World Kinect Corp (WKC) 2007 Q1 法說會逐字稿

Mr. Frank Shea, you may begin your conference.

Good morning, everyone, and welcome to the World Fuel Services first quarter conference call. I am Frank Shea, our Chief Risk and Administrative Officer, and I will be serving as the moderator on this morning's call. Today's call is also available via webcast. To access this webcast or future webcasts, please visit our website and click on the webcast icon. With me on this call this morning are Paul Stebbins, our Chairman and Chief Executive Officer, Michael Kasbar, President and Chief Operating Officer, Ira Burns, Executive Vice President and Chief Financial Officer, Paul Novell, Senior Vice President and Chief Accounting Officer, and Michael Clementi, President of World Fuel's aviation segment. By now you all should have received a copy of our earnings release. If not, you can also access our release on our website.

Before we get started I would like to review World Fuel's Safe Harbor statement. Some of the comments to be made on this morning's call may include forward-looking statement under the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results or facts to differ materially from such statements. Detailed information about these risks is contained in the Company's SEC filings, which are available on the Company's website or from the SEC. We will begin with several minutes of prepared remarks, which will then be followed by a question-and-answer period.

Now, I would like to introduce our Chairman and CEO, Paul Stebbins.

Thank you, Frank. Good morning, everyone, and thank you for joining us. We apologize for the change in scheduling but we appreciate you accommodating us. Demand for fuel and services remained strong this quarter and we are pleased with the depth in our core business. The Company delivered strong growth in volume and profitability in our Marine and Land segments, as well as strong volume in our Aviation segment. However, our Aviation segment results were significantly impacted by a rapid decline in jet fuel prices in the early part of the first quarter. And although jet fuel prices rebounded late in the first quarter, the benefit of this increase was not fully realized until the early part of the second quarter. This timing disconnect will be discussed in more detail in the financial report, but is important to note that the negative variance has more to do with the inherent lag in inventory costing methodology than it does with the price of product per se. Inventory flow is a continuum, but we live in 90-day cycles and fixed cut-off dates, which can accentuate timing disconnects between periods. As you know, our business model is to establish fixed margins with discrete customers based on credit judgment and location, and while our margins are generally realized in the fulness of time because of our hedging policy, the application of average costing can create anomalies from period to period.

Given the thousands of deliveries made each month out of inventory, it is impossible to apply specific costing and our experience has been that anomalies created by average costing are usually corrected within a period. But extreme volatility in fixed-period cut-off dates can create a significant impact on gross profit, as it did in this quarter. Ironically, it is the development of our self-supply program which has contributed to the problem. Being able to secure self supply has been a competitive diffentiator in many instances, but as it scales it adds a level of complexity to pricing. Certainly the impact on this quarter has focused our minds on tightening that process in an effort to minimize the impact in any given period.

At the end of the day, the quarter's timing issue notwithstanding, the fundamentals of our business across all segments was strong and we continue to see significant growth opportunities over the balance of 2007. Our Aviation business continued to show strong growth in Q1. Volume increased 5% sequentially over Q4 and was flat when compared to Q1 of prior -- of the prior year. This is noteworthy when you consider that America West represented over 100 million gallons per quarter last year. Not only did we replace the America West volume with high-quality reselling volume, but we advanced in every sector of the market. We were particularly pleased to see continued robust growth in our core commercial and business aviation markets. As we have discussed in prior calls, business aviation is an area of continued strategic focus and we anticipate further developments in this market during the remainder of 2007. We were also excited about our alliance partnerships. Our fuel program with Honeywell continued to grow, as more of their flight services customers took advantage of our global fueling network. We also laid the ground work for new initiatives with Jeppesen.

To help us drive to manage these exciting initiatives, we hired a director of business development who's background includes a wealth of senior management experience in business aviation, charter operations, FBO management and flight training. The reported results notwithstanding we feel very good about the Aviation business and the various initiatives we have working in this segment. Overall the aviation industry is doing well. I add a reported growth in passenger demand, which grew by 6.1% in January and 6.8% in February. Demand for international freight grew by 2.4%. We believe these trends speak to the health of the industry and continued demand for our services.

Our Marine segment delivered record performance in Q1, and it was the result of tremendous teamwork combined with intense focus on customer service and expanded supply. Trading volume was up 1% sequentially from Q4, but it was up 20% year over year. Gross profit was up 8% sequentially from Q4 and almost 21% year over year. This success was realized across a broad spectrum of premier global accounts. Our core markets remain strong and we have started to take a closer look at opportunities in the emerging alternative fuels market such as biodiesel. We have also focused considerable attention on products with particular quality specification, such as low sulfur fuel oil and diesel, which are becoming more important in certain environmentally designated markets. In the shipping markets we saw weakness in the tanker markets, but continued strength in the container and dry bulk markets. Trade remains generally steady and believe we -- and we believe we are well positioned for the year.

Our Land business had a tremendous quarter and we are proud of their process. Volume was up 60% over the prior year, which is noteworthy, as we view Q1 to be seasonally slower than Q2 and Q3. Gross profit was up 69% and operating income up 126% year over year. Margins are improving and we are expanding our use of price risk management instruments in this space in a way which mimics our success in Marine and Aviation. We continue to expand our sales team in the quarter and bolster our functional support.

Our Land business had a tremendous quarter and we are proud of their process. Volume was up 60% over the prior year, which is noteworthy, as we view Q1 to be seasonally slower than Q2 and Q3. Gross profit was up 69% and operating income up 126% year over year. Margins are improving and we are expanding our use of price risk management instruments in this space in a way which mimics our success in Marine and Aviation. We continue to expand our sales team in the quarter and bolster our functional support.

On the corporate front we are delighted to have Ira Burns join us as Chief Financial Officer. Ira, who you will hear from in a few minutes, spent 18 years with Arrow Electronics and grew with that company from $35 million in market cap to over $5.3 billion. Ira comes to us with a wealth of experience in capital markets, M&A, financial planning, and we are delighted to have him on the team. We are also pleased to report that Massoud Sedigh joined us as CIO. Massoud has extensive systems design and integration experience, and his background includes ten years at Cantor Fitzgerald and five years with Shell Oil's trading division, Acquisa. We are delighted to have him on board and driving our technology initiatives.

We would like to thank you for your continued support. We recognize that it is a disappoint to have us report a number of such variance with recent results, but we hope you will appreciate that it has more to do with timing and our product posturing discipline than it does with the underlying businesses. I will now turn the call over to Ira Burns to give the financial report. Ira?

