World Kinect Corp (WKC) 2008 Q1 法說會逐字稿

Good morning. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the World Fuel Services first quarter 2008 earnings call.

All lines have been placed on mute to prevent any background noise. After these speakers' remarks there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) As a reminder, ladies and gentlemen, this conference is being recorded today, May 8, 2008. Thank you.

I would now like to introduce Mr. Frank Shea, EVP and Chief Risk and Administrative Officer. Mr. Frank Shea, you may begin your conference.

Good evening, everyone, and welcome to the World Fuel Services first quarter conference call.

I'm Frank Shea, Executive Vice President and Chief Risk and Administrative Officer and as is evident, I'm doing the introductions of this evening's call. Today's call is also available via webcast. To access this webcast or future webcasts, please visit our website and click on the webcast icon. With me on the call today are Paul Stebbins, Chairman and Chief Executive Officer; Michael Kasbar, President and Chief Operating Officer; Ira Birns, Executive Vice President and Chief Financial Officer; and Paul Noble, Senior Vice President and Chief Accounting Officer.

By now, you should have all received a copy of our earnings release. If not, you can access our release on our website. Before we get started, I would like to review World Fuel's Safe Harbor statement. Some of the comments to be made on this evening's call may include forward-looking statements under the Private Securities Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results or facts to differ materially from such statements. Detailed information about these risks is contained in the Company's SEC filings, which are available on the Company's website or from the SEC. We will begin with several minutes of prepared remarks, which will then be followed by a question-and-answer period.

At this time, I would like to introduce our Chairman and Chief Executive Officer, Paul Stebbins.

Thank you, Frank.

Today we announced earnings of $15.8 million or $0.55 per diluted share for the first quarter of fiscal 2008. Given the extraordinary turmoil in the U.S. financial markets and the related impact on the U.S. economy we observed in this quarter, we are pleased with these results. In our aviation segment, we saw an increase in volume but a reduction in overall margin, which we primarily attribute to two factors. We did not realize a benefit related to average costing as we did in 2004, and we saw an increased level of expenses associated with the implementation of our ERP system.

The most important discussion we want to have today about our aviation segment pertains to the overall operating environment in Q1, a period in which the financial markets were melting down, oil prices were soaring, and the U.S. economy was clearly weakened. In the U.S. , the aviation industry at large was negatively impacted this quarter by the increase in the price of fuel, which now represents some 40% of operating costs. Of specific concern to our shareholders were a series of highly publicized airline defaults reported recently in the press, including two carriers which had public filings listing World Fuel as a creditor.

We do not believe it is appropriate to discuss detailed legal strategy on specific accounts; however, we can tell you that the bankruptcy laws are complex and we have a high level of confidence in our position in both of these situations and believe our ultimate exposure, if any, will be diminimus. In this quarter, as always, we exercised all due care in managing our risk. Certainly the turmoil in the oil markets and the much publicized troubles in the U.S. aviation industry heightened our sense of vigilance, and we responded by tightening credit lines, shortening payment terms, and redoubling our efforts in the area of risk assessment across the board.

When discussing credit risk it is important to remember that this is the business we have been in for years and our credit, collections, and billing teams, as always, are very dedicated and we commend them for their diligence and agility in managing our exposure in this difficult operating environment. While credit losses will always be a part of our business, it's important to note that we continue to manage a highly diversified portfolio of accounts in a broad spectrum of aviation service, including passenger, cargo, charter, military, and business aircraft.

In fact, close to 70% of our current aviation receivables are domiciled outside the United States. And of our domestic accounts receivable, only about 30% are concentrated in passenger carriers, which is to say only about 8% of our total aviation receivables are related to domestic passenger carriers; and to add further perspective, it is useful to point out that two thirds of our total receivables are in our marine segment. We have always told our shareholders that in the event we see a negative confluence of events in which oil prices spike to unprecedented levels and the economy takes a significant downturn then we would prefer to exercise caution, selectively dial back our exposure to certain customers, and customer segments in our different businesses, and generally be more discerning in our customer mix and tolerance for credit risk, even if it means sacrificing short-term earnings.

