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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q
 
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2020

OR 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from __________ to ___________                     
 
COMMISSION FILE NUMBER 1-9533
https://cdn.kscope.io/9cd4f020f77c0d20980aa40035a3f7fa-logoa13.jpg
WORLD FUEL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
Florida
9800 N.W. 41st Street,
Miami,
Florida
33178
59-2459427
(State or other jurisdiction of
incorporation or organization)
(Address of Principal Executive Offices) (Zip Code)
(I.R.S. Employer
Identification No.)
 
Registrant’s telephone number, including area code:
 
 
 
(
305
)
428-8000
 
 
Securities registered pursuant to Section 12(b) of the Act
 
Title of each class
Trading Symbol (s)
Name of each exchange on which registered
Common Stock , $0.01 par value
INT
New York Stock Exchange
 

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



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes   No þ
 
The registrant had a total of 63,317,796 shares of common stock, par value $0.01 per share, issued and outstanding as of April 24, 2020.

Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Part I — Financial Information
 
Item 1.
Financial Statements
 
World Fuel Services Corporation
Consolidated Balance Sheets
(Unaudited - In millions, except per share data)
 
 
 
As of
 
 
March 31,
 
December 31,
 
 
2020
 
2019
Assets:
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
537.0

 
$
186.1

Accounts receivable, net
 
1,985.1

 
2,891.9

Inventories
 
332.8

 
593.3

Prepaid expenses
 
59.3

 
80.6

Short-term derivative assets, net
 
278.5

 
59.5

Other current assets
 
341.0

 
358.8

Total current assets
 
3,533.8

 
4,170.1

Property and equipment, net
 
360.0

 
360.9

Goodwill
 
915.4

 
843.7

Identifiable intangible and other non-current assets
 
689.7

 
617.7

Total assets
 
$
5,498.9

 
$
5,992.4

Liabilities:
 
 

 
 

Current liabilities:
 
 

 
 

Current maturities of long-term debt
 
$
53.6

 
$
54.1

Accounts payable
 
1,541.1

 
2,602.7

Customer deposits
 
128.8

 
126.7

Accrued expenses and other current liabilities
 
385.8

 
378.9

Total current liabilities
 
2,109.3

 
3,162.4

Long-term debt
 
1,145.9

 
574.7

Non-current income tax liabilities, net
 
208.6

 
210.1

Other long-term liabilities
 
184.9

 
151.3

Total liabilities
 
$
3,648.7

 
$
4,098.5

Commitments and contingencies
 


 


Equity:
 
 

 
 

World Fuel shareholders' equity:
 
 

 
 

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

 

Common stock, $0.01 par value; 100.0 shares authorized, 63.2 and 65.2 issued and outstanding as of March 31, 2020 and December 31, 2019, respectively
 
0.6

 
0.7

Capital in excess of par value
 
218.2

 
274.7

Retained earnings
 
1,785.1

 
1,761.3

Accumulated other comprehensive loss
 
(157.5
)
 
(146.3
)
Total World Fuel shareholders' equity
 
1,846.4

 
1,890.4

Noncontrolling interest
 
3.7

 
3.5

Total equity
 
1,850.1

 
1,893.9

Total liabilities and equity
 
$
5,498.9

 
$
5,992.4

 
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.


1


World Fuel Services Corporation
Consolidated Statements of Income and Comprehensive Income
(Unaudited – In millions, except per share data)
 
 
 
For the Three Months Ended
 
 
March 31,
 
 
2020
 
2019
Revenue
 
$
8,015.2

 
$
8,678.8

Cost of revenue
 
7,756.4

 
8,427.7

Gross profit
 
258.7

 
251.1

Operating expenses:
 
 

 
 

Compensation and employee benefits
 
104.2

 
110.1

General and administrative
 
83.7

 
70.6

 
 
187.9

 
180.7

Income from operations
 
70.8

 
70.4

Non-operating expenses, net:
 
 

 
 

Interest expense and other financing costs, net
 
(15.4
)
 
(19.4
)
Other income (expense), net
 
2.2

 
0.4

 
 
(13.2
)
 
