World Kinect Corp (WKC) 2011 Q4 法說會逐字稿

At this time, I would like to welcome everyone to the World Fuel Services 2011 fourth quarter earnings call. I'm Ian, and I will be your event specialist today. All lines have been placed on mute to prevent background noise. After the speakers' remarks, there will be a question and answer session. Instructions on how to ask a question will be given at the beginning of the Q&A session.

It is now my pleasure to turn the webcast over to Mr. Frank Shea, Executive Vice President and Chief Risk and Administrative Officer.

Good evening, everyone, and welcome to the World Fuel Services fourth quarter 2011 conference call. As just mentioned, I'm Frank Shea, EVP and Chief Risk and Administrative Officer, and I'll be doing introductions on this evening's call, with as we have been doing in recent quarters, a live slide presentation. This call is also available via webcast. To access this webcast or future webcasts, please visit our website, www.wfscorp.com, and click on the webcast icon.

With us on the call are Michael Kasbar, President and Chief Executive Officer; Ira Birns, Executive Vice President and Chief Financial Officer; and Paul Nobel, Senior Vice President and Chief Accounting Officer. By now, you should have received a copy of our earnings release. If not, you can access our release on our website.

Before get started, I would like to review World Fuel's Safe Harbor statement. Any statements made or discussed today that do not constitute or are not historical facts, particularly comments regarding World Fuel's future plans and expected performance, are forward-looking statements that are based on assumptions that management believes are reasonable, but are subject to a range of uncertainties and risks that could cause World Fuel's actual results to differ materially from the forward looking information. The summary of some of the risk factors that could cause results to materially differ from our projections can be found in our Form 10-K for year ended December 31, 2011, and other reports filed with the Securities and Exchange Commission.

We will begin with several minutes of prepared remarks, which will then be followed by a question and answer session period. At this time, I would like to introduce our President and Chief Executive Officer, Michael Kasbar.

Thank you, Frank, and good afternoon, everyone. We appreciate you joining us for joining us today's call.

Today we announced record full year earnings of $194 million or $2.71 per diluted share. That represents a 32% increase in net income over fiscal 2010. Our balance sheet remains strong, and we ended the year at a very healthy cash level and liquidity position. The solid performance we achieved for the year was once again due to our disciplined strategic focus, risk management, and cost control.

As we said on the last conference call, a number of positive factors converged in the third quarter to produce the very strong results across all three segments. For the fourth quarter, while our Marine and Land segments continued to deliver solid results, our Aviation segment was negatively impacted by lower government related volume and jet fuel pricing dynamics, which Ira will describe later in more detail.

Overall, I'm pleased with 2011, as we accomplished a number of achievements and recorded records in gross profit, net income and earnings per share. In addition, volume increased across all three segments, aggregate to 27% over 2010; we closed two strategic acquisitions; we further strengthened our liquidity profile; and we expanded our global team with several key additions to the World Fuel family. Across our businesses our performance reflects the success we have achieved in helping our customers and suppliers around the globe manage volatility, credit, supply, demand, and logistics while helping them generate efficiency in their operations.

Our Marine segment achieved excellent results in 2011, with total tons delivered and gross profit at the highest levels we have obtained since 2008. Quarterly operating income for the Marine segment was the highest we had experienced since the first quarter of 2009. We achieved these results despite the challenging shipping industry environment that persisted throughout the year. Our global teams unwavering commitment to superior service, execution, and innovation benefits our customers and suppliers, and it shows in the differentiation of our offering. Vigilance in 2012 will be important, as the over-supply of ships confronts continuing soft demand.

Our Aviation segment posted impressive quarterly and annual year-over-year gains in volume and gross profit. While several factors led to a sequential decrease in operating income in the fourth quarter, we continued to build enhanced strategic relationships with our customers and suppliers, and that shows in our record operating income for the year. Our customers and the industry as a whole are generally better positioned to navigate the uncertainties of the slow economic recovery and the recent rise in jet fuel prices. I'm confident that our Aviation segment will continue to grow its strategic value in the marketplace over the course of the year.

Our Land segment once again posted records in volume, gross profit and operating income for both the quarter and fiscal year 2011. This $7 billion business continues to achieve scale relative to our other segments and is posting results in financial metrics that are now in line with our consolidated business overall. The Land fuel market is larger than the Aviation and Marine markets combined, and our expansion into this space increases the stability and diversity into our business model, while also introducing new lines to our business, such as crude oil marketing and rail car logistics.

