7 |
| | 40,807.8 |
| |
Gross profit | 932.2 |
| | 899.0 |
| | 861.0 |
| | 819.1 |
| | 752.2 |
| |
Operating expenses (8) | 886.6 |
| | 710.1 |
| | 615.3 |
| | 542.4 |
| | 488.5 |
| |
Income from operations | 45.6 |
| | 188.9 |
| | 245.7 |
| | 276.7 |
| | 263.7 |
| |
Non-operating expenses, net (9) | (66.7 | ) | | (46.7 | ) | | (27.9 | ) | | (1.9 | ) | | (15.4 | ) | |
Income (loss) before income taxes | (21.1 | ) | | 142.1 |
| | 217.7 |
| | 274.8 |
| | 248.3 |
| |
Provision for income taxes | 149.2 |
| | 15.7 |
| | 47.2 |
| | 53.6 |
| | 46.0 |
| |
Net income (loss) including noncontrolling interest | (170.3 | ) | | 126.4 |
| | 170.5 |
| | 221.1 |
| | 202.3 |
| |
Net income (loss) attributable to noncontrolling interest | (0.1 | ) | | — |
| | (3.9 | ) | | (3.3 | ) | | 4.4 |
| |
Net income (loss) attributable to World Fuel (10) | $ | (170.2 | ) | | $ | 126.5 |
| | $ | 174.5 |
| | $ | 224.5 |
| | $ | 198.0 |
| |
Basic earnings (loss) per common share (10) | $ | (2.50 | ) | | $ | 1.82 |
| | $ | 2.49 |
| | $ | 3.17 |
| | $ | 2.78 |
| |
Basic weighted average common shares | 68.1 |
| | 69.3 |
| | 70.2 |
| | 70.8 |
| | 71.2 |
| |
Diluted earnings (loss) per common share (10) | $ | (2.50 | ) | | $ | 1.81 |
| | $ | 2.47 |
| | $ | 3.15 |
| | $ | 2.76 |
| |
Diluted weighted average common shares | 68.1 |
| | 69.8 |
| | 70.7 |
| | 71.3 |
| | 71.8 |
| |
Cash dividends declared per common share | $ | 0.24 |
| | $ | 0.24 |
| | $ | 0.24 |
| | $ | 0.15 |
| | $ | 0.15 |
| |
|
| | | | | | | | | | | | | | | | | | | | |
| As of December 31, |
| 2017 | (1)(2) | 2016 | (3)(4) | 2015 | (4)(5) | 2014 | (4)(6) | 2013 | (4)(7) |
Cash and cash equivalents | $ | 372.3 |
| | $ | 698.6 |
| | $ | 582.5 |
| | $ | 302.3 |
| | $ | 292.1 |
| |
Accounts receivable, net | 2,705.6 |
| | 2,344.0 |
| | 1,812.6 |
| | 2,308.2 |
| | 2,538.6 |
| |
Total current assets | 3,940.4 |
| | 3,836.6 |
| | 3,246.0 |
| | 3,675.2 |
| | 3,815.5 |
| |
Total assets | 5,587.8 |
| | 5,412.6 |
| | 4,525.3 |
| | 4,878.1 |
| | 4,735.2 |
| |
Total current liabilities | 2,718.6 |
| | 2,182.7 |
| | 1,754.2 |
| | 2,241.9 |
| | 2,518.9 |
| |
Total long-term liabilities | 1,131.3 |
| | 1,290.1 |
| | 865.3 |
| | 776.8 |
| | 545.9 |
| |
Total equity (10) | 1,738.0 |
| | 1,940.0 |
| | 1,905.9 |
| | 1,859.4 |
| | 1,670.5 |
| |
| |
(1) | 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. |
| |
(2) | 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 includes a $143.7 million expense related to the one-time transition tax on accumulated foreign earnings recorded as a result of the Tax Act. |
| |
(3) | 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. (“PAPCO”) and Associated Petroleum Products, Inc. (“APP”) 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.
|
| |
(4) | Certain prior period amounts have been revised to reflect the impact of adjustments made to our provision for income taxes. |
| |
(5) | In 2015, we acquired all the outstanding stock of Pester Marketing Company (“Pester”) 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.
|
| |
(6) | In 2014, we acquired i) all of the outstanding stock of Watson Petroleum Limited (now known as WFL (UK) Limited) (“Watson Petroleum”) on March 7th, ii) all of the outstanding stock of Colt International, L.L.C. (“Colt”) 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.
|
| |
(7) | In 2013, we completed three 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 $21.2 million for 2017, $19.3 million for 2016, $17.0 million for 2015, $15.8 million for 2014, and $16.7 million for 2013 and intangible amortization expense of $41.9 million for 2017, $39.7 million for 2016, $30.4 million for 2015, $27.0 million for 2014, and $22.6 million for 2013. |
| |
(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 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 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 statementsConsolidated Financial Statements and related notesNotes thereto appearing elsewherewithin Part IV. Item 15. – Notes to the Consolidated Financial Statements in this 20172023 10‑K Report. The following discussion may contain forward‑lookingforward-looking statements, and our actual results may differ materially from the results suggested by these forward‑lookingforward-looking statements. Some factors that may cause our results to differ materially from the results and events anticipated or implied by such forward‑ lookingforward-looking statements are described in “Item 1AItem 1A. – Risk Factors”Factors and in Item 1. – Business under “Forward-Lookingthe section titled "Forward-Looking Statements.”"
We have elected to omit discussion on the earliest of the three years covered by the Consolidated Financial Statements presented in this 2023 10‑K Report. Refer to Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations located in our Form 10-K for the fiscal year ended December 31, 2022 (herein incorporated by reference), filed with the SEC on February 24, 2023 ("2022 10-K Report"), for management's discussion of the fiscal year ended December 31, 2021.
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. 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. For additional discussion on our businesses, climate change and the associated risks, see Part I, Item 1. – Business and Item 1A. – Risk Factors within this 2023 10-K Report.
The overall aviation market remains strong, reflecting healthy airline financial performance
2023 Restructuring Plan
In November 2023, we approved and strong overall demand. Our aviation segment has benefited frombegan implementing a restructuring plan to realign our increased logistics capabilityoperational focus with the purpose of simplifying our business, enabling us to focus more clearly on growing our core businesses and expanded footprint from the acquisitionour new sustainability-related activities, and improving our cost structure. As part of international aviation fueling operations from various ExxonMobil affiliates, which has facilitated our expansion into additional airport locations. The aviation segment has also benefited from increased sales to government customers, which include the U.S. Defense Logistics Agency, the North Atlantic Treaty Organization (NATO)this plan, we identified open positions that were eliminated and other governmentpositions that were closed to better align the workforce necessary to execute the revised strategy. During the year ended December 31, 2023, we recognized restructuring charges of $7.2 million, composed of severance and military customers. Salesother compensation costs. We estimate that the plan could result in approximately $15.6 million in annualized savings related to government customers account for a material portion of our aviation segment's profitability. We expect our government-related activity to remain strong, although we believe the related profit contribution will decrease in 2018 as a result of compressed margins associated with contract renewals. Sales to government customers are driven by global events and military-related activities and can therefore significantly change 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, primarily in the U.S. and U.K. Recently, our land segment has been negatively impacted by lower profitability from our supply and trading activities as a result of market conditions, specifically within the U.S., which we do not expect will improve in the near future. In addition, our operating results in the U.S. and U.K. in recent years have been adversely impacted by unseasonably warm winter weather conditions. In contrast, our land segment has benefited from sales to government customers and we expect such activity to remain strong in the near term. We are focused on realizing the synergies associated with our acquisitions, implementing a single common technology platform and driving greater leverage and ratability in our operating model.
Over the course of 2017, our marine segment was adversely impacted by the weak conditions within the global shipping and offshore oil exploration markets and as a result, our marine segment experienced lower overall volumes in our core resale business as compared to historical levels.compensation. We also experienced lower demand fordecided to shift future investments away from underperforming businesses and to continue assessing our price risk management products as a resultglobal office footprint, resulting in impairment charges of low fuel prices and limited market volatility. Due to growing competitive pressures in maritime markets, including the prolonged decline of maritime shipping volumes along with lower demand for price risk management products and our decision to exit our marine business in certain international markets, we expect lower than previously anticipated sales and operating margins.
We continue to rationalize our operating model to gain efficiencies through various initiatives that are ongoing throughout the company, including moving to cloud-based solutions. Furthermore,$11.2 million during the fourth quarter we began an enterprise-wideof 2023.
We expect to continue assessing potential initiatives during the first quarter of 2024, which could result in additional restructuring plan that is designed to streamlinecharges, with the organization, and reallocate resources to better align our organizational structure and costs with our strategy, ultimately to improve operating efficiencies. Theintent of completing the restructuring program involves reviewing non-core businesses and investments, our organizational structure, and expected commercial opportunities inactivities during the markets we serve. We will also consider our existing technology platforms in connection with our ongoing enterprise resource planning platform upgrade, specifically with an aim to more fully integrate recent acquisitions and increase associated profit contribution. While these activities are ongoing, we expect the majoritysecond quarter of these activities to be completed over the course of 2018.2024. See Note 15. Restructuring for additional information.
Reportable Segments
We operate in three reportable segments consisting of aviation, land, and marine. InSee Part I. Item 1. – Business and Note 14. Business Segments, Geographic Information, and Major Customers for additional information about our business segments.
Aviation Segment
Our aviation segment we offerhas benefited from growth in our 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 governmentsservice offerings, as well as intergovernmental organizations. In our land segment, we offer fuel, lubricants, powerenhanced logistics capabilities and natural gas solutions through Kinect, our global energy management services platform, 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 eachgeographic expansion of our segmentsaviation fueling operations into additional international airport locations. During 2023, we maysuccessfully achieved higher returns in a high interest rate environment, driven in part by targeted improvements in working capital management consistent with our strategy to rationalize lower-return business activity. As part of our business strategy, we hold inventory in order to meet the needs of our customers. While we generally enter into financial derivative contracts to mitigate price risk exposure associated with our inventory, market pricing dynamics may still negatively impact our results. In the riskfirst half of 2022, oil futures forward prices traded at significantly lower levels than then-current market prices, resulting in elevated price fluctuationsvolatility and alsoa severely backwardated market that negatively impacted our results. The oil futures forward pricing structure has since returned closer to offerhistorical trading and volatility levels.
Land Segment
We believe our land segment is well-positioned to continue growing market share organically, in part by improving asset utilization and leveraging the capabilities of our acquisitions, including Flyers, which we acquired in January 2022, serving to further enhance our capability to deliver value-added solutions to our customers through an increasingly streamlined operational platform as discussed under "2023 Restructuring Plan" above.
Although 2023 was adversely affected by extraordinary losses associated with an erroneous bid submitted in the Finnish power market, we achieved an increase in profitability from both our natural gas business and our sustainability-related service offerings, driven in part by strong growth in our renewable energy solutions business.
We continue to focus on supporting the energy transition by expanding our sustainability offerings, including renewable fuel pricing alternativesproducts, as well as carbon management and renewable energy solutions. We are continuing to meet their needs.invest in talent in this area, which we believe will help accelerate growth in these activities.
In
Marine Segment
Due to the generally spot nature of sales in our aviationmarine business, we have traditionally benefited from elevated fuel prices and land segments, we primarily purchase and resell fuel and other products, and we do not act as brokers. Profit from our aviation and land segments is primarily determined by the volume and the gross profit achieved on fuel salesvolatility, supply uncertainty, and a percentageconstrained credit environment. We have spent a considerable amount of card paymenttime reorganizing our business to drive internal efficiencies so that we can generate relatively moderate levels of earnings in stable markets and processing revenue.yet remain poised to provide additional value in volatile and credit constrained markets. In 2022, our marine segment we primarily purchasedelivered exceptional results due to the market conditions arising from the dramatic increase in global oil prices and resell fuelhigher interest rates, as well as the disruption of traditional supply patterns and also act as brokers for others. Profit fromrelated price volatility. The lower global oil prices and reduced market volatility experienced in 2023 have impacted our marine segmentsegment's performance as expected for the full year 2023, which results are materially lower than the exceptional returns produced in 2022.
Macroeconomic Environment
Inflation in the United States and other jurisdictions in which we do business increased significantly beginning in late 2021 into 2022, driven in part by supply chain disruptions, labor shortages and increased commodity prices, which has generally resulted in higher costs in 2022 and 2023. Inflation, however, is determined primarily by the volumedecelerating and gross profit achieved on fuel resales and by the volume and commission rate of the brokering business. Profitabilitywe expect will continue to do so gradually in our segments also depends on our operating expenses, which may be materially affected2024 without a major downturn in activity.
However, to the extent that wea rising cost environment impacts our results, there are required to provide for potential bad debt.
Corporate expenses are allocated to each segment based on usage, where possible, or on other factors according to the naturetypically offsetting benefits either inherent in certain parts of the activity. We evaluate and manage our business segments usingor that may result from proactive measures we take to reduce the performance measurementimpact of income from operations.inflation on our net operating results. These benefits can include higher commodity prices that typically result in a constrained credit environment, often creating favorable market conditions that increase demand for our services, as well as our ability to renegotiate prices due to many of our sales contracts being 12 months or less in duration. Additionally, we take measures to mitigate the impact of increases in fuel prices through comprehensive hedging programs and the use of financial derivative contracts.
For these reasons, the increased cost environment, caused in part by inflation, has not had a material impact on our historical results of operations includefor the periods presented in this report. However, a significant or prolonged period of high inflation, particularly when combined with rising interest rates due to actions taken by governments to attempt to control inflation, could adversely impact our results if costs, including employee compensation driven by competitive job market conditions, were to increase at a rate greater than the increase in the revenues we generate. Higher interest rates also typically increase the interest expense associated with our credit arrangements with banks and other parties that serve as important sources of liquidity for us, which can therefore negatively impact our results of the fueling operations acquiredfor a particular period.
See "We extend credit to many of our customers in connection with their purchase of fuel and services from certain ExxonMobil affiliates in during 2017.
Selected financial information with respect tous, and our business, segments is providedfinancial condition, results of operations and cash flows will be adversely affected if we are unable to collect accounts receivable," "Changes in Note 13the market prices of energy and commodities may have a material adverse effect on our business," "Our business depends on our ability to the accompanying consolidatedadequately finance our capital requirements and fund our investments, which, if not available to us, would impact our ability to conduct our operations," "Significant inflation and higher interest rates may adversely affect our business and financial statements includedcondition," and "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" in Item 1A. – Risk Factors within this 2017 10‑K2023 10-K Report.
Results of Operations
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022
2017
Consolidated Results of Operations
The following provides a summary of our consolidated results of operations for the periods indicated (in millions, except per share amounts):
| | | | | | | | | | | | | | |
| | For the Year Ended December 31, |
| | 2023 | | 2022 |
Revenue | | $ | 47,710.6 | | | $ | 59,043.1 | |
Cost of revenue | | 46,652.4 | | | 57,954.1 | |
Gross profit | | 1,058.2 | | | 1,089.1 | |
Operating expenses: | | | | |
Compensation and employee benefits | | 512.3 | | | 507.4 | |
General and administrative | | 308.0 | | | 308.7 | |
Asset impairments | | 32.8 | | | 0.6 | |
Restructuring charges | | 7.2 | | | (0.8) | |
Total operating expenses | | 860.2 | | | 815.8 | |
Income (loss) from operations | | 198.0 | | | 273.2 | |
Non-operating income (expenses), net: | | | | |
Interest expense and other financing costs, net | | (127.7) | | | (110.6) | |
Other income (expense), net | | (3.6) | | | (17.5) | |
Total non-operating income (expense), net | | (131.3) | | | (128.1) | |
Income (loss) before income taxes | | 66.7 | | | 145.1 | |
Provision for income taxes | | 13.0 | | | 29.2 | |
Net income (loss) including noncontrolling interest | | 53.7 | | | 115.9 | |
Net income (loss) attributable to noncontrolling interest | | 0.8 | | | 1.7 | |
Net income (loss) attributable to World Kinect | | $ | 52.9 | | | $ | 114.1 | |
| | | | |
Basic earnings (loss) per common share | | $ | 0.86 | | | $ | 1.83 | |
| | | | |
Diluted earnings (loss) per common share | | $ | 0.86 | | | $ | 1.82 | |
Revenue. Our consolidated revenue for the year ended December 31, 2023 was $47.7 billion, a decrease of $11.3 billion, or 19%, compared to 2016the year ended December 31, 2022, primarily driven by lower fuel prices across all segments as well as lower volumes in our marine segment, as discussed further below.
Revenue.Gross profit. Our revenueconsolidated gross profit for 2017the year ended December 31, 2023 was $33.7$1.1 billion, a decrease of $30.8 million, or 3%, compared to the year ended December 31, 2022, attributable to decreased gross profit of $83.4 million and $76.1 million in the marine and land segments, respectively, partially offset by increased gross profit of $128.6 million in our aviation segment, as discussed further below.
Operating Expenses. Consolidated total operating expenses for the year ended December 31, 2023 were $860.2 million, an increase of $6.7 billion,$44.4 million, or 24.7%5%, as compared to 2016. Our revenuethe year ended December 31, 2022. The increase in operating expenses was primarily driven by asset impairment and restructuring charges of $32.8 million and $7.2 million during these periodsthe year ended December 31, 2023, as well as higher compensation costs in 2023, as discussed further below. See Note 5. Fair Value Measurements and Note 15. Restructuring for additional information about the restructuring initiatives and related impairments.
Non-Operating Income (Expenses), net. For the year ended December 31, 2023, we had net non-operating expense of $131.3 million, compared to net non-operating expense of $128.1 million for the year ended December 31, 2022. The increase of $3.2 million was primarily attributable to an increase in interest expense driven by higher interest rates, which was partially offset by the following segments (in millions):impact of losses recognized during the year ended December 31, 2022 related to contingent consideration associated with the sale of our Multiservice payment solutions businesses and a non-operating legal settlement.