But we also note from experience that volatile and uncertain markets can present opportunity. Our strong balance sheet represents a significant competitive differentiator in a market in which the suppliers and the customers are concerned about reliable counterparties. As we look forward, we will continue to add value to suppliers by playing an important role in aggregating fragmented demand, derisking their portfolios and rationalizing their distribution, and cost of processing.

On the customer side, we continue to provide a global presence, which insures market access, visibility into fragmented market, which drives strategic procurement and robust, financial operational, and logistical support, which drives risk management. In general, we remain positive about the opportunities we see to grow our aviation business in the commercial and the corporate space, both directly in the market and through our alliance partners. Having said that, we certainly appreciate and respect that the level of turmoil in the financial markets over the past nine months has been extraordinary and the aftershocks in the economy will be felt for sometime to come. We believe we have done a good job of navigating our way through a turbulent operating environment and have weathered this period far better than our less well capitalized competitors. As we look forward to the balance of the year, we will remain vigilant and cautious, but open to opportunity.

Our marine segment delivered an all-time record result in Q1, posting strong increases in gross profit and operating income, both sequentially and year-over-year. It is clear that we benefited from our continued investment in improving our service and product offering to the world's premier shipping fleets. The overall shipping industry continued to do well in spite of record high fuel prices and our keen sense of local market dynamics continued to add significant value to the most discerning and demanding customers in the world.

We could not be more proud of our global marine team which has proven its ability to react quickly to fast-changing markets while continuing to provide the premier finance services and logistics offering in the world. As we look forward, our focus is continued excellence in innovation, service, and execution for our customers and supply partners. In our land segment, we showed a loss this quarter. This reflects some seasonality in our current wholesale rack business, as well as an increase in expenses associated with our continued investment in key hires, both in the U.S. and in the U.K.

The most recent news in our land segment is our previously announced acquisition of Texor, which we expect to close in early June. Texor represents a best in class standard in branded retail gasoline distribution. They will join our group with founding management in place and a team of experienced long standing associates. Texor runs a highly professional operation and shares our entrepreneurial spirit and vision for expansion in this space. The Company generates cash, has a great service offering, and a relatively low risk portfolio. With its strong leadership and management team, strategically important geographic location, and highly refined business systems, we are confident Texor will compliment our existing land business and help us execute our strategy in this large fragmented and dynamic market place.

For all the challenges and market turmoil this was a good quarter for World Fuel. We held our own in a tough market for the aviation industry, demonstrated a continued robust growth in marine, and took a major step forward in securing a strong platform for our land business. As we look forward, we remain mindful of the volatile nature of the financial, commodity, and economic marketplace but note experience has taught us that times such as these create greater demand for our services.

We'd like to thank you, our shareholders for your continued support and will now turn the call over to Ira Birns for a discussion of the financials.

Thank you, Paul, and good evening, everybody.

Revenue for the first quarter was $4.5 billion, up 8% sequentially, and up 66% compared to the first quarter of last year. Our marine segment revenues were $2.4 billion, up 4% sequentially and 63% year-over-year. The aviation generated revenues of $1.9 billion, up 16% sequentially and up 70% from last year's first quarter; and finally, our land segment grew to $191 million, up 6% sequentially and 66% from last year's first quarter. These increases in revenue were significantly impacted by the sharp increase in fuel prices principally in the latter half of the first quarter.

Before I review our results by segment, I would like to point out that our consolidated and aviation segment results include AVCARD's results for operations for the entire first quarter of 2008, while comparative 2007 results only reflect AVCARD's results for the month of December. Our aviation segment sold a record 626 million gallons of fuel during the first quarter of 2008, up 4% sequentially and up 13% compared to the first quarter of last year. Our marine segment's total business activity was 7 million metric tons, down 2% sequentially, but up 1% year-over-year. Fuel reselling activities constituted approximately 75% of total marine business activity in the quarter, consistent with the fourth quarter of 2007.

Our land segment sold 69 million gallons during the first quarter, down 7% sequentially in what was a seasonally soft quarter, but up 17% compared to the same quarter a year ago. Gross profit for first quarter was $73.8 million, relatively flat sequentially, but up $22.6 million or 44% compared to the same quarter a year ago. Remember, gross profit in last year's first quarter was negatively impacted by a sharp drop in jet fuel prices at the beginning of last year.

