World Kinect(WKC) - 2022 Q2 - Quarterly Report

Part I. Financial Information This section provides the company's unaudited financial statements, management's analysis of operations, market risk disclosures, and internal controls Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, income statements, statements of shareholders' equity, and cash flows, for World Fuel Services Corporation, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheets (in millions) | Metric | June 30, 2022 | December 31, 2021 | | :-------------------------- | :-------------- | :---------------- | | Total Assets | $8,795.7 | $5,942.4 | | Total Liabilities | $6,875.4 | $4,025.6 | | Total Equity | $1,920.2 | $1,916.8 | - Total Assets increased by 48% from $5,942.4 million as of December 31, 2021, to $8,795.7 million as of June 30, 2022[5] - Total Liabilities increased by 70.8% from $4,025.6 million as of December 31, 2021, to $6,875.4 million as of June 30, 2022[5] Condensed Consolidated Statements of Income and Comprehensive Income This section outlines the company's financial performance, including revenues, expenses, and net income over specific periods Condensed Consolidated Statements of Income (in millions, except per share data) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenue | $17,122.1 | $7,085.5 | $29,504.1 | $13,043.4 | | Gross profit | $253.4 | $183.9 | $484.4 | $375.5 | | Income from operations | $52.8 | $30.9 | $94.1 | $68.6 | | Net income attributable to World Fuel | $24.4 | $17.6 | $50.7 | $36.5 | | Diluted earnings per common share | $0.39 | $0.28 | $0.80 | $0.57 | - Revenue for the three months ended June 30, 2022, increased by 142% YoY to $17,122.1 million[6] - Net income attributable to World Fuel for the six months ended June 30, 2022, increased by 38.9% YoY to $50.7 million[6] Condensed Consolidated Statements of Shareholders' Equity This section details changes in the company's equity, including retained earnings and comprehensive income, over specific periods Condensed Consolidated Statements of Shareholders' Equity (in millions) | Metric | As of June 30, 2022 | As of December 31, 2021 | | :------------------------------------ | :------------------ | :-------------------- | | Total World Fuel Shareholders' Equity | $1,915.7 | $1,912.7 | | Retained Earnings | $1,916.4 | $1,880.6 | | Accumulated Other Comprehensive Income (Loss) | $(174.0) | $(136.7) | - Retained earnings increased from $1,880.6 million as of December 31, 2021, to $1,916.4 million as of June 30, 2022[7] - Accumulated other comprehensive income (loss) decreased from $(136.7) million as of December 31, 2021, to $(174.0) million as of June 30, 2022[7] Condensed Consolidated Statements of Cash Flows This section reports the company's cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows (in millions) | Cash Flow Activity | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :------------------------------------ | :--------------------------- | :--------------------------- | | Net cash provided by (used in) operating activities | $(29.2) | $140.6 | | Net cash provided by (used in) investing activities | $(678.5) | $(19.7) | | Net cash provided by (used in) financing activities | $451.0 | $(35.7) | | Cash and cash equivalents, as of the end of the period | $385.8 | $742.7 | - Net cash used in operating activities was $29.2 million for the six months ended June 30, 2022, a significant decrease from $140.6 million provided in the prior year, primarily due to increased working capital[11] - Net cash used in investing activities increased substantially to $678.5 million, mainly driven by the $639.4 million acquisition of Flyers[11] Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements Note 1. Basis of Presentation, New Accounting Standards, and Significant Accounting Policies This note describes the financial statement presentation, new accounting standards adopted, and key accounting policies - World Fuel Services Corporation is a leading global fuel services company, engaged in the distribution of fuel and related products and services in the aviation, land, and marine transportation industries[14] - The company aims to become a leading global energy management company, offering a full suite of energy advisory, management, and fulfillment services, technology solutions, payment management solutions, and sustainability products and services[14] - No accounting standards adopted in 2022 had a