(19.0
)
Income (loss) before income taxes
 
57.6

 
51.3

Provision for income taxes
 
16.0

 
14.0

Net income (loss) including noncontrolling interest
 
41.6

 
37.3

Net income (loss) attributable to noncontrolling interest
 
0.2

 
0.1

Net income (loss) attributable to World Fuel
 
$
41.4

 
$
37.2

 
 
 
 
 
Basic earnings per common share
 
$
0.64

 
$
0.55

 
 
 
 
 
Basic weighted average common shares
 
64.9

 
67.1

 
 
 
 
 
Diluted earnings per common share
 
$
0.63

 
$
0.55

 
 
 
 
 
Diluted weighted average common shares
 
65.4

 
67.4

 
 
 
 
 
Comprehensive income:
 
 

 
 
Net income (loss) including noncontrolling interest
 
$
41.6

 
$
37.3

Other comprehensive income (loss):
 
 

 
 

Foreign currency translation adjustments
 
(33.0
)
 
0.2

Cash flow hedges, net of income tax expense of $7.4 and income tax benefit of $4.1 for the three months ended March 31, 2020 and 2019, respectively
 
21.7

 
(11.9
)
Other comprehensive income (loss)
 
(11.3
)
 
(11.7
)
Comprehensive income (loss) including noncontrolling interest
 
30.4

 
25.6

Comprehensive income (loss) attributable to noncontrolling interest
 

 
(0.8
)
Comprehensive income (loss) attributable to World Fuel
 
$
30.4

 
$
26.3

 
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.


2


World Fuel Services Corporation
Consolidated Statements of Shareholders’ Equity  
(Unaudited - In millions)
 
 
Common Stock
 
Capital in
Excess of
Par Value
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
World Fuel
Shareholders'
Equity
 
Noncontrolling
Interest
Equity
 
 
 
Shares
 
Amount
 
 
 
 
 
 
Total Equity
Balance as of December 31, 2019
65.2

 
$
0.7

 
$
274.7

 
$
1,761.3

 
$
(146.3
)
 
$
1,890.4

 
$
3.5

 
$
1,893.9

Cumulative effect of change in accounting principle

 

 

 
(11.1
)
 

 
(11.1
)
 

 
(11.1
)
Net income

 

 

 
41.4

 

 
41.4

 
0.2

 
41.6

Cash dividends declared

 

 

 
(6.5
)
 

 
(6.5
)
 

 
(6.5
)
Amortization of share-based payment awards

 

 
(1.8
)
 

 

 
(1.8
)
 

 
(1.8
)
Issuance (cancellation) of common stock related to share-based payment awards
0.2

 

 
1.2

 

 

 
1.2

 

 
1.2

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

 

 
(1.5
)
 

 

 
(1.5
)
 

 
(1.5
)
Purchases of common stock
(2.2
)
 

 
(55.6
)
 

 

 
(55.6
)
 

 
(55.6
)
Other comprehensive income (loss)

 

 

 

 
(11.3
)
 
(11.3
)
 

 
(11.3
)
Other

 
(0.1
)
 
1.2

 

 

 
1.2

 

 
1.2

Balance as of March 31, 2020
63.2

 
$
0.6

 
$
218.2

 
$
1,785.1

 
$
(157.5
)
 
$
1,846.4

 
$
3.7

 
$
1,850.1

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

 
$
0.7

 
$
340.4

 
$
1,606.1

 
$
(131.7
)
 
$
1,815.4

 
$
16.1

 
$
1,831.6

Net income

 

 

 
37.2

 

 
37.2

 
0.1

 
37.3

Cash dividends declared

 

 

 
(4.0
)
 

 
(4.0
)
 

 
(4.0
)
Amortization of share-based payment awards


 


 
4.0

 

 

 
4.0

 

 
4.0

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

 

 

 

 

 

 

 

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

 

 
(1.4
)
 

 

 
(1.4
)
 

 
(1.4
)
Other comprehensive loss

 

 

 

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

 
$
0.7

 
$
343.0

 
$
1,639.3

 
$
(142.7
)
 
$
1,840.3

 
$
15.5

 
$
1,855.8



Cash Dividends

During the three months ended March 31, 2020 , the Company's Board of Directors declared quarterly cash dividends of $0.10 per common share representing $6.5 million in total dividends, which were paid on April 9, 2020. During the three months ended March 31, 2019, the Company's Board of Directors declared quarterly cash dividends of $0.06 per common share representing $4.0 million in total dividends, which were paid on April 12, 2019.

