World Fuel Services 2004 Annual Report Download - page 56

WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business, Recent Acquisitions and Significant Accounting Policies
Nature of Business
World Fuel Services Corporation was incorporated in Florida in July 1984 and we market fuel and related services to
marine and aviation customers throughout the world. In our marine fuel services business, we offer marine fuel and related
services to a broad base of customers, including international container and tanker fleets, and time-charter operators, as well as
to the United States and foreign governments. In our aviation fuel services business, we offer aviation fuel and related services
to passenger, cargo and charter airlines, as well as to corporate customers and the United States and foreign governments. We
provide competitive prices, credit terms, fuel management and price risk management services, and single-supplier
convenience. We also offer flight plans and weather reports to our corporate aviation customers.
In August 2002, we changed our fiscal year-end from March 31st to a calendar year-end of December 31st. We initiated
this change so we could be more directly comparable to other public companies that use a calendar year for their fiscal year.
This change was first effective with respect to the nine months ended December 31, 2002. The results for the calendar year
ended December 31, 2002, presented for comparative purposes in this Form 10-K, are unaudited. The 2002 calendar year
results combined the audited results for the nine months ended December 31, 2002 and the unaudited results for the three
months ended March 31, 2002, and no adjustments were made to the historical results.
Recent Acquisitions
In April 2001 and January 2002, we acquired the stock of Marine Energy Arabia Establishment Ltd., a British Virgin
Islands (“BVI”) corporation, and the Oil Shipping group of companies, respectively. Both of these companies sell and market
marine fuel services. The aggregate purchase price of these acquisitions was $13.6 million, including $175 thousand in
acquisition costs. The aggregate purchase price consisted of $8.6 million in cash and the remainder in promissory notes. The
promissory notes consisted of a $2.0 million note bearing interest at 7%, payable annually through April 2003, and a $3.3
million non-interest bearing note, which was discounted to $3.0 million using an interest rate of approximately 5%, payable
annually over three years through January 2005. Both of these acquisitions were accounted for as purchases and the results of
the acquired businesses have been included in our operating results since their respective dates of acquisition. Goodwill,
representing the cost in excess of net assets acquired, for these acquisitions totaled $9.4 million. At the date of our January
2002 acquisition, we identified an intangible asset of approximately $1.8 million, relating to customer relations. This
intangible asset is being amortized over five years using the straight-line method.
The BVI company sells and markets marine fuel services through Marine Energy Arabia Co, LLC, a United Arab
Emirates (“Dubai”) corporation. The BVI company owns 49% of the Dubai company. In accordance with local laws, the
Dubai entity is 51% owned by a Dubai citizen, referred to as a Sponsor. The Dubai company, pursuant to a management
contract, is required to pay for the staff and administrative support provided by the BVI entity. Our BVI subsidiary has
entered into various agreements with the Dubai Sponsor to prevent an unauthorized ownership transfer and to effectively grant
majority control of the Dubai entity to our BVI subsidiary. Accordingly, the financial position and operations of the Dubai
entity have been included in our consolidated financial statements.
Acquisitions in our marine segment continued in April 2004 when we acquired all of the outstanding shares (the “THL
Shares”) of Tramp Holdings Limited (“THL”) and the shares of Tramp Group Limited, a subsidiary of THL, which were not
otherwise held by THL (the “TGL Shares”), to expand our worldwide marine fuel services business. The aggregate purchase
price for the THL Shares and the TGL Shares was approximately $86.1 million, including acquisition costs of approximately
$1.2 million. The aggregate purchase price consisted of $85.4 million in cash and $753 thousand in the form of restricted
common stock, representing approximately 38 thousand shares and valued using the market value of our common stock on the
acquisition date. The acquisition of Tramp Oil, which primarily offers fuel and fuel services, was accounted for under the
purchase method. Accordingly, the operations of Tramp Oil have been included in our operating results since April 2004. At
acquisition date, we identified an intangible asset relating to customer relations of $7.6 million, which is being amortized over
seven years using the straight-line method. Goodwill, representing the cost in excess of the fair value of assets acquired and
liabilities assumed for this acquisition, amounted to $5.5 million. Included in the fair value of assets acquired was
approximately $90.0 million in cash, accordingly, the acquisition of Tramp Oil resulted in a net cash inflow of approximately
$3.6 million.
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