World Kinect Corp (WKC) 2003 Q2 法說會逐字稿

Welcome to the World Fuel Services Corporation second-quarter fiscal 2003 results conference call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. At that time if you have a question (CALLER INSTRUCTIONS) as a reminder this conference is being reported Wednesday July 30, 2003. I would now like to turn the conference over to Joe Allen from Allen & Caron (ph). Please go ahead, sir.

Thanks Kelly. Good morning. Welcome to World Fuel Services Corporation's results conference call for the second quarter ended June 30, 2003. As Kelly said, I'm Joe Allen of Allen & Caron Investor Relations. Before we start this morning's call, there are a couple of items I need to cover. First of all this conference is being taped, as Kelly mentioned. Second, many of you should've received a copy of the press release announcing the Company's results for its second-quarter ended June 30. It was released this morning at 8 AM Eastern time and was covered by Dow Jones at 804 Eastern time. If you did not receive a copy of the press release, it's available on our web site www.allencaron.com (ph). As well as on a number of other public information sites, such as Yahoo Finance. You may access a replay of this conference call for ten days by calling 800-633-8284 and using access code 21155386. International callers wishing to access the replay should dial area 402-977-9140 and use the same access code 21155386. Also, this call is being broadcast live over the Internet at www.firstcallevents.com, as well as other companies web site at www.wfscorp.com. A replay of the call via the Internet will be available for 60 days to the end of September shortly after the end of this call.

Additionally, I've been asked to make the following statements. With the exception of historical information in this news release and in this conference, this conference includes forward-looking statements that involve risks and uncertainties including but not limited to, quarterly fluctuations in results, the management of growth, fluctuations in world oil prices or foreign currency, major changes in political, economic, regulatory, or environmental conditions, loss of key customers, suppliers, or senior management, uninsured losses, competition, credit risk associated with accounts and notes receivable, and other risks detailed from time to time in the Company's SEC filings. Actual results may differ materially from these forward-looking statements set forth herein. With us this morning's Paul Stebbins, Chairman and CEO. Paul will provide an opening statement addressing the Company's progress and then the call will move into Q&A. And I'll now turn the call over to Paul. Good morning, Paul. Congratulations on another wonderful quarter.

Good morning, Joe. Thank you very much. Good morning. Thank you all for joining us. With me today are Michael Casbar, President and Chief Operating Officer; Bob Doffee, President of our Marine segment; Michael Clementi, President of our Aviation Segment; and Frank Shea, Chief Financial Officer. This morning, we announced record earnings of $5.4 million or 49 cents per diluted share for the second-quarter 2003. This represents a 23 percent increase in net income over the comparable quarter a year ago. Revenues and gross profit increased 41 percent and 27 percent respectively year-over-year. And our cash position at this quarter and was strong at $68 million. Our days sales outstanding, a key indicator of the quality of our receivables, is that a record low of 24 days.

Our global team has delivered a great result and we believe the trend will continue for the balance of this year. Frank will deliver a detailed review of the financials in just a moment. But first, I would like to make a few comments on our business and the status of various strategic initiatives. A number of factors have contributed to our strong performance this quarter. The first is the market itself. There has been much discussion in the press about the recession being over and the nature of economic recovery. Certainly, we see signs of this trend in our core business. After weathering a lingering economic slump, volatility and dislocation of war, and the shockwave of SARS, our customers are enjoying a rare moment of relative stability and the promise of growth ahead.

In the aviation space, a number of airlines have announced good results. Cargo traffic has picked up. Corporate travel is on the rise. And while the market is still very cautious about the durability of economic recovery, there is a sense that perhaps we have passed the darkest hour. In the shipping community, the industry was in such bad straights a year ago that everything today seems better in comparison. In truth, the recovery is slow. But the improved rates and increased activity are certainly positive signs in an industry bruised by a prolonged down cycle. All in all, the market climate has improved for our customers. And it's a general statement that we have benefited accordingly.

