World Kinect Corp (WKC) 2005 Q1 法說會逐字稿

Welcome to the World Fuel first quarter 2005 results conference call. [OPERATOR INSTRUCTIONS]. As a reminder, the conference is being recorded Tuesday, May 3rd, 2005. I would now like to turn the conference over to Mr. Michael Mason of Allen & Caron Investor Relations.

Thank you. Good morning, and welcome to World Fuel Services results conference call for its first quarter ended March 31, 2005. As mentioned, by the operator, I’m Michael Mason of Allen & Caron Investor Relations.

Before we start this morning’s call, there are a couple of items I would like to cover. Many of you received a copy of the press release announcing the company’s results for its first quarter ended March 31, 2005. It was released yesterday, May 2, 2005, at 11:13 a.m. eastern, and was also covered by Dow Jones at 11:13 a.m. If you did not receive a copy of the press release, it is posted in the ‘clients’ section of our website at www.allencaron.com, or you may call our New York office at 212-691-8087, and we will email it to you right away. It’s also posted on Yahoo Finance.

This call is being broadcast live over the internet on the company’s website at www.wfscorp.com. A replay of the call will be available through May 10, 2005, and may be accessed from Canada and the U.S. by dialing 800-633-8284 and entering conference ID #21245122. International callers should dial 402-977-9140. A replay of the web cast will be available through June 30, 2005.

Additionally, I’ve been asked to make the following statement. With the exception of historical information, this conference call may include forward-looking statements that involve risks and uncertainties, including, but not limited to, quarterly fluctuations in results, the management of growth, fluctuations in world oil prices or foreign currency, major changes in political, economic, regulatory, or environmental conditions, the loss of key customers, suppliers, or key members of senior management, uninsured losses, competition, credit risks associated with accounts and notes receivable, and other risks detailed from time to time in the company’s Securities and Exchange Commission filings. Actual results may differ materially from any forward-looking statements set forth herein.

With us this morning is Paul Stebbins, Chairman and CEO. Paul will provide an opening statement addressing the company’s progress, and then the call will move into the Q&A. I would now like to turn the call over to Paul. Good morning Paul.

Good morning Michael, thank you very much. Good morning, and thanks for joining us today. With me are Michael Kasbar, President and Chief Operating Officer; Michael Clementi, President of our aviation segment; Bob Tocci, Chief Financial Officer; and Frank Shea, Chief Risk and Administrative Officer.

On Monday we announced earnings of $7.4m or $0.31 per diluted share, for the first quarter of fiscal 2005. This represents a $1.9m, or 34% increase, in net income over the comparable quarter a year prior. Our business momentum is strong, the operating environment is favorable to growth, and we see many opportunities in the market, which represent good prospects for the balance of 2005.

We are very pleased with our Q1 results and our team can be proud of their performance. In our marine segment, business activity was strong, volume increased in our brokerage and reselling activity, reflecting the continued robust shipping market and good results from increased marketing activities throughout our worldwide network. Sustained high prices put pressure on our smaller, less well capitalized competitors, and enhanced our value proposition to large global fleets.

We continue to see evidence of a retreat by oil companies from the downstream retail market, and increased reliance on our global marketing and distribution network. Our commercial team has demonstrated great leadership and their focus on account penetration, product development, and tight execution had a positive impact on overall performance.

In the aviation segment, results reflect solid performance across the spectrum, and while the industry at large, particularly flag carriers in the U.S., continue to suffer from the high cost of fuel, we saw increased business activity in our core markets. We see further opportunity for growth in 2005 as we continue to expand our presence in the corporate, military, and commercial markets.

Our land business, while still immaterial relative to our other business segments, reported best results ever, with increases in volume, margin, and profitability. We see positive trends in this new, but exciting, initiative.

As Bob will discuss in his financial review, our greatest challenge as a company this quarter had nothing to do with our business strategy, or the commercial environment in which we operate. Our greatest challenge related to accounting protocol, the associated restatements previously reported, and Section 404 of Sarbanes-Oxley.

