For our derivative contracts, we may enter into master netting, collateral and offset agreements with counterparties. These agreements provide us the ability to offset a counterparty’s rights and obligations, request additional collateral when necessary, or liquidate the collateral in the event of counterparty default. We net the fair value of cash collateral paid or received against fair value amounts recognized for net derivative positions executed with the same counterparty under the same master netting or offset agreement.
t
6. Shareholders’ Equity
Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss
Our other comprehensive income (loss), consisting of foreign currency translation adjustments related to our subsidiaries that have a functional currency other than the U.S. dollar and derivative instruments, was as follows (in millions):
|
| | | | | | | | | | | | |
| | | Foreign Currency Translation Adjustments |
| | Derivative Instruments |
| | Accumulated Other Comprehensive Loss |
|
| Balance as of December 31, 2016 | | $ | (147.5 | ) | | $ | (7.4 | ) | | $ | (154.8 | ) |
| Other comprehensive income | | 29.8 |
| | 1.8 |
| | 31.6 |
|
| Less: Net other comprehensive (loss) attributable to noncontrolling interest | | (1.6 | ) | | — |
| | (1.6 | ) |
| Balance as of September 30, 2017 | | $ | (119.2 | ) | | $ | (5.6 | ) | | $ | (124.8 | ) |
| | | | | | | |
| Balance as of December 31, 2015 | | $ | (108.7 | ) | | $ | (0.8 | ) | | $ | (109.5 | ) |
| Other comprehensive (loss) | | (27.9 | ) | | (2.8 | ) | | (30.7 | ) |
| Less: Net other comprehensive (loss) income attributable to noncontrolling interest | | (1.8 | ) | | — |
| | (1.8 | ) |
| Balance as of September 30, 2016 | | $ | (134.8 | ) | | $ | (3.6 | ) | | $ | (138.3 | ) |
The foreign currency translation adjustment gains for the nine months ended September 30, 2017 were primarily due to the weakening of the U.S. dollar as compared to the British Pound. The foreign currency translation adjustment losses for the nine months ended September 30, 2016 were primarily due to the strengthening of the U.S. dollar as compared to the Brazilian Real and the British Pound.
7.8. Income Taxes
U.S. and foreign income (loss) before income taxes consist of the following (in millions):
|
| | | | | | | | | | | | | | | | |
| | | For the Three Months Ended | | | For the Nine Months Ended | |
| | | September 30, | | | September 30, | |
| | | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
|
| United States | | $ | (28.2 | ) | | $ | (13.0 | ) | | $ | (46.7 | ) | | $ | (38.6 | ) |
| Foreign | | 72.8 |
| | 61.4 |
| | 162.2 |
| | 178.6 |
|
| | | $ | 44.6 |
| | $ | 48.4 |
| | $ | 115.6 |
| | $ | 140.1 |
|
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.
We have recorded deferred tax assets for gross temporary differences where our tax basis exceeds our book basis, including net operating loss deferred tax assets primarily in the United States. We have also recorded deferred tax liabilities for gross temporary differences where our book basis exceeds our tax basis.
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 the Company’s deferred tax assets, after recording the valuation allowance on our U.S. 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.
Our income tax provision for the periods presented and the respective effective income tax rates for such periods are as follows (in millions, except for income tax rates):
|
| | | | | | | | | | | | | | | | |
| | | For the Three Months Ended | | | For the Nine Months Ended | |
| | | September 30, | | | September 30, | |
| | | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
|
| Income tax provision | | $ | 82.6 |
| | $ | 5.4 |
| | $ | 92.2 |
| | $ | 15.7 |
|
| | | | | | | | | |
| Effective income tax rate | | 185.0 | % | | 11.1 | % | | 79.8 | % | | 11.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Income tax provision | | $ | 2.0 | | | $ | 7.7 | | | $ | 10.8 | | | $ | 23.7 | |
| | | | | | | | |
| Effective income tax rate | | 10.2 | % | | (258.1) | % | | 22.9 | % | | 43.3 | % |
Our provision for income taxes for the three months ended SeptemberJune 30, 20172021 was $82.6$2.0 million, and includes a valuation allowance on our U.S. deferred tax assets of $76.9 million, due to the Company's U.S. operations generating a three-year cumulative loss during the quarter. The valuation allowance is comprised of $24.0 million of deferred tax assets generated during 2017 and $52.9 million related to deferred tax assets generatedresulting in previous years. In addition, the provision also includes other net discrete items totaling $1.7 million, primarily related to changes in estimates in uncertain tax positions and an adjustment for stock based compensation. Without the $76.9 million valuation adjustment and other discrete items, the effective income tax rate would have been 12.5% forof 10.2%. The provision includes a net discrete income tax benefit of $2.6 million, of which $4.5 million relates to the impact of a change in the United Kingdom's tax rate, reduced by a net discrete tax expense of $1.9 million related to other worldwide tax adjustments. For the three months ended SeptemberJune 30, 2017.
Our provision for income taxes for the ninesix months ended SeptemberJune 30, 20172021 was $92.2$10.8 million, and includes the U.S. valuation allowance of $76.9 million and other discrete amounts of $5.6 million related to changesresulting in estimates in uncertain tax positions and an adjustment for stock based compensation. Without the valuation allowance of $76.9 million and other discrete items, the nine months ended September 30, 2017 effective income tax rate would have been 8.3%of 22.9%.
Our The provision includes a net discrete income tax benefit of $3.8 million, which includes a $4.5 million tax benefit related to the impact of a change in the United Kingdom's tax rate and a $1.6 million tax benefit related to an adjustment for the final purchase price allocation on the sale of the MultiService payment solutions business ("MSTS"), offset by a net discrete tax expense of $2.3 million related to other worldwide tax adjustments. For the six months ended June 30, 2020, our provision for income taxes was $23.7 million resulting in an effective tax rate of 43.3%, which included a net discrete income tax expense of $4.4 million.
Our income tax concession in Singapore, which reduces the income tax rate on qualified sales and derivative gains and losses, decreased foreign income taxes by $0.2 million and $0.8 million for eachthe three months ended June 30, 2021 and 2020, respectively, and $0.6 million and $2.7 million for the six months ended June 30, 2021 and 2020, respectively. There was 0 impact of the nineincome tax concession on basic and diluted earnings per common share for the three months ended SeptemberJune 30, 20172021. The impact of the income tax concession on basic and 2016diluted earnings per common share was $0.01 and $0.01, respectively, for the three months ended June 30, 2020, and $0.01 and $0.04 on basic earnings per common share and $0.01 and $0.04 on diluted earnings per common share for the six months ended June 30, 2021 and 2020, respectively.
Our income tax provisions for the three and six months ended June 30, 2021 and 2020 were calculated based on the estimated annual effective income tax raterates for 2017the 2021 and 20162020 fiscal years.years respectively. The actual effective income tax rate for the 20172021 fiscal year may be materially different as a resultbecause of differences between estimated versus actual results and the geographic tax jurisdictions in which the results are earned.
We operatehave various tax returns under a special incomeexamination both in the U.S. and foreign jurisdictions. The most significant of these are in Denmark for the 2013 - 2019 tax concession in Singapore which began January 1, 2008. Our current 5 year special incomeyears, South Korea for the 2011 - 2014 tax concession was effective January 1, 2013. The special income tax concession is conditional upon our meeting of 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 salesyears, and the impact of this incomeU.S. for 2017 - 2018 tax concession decreased foreign income taxes by $0.2 million and $0.6 million for the three months ended September 30, 2017 and 2016, respectively, and by $1.4 million and $2.3 million for the nine months ended September 30, 2017 and 2016, respectively. The impact of the income tax concession on basic earnings per common share was $0.01 for the three months ended September 30, 2016, and $0.02 and $0.03 for the nine months ended September 30, 2017 and 2016, respectively.
The impact of the income tax concession on diluted earnings per common share was $0.01 for the three months ended September 30, 2016 and $0.02 and $0.03 for the nine months ended September 30, 2017 and 2016, respectively. The income tax concession did not have an impact on basic and diluted earnings per common share for the three months ended September 30, 2017.
The South Korea branch of oneyears. One of our subsidiaries in Denmark has been under audit for its 2013 - 2015 tax years since 2018. In January 2021, we received an incomefinal tax assessments for the 2013 and 2014 tax years of approximately $0.6 million (DKK 3.7 million) and $0.8 million (DKK 4.9 million), respectively. We believe these assessments are without merit and are currently appealing the actions. In addition, in March 2021, we received notice that the Danish subsidiary’s 2016 – 2019 tax years were also under examination. Finally, on April 28, 2021, we received a proposed tax assessment notice for the years 2011 - 2014 totaling $8.22015 tax year of approximately $15.3 million (KRW 9.2 billion).(DKK 96.1 million), which we believe is without merit. We disagree with the South Korea tax authorities' assessment and are in the process of appealing.
8. Goodwillresponding to the proposed assessment and Identifiable Intangible Assets
Goodwill arises because the purchase price paid for our acquisitions reflects numerous factors, including2016 - 2019 information requests. We have not yet received any proposed assessments related to the strategic fit and expected synergies these acquisitions bring to our existing operations. Goodwill2016 - 2019 tax years, which could be materially larger than the previous assessments if a similar methodology is recorded at fair value and is reviewed at least annually for impairment.
Goodwill evaluations are performed at the reporting unit level and are 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. Factors that could affect fair value include material adverse changes in the markets in which a unit operates, such as the prolonged weakness within the global shipping and offshore oil exploration markets, and extended periods of oversupplied global fuel markets combined with limited market volatility, which can adversely impact the demand for our products and services, among others.
The following table provides the components of and changes in the carrying amount of goodwill (in millions):
|
| | | | | | | | | | | | | | | | |
| | | Aviation |
| | Land |
| | Marine |
| | Total |
|
| Balance as of December 31, 2016 | | $ | 266.8 |
| | $ | 496.7 |
| | $ | 72.3 |
| | $ | 835.8 |
|
| Additions | | 46.4 |
| | — |
| | — |
| | 46.4 |
|
| Foreign exchange and other adjustments | | 8.9 |
| | 9.9 |
| | 0.1 |
| | 19.0 |
|
| Balance as of September 30, 2017 | | $ | 322.2 |
| | $ | 506.6 |
| | $ | 72.4 |
| | $ | 901.1 |
|
applied. 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 are reviewed for impairment at least annually during the fourth quarter, or more frequently if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
The following table provides information about our identifiable intangible assets (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of September 30, 2017 | | | As of December 31, 2016 | |
| | Gross Carrying Amount |
| | Accumulated Amortization |
| | Net |
| | Gross Carrying Amount |
| | Accumulated Amortization |
| | Net |
|
| Intangible assets subject to amortization: | | | | | | | | | | | |
| Customer relationships | $ | 391.7 |
| | $ | 181.9 |
| | $ | 209.8 |
| | $ | 353.8 |
| | $ | 155.5 |
| | $ | 198.3 |
|
| Supplier agreements | 38.7 |
| | 14.8 |
| | 23.9 |
| | 38.7 |
| | 13.3 |
| | 25.4 |
|
| Others | 40.9 |
| | 25.1 |
| | 15.8 |
| | 37.2 |
| | 20.2 |
| | 17.0 |
|
| | 471.4 |
| | 221.9 |
| | 249.5 |
| | 429.8 |
| | 189.1 |
| | 240.7 |
|
| Intangible assets not subject to amortization: | | | | | | | | | | | |
| Trademark/trade name rights | 40.2 |
| |
|
| | 40.2 |
| | 41.7 |
| |
|
| | 41.7 |
|
| | $ | 511.6 |
| | $ | 221.9 |
| | $ | 289.6 |
| | $ | 471.4 |
| | $ | 189.1 |
| | $ | 282.3 |
|
9. Earnings per Common Share
The following table sets forth the computation of basic and diluted earnings per common share for the periods presented (in millions, except per share amounts):
|
| | | | | | | | | | | | | | | | |
| | | For the Three Months Ended | | | For the Nine Months Ended | |
| | | September 30, | | | September 30, | |
| | | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
|
| Numerator: | | | | | | | | |
| Net income (loss) attributable to World Fuel | | $ | (38.5 | ) | | $ | 42.7 |
| | $ | 22.8 |
| | $ | 124.3 |
|
| Denominator: | | | | | | | | |
| Weighted average common shares for basic earnings per common share | | 67.9 |
| | 69.1 |
| | 68.3 |
| | 69.4 |
|
| Effect of dilutive securities | | 0.3 |
| | 0.4 |
| | 0.3 |
| | 0.5 |
|
| Weighted average common shares for diluted earnings per common share | | 68.2 |
| | 69.5 |
| | 68.6 |
| | 69.9 |
|
| | | | | | | | | |
| Weighted average securities which are not included in the calculation of diluted earnings per common share because their impact is anti-dilutive or their performance conditions have not been met | | 1.6 |
| | 1.3 |
| | 1.4 |
| | 1.3 |
|
| | | | | | | | | |
| Basic earnings per common share | | $ | (0.57 | ) | | $ | 0.62 |
| | $ | 0.33 |
| | $ | 1.79 |
|
| | | | | | | | | |
| Diluted earnings per common share | | $ | (0.57 | ) | | $ | 0.61 |
| | $ | 0.33 |
| | $ | 1.78 |
|
10. Commitments and Contingencies
Tax Matters
From time to time, we are under review by various domestic and foreign tax authorities with regards to indirect tax matters and are involved in various challenges and litigation in a number of countries, including, in particular, Brazil and South Korea, where the amounts under controversy may be significant.
