World Fuel Services 2007 Annual Report Download - page 60

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64435 TX 52WORLD FUEL SERVICES
ANNUAL REPORT
28-Feb-2008 00:12 EST
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WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The commercial paper is no longer highly liquid and therefore a readily determinable fair market value of
the investment is not available. We have estimated the fair market value of the commercial paper based
principally on the results of a valuation performed by a third party. The valuation considered (i) the present value
of future principal and interest payments discounted at rates considered to reflect current market conditions;
(ii) individual valuation estimates of the underlying collateral using multiple indicators of value; and (iii) the
probabilities of repayment under various liquidation scenarios. The results of the valuation yielded a range of
estimated fair market values of our commercial paper investment from approximately $6.9 million to
approximately $10.0 million. The estimated fair market value of our commercial paper of $8.1 million at
December 31, 2007 could change significantly based on future market conditions and the ultimate settlement of
our commercial paper could be for amounts materially different from our current estimate of fair market value.
As a result, additional impairment charges may be required in the future.
At December 31, 2006, our short-term investments consisted of auction rate securities with a par value of
$12.5 million, which approximated the market value. These securities are classified as available-for-sale, short-
term investments based upon their expected auction date (generally less than 30 days) rather than on their
contractual maturity (which are greater than one year at original issuance). We have not invested in auction rate
securities since June 2007.
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 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 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 of our customers, and any specific customer collection issues that we have identified. Accounts
receivable are reduced by an allowance for estimated credit losses.
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 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
information. If the derivative does not qualify as a hedge under Statement of Financial Accounting Standard
(“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” or is not designated as a
hedge, changes in the fair market value of the derivative are recognized as a component of cost of sale in the
statement of income. Derivatives which qualify for hedge accounting may be designated as either a fair value or
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