Our aviation segment contributed $35.1 million in gross profit, a decrease of 10% sequentially, but up 78% over the fourth quarter--first quarter of 2007. Once again, this increase was negatively impacted by last January's sharp drop in jet fuel prices. In this year's first quarter, we saw significant volatility in jet fuel prices, followed by a sharp rise in price towards the end of the quarter; therefore, we didn't realize a meaningful positive impact in gross profit as we did in the fourth quarter.

Our self-supply model's jet fuel inventory position was approximately 31 million gallons, down 2 million gallons when compared to the fourth quarter. The dollar value of our related jet fuel inventory increased to approximately $90 million from $86 million in the prior quarter. While gallons of inventory dropped 7% sequentially, the dollar value of our the jet fuel inventory increased 5%, principally due to the impact of higher jet fuel prices at quarter end.

As we have discussed in the past, we hedge our product to protect our margins; however, as we have discussed over the past several quarters, the accounting protocols for derivatives do introduce a degree of earnings variability because of the timing disconnect between settling paper at the end of the fiscal quarter and selling physical inventory at the beginning of the next quarter. Ultimately, our objective is to reduce risk and protect our profits; however, because it's impossible to create a perfect hedge, there will always be gains and losses associates with movements in the market which impact the basis risk between the product we are hedging, jet fuel, and the product we are using to hedge, heating oil.

Similarly, there will always be timing issues with gains and losses associated with a portion of our inventory sales, which is impossible to perfectly match with hedges. Given the increase in prices, and the variability of basis risk, we have endeavored to limit as much as possible our exposure to gains or losses associated with inventory. With respect to inventory specifically, while I have already quoted our quarter end position, I should add that we continue to prudently manage our level of jet fuel inventory which is now down over 20% over the past six months. This too limits our exposure to the circumstances I have just described.

Our marine segment again delivered solid results generating record gross profit of nearly $37 million, an increase of $4.2 million or 13% sequentially and $7.4 million or 25% year-over-year, benefiting from significant price volatility during the first quarter. Our land segment delivered gross profit of $1.8 million, a decrease of 10% sequentially and effectively flat when compared to the first quarter of last year. Operating expenses for the first quarter were $51.5 million, an increase of 4% sequentially, or 3% excluding the impact of increased bad debt expense.

This amount exceeded the range I provided on last quarter's call. The principal drivers were increased bad debt expense and marine incentive compensation, which increased due to significantly better than anticipated operating results in the marine segment in the first quarter. Our bad debt expense increased $600,000 sequentially, to $1.9 million. The increase was principally driven by a higher overall receivables position driven by higher oil prices.

As Paul mentioned this past quarter, there were several well-advertised bankruptcies in the U.S. commercial passenger aviation market. In two specific situations we were formally named as an unsecured creditor of such airlines. While we do, indeed, have exposure to these particular airlines, as Paul also mentioned, bankruptcy laws are quite complex and we have generally found ourselves in a favorable position in terms of our ability to collect on our receivables in such situations. It's our belief that recent changes to the bankruptcy code have further improved our position.

As we have mentioned in the past, receivables management is one of our core competencies and such competency clearly includes our ability to navigate through unfortunate situations like the ones that received significant media attention during the first quarter. While we have certainly been negatively impacted by customer bankruptcies in the past, and could clearly be negatively impacted in the future, there are numerous bankruptcies, including some very recent ones where we had little or no exposures; therefore, we believe that our current reserve remains adequate.

To follow up on some of Paul's other comments, let me share some additional facts with you with respect to our current overall receivables portfolio. First, of our overall consolidated receivables balance of approximately $1.6 billion, at March 31, 2008, approximately 70% of such receivables relate to our marine and land businesses; therefore, only approximately 30% or $500 million relate to our overall global aviation business. Of this number, less than 10% relates to domestic, commercial passenger airlines. This is less than 5% of our total consolidated receivables. The majority of our aviation activity actually relates to international passenger airlines, cargo carriers, business aviation, governments, and other consumers of jet fuel.