During the quarter ended December 31, 2016,2017, the Korean branch (“WFSK”)Branch of one of our subsidiaries received assessments of approximately $10.6income tax assessment notices aggregating $10.0 million (KRW 11.9 billion) and during the quarter ended June 30, 2017, an assessment for an additional $17.9 million (KRW 20.111.3 billion) from the regional tax authorities of Seoul, South Korea (“SRTO”). The assessments primarily consist of fines and penalties for allegedly failing to issue Value Added Tax ("VAT") invoices and report certain transactions during the period 2011-2014. These assessments do not involve failure to pay or collect VAT.tax authorities. We believe that these assessments are without merit and are currently appealing the actions.
We are also involved In addition, in January of 2020, we received a numbernotice of tax disputes with federal, state and municipal tax authorities in Brazil, relating primarily to VAT (ICMS) tax matters. These disputes are at various stages ofexamination from the legal process, including the administrative review phase and the collection action phase, and include assessments of fixed amounts of principal and penalties, plus interest.
When we deem it appropriate and the amounts are reasonably estimable, we establish reserves for potential adjustments to our provisionU.S. IRS for the accrual of indirect taxes that may result from examinations or other actions by2017 - 2018 tax authorities. If events occur which indicate payment of these amounts is unnecessary, the reversal of the liabilities would resultyears and are in the recognitionprocess of benefitsresponding to information requests. In June 2021, we received a notice of proposed adjustment for the 2017 and 2018 tax years which is not material that we are in the period we determine the liabilities are no longer necessary. If our estimatesprocess 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.
Other Matters
On August 31, 2016, Hanjin Shipping Co., Ltd. (“Hanjin”), one of our customers in our marine segment, filed for bankruptcy protection in South Korea and on September 1, 2016, the Korean Rehabilitation Court accepted Hanjin’s application for rehabilitation. On February 17, 2017, the Korean Rehabilitation Court formally adjudicated the liquidation of Hanjin. As of September 30, 2017, the outstanding Hanjin receivables were not material.
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. 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 September 30, 2017, we had recorded certain reserves which 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. However, any adversereviewing. An unfavorable resolution of one or more such claims, complaints or proceedings during a particular periodof the above matters could have a material adverse effect on our consolidated financial statementsoperating results or disclosures for that period.
Our estimates regarding potential losses and materialitycash flows in the quarter or year in which the adjustments are based on our judgment and assessmentrecorded, or the tax is due or paid. As examinations are still in process or have not yet reached the final stages of the claims utilizing currently available information. Although we will continue to reassess our reserves and estimates based on future developments, our objective assessmentappeals process, the timing of the legal merits of such claimsultimate resolution or payments that may not always be predictive of the outcome and actual results may vary from our current estimates.required cannot be determined at this time.
11.
9. Business Segments
We operate in three3 reportable segments consisting of aviation, land and marine. Corporate expenses are allocated to the segments based on usage, where possible, or on other factors according to the nature of the activity. Our operating segments are determined based on the different markets in which we provide products and services, which are defined primarily by the customers and the products and services provided to those customers. Accordingly, our aviation, land and marine segments are organized based on the specific markets their functional business components serve, which are primarily businesses and governmental customers operating in those respective markets.
In our aviation segment, we offer fuel and related products and services to major commercial airlines, second and third tier airlines, cargo carriers, regional and low cost carriers, airports, fixed based operators, corporate fleets, fractional operators, private aircraft, military fleets and the U.S. and foreign governments as well as intergovernmental organizations.
In our land segment, we offer fuel, lubricants, power and natural gas solutions 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 each of our segments we may enter into derivative contracts to mitigate the risk of market price fluctuations and also to offer our customers fuel pricing alternatives to meet their needs.
Information concerning our revenue, grossRevenue, Gross profit and incomeIncome from operations by reportable segment is as follows (in millions):
|
| | | | | | | | | | | | | | | | |
| | | For the Three Months Ended | | | For the Nine Months Ended | |
| | | September 30, | | | September 30, | |
| Revenue: | | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
|
| Aviation segment | | $ | 3,705.8 |
| | $ | 2,969.2 |
| | $ | 10,531.6 |
| | $ | 7,810.2 |
|
| Land segment | | 2,770.5 |
| | 2,509.8 |
| | 8,117.9 |
| | 6,375.9 |
|
| Marine segment | | 2,066.7 |
| | 1,920.7 |
| | 6,173.9 |
| | 5,037.5 |
|
| | | $ | 8,543.0 |
| | $ | 7,399.8 |
| | $ | 24,823.4 |
| | $ | 19,223.6 |
|
| | | | | | | | | |
| Gross profit: | | | | | | | | |
| Aviation segment | | $ | 123.9 |
| | $ | 111.7 |
| | $ | 334.8 |
| | $ | 298.9 |
|
| Land segment | | 85.5 |
| | 87.8 |
| | 270.5 |
| | 261.7 |
|
| Marine segment | | 30.5 |
| | 37.2 |
| | 97.0 |
| | 116.0 |
|
| | | $ | 239.9 |
| | $ | 236.7 |
| | $ | 702.3 |
| | $ | 676.7 |
|
| Income from operations: | | | | | | | | |
| Aviation segment | | $ | 61.6 |
| | $ | 52.6 |
| | $ | 151.7 |
| | $ | 123.8 |
|
| Land segment | | 13.1 |
| | 13.9 |
| | 46.7 |
| | 64.0 |
|
| Marine segment | | 4.3 |
| | 10.3 |
| | 19.9 |
| | 32.8 |
|
| | | 79.1 |
| | 76.8 |
| | 218.4 |
| | 220.5 |
|
| Corporate overhead - unallocated | | (17.8 | ) | | (18.6 | ) | | (55.5 | ) | | (55.7 | ) |
| | | $ | 61.3 |
| | $ | 58.2 |
| | $ | 162.8 |
| | $ | 164.8 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| Revenue: | | 2021 | | 2020 | | 2021 | | 2020 |
| Aviation segment | | $ | 2,805.8 | | | $ | 1,020.6 | | | $ | 4,900.8 | | | $ | 4,784.8 | |
| Land segment | | 2,457.2 | | | 1,197.6 | | | 4,645.4 | | | 3,303.6 | |
| Marine segment | | 1,822.4 | | | 940.2 | | | 3,497.1 | | | 3,085.2 | |
| Total revenue | | $ | 7,085.5 | | | $ | 3,158.3 | | | $ | 13,043.4 | | | $ | 11,173.5 | |
| | | | | | | | |
| Gross profit: | | | | | | | | |
| Aviation segment | | $ | 87.4 | | | $ | 91.9 | | | $ | 164.1 | | | $ | 185.0 | |
| Land segment | | 73.8 | | | 84.8 | | | 163.3 | | | 191.0 | |
| Marine segment | | 22.7 | | | 37.2 | | | 48.2 | | | 96.6 | |
| Total gross profit | | $ | 183.9 | | | $ | 213.9 | | | $ | 375.5 | | | $ | 472.6 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Income from operations: | | | | | | | | |
| Aviation segment | | $ | 34.0 | | | $ | 9.0 | | | $ | 57.0 | | | $ | 38.1 | |
| Land segment | | 8.1 | | | 9.7 | | | 40.9 | | | 35.3 | |
| Marine segment | | 4.8 | | | 13.3 | | | 11.1 | | | 47.2 | |
| Corporate overhead - unallocated | | (15.9) | | | (20.1) | | | (40.5) | | | (37.9) | |
| Total income from operations | | $ | 30.9 | | | $ | 11.9 | | | $ | 68.6 | | | $ | 82.7 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Information concerning our accountsAccounts receivable, net of allowance for credit losses and totalTotal assets by reportable segment is as follows (in millions):
| | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
| Accounts receivable, net: | | | | |
| Aviation segment, net of allowance for credit losses of $26.4 and $41.2 as of June 30, 2021 and December 31, 2020, respectively | | $ | 700.6 | | | $ | 464.7 | |
| Land segment, net of allowance for credit losses of $3.6 and $5.0 as of June 30, 2021 and December 31, 2020, respectively | | 533.4 | | | 394.5 | |
| Marine segment, net of allowance for credit losses of $6.2 and $7.6 as of June 30, 2021 and December 31, 2020, respectively | | 601.0 | | | 379.2 | |
| Total accounts receivable, net | | $ | 1,835.0 | | | $ | 1,238.4 | |
| | | | |
| Total assets: | | | | |
| Aviation segment | | $ | 2,054.4 | | | $ | 1,789.5 | |
| Land segment | | 1,652.4 | | | 1,459.5 | |
| Marine segment | | 977.8 | | | 667.6 | |
| Corporate | | 565.1 | | | 583.7 | |
| Total assets | | $ | 5,249.8 | | | $ | 4,500.3 | |
|
| | | | | | | | |
| | | As of | |
| | | September 30, |
| | December 31, |
|
| | | 2017 |
| | 2016 |
|
| Accounts receivable, net: | | | | |
| Aviation segment, net of allowance for bad debt of $9.4 and $6.6 as of September 30, 2017 and December 31, 2016, respectively | | $ | 934.3 |
| | $ | 776.0 |
|
| Land segment, net of allowance for bad debt of $7.8 and $8.2 as of September 30, 2017 and December 31, 2016, respectively | | 794.0 |
| | 737.5 |
|
| Marine segment, net of allowance for bad debt of $11.1 and $10.2 as of September 30, 2017 and December 31, 2016, respectively | | 855.1 |
| | 830.5 |
|
| | | $ | 2,583.4 |
| | $ | 2,344.0 |
|
| Total assets: | | |
| | |
|
| Aviation segment | | $ | 2,242.3 |
| | $ | 2,050.6 |
|
| Land segment | | 2,014.7 |
| | 1,928.5 |
|
| Marine segment | | 1,309.6 |
| | 1,287.7 |
|
| Corporate | | 156.4 |
| | 145.8 |
|
| | | $ | 5,723.1 |
| | $ | 5,412.6 |
|
10. Earnings per Common Share
The following table sets forth the computation of basic and diluted earnings per common share for the periods presented (in millions, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Numerator: | | | | | | | | |
| Net income attributable to World Fuel | | $ | 17.6 | | | $ | (10.2) | | | $ | 36.5 | | | $ | 31.2 | |
| Denominator: | | | | | | | | |
| Weighted average common shares for basic earnings per common share | | 63.4 | | | 63.3 | | | 63.2 | | | 64.1 | |
| Effect of dilutive securities | | 0.4 | | | 0 | | | 0.5 | | | 0.3 | |
| Weighted average common shares for diluted earnings per common share | | 63.8 | | | 63.3 | | | 63.6 | | | 64.4 | |
| | | | | | | | |
| Basic earnings (loss) per common share | | $ | 0.28 | | | $ | (0.16) | | | $ | 0.58 | | | $ | 0.49 | |
| | | | | | | | |
| Diluted earnings (loss) per common share | | $ | 0.28 | | | $ | (0.16) | | | $ | 0.57 | | | $ | 0.48 | |
| | | | | | | | |
| Weighted average securities which are not included in the calculation of diluted earnings per common share because their impact is anti-dilutive or their performance conditions have not been met | | 0.9 | | | 3.4 | | | 0.9 | | | 2.8 | |
11. Commitments and Contingencies
Tax Matters
From time to time, we are under review by various domestic and foreign tax authorities with regard to indirect tax matters and are involved in various challenges and litigation in a number of countries, including, in particular, Brazil and South Korea, where the amounts under controversy may be material. We believe that these assessments are without merit and are currently appealing the actions.
