World Fuel Services 2008 Annual Report Download - page 72

WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In September 2008, we entered into a Master Accounts Receivable Purchase Agreement with a syndicate of
financial institutions establishing a facility (the “Receivable Facility”) to sell an aggregate of $160.0 million of
our accounts receivable, on a revolving basis, which may be increased to up to $250.0 million subject to the
satisfaction of certain conditions. The Receivable Facility terminates in September 2010, unless an event of
termination occurs or the term is extended for subsequent one-year terms with the prior written consent of the
syndicate of financial institutions. The Receivable Facility contains customary termination events, including,
among other things, the failure to make timely payments under the Receivable Facility, the breach of covenants,
and the occurrence and continuance of events of default under our Credit Facility. Sales under the Receivable
Facility will be accounted for in accordance with FAS No. 140, “Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities-a replacement of FASB Statement No. 125.” As of
December 31, 2008, no accounts receivable had been sold under our Receivable Facility. In 2008, we recorded
$1.2 million of fees related to the establishment of the Receivable Facility, which is included in interest expense
and other financing costs, net in the accompanying consolidated statements of income.
4. Derivatives
Cash Flow Hedges. We enter into foreign currency forward contracts in order to mitigate the risk of
currency exchange rate fluctuations. We recorded an unrealized net loss of $1.5 million as of December 31, 2008,
which was included in accumulated other comprehensive income in shareholders’ equity.
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 hedged 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 statement of income. We recorded an unrealized net loss of $1.4 million and an unrealized net gain
of less than $0.1 million as of December 31, 2008 and 2007, respectively, relating to the ineffectiveness of our
fair value hedge positions on the respective dates.
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
statement of income. We recorded an unrealized net gain of $1.3 million and an unrealized net loss of $0.1
million as of December 31, 2008 and 2007, respectively, relating to our non-designated derivatives positions on
the respective dates.
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