 
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.


3


World Fuel Services Corporation
Consolidated Statements of Cash Flows
(Unaudited - In millions)
 
 
For the Three Months Ended
 
 
March 31,
 
 
2020
 
2019
Cash flows from operating activities:
 
 
 
 
Net income including noncontrolling interest
 
$
41.6

 
$
37.3

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

 
 
Depreciation and amortization
 
21.8

 
22.3

Provision for bad debt
 
9.9

 
2.4

Share-based payment award compensation costs
 
(1.8
)
 
4.2

Deferred income tax expense (benefit)
 
(11.7
)
 
(4.5
)
Foreign currency (gains) losses, net
 
(19.8
)
 
3.4

Other
 
(40.9
)
 
8.2

Changes in assets and liabilities, net of acquisitions:
 
 

 
 
Accounts receivable, net
 
900.4

 
11.2

Inventories
 
245.3

 
(83.4
)
Prepaid expenses
 
20.7

 
8.7

Short-term derivative assets, net
 
(189.3
)
 
164.2

Other current assets
 
17.7

 
27.3

Cash collateral with financial counterparties
 
(36.9
)
 
(32.6
)
Other non-current assets
 
(29.5
)
 
27.3

Accounts payable
 
(1,057.5
)
 
(10.9
)
Customer deposits
 
3.7

 
(24.7
)
Accrued expenses and other current liabilities
 
101.5

 
(103.2
)
Non-current income tax, net and other long-term liabilities
 
34.3

 
(46.4
)
Total adjustments
 
(32.1
)
 
(26.5
)
Net cash provided by (used in) operating activities
 
9.5

 
10.8

Cash flows from investing activities:
 
 

 
 
Acquisition of businesses, net of cash acquired
 
(130.5
)
 

Capital expenditures
 
(17.4
)
 
(21.8
)
Other investing activities, net
 
(1.1
)
 
3.3

Net cash (used in) provided by investing activities
 
(149.0
)
 
(18.5
)
Cash flows from financing activities:
 
 

 
 
Borrowings of debt
 
1,732.0

 
1,542.0

Repayments of debt
 
(1,161.3
)
 
(1,547.5
)
Dividends paid on common stock
 
(6.5
)
 
(4.0
)
Repurchases of common stock
 
(55.6
)
 

Other financing activities, net
 
(1.5
)
 
(1.4
)
Net cash provided by (used in) financing activities
 
507.0

 
(10.9
)
Effect of exchange rate changes on cash and cash equivalents
 
(16.5
)
 
0.9

Net increase (decrease) in cash and cash equivalents
 
351.0

 
(17.7
)
Cash and cash equivalents, as of the beginning of the period
 
186.1

 
211.7

Cash and cash equivalents, as of the end of the period
 
$
537.0

 
$
194.0

 
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.



4


Supplemental Schedule of Noncash Investing and Financing Activities:
 
1. Cash dividends declared, but not yet paid, were $6.5 million and $4.0 million as of March 31, 2020 and 2019, respectively.
2. Deferred consideration for acquisition of business was $30.0 million as of March 31,2020.


The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.


5


World Fuel Services Corporation
Notes to the Consolidated Financial Statements
(Unaudited) 
1. Basis of Presentation and Significant Accounting Policies
 
General

World Fuel Services Corporation (the “Company”) was incorporated in Florida in July 1984 and along with its consolidated subsidiaries is referred to collectively in this Quarterly Report on Form 10‑Q (“10-Q Report”) as “World Fuel,” “we,” “our” and “us.”

