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WORLD FUEL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Effective January 1, 2008, we also adopted FSP No. FIN 39-1, “Amendment of FASB Interpretation
No. 39,” which amends FIN 39, “Offsetting of Amounts Related to Certain Contracts.” FSP No. FIN 39-1
permits entities that enter into master netting arrangements as part of their derivative transactions to offset in
their financial statements net derivative positions against the fair value of amounts (or amounts that approximate
fair value) recognized for the right to reclaim cash collateral or the obligation to return cash collateral under those
arrangements. As a result, we elected to net cash collateral against fair value amounts recognized for derivative
instruments executed with the same counterparty when a master netting arrangement exists. As of December 31,
2008, the amounts of collateral netted against the fair value derivative contracts are disclosed in the table
regarding our financial instruments measured at fair value.
FAS No. 157 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of
observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be
used when available. Observable inputs are inputs that market participants would use in pricing the asset or
liability developed based on market data obtained from sources independent of us. Unobservable inputs are
inputs that reflect our assumptions about the assumptions market participants would use in pricing the asset or
liability developed based on the best information available under the circumstances. The hierarchy is broken
down into three levels based on the reliability of the inputs as follows:
1. Level 1 Inputs—Quoted prices (unadjusted) in active markets for identical assets or liabilities that we
have the ability to access.
2. Level 2 Inputs—Inputs other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly or indirectly. We perform annual back-testing to validate that these
inputs represent observable inputs that market participants use in pricing an asset or liability.
3. Level 3 Inputs—Inputs that are unobservable for the asset or liability.
The availability of observable inputs can vary and is affected by a wide variety of factors. To the extent that
valuation is based on inputs that are less observable or unobservable in the market, the determination of fair
value requires more judgment. Accordingly, the degree of judgment exercised by us in determining fair value is
greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value of a
specific asset or liability may fall into different levels of the fair value hierarchy. In such cases, for disclosure
purposes the level in the fair value hierarchy within which the fair value measurement in its entirety falls is
determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Fair value is a market-based measure considered from the perspective of a market participant who holds the
asset or owes the liability rather than an entity-specific measure. Therefore, even when market assumptions are
not readily available, our own assumptions are set to reflect those that we feel market participants would use in
pricing the asset or liability at the measurement date.
Assets and liabilities that are recorded at fair value have been categorized based upon the fair value
hierarchy described in the Summary of Significant Accounting Policies (see Note 1). Our Level 1 items consist
of exchange traded futures. Our Level 2 items consist of commodity swaps, commodity collars, non-designated
derivatives in the form of physical forward purchase or sales commitments, hedged inventories and hedged
physical forward purchase or sales commitments. Our Level 3 items consist of physical forward purchase or sales
commitments, foreign currency forward contracts and short-term investments. Realized and unrealized gains and
losses of our physical forward purchase or sales commitments measured at fair value on a recurring basis that
utilized Level 3 inputs are recognized as a component of either revenue or cost of revenue (based on the
underlying transaction type). Realized and unrealized gains and losses of our foreign currency forward contracts
which were not treated as cash flow hedges, measured at fair value on a recurring basis that utilized Level 3
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