The second factor is a rebound in the Marine segment. The war in Iraq, the associated price volatility, and increased shipping activity all contributed to increased volume and better margins in our Marine segment. Price risk management activity was particularly active as customers took steps to hedge their exposure to fuel prices. Having stayed the course in a difficult time, we're benefiting from the turnaround we now see.

The third factor is further expansion of our fuel management customer base. We have continued to refine our fuel management program and are proud to report we did our first small piece of business with Southwest Airlines. We expect to see additional opportunities going forward as we continue to broaden our relationship with the greater airline community. Other successes with large carriers include supply in China for Kap-A (ph) Pacific, Singapore Airlines, and Emirates Air. Again, strong international customers, who have come to see the value we can provide in niche markets worldwide.

A fourth factor is continued success in our corporate fueling space. Both BaseOps, our flight services company based in Houston, and our alliance with Jefferson yielded improved results. Furthermore, in addition to our existing world fuel services and BaseOps fueling cards, we have just launched two new fuel card initiatives. One is the joint World Fuel-Jefferson fuel card. And the other is an elite Boeing Business Jet-Jefferson-World Fuel joint card which is issued as part of a special concierge service to all existing Boeing business jets and any new Boeing business jet delivered into the market. We have special 24-hour concierge service operations in London, UK and Los Gatos, CA dedicated to these high-profile customers. The launch of these cards represents important co-branding initiatives for the Company and will allow us to establish the kind of leading profile in the corporate market that we have enjoyed for many years in the commercial space. Industry response has been tremendous and bodes well for further growth in this market.

A fifth factor in our success is the development of advanced strategies on the supply side. Our supply team has been successful in working with oil companies to take over large pieces of their total jet fuel production to rationalize their sales and drive much better cost in economics for World Fuel. The success of this initiative promises additional opportunities going forward.

On the home-front, we continue to invest in reshaping the company with a view towards future growth and expansion of our business model. We have added top talent in the areas of corporate administration, human resources, international supply, business and financial operations and controls, systems, and global marketing. The impact of these hires is to improve our ability to measure, rationalize, and control costs; improve metrics for measuring performance and productivity; improve communication flow throughout the company; develop advanced fueling purchasing strategies to improve supply costs; and execute a more programmatic marketing discipline worldwide. Of course, information technology, which drives communication, processing, and service is more important than ever. Our available resources are committed to expanding our infrastructure and delivering an increasingly robust service offering to our internal and external customers. As we have said before, we will continue to make investments in this area, as we scale up the franchise to handle our anticipated growth in the business.

No conference call in this day and age is complete without some mention of Sarbanes Oxley. In fact, World Fuels as well ahead of schedule on our path to full compliance. More importantly, we have used the process to drive business efficiencies and improved effectiveness at every level of the Company. Andy Grove of Intel was fond of saying no one of us is as smart as all of us. And nowhere is this more true than in area of business process mapping. This process is painstaking and complex. And our global team must be commended for embracing the challenge with positive attitude and turning what many in the public view as an onerous burden, into a unique opportunity to make our company a better company. Good process from our perspective, creates a distinctive competitive advantage in the market. Special thanks are in order to our CFO, Frank Shay, and his global team for leading this initiative.

Looking forward, the Company is in a great position. We're experiencing increases in volume, gross profit, net earnings, while our receivables are in better shape than ever. Our business model is growing according to plan. We have a strong cash position. And we continue to actively explore a range of significant strategic opportunities. On July 26, the 2002, a year ago almost to the day, Michael Kasbar and I transitioned into our roles as of senior management of World Fuels. It has been our privilege over the past year to work with a great team of professionals to transform this company and its culture, so that it is successful -- not just for today -- but for many years to come into the future. While a tremendous amount has been accomplished over the past year, I know I speak for the entire team when I say it's just the beginning and the best is yet to come. We thank you and all our shareholders for their continued support and faith in our vision. On that note, I'd like to turn it over to Frank Shay for a detailed review of the financials.

