World Fuel Services 2008 Annual Report Download - page 65

WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
loss is credited or charged to income. Long-lived assets held and used by us are reviewed based on market factors
and operational considerations for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. We identified and recorded an impairment charge for
internally developed software costs related to an aviation project of $2.4 million in the fourth quarter of 2007.
Purchases of computer software are capitalized. External costs and certain internal costs (including payroll
and payroll-related costs of employees) directly associated with developing significant computer software
applications for internal use are capitalized. Training and data conversion costs are expensed as incurred.
Computer software costs are amortized using the straight-line method over the estimated useful life of the
software.
Goodwill and Identifiable Intangible Assets
Goodwill represents our cost in excess of the estimated fair value of net assets, including identifiable
intangible assets, of acquired companies and our joint venture interest in PAFCO. Goodwill is not subject to
periodic amortization; instead, it is reviewed annually at year-end (or more frequently under certain
circumstances) for impairment. The initial step of the goodwill impairment test compares the estimated fair value
of a reporting unit, which is the same as our reporting segments, with its carrying amount, including goodwill.
The fair value of our reporting segments is estimated using discounted cash flow and market capitalization
methodologies.
In connection with our acquisitions, we recorded identifiable intangible assets existing at the date of the
acquisitions for customer, charge card holder and merchant relationships, supplier relationships, non-compete
agreements and trademark/trade name rights. Identifiable intangible assets subject to amortization are amortized
over their estimated lives and are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable based on market factors and operational
considerations. Identifiable intangible assets not subject to amortization are reviewed annually for impairment by
comparing the estimated fair value of the intangible asset with its carrying value.
Extinguishment of Liability
In the normal course of business, we accrue liabilities for fuel and services received for which invoices have
not yet been received. These liabilities are derecognized, or extinguished, if either 1) payment is made to relieve
our obligation for the liability or 2) we are legally released from our obligation for the liability. During 2008, we
derecognized vendor liability accruals due to the legal release of our obligations in the amount of $8.5 million as
compared to $2.7 million during 2007, which is reflected as a reduction of cost of revenue in the accompanying
consolidated statements of income.
Revenue Recognition
Revenue from the sale of fuel is recognized when the sales price is fixed or determinable, collectability 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.
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