We continue to see opportunities to grow and further scale the business in the US, Canada, Brazil, the UK and beyond. As such, we continue to make important investments in systems and people.

In addition to demonstrating our ability to expand into new markets, most notably exhibited in our Land distributing marketing business, our platform continues to mature and expand into new geographies around the world. We have a physical presence in 30 countries, and we handle over 200 different products. This ranges from our core Marine, Aviation, diesel and motor fuels businesses, to propane, lubricants, biofuels, crude oil and de-icing fluids, to numerous bulk cargo such as [nafta], ethanol, condensate and other energy products.

Today we are a large liquid global supermarket for the supply, logistics, financing and servicing of transportation fuels and energy products. The opportunity set for World Fuel and energy and logistics is broad, and our value propositions are deep. Our collaborative cultural, true entrepreneurial agility and global professionalism positions us to execute on a long runway of growth in diverse markets across the world. Our Company has delivered compounded growth and gross profit of 24% over the last five years, and we continue to improve ability to scale.

Having said that, the markets today are as volatile and uncertain as they have ever been, which focuses our attention on risk management more than ever. Our asset-light business is well suited to move with the market and manage risk while we also manage the more erratic even flow of demand and supply and more frequent political upheaval. And while the quarter results may reflect the volatile marketplace, the thesis behind our business model is stronger than ever, as we continue to provide confidence, efficient, and strategic value add to global commerce in a variety of products and services in Asia, Europe, Middle East, Africa and the Americas.

2011 was a year of growth through acquisition and organic development. Our team integrated a broad group of companies and welcomed professionals from around the world, expanding our capabilities and culture. I am tremendously proud of our 1,700 strong multicultural team that has a strong affinity for each other and is a living example of global cooperation and collaboration with our boarders. It's without question our greatest asset and bodes well for the long-term sustainable growth for our Company. We have many generations of dedicated employees, and it's particularly gratifying to see so many young, talented and well educated people coming up in our ranks and working with our experienced professionals.

As we move into 2012, we will continue to focus on risk manage many, growth, diversification, operational efficient, and strategic differentiation through a growing portfolio of business activities. Thank you for your continued support. I will now turn over the call to Ira for a detailed review of the financials.

Thanks, Mike, and good evening, everybody. Before I provide an overview of our fourth quarter and full year results, I would like to thank as well all of our employees for another year of outstanding effort and dedication. The employees at World Fuel continue to drive our business forward, and each one of you played an important role of helping us to deliver a another year of record performance. As I review our results, I will talk about our performance for the fourth quarter, as well as some of our full year achievements that really speak to how far we've come over the past year.

Consolidated revenue for the fourth quarter was $9.3 billion, down 2% sequentially, but up 60% compared to the fourth quarter of last year. The year-over-year change in revenue was impacted by the 22% increase in volume across our businesses, as well as by the increase in crude oil prices, which rose to an average of $94 per barrel in the fourth quarter, compared to $85 in the fourth quarter of 2010.

Our Marine segment revenues were $4 billion, down $58 million or 1% sequentially, but up $1.5 billion or 60% year-over-year. Approximately 62% of the year-over-year increase was a result of higher averaged fuel prices during the quarter, and the remainder was the result of increased volume.

The Aviation segment generated revenues of $3.3 billion, down $226 million or 6% sequentially, but up $1.2 billion or 56% year-over-year. Approximately 60% of the year-over-year increase was a result of higher average fuel prices, and the remainder was the result of increased volume.

And finally, the Land segment, generated revenues of $2 billion, up $97 million or 5% sequentially, and up $808 million or 67% year-over-year. Approximately 56% of the year-over-year increase was due to the increase in volume, and the remainder was a result of higher average fuel prices.

Consolidated revenue for the full year was $34.6 billion, up $15.5 billion or 81% compared to 2010. Approximately 57% of the year-over-year increase in revenue was attributable to the increase in average fuel prices, and the remainder was a result of higher volume across all three of our business segments.

Volume in our Marine segment for the fourth quarter was 6.9 million metric tons, which is flat with last quarter but up 16% year-over-year. Fuel reselling activities constituted approximately 89% of total Marine business activity in the quarter, which is slightly higher than last quarter. For the full year, our Marine segment sold 26.1 million metric tons, up 2.4 millionmetric tons or 10% year-over-year.

Our Aviation segment sold 1 billion gallons of fuel over the quarter, down 4% sequentially but up 22% year-over-year. For the full year, our Aviation segment sold 3.9 billion gallons of fuel, up nearly 1 billion gallon year-over-year.

