World Fuel Services 2013 Annual Report Download - page 28

Download and view the complete annual report

Please find page 28 of the 2013 World Fuel Services annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 100

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100

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 2013 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 2013 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 2013 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 2013 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, 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.
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 payment and processing transactions 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.
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 the
outstanding share-based payment awards.
22