We are a leading global fuel services company, principally engaged in the distribution of fuel and related products and services in the aviation, marine and land transportation industries. In recent years, we have expanded our product and service offerings to include energy advisory services and supply fulfillment with respect to natural gas and power and transaction and payment management solutions to commercial and industrial customers. Our intention is to become a leading global energy management company offering a full suite of energy advisory, management and fulfillment services, technology solutions as well as sustainability products and services across the energy product spectrum. We also offer payment management solutions to commercial and industrial customers, principally in the aviation, land and marine transportation industries. We will continue to focus on enhancing the portfolio of products and services we provide based on changes in customer demand, including sustainability offerings and renewable fuel products.

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

Revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be representative of those for the full year. In our opinion, all adjustments necessary for a fair statement of the financial statements, which are of a normal and recurring nature, have been made for the interim periods reported. The information included in this 10-Q Report should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in our 2019 Annual Report on Form 10-K (“2019 10-K Report”). Certain amounts in the Consolidated Financial Statements and accompanying notes may not add due to rounding. All percentages have been calculated using unrounded amounts.

COVID-19

The outbreak of COVID-19, which was declared a pandemic by the World Health Organization in March 2020, has created significant volatility, uncertainty and disruption in the global economy. The rapid spread of the virus has caused governments around the world to implement stringent measures to help control its spread, including, without limitation, quarantines, “stay-at-home” or “shelter-in-place” orders, social-distancing mandates, travel restrictions, and closures or reduced operations for businesses, governmental agencies, schools and other institutions, among others.

Beginning in the quarterly period ended March 31, 2020, the aviation, marine and land transportation industries, along with global economic conditions generally, have been significantly disrupted by the pandemic. A large number of our customers in these industries have experienced substantial reductions in their operations due to travel restrictions and stay-at-home orders, as well as the extended shutdown of various businesses in affected regions. Furthermore, government measures have also led to a precipitous decline in fuel prices in response to concerns about demand for fuel, further exacerbated by recent disagreements regarding crude oil production levels between the Organization of Petroleum Exporting Countries (OPEC) members and other oil-producing countries such as Russia, as well as related global storage considerations.

While the pandemic and associated impacts on economic activity had a limited adverse effect on our operating results for the quarterly period ended March 31, 2020, we have since seen a significant decline in demand and related sales volume as large sectors of the global economy have been adversely impacted by the crisis. In response to these developments, in March 2020, we took swift action to ensure the safety of our employees and other stakeholders, and initiated a number of initiatives relating to cost reduction, liquidity and operating efficiencies.

6



We make estimates and assumptions that affect the reported amounts on our financial statements and accompanying notes as of the date of the financial statements. We assessed accounting estimates that require consideration of forecasted financial information, including, but not limited to, our allowance for credit losses, the carrying value of our goodwill, intangible assets, and other long-lived assets. This assessment was conducted in the context of information reasonably available to us, as well as our consideration of the future potential impacts of COVID-19 on our business as of March 31, 2020. At this time, we are unable to predict with specificity the ultimate impact of the crisis, as it will depend on the magnitude, severity and duration of the pandemic, as well as how quickly, and to what extent, normal economic and operating conditions resume on a sustainable basis globally. Accordingly, if the impact is more severe or longer in duration than we have assumed, such impact could potentially result in impairments and increases in credit allowances.

Significant Accounting Policies

There have been no significant changes, other than those related to the adopted new accounting standards below, in the Company's accounting policies from those disclosed in our 2019 10‑K Report. The significant accounting policies we use for quarterly financial reporting are disclosed in Note 1. Basis of Presentation, New Accounting Standards and Significant Accounting Policies of the accompanying notes to the Consolidated Financial Statements included in our 2019 10‑K Report, and in the section below Adoption of New Accounting Standards.

Adoption of New Accounting Standards
We included below a description of recent new accounting standards or accounting standards updates that had an impact on the Company’s consolidated financial statements. New accounting standards or accounting standards updates not listed below were assessed and determined to be either not applicable or did not have a material impact on the Company’s consolidated financial statements or processes.

Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. In June 2016, Accounting Standards Update ("ASU") 2016-13 was issued, which replaced the incurred loss impairment model with a model that reflects expected credit losses over the lifetime of the asset and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. The guidance in this update, including the subsequent related codification amendments, changed how entities account for credit impairment from trade and other receivables, net investments arising from sales-type and direct financing leases, debt securities, purchased-credit impaired financial assets and other instruments in addition to loans. For receivables and certain other instruments that are not measured at fair value, entities are required to estimate expected credit losses. Under the expected loss model, an entity recognizes a loss upon initial recognition of the asset that reflects all future events that could lead to a loss being realized, regardless of whether it is probable that the future event will occur.
The Company adopted ASU 2016-13, including the related codification amendments, in the first quarter of 2020 utilizing the modified retrospective transition method and applying the transition provisions at the effective date.
The Company implemented changes to business processes and internal controls that support the new standard. As of the date of implementation on January 1, 2020, the Company recognized $11.1 million as a reduction to the opening retained earnings balance. The main drivers of the consolidated impact at transition are related to the inclusion of future economic conditions, the exclusion of freestanding credit enhancements when estimating the expected credit loss and estimating the lifetime credit losses of notes receivable.
Accounting Standards Issued but Not Yet Adopted

There have been no recently issued accounting standards not yet adopted by us which are expected, upon adoption, to have a material impact on the Company’s Consolidated Financial Statements or processes.

7


2. Accounts Receivable

Accounts receivable and allowance for credit losses

We extend credit on an unsecured basis to most of our customers. Our exposure to expected credit losses depends on the financial condition of our customers and other macroeconomic factors beyond our control, such as deteriorating conditions in the world economy or in the industries we serve, changes in oil prices and political instability. While we actively manage our credit exposure and work to respond to both changes in our customers’ financial conditions or macroeconomic events, there can be no guarantee we will be able to mitigate all of these risks successfully.

We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer’s current creditworthiness based on expected exposure. Our payment terms with customers are based on each customers' creditworthiness and are generally 30-60 days, although certain markets and other customer-specific factors may warrant longer payment terms. Accounts receivable balances that are not paid within the terms of the sales agreement may be subject to finance fees based on the outstanding balance. Although we analyze customers’ payment history and expected creditworthiness, since we extend credit on an unsecured basis to most of our customers, there is a possibility that any accounts receivable not collected may ultimately need to be written off.

Accounts receivable are measured at amortized cost. The health of our receivables is continuously monitored using a risk-based model, taking into consideration both the timeliness and predictability of collections from our customers. We maintain a provision for expected credit losses based upon our historical experience with our customers, along with any specific customer collection issues that we have identified from current financial information and business prospects, as well as any political or economic conditions or other market factors, including certain assumptions based on reasonable forward-looking information from market sources. Principally, based on these credit risk factors, portfolio segments are defined and an internally derived risk-based credit loss reserve is established and applied to each portfolio segment. Customer account balances that are deemed to be at high risk of collectability are reserved at higher rates than customer account balances which we expect to collect without difficulty.

We had accounts receivable of $2.0 billion and $2.9 billion as of March 31, 2020 and December 31, 2019, respectively. We also had allowance for credit losses related to accounts receivables and other insignificant financing receivables of $56.1 million (including the $11.1 million cumulative transition adjustment to retained earnings related to the implementation of ASU 2016-13) and $35.5 million, as of March 31, 2020 and December 31, 2019, respectively. Changes to the expected credit loss provision during the three months ended March 31, 2020 include global economic outlook considerations as a result of the Company’s assessment of reasonable and supportable forward-looking information. Based on an aging analysis at March 31, 2020, 96% of our net accounts receivable were outstanding less than 60 days.
The following table sets forth activities in our allowance for credit losses (in millions):
 
 
Total

Balance as of January 1, 2020
 
$
46.6

Charges to provision for credit losses
 
9.9

Write-off of uncollectible receivables
 
(0.6
)
Recoveries of credit losses
 
$
0.1

Translation adjustments
 

Balance as of March 31, 2020
 
$
56.1


Financing programs
We 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% to 3%. Accounts receivable sold under the RPAs are accounted for as sales, in accordance with FASB ASC Topic 860, Transfers and Servicing, and excluded from Accounts receivable, net on the accompanying Consolidated Balance Sheets. Fees and interest paid under the RPAs are recorded within Interest expense and other financing costs, net on the Consolidated Statements of Comprehensive Income.