During the quarter ended December 31, 2016, the Korean branch of one of our subsidiaries received assessments of approximately $10.4 million (KRW 11.7 billion) and during the quarter ended June 30, 2017, an assessment for an additional $17.8 million (KRW 20.1 billion) from the regional tax authorities of Seoul, South Korea. The assessments primarily consist of fines and penalties for allegedly failing to issue Value Added Tax ("VAT") invoices and report certain transactions during the period 2011-2014. These assessments do not involve failure to pay or collect VAT. We believe that these assessments are without merit and are currently appealing the actions.
We are also involved in a number of tax disputes with federal, state and municipal tax authorities in Brazil, relating primarily to a VAT tax known as ICMS. These disputes are at various stages of the legal process, including the administrative review phase and the collection action phase, and include assessments of fixed amounts of principal and penalties, plus interest. One of our Brazilian subsidiaries is currently appealing an assessment of approximately $11.6 million (BRL 57.3 million) from the Brazilian tax authorities relating to the ICMS rate used for certain transactions. The assessment primarily consists of interest and penalties. We believe that the assessment is without merit and are pursuing our remedies in the judicial court system.
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 will 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.
Other 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 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 June 30, 2021, these reserves were not material. For those matters where a reserve has not been established and for which we believe a loss is reasonably possible, we believe that such losses will not have a material adverse effect on our 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 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.
12. Restructuring
As a result of the review of our land business and changes in the overall economic landscape for all our reportable segments due to the COVID-19 pandemic, in the first quarter of 2020, we implemented a restructuring initiative focused on streamlining our operations and rationalizing our deployment and allocation of resources. While we took several actions during the year ended December 31, 2020, our focus was primarily on cost-reduction initiatives in response to the pandemic. In 2021, we heightened our focus on restructuring our land business in North America, which has included reorganizing and relocating certain business activities, as well as implementing changes to the operational and management structure of the business. While we initially expected to finalize the overall restructuring plan by the end of the second quarter of 2021, we elected to expand the plan in order to finalize the alignment of processes and platforms within the land segment. We currently expect to complete the necessary activities by the end of the first quarter of 2022 and incur additional restructuring charges of approximately $6.0 million to $8.0 million.
During the six months ended June 30, 2021, we incurred incremental charges of $5.1 million, comprised principally of external consulting fees supporting the land restructuring and related severance costs. These costs are included in Restructuring charges in our Condensed Consolidated Statements of Income and Comprehensive Income. Our accrued restructuring charges as of June 30, 2021 are included in Accrued expenses and other current liabilities on our Condensed Consolidated Balance Sheets.
The following table provides a summary of our restructuring activities (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Aviation | | Land | | Marine | | Corporate | | Consolidated |
| Accrued charges as of December 31, 2020 | | $ | 0.9 | | | $ | 4.6 | | | $ | 0.9 | | | $ | 0.1 | | | $ | 6.6 | |
| Restructuring charges | | 0.9 | | | 4.2 | | | 0 | | | 0 | | | 5.1 | |
| Paid during the period | | (0.6) | | | (2.6) | | | (0.3) | | | (0.1) | | | (3.6) | |
| Accrued charges as of June 30, 2021 | | $ | 1.1 | | | $ | 6.3 | | | $ | 0.6 | | | $ | 0 | | | $ | 8.0 | |
| |
Item 2. | Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion should be read in conjunction with our 20162020 10-K Report and the consolidated financial statementsunaudited Condensed Consolidated Financial Statements and related notesNotes in “ItemItem 1 —- Financial Statements” appearing elsewhere inStatements of this 10-Q Report. A reference to a "Note" herein refers to the accompanying Notes to the Condensed Consolidated Financial Statements contained in Item 1 - Financial Statements. The following discussion may contain forward-looking statements, and our actual results may differ significantlymaterially from the results suggested by these forward-looking statements. Some factors that may cause our results to differ are disclosed in “ItemItem 1A —- Risk Factors”Factors of our 20162020 10-K Report.
Forward-Looking Statements
Certain statements made in this reportThis 10-Q Report and the information incorporated by reference in it, or made by us in other reports, filings with the Securities and Exchange Commission (“SEC”),SEC, press releases, teleconferences, industry conferences or otherwise, arecontain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “project,” “could,” “would,” “will,” “will be,” “will continue,” “will likely result,” “plan,” or words or phrases of similar meaning. Specifically, this 10-Q Report includes forward-looking statements regarding (i) the ultimate impact of the coronavirus pandemic, or COVID-19, and related travel restrictions on us and our customers, including our expectations about demand, volume, profitability and the impact of fuel prices, (ii) the conditions in the aviation, land, and marine markets and their impact on our business, (iii) our expectations regarding reductions of government-related activity in Afghanistan with the North Atlantic Treaty Organization (NATO) and the timing and impact of the final troop withdrawals on our future sales, (iv) the effectiveness of our initiatives to reduce cost, improve liquidity and increase efficiencies, as well as the impact of such initiatives on our business, (v) our expectations regarding the reopening of our offices and the role of remote work in our operations, including any adjustments to our plans, (vi) growth strategies and our working capital, liquidity, capital expenditure requirements, (vii) the expected benefit of our land segment restructuring and its ability to create efficiencies and allow for greater scalability and quicker integration of new businesses to capture synergies, (viii) our expectations and estimates regarding certain tax, legal and accounting matters, including the impact on our financial statements, (ix) our expectations regarding the financial impact and other benefits of previous acquisitions, including estimates of future expenses and our ability to realize estimated synergies, and (x) estimates regarding the financial impact of our derivative contracts. These forward-looking statements are qualified in their entirety by cautionary statements and risk factor disclosures contained in our SEC filings.
Forward-lookingThese 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. The Company’sAlthough 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 10-Q Report include, but are not limited to, our expectations about the conditions in the aviation, land and marine markets in 2017, our cost reduction initiatives, our expectations regarding government-related activity and the related profit contribution, our expectations about the effect of acquisitions on our aviation and land segments, the timing, cost 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, sharpen our portfolio and manage the related costs, 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 expectations about our business strategy, business prospects, operating results, effectiveness of internal controls to manage risk, working capital, liquidity, capital expenditure requirements and future acquisitions. These forward-looking statements are qualified in their entirety by cautionary statements and risk factor disclosures contained in the Company’s Securities and Exchange Commission filings, including the Company’s Annual Report on Form 10-K filed with the SEC on February 21, 2017. 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;contracts, particularly for those customers most significantly impacted by the COVID-19 pandemic;
•the extent of the impact of the pandemic, including the duration, spread, severity and scope of related government orders and restrictions, on ours and our customers' sales, profitability, operations and supply chains;
extended periods of low oil prices and limited market volatility;
changes in the political, economic or regulatory conditions generally and in the markets in which we operate;
our failure to effectively hedge certain financial risks and the use of derivatives;
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;customer, such as NATO;
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;operate, such as the current global economic environment as a result of the pandemic;
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•sudden changes in the value of recorded intangible assets and goodwill;
the impact of cyber and other information security-related incidents;
currency exchange fluctuations;
currency and other global market impacts associated with United Kingdom ("U.K.") referendum vote to exit from the European Union;
failureprice of fuel and other products we sell to meet specifications;or extremely high or low fuel prices that continue for an extended period of time;
our ability to manage growth;
our ability to effectively integrate and derive benefits from acquired businesses;
material disruptions in the availability or supply of fuel;
environmental and other risks associated with the storage, transportation and delivery of petroleum products;
risks associated with operating in high risk locations;
uninsured losses;
our ability to realize the benefit of any cost savings;
the impact of natural disasters, such as earthquakes and hurricanes;
•our failure to comply with restrictions and covenants in our senior revolving credit facility (“Credit Facility”) and our senior term loans (“Term Loans”);, including our financial covenants;
•changes in the political, economic or regulatory environment generally and in the markets in which we operate, such as legislation enacted in response to climate change;
•our failure to effectively hedge certain financial risks and other risks associated with derivatives;
•changes in credit terms extended to us from our suppliers;
•non-performance of suppliers on their sale commitments and customers on their purchase commitments;
•non-performance of third-party service providers;
•our ability to meet financial forecasts associated with our operating plan;
•lower than expected cash flows and revenues, which could impair our ability to realize the value of recorded intangible assets and goodwill;
•the availability of cash and sufficient liquidity to fund our working capital and strategic investment needs;
•the impact of cyber and other information security-related incidents;
•currency exchange fluctuations;
•ability to effectively leverage technology and operating systems and realize the anticipated benefits;
•failure to meet fuel and other products specifications agreed with our customers;
•our ability to effectively integrate and derive benefits from acquired businesses;
•our ability to achieve the expected level of benefit from our restructuring activities and cost reduction initiatives;
•environmental and other risks associated with the storage, transportation and delivery of petroleum products;
•risks associated with operating in high-risk locations, including supply disruptions, border closures and other logistical difficulties that arise when working in these areas;
•uninsured or underinsured losses;
•seasonal variability that adversely affects our revenues and operating results, as well as the impact of natural disasters, such as earthquakes, hurricanes and wildfires;
•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 United States ("U.S.") or foreign tax laws, 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 significantmaterial deferred tax assets and net operating loss carryforwards;
•the impact of the U.K.’s exit from the European Union, known as Brexit, on our business, operations and financial condition;
•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 and other proceedings, including the costs associated in defending any actions;
the liquidity and solvency of banks within our Credit Facility and Term Loans;
•increases in interest rates; and
•other risks, including those described in “ItemItem 1A - Risk Factors”Factors in our 20162020 10-K Report, andas well as 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 10-Q 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 the Companyus following this report that modify or impact any of the forward-looking statements contained in or accompanying this 10-Q 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 (the “Exchange Act”).
Business Overview
We are a leading global energy managementfuel services company, involvedprincipally engaged in providing energy procurement advisorythe distribution of fuel and related products and services supply fulfillment and transaction and payment management solutions to commercial and industrial customers, principally in the aviation, land and marine transportation industries. In recent years, we have expanded our land product and service offerings to include energy advisory services and supply fulfillment for natural gas and power to commercial, industrial and government customers. Our intention is to become a leading global energy management company offering a full suite of energy advisory, management and fulfillment services, technology solutions, payment management solutions, as well as sustainability products and services across the energy product spectrum. We compete by providingwill continue to focus on enhancing the portfolio of products and services we provide based on changes in customer demand, including sustainability offerings and renewable energy solutions.
COVID-19
Throughout 2020, the COVID-19 pandemic had a significant impact on the global economy as a whole, and the transportation industries in particular, which has continued into 2021. Many of our customers with value-added benefits, including single-supplier convenience, competitive pricing, the availability of trade credit, price risk management, logistical support, fuel quality control and fuel procurement outsourcing.
The overall aviation market remains strong, reflecting healthy airline financial performance and strong overall demand. Our aviation segment has benefited from our increased logistics capability and expanded footprintin these industries, especially commercial airlines, have experienced a substantial decline in business activity arising from the acquisitionvarious measures enacted by governments around the world to contain the spread of international aviation fueling operationsthe virus. While travel and economic activity has begun to improve in certain regions, activity in many parts of the world continues to be negatively impacted by travel restrictions and lockdowns.