material impact, and there were no significant changes in accounting policies from the 2021 10-K Report[17][18][19] Note 2. Accounts Receivable This note details the company's accounts receivable balances and the associated allowance for expected credit losses Accounts Receivable and Allowance for Credit Losses (in millions) | Metric | June 30, 2022 | December 31, 2021 | | :------------------------------------ | :-------------- | :---------------- | | Accounts receivable | $4,000.0 | $2,400.0 | | Allowance for expected credit losses | $22.7 | $29.8 | - Accounts receivable increased from $2.4 billion to $4.0 billion, while the allowance for expected credit losses decreased from $29.8 million to $22.7 million[22] Receivable Purchase Agreements (RPAs) Activity (in millions) | Metric | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :------------------------------------ | :--------------------------- | :--------------------------- | | Aggregate face value of receivables sold | $6,200.0 | $4,300.0 | | Fees paid under RPAs | $14.6 | $9.4 | Note 3. Acquisitions This note provides information on business acquisitions, including purchase price allocation and their financial impact - Acquired Flyers Energy Group, LLC on January 3, 2022, for an estimated $792.2 million, including $642.7 million in cash and $50.0 million in common stock, reported in the land segment[27] Flyers Acquisition Preliminary Purchase Price Allocation (in millions) | Item | As Adjusted | | :------------------------------------ | :---------- | | Total fair value of consideration | $795.0 | | Net identifiable assets acquired | $407.0 | | Goodwill | $388.0 | - Flyers contributed $1.8 billion in revenue and $39.8 million in income before income taxes from the acquisition date through June 30, 2022[30] Note 4. Goodwill This note details the changes in goodwill balances across segments, primarily due to acquisitions and foreign currency translation Goodwill Changes (in millions) | Segment | As of December 31, 2021 | 2022 Acquisition | Foreign Currency Translation | As of June 30, 2022 | | :------------------------------------ | :---------------------- | :--------------- | :--------------------------- | :------------------ | | Aviation segment | $400.1 | — | $(2.8) | $397.3 | | Land segment | $461.8 | $388.0 | $(13.8) | $836.0 | | Total | $861.9 | $388.0 | $(16.5) | $1,233.3 | - Total goodwill increased by $371.4 million to $1,233.3 million as of June 30, 2022, primarily due to the $388.0 million goodwill from the Flyers acquisition in the land segment[33] Note 5. Derivative Instruments This note describes the company's use of derivative instruments for hedging commodity, currency, and interest rate risks - The company uses fair value hedges, cash flow hedges, and non-designated derivatives to mitigate risks related to commodity prices, foreign currency exchange rates, and interest rates[34][35] Gross Notional Values of Derivative Contracts (June 30, 2022, in millions) | Contract Type | Unit | Value | | :-------------------------- | :--- | :---- | | Commodity contracts (Long) | BBL | 66.8 | | Commodity contracts (Short) | BBL | (56.1) | | Foreign currency exchange contracts (Sell USD, buy other) | USD | (511.6) | | Foreign currency exchange contracts (Buy USD, sell other) | USD | 762.1 | | Interest rate swap | USD | 300.0 | Gross Fair Value of Derivative Instruments (in millions) | Metric | June 30, 2022 | December 31, 2021 | | :------------------------------------ | :-------------- | :---------------- | | Total derivatives assets | $2,513.4 | $773.6 | | Total derivatives liabilities | $2,427.3 | $748.5 | Note 6. Debt, Interest Income, Expense, and Other Finance Costs This note outlines the company's debt structure, interest expenses, and other financing-related costs - The company amended its Credit Facility on April 1, 2022, increasing the revolving credit facility to $1.5 billion and adding a new $500 million term loan, extending maturity to April 1, 2027, and modifying covenants[45] Outstanding Debt (in millions) | Debt Type | June 30, 2022 | December 31, 2021 | | :------------------------------------ | :-------------- | :---------------- | | Credit Facility | $525.0 | — | | Term loans | $494.7 | $484.1 | | Total debt | $1,040.4 | $508.7 | | Long-term debt | $1,024.1 | $478.1 | Interest Expense and Other Financing Costs, Net (in millions) | Period | 2022 | 2021 | | :------------------------------------ | :--- | :--- | | Three Months Ended June 30, | $(26.5) | $(10.0) | | Six Months Ended June 30, | $(40.9) | $(18.7) | Note 7. Shareholders' Equity This note provides details on changes in shareholders' equity, including dividends and accumulated other comprehensive income - Quarterly cash dividends of $0.12 per common share were declared for both the six months ended June 30, 2022 ($15.0 million total), and 2021 ($15.1 million total)[48] Accumulated Other Comprehensive Income (Loss) (in millions) | Component | Balance as of January 1, 2022 | Balance as of June 30, 2022 | | :------------------------------------ | :-------------------------- | :-------------------------- | | Foreign Currency Translation Adjustments | $(134.0) | $(179.1) | | Cash Flow Hedges | $(2.7) | $5.1 | | Total Accumulated Other Comprehensive Income (Loss) | $(136.7) | $(174.0) | Note 8. Fair Value Measurements This note explains the fair value measurements of assets and liabilities, particularly derivative instruments Total Assets and Liabilities at Fair Value (in millions) | Metric | June 30, 2022 | December 31, 2021 | | :------------------------------------ | :-------------- | :---------------- | | Total assets at fair value | $2,526.8 | $788.3 | | Total liabilities at fair value | $2,427.3 | $748.5 | - Total assets at fair value increased significantly from $788.3 million to $2,526.8 million, primarily driven by commodity contracts[51] - One counterparty represented over 10% of the company's credit exposure to OTC derivative counterparties, totaling $86.6 million as of June 30, 2022[54] Note 9. Revenue from Contracts with Customers This note disaggregates revenue by geographic area, providing insights into sales performance Revenue from Contracts with Customers by Geographic Area (in millions) | Geographic Area | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Asia Pacific | $1,854.9 | $887.6 | $3,274.2 | $1,733.3 | | EMEA | $3,391.6 | $1,479.0 | $5,902.9 | $2,842.9 | | LATAM | $1,893.0 | $724.2 | $3,323.2 | $1,321.6 | | North America | $9,869.7 | $3,984.4 | $16,770.5 | $7,131.8 | | Other revenues | $112.9 | $10.3 | $233.4 | $13.9 | | Total revenue | $17,122.1 | $7,085.5 | $29,504.1 | $13,043.4 | - Total revenue for the six months ended June 30, 2022, increased by 126% to $29,504.1 million compared to the same period in 2021[56] Note 10. Income Taxes This note details the company's income tax provision, effective tax rates, and significant tax-related contingencies Income Tax Provision and Effective Income Tax Rates (in millions, except rates) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Income tax provision | $(2.5) | $2.0 | $3.8 | $10.8 | | Effective income tax rate | (11.3)% | 10.2% | 7.0% | 22.9% | - The income tax provision for the three months ended June 30, 2022, was a benefit of $2.5 million, compared to an expense of $2.0 million in the prior year, primarily due to $10.6 million in net discrete income tax benefits[57] - The company is vigorously defending against proposed tax assessments in Denmark totaling approximately $54.4 million for the 2015-2017 tax years[60] Note 11. Business Segments This note presents financial information disaggregated by the company's operating segments: Aviation, Land, and Marine Revenue by Reportable Segment (in millions) | Segment | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Aviation segment | $7,843.5 | $2,805.8 | $12,854.0 | $4,900.8 | | Land segment | $5,431.8 | $2,457.2 | $9,812.6 | $4,645.4 | | Marine segment | $3,846.8 | $1,822.4 | $6,837.5 | $3,497.1 | | Total revenue | $17,122.1 | $7,085.5 | $29,504.1 | $13,043.4 | Income from Operations by Reportable Segment (in millions) | Segment | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Aviation segment | $(6.9) | $34.0 | $0.7 | $57.0 | | Land segment | $33.0 | $8.1 | $66.3 | $40.9 | | Marine segment | $52.7 | $4.8 | $75.9 | $11.1 | | Total income from operations | $52.8 | $30.9 | $94.1 | $68.6 | Total Assets by Reportable Segment (in millions) | Segment | June 30, 2022 | December 31, 2021 | | :------------------------------------ | :-------------- | :---------------- | | Aviation segment | $3,288.3 | $2,305.6 | | Land segment | $3,632.9 | $2,106.1 | | Marine segment | $1,462.2 | $1,022.7 | | Total assets | $8,795.7 | $5,942.4 | Note 12. Earnings Per Common Share This note provides the calculation of basic and diluted earnings per common share Earnings Per Common Share | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Basic earnings per common share | $0.39 | $0.28 | $0.81 | $0.58 | | Diluted earnings per common share | $0.39 | $0.28 | $0.80 | $0.57 | - Diluted EPS increased by 39.3% YoY to $0.39 for the three months ended June 30, 2022, and by 40.3% YoY to $0.80 for the six months ended June 30, 2022[66] Note 13. Commitments and Contingencies This note discloses the company's various legal, environmental, and tax-related commitments and contingencies - The company is involved in various claims and proceedings, including environmental, commercial, governmental contract, bankruptcy preference, and tax claims[67] - A judgment of approximately $33 million (principal and interest) was entered against a subsidiary in the Singapore High Court in December 2021, which the company is appealing[67] - The company is appealing an assessment of approximately $11.6 million (BRL 60.8 million) from Brazilian tax authorities related to the ICMS rate[69] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition, highlighting key drivers, trends, and future outlook Forward-Looking Statements This section highlights that the report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements that involve risks, uncertainties, and other factors that could cause actual results to differ materially from projections[73][74] - Customer and counterparty creditworthiness and ability to collect accounts receivable - Adverse conditions in the industries where customers operate - Sudden changes in fuel market prices or prolonged high/low fuel prices - Ability to effectively integrate and derive benefits from acquired businesses - Inability to effectively mitigate financial risks associated with derivatives and physical fuel products - Failure to comply with debt covenants in the Credit Facility and Term Loans - Impact of cyber and other information security-related incidents - Changes in political, economic, or regulatory environments, including the conflict in Eastern Europe - Greenhouse gas reduction programs and other environmental/climate change legislation - Changes in credit terms from suppliers and non-performance of suppliers/customers - Inflationary pressures, interest rate increases, or a global recession - Lower than expected cash flows and revenues impacting intangible assets and goodwill - Availability of cash and liquidity for working capital and strategic investments - Currency exchange fluctuations and ability to leverage technology - Failure to meet fuel and product specifications - Ability to achieve expected benefits from restructuring and cost reduction initiatives - Environmental risks from petroleum product storage, transportation, and delivery - Reputational harm from adverse publicity - Risks of operating in high-risk locations - Uninsured or underinsured losses - Seasonal variability and natural disasters - Declines in cash equivalents and investments - Ability to retain and attract key employees - Changes in tax laws or adverse results of tax audits - Failure to generate sufficient future taxable income in jurisdictions with deferred tax assets - Impact of Brexit - Ability to comply with U.S. and international laws and regulations - Ability to manage COVID-19 pandemic effects - Outcome of litigation and other proceedings[75][76] Business Overview This section describes World Fuel Services Corporation as a leading global fuel services company, expanding into energy management solutions - World Fuel Services Corporation is a leading global fuel services company, distributing fuel and related products and services in the aviation, land, and marine transportation industries[79] - The company's strategic 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, and sustainability products and services across the energy product spectrum[79] Reportable Segments The company operates in three reportable segments: Aviation, Land, and Marine, each with distinct market dynamics and operational characteristics Aviation Segment This segment focuses on fuel and related services for the aviation industry, experiencing recovery but facing market pricing challenges - The aviation segment benefited from growth in fuel and related services, improved logistics, and geographic expansion into international airport locations[81] - Results were negatively impacted by inventory losses due to extreme backwardation in market pricing during the first half of 2022 