World Fuel Services 2011 Annual Report Download - page 77

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In March 2006, we acquired the remaining 33% of the outstanding equity interest in Tramp Oil
(Brasil) Ltda. (‘‘Tramp Oil Brazil’’) from the minority owners for an aggregate purchase price of
approximately $2.7 million (the ‘‘Tobras Acquisition’’). The purchase price of the Tobras Acquisition was
subject to increase to up to $4.5 million if certain operating income targets were achieved by Tramp Oil
Brazil over the three-year period ended February 28, 2009. The operating targets were met and the
additional $4.5 million in purchase price was paid in April 2009, which is included in acquisition of
businesses, net of cash acquired, in the accompanying consolidated statements of cash flows.
Significant Accounting Policies
Basis of Consolidation
The accompanying consolidated financial statements and related notes include the accounts of our
wholly-owned and majority-owned subsidiaries and joint ventures where we exercise operational control
or have a primary benefit of its profits. All significant intercompany accounts, transactions and profits are
eliminated upon consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally
accepted in the United States requires us to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the reporting period.
Accordingly, actual results could materially differ from estimated amounts. We evaluate our estimated
assumptions based on historical experience and on various other assumptions that are believed to be
reasonable, the results of which form the basis for making judgments about the carrying values of assets
and liabilities.
Fair Value of Financial Instruments
The carrying amounts of cash, cash equivalents other than money market mutual funds, accounts
receivable, accounts payable and accrued expenses approximate fair value based on the short maturities
of these instruments.
We measure our money market mutual funds, short-term investments and derivative contracts at their
fair value in accordance with accounting guidance for fair value measurement. We believe the carrying
value of our debt approximates fair value since these obligations bear interest at variable rates or fixed
rates which are not significantly different than market rates.
The accounting guidance on fair value measurements and disclosures establishes a hierarchy for inputs
used in measuring fair value that maximizes the use of observable inputs and minimizes the use of
unobservable inputs by requiring that the most observable inputs be used when available. Observable
inputs are inputs that market participants would use in pricing the asset or liability developed based on
market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our
assumptions about the assumptions market participants would use in pricing the asset or liability
developed based on the best information available under the circumstances. The hierarchy is broken
down into three levels based on the reliability of the inputs as follows:
1. Level 1 Inputs – Quoted prices (unadjusted) in active markets for identical assets or liabilities that we
have the ability to access.
2. Level 2 Inputs – Inputs other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly or indirectly. We perform annual back-testing to validate that these
inputs represent observable inputs that market participants use in pricing an asset or liability.
3. Level 3 Inputs – Inputs that are unobservable for the asset or liability.
The availability of observable inputs can vary and is affected by a wide variety of factors. To the extent
that valuation is based on inputs that are less observable or unobservable in the market, the
determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by
us in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs
used to measure fair value of a specific asset or liability may fall into different levels of the fair value
hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair
value measurement in its entirety falls is determined based on the lowest level input that is significant to
the fair value measurement in its entirety.
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