World Fuel Services 2004 Annual Report Download - page 30

Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon the consolidated financial
statements included elsewhere in this Form 10-K, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to unbilled revenue and related
costs of sales, bad debts, deferred tax assets and liabilities, goodwill and identifiable intangible assets, and certain accrued
liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions.
We have identified the policies below as critical to our business operations and the understanding of our results of
operations. For a detailed discussion on the application of these and other accounting policies, see Note 1 to the accompanying
consolidated financial statements included in this Form 10-K.
Revenue Recognition
Revenue is recognized when fuel deliveries are made and title passes to the customer, or as fuel related services are
performed.
Accounts and Notes Receivable and Allowance for Bad Debts
Credit extension, monitoring and collection are performed by each of our business segments. Each segment has a credit
committee. The credit committees are responsible for approving credit limits above certain amounts, setting and maintaining
credit standards, and managing the overall quality of the credit portfolio. We perform ongoing credit evaluations of our
customers and adjust credit limits based upon payment history and the customer’ s current credit worthiness, as determined by
our review of our customer’ s credit information. We extend credit on an unsecured basis to many of our customers. Accounts
receivable are deemed past due based on contractual terms agreed with our customers.
We continuously monitor collections and payments from our customers and maintain a provision for estimated credit
losses based upon our historical experience with our customers, current market and industry conditions of our customers, and
any specific customer collection issues that we have identified. Accounts and notes receivable are reduced by an allowance for
amounts that may become uncollectible in the future. We had accounts and notes receivable of $490.8 million and $243.6
million, net of allowance for bad debts of $11.3 million and $10.5 million, as of December 31, 2004 and 2003, respectively.
Accounts and notes receivable are written-off when it becomes apparent based upon age or customer circumstances that such
amounts will not be collected.
We believe the level of our allowance for bad debts is reasonable based on our experience and our analysis of the net
realizable value of our trade receivables at December 31, 2004. We cannot guarantee that we will continue to experience the
same credit loss rates that we have experienced in the past, since adverse changes in the marine and aviation industries, or
changes in the liquidity or financial position of our customers, could have a material adverse effect on the collectability of our
Accounts and notes receivable and our future operating results. If credit losses exceed established allowances, our results of
operation and financial condition may be adversely affected. For additional information on the credit risks inherent in our
business, see “Risk Factors” in Item 1 of this Form 10-K.
Goodwill and Identifiable Intangible Assets
Goodwill represents our cost in excess of net assets, including identifiable intangible assets, of the acquired companies
and the PAFCO aviation joint venture. The identifiable intangible assets for customer relations existing at the date the
acquisitions were recorded and are being amortized over their useful lives of five to seven years. We account for goodwill and
identifiable intangible assets in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill
and Other Intangible Assets.” Among other provisions, SFAS No. 142 states that goodwill shall not be amortized
prospectively. We recorded amortization of our identifiable intangible assets of $1.2 million for the year ended December 31,
2004, $368 thousand for the years ended December 31, 2003 and 2002, and $276 thousand for the nine months ended
December 31, 2002.
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