At the end of March we announced a restatement of our financials, due to two changes in accounting protocol. The first change related to how we recognize sales and sales related costs. The second pertained to hedge accounting specific to inventories. Both of these changes created differences in timing between quarters, but not in overall results. Bob will discuss this in detail in a moment, but as it pertains to this quarter, it is the inventory hedge accounting that most impacts our results.

In this period we booked $2.1m, or $1.3m after tax, in unrealized losses related to inventory derivatives, which will be offset by the sale of product in future periods.

Yesterday we announced an additional restatement, relating to a decision made last week to change the presentation of borrowings and repayments under our revolving credit facility in the statement of cash flows. Under the revised presentation, such borrowings and repayments will be reflected on a gross, rather than on a net basis. While this change is required by GAAP, it should be noted that this change in presentation had no impact on net income, total assets, liabilities, stockholders equity, and cash flows from operating, financing, and investing activities.

In light of these recent events, it is important to reiterate that this company, and its entire management team, are committed to providing our shareholders with financial statements that are fully GAAP compliant and reliable. We have embraced these new protocols, and the underlying logic associated with these changes. Having said that, it is not entirely clear to us that these changes have made our reporting more transparent or easier to understand. Accordingly, we will make every effort to insure our shareholders fully understand the changes, and their impact going forward.

On a more reflective note, I would say that for the past six weeks our financial team has been engaged in an expensive, time consuming, and often times frustrating experience. But throughout the entire process they’ve done a great job, and their professionalism, dedication and commitment are to be commended.

The cost of Sarbanes-Oxley in time and money has been substantial, and will continue to be so going forward. It is simply the new reality. While we certainly aspire to be a best-in-class company in our internal controls over financial reporting, it is also our hope that this important exercise in good corporate governance will help us make genuine improvements in our business process across the board. To be truly meaningful, best practices, transparency and commitment to good process and control, must be more than a matter of technical compliance and static measurements. They must be an integral part of our corporate culture and animate behavior at every level of the enterprise.

The ultimate promise of Sarbanes-Oxley is the prospect of a living process in which good governance and financial control help create commercial opportunity and competitor differentiation in the global market.

At the end of the day we remain focused on our business. We will benefit from tremendous market opportunities and numerous prospects for growth, and what will make us successful in the future is the same thing that has made us successful in the past; great people, a clear sense of mission, and solid execution. We appreciate your support and patience through this recent period, and I will now turn the call over to Bob Tocci for a more detailed review of the accounting changes and first quarter results, Bob.

Thanks, Paul. Before we run through the financial results for the first quarter of 2005, I thought it would be beneficial to discuss the drivers of profitability, and the impact of our recent accounting changes.

From a purely financial perspective, profitability is mainly driven by volume, margins, compensation, bad debts and income tax. In marine, we act as a reseller, and as a broker, and volume is measured in metric tons and reselling profit margins are measured in dollars per metric ton. As a broker, we earn a commission for bringing together a buyer and a seller, and typically earn less than $1 per metric ton.

In aviation we act as a reseller, and volume is measured in gallons, and profit margins in cents per gallon. Inventories are held for competitive reasons, and despite turning over rapidly, are subject to market price risks. Hence we utilize fuel delivered as to hedge market fluctuations in price. We also have fixed price commitments to buy physical product in future periods. Derivatives are used to float the price with the market. Margins are largely influenced by customer mix, transaction or product mix, geographic location of sale, and the market volatility in oil prices.

The largest expense driver of our results is compensation, which is largely a variable expense, and performance based. The other major expense driver relates to credit risk associated with selling fuel on an unsecured basis, the economic health of the shipping and aviation industries and more broadly, the world economy, influences our appetite for extending credit. To the extent that we are required to provide for potential bad debt, our profitability may be significantly affected. Recognizing that this is a significant risk to our business, we perform extensive credit analyses, and credit lines and pricing are customer specific. Other expenses are largely fixed, and include professional fees, entertainment, rent, depreciation, and communications expenses.