Unallocated corporate overhead was $7 million in the first quarter, an increase of approximately $800,000 from the corresponding quarter a year ago, but down approximately $1.1 million sequentially. For modeling purposes, I will again try to help you with operating expenses as we did last quarter; however, since it is somewhat difficult to provide guidance for bad debt expense from quarter to quarter, the following numbers reflect estimates for total operating expenses excluding bad debt expense; simply compensation and general and administrative expenses. I would assume such operating expenses will be approximately 48 to $51 million in the second quarter.

We still expect such expenses to level off and begin declining in the second half of the year as costs related to the stabilization of our new global ERP platform begin falling off. To be clear, this estimate as well as the estimates for taxes and interest, which I will provide shortly, do not include any assumptions related to Texor, which we expect to close within the next 30 days.

Income from operations from the first quarter of 2008 was $22.3 million, a decrease of 9% sequentially, but up 32% from last year's first quarter. Income from operations for our aviation segment was $12.4 million, a sequential decrease of 32% and an increase of 61% when compared to last year's first quarter. As stated earlier, this comparison is skewed by the impact of January's sharp drop in jet fuel prices in the first quarter of 2007.

Our marine segment's income from operations was $17.7 million for the first quarter, an increase of 21% sequentially and 18% year-over-year. Our land segment had a loss from operations of approximately $700,000, primarily due to an increase in bad debt provision, as well as continued investments in the business. The Company and other expense net of $2.2 million for the first quarter.

This amount includes approximately $1.4 million of net interest expense, in line with the estimate provided on last quarter's call, as well as the impact of unfavorable foreign currency exchange movements. For modeling purposes, I would assume net interest expense of approximately $1.8 million for the second quarter.

The Company's effective tax rate for the first quarter was 21% as compared to 16% in last year's first quarter. The higher effected tax rate resulted from a shift in the mix of the results of operations derived from our subsidiaries and tax jurisdictions with higher tax rates, principally, the U.S. More specifically, the impact of the sharp drop in fuel prices last January negatively impacted our results which resulted in a lower overall tax rate in last year's first quarter.

Once again for modeling purposes, you can use an estimated effective tax rate for the second quarter and full year 2008 of 21% to 24%. This range is somewhat below the range provided on our last earnings call. Obviously our ultimate tax rate can vary depending on the shift in profits to tax jurisdictions with higher or lower tax rates at any given quarter as evidenced in this past quarter.

Net income for the first quarter decreased 13% sequentially, but increased 6% year-over-year. Diluted earnings per share decreased 13% sequentially, but increased 8% over last year's first quarter. Return on equity was 12.8% for the first quarter, compared to 13.8% for last year's first quarter. I should also note that in our earnings release filed earlier this afternoon, we have begun providing non-GAAP net income and earnings per share amounts in addition to our GAAP results.

As our recent acquisition of AVCARD and our pending acquisition of Texor will result in a growing amount of purchased intangible amortization going forward, we will regularly highlight such amortization in our quarterly earnings releases, as well as the quarterly impact of stock-based compensation expense as an additional tool for investors to use in evaluating our ongoing operating results and trends. In the first quarter,r the total impact of intangible amortization in stock-based compensation expense on net income was $1.7 million or $0.06 per diluted share, as compared to $1.5 million or $0.05 per diluted share in the first quarter of 2007.

At March 31st, our cash, cash equivalents and short-term investments were $84 million, compared to approximately $44 million at year end. With respect to the commercial paper investment which was written down by $1.9 million in last year's third quarter, we continue to estimate the market value of this investment at $8.1 million, consistent with our valuation at year end. This valuation remains subject to change and depending upon the ultimate resolution of this matter, additional impairment charges may still be required in the future; however, we do believe this matter is getting closer to reaching some form of resolution.

Despite the unusually sharp spike in oil prices in the first quarter, while this did impact the dollar value of our inventory, our receivables and payables increased by effectively the same amounts; therefore, our net operating cash flow was only negative approximately $5 million for the quarter. Day sales outstanding in the first quarter was 29.6 days, up one day from the fourth quarter, and our payable days were 22.9 days, up approximately one half of a day from last quarter. Inventory at $118 million was up $15 million from the fourth quarter, representing 2.5 days of sales, up slightly quarter-over-quarter. Inventory days in our aviation self-supply model were approximately four days, down one day from the fourth quarter.

