WORLD KINECT CORPORATION The following discussion should be read in conjunction with our 2020 10-K Report and the unaudited Condensed Consolidated Financial Statements and related Notes in Item 1 - Financial Statements 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 materially from the results suggested by these forward-looking statements. Some factors that may cause our results to differ are disclosed in Item 1A - Risk Factors of our 2020 10-K Report. Forward-Looking Statements This 10-Q Report and the information incorporated by reference in it, or made by us in other reports, filings with theSEC , press releases, teleconferences, industry conferences or otherwise, contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words "believe," "anticipate," "expect," "estimate," "project," "could," "would," "will," "will be," "will continue," "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) the effectiveness of our initiatives to reduce cost, improve liquidity and increase efficiencies, as well as the impact of such initiatives on our business, (iv) growth strategies and our working capital, liquidity, capital expenditure requirements, (v) 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, (vi) our expectations and estimates regarding certain tax, legal and accounting matters, including the impact on our financial statements, (vii) 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 (viii) 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 ourSEC filings. These forward-looking statements are estimates and projections reflecting our best judgment and involve risks, uncertainties or other factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Although we believe the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect. Our actual results may differ materially from the future results, performance or achievements expressed or implied by the forward-looking statements. 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, 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; •adverse conditions in the industries in which our customers operate, such as the current operating environment as a result of the pandemic; •sudden changes in the market price of fuel or extremely high or low fuel prices that continue for an extended period of time; •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; •greenhouse gas reduction ("GHG") programs and other environmental and climate change legislation adopted by governments around the world, including cap and trade regimes, carbon taxes, increased efficiency standards and mandates for renewable energy, each of which could increase our operating and compliance costs as well as adversely impact our sales of fuel products; •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; 20 -------------------------------------------------------------------------------- •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 product 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; •reputational harm from adverse publicity arising out of spills, environmental contamination or public perception about the impacts on climate change by us or other companies in our industry; •risks associated with operating in high-risk locations, 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 inU.S. or foreign tax laws, interpretations of such laws, changes in the mix of taxable income among different tax jurisdictions, or adverse results of tax audits, assessments, or disputes; •our failure to generate sufficient future taxable income in jurisdictions with material deferred tax assets and net operating loss carryforwards; •the impact of theU.K.'s exit from theEuropean Union , known as Brexit, on our business, operations and financial condition; •our ability to comply withU.S. and international laws and regulations, including those related to anti-corruption, economic sanction programs and environmental matters; •the outcome of litigation and other proceedings, including the costs associated in defending any actions; •increases in interest rates; and •other risks, including those described in Item 1A - Risk Factors in our 2020 10-K Report, as well as those described from time to time in our other filings with theSEC . 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. Further, forward-looking statements speak only as of the date they are made, and unless required by law, we expressly disclaim any obligation or undertaking to publicly update any of them in light of new information, future events, or otherwise. Any public statements or disclosures by us following this report that modify or impact any of the forward-looking statements contained in or accompanying this 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, as amended (the "Exchange Act"). 21 -------------------------------------------------------------------------------- Business Overview We are a leading global fuel services company, principally engaged in the distribution of fuel and related products and services in the aviation, 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 will continue to focus on enhancing the portfolio of products and services we provide based on changes in customer demand, including increasing our sustainability offerings and renewable energy solutions in light of the continued global focus on climate change and the related impacts. For additional discussion on climate change and the associated risks, see "Climate Change" under Part I, Item 1. Business - Governmental Regulation, and Item 1A - Risk Factors in our 2020 10-K. COVID-19 Throughout 2020 and 2021, the COVID-19 pandemic had a significant impact on the global economy as a whole, and the transportation industries in particular. Many of our