Lastly, income taxes are based on the operating income contributed by each of our subsidiaries, in various tax jurisdictions, each with different tax rates.

Now let’s discuss how the three recent changes in our accounting are impacting our reported results.

The first change in accounting was for revenue recognition. This change requires us to accrue sales and the sales related costs based on the date fuel was delivered, as opposed to when documentation for invoicing is received from our third party service providers. This requires us to make estimates regarding volume and margin.

The second change was in accounting for inventory derivatives, and this change requires us to record the gain or loss on open derivative positions to the income statement, as opposed to the balance sheet. This is true for open purchase commitments as well. For the hedging of inventories and purchase commitments, if the market rises we record an unrealized loss on the open paper position. If the market falls, we record an unrealized gain. In the instance of inventory hedging under falling market conditions, gains from open paper positions are offset by an LCM adjustment on inventory. This is not true when the market rises, because we are not permitted to write up our inventory. Ultimately, unrealized gains or losses will be offset with the profit or loss on product sales in future periods.

The last change in accounting, that often was treated as a material weakness in internal control, related to the presentation of cash flows. More specifically, the presentation of borrowings and repayments under our credit facility. The company is now required to show these items gross instead of net. It must be noted that net income, total assets, liability, stockholders equity, and cash flows from operating, financing, and investing activities were not impacted.

And now the discussion of our first quarter financial results. Revenue for the first quarter of 2005 was $1.8b, up $860m as compared to revenue of $915m in the same quarter a year ago. Marine segment revenues were $911m, an increase of $433m as compared to the same quarter a year prior. Of this increase, $358m is due to an increase in the unit volume of fuel sold, and the balance of $75m is due to an 18% increase in the average price of fuel. The higher unit volume received at the April 2004 Tramp Oil acquisition, as well as additional sales to new and existing customers.

For the quarter, total marine business activity, measured in metric tons, increased to 6.3m metric tons. Reselling has increased to 65% of total business activity, as compared to 57% the year prior. This favorable change in our business mix is primarily due to the additional of Tramp Oil.

In our aviation segment, revenues totaled $864m for the first quarter of 2005, an increase of $427m as compared to the same quarter a year ago. Of this increase, $220m is due to a 50% increase in the number of gallons of aviation fuel sold, and the balance of $207m is due to a 32% increase in the average price of fuel. In fact, we sold 567m gallons during the first quarter, an increase of 190m gallons, and it is largely due to growth in fuel management and new commercial business.

The gross profit for the first quarter of 2005 was $35.5m, an increase of $9.2m or 35% as compared to the same quarter a year ago. For the first quarter of 2005 our marine segment gross profit was $17.5m, an increase of $5.9m as compared to the same quarter a year prior. Contributing to the increase was $6.1m related to higher unit sales volume, and $1.3m due to an increase in the gross profit per metric ton sold and brokered. Partially offsetting was $1.5m in unrealized losses on derivatives associated with the hedging of our fuel inventory and open fixed-price purchase commitments.

In our aviation group, the gross profit for the first quarter of 2005 was approximately $18m, an increase of $3.3m compared to the same quarter a year ago. Contributing to the total increase was $7.4m related to an increase in the number of gallons sold. Partially offsetting was $3.5m, a decrease in the gross profit per gallon as well as $642,000 in unrealized losses on derivatives associated with the hedging of our fuel inventory.

Operating expenses for the first quarter of 2005, were $27.1m, as compared to $19.2m a year ago. Of the total increase of $7.9m, $4.1m was in salaries and wages, $1.6m was a provision for bad debts, and $2.2m in other operating expenses. The increases in operating expenses for the first quarter of 2005, were primarily due to additional operating expenses of Tramp, higher performance-based incentive comps, new hires, higher provisions for bad debts and audit fees. It should be noted that the increase of the provision for bad debts for the quarter were related to two marine customers, one of which was written off in the quarter.