Okay. Let's go through the numbers. Starting at the top of the P&L with revenues. Total revenues for the quarter ended June 30, 2003, were $646 million up 41 percent year-on-year from revenues of $459 million in the same quarter of 2002. Marine segment revenues were $417 million, an increase of $85 million or 26 percent compared to the comparable calendar quarter last year. This increase is due both to higher Marine fuel prices and to higher volumes of Marine fuel sold and brokered. Coincidentally, the year-on-year increases in the quarterly average price and in the quarterly unit volume of Marine fuel sold were both up 12 percent. Our total unit volume of marine fuel reselling, plus brokering business, increased by 7 percent to 4.3 million metric tons. For the quarter just ended, our fuel reselling activities, as compared to broker volume, represented 51 percent of total marine business activity, up slightly from 49 percent in the same quarter a year ago.

In our aviation services segment, revenues totaled $229 million for the quarter just ended, an increase of $102 million over revenues of just $127 million in the comparable calendar quarter last year. This substantial revenue increase is due to a 74 percent increase in the number of gallons of aviation fuel sold and a 4 percent increase in the average price of that fuel. In fact, we sold fully 233 million gallons during the quarter just ended compared to only 134 million gallons in Q2, 2002. This large increase in volume is the result of new commercial and government business and increases in both our bulk business activities and in our new and strongly growing fuel management business. For the first half of 2003, total revenues for the company were $1.3 billion an increase of $494 million or 61 percent versus the same period a year ago. In the Marine segment, revenues increased by $226 million or 38 percent, primarily due to higher average price per metric ton traded, as well as a slight increase in total business activity. Aviation segment revenue in the first half of 2003 increased by $268 million or 121 percent compared to the same period in 2002. This was due to a 93 percent increase in the volume of gallons sold and a 15 percent increase in the average per gallon price of fuel sold. So much for sales.

Let's move onto gross profit. Our gross profit for the second quarter of 2003 was $25.5 million an increase of $5.4 million or 27 percent compared to the second quarter of 2002. Marine segment gross profit increased 46 percent to $13.6 million compared to Quarter 2, 2002. In our aviation group, gross profit increased 10 percent to $11.9 million compared to the previous year's second quarter. Our gross profit margin for Q2, 2003, was 3.9 percent versus 4.4 percent in the same quarter last year. Marine's gross profit margin was 3.3 percent in the quarter just ended, increased half a percent over 2002's comparable gross profit margin. Aviation's gross profit margin actually decreased from 8.5 percent a year earlier to 5.2 percent in the quarter just ended. In slightly different terms our gross profit per gallon of fuel sold was 5.1 cents for the quarter just ended which was 3 cents lower than the figure for last year's second quarter. The decline in our average gross margin was due to strong volume growth in our lowest margin businesses -- mainly our bulk fuel businesses, bulk sales business, and our new in the last 12 months fuel management business.

For the first six months of 2003, the Company's gross profit was $52.8 million in increase of $11.5 million or 28 percent. The Company's gross profit margin was 4 percent versus 5.1 percent for the comparable period a year ago. The cost for the decrease in our gross profit margin for the first six months of 2003 is consistent with the quarterly aviation margin explanation I just gave. Next in our financial tour -- our operating expenses, which for the second quarter of 2003 were $19.7 million an increase of $5.5 million compared to the same quarter in 2002. This significant year-to-year increase in operating expenses reflects increases in all three operating expense categories. Salaries and wages, the provision for bad debts, and other operating expenses. Major factors causing a $3 million increase in salaries and wages were new hires to support our accelerated business expansion, the front-end cost of the number of business process improvement initiatives, and payments and accruals for achieved and potentially achieved performance-based incentive comp payout. Accrued but not yet fully earned incentive compensation accounts for the largest part of the increase in salaries and wages. The increase in the provision for bad debts of $596,000 primarily resulted from the higher, but not really unusually higher, level of write-offs this year versus last year. The $1.9 million increase in other operating expenses was primarily related to the business process improvement and business expansion initiative mentioned a few moments ago, as well as to higher overall operating costs. Some of the high -- of the larger cost increases year-to-year were for professional services such as legal, up $346,000, and consulting up$193,000. Also, insurance costs were up $278,000 and independent directors compensation was up $242,000.