Thank you, Paul. Let me start by saying that I am delighted to be a member of the World Fuel team and I am very excited about the opportunities that lie ahead. Now I would like to review our results for the first quarter. Revenue for the first quarter was $2.7 billion, up 3% sequentially and up 7% compared to the same quarter a year ago. Our Marine segment revenues were $1.5 billion, up 3.5% sequentially and 11% year over year. The Aviation segment generated revenues of $1.1 billion, up 3% sequentially but down 2% from last year's first quarter. And, finally, the Land segment grew to $115 million, up 2% sequentially and 65% year over year. The year-over-year increase in total revenue was primarily attributable to an aggregate $316 million of volume-related increases from the Marine and Land segments, partially offset by an aggregate $147 million of price-related decreases from the Aviation and Marine segments.

Our Marine segment had a solid quarter, delivering a record level of income from operations. Total business activity was 6.9 million metric tons, a decrease of 1% sequentially and an increase of 12% compared to the first quarter of 2006. Fuel reselling activities constituted 75% of total Marine business activity in the quarter. Our Aviation segment sold 555 million gallons during the first quarter of 2007, an increase of 5% sequentially, principally related to a volume increase in our commercial aviation business and an decrease of less that 1% year over year, despite the loss of 100 million gallons relating to the loss of the America West fuel management business. Our Land segment remains strong, selling 60 million gallons during the first quarter, nearly flat sequentially but up 58% compared to the same quarter a year ago. The year-over-year increase was due to increased sales to existing customers, as well as the continued expansion of our customer base.

Gross profit for the first quarter was $51.2 million, an increase of $1.4 million or 3% compared to the same quarter a year ago. Our Marine segment generated gross profit of $29.6 million, a year-over-year increase of $5.1 million or 21%. Our Land segments gross profit was $1.8 million, an increase of $700,000 or 69%, and our Aviation segment contributed $19.8 million in gross profit, a decrease of $4.4 million or 18% as compared to the first quarter of 2006. As Paul described earlier, gross profit in our Aviation segment was impacted by a rapid decline in fuel prices in the early part of the quarter. And although fuel prices rebounded late in the quarter, the benefit of this increase was not fully realized until the early part of the second quarter. Since this had a material impact on our results for the quarter, I would like to elaborate on Paul's comments earlier and provide you with further details to help you better understand this impact.

At the beginning of the first quarter, the market price of jet fuel dropped by over 10% in a very short period of time, which created a significant imbalance between the lower market price and the cost of our inventory as a result of our average costing methodology. Due to the rapid rate of decline, we were impacted by the lag in the correlation between the movement of our average cost inventory and lower market prices. Clearly, the market-price decline outpaced the decline in our average cost in this instance. With the surge in jet fuel prices at the end of the March, which was also over 10%, we experienced the opposite set of circumstance, whereby the gap reversed such that there was a significant imbalance between the higher jet fuel market prices and the average cost of our inventory. However, since this occurred near the end of the quarter, the benefit of this positive gap wasn't fully realized until the beginning of the second quarter, when our inventories held at the end of the first quarter were sold. Once again, in this case the sharp and rapid increase in jet fuel prices outpaced the increase in our average cost of our inventory. Although it is normal for fuel prices to fluctuate in any given quarter, in this particular quarter we were specifically impacted by both magnitude and the timing of the short-term movement in fuel prices.

Operating expenses for the first quarter were $34.2 million, an increase of $4.4 million or 15% compared to the same quarter a year ago. Of this increase, $4.1 was due to compensation and employee benefits and $1.2 was due to an increase in general and administrative expenses. These increases were partially offset by an $900,000 in our provision for bad debt. The increase in compensation and employee benefits was primarily due to new hires to support our growing global business, as well as an increase in stock-based compensation. The increase in general and administrative expenses was mainly due to professional consulting fees, systems development and depreciation and amortization. The positive change in the provision for bad debt was related to improving the quality of our Aviation receivable portfolio during the first quarter as compared to the first quarter of 2006, as well as approximately $500,000 of specific recoveries during the first quarter, resulting in a reduction in our allowance of bad debt from December 31st.

Concerning the $1.4 million increase in total gross profit versus the same quarter last year, an aggregate of $5.2 million was due to increased sales volume and an aggregate of $600,000 was due to higher gross profit per unit volume sold in both our Marine and Land segments. Partially offsetting these increases was an aggregate $4.4 million principally relating to a decrease in the gross profit per unit volume sold in our Aviation segment. Once again, our Aviation results were impacted by the factors I described earlier.

Income from operations for the first quarter of 2007 was $17 million, a decrease of $3 million or 15% compared to the same quarter a year ago. Income from operations for our Marine segment was $15 million for the first quarter of 2007, which was an increase of $4 million or 36% from the first quarter of last year. Principally due to the factors already discussed, our Aviation segment's income from operations declined $4.8 million or 38% to $7.7 million when compared to last year's first quarter. Our Land segments income from operation was approximately $400,000, twice the amount generated in the first quarter of 2006. Unallocated corporate overhead was $6.2 million, an increase of approximately $2.4 million or 66% from the first quarter of last year. This increase is also principally related to new hires.

The Company's effective tax rate for the first quarter of 2007 was 16% as compared to 25.7% for the first quarter of 2006. The lower effective tax rate resulted primarily from a shift in the mix of the results of operations derived from our subsidiaries in tax jurisdictions with lower tax rates, offset by an increase due to the adoption of FASB interpretation 48 in the first quarter of 2007. As a result of the adoption of FIN 48 we also recognized an adjustment to retained earnings of $12 million, representing an increase to our tax liabilities for uncertain tax positions as of January 1 of this year. Remember, due to the Aviation shortfall in the U.S. this quarter, our income was more heavily skewed to jurisdictions with lower tax rates; therefore, please note that our effective tax rate this quarter is not necessarily indicative of what our tax rate will be for the balance of 2007.

Net income for the first quarter of 2007 was $14.8 million, a decrease of approximately $200,000 or 1% compared to the first quarter last year. Diluted earnings per share was $0.51 for the first quarter, a decrease of $0.01 or 2% compared to last year's first quarter. Our return on equity was 13.4% in the first quarter compared to 16.6% in last year's first quarter, and our return on assets for the first quarter was 4.6% compared to 5.6% in last year's first quarter. At quarter end, our cash, cash equivalents and short-term investments were $192 million as compared to $189 million at December 31 of 2006. Operating cash flow for the quarter was $6.6 million and capital expenditures, principally relating to costs associated with our ERP project, were $2.6 million in the first quarter. Day sales outstanding was 30 days and our payable days were 26. Inventory was $65.8 million, down $8.7 million from the fourth quarter, representing 2.2 days of sales.

