World Fuel Services 2002 Annual Report Download - page 70

7. Aviation Joint Ventures
In August 1994, we began operation of an aviation joint venture in Ecuador (the “Ecuador Venture”). The Ecuador
Venture was organized to distribute jet fuel pursuant to a contract with the nationally owned oil company and the airport
authority. In October 2000, the Ecuador Venture ceased operations. Our ownership interest in the Ecuador Venture was
50%. Accordingly, we used the equity method of accounting to record our proportionate share of the Ecuador Venture’s
earnings or losses. During the year ended March 31, 2000, we wrote down the investment in and advance to the Ecuador
Venture by $953 thousand and recorded a special provision for bad debts of $1.6 million as a result of the political and
economic conditions in Ecuador. For the year ended March 31, 2001, we completed the closure of the Ecuador Venture,
recovering approximately $365 thousand of the previously provisioned investment write down.
As described in Note 1, in December 2000, we entered into a joint venture with Signature through the acquisition of a
50% equity interest in PAFCO from Signature. We paid Signature $1.0 million in cash and a $2.5 million note, payable over
five years through January 2006. Due to a price adjustment, the first installment was approximately $400 thousand and paid
in May 2002, and the second installment of $500 thousand was paid in January 2003. PAFCO markets aviation fuel and
related services. The non-interest bearing promissory note was discounted at 9% and the discount of $558 thousand is being
amortized as interest expense over five years using the interest method. We recorded interest expense of $110 thousand and
$131 thousand for the nine months ended December 31, 2002 and 2001, respectively, and $167 thousand and $45 thousand
for the years ended March 31, 2002 and 2001, respectively. The interest expense was included in Earnings (losses) from
aviation joint ventures in the accompanying Consolidated Statements of Income. Our investment goodwill, representing our
cost in excess of 50% of the net assets of PAFCO, amounted to $2.9 million, after discounting the promissory note at an
interest rate of 9% and including $79 thousand in acquisition costs and the price adjustment. No other significant intangible
assets existed at the date of acquisition.
Effective April 1, 2001, as permitted, we elected to early adopt SFAS No. 142, “Goodwill and Other Intangible Assets.”
SFAS No. 142 established accounting and reporting for acquired goodwill and other intangible assets, and states that
goodwill shall not be amortized prospectively. Accordingly, no investment goodwill amortization was recorded for the year
ended March 31, 2002. During the year ended March 31, 2001, we recorded investment goodwill amortization of $74
thousand which was included in Earnings (losses) from aviation joint ventures in the accompanying Consolidated Statements
of Income. As of December 31, 2002, March 31, 2002 and 2001, investment goodwill of $2.9 million was included in Other
assets in the accompanying Consolidated Balance Sheets.
In accordance with the PAFCO’s operating agreement, we are entitled to 80% of the income from PAFCO’s operations.
The higher allocation percentage versus the ownership percentage is in consideration of the risks assumed by us with respect
to credit losses on PAFCO’s accounts receivable. We are required to purchase, without recourse, PAFCO’s accounts
receivable that are 120 days past due, subject to certain requirements. Net losses, including infrequent or unusual losses, and
interest expense incurred by PAFCO, and any gain resulting from the liquidation of the venture, will be shared equally
between Signature and us. During the nine months ended December 31, 2002, we purchased $38 thousand of PAFCO’s
accounts receivable, which was subsequently written-off. For the years ended March 31, 2002 and 2001, we did not
purchase any of PAFCO’s accounts receivable.
We recorded equity earnings from the aviation joint ventures of $420 thousand and $444 thousand for the nine months
ended December 31, 2002 and 2001, respectively, and $583 thousand and $143 thousand for the years ended March 31, 2002
and 2001, respectively. These equity earnings were included in Earnings (losses) from aviation joint ventures in the
accompanying Consolidated Statements of Income. Amounts due from PAFCO of $136 thousand at December 31, 2002,
$416 thousand at March 31, 2002, and $161 thousand at March 31, 2001 were included in Prepaid expenses and other
current assets and Other assets, respectively, in the accompanying Consolidated Balance Sheets.
Page 62 of 70