customers in these industries, especially commercial airlines, have experienced a substantial decline in business activity arising from the various measures enacted by governments around the world to contain the spread of the 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. As a result of the pandemic, we experienced a sharp decline in demand and related sales primarily beginning in the second quarter of 2020, as large sectors of the global economy were adversely impacted by the crisis. Demand showed steady improvement through the second half of 2020 and into 2021, however, it has remained below pre-pandemic levels. As described in greater detail below, we expect these negative impacts to continue through the remainder of 2021. The ultimate global recovery from the pandemic will be dependent on, among other things, actions taken by governments and businesses to contain and combat the virus, including any variant strains, the speed and effectiveness of vaccine production and global distribution, as well as how quickly, and to what extent, normal economic and operating conditions can resume on a sustainable basis globally. For additional discussion on the risks relating to the pandemic, see Item 1A - Risk Factors in our 2020 10-K Report. Reportable Segments We operate in three reportable segments consisting of aviation, land, and marine, where we offer fuel and related products and services to customers in these transportation 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 generally determined by the volume and the gross profit achieved on fuel sales and related services. In our marine segment, we principally purchase and resell fuel and also act as brokers for others. Profit from our marine segment is determined mostly by the volume and unit margin achieved on fuel resales. Profitability in our segments also depends on our operating expenses, which may be materially affected to the extent that we are required to provide for potential credit losses. Corporate expenses are allocated to each segment based on usage, where possible, or other factors according to the nature of the activity. We evaluate and manage our business segments using the performance measurement of income from operations. Selected financial information with respect to our business segments is provided in Note 9. Business Segments. Aviation Segment Our aviation segment has 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 2021. Accordingly, beginning in the second quarter of 2020 and continuing through the first nine months 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. 22 -------------------------------------------------------------------------------- In addition, our aviation segment has historically benefited from significant sales to government customers, particularly theNorth Atlantic Treaty Organization ("NATO") inAfghanistan , which 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 theU.S. government andNATO began to significantly reduce the level of troops inAfghanistan and we experienced a corresponding material decline in demand as a result. The final withdrawal of troops in the area was completed during the third quarter of 2021. Land Segment Our land segment consists of land fuel distribution in theU.S. and theU.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. During the latter half of 2020 and into 2021, our retail operations inNorth America have experienced an increase in volumes as markets begin to resume economic activity. Meanwhile, our home heating oil business in theU.K. experienced a decrease in demand in 2021 after previously benefiting from stay-at-home orders 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, our land segment has also similarly benefited from sales toNATO inAfghanistan , however, such demand materially declined since the end of the first quarter of 2020 in connection with theU.S. andNATO troop withdrawal. In 2021, we heightened our focus on restructuring our land business inNorth 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 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$4.0 million to$6.0 million , primarily related to consulting fees, by the end of first quarter of 2022. We expect the ultimate financial benefit 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 our marine segment due to higher average fuel prices, combined with our heightened focus on cost management and the continued reshaping of our business portfolio. In particular, theInternational Maritime Organization's mandatory low sulfur regulations that took effect inJanuary 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 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 EndedSeptember 30, 2021 Compared to Three Months EndedSeptember 30, 2020 Revenue. Our revenue for the third quarter of 2021 was$8.4 billion , an increase of$3.9 billion , or 86%, compared to the third quarter of 2020. Our revenue by segment was as follows (in millions): Three Months Ended September 30, 2021 2020 $ Change Aviation segment $ 3,579.7$ 1,596.2 $ 1,983.5 Land segment 2,670.4 1,645.2 1,025.2 Marine segment 2,100.7 1,241.2 859.5 Total revenue $ 8,350.9$ 4,482.7 $ 3,868.1 23