Income Taxes. For the year ended December 31, 2023, we recognized income tax expense of $13.0 million, compared to income tax expense of $29.2 million in 2022. The decrease of $16.3 million was primarily attributable to significantly lower foreign earnings and total pre-tax earnings, partially offset by lower net discrete tax items. See Note 10. Income Taxes for additional information.
Aviation Segment Results of Operations
|
| | | | | | | | | | | |
| 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 |
|
The following provides a summary of the aviation segment results of operations for the periods indicated (in millions, except price per gallon): | | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, | | |
| | 2023 | | 2022 | | Change |
Revenue | | $ | 23,275.1 | | | $ | 26,799.9 | | | $ | (3,524.8) | |
| | | | | | |
Gross profit | | $ | 485.8 | | | $ | 357.2 | | | $ | 128.6 | |
Operating expenses | | 277.0 | | | 257.7 | | | 19.3 | |
Income (loss) from operations | | $ | 208.8 | | | $ | 99.5 | | | $ | 109.3 | |
| | | | | | |
Operational metrics: | | | | | | |
Aviation segment volumes (gallons) | | 7,328.0 | | | 7,127.6 | | | 200.4 | |
Aviation segment average price per gallon | | $ | 2.97 | | | $ | 3.61 | | | $ | (0.64) | |
Revenues in our aviation segment were $14.5$23.3 billion for the year ended 2017, an increaseDecember 31, 2023, a decrease of $3.6$3.5 billion, or 33.2% as13%, compared to 2016.the year ended December 31, 2022. The increasedecrease in aviation revenuesrevenue was driven by higherlower average jet fuel prices, per gallon sold 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 drivenpartially offset by higher volumes from foreign military-related activity 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 averageincreased volumes. Average jet fuel price per gallon sold duringdecreased by $0.64, or 18%, in the year ended 2017, where the average price per gallon sold was $1.84, asDecember 31, 2023 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 5.9December 31, 2022. Total aviation volumes increased by 0.2 billion, or 3%, to 7.3 billion gallons, an increasedriven largely by growth in passenger airline demand offset by the rationalization 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 |
|
lower-return volume.Our aviation segment gross profit for the year ended 2017December 31, 2023 was $440.5$485.8 million, an increase of $39.5$128.6 million, or 9.9%36%, as compared to 2016.the year ended December 31, 2022. The increase in aviation gross profit was dueprimarily attributable to increased activitythe non-recurrence in 2023 of the significant inventory losses arising from the extreme backwardation and price volatility experienced in 2022, our government-related business, including certain spot government supply opportunitiesfocus on improving returns in an elevated interest rate environment, and increased volumes and profitabilitygrowth at airport operated locations during the year ended December 31, 2023.
Our aviation segment income from our international fueling operations. These increases wereoperations for the year ended December 31, 2023 was $208.8 million, an increase of $109.3 million, or 110%, compared to the year ended December 31, 2022. The increase in gross profit discussed above was partially offset by lower gross profita $19.3 million increase in operating expenses primarily driven by higher headcount-related compensation costs and general and administrative expenses to support the increased level of operating activity, as well as asset impairment and restructuring charges recognized during the year ended December 31, 2023.
Land Segment Results of Operations
The following provides a summary of the land segment results of operations for the periods indicated (in millions, except price per gallon):
| | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, | | |
| | 2023 | | 2022 | | Change |
Revenue | | $ | 15,189.9 | | | $ | 19,283.7 | | | $ | (4,093.8) | |
| | | | | | |
Gross profit | | 399.8 | | | 475.9 | | | (76.1) | |
Operating expenses | | 359.7 | | | 350.3 | | | 9.4 | |
Income from operations | | $ | 40.1 | | | $ | 125.6 | | | $ | (85.5) | |
| | | | | | |
Operational metrics: | | | | | | |
Land segment volumes (gallons) (1) | | 6,237.6 | | | 6,166.2 | | | 71.4 | |
Land segment average price per gallon | | $ | 2.44 | | | $ | 3.13 | | | $ | (0.69) | |
(1)Includes gallons and gallon soldequivalents of British Thermal Units (BTU) for our natural gas sales and Kilowatt Hours (kWh) for our power business.
Revenues in our physical inventoryland segment were $15.2 billion for the year ended December 31, 2023, a decrease of $4.1 billion, or 21%, compared to the year ended December 31, 2022. The decrease in revenue was principally driven by lower average fuel prices, with average fuel prices decreasing by 22% in the year ended December 31, 2023 compared to 2022. In addition, total volumes increased by 0.1 billion, or 1%, to 6.2 billion gallon or gallon equivalents in the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily attributable to our natural gas businesses offset by extreme weather conditions experienced in our core fuel business as a result of unfavorable jet fuel price movements.in North America in early 2023.
Our land segment gross profit for the year ended 2017December 31, 2023 was $365.8$399.8 million, an increasea decrease of $17.3$76.1 million, or 5.0%16%, as compared to 2016.the year ended December 31, 2022. The increasedecrease in land segment gross profit was primarily driven byattributable to extraordinary losses associated with an erroneous bid submitted in the benefit derivedFinnish power market as discussed in Note 11. Commitments and Contingencies, extreme weather conditions experienced in our core fuel business in North America in early 2023, and lower profitability from recently acquired businesses, andour U.K. business, which benefited from significant price volatility in the first half of 2022. These decreases were partially offset by continuedimproved performance in our sustainability-related offerings and natural gas business.
Our land segment income from operations for the year ended December 31, 2023 was $40.1 million, a decrease of $85.5 million, or 68%, compared to the year ended December 31, 2022. In addition to the decrease in gross profit discussed above, the decrease in operating income was driven by an increase in operating expenses principally related to asset impairment and restructuring charges, partially offset by lower profits fromgeneral and administrative costs and incentive compensation.
Marine Segment Results of Operations
The following provides a summary of the marine segment results of operations for the periods indicated (in millions, except price per metric ton):
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | |
| | 2023 | | 2022 | | Change |
Revenue | | $ | 9,245.6 | | | $ | 12,959.6 | | | $ | (3,714.0) | |
| | | | | | |
Gross profit | | 172.6 | | | 256.0 | | | (83.4) | |
Operating expenses | | 90.4 | | | 100.5 | | | (10.2) | |
Income from operations | | $ | 82.3 | | | $ | 155.5 | | | $ | (73.2) | |
| | | | | | |
Operational metrics: | | | | | | |
Marine segment volumes (metric tons) | | 16.8 | | | 19.1 | | | (2.3) | |
Marine segment average price per metric ton | | $ | 549.64 | | | $ | 679.17 | | | $ | (129.52) | |
Revenues in our supply and trading activitiesmarine segment were $9.2 billion for the year ended December 31, 2023, a decrease of $3.7 billion, or 29%, compared to the year ended December 31, 2022. The decrease in North America.revenue was principally
driven by a decrease of 19% in the average price per metric ton of bunker fuel sold in the year ended December 31, 2023 compared to the year ended December 31, 2022. In addition, total volumes decreased by 2.3 million metric tons, or 12%, to 16.8 million metric tons in the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to reduced demand in our resale businesses.
Our marine segment gross profit for the year ended 2017December 31, 2023 was $126.0$172.6 million, a decrease of $23.5$83.4 million, or 15.7%33%, 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.
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, aDecember 31, 2022. The decrease of $143.3 million asin gross profit 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)%.
As a result of the Tax Act, we recorded an income tax charge of $157.4 million, payable over eight years, which includes the $143.7 million one-time transition tax. As we intend to use our U.S. net operating losses, we expect to only pay approximately $100.0 million over the eight-year period.
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.
2016 compared to 2015
Revenue. Our revenue for 2016 was $27.0 billion, a decrease of $3.4 billion, or 11.1%, as compared to 2015. Our revenue during these periods was attributable to the following segments (in millions):
|
| | | | | | | | | | | |
| 2016 | | 2015 | | $ Change |
Aviation segment | $ | 10,914.4 |
| | $ | 11,739.8 |
| | $ | (825.4 | ) |
Land segment | 8,918.8 |
| | 9,274.3 |
| | (355.5 | ) |
Marine segment | 7,182.5 |
| | 9,367.2 |
| | (2,184.7 | ) |
Total | $ | 27,015.8 |
| | $ | 30,381.4 |
| | $ | (3,365.6 | ) |
Revenues in our aviation segment were $10.9 billion for the year ended 2016, a decrease of $0.8 billion, or 7.0% as compared to 2015. The decline in aviation revenues was driven by lower average jet fuel prices per gallon soldexceptional results during the year ended 2016, where the average price per gallon soldDecember 31, 2022 was $1.53, as compared to $1.85 in 2015. The overall decline attributable to jetprincipally driven by increased competition resulting from lower bunker fuel prices, was partially offsettogether with softening demand driven by increased volume, where volumes for the year ended 2016 were 7.1 billion gallons, an increase of 12.4%, as compared to 2015.
Revenues in our land segment were $8.9 billion for the year ended 2016, a decrease of $0.4 billion, or 3.8%, as compared to 2015. The decline in land revenues primarily resulted from a lower average fuel price per gallon sold during the year ended 2016, where the average price per gallon sold was $1.66, as compared to $1.88 in 2015. The overall decline was partially offset by an increase in volumes from new customers and acquired businesses, where volumes for the year ended 2016 were 5.4 billion gallons, an increase of $433.2 million, or 8.8%, as compared to 2015.
Revenues in our marine segment were $7.2 billion for the year ended 2016, a decrease of $2.2 billion, or 23.3%, as compared to 2015. The decrease was driven primarily by a 20.1% declinechanges in the average price per metric ton sold, to $229.17 for the year ended 2016, as compared to $286.9 in 2015. Volumes in our marine segment for the year ended 2016 were 31.4 million metric tons, a decrease of 1.3 million metric tons or 4.0%, as compared to 2015.
Gross Profit. Our gross profit for 2016 was $899.0 million, an increase of $38.0 million, or 4.4%, as compared to 2015. Our gross profit during these periods was attributable to the following segments (in millions):
|
| | | | | | | | | | | |
| 2016 | | 2015 | | $ Change |
Aviation segment | $ | 401.0 |
| | $ | 361.9 |
| | $ | 39.1 |
|
Land segment | 348.5 |
| | 309.5 |
| | 39.0 |
|
Marine segment | 149.5 |
| | 189.6 |
| | (40.1 | ) |
Total | $ | 899.0 |
| | $ | 861.0 |
| | $ | 38.0 |
|
global macroeconomic environment.Our aviation segment gross profit for the year ended 2016 was $401.0 million, an increase of $39.1 million, or 10.8%, as compared to 2015. The increase in aviation gross profit was due to increased volume attributable to the core resale business in North America and Europe, as well as increased activity in our U.S. and foreign military-related businesses.
Our land segment gross profit for the year ended 2016 was $348.5 million, an increase of $39.0 million, or 12.6%, as compared to 2015. The increase in land segment gross profit was primarily driven by recently acquired businesses, including PAPCO, APP and acquisitions in Kinect, our global energy management services business. Increases in our land segment were partially offset by lower demand in the U.K. due to unseasonably warm weather conditions.
Our marine segment gross profit for the year ended 2016 was $149.5 million, a decrease of $40.1 million, or 21.1%, as compared to 2015. The marine segment continued to be adversely impacted by the prolonged weakness in the overall maritime industry. The lower fuel price environment combined with lower price volatility, led to decreased demand for our price risk management offerings, which contributed to lower overall unit margins.
Operating Expenses. Total operating expenses for 2016 were $710.1 million, an increase of $94.8 million, or 15.4%, as compared to 2015. The following table sets forth our expense categories (in millions):
|
| | | | | | | | | | | |
| 2016 | | 2015 | | $ Change |
Compensation and employee benefits | $ | 413.3 |
| | $ | 365.8 |
| | $ | 47.5 |
|
Provision for bad debt | 15.4 |
| | 7.5 |
| | 8.0 |
|
General and administrative | 281.4 |
| | 242.1 |
| | 39.3 |
|
Total | $ | 710.1 |
| | $ | 615.3 |
| | $ | 94.8 |
|
Of the $47.5 million increase in compensation and employee benefits, $29.4 million was due to expenses related to acquired businesses and $18.1 million was due to compensation for new hires to support our growing global business. The $39.3 million increase in general and administrative expenses was principally due to expenses related to acquired businesses.
Income from Operations. Our income from operations for 2016 was $188.9 million, a decrease of $56.8 million, or 23.1%, as compared to 2015. Income from operations during these periods was attributable to the following segments (in millions):
|
| | | | | | | | | | | |
| 2016 | | 2015 | | $ Change |
Aviation segment | $ | 160.5 |
| | $ | 132.2 |
| | $ | 28.3 |
|
Land segment | 70.8 |
| | 101.4 |
| | (30.6 | ) |
Marine segment | 30.2 |
| | 73.0 |
| | (42.7 | ) |
| 261.5 |
| | 306.5 |
| | (45.0 | ) |
Corporate overhead - unallocated | 72.7 |
| | 60.9 |
| | 11.8 |
|
Total | $ | 188.9 |
| | $ | 245.7 |
| | $ | (56.8 | ) |
Our income from operations, including unallocated corporate overhead, for the year ended 2016 was $188.9 million, a decrease of $56.8 million, or 23.1%, as compared to 2015. The decline was attributable to our marine segment and our land segment. In our marine segment income from operations for the year ended 2016December 31, 2023 was $30.2$82.3 million, a decrease of $42.7$73.2 million, or 58.6%47%, as compared to 2015. Our marine segment continued to be adversely impacted by the prolonged weakness in the overall maritime industry. The lower fuel price environment, combined with lower price volatility and to a lesser extent, increased competition, led to decreased demand for our price risk management offerings and lower overall unit margins in 2016 as compared to 2015. In addition, certain large marine customers experienced financial challenges, which created disruption and resulted in lower sales to such customers. In our land segment, income from operations for the year ended 2016 was $70.8 million, a decrease of $30.6 million, or 30.1% as compared to 2015December 31, 2022, primarily due to the higher compensation expenses and increased amortization expenses related to acquired businesses. The declinesdecrease in our income from operations in our marine and land segments weregross profit, partially offset by increasesa $10.2 million decrease in our aviation segment of $28.3 million, or 21.4%, where our aviation segment benefited from increased volume attributable to our core resale business in North America and Europe, and increased activity in our U.S. and foreign military-related businesses.
Non-Operating Expenses, net. We had non-operatingoperating expenses, net of $46.7 million and $27.9 million, for the year ended 2016 and 2015, respectively. Increased debtlargely driven by lower incentive compensation costs of $8.8 million resulted from higher average borrowings in 2016 as compared to 2015. Also, in connection with the December 2016 bankruptcy filing of our former joint venture partner, we wrote off approximately $7.5 million of outstanding amounts owed to us, during the three months ended December 31, 2016. These expenses were offset by a $4.4 million positive change related to foreign currency exchange during 2016 as compared to 2015.2022.
Income Taxes. For the year ended 2016, our effective income tax rate was 11.0% and our income tax provision was $15.7 million, as compared to an effective income tax rate of 21.7% and an income tax provision of $47.2 million in 2015. The lower effective income tax rate for 2016, as compared to 2015, resulted principally from differences in the results of our subsidiaries in tax jurisdictions with different income tax rates.
Net Income and Diluted Earnings per Common Share. Our net income for the year ended 2016 was $126.5 million, a decrease of $48.0 million, or 27.5%, as compared to 2015. Diluted earnings per common share for the year ended 2016 was $1.81 per common share, a decrease of $0.66 per common share, or 26.7%, as compared to 2015.
Liquidity and Capital Resources
Cash Flows
The following table reflects the major categories of cash flows for 2017, 2016 and 2015. For additional details, please see the consolidated statements of cash flows in the consolidated financial statements.
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Net cash provided by operating activities | $ | 205.2 |
| | $ | 205.2 |
| | $ | 447.5 |
|
Net cash used in investing activities | (180.1 | ) | | (428.5 | ) | | (144.8 | ) |
Net cash provided by financing activities | (361.6 | ) | | 340.9 |
| | (17.0 | ) |
2017 compared to 2016
Operating Activities. Net cash provided by operating activities was $205.2 million in each 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.
2016 compared to 2015
Operating Activities. For 2016, net cash provided by operating activities was $205.2 million as compared to $447.5 million for 2015. The $242.2 million decrease in operating cash flows was primarily due to year-over-year changes in assets and liabilities, net of acquisitions. Cash flows from changes in inventory resulted in a cash use of $130.9 million in 2016 as compared to 2015, primarily as a result of additional inventory in support of overall volume increases, specifically in our aviation and land segments. Additionally, cash flows from net accounts receivable and accounts payable balances, decreased $86.9 million primarilyLiquidity to fund the working capital, needs of the aviation fueling business acquired. In 2016, changes in short-term derivative assets provided cash of 163.7 million as compared to $81.5 million in 2015. This $82.3 million positive cash flow change was offset by a $43.3 million negative cash flow change in short-term derivative liabilities, reported within accrued expenses and other current liabilities, both of which primarily related to a decline in fuel prices.
Investing Activities. For 2016, net cash used in investing activities was $428.5 millionwell as compared to $144.8 million for 2015. The $283.7 million increase in cash used in investing activities was principally due to a increase in the cash used for the acquisition of businesses in 2016 as compared to 2015.
Financing Activities. For 2016, net cash provided by financing activities was $340.9 million as compared to net cash used in financing activities of $17.0 million for 2015. The $357.9 million change was principally due to a $328.4 millionincrease in net borrowing under our credit facility in 2016 as compared to 2015.
