World Fuel Services 2014 Annual Report Download - page 61

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Vendor 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. The rebates passed on 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. 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. The amounts recorded as a reduction of revenue related to volume
rebates and branding allowance arrangements paid to our customers and the amounts recorded as a reduction to cost of
revenue related to volume rebates received from vendors were not significant during each of the years presented on the
consolidated statements of income and comprehensive income.
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.
The estimated fair value of stock awards, such as restricted stock and restricted stock units (“RSUs”) is based on the
grant-date market value of our common stock, as defined in the respective plans under which the awards were granted. To
determine the estimated fair value of stock-settled stock appreciation rights (“SSAR Awards”), we use the Black-Scholes
option pricing model. The estimation of the fair value of SSAR 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 SSAR Awards represents the estimated
period of time from grant until exercise or conversion and is based on vesting schedules and expected post-vesting, exercise
and employment termination behavior. Expected volatility is based on the historical volatility of our common stock over the
period that is equivalent to the award’s expected life. Any adjustment to the historical volatility as an indicator of future
volatility would be based on the impact to historical volatility of significant non-recurring events that would not be expected
in the future. Risk-free interest rates are based on the U.S. Treasury yield curve at the time of grant for the period that is
equivalent to the award’s expected life. Dividend yields are based on the historical dividends of World Fuel over the period
that is equivalent to the award’s expected life, as adjusted for stock splits.
Cash flows from income tax benefits resulting from income tax deductions in excess of the compensation cost recognized
for share-based payment awards (excess income tax benefits) are classified as financing cash flows. These excess income
tax benefits are credited to capital in excess of par value.
Foreign Currency
The functional currency of our U.S. and foreign subsidiaries is the U.S. dollar, except for certain subsidiaries which utilize
their respective local currency as their functional currency. Foreign currency transaction gains and losses are recognized
upon settlement of foreign currency transactions. In addition, for unsettled foreign currency transactions, foreign currency
translation gains and losses are recognized for changes between the transaction exchange rates and month-end exchange
rates. Foreign currency transaction gains and losses are included in other income (expense), net, in the accompanying
consolidated statements of income and comprehensive income in the period incurred. We recorded net foreign currency
transaction losses of $1.0 million and $2.8 million in 2014 and 2013, respectively, and a gain of $0.1 million in 2012.
Revenues and expenses of the subsidiaries that have a functional currency other than the U.S. dollar have been translated
into U.S. dollars at average exchange rates prevailing during the period. The assets and liabilities of these subsidiaries have
been translated at the rates of exchange on the balance sheet dates. The resulting translation gain and loss adjustments
are recorded in accumulated other comprehensive income as a separate component of shareholders’ equity. We recorded
net foreign currency translation adjustment losses of $30.8 million, $13.2 million and $9.6 million in 2014, 2013 and 2012,
respectively. Cumulative foreign currency translation adjustments included in accumulated other comprehensive income
amounted to losses of $60.1 million and $29.3 million as of December 31, 2014 and 2013, respectively.
Income Taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases, and operating loss and income tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in income tax rates is recognized in the income tax provision in the period that includes the enactment
date.