Our Land segment sold a record 704 million gallons during the fourth quarter. That's up 11% sequentially and 37% from last year's fourth quarter. For the full year our Land segment sold 2.4 billion gallons of fuel, nearly doubling volume year-over-year for the second consecutive year.

Consolidated gross profit for the fourth quarter was $162 million dollars, which represents a decrease of $9 million or 5% sequentially, but an increase of $39 million or 31% compared to the fourth quarter of last year. Consolidated gross profit for the full year was $635 million, an increase of $193 million or 44% year-over-year, representing the highest level of annual gross profit in Company history and over 24% compound annual growth rate over the past five years.

The Marine segment generated gross profit of $54 million, an increase of $4 million or 8% sequentially and $13 million or 30% year-over-year. We were very pleased with the Marine results this quarter despite continued industry softness. We are proud of our growth and significant increase in year-over-year profitability in 2011, considering the fact that the markets we serve remain extremely volatile. We will continue to aggressively pursue growth opportunities in the Marine segment while maintaining our focus on our risk management disciplines.

Our Aviation segment contributed $70 million of gross profit in the fourth quarter, a decrease of $14 million or 17% sequentially, but an increase of $12 million or 21% compared to the fourth quarter of 2010. The sequential decline in gross profit was impacted by two key factors. First, due to a decline in jet fuel prices and an unusual negative correlation between heating oil and jet fuel prices during the quarter, rather than realizing any gross profit benefit from the volatility and timing of jet fuel price movements in during the fourth quarter, as we have for the past several quarters, we actually had a small negative impact this quarter.

Second, due to a combination of the draw down of troops in Iraq and Afghanistan border closures, our volume of business in these regions declined sequentially. With respect to the border closers in Afghanistan, this situation continues, and we anticipate continued supply challenges in the near term. Our US self-supply model's jet inventory position was approximately 55 million gallons or $160 million at the end of the fourth quarter, down from 64 million gallons and $181 million at the end of the third quarter.

Our Land segment delivered gross profit of $38 million in the fourth quarter, up $1 million or 4% sequentially and $14 million or 59% year-over-year. In addition to our existing gasoline and diesel businesses, we have been levering new opportunities, such as rail car logistics and our entry into the Bakken crude oil market, driving greater avenues for profitable growth.

Operating expenses for the fourth quarter, excluding our provision for bad debt, were $96 million, which is down $1 million sequentially but up $22 million compared to the fourth quarter of 2010. The year-over-year increase principally relates to expenses of recently acquired businesses. Intangible amortization included in the $96 million of operating expenses for the fourth quarter was $6.9 million, up from $6.2 million in the third quarter and $3.1 million in the fourth quarter of last year.

While our operating expenses as a percentage of gross profit increased sequentially, for the fuel year we improved, reducing operating expenses, excluding bad debt and intangible amortization, to 54% of gross profit, down from 56% no 2010. For modeling purposes, I would assume overall operating expenses, excluding bad debt expense, of $95 million to $99 million of the first quarter of 2012.

On to the balance sheet, our total accounts receivable balance was $2.2 billion at end, flat with the third quarter. Our bad debt expense in the fourth quarter was $1.4 million, down $1 million sequentially, but up $300,000 compared to the fourth quarter of 2010. Consolidated income from operations for the fourth quarter was $64 million, a decrease of $7 million or 9% sequentially, an increase of $16 million or 33% year-over-year.

For the full year, income from operations was $257 million, up $76 million or 42% year-over-year. Our Marine segments income from operations was $28 million in the fourth quarter. That's an increase of $3 million or 12% sequentially, and $8 million or 40% over last year's fourth quarter. For the quarter, income from operations in our Aviation segment was $29 million, down $12 million or 29% sequentially, and down $2 million or 6% compared to the fourth quarter of 2010,principally due to the items that I highlighted earlier. Our Land segment had income from operations of $19 million, which is flat sequentially but up $10 million or 118% year-over-year.

Consolidated EBITDA for the fourth quarter was $73 million, an increase of $18 million or 32% year-over-year. For the full year, EBITDA was $290 million, up $88 million or 43% year-over-year. Our non-operating expenses, which principally consist of interest expense, were $4.5 million for the fourth quarter, that's down $1.9 million compared to the third quarter, but up $3.2 million from the fourth quarter of 2010. Excluding any foreign exchange impact, I would assume non-operating expenses to be in the same range of approximately $4.5 million to $5.5 million for the first quarter of this year.