Other Liquidity Measures
Cash and Cash Equivalents. As of December 31, 2017 and 2016, we had cash and cash equivalents of $372.3 million and $698.6 million, respectively. Our primary uses of cash and cash equivalents are to make strategic investments primarily acquisitions,to further our growth strategy, is a significant priority for us. Our views concerning liquidity are based on currently available information and to purchase inventory. We are provided unsecuredif circumstances change significantly, the future availability of trade credit by nearly allor other sources of financing may be reduced, and our suppliers for our fuel purchases; however, a small numberliquidity would be adversely affected accordingly.
Sources 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 FacilityLiquidity and Term Loans. As of December 31, 2017, our Credit Facility permitted us to borrow up to $1.26 billion, with a sublimit of $400.0 million for the issuance of letters of credit and bankers' acceptances. We had outstanding borrowings under our Credit Facility totaling $60.0 million as of December 31, 2017 compared to $325.2 million as of December 31, 2016.Factors Impacting Our issued letters of credit under the Credit Facility totaled $8.6 million as of December 31, 2017 compared to $8.3 million as of December 31, 2016. We also had $835.8 million in Term Loans outstanding as of December 31, 2017 compared to $840.0 million as of December 31, 2016. As of December 31, 2017, the unused portion of our Credit Facility was $1,191.4 million compared to $926.5 million, as of December 31, 2016. 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, 2017, the applicable margins for base rate loans and Eurodollar rate loans were 1.50% and 2.50%, respectively. Letters of credit issued under our Credit Facility are subject to letter of
credit fees of 0.25% as of December 31, 2017, and the unused portion of our Credit Facility is subject to commitment fees of 0.35% as of December 31, 2017.
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 approximately $1.16 billion. The Credit Facility continues to have a sublimit of $400.0 million for the issuance of letters of credit and bankers' acceptances and 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.Liquidity
Our liquidity, consisting principally of cash and cash equivalents and availability under theour Credit Facility, fluctuates based on a number of factors, including the timing of receipts from our customers and payments to our suppliers, changes in fuel prices, as well as commodity prices. Availability underour financial performance.
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 any persistent weakness in global energy markets may adversely affect our ability to access capital and credit markets or to obtain funds at reasonable interest rates or on other advantageous terms. In addition, since our business is impacted by the availability of trade credit to fund fuel purchases, an actual or perceived decline in our liquidity or business generally could cause our suppliers to reduce our credit lines, seek credit support in the form of additional collateral or otherwise materially modify our payment terms.
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. Furthermore, when fuel prices increase our working capital requirements increase and our own credit limits could prevent us from purchasing enough fuel from our suppliers to meet our customers’ demands, or we could be required to prepay for fuel purchases, any of 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 can occur due to many factors, such as reduced demand for our price risk management products and decreased sales to our customers involved in the oil exploration sector. 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.
Based on the information currently available, we believe that our cash and cash equivalents as of December 31, 2023 and available funds from our Credit Facility, as described below, together with cash flows generated by operations, are sufficient to fund our working capital and capital expenditure requirements for at least the next twelve months.
Convertible Notes. On June 26, 2023, we issued $350.0 million aggregate principal amount of 3.250% Convertible Senior Notes due 2028 (the "Convertible Notes"), which reflects the exercise in full of an option to purchase up to an additional $50.0 million in principal amount of the Convertible Notes. The Convertible Notes mature on July 1, 2028, unless earlier converted, redeemed or repurchased. The Convertible Notes are senior, unsecured obligations that bear interest at a rate of 3.250% per year, payable semiannually in arrears on January 1 and July 1 of each year, beginning on January 1, 2024. The initial conversion rate was 35.1710 shares of common stock per $1,000 principal amount of Convertible Notes, which is principallyequivalent to an initial conversion price of approximately $28.43 per share. The conversion rate will be subject to adjustment upon the occurrence of certain events but will not be adjusted for
accrued and unpaid interest. Upon conversion, the Convertible Notes will be settled in cash up to the aggregate principal amount of the Convertible Notes to be converted, and in cash, shares of common stock or any combination thereof, at our option, in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount.
In connection with the pricing of the Convertible Notes, we entered into convertible note hedge transactions and warrant transactions. The cost of the convertible note hedge transactions was approximately $70.5 million. The convertible note hedge transactions cover, subject to customary anti-dilution adjustments, the number of shares of common stock that initially underlie the Convertible Notes, and have an initial strike price equal to the initial conversion price of the Convertible Notes. Separately, we received $40.0 million of proceeds from the sale of warrants to acquire, subject to anti-dilution adjustments, the same amount of shares at an initial strike price of $40.14 per share. As a result, dilution upon conversion of the Convertible Notes will be mitigated as the bond hedge and warrant transactions increase the effective conversion price of the Convertible Notes to $40.14 per share.
The net proceeds from the sale of the Convertible Notes was approximately $337.5 million after deducting the initial purchasers’ discounts and estimated offering expenses payable by us. We used the net proceeds from the sale of the Convertible Notes (i) to pay the cost of the convertible note hedge transactions net of the proceeds from the sale of the warrants), (ii) to repurchase approximately 2.24 million shares of common stock from purchasers of the Convertible Notes for an aggregate purchase price of approximately $50.0 million and (iii) to repay the amounts outstanding under our revolving credit facility.
See Note 7. Debt, Interest Income, Expense, and Other Finance Costs for additional information.
Credit Agreement. The Fourth Amended and Restated Credit Agreement (as amended, the "Credit Agreement"), matures in April 2027 and provides for a term loan as well as a revolving credit facility of $1.5 billion (the "Credit Facility"). Our availability under the Credit Facility is limited by, theamong other things, our consolidated total leverage ratio, of adjusted total debt to adjusted EBITDA, aswhich is defined in the agreement, whichCredit Agreement and is based, in part, on our consolidated earnings before interest, taxes, depreciation and amortization, and share-based compensation, with such adjustments as specified therein, for the four immediately preceding fiscal quarters. The Credit Agreement generally limits the total amount of indebtedness we may incur to a consolidated total leverage ratio of not more than 3.54.75 to 1. Accordingly,
As a result of the foregoing, as well as other covenants and restrictions contained in our Credit Agreement, our availability under the Credit Facility may fluctuate from period to period.
Our Credit Facility and In addition, 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 LoansAgreement 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,term loan, trigger cross‑defaultscross-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, 2017, we were in compliance with all financialSee Note 7. Debt, Interest Income, Expense, and other covenants contained in our Credit Facility and our Term Loans.Other Finance Costs for additional information.
Other Credit Lines and Receivables Purchase Agreements. Lines.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, 20172023 and December 31, 2016,2022, our outstanding letters of credit and bank guarantees under these credit lines totaled $272.0$437.1 million and $176.5$523.1 million, respectively.
Receivables Purchase Agreements. We also have Receivables Purchase Agreements (“RPAs”)accounts receivable programs under RPAs that allow us to sell a specified amount of qualifying accounts receivable and receive cash consideration equal to the total balance, less an associated fee, which varies based on the outstanding accounts receivable at any given time. The RPAs provide the constituent banks with the ability to add or remove customers from these programs in their discretion based on, among other things, the level of risk exposure the bank is willing to accept with respect to any particular customer. The fees the banks charge us to purchase the receivables from these customers can also be impacted for the salethese reasons. During 2023, we amended one of our accounts receivable. We had sold accounts receivableRPAs to, among other things, reduce the overall fee structure. See Note 2. Accounts Receivable for additional information.
See Item 1A. – Risk Factors in Part 1 within this 2023 10-K Report for additional information.
Future Uses of $377.3 millionLiquidity
Cash is primarily used to fund working capital to support our operations as well as for strategic acquisitions and $235.5 million underinvestments, such as the RPAs, asacquisition of December 31, 2017 and 2016, respectively.Flyers discussed below.
Short-Term Debt. As of December 31, 2017,2023, our short-term debt of $25.6 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.
ERP. We previously committed to undertake a multi-year project designed to drive greater improvement in operating efficiencies and optimize scalability, particularly when integrating future acquisitions. We planned to accomplish this in part by a global design and deployment of an upgrade to our existing ERP platform. We made certain provider determinations and completed design phases of the upgrade, and the overall costs incurred to date have not been material. Our digital transformation is predicated on bringing agility to business teams and driving improved operational performance through technology solutions. In connection with our recently announced restructuring plan, the organizational structure will be assessed and the ultimate solutions deployed by us will be geared towards facilitating an optimized and collaborative workforce, coupled with an exceptional experience to our customers and suppliers. These restructuring activities may have a material impact on our timing and overall expected cost of the project. If we fail to successfully implement the upgrade to our existing ERP platform, or other technology platforms we decide upon, or should we experience material delays, or fail to properly manage the project, our ability to grow our business could be adversely affected. Estimating the expected expenditures related to these activities is highly complex and is subject to variables that can materially change our costs. Should the actual costs exceed our estimates, our liquidity and results of operations could be adversely affected.
We believe that our cash and cash equivalents as of December 31, 2017 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.
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 2017 10‑K Report.were as follows (in millions):
Contractual Obligations | | | | | | | | | | | | | | | | | |
| Current | | Long-Term | | Total |
Debt and interest obligations (1) | $ | 114.9 | | | $ | 893.3 | | | $ | 1,008.2 | |
Operating lease obligations (2) | 39.4 | | | 188.8 | | | 228.2 | |
Finance lease obligations (2) | 3.7 | | | 13.1 | | | 16.8 | |
Derivatives obligations (3) | 128.2 | | | 51.5 | | | 179.7 | |
Purchase commitment obligations (4) | 363.8 | | | 184.9 | | | 548.7 | |
Other obligations | 1.5 | | | 6.9 | | | 8.4 | |
Total | $ | 651.5 | | | $ | 1,338.5 | | | $ | 1,990.0 | |
(1)Debt and Interest Obligations. Theseinterest obligations include principal and interest payments on fixed‑ratefixed-rate and variable‑rate, fixed‑termvariable-rate, fixed-term debt based on their maturity dates, and includes $53.6 million of secured borrowings related to the expected payment dates.transfer of tax receivables. See Note 7. Debt, Interest Income, Expense, and Other Finance Costs for additional information.
Other Obligations.(2)We enter into lease arrangements for the use of offices, operational facilities, vehicles, vessels, storage tanks and other assets for our operations around the world. See Note 13. Leases for additional information.
(3)As part of our risk management program, we enter into derivative instruments intended to mitigate risks associated with changes in commodity prices, foreign currency exchange rates, and interest rates. Our obligations associated with these derivative instruments fluctuate based on changes in the fair value of the derivatives. See Note 4. Derivative Instruments and Note 5. Fair Value Measurements for additional information.
(4)We have fixed purchase commitments associated with our risk management program, as well as a purchase contract, that runs through 2026, under which we agreed to purchase annually between 1.9 million barrels and 2.0 million barrels of aviation fuel at future market prices. See Note 11. Commitments and Contingencies for additional information.
Future material cash requirements and off-balance sheet arrangements, in addition to the contractual obligations in the table above, include the following:
Acquisition of Flyers. These obligations primarily consistDuring the year ended December 31, 2022, we completed the acquisition of deferred compensation arrangements.Flyers as discussed in Note 3. Acquisitions. In January 2024, $49.8 million of the $50.0 million that remained due as of December 31, 2023 was paid to the seller.
Capital Expenditures. During the year ended December 31, 2023, we incurred capital expenditures in the ordinary course of business of approximately $87.6 million. In 2024, we expect our capital expenditures to be generally consistent with the year ended December 31, 2023.
Unrecognized Income Tax Liabilities.As of December 31, 2017, our2023, we have recorded gross liabilities for unrecognized income tax benefits (“("Unrecognized Tax Liabilities”Liabilities"), including penalties and interest, were $72.6of $106.4 million. The timing of any settlement of our Unrecognized Tax Liabilities with the respective taxing authority cannot be reasonably estimated.
As of December 31, 2017, our contractual obligations were as follows (in millions):
|
| | | | | | | | | | | | | | | | | | | |
| Total | | < 1 year | | 1-3 years | | 3-5 years | | > 5 years |
Debt and interest obligations | $ | 1,011.0 |
| | $ | 51.8 |
| | $ | 147.2 |
| | $ | 809.9 |
| | $ | 2.0 |
|
Operating lease obligations | 165.2 |
| | 39.7 |
| | 56.7 |
| | 36.4 |
| | 32.4 |
|
Employment agreement obligations | 0.9 |
| | 0.9 |
| | — |
| | — |
| | — |
|
Derivatives obligations | 64.2 |
| | 57.6 |
| | 6.7 |
| | — |
| | — |
|
Purchase commitment obligations | 516.4 |
| | 502.2 |
| | 14.2 |
| | — |
| | — |
|
Other obligations | 20.9 |
| | 10.2 |
| | 9.0 |
| | 1.3 |
| | 0.5 |
|
Total | $ | 1,842.8 |
| | $ | 719.9 |
| | $ | 240.4 |
| | $ | 847.6 |
| | $ | 34.9 |
|
Additionally, we have certain purchase contracts, that run through 2026, under which we agreed to purchase annually between 1.72 million barrels and 2.00 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, 2017,2023, we had issued letters of credit and bank guarantees totaling $280.6$575.2 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 in order to satisfy various security requirements of $44.6$71.9 million as of December 31, 2017.2023.
Cash Flows
The following table reflects the major categories of cash flows (in millions). For additional details, please see the Consolidated Statements of Cash Flows.
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| For the Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
Net cash provided by (used in) operating activities | $ | 271.3 | | | $ | 138.5 | | | $ | 173.2 | |
Net cash provided by (used in) investing activities | (101.1) | | | (724.9) | | | (58.3) | |
Net cash provided by (used in) financing activities | (152.4) | | | 237.3 | | | (113.6) | |
Operating Activities. For the year ended December, 31 2023, net cash provided by operating activities was $271.3 million, compared to $138.5 million net cash provided during the year ended December 31, 2022. The $132.9 million increase in operating cash flows was principally due to lower average fuel prices compared to the prior year, which reduced our cost of inventory; the decrease of our accounts receivable and accounts payable largely driven by the rationalization of lower-return business within our aviation segment and the reduction of average fuel prices; and cash provided by our derivative activities. These increases were offset by a decrease in our net income (see "Results of Operations" for further details of the drivers impacting our net income) adjusted for noncash items, lower utilization of our RPA programs, as discussed under "Sources of Liquidity and Factors Impacting Our Liquidity" above, as well as a decrease in customer prepayments.
Investing Activities. For the year ended December 31, 2023, net cash used in investing activities was $101.1 million, compared to net cash used of $724.9 million during the year ended December 31, 2022. The net cash used in investing activities in 2023 was primarily driven by capital expenditures of $87.6 million and cash paid for the acquisition of a business of $13.7 million, which was partially offset by proceeds received from the sale of a business of $9.3 million. Net cash used in investing activities in 2022 was principally driven by $643.9 million net cash paid for the acquisition of businesses, principally Flyers, as discussed in Note 3. Acquisitions, and $78.6 million for capital expenditures.
Financing Activities. For the year ended December 31, 2023, net cash used in financing activities was $152.4 million compared to net cash provided of $237.3 million for the year ended December 31, 2022. The net cash used in financing activities in 2023 was primarily attributable to payments of deferred consideration related to prior acquisitions of $62.9 million and repurchases of common stock of $60.1 million and dividend payments of $34.0 million, partially offset by net borrowings of $47.4 million The net borrowings of $47.4 million were primarily driven by $350.0 million proceeds from the issuance of the Convertible Notes and $53.3 million proceeds from secured borrowings associated with the transfer of transaction taxes, as discussed in Note 7. Debt, Interest Income, Expense, and Other Finance Costs, partially offset by $348.4 million of net repayments under our Credit Facility. In connection with the issuance of the Convertible Notes, we paid $70.5 million for the purchase of the convertible note hedges and $12.6 million for debt issuance costs, and received $40.0 million from the sale of warrants. Net cash provided by financing activities in 2022 was primarily attributable to net borrowings of $333.6 million, primarily driven by incremental borrowings under our Credit Facility related to the acquisition of Flyers and increased working capital requirements, partially offset by $48.7 million in purchases of our common stock, dividend payments of $31.0 million, and payments for deferred consideration related to prior acquisitions of $12.0 million.
Critical Accounting Policies and Estimates
TheManagement's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statementsConsolidated Financial Statements included elsewhere in this 20172023 10‑K Report, which havehas 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 relatedassociated costs of sales, bad debt,allowance for credit losses, goodwill and identifiable intangiblelong-lived 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 policiesareas described below as critical to our business operations and the understanding of our results of operations.operations given the uncertainties associated with the assumptions underlying each estimate. 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 2017 10-K Report.
Accounts Receivable and Allowance for Bad Debt
Our accounts receivables credit terms are generally 30-60 days. Accounts receivable balances that are not paid within the terms1. Basis of the sales agreement are generally subject to finance fees, based on the outstanding balance. 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 credit limits and approving limits above previously approved amounts, and 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. We extend credit on an unsecured basis to most of our customers. Accounts receivable are deemed past due based on contractual terms agreed to with our customers. 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. Write-offs for the year ended December 31, 2017 did not have a material impact on our consolidated statement of operations.
We continuously monitor the composition of accounts receivable, collections and payments from our customers and maintain a provision for estimated credit losses based upon our historical experience with our customers, current market and industry conditions affecting our customers and any specific customer collection issues that we have identified. Principally based on these factors, an internally derived risk-based reserve is established on a quarterly basis. In addition to a risk-based reserve, a specific reserve is established for certain customers, based on customer receivable balances, overall exposure, payment history, current and expected market conditions, business developments, and other factors that influence the likelihood of collectability.