In response to the challenges arising from various ExxonMobil affiliates, which has facilitatedthe pandemic, we took swift action to ensure the safety of our expansion into additional airport locations. The aviation segment has benefited from increased sales to government customers, which include the U.S. Defense Logistics Agency, the North Atlantic Treaty Organization (NATO)employees and other governmentstakeholders by implementing our business continuity and military customers. Sales to government customers account for a significant portionemergency response plans and maximizing remote work throughout our global offices. Since the first quarter of 2020, many of our aviation segment's profitability. Weemployees have been collaborating virtually with our customers, suppliers and each other using the information-sharing tools and technology that we have invested in over the last several years. In connection therewith, we also commenced a number of initiatives in 2020 relating to cost reduction, liquidity and operating efficiencies, which remain an area of focus for us in 2021. While we expect that a number of our government-related activity to remain strong, althoughoffices will reopen in the latter half of 2021, we believe that remote work will continue to be an integral part of our response plan as we monitor and assess public health developments and make appropriate adjustments to support the related profit contribution will decrease in 2018 aswell-being of our employees.
As a result of compressed margins associated with contract renewals. Sales to government customers are driven by global eventsthe pandemic, we experienced a sharp decline in demand and military-related activities and can therefore significantly change from period to period and materially impact our results of operations.
Our land segment has grownrelated sales primarily through acquisitions as we seek to build out our land fuel distribution capabilities, primarilybeginning in the U.S. and U.K. Recently, our land segment has been negatively impacted by lower profitability from our supply and trading activitiessecond quarter of 2020, as a resultlarge sectors of oversupplied market conditions in 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.
Our marine segment continues to beglobal economy were adversely impacted by the weak conditions withincrisis. Demand showed some moderate improvement through the global shippingsecond half of 2020 and offshore oil exploration marketsinto 2021, however, it has remained well below pre-pandemic levels, as described in greater detail below and has experienced lower overall volumes in our core business as compared to historical levels. We have also experienced lower demand for our price risk management products as a result of low fuel prices and limited market volatility. As a result, we have conducted certain cost reduction initiatives to lower our marine segment cost structure to address current market conditions. We currently do not anticipate a meaningful improvement in the overall macroeconomic environment and continue to rationalize our operating model to gain efficiencies through various initiatives that are ongoing throughout the company.
We continue to seek the most cost-effective means and efficient structure to serve our customers and suppliers and to respond to changes in the markets in which we operate. Accordingly, from time to time, we have, and are likelyexpect these negative impacts to continue through 2021. The ultimate global recovery from the pandemic will be dependent on, among other things, actions taken by governments and businesses to divestcontain and combat the virus, including any variant strains, the speed and effectiveness of certain non-core assets, exit lines of business or otherwise restructure certain of our operations in an effort to improve cost competitivenessvaccine production and profitability. For example, we divested certain of our convenience store assets in 2016 and also engaged in
cost reduction initiatives, principally in our marine segment in 2016 and throughout our organization in 2017. We are currently reviewing other non-core businesses and investments which we may divest or exit in the futureglobal distribution, as well as beginninghow quickly, and to develop our 2018 annualwhat extent, normal economic and operating plan and are identifying other areas for cost containment to further sharpen our portfolio, such as divesting of our remaining convenience store assets and exiting our rail business, among others. Any proceeds from divestitures are typically used to pay down debt or invested in other areas of our business. Reorganization and exit costs vary significantly dependingconditions can resume on a sustainable basis globally. For additional discussion on the scope of such activities as does their effectivenessrisks relating to the pandemic, see Item 1A - Risk Factors in addressing market deterioration, and therefore may also result in financial charges for the impairment of assets, including goodwill and other intangible assets.our 2020 10-K Report.
We continue to evaluate all of the foregoing circumstances and these, as well as other changes in the industries in which we operate, such as increased competition or changes in regulation, can impact our annual operating plan, results of operations, tangible and intangible assets and cash flows.
Reportable Segments
We operate in three reportable segments consisting of aviation, land, and marine. In our aviation segment,marine, where we offer fuel and related products and services to major commercial airlines, second and third tier airlines, cargo carriers, regional and low cost carriers, airports, fixed based operators, corporate fleets, fractional operators, private aircraft, military fleets and the U.S. and foreign governments as well as intergovernmental organizations. In our land segment, we offer fuel, lubricants, power and natural gas solutions through Kinect, our global energy management services platform, and related products and services to customers including petroleum distributors operating in the landthese 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.industries. Within each of our segments, we may enter into derivative contracts to mitigate the risk of market price fluctuations and also to offer our customers fuel pricing alternatives to meet their needs.
In our aviation and land segments, we primarily purchase and resell fuel and other products. Profit from our aviation and land segments is primarilygenerally determined by the volume and the gross profit achieved on fuel sales and a percentage of card payment and processing revenue.related services. In our marine segment, we primarilyprincipally purchase and resell fuel and also act as brokers for others. Profit from our marine segment is determined primarilymostly by the volume and gross profitunit margin achieved on fuel resales and by the volume and commission rate of the brokering business.resales. Profitability in our segments also depends on our operating expenses, which may be significantlymaterially affected to the extent that we are required to provide for potential bad debt.
Our revenue and cost of revenue are significantly impacted by fuel prices. Significant movements in fuel prices during any given financial period can have a significant impact on our gross profit, either positively or negatively depending on the direction, volatility and timing of such price movements. Additionally, 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 aviation and land fuel during the summer months, as well as other seasonal weather patterns.
Corporate expenses are allocated to each segment based on usage, where possible, or on other factors according to the nature of the activity. We evaluate and manage our business segments using the performance measurement of income from operations.
The results of operations include the results of the fueling operations acquired in Italy, Germany, Australia and New Zealand as of their respective acquisition dates.
Selected financial information with respect to our business segments is provided in Note 9. Business Segments.
Aviation Segment
Our aviation segment has historically benefited from growth in our fuel and related services offerings, as well as our improving logistics capability and the geographic expansion of our aviation fueling operations into additional international airport locations. However, the global travel restrictions and sharp decrease in demand for air travel resulting from the COVID-19 pandemic have significantly impacted the overall aviation market, and commercial passenger airlines in particular, throughout 2020 and into 2021. Accordingly, beginning in the second quarter of 2020 and continuing through the first half of 2021, we have experienced a material volume decline in our commercial aviation business as compared to pre-pandemic levels and, to a somewhat lesser extent, a reduction in our business and general aviation activities. While we have begun to experience improvements in demand and related volume increases in certain regions, our results of operations in our aviation segment for the balance of 2021 remains uncertain. Any material recovery in demand will be highly contingent on the timing and extent of governmental actions or restrictions globally in response to any increases in infection rates and the overall recovery of the global economy from the effects of the pandemic.
In addition, our aviation segment has historically benefited from significant sales to NATO in Afghanistan, which has accounted for a material portion of our aviation segment's profitability in recent years. The level of troop deployments and military-related activities can cause our government customer sales to vary significantly and materially impact our operating results. Specifically, in 2020 the U.S. government significantly reduced the level of troops in Afghanistan, including the troops supporting NATO. As a result, we experienced a material decline in demand throughout 2020, which continued into 2021. Beginning in May 2021, the U.S. and NATO began their final withdrawal of the remaining U.S. and NATO troops in the area to be completed by September 11, 2021. In July, the U.S. announced that its withdrawal was nearing completion and would conclude by August 31, 2021. In connection therewith, we expect to experience additional material decline in our sales to NATO in Afghanistan.
Land Segment
Our land segment consists of land fuel distribution in the U.S. and the U.K., further complemented by our expansion into energy advisory, brokerage and fulfillment solutions with respect to power, natural gas and other energy products. We also offer sustainability consulting, renewable fuel products, and carbon management and renewable energy solutions through World Kinect, our global energy management brand. Due to the accompanying consolidateddiverse portfolio of customers, businesses and activities within our land segment, the COVID-19 related impacts have been varied. During the latter half of 2020 and into 2021, our retail operations in North America have experienced an increase in volumes as markets begin to resume economic activity. Meanwhile, our home heating oil business in the U.K. experienced a decrease in demand in the first half of 2021 after previously benefiting from stay-at-home orders during the same period in 2020. Accordingly, the timing and extent of improvement in the overall operating results of our land segment are more difficult to predict and will continue to be dependent on the timing and extent to which travel restrictions are ultimately lifted and local business activities fully reopen. In addition, for the same reasons as those described in the aviation segment, we have experienced a material decline in demand in our government business since the end of the first quarter of 2020 and similarly expect such sales to materially decline in connection with the U.S. and NATO troop withdrawal.
In 2021, we heightened our focus on restructuring our land business in North America, which has included reorganizing and relocating certain business activities, as well as implementing changes to the operational and management structure of the business. While we initially expected to complete the restructuring activities in the second quarter of 2021, we elected to expand the plan in order to finalize the alignment of processes and platforms within the land segment to focus not just on creating efficiencies within the existing business, but to allow for greater scalability and quicker integration of new businesses to capture synergies. To complete the additional activities, we expect to incur incremental restructuring charges of approximately $6.0 million to $8.0 million, primarily related to consulting fees, by the end of first quarter of 2022. We expect the ultimate financial statements includedbenefit of the restructuring to be realized as new businesses are acquired and integrated into our land segment. See Note 12. Restructuring for additional information.
Marine Segment
Through much of 2019 and into early 2020, we experienced improved profitability in this 10‑Q Report.our marine segment due to higher average fuel prices, combined with our heightened focus on cost management and continued reshaping of our business portfolio. In particular, the International Maritime Organization's mandatory low sulfur regulations that took effect in January 2020 ("IMO 2020") resulted in certain supply imbalances and price volatility which positively impacted our operating results in those periods. However, beginning in the latter part of the first quarter of 2020 and continuing through the first half of 2021, we experienced a material decline in volume and related profitability primarily due to the impact of the COVID-19 pandemic on the marine transportation industry. While we have experienced some improvements in demand, we expect our marine segment’s operating performance to continue to be impacted by the pandemic throughout 2021. This is due to among other things, uncertain demand from cruise lines and certain other sectors of the shipping industry, as well as competitive market conditions and limited price volatility.
Results of Operations
Three Months Ended SeptemberJune 30, 20172021 Compared to Three Months Ended SeptemberJune 30, 20162020
Revenue. Our revenue for the thirdsecond quarter of 20172021 was $8.5$7.1 billion, an increase of $1.1$3.9 billion, or 15.4%124%, as compared to the thirdsecond quarter of 2016.2020. Our revenue during these periodsby segment was attributable to the following segmentsas follows (in millions):
| | | | | For the Three Months ended | | | | | | | | | | | | | | | | | | | | |
| | | September 30, | | | | | Three Months Ended June 30, | |
| | | 2017 |
| | 2016 |
| | $ Change |
| | 2021 | | 2020 | | $ Change |
| Aviation segment | | $ | 3,705.8 |
| | $ | 2,969.2 |
| | $ | 736.5 |
| Aviation segment | | $ | 2,805.8 | | | $ | 1,020.6 | | | $ | 1,785.2 | |
| Land segment | | 2,770.5 |
| | 2,509.8 |
| | 260.7 |
| Land segment | | 2,457.2 | | | 1,197.6 | | | 1,259.7 | |
| Marine segment | | 2,066.7 |
| | 1,920.7 |
| | 146.0 |
| Marine segment | | 1,822.4 | | | 940.2 | | | 882.3 | |
| | | $ | 8,543.0 |
| | $ | 7,399.8 |
| | $ | 1,143.2 |
| |
| Total revenue | | Total revenue | | $ | 7,085.5 | | | $ | 3,158.3 | | | $ | 3,927.1 | |
Revenues in our aviation segment were $3.7$2.8 billion for the thirdsecond quarter of 2017,2021, an increase of $0.7$1.8 billion, or 24.8% as175%, compared to the thirdsecond quarter of 2016.2020. The increase in aviation revenues was attributable to increased volumes associated with seasonal gains in our core resale operations in North America and from our acquired international fueling operations. Total volumes for the third quarter of 2017 were 2.1 billion gallons, an increase of 8.8%, as compared to the comparable prior year period. The overall increase in revenue was also driven by increased volume and higher average jet fuel prices per gallon soldprices. Total aviation volumes increased by 685.6 million, or 100%, to 1.4 billion gallons as travel restrictions eased, primarily in the third quarter of 2017, where the averageNorth American market, and demand for air travel continues to recover. Average jet fuel price per gallon sold was $1.71, asincreased by 87% in the second quarter of 2021 compared to $1.57 in the thirdsecond quarter of 2016.
2020.