-------------------------------------------------------------------------------- Revenues in our aviation segment were$3.6 billion for the third quarter of 2021, an increase of$2.0 billion , or 124%, compared to the third quarter of 2020. The increase in revenue was driven by increased volume and higher average prices. Total aviation volumes increased by 638.2 million, or 63%, to 1.7 billion gallons as travel restrictions eased, particularly in the North American and European markets, and demand for air travel continued to recover. Average jet fuel price per gallon sold increased by 64% in the third quarter of 2021 compared to the third quarter of 2020. Revenues in our land segment were$2.7 billion for the third quarter of 2021, an increase of$1.0 billion , or 62%, compared to the third quarter of 2020. The increase in revenue was principally driven by higher average prices. The average price per gallon sold increased by 58% in the third quarter of 2021 compared to the third quarter of 2020. In addition, total volumes increased by 52.1 million, or 4%, to 1.3 billion gallons or gallon equivalents in the third quarter of 2021 compared to the third quarter of 2020, primarily due to increased demand in World Kinect. Revenues in our marine segment were$2.1 billion for the third quarter of 2021, an increase of$0.9 billion , or 69%, compared to the third quarter of 2020. The increase in revenue was principally driven by a 55% increase in the average price per metric ton of bunker fuel sold in the third quarter of 2021 compared to the third quarter of 2020. In addition, total volumes increased by 0.4 million, or 9%, to 4.8 million metric tons in the third quarter of 2021 compared to the third quarter of 2020. Gross Profit. Our gross profit for the third quarter of 2021 was$197.5 million , a decrease of$16.5 million , or 8%, compared to the third quarter of 2020. Our gross profit by segment was as follows (in millions): Three Months Ended September 30, 2021 2020 $ Change Aviation segment $ 113.0$ 97.6 $ 15.4 Land segment 62.6 84.3 (21.7) Marine segment 21.9 32.0 (10.2) Total gross profit $ 197.5$ 214.0 $ (16.5) Our aviation segment gross profit for the third quarter of 2021 was$113.0 million , an increase of$15.4 million , or 16%, compared to the third quarter of 2020. The increase in gross profit was primarily due to increased volumes driven by the continued recovery in demand for travel, partially offset by the reduction in our government-related activity inAfghanistan as a result of the military withdrawal which concluded during the third quarter of 2021. Our land segment gross profit for the third quarter of 2021 was$62.6 million , a decrease of$21.7 million , or 26%, compared to the third quarter of 2020. The decrease in gross profit was primarily attributable to the sale of MSTS. Our marine segment gross profit for the third quarter of 2021 was$21.9 million , a decrease of$10.2 million , or 32%, compared to the third quarter of 2020. The decrease in gross profit was principally attributable to lower profitability as a result of competitive market conditions in the third quarter of 2021 and the loss of certain seasonal business from which we had benefited in the prior period. Operating Expenses. Total operating expenses for the third quarter of 2021 were$155.8 million , a decrease of$19.4 million , or 11%, compared to 2020. Our operating expenses were as follows (in millions): Three Months Ended
2021 2020 $ Change
Compensation and employee benefits $ 93.5 $ 91.4 $ 2.1
General and administrative 60.6 80.9 (20.3)
Restructuring charges 1.7 2.9 (1.2)
Total operating expense $ 155.8 $ 175.2 $ (19.4)
General and administrative expenses decreased $20.3 million , primarily driven by
a $22.9 million , or 98%, 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. In addition, we experienced an
increase in compensation and employee benefits costs as we continue to return to
a more normal level of business activity, which was partially offset by the sale
of MSTS.
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Income from Operations. Our income from operations for the third quarter of 2021
was $41.7 million , an increase of $2.9 million , or 7%, compared to the third
quarter of 2020. Income from operations by segment was as follows (in millions):
Three Months Ended September 30,
2021 2020 $ Change
Aviation segment $ 57.0 $ 29.2 $ 27.8
Land segment 3.7 18.8 (15.1)
Marine segment 3.6 8.2 (4.6)
Corporate overhead - unallocated (22.6) (17.4) (5.2)
Total income from operations $ 41.7 Income from operations in our aviation segment for the third quarter of 2021 was$57.0 million , an increase of$27.8 million , or 95%, compared to the third quarter of 2020. In the third quarter of 2021, our aviation segment benefited from a$15.4 million increase in gross profit and a reduction in the provision for credit losses due to the stabilization of customer credit risk as the global aviation industry continues to recover. In our land segment, income from operations for the third quarter of 2021 was$3.7 million , a decrease of$15.1 million , or 80%, compared to 2020, attributable to the sale of MSTS in 2020 and increased operating expenses, including restructuring charges, in the third quarter of 2021. Our marine segment income from operations for the third quarter of 2021 was$3.6 million , a decrease of$4.6 million , or 56%, compared to the third quarter of 2020, driven by the decrease in gross profit, partially offset by a$5.6 million reduction in operating expenses largely driven by the decrease in our provision for credit losses and restructuring charges in the third quarter of 2021. Corporate overhead costs not charged to the business segments for the third quarter of 2021 were$22.6 million , an increase of$5.2 million , or 30%, compared to 2020, primarily attributable to increased compensation and employee benefit costs. Non-Operating Income (Expense), net. For the third quarter of 2021, we had net non-operating expenses of$9.4 million compared to net non-operating income of$69.0 million in 2020. The decrease of$78.4 million was primarily attributable to the gain on the sale of MSTS in the third quarter of 2020. Income Taxes. For the third quarter of 2021, our income tax provision was$10.0 million and our effective