Historical payment trends may not be an accurate indicator of current or future credit worthiness 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 estimated credit losses would have 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 2017 10‑K Report.
Inventories
Inventories are valued primarily using weighted average cost, and first-in first-out in certain limited locations, and are stated at the lower of average cost and net realizable value. We utilize a variety of fuel indices and other indicators of market value. Sharp negative changes in these indices can result in 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. Historically, these adjustments have not had 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
We account for business combinations using the acquisition method of accounting, under which the purchase price of the acquisition is allocated to the assets acquired and liabilities assumed using the fair values determined by management as of the acquisition date. We calculate the fair value based on the present value of estimated future cash flows. 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 a material adverse change in the markets where we operate, similar to the current conditions within the shipping and offshore markets, limited market volatility, which adversely impact our supply and trading activities, among others.
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 the market approach we use a selection of global companies that correspond to each reporting unit to derive a market-based multiple. Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. The estimated future cash flows are based on the best information available to us at the time, including our annual operating plan, which is completed annually during the fourth quarter and is approved by our Board of Directors. Our estimates are considered supportable assumptions that we believe are reasonable based on information available to us at that time, and are based on a number of factors including industry experience, internal benchmarks and the economic environment. Our cash flow estimates are discounted using rates that correspond to a weighted-average cost of capital consistent with those used internally for investment decisions.
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. If we are required to impair all or a substantial amount of the goodwill attributable to one or more of our reporting units, our financial results of operations and financial condition could be adversely affected.
In connection with our acquisitions, we record identifiable intangible assets at fair value. The determination of the fair values of our identifiable intangible assets involves a significant amount of forecasting and other assumptions associated with recently acquired businesses for which we may not have as much historical information or trend data as we would for our existing businesses. Identifiable intangible assets subject to amortization are amortized over their estimated useful lives and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We assess identifiable intangible assets not subject to amortization during the fourth quarter of each year for potential impairment. Our impairment analysis of our intangible assets not subject to amortization (primarily trademarks and/or trade names) generally involves the use of qualitative and quantitative analyses to estimate whether the estimated future cash flows generated as a result of these assets will be greater than or equal to the carrying value assigned to such assets.
Revenue Recognition
We execute contracts with customers through a variety of methods including by executing a master supply or blanket sales agreement combined with a purchase order or delivery ticket, stand-alone contracts, or through spot transactions where fuel is delivered for immediate settlement. Our contracts primarily require us to deliver fuel and fuel-related products, while other arrangements require us to complete agreed-upon services. Our contracts may contain fixed or variable pricing or some combination of those.
The majority of our consolidated revenues are generated through the sale of fuel and fuel-related products. Revenue from the sale of fuel is recognized when delivery is made to our customers and title has passed, the sales price is determinable and collectability is reasonably assured.
Our fuel sales are generated as a fuel reseller as well as from inventory supply. When acting as a fuel reseller, we generally purchase fuel from the supplier, and contemporaneously resell the fuel to the customer, normally taking delivery for purchased fuel at the same place and time as the delivery is made to the customer.
Revenue from services, including energy procurement advisory services and international trip planning support, and transaction and payment management processing, are recognized over the contract period when services have been performed and we have the right to invoice for those services.
We record fuel sales and services on a gross basis as we generally take inventory risk, have latitude in establishing the sales price, have discretion in the supplier selection, maintain credit risk and are the primary obligor in the sales arrangement.
Whether the services have been performed and when title and risk of loss passes to the customer are the factors we take into consideration in deciding when to recognize revenue. These factors are readily determinable and consistently applied throughout our business. Therefore, we generally have not needed to make material estimates or assumptions with respect to revenue recognition.
Income Taxes
On December 22, 2017, the U.S. President signed into law the Tax Act. This legislation will significantly change 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, 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. The legislation is unclear in certain respects and will require 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 continue to evaluate this provision of the Tax Act and the application of ASC 740, Income Taxes. Under US GAAP, we are allowed to make an accounting policy choice of either (1) treating taxes due on future US GILTI inclusions as a current period expense when incurred (the "period cost method") or (2) factoring such amounts into our measurement of our deferred taxes (the "deferred method"). Our selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing our global income and our global structure to determine whether we expect to have future U.S. inclusions in taxable income related to GILTI and the impacts thereof. We are currently analyzing this provision and have not made any adjustment related to potential GILTI tax in our financial statements and have not made a policy decision regarding whether to record deferred tax on GILTI since a reasonable amount cannot be determined.
The changes included in the Tax Act are broad and complex. The final transition impacts of the Tax Act may differ from those recorded as of December 31, 2017, possibly materially, due in part to changes in interpretations of the Tax Act, any legislative action to address questions that arise as a result of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any other updates to current tax estimates that may be required. In accordance with Staff Accounting Bulletin No. 118 regarding the application of ASC Topic 740, Income Taxes, we anticipate that we will finalize our provisional estimates and determine the impact of any potential deferred tax related to GILTI during the measurement period and will reflect any necessary changes to those estimates in subsequent periods. Any material revisions in our computations could adversely affect our financial condition, results of operations and cash flows.
Recent Accounting Pronouncements
Information regarding accounting standards adopted during 2017 is included in Note 1 to the accompanying consolidated financial statements included in this 2017 10‑K Report.
Recently IssuedPresentation, New Accounting Standards, and Significant Accounting Policies.
In preparation for adoption, we initially developed a cross-functional team and utilized a third-party service provider to assist us throughout our evaluation. In addition, we factored in the adoption into our ongoing enterprise resource planning platform upgrade, which we previously committed to perform.
We have completed our review of a representative sample of contracts across each of our revenue streams. Through this process, we have made determinations on how our revenue streams will be accounted for after adoption, concluding that we will have similar performance obligations and timing of revenue recognition under ASC 606, as compared to those prior to adoption.
As a result of completing these activities, we have prepared and made accessible internally our revenue recognition policy, which captures those decisions. We conducted an initial training that was distributed to our finance and accounting organization and we are in the process of training our commercial and operational teams on the relevant facets of our revenue recognition policy. We execute contracts with customers through a variety of methods including by executing a master supply or blanket sales agreement combined with a purchase order, stand-alone contracts, or through spot transactions where fuel is delivered for immediate settlement. An important aspect of adoption is the design of our contract management review process and its impact on the control environment. The ongoing training activities will also serve as a platform to communicate certain process changes associated with our contract review process.
We have selected the modified retrospective adoption approach, and there is no cumulative adjustment that would impact our financial statements materially. We anticipate certain disclosure changes, specifically as it relates to the financial statement line items where certain costs are recorded. Accordingly, the adoption of the new standard will not have a material impact on our financial statements after adoption.
Leases (Topic 842). In February 2016, ASU 2016-02, Leases, was issued. This standard will require all lessees to recognize a right of use asset and a lease liability on the balance sheet, except for leases with durations that are less than twelve months. This standard is effective at the beginning of our 2019 fiscal year. We are currently evaluating whether the adoption of this new guidance will have a material impact on our consolidated financial statements and related disclosures.
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. In August 2016 ASU 2016-15 was issued. The ASU provides guidance on classification of eight specific cash flows items. This standard is effective at the beginning of our 2018 fiscal year. We do not believe the adoption of this new guidance will have a material impact on our consolidated financial statements and related disclosures.
Business Combinations (Topic 805): Clarifying the Definition of a Business. In January 2017, ASU 2017-01 was issued. The update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. This standard is effective at the beginning of our 2018 fiscal year. We do not believe the adoption of this new guidance will have a material impact on our consolidated financial statements and related disclosures.
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. In August 2017, ASU 2017-12 was issued. The ASU is targeted at simplifying the application of hedge accounting and is effective at the beginning of our 2019 fiscal year. The amended guidance aims at aligning the recognition and presentation of the effects of hedge instruments and hedge items. We are currently evaluating whether the adoption of this new guidance will have a material impact on our consolidated financial statements and related disclosures.
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Description | | Judgments and Uncertainties | | Effect if Actual Results Differ from Assumptions |
Impairment Assessments of Goodwill, Long-Lived Assets, and Equity Investments |
We evaluate goodwill for impairment at least annually, and whenever events or changes in circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. We periodically evaluate whether the carrying value of long-lived assets (property and equipment, identifiable intangible assets, and leases), cost method investments, and equity method investments have been impaired when circumstances indicate the carrying value of those assets may not be recoverable. | | These assessments require us to make accounting estimates that require consideration of forecasted financial information. Significant judgment is involved in performing these estimates as they are developed based on forecasted assumptions. As of December 31, 2023, the assumptions used, particularly the expected growth rates, the profitability embedded in the projected cash flow provided by our legacy and newly acquired businesses, the discount rate and the market-based multiples, were defined on available information considering current market volatility and geopolitical risks. Specifically for goodwill, management also considered the volatility in the company's market capitalization and evaluated the potential impact that this volatility may have had on the estimated fair value of our reporting units. For our cost and equity method investments, the profitability embedded in the projected cash flows provided by our investees are a critical estimate. | | Based on the assessments performed, and supported by the available information as of December 31, 2023, we concluded that the fair value of our land and aviation reporting units were not less than their respective carrying values, however we concluded that the carrying value of certain of our long-lived assets and equity investments were not recoverable. See Note 5. Fair Value Measurements and Note 15. Restructuring for additional information regarding impairment charges recognized during the year ended December 31, 2023.
If our results differ significantly from our assumptions, such impact could potentially result in additional impairments. |
Accounts Receivable and Allowance for Credit Losses |
We maintain a provision for estimated credit losses based upon our historical experience with our customers, any specific customer collection issues that we have identified from current financial information and business prospects, as well as forward-looking information from market sources. | | We consider historical payment trends of our customers together with internal and external information about the economic outlook, geopolitical risks and macroeconomic events, which may not fully capture the current or future creditworthiness of our customers, particularly in difficult economic periods. | | As a result of the challenges inherent in estimating which customers are less likely to remit amounts owed to us, our provision for estimated credit losses may not always be sufficient. Any write-off of accounts receivable in excess of our provision for credit losses could adversely affect our results of operations and cash flow. |
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Description | | Judgments and Uncertainties | | Effect if Actual Results Differ from Assumptions |
Business Combinations |
A business combination occurs when an entity obtains control of a "business." To conclude if the definition of a business is met, we assess whether or not substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, which requires the use of significant judgment to determine the fair value. The determination of whether the acquired activities and assets constitute a business is critical because the accounting for a business combination differs significantly from that of an asset acquisition. Business combinations are accounted for using a fair value model. In contrast, asset acquisitions are accounted for using a cost accumulation and allocation model. | | Significant judgment is involved in the determination of fair values in the context of acquisitions, such as the acquisition of Flyers during the year ended December 31, 2022, as fair values are generally developed based on forecasted assumptions. The assumptions and inputs incorporated within the fair value estimates are subject to considerable management judgement and are based on industry, market, and economic conditions prevalent at the time of the acquisition. Significant inputs incorporated in the determination of fair values, including customer relationships valued using an income approach, include the discount rate determined using a market-based weighted average cost of capital, expected growth rates, and profitability and risks embedded in the newly acquired activities, including customer attrition rates. | | If assumptions used to estimate fair values are materially different, future earnings through depreciation and amortization expense could be impacted. In addition, if forecasts supporting the valuation of the long-lived assets, including intangibles, or goodwill are not achieved, impairments could arise. |
Revenue Recognition |
The majority of our consolidated revenues are generated through the sale of fuel and fuel-related products. We generally recognize fuel sales on a gross basis as we have control of the products before they are delivered to our customers. | | In drawing this conclusion, we consider various factors, including inventory risk management, latitude in establishing the sales price, discretion in the supplier selection and that we are normally the primary obligor in our sales arrangements. | | Our determination of whether to recognize revenue on a gross or net basis can materially impact the amount of revenue we report. |
Income Taxes |
We estimate total income tax expense based on statutory tax rates and tax planning opportunities available to us in various jurisdictions in which we operate. Deferred income taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting using tax rates in effect for the years in which the differences are expected to reverse. Valuation allowances are recorded when it is likely a tax benefit will not be realized for a deferred tax asset. We record unrecognized tax benefit liabilities for known or anticipated tax issues based on our analysis of whether, and the extent to which, additional taxes will be due. | | Changes in tax laws and rates could affect recorded deferred tax assets and liabilities in the future. Changes in projected future earnings could affect the recorded valuation allowances in the future. Our calculations related to income taxes contain uncertainties due to judgment used to calculate tax liabilities in the application of complex tax regulations across the tax jurisdictions where we operate. Our analysis of unrecognized tax benefits contains uncertainties based on judgment used to apply the more likely than not recognition and measurement thresholds. | | Due to the complexity of some of these uncertainties, the ultimate resolution of our tax related balances or valuation allowances may result in a payment that is materially different from the current estimate of the tax liabilities. To the extent we prevail in matters for which unrecognized tax benefit liabilities have been established, or are required to pay amounts in excess of our recorded unrecognized tax benefit liabilities, our effective tax rate in a given financial statement period could be materially affected. |
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Description | | Judgments and Uncertainties | | Effect if Actual Results Differ from Assumptions |
Derivatives |
We enter into financial derivative contracts to mitigate our risk of fuel market price fluctuations in aviation, land, and marine as well as changes in interest and foreign currency exchange rates and also to offer our customers fuel pricing alternatives to meet their needs. These instruments may be designated as cash flow or fair value hedges, or accounted for as non-designated derivatives. All derivative instruments are measured and recorded at fair value.
We also assess convertible notes and other related contracts to determine if those contracts or embedded components of those contracts meet the definition of a derivative that require separate accounting. | | When available, quoted market prices or prices obtained through external sources are used to determine a contract's fair value. For contracts for which quoted market prices are not available, fair value is determined based on pricing models developed primarily from historical information and the expected relationship with quoted market prices. Measurement of the fair value of our derivatives also requires the assessment of certain risks related to non-performance, which requires a significant amount of judgment.
Significant judgment is involved in assessing if the contracts are indexed to our own stock and if the contracts shall be classified as equity or liabilities in our statement of financial position.
| | While we currently believe that our derivative contracts will be effective in mitigating the associated price risks, it is possible that our derivative instruments will be ineffective at mitigating material changes in prices, which could have an adverse impact on our financial position and results of operations. If our estimates of fair value are inaccurate, we may be exposed to losses or gains that could be material. If contracts indexed to our own stock are derivatives or contain embedded derivatives, they would be classified as a liability and remeasured to fair value through net income impacting future earnings. See Item 7A. – Quantitative and Qualitative Disclosures About Market Risks for additional information. |
Item 7A. Quantitativeand Qualitative Disclosures About Market Risk
Derivative and Financial Instruments Market Risk
We use commodity-based derivative contracts and financial instruments, when we deem it appropriate, to manage the risks associated with changes in the prices of fuel and fuel-related products, fluctuations in foreign currency exchange rates and interest rates, or to capture market opportunities. We utilize hedge accounting and formally designate certain of our derivative instruments as either cash flow or fair value hedges. Derivative instruments that are not designated are considered non-designated hedges and are designed to achieve an economic offset of the underlying price risk exposure. Financial instruments and positions affecting our financial statements are described below and are held primarily for hedging purposes. As a result, any changes in income associated with our derivatives contracts are substantially offset by corresponding changes in the value of the underlying risk being mitigated. However, in markets where the derivative instruments with longer maturities are automatically replaced by equivalent positions with shorter maturities, we may experience timing differences between the realized and unrealized gain or loss of the underlying transaction and hedged item although the underlying risk being mitigated is still offset. Financial instruments and positions affecting our financial statements are described below and are held primarily for hedging purposes.
