World Kinect(WKC) - 2020 Q3 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements Presents unaudited consolidated financial statements, including balance sheets, income, equity, and cash flow statements, with notes on accounting policies and key activities Consolidated Balance Sheets Total assets decreased to $4.4 billion from $6.0 billion, liabilities to $2.5 billion from $4.1 billion, while equity remained stable at $1.9 billion Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $2,534.8 | $4,170.1 | | Accounts receivable, net | $1,244.1 | $2,891.9 | | Total Assets | $4,392.3 | $5,992.4 | | Total Current Liabilities | $1,557.0 | $3,162.4 | | Accounts payable | $1,085.8 | $2,602.7 | | Total Liabilities | $2,472.5 | $4,098.5 | | Total Equity | $1,919.8 | $1,893.9 | Consolidated Statements of Income and Comprehensive Income Q3 2020 revenue declined to $4.5 billion, but net income increased to $82.0 million due to other income; nine-month revenue also fell, with net income at $113.1 million Q3 2020 vs Q3 2019 Performance (in millions, except EPS) | Metric | Q3 2020 | Q3 2019 | | :--- | :--- | :--- | | Revenue | $4,482.7 | $9,322.7 | | Gross Profit | $214.0 | $305.7 | | Income from Operations | $38.8 | $93.6 | | Net Income (attributable to World Fuel) | $82.0 | $48.2 | | Diluted EPS | $1.29 | $0.73 | Nine Months 2020 vs 2019 Performance (in millions, except EPS) | Metric | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | | Revenue | $15,656.2 | $27,460.9 | | Gross Profit | $686.6 | $825.3 | | Income from Operations | $121.5 | $239.2 | | Net Income (attributable to World Fuel) | $113.1 | $122.4 | | Diluted EPS | $1.76 | $1.84 | Consolidated Statements of Cash Flows Operating cash flow significantly increased to $490.6 million, investing activities provided $86.9 million, and financing activities used $188.8 million for debt and repurchases Cash Flow Summary for Nine Months Ended Sep 30 (in millions) | Cash Flow Category | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $490.6 | $168.7 | | Net cash provided by (used in) investing activities | $86.9 | $(55.1) | | Net cash provided by (used in) financing activities | $(188.8) | $(103.1) | | Net increase in cash and cash equivalents | $386.7 | $6.7 | Notes to the Consolidated Financial Statements Details COVID-19 impacts, new accounting standards, the $303.5 million sale of MSTS with an $80.0 million gain, the UVair acquisition, and an $18.6 million restructuring impairment - The COVID-19 pandemic significantly impacted the aviation, marine, and land transportation industries, leading to a sharp decline in demand and sales for the company starting in Q2 2020[28][29] - On September 30, 2020, the company sold its Multi Service payment solutions business (MSTS) for gross cash proceeds of $303.5 million, recognizing a pre-tax gain of $80.0 million[45] - A restructuring initiative was implemented due to the pandemic, resulting in $7.7 million in severance costs and an $18.6 million asset impairment charge from the rationalization of the global office footprint[100][101][102] - In Q1 2020, the company acquired the aviation fuel business from Universal Weather and Aviation, Inc. (UVair) for a purchase price of $159.0 million, adding $79.1 million in goodwill to the aviation segment[47][50] Management's Discussion and Analysis of Financial Condition and Results of Operations Discusses the severe COVID-19 impact on all segments, detailing revenue and volume declines, cost reductions, strong operating cash flow, and robust liquidity from the MSTS divestiture Business Overview and COVID-19 Impact COVID-19 severely impacted aviation, land, and marine fuel services, causing significant volume declines and prompting cost reductions, a hiring freeze, and restructuring - The aviation segment was severely impacted by global travel restrictions, causing a material volume decline in commercial aviation and a significant reduction in business and general aviation activities[114] - Sales to NATO in Afghanistan, a material portion of aviation profitability, experienced a decline due to the U.S. troop withdrawal, with further reductions expected[115] - The marine segment's volume and profitability were negatively impacted by the pandemic, particularly from weakened cruise line demand and lower fuel prices, following a positive start to the year driven by IMO 2020 regulations[117] - The company implemented significant cost-saving measures, including a hiring freeze, travel restrictions, and a restructuring initiative to streamline operations and rationalize its global office footprint[119] Results