The Company's effective tax rate for the fourth quarter was 11.5%. That's down from 16.5% last quarter, 17.1% in the fourth quarter of 2010. The tax rate this quarter was impacted by a lapse in the US federal statute of limitations related to a FIN 48 reserve -- effectively a reserve for uncertain tax positions -- in the amount of $3.9 million. Excluding this reserve reduction, our effective tax rate for the fourth quarter would be 18%.

As I have previously stated, our quarterly tax rate can vary based on shifts of distribution of worldwide earnings and other tax related matters, as clearly evidenced by the significant change this quarter. Therefore, for 2012, rather than providing quarterly guidance, we believe it would be more prudent to provide guidance for the full year. So while our quarterly tax rate may fluctuate, as evidenced by 2011 quarterly results, we estimate our effective tax rate for the fall year of 2012 should be between 17% and 20%.

Our net income for the fourth quarter was $50.1 million a decrease of $2.6 million or 5% from the third quarter, but an increase of $10.6 million or 27% year-over-year. For the full year, net income was $194 million, which is up $47 million or 32% year-over-year.

Non-GAAP net income, which excludes amortization of acquisition related identified intangible assets and stock based compensation, was $57.4 million in the quarter, a decrease of $1.8 million or 3% sequentially, but an increase of $13.3 million or 30% year-over-year. For the full year, non-GAAP net income was $221 million, which is up $60 million or 38% year-over-year.

Diluted earnings per share for the fourth quarter was $0.70, a decrease of 5% sequentially, but an increase of 25% over the fourth quarter of last year. Non-GAAP diluted earnings per share was $0.81 in the quarter, a decrease of 2% sequentially, but an increase of 28% over the fourth quarter of last year. For the full year, while our return capital decreased from 17% in 2010 to 16% in 2011, our return remains well in excess of our cost of capital.

Utilizing a two point average, our overall net trade cycle or our cash conversion cycle increased by approximately 0.75 of a day to 8.5 days in the fourth quarter. This principally related to inventory, which increased 10% sequentially. It is important to note that despite continued volatility in many of the markets we serve, our DSO remains at 21 days, near the lowest level in Company history, demonstrating our keen focus on working capital and credit risk management.

Despite a slight increase in our net trade cycle, the generally flat fuel price environment during the fourth quarter enabled to us generate $74 million of cash flow operations in the fourth quarter, which compares to a use of $79 million of cash in the third quarter and a use of $3 million in the fourth quarter of last year.

Our balance sheet remains strong liquid, with more than $200 million of cash at year end and a generally utilized $800 million bank facility, which remains available to fund organic growth and external strategic investment opportunities.

In closing, 2011 was another truly great year increase for World Fuel Services. We posted record earnings per share for the fourth straight year, we completed and integrated several strategic acquisitions, and while providing exceptional value to our customers and suppliers, we again delivered above average returns to our shareholders. We continue to focus on strategy and core competencies, and while many markets we share remain volatile, we are excited about the opportunities that lie ahead for 2012.

I would now like to turn the call back over to Mike Kasbar for some closing comments.

Before we go into the Q&A, I like to make a comment. Paul Stebbins has been quarterbacking this call, and together we led the Company since 2002 when he became Chairman and CEO and I became President and COO. Paul is doing -- I want I say what he does best, which is interacting with the market, but he does so many things well. He just finished a two week tour in Asia, seeing clients and suppliers, and he was in London during IP week. I want to thank him for his leadership, friendship, and partnership. It's been an incredible journey for the last 27 years, and I look forward to the next phase as I appreciate the last.

Operator, we can now turn the call over to Q&A.

(Operator Instructions). We do have a call from Jon Chappell.

Thanks, good afternoon, guys.

Hi, Jon.

I have a question on the Aviation side. You mentioned the government issue with the removal of troops from Iraq and on the border closings in Afghanistan, and that may be a volume challenge. Is there anyway to kind of put a number around the volume impact that had in the fourth quarter? And then kind of what inning we're in in that situation? So if it had like a half of an impact in the fourth quarter with another half to go in the first quarter?

Probably pretty close, Jon. It was a few million dollars of GP. It's probably more reasonable to give you that versus the volume in the third quarter -- I'm sorry, in the fourth quarter. And as a mentioned on the call, since the border closure in Afghanistan has continued into the first quarter, we should see that much of an impact and likely more, because we'll potentially have the impact for the whole quarter. We don't know yet, the quarter is not over yet, but the challenge still remains. So it's tough to give a good solid estimate for what the impact would be in the first quarter, but it's certainly going to be more than what we saw in Q4.

