World Fuel Services 2011 Annual Report Download - page 80

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 represents the future earnings and cash flow potential of acquired businesses in excess of the
fair values that are assigned to all other identifiable assets and liabilities. Goodwill arises because the
purchase price paid reflects numerous factors, including the strategic fit and expected synergies these
acquisitions bring to existing operations and the prevailing market value for comparable companies.
Goodwill is not subject to periodic amortization; instead, it is reviewed annually at year-end (or more
frequently under certain circumstances) for impairment. We assess 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. In performing the qualitative assessment, we assess relevant events and circumstances that
may impact the fair value of our reporting units, including the following: (i) macroeconomic conditions,
(ii) industry and market considerations, (iii) earnings quality/sustainability, (iv) overall financial
performance, (v) events affecting a reporting unit, (vi) share price and (vii) recent fair value calculation for
our reporting units, if available.
After assessing the above described events and circumstances, 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 first step of quantitative testing for goodwill impairment.
In connection with our acquisitions, we record identifiable intangible assets existing at the date of the
acquisitions for customer relationships, supplier and non-compete agreements and trademark/trade
name rights. Identifiable intangible assets subject to amortization are amortized over their estimated
lives and are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable based on market factors and operational
considerations. Identifiable intangible assets not subject to amortization are reviewed annually for
impairment by comparing the estimated fair value of the intangible asset with its carrying value.
Extinguishment of Liability
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 liability or (ii) we are legally released from our obligation for the
liability, such as when our legal obligations with respect to such liabilities lapse or otherwise no longer
exist. We derecognized vendor liability accruals due to the legal release of our obligations in the amount
of $8.3 million, $9.8 million and $8.6 million during 2011, 2010 and 2009, respectively, which is reflected
as a reduction of cost of revenue in the accompanying consolidated statements of income.
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