World Fuel Services 2012 Annual Report Download - page 42

Our revenue and cost of revenue are significantly impacted by world oil prices, as evidenced in part by
our revenue and cost of revenue fluctuations in recent fiscal years, while our gross profit is not
necessarily impacted by changes in world oil prices. However, significant movements in fuel prices
during any given financial period can have a significant impact on our gross profit, either positively or
negatively depending on the direction, volatility and timing of such price movements.
We may experience decreases in future sales volumes and margins as a result of the ongoing
deterioration in the world economy, the decline of the transportation industry, natural disasters and
continued conflicts and instability in the Middle East, Asia and Latin America, as well as potential future
terrorist activities and possible military retaliation. In addition, because fuel costs represent a significant
part of our customers’ operating expenses, volatile and/or high fuel prices can adversely affect our
customers’ businesses, and, consequently, the demand for our services and our results of operations.
Our hedging activities may not be effective to mitigate volatile fuel prices and may expose us to
counterparty risk. See ‘‘Item 1A – Risk Factors’’ of this 2012 10-K Report.
Reportable Segments
We have three reportable operating segments: aviation, marine and land. Corporate expenses are
allocated to each segment based on usage, where possible, or on other factors according to the nature
of the activity. We evaluate and manage our business segments using the performance measurement of
income from operations. Financial information with respect to our business segments is provided in
Note 11 to the accompanying consolidated financial statements included in this 2012 10-K Report.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our
consolidated financial statements included elsewhere in this 2012 10-K Report, which have been
prepared in accordance with accounting principles generally accepted in the United States. The
preparation of these financial statements requires management to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of
contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related
to unbilled revenue and related costs of sales, bad debt, share-based payment awards, derivatives,
goodwill and identifiable intangible assets and certain accrued liabilities. We base our estimates on
historical experience and on other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
We have identified the policies below as critical to our business operations and the understanding of our
results of operations. For a detailed discussion on the application of these and other significant
accounting policies, see Note 1 to the accompanying consolidated financial statements included in this
2012 10-K Report.
Revenue Recognition
Revenue from the sale of fuel 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 to the
customer. 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 sale of fuel-related services on a
gross basis 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.
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