Our income from operations for the first quarter of 2005 was $8.4m, an increase of $1.3m or 18% as compared to the same quarter a year ago. In absolute terms, the Marine segment contributed 39% of total operating income for the quarter. The balance or 61% was provided by Aviation.

Income from operations for our Marine segment was $5m for the first quarter of 2005, an increase of $835,000, or 20% vs. the same quarter a year ago. The improvement in the Marine operating income reflected the additional operating income provided by Tramp Oil and the internal growth in gross profits. Partially offsetting was higher operating expenses necessary to support higher levels of business activity.

The Aviation segment’s income from operations was $7.8m for the first quarter of 2005, an increase of $1.3m or 21%, as compared to the corresponding quarter in the prior year. The improvement in Aviation’s operating income reflects the substantial internal growth in our gross profit, partially offset by higher operating expenses necessary to support higher levels of business activity. The operating return on segments of assets for the first quarter of 2005 was 5% for Marine and 12% for Aviation.

For the first quarter of 2005, we recorded non-operating other expenses of $77,000, as compared to non-operating other income of $66,000 during the same quarter a year ago. The $143,000 change in non-operating activities was primarily due to disposal of fixed assets at a loss during first quarter of 2005.

The company’s effective tax rate for the first quarter of 2005 was 11%, vs. 23% in the same period last year. We provided $944,000 for income taxes during the first quarter of 2005, as compared to $1.7m for the corresponding quarter a year ago. The lower effective tax rate for the first quarter of 2005 resulted primarily from quarter-to-quarter profit increases, primarily in low-tax jurisdictions, an income tax benefit of approximately $800,000 recorded on unrealized losses on inventory and open-purchase commitments. Notwithstanding unrealized gains and losses on open positions, our budgeted tax rate for fiscal 2005 is expected to be 20%.

The net income in diluted earnings per share for the first quarter of 2005 was $7.4m and 31 cents per share respectively, as compared to net income in diluted EPS of $5.5m and 24 cents per share for the corresponding period last year. Our return on equity was 17% for the first quarter of 2005, as compared to 16% for the same quarter a year ago. Return on assets was 4% for the first quarter of 2005, as compared to 7% for the corresponding quarter last year.

At quarter’s end, our cash position was $54m, as compared to $64m at December 31st, 2004. During the first quarter of 2005, net cash used in operating activities was $47.6m. Additionally, we made an $855,000 dividend payment, $1.1m acquisition [inaudible] repayment, a $20m repayment of borrowings under our credit facility, and $440,000 of capital expenditures. Partially offsetting these uses of cash were $60m in borrowings under our credit facility, and $146,000 received from the exercise of stock options.

Subsequent to March 31st 2005, we have repaid $45m of our outstanding borrowings from excess working capital. Our gross receivables increased from $501m at December 31st, 2004, to $553m at quarter’s end.

Our allowance for doubtful accounts increased by $574,000 to $11.9m. During the first quarter of 2005, we provisioned $2.5m and wrote off receivables totaling $1.9m. Our consolidated DSO was 25 days at the end of the first quarter of 2005, as compared to 24 days for the same quarter a year ago.

As of quarter end, working capital totaled $227m and total assets were $782m, whereas at December 31st, 2004, working capital totaled $181m and total assets were $712m. Our total liabilities of $587m at quarter end represented an increase of $63m, as compared to December 31st 2004. This increase was primarily due to increases in accrued expenses and other current liabilities and borrowings under our credit facility. Also at quarter end, our consolidated stockholders equity amounted to $196m, an increase of $7m from December 31st, 2004.

Thank you for staying with me during the detailed review of the first quarter numbers. Now before we go on to the question and answer period, let me turn the leadership of this call back to our chairman, Paul Stebbins.

Thank you, Bob. Great job. Jennifer if you could open up the call to questions, please.

[OPERATOR INSTRUCTIONS] And our first question comes from the line of Joe Chumbler [ph], of Stephens Incorporated. Please go ahead sir.

