World Fuel Services 2008 Annual Report Download - page 32

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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.
Share-Based Payment Awards
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 award 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 awards is reduced by an expected forfeiture amount on the outstanding share-based payment awards.
We use the Black-Scholes option pricing model to estimate the fair value of Option Awards. The estimation
of the fair value of Option 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 rates and expected dividends. The expected term of Option Awards
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 the awards were issued.
Accounts Receivable and Allowance for Bad Debt
Credit extension, monitoring and collection are performed for each of our business segments. Each segment
has a credit committee. The credit committees are responsible for approving credit limits, 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. Historical
payment trends may not be a useful indicator of current or future credit worthiness of our customers, particularly
in these unprecedented difficult economic and financial markets. 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.
Inventories
Inventories are valued using the average cost methodology and are stated at the lower of cost or market.
Components of inventory include fuel purchase costs, the related transportation costs and storage fees.
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