At this point I will now turn the call back over to Paul Stebbins.

Thank you, Ira. Operator, you can open up for Q&A. Operator?

(OPERATOR INSTRUCTIONS) And your first question comes from Christine Min with Calyon Securities.

Christine, good morning. Hello?

Good morning. Thanks for providing the color on what happened with the Aviation segment. Just for further detail, can you give us better free for what goes into the gross profit per gallon in the Aviation margin, since you mentioned that the margins were fixed, so is there a time lag for adjusting a mark up if they -- when the price of fuel does fluctuate?

No, I think the way we think about gross fuel per gallon, Christine, is that we think about it from a location and a credit judgment perspective, so it basically about -- depend on where the aircraft is going or what our credit judgment is that determines what we think about in terms of margin. But at the end of the day, to the extent that some of that product is going through an inventory, obviously that's where the adjustment comes because it can change the costing. So that's something that flows through the system and as Ira talked about, that's -- that's the thing that we're dealing with. But when we think about marketing we think about how construct the gross profit per margin. It all blends into one ultimate margin, but it is very much account specific and location specific.

Okay. And then how much inventory do you have in the Aviation segment?

Just a second, we'll get that.

51.621 --

About 51 million gallons --

Dollars, dollars.

Oh, I'm sorry, $51 million.

Right.

Okay, and how many gallons would that be?

Roughly 24, 25.

Okay. Okay, great. Thanks.

And your next question comes from Jonathan Chappell with JPMorgan.

Thank you. Good morning, guys.

Hey, Jonathan.

I think I understand a little bit better what was going on after Ira's explanation, but Paul, is there any way to hedge that -- those fluctuations in jet fuel prices that can lead to the volatility and the -- you just said only have the 90 days that can lead to volatility in quarterly results.

Sure, but remember there's some noise the -- around this, Jonathan, that's worth savoring. When we think about the inventory and dimension of the business, as you know, it drives from our self-supply model, so to the extent that we can from time to time use self supply as a way to generate competitive pricing for some parts of our business, that's what kind of drives the inventory. So when we buy it in any kind of a lot out of the Gulf Coast and we move it up the pipeline, that's 100% hedged by paper. It's then going into an inventory, and again, the way we do pricing is there's a natural hedge built in because we're basically pricing off index correlations, so it's the previous month or a previous week, what have you. But in the meantime, you're average costing is flowing through the system.

So from that perspective there's definitely a hedge. We're using the paper to make sure that there's no price exposure on the pipeline movements and we're using the index-related pricing to make sure that we secure our position in terms of discrete customers and how we protect that. But again, as Ira talked about, what happens in this quarter is it reveals that a certain compliments of events can accentuate that disconnect on the average pricing. Because the average pricing is kind of averaging all the time as you layer in new inventories and it's flowing through a system. So the was I would think about it is think about it as a continuum. Because of the nature of reporting you have to freeze the goal post at certain periods of time, it's a 90-day period. And what that does is it means you have to kind of stop the film so you don't get -- from our perspective, as the average costing flows through the system in a continuum, it ends up being something that kind of balances out. So I don't think it's so much that if what you're asking is there some pool of oil that's unhedged, that's not how we think about it.

Okay. And then I just want to make sure I understood this part, too, the spike in the second quarter -- I think Ira said over 10% spike at the end of the first quarter leading to the second quarter -- is there some kind of make up there for what happened in the first quarter? That hurt you, but now you had the spike, let's say back to the end of '06 levels, that should just most likely help you if --

Sure, it does, but it would be not correct to say that that's an absolute one to one ratio because, remember, the average costing is moving through the whole system. But in general, that is true. We expect there to be some corrective benefit from that up-tick, because again, in the same sense that the average costing hurt on the down side it can help you on the up side, but it just falls into a different period. But it would not be accurate to say that that's a one to one or an absolute ratio, so we don't want to overstate the case. But it is true, what you're saying in general is true.

All right, that's fair. And then on the next topic, the Marine division did very well. We follow the marine markets and they've all continued to do exceptionally well in the second quarter with the outlook looking even better for '07, '08. Have you increased some of your risk profile in the Marine segment to take advantage of the good end markets there?

No, I think what we have found is that -- this has been sort of a team collaboration. There's been an enormous effort from the leadership of that team on a worldwide basis to consolidate all of our marketing efforts, to refine that value proposition, to do highly-targeted marketing at a diverse portfolio of global fleets. It's been successful. There's been, I think, a renewed effort to make sure that we're matching what we see as supply opportunity with the customer side and it think that it speaks more to not only the market, but also just the overall sophistication and collaboration that's going within the segment, so we're very pleased. I would characterize it as every things running on all cylinders. We've got a good time, they're highly focused. I think it's the culmination of a lot of work, but I wouldn't say that that reflects any deterioration in portfolio or any undue extra risk that we're taking in the portfolio. I would say it's more that we've stuck to our knitting and we're focused on the same high-end value proposition customers we've focused on historically.

And are you seeing more demand for your value-added products, above and beyond just the fuel procurement for the Marine side?

Yes, yes.

Okay, great, Thanks a lot, Paul.

Thanks, Jonathan.

And your next question comes from Alex Brand with Stephens.

Hi, guys.

Hey, Alex, how are you, man?

IT costs, are we winding that down? In the Q I thought I understood to say that there's still about $9 million or so left to spend on that, and I just wanted to make sure I understood when that should roll in and how we should think about that project hopefully winding down?

Sure, this is Ira. As the 10-Q stated, the total budget for the project is $36.1 million, we've spent $21.6 million so far. There was about $1 million worth of expense related to the project in the first quarter and the remaining balance should roll in over the course of the next four quarters or so, not necessarily on a rateable basis, as we'll pick up expense as we get closer to the completion of the project around -- somewhere around the end of the year.

Okay. And then, Paul, if I am following what you're saying on the jet fuel inventory, does that imply that when the market for jet fuel is volatile, it's -- the way that you're going to be -- you're costing would be on a lag basis, so if jet fuel's spiking up in a very short-term time frame, that's a positive just the way it was a negative in this quarter, but that it evens out over the course of whatever the time frame is, weeks or months?

