World Fuel Services 2002 Annual Report Download - page 37

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
To take advantage of favorable market conditions or for competitive reasons, we enter into short-term cancelable fuel
purchase commitments for the physical delivery of product. We simultaneously may hedge the physical delivery of fuel
through a commodity based derivative instrument, to minimize the effects of commodity price fluctuations.
As part of our price risk management services, we offer to our marine and aviation customers fixed fuel prices on future
sales with, or without, physical delivery of fuel. Typically, we simultaneously enter into a commodity based derivative
instrument with a counterparty to hedge our variable fuel price on related future purchases with, or without, physical delivery
of fuel. The counterparties are major oil companies and derivative trading firms. Accordingly, we do not anticipate non-
performance by such counterparties. Pursuant to these transactions, we are not affected by market price fluctuations since
the contracts have the same terms and conditions except for the fee or spread earned by us. Performance risk under these
contracts is considered a credit risk. This risk is minimized by dealing with customers meeting stricter credit criteria.
As of December 31, 2002, we had 108 outstanding swaps contracts totaling approximately 209 thousand metric tons of
marine fuel, expiring through December 2005, and 33 outstanding swaps contracts totaling 22.0 million gallons of aviation
fuel, expiring through June 2003. As of December 31, 2002, we have recorded our derivatives, which consisted of swaps
contracts to hedge fixed fuel prices on future sales to our customers with, or without, physical delivery of fuel at their fair
market value of $9.5 million. In the accompanying Consolidated Balance Sheets, such amount was included as Prepaid
expenses and other current assets with an offsetting amount in Accrued expenses. For additional information, see
“Derivatives” in Note 1 to the consolidated financial statements included herein.
We conduct the vast majority of our business transactions in U.S. dollars. However, in certain markets, primarily in
Mexico, payments to our aviation fuel supplier are denominated in local currency. In addition, in Mexico, payments from
some of our customers are also denominated in local currency. This subjects us to foreign currency exchange risk, which
may adversely affect our results of operations and financial condition. We seek to minimize the risks from currency
exchange rate fluctuations through our regular operating and financing activities.
Our policy is to not use derivative financial instruments for speculative purposes.
Item 8. Financial Statements and Supplementary Data
The financial statements, together with the report thereon of PricewaterhouseCoopers LLP dated February 21, 2003, and
the Selected Quarterly Financial Data (Unaudited), are set forth in Item 15 of this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
In March 2002, we changed our certifying accountants from Arthur Andersen LLP to PricewaterhouseCoopers LLP.
There were no disagreements with Arthur Andersen LLP on any matter of accounting principles, accounting practices, or
financial statement disclosure which have been reported on a Form 8-K within the 24 months prior to March 2002, or
subsequently with PricewaterhouseCoopers LLP to the date of the most recent financial statement.
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