World Fuel Services 2007 Annual Report Download - page 31

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64435 TX 23WORLD FUEL SERVICES
ANNUAL REPORT
26-Feb-2008 23:30 EST
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9.9.26
Revenue from charge card transactions is recognized at the time the purchase is made by the customer using
the charge card. Revenue from charge card transactions is generated from processing fees.
Accounts Receivable and Allowance for Bad Debt
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
receivable are reduced by an allowance for estimated credit losses.
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.
Share-Based Payment
We account for share-based payment awards on a fair value basis. Under fair value accounting, the grant-
date fair value of the share-based payment is amortized as compensation expense, on a straight-line basis, over
the vesting period for both graded and cliff vesting awards. Annual compensation expense for share-based
payment is reduced by an expected forfeiture amount on outstanding share-based payment.
We use the Black-Scholes option pricing model to estimate the fair value of stock options and stock-settled
stock appreciation rights (“SSARs”). The estimation of the fair value of share-based payment awards on the date
of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number
of complex and subjective variables. These variables include our expected stock price volatility over the term of
the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected
dividends. The expected term of the stock options and SSARs represents the estimated period of time from grant
until exercise or conversion and is based on vesting schedules and expected post-vesting, exercise and
employment termination behavior. Expected volatility is based on the historical volatility of our common stock
over the period that is equivalent to the award’s expected life. Any adjustment to the historical volatility as an
indicator of future volatility would be based on the impact to historical volatility of significant non-recurring
events that would not be expected in the future. Risk-free interest rates are based on the U.S. Treasury yield
curve at the time of grant for the period that is equivalent to the award’s expected life. Dividend yields are based
on the historical dividends of World Fuel over the period that is equivalent to the award’s expected life, as
adjusted for stock splits.
The estimated fair value of common stock, restricted stock and restricted stock units is based on the grant-
date market value of our common stock, as defined in the respective plans under which they were issued.
Derivatives
We enter into derivative contracts in order to mitigate the risk of market price fluctuations in marine,
aviation and land fuel, and to offer our customers fuel pricing alternatives to meet their needs. We also enter into
derivatives in order to mitigate the risk of fluctuation in interest rates and foreign currency exchange rates. All
derivatives are recognized at estimated fair market value based on quoted market prices or available market
23