Okay. Mike, switching gears to the Marine side. I've seen your name -- not your name specifically, but I've seen World Fuel Services come up a lot in the Marine trade rags I read, about arresting ships and going after companies for delayed bills. AndI was surprised to see the provision for bad debt is actually down for the full organization. Could you just talk a little bit about the risk measures that you're taking as the Marine business continues to bounce along the bottom here, and how you've been able to keep the provisions down despite some of that customer chasing?

Jon, you have to start read some different things here.

Listen, we obsess over risk management. We've -- it'skind of like if you go through the depression you start to recycle aluminum foil. We've been through the down markets, we've lived through it, so our entire executive and all of our businesses focus on risk management. It's about the downside. We're all accounts receivable [clerks]. We have got an exceptionally talented and focused and dedicated risk group that is extremely engaged in the business.

It's a pretty funky market out there. I think everybody knows that. You guys know it probably as well and probably have insight into it in some ways that we don't, but we really focus on it quite a bit, andwe're pretty careful. We do I think a very good job of navigating around the rocks. We're visiting these people, we're going to their offices, and we walk away from business when we just don't feel comfortable with it. So we have managed to develop additional business volume. As Paul has said many times, it's a bit of a flight to quality and counterpart of risk. We have got a [free] balance sheet, and people in times like this want to do business with us. So I think that probably is about as much as I could say about it. I think Ira has something.

Just one point in terms of the provision, Jonathan. As you know, there's a lot of factors into what the -- where the quarterly provisions comes out. The write-offs, the mix of -- the credit ratings of our customers that make our receivables portfolio. I can tell you because it's in the footnotes that with respect to your comment on Marine, the Marinereserve actually did increase close to 10% this quarter. It doesn't necessarily manifest itself in what you see in the provision, but it is a little higher. But at the end of the day, to Mike's comments, we continue to manage through that difficult market very well, and we're comfortable with our overall position across all three businesses.

Okay. And then just my final follow-up that I'm allotted. There's a lot of geopolitical risk out there now with Iran and Strait of Hormuz talk and what not. You've been this business for a long time, you've seen Gulf War I and Gulf War II. What kind of risks and opportunities does the geopolitical risk in the Middle East -- what it means to the oil market, what it means to the shipping market, what it means to regional spreads?What does it mean to your business from a risk and opportunities standpoint?

Certainly it creates tremendous stress, particularly in a market like this. Again, we're used to it, we're focused on it. Once again, our liquidity puts us in a superior position compared to some of the other folks in the marketplace. Our ability to manage risks, to source properly, to be able to use creative constructs on pricing. So our ability to respond pretty quickly I think puts us in a beneficial position. So volatility is something we manage and track and absorb and practically live on. Flat markets are not something we do well on. We don't really add a whole lot of value. The more chaotic and more confusing things are, the more opportunity there is for us to add value. So -- and our liquidity position is good, so that's why we take the conservative position we always have taken.

Okay, thanks, Mike. Thanks, Ira.

Thanks, John.

Your next question comes from the line of Gregory Lewis.

Good afternoon. Ira, could you elaborate a little bit more on the impact of the spread between jet fuel and heating oil, and how we should think about that impact going forward? Was that like a one quarter event, or should we think about that potentially impacting 2012 margins as well?

The basis spread between heating oil and jet fuel has moved around from time to time. It probably moves on a fairly regular basis. What was unusual in the fourth quarter -- the latter part of the fourth quarter, heating oil price actually exceeded jet fuel for a few days, when it's usually $0.05 or $0.06 behind. Andthat happened quickly. And that's really what created a variance in the inventory impact on the P&L that I alluded to earlier.

It's really tough to project what may happen on a day-to-day basis, quarter-to-quarter basis. I can tell you that was a fairly unusual occurrence, and since then it started reverting back to the mean in the early part of this quarter, but that doesn't mean that it's not going to move the other way tomorrow. So really tough to project. As the last few years have gone by, generally that number has been sitting at a fairly consistent spot, and it just went up, having a sharp move really in December that once again was unusual.

And so if that were to revert back to more normalize, we should expect the margins to expand again? Is that a safe way to think about it?

It's tough to say that, because that's only one of many components. So if you isolated that component, sure, normalized it would have a favorable effect on margins when compared to what happened in the fourth quarter. But there's lots of other factors that go into our overall margin obviously.