Revenues in our land segment were $2.8$2.5 billion for the thirdsecond quarter of 2017,2021, an increase of $0.3$1.3 billion, or 10.4%105%, as compared to the thirdsecond quarter of 2016.2020. The increase in land revenues primarily resulted from a 0.1 billion gallon volume increase to 1.5 billion gallons for the third quarter of 2017, an increase of 5.3%, primarily attributable to acquired businesses. The overall increase in revenue was also influencedprincipally driven by a higher average fuelprices. The average price per gallon sold increased by 89% in the thirdsecond quarter of 2017, as2021 compared to the thirdsecond quarter of 2016.
Revenues in our marine segment were $2.1$1.8 billion for the thirdsecond quarter of 2017,2021, an increase of $146.0$882.3 million, or 7.6%94%, as compared to the thirdsecond quarter of 2016.2020. The increase in revenue was principally driven by higher average fuel prices, where we experienced a 23.9%69% increase in the average price per metric ton of bunker fuel sold to $303.2 in the thirdsecond quarter of 2017 as2021 compared to $244.8 in the thirdsecond quarter of 2016. Despite the revenue increase, overall prices remain low compared2020. In addition, total volumes increased by 0.6 million, or 15%, to historical levels, and we do not anticipate meaningful improvements in the overall macroeconomic environment over the remainder of 2017. Volumes in our marine segment declined 13.1% to 6.84.6 million metric tons forin the thirdsecond quarter of 2017, as2021 compared to the 2016 period, driven principally by lower volumes in our core operations, specifically in Asia.second quarter of 2020.
Gross Profit. Our gross profit for the thirdsecond quarter of 20172021 was $239.9$183.9 million, an increasea decrease of $3.2$30.0 million, or 1.4%14%, as compared to the thirdsecond quarter of 2016. In connection with the recent natural disasters, including the earthquake in Mexico and hurricanes Harvey and Irma, we experienced certain business interruptions within our aviation and land segments, including supply disruptions, which adversely impacted the timing and consequently the cost of our inventory purchases, and we also incurred limited damage to certain facilities and other assets. We continue to assess the overall impact to our ongoing business operations of these events and during the period ended September 30, 2017, the impact of these events was approximately $8.0 million.
2020. Our gross profit during these periodsby segment was attributable to the following segmentsas follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | |
| | 2021 | | 2020 | | $ Change |
| Aviation segment | | $ | 87.4 | | | $ | 91.9 | | | $ | (4.5) | |
| Land segment | | 73.8 | | | 84.8 | | | (10.9) | |
| Marine segment | | 22.7 | | | 37.2 | | | (14.5) | |
| Total gross profit | | $ | 183.9 | | | $ | 213.9 | | | $ | (30.0) | |
|
| | | | | | | | | | | | |
| | | For the Three Months ended | | | |
| | | September 30, | | | |
| | | 2017 |
| | 2016 |
| | $ Change |
|
| Aviation segment | | $ | 123.9 |
| | $ | 111.7 |
| | $ | 12.3 |
|
| Land segment | | 85.5 |
| | 87.8 |
| | (2.3 | ) |
| Marine segment | | 30.5 |
| | 37.2 |
| | (6.8 | ) |
| | | $ | 239.9 |
| | $ | 236.7 |
| | $ | 3.2 |
|
Our aviation segment gross profit for the thirdsecond quarter of 20172021 was $123.9$87.4 million, an increasea decrease of $12.3$4.5 million, or 11.0%5%, as compared to the thirdsecond quarter of 2016.2020. The increasedecrease in aviation gross profit was primarilydriven by a reduction in our government-related activity in Afghanistan as a result of the ongoing military withdrawal, the decrease in average margins due to increased activity from our government-relatedreturning to a more normalized core business including certain spot government supply opportunities. These increases were partially offset by hurricane-related market volatility, which negatively impacted fuel prices.
mix, and lower physical inventory gains when compared with the second quarter of 2020.
Our land segment gross profit for the thirdsecond quarter of 20172021 was $85.5$73.8 million, a decrease of $2.3$10.9 million, or 2.6%13%, as compared to the thirdsecond quarter of 2016.2020. The decrease in land segment gross profit is principallywas primarily attributable to lower profitability related to our supplythe sale of MSTS, partially offset by increased demand in North America and trading activities in the U.S. and the aforementioned hurricane-related disruptions during the third quarter of 2017, as compared to the comparable prior year quarter.
World Kinect.
Our marine segment gross profit for the thirdsecond quarter of 20172021 was $30.5$22.7 million, a decrease of $6.8$14.5 million, or 18.2%39%, compared to the second quarter of 2020. The decrease in gross profit was principally attributable to lower profitability as compared to the thirdsecond quarter of 2016. Our marine segment continues to be adversely impacted by further deterioration2020, which benefited from volatility arising from the implementation of the IMO 2020 regulations, as well as competitive market conditions and limited price volatility in the overall maritime industry. The gross profit decline was principally driven by reduced volumes in our core resale business, primarily in Asia, and a further decline in profits from the salesecond quarter of price risk management products to our global marine customers.2021.
Operating Expenses. Total operating expenses for the thirdsecond quarter of 20172021 were $178.6$153.0 million, an increasea decrease of $0.2$49.0 million, or 0.1%24%, compared to 2020. Our operating expenses were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | |
| | 2021 | | 2020 | | $ Change |
| Compensation and employee benefits | | $ | 87.9 | | | $ | 95.9 | | | $ | (8.0) | |
| General and administrative | | 57.4 | | | 84.4 | | | (27.0) | |
| Asset impairments | | 4.7 | | | 18.6 | | | (13.9) | |
| Restructuring charges | | 3.0 | | | 3.1 | | | (0.1) | |
| Total operating expense | | $ | 153.0 | | | $ | 202.0 | | | $ | (49.0) | |
General and administrative expenses decreased $27.0 million, primarily driven by a $25.8 million, or 105%, decrease in our provision for credit losses due to the stabilization of customer credit risk as the global economy continues to recover from the negative effects of the pandemic and the sale of MSTS. In addition, employee compensation costs decreased by $8.0 million, or 8%, in the second quarter of 2021 compared to the thirdsecond quarter of 2016. The2020, also principally due to the sale of MSTS. In 2020, total increase in operating expensesexpense was also impacted by impairment charges associated with acquisition related costs that were directly attributableour decision to rationalize our acquired businesses. The following table sets forth our expense categories (in millions):global office footprint.
|
| | | | | | | | | | | | |
| | | For the Three Months ended | | | |
| | | September 30, | | | |
| | | 2017 |
| | 2016 |
| | $ Change |
|
| Compensation and employee benefits | | $ | 107.6 |
| | $ | 106.6 |
| | $ | 1.0 |
|
| Provision for bad debt | | 2.4 |
| | 1.5 |
| | 0.9 |
|
| General and administrative | | 68.6 |
| | 70.3 |
| | (1.7 | ) |
| | | $ | 178.6 |
| | $ | 178.4 |
| | $ | 0.2 |
|
Income from Operations. Income from operations during these periods was attributable to the following segments (in millions):
|
| | | | | | | | | | | | |
| | | For the Three Months ended | | | |
| | | September 30, | | | |
| | | 2017 |
| | 2016 |
| | $ Change |
|
| Aviation segment | | $ | 61.6 |
| | $ | 52.6 |
| | $ | 9.0 |
|
| Land segment | | 13.1 |
| | 13.9 |
| | (0.8 | ) |
| Marine segment | | 4.3 |
| | 10.3 |
| | (5.9 | ) |
| | | 79.1 |
| | 76.8 |
| | 2.3 |
|
| Corporate overhead - unallocated | | (17.8 | ) | | (18.6 | ) | | 0.8 |
|
| | | $ | 61.3 |
| | $ | 58.2 |
| | $ | 3.1 |
|
Our income from operations for the thirdsecond quarter of 20172021 was $61.3$30.9 million, an increase of $3.1$19.1 million, or 5.3%160%, as compared to the thirdsecond quarter of 2016. The increase2020. Income from operations by segment was attributable toas follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | |
| | 2021 | | 2020 | | $ Change |
| Aviation segment | | $ | 34.0 | | | $ | 9.0 | | | $ | 25.1 | |
| Land segment | | 8.1 | | | 9.7 | | | (1.6) | |
| Marine segment | | 4.8 | | | 13.3 | | | (8.6) | |
| | | | | | |
| Corporate overhead - unallocated | | (15.9) | | | (20.1) | | | 4.2 | |
| Total income from operations | | $ | 30.9 | | | $ | 11.9 | | | $ | 19.1 | |
Income from operations in our aviation segment for the second quarter of 2021 was $34.0 million, an increase of $25.1 million, or 279%, compared to the second quarter of 2020. In 2021, our aviation segment principally benefited from a reduction in the provision for credit losses due to the stabilization of customer credit risk as the global aviation industry continues to recover and the global office footprint rationalization that resulted in the recognition of an impairment in the second quarter of 2020.
In our land segment, income from operations for the second quarter of 2021 was $8.1 million, a decrease of $1.6 million, or 17%, compared to 2020, attributable due to the sale of MSTS in 2020 as well as costs incurred during the second quarter of 2020 associated with a specific business opportunity.
Our marine segment income from operations for the second quarter of 2021 was $4.8 million, a decrease of $8.6 million, or 64%, compared to the second quarter of 2020, which benefited from increased activityvolatility arising from our government-related business. The increasethe implementation of the IMO 2020 regulations, as well as competitive market conditions and limited price volatility in aviation wasthe second quarter of 2021, partially offset by a $6.0 million reduction in operating expenses largely driven by the marine segment and, to a lesser extent our land segment. Within our marine segment, we experienced lower volumesdecrease in our core business, primarily in Asia, and a further decline in profits from our price risk management product activities globally. Within our land segment, we experienced lower profitability related to our supply and trading activitiesprovision for credit losses in the U.S. as compared to the comparable prior year period. In addition, the aviation and land segments were both negatively impacted by hurricane-related disruptions, which adversely impacted fuel costs.
second quarter of 2021.
Corporate overhead costs not charged to the business segments for the thirdsecond quarter of 20172021 were $17.8$15.9 million, a decrease of $0.8$4.2 million, or 4.2%21%, as compared to 2020, primarily attributable to the thirdimpairment charge recognized in 2020 as part of the office footprint rationalization and divestiture related costs incurred in the second quarter of 2016. 2020.
Non-Operating Expenses,Income (Expense), net. For the thirdsecond quarter of 2017,2021, we had a non-operating expenses, netexpense of $16.7$11.4 million an increase of $6.8 million as compared to $14.9 million in 2020. Non-operating expenses were higher in the thirdsecond quarter of 2016, driven principally by higher finance costs associated with outstanding borrowings.2020, primarily as a result of foreign currency losses.
Income Taxes. For the thirdsecond quarter of 2017,2021, our income tax provision was $2.0 million and our effective income tax rate was 185.0% and our10%, compared to an income tax provision was $82.6of $7.7 million as compared toand an effective income tax rate of 11.1% and an(258 %) for the second quarter of 2020. The change in income tax provision resulted primarily from differences in the results of $5.4our subsidiaries in tax jurisdictions with different tax rates, and a $2.6 million discrete tax benefit, net for the thirdsecond quarter of 2016. The higher effective income2021 compared to a $3.4 million discrete tax rateexpense, net in 2020. See Note 8. Income Taxes for the third quarter of 2017 was attributable to our recording of a valuation allowance against the net U.S. deferred tax assets in the amount of $76.9 million, due to the Company's U.S. operations generating a three-year cumulative loss during the quarter. The valuation allowance is comprised of $24.0 million of deferred tax assets generated during 2017 and $52.9 million related to deferred tax assets generated in previous years. In addition, the provision also includes other net discrete items totaling $1.7 million, primarily related to changes in estimates in uncertain tax positions and an adjustment for stock based compensation. Without the $76.9 million valuation adjustment and other discrete items, the effective income tax rate for the third quarter of 2017 would have been 12.5%.additional information.
Net Income Attributable to Noncontrolling Interest. For the third quarter of 2017, net income attributable to noncontrolling interest was $0.6 million, an increase of $0.3 million as compared to the third quarter of 2016.