Finally, among the larger increases was depreciation and amortization, up $508,000, due to the accelerated amortization of computer software. For the first six months of 2003, total operating expenses were $40 million an increase of $11 million or 38 percent as compared to the same period a year ago. The major increases in operating expenses for the first six months of 2003 were due to factors that were largely consistent with those for the quarter. Continuing in our P&L review, we come to income from operations, which for Q2 '03 was $5.8 million, a slight decrease of $88,000 or 2 percent over the same quarter in 2002. Our Marine segment earned $5.1 million in income from operations in the quarter just ended, an increase of $2 million or 67 percent compared to Quarter 2, 2002. Our aviation segment's income from operations as for this year's second quarter were $4.7 million, a slight increase of $58,000 or 1 percent over the comparable period last year. For the quarter just ended, our additional operating income provided by our Marine and Aviation segments were slightly more than offset by our higher corporate overhead -- the details of which I just reviewed a few moments ago in some detail when discussing operating expenses. For the first six months of 2003, income from operations was $12.7 million, an increase of $447,000 or 3.6 percent compared to the same period in 2002.

This is a good time to make note of segment ROA ratios. Our operating return on Marine segment assets for the quarter just ended was 13 percent, versus 7 percent in Q2 '02. Whereas, in our Aviation segment, we had an operating return on segment assets for the quarter just ended of 14 percent versus 25 percent last year. Next stop on our P&L review is net nonoperating income, which for the second quarter of 2003 totaled $482,000, as compared to net nonoperating expense of $311,000 during the same quarter a year earlier. This $792,000 positive turnaround in our net nonoperating account for the quarter just ended was primarily due to a net unrealized FX gain, as compared to net unrealized FX loss for Q2 2002. As a practical matter, on a fully realized basis we usually do enjoy modest FX gains and have not sustained any significant losses in any recent time period. Also as a matter, of course, we formally hedge all significant open FX positions.

Partially offsetting the FX turnaround was a decrease in net interest income, due to lower interest rates. Regarding taxes, our consolidated effective tax rate for the second quarter of 2003 was 13 percent versus 21 percent for the second quarter of 2002. Thus, we provided $820,000 for income tax payments for the quarter, as compared to $1.2 million for the corresponding quarter last year. The lower effective tax rate for the quarter just ended, results from income tax benefits that stems from U.S. operating losses at a tax rate of approximately 35 percent and increased operating income in low tax foreign jurisdictions as well as lower statutory tax rates on certain types of foreign income. For the first six months of 2003, our effective tax rate was 17 percent as compared to 26 percent for the comparable period last year. We have provided $2.2 million for income taxes for 2003 as compared to $3.2 million for the same period in 2002. The explanations for the lower tax rate for the first half of 2003 are essentially the same as those for the second quarter.

Our net income after taxes and our diluted earnings per share for the quarter just ended were $5.4 million and 49 cents, respectively, as compared to net income for the second quarter of 2002 of $4.4 million and diluted earnings per share of 41 cents. For the first six months of 2003, our net income after taxes and our diluted earnings per share were $10.7 million and 97 cents, respectively, as compared to $8.9 million and 82 cents. Finally, regarding the P&L -- a few ratios. For both the second quarter 2003 and the first six months of 2003, our ROE or return on equity, was 16 percent and our our ROA or overall return on assets, was 7 percent. These return percentages are each virtually the same, as in the corresponding period in 2002.

Now let us review our balance sheet as of June 30 2003. Again, starting from the top our cash position was $68 million versus $58 million on December 31st, 2002. Usage of cash during the first six months of 2003 included $2.5 million of payments on the principal portion of prior-year's acquisition notes, $1.6 million for dividends, and $2.4 million for capital expenditures. These outflows were largely offset by $10.8 million of cash provided by our operating activities, $467,000 provided by employees and directors exercise of stock options, and net borrowings of $5.0 million under our bank revolving credit facility. As of June 30 2003, working capital totaled $94 million and total assets were $301 million whereas as of December 31st, 2002, working capital totaled $82 million in total assets for $312 million. As regard to our most important asset, gross receivables, they decreased from $188 million at year-end 2002 to $158 million at the end of the quarter just completed. Nonetheless, our allowance for doubtful accounts increased slightly from our previous fiscal year end by $684,000 to $11.8 million. During the first half of 2003, we provisioned $3.9 million in wrote-off receivables, totaling approximately $3.1 million.