income tax rate was 31%, compared to an income tax provision of$25.4 million and an effective income tax rate of 24% for the third quarter of 2020. The decrease of$15.4 million was primarily attributable to the tax on the gain on the sale of MSTS in the third quarter of 2020, as well as a$1.1 million discrete tax benefit, net for the third quarter of 2021 compared to a$2.7 million discrete tax expense, net in 2020, partially offset by differences in the results of our subsidiaries in tax jurisdictions with different tax rates. See Note 8. Income Taxes for additional information. Net Income Attributable to World Fuel and Diluted Earnings per Common Share. For the third quarter of 2021, we had net income attributable to World Fuel of$21.7 million and diluted income per common share of$0.34 compared to net income attributable to World Fuel of$82.0 million and diluted income per common share of$1.29 for the third quarter of 2020. Nine Months EndedSeptember 30, 2021 Compared to Nine Months EndedSeptember 30, 2020 Revenue. Our revenue for the first nine months of 2021 was$21.4 billion , an increase of$5.7 billion , or 37%, compared to the first nine months of 2020. Our revenue by segment was as follows (in millions): Nine Months Ended September 30, 2021 2020 $ Change Aviation segment$ 8,480.5 $ 6,381.0 $ 2,099.6 Land segment 7,315.8 4,948.8 2,367.0 Marine segment 5,597.8 4,326.4 1,271.4 Total revenue$ 21,394.2 $ 15,656.2 $ 5,738.0 Revenues in our aviation segment were$8.5 billion for the first nine months of 2021, an increase of$2.1 billion , or 33%, compared to the first nine months of 2020. The increase in revenue was driven by higher average prices and increased volumes. Average jet fuel price per gallon sold increased by 29% in the first nine months of 2021 compared to the first nine months of 2020. Total aviation volumes increased by 0.6 billion, or 18%, to 4.2 billion gallons as travel restrictions eased, primarily in the North American market, and demand for air travel continued to recover. Revenues in our land segment were$7.3 billion for the first nine months of 2021, an increase of$2.4 billion , or 48%, compared to the first nine months of 2020. The increase in revenue was primarily driven by a 46% increase in the average fuel 25 -------------------------------------------------------------------------------- price in the first nine months of 2021 compared to the first nine months of 2020. Total volumes increased by 0.1 billion, or 2%, to 3.9 billion gallon or gallon equivalents in the first nine months of 2021 compared to the first nine months of 2020. Revenues in our marine segment were$5.6 billion for the first nine months of 2021, an increase of$1.3 billion , or 29%, compared to the first nine months of 2020. The increase in revenue was primarily driven by a 26% increase in the average price per metric ton of bunker fuel sold. Total volumes increased by 0.3 million metric tons, or 3%, to 13.6 million metric tons in the first nine months of 2021 compared to 2020. Gross Profit. Our gross profit for the first nine months of 2021 was$573.0 million , a decrease of$113.6 million , or 17%, compared to the first nine months of 2020. Our gross profit by segment was as follows (in millions): Nine Months Ended September 30, 2021 2020 $ Change Aviation segment $ 277.1$ 282.6 $ (5.6) Land segment 225.9 275.4 (49.5) Marine segment 70.0 128.6 (58.6) Total gross profit $ 573.0$ 686.6 $ (113.6) Our aviation segment gross profit for the first nine months of 2021 was$277.1 million , a decrease of$5.6 million , or 2%, compared to the first nine months of 2020. The decrease in gross profit was primarily due to the reduction in our government-related activity inAfghanistan and the sale of MSTS, partially offset by recovery in demand for air travel. Our land segment gross profit for the first nine months of 2021 was$225.9 million , a decrease of$49.5 million , or 18%, compared to the first nine months of 2020. The decrease in gross profit was primarily attributable to the sale of MSTS, a decrease in demand in theU.K. , and the reduction in our government-related activity inAfghanistan , partially offset by increased performance by our natural gas business inNorth America . Our marine segment gross profit for the first nine months of 2021 was$70.0 million , a decrease of$58.6 million , or 46%, compared to the first nine months of 2020. The decrease in gross profit was primarily attributable to the strong results in the first nine months of 2020, which benefited from volatility arising from the implementation of the IMO 2020 regulations, as well as highly competitive market conditions in the first nine months of 2021. Operating Expenses. Total operating expenses for the first nine months of 2021 were$462.7 million , a decrease of$102.4 million , or 18%, compared to the first nine months of 2020. Our operating expenses were as follows (in millions): Nine Months Ended
2021 2020 $ Change
Compensation and employee benefits $ 273.9 $ 289.8 $ (15.9)
General and administrative 177.4 249.1 (71.7)
Asset impairments 4.7 18.6 (13.9)
Restructuring charges 6.8 7.7 (0.9)
Total operating expense $ 462.7 $ 565.1 $ (102.4)
Our general and administrative expenses materially decreased compared to the
first nine months of 2020, primarily driven by a $55.1 million , or 95%, 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. Additionally, employee compensation
costs decreased by $15.9 million , or 5%, in the first nine months of 2021
compared to the first nine months of 2020, principally due to the sale of MSTS,
partially offset by an increase in compensation and employee benefit costs
driven by a return to a more normal level of business activity through the year.