Sure, let me comment on that. I think its -- yes? I'm sorry, excuse me. I think the way to think about it, Alex, is that it -- this defies sort of the quick fix, easy connection to the market dynamic. There's a lot of things going on in it that are complex and it has to do with the fact that in the ideal world, if you could sort of have your dream, everything would be specific costing. We'd be able to tie every single gallon to every single delivery on every single account. Unfortunately that's just no practical, because you're buying in bulk lots and you're moving it in and it's constantly rotating through. So to say absolutely in every instance that it rises or falls that you're going to have a specific relation, I wouldn't think about it. What happens is it tends to, as you say -- if you took the mile post out of the way, which is these 90-day windows of life that we live in as a reporting company, you would have an averaging lag and a continuum it goes through. Average costing is actually a very, very good accounting methodology. We think it actually is a great way to do what we do, but the point is that you just have to understand it and how it rolls through over time. If you didn't have the mile posts then it wouldn't be "so dramatic."

In this particular instance you've got a combination of things. One, the fact that we've increased the part of our business that was around the self-supply model, therefore inventory was featured more prominently in the overall mix of business. And then when you add to it some of the anomalies that Ira talked about that were specific to this quarter, you got the worst of it and the worst of it all at the same time. But, over the continuum, we think it all washes out pretty effectively. That's the beauty of average costing accounting. It's been a good system and it will be. So, in any event, I think that the way to characterize it is that I can't give you the simple, turnkey button that says, every time it rises, every time it falls, because there's a lot going on, even within the period. It just happened to be the way this fell that we got hit harder than we would like.

So as your self supply is an increasing part of the business, then inventory risk or volatility is something that we should look for? I guess you've said in the past look quarter to quarter it's tough to look at, but full year we think this business moves in the right direction? Is that --

Yes, that's a good way to characterize it and that's absolutely right. We look at it from year to year and it's tough to get trapped in one specific thing. And look, self supply is just simply part of the overall equation. It's just one of the tools we use, but obviously it's given us some kind of competitive flexibility, but we can -- we have to look at it and the way we believe you should look at it is through the continuum, not in any specific moment in time.

Okay, and as far as -- it sounds like you kind of had the issue early in the quarter but the reason to not go ahead and talk about it before releasing earnings is that normally this would reverse itself at some point later in the quarter? Is that correct?

Well, it's been our experience that it just kind of washes out inter-period and it didn't, and as you know, we don't give forward-looking statements about anything. So we either -- you just do or you don't. We don't. And, yes, does it frustrate us to have to put out what is by any common measure a surprise, we don't like it either. But I think the reality is people who know the Company and they understand the quality of the business model we're building and they understand what we're driving, I think there's a certain understanding that this is about a bigger picture. So, okay, we still have to live within the way you got to report it. It just is what it is.

Okay. And I assume that we should think of the bad debt provision as going back to a provision expense number on a go-forward basis, Ira?

Well, the answer to that is do we use a consistent methodology quarter to quarter, so generally that's a true statement, but you could have the impact like we did in the first quarter at any given time, depending on what's happening in a given quarter. So the key answer is the fact that we use consistent methodology quarter over quarter in measuring the appropriate bad debt reserve.

Okay. All right, guys, I know we have, most of us including me, focused on Aviation but the best of the business did look great, so congrats on that.

Thanks -- thanks, Alex, appreciate it.

And your next question comes from Al Kaschalk with Wedbush Morgan.

Morning, guys.

Hey, Al. How are you?

I just wanted to add a comment that I -- instead of beating this up. If we're using an average inventory method and we have two days, essentially, of inventory, it seems to me that the impact here was pretty dramatic on the quarter. And by that same token, the average price would have trued up, if you will, by the end of the quarter. So maybe more just a comment, I don't know if you want to add any color on that. And in relation to that, I was hoping maybe you could elaborate how you talked to us in the past about how contracts largely prevent either you or your customers' from being both either positively or negatively impacted by swinging either jet fuel or marine business?

Right. Thanks, Al. I didn't understand the first part, but the second part I can speak to. You're right, the way that we think about customer pricing, as we talked about earlier in the call, is that, look, you've got specific customers, and we are pricing those customers based on location, which is depending on where the it's landing in the world, and it's also a question of what we perceive to be credit risk, so it's kind of a mixed balanced portfolio. Margins depending on location, so one margin at JFK might be different from Peru or what have you, so that's how we think about it. And we do think about managing a portfolio approach to how we look at profitability on a customer by customer basis, again depending on locations and risk. But when you look at the way that it works, again to the extent that some part of our business is simply back to back all over the world so this is not affected at all, and that would be typical of our international and even to an extent a good part of our domestic, as well.

But to the extent that in certain locations it behooves us, we believe it's strategically and competitively valuable for us to use inventories, we have to take a very conservative approach to that. Our approach is to make sure that when we do buy inventory, let's say, out of the Gulf Coast and we move it up a pipeline, that's 100% hedged by paper, because we're trying to protect that price. We don't want it to be volatile and we don't want it to be exposed. Now, as you know, it's all to do with the effectiveness of the hedge. You use heating oil as the basis by which you hedge. There can be variability in that. As you remember, last year when we talked about Katrina in the case of Gulf Coast getting radically out of whack, that hedge became ineffective and we had to report it as such. But by and large, the industry norm is to use the heating oil index as the way we hedge, so even though that's not 100% perfect correlation, it's a pretty good bed rock to protect pricing.

When it gets into the inventory, we're then thinking about how tight the spin is. In some cases it is a very short turn, as you say; in other cases it's a little bit longer, just depending on the location and what's going on and we think about inventory as an overall blended turn. At the end of the -- at the end of all of that, when we think about what's going on, we are pricing off certain indexes,, because it's tied to averages of certain indexes in the markets, so we're quoting differentials and that's what we're locking in. So whether it's prior week or prior month, that part is locked in and that's what we would call the natural hedge. It's not like you're just wandering out there and wondering what price is going to be. Now there's some noise around the edges. It's not a perfect system. There is some color at the edges, but by and large, that's the model. We had to look at an aggregate, but the only way you can manage inventory and cost it effectively is to use an average costing methodology, and as we talked about before, in this instance this is -- it can have a negative impact just depending on the extremity of the volatility in a particular period.

Okay. In terms of the AR provision, I realize people have said maybe it can revert back in the quarter. and we're doing "a consistent method" which is now quarter by quarter. If the credit policy has -- and risk profiler has been heightened and much better at that market. why do we get these wild swings in a given quarter, which seem to add $0.05 or detract $0.05 per quarter?

