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| INT > SEC Filings for INT > Form 10-Q on 8-Nov-2007 | All Recent SEC Filings |
8-Nov-2007
Quarterly Report
The following discussion should be read together with our 2006 10-K Report and the consolidated financial statements and related notes in "Item 1-Financial Statements" appearing elsewhere in this 10-Q Report. The following discussion contains forward-looking statements as described in the "Forward-Looking Statements" below. Our actual results may differ significantly from the results suggested by these forward-looking statements. Various factors that may cause our results to differ materially from the results and events anticipated or implied by such forward-looking statements are described in "Part II - Other Information," "Item 1A - Risk Factors."
Forward-Looking Statements
Certain statements made in this report and the information incorporated by reference in it, or made by us in other reports, filings with the Securities and Exchange Commission ("SEC"), press releases, teleconferences, industry conferences or otherwise, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words "believe," "anticipate," "expect," "estimate," "project," "will be," "will continue," "will likely result," "plan," or words or phrases of similar meaning.
Forward-looking statements are estimates and projections reflecting our best judgment and involve risks, uncertainties or other factors which may cause actual results to differ materially from the future results, performance or achievements expressed or implied by the forward-looking statements. These statements are based on our management's beliefs and assumptions, which in turn are based on currently available information.
Examples of forward-looking statements in this report include, but are not limited to, our expectations regarding our business strategy, business prospects, operating results, working capital, liquidity, capital expenditure requirements and future acquisitions. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the cost, terms and availability of fuel from suppliers, pricing levels, the timing and cost of capital expenditures, outcomes of litigation, competitive conditions, general economic conditions and synergies relating to acquisitions, joint ventures and alliances. These assumptions could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect.
Important factors that could cause actual results to differ materially from the results and events anticipated or implied by such forward-looking statements include, but are not limited to:
• our ability to collect accounts receivable;
• changes in the political, economic or regulatory conditions in the markets in which we operate;
• currency exchange fluctuations;
• non-performance of third party service providers;
• failure of the fuel we sell to meet specifications;
• our failure to effectively hedge certain financial risks associated with our business and our price risk management services;
• non-performance by counterparties to derivatives contracts;
• material disruptions in the availability or supply of fuel;
• changes in the market price of fuel;
• adverse conditions in the business segments in which our customers operate;
• uninsured losses;
• the impact of natural disasters;
• our failure to comply with restrictions and covenants in our unsecured syndicated revolving credit facility ("Credit Facility");
• increases in interest rates;
• decline in value and liquidity of investments;
• our ability to retain and attract senior management and other key employees;
• our ability to manage growth;
• our ability to integrate acquired businesses;
• changes in United States or foreign tax laws;
• increased levels of competition;
• changes in credit terms extended to us from our suppliers;
• our ability to successfully implement our enterprise integration project;
• the outcome of litigation;
• compliance or lack of compliance with various environmental and other applicable laws and regulations; and
• other risks, including those described in "Risk factors" of our 2006 10-K Report and those described from time to time in our filings with the SEC.
We operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all of those risks, nor can we assess the impact of all of those risks on our business or the extent to which any factor may cause actual results to differ materially from those contained in any forward-looking statement. We believe these forward-looking statements are reasonable. However, you should not place undue reliance on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and unless required by law, we expressly disclaim any obligation or undertaking to update publicly any of them in light of new information or future events.
For these statements, we claim the protection of the safe harbor for forward-looking statements contained in Section 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Overview
We are engaged in the marketing and sale of marine, aviation and land fuel products and related services on a worldwide basis. In our marine segment, we offer fuel and related services to a broad base of maritime customers, including international container and tanker fleets and time-charter operators, as well as to the United States and foreign governments. In our aviation segment, we offer fuel and related services to major commercial airlines, second and third-tier airlines, cargo carriers, regional and low cost carriers, corporate fleets, fractional operators, private aircraft, military fleets and to the United States and foreign governments. In our land segment, we offer fuel and related services to petroleum distributors operating in the land transportation market. We compete by providing our customers value-added benefits including single-supplier convenience, competitive pricing, the availability of trade credit, price risk management, logistical support, fuel quality control and fuel procurement outsourcing.
Our revenue and cost of sales are significantly impacted by world oil prices as evidenced in part by our revenue and cost of sales increases year over year. However, our gross profit is not necessarily impacted by the change in world oil prices as our profitability is driven by gross profit per unit which is not directly correlated to the price of fuel. Therefore, in a period of increasing or decreasing oil prices, our revenue and cost of sales would increase or decrease proportionately but our gross profit may not be negatively or positively impacted by such price changes.