In 2020, total operating expense was also impacted by impairment charges
associated with our decision to rationalize our global office footprint.
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Income from Operations. Our income from operations for the first nine months of
2021 was $110.2 million , a decrease of $11.3 million , or 9%, compared to the
first nine months of 2020. Income from operations by segment was as follows (in
millions):
Nine Months Ended September 30,
2021 2020 $ Change
Aviation segment $ 114.0 $ 67.3 $ 46.7
Land segment 44.5 54.1 (9.6)
Marine segment 14.8 55.4 (40.7)
Corporate overhead - unallocated (63.1) (55.3) (7.7)
Total income from operations $ 110.2 $ 121.5 $ (11.3)
Our aviation segment income from operations for the first nine months of 2021
was $114.0 million , an increase of $46.7 million , or 70%, compared to the first
nine months of 2020. In 2021, the decrease in gross profit was offset by a
reduction in the provision for credit losses due to the 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 nine months of 2021 was
$44.5 million , a decrease of $9.6 million , or 18%, compared to the first nine
months of 2020. In 2021, the decrease in gross profit was partially offset by
the overall reduction in operating expenses driven by the sale of MSTS in 2020,
partially offset by increased compensation and employee benefit costs and
restructuring expenses.
Our marine segment income from operations for the first nine months of 2021 was
$14.8 million , a decrease of $40.7 million , or 73%, compared to 2020. The
decrease in operating income was primarily attributable to the decrease in gross
profit which was partially offset by a decrease in operating expenses, including
the provision for credit losses, as well as the impairment recognized in 2020 as
a result of the global office footprint rationalization.
Corporate overhead costs not charged to the business segments for the first nine
months of 2021 were $63.1 million , an increase of $7.7 million , or 14%, compared
to the first nine months of 2020, primarily attributable to an increase in
unallocated employee compensation and benefit costs, partially offset by the
impairment charge recognized in 2020 as part of the global office footprint
rationalization.
Non-Operating Income (Expenses), net. For the first nine months of 2021, we had
net non-operating expense of $30.7 million , compared to net non-operating income
of $41.0 million the first nine months of 2020. The decrease of $71.7 million
was primarily attributable to the gain on the sale of MSTS in the first nine
months of 2020, partially offset by an increase in interest income during the
first nine months of 2021.
Income Taxes. For the first nine months of 2021, our income tax provision was
$20.8 million and our effective income tax rate was 26%, as compared to an
income tax provision of $49.0 million and an effective income tax rate of 30%
for the first nine months of 2020. The decrease of $28.2 million was primarily
attributable to the tax on the gain on the sale of MSTS in the first nine months
of 2020, as well as a $4.9 million , net discrete tax benefit for the first nine
months of 2021 as compared to a $7.1 million , net discrete tax expense for the
first nine months of 2020. See Note 8. Income Taxes for additional information.
Net Income Attributable to World Fuel and Diluted Earnings per Common Share. For
the first nine months of 2021, we had a net income of $58.2 million and diluted
earnings per common share of $0.92 as compared to net income of $113.1 million
and diluted earnings per common share of $1.76 for the first nine months of
2020.
Liquidity and Capital Resources
Our liquidity, consisting of cash, cash equivalents and availability under the
Credit Facility fluctuates based on a number of factors, including the timing of
receipts from our customers, payments to our suppliers, changes in fuel prices,
as well as our financial performance, which drives availability under our Credit
Facility. Our availability under our Credit Facility, for example, is limited
by, among other things, our consolidated total leverage ratio, which is defined
in the Credit Facility and is based, in part, on our adjusted 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 primary used 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 can purchase on an unsecured basis, and in certain
cases, we may be required to prepay fuel purchases, which would negatively
impact our liquidity. Fuel price increases may also negatively impact our
customers, in
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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 negative impact on our
liquidity in the future. However, based on the information currently available,
we believe that our cash and cash equivalents as of September 30, 2021 and
available funds from our Credit Facility, together with cash flows generated by
operations, are sufficient to fund our working capital and capital expenditure
requirements for at least the next twelve months. We may choose to raise
additional funds to further enhance our liquidity profile, which may be used for
working capital, capital expenditures or other strategic investments. Our
opinions concerning liquidity are based on currently available information and
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 nine
months ended September 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.
