World Fuel Services 2011 Annual Report Download - page 82

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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 restricted stock units (‘‘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.
Foreign Currency
The functional currency of our U.S. and foreign subsidiaries is the U.S. dollar, except for two subsidiaries
in Brazil and a subsidiary in the United Kingdom, which utilize the Brazilian Real and the British Pound
Sterling, respectively. Foreign currency transaction gains and losses are recognized upon settlement of
foreign currency transactions. In addition, for unsettled foreign currency transactions, foreign currency
translation gains and losses are recognized for changes between the transaction exchange rates and
month-end exchange rates. Foreign currency transaction gains and losses are included in other
(expense) income, net, in the accompanying consolidated statements of income in the period incurred.
We recorded net foreign currency transaction losses of $2.7 million, $1.8 million and $0.6 million in 2011,
2010 and 2009, respectively.
Revenues and expenses of the subsidiaries have been translated into U.S. dollars at average exchange
rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on
the balance sheet dates. The resulting translation gain and loss adjustments are recorded in
accumulated other comprehensive income as a separate component of shareholders’ equity. We
recorded a net foreign currency translation adjustment loss of $11.3 million in 2011 and net foreign
currency translation adjustment gains of $1.0 million and $7.1 million in 2010 and 2009, respectively.
Cumulative foreign currency translation adjustments included in accumulated other comprehensive
income amounted to a loss of $6.5 million as of December 31, 2011 and gains of $4.8 million and
$3.8 million as of December 31, 2010 and 2009, respectively.
Income Taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax
assets and liabilities are recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases,
and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in the income tax provision in the period that includes the enactment date.
We must assess the likelihood that our deferred tax assets will be recovered from our future taxable
income, and to the extent we believe that recovery is not likely, we must establish a valuation allowance
against those deferred tax assets. Deferred tax liabilities generally represent items for which we have
already taken a deduction in our tax return, but we have not yet recognized the items as expenses in our
results of operations.
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