Under the RPAs, accounts receivable sold, which remained outstanding as of March 31, 2020 and December 31, 2019, were $288.3 million and $405.9 million, respectively. The fees and interest paid under the RPAs were $4.4 million and $5.8 million for the three months ended March 31, 2020 and 2019, respectively. For the three months ended March 31, 2020 and 2019, cash

8


payments to the owners of account receivables were $1.8 billion and $2.0 billion, respectively, and cash proceeds from the sale of account receivables were $1.7 billion and $2.0 billion, respectively.



3. Acquisitions
 
2020 Acquisition

During the three months ended March 31, 2020, we completed the acquisition of the aviation fuel business from Universal Weather and Aviation, Inc. (“UVair fuel business”), which serves business and general aviation customers worldwide. The acquisition was accounted for as a business combination.

The following table summarizes the aggregate consideration paid for this acquisition and the provisional amounts of the assets acquired and liabilities assumed, recognized at the acquisition date. The Company is in the process of obtaining information to finalize the valuations of certain acquired assets and assumed liabilities. Thus, the provisional measurements of these acquired assets and assumed liabilities are subject to change and will be finalized no later than one year from the acquisition date (amounts in millions):

 
Total
Cash paid for acquisition of business
$
131.0

Amounts due to sellers
30.0

Estimated purchase price
$
161.0

 
 
Assets acquired:
 
Accounts receivable
40.1

Goodwill and identifiable intangible assets
127.1

Other current and long-term assets
4.5

 
 
Liabilities assumed:
 
Accounts payable
(9.9
)
Other current and long-term liabilities
(0.9
)
 
 
Estimated purchase price
$
161.0



The goodwill of $82.9 million was assigned to the aviation segment, of which $73.5 million is anticipated to be deductible for tax purposes, and is attributable primarily to the expected synergies and other benefits that we believe will result from combining the acquired operations with the aviation segment operations. The identifiable intangible assets were $44.3 million, and primarily consisted of customer relationships and other identifiable assets.

The financial position, results of operations and cash flows of this acquisition have been included in our Consolidated Financial Statements since the acquisition date and did not have a material impact on our consolidated revenue and net income for the three months ended March 31, 2020; accordingly, pro forma information for this acquisition has not been provided as the impact was not considered material.

4. Derivative Instruments

The following describes our derivative classifications:

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

Cash Flow Hedges. Includes derivative contracts we execute to mitigate the risk of price and interest rate volatility in forecasted transactions.

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

9



In March 2020, we entered into a $300 million, one-month LIBOR, floating-for-fixed non-amortizing interest rate swap contract ("IR Swap") with a maturity date in March 2025. The IR Swap was designated as a cash flow hedge to mitigate potential adverse changes in interest rates related to certain variable rate debt obligations. The IR Swap is measured at fair value each reporting period and changes in fair value are recorded to Accumulated other comprehensive income or loss (AOCI) on our Consolidated Balance Sheets. The amounts recorded in AOCI are subsequently reclassified to our Consolidated Statements of Income and Comprehensive Income within Interest expense and other financing costs, net when the underlying hedged variable rate interest payments are accrued. The fair value of the IR Swap is recorded on our Consolidated Balance Sheets within Short-term derivative assets, net or Accrued expenses and other current liabilities for fair value associated with cash flows due within twelve months of March 31, 2020, and within Identifiable intangible and other non-current assets or Other long-term liabilities for the fair value associated with cash flows due after twelve months from March 31, 2020.

