World Fuel Services 2008 Annual Report Download - page 71

WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In April 2008, the commercial paper issuer was placed into receivership. The commercial paper is no longer
highly liquid and an observable market does not exist, therefore a readily determinable fair market value of the
investment is not available.
On February 4, 2009, the High Court of Justice, Chancery Division, Companies Court, in the United
Kingdom ruled that, based on the maturity date of the commercial paper held by us, we should receive payment
ahead of other holders of the commercial paper. The judgment is subject to appeal and leave to appeal has been
granted. We believe, based on discussions with our outside counsel, that we should prevail against an appeal
should one be filed.
As of December 31, 2008, the receiver for the issuer provided us with information regarding the issuer’s
estimated investments and debt obligations. The issuer’s net assets represent (1) the estimated market value of
the issuer’s investments using (i) the present value of future principal and interest payments receivable
discounted at rates considered to reflect current market conditions; and/or (ii) individual valuation estimates of
the underlying collateral using multiple indicators of value less (2) the issuer’s estimated debt obligations.
In order to estimate the fair market value of our investment in the commercial paper, we gave primary
consideration to the court judgment noted above as well as consideration of the probabilities of repayment from
the issuer’s net assets under various liquidation scenarios based on the issuer’s estimated investments and debt
obligations. The results of the commercial paper valuation yielded a range of estimated fair market values of
approximately $4.7 million to $10.0 million. Based on the above, we believe the adjusted cost basis of our
commercial paper is $8.1 million at December 31, 2008.
The estimated fair market value of our commercial paper could change significantly based on future market
conditions, and the ultimate settlement of our commercial paper could be for amounts materially different from
our current estimate of fair market value. As a result, additional impairment charges may be required in the
future.
3. Accounts Receivable
We had accounts receivable of $676.1 million and $1.4 billion, net of an allowance for bad debt of $23.3
million and $12.6 million, as of December 31, 2008 and 2007, respectively. Accounts receivable are written-off
when it becomes apparent based upon age or customer circumstances that such amounts will not be collected.
The following table sets forth activities in our allowance for bad debt (in thousands):
2008 2007 2006
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . $12,644 $14,283 $12,209
Charges to provision for bad debts . . . . . . . . . . . . . . . . . . . 16,081 1,892 3,869
Write-off of uncollectible accounts receivable . . . . . . . . . (5,866) (3,733) (2,102)
Recoveries of bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . 412 202 307
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . $23,271 $12,644 $14,283
Included in accounts receivable, as of December 31, 2008, 2007 and 2006, were net receivables due from
Signature, a related party, of $7.1 million, $13.9 million and $10.0 million, respectively. For 2008, 2007 and
2006, sales to Signature from PAFCO amounted to $210.2 million, $147.0 million and $126.5 million,
respectively. In addition to PAFCO’s sales to Signature, in the normal course of business, we utilize Signature
and Aircraft Service International Group (“ASIG”), a sister company of Signature, as subcontractors to provide
various services to customers, including into-plane fueling at airports, and transportation and storage of fuel and
fuel products. These activities with Signature and ASIG were not considered to be significant.
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