In our marine segment, we primarily purchase and resell fuel, and act as brokers for others. Profit from our marine segment is determined primarily by the volume and gross profit achieved on fuel resales and by the volume and commission rate of brokering business. In our aviation and land segments, we primarily purchase and resell fuel, and we do not act as brokers. Profit from our aviation and land segments is primarily determined by the volume and the gross profit achieved on fuel resales. Our profitability in our segments also depends on our operating expenses, which may be significantly affected to the extent that we are required to provide for potential bad debts.
We may experience decreases in future sales volume and margins as a result of deterioration in the world economy, transportation industry, natural disasters and continued conflicts and instability in the Middle East, Asia and Latin America, as well as potential future terrorist activities and possible military retaliation. In addition, because fuel costs represent a significant part of our customers' operating expenses, volatile and/or high fuel prices can adversely affect our customers' businesses, and consequently the demand for our services and our results of operations. See "Part II - Other Information, Item 1A - Risk Factors" of this Form 10-Q.
Reportable Segments
We have three reportable operating segments: marine, aviation and land. Corporate expenses are allocated to the segments based on usage, where possible, or on other factors according to the nature of the activity. We evaluate and manage our business segments using the performance measurement of income from operations.
Results of Operations
Three Months Ended September 30, 2007 Compared to Three Months Ended
September 30, 2006
Revenue. Our revenue for the third quarter of 2007 was $3.6 billion, an increase
of $832.9 million, or 30.0%, as compared to the third quarter of 2006. Our
revenue during these periods was attributable to the following segments (in
thousands):
For the Three Months ended
September 30,
2007 2006 $ Change
Marine segment $ 2,009,778 $ 1,500,799 $ 508,979
Aviation segment 1,445,581 1,153,359 292,222
Land segment 153,106 121,387 31,719
$ 3,608,465 $ 2,775,545 $ 832,920
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Our marine segment contributed $2.0 billion in revenue for the third quarter of 2007, an increase of $509.0 million, or 33.9%, as compared to the third quarter of 2006. Of the total increase in marine segment revenue, $390.0 million was due to a 26.1% increase in the average price per metric ton sold and $119.0 million was due to increased sales volume, primarily due to additional sales to new and existing customers.
Our aviation segment contributed $1.4 billion in revenue for the third quarter of 2007, an increase of $292.2 million, or 25.3%, as compared to the third quarter of 2006. Of the total increase in aviation segment revenue, $276.9 million was due to increased sales volume, and $15.3 million was due to a 1.1% increase in the average price per gallon sold.
Our land segment contributed $153.1 million in revenue for the third quarter of 2007, an increase of $31.7 million, or 26.1%, as compared to the third quarter of 2006. Of the total increase in land segment revenue, $35.2 million was due to increased sales volume to new and existing customers. Partially offsetting this increase was a decline of $3.5 million due to a 2.2% decrease in the average price per gallon sold.
Gross Profit. Our gross profit for the third quarter of 2007 was $62.3 million, an increase of $7.1 million, or 12.9%, as compared to the third quarter of 2006. Our gross profit during these periods was attributable to the following segments (in thousands):
For the Three Months ended
September 30,
2007 2006 $ Change
Marine segment $ 26,879 $ 25,815 $ 1,064
Aviation segment 33,248 27,681 5,567
Land segment 2,148 1,665 483
$ 62,275 $ 55,161 $ 7,114
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Our marine segment gross profit for the third quarter of 2007 was $26.9 million, an increase of $1.1 million, or 4.1%, as compared to the third quarter of 2006. Contributing to the total increase in marine segment gross profit was $2.0 million in increased sales volume, partially offset by $0.9 million in lower gross profit per metric ton sold. The decrease in lower gross profit per metric ton sold was primarily due to competitive pressures in certain markets.
Our aviation segment gross profit for the third quarter of 2007 was $33.2 million, an increase of $5.6 million, or 20.1%, as compared to the third quarter of 2006. Of the increase in aviation segment gross profit, $6.6 million was due to increased sales volume, partially offset by a decline of approximately $1.0 million in gross profit per gallon sold.
Our land segment gross profit for the third quarter of 2007 was approximately $2.1 million, an increase of approximately $0.5 million, or 29.0%, as compared to the third quarter of 2006. The increase in land segment gross profit resulted from primarily from a 29.0% increase in sales volume.
Operating Expenses. Total operating expenses for the third quarter of 2007 were $40.0 million, an increase of $5.6 million, or 16.4%, as compared to the third quarter of 2006. The following table sets forth our expense categories (in thousands):
For the Three Months ended
September 30,
2007 2006 $ Change
Compensation and employee benefits $ 23,743 $ 21,939 $ 1,804
Provision for bad debts 1,294 429 865
General and administrative 14,921 11,973 2,948
$ 39,958 $ 34,341 $ 5,617
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Of the total increase in operating expenses, $1.8 million was related to compensation and employee benefits, $0.9 million was related to provision for bad debts and $2.9 million was related to general and administrative expenses. The increase in compensation and employee benefits was primarily due to new hires to support our growing global business, partially offset by a decrease in incentive compensation. The increase in provision for bad debts was primarily due to a change in the overall composition of our receivable portfolio during the third quarter of 2007 as compared to the third quarter of 2006. The increase in general and administrative expenses was primarily attributable to the following expenses: professional and consulting fees, systems development, rent and telecommunication.