Commodity Price Risk
Our commercial business segments use derivative instruments, primarily futures, forward, swap, and optionoptions contracts, in various markets to manage price risk inherent in the purchase and sale of fuel. Certain of these derivative instruments are utilized to mitigate the risk of price volatility in forecasted transactions in a cash flow hedge relationship and to mitigate the risk of changes in the price of our inventory in a fair value hedge relationship. In addition, we use derivatives as economic hedges or to optimize the value of our fuel inventory to capitalize on anticipated market opportunities. As
The notional and fair market values of our commodity-based derivative instruments positioninstrument positions were as follows (in millions, except weighted average contract price):
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| | | | | | As of December 31, |
Commodity Contracts (In millions of BBL) | | 2023 | | 2022 |
Hedge Strategy | | Derivative Instrument | | Settlement Period | | Notional Net Long/ (Short) | | Weighted Average Contract Price | | Fair Value Amount | | Notional Net Long/ (Short) | | Weighted Average Contract Price | | Fair Value Amount |
Designated hedge | | Commodity contracts hedging inventory | | 2023 | | — | | | $ | — | | | $ | — | | | (0.7) | | | $ | 102.63 | | | $ | (3.3) | |
| | | | 2024 | | (0.4) | | | 94.97 | | | 3.8 | | | — | | | — | | | — | |
| | | | 2025 | | (0.1) | | | 105.07 | | | 0.3 | | | — | | | — | | | — | |
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| | | | | | | | | | | | | | | | |
| | | | | | | | | | 4.1 | | | | | | | (3.3) | |
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Non-designated hedge | | Commodity contracts | | 2023 | | — | | | — | | | — | | | 3.7 | | | 30.15 | | | (179.2) | |
| | | | 2024 | | 0.8 | | | 4.93 | | | 92.6 | | | (0.4) | | | 20.95 | | | 14.9 | |
| | | | 2025 | | (0.8) | | | 14.55 | | | 19.0 | | | (0.3) | | | 18.46 | | | 9.2 | |
| | | | 2026 | | (0.5) | | | 16.36 | | | 4.1 | | | 0.1 | | | 17.21 | | | 1.5 | |
| | | | 2027 | | (0.2) | | | 12.44 | | | 1.2 | | | (0.6) | | | 10.94 | | | 2.3 | |
| | | | 2028 | | (0.1) | | | 14.61 | | | 0.9 | | | — | | | 10.24 | | | 0.4 | |
| | | | Thereafter | | 0.1 | | | 14.26 | | | 0.5 | | | — | | | — | | | — | |
| | | | | | | | | | 118.5 | | | | | | | (150.8) | |
Total commodity derivative contracts | | | | | | $ | 122.7 | | | | | | | $ | (154.1) | |
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Commodity Contracts (In millions of BBL) | | As of December, 31 2017 | | As of December, 31 2016 |
Hedge Strategy | Derivative Instrument | Settlement Period | | Notional Net Long/ (Short) | Weighted Average Contract Price | Fair Value Amount | | Notional Net Long/ (Short) | Weighted Average Contract Price | Fair Value Amount |
Designated hedge | Commodity contracts hedging inventory | 2017 | | — |
| $ | — |
| $ | — |
| | (3.2 | ) | $ | 68.459 |
| $ | (10.7 | ) |
| | 2018 | | (4.2 | ) | 77.808 |
| (41.0 | ) | | (1.0 | ) | 69.559 |
| (5.0 | ) |
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| |
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|
|
|
|
| |
|
|
|
|
|
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| | | | | | (41.0 | ) | | | | (15.7 | ) |
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Non-designated hedge | Commodity contracts | 2017 | | — |
| — |
| — |
| | 0.1 |
| 54.660 |
| 13.9 |
|
| | 2018 | | (3.0 | ) | 31.774 |
| 15.9 |
| | 0.2 |
| 62.461 |
| 5.5 |
|
| | 2019 | | (1.3 | ) | 13.847 |
| 3.1 |
| | — |
| 71.250 |
| 0.7 |
|
| | 2020 | | (0.7 | ) | 11.149 |
| 1.5 |
| | — |
| 17.080 |
| 0.6 |
|
| | 2021 | | (0.1 | ) | 2.135 |
| — |
| | — |
| 4.340 |
| 0.1 |
|
| | Thereafter | | (0.2 | ) | 1.206 |
| 0.1 |
| | — |
| — |
| — |
|
| | | | | | 20.7 |
| | | | 20.8 |
|
Total commodity derivative contracts | | | | $ | (20.3 | ) | | | | $ | 5.1 |
|
Foreign Currency Exchange Risk
We hedge our exposure to currency exchange rate changes, such as foreign-currency-denominated trade receivables, payables, or local currency tax payments. The foreign currency exchange rate risk results primarily from our international operations and is economically hedged using forward and swap contracts. The changes in the fair value of these foreign currency exchange derivatives are recorded in earnings. Since the gains or losses on the forward and swap contracts are substantially offset by the gains or losses from remeasuring the hedged foreign-currency-denominated exposure, we do not believe that a hypothetical 10% change in exchange rates at December 31, 20172023 would have a material impact on our income from operations.
TheAs of December 31, 2023, the foreign currency denominated notionalsnotional amounts and fair valuesvalue in U.S. dollars of our exposures from our foreign currency exchange derivatives, at December 31, 2017 were primarily related to the following (in millions, except weighted average contract price):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Settlement Period | | Unit | | Notional Net Long/(Short) | | Weighted Average Contract Price | | Fair Value Amount |
2024 | | AUD | | (41.8) | | | 0.645 | | | $ | (1.6) | |
2024 | | CAD | | (94.9) | | | 1.360 | | | (1.7) | |
2024 | | CHF | | (3.5) | | | 0.891 | | | (0.2) | |
2024 | | CLP | | (1,410.0) | | | 897.508 | | | (0.2) | |
2024 | | COP | | (138,660.7) | | | 4,235.151 | | | (2.9) | |
| | | | | | | | |
2024 | | DKK | | 274.7 | | | 5.978 | | | 2.2 | |
2024 | | EUR | | 152.9 | | | 1.084 | | | 61.9 | |
2024 | | GBP | | (53.2) | | | 1.243 | | | (51.8) | |
2024 | | HUF | | (828.4) | | | 362.114 | | | (0.1) | |
| | | | | | | | |
| | | | | | | | |
2024 | | KRW | | (12,065.5) | | | 1,332.613 | | | (0.3) | |
2024 | | MXN | | 434.4 | | | 17.939 | | | 2.9 | |
2024 | | NOK | | (844.0) | | | 10.396 | | | (4.6) | |
2024 | | NZD | | (4.5) | | | 0.609 | | | (0.1) | |
| | | | | | | | |
2024 | | PLN | | (5.7) | | | 4.183 | | | (0.1) | |
2024 | | RON | | (28.5) | | | 4.675 | | | (0.2) | |
2024 | | SEK | | 227.5 | | | 8.989 | | | 2.2 | |
2024 | | SGD | | (3.8) | | | 1.353 | | | (0.1) | |
2024 | | ZAR | | 110.3 | | | 18.804 | | | 0.1 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
2026 | | EUR | | 7.0 | | | 1.123 | | | 0.1 | |
Total foreign currency exchange derivative contracts | | $ | 5.5 | |
|
| | | | | | | | | | |
As of December, 31 2017 |
Settlement Period | Unit | Notional Net Long/(Short) | | Weighted Average Contract Price | | Fair Value Amount |
2018 | CAD | (60.0 | ) | | 1.252 |
| | $ | 0.4 |
|
2018 | CLP | (2,427.2 | ) | | 631.619 |
| | (0.1 | ) |
2018 | DKK | (41.5 | ) | | 6.290 |
| | (0.1 | ) |
2018 | EUR | (65.6 | ) | | 1.182 |
| | (1.5 | ) |
2018 | GBP | (4.3 | ) | | 1.328 |
| | (0.5 | ) |
2018 | KRW | (3,073.3 | ) | | 1,136.582 |
| | (0.2 | ) |
2018 | MXN | (684.3 | ) | | 19.109 |
| | 1.6 |
|
2018 | NOK | (55.6 | ) | | 8.030 |
| | 0.5 |
|
2018 | PLN | (8.6 | ) | | 3.626 |
| | (0.1 | ) |
2019 | EUR | (2.5 | ) |
| 1.143 |
|
| (0.2 | ) |
Total foreign currency exchange derivative contracts | | $ | (0.2 | ) |
The total fair value of these contracts at December 31, 2017 is $0.2 million, and will be settled in 2019. At December 31, 2016, the fair value of our foreign currency exchange derivativesderivative contracts was $9.6a net asset of $5.5 million theand a net liability of $14.1 million as of December 31, 2023 and 2022, respectively. The majority of whichforeign currency exchange derivatives are settled in 2017. Refer towithin one year. See Note 44. Derivative Instruments for additional details.information.
Interest Rate Risk
Borrowings under our Credit Facility and Term LoansLoan related to base rate loans or Eurodollar rate loans bear floating interest rates plus applicable margins. As of December 31, 2017,2023, the applicable margins for base rate loans and Eurodollar rate loans were 1.50%0.875% and 2.50%1.875%, respectively. As of December 31, 2017,2023, we had no outstanding borrowings under our Credit Facility totaling $60.0and a $476.4 million and $835.8 million in Term Loans.Loan. As of December 31, 2017,2023, the aggregate outstanding balance of our capitalfinance lease obligations was $10.4$15.7 million, which bear interest at annual rates ranging from 3.0%1.0% to 6.3%6.7%. Our remaining outstanding debtWe also have other agreements, such as our RPAs, with exposure to interest rate risk. See Note 2. Accounts Receivable and Note 7. Debt, Interest Income, Expense, and Other Finance Costs for additional information.
We entered into a $300 million, one-month Eurodollar, floating-for-fixed interest rate non-amortizing swap with a maturity date in March 2025 (the "Swap"). The Swap agreement effectively locks in the floating interest rate we will pay for a portion of $4.0our Eurodollar rate loans at 0.435%. The fair value of the interest rate swap contract was an asset of $14.8 million and an asset of $24.7 million as of December 31, 2017 primarily relates to acquisition promissory notes2023 and loans payable to noncontrolling shareholders2022, respectively.
The following table presents the contractual weighted average interest rates and expected cash flows by maturity dates (in millions, except weighted average interest rates):
| | | | | | | | | | | | | | | | | | | | |
Expected Maturities as of December 31, 2023 |
Interest Rate Swap | | 2024 | | 2025 | | Fair Value |
Notional Value: $300 | | | | | | $ | 14.8 | |
Variable to Fixed(1) | | $ | 12.7 | | | $ | 2.2 | | | |
Average pay rate | | 0.435 | % | | 0.435 | % | | |
Average receive rate | | 4.67 | % | | 3.51 | % | | |
(1)Represents discounted net cash flow receipts or (payments).
A fluctuation of 100 bps in the interest rate on our short‑term debt was 2.7% as of December 31, 2017. A 1.0% fluctuation in the interest rate on our outstanding debt2023 would result in a $9.0$8.9 million change in interest expense during the next twelve months.months with respect to the outstanding amounts as of December 31, 2023 under these agreements.
Equity Price Risk
The fair value of our outstanding Convertible Notes is subject to market risk and other factors due to the convertible feature. The fair value of the Convertible Notes will generally increase as our common stock price increases and will generally decrease as our common stock price declines in value. The Convertible Notes are carried at amortized cost and their fair value is presented for disclosure purposes only. The interest and market value changes affect the fair value of our Convertible Notes, but do not impact our financial position, cash flows, or results of operations due to the fixed nature of the debt obligation.
Upon conversion of the notes, we have the option to pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock in respect of the portion, if any, of our conversion obligation in excess of the aggregate principal amount of the notes being converted. If we elect to settle the portion, if any, of our conversion obligation in excess of the aggregate principal amount of the notes being converted in shares of our common stock or a combination of cash and shares of our common stock, any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock.
In connection with the pricing of the notes, we have entered into convertible note hedge transactions with certain of the initial purchasers or affiliates thereof and certain other financial institutions. We also entered into warrant transactions. The convertible note hedge transactions are expected generally to reduce the potential dilution upon conversion of the notes and/or offset any cash payments we are required to make in excess of the principal amount of converted notes, as the case may be. However, the warrant transactions could separately have a dilutive effect on our common stock to the extent that the market price per share of our common stock exceeds the strike price of the warrants. See Note 7. Debt, Interest Income, Expense, and Other Finance Costs for additional information.
Item 8. FinancialStatements and Supplementary Data
The financial statements, together with the report thereon of PricewaterhouseCoopers LLP dated February 28, 2018, and the Selected Quarterly Financial Data (Unaudited),23, 2024, are set forth in Item 15 of this 20172023 10‑K Report.
Item 9. Changesin and Disagreements withWith Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controlsand Procedures
Management’s Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”("CEO") and our Chief Financial Officer (“CFO”("CFO"), as appropriate, to allow timely decisions regarding required financial disclosure.
As of the end of the period covered by this report,10-K Report, we evaluated, under the supervision and with the participation of our CEO and CFO, the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a‑15(e)13a-15(e). Based upon this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2017.2023.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a‑15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with authorizations of management and our directors; and (iii) provide reasonable assurance regarding prevention or timely detection of the unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 20172023 using the framework specified in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on such assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2017. 2023.
The effectiveness of our internal control over financial reporting as of December 31, 20172023 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report appearing herein.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter ended December 31, 2017.2023.
Effectiveness of Internal Control
It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there is only the reasonable assurance that our controls will succeed in achieving their goals under all potential future conditions.
Item 9B. Other Information
Rule 10b5-1 Trading Plans
On November 1, 2023, Jorge Benitez, one of our directors, adopted a trading plan for the sale of shares of our common stock, which is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act. The plan expires upon the earlier of February 28, 2025 or upon completion of the sale of the maximum number of shares under the plan. The plan provides for the sale of up to 13,000 shares of our common stock, subject to certain price limits and other terms.
Except as noted above, during the three months ended December 31, 2023, none of our officers (as defined in Rule 16a-1(f) of the Exchange Act) or directors adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
We have adopted a Code of Conduct that applies to all of our employees, officers (including our principal executive, financial and accounting officers) and directors. The Code of Conduct is located on our Investor Relations website at http:https://www.wfscorp.comir.worldkinect.com under “Investor Relations – Corporate Governance – Code of Conduct.”"Corporate Governance." We intend to disclose any amendments to our Code of Conduct or waivers with respect to our Code of Conduct granted to our principal executive, financial and accounting officers on our website.
The remaining information regarding our directors, executive officers and corporate governance is incorporated herein by reference from "Proposal No. 1--Election of Directors," "Corporate Governance" and "Information Concerning Executive Officers" in our Definitive Proxy Statement for the 20182024 Annual Meeting of Shareholders (“2018 Proxy”("2024 Proxy") to be filed pursuant to Regulation 14A within 120 days after the close of the fiscal year ended December 31, 2017.2023.
Item 11. ExecutiveCompensation
Information on executive compensation is incorporated herein by reference from "Corporate Governance--Director Compensation and Ownership Guidelines," "Compensation Discussion and Analysis," and "Executive Compensation Tables" in our 20182024 Proxy to be filed pursuant to Regulation 14A within 120 days after the close of the fiscal year ended December 31, 2017.2023.
Item 12. SecurityOwnership of Certain Beneficial Owners and Management and Related ShareholderStockholder Matters
Information on security ownership of certain beneficial owners and management and related shareholder matters is incorporated herein by reference from "Security Ownership of Certain Beneficial Owners and Management" in our 20182024 Proxy to be filed pursuant to Regulation 14A within 120 days after the close of the fiscal year ended December 31, 2017.2023.
Item 13. CertainRelationships and Related Transactions, and Director Independence
Information on certain relationships and related transactions and director independence is incorporated herein by reference from "Corporate Governance--Review and Approval of Related Person Transactions" and "Corporate Governance--Board and Committee Governance--Director Independence" in our 20182024 Proxy to be filed pursuant to Regulation 14A within 120 days after the close of the fiscal year ended December 31, 2017.2023.
Item 14. PrincipalAccounting Accountant Fees and Services
Information on principal accounting fees and services is incorporated herein by reference from "Proposal No. 3--Ratification of Independent Registered Public Accounting Firm--Fees and Services of PricewaterhouseCoopers LLP" in our 20182024 Proxy to be filed pursuant to Regulation 14A within 120 days after the close of the fiscal year ended December 31, 2017.2023.