This is a good time to take note of the most important asset quality ratio we have, consolidated days of sales outstanding or DSOs. At the end of the quarter just ended, DSOs were just 24 days which compares quite well with 31 days of the same dates a year ago and 29 days at December 31st 2002. As for the other side of the balance sheet, regarding total liabilities in particular, our debt increased by approximately $2.5 million from the previous fiscal year-end, due to net borrowings of $5 million under the revolving credit facility, offset by principal repayments of $2.5 million of notes related to prior-years' acquisitions. Finally, at June 30, 2003, consolidated shareholders equity amounted to $137.8 million, an increase of $10.1 million over our previous fiscal year. Thank you for staying with me during this necessarily dry and detailed overview of our Q2 '03 numbers. Now, before we go onto the question-and-answer period, let me first turn the leadership of this teleconference back to our Chairman Paul Stebbins.

Thank you Frank, great review. I would like to open it up now operator for questions from the audience.

(CALLER INSTRUCTIONS) Joe Chimbler, Stephens, Inc. Please go ahead.

A good morning. Great quarter. First, let me start on the marine side. I'm just wondering if you can talk about the sustainability of the current quarter's margins? And a little more detail on what is going on in the shipping industry?

Sure. Let's start with industry background first. As you know, Joe, last year at this time and through most of the last year, shipping had gone through a very difficult and prolonged slump. And we were whethering that storm, I think, pretty well. We were able to hold onto market share and volume. And I think, as we have discussed in previous conference calls, we knew and we were confident that if we could return to more historical-type margins levels, we would do well. In fact, that has happened. You're now seeing margin improvement, which is significantly over where we were last year. And certainly much more in-line with historical levels. On sustainability, it's difficult to predict that going forward with anything precision. But I think we're feeling comfortable within the core business. The kind of margins we are seeing right now at around 5 dollars a ton are actually pretty solid. Again, difficult to give you absolute precision going forward. But we are feeling that we have done a lot to improve our targeting and our focus and our ability to maintain margin. So, we feel good for the near-term that those margins should hold pretty well.

Okay. During this difficult time, could you talk about turnover among the brokers on the marine side? Has there been much? You've gained our lost people net net?

No. In fact, it's held pretty steady. In fact, we've made investments in bringing in some new folks as well. We see those down markets as opportunities to attract talent. We think that we've got the best franchise in the market. We have also got a compensation structure that rewards team-work -- rewards people who take the longer-term view. It is something that we think is one of our most distinct competitive advantages -- is our ability to attract and maintain and keep that talent, which means we've got the depth of the (indiscernible) expertise. We've got a robust training program in the group. So we think that, again, unlike more traditional, conventional shops that are sort of more mercenary in nature, we've got a very strong corporate culture that speaks to long-term durability. Our turnover, as a matter of history, has been very, very low. We've done a very good job of attracting talent. And we've got key regional leadership throughout the group that's been with us a long time and understand our mission. It's a very mission-focused kind of culture. And I think that we feel very good about our ability to attract and maintain talent.

Let me jump to aviation real quick. Can I -- should I assume most of the cost increases have been related to your aggressive aviation growth initiatives?

That is certainly a component of it, Joe. We have taken the view -- I think you know the Company well enough that we're not looking at this, in terms of the short-term view. We are building kind of -- looking for the right metaphor -- sort of the Japanese sword. It's the long-term value play. We have made investments in all aspects of our functional and process reorganization in the Company. We've brought in and top-graded talent in all the major functional areas. And, certainly, some of that is generated by the scaling up of the aviation franchise. But I would say it speaks to growth in marine and aviation. So we are committed to building a platform that allows us scalability. We have a lot of confidence in our ability to grow the franchise. But it requires us to make those investments both in talent, process, structure, to make sure we can effectively service the new business. So, are making those investments. We think that's the right thing to do. Again, it's about building durability overtime.