Income from Operations. Our income from operations for the third quarter of 2007 was $22.3 million, an increase of $1.5 million, or 7.2%, as compared to the third quarter of 2006. Income from operations during these periods was attributable to the following segments (in thousands):
For the Three Months ended
September 30,
2007 2006 $ Change
Marine segment $ 10,156 $ 11,392 $ (1,236 )
Aviation segment 18,244 16,108 2,136
Land segment 419 782 (363 )
28,819 28,282 537
Corporate overhead (6,502 ) (7,462 ) 960
$ 22,317 $ 20,820 $ 1,497
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Our marine segment earned $10.2 million in income from operations for the third quarter of 2007, a decrease of $1.2 million, or 10.8%, as compared to the third quarter of 2006. This decrease resulted from increased operating expenses of $2.3 million, partially offset by $1.1 million in higher gross profit. The increase in marine segment operating expenses was attributable to increases in compensation and employee benefits, provision for bad debts and general and administrative expenses.
Our aviation segment income from operations was $18.2 million for the third quarter of 2007, an increase of $2.1 million, or 13.3%, as compared to the third quarter of 2006. This increase was primarily due to $5.6 million in higher gross profit, partially offset by increased operating expenses of approximately $3.5 million. The increase in aviation segment operating expenses was attributable to increases in compensation and employee benefits, provision for bad debts and general and administrative expenses.
Our land segment income from operations was $0.4 million for the third quarter of 2007, a decrease of $0.4 million, or 46.4%, as compared to the third quarter of 2006. This decrease resulted from increased operating expenses of approximately $0.9 million, partially offset by $0.5 million in higher gross profit. The increase in land segment operating expenses was principally attributable to increases in compensation and employee benefits and general and administrative expenses.
Corporate overhead costs not charged to the business segments were $6.5 million for the third quarter of 2007, a decrease of $1.0 million, or 12.9%, as compared to the third quarter of 2006. The decrease in corporate overhead costs was primarily attributable to a decrease in incentive compensation.
Other Income and Expense, net. For the third quarter of 2007, we had other expense, net of $2.2 million compared to other income, net of $1.7 million for the third quarter of 2006. This $3.9 million change was primarily due to a decrease in interest income during the third quarter of 2007, a $1.9 million investment impairment charge in the third quarter of 2007 and foreign currency losses reported for the third quarter of 2007 as compared to foreign currency income reported for the third quarter of 2006.
Taxes. For the third quarter of 2007, our effective tax rate was 24.9% and our income tax provision was $5.0 million, as compared to an effective tax rate 23.4% and an income tax provision of $5.3 million for the third quarter of 2006. The higher effective tax rate for the third quarter of 2007 resulted primarily from additional income tax expense recorded in connection with the new accounting guidance of FIN 48 in 2007 and fluctuations in the actual results achieved by our subsidiaries in tax jurisdictions with different tax rates.
Net Income and Diluted Earnings per Share. Net income for the third quarter of 2007 was $14.8 million, a decrease of $2.4 million, or 13.8%, as compared to the third quarter of 2006. Diluted earnings per share for the third quarter of 2007 was $0.51 per share, a decrease of $0.08 per share, or 13.6%, as compared to the third quarter of 2006.
Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006
Revenue. Our revenue for the first nine months of 2007 was $9.6 billion, an increase of $1.4 billion, or 17.4%, as compared to the first nine months of 2006. Our revenue during these periods was attributable to the following segments (in thousands):
For the Nine Months ended
September 30,
2007 2006 $ Change
Marine segment $ 5,321,463 $ 4,348,528 $ 972,935
Aviation segment 3,840,244 3,510,207 330,037
Land segment 422,326 307,668 114,658
$ 9,584,033 $ 8,166,403 $ 1,417,630
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Our marine segment contributed $5.3 billion in revenue for the first nine months of 2007, an increase of $972.9 million, or 22.4%, as compared to the first nine months of 2006. Of the total increase in marine segment revenue, $731.7 million was due to increased sales volume, primarily due to additional sales to new and existing customers, and $241.2 million due to a 4.7% increase in the average price per metric ton sold.
Our aviation segment contributed $3.8 billion in revenue for the first nine months of 2007, an increase of $330.0 million, or 9.4%, as compared to the first nine months of 2006. Of the total increase in aviation segment revenue, $313.4 million was due to increased sales volume, primarily due to additional sales to new and existing customers, and approximately $16.6 million due to a 0.4% increase in the average price per gallon sold.
