World Fuel Services 2015 Annual Report Download - page 60

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hedge accounting is discontinued, then any cash flows subsequent to the date of discontinuance shall be classified in a
manner consistent with the nature of the instrument.
To qualify for hedge accounting, as either a fair value or cash flow hedge, the hedging relationship between the hedging
instruments and hedged items must be highly effective over an extended period of time in achieving the offset of changes
in fair values or cash flows attributable to the hedged risk at the inception of the hedge. We use a regression analysis based
on historical spot prices in assessing the qualification for our fair value hedges. However, our measurement of hedge
ineffectiveness for our fair value inventory hedges utilizes spot prices for the hedged item (inventory) and forward or future
prices for the hedge instrument. Therefore, the excluded component (forward or future prices) in assessing hedge
qualification, along with ineffectiveness, is included as a component of cost of revenue in earnings. Adjustments to the
carrying amounts of hedged items are discontinued in instances where the related fair value hedging instrument becomes
ineffective and any previously recorded fair market value changes are not adjusted until the fuel is sold.
For more information on our derivatives, see Note 3.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization
are calculated using the straight-line method over the estimated useful lives of the assets. Costs of major additions and
improvements are capitalized while expenditures for maintenance and repairs, which do not extend the life of the asset, are
expensed. Upon sale or disposition of property and equipment, the cost and related accumulated depreciation and
amortization are eliminated from the accounts and any resulting gain or loss is credited or charged to income. Long-lived
assets held and used by us are reviewed based on market factors and operational considerations for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Purchases of computer software are capitalized. External costs and certain internal costs (including payroll and
payroll-related costs of employees) directly associated with developing significant computer software applications for
internal use are capitalized. Training and data conversion costs are expensed as incurred. Computer software costs are
amortized using the straight-line method over the estimated useful life of the software.
Goodwill and Identifiable Intangible Assets
Goodwill arises because the purchase price paid reflects numerous factors, including the strategic fit and expected synergies
these acquisitions bring to our existing operations. Goodwill is recorded at fair value and is reviewed at least annually at year-
end (or more frequently under certain circumstances) for impairment.
Goodwill is evaluated for impairment based on an assessment of qualitative factors to determine whether it is more likely than
not that the fair value of any individual reporting unit is less than its carrying amount (Step 0). If we determine that it is more
likely than not that the fair value of a reporting unit is greater than its carrying value, then no further testing is required.
Otherwise, we would perform the two-step impairment analysis.
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.
Other Investments
Our other investments consist primarily of equity investments, net of basis adjustments. These investments are accounted
for under the equity method as we own less than 50 percent of the entities and exercise significant influence over the
investee, but do not have operational or financial control. As of December 31, 2015 and 2014, we had other investments of
$71.1 million and $69.5 million, respectively, which are included within identifiable intangible and other non-current assets.
Extinguishment of Liabilities
In the normal course of business, we accrue liabilities for fuel and services received for which invoices have not yet been
received. These liabilities are derecognized, or extinguished, if either (i) payment is made to relieve our obligation for the