PART IV
Item 15. Exhibits,Exhibit and Financial Statement Schedules
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| | | |
(a)(1) | The following consolidated financial statementsConsolidated Financial Statements are filed as a part of this 20172023 10‑K Report: |
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| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
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| | | |
(a)(2) | Consolidated financial statementFinancial Statement schedules have been omitted either because the required information is set forth in the consolidated financial statementsConsolidated Financial Statements or notesNotes thereto, or the information called for is not required. |
| |
(b) | The exhibits set forth in the following index of exhibits are filed or incorporated by reference as a part of this 20172023 10‑K Report: |
| | | | | | | | |
| | |
Exhibit No. | | Description |
| | Restated Articles of Incorporation of World Kinect Corporation (incorporated by reference herein tofrom Exhibit 99.23.2 to our Current Report on Form 8‑K filed on February 3, 2005)2023 Q2 10-Q). |
| | Articles of Amendment to Restated Articles of Incorporation (incorporated by reference herein to Exhibit 3.1 to our Current Report on Form 8‑K filed on November 23, 2009). |
| | By‑Laws, amended and restated as of August 26, 2011 (incorporated by reference herein tofrom Exhibit 3.1 to our Current Report on Form 8‑K filed on August 29, 2011). |
| | Agreement between World Fuel Services Corporation and Michael J. Kasbar, dated March 14, 2008Description of Capital Stock (incorporated by reference herein from Exhibit 4.1 to our 2019 10-K). |
| | Indenture, dated as of June 26, 2023, between World Kinect Corporation and U.S. Bank Trust Company, National Association (incorporated by reference from Exhibit 10.24.1 to our Current Report on Form 8‑K8-K filed on March 20, 2008)June 27, 2023). * |
| | Form of 3.250% Convertible Senior Note due 2028 (incorporated by reference from Exhibit 4.2 to our Current Report on Form 8-K filed on June 27, 2023). |
| | Amendment No. 1, dated August 26, 2011, to Agreement between World Fuel Services Corporation and Michael J. Kasbar2016 Omnibus Plan (incorporated by reference herein tofrom Exhibit 10.1 to our Current Report on Form 8‑K8-K filed on August 29, 2011)June 2, 2016). * |
| | Amendment No. 2, dated April 9, 2012, to Agreement between World Fuel Services Corporation and Michael J. Kasbar2020 Omnibus Plan (incorporated by reference herein tofrom Exhibit 10.1 to our Current Report on Form 8‑K8-K filed on April 13, 2012)May 27, 2020). * |
| | Amendment No. 3, dated April 11, 2014, to Agreement between World Fuel Services Corporation and Michael J. Kasbar2021 Omnibus Plan (incorporated by reference herein tofrom Exhibit 10.210.1 to our Current Report on Form 8‑K8-K filed on April 11, 2014)May 25, 2021). * |
| | Form of Named Executive Officer Performance-based Restricted Stock Unit Agreement under the 2021 Omnibus Plan incorporated by reference herein from Exhibit 10.1 to our Current Report on Form 8-K filed on November 14, 2022 (SEC Accession No. 0001157523-22-001611). * |
| | Executive Severance Agreement between World Fuel Services Corporation and Ira M. Birns, dated April 16, 2007 (incorporated by reference herein tofrom Exhibit 10.2 to our Current Report on Form 8‑K filed on April 16, 2007). * |
| | World Fuel Services Corporation Executive Severance Policy, effective as of December 31, 2016 (incorporated by reference toherein from Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 filed on July 28, 2017)2017 ("2017 10-Q")). * |
| | 2006 Omnibus PlanForm of Executive Officer Performance-Based Restricted Stock Unit Award Agreement (incorporated by reference herein to Appendix Afrom Exhibit 10.7 to our Definitive Proxy Statement on Schedule 14A filed with the SEC on April 27, 2009). 2022 10-K)* |
| | 2016 Omnibus PlanForm of Executive Officer Service-Based Restricted Stock Unit Award Agreement (incorporated by reference herein from Exhibit 10.8 to our 2022 10-K)* |
| | Transition and Separation Agreement, dated November 8, 2022, between World Fuel Services Corporation and Jeffrey P. Smith incorporated by reference herein from Exhibit 10.110.2 to our Current Report on Form 8-K filed on June 2, 2016)November 14, 2022 (SEC Accession No. 0001157523-22-001611). * |
| | Form of Non-Employee Director 2017 Restricted Stock Unit Grant Agreement under the 2006 Omnibus Plan and 2016 Omnibus Plan (incorporated by reference herein tofrom Exhibit 10.24 to our Annual Report on Form 10-K for the year ended December 31, 2015 filed on February 16, 2016). * |
| | Form of Non-Employee Director Restricted Stock Unit Grant Agreement under the 2016 Omnibus Plan (incorporated by reference herein from Exhibit 10.10 to our 2019 10-K). * |
| | | | | | | | |
Exhibit No. | | Description |
| | Form of Named Executive Officer Restricted Stock Unit Grant Agreement under the 2016 Omnibus Plan. * |
| | Form of Named Executive Officer Long-Term Incentive Restricted Stock Unit Grant Agreement under the 2006 Omnibus Plan (incorporated by reference herein tofrom Exhibit 10.110.10 to our QuarterlyAnnual Report on Form 10‑Q10-K for the quarteryear ended June 30, 2015December 31, 2017 filed on July 30, 2015)February 28, 2018 ("2017 10-K"). * |
| | Form of Named Executive Officer 2017 Performance-Based Restricted Stock Unit Grant Agreement under the 2016 Omnibus Plan. * |
| | Form of Named Executive Officer 2017 Performance-Based Stock-Settled Stock Appreciation Right Agreement under the 2016 Omnibus Plan. * |
| | Form of Michael J. Kasbar Restricted Stock Unit Grant Agreement under the 2006 and 2016 Omnibus Plan.Plan (incorporated by reference herein from Exhibit 10.14 to our 2017 10-K). * |
| | Form of Michael J. Kasbar Stock-Settled Stock Appreciation Right Agreement under the 2006 Omnibus Plan (incorporated by reference herein tofrom Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 filed on July 30, 2014)2014 ("2014 10-Q"). * |
| | Form of Michael J. Kasbar Stock-Settled Stock Appreciation Right Agreement (3-year Cliff Vesting) under the 2006 Omnibus Plan and 2016 Omnibus Plan (incorporated by reference herein tofrom Exhibit 10.15 to our Annual Report on Form 10-K for the year ended December 31, 2016 filed on February 21, 2017)2017 ("2016 10-K"). * |
| | Form of Ira M. Birns Restricted Stock Unit Grant Agreement under the 2006 and 2016 Omnibus Plan.Plan (incorporated by reference herein from Exhibit 10.17 to our 2017 10-K). * |
| | Form of Ira M. Birns Stock-Settled Stock Appreciation Right Agreement under the 2006 Omnibus Plan (incorporated by reference herein tofrom Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 filed on July 30, 2014)10-Q). * |
| | Form of Michael J. Kasbar and Ira M. Birns 2016 Performance-Based Restricted Stock Unit Grant Agreement under the 2006 Omnibus Plan (incorporated by reference herein to Exhibit 10.18 to our Annual Report on Form 10-K for the year ended December 31, 2016 filed on February 21, 2017). * |
| | Form of Michael J. Crosby and John P. Rau 2015 Performance-Based Restricted Stock Unit Grant Agreement under the 2006 Omnibus Plan (incorporated herein by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 filed on July 28, 2017). * |
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| | |
Exhibit No. | | Description |
| | Form of Michael J. Crosby and John P. Rau 2016 Performance-Based Restricted Stock Unit Grant Agreement under the 2006 Omnibus Plan.Plan (incorporated by reference herein from Exhibit 10.21 to our 2017 10-K). * |
| | Form of Michael J. Crosby and John P. Rau Restricted Stock Grant Agreement under the 2006 Omnibus Plan (incorporated herein by reference toherein from Exhibit 10.4 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 filed on July 28, 2017)10-Q). * |
| | Form of John P. Rau Restricted Stock Grant Agreement under the 2006 Omnibus Plan (incorporated herein by reference to Exhibit 10.5 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 filed on July 28, 2017). * |
| | Form of Michael J. Crosby and John P. Rau Restricted Stock Unit Grant Agreement under the 2006 Omnibus Plan.Plan (incorporated by reference herein from Exhibit 10.24 to our 2017 10-K). * |
| | Form of Named Executive Officer Stock-Settled Stock Appreciation Right Agreement under the 2016 Omnibus Plan (incorporated by reference herein from Exhibit 10.24 to our 2020 10-K). * |
| | Performance-Based Restricted Stock Unit GrantAmended and Restated Employment Agreement, dated as of November 10, 2017,2022, between World Fuel Services Corporation and Jeffrey P. Smith.Michael J. Kasbar (incorporated by reference herein from Exhibit 10.1 to our Current Report on Form 8‑K filed on November 14, 2022 (SEC Accession No. 0001157523-22-001610). * |
| | Consulting Agreement, effective as of April 1, 2022, between World Fuel Services and Michael J. Crosby (incorporated by reference herein from Exhibit 10.1 to our Current Report on Form 8-K filed on March 23, 2022).* |
| | Fourth Amended and Restated Credit Agreement, dated as of October 10, 2013, among World Fuel Services Corporation, World Fuel Services Europe, Ltd. and World Fuel Services (Singapore) Pte Ltd, as borrowers, Bank of America, N.A., as administrative agent, and the financial institutions named therein as lenders (incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on October 11, 2013).*
|
| | Amendment No. 1 to the Fourth Amended and Restated Credit Agreement, and Joinder Agreement, dated as of January 30, 2015, among World Fuel Services Corporation, World Fuel Services Europe, Ltd. and World Fuel Services (Singapore) Pte Ltd, as borrowers, Bank of America, N.A., as administrative agent, and the financial institutions named therein as lenders (incorporated herein by reference toherein from Exhibit 10.1 to our Current Report on Form 8-K filed on February 5, 2015). |
| | Amendment No. 2 to the Fourth Amended and Restated Credit Agreement, and Joinder Agreement, dated as of October 26, 2016, among World Fuel Services Corporation, World Fuel Services Europe, Ltd. and World Fuel Services (Singapore) Pte Ltd, as borrowers, Bank of America, N.A., as administrative agent, and the financial institutions named therein as lenders (incorporated herein by reference toherein from Exhibit 10.1 to our Current Report on Form 8-K filed on October 27, 2016). |
| | Amendment No. 3 to the Fourth Amended and Restated Credit Agreement, dated as of May 12, 2017, among World Fuel Services Corporation, World Fuel Services Europe, Ltd. and World Fuel Services (Singapore) Pte Ltd, as borrowers, Bank of America, N.A., as administrative agent, and the financial institutions named therein as lenders (incorporated herein by reference toherein from Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 filed on July 28, 2017)10-Q).
|
| | Amendment No. 4 to the Fourth Amended and Restated Credit Agreement, dated as January 30, 2018, among World Fuel Services Corporation, World Fuel Services Europe, Ltd. and World Fuel Services (Singapore) Pte Ltd, as borrowers, Bank of America, N.A., as administrative agent, and the financial institutions named therein as lenders.
lenders (incorporated by reference herein from Exhibit 10.30 to our 2017 10-K). |
| | Amendment No. 5 to the Fourth Amended and Restated Credit Agreement, dated as of October 26, 2016, among World Fuel Services Corporation, World Fuel Services Europe, Ltd., World Fuel Services (Singapore) Pte Ltd, and certain other Subsidiaries, as borrowers, Bank of America, N.A., as administrative agent, and the financial institutions named therein as lenders (incorporated by reference herein from Exhibit 10.1 to our Current Report on Form 8-K filed on July 24, 2019). |
| | Amendment No. 6 to the Fourth Amended and Restated Credit Agreement, dated as of November 24, 2021, among World Fuel Services Corporation, World Fuel Services Europe, Ltd., World Fuel Services (Singapore) Pte Ltd, and certain other Subsidiaries, as borrowers, Bank of America, N.A., as administrative agent, and the financial institutions named therein as lenders (incorporated by reference herein from Exhibit 10.28 to our Annual Report on Form 10-K filed on February 25, 2022). |
| | Amendment No. 7 to the Fourth Amended and Restated Credit Agreement, dated as of November 26, 2021, among World Fuel Services Corporation, World Fuel Services Europe, Ltd., World Fuel Services (Singapore) Pte Ltd, and certain other Subsidiaries, as borrowers, Bank of America, N.A., as administrative agent, and the financial institutions named therein as lenders (incorporated by reference herein from Exhibit 10.29 to our Annual Report on Form 10-K filed on February 25, 2022). |
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Exhibit No. | | Description |
| | Amendment No. 8 to Fourth Amended and Restated Credit Agreement, dated as of April 1, 2022, among World Fuel Services Corporation, World Fuel Services Europe, Ltd., World Fuel Services (Singapore) Pte Ltd, and certain other Subsidiaries, as borrowers, Bank of America, N.A., as administrative agent, and the financial institutions named therein as lenders (incorporated by reference herein from Exhibit 10.1 to our Current Report on Form 8-K filed on April 1, 2022). |
| | Amendment No. 9 to the Fourth Amended and Restated Credit Agreement, dated as of July 12, 2022, among World Fuel Services Corporation, World Fuel Services Europe, Ltd., World Fuel Services (Singapore) Pte Ltd, and certain other Subsidiaries, as borrowers, Bank of America, N.A., as administrative agent, and the financial institutions named therein as lenders (incorporated by reference herein from Exhibit 10.2 to our Quarterly Report on Form 10-Q filed on July 29, 2022). |
| | Amendment No. 10 to the Fourth Amended and Restated Credit Agreement, dated as of January 19, 2024, among World Kinect Corporation, World Fuel Services Europe, Ltd., World Fuel Services (Singapore) Pte Ltd, World Fuel Services, Inc., WFS UK Holding Company IV Limited, Kinect Energy AS and Kinect Energy Spot AS, and Bank of America, N.A., as administrative agent. |
| | Purchase Agreement, dated as of October 28, 2021, by and among World Fuel Services, Inc., World Fuel Services Corporation, Flyers Energy Group, LLC, Speedy Investments, LP, Eclipse Investments, LP, TAD Family Limited Partnership, David Dwelle Family Limited Partnership, Thomas A. Dwelle, Stephen B. Dwelle, Walter A. Dwelle, David W. Dwelle, and Walter A. Dwelle in his capacity as the Seller Representative (incorporated by reference herein from Exhibit 10.30 to our Annual Report on Form 10-K filed on February 25, 2022). |
| | Purchase Agreement, dated June 21, 2023, among World Kinect Corporation, Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC and BofA Securities, Inc. as representatives of the several initial purchasers listed on Schedule I thereto (incorporated by reference from Exhibit 10.1 to our Current Report on Form 8-K filed on June 27, 2023). |
| | Form of Convertible Note Hedge Confirmation (incorporated by reference from Exhibit 10.2 to our Current Report on Form 8-K filed on June 27, 2023). |
| | Form of Warrant Confirmation (incorporated by reference from Exhibit 10.3 to our Current Report on Form 8-K filed on June 27, 2023). |
| | Subsidiaries of the Registrant. |
| | Consent of Independent Registered Public Accounting Firm. |
| | Certification of the Chief Executive Officer pursuant to Rule 13a‑14(a) or Rule 15d‑14(a). |
| | Certification of the Chief Financial Officer pursuant to Rule 13a‑14(a) or Rule 15d‑14(a). |
| | Statement of Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes‑Oxley Act of 2002 (18 U.S.C. Section 1350). |
101 | | World Kinect Corporation Clawback Policy |
101 | | The following materials from World Fuel ServicesKinect Corporation’s Annual Report on Form 10‑K10-K for the year ended December 31, 2017,2023, formatted in XBRL (Extensible Business Reporting Language); (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income and Comprehensive Income, (iii) Consolidated Statements of Shareholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to the Consolidated Financial Statements. |
104 | | Cover page interactive file (formatted in Inline XBRL and contained in Exhibit 101). |
*Management contracts and compensatory plans or arrangements required to be filed as exhibits to this form, pursuant to Item 15(b).
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors and Shareholders of World Fuel ServicesKinect Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of World Fuel ServicesKinect Corporation and its subsidiaries (the “Company”) as of December 31, 20172023 and 2016,2022 and the related consolidated statements of income and comprehensive income, of shareholders’shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2017,2023, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172023 and December 31, 2016,2022, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 20172023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023 based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management'sManagement’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Assessment – Aviation and Land Reporting Units
As described in Notes 1 and 6 to the consolidated financial statements, the Company’s consolidated goodwill balance was $1,238 million as of December 31, 2023, which is allocated among the Aviation and Land reporting units. Goodwill is evaluated for impairment at the reporting unit level as of December 31 of each year, or more frequently if events or circumstances indicate that the carrying value of the goodwill may be impaired. To perform the quantitative impairment test, management compares the fair value of each reporting unit to its respective carrying amount, including goodwill. In calculating fair value, management uses a combination of both an income and market approach. As disclosed by management, under the income approach, management calculates the fair value of each reporting unit based on the present value of estimated future cash flows, which include assumptions related to expected growth rates, profitability, and a discount rate that corresponds to a weighted-average cost of capital. Under the market approach, management uses a selection of global companies that correspond to each reporting unit to derive a market-based multiple.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Aviation and Land reporting units is a critical audit matter are (i) the significant judgment by management when developing the fair value of the Aviation and Land reporting units; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to expected growth rates, profitability, and the discount rates; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the determination of the reporting units and significant assumptions used in the estimated future cash flows. These procedures also included, among others (i) testing management’s process for developing the fair value of the Aviation and Land reporting units; (ii) evaluating the appropriateness of the income and market approaches; (iii) testing the completeness and accuracy of underlying data used in the income and market approaches; and (iv) evaluating the reasonableness of the significant assumptions related to expected growth rates, profitability, and the discount rates. Evaluating management’s assumptions related to expected growth rates and profitability involved evaluating whether the assumptions used were reasonable considering (i) the current and past performance of the Aviation and Land reporting units; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the income and market approaches and (ii) the reasonableness of the discount rate assumptions.
/s/PricewaterhouseCoopers LLP
Certified Public Accountants
Miami, Florida
February 28, 201823, 2024
We have served as the Company’s auditor since 2002.
WORLD FUEL SERVICESKINECT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
| | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
Assets: | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 304.3 | | | $ | 298.4 | |
Accounts receivable, net of allowance for credit losses of $18.3 million and $14.1 million as of December 31, 2023 and 2022, respectively | 2,735.5 | | | 3,294.1 | |
Inventories | 664.6 | | | 779.9 | |
Prepaid expenses | 77.6 | | | 83.6 | |
Short-term derivative assets, net | 275.4 | | | 302.1 | |
Other current assets | 446.4 | | | 479.9 | |
Total current assets | 4,503.8 | | | 5,238.1 | |
Property and equipment, net | 515.3 | | | 484.2 | |
Goodwill | 1,238.0 | | | 1,233.0 | |
Identifiable intangible assets, net | 299.7 | | | 336.2 | |
Other non-current assets | 818.6 | | | 873.2 | |
Total assets | $ | 7,375.3 | | | $ | 8,164.6 | |
Liabilities: | | | |
Current liabilities: | | | |
Current maturities of long-term debt | $ | 78.8 | | | $ | 15.8 | |
Accounts payable | 3,097.6 | | | 3,529.5 | |
Short-term derivative liabilities, net | 128.2 | | | 325.2 | |
Accrued expenses and other current liabilities | 745.0 | | | 738.2 | |
Total current liabilities | 4,049.7 | | | 4,608.6 | |
Long-term debt | 809.1 | | | 829.9 | |
Other long-term liabilities | 566.9 | | | 735.3 | |
Total liabilities | 5,425.7 | | | 6,173.8 | |
Commitments and contingencies | | | |
Equity: | | | |
World Kinect shareholders' equity: | | | |
Preferred stock, $1.00 par value; 0.1 shares authorized, none issued | — | | | — | |
Common stock, $0.01 par value; 100.0 shares authorized, 59.8 and 62.0 issued and outstanding as of December 31, 2023 and 2022, respectively | 0.6 | | | 0.6 | |
Capital in excess of par value | 109.6 | | | 182.4 | |
Retained earnings | 1,981.6 | | | 1,962.5 | |
Accumulated other comprehensive income (loss) | (148.9) | | | (160.6) | |
Total World Kinect shareholders' equity | 1,943.0 | | | 1,984.9 | |
Noncontrolling interest | 6.7 | | | 5.9 | |
Total equity | 1,949.6 | | | 1,990.7 | |
Total liabilities and equity | $ | 7,375.3 | | | $ | 8,164.6 | |
|
| | | | | | | |
| As of December 31, |
| 2017 | | 2016 |
Assets: | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 372.3 |
| | $ | 698.6 |
|
Accounts receivable, net | 2,705.6 |
| | 2,344.0 |
|
Inventories | 505.0 |
| | 458.0 |
|
Prepaid expenses | 64.4 |
| | 46.5 |
|
Short-term derivative assets, net | 51.1 |
| | 58.9 |
|
Other current assets | 241.9 |
| | 230.6 |
|
Total current assets | 3,940.4 |
| | 3,836.6 |
|
Property and equipment, net | 329.8 |
| | 311.2 |
|
Goodwill | 845.5 |
| | 835.8 |
|
Identifiable intangible and other non-current assets | 472.1 |
| | 429.1 |
|
Total assets | $ | 5,587.8 |
| | $ | 5,412.6 |
|
Liabilities: | | | |
Current liabilities: | | | |
Current maturities of long-term debt and capital leases | $ | 25.6 |
| | $ | 15.4 |
|
Accounts payable | 2,239.7 |
| | 1,770.4 |
|
Customer deposits | 108.3 |
| | 90.8 |
|
Accrued expenses and other current liabilities | 344.9 |
| | 306.0 |
|
Total current liabilities | 2,718.6 |
| | 2,182.7 |
|
Long-term debt | 884.6 |
| | 1,170.8 |
|
Non-current income tax liabilities, net | 202.4 |
| | 84.6 |
|
Other long-term liabilities | 44.2 |
| | 34.5 |
|
Total liabilities | 3,849.8 |
| | 3,472.6 |
|
Commitments and contingencies |
| |
|
Equity: | | | |
World Fuel shareholders' equity: | | | |
Preferred stock, $1.00 par value; 0.1 shares authorized, none issued | — |
| | — |
|
Common stock, $0.01 par value; 100.0 shares authorized, 67.7 and 69.9 issued and outstanding as of December 31, 2017 and December 31, 2016, respectively | 0.7 |
| | 0.7 |
|
Capital in excess of par value | 354.9 |
| | 399.9 |
|
Retained earnings | 1,492.8 |
| | 1,679.3 |
|
Accumulated other comprehensive loss | (126.5 | ) | | (154.8 | ) |
Total World Fuel shareholders' equity | 1,721.9 |
| | 1,925.0 |
|
Noncontrolling interest | 16.0 |
| | 15.0 |
|
Total equity | 1,738.0 |
| | 1,940.0 |
|
Total liabilities and equity | $ | 5,587.8 |
| | $ | 5,412.6 |
|
The accompanying notesNotes are an integral part of these consolidated financial statements.Consolidated Financial Statements.
