World Fuel Services 2015 Annual Report Download - page 39

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Step 1 requires us to compare the fair value of the reporting units to which goodwill was assigned to their respective carrying
values. In calculating fair value, we use the income approach as our primary indicator of fair value. If the fair value exceeds
the carrying value, no further work is required and no impairment loss is recognized. If the carrying value exceeds the fair
value, the goodwill of the reporting unit is potentially impaired and the Company would then complete step 2 in order to measure
the impairment loss.
In connection with our acquisitions, we record identifiable intangible assets at fair value. Identifiable intangible assets subject
to amortization are amortized over their estimated useful lives and are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be recoverable. We assess identifiable intangible
assets not subject to amortization at least annually for potential impairment.
Revenue Recognition
Revenue from the sale of fuel is recognized when the sales price is fixed or determinable, collectability is reasonably assured
and title passes to the customer, which is when the delivery of fuel is made to our customer directly from us, the supplier or
a third-party subcontractor. Our fuel sales are generated as a fuel reseller as well as from on-hand inventory supply. When
acting as a fuel reseller, we generally purchase fuel from the supplier, and contemporaneously resell the fuel to the
customer, normally taking delivery for purchased fuel at the same place and time as the delivery is made to the customer.
We record the gross sale of the fuel as we generally take inventory risk, have latitude in establishing the sales price, have
discretion in the supplier selection, maintain credit risk and are the primary obligor in the sales arrangement.
Revenue from fuel-related services is recognized when services are performed, the sales price is fixed or determinable and
collectability is reasonably assured. We record the sale of fuel-related services on a gross basis as we generally have
latitude in establishing the sales price, have discretion in supplier selection, maintain credit risk and are the primary obligor
in the sales arrangement.
Commission from fuel broker services is recognized when services are performed and collectability is reasonably assured.
When acting as a fuel broker, we are paid a commission by the supplier.
Revenue from card payment and processing transactions is recognized at the time the purchase is made by the customer
using the charge card. Revenue from charge card transactions is generated from processing fees.
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 the outstanding share-based payment awards.
The estimated fair value of stock awards, such as restricted stock and 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 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.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is included in Note 1 to the accompanying consolidated financial
statements included in this 2015 10-K Report.