World Fuel Services 2002 Annual Report Download - page 67

Also in April 2001, the County sent a letter to approximately 250 potentially responsible parties (“PRP’s”), including
World Fuel Services Corporation and one of our subsidiaries, advising them of their potential liability for the clean-up costs
which are the subject of the County Suit. The County has threatened to add the PRP’s as defendants in the County Suit,
unless they agree to share in the cost of the environmental clean-up at the Airport. In May 2001, we advised the County that:
(1) neither we nor any of our subsidiaries were responsible for any environmental contamination at the Airport, and (2) to the
extent we or any of our subsidiaries were so responsible, our liability was subject to indemnification by the County pursuant
to the indemnity provisions contained in our lease agreement with the County.
We intend to vigorously defend all claims asserted by the County relating to environmental contamination at the Airport.
We believe our liability in these matters (if any) should be adequately covered by the indemnification obligations of
Signature as to PAFCO, and the County as to World Fuel Services Corporation and our other subsidiaries.
There can be no assurance that we will prevail on the above legal proceedings and management cannot estimate the
exposure if we do not prevail. A ruling against us in any of the proceedings described above may have a material adverse
effect on our financial condition and results of operation.
In addition to the matters described above, we are also involved in litigation and administrative proceedings primarily
arising in the normal course of our business. In the opinion of management, except as set forth above, our liability, if any,
under any other pending litigation or administrative proceedings, will not materially affect our financial condition or results
of operations.
Purchase and Sales Commitments and Derivatives
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. Our policy is to not use derivative financial instruments for speculative purposes.
Employment Agreements
In July 2000, our Board of Directors terminated the employment of our Chairman of the Board of Directors (“Former
Chairman”). Pursuant to the terms of our Former Chairman’s employment agreement, we were required to pay severance
equal to three times the executive’s average salary and bonus during the five-year period preceding termination, plus all
deferred compensation, including accrued interest. Accordingly, during the year ended March 31, 2001, we recorded an
executive severance charge of $3.5 million and, in August 2000, paid our Former Chairman his executive severance plus
deferred compensation, including accrued interest.
In July 2002, our Board of Directors elected a new Chairman of the Board of Directors (“Chairman”) and Chief
Executive Officer (“CEO”), and agreed to employ our former Chairman and CEO as an advisor to the new Chairman for a
term of two years. During this two-year period, the advisor will receive a salary of $100 thousand per year, and he will not
be an officer or director of the company. Pursuant to the terms of our former Chairman and CEO’s employment contract,
changes in his compensation and responsibilities entitles him to receive a severance equal to three times his average salary
and bonus during the five-year period preceding termination, plus all deferred compensation, including accrued interest. In
addition, from July to September 2002, we terminated the employment of our former Chief Financial Officer, Chief
Information Officer, and two other executives. Accordingly, for the nine months ended December 31, 2002, we recorded
severance expense totaling $4.5 million, of which $3.7 million related to our former Chairman and CEO. In August 2002,
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