of Operations Q3 2020 revenue decreased 52% to $4.5 billion, gross profit fell 30%, but net income rose to $82.0 million due to the MSTS sale gain Q3 2020 vs Q3 2019 Revenue by Segment (in millions) | Segment | Q3 2020 | Q3 2019 | $ Change | | :--- | :--- | :--- | :--- | | Aviation | $1,596.2 | $4,743.0 | $(3,146.8) | | Land | $1,645.2 | $2,555.8 | $(910.6) | | Marine | $1,241.2 | $2,023.9 | $(782.6) | | Total | $4,482.7 | $9,322.7 | $(4,840.0) | Q3 2020 vs Q3 2019 Gross Profit by Segment (in millions) | Segment | Q3 2020 | Q3 2019 | $ Change | | :--- | :--- | :--- | :--- | | Aviation | $97.6 | $156.9 | $(59.3) | | Land | $84.3 | $95.4 | $(11.0) | | Marine | $32.0 | $53.4 | $(21.3) | | Total | $214.0 | $305.7 | $(91.7) | - Total operating expenses for Q3 2020 decreased by 17% YoY to $175.2 million, mainly due to lower compensation and benefits costs, though this was partially offset by higher bad debt expense[131] - Non-operating income for Q3 2020 was $69.0 million, a significant swing from a $22.8 million expense in Q3 2019, driven by the $80.0 million gain on the sale of the MSTS business[137] Liquidity and Capital Resources Cash and equivalents increased to $572.7 million, operating cash flow was $490.6 million, with no credit facility borrowings and strong liquidity from the MSTS sale - Cash and cash equivalents increased to $572.7 million as of September 30, 2020[165] - Net cash from operating activities for the first nine months of 2020 was $490.6 million, a significant increase from $168.7 million in the prior year, driven by favorable working capital changes[162] - As of September 30, 2020, the company had no outstanding borrowings under its $1.3 billion Credit Facility and was in compliance with all financial covenants[167][168] - Investing activities provided $86.9 million in cash, primarily from the $268.4 million net proceeds from the sale of the MSTS business, partially offset by the $128.6 million acquisition of the UVair fuel business[163] Quantitative and Qualitative Disclosures About Market Risk A $300 million interest rate swap was initiated in March 2020 to hedge variable rate debt, with no other material changes to market risk exposure - In March 2020, the company entered into a $300 million interest rate swap maturing in March 2025 to lock in the interest rate on a portion of its variable rate debt at 0.55%[178] Controls and Procedures Management concluded disclosure controls and procedures were effective as of September 30, 2020, with no material changes in internal control over financial reporting - Based on an evaluation as of September 30, 2020, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[181] Part II. Other Information Legal Proceedings The company faces various material tax disputes in multiple countries and other ordinary course claims not expected to materially impact financial condition - The company is under review by tax authorities and involved in various tax-related legal challenges in Brazil, Denmark, South Korea, and the U.S.[185] Risk Factors Highlights significant COVID-19 impacts on transportation, including risks of declining sales, increased credit risk, supply chain disruptions, and asset impairments, with uncertain ultimate magnitude - The COVID-19 pandemic has had a significant negative impact on the aviation, land, and marine transportation industries, leading to sharp declines in demand and a decline in the company's sales volume and profitability[188] - The pandemic increases the risk of customer bankruptcies and credit losses, which could lead to significant increases in bad debt expense, particularly in the aviation segment[188] - Potential impacts from the pandemic include disruptions in supply chains, delayed customer payments, losses on hedging transactions, asset impairments (including goodwill), and a potential structural shift in global fuel demand[194] Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased in Q3 2020, with $258.9 million remaining available for future stock repurchases under authorized programs - No shares were repurchased under the company's publicly announced stock repurchase programs during the three months ended September 30, 2020[198] - As of September 30, 2020, approximately $258.9 million was available for purchase under the company's stock repurchase programs[199] Exhibits Lists filed exhibits, including CEO and CFO certifications and XBRL-formatted financial statements - Exhibits filed include CEO and CFO certifications pursuant to Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act, as well as XBRL data files[200]