World Fuel Services 2007 Annual Report Download - page 30

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ANNUAL REPORT
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operating expenses, which may be significantly affected to the extent that we are required to provide for potential
bad debt.
We may experience decreases in future sales volume and margins as a result of deterioration in the world
economy, transportation industry, natural disasters and continued conflicts and instability in the Middle East,
Asia and Latin America, as well as potential future terrorist activities and possible military retaliation. In
addition, because fuel costs represent a significant part of our customers’ operating expenses, volatile and/or high
fuel prices can adversely affect our customers’ businesses, and consequently the demand for our services and our
results of operations. See “Item 1A—Risk Factors” of this Form 10-K.
Reportable Segments
We have three reportable operating business segments: marine, aviation and land. 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 10 to the accompanying
consolidated financial statements included in this Form 10-K. We evaluate and manage our business segments
using the performance measurement of income from operations.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our
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 debt, share-based payments,
derivatives, goodwill and identifiable intangible assets, and certain accrued liabilities. We base our estimates on
historical experience and on 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 from the sale of fuel is recognized when the sales price is fixed or determinable, collectibility is
reasonably assured and title passes to the customer, which is when the delivery of fuel is made to our customer
directly from the supplier or a third party subcontractor. Our fuel sales are generated as a fuel reseller as well as
from on-hand inventory supply. When acting as a fuel reseller, we contemporaneously purchase fuel from the
supplier, mark it up, and resell the fuel to the customer, generally taking delivery for purchased fuel at the same
place and time as the delivery is made. We record the gross sale of the fuel as we generally take inventory risk,
have latitude in establishing the sales price, have discretion in the supplier selection, maintain credit risk and are
the primary obligor in the sales arrangement.
Revenue from fuel related services is recognized when services are performed, the sales price is fixed or
determinable and collectibility is reasonably assured. We record the gross sale of fuel related services as we
generally have latitude in establishing the sales price, have discretion in supplier selection, maintain credit risk
and are the primary obligor in the sales arrangement.
Commission from fuel broker services is recognized when services are performed and collectibility is
reasonably assured. When acting as a fuel broker, we are paid a commission by the supplier.
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