On March 28th of this year, we announced that we signed a definitive agreement to acquire select assets of Texor Petroleum Company, including the assets comprising Texor's wholesale motor fuel distribution business, for a purchase price of approximately $104 million, plus a net asset value adjustment at closing. Texor with 2007 sales of over $900 million, and annual volume of approximately 320 million gallons is the largest independent motor fuel marketer in Illinois. This acquisition enables us to immediately enhance our position in the 180 billion gallon ground based fuel market.

As previously disclosed, this transaction is expected to be $0.08 to $0.10 accretive to earnings in the first 12 months on a GAAP basis and excluding the impact of a related intangible amortization, non-GAAP accretion is expected to be $0.23 to $0.27 in the first 12 months following closing. As mentioned earlier, we expect this transaction to close within the next 30 days and we remain very excited about teaming up with the Texor team.

In closing, although we delivered good results for the quarter, with crude oil trading at record levels and the ongoing instability in the credit markets, these remain challenging times for the global business community, including many of our customers and suppliers we serve. While we expect the year ahead to be challenging, we will look to continue capitalizing on our size and strength in the market place to achieve profitable growth, further enhancing shareholder value.

And with that, I would like to turn the call back over to Paul Stebbins.

Thank you, Ira.

Chris, if you would be kind enough to open the Q&A for all of our participants.

(OPERATOR INSTRUCTIONS)

Our first question comes from the line of Jonathan Chappell with JPMorgan.

Thanks. Good afternoon, guys.

Paul, on the marine side, just to start there. The volumes basically in line, but the gross profit was really, really strong. I'm just wondering about the average unit gross profit, what were some of the value-added products that may or may not have helped you out in the first quarter? Did you find people were just starting to hedge a lot more and starting to use some of your--some of your derivative hedging products because of some of the reports that fuel could get to $200, or was there anything else that drove the profitability of that market?

No, I would say that, in fact, because of the same dynamics that we discussed on a few of our previous calls, I would say that there's not a lot of price risk activity. There's still a lot of anxiety out there among the purchasing community about what is the appropriate time to lock in a forward position.

Now, I will certainly say that given the much publicized discussions about, gee, where could crude oil go, can it go to 130, can it go to 150? Is Goldman Sachs right, is OPEC right, is it going to go to $200? With all that kind of speculation, we may see some renewed interest; but I think there's also just been general anxiety in the shipping community that this thing may also be a little bit over blown, that there's a lot of commodity speculation going on; and there might be a slight balance.

So I would say that uncertainty has been--manifests itself in sort of a general reluctance to jump heavily into any price risk. So I would say, that was not a major contributor in the period. I would say, what really contributed was just a tremendous amount of volatility in the market, a lot of confusion and I would say just a high level of intense focus on our marine team on execution; and really focusing on these premier customers who are managing their exposure in a very volatile market and they just did an excellent job of focus and execution. So there's no magic to it besides that.

All right.

On the airline side, the aviation side, you laid out how you're taking some of the risk measures now. Is there also some opportunity, maybe some weaker competitors are losing market share? How do you balance the opportunity that the strength of your balance sheet provides versus not wanting to get in over your skis as far as risk?

Sure.

I think--look, I think you know enough about this management to know that we take a fairly conservative disposition. As Thomas Moore says, execution has a way of focusing your thoughts. So, when you think about what's going on out there in the global market place and you look at some of the--just the tsunami in the credit markets, whatever, we just stand back and take a pretty cautious view and say, look, live to fight another day, be very careful. Be analytical, be disciplined and try not to just chase the noise.

Now, having said that, I think you know from the history of this company, that this kind of turmoil, also does certainly present opportunities. So we are vigilant and we are alert to that as well. There's no question in our view that we have seen it have a tremendous impact on some of our smaller, less well capitalized competitors. We've seen some very significant fall out there with people being damaged. And, again, I think this is an area where we excel.

Risk management is what it's all about. Not getting confused about what business we are in, knowing what we do. It doesn't mean we're always going to get it right or that it's going to be perfect or that it's easy; but it's about being disciplined and I think that I really commend our team throughout this period of being extraordinarily disciplined and focused.

Okay, last one before I turn it over.

Are you guys seeing tougher credit restrictions from your suppliers despite the strength of your balance sheet? Is it getting a little bit tougher for you to take fuel in bulk?

