World Fuel Services 2004 Annual Report Download - page 5

logistics and operational support all feature in our value proposition
to global customers in the supply and purchasing communities.
Aviation Business:
In our aviation segment, 2004 was a year of continued success
across the spectrum. By continuing to diversify our portfolio, we
have continued to diversify our exposure to risk in any one seg-
ment of the market. We achieved growth in each of our key target
markets: passenger, cargo, charter, corporate and military. And in
spite of high oil prices and the much publicized financial woes of
the U.S. flag carriers, many parts of the market remain buoyant
with robust activity in U.N. charters, relief flights, global cargo
movements, military activity and corporate travel. Our largest cen-
ters of activity—the United States, United Kingdom, and
Singapore—all posted strong results and we were pleased to see
better-than-expected results from our smaller satellite offices in
Colombia and Russia. After eight years of developing our position
in China, we opened an office in Beijing on March 1, 2005. The
director of our newest office is the former director of fuel procure-
ment for Air China and is highly regarded in the international avia-
tion community. We have learned from our marine business that
having local representation in China is important to the business
model and we are excited about the prospects for growth in this
enormous emerging market.
On the services and logistics front, we continue to refine and
develop our business model in fuel management and expect
growth in this area in 2005. Our overall volume has grown as we
continue to demonstrate our ability to add value to our supply and
purchasing partners in a growing number of key markets. With the
continuing changes in the industry, our supply partners are work-
ing with us more closely to aggregate demand, de-risk their port-
folios and enhance their global marketing. This has significantly
raised our profile with the purchasing community. In the most
recent Armbrust survey of 71 global airlines, World Fuel Services
was ranked the best regional jet fuel marketer in North America.
Our team achieved high marks for best staff, best organizational
structure, most innovative, best informed and most improved.
This public validation of our service offering is a much deserved trib-
ute to our global team and what they have done to firmly establish
World Fuel Services as a global leader in the fuel services business.
We see tremendous promise in this area and have hired a
well-known industry expert to develop sales and supply
alliances with large fleets.
One of our most exciting areas of growth has been in the corpo-
rate space. We continue to focus on large aircraft and fractional
fleets and in 2004 entered into fuel procurement agreements with
Sentient Jets and Delta Air Elite. Both programs are off to a great
start. Baseops, our flight services business, had its best year ever
and our alliance with Jeppesen has resulted in over 500 new fuel
customers. We have achieved global acceptance of our brand and
firmly established World Fuel Services as the leading fuel solutions
provider for general aviation.
Accounting Changes/Sarbanes-Oxley:
Our greatest challenge in 2004 had nothing to do with our busi-
ness strategy or the commercial operating environment, but
rather with accounting protocol and Section 404 of Sarbanes-
Oxley. In March and May of 2005, we announced that the
Company’s historical financial statements would need to be
restated and that as a result of such restatement management
would conclude that the Company had three material weaknesses
in its internal controls over financial reporting. The restatement
and associated material weaknesses were directly attributable to
three required changes in our accounting. The first of these
changes related to the timing of when we recognize revenue. As a
result of this change, sales and sales-related costs will be recorded
based on the date fuel or related services are delivered, as
opposed to the date related documentation is received from our
third party service providers as had been our prior practice. This
will require us to make estimates going forward. The second
change related to how we account for inventory derivatives.
Under the changed protocol, unrealized gains and losses relating
to inventory derivatives will be recorded in the statements of
income as opposed to the balance sheet. These unrealized gains
or losses will ultimately be offset with the profit or loss on prod-
uct sales in future periods. The third and last change related to the
presentation of borrowings and repayments under our revolving
credit facility in the statement of cash flows. As a result of this
3
’04
’03
$1,027.0
$2,622.9
Revenue
(in millions)
Income From
Operations
(in millions)
’04
’03
$22.0
$29.1
AVIATION