Okay. So, when you pick up some business -- like Southwest or a Jet Blue, can you just explain how you assess the required investment, versus a potential return on that investment -- when you look at the margins, it's definitely lower margin business but higher volume. How do you assess the opportunity there?

I think some of it is incremental. Again, we have been scaling the organization to be able to accommodate new volume. So it is not as if we have to make radical increases every time we add a new customer -- depending, of course, on the scale. Were we to, again, double or triple the volume -- yes it will require some scale scaling up, in terms of staff. But it isn't kind of a one-to-one. You get a lot of leverage out of adding a few people -- can handle a whole lot of volume. Again, we're also focused, not just on personnel, but on systems improvements. And you hear us talk about our continuing commitment to upgrade and refine our investment in technology, because the ability to work efficiently and process all of that volume is really as much a key as it is just people. It isn't about adding sort of more bodies just to handle. It is also a combination of systems as well.

Finally, can you talk about other Southwest-type opportunities out there that you are pursuing?

I would be reluctant to mention them by name. But we have an active program that has targeted at the low-cost airline service providers -- people in that space are out there. We have a service offering which is particularly attractive. Again, the ability to outsource and shed something that is not -- a noncore functioning and get assistance in managing their exposure to market volatility and help effectively manage and plan their fuel program. That is something we do very well. It's getting considerable attention. It's a slow sales cycle. We don't -- these are not quick kills. not something where you just walk in and take over an account. These are long months of refinement and understanding their systems and how they operate -- getting them comfortable that they can outsource these things. It's a slower sales cycle. But we have a lot of proof of concept in the space. And we expect that model to grow.

One question on the balance sheet. It looked like long-term debt came down by about $10 million from the first quarter. Can you just explained what is going on there, Frank?

The easy answer there is, we simply had improved cash flow from the business. So we simply paid it down. It's a revolving credit. So, obviously, it goes up -- goes down, as the needs are there. It just has to do with the trade terms and the way they are working in the marketplace.

And then, your cash position is building up pretty nicely. Any near-term opportunities to put that money to good use?

As you know from previous calls -- we've discussed this a lot. we believe that having a good cash position is important for several reasons. One, it allows us and enables us to respond to sharp changes in oil prices and the intended impact on receivables and cash flow. That is something we talked about before. And so we are always to have happy to have that on hand. We also continue to actively evaluate strategic opportunities to expand the core business, both through acquisitions and through strategic alliances. I'm not in a position to discuss those specifically. But I would just say we are actively pursuing that, because we think that is the best ultimate deployment of that cash. However, I would tell you that -- should, after exploring the range of those opportunities, we are unable to capture those opportunities -- then, of course, we would look to take some of the significant free cash flow that we generate. And we'd either be looking at a buyback or raising the dividend or what have you. However, I can tell you, it's management's disposition that we're fully committed to looking for ways to deploy that cash in expanding the business model.

Okay great. Thanks.

Larry Peck, Copper Beach Capital. (ph)

I think Joe took all my questions. But I just want to follow-up on that last question. What exactly is the level that you really feel you need, in terms of cash, to operate your business. I mean there is a certain point where it starts to get a little ridiculous -- having that much cash on your balance sheets. I've never really seen a big fluctuation in that number in the last two years. What is the number there?