Thank you, good morning guys. This is actually Scott Nelson, filling in for Joe. The first question is, allowance for bad debts has been about $10m to $11m for several quarters, while at the same time volume and market price of fuel has increased dramatically. How do you look at the allowance relative to market prices of fuel? And, should we expect any increase in allowance any time soon?

Well, what I would tell you is that the allowance for bad debts did increase in the quarter. It went from $11.3m to $11.9m. When you look at the write-off, which is the best indicator of our actual experience, net of recoveries, the percentage, as a percentage of sales, was 11 basis points, at the end of the fourth quarter of 2004. And it remains at 11 basis points of sales today. We’re expecting charge-offs and provisioning to be somewhere around $7m, based on sales of roughly $7b for the year.

Our DSO is also 25 days, which is somewhat consistent with where it was, both at the end of the year, and at the same period a year prior, 24 days. So overall, we feel relatively really good about our overall risk in the portfolio.

OK, thanks Bob. The next question is, how real of an opportunity for you guys is the America West-US Air merger? Is there any possibility you could potentially lose the America West volume with this transaction if it went through?

Sure, this is Paul, Scott. I think that’s highly unlikely. If anything, I think it would favor us. Whether or not that merger goes through, of course, is a whole different business question that we are not in a position to address. But I think that the America West model has been very successful for them. I think that they would very much look to want to make that part of the relationship, were they to take over any other airline, including US Air. So, we’re waiting like everybody else to see whether or not it will happen. But I will say that, in fact, you know, US Air has the exact same means, from our perspective. I think that the value proposition that we’ve presented to America West, which has been tremendously successful for them, I think they would look very much to implement that at US Air.

Sure. Final question; have you been able to quantify the financial benefit of your fuel management services to the aviation industry? For example, you know, Jet Blue, how they’ve been able to say, you know, we’ve reduced working capital about 5%. Did World Fuel Services? Can you elaborate on that at all?

I mean, I would have to allow John Owen, or the CFO, or Dave Barger, the COO, to speak to that specifically. But, certainly, they have conveyed to us, at the risk of revealing information that’s privileged to them, that this has had a substantial impact on their entire fuel procurement program. And the savings have not only been real, in terms of dollars, on the management of their inventory position, the rationalization of their flow of fuel in various airports throughout the country, but I would say also the savings have been substantial in terms of how they process activity, how they actually tie out all of their tickets and back office processing.

There are many, many dimensions to this. I would say that reporting is much clear than it ever was. So, I would ask you to speak to them in terms of what they felt comfortable talking about specifically, but there’s no question in our minds that it’s had a significant impact on how they manage their fuel procurement.

Very good, thank you.

And our next question comes from the line of Michael Novak [ph], of Frontier Capital. Please proceed with your question.

Hi, my first question is on the accounting for derivatives, the change there. How does it play out over time? And also, if you could talk a little bit about what you would expect that to do to your gross margins? Does it just cause more volatility, but it’s a non-cash impact? How would that play out?

All right. Would you mind terribly repeating that question?

Sure. I’m trying to understand, with your change in accounting for derivatives, over time, I believe you suggested that it shouldn’t make a difference, because you’re recording unrealized losses now that, when you deliver the fuel, you should get back in the future. So, I’m trying to understand how that plays out over time? And then, what the interim impact will be on gross margins. Does it just increase the volatility, but it doesn’t have a cash impact? I’m just trying to understand that a little bit better.

OK, there will be increased volatility in the reporting of earnings. We must understand that what we’re doing here is hedging our inventories. And we’re making commitments to purchase product in the future, for competitive reasons. So, what’s happening is, as markets fall, we have an unrealized loss. That unrealized loss will ultimately be recovered when we actually sell the fuel in future periods.

Now in Marine, and in Aviation, our inventories turn over relatively quickly. So, that realization of profit will happen in the next quarter. With commitments, they’re of an extended nature. So those unwind over a period of time.

When you asked the question with regard to margins, in reality, LCM adjustments on inventory and unrealized gains and losses, associated with hedging of inventories and purchase commitments have no impact on reported margins. These are not sales. And, when you look at margins, you should look at units sold and gross profit on those sales.