No, I understand, there's a lot of discussion around this, and I wish there was some pithy silver bullet, but look, the point is we have to be respectful of the way accounting methodology works with it relates to establishing provision. And the fact remains it's -- by it's very nature it's going to be volatile because you have to look at it every single period and you have to do a complete review of everything in the portfolio, so that's going to come out with a result. We just look at that result and we report it. You don't get the luxury of being able to say I want to predictably make it X, Y, or Z. There's a lot of factors that go into it and it's reviewed on a quarterly basis by our auditors, and we think think that they've helped us develop a very good methodology. Unfortunately, it's -- by it's design it's going to create some volatility because it's also designed to be very accurate. It's designed to be precise, it's designed to look very carefully and not just sort of generally, but you're really doing very specific detailed review throughout the portfolio and at the end of the day, you get a result. That's what it is.

So we recognize that for people who are trying to model a company or, if you will, build in some sense of anticipated ratability that it would be nicer if you could kind of predict it with some specificity period to period. We can't do that and I'm afraid that's just a frustration we live with, but I think at the end of the day, it's a good approach. As difficult as it is, it's a good approach. It means we're doing a thorough, deep dive, every single quarter and we are living inside that portfolio Frank and his team do a superb job. Our auditors have been very supportive on this and how to do it. It is what it is, Al, and I wish I could tell you that it's going to have a level of ratability or predictability that would make it easier, but it's just not there.

I guess what I just want to comment on if the $500,000 you adjust for the recovery in the quarter, it still seems that you're trailing six and eight-month quarter provisions are --

Those are specific recoveries, Al, those are specific recoveries.

But in overall --

Those are specifically reserved things.

But in overall --

Those are specif -- I'm sorry.

But if we look at the trailing six to eight quarters, it seems that number on the P&L needs to be modeled a little bit more conservatively down, I guess closer to $1 million versus what looks like historically has been closer to $1.5 million or so. So I realize you can't -- and you're not giving guidance, but just an observation. Finally, on the tax rate, not to belittle this one, as well. Ira, I was hoping maybe with FIN 48 you could let us know what portion of that on a quarterly basis going forward, sort of a fixed dollar amount and that will drive the effective rate down lower? Or if there's any component in there as it relates to 48 that doesn't really tie with the ongoing business, but more of an adoption of 48?

The impact of FIN 48 in terms of dollars, while it might not be exact quarter to quarter is somewhere around $500,000, which probably represents about somewhere between 2% and 3% in tax rate. And that's in the first quarter. Obviously that percentage amount will change depending upon the overall position.

Okay. Thank you.

Thank you. And also just -- somebody slipped me a note. We were incorrect on the number we gave in the inventory, 28.5 million gallons, it wasn't 24. We just had the -- we were looking at the wrong column, sorry.

And your next question comes from Michael Novak with Frontier Capital.

Hey, Mike. Good morning.

My first question is on the use of self supply. How does how you're using that today compare to previous years? I mean, --

Sure.

-- percentage of the business.

Sure, I can't give you the precise percentage of the business because I don't have it right in front of me, but I can tell you that overtime it has definitely increased, let's say from a year ago to today. I think it's worth a little bit of backdrop. There are many strategies for managing the ability to generate a competitive supply position in our market. There are back-to-back strategies. There are risk management strategies where you're building in some kind of pricing. And the reason that we got into the self-supply model, Mike, you may recall that there was a time if you went back several years ago where we were largely dependent on sort of in-to-flame pricing at specific airports and it was the only way that we could get a price.

The only way that we that felt we could break out of that trap, if you will, was to begin to generate some supply on our own and also begin to put some of that into inventory so that at least we had a competitive alternative to what would be traditional pricing at a given airport. That was a successful strategy and it was part of why, you may recall, that we first entered the fuel management business, because we gave us visibility on the market, it gave us access to -- a kind of a volume flow that allowed us to generate more competitive interest from the supply market on a back to back basis. But also gave us sufficient volume that we could, again, strategically from time to time buy our own supply and put it into inventory with a true coat build-up. It gave us some competitive advantage at certain airports.

So it isn't that it's just a blanket shift in policy where that's the only way you do supply. It's a component in the mix. And it doesn't mean that it's going to necessarily grow or expand, it's just something that opportunistically we believe represents an important complement to how we structure our competitive position in the market. So I would say overall, it has been successful, it did generate competitive differentiation. It did give us the opportunity to compete for certain business that historically we might not have been able to look at. As the complement, as part of our overall supply strategy, we believe it's been good. It's utility on a go forward. Of course it's something that we want to monitor very closely. Obviously we don't want it to be something that causes surprises quarter to quarter and we don't want it something that's difficult to manage. Again, it has increased year over year, but that doesn't mean it's going to increase again year over year.

Paul, do you have the data to say that this is the working capital investment, this is the cost of hedging it, this is what the whole pro -- this is volatility of this program, this is -- so that's the whole cost side. This is the increased share that it's allowed us to take so that you can actually do a cost benefit tradeoff. Is there that much science behind it or is it more gut feeling?

No, I'd like to be able to tell you it's more science than gut, but I would say that to the extent -- from a commercial perspective I would say that there's a dimension of gut in that. As we first entered it, we realized intuitively from a gut sense that if we were going to build competitive position in certain strategic markets, it was going to require a move to self supply, regardless, necessarily of the immediate return, in the same way that when we first went to fuel management we knew, as you all know from the America West conference, this wasn't designed to generate net income. It was designed to create a competitive purchasing position for us that allowed us a little bit more of a competitive advantage with scale.

So yes, on some commercial level, it's gut. However, there is a discipline within the Company, obviously. We want to be very prudent about how we use our working capital, we want to look at overall return. I can't site you a detailed model right here on this call, but we can certainly try to explore that offline if we had to. Obviously this team is very focused on ultimately how do we deploy our cash? What's the best return? And I think that over time we've been able to demonstrate that we generate a pretty good return and we're going to be very protective of that. We don't want to see returns deteriorate bust because we think we're making money i a part of our supply model. So your point's a good one. We're disciplined about it, I think the team's very focused on it, but it started probably more as a gut commercial sense that we had to elbow our way into the space. But as it grows, we're only going to use it strategically when we think it meets the return criterias that we think are important for the Company.

Thank you.

Thanks, Mike.

And your next question comes from Scott Blumenthal with Emerald Advisors

Morning, gentlemen.

Good morning.

Picking up on Al's point a couple of minutes ago, 28.5 million gallons by my calculation represents about two days of inventory, and what we're talking about a 90-day quarter and that swung the margin by as much as 10%. Generally your gross margins are about 2% here. This quarter we saw 1.8% or so. Can you talk about -- if you have this information, can you talk about the timing of the price drops and when that occurred in the quarter and when things started to pick up? It must have been an immediate price drop beginning of the quarter and something you didn't see recover until the last couple of days or so?