I tell you Larry, at the risk of sounding like I'm evading you a bit -- it's a moving target and I'll tell you. We're in a growth mode. We're expanding our business model. As you can see from your aviation volumes that have increased year-over-year and what our commitment is to growing that business model, it is hard to assess with precision right now, what exactly is the static amount of cash that we feel comfortable to have on-hand, because oil prices are volatile. The amount of business that -- cash that we deployed in the ongoing business is often times a function of what's going on in price volatility. So it's a little bit of a moving target. And as you -- you know this company well enough by now, we have a very conservative disposition about that. And our view is, you're better off having your powder dry and being able to be very responsive. So we've got two things going on. One, it's always being prepared for volatility. And two, we're committed to a growth mode. And were expecting continued growth in our volumes -- both of which will require cash. Yes, it is true that we also have that cash on-hand, because it is our perception. It's our strong disposition in management that there will be ways to deploy that cash, either in strategic acquisitions or joint alliances with companies in this space. Again, I'll just reiterate -- if we fail to capture those in any meaningful time horizon, we -- I think, we would be disposed to evaluate and look at either stock buybacks or an increase in the dividend.

Following on that. The last time -- that's a fair answer, by the way. I appreciate that. The last time I looked at a map with your global offices on it, I didn't really see too many holes -- on the marine side or the aviation side. Maybe you can, conceptually, just talk about what you are looking at, in terms of what you are trying to fill, in terms of the business?

Sure, let's talk a little bit about that. If you look at that map you're right. We're now some 30 offices in 16 countries. And we have very much developed that office network with a view toward strategically rounding out our global presence. However, there are some opportunities, looking forward. We think that Russia is a very important emerging market. And it wouldn't surprise me if sometime in the next 6 to 10 months, we had a presence there that actively looked to expand that area. Companies like -- in that former -- in the Russian market. There are many, many airlines. We have some activity in net space now that has been very successful. It's not inconceivable that we would look to establish a presence in a market like that. Again, it isn't so much just a function of opening up those offices. But look at where we've been over the last couple of years. We developed that office network to build a platform that enabled us to drill more deeply into these regional areas. From our perspective, having just funded the establishment of those offices is just the first phase of the business strategy. The next phase of the business strategy is to build on that platform and drill more deeply into each of those regions. And there is a deployment for cash in each of those opportunities. So, I think that we have also made an investment. As the organization becomes more far-flung, it requires a level of regional management and structure that we didn't need historically. So we've made investments in that area as well. Again, we want the thing to be built tight, solid, and really strong. It isn't about just bring sprinkling a whole bunch of offices around the world and see what happens. Again, we're taking a very careful, prudent to view towards investing in the training, the talent and making sure that we have really analyzed these markets before we go into them. Yes, it's true. We have a very broad global coverage. Our franchise is unique in that respect. There's nobody who's got that depth of coverage. But there are still markets that we think will justify investment.

Okay. Great. Appreciate it.

John Bendel, Hermitage Capital.

Hi Paul. Thanks, that was a great quarter as it always continues to be. Most of the questions have been answered. What are you now authorized that you all could buy back -- from the Board -- as far as buying in stock?

Our current authorization, I believe -- I don't have to precise number. But it's somewhere between 7 and $8 million that we have currently authorized.

Right, yeah thanks. As I said, every question that I had was already asked. And congratulations.

Thanks so much.

Greg Ivan, Safeco Asset Management.

Thanks. Good morning, guys. Could you talk about the volume growth in the aviation business? Gallons were up 74 percent -- how much of that was contributed by the fuel management business? That's been on a ramp in the last few quarters. And how much of that -- maybe -- of that growth might be from acquisitions that you have made -- I don't remember when the BaseOps, for instance, when that closed. Is that in this year, versus last year?

The number -- the percent of that volume growth that we can directly attribute to fuel management business is 40 percent. And the rest is ongoing growth in our core business and developing our model, which has been to again, Greg, going back a couple years ago, you will recall that the history of the aviation business had been sort of Latin-centric and in kind of the cargo space. We have been actively, over the last several years, been developing a model which drills more deeply into a broader cross-section of the aviation space, including charter, military, corporate space, what have you. We have done, I think, a pretty good job of expanding that. We have proof of concept in each of those major areas. And we continue to drill more deeply into each of those spaces. The growth is a combination of all of them. It is true that when we land a fuel management account, typically it's a larger chunk of volume at a time. And it is at a lower margin, as you know. But it tends to be blue-chip -- and in many instances even a prepay model. It is slightly different. And yes, it has contributed to growth. But I'm confident and feel good to be able to tell you that the growth is not just in that area -- it's across the board.

