World Fuel Services 2011 Annual Report Download - page 81

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Revenue Recognition
Revenue from the sale of fuel and related goods is recognized when the sales price is fixed or
determinable, collectability is reasonably assured and title passes to the customer, which is when the
delivery of fuel is made to our customer directly from us, the supplier or a third-party subcontractor. Our
fuel sales are generated as a fuel reseller as well as from on-hand inventory supply. When acting as a fuel
reseller, we generally purchase fuel from the supplier, mark it up, and contemporaneously resell the fuel
to the customer, normally taking delivery for purchased fuel at the same place and time as the delivery is
made. We record the gross sale of the fuel as we generally take inventory risk, have latitude in
establishing the sales price, have discretion in the supplier selection, maintain credit risk and are the
primary obligor in the sales arrangement.
Revenue from fuel-related services is recognized when services are performed, the sales price is fixed
or determinable and collectability is reasonably assured. We record the gross sale of fuel-related
services as we generally have latitude in establishing the sales price, have discretion in supplier
selection, maintain credit risk and are the primary obligor in the sales arrangement.
Commission from fuel broker services is recognized when services are performed and collectability is
reasonably assured. When acting as a fuel broker, we are paid a commission by the supplier.
Revenue from card processing services 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.
Vendor and Customer Rebates and Branding Allowances
From time to time, we receive vendor rebates and provide customer rebates. Generally, volume rebates
are received from vendors under structured programs based on the level of fuel purchased or sold as
specified in the applicable vendor agreements. These volume rebates are recognized as a reduction of
cost of revenue in the period earned when realization is probable and estimatable and when certain other
conditions are met. A portion of the rebates received from vendors is passed along to our customers.
These rebates to our customers are recognized as a reduction of revenue in the period earned in
accordance with the applicable customer agreements. The rebate terms of the customer agreements
are generally similar to those of the vendor agreements. From time to time, in our land segment, we also
receive branding allowances from fuel suppliers to defray the costs of branding and enhancing certain of
our customer locations. The branding allowances received are recorded as a reduction of cost of
revenue.
Some of these vendor rebate and promotional allowance arrangements require that we make
assumptions and judgments regarding, for example, the likelihood of attaining specified levels of
purchases or selling specified volume of products. We routinely review the relevant, significant factors
and make adjustments when the facts and circumstances dictate that an adjustment is warranted.
The amounts recorded as a reduction of revenue related to volume rebates and promotional allowance
arrangements paid to our customers were $3.4 million, $2.3 million and $3.0 million in 2011, 2010 and
2009, respectively, and the amounts recorded as a reduction of cost of revenue related to volume
rebates received from vendors were $6.0 million, $5.8 million and $6.6 million in 2011, 2010 and 2009,
respectively.
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 outstanding share-based payment awards.
We use the Black-Scholes option pricing model to estimate the fair value of stock-settled stock
appreciation rights (‘‘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 the SSAR Awards represents the estimated
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