World Fuel Services 2005 Annual Report Download - page 32

results since the date of acquisition. In December 2000, we entered into a joint venture agreement with Signature
Flight Support Corporation through the acquisition of a 50% equity interest in PAFCO. From January 1, 2001 to
December 31, 2003, we used the equity method of accounting to record our share of the earnings and losses of
this aviation joint venture. In addition, the amortized interest expense on the non-interest bearing promissory note
was also included in net income from this aviation joint venture. Effective January 1, 2004, with the
implementation of FIN No. 46, we consolidated PAFCO’s financial position and results of operations, after
elimination of all significant intercompany accounts, transactions and profits.
Reportable Segments
We have two reportable operating segments: marine and aviation. Corporate expenses are allocated to the
segments based on usage, where possible, or on other factors according to the nature of the activity. Financial
information with respect to our business segments is provided in Note 7 to the accompanying consolidated
financial statements included in this Form 10-K.
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.
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 a customer’s payment history and
creditworthiness, as determined by our review of our customer’s credit information. We extend credit on an
unsecured basis to most 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 affecting 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.
If credit losses exceed established allowances, our results of operations and financial condition may be
adversely affected. For additional information on the credit risks inherent in our business, see “Item 1A—Risk
Factors” of this Form 10-K.
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