So, our first quarter of 2004, margins improved in Aviation, relative to the same quarter a year prior. And, when you do the math, since you have more limited information, you’re going to see that margins actually declined. But that’s because you’re including, in gross profit, these $2.1m associated with the unrealized loses on derivatives.

OK. And then, you talked a little bit about it when you were addressing the allowance for bad debts, but could you talk about what you’re seeing in terms of your credit risk management profile? The health of your customers and how you feel you’re provisioned in that area right now, please?

Yes, I mean, the fact of the matter is our markets are strong in Marine, all right? And in Aviation, what you’ve been seeing is a change in our portfolio, over the last several quarters and in the last two years, in favor of larger commercial airlines that are lower risk in nature.

So overall, our portfolio is as good today as it’s ever been. And, we feel very good about our prospects for business in the future. And what we see in terms of losses, both in the current period and in the immediate future quarters. Thank you, Mike.

OK, and then my last question is, you’ve had several accounting changes. Clearly, there is a high level of professional fees associated with those. How much did it impact the first quarter, as well as perhaps all of Sarbanes-Oxley/professional fees impact 2004? And, would you expect that to drop off current run rate levels?

Well we don’t expect that the level of our audit fees are going to decline any time soon. In the first quarter we had an additional $400,000 in fees, and that was largely due to additional Sarbanes-Oxley compliance. I think the total amount we had last year was $1.4m.

And why wouldn’t you expect that to drop off?

Because the need for greater compliance and the exercising of strong internal controls was not a one time thing. It is something that is going to go on for now, and forever into the foreseeable future. So our organization will have additional costs that go beyond audit fees in order to remain in compliance. It will come in the form of additional people, not only auditors, but additional accountants, to do a better job in reviewing companies and making sure that internal controls are in place, and on a constant basis, complied with. You’re talking about an organization that doubled, and doubled again in size over the last few years, so we need to keep pace with reporting requirements.

Thank you.

[OPERATOR INSTRUCTIONS] Gentlemen, I’m showing no further questions at this time. Chris DeRoth [ph], Account Management Corporation.

Just a quick question in terms of the geographical profile of the credit losses in the marine business, are they from any one particular geographic area? Then the second part of the question is, as you migrate more toward a flow based, fee based business, are you better able to control – have you separated out the credit losses in that area, the credit exposure in that business? I would assume its lower, and I was wondering if you could comment on that.

Hi Chris, its Paul. First of all on the losses, they happen to be in the Far East, but I don’t think there’s any great revelation about that, it just happened to be where they were, they were small companies in Asia.

With regard to the fee business and the associated losses, we don’t break it out separately, but certainly, as you might imagine, the fee based business, in many instances, there is no credit associated with it. In some businesses there is, but it’s a very, very low risk portfolio. So from our perspective, we don’t see that as an area which we’re concerned about the credit exposure.

OK, great.

[OPERATOR INSTRUCTIONS] Bill Batterson, Wachovia Securities.

I had a follow up question actually. From last quarter you had mentioned a couple of new initiatives, one opening an office in China, and two, a land based fueling system. Could you give me some indication of what the market size is for that, and especially on the land, is it domestic or international, and what market size is for that?

We’d be happy to talk about that. China, as anybody reading a newspaper in the last year knows that this is an enormously explosive economy. There is so much activity going on in that market it is just hard to comprehend.

On the aviation space, which happens to be the specific nature of the office we opened in Beijing, if you look at the fact that it is anticipated that there are 2200 new large commercial aircraft slotted for building over the next 10 – 12 years for that market, it gives you an idea of the scale of activity that China contemplates, both inter-region and throughout the world.

We think that our timing was excellent, this is an emerging market. We’ve already done transactions there; we have a very good name in that market because we’ve been active there on the marine space for many, many years. But there’s no question in our mind that that is a promising market and we’re very excited actually about our position there.