Okay, great. And then also -- you guys touched on it. clearly you're trying to build out the footprint in the Bakken and in the rail car leasing. At this point when we think about the Land volumes -- I mean, what type of opportunity is there realistically in both those businesses?

You're talking about our core business and our crude marketing business?

I guess I'm trying to figure out what the benefit is. You mentioned that you're levering what's going on in the Bakken and rail car -- and in the rail car leasing segment. I'm just trying to figure out in terms of thinking about potential organic growth from both of those two.

Yes, well,this is the beauty of acquiring and bringing on new business lines. We understood that business very quickly when we brought Western on, and we tripled the amount of rail cars, because we liked that space, and that turned out to be a very good call. So that continues to be an area that we like. We'll continue to grow in terms of what its hope and its size is. It's an alternative to pipelines.

As you're looking at the energy space in this country, suddenly we're sitting on an ocean of natural gas with horizontal grill drilling. You're not going to put pipelines all throughout the country. It takes a lot of money and time, so our ability to put up rail spurs and use those rail cars in order to get that crude oil to market is something that we think we can grow. I can't really give you anything more specific than that, but we certainly like the space.

And then being able to deal with crude marketing is just a great example of using our basic competencies and skill set. If we've got an energy product where we're understanding price risk, we're understanding logistics, it gives us the ability to expand into different spaces where it's the same customer base and the same supplier base. It's really just expanding our ability to intermediate and be a marketing and reselling company.

Great. And then just one real quick, last final question. Minority interest spiked up in the fourth quarter. I mean, I realize that's related to the joint ventures in the UK. At this point, should we think that this -- that those JVs are turned the corner and it's going to be -- it's going start to be a little more profitable, or could how should -- could we see it pull back?

Greg, it's Ira. Most of the number that you're seeing on that line relates to what we just talked about earlier in terms of growing crude opportunity and some related logistics here in the US, so that really came on to the scene in a big way in the fourth quarter. We had just really started crude marketing in the latter part of the third quarter. So we had a full quarter's worth of activity there, and all of that activity flows through a joint venture. The other joint ventures we have an immaterial impact at this point on the results, especially in terms of what you see on that line. So it'salmost exclusively the crude related joint venture that you're relating to.

Okay, perfect. Thank you guys for the time.

Your next question comes from the line of Ken Hoexter.

Great, good afternoon. When you guys were talking about the Bakken opportunity there, if [I can] just follow-up on that first. What -- are you saying you're reselling the crude, or your ability to get the crude to market? I'm not sure I understand what you're --

There's two activities, Ken. One is simply transportation. It's simply logistics. That was the business activity that we were involved in from the beginning, and the more that we looked at that the more that we realized it was an opportunity for us to source the crude and resell it in the marketplace. So that's something that we started in the third quarter of this year. It's grown in volume, and we like the space.

We've brought in an individual to handle that. We handle that with our own exist crew, but as that activity develop into its own business line, we've decked experts at that, and it's something we'd like to expand. We like the space, it's rateable, it's going to continue to grow. North Dakota is now the second largest oil producing state in the United States. And we -- it'sour opportunity to develop new lines of business.

Wonderful. If I could follow-up on your original comments on the air side. When you talk about the, I guess, you were talking about -- Ira was talking about in Afghanistan at the blockade at the border, but you talked about Iraq [strata]. Can you kind of provide the mix? Is it something that as the fuel starts to flow across the border, you make up a part of this? And I guess in that general discussion, can you talk about has the pull-down been a bit quicker than you anticipated when you made the acquisition? I know the large [and bella] business was higher, so do you think you've already recovered based on what you were targeting at the point of the acquisition relative to the speed of the draw down?

I think the thing, Ken, is -- listen, it's a turbulent world, and when you look at some of these different areas, events can occur. Pakistan shut down the border. That was basically the source of supply. That increased the demand on the supply chain two to three times from other locations. We're certainly working on sourcing from different locations. We always figure it out. That's what we do is understand the logistics, but it's not with a snap of a finger. So significant impact is the border closing with Pakistan, and that's something that we've got our logistics teams working on alternatives. When that's going to come through, it's not completely clear.

And just to be clear, the acquisition that you referred to was principally Afghanistan. The Iraqi business is business activity that we had pre-acquisition.

Okay, thanks, Ira. Lastly, if I can follow-up on acquisitions overall. You've made two large acquisitions at the beginning of last year. You said you were going to kind of settle in and integrate them. There were some smaller ones over the last couple of quarters, much smaller that you didn't talk about them much. But do you think it's -- given where the volatility in fuel now is, is it [a ripe] time to go back to the market to make additional acquisitions now? How do you think about that now?