and the reduction of government-related activity in Afghanistan[81] - Global aviation volumes experienced a substantial recovery compared to pre-pandemic levels due to the gradual relaxation of travel restrictions and higher vaccination distribution[81] Land Segment This segment is positioned for market share growth through acquisitions and expansion of sustainability offerings for commercial and industrial customers - The land segment is positioned for continued market share growth, both organically and through acquisitions, to enhance commercial and industrial platforms[82] - Focus is on expanding sustainability offerings, including renewable fuel products, carbon management, and renewable energy solutions through World Kinect[82] - The acquisition of Flyers in January 2022 expanded the national platform for delivering value-added solutions to commercial and industrial customers across the U.S.[82] Marine Segment This segment traditionally benefits from elevated fuel prices, volatility, supply uncertainty, and a constrained credit environment - The marine segment traditionally benefits from elevated fuel prices, volatility, supply uncertainty, and a constrained credit environment[84] - In the first half of 2022, the segment significantly benefited from the constrained credit environment, dramatic increases in global oil prices, higher interest rates, and disruption of traditional supply patterns[84] - Experienced a material decline in volume and profitability from early 2020 through 2021 due to the impact of the COVID-19 pandemic[84] Results of Operations This section details the financial performance for the three and six months ended June 30, 2022, compared to the same periods in 2021, providing a consolidated view and segment-specific breakdowns of revenue, gross profit, operating expenses, and income from operations Three Months Ended June 30, 2022 vs. 2021 Consolidated results for Q2 2022 showed significant revenue and gross profit growth driven by higher fuel prices and increased volumes across all segments, despite increased operating expenses and interest costs Consolidated Results of Operations This section provides a consolidated overview of the company's financial performance for the three months ended June 30, 2022, compared to 2021 Consolidated Financial Highlights (3 Months Ended June 30, in millions) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :------------------------------------ | :--- | :--- | :--------- | :--------- | | Revenue | $17,122.1 | $7,085.5 | $10,036.6 | 141.6% | | Gross profit | $253.4 | $183.9 | $69.5 | 37.8% | | Total operating expenses | $200.6 | $153.0 | $47.6 | 31.1% | | Income from operations | $52.8 | $30.9 | $21.9 | 70.9% | | Net income attributable to World Fuel | $24.4 | $17.6 | $6.8 | 38.6% | - Revenue increased by $10.0 billion (142%) due to higher fuel prices and increased volumes across all segments[85] - Operating expenses increased by $47.7 million (31%), partly due to $19.1 million from the Flyers acquisition and higher compensation/general and administrative costs[87] Aviation Segment Results of Operations This section details the Aviation segment's financial performance for the three months ended June 30, 2022, showing a decline in gross profit and operating income Aviation Segment Highlights (3 Months Ended June 30, in millions, except price per gallon) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :------------------------------------ | :--- | :--- | :--------- | :--------- | | Revenue | $7,843.5 | $2,805.8 | $5,037.7 | 179.5% | | Gross profit | $52.8 | $87.4 | $(34.6) | (39.6)% | | Income (loss) from operations | $(6.9) | $34.0 | $(40.9) | (120.3)% | | Volumes (gallons) | 1,831.2 | 1,373.8 | 457.4 | 33.3% | | Average price per gallon | $4.20 | $1.95 | $2.25 | 115.4% | - Gross profit decreased by $34.6 million (40%) primarily due to inventory losses from extreme backwardation and reduced government-related activity in Afghanistan[91] - Income from operations shifted to a loss of $6.9 million, a decrease of $40.9 million (120%), also impacted by a $6.3 million increase in operating expenses[92] Land Segment Results of Operations This section details the Land segment's financial performance for the three months ended June 30, 2022, showing significant growth in gross profit and operating income Land Segment Highlights (3 Months Ended June 30, in millions, except price per gallon) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :------------------------------------ | :--- | :--- | :--------- | :--------- | | Revenue | $5,431.8 | $2,457.2 | $2,974.6 | 121.1% | | Gross profit | $122.4 | $73.8 | $48.6 | 65.9% | | Income from operations | $33.0 | $8.1 | $24.9 | 307.4% | | Volumes (gallons) | 1,531.7 | 1,288.5 | 243.2 | 18.9% | | Average price per gallon | $3.55 | $1.91 | $1.64 | 85.9% | - Gross profit increased by $48.6 million (66%), primarily attributable to Flyers' gross profit of $41.6 million and improved performance in the U.K.