World Fuel Services 2008 Annual Report Download - page 44

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contracts are considered derivative instruments under FAS No. 133, they are not recorded at fair value, but on an
accrual basis of accounting, which means the values related to such contracts are not recorded in our consolidated
financial statements until physical settlement of the contract occurs. If it is determined that a transaction
designated as NPNS no longer meets the scope exception, the fair value of the related contract is recorded as an
asset or liability on the consolidated balance sheet and the difference between the fair value and the contract
amount is immediately recognized through earnings.
Cash Flow Hedges. We enter into foreign currency forward contracts to manage and attempt to minimize
the impact of foreign currency exchange risk. At any given time, only a portion of such risk may be hedged.
Fair Value Hedges. We enter into derivatives in order to hedge price risk associated with some of our
inventory and certain firm commitments relating to fixed price purchase and sale contracts. Accordingly, these
“hedged items” are marked-to-market through the consolidated statement of income, as is the derivative that
serves as the hedge instrument. As a result, gains and losses attributable to changes in fuel prices are offset based
on the effectiveness of the hedge instrument in the period in which the hedge is in effect.
Changes in the fair value of hedged sales commitments and their related hedge instruments are recorded in
revenues in our consolidated statement of income, while changes in the fair value of hedged purchase
commitments and inventories and their related hedge instruments are recorded in cost of revenue in our
consolidated statements of income.
Non-designated Derivatives. Our non-designated derivatives are primarily entered into in order to mitigate
the risk of market price fluctuations in marine, aviation and land fuel in the form of swaps as well as fixed price
purchase and sale contracts and to offer our customers fuel pricing alternatives to meet their needs. In addition,
non-designated derivatives are also entered into to hedge foreign currency fluctuation. The changes in fair value
of our non-designated commodity derivatives are recorded as a component of revenue or cost of revenue (based
on the underlying transaction type) in the consolidated statement of income. The changes in fair value of our
non-designated foreign currency derivatives are recorded as a component of other income (expense), net, in the
consolidated statements of income.
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