Listen, our business development muscle is greater than ever before. We've demonstrated our ability to buy small companies efficiently, handles transactions, as well as integrating large companies. So it'sa question of being selective. Transformative acquisitions are more appealing right now. The valuesneed to be right. I feel very good about where we are in the opportunity of growth, both with what we're sitting on, but we're certainly open for business. We're always in discussions with folks, and if we enter into a period of volatility and high prices, certainly private companies, independent companies don't feel quite as comfortable with their balance sheets having to put that much on the table.

So it's really a question of doing something I think important, and we're open for business. And the fact that we acquired a number of companies, our Company is doing extremely well, the visibility is there, we have a lot of people knocking on our door on a regular basis. So we're very much open to it, but it's got to be the right company at the right price. So that's our view.

Michael, Ira, thanks. I appreciate the time. Thank you.

Thanks, Ken.

Your next question comes from the line of Alex Brand.

Hey, good evening, guys.

Hey, Alex.

I guess we knew that there was risk -- military risks to your Aviation business, but still you guys have a track reported of taking share. So you give us some idea what -- if we strip out that military, what the organic Aviation growth would have looked like?

Yes, if you're looking at volume, the military number is not a really big number in terms of volume, so we normally don't break out those two pieces, so I don't think we're going do that today. But remember, the military numbers don't represent substantial amounts of volume and don't affect the overall growth rate dramatically. Obviously, it's generally a higher margin business, but the volume is relatively small.

How about just some idea on the net revenue line then, Ira?

Once again, we haven't broken it out. I think I shared, which I haven't done in the past, the sequential change, right? So it was about $3 million. And I think I indicated that sequentially the number will be likely down more than that in the first quarter because of the border closures, but I think that's all of the information that we've come close to sharing in the past. SoI think we're going to keep it that way for now.

Okay. Can you remind us what the wind down of the intangible amortization looks like? How fast does that start to peel off?

There's a lot of factors there, but youmay be referring to what was probably the most unusual of all of the acquisitions we made in terms of the related intangible amortization, which is [NCS], the business we've just been talking about indirectly. And since that consisted of short-term contracts, the amortization related to that acquisition winds down a lot faster than your average acquisition. So you saw the most significant impact in year one on that number starts trailing down in year two. But remember we made other acquisitions that have added intangible amortization over the course of the past year that moved the needle the other way. So you've got the whole basic of amortization that you're looking at. If you isolate the NCS impact, it will have less amortization in 2012 than it did in 2011.

Okay, that's my two. Thanks, guys.

Okay.

Your next question comes from the line of Kevin Sterling.

Good afternoon, gentlemen.

Hey, Kevin.

Ira, help me understand the jet fuel inventory, and I believe it looks like you're using heating oil as a hedge against the jet fuel you hold in inventory. Is that right?

That's right. Just like all of the airlines do. Since there's really no liquid market to hedge jet fuel against the jet fuel index, it's pretty much industry standards for years and years to hedge against heating oil, using that as a proxy, because there's been a very, very tight correlation over the long-term. But once again, as I think we've indicated in the past, once in a while that correlation falls out of whack for a month or a quarter, and that's what we saw in the latter part of the fourth quarter.

Okay, so just I want to make sure I understand. At the end of this quarter you're long some jet fuel, I think you said jet fuel prices are falling, then heating oil actually rose both the price of jet fuel?

All I said is generally jet fuel is -- trades a few cents higher than heating oil. Say $0.05, $0.06;that number moves around. In December, for a period of time heating oil moved ahead of jet fuel by a couple of pennies. So you had $0.07, $0.08 swing in a relatively short period of time, moving the number in the other direction. That's somewhat unusual. It's not something that's never happened before, but it's not a common day-to-day occurrence. So it has nothing to do with the price of one versus the other, it's just a relative -- it's the relative pricing between the two.

Kind of like the spread between the two?

Basically.

All right, thank you for that clarification. And lastly, looking at your Marine business, you guys continue to do very, very well there. You had another reported quarter. Is that an indication of you're willing to kind of move down the risk curve, particularly when I look at your Marine spreads, that you're maybe taking on a little more risks, when I look at the spreads? Is that the right way to think about it?

No, we wouldn't do that. It really has nothing do with that. People have asked us that question over the years and it's just not really our profile. So our value add is really providing a superior service to our cliental. You've got some backwardation in the market, which gave us an opportunity to sell some forward contracts, which gave us little bit of an enhancement in the quarter towards the tail end, but has nothing do with taking more risks.