47
WORLD FUEL SERVICESKINECT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
(In millions, except earnings per share data)
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Revenue | $ | 47,710.6 | | | $ | 59,043.1 | | | $ | 31,337.0 | |
Cost of revenue | 46,652.4 | | | 57,954.1 | | | 30,548.8 | |
Gross profit | 1,058.2 | | | 1,089.1 | | | 788.2 | |
Operating expenses: | | | | | |
Compensation and employee benefits | 512.3 | | | 507.4 | | | 386.7 | |
General and administrative | 308.0 | | | 308.7 | | | 247.6 | |
Asset impairments | 32.8 | | | 0.6 | | | 4.7 | |
Restructuring charges | 7.2 | | | (0.8) | | | 6.6 | |
Total operating expenses | 860.2 | | | 815.8 | | | 645.6 | |
Income from operations | 198.0 | | | 273.2 | | | 142.6 | |
Non-operating income (expenses), net: | | | | | |
Interest expense and other financing costs, net | (127.7) | | | (110.6) | | | (40.2) | |
Other income (expense), net | (3.6) | | | (17.5) | | | (2.3) | |
Total non-operating income (expense), net | (131.3) | | | (128.1) | | | (42.5) | |
Income (loss) before income taxes | 66.7 | | | 145.1 | | | 100.0 | |
Provision for income taxes | 13.0 | | | 29.2 | | | 25.8 | |
Net income (loss) including noncontrolling interest | 53.7 | | | 115.9 | | | 74.2 | |
Net income (loss) attributable to noncontrolling interest | 0.8 | | | 1.7 | | | 0.5 | |
Net income (loss) attributable to World Kinect | $ | 52.9 | | | $ | 114.1 | | | $ | 73.7 | |
Basic earnings (loss) per common share | $ | 0.86 | | | $ | 1.83 | | | $ | 1.17 | |
Basic weighted average common shares | 61.4 | | | 62.3 | | | 62.9 | |
Diluted earnings (loss) per common share | $ | 0.86 | | | $ | 1.82 | | | $ | 1.16 | |
Diluted weighted average common shares | 61.7 | | | 62.7 | | | 63.3 | |
Comprehensive income: | | | | | |
Net income (loss) including noncontrolling interest | $ | 53.7 | | | $ | 115.9 | | | $ | 74.2 | |
Other comprehensive income (loss): | | | | | |
Foreign currency translation adjustments | 19.9 | | | (45.5) | | | (13.7) | |
Cash flow hedges, net of income tax expense (benefit) of ($2.7), $7.6, and $3.3 for 2023, 2022, and 2021, respectively | (8.1) | | | 21.6 | | | 9.6 | |
Total other comprehensive income (loss) | 11.8 | | | (24.0) | | | (4.1) | |
Comprehensive income (loss) including noncontrolling interest | 65.5 | | | 91.9 | | | 70.1 | |
Comprehensive income (loss) attributable to noncontrolling interest | 0.8 | | | 1.7 | | | 0.5 | |
Comprehensive income (loss) attributable to World Kinect | $ | 64.7 | | | $ | 90.2 | | | $ | 69.6 | |
|
| | | | | | | | | | | |
| For the Year ended December 31, |
| 2017 | | 2016 | | 2015 |
Revenue | $ | 33,695.5 |
| | $ | 27,015.8 |
| | $ | 30,381.4 |
|
Cost of revenue | 32,763.3 |
| | 26,116.8 |
| | 29,520.4 |
|
Gross profit | 932.2 |
| | 899.0 |
| | 861.0 |
|
Operating expenses: | | | | | |
Compensation and employee benefits | 428.2 |
| | 413.3 |
| | 365.8 |
|
General and administrative | 306.9 |
| | 296.8 |
| | 249.5 |
|
Goodwill and other impairments | 91.9 |
| | — |
| | — |
|
Restructuring charges | 59.6 |
| | — |
| | — |
|
| 886.6 |
| | 710.1 |
| | 615.3 |
|
Income from operations | 45.6 |
| | 188.9 |
| | 245.7 |
|
Non-operating expenses, net: | | | | | |
Interest expense and other financing costs, net | (60.3 | ) | | (39.2 | ) | | (29.9 | ) |
Other income (expense), net | (6.4 | ) | | (7.5 | ) | | 2.0 |
|
| (66.7 | ) | | (46.7 | ) | | (27.9 | ) |
Income (loss) before income taxes | (21.1 | ) | | 142.1 |
| | 217.7 |
|
Provision for income taxes | 149.2 |
| | 15.7 |
| | 47.2 |
|
Net income (loss) including noncontrolling interest | (170.3 | ) | | 126.4 |
| | 170.5 |
|
Net income (loss) attributable to noncontrolling interest | (0.1 | ) | | — |
| | (3.9 | ) |
Net income (loss) attributable to World Fuel | $ | (170.2 | ) | | $ | 126.5 |
| | $ | 174.5 |
|
Basic earnings (loss) per common share | $ | (2.50 | ) | | $ | 1.82 |
| | $ | 2.49 |
|
Basic weighted average common shares | 68.1 |
| | 69.3 |
| | 70.2 |
|
Diluted earnings (loss) per common share | $ | (2.50 | ) | | $ | 1.81 |
| | $ | 2.47 |
|
Diluted weighted average common shares | 68.1 |
| | 69.8 |
| | 70.7 |
|
Comprehensive income: | | | | | |
Net income (loss) including noncontrolling interest | $ | (170.3 | ) | | $ | 126.4 |
| | $ | 170.5 |
|
Other comprehensive income (loss): | | | | | |
Foreign currency translation adjustments | 30.1 |
| | (40.4 | ) | | (45.4 | ) |
Cash Flow hedges, net of income tax benefit of $0.3, $4.1, and $0.5 for 2017, 2016, and 2015, respectively | (0.3 | ) | | (6.6 | ) | | (0.8 | ) |
Other comprehensive income (loss): | 29.8 |
| | (47.0 | ) | | (46.2 | ) |
Comprehensive income (loss) including noncontrolling interest | (140.5 | ) | | 79.5 |
| | 124.3 |
|
Comprehensive income (loss) attributable to noncontrolling interest | 1.5 |
| | 1.6 |
| | (2.2 | ) |
Comprehensive income (loss) attributable to World Fuel | $ | (142.0 | ) | | $ | 77.9 |
| | $ | 126.4 |
|
The accompanying notesNotes are an integral part of these consolidated financial statements.Consolidated Financial Statements.
48
WORLD FUEL SERVICESKINECT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Capital in Excess of Par Value | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total World Kinect Shareholders’ Equity | | Noncontrolling Interest Equity | | Total Equity |
| Shares | | Amount | | | | |
Balance as of December 31, 2020 | 62.9 | | | $ | 0.6 | | | $ | 204.6 | | | $ | 1,836.7 | | | $ | (132.6) | | | $ | 1,909.3 | | | $ | 3.6 | | | $ | 1,912.9 | |
Net income (loss) | — | | | — | | | — | | | 73.7 | | | — | | | 73.7 | | | 0.5 | | | 74.2 | |
| | | | | | | | | | | | | | | |
Cash dividends declared | — | | | — | | | — | | | (30.0) | | | — | | | (30.0) | | | — | | | (30.0) | |
Amortization of share-based payment awards | — | | | — | | | 19.6 | | | — | | | — | | | 19.6 | | | — | | | 19.6 | |
Issuance (cancellation) of common stock related to share-based payment awards | 0.4 | | | — | | | 0.2 | | | — | | | — | | | 0.3 | | | — | | | 0.3 | |
| | | | | | | | | | | | | | | |
Purchases of common stock tendered by employees to satisfy the required withholding taxes related to share-based payment awards | — | | | — | | | (5.8) | | | — | | | — | | | (5.8) | | | — | | | (5.8) | |
Purchases of common stock | (1.7) | | | — | | | (50.5) | | | — | | | — | | | (50.5) | | | — | | | (50.5) | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (4.1) | | | (4.1) | | | — | | | (4.1) | |
Other | — | | | — | | | — | | | 0.2 | | | — | | | 0.2 | | | — | | | 0.2 | |
Balance as of December 31, 2021 | 61.7 | | | 0.6 | | | 168.1 | | | 1,880.6 | | | (136.7) | | | 1,912.7 | | | 4.1 | | | 1,916.8 | |
Net income (loss) | — | | | — | | | — | | | 114.1 | | | — | | | 114.1 | | | 1.7 | | | 115.9 | |
| | | | | | | | | | | | | | | |
Cash dividends declared | — | | | — | | | — | | | (32.2) | | | — | | | (32.2) | | | — | | | (32.2) | |
Amortization of share-based payment awards | — | | | — | | | 17.6 | | | — | | | — | | | 17.6 | | | — | | | 17.6 | |
Issuance (cancellation) of common stock related to share-based payment awards | 0.4 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Issuance of common stock for acquisition of a business | 1.8 | | | — | | | 50.0 | | | — | | | — | | | 50.0 | | | — | | | 50.0 | |
Purchases of common stock tendered by employees to satisfy the required withholding taxes related to share-based payment awards | 0.2 | | | — | | | (4.6) | | | — | | | — | | | (4.6) | | | — | | | (4.6) | |
Purchases of common stock | (2.0) | | | — | | | (48.7) | | | — | | | — | | | (48.7) | | | — | | | (48.7) | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (24.0) | | | (24.0) | | | — | | | (24.0) | |
| | | | | | | | | | | | | | | |
Balance as of December 31, 2022 | 62.0 | | | 0.6 | | | 182.4 | | | 1,962.5 | | | (160.6) | | | 1,984.9 | | | 5.9 | | | 1,990.7 | |
Net income (loss) | — | | | — | | | — | | | 52.9 | | | — | | | 52.9 | | | 0.8 | | | 53.7 | |
| | | | | | | | | | | | | | | |
Cash dividends declared | — | | | — | | | — | | | (33.8) | | | — | | | (33.8) | | | — | | | (33.8) | |
Amortization of share-based payment awards | — | | | — | | | 24.2 | | | — | | | — | | | 24.2 | | | — | | | 24.2 | |
Issuance (cancellation) of common stock related to share-based payment awards | 0.6 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | |
Purchases of common stock tendered by employees to satisfy the required withholding taxes related to share-based payment awards | — | | | — | | | (5.7) | | | — | | | — | | | (5.7) | | | — | | | (5.7) | |
Purchases of common stock | (2.8) | | | — | | | (60.6) | | | — | | | — | | | (60.7) | | | — | | | (60.7) | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 11.8 | | | 11.8 | | | — | | | 11.8 | |
Convertible note hedge transactions | — | | | — | | | (70.5) | | | — | | | — | | | (70.5) | | | — | | | (70.5) | |
Warrant transactions | — | | | — | | | 40.0 | | | — | | | — | | | 40.0 | | | — | | | 40.0 | |
| | | | | | | | | | | | | | | |
Balance as of December 31, 2023 | 59.8 | | | $ | 0.6 | | | $ | 109.6 | | | $ | 1,981.6 | | | $ | (148.9) | | | $ | 1,943.0 | | | $ | 6.7 | | | $ | 1,949.6 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Capital in Excess of Par Value | | | | Accumulated Other Comprehensive Loss | | Total World Fuel Shareholders’ Equity | | Noncontrolling Interest | | |
| Shares | | Amount | | | Retained Earnings | | | Total Equity |
Balance as of December 31, 2014 | 72.1 |
| | $ | 0.7 |
| | $ | 496.4 |
| | $ | 1,412.0 |
| | $ | (59.2 | ) | | $ | 1,849.9 |
| | $ | 9.5 |
| | $ | 1,859.4 |
|
Net income | — |
| | — |
| | — |
| | 174.5 |
| | — |
| | 174.5 |
| | (3.9 | ) | | 170.5 |
|
Cash dividends declared | — |
| | — |
| | — |
| | (16.8 | ) | | — |
| | (16.8 | ) | | — |
| | (16.8 | ) |
Investment by noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 0.5 |
| | 0.5 |
|
Distribution of noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (0.2 | ) | | (0.2 | ) |
Amortization of share-based payment awards | — |
| | — |
| | 16.9 |
| | — |
| | — |
| | 16.9 |
| | — |
| | 16.9 |
|
Issuance (cancellation) of common stock related to share-based payment awards | 0.4 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Purchases of common stock tendered by employees to satisfy the required withholding taxes related to share-based payment awards | (0.1 | ) | | — |
| | (7.3 | ) | | — |
| | — |
| | (7.3 | ) | | — |
| | (7.3 | ) |
Purchases of common stock | (1.6 | ) | | — |
| | (70.5 | ) | | — |
| | — |
| | (70.5 | ) | | — |
| | (70.5 | ) |
Other comprehensive income (loss) | — |
| | — |
| | — |
| |
|
| | (50.3 | ) | | (50.3 | ) | | 4.0 |
| | (46.2 | ) |
Other | — |
| | — |
| | (0.1 | ) | | (0.3 | ) | | — |
| | (0.4 | ) | | 0.1 |
| | (0.3 | ) |
Balance as of December 31, 2015 | 70.8 |
| | 0.7 |
| | 435.3 |
| | 1,569.4 |
| | (109.5 | ) | | 1,895.9 |
| | 10.0 |
| | 1,905.9 |
|
Net income | — |
| | — |
| | — |
| | 126.5 |
| | — |
| | 126.5 |
| | — |
| | 126.4 |
|
Cash dividends declared | — |
| | — |
| | — |
| | (16.6 | ) | | — |
| | (16.6 | ) | | — |
| | (16.6 | ) |
Distribution of noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (0.5 | ) | | (0.5 | ) |
Amortization of share-based payment awards | — |
| | — |
| | 19.7 |
| | — |
| | — |
| | 19.7 |
| | — |
| | 19.7 |
|
Issuance (cancellation) of common stock related to share-based payment awards including income tax benefit of $1.6 million | 0.1 |
| | — |
| | 1.6 |
| | — |
| | — |
| | 1.6 |
| | — |
| | 1.6 |
|
Purchases of common stock tendered by employees to satisfy the required withholding taxes related to share-based payment awards | (0.1 | ) | | — |
| | (4.6 | ) | | — |
| | — |
| | (4.6 | ) | | — |
| | (4.6 | ) |
Purchases of common stock | (1.0 | ) | | — |
| | (41.2 | ) | | — |
| | — |
| | (41.2 | ) | | — |
| | (41.2 | ) |
Acquisition of remaining 49% equity interest | — |
| | — |
| | (10.9 | ) | | — |
| | — |
| | (10.9 | ) | | 7.2 |
| | (3.7 | ) |
Other comprehensive income (loss) | — |
| | — |
| | — |
| | — |
| | (45.4 | ) | | (45.4 | ) | | (1.6 | ) | | (47.0 | ) |
Other | — |
| | — |
| | (0.1 | ) | | — |
| | — |
| | (0.1 | ) | | — |
| | — |
|
Balance as of December 31, 2016 | 69.9 |
| | 0.7 |
| | 399.9 |
| | 1,679.3 |
| | (154.8 | ) | | 1,925.0 |
| | 15.0 |
| | 1,940.0 |
|
Net income | — |
| | — |
| | — |
| | (170.2 | ) | | — |
| | (170.2 | ) | | (0.1 | ) | | (170.3 | ) |
Cash dividends declared | — |
| | — |
| | — |
| | (16.3 | ) | | — |
| | (16.3 | ) | | — |
| | (16.3 | ) |
Distribution of noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (0.4 | ) | | (0.4 | ) |
Amortization of share-based payment awards | — |
| | — |
| | 21.3 |
| | — |
| | — |
| | 21.3 |
| | — |
| | 21.3 |
|
Issuance (cancellation) of common stock related to share-based payment awards | (0.4 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Purchases of common stock tendered by employees to satisfy the required withholding taxes related to share-based payment awards | (0.1 | ) | | — |
| | (4.3 | ) | | — |
| | — |
| | (4.3 | ) | | — |
| | (4.3 | ) |
Purchases of common stock | (1.7 | ) | | — |
| | (61.9 | ) | | — |
| | — |
| | (61.9 | ) | | — |
| | (61.9 | ) |
Other comprehensive income (loss) | — |
| | — |
| | — |
| | — |
| | 28.3 |
| | 28.3 |
| | 1.5 |
| | 29.8 |
|
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 |
|
The accompanying notesNotes are an integral part of these consolidated financial statements.Consolidated Financial Statements.