Yes, let me go through that. Number one, you're incorrect, it's not two days. At inventory locations, it's just about 8.5 days. That'sdifferent from the overall picture, so you've got that wrong, number one. Number two, in general, as you know, from the press release and what we've said in the conference call, there's a sharp drop in the beginning and there was a correcting move up at the end and that's definitely contributed to the effect.

Okay. Now, Paul, you mentioned that inventory right now is 28.5 million gallons, correct?

Yes.

Okay. And (inaudible) volumes were 555 million gallons throughout the quarter, correct?

Yes.

Okay, so (inaudible) about 5%, just of Aviation, notwithstanding anything else that might be in inventory in the Company corporate wide.

Okay.

It would appear that introducing some type of inventory, regardless of what you're hedging or not, introduces an element of risk that we were kind of led to believe doesn't until it happen with the way that you negotiate your sales prices and cost of acquisition. Can you talk about whether we're going to see the trend growing, if we're going to see a little bit more inventory risk or if this is going to kind of be --

Right. Let me comment on that. I don't share your characterization of it, but that's okay. I think that you're right, to some extent -- to the extent that we do have inventory, we're going to have some vulnerability to what obviously happened in the quarter, so that can happen. But I think that we -- but in the overall mix -- go back to what's going on here. It's driven by the average costing. And you're right. Our methodology has been to quote on a discrete basis customer by customer based on location and credit profile, and we are hedging inventory that goes into a pipeline. We've then got a natural hedge as it goes into inventory, which is a relatively short window when you look at the overall mix of business. And while that -- the risk is not about the hedge because you're tied to prices that are locked in differential (inaudible) an index, the real issue has to do with the average (inaudible). So when you have the extreme volatilities you are, as you accurately stated before, sharp drop in the beginning, the offset at the end, and the average costing sort of flowing through, in the continuum, you get a disconnect.

Do I think it introduces an extreme change in the risk profile? No, I think that we just got hit with the fact that inter-period it didn't sort it out. And again, we live in 90-day cycles where you get firm mile posts that force you to straddle periods, and what that does is cause a disconnect. I think that's the reality of the business that we can't tell you will never happen again. That would be dis ingenuous. Do I think that we will continue to use self supply as part of the overall mix of business? Do I think that inventories play and feature some part of our overall mix? Yes. Am I going to tell you that we're going to -- strategically is our intent to actively try to increase that just for the sake of increasing it? No. But , again, we have to think in terms of hedging our markets, that's tied to the market. And that is -- has to do with the economics of the actual inventory purchase. So that process is going on all the time.

But I think your question is, should you as a shareholder perceive that there's been some change in the risk profile? That somehow you should think about that there's been a fundamental shift in our business model? I don't think that that would be a good statement. We are sensitive to the fact, and as you can imagine this quarter we're particularly sensitive to the fact, that an anomalous set of circumstances can cause a disconnect, and that requires more explanation than we would like to have to spend the time explaining, but it's a reality. It became a part of the business and, look, we're big boys, we'll take it. But I think that in general, we feel very good about the underlying business model. And I think that we have demonstrated tremendous success in this business model and we see continued opportunity in the business model.

But, given what happened in this quarter, as I said in my opening remarks, these are opportunities to learn. These are opportunities for us to refine and tighten that business process and to make sure that we minimize the opportunity for this to cause a surprise. We don't like surprises, you don't like them and we completely understand that. So to that extent, yes, I think they're opportunities to tighten it up and make sure that we anticipate as best we can and make sure that we mitigate these potential surprises. I think that's the best I can give you.

Well, that's pretty good. Just for the record, we believe in the business model, which is why we're investors.

Thank you.

And I agree with your statement about average costing because even the $36.1 million (inaudible) systems project I don't think could handle the multiple layers you're creating every time that you have a sale, and if you tried to track that by LIFO or FIFO, I think you'd have to use an average costing --

Exactly.

-- like you're using.

Yes.

But can you talk about maybe the -- when you introduced self supply and how much of the business overall and in each segment is served by self supply? Is that --

Yes, we don't break that out with that level of granularity, but I would just say I think the best way to think about it is, again, go back to the origins of this. I think what we originally set out to achieve was we wanted to build a deeper competitive position in certain strategic locations. And if we were going to always be sort of a retail buyer at various airports where we were simply priced off back-to-back into-plane contracts, that put us at a competitive disadvantage in the long term. It was certainly a good business, there's plenty of opportunity, we certainly had a customer base. But we felt that long term a more advanced strategy meant that we should always have the ability to arbitrage between those back-to-back relationships and the ability on a selective basis to use self supply as kind of a competitive stalking horse to give us some alternative opportunity. And what allowed us to achieve that was the first introduction to fuel management, where we had large volumes with larger profile accounts where it allowed us to generate competitive interest in the business and allowed us to have volumetric scale that could gave us the opportunity to buy the occasional piece of product in bulk and move it up a pipeline on a hedge basis. And that gave us a pricing economics that generated competitive advantage for a broader portfolio beyond fuel management account.

That was the genesis of all of this. So, as we look forward, again, I think it's to your point, which is a good one which is that if you're saying -- if you were asking the question, is self supply something that we're building as a model in and of itself to grow it for its sake, no. It's simply another tool in the tool box, and we have to be mindful of the fact that it introduces pricing complexity that can cause some noise in the gross profit line if you get the wrong kind of circumstances. So, that's a reality and we have to take that unde consideration as I said. You're absolutely right. We've decided that in some ideal world if you could do specific costing that would work, but you don't. Average costing works pretty well, and by and large, it serves us well, and I think it will service us well in the future. So for us, it's all about just managing as tight a system as we can and make sure that we've got forward visibility and try to avoid surprises.

No, I agree. Average costing is the only way that you would be able to manage this business.

Thanks.

Ira, could you give me again -- I missed it -- the Marine volume for the quarter?

Do you have that handy right there or do I have to rewind?

Just a second.

Yes, it was 6.9 million metric tons.

6.9 million metric tons, sorry.

75% of it is --

Okay. And I guess I'll get back in the queue. Thank you.

Thank you.

And your next question comes from Adriano Almeida with DGHM.

Good morning, gentlemen

Good morning, Adriano, how are you?

Oh, okay. I have just a scenario analysis question here. What would have happened if fuel prices had a sharp drop in the beginning of the quarter followed by an even sharper drop at the end of the quarter?

We would have -- we likely would have had -- if it came to a drop beyond our average cost at the end of the quarter, we would have had a lower cost in market adjustment.

So profits would have been even lower?