Net IncomeWorld Fuel and Diluted Earnings per Common Share. For the thirdsecond quarter of 2017,2021, we had anet income attributable to World Fuel of $17.6 million and diluted income per common share of $0.28 compared to net loss attributable to World Fuel of $38.5$10.2 million and a diluted loss per common share of $0.57 as compared to net income of $42.7 million and diluted earnings per common share of $0.61 per common share$0.16 for the thirdsecond quarter of 2016.2020.
NineSix Months Ended SeptemberJune 30, 20172021 Compared to NineSix Months Ended SeptemberJune 30, 20162020
Revenue. Our revenue for the first ninesix months of 20172021 was $24.8$13.0 billion, an increase of $5.6$1.9 billion, or 29.1%17%, as compared to the first ninesix months of 2016.2020. Our revenue during these periodsby segment was attributable to the following segmentsas follows (in millions):
| | | | | For the Nine Months Ended | | | | | | | | | | | | | | | | | | | | |
| | | September 30, | | | | | Six Months Ended June 30, | |
| | | 2017 |
| | 2016 |
| | $ Change |
| | 2021 | | 2020 | | $ Change |
| Aviation segment | | $ | 10,531.6 |
| | $ | 7,810.2 |
| | $ | 2,721.4 |
| Aviation segment | | $ | 4,900.8 | | | $ | 4,784.8 | | | $ | 116.1 | |
| Land segment | | 8,117.9 |
| | 6,375.9 |
| | 1,742.0 |
| Land segment | | 4,645.4 | | | 3,303.6 | | | 1,341.8 | |
| Marine segment | | 6,173.9 |
| | 5,037.5 |
| | 1,136.4 |
| Marine segment | | 3,497.1 | | | 3,085.2 | | | 411.9 | |
| | | $ | 24,823.4 |
| | $ | 19,223.6 |
| | $ | 5,599.8 |
| |
| Total revenue | | Total revenue | | $ | 13,043.4 | | | $ | 11,173.5 | | | $ | 1,869.9 | |
Revenues in our aviation segment were $10.5$4.9 billion for the first ninesix months of 2017,2021, an increase of $2.7 billion,$116.1 million, or 34.8%2%, as compared to the first ninesix months of 2016.2020. The increase in aviation revenuesrevenue was driven by higher average prices, partially offset by decreased volumes. Average jet fuel prices per gallon sold in the first nine months of 2017, where the average price per gallon sold was $1.67, as compared to $1.49increased by 16% in 2016. The overall increase was also attributable to increased volumes which for the first ninesix months of 2017 were 5.9 billion gallons, an increase of 13.0%, as2021 compared to the comparable prior year period, driven principallyfirst six months of 2020. Total aviation volumes decreased by higher15.7 million, or 1%, to 2.5 billion gallons, as a result of the decline in activity within U.S. and foreign military-related activity and fromin our international fueling operations.
commercial aviation business due to the impact of the COVID-19 pandemic on air travel beginning in the second quarter of 2020.
Revenues in our land segment were $8.1$4.6 billion for the first ninesix months of 2017,2021, an increase of $1.7$1.3 billion, or 27.3%41%, as compared to the first ninesix months of 2016.2020. The increase in land revenues primarily resulted from arevenue was driven by higher average prices and increased volume. Average fuel price per gallon sold duringincreased 40% in the first ninesix months of 2017, as2021 compared to the first ninesix months of 2016. The overall increase was also attributable2020. Total volumes increased by 42.2 million, or 2%, to an increase2.6 billion gallon or gallon equivalents in volumes from acquired businesses, where volumes for the first ninesix months of 2017 were 4.5 billion gallons, an increase of 15.2%, as2021 compared to the first ninesix months of 2016.
2020, primarily driven by growth in World Kinect.
Revenues in our marine segment were $6.2$3.5 billion for the first ninesix months of 2017,2021, an increase of $1.1 billion,$411.9 million, or 22.6%13%, as compared to the first ninesix months of 2016.2020. The increase in revenue was driven primarily by a 42.4%14% increase in the average price per metric ton of bunker fuel sold, partially offset by decreased volume. Total volumes decreased by 0.1 metric tons, or 1%, from 8.9 to $302.58.8 million metric tons in the first ninesix months of 2017 as2021 compared to $212.3 in the first nine months of 2016. Volumes in our marine segment for the first nine months of 2017 were 20.4 million metric tons, a decrease of 14.0%, as compared to the first nine months of 2016, driven principally by lower volumes in Asia and further deterioration in the overall maritime industry.2020.
Gross Profit. Our gross profit for the first ninesix months of 20172021 was $702.3$375.5 million, an increasea decrease of $25.6$97.1 million, or 3.8%21%, as compared to the first ninesix months of 2016.2020. Our gross profit during these periodsby segment was attributable to the following segmentsas follows (in millions):
| | | | | For the Nine Months Ended | | | | | | | | | | | | | | | | | | | | |
| | | September 30, | | | | | Six Months Ended June 30, | |
| | | 2017 |
| | 2016 |
| | $ Change |
| | 2021 | | 2020 | | $ Change |
| Aviation segment | | $ | 334.8 |
| | $ | 298.9 |
| | $ | 35.8 |
| Aviation segment | | $ | 164.1 | | | $ | 185.0 | | | $ | (21.0) | |
| Land segment | | 270.5 |
| | 261.7 |
| | 8.8 |
| Land segment | | 163.3 | | | 191.0 | | | (27.8) | |
| Marine segment | | 97.0 |
| | 116.0 |
| | (19.0 | ) | Marine segment | | 48.2 | | | 96.6 | | | (48.4) | |
| | | $ | 702.3 |
| | $ | 676.7 |
| | $ | 25.6 |
| |
| Total gross profit | | Total gross profit | | $ | 375.5 | | | $ | 472.6 | | | $ | (97.1) | |
Our aviation segment gross profit for the first ninesix months of 20172021 was $334.8$164.1 million, an increasea decrease of $35.8$21.0 million, or 12.0%11%, as compared to the first ninesix months of 2016.2020. The increasedecrease in aviation gross profit was primarily due to increased activity fromthe continued reduction in our government-related business, including certain spot government supply opportunities and increased volumes from our international fueling operations. These increases wereactivity in Afghanistan as a result of the ongoing military withdrawal, partially offset by disruptions associated with hurricanes Harvey and Irma, which negatively impacted fuel prices.
recovery in demand for air travel.
Our land segment gross profit for the first ninesix months of 20172021 was $270.5$163.3 million, an increasea decrease of $8.8$27.8 million, or 3.4%15%, as compared to the first ninesix months of 2016.2020. The increasedecrease in land segment gross profit was primarily driven by recently acquired businesses and and wereattributable to the sale of MSTS, partially offset by continued lower profits fromimproved performance by our supply and trading activitiesnatural gas business in the U.S., and hurricane-related disruptions.
North America.
Our marine segment gross profit for the first ninesix months of 20172021 was $97.0$48.2 million, a decrease of $19.0$48.4 million, or 16.4%50%, compared to the first six months of 2020. The decrease in gross profit was primarily attributable to lower profitability as compared to the strong results in the first ninesix months of 2016. The marine segment continues to be adversely impacted by2020, which benefited from volatility arising from the prolonged weaknessimplementation of the IMO 2020 regulations, as well as competitive market conditions and limited price volatility in the overall maritime industry, leading to lower volumes and profitability in our core business, primarily in Asia, combined with a further decline in profits from the salefirst six months of price risk management products globally.2021.
Operating Expenses. Total operating expenses for the first ninesix months of 20172021 were $539.5$306.9 million, an increasea decrease of $27.6$83.0 million, or 5.4%21%, as compared to the first ninesix months of 2016. The total increase in2020. Our operating expenses was primarily associated with acquired businesses. The following table sets forth our expense categorieswere as follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | |
| | 2021 | | 2020 | | $ Change |
| Compensation and employee benefits | | $ | 180.3 | | | $ | 198.3 | | | $ | (18.0) | |
| General and administrative | | 116.8 | | | 168.2 | | | (51.4) | |
| Asset impairments | | 4.7 | | | 18.6 | | | (13.9) | |
| Restructuring charges | | 5.1 | | | 4.8 | | | 0.3 | |
| Total operating expense | | $ | 306.9 | | | $ | 389.9 | | | $ | (83.0) | |
Our general and administrative expenses materially decreased compared to the first six months of 2020, primarily driven by a $32.2 million, or 93%, decrease in our provision for credit losses due to the stabilization of customer credit risk as the global economy continues to recover from the negative effects of the pandemic combined with the sale of MSTS and the cost-reduction initiatives started in 2020. Additionally, employee compensation costs decreased by $18.0 million, or 8%, in the first six months of 2021 compared to the first six months of 2020, principally due to the sale of MSTS. In 2020, total operating expense was also impacted by impairment charges associated with our decision to rationalize our global office footprint. |
| | | | | | | | | | | | |
| | | For the Nine Months Ended | | | |
| | | September 30, | | | |
| | | 2017 |
| | 2016 |
| | $ Change |
|
| Compensation and employee benefits | | $ | 314.5 |
| | $ | 306.2 |
| | $ | 8.3 |
|
| Provision for bad debt | | 6.3 |
| | 5.4 |
| | 0.9 |
|
| General and administrative | | 218.7 |
| | 200.2 |
| | 18.4 |
|
| | | $ | 539.5 |
| | $ | 511.9 |
| | $ | 27.6 |
|
Income from Operations. Our income from operations excluding unallocated corporate overhead, for the first ninesix months of 20172021 was $218.4$68.6 million, a decrease of $2.2$14.1 million, or 1.0%17%, as compared to the first ninesix months of 2016.2020. Income from operations during these periodsby segment was attributable to the following segmentsas follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | |
| | 2021 | | 2020 | | $ Change |
| Aviation segment | | $ | 57.0 | | | $ | 38.1 | | | $ | 18.9 | |
| Land segment | | 40.9 | | | 35.3 | | | 5.5 | |
| Marine segment | | 11.1 | | | 47.2 | | | (36.1) | |
| | | | | | |
| Corporate overhead - unallocated | | (40.5) | | | (37.9) | | | (2.5) | |
| Total income from operations | | $ | 68.6 | | | $ | 82.7 | | | $ | (14.1) | |
|
| | | | | | | | | | | | |
| | | For the Nine Months Ended | | | |
| | | September 30, | | | |
| | | 2017 |
| | 2016 |
| | $ Change |
|
| Aviation segment | | $ | 151.7 |
| | $ | 123.8 |
| | $ | 28.0 |
|
| Land segment | | 46.7 |
| | 64.0 |
| | (17.3 | ) |
| Marine Segment | | 19.9 |
| | 32.8 |
| | (12.9 | ) |
| | | 218.4 |
| | 220.5 |
| | (2.2 | ) |
| Corporate overhead - unallocated | | (55.5 | ) | | (55.7 | ) | | 0.2 |
|
| | | $ | 162.8 |
| | $ | 164.8 |
| | $ | (2.0 | ) |
Our aviation segment income from operations including unallocated corporate overhead, for the first ninesix months of 20172021 was $162.8$57.0 million, a decreasean increase of $2.0$18.9 million or 1.2%, as compared to the first ninesix months of 2016. The2020. In 2021, the decrease in the gross profit was attributableoffset by a reduction in the provision for credit losses due to our land and marine segments. In ourthe stabilization of customer credit risk as the global aviation industry continues to recover, as well as the impairment recognized in the second quarter of 2020 as a result of the global office footprint rationalization.
Our land segment income from operations for the first ninesix months of 20172021 was $46.7$40.9 million, a decreasean increase of $17.3$5.5 million or 27.0%, as compared to the first ninesix months of 2016. Within2020, driven primarily by improved performance by our land segment we experienced continued lower profits from our supply and trading activitiesnatural gas business in North America, partially offset by the U.S., hurricane-related disruptions, as well as increased acquisition-related costs that were directly attributable to our acquired businesses. In oursale of MSTS in 2020.
Our marine segment income from operations for the first ninesix months of 20172021 was $19.9$11.1 million, a decrease of $12.9$36.1 million, or 39.3%, as compared to 2020. The decrease in operating income was primarily attributable to the strong results in the first ninesix months of 2016. Our marine segment was adversely impacted by2020, which benefited from volatility arising from the prolonged weaknessimplementation of the IMO 2020 regulations, as well as competitive market conditions and limited price volatility in the overall maritime industry.first six months of 2021. The declines in our land and marine segments werelower gross profit was partially offset by increasesa decrease in our aviation segment, where we experienced increased volumes from our international fueling operations, and increased activityoperating expenses, including the provision for credit losses, as well as the impairment recognized in our government-related business.
