World Fuel Services 2002 Annual Report Download - page 26

receivable are reduced by an allowance for amounts that may become uncollectible in the future. Such allowances can be
either specific to a particular customer or general to all customers in each of our two business segments. We had accounts
and notes receivable of $177.4 million, net of allowance for bad debts of $11.1 million, as of December 31, 2002. At March
31, 2002 and 2001, we had accounts and notes receivable of $132.6 million and $125.9 million, net of allowance for bad
debts of $11.0 million and $11.2 million, respectively. The allowance for bad debts at December 31, 2002, March 31, 2002
and 2001 included a specific allowance of $3.0 million for one aviation customer representing the entire accounts receivable
balance for that customer. Also, as of March 31, 2001, we established additional specific allowances for two other
customers. Our general allowances for all other customers amounted to $8.1 million at December 31, 2002 and March 31,
2001, and $8.0 million at March 31, 2002.
We believe the level of our allowance for bad debts is reasonable based on our experience and our analysis of the net
realizable value of our trade receivables at December 31, 2002. We cannot guarantee that we will continue to experience the
same credit loss rates that we have experienced in the past since adverse changes in the marine and aviation industries, or
changes in the liquidity or financial position of our customers, could have a material adverse effect on the collectability of
our accounts receivable and our future operating results. If credit losses exceed established allowances, our results of
operation and financial condition may be adversely affected. For additional information on the credit risks inherent in our
business, see “Risk Factors” in Item 1 of this Form 10-K.
Goodwill, Identifiable Intangible Assets and Investment Goodwill
Goodwill and investment goodwill represent our cost or investment in excess of net assets, including identifiable
intangible assets, of the acquired companies. Investment goodwill of approximately $2.9 million was included in Other
assets in the accompanying Consolidated Balance Sheets at December 31, 2002, and March 31, 2002 and 2001. The
identifiable intangible asset for customer relations existing at the date of acquisition of $1.8 million was recorded and is
being amortized over its useful life of five years. Effective April 2001, as permitted, we elected to early adopt Statement of
Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 established
accounting and reporting standards for acquired goodwill and other intangible assets, and states that goodwill shall not be
amortized prospectively. Accordingly, no goodwill amortization was recorded subsequent to the adoption of SFAS No. 142.
We recorded goodwill amortization of $824 thousand, including investment goodwill amortization of $74 thousand, for the
year ended March 31, 2001 and $730 thousand for the year ended March 31, 2000. We recorded amortization of our
identifiable intangible asset of $276 thousand for the nine months ended December 31, 2002 and $92 thousand for the year
ended March 31, 2002.
In accordance with SFAS No. 142, goodwill must be reviewed annually (or more frequently under certain
circumstances) for impairment. The initial step of the goodwill impairment test compares the fair value of a reporting unit
with its carrying amount, including goodwill. Based on results of these comparisons, goodwill in each of our reporting units
is not considered impaired. Accordingly, no impairment charges were recognized.
Income Taxes
Our provision for income taxes was determined by taxable jurisdiction. We file a consolidated U.S. federal income tax
return which includes all of our U.S. companies. Our non-U.S. companies file income tax returns in their respective
countries of incorporation, as required. We do not provide for U.S. federal and state income taxes, and non-U.S. withholding
taxes on the undistributed earnings of our non-U.S. companies. The distribution of these earnings would result in additional
U.S. federal and state income taxes to the extent they are not offset by foreign tax credits and non-U.S. withholding taxes. It
is our intention to reinvest undistributed earnings of our non-U.S. companies indefinitely and thereby postpone their
remittance. Accordingly, no provision has been made for taxes that could result from the remittance of such earnings.
We provide for deferred income taxes on temporary differences arising from assets and liabilities whose bases are
different for financial reporting and U.S. federal, state and non-U.S. income tax purposes. A valuation allowance is recorded
to reduce deferred income tax assets when it is more likely than not that an income tax benefit will not be realized. No
valuation allowance was recorded in the accompanying Consolidated Balance Sheets.
Results of Operations
Profit from our marine fuel services business is determined primarily by the volume and commission rate of brokering
business generated and by the volume and gross profit achieved on sales, as well as the overall level of operating expenses,
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