The following table presents the gross fair value of our derivative instruments and their locations on the Consolidated Balance Sheets (in millions):
 
 
 
 
Gross Derivative Assets
 
Gross Derivative Liabilities
 
 
 
As of
 
As of
 
 
 
March 31,
 
December 31,
 
March 31,
 
December 31,
 
 
 
2020
 
2019
 
2020
 
2019
Derivative Instruments
Consolidated Balance Sheets location
 
 
 
 
 
 
 
 
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
   Commodity contracts
Short-term derivative assets, net
 
$
4.8

 
$

 
$
0.7

 
$

 
Identifiable intangible and other non-current assets
 

 

 

 

 
Accrued expenses and other current liabilities
 
416.1

 
1.7

 
362.4

 
20.0

 
Other long-term liabilities
 

 

 
0.1

 

 
 
 
$
421.0

 
$
1.7

 
$
363.1

 
$
20.0

 
 
 
 
 
 
 
 
 
 
Interest rate contracts
Short-term derivative assets, net
 
$

 
$

 
$

 
$

 
Identifiable intangible and other non-current assets
 
$

 
$

 
$

 
$

 
Accrued expenses and other current liabilities
 

 

 
0.7

 


Other long-term liabilities
 
$

 
$

 
$
1.3

 
$

Total derivatives designated as hedging instruments
 
$
421.0

 
$
1.7

 
$
365.1

 
$
20.0

 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
   Commodity contracts
Short-term derivative assets, net
 
$
397.6

 
$
65.7

 
$
115.1

 
$
7.2

 
Identifiable intangible and other non-current assets
 
67.0

 
23.0

 
22.5

 
4.8

 
Accrued expenses and other current liabilities
 
486.4

 
161.0

 
721.3

 
203.4

 
Other long-term liabilities
 
29.0

 
7.7

 
60.8

 
19.7

 
 
 
$
980.0

 
$
257.3

 
$
919.7

 
$
235.0

 
 
 
 
 
 
 
 
 
 
   Foreign currency contracts
Short-term derivative assets, net
 
$
25.5

 
$
1.2

 
$
5.3

 
$
0.2

 
Identifiable intangible and other non-current assets
 
0.1

 

 

 

 
Accrued expenses and other current liabilities
 
1.5

 
0.9

 
4.5

 
11.4

 
 
 
$
27.1

 
$
2.0

 
$
9.8

 
$
11.6

Total derivatives not designated as hedging instruments
 
$
1,007.0

 
$
259.4

 
$
929.5

 
$
246.6

 
 
 
 
 
 
 
 
 
 
Total derivatives
 
 
$
1,428.0

 
$
261.1

 
$
1,294.6

 
$
266.6


For information regarding our derivative instruments measured at fair value after netting and collateral, see Note 7. Fair Value Measurements.


10


The following table summarizes the gross notional values of our commodity and foreign currency exchange derivative contracts used for risk management purposes that were outstanding as of March 31, 2020 (in millions):

 
 
As of March 31,
Derivative Instruments
 
Units
 
2020
Commodity contracts
 
 
 
 
Long
 
BBL
 
81.4

Short
 
BBL
 
(58.7
)
 
 
 
 
 
Foreign currency exchange contracts
 
 
 
 
Sell U.S. dollar, buy other currencies
 
USD
 
(144.8
)
Buy U.S. dollar, sell other currencies
 
USD
 
423.9



As of March 31, 2020, and December 31, 2019, the following amounts were recorded on our Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges (in millions):

Line item in the Consolidated Balance Sheets in which the hedged item is included
 
Carrying Amount of Hedged Asset/(Liabilities)
 
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Asset/(Liabilities)
 
 
As of
 
As of
 
 
March 31, 2020
 
December 31, 2019
 
March 31, 2020
 
December 31, 2019
Inventory
 
$
12.8

 
$
30.7

 
$
(14.5
)
 
$
2.3




The following table presents the effect of fair value and cash flow hedges on income and expense line items in our Consolidated Statements of Income and Comprehensive Income (in millions):
 
 
 
Location and Amount of Gain and (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
 
 
 
For the Three Months Ended
 
 
 
March 31, 2020
 
March 31, 2019
 
 
Revenue
 
Cost of Revenue
 
Interest expense and other financing costs, net
 
Revenue
 
Cost of Revenue
 
Interest expense and other financing costs, net
Total amounts of income and expense line items in which the effects of fair value or cash flow hedged are recorded
 
$
8,015.2

 
$
7,756.4

 
$
16.2

 
$
8,678.8

 
$
8,427.7

 
$
20.5

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

 
(23.2
)
 

 

 
16.2

 

 
Derivatives designated as hedging instruments
 

 
18.5

 