They could have been, depending on -- you're not giving me -- we don't know the actual numbers you're talking about, but potentially they could have.

Again, you're giving a hypothetical scenario, but it negates a whole lot of moving pieces in there, Adriano. But in theory, yes, after you've done the lower to market, if the spot market dropped below your average, yes, that could happen.

But there would definitely be an offset on our hedging position, as well that we would write up on our hedges.

The paper mark-to-market.

It would be a calculation that we would have to endeavor to go through between our average costs and our hedging relationships, so I can't answer you exactly what the impact would be.

Okay. So I guess what's puzzling a lot of the investors here, of believers like myself, is this notion that you're not exposed to the underlying price of the fuel that you're reselling. And this -- in previous quarters we had -- we got evidence that that was the case, and then in this quarter, it's challenging that premise somewhat.

But, Adriano, we can relive it again. Remember, the way it's designed is you're hedging only part of the portfolio's inventory, and it's being hedged in a pipeline, and then that''s 80% -- over 80% of it. It goes into an inventory and then you've got a natural hedge because you've priced off indexes. So, that's right, it's the average costing that's causing the disconnect and that's just part of how you have to handle it. So, I don't think anything's changed in the model, but when you get a disconnect between -- no matter how effectively you've done all that, if you get a move -- a sharp move in the average pricing, that can cause the disconnect. So it can happen.

Okay. Go ahead. Anyway, so you still there?

Yes, I'm here.

So let me think big picture now in terms of, say, a longer term -- remove the 90-day timing and the quarterly profits and so forth, so this year you have, let's say, flat volumes in Aviation relative to last year, but a much better mix because of much greater percentage of it is reselling. That's correct, right?

Okay, well, our Aviation fuel is reselling.

So from a bigger picture perspective, you should be making a lot more money today than you did last year?

I'm not sure where you're getting that from, but okay, I'm following your rabbit here.

So let me explain where I'm getting that from. Unless I misunderstand how the model works, you make money -- it's more or less a fixed spread on the volume that you generate on the reselling business.

If you're talking about the transformation from fuel management model and we're shifting more into the reselling and that's a better class of customer at perhaps a lower margin than we might have to a not so good class of customer, you're right, the overall profitability is always going to be a moving target, Adriano. But I think that it has to do with two things. One is the quality of your customer base and it's also the quality of your ability to supply. Self supply, of course, features part of that strategy.

But when you look at the customers on a discrete basis, we're trying to manage to a good portfolio business, and again, pricing becomes account specific and location specific, and credit judgment specific. And so what we talked about, yes, we were replacing some of the America West fuel management volume, which as you know from last year's growth and profitability, definitely I think we demonstrated that it did not have a material impact on the net income line, what it did was about volume. Well, we replaced a lot of that volume, or a significant part of that volume moved into our core reselling business. Our overall volume (inaudible) procurement ability has improved. It's allowed us to secure pretty good margins on a better class of customer, but also across a much broader segmentation of the business and a much broader series of locations. I think all of that has been successfully proved out.

Sure, I'm just trying to understand -- try to see if I understand what has happened. The fuel management, it was my understanding that that business was a very low margin, low value-add business.

Yes, and it did -- well, now it had value add, it just was low margin because we don't -- we didn't actually price it on a per gallon markup. Let's go back and revisit that. The fuel management business was designed on a -- it was managed on a fee basis. You basically paid a fee to administer the business of that account. So because of the profile of those accounts it gave us the ability to generate some competitive interest in the market, because we were now actually the procurement agent on behalf of those airlines. That volume in the market became a stalking horse for two things. One, visibility on pricing, and number two, the ability to do some amount of self supply because we had a bit of scale. That allowed us to buy better, which allowed us to price better for a broader portfolio of reselling customers.

If you put this on the historical context, if you go back to 2002 and you're looking at an overall volume of somewhere between 600 million and 700 million gallons and then you start dialing in the fuel management, you'll remember there was a lot of discussion around what was going on in overall blended margins. And you saw margins drop from $0.068 down to $0.05 something down to $0.03 something, and then they began to move back up to $0.04 something up to closer to $0.05. When you look at the overall two billion gallons, as you were phasing out some of the fuel management, but you continued to always be rebuilding your selling volume. So as you look at that overall blended portfolio compared to, let's say, around 2002 -- and I can't cite the numbers exactly off my mind -- but you went from about 400 or 500 million gallons of reselling volume to about 1.5 billion gallons of reselling volume at a better class of customer at a good overall margin.

So the strategy worked. It was very effective. And the fuel management was what generated leverage and it allowed us to support and complement our core business, so it was a very high value add from that perspective. But it wasn't the primary lead on income generation. It was never intended to be. It allowed us to do, though, is position ourselves very effectively in the market to build a much more diversified portfolio of customers and a diversified portfolio of supply.

Okay, I think understand that well. But what I still am confused about is to -- I just want to know from the perspective of, if this year -- let's take the whole year as opposed to last year. If this year you generate a greater volume of reselling business, regardless of the price of fuel, shouldn't you make more money than you did last year?

Well, yes, we should.

Okay. And so this wasn't the case this quarter because of these timing issues on the average cost accounting --

That is correct. But look at the end of the day -- let's resum what's going on in the inventory. Let's just give the summary, because I think it will help clarity. You've got 28.5 million gallons, that's point one, represents $51.6 million. It's 8.5 days worth of inventory at a variety of strategic locations. It's a little over a week's worth of inventory at below market levels that's loaded into April. That's the bottom of line of this. That's the whole nut and sum of it.

Okay, and so I guess going back to Jonathan's question very early on in the call, there should be some reversal in this as we go forward, so there's going to be some catch-up earnings related to the recovery of fuel prices?

Yes, there should be.

Although, if fuel prices hadn't recovered and just stayed low for the next two years, you would have never recovered the earnings?

Well, again, as we talked about with Jonathan's question, this is not a one to one thing. It's not a direct off-setting thing. But you're right, to the extent there's a part of our portfolio, it has to do with the 28.5 million gallons, $51.6 million, and about a week's worth -- a little over a week's worth in inventory, that's what we're talking about here. And again, the average costing is flowing through the system. And if you didn't have the goal posts of these 90-day reporting periods, you would have overtime a wash out, over time and it would correct. That's how it works.

