World Fuel Services 2008 Annual Report Download - page 31

We may experience decreases in future sales volumes and margins as a result of the ongoing 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. Our hedging activities may not be effective to mitigate volatile fuel prices and may expose
us to counterparty risk. See “Item 1A—Risk Factors” of this Form 10-K.
Reportable Segments
We evaluate and manage our three reportable business segments using the performance measurement of
income from operations. Corporate overhead costs 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 12 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 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 management 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 ongoing basis, we
evaluate our estimates, including those related to unbilled revenue and related costs of sales, bad debt, share-
based payment awards, investments, 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 sale of fuel-related services on a gross basis
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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