World Fuel Services 2005 Annual Report Download - page 37

volume and a $0.4 million positive impact on our gross profit related to our inventory derivative and price risk
management programs. Partially offsetting was $5.4 million from lower gross profit per metric ton due to
competitive pressures and a $2.1 million write-down in the fourth quarter of 2004 of fuel inventory associated
with our exit from the Panamanian market, a market area we acquired as part of the Tramp Oil transaction.
Our aviation segment gross profit for 2004 was $66.8 million, an increase of $14.4 million, or 27.6%, as
compared to 2003. Contributing to the total increase was $49.4 million related to an increase in the number of
gallons sold and $0.1 million positive impact on our gross profit related to our inventory derivative program.
Partially offsetting was $35.1 million in lower gross profit per gallon sold, which reflects growth in our low
margin fuel management business.
Operating Expenses. Total operating expenses for 2004 were $92.0 million, an increase of $18.5 million, or
25.2%, as compared to 2003. The following table sets forth our expense categories (in thousands):
2003 2004 $ Change
Compensation and employee benefits ................ $43,970 $58,634 $14,664
Provision for bad debts ............................ 6,281 4,338 (1,943)
General and administrative ........................ 23,240 29,012 5,772
Total ...................................... $73,491 $91,984 $18,493
Of the total increase in operating expenses, $14.7 million was related to compensation and employee
benefits and $5.8 million to other operating expenses, partially offset by a decrease of approximately $1.9 million
to the provision for bad debts. The overall increase in operating expenses for 2004 reflects the additional
operating expenses of Tramp Oil and the overall higher operating costs associated with increased business
activities. The increase in compensation and employee benefits was primarily due to new hires, the additional
employees from Tramp Oil, and higher performance based incentive compensation. The increase in general and
administrative expenses was primarily the result of the additional general and administrative expenses of Tramp
Oil, higher business travel, in part due to the acquisition and integration of Tramp Oil, and higher professional
fees and insurance. The decrease in the provision for bad debts for 2004 was primarily due to a shift of business
in favor of higher credit quality, high volume commercial business, and the improvement in market conditions of
our marine customers as well as the recording of bad debt expenses in 2003 relating to the write-off of
receivables from two international airlines that filed for bankruptcy.
Income from Operations. Our income from operations for 2004 was $38.0 million, an increase of $10.3
million, or 37.4%, as compared to 2003. Income from operations during these periods was attributable to the
following segments (in thousands):
2003 2004 $ Change
Marine segment ................................ $18,545 $ 23,270 $ 4,725
Aviation segment ............................... 22,103 29,319 7,216
40,648 52,589 11,941
Corporate overhead ............................. (13,016) (14,617) (1,601)
Total ..................................... $27,632 $ 37,972 $10,340
The marine segment earned $23.3 million in income from operations for 2004, an increase of $4.7 million,
or 25.5%, as compared 2003. This increase resulted from approximately $14.4 million increase in gross profit,
partially offset by a $9.7 million increase in operating expenses. The increase in marine segment operating
expenses was attributable to compensation and employee benefits and general and administrative expenses. For
detailed explanations of the changes in total operating expenses for 2004 as compared to 2003, see the above
discussion on operating expenses.
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