World Fuel Services 2004 Annual Report Download - page 58

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The following table sets forth activities in our allowance for bad debts (in thousands):
For the
Nine Months
ended
For the Year ended December 31, December 31,
2004 2003 2002 2002
(Unaudited)
Balance at beginning of period 10,538$ 11,112$ 11,001$ 11,012$
Charges to provision for bad debts 4,338 6,281 2,866 2,182
Write-off of uncollectible accounts receivable (3,683) (6,924) (3,153) (2,473)
Recoveries of bad debts 84 69 398 391
Balance at end of period 11,277$ 10,538$ 11,112$ 11,112$
For additional information on Accounts and notes receivable and allowance for bad debts in our marine and aviation
segments, see “Business Segments” in Note 9.
Inventories
Inventories are valued using average cost and are stated at the lower of cost or market. Components of inventory cost
include fuel purchase costs, the related transportation costs and storage fees.
Derivatives
We enter into derivative contracts in the form of swaps and futures in order to mitigate the risk of market price
fluctuations in marine and aviation fuel. All derivatives are recognized on the balance sheet and measured at fair value. If the
derivative does not qualify as a hedge under SFAS No. 133 or is not designated as a hedge, changes in the fair value of the
derivative are either recognized in income along with the corresponding change in fair value of the item being hedged for fair-
value hedges or deferred in other comprehensive income (“OCI”) to the extent the hedge is effective for cash-flow hedges. To
qualify for hedge accounting, the derivative must qualify as either a fair-value or cash flow hedge.
The hedging relationship between the hedging instruments and hedged items must be highly effective in achieving the
offset of changes in fair values or cash flows attributable to the hedged risk, both at the inception of the hedge and on an
ongoing basis. We measure hedge effectiveness on a quarterly basis. For the periods reported, such ineffectiveness has been
immaterial. Hedge accounting is discontinued prospectively if and when a hedging instrument becomes ineffective. We
assess hedge effectiveness based on total changes in the fair value of our derivative instruments. Gains and losses deferred in
accumulated OCI related to cash flow hedge derivatives that become ineffective remain unchanged until the related fuel is
delivered. Adjustment to the carrying amounts of hedged items is discontinued in instances where the related fair value
hedging instrument becomes ineffective. The balance in the fair value hedge adjustment account is recognized in income
when the hedged item is sold. If we determine that it is probable that a hedged forecasted transaction will not occur, deferred
gains or losses on the related hedging instrument are recognized in earnings immediately.
Gains and losses on hedging instruments and adjustments of the carrying amounts of hedged items are included in
revenues and are included in realized prices in the period that the item is sold. Gains and losses on hedging instruments which
represent hedge ineffectiveness and gains and losses on derivative instruments which do not qualify for hedge accounting are
included in revenue in the period which they occur. The resulting cash flows are reported as cash flows from operating
activities.
Derivative instruments designated as cash flow hedges are used by us to mitigate the risk of variability in cash flows from
marine and aviation fuel sales and purchases due to changes in market prices. Fair value derivatives are used by us to offset
the exposure to changes in the fair value of our inventory.
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