 

 
(13.5
)
 

Gains or Loss on cash flow hedge relationships:
 
 
 
 
 
 
 
 
 
 
 
 
   Commodity contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount of Gain (Loss) Reclassified from AOCI into Income
 
14.0

 
(1.2
)
 

 
(3.8
)
 
(8.4
)
 

   Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount of Gain (Loss) Reclassified from AOCI into Income
 

 

 

 

 

 

Total amount of income and expense line items excluding the impact of hedges
 
$
8,001.1

 
$
7,750.5

 
$
16.2

 
$
8,682.6

 
$
8,422.1

 
$
20.5


For the three months ended March 31, 2020 and 2019, there were no gains or losses recognized in earnings related to our fair value or cash flow hedges that were excluded from the assessment of hedge effectiveness.

11



As of March 31, 2020, on a pre-tax basis for commodity cash flow hedges, $397.2 million and $385.1 million is scheduled to be reclassified from Accumulated other comprehensive loss as an increase to Revenue and increase to Cost of revenue, respectively, over the next twelve months.

The following table presents the effect and financial statement location of our derivative instruments in cash flow hedging relationships on Accumulated other comprehensive income and Consolidated Statements of Income and Comprehensive Income (in millions):
Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Income
For the Three Months Ended
 
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
For the Three Months Ended
March 31,
 
March 31,
Derivative Instruments
2020
 
2019
 
Location
2020
 
2019
Commodity contracts
$
334.1

 
$
(220.5
)
 
Revenue
$
14.0

 
$
(3.8
)
Commodity contracts
(297.7
)
 
196.4

 
Cost of revenue
(1.2
)
 
(8.4
)
Interest rate contracts
(1.5
)
 

 
Interest expense and other financing costs, net

 

Total Gain (Loss)
$
34.9

 
$
(24.1
)
 
Total Gain (Loss)
$
12.9

 
$
(12.2
)

The following table presents the effect and financial statement location of our derivative instruments not designated as hedging instruments on our Consolidated Statements of Income and Comprehensive Income (in millions):
Amount of Realized and Unrealized Gain (Loss)
 
 
For the Three Months Ended
 
 
 
 
March 31,
Derivative Instruments - Non-designated
 
Location
 
2020
 
2019
Commodity contracts
 
 
 
 
 
 
 
 
Revenue
 
$
79.1

 
$
75.0

 
 
Cost of revenue
 
15.4

 
(65.9
)
 
 
 
 
$
94.5

 
$
9.1

Foreign currency contracts
 
 
 
 
 
 
 
 
Revenue
 
$
0.5

 
$
(0.1
)
 
 
Other (expense), net
 
18.5

 
0.5

 
 
 
 
$
18.9

 
$
0.4

Total Gain (Loss)
 
 
 
$
113.5

 
$
9.5



Credit-Risk-Related Contingent Features
 
We enter into derivative contracts which may require us to provide collateral periodically. Additionally, certain derivative contracts contain credit-risk-related contingent clauses which are triggered by credit events. These credit events may include the requirement to provide additional collateral or the immediate settlement of the derivative instruments upon the occurrence of such credit event or default. The following table presents the potential collateral requirements for derivative liabilities with credit-risk-contingent features as of March 31, 2020 and December 31, 2019 (in millions):
 
 
Potential Collateral Requirements for
Derivative Liabilities with
Credit-Risk-Contingent Features
 
 
As of March 31, 2020
 
As of December 31, 2019
Net derivative liability positions with credit contingent features
 
$
95.2

 
$
45.6

Collateral posted and held by our counterparties
 
(48.2
)
 

Maximum additional potential collateral requirements
 
$
47.0

 
$
45.6




12


5. Goodwill
 
Goodwill arises because the purchase price paid for our acquisitions reflects numerous factors, including the strategic fit and expected synergies these acquisitions bring to our existing operations. Goodwill is recorded at fair value and is reviewed at least annually for impairment.
The following table provides the components of and changes in the carrying amount of goodwill for the three months ended March 31, 2020 (in millions):
 
 
Aviation

 
Land (1)

 
Total

Balance as of December 31, 2019