World Fuel Services 2008 Annual Report Download - page 39

operating expenses of $1.8 million. The increase in land segment operating expenses, which includes an increase
in allocated corporate expenses, was attributable to increases in compensation and employee benefits and general
and administrative expenses, partially offset by a decrease in provision for bad debt.
Corporate overhead costs not charged to the business segments were $27.0 million for 2007, an increase of
$1.6 million, or 6.4% as compared to 2006. The increase in corporate overhead costs was attributable to increases
in compensation and employee benefits and general and administrative expenses.
Other Expense and Income, net. In 2007, we had other income, net, of $0.7 million, a decrease of
approximately $4.1 million, as compared to other income, net, of $4.8 million for 2006. The decrease in other
income, net, was primarily due to a $1.9 million investment impairment charge resulting from the write-down of
our commercial paper investment, foreign currency exchange losses reported for 2007 as compared to foreign
currency exchange gains reported for 2006, and a decrease in interest income due to lower interest rates and
lower average invested balances. Partially offsetting these decreases was lower interest expense as a result of the
capitalization of interest expenses of approximately $1.0 million related to our enterprise integration project.
Taxes. For 2007, our effective tax rate was 24.5% and our income tax provision was $21.2 million, as
compared to an effective tax rate of 21.3% and an income tax provision of $17.4 million for 2006. The higher
effective tax rate for 2007 resulted primarily from additional income tax expense recorded in connection with the
new accounting guidance of Financial Accounting Standard Board (“FASB”) Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”) in 2007, as well as
fluctuations in the actual results achieved by our subsidiaries in tax jurisdictions with different tax rates.
Net Income and Diluted Earnings per Share. Net income for 2007 was $64.8 million, an increase of $0.8
million, or 1.3%, as compared to 2006. Diluted earnings per share for 2007 was $2.23 per share, an increase of
$0.02 per share, or 0.9%, as compared to 2006.
Liquidity and Capital Resources
In 2008, worldwide capital and credit markets experienced unprecedented volatility, and we continue to
closely monitor the potential impact of these market conditions on our liquidity. Despite this unprecedented
volatility, to date, these market conditions have not had a material adverse impact on our liquidity. In fact, our
liquidity and positive cash flow have increased primarily due to decreased world oil prices, the execution of a
Master Accounts Receivable Purchase Agreement and generation of positive cash flow through our focus on
managing working capital, which resulted in a decrease in our net trade cycle.
Cash and cash equivalents. As of December 31, 2008, we had $314.4 million of cash and cash equivalents
compared to $36.2 million of cash and cash equivalents and $10.0 million of restricted cash as of December 31,
2007. Our primary use of cash and cash equivalents is to fund accounts receivable and purchase inventory. We
are usually extended unsecured trade credit from our suppliers for our fuel purchases; however, certain suppliers
require us to provide a letter of credit. Our ability to fund fuel purchases, obtain trade credit from our suppliers
and provide letters of credit is critical to our business. Increases in oil prices can negatively affect liquidity by
increasing the amount of cash needed to fund fuel purchases as well as reducing the amount of fuel which we can
purchase on an unsecured basis from our suppliers.
Short term investments. As of December 31, 2008 and 2007, our short-term investments consisted of $8.1
million of commercial paper with a par value of $10.0 million, which was investment grade when purchased. On
the maturity date of the investment in August 2007, the issuer of the commercial paper defaulted on its
repayment obligation. As a result, the commercial paper has been reclassified from cash equivalents to short-term
investments. The commercial paper is classified as a short-term investment as of December 31, 2008 based on
information available to us that suggests that it is likely there will be a cash settlement of the commercial paper
within one year. Changes in facts and circumstances in future periods could lead to changes in the expected
settlement date of the commercial paper balances. Accordingly, there may be changes in our classification of
such balances from short-term to long-term.
31