World Fuel Services 2008 Annual Report Download - page 85

Download and view the complete annual report

Please find page 85 of the 2008 World Fuel Services annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 108

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108

WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, 2008, we had foreign net operating losses (“NOLs”) of $0.3 million. The foreign losses
have an unlimited carryforward period. As of December 31, 2007, we had state and foreign NOLs of $12.5
million and $1.6 million, respectively.
In addition, as a result of certain realization requirements of FAS No. 123(R), “Share-Based Payment,” the
table of deferred tax assets and liabilities shown above does not include certain deferred tax assets at
December 31, 2008 and 2007 that arose directly from tax deductions related to equity compensation in excess of
compensation recognized for financial reporting. As of December 31, 2008 and 2007, we had unrecognized U.S.
federal NOLs of $12.7 million and $21.4 million, respectively; state NOLs of $ $8.1 million as of December 31,
2007 and FTCs of $7.8 million and $5.4 million as of December 31, 2008 and 2007, respectively, related to the
excess stock compensation deductions that resulted in a tax deduction or credit before the realization of the tax
benefit from the deduction or credit. When realized, the U.S. federal NOLs will result in a benefit recorded in
additional paid in capital (“APIC”) of $4.5 million and the FTCs will result in a benefit recorded in the income
statement with a corresponding decrease in income tax payable. We have changed to the “with and without”
method from the “prior year’s tax law ordering” method for purposes of determining when excess tax benefits
have been realized. There is no material financial impact related to this change.
As of December 31, 2008 and 2007, our APIC pool of windfall tax benefits related to employee
compensation was estimated to be $ 8.6 million and $ 15.4 million, respectively.
We operate under a special tax concession in Singapore which is effective through 2012 and is conditional
upon our meeting certain employment and investment thresholds during the effective period. If the employment
and investment thresholds are not met in accordance with our agreement, the tax concession may be eliminated
retroactively to the beginning of 2008. This special tax concession may be extended beyond 2012 if certain
additional requirements are satisfied. The tax concession reduces the tax rate on qualified sales and the impact of
this tax concession decreased foreign taxes by $7.0 million, $1.9 million and $2.7 million for 2008, 2007 and
2006, respectively. The impact of the tax concession on diluted earnings per share was $0.24 per share, $0.07 per
share and $0.09 per share for 2008, 2007 and 2006, respectively.
Tax Contingencies
Effective January 1, 2007, we adopted FIN 48, which clarifies the accounting for uncertainty in tax positions
by prescribing a minimum recognition threshold required for recognition in the financial statements. FIN 48 also
provides guidance on derecognition, measurement classification, interest and penalties, accounting in interim
periods, disclosure and transition.
We performed a comprehensive review of our portfolio of uncertain tax positions in accordance with the
recognition standards established by FIN 48 as of January 1, 2007. Based on our review and in connection with
the adoption of FIN 48, the cumulative effects of applying this interpretation have been recorded as a decrease of
$12.0 million to retained earnings, an increase of $2.0 million in deferred income tax assets, the recognition of
$2.9 million of assets related in unrecognized tax benefits, which are referred to collectively as “FIN 48 assets,”
and the recognition of $16.9 million of liabilities for unrecognized tax benefits, interest and penalties, which are
referred to collectively as “FIN 48 liabilities.” In addition, the $5.1 million reserve for tax contingencies recorded
under FAS No. 5, “Accounting for Contingencies,” as of January 1, 2007, was reclassed to FIN 48 liabilities,
resulting in total FIN 48 liabilities of $22.0 million. Our FIN 48 liabilities as of January 1, 2007 consisted of
$16.4 million in unrecognized tax benefits, $2.3 million in interest (net after tax deduction) and $3.3 million in
penalties. We recognize accrued interest and penalties related to uncertain tax positions in federal and foreign
income tax expense. In the accompanying consolidated balance sheet as of December 31, 2007, our FIN 48
liabilities are included in non-current income tax payable and our FIN 48 assets are included in non-current
income tax receivable.
77