With regard to the land side, again, as we’ve talked about, our results to date are immaterial in this area, but we are very excited by the fact that this market, in the domestic area of the United States, is larger than the other two markets combined. So from our perspective there is enormous opportunity in the land based business, and the primary focus of our activity right now is actually domestic. There are opportunities, we believe, overseas, but it’s our expectation that we would look to refine our model here in the domestic United States where we see the low hanging fruit so to speak.

We think our timing of entering this market is excellent, because the same fundamentals that drive this business are not unlike our others, which is that the oil companies are completely changing their commitment to the downstream retail market. They’re looking to delist their portfolios, they’re looking to rationalize their back offices, and they’re looking to consolidate volume. We are uniquely positioned to provide that range of services. We think not only is there opportunity to, if you will, overlay our marine and aviation type models into the land, but we think there are acquisition opportunities in that space, we think there’s going to be opportunities for rollups in that space, and we’re pretty excited about the initial demonstration of activity that our fledgling operation has delivered.

So I would say that both of those initiatives, both from the China perspective, but also from the land, are pretty exciting, and we’re pleased.

Thank you. I also thank you for the quarter, with all the expenses you’ve paid you’ve still come up 29% in net earnings.

As you might imagine, Bill, we’ve had to – this is just the new age we live in, and we’re like everybody else trying to wrestle with that reality. But the thing that makes us happy is that our underlying fundamental business is very sound. We are in a great position; we’ve spent many years building this position. We see more opportunities perhaps than we can even process at this moment in time, so I think from our prospective, all the hard work to build a durable business model has paid off, and we’re beginning to really reap the benefits of that in terms of our global footprint. So from that perspective we’re very excited.

The fact that we live in a new era in which this level of scrutiny is ultimately going to make us all better companies, we’re going to embrace that. It’s been a bit exasperating and frustrating at times to have significant upheaval in our financial departments, over what ultimately had no evident impact on anything we’re doing. But GAAP is GAAP, financial compliance is financial compliance. We are going to be the best possible citizens we can be, and we will embrace those changes as we have. It’s expensive, and it’s time consuming, and it’s a distraction, but the most important thing is that the core business is very strong, and what I’m going to argue – and we’re all optimists here, we’re not cynics, we believe that at the end of the day this will great a level of best practices that will make us more competitive and will allow us to enhance our footprint globally.

So that’s the position that we’re taking, and as frustrating as it may have been at times to go through this, and certainly you can imagine no company wants to go through this, the net/net/net result is it had very little impact on how all this stuff got reported. But the business is sound, and that’s what’s important.

Thank you.

[OPERATOR INSTRUCTIONS] Ben Segal [ph] of Winchester Capital.

I was just going to ask you about your growth prospects, you mentioned China, about the 200 airports that they’re building, and I think you just covered them as far as your questions. Is there anything that we should be focusing in on? And on the coming quarters, what are your priorities with regard to your business?

Sure, I would say in one word, it’s execution. Our global team is well positioned to take advantage of what is a very robust shipping market. As we talked about in our last quarter at year end, we had done some management changes in our marine structure, which allowed some of our commercial team to move up to guide our global marketing initiatives, that’s been tremendously successful. We feel that kind of new found sense of focus has allowed us to penetrate more deeply into these large global [inaudible]. High prices have made their lives miserable, and we are adding genuine value by allowing the market transparency, and being able to proactively manage something that has been a very onerous cost problem for these companies. So we’re pretty pleased, and I would say that the primary focus is just going to be about execution in that space.

On the aviation front, what we find particularly to be our focus over the next several quarters will be in the corporate space, which we think general aviation has enormous promise for us. We have kind of cracked the code, if you will, on being an effective fuel supplier to these corporate aircraft, trading internationally, and our services are well designed for what they’re trying to achieve. Obviously from a customer diversification portfolio point of view, this is a low risk part of the market. So we’re pretty excited about what can happen in general aviation, both from the services point of view, and from a fuel point of view. We think that we will have by far the most significant position in that market going forward.