Our land segment contributed $422.3 million in revenue for the first nine months of 2007, an increase of $114.7 million, or 37.3%, as compared to the first nine months of 2006. Of the total increase in land segment revenue, $113.6 million was due to increased sales volume to new and existing customers and $1.1 million was due to a 0.3% increase in the average price per gallon sold.
Gross Profit. Our gross profit for the first nine months of 2007 was $171.4 million, an increase of $15.1 million, or 9.6%, as compared to the first nine months of 2006. Our gross profit during these periods was attributable to the following segments (in thousands):
For the Nine Months ended
September 30,
2007 2006 $ Change
Marine segment $ 81,739 $ 73,817 $ 7,922
Aviation segment 83,707 78,313 5,394
Land segment 5,985 4,218 1,767
$ 171,431 $ 156,348 $ 15,083
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Our marine segment gross profit for the first nine months of 2007 was $81.7 million, an increase of $7.9 million, or 10.7%, as compared to the first nine months of 2006. Contributing to the total increase in marine segment gross profit was $11.3 million in increased sales volume, partially offset by a decline of $3.4 million in gross profit per metric ton sold.
Our aviation segment gross profit for the first nine months of 2007 was $83.7 million, an increase of $5.4 million, or 6.9%, as compared to the first nine months of 2006. Of the increase in aviation segment gross profit, $7.0 million was due to increased sales volume, partially offset by a decline of approximately $1.6 million in gross profit per gallon sold.
Our land segment gross profit for the first nine months of 2007 was $6.0 million, an increase of approximately $1.8 million, or 41.9%, as compared to the first nine months of 2006. The increase in land segment gross profit resulted from $1.6 million in increased sales volume and $0.2 million in higher gross profit per gallon sold.
Operating Expenses. Total operating expenses for the first nine months of 2007 were $110.1 million, an increase of $11.6 million, or 11.7%, as compared to the first nine months of 2006. The following table sets forth our expense categories (in thousands):
For the Nine Months ended
September 30,
2007 2006 $ Change
Compensation and employee benefits $ 68,705 $ 61,159 $ 7,546
Executive severance costs - 1,545 (1,545 )
Provision for bad debts 594 1,577 (983 )
General and administrative 40,798 34,258 6,540
$ 110,097 $ 98,539 $ 11,558
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Of the total increase in operating expenses, $7.5 million was related to compensation and employee benefits and approximately $6.5 million was related to general and administrative expenses. Partially offsetting these increases was a positive change of approximately $1.0 million in provision for bad debts and $1.5 million in executive severance costs during the first nine months of 2006. The increase in compensation and employee benefits was primarily due to new hires to support our growing global business, partially offset by a decrease in incentive compensation. The increase in general and administrative expenses was primarily attributable to the following expenses: professional and consulting fees, systems development, depreciation and amortization, rent and telecommunication. The decrease in provision for bad debts was primarily due to an overall improved quality of our receivable portfolio during the first nine months of 2007 as compared to 2006, primarily in the aviation segment, resulting in a reduction of our allowance for bad debts from December 31, 2006.
Income from Operations. Our income from operations for the first nine months of 2007 was $61.3 million, an increase of $3.5 million, or 6.1%, as compared to the first nine months of 2006. Income from operations during these periods was attributable to the following segments (in thousands):
For the Nine Months ended
September 30,
2007 2006 $ Change
Marine segment $ 36,262 $ 32,450 $ 3,812
Aviation segment 42,690 42,007 683
Land segment 1,314 1,250 64
80,266 75,707 4,559
Corporate overhead (18,932 ) (17,898 ) (1,034 )
$ 61,334 $ 57,809 $ 3,525
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The marine segment earned $36.3 million in income from operations for the first nine months of 2007, an increase of $3.8 million, or 11.7%, as compared to the first nine months of 2006. This increase resulted from $7.9 million in higher gross profit, partially offset by increased operating expenses of $4.1 million. The increase in marine segment operating expenses was attributable to increases in compensation and employee benefits, provision for bad debts and general and administrative expenses.
The aviation segment income from operations was $42.7 million for the first nine months of 2007, an increase of $0.7 million, or 1.6%, as compared to the first nine months of 2006. This increase resulted from $5.4 million in higher gross profit, partially offset by increased operating expenses of $4.7 million. The increase in aviation segment operating expenses was attributable to increases in compensation and employee benefits and general and administrative expenses, partially offset by a net positive impact from the change in provision for bad debts.
The land segment income from operations was $1.3 million for the first nine months of 2007, an increase of approximately $0.1 million, or 5.1%, as compared . . .
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