Nine
Months Ended
2021 2020
Net cash provided by (used in) operating activities $ 223.3 $ 490.6
Net cash provided by (used in) investing activities (9.8) 86.9
Net cash provided by (used in) financing activities (70.3) (188.8)
Operating Activities. For the nine months ended September 30, 2021 , net cash
provided by operating activities was $223.3 million , compared to $490.6 million
net cash provided during the first nine months of 2020. The $267.3 million
decrease was driven primarily by a decrease in working capital, excluding cash,
of $182.4 million , a $38.2 million decrease in net income, net of noncash
adjustments, and a net $46.7 million decrease in long-term assets and
liabilities. The $182.4 million decrease in working capital was primarily driven
by decreases in accounts receivable and inventories, partially offset by an
increase in accounts payable, accrued expenses, and other current liabilities.
Investing Activities. For the nine months ended September 30, 2021 , net cash
used in investing activities was $9.8 million , compared to net cash provided of
$86.9 million in the first nine months of 2020. The $96.7 million decrease in
cash flows was primarily driven by business acquisition and divestiture
activities during 2020 as well as a decrease in capital expenditures of $17.2
million in the first nine months of 2021 compared to the first nine months of
2020. Net cash used in investing activities for the nine months ended September
30, 2021 was partially offset by $25 million of cash proceeds from the
collection of a note receivable related to the sale of MSTS. Net cash provided
by investing activities for the nine months ended September 30, 2020 included
cash proceeds received of $268.4 million from the sale of MSTS, partially offset
by cash paid of $128.6 million for the acquisition of our UVair fuel business.
Financing Activities. For the nine months ended September 30, 2021 , net cash
used in financing activities was $70.3 million compared to net cash used of
$188.8 million for the first nine months of 2020. The $118.5 million decrease in
net cash used was principally due to $91.7 million in lower net borrowings of
debt under our credit facility and a $31.2 million decrease in common stock
repurchases.
Other Liquidity Measures
Cash and Cash Equivalents. As of September 30, 2021 and December 31, 2020 , we
had cash and cash equivalents of $796.0 million and $658.8 million ,
respectively.
Credit Facility and Term Loans. We had $490.5 million and $503.2 million in Term
Loans outstanding as of September 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
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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 September 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 September 30, 2021 and
December 31, 2020 , respectively. The unused portion of our Credit Facility was
$1.3 billion as of September 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 September 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 September 30, 2021 and December 31, 2020 , our outstanding
letters of credit and bank guarantees under these credit lines totaled $383.0
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, which varies
based on the outstanding accounts receivable at any given time. 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 nine months ended September 30, 2021 and 2020, we sold
receivables under our RPAs with an aggregate face value of $6.8 billion and $2.6
billion , respectively, and paid fees and interest of $14.6 million and $6.8
million , respectively.
Short-Term Debt. As of September 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, 2020 to September 30, 2021 . For a discussion of these matters,
refer to Item 7 - Contractual Obligations and Off-Balance Sheet Arrangements of
our 2020 10-K Report.
Contractual Obligations
Derivative Obligations. As of September 30, 2021 , our net derivative obligations
were $278.1 million , principally due within one year.
Purchase Commitment Obligations. As of September 30, 2021 , fixed purchase
commitments under our derivative programs amounted to $87.0 million , of which
$45.7 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 are renewed as
needed. As of September 30, 2021 , we had issued letters of credit and bank
guarantees totaling $386.5 million under our Credit Facility and other
uncommitted credit lines. For additional information on our Credit Facility and
other credit lines, see the discussion in Liquidity and Capital Resources above.
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.
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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 September 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.
Based on the assessments performed, and supported by the available information
as of September 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. Basis
of Presentation, New Accounting Standards, and Significant Accounting Policies.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Derivative 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 September 30, 2021 , see Note 4. Derivative Instruments.
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 September 30, 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 three months ended September 30,
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.
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