I'm glad to hear that. Did you open any new offices around the world this quarter?

We have not this quarter opened any new offices. I don't think, have we? No we have not, sorry.

I think I read yesterday -- it could've been the Wall Street Journal, it could've been the New York Times -- an article -- the headline said airlines are considering moving into serving Baghdad. You never had an office in Baghdad did you?

We have not. But, you know us. We are agile on our feet and we are highly focused on that opportunity. And we'll see what evolves. It's obviously a highly chaotic state right now. It's absolutely, clearly the intention of the local authorities to commercialize that market and develop commercial traffic into that space. And we are definitely looking at that. We've got experience in the area. So we'll see what happens.

It would be essentially -- kind of the same customers that you are serving in other markets in that part of the world anyway right?

Correct.

You would already have that entree.

Right.

(CALLER INSTRUCTIONS) Joe Chambler, Stephens Inc. (ph)

Paul, you mentioned you guys picked up some business from Southwest. And I am wondering -- could you just explain what World Fuel brings to the table for someone like Southwest? And how difficult is it for them to begin using your services?

The only reason I mention this is that would say that in all the meetings that I've had with various analysts, they're probably the most asked about airlines, simply because everybody understands that Southwest has been consistently profitable for many years. And they are considered kind of a good model of what a well run company is, with a strong corporate culture. And so, from our point of view, we saw it as a -- it's a very tiny piece of business that we've done with them. But it's been one of those things where it symbolized our persistence and our effort to try to add value to a broader cross-section of the industry. And in fact, in this case, we were successful. Southwest is not going to turn around and turn over all its business to a World Fuel anytime soon. That is for sure. I think that it speaks to the issue of our being able to develop our business model to a level where we can add value to just about anybody, at least in someplace. So we were pleased about that. And I think it was difficult in that Southwest is the kind of airline that, at face value, would not have logically looked to World Fuel to be part of their solution. However, by being persistent and continuing to bring ideas to their attention, we were able to finally establish an opportunity to add some value. So we think that that speaks well of our creativity. And we also met them. And there is a very strong personal relationship there. I think they liked what we were doing. They liked what our culture was about. They liked the fact that we were constantly bringing creative ideas. And I think they finally found a way to make us part of their total fuel purchasing program.

Airlines like Southwest or Jet Blue -- what are some of the challenges that you guys would help them face in the fuel market?

Sure. When you think about what these airlines confront, it is complex. They're highly focused on their core competence, which is the moving of passengers -- highly competitive markets they're trying to break into, managing cost structures that includes unions and all sorts of other things. Fuel continues to be one of their highest operating costs. And it's a difficult thing for them to manage with any granular attention, because you've got a lot of complexity down at the localized level -- when you look at airports, when you look at inventory relationships, when you look at the fragmentation of their lifting patterns in various airports. Our ability to add aggregate volume and consolidate that volume with the rest of what we manage and certain markets, gives them economies of scale. It gives them the opportunity to get insight into local markets that they could never achieve on their own. And it's the ability to make sure they get good reporting and that the ability to track that in-house, in a way that they never could. And I would say, most importantly, it's about being proactive. Oftentimes these airlines are in a position were fuel to them was just one other thing they needed to buy. And they were largely in a reactive disposition. Our own view is that fuel purchasing methodology is about being proactive. It's about understanding markets. And it's about helping to add value, not only in terms of how they price, but how they manage the logistics and the supply. And lastly, how they process all that information and make it intelligible to management. We think that we give a good solution on that front. And we're getting a lot of attention in that area.

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Kelly, thanks so much. I would like to thank everybody for joining us today. We had a great quarter. We're very pleased. The team is doing well. We appreciate your continued support. And should you have any further questions, obviously, please feel free to contact me, Frank, or any of the team directly in Miami. Thanks very much.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. (CONFERENCE CALL CONCLUDED)