2020 as a result of the global office footprint rationalization.
Corporate overhead costs not charged to the business segments for the first ninesix months of 20172021 were $55.5$40.5 million, a decreasean increase of $0.2$2.5 million, or 0.3%7%, as compared to the first ninesix months of 2016, principally driven2020, primarily attributable to an increase in unallocated employee compensation and benefit costs, partially offset by additional costs related to overall corporate enterprise activities that are not charged to the business segments and are designed to support our growingimpairment charge recognized in 2020 as part of the global business.office footprint rationalization.
Non-Operating Expenses,Income (Expenses), net. WeFor the first six months of 2021, we had net non-operating income of $21.3 million, compared to net non-operating expenses net of $47.3$28.1 million for the first ninesix months of 2017, an increase2020. Non-operating expenses were higher in the second half of $22.5 million2020, primarily as compared to the first nine monthsa result of 2016 driven principally by higher finance costs.foreign currency losses.
Income Taxes. For the first ninesix months of 2017,2021, our income tax provision was $10.8 million and our effective income tax rate was 79.8% and our23%, as compared to an income tax provision was $92.2of $23.7 million as compared toand an effective income tax rate of 11.2% and an income tax provision of $15.7 million43% for the first ninesix months of 2016. Our higher2020. The lower tax provision was principally a result of the jurisdictional income mix and a discrete tax benefit of $3.8 million, net in 2021 compared to a discrete tax expense of $4.4 million, net in 2020. See Note 8. Income Taxes for income taxes for the first nine months of 2017 was attributable to the Company recording a valuation allowance against the net U.S. deferred tax assets in the amount of $76.9 million, which is comprised of $24.0 million of deferred tax assets generated during 2017 and $52.9 million related to deferred tax assets generated in previous years. In addition, the provision also includes other net discrete items totaling $5.6 million, primarily related to changes in estimates in uncertain tax positions and an adjustment for stock based compensation. Without the valuation allowance of $76.9 million and other discrete items, the effective income tax rate for the first nine months of 2017 would have been 8.3%.additional information.
Net Income Attributable to Noncontrolling Interest. For the first nine months of 2017, net income attributable to noncontrolling interest was $0.6 million, an increase of $0.5 million as compared to the first nine months of 2016.
Net IncomeWorld Fuel and Diluted Earnings per Common Share. OurFor the first six months of 2021, we had a net income for the first nine months of 2017 was $22.8$36.5 million a decrease of $101.5 million as compared to the first nine months of 2016. Dilutedand diluted earnings per common share of $0.57 as compared to net income of $31.2 million and diluted earnings per common share of $0.48 for the first ninesix months of 2017 was $0.33 per common share, a decrease of $1.45 per common share, as compared to the first nine months of 2016.2020.
Liquidity and Capital Resources
Cash Flows
The following table reflects the major categories of cash flows for the nine months ended September 30, 2017 and 2016 (in millions). For additional details, please see the consolidated statements of cash flows.
|
| | | | | | | | |
| | | For the Nine Months Ended | |
| | | September 30, | |
| | | 2017 |
| | 2016 |
|
| Net cash provided by operating activities | | $ | 45.2 |
| | $ | 220.3 |
|
| Net cash (used in) investing activities | | (133.0 | ) | | (259.2 | ) |
| Net cash (used in) provided by financing activities | | (72.7 | ) | | 325.7 |
|
Operating Activities. For the first nine months of 2017, net cash provided by operating activities was $45.2 million as compared to $220.3 million for the first nine months of 2016. The $175.1 million decrease in operating cash flows was primarily due to year-over-year changes in assets and liabilities, net of acquisitions. Cash flows from short-term derivative assets, net and the associated cash collateral we are required to post with our financial counterparties declined, as a result of reduced hedging activities. In addition, cash flows from accounts receivable, net declined as a result of increased volumes and higher average fuel prices per gallon sold. Offsetting these declines were increased cash flows from accounts payable primarily as a result of increased average fuel prices.
Investing Activities. For the first nine months of 2017, net cash used in investing activities was $133.0 million as compared to $259.2 million for the first nine months of 2016. The $126.2 million decrease in cash used in investing activities was primarily due to decreased cash used for the acquisition of businesses of $171.8 million partially offset by an $8.9 million increase in capital expenditures and $29.3 million related to the proceeds from the sale of a business in 2016.
Financing Activities. For the first nine months of 2017, net cash used in financing activities was $72.7 million as compared to $325.7 million net cash provided by financing activities for the first nine months of 2016. The $398.4 million change was principally due to a $351.9 million decrease in net borrowings under our credit facility in the first nine months of 2017 as compared to the first nine months of 2016 and a $43.5 million increase in cash used for common stock repurchases in the first nine months of 2017 as compared to the first nine months of 2016.
Other Liquidity Measures
Cash and Cash Equivalents. As of September 30, 2017 and December 31, 2016, we had cash and cash equivalents of $546.0 million and $698.6 million, respectively. Our primary use of cash and cash equivalents are to fund working capital and strategic investments. We are usually extended unsecured trade credit from our suppliers for our fuel purchases. Increases in oil prices can negatively affect liquidity by increasing the amount of cash needed to fund fuel purchases as well as reducing the amount of fuel which we can purchase on an unsecured basis from our suppliers.
Credit Facility and Term Loans. We had $840.0 million in Term Loans outstanding as of September 30, 2017 and December 31, 2016. We also have a Credit Facility which permits borrowing up to $1.26 billion with a sublimit of $400.0 million for the issuance of letters of credit and bankers' acceptances. Under the Credit Facility, we have the right to request increases in available borrowings up to an additional $200.0 million, subject to the satisfaction of certain conditions. The credit facility matures in October 2021. We had outstanding borrowings under our Credit Facility totaling $297.0 million and $325.2 million as of September 30, 2017 and December 31, 2016, respectively. Our issued letters of credit under the Credit Facility totaled $6.5 million and $8.3 million as of September 30, 2017 and December 31, 2016, respectively. As of September 30, 2017 and December 31, 2016, the unused portion of our Credit Facility was $956.5 million and $926.5 million, respectively.
Our liquidity, consisting of cash, and cash equivalents and availability under the Credit Facility fluctuates based on a number of factors, including the timing of receipts from our customers, and payments to our suppliers, changes in fuel prices, as well as commodity prices. Availabilityour financial performance, which drives availability under our Credit Facility. Our availability under our Credit Facility, for example, is also limited by, among other things, our financialconsolidated total leverage ratio, which limits the total amount of indebtedness we may incur, and may therefore fluctuate from period to period.
Our Credit Facility and our Term Loans contain certain financial and other covenants with which we are required to comply. Our failure to comply with the covenants containedis defined in our Credit Facility and our Term Loans could result in an event of default. An event of default, if not cured or waived, would permit acceleration of any outstanding indebtedness under the Credit Facility and is based in part on our Term Loans, trigger cross‑defaults under certain other agreementsadjusted consolidated earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) for the four immediately preceding fiscal quarters. Accordingly, significant fluctuations in our Adjusted EBITDA for a particular quarter can impact our availability to the extent it significantly alters our Adjusted EBITDA for the applicable preceding four quarters. See Item 1A - Risk Factors in our 2020 10-K Report for additional information.
Cash and liquidity are significant priorities for us and our primary use of cash and liquidity is to fund working capital and strategic investments. Increases in fuel prices can negatively affect liquidity by increasing the amount of cash required to fund fuel purchases. In addition, while we are usually extended unsecured trade credit from our suppliers for our fuel purchases, higher fuel prices may reduce the amount of fuel which we are a partycan purchase on an unsecured basis, and impair our abilityin certain cases, we may be required to obtain working capital advances and issue letters of credit,prepay fuel purchases, which would negatively impact our liquidity. Fuel price increases may also negatively impact our customers, in that they may not be able to purchase as much fuel from us because of their credit limits with us and the resulting adverse impact on their business could cause them to be unable to make payments owed to us for fuel purchased on credit. They may also choose to reduce the amount of fuel they consume in their operations to reduce costs. In any such event, the volume of orders from our customers may thereafter decrease and we may not be able to replace lost volumes with new or existing customers.
As described in greater detail above, the COVID-19 pandemic is expected to continue to have an adverse impact on our customers, and therefore our own operating results throughout 2021, which could have a material adverse effectnegative impact on our business, financial condition, results of operations and cash flows. As of September 30, 2017, we were in compliance with all financial covenants contained in our Credit Facility and our Term Loans.
Other Agreements. Additionally, we have other uncommitted credit lines primarily for the issuance of letters of credit, bank guarantees and bankers’ acceptances. These credit lines are renewable on an annual basis and are subject to fees at market rates. As of September 30, 2017 and December 31, 2016, our outstanding letters of credit and bank guarantees under these credit lines totaled $169.4 million and $176.5 million, respectively. We also have Receivables Purchase Agreements (“RPAs”) that allow for the sale of up to an aggregate of $600.0 million of our accounts receivable. As of September 30, 2017, we had sold accounts receivable of $381.0 million under the RPAs.
Short-Term Debt. As of September 30, 2017, our short-term debt of $23.6 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.
We previously committed to undertake a multi-year project designed to drive greater improvement in operating efficiencies and optimize scalability designed to incorporate acquisitions that we may undertakeliquidity in the future. We will accomplish this in part by a global design and deployment of an upgrade to our existing ERP platform. We areHowever, based on the information currently in the planning phase and the cost incurred during the first nine months of 2017 was not material. We expect the total cost of the project over the next three years to range between $30.0 million and $40.0 million.
Weavailable, we believe that our cash and cash equivalents as of SeptemberJune 30, 2017 (of which approximately $27.6 million was available for use by our U.S. subsidiaries without incurring additional costs)2021 and available funds from our Credit Facility, together with cash flows generated by operations, remainare sufficient to fund our working capital and capital expenditure requirements for at least the next twelve months. In general, our foreign cash balances of approximately $518.4 million are not availableWe may choose to fund our U.S. operations unless theraise additional funds are repatriated or used to repay certain foreign intercompany loans, which could expose us to tax obligations we currently have not made a tax provision for in our results of operations. As of September 30, 2017, we intend to retain our foreign cash balances outside of the U.S., as we believe that our U.S. liquidity is sufficient to meet the anticipated cash requirements of our U.S. operations.
In addition, to further enhance our liquidity profile, we may choose to raise additional funds which may or may not be neededused 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, orand if circumstances change significantly, whether as a result of the COVID-19 pandemic or otherwise, the future availability of trade credit or other sources of financing may be reduced, and our liquidity would be adversely affected. Factors that may affect the availability of trade credit or other forms of financing include our financial performance (as measured by various factors, including cash provided by operating activities), the state of worldwide credit markets, and our levels of outstanding debt. Depending on the severity and direct impact of these factors on us, financing may be limited or unavailable on terms favorable to us.
Cash Flows
The following table reflects the major categories of cash flows for the six months ended June 30, 2021 and 2020 (in millions). For additional details, please see the unaudited Condensed Consolidated Statements of Cash Flows in this Quarterly Report on Form 10-Q.
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2021 | | 2020 |
| Net cash provided by (used in) operating activities | | $ | 140.6 | | | $ | 245.1 | |
| Net cash provided by (used in) investing activities | | (19.7) | | | (168.7) | |
| Net cash provided by (used in) financing activities | | (35.7) | | | 394.9 | |
Operating Activities. For the first six months of 2021, net cash provided by operating activities was $140.6 million, compared to $245.1 million net cash provided during the first six months of 2020. The $104.5 million decrease was driven primarily by a decrease in working capital, excluding cash, of $53.4 million, a decrease in noncash adjustments of $36.1 million, principally associated with a decrease in credit loss reserves, and a net $20.4 million decrease in long-term assets and liabilities, partially offset by a $5.5 million increase in net income. The $53.4 million change in working capital was primarily driven by an increase in accounts receivable, inventories, and prepaid expenses, partially offset by a decrease in accounts payable, accrued expenses, and other current liabilities, as well as a decrease in derivative and other current assets.
