World Fuel Services 2013 Annual Report Download - page 29

The estimated fair value of stock awards, such as restricted stock and 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. To determine the estimated fair value of SSAR
Awards, we use the Black-Scholes option pricing model. 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 SSAR Awards represents the estimated
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.
Cash flows from income tax benefits resulting from income tax deductions in excess of the compensation cost recognized for share-
based payment awards (excess income tax benefits) are classified as financing cash flows. These excess income tax benefits are
credited to capital in excess of par value.
Accounts Receivable and Allowance for Bad Debt
Credit extension, monitoring and collection are performed for each of our business segments. Each segment has a credit committee
that is responsible for approving credit limits above certain amounts, setting and maintaining credit standards, and managing the
overall quality of the credit portfolio. We perform ongoing credit evaluations of our customers and adjust credit limits based upon
payment history and the customer’s current creditworthiness, as determined by our review of our customer’s credit information. We
extend credit on an unsecured basis to most of our customers. Accounts receivable are deemed past due based on contractual terms
agreed to with our customers.
We continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based
upon our historical experience with our customers, current market and industry conditions affecting our customers and any specific
customer collection issues that we have identified. Historical payment trends may not be a useful indicator of current or future credit
worthiness of our customers, particularly in these difficult economic and financial markets. Accounts receivable are reduced by an
allowance for bad debt.
If credit losses exceed established allowances, our business, financial condition, results of operations and cash flows may be
adversely affected. For additional information on the credit risks inherent in our business, see ‘‘Item 1A – Risk Factors’’ in this 2013
10-K Report.
Inventories
Inventories are valued using the average cost methodology and are stated at the lower of average cost or market. Components of
inventory include fuel purchase costs, the related transportation costs and changes in the estimated fair market values for inventories
included in a fair value hedge relationship.
Derivatives
We enter into financial derivative contracts in order to mitigate the risk of market price fluctuations in aviation, marine and land fuel, to
offer our customers fuel pricing alternatives to meet their needs and to mitigate the risk of fluctuations in foreign currency exchange
rates. We also enter into proprietary derivative transactions, primarily intended to capitalize on arbitrage opportunities related to basis
or time spreads related to fuel products we sell. We have applied the normal purchase and normal sales exception (‘‘NPNS’’), as
provided by accounting guidance for derivative instruments and hedging activities, to certain of our physical forward sales and
purchase contracts. While these contracts are considered derivative instruments under the guidance for derivative instruments and
hedging activities, they are not recorded at fair value, but rather are recorded in our consolidated financial statements when physical
settlement of the contracts occurs. If it is determined that a transaction designated as NPNS no longer meets the scope of the
exception, the fair value of the related contract is recorded as an asset or liability on the consolidated balance sheets and the difference
between the fair value and the contract amount is immediately recognized through earnings.
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