[94] - Income from operations increased by $24.9 million (308%), with Flyers contributing $22.5 million[95] Marine Segment Results of Operations This section details the Marine segment's financial performance for the three months ended June 30, 2022, showing substantial growth in gross profit and operating income Marine Segment Highlights (3 Months Ended June 30, in millions, except price per metric ton) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :------------------------------------ | :--- | :--- | :--------- | :--------- | | Revenue | $3,846.8 | $1,822.4 | $2,024.4 | 111.1% | | Gross profit | $78.2 | $22.7 | $55.5 | 244.5% | | Income from operations | $52.7 | $4.8 | $47.9 | 997.9% | | Volumes (metric tons) | 4.9 | 4.6 | 0.3 | 6.5% | | Average price per metric ton | $788.32 | $397.18 | $391.14 | 98.5% | - Gross profit increased by $55.5 million (244%), principally due to higher bunker fuel prices, market volatility, and a constrained credit environment[97] - Income from operations increased by $48.0 million (1,003%), partially offset by a $7.5 million increase in operating expenses[98] Six Months Ended June 30, 2022 vs. 2021 Consolidated results for H1 2022 demonstrated strong revenue and gross profit growth, primarily due to higher fuel prices and increased volumes, with significant contributions from the Land and Marine segments, while the Aviation segment faced inventory losses Consolidated Results of Operations This section provides a consolidated overview of the company's financial performance for the six months ended June 30, 2022, compared to 2021 Consolidated Financial Highlights (6 Months Ended June 30, in millions) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :------------------------------------ | :--- | :--- | :--------- | :--------- | | Revenue | $29,504.1 | $13,043.4 | $16,460.7 | 126.2% | | Gross profit | $484.4 | $375.5 | $108.9 | 29.0% | | Total operating expenses | $390.3 | $306.9 | $83.4 | 27.2% | | Income from operations | $94.1 | $68.6 | $25.5 | 37.2% | | Net income attributable to World Fuel | $50.7 | $36.5 | $14.2 | 38.9% | - Revenue increased by $16.5 billion (126%) due to higher fuel prices and increased volumes across all segments[99] - Operating expenses increased by $83.3 million (27%), partly due to $37.5 million from the Flyers acquisition and higher compensation/general and administrative costs[101] Aviation Segment Results of Operations This section details the Aviation segment's financial performance for the six months ended June 30, 2022, showing a decline in gross profit and operating income Aviation Segment Highlights (6 Months Ended June 30, in millions, except price per gallon) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :------------------------------------ | :--- | :--- | :--------- | :--------- | | Revenue | $12,854.0 | $4,900.8 | $7,953.2 | 162.3% | | Gross profit | $117.0 | $164.1 | $(47.1) | (28.7)% | | Income from operations | $0.7 | $57.0 | $(56.3) | (98.8)% | | Volumes (gallons) | 3,486.6 | 2,517.1 | 969.5 | 38.5% | | Average price per gallon | $3.59 | $1.85 | $1.74 | 94.1% | - Gross profit decreased by $47.1 million (29%) primarily due to inventory losses from extreme backwardation and significant price volatility, and reduced government-related activity in Afghanistan[105] - Income from operations decreased by $56.4 million (99%) to $0.7 million, also impacted by a $9.3 million increase in operating expenses[106] Land Segment Results of Operations This section details the Land segment's financial performance for the six months ended June 30, 2022, showing significant growth in gross profit and operating income Land Segment Highlights (6 Months Ended June 30, in millions, except price per gallon) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :------------------------------------ | :--- | :--- | :--------- | :--------- | | Revenue | $9,812.6 | $4,645.4 | $5,167.2 | 111.2% | | Gross profit | $242.2 | $163.3 | $78.9 | 48.3% | | Income from operations | $66.3 | $40.9 | $25.4 | 62.1% | | Volumes (gallons) | 3,114.3 | 2,591.5 | 522.8 | 20.2% | | Average price per gallon | $3.15 | $1.79 | $1.36 | 76.0% | - Gross profit increased by $78.9 million (48%), primarily attributable to Flyers' gross profit of $77.6 million and improved results in the U.K.