Investing Activities. For the first six months of 2021, net cash used in investing activities was $19.7 million, compared to net cash used of $168.7 million in the first six months of 2020. The $149.1 million decrease in cash flows was primarily due to net cash paid of $130.6 million for the acquisition of our UVair fuel business during the first quarter of 2020 and a decrease in capital expenditures of $18.7 million.
Financing Activities. For the first six months of 2021, net cash used in financing activities was $35.7 million compared to net cash provided of $394.9 million for the first six months of 2020. The $430.6 million increase in net cash used was principally due to $475.0 million in lower net borrowings of debt under our credit facility, partially offset by a $55.6 million decrease in common stock repurchases.
Other Liquidity Measures
Cash and Cash Equivalents. As of June 30, 2021 and December 31, 2020, we had cash and cash equivalents of $742.7 million and $658.8 million, respectively.
Credit Facility and Term Loans. We had $497.0 million and $503.2 million in Term Loans outstanding as of June 30, 2021 and December 31, 2020, respectively. Our Credit Agreement, as amended, consists of a revolving loan under which up to $1.3 billion aggregate principal amount may be borrowed, repaid and redrawn, based upon specific financial ratios and subject to the satisfaction of other customary conditions to borrowing. Our Credit Facility includes a sublimit of $400.0 million for the issuance of letters of credit and bankers' acceptances. Under the Credit Facility, we have the right to request increases in available borrowings up to an additional $400.0 million, subject to the satisfaction of certain conditions 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 July 2024.
We had no outstanding borrowings under our Credit Facility as of June 30, 2021 and December 31, 2020. Our issued letters of credit under the Credit Facility totaled $3.5 million and $3.4 million as of June 30, 2021 and December 31, 2020, respectively. The unused portion of our Credit Facility was $1.3 billion as of June 30, 2021 and December 31, 2020. The unused portion of our Credit Facility is limited by, among other things, our financial leverage ratio, which limits the total amount of indebtedness we may incur, and may, therefore, fluctuate from period to period.
Our Credit Facility and Term Loans contain certain financial and other covenants with which we are required to comply. Our failure to comply with the covenants contained in our Credit Facility and our Term Loans could result in an event of default. An event of default, if not cured or waived, would permit acceleration of any outstanding indebtedness under the Credit Facility and our Term Loans, trigger cross-defaults under certain other agreements to which we are a party and impair our ability to obtain working capital advances and issue letters of credit, which would have a material adverse effect on our business, financial condition, results of operations and cash flows. As of June 30, 2021, we were in compliance with all financial covenants contained in our Credit Facility and our Term Loans.
Other Agreements. Additionally, we have other uncommitted credit lines primarily for the issuance of letters of credit, bank guarantees and bankers’ acceptances. These credit lines are renewable on an annual basis and are subject to fees at market rates. As of June 30, 2021 and December 31, 2020, our outstanding letters of credit and bank guarantees under these credit lines totaled $350.5 million and $328.4 million, respectively.
We also have accounts receivable financing programs under receivables purchase agreements (“RPAs”) with Wells Fargo Bank, N.A. and Citibank, N.A. that allow for the sale of our accounts receivable in an amount up to 100% of our outstanding qualifying accounts receivable balances and receive cash consideration equal to the total balance, less a discount margin equal to LIBOR plus 1.00% to 3.25%, which varies based on the outstanding accounts receivable at any given time and assumes maximum utilization of the RPA facilities. The RPA agreements provide the banks with the ability to add or remove customers from these programs based on, among other things, the level of risk exposure the bank is willing to accept with respect to any customer. The fees the banks charge us to purchase the receivables from these customers can also be impacted for these reasons. During the six months ended June 30, 2021 and 2020, we sold receivables under our RPAs with an aggregate face value of $4.3 billion and $2.2 billion, respectively, and paid fees and interest of $9.4 million and $5.5 million, respectively.
Short-Term Debt. As of June 30, 2021, our short-term debt of $30.1 million primarily represents the current maturities (within the next twelve months) of Term Loan borrowings and finance lease obligations.
Contractual Obligations and Off-Balance Sheet Arrangements
Except for changes in the contractual obligations and off-balance sheet arrangements described below, there were no other material changes from December 31, 20162020 to SeptemberJune 30, 2017.2021. For a discussion of these matters, refer to “ContractualItem 7 - Contractual Obligations and Off-Balance Sheet Arrangements” in Item 7Arrangements of our 20162020 10-K Report.
Contractual Obligations
Derivative Obligations. As of SeptemberJune 30, 2017,2021, our net derivative obligations were $41.9$133.9 million, principally due within one year.
Purchase Commitment Obligations. As of SeptemberJune 30, 2017,2021, fixed purchase commitments under our derivative programs amounted to $278.4$76.2 million, principallyof which $39.3 million is due within one year.
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 SeptemberJune 30, 2017,2021, we had issued letters of credit and bank guarantees totaling $175.9$354.0 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 “LiquidityLiquidity and Capital Resources”Resources above.
Critical Accounting Estimates
The unaudited Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The significant accounting policies used are disclosed in Item 15 - Financial Statement Schedules, Note 1. Basis of Presentation, New Accounting Standards and Significant Accounting Policies to the Consolidated Financial Statements in our 2020 10-K report.
We make estimates and assumptions that affect the reported amounts on our unaudited Condensed Consolidated Financial Statements and accompanying Notes as of the date of the unaudited Condensed Consolidated Financial Statements.
Impairment Assessments of Goodwill, Long-Lived Assets and Equity Investments
We assess accounting estimates that require consideration of forecasted financial information, including, but not limited to, the recoverability of the carrying value of our goodwill, long-lived assets and equity investments. Significant judgment is involved in performing these estimates as they are developed based on forecasted assumptions. As of June 30, 2021, the assumptions used were defined in the context of the current and future potential impact of COVID-19 on our business. However, at this time, we are unable to predict with specificity the ultimate impact of the pandemic, as it will depend on the magnitude, severity and duration, as well as how quickly, and to what extent, normal economic and operating conditions resume on a sustainable basis globally. Other business factors such as the reduction of government-related activity in Afghanistan were considered.
Based on the assessments performed, and supported by the available information as of June 30, 2021, we concluded that no material impairment of long-lived assets, intangibles and equity method investments should be recognized and it was not more likely than not that the fair value of our land and aviation reporting units were less than their respective carrying values. If the impact of the pandemic is more severe or longer in duration than we have assumed, such impact could potentially result in impairments.
For further information, see Note 6. Fair Value Measurements and Note 12. Restructuring.
Recent Accounting Pronouncements
Information regarding new accounting pronouncements is included in Note 1 -1. Basis of Presentation, New Accounting Standards, and Significant Accounting Policies in the “Notes to the Consolidated Financial Statements” in this 10-Q Report.Policies.
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Item 3. | Item 3. Quantitative and Qualitative Disclosures About Market Risk |
DerivativesDerivative Instruments
There have been no material changes to our exposures to commodity price, interest rate, or foreign currency risk since December 31, 2020. Please refer to our 2020 10-K Report for a complete discussion of our exposure to these risks.
For information about our derivative instruments at their respective fair value positions as of SeptemberJune 30, 2017,2021, see Notes to the Consolidated Financial Statements – Note 3. Derivatives4. Derivative Instruments.
There have been no material changes to our exposures to interest rate or foreign currency risk since December 31, 2016. Please refer to our 2016 10-K Report for a complete discussion of our exposure to these risks.
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Item 4. | Item 4. Controls and 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”) and our Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required financial disclosure.
As of the end of the period covered by this 10-Q 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). Based upon this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of SeptemberJune 30, 2017.
2021.
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 quarterthree months ended SeptemberJune 30, 2017.
2021.
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.
Part II — Other Information
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Item 1. | Item 1. Legal Proceedings |
On July 20, 2016, the Company was informed that the U.S. Department of Justice (the "DOJ") is conducting an investigation into the aviation fuel supply industry, including certain activities of the Company and other industry participants at an airport in Central America. In connection therewith, the Company was served with formal requests by the DOJ about its activities at that airport and its aviation fuel supply business more broadly. The Company continues to cooperate with the investigation.
From time to time, we are under review by the Internal Revenue ServiceIRS 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, Brazil, Denmark, South Korea and the U.S., Brazil and South Korea, where the amounts under controversy may be significant.material. See notes 7Note 8. Income Taxes and 10 ofNote 11. Commitments and Contingencies within this 10-Q Report as well as Note 9. Commitments and Contingencies and Note 11. Income Taxes within Part IV. Item 15 - Notes to the accompanying consolidated financial statementsConsolidated Financial Statements in our 2020 10-K Report 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. 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.
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Item 2. | Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
Issuer Purchases of Equity Securities
The following table presents information with respect to repurchases of common stock made by us during the quarterly periodthree months ended SeptemberJune 30, 20172021 (in thousands, except average price paid per share):
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| | | | | | | | | | | | | | |
| 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) (3) |
|
| 7/1/2017 - 7/31/2017 | | — |
| | $ | — |
| | — |
| | $ | 45,321 |
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| 8/1/2017 - 8/31/2017 | | 886 |
| | 33.99 |
| | 882 |
| | 15,330 |
|
| 9/1/2017 - 9/30/2017 | | — |
| | — |
| | — |
| | 15,330 |
|
| Total | | 886 |
| | $ | 33.99 |
| | 882 |
| | $ | 15,330 |
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| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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) |
| 4/1/2021 - 4/30/2021 | | — | | | $ | — | | | — | | | $ | 246,258 | |
| 5/1/2021 - 5/31/2021 | | — | | | — | | | — | | | 246,258 | |
| 6/1/2021 - 6/30/2021 | | — | | | — | | | — | | | 246,258 | |
| Total | | — | | | $ | — | | | — | | | $ | 246,258 | |
(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 September 2016,October 2017, our Board of Directors (the "Board") approved a new common stock repurchase program (the “Repurchase Program”), which replaced the remainder of the prior authorization and authorized the purchase of up toprogram in place at that time, authorizing $100.0 million in common stock (the “2016-2017repurchases. In May 2019, the Board authorized an increase to the October 2017 repurchase authorization by $100.0 million, bringing the authorized repurchases at that time to $200.0 million. In March 2020, the Board approved a new stock repurchase program authorizing $200.0 million in common stock repurchases to begin upon the completion of the October 2017 Repurchase Program”). The 2016-2017 Repurchase Program doesProgram. Our repurchase programs do not require a minimum number of shares of common stock to be purchased, hashave no expiration date and may be suspended or discontinued at any time. As of SeptemberJune 30, 2017, $15.32021, approximately $246.3 million remains available for purchase under the 2016-2017 Repurchase Program.our repurchase programs. The timing and amount of shares of common stock to be repurchased under the 2016-2017 Repurchase Programrepurchase programs will depend on market conditions, share price, securities law and other legal requirements and factors.
(3) In October 2017, our Board of Directors approved a new common stock repurchase program which replaced the remainder of the 2016-2017 Repurchase Program and authorized the purchase of up to $100.0 million in common stock (the “2017-2018 Repurchase Program”). The 2017-2018 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. The timing and amount of shares of common stock to be repurchased under the 2017-2018 Repurchase Program will depend on market conditions, share price, securities law and other legal requirements and factors.
Item 6. Exhibits
The exhibits set forth in the following index of exhibits are filed as part of this 10-Q Report:
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| Exhibit No. | | Description |
| | Form of Named Executive Officer Restricted Stock Unit Grant Agreement under the 2020 Omnibus Plan. |
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| | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d — 14(a). |
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| | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d — 14(a). |
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| | Certification of Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002. |
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| 101 | | The following materials from World Fuel Services Corporation’s Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 2017,2021, formatted in XBRL (Extensible Business Reporting Language); (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income and Comprehensive Income, (iii) Condensed Consolidated Statements of Shareholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Condensed Consolidated Financial Statements. |
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| 104 | | Cover page interactive file (formatted in Inline XBRL and contained in Exhibit 101). |
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| Date: July 30, 2021 | |
Date: October 31, 2017 | World Fuel Services Corporation |
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| /s/ Michael J. Kasbar |
| Michael J. Kasbar |
| Chairman, President and Chief Executive Officer |
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| /s/ Ira M. Birns |
| Ira M. Birns |
| Executive Vice President and Chief Financial Officer |
