World Kinect Corp (WKC) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the World Fuel Services fourth-quarter and full-year 2013 earnings conference call. My name is Scott, and I will be coordinating the call this evening.

(Operator Instructions)

As a reminder, this conference is being recorded.

And I would now like to turn the conference over to Mr. Glenn Klevitz, World Fuel's Assistant Treasurer. Mr. Klevitz, you may begin your conference.

Thank you, Scott, and good evening, everyone. And welcome to the World Fuel Services fourth-quarter and full-year 2013 earnings conference call. I'm Glenn Klevitz, World Fuel's Assistant Treasurer, and I'll be doing the introductions on this evening's call, alongside our live slide presentation.

This call is also available via webcast. To access the webcast or future webcasts, please visit our website at www.wfscorp.com, and click on the webcast icon.

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

Before we get started, I would like to review World Fuel's Safe Harbor statement. Certain statements made today, including comments about World Fuel's expectations regarding future plans, performance and pending acquisitions, are forward-looking statements that are subject to a range of uncertainties and risks that could cause World Fuel's actual results to materially differ from the forward-looking information. A description of the risk factors that could cause results to materially differ from these projections can be found in World Fuel's Form 10-K, and other reports filed with the Securities and Exchange Commission. World Fuel assumes no obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events.

This presentation also includes certain non-GAAP financial measures, as defined in Regulation G. A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures is included in World Fuel's press release, and can be found on its website.

We'll 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 President and Chief Executive Officer, Michael Kasbar.

Thank you, Glenn, and good afternoon, everyone. Today we announced full-year earnings of $203 million, or $2.83 per diluted share, eclipsing the $200-million net income level for the first time in Company history. For the fourth quarter, our earnings were the highest of the year, at $51.9 million, or $0.73 per diluted share.

In our aviation segment, the team once again delivered strong results, setting a new volume record of just under 5 billion gallons, as well as records in gross profit and operating income for 2013. New Year's Day of this year marked 100 years since the birth of the commercial aviation industry, celebrating the first paying passenger's flight from St. Petersburg to Tampa in 1914. It took 23 minutes and cost $400. Obviously, the commercial aviation industry has come a long way since then, and the long-term outlook remains bright for the industry as a whole.

The latest reports are calling for total passengers to grow to 3.3 billion in 2014, up from 3.1 billion in 2013. This 5% increase in demand aligns with the compounded annual growth rate over the last 30 years, and shows that, despite economic challenges over the years, aviation-enabled connectivity has been an important driver for society.

In addition, about 50 million tons of cargo are transported by air each year, which equates to over $6 trillion, or 35% of the value of goods traded internationally. With the global airline industry turnover expected to be $743 billion, supporting over 57 million jobs, we continue to have an opportunity to capitalize on a market that presents a multitude of opportunities for our Company.

While the financial performance of our marine segment was below our expectations for the year, primarily due to the lack of volatility, but also continuing macroeconomic headwinds, our team worked to grow volumes, achieving a modest increase of 3%. We continue to navigate this fragile, consolidating and evolving market with caution, and remain focused on risk management and operational disciplines.

Although the industry is expected to be transitional, at least for the near term, we feel that the worst is behind us, and hope to begin seeing a gradual uptick in dry bulk container and tanker activity as we progress through 2014. Meanwhile, we are well positioned to manage the inevitable disruptions in the market, which flow from regulations, fragmentation, consolidation and political risk.

In our land segment, we once again posted records in volume and profits during 2013. We continued to integrate recent acquisitions onto the expanding World Fuel global platform, and look to continue to scale our operations and offerings while growing this segment to be an increasingly significant contributor to our overall performance. We expanded our suite of products and services to include natural gas and fleet cards, and further expanded our presence in lubricants and crude oil, and will soon significantly increase our presence in the United Kingdom with the previously announced plans to acquire Watson Petroleum.

Watson will mark the largest acquisition in World Fuel's history, and will transform our Business in the United Kingdom and across Europe. Headquartered in Brinkworth, England, with 670 employees, and expected 2013 revenues of $2.2 billion, Watson is one of the largest distributors of ground-based fuels in the United Kingdom. The Watson business brings with it a very talented and experienced team who are very excited to join World Fuel to strategically grow the business, utilizing our increased set of offerings and capabilities. Beyond Watson, our pipeline remains robust across all segments, business lines and geographies; and with our expanded credit facility, we have substantial capital to deploy in support of these opportunities.

