World Fuel Services 2008 Annual Report Download - page 66

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WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Revenue from fuel-related services is recognized when services are performed, the sales price is fixed or
determinable and collectability is reasonably assured. We record the gross sale of fuel-related services 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 collectability is
reasonably assured. When acting as a fuel broker, we are paid a commission by the supplier.
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.
Vendor and Customer Rebates and Branding Allowances
From time to time, we receive vendor rebates and provide customer rebates. Generally, volume rebates are
received from vendors under structured programs based on the level of fuel purchased or sold as specified in the
applicable vendor agreements. These volume rebates are recognized as a reduction of cost of revenue in the
period earned when realization is probable and estimatable and when certain other conditions are met. A portion
of the rebates received from vendors is passed along to our customers. These rebates to our customers are
recognized as a reduction of revenue in the period earned in accordance with the applicable customer agreements.
The rebate terms of the customer agreements are generally similar to those of the vendor agreements. From time
to time, in our land segment, we also receive branding allowances from fuel suppliers to defray the costs of
branding and enhancing certain of our customer locations. The branding allowances received are recorded as a
reduction of cost of revenue.
Some of these vendor rebate and promotional allowance arrangements require that we make assumptions
and judgments regarding, for example, the likelihood of attaining specified levels of purchases or selling
specified volume of products. We routinely review the relevant, significant factors and make adjustments when
the facts and circumstances dictate that an adjustment is warranted.
The amounts recorded as a reduction of revenue related to volume rebates and promotional allowance
arrangements paid to our customers in 2008 were $1.3 million, and the amounts recorded as a reduction of cost of
revenue related to volume rebates received from vendors in 2008 and 2007 were $4.1 million and $0.8 million,
respectively.
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 outstanding share-based payment awards.
We use the Black-Scholes option pricing model to estimate the fair value of stock options and stock-settled
stock appreciation rights, which are referred to collectively as “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 the Option Awards represents the estimated
period of time from grant until exercise or conversion and is based on vesting schedules and expected post-
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