Well, I think that we have seen a little bit of that, but in general, I think the supply community at large is beginning to say, gosh, I have to decide who I'm doing business with; and we still look pretty darn strong. I mean, when you look at the relative strength of our balance sheet and our position in the market, I would say that we still feature pretty high in terms of what looks like a good counterparty.

Now that doesn't mean that the supply community is going to give just completely unlimited credit to anybody, any time. So like anything else, these guys are managing their risk, they are having to go through their internal reviews. I think the oil community's, the supply community has been buffeted by the changes in the market as well. They are having to kind of take stock and rethink about what their own model is, but I would argue that it also presents an opportunity for us to be partnering more closely with these companies as they do an evaluation of the portfolios. If they look to think about how they're going to rationalize their distribution flow, and who they're going to partner with.

So I would say that our focus is on remembering that our supply communities are our partners, and we are work closely with them. The key to that is transparency, visibility, communication, and working very closely with them to make sure that they do a good job of keeping control over their own flow. Because back office processing is a problem, rationalizing all of their--their tickets and their invoicing, that's a challenge for them and we help do all of that. So I would say that it's kind of an upheaval out there but it's brought us closer to our supply partners.

Okay. Thanks a lot, Paul.

Our next question comes from the line of Al Kaschalk with Wedbush Morgan.

Good afternoon, guys.

Hey Al.

Paul, I'm not sure I understood the explanation on marine and why it was up better than, I think most of our expectations and arguably better than your internal and maybe I will just follow up on that afterwards; but I don't want to dwell on the negative, but is there something in land segment that's disappointing for you in the quarter, or it just seems in all honesty that it is a bit of a struggle here in that business and I know the acquisition will help, but maybe you could just add a little bit more color on that?

No, I mean, from our perspective, as management, I don't think it's disappointing at all. Again, you are talking to a management team that believe in building and building requires investment and the way you build out that business is by the investment in core talent. We've brought on some top people in the U.K. We continue to add a sales force here in the United States, and I would say that no, we don't view it that way at all.

The second thing that's not a surprise to us and we've had some discussion in the past is that there's seasonality to this business and Q1 is always the weakest season because, remember, the current land business that we are in is focused on wholesale at the rack and that tends to focus on some of the agricultural community and the commercial community. So this isn't the high point of the season.

So obviously do we want to be profitable? Of course we do. I think that's logical but we are also people that are interested in building businesses carefully and you've got to--that has a lot to do with talent, has a lot to do with just making the investments.

Okay. It's hard from the disclosure to carve out the investment in the business, but if I look year-over-year, it looks like the gross profit was actually flat to down a little bit, and the operating profit was down about a [jillion], so--

Yes, that's true, but I would also say, that this is a business that requires scale. You know what we are doing with the Texor. I think that this is a very interesting complement to our current platform, and it actually will drive some enhancement on our wholesale side, and that--what's very excited about Texor is, that this is the blue chip end of the spectrum in terms of brands and retail distribution. These are best in class companies and they have an excellent model.

So I think that we're very pleased because we think the Texor thing is going to give a little bit of boost to sort of solidifying our entire platform at both ends of the spectrum, both at the wholesale rack side as well as in the branded retail. So from our point of view, this is just the discipline of executing a business plan. We are building a business and we think we are exercising all prudent care.

No, I wasn't implying that, I was just trying to get a handle on maybe there's some one-time costs to help build the business that we could look at and say that segment seems to be performing in line with your expectations despite maybe a multi-quarter view. So, on the bad debt side on aviation, I know you don't talk about specific contracts and specific provisions, but I would have thought the number would have been a little bit higher in the quarter and certainly modeled it that way. Are we confident here on where we stand in terms of what we provide for the quarter and maybe the exposure in Q2 here?

Yes, we're confident in where we stand for this quarter. As you know, this is an extension review that we do in every quarter. We work closely with our auditors and as you know, Frank and his team do an extensive review across the spectrum on what our total exposure is and the provision reflects our best assessment and the best assessment of our auditors on what the risks are about.