We will continue to serve as a trusted distribution partner for the supply community, while redefining our customer base by expanding our presence in different geographies, industries and markets. 2013 was a very exciting year at World Fuel Services, and our many achievements were the direct result of the hard work and dedication of our 2,750 employees around the world. On behalf of the senior management team and our Board of Directors, I would like to thank all of our employees for their truly extraordinary efforts, as we look to continue the positive momentum into 2014. We appreciate all the support from our shareholders, customers and suppliers; and we will look to make 2014 a great year for our Company.

And now, Ira, please give a financial review of the results.

I will do that. Thanks, Mike, and good afternoon, everybody. As I review our results, I will talk about our performance for the fourth quarter, as well as highlight many of our full-year achievements for 2013.

Consolidated revenue for the fourth quarter was $10.4 billion, which is down 1% sequentially, but up 5% compared to the fourth quarter of 2012. The year-over-year improvement in revenue was due to the increase in overall volume across our businesses, offset by the impact of lower fuel prices.

Our aviation segment generated revenues of $4.2 billion, up 1% sequentially and 8% year over year. The entire year-over-year increase was a result of higher volume, offset by lower average jet fuel prices.

Our marine segment revenues were $3.5 billion, down 1% sequentially, but up 2% year over year. The entire year-over-year increase was a result of higher volume, offset by lower average fuel prices during the fourth quarter.

And finally, the land segment generated revenues of $2.6 billion, down 4% sequentially, but up 3% year over year. The entire year-over-year increase was a result of higher volume, which was also offset by lower average fuel prices during the fourth quarter.

Consolidated revenue for the full year was $41.6 billion, up 7% compared to 2012. The year-over-year improvement in revenue was due to the increase in overall volume across our businesses, offset, once again, by the impact of lower fuel prices.

Our aviation segment sold 1.3 billion gallons of fuel during the fourth quarter, up 25 million gallons, or 2% sequentially, and 175 million gallons, or 15% year over year. For the full year, our aviation segment sold 4.94 billion gallons of fuel, up 585 million gallons, or 13% year over year.

Volume in our marine segment for the fourth quarter was 6.3 million metric tons, relatively flat compared to last quarter, or the third quarter, but down 300,000 metric tons, or 5% year over year. Fuel reselling activities constituted approximately 92% of total marine business activity in the quarter, which is fairly consistent with the past several quarters. For the full year, our marine segment sold 26.6 million metric tons, up 800,000 metric tons, or 3% year over year.

Our land segment sold a record 932 million gallons during the fourth quarter, up 47 million gallons, or 5% sequentially, and 57 million gallons, or 7% from the fourth quarter of 2012. For the full year, our land segment sold 3.6 billion gallons of fuel, up approximately 440 million gallons, or 14% year over year.

Overall, on a consolidated basis, we sold a record 15.6 billion gallons of fuel in 2013, up 1.2 billion gallons, or 9% from 2012.

Consolidated gross profit for the fourth quarter was $196 million, which represents an increase of $9 million, or 5% sequentially, and $32 million, or 20% compared to the fourth quarter of 2012. Consolidated gross profits for the full year was a record $753 million, an increase of $79 million, or 12% year over year.

Our aviation segment contributed $84 million of gross profit in the fourth quarter, a decrease of $5 million, or 6% sequentially, but an increase of $8 million, or 11% compared to the fourth quarter of 2012. For the full year, our aviation segment contributed $327 million in gross profit, up $33 million, or 11% from 2012. While we had expected a decline in government activity in the fourth quarter, activity levels actually remained steady through the quarter; however, based upon activity levels quarter to date in the first quarter, we do expect a decline in volumes and related profitability this quarter.

Our self-supply model's jet fuel inventory position was approximately 132 million gallons, or $394 million, at the end of the fourth quarter, up from 121 million gallons, or $347 million, at the end of the third quarter. In the fourth quarter, we did realize a benefit related to inventory average costing of a few million dollars.

The marine segment generated gross profit of $43 million, an increase of $3 million, or 6% sequentially, but down $4 million, or 9% year over year. Our core business was relatively stable in the fourth quarter, as we saw a slight increase in volatility, resulting in a modest increase in derivative activity during the quarter. Reflecting the continued weakness in the marine markets, and historically low volatility, for the full year, the marine segment generated gross profit of $177 million. That's down $31 million, or 15% from 2012.