[109] - Income from operations increased by $25.5 million (62%), with Flyers contributing $40.1 million[110] Marine Segment Results of Operations This section details the Marine segment's financial performance for the six months ended June 30, 2022, showing substantial growth in gross profit and operating income Marine Segment Highlights (6 Months Ended June 30, in millions, except price per metric ton) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :------------------------------------ | :--- | :--- | :--------- | :--------- | | Revenue | $6,837.5 | $3,497.1 | $3,340.4 | 95.5% | | Gross profit | $125.2 | $48.2 | $77.0 | 159.8% | | Income from operations | $75.9 | $11.1 | $64.8 | 583.8% | | Volumes (metric tons) | 9.6 | 8.8 | 0.8 | 9.1% | | Average price per metric ton | $714.46 | $396.44 | $318.02 | 80.2% | - Gross profit increased by $77.0 million (160%), principally due to higher bunker fuel prices, market volatility, and a constrained credit environment[112] - Income from operations increased by $64.7 million (581%), partially offset by a $12.2 million increase in operating expenses[113] Liquidity and Capital Resources The company's liquidity, primarily from cash and its Credit Facility, is deemed sufficient for the next twelve months, despite increased working capital needs due to higher fuel prices and volumes, and significant cash usage for the Flyers acquisition Sources of Liquidity and Factors Impacting Our Liquidity This section describes the company's primary sources of liquidity and the factors that influence its cash position - Liquidity consists principally of cash and availability under the Credit Facility, fluctuating based on customer receipts, supplier payments, fuel price changes, and financial performance[115] - The Credit Facility was amended on April 1, 2022, increasing the revolving credit facility to $1.5 billion and providing a new $500 million term loan, totaling $2.0 billion, with maturity extended to April 1, 2027[117] - The company sold $6.2 billion in receivables under Receivable Purchase Agreements (RPAs) during the six months ended June 30, 2022, to manage liquidity[119] Future Uses of Liquidity This section outlines the company's expected future uses of cash, primarily for working capital, acquisitions, and investments - Cash is primarily used to fund working capital for operations, as well as for strategic acquisitions and investments[120] - There were no material changes in expected future uses of liquidity from December 31, 2021, to June 30, 2022[120] Cash Flows This section details the company's cash flow activities from operations, investing, and financing for the six months ended June 30, 2022, compared to 2021 Major Categories of Cash Flows (6 Months Ended June 30, in millions) | Cash Flow Activity | 2022 | 2021 | | :------------------------------------ | :--- | :--- | | Net cash provided by (used in) operating activities | $(29.2) | $140.6 | | Net cash provided by (used in) investing activities | $(678.5) | $(19.7) | | Net cash provided by (used in) financing activities | $451.0 | $(35.7) | - Net cash used in operating activities was $29.2 million in H1 2022, a $169.8 million decrease from H1 2021, primarily due to increased working capital driven by higher fuel prices and inventory levels[122] - Net cash used in investing activities was $678.5 million in H1 2022, primarily for the $639.4 million acquisition of Flyers and $37.7 million in capital expenditures[123] Critical Accounting Estimates The company's financial statements rely on estimates and assumptions, particularly for impairment assessments of goodwill, long-lived assets, and equity investments, which involve significant judgment based on forecasted financial information and market conditions Impairment Assessments of Goodwill, Long-Lived Assets, and Equity Investments This section discusses the significant judgment involved in assessing impairment for goodwill, long-lived assets, and equity investments - Significant judgment is involved in performing impairment assessments, based