All right, thank you, Michael, appreciate that. And that's all I had. I'm out of my question -- time, so thankyou very much.

Thank you, Kevin.

Your next question comes from the line of Edward Hemmelgarn.

I have a couple of questions. One, Ira, first, what was the guidance thank you gave for operating expenses in the Q1?

I believe it was -- I'm going to have someone double check. Oh, for Q1 it was $95 million to $99 million.

Okay. Michael, could you talk a little bit about where -- what the growth prospects you see for 2012? Obviously, you had a lot of volume growth in 2011, but as you look out to 2012, where do you see the growth occurring and why?

Well, where do I see growth? Our Marine business I think is a very well-established global platform, so we feel very good about it.

The same with our Aviation business. We've got some of the best folks in the business, and it's really taking market share. You do have more ships on the water. There is a lot of slow steaming out there. If you look at some of the Aviation statistics, GE came out today saying freight was going go up 5.8% and passenger 4.4% in 2012. So you've just got the natural growth, 80% of the world's cargo is transported on the water. So we've opened up other locations and new markets. We continue to do that in different parts of the world.

Our Land business, we've said a number of times the size of that market is quite large, so we feel good about that. There's certainly acquisitions, and there's new business activity. We're involved in a number of different products, so we continue do that. The thing that is probably the most enjoyable thing is we -- I don't want to say get expediential growth, but when we buy a company, there's tails with these companies. And we're getting great folks, and we're very open to their innovation and entrepreneurial ideals, so we're follow some of those tracks with different products and different areas.

Western is a great example of that, but it's also in Ascent and all the rest of the companies that we've picked up. And NCS. So in Afghanistan, obviously that's not something we hope carries on from just a global citizen point of view, and werecognize that will sunset at a certain point, and we're using that knowledge and capability to provide different logistic solutions in various different parts of the world to different clients that have a need for those types of logistics.

The possibilities are quite broad. As a said in my introductory comments, I feel good about where we are. I feel really good about the maturity of the Company, the professionalism, so it's certainly a crazy market. We know that, and we very much look at the risk management side of it. But we feel good about the possibilities for our Company in any number of different area, certainly sticking and focusing on our core areas and continue to refine that and adding different services and products into those core businesses, but also looking at different areas as well that map to our able to manage a volatile commodity for a industrial and commercial user. I don't know if that answers your question, but that's the answer.

So basically you're just -- it sounds like you expect perhaps greater growth continuing in the Land area because of the opportunity, but also to continue to take share in the Aviation, Marine? Is that correct?

Yes.

Okay, thanks.

Your next question comes from the line of Brian Delaney.

Hey, guys. Thank you for taking the question.

Hey, Brian.

Did you guys comment on what's happened on the spread between jet fuel and heating oil in this first part of the year? Has that correlation gone back to normal?

It's been moving back in that directions. I wouldn't say it's completely there.

But it's still inversed to what you would normally expect, or is it --

It's not inversed, just the spread of jet fuel over heating oiling is a few cents lighter than it had been in earlier parts of the fourth quarter. But it's ahead of where it was in December. I mean, that's publicly available data that you guys can take a look at any time.

Right, but as it impacts you, is it only when it inverses that it becomes an issue for you, or even if it tightens it still becomes an issue for your P&L?

It's generally when it moves in the inverse, like it did in December, but it's also impacted by the speed of that occurring, right? So you had a very quick move over the course of a short period of time. If there was a slight move everyday over the course of the quarter, you wouldn't necessarily see the same impact, but we saw a very rapped move from $0.05 or $0.06 positive to $0.02 negative within a short period of time, and that's what caused the impact that I talked about earlier.

Okay, so it's reversed, but still tighter than historically?

Right.

Okay. And can you remind us, when we head into this year, when will we start to get a normalized comparison from a acquisition/non-acquisition prospective? So in 2012 versus 2011, at what point will we fully lap all the acquisitions we've made and you start to get a steady state, here's what the business looks like ex acquisition type volume environment?

Principally in Q2. The last meaningfully sized acquisition kicked in in the first of April of last year, so you'll have a complete apples to apples -- unless we bought something else before the end of June -- when you compare Q2 2012 to Q2 2011.

Okay. Thank you very much.

Thanks, Brian.

And there are no further questions at this time.

Thanks very much for listening. I look forward to talking to you the next quarter.

Ladies and gentlemen, this does conclude today's conference call. We thank you for your participation. You may now disconnect.