Our land segment delivered gross profit of $68 million in the fourth quarter, up $12 million, or 21% sequentially, where we saw the widened WTI-Brent spread that we mentioned on last quarter's call contribute to an increase in our crude oil business activity. And gross profit was up $29 million, or 72% year over year, mainly due to the inclusion of multi-service that was not part of our results in 2012. For the full year, the land segment generated nearly $250 million in gross profit, up $78 million, or 46% from 2012, representing 33% of our consolidated results.

For modeling purposes, please note that beginning in the first quarter of 2014, our crude oil transloading joint venture will no longer be reflected in our land segment or consolidated operating results. The World Fuel portion of such results will instead be reported on the other income line included in non-operating expenses, as our joint venture partner formally took operational control of this portion of the business at year end.

For a point of reference, this joint venture generated less than $10 million of gross profit in 2013. Our balance sheet was already impacted by this change at year end, including reductions to cash, fixed assets, and World Fuel's shareholders' equity. We will continue to consolidate our crude oil marketing joint venture, which will remain in our land segment results.

Operating expenses in the fourth quarter, excluding our provision for bad debt, were $125 million. During the quarter, we recorded expenses related to the announced upcoming acquisition of Watson Petroleum of approximately $2 million. Excluding these acquisition-related expenses, operating expenses were within the range provided on last quarter's call, at $123 million, which is up $3 million sequentially and $15 million compared to the fourth quarter of 2012. The year-over-year increase principally relates to expenses of recently acquired businesses.

Once again, for modeling purposes, I would assume overall operating expenses, excluding bad debt expense, of approximately $123 million to $128 million in the first quarter. As it is unlikely that the Watson acquisition will close much before the end of the first quarter, this estimate does not include Watson operating expenses, but does include approximately $1.5 million related to additional Watson-related acquisition costs we expect to incur this quarter.

Our total accounts receivable balance was $2.5 billion at year end, up 1% from the third quarter. Our bad debt expense in the fourth quarter was up to $6 million. That's up from $1.9 million recorded in the third quarter, and $400,000 in the fourth quarter of 2012.

Approximately half of the bad debt expense recorded in the fourth quarter relates to specific reserves related to two individual accounts receivable where collectability is unlikely. This reserve represents approximately half of the bad debt expense recorded in the fourth quarter. The balance principally relates to a general increase in our overall bad debt reserve, which remains at 1.1% of accounts receivable, which we believe remains adequate.

Consolidated income from operations for the fourth quarter was $64 million, flat sequentially, and an increase of $10 million, or 19% year over year. For the full year, income from operations was $264 million. That's up $7 million, or 3%, from 2012.

For the fourth quarter, income from operations in our aviation segment was $41 million, relatively flat sequentially, but up $6 million, or 16% compared to the fourth quarter of 2012. Our marine segment's income from operations was $17 million for the fourth quarter, a slight increase of $400,000, or 2% sequentially, but a decrease of $3 million, or 15% year over year. And finally, our land segment had income from operations of $21 million, an increase of $6 million, or 40% sequentially, driven principally by a rebound in our crude oil marketing business activity, and $9 million, or 69% year over year, relating principally to multi-service, which, once again, was not included in our 2012 results.

Consolidated EBITDA for the fourth quarter was $76 million, an increase of $1 million, or 1% sequentially, and $13 million, or 21% year over year. For the full year, consolidated EBITDA was $305 million, an increase of $21 million, or 8% compared to 2012.

Non-operating expenses, principally representing interest expense, was $3.7 million for the fourth quarter, down $2 million compared to the third quarter, and $700,000 from the fourth quarter of 2012. Excluding any foreign exchange impact or earnings from affiliated businesses, I would assume non-operating expenses to be approximately $5 million to $6 million in the first quarter.

Our effective tax rate for the fourth quarter was 12.2%, down from 14% last quarter, but up from 10% in the fourth quarter of 2012. The lower tax rate this quarter was impacted by the shift in the distribution of worldwide earnings to lower tax jurisdictions, most specifically, Singapore. When you look at the full year, however, the effective tax rate was 16%, which is flat with 2012. While our tax rate has fluctuated on a quarterly basis, and may do so in the future, we estimate that our effective tax rate for the full year of 2014 should be between 16% and 18%.

Our net income for the fourth quarter was $51.9 million, an increase of $400,000, or 1% from the third quarter, and $9 million, or 21% year over year. For the full year, net income was $203.1 million. That's up $13.7 million, or 7.3%, year over year.