So, absolutely we feel confident about it and I think as Ira explained in some detail, there's some reasons why it's up and it's reflective of the higher prices and the overall portfolio, but I would say generally speaking, we live and die in this market. While, as I said credit losses are always going to be part of our business, I think it's about just staying focused and, again, I commend our team on doing a very good job in sort of a difficult operating environment to maintain our discipline.

So there's no silver bullet. It's just hard work but the provision certainly reflects our best assessment.

Okay, and then finally, on the cash flow statement, I believe, there was a--the gain from the hedge and derivatives, is that part of the--what segment is that included in or how does that reflect in terms of--is that part of the aviation business that was stronger from a profitability standpoint or--I mean, the marine side or is it more at the aviation side?

That's mostly--Al, this is Ira, it's mostly from the marine side.

Okay. Thank you very much. Good job on a very tough quarter.

Thank you, Al.

Our next question is from the line of Jeff Allen with Silvercrest Asset Management.

Hi, guys.

Hey Jeff.

Ira, could you please repeat the volume number for the aviation segment?

626 million gallons.

Okay, and then you guys--you show on the non-GAAP reconciliation, the--the after tax number for intangible asset amortization expense, do you have the pretax number?

I think you would have to gross it up by approximately 30%. I don't have the pretax number right in front of me.

So it's a higher rate than the corporate average?

That's correct.

Okay, and so--and how--how long did you own AVCARD again in the fourth quarter?

We only had them for one month in the fourth quarter.

Okay, so that sort of divides it--

The first quarter would be triple Q4.

Okay. Okay. Great thanks very much.

Thanks, Jeff.

Our next question is from the line of Alex Brand with Stephens.

Thanks. Hey guys.

Hi, Alex.

I thought it was a good quarter. I think you overcame a lot in the quarter.

The one question I have or the biggest question I have is the explanation about not profiting as much from your average costing in aviation. I hear you on that, but as I look back, it's the lowest operating income to net revenue in aviation you've had in years. I think I looked back five years. So I'm still not clear what happened there? Did you actually get hurt by the average costing in the quarter that kept you from being more profitable, or is it just a timing thing or what am I missing?

I wouldn't say we got hurt. I would say there's a little bit of timing in the quarter. I think--I think if you look at where you started the quarter, the first half of the quarter you saw a lot of movement up and down without a real clear direction; and then you saw a climb in prices towards the end of the quarter and actually in the first week, week and a half of April is where you saw significant increases. So we didn't see clearly the type of benefit that we saw in the fourth quarter, or even a couple of the other quarters in 2007.

To be honest, in addition to that expenses are higher. So you are dealing with a quarter that doesn't have significant benefit from average costing and a higher expense burden than what you saw in previous quarters. Now, we believe that's leveling off as I described in my comments earlier. But, but effectively, that's--that's the best explanation I can give you at this time.

And I just might add to--this is Paul, I might just add to then. Part of that expense, of course, is associated with the implementation of the ERP system. Obviously that's a significant investment we've discussed at some length about why that's an important part of building a platform for the model going forward, but it's going to be absorbed over time and it's going to have an impact, but long term we still think that's the right thing to do.

Sure. Absolutely. Is AVCARD lower margin too? Is that part of it?

No. It's in the same boat. I would say that AVCARD has not had a material impact on the analysis that you just went through in your head.

Okay.

The other thing, it's been a while since I asked you guys in your aviation business if you had some rough percentages of what your business is, in terms of military government, freighter, commercial airlines, private jets, that kind of thing. Do you have--do you have that available? If not, I can get it after.

No, we haven't actually distributed that. As we did in the call, we did make some commentary because there was a lot of anxiety which was understandable given what was going on in the press. There was a lot of anxiety about exposure to domestic passenger carriers in particular.

So we thought it was useful to help the shareholders by giving some visibility on that and getting them some appreciation for its relative percentile in terms of overall AR exposure. But as a general rule and, of course, historically for some competitive reasons, we've been reluctant to break that out. The thing I would say, Alex, is that it continues to be a fairly diversified portfolio. We've got--I would say as we talked about, about 70% of the business is domiciled outside the United States. So it's diversified across a broad spectrum of activity, but in this case we thought it was useful to give some insight because of the concerns in the trade press.

Okay. All right. I appreciate the time, guys.

Thanks, Alex.

Thank you.