Military growth is also something that we expect. It’s sort of a niche market that we’ve targeted over the years, but we see significant opportunities in being kind of a specialized marketer, and putting our ID cards on military aircraft so that they can get instant access to fuel in multiple airports around the world. That programmatic approach has been successful in France, in Germany; we just recently were awarded the entire contract for the Italian Air Force. So we think that there is a lot of growth in those areas as well, so that’s going to be our concentration.

Needless to say, unless the world instantly stabilizes, there’s still going to be a lot of activity and business to our core customers in the cargo and charter space, and again, we’ve been very pleased with the activity, the consistent ratable activity in that market.

So that, in a nutshell, is where we’re focusing, and I think that we’ve seen the yield from Tramp, these are very sharp commercial people, they’ve added a lot of value to our team. We’re very excited about the integration that’s happened on that front. These are smart traders who have taken the benefit of our global footprint and our sophisticated abilities to do transactions, and they’ve begun to implement those tools in their own portfolios. They’re pretty fired up about being able to be part of this team. So there’s a lot going on that we feel very pleased about all of these other distractions not withstanding.

Does that help you, Ben?

Thank you very much.

Chris DeRoth.

Paul, hi, one follow up question on the land based opportunity. I think you said it today, Exxon has pulled out, in terms of the size market, below a certain level. Can you break out for us, or will you be able to break out for us in the future, how that revenue wise and gross profit dollar wise, how that opportunity is progressing?

Sure, I think at some future date we’ll do that, Chris. We’ve been reluctant to do that; a) because it’s immaterial at this stage; b) for competitive reasons. But certainly I think it would be, at some future point, as the thing grows, it will be appropriate to do that. I would just say that I don’t anticipate that we’ll be doing that within any of the near term quarters, perhaps through this year. But I think that in the future it’s something that as it gets bigger, we’ll certainly do that. But we’re reluctant to do that a) because of the overall size of it right now, and again, competitive reasons.

When you lie in bed awake at night and you’re sort of sizing the market opportunity there in the back of your head, what do you think it could be, if you were to take a shot at it?

Well to put specific gallonage numbers on it, this is one very large market. Again, as I indicated, it’s our rough estimate that that market by itself is larger than the other two businesses we’re in combined. So that’s a lot of gallons of activity. The land based business, both in terms of commercial and retail, is quite substantial, and we think that our timing –- again, I’ll reiterate -- could not be better.

This is a market where as the oil companies focus on return on capital, and they look upstream to the crude end of the barrel, and they look to optimize their downstream products out of the refinery, and reduce their exposure and commitment to the retail market and distribution logistics, we are again, by virtue of balance sheet, size, expertise, systems, and our customer facing service capability, we’re uniquely positioned to provide a genuine solution for these guys that allows them to not only hold on to aggregated volume, but reduce their overall cost of processing, and reduce their exposure to credit and other things.

So again, this is about timing, and if we had not done all the work we’ve done in aviation/marine to kind of refine our business offering, we wouldn’t have been in the position to take advantage. Mike Kasbar is famous in this company for saying, “Luck is when preparation meets opportunity.” What I would say is that a hell of a lot of preparation has met some opportunity here and we are very excited about the prospects of this market. The needs are the same, and they’re real.

The oil companies are very much inviting us into this space, and are delighted that we’ve been prepared to kind of partner with them. It really solves a problem for them long term.

OK, thank you.

[OPERATOR INSTRUCTIONS] Mr. Stebbins, at this time I’m showing no further questions. I’ll turn the call over to you.

Thank you. I’d like to thank all of your for joining us today. I know that everybody is sort of waiting with anticipation to make some sense out of all these financial protocol changes, and we appreciate your patience and forbearance during this period. I would reiterate that the team here is highly focused on the business, and we could not be more excited about our prospects.

As I said, we embrace the changes, its part of the new protocol, we’ll do everything we can to execute them with vigor and make sure that we’ve got the best, most reliable financials you could have. But the business is good, and we appreciate your support. Thanks.

That does conclude our conference call for today. We thank you for your participation and ask that you please disconnect your lines.