World Fuel Services 2007 Annual Report Download - page 76

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64435 TX 68WORLD FUEL SERVICES
ANNUAL REPORT
28-Feb-2008 00:13 EST
CLN PSTAM
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PMT 2C
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9.9.26
WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
directly from tax deductions related to equity compensation in excess of compensation recognized for financial
reporting. As of December 31, 2007, we had unrecognized U.S. federal and state NOLs of $21.4 million and $8.1
million, respectively, related to the exercise of stock awards that resulted in a tax deduction before the realization
of the tax benefit from that deduction. When realized, U.S. federal and state NOLs will result in a benefit
recorded in APIC of $7.5 million and $0.5 million, respectively, with a corresponding decrease in income tax
payable. We use tax law ordering for purposes of determining when excess tax benefits have been realized.
As of December 31, 2007 and 2006, our additional paid in capital (“APIC”) pool of windfall tax benefits
related to employee compensation was estimated to be $15.4 million and $17.2 million, respectively.
We operate under a special tax concession in Singapore, which is effective through 2012 and may be
extended if certain additional requirements are satisfied. The tax concession reduces the tax rate on qualified
sales and is conditional upon our meeting certain employment and investment thresholds. The impact of this tax
concession decreased foreign taxes by $1.9 million, $2.7 million and $1.6 million for 2007, 2006 and 2005,
respectively. The impact of the tax concession on diluted earnings per share was $0.07 per share, $0.09 per share
and $0.06 per share for 2007, 2006 and 2005, respectively
Tax Contingencies
Effective January 1, 2007, we adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for
uncertainty in tax positions by prescribing a minimum recognition threshold required for recognition in the
financial statements. FIN 48 also provides guidance on derecognition, measurement classification, interest and
penalties, accounting in interim periods, disclosure and transition.
We performed a comprehensive review of our portfolio of uncertain tax positions in accordance with the
recognition standards established by FIN 48 as of January 1, 2007. Based on our review and in connection with
the adoption of FIN 48, the cumulative effects of applying this interpretation have been recorded as a decrease of
$12.0 million to retained earnings, an increase of $2.0 million in deferred income tax assets, the recognition of
$2.9 million of assets related in unrecognized tax benefits (“FIN 48 assets”) and the recognition of $16.9 million
of liabilities for unrecognized tax benefits, interest and penalties (“FIN 48 liabilities”). In addition, the $5.1
million reserve for tax contingencies recorded under SFAS No. 5, “Accounting for Contingencies,” as of
January 1, 2007, was reclassed to FIN 48 liabilities, resulting in total FIN 48 liabilities of $22.0 million. Our FIN
48 liabilities as of January 1, 2007 consisted of $16.4 million in unrecognized tax benefits, $2.3 million in
interest (net after tax deduction) and $3.3 million in penalties. We recognize accrued interest and penalties
related to uncertain tax positions in federal and foreign income tax expense. In the accompanying consolidated
balance sheet as of December 31, 2007, our FIN 48 liabilities are included in non-current income tax payable and
our FIN 48 assets are included in non-current income tax receivable.
We recorded an increase of $3.8 million and $1.3 million to our FIN 48 liabilities and FIN 48 assets during
2007. In addition, during 2007, we recorded a decrease of $0.2 million to our FIN 48 liabilities related to a
foreign currency translation expense, which is included in other expense, net, in the accompanying consolidated
statements of income. During 2007, we recorded a decrease of $2.0 million for recognized temporary differences.
As of December 31, 2007, our FIN 48 liabilities were $25.8 million and our FIN 48 assets were $4.2 million.
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