(OPERATOR INSTRUCTIONS)

Our next question is from the line of Edward Hemmelgarn with Shaker Investment.

Yes, just maybe you could talk a little bit about just the impact that you would expect to begin to see from AVCARD, how long that will take. I know that--at least from discussions with you, they should be having a higher gross profit on the aviation segment, I would think than your--than your average before that. But, are you beginning to see some--some positive impact from them on your numbers and how would you expect it to play out in the future?

Yes, I think when we announced the transaction, and we feel just as strongly as we did back then, maybe even more strongly now that we have been involved with the business for four to five months, that the--that the transaction would be immediately accretive to earnings, somewhere between $0.02 and $0.04, so let's say around a $0.01 a $0.25 and I think we are still on the same--on the same path that's principally what we saw in the first quarter and what we expect going forward. Margins are certainly a bit higher, so it positively impacts the mix, but we're still pretty much on target with what we've told the street from the time of the announcement.

What kind of synergies have you gotten so far, and what do you expect to get in the future?

With AVCARD specifically as we stated when we acquired that company their expertise on the business aviation side is with processing. So they bring to us a center of excellence in processing, not only in the back office, but also at the transaction. So, we've got a good engagement, the integration has gone extremely smooth and we feel very good about our ability to take that and leverage that throughout our entire organization, not only in our business aviation space, but also in our commercial space.

Well, I guess I'm just trying to get at what--I mean, what kind of a time frame, do you think this will play out on? Is this the type of thing that you would expect to see some reasonable improvement over the next--each quarter over the next nine months or is this going to be something more that will play out in future years?

Oh, no. This is 2008. I mean, you will see that impact in 2008.

Okay. What about--and then with your recent, or your acquisition that's expected to close in the land segment. That's a bit of a different business, I mean, than what you have been in the past in the land segment. At least it appears to be, and could you perhaps describe what your thinking is in that area?

Sure.

We got into the land business a number of years ago. We thought that it was applying our core competencies of marketing and credit, and supply and logistics to a space here in the U.S. working with our supply partners and that worked out very well, it was a bit of a different plan. We expanded quite rapidly throughout the United States.

We weren't, obviously, satisfied with the results, which is pretty clear. So we looked at all of the various different parts of the market that we could move to. We selected this part of the market space in terms of this contract, retail branded side because it had good dynamics, it had good cash flow, it had good margins; and the crowd in Chicago with Texor is just a superb group of individuals that fits with our organization.

It's--it's a market space that is still pretty fragmented. We think that we could duplicate what we have here in Chicago in the Midwest and other parts of the United States. So we feel that it brings together a very nice synergy between the wholesale unbranded and then the retail branded. So it creates a great value add for the supply community because we represent a very strong partnership for them to divest of their position there and put it in with a competent company with a strong balance sheet.

So their system side that they bring to the table, once again, gives us good solid transaction processing and combined with our ERP that we just put into place gives us a good amount of scalability. So a big part of the name of the game for us is scalability today. We've really done it the hard way over the years. So we think they we have got sort of a new opportunity here to get scalable operations.

This is going to be operating like physical centers, isn't it, in delivery of the fuel? On a--on a essentially a wholesale operation and that's not been your modus operandi in the past.

No, this is a very similar operation to what we have today. I mean, we are not actually physically delivering it, we are arranging it on a third party logistics basis. We are dealing with the receivable, we're dealing with the marketing, so we're dealing with the labor intensive dimension of that marketing collection sale that major oil companies would prefer not to get down to that level of detail. So it's very similar to what we are doing in our aviation and marine spaces but we're not operating these stations, per se. That's not the core strategy within this play.

Okay. It wasn't clear with the release that that wasn't the situation. All right. Thanks.

Thank you.

(OPERATOR INSTRUCTIONS) We'll pause for just a moment to compile the Q&A roster.

Mr. Shea, there appear to be no questions at this time. Do you have any closing remarks?

Sure. Thank you very much, Chris.

We appreciate all of you joining us today. It was a challenging but interesting quarter and we're pleased that you sort of beared with us through all of this and we look forward to talking to you in Q2.

Thanks.

Ladies and gentlemen, this concludes the World Fuel Services first quarter 2008 earnings call. You may now disconnect.