So the problem is, Adriano, as difficult as this is -- and believe me, it's frustrating for us -- this is just not the reality. You're not going to get some theoretical perfect pax Americana flat market for every dime. It's just -- our experience is that's not how it works in reality. So you're right, from a conceptional point of view we could argue a series of theoretical extreme incidences in the market that might highlight some vulnerability in the model. What we live with is reality, and at the end of the day, 28.5 million gallons of inventory at the end, $51.6 million worth, 8.5 days worth of turn, that's a little over one week. It's flowing through an average crossing throughout a continuum, the nature of reporting requires that you've got goal post, you have to freeze the film, and you have to lock it in. And as Paul and Ira referred to, you've got a bunch of dynamics going on.

You've got the paper, you've got the average costing, if the market had dropped early, you'd have a lower cost of market adjustment but you'd have a mark-to-market on your paper. There's a lot of moving pieces. This does not lend itself to just some quick sound bite that says it's simple. What we are mindful of -- what we are mindful of is that everybody would like to have ratability and we'd like to have complete visibility on that. This particular period we end up straddling a couple of reporting points that makes it difficult, it caused an anomaly, I'd say that the underlying business is sound. We think the model is good. We're certainly respectful of the fact that we have to be very vigilant about the self supply and inventory management dimension so that we don't have surprises. You don't want them as shareholders, I certainly don't want them as the CEO and the Company doesn't want them. So, we're going to make all best efforts to understand that better, to make sure that we can try not to have those surprises, but we think the model is sound.

Well. Thank you, Paul. Let's get out of this subject then. I have another question.

Okay. Thank you, Adriano.

Related to the opportunities that you might see out there now that you have a CFO in place and Ira has substantial experience in doing M&A, if -- how does that pipeline look? Do you think there's an opportunity here for you to bolt-on some new businesses to expand -- to leapfrog the Land business or to expand the corporate jet business? We've talked about this before.

Yes.

Hi, it's Michael Kasbar.

Hi.

On the Land business, I think we're feeling pretty good about it. We've taken a long time to get that right. We took a fairly cautious approach there. I believe we've got a very good commercial crew now. We feel like we're a bit more talent rich than when we started. We're becoming a magnet for talent. We're having individuals knock on our door now, which is really a great feeling, and we're having companies knock on our door. So the space is larger than Aviation and Marine combined and 26% of that market is based in the good old U.S. of A., so we're feeling pretty good. We've got pilot programs in UK and Brazil, so we feel like we're going to have more interesting activity there. If you look at the results, as Ira said, we're up 60%; on our gross profit, 68%. The thing that's interesting about that is that's our traditional low season because most of our customer base is agriculturally based, so that's pretty significant to have that type of growth in the quarter. And it will improve as we diversify our customer base.

But is that mostly organic that you think you're going to grow Land?

We haven't acquired any companies in land so it'll be both. We'll build that up organically and through acquisition. And the Marine space, I think we feel very solid about. I'm sure that was probably your next question. Demand for our services is strong. Our group, I think, is extremely well placed. The markets are strong. Oil I don't think is going to become less volatile or less complicated. So our organization's doing well and we think we have some good opportunities for business extensions and adjacencies. So the novelty of not having a CFO or CIO has definitely worn off, so we're sort of excited with where we are today.

Okay. Well, very good, Thanks a lot, guys.

Thanks, Adriano.

And your next question comes from Ben Segal with Winchester Capital.

Hi, Paul.

Hey, Ben.

I guess the question is that the visibility -- you've talked here for now, the visibility going forward's very positive for you.

Absolutely.

And the second part, I guess the confusion is that the inventory basically is going to correct itself in the second quarter. So it happened and it's not a big part of your model. You use it as an ancillary part of your business when you find it opportunistically. So going forward, then, are you just going to continue what you're doing and just be a little bit more sensitive to the volatility of it?

Yes, I think --

That's what you were saying, because I don't think a lot of people are clear that it's going to reverse itself.

Yes, but that's -- yes, in general, you're right, but it's not -- as I told -- as we said many times in the call.

Right.

There's a lot of moving pieces and it's not a direct one for one. You can't do that. That's not fair to the model.

I understand that.

I don't want to give anybody a misimpression. This is the nature of something's that's moving in aggregate through a continuum. It is not a one moment one moment offsetting thing. That's not an accurate representation, so I want to be very clear about that. In general, yes, as the average flows through, you do get correction in the future periods. But I don't want to leave the impression this is some simplistic one off dollar to dollar -- that's just not the right thing to say. In general, you're right, we feel very bullish about the market. We do think that the opportunities for the Company are better than ever. We've got a tremendous momentum in a variety of our spaces. It's frustrating to us as that -- as is for you as shareholders, we completely understand that -- that this thing has caused a lot of focus and attention when there's a lot of really good things going on in the space. Marine just had a phenomenal quarter. Land is great. This is something we really nurtured and built and now it's beginning to get legs. And to the previous question or Adriano's point, there are lots of opportunities, both organically and acquisitions. From our point of view, we regret that this has been such a focal point. We regret that it's a surprise, we know all that. But, Paul, I guess the question is the likelihood that the $4.6 million you referred to in the second quarter is very high. That's, I guess, where the confusion is. Ben, you're putting words in my mouth. I did not say that, neither did the --

Okay. All right, I understand then. All right, thank you.

And you have a follow-up question from Scott Blumenthal with Emerald Advisors.

Thank you. Scott? Hello?

Hello.

Hey, Scott.

Hey, Paul. Just one more question --

Sure.

-- two. Do you -- is the 28.5 million gallons, is that all Aviation fuel or is that a combination of other things?

That's Aviation fuel.

All Aviation fuel, thank you.

Thank you.

And can you -- I don't want to let Ira feel left out. Can you give us an idea of the percentage of revenues that you have now that are coming nonfuel value-added other services in a sense growing?

I guess we could -- there's some service -- remember, I think you know from the model that most of the value add are sort of embedded in the fuel stuff. We do have some discrete business associated with our business Aviation segment that has to do with specific services which are sold; flight plans and weather reports and over flight permits and stuff like that and we can get you that. But relative to the overall the picture's small. I will tell you that it's been growing, though, and we don't report it and we don't break it out separately.

Is that an acquisition -- a focus area for acquisitions?

I think it's an area that we're looking at like all the areas. We've got opportunity in Land and Marine and in Aviation, and certainly as you know, we've made it pretty clear, business Aviation is an interesting market for us and we're looking at that like all the others.

Okay. Good enough. Thank you.

We have no further questions at this time. Do you have any closing remarks?

Thank you very much for joining us today. We're sorry there had to be the short notice change in the call. We appreciate the fact that this was difficult for all the shareholders. We appreciate your forbearance and taking the time to hear us discuss it in detail and we'll look forward to talking to you next quarter. Thank you very much.

This concludes today's conference call. You may now disconnect.