49
WORLD FUEL SERVICESKINECT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions) | | | | | | | | | | | | | | | | | |
(In millions) | For the Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Cash flows from operating activities: | | | | | |
Net income (loss) including noncontrolling interest | $ | 53.7 | | | $ | 115.9 | | | $ | 74.2 | |
Adjustments to reconcile net income including noncontrolling interest to net cash provided by operating activities: | | | | | |
Unrealized (gain) loss on derivatives | (267.5) | | | 179.9 | | | 14.5 | |
Depreciation and amortization | 104.5 | | | 107.8 | | | 81.0 | |
Noncash operating lease expense | 34.7 | | | 35.0 | | | 31.9 | |
Provision for credit losses | 4.7 | | | 7.7 | | | 6.3 | |
Share-based payment award compensation costs | 24.2 | | | 17.6 | | | 19.6 | |
Deferred income tax expense (benefit) | (30.7) | | | (18.5) | | | (7.6) | |
Unrealized foreign currency (gains) losses, net | (16.5) | | | 21.7 | | | (2.8) | |
Asset impairment charges | 32.8 | | | 0.6 | | | 4.8 | |
Other | 23.0 | | | 30.8 | | | 13.7 | |
Changes in assets and liabilities, net of acquisitions and divestitures: | | | | | |
Accounts receivable, net | 569.2 | | | (870.7) | | | (1,132.6) | |
Inventories | 186.8 | | | (252.1) | | | (135.2) | |
Prepaid expenses | 6.7 | | | (25.2) | | | (10.5) | |
Other current assets | (30.5) | | | (124.2) | | | (33.1) | |
Cash collateral with counterparties | 168.9 | | | (252.9) | | | 22.9 | |
Other non-current assets | (88.0) | | | (12.3) | | | (34.9) | |
Change in derivative assets and liabilities, net | (4.7) | | | 2.9 | | | 17.4 | |
Accounts payable | (441.9) | | | 1,107.5 | | | 1,188.8 | |
Accrued expenses and other current liabilities | (48.0) | | | 147.8 | | | 115.5 | |
Other long-term liabilities | (10.1) | | | (80.7) | | | (60.6) | |
Net cash provided by (used in) operating activities | 271.3 | | | 138.5 | | | 173.2 | |
Cash flows from investing activities: | | | | | |
Acquisition of business, net of cash acquired | (13.7) | | | (643.9) | | | (37.1) | |
Proceeds from sale of business, net of divested cash | 9.3 | | | — | | | 25.0 | |
Capital expenditures | (87.6) | | | (78.6) | | | (39.2) | |
Other investing activities, net | (9.1) | | | (2.5) | | | (7.1) | |
Net cash provided by (used in) investing activities | (101.1) | | | (724.9) | | | (58.3) | |
Cash flows from financing activities: | | | | | |
Borrowings of debt | 5,921.8 | | | 6,944.9 | | | 0.3 | |
Repayments of debt | (6,224.4) | | | (6,611.2) | | | (24.2) | |
Issuance of Convertible Notes | 350.0 | | | — | | | — | |
Dividends paid on common stock | (34.0) | | | (31.0) | | | (28.7) | |
Repurchases of common stock | (60.1) | | | (48.7) | | | (50.5) | |
Purchase of convertible note hedges | (70.5) | | | — | | | — | |
Sale of warrants | 40.0 | | | — | | | — | |
Payments of deferred consideration for acquisitions | (62.9) | | | (12.0) | | | (9.7) | |
Other financing activities, net | (12.2) | | | (4.6) | | | (0.8) | |
Net cash provided by (used in) financing activities | (152.4) | | | 237.3 | | | (113.6) | |
Effect of exchange rate changes on cash and cash equivalents | (12.0) | | | (4.7) | | | (7.8) | |
Net increase (decrease) in cash and cash equivalents | 5.9 | | | (353.8) | | | (6.6) | |
Cash and cash equivalents, as of the beginning of the period | 298.4 | | | 652.2 | | | 658.8 | |
Cash and cash equivalents, as of the end of the period | $ | 304.3 | | | $ | 298.4 | | | $ | 652.2 | |
|
| | | | | | | | | | | |
| For the Year ended December 31, |
| 2017 | | 2016 | | 2015 |
Cash flows from operating activities: | | | | | |
Net income (loss) including noncontrolling interest | $ | (170.3 | ) | | $ | 126.4 |
| | $ | 170.5 |
|
Adjustments to reconcile net income including noncontrolling interest to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 86.0 |
| | 82.3 |
| | 65.5 |
|
Provision for bad debt | 9.3 |
| | 15.4 |
| | 7.5 |
|
Share-based payment award compensation costs | 21.2 |
| | 19.2 |
| | 17.0 |
|
Deferred income tax provision (benefit) | 13.9 |
| | (36.0 | ) | | 5.3 |
|
Goodwill and other impairments | 91.9 |
| | — |
| | — |
|
Restructuring charges | 25.7 |
| | — |
| | — |
|
Foreign currency losses (gains), net | (0.6 | ) | | (11.8 | ) | | (7.3 | ) |
Other | (1.2 | ) | | (7.5 | ) | | (5.0 | ) |
Changes in assets and liabilities, net of acquisitions: | |
| | | | |
Accounts receivable, net | (366.6 | ) | | (506.8 | ) | | 485.0 |
|
Inventories | (43.9 | ) | | (49.5 | ) | | 81.4 |
|
Prepaid expenses | (19.7 | ) | | 7.7 |
| | 10.8 |
|
Short-term derivative assets, net | (0.2 | ) | | 163.7 |
| | 81.5 |
|
Other current assets | (13.9 | ) | | (20.4 | ) | | 34.0 |
|
Cash collateral with financial counterparties | (26.7 | ) | | 149.2 |
| | 133.3 |
|
Other non-current assets | (30.3 | ) | | 4.4 |
| | (1.9 | ) |
Accounts payable | 451.2 |
| | 423.4 |
| | (481.5 | ) |
Customer deposits | 13.4 |
| | (26.3 | ) | | (17.5 | ) |
Accrued expenses and other current liabilities | 77.7 |
| | (121.9 | ) | | (141.9 | ) |
Non-current income tax, net and other long-term liabilities | 88.4 |
| | (6.4 | ) | | 11.0 |
|
Total adjustments | 375.5 |
| | 78.8 |
| | 276.9 |
|
Net cash provided by operating activities | 205.2 |
| | 205.2 |
| | 447.5 |
|
Cash flows from investing activities: | | | | | |
Acquisition of businesses, net of cash acquired and other investments | (120.7 | ) | | (430.8 | ) | | (96.9 | ) |
Capital expenditures | (54.0 | ) | | (36.1 | ) | | (51.0 | ) |
Other investing activities, net | (5.4 | ) | | 38.4 |
| | 3.2 |
|
Net cash used in investing activities | (180.1 | ) | | (428.5 | ) | | (144.8 | ) |
Cash flows from financing activities: | | | | | |
Borrowings of debt | 4,472.7 |
| | 4,688.0 |
| | 4,831.2 |
|
Repayments of debt | (4,749.7 | ) | | (4,280.3 | ) | | (4,752.0 | ) |
Dividends paid on common stock | (16.3 | ) | | (16.6 | ) | | (15.3 | ) |
Purchases of common stock | (61.9 | ) | | (41.2 | ) | | (70.5 | ) |
Other financing activities, net | (6.3 | ) | | (9.0 | ) | | (10.5 | ) |
Net cash provided by (used in) financing activities | (361.6 | ) | | 340.9 |
| | (17.0 | ) |
Effect of exchange rate changes on cash and cash equivalents | 10.3 |
| | (1.5 | ) | | (5.5 | ) |
Net increase (decrease) in cash and cash equivalents | (326.2 | ) | | 116.1 |
| | 280.2 |
|
Cash and cash equivalents, as of beginning of period | 698.6 |
| | 582.5 |
| | 302.3 |
|
Cash and cash equivalents, as of end of period | $ | 372.3 |
| | $ | 698.6 |
| | $ | 582.5 |
|
The accompanying notesNotes are an integral part of these consolidated financial statements.Consolidated Financial Statements.
50
1. Basis of Presentation, New Accounting Standards, and Significant Accounting Policies
A. Basis of Presentation
B. New Accounting Standards
C. Estimates and Assumptions
D. Cash and Cash Equivalents
Our cash equivalents consist principally of overnight investments, bank money market accounts and bank time deposits which have an original maturity date of less than 90 days. These securities are carried at cost, which approximates market value.
E. Accounts Receivable and Allowance for Bad DebtCredit Losses
F. Inventories
G. Business Combinations
H. Fair Value
I. Derivatives
If the derivative instrument is not designated as a hedge, changes in the estimated fair market value are recognized as a component of revenue, costRevenue, Cost of revenue or otherOther income (expense), net (based on the underlying transaction type) in the consolidated statementsConsolidated Statements of incomeIncome and comprehensive income.Comprehensive Income. Derivatives whichthat qualify for hedge accounting may be designated as either a fair value or cash flow hedge. At the inception, and on an ongoing basis, we assess the hedging relationship to determine its effectiveness in offsetting changes in cash flows or fair value
J. Property and Equipment
Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated primarily by using the straight‑linestraight-line method over the estimated useful lives of the assets. Costs of major additions and improvements are capitalized while expenditures for maintenance and repairs, which do not extend the life of the asset, are expensed. Upon sale or disposition of property and equipment, the cost and related accumulated depreciation and amortization are eliminated from the accounts and any resulting gain or loss is credited or charged to income. Long‑livedLong-lived assets held and used by us (including property and equipment) are reviewed based on market factors and operational considerationsassessed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
K. Goodwill and Identifiable Intangible Assets
The majority of our consolidated revenues are generated through the sale of fuel and fuel-related products. We generally recognize fuel sales and services revenue on a gross basis as we have control of the products or services before they are delivered to our customers. In drawing this conclusion, we considered various factors, including inventory risk management, latitude in establishing the sales price, discretion in the supplier selection and that we are normally the primary obligor in our sales arrangements.
Revenues and expenses of the subsidiaries that have a functional currency other than the U.S. dollar have been translated into U.S. dollars at average exchange rates prevailing during the period. The assets and liabilities of these subsidiaries have been translated at the rates of exchange on the balance sheet dates. The resulting translation gain and loss adjustments are recorded in accumulated other comprehensive incomeAccumulated Other Comprehensive Income as a separate component of shareholders’ equity. Shareholders’ Equity.
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and income tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in income tax rates is recorded as a component of the income tax provision in the period that includes the enactment date.
Regular assessments are made on the likelihood that our deferred tax assets will be recovered from our future taxable income. Our evaluation is based on estimates, assumptions, and includes an analysis of available positive and negative evidence, giving weight based on the evidence’s relative objectivity. Sources of positive evidence include estimates of future taxable income, future reversal of existing taxable temporary differences, taxable income in carryback years, and available tax planning strategies. Sources of negative evidence include current and cumulative losses in recent years, losses expected in early future years, any history of operating losses or tax credit carryforwards expiring unused, and unsettled circumstances that, if unfavorably resolved, would adversely affect future profit levels.
The remaining carrying value of our deferred tax assets, after recording the valuation allowance on our deferred tax assets, is based on our present belief that it is more likely than not that we will be able to generate sufficient future taxable income in certain tax jurisdictions to utilize such deferred tax assets. The amount of the remaining deferred tax assets considered recoverable could be adjusted if our estimates of future taxable income during the carryforward period change favorably or unfavorably. To the extent we believe that it is more likely than not that some or all of the remaining deferred tax assets will not be realized, we must establish a valuation allowance against those deferred tax assets, resulting in additional income tax expense in the period such determination is made. To the extent a valuation allowance currently exists, we will continue to monitor all positive and negative evidence until we believe it is more likely than not that it is no longer necessary, resulting in an income tax benefit in the period such determination is made.
Significant judgment is required in evaluating our tax positions, and in determining our provisions for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We establish reserves when, despite our belief that the income tax return positions are fully supportable, certain positions are likely to be challenged and we may ultimately not prevail in defending those positions.
Basic earnings per common share is computed by dividing net income attributable to World FuelKinect and available to common shareholders by the weighted average number of shares of common stock outstanding for the period. Diluted earnings per common share is computed by dividing net income attributable to World Kinect and available to common shareholders by the sum of the weighted average number of shares of common stock. Diluted earnings per common share is computed by dividing net income attributable to World Fuel and available to common shareholders bystock outstanding for the sum of the weighted average number of shares of common stockperiod and the number of additional shares of common stock that would have been outstanding if our outstanding potentially dilutive securities had been issued.
2. Accounts Receivable
3. Acquisitions and Divestitures
4. Derivative Instruments
The following table presents the gross fair value of our derivative instruments and their locations on the consolidated balance sheetsConsolidated Balance Sheets (in millions):
For information regarding our derivative instruments measured at fair value after netting and collateral, see Note 12.
We enter into derivative contracts which may require us to post collateral periodically. Certain of these derivative contracts contain credit-risk-related contingent clauses which are triggered by credit events. These credit events, may include the requirement to post additional collateral or the immediate settlement of the derivative instruments upon the occurrence ofsuch as a credit downgrade or if certain defined financial ratios fall below an established threshold. The occurrence of these credit events may require us to post additional collateral or immediately settle the derivative instrument.
6. Property and Equipment
The following table provides information regarding changes in goodwill (in millions):
The following table provides information about our identifiable intangible assets (in millions):
The future estimated amortization of our identifiable intangible assets is as follows (in millions):
Outside of our Credit Facility, 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, 20172023 and 2016,2022, our outstanding letters of credit and bank guarantees under these credit lines totaled $272.0$437.1 million and $176.5$523.1 million, respectively.
Substantially all of the letters of credit and bank guarantees issued under our Credit Facility and the uncommitted credit lines were provided to suppliers in the normal course of business and generally expire within one year of issuance. Expired letters of credit and bank guarantees are renewed as needed.
9. Revenue from Contracts with Customers
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 in order to satisfy various security requirements of $44.6$71.9 million and $52.8$59.7 million as of December 31, 20172023 and 2016,2022, respectively.
We maintain a 401(k) defined contribution plan which covers all U.S. employees who meet minimum requirements and elect to participate. We are currently makingmake a matchmatching contribution of 50% for each 1% of the participants' contributions up to a maximum of 6% of the participants' contributions.contributions, subject to applicable IRS limits. Annual Company contributions by us are made at our sole discretion, as approved by the Compensation Committee. Additionally, certain of our foreign subsidiaries have defined contribution plans, which allow for voluntary contributions by the employees. In some cases, we make employer contributions on behalf of the employees. The expenses for our contributions under these plans were not material during each of the years presented on the consolidated statementsConsolidated Statements of incomeIncome and comprehensive income.Comprehensive Income.
We accrue for environmental assessment and remediation expenses when the future costs are probable and reasonably estimable. AtAs of December 31, 20172023 and 2016,2022, accrued liabilities for remediation reserves were not material. It is not presently possible to estimate the ultimate amount of all remediation costs that might be incurred or the penalties that may be imposed.
When we deem it appropriate and the amounts are reasonably estimable, we establish reserves for potential adjustments to our provision for the accrual of indirect taxes that may result from examinations or other actions by tax authorities. If events occur which indicate payment of these amounts is unnecessary, the reversal of the liabilities wouldwill result in the recognition of benefits in the period we determine the liabilities are no longer necessary. If our estimates of any of our federal, state, and foreign indirect tax liabilities are less than the ultimate assessment, it could result in a further charge to expense. Except with respect to the matters described above, we believe that the final outcome of any pending examinations, agreements, administrative or judicial proceedings will not have a material effect on our results of operations or cash flows.
We are also 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 tax and administrative claims. We have established loss provisions for these ordinary course claims as well as other matters in which losses are probable and can be reasonably estimated. As of December 31, 2017, we had recorded certain2023, our reserves whichfor such claims were not material. For those matters where a reserve has not been established and for which we believe a loss is reasonably possible, as well as for matters where a reserve has been recorded but for which an exposure to loss in excess of the amount accrued is reasonably possible, we believe that such losses will not have a material adverse effect on our consolidated financial statements.Consolidated Financial Statements. However, any adverse resolution of one or more such claims, complaints or proceedings during a particular period could have a material adverse effect on our consolidated financial statementsConsolidated Financial Statements or disclosures for that period.
Our estimates regarding potential losses and materiality are based on our judgment and assessment of the claims utilizing currently available information. Although we will continue to reassess our reserves and estimates based on future developments, our objective assessment of the legal merits of such claims may not always be predictive of the outcome and actual results may vary from our current estimates.
The following table summarizes the status of our outstanding and exercisable SSAR Awards and related transactions for each of the following years (in millions, except weighted average exercise price and weighted average remaining contractual life data):
Item 16. Form 10-K Summary
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10‑K to be signed on its behalf by the undersigned, thereunto duly authorized, on February 28, 2018.23, 2024.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10‑K has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 28, 2018.