World Fuel Services 2011 Annual Report Download - page 47

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Revenue from charge card 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.
We use the Black-Scholes option pricing model to estimate the fair value of SSAR Awards. 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.
The estimated fair value of common stock, 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.
Cash flows from tax benefits resulting from tax deductions in excess of the compensation cost
recognized for share-based payment awards (excess tax benefits) are classified as financing cash flows.
These excess income tax benefits were credited to capital in excess of par value.
Accounts Receivable and Allowance for Bad Debt
Credit extension, monitoring and collection are performed for each of our business segments. Each
segment has a credit committee that is responsible for approving credit limits, setting and maintaining
credit standards and managing the overall quality of the credit portfolio. We perform ongoing credit
evaluations of our customers and adjust credit limits based upon a customer’s payment history and
creditworthiness, as determined by our review of our customer’s credit information. We extend credit on
an unsecured basis to most of our customers. Accounts receivable are deemed past due based on
contractual terms agreed to with our customers.
We continuously monitor collections and payments from our customers and maintain a provision for
estimated credit losses based upon our historical experience with our customers, current market and
industry conditions affecting our customers and any specific customer collection issues that we have
identified. Historical payment trends may not be a useful indicator of current or future credit worthiness
of our customers, particularly in these difficult economic and financial markets. Accounts receivable are
reduced by an allowance for bad debt.
If credit losses exceed established allowances, our business, financial condition, results of operations
and cash flows may be adversely affected. For additional information on the credit risks inherent in our
business, see ‘‘Item 1A – Risk Factors’’ in this 2011 10-K Report.
Inventories
Inventories are valued using the average cost methodology and are stated at the lower of average cost or
market. Components of inventory include fuel purchase costs, the related transportation costs and for
inventories included in a fair value hedge relationship, changes in the estimated fair market values.
Derivatives
We enter into financial derivative contracts in order to mitigate the risk of market price fluctuations in
aviation, marine and land fuel, to offer our customers fuel pricing alternatives to meet their needs and to
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