on forecasted financial information, expected growth rates, profitability of businesses, discount rates, and market-based multiples[127] - As of June 30, 2022, the company concluded that the carrying value of its long-lived assets and equity investments were recoverable, and the fair value of its land and aviation reporting units were not less than their respective carrying values[128] Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to the company's exposures to commodity price, interest rate, or foreign currency risk since December 31, 2021 - No material changes to exposures to commodity price, interest rate, or foreign currency risk since December 31, 2021[129] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures, concluding they were effective as of June 30, 2022, with no material changes in internal control over financial reporting Management's Evaluation of Disclosure Controls and Procedures This section confirms that the CEO and CFO evaluated the effectiveness of the company's disclosure controls and procedures - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2022[131] Changes in Internal Control over Financial Reporting This section states that there were no material changes in internal control over financial reporting during the three months ended June 30, 2022 - There were no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal control during the three months ended June 30, 2022[132] Part II. Other Information This section covers legal proceedings, equity security sales, and required exhibits Item 1. Legal Proceedings The company is involved in various legal and tax proceedings in the ordinary course of business, including significant tax disputes in Brazil, Denmark, and South Korea, and a $33 million judgment in Singapore, which are being vigorously defended - The company is under review by various domestic and foreign tax authorities regarding income tax and indirect tax matters, particularly in Brazil, Denmark, South Korea, and the U.S.[135] - A judgment of approximately $33 million was entered against one of the company's subsidiaries in the Singapore High Court in December 2021, which is currently under appeal[67][136] - The company is not currently a party to any claim, complaint, or proceeding expected to have a material adverse effect on its business or financial condition, but adverse resolutions could be material[136] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 1,510 thousand shares of common stock during Q2 2022 at an average price of $23.16 per share, with approximately $147.1 million remaining available under the 2020 Repurchase Program Issuer Purchases of Equity Securities (in thousands, except average price per share) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | | :------------------------------------ | :----------------------------- | :--------------------------- | :--------------------------------------------------------------------------------- | | 4/1/2022 - 4/30/2022 | 128 | $24.65 | $178,899 | | 5/1/2022 - 5/31/2022 | 1,382 | $23.02 | $147,053 | | 6/1/2022 - 6/30/2022 | — | — | $147,053 | | Total | 1,510 | $23.16 | $147,053 | - Approximately $147.1 million remains available for purchase under the 2020 Repurchase Program as of June 30, 2022[137] Item 6. Exhibits This section lists the exhibits filed as part of the 10-Q Report, including amendments to the credit agreement, certifications from the CEO and CFO, and XBRL formatted financial statements - Amendment No. 8 to Fourth Amended and Restated Credit Agreement, dated April 1, 2022 - Amendment No. 9 to the Fourth Amended and Restated Credit Agreement, dated July 12, 2022 - Certifications of the Chief Executive Officer and Chief Financial Officer (Rule 13a-14(a) or Rule 15d-14(a) and Section 906 of Sarbanes-Oxley Act of 2002) - XBRL formatted financial statements (Condensed Consolidated Balance Sheets, Statements of Income and Comprehensive Income, Statements of Shareholders' Equity, Statements of Cash Flows, and Notes) Signatures The report is duly signed on behalf of World Fuel Services Corporation by Michael J. Kasbar, Chairman, President and Chief Executive Officer, and Ira M. Birns, Executive Vice President and Chief Financial Officer, as of July 29, 2022 - The report was signed on July 29, 2022, by Michael J. Kasbar, Chairman, President and Chief Executive Officer, and Ira M. Birns, Executive Vice President and Chief Financial Officer[143]