Non-GAAP net income, which, again, excludes amortization of acquisition-related identified intangible assets, stock-based compensation, and expenses related to certain acquisitions -- that was $60.1 million in the fourth quarter, an increase of $2.3 million, or 4% sequentially, and $7.8 million, or 15% year over year. For the full year, non-GAAP net income was $230.5 million, up $14.6 million, or 7% year over year.

Diluted earnings per share for the fourth quarter was $0.73, an increase of 1% sequentially and 22% year over year. For the full year, diluted earnings per share was $2.83, an increase of 7.2% year over year. Non-GAAP diluted earnings per share was $0.85 in the fourth quarter, an increase of 5% sequentially and 16% year over year. And finally, for the full year, non-GAAP diluted earnings per share was $3.22, an increase of 7% year over year.

Our overall net trade cycle remained generally unchanged at 8.3 days in the fourth quarter, compared to 8 days in the third quarter, and 8.4 days in the fourth quarter of 2012.

We generated $51 million of cash flow from operations in the fourth quarter, bringing our total cash flow from operations for 2013 to more than $264 million. This compares to $98 million in cash flow from operations generated in the fourth quarter of 2012, and $146 million of cash flow from operations for the full year of 2012. We have now generated $410 million of operating cash flow over the past two years.

We repurchased an additional $15 million of our common stock in the open market in the fourth quarter, bringing our repurchases to $35 million for 2013. As I mentioned last quarter, we will consider buying back our shares from time to time, when we feel our shares are undervalued, principally to offset any dilutive impact of employee stock awards.

Our balance sheet remains strong and liquid. We had more than $292 million of cash at year end, and our net debt was only $172 million. Net debt to EBITDA remains strong at 0.56 times, providing us with significant capacity to fund organic growth and future strategic investment opportunities, while continuing to maintain a strong balance sheet.

As Mike mentioned earlier, on January 6, we announced that we signed a definitive agreement to acquire Watson Petroleum Limited, a leading distributor of gasoline, diesel, heating oil, lubricants, and other products and related services across England and Wales. The purchase price of the transaction is GBP117 million, subject to closing adjustments, and will be funded through cash on hand and our existing credit facilities. The transaction is expected to be $0.18 to $0.22 accretive to earnings on a GAAP basis in the first 12 months, and $0.28 to $0.32 accretive on a non-GAAP basis, which excludes amortization of acquired intangible assets of approximately $0.10 per share. We expect the transaction to close within the next 45 days.

So, in closing, 2013 was another very exciting year for World Fuel; and given the headwinds that we experienced in certain markets, we were pleased with our overall results. Our balance sheet, enhanced by strong cash flow, remained strong and liquid. And our capital structure, further enhanced by the expansion of our banking facility, will allow us to continue to grow our organic business, as well as invest in strategic investment opportunities, as evidenced by the recently announced acquisition of Watson Petroleum. We believe that the continuing evolution of our dynamic business model will further enable us to deliver strong shareholder value in 2014 and beyond.

I would now like to turn the call back over to our operator, Scott, to begin the Q&A session. Scott?

(Operator Instructions)

Ken Hoexter.

Great. Good afternoon. Michael, Ira, can you just talk a little bit about maybe the impact of the draw down on the air freight side? If we're going to see troops withdrawn through the year on a measured basis from Afghanistan, what does that do to the air freight side? You mentioned to expect some decreased government activity. Can you set the scale of what we should expect to see impact there?

Thanks for the question, Ken. It's Ira. I would say that we continue to expect declines every quarter, and we've been positively surprised with the fact that the level of activities remain somewhat stable.

As we get closer to the currently anticipated troop withdrawal dates, it becomes increasingly likely that we will see the declines. I would say for the first quarter, we will likely see a decline in profitability of a few million dollars, $3 million to $5 million or so.

Tough to say what the results will be beyond that, at this point; and we'll probably give another update on next quarter's call. There may be some continuing activity that continues on indefinitely, but that's really yet to be determined at this point in time.

Can you set the size of that within the Aviation business? Is that a measured portion of that Aviation business?

I think we've stated before that it's, in percentage terms of gross profit in Aviation, it's in the teens somewhere, and it will probably drop into single digits as we progress through 2014.

That's very helpful. And then you mentioned in cases of low volatility, Marine costs -- I guess there's a decrease in Marine activity. Do they end up going straight to the source to buy, or is that just a decrease in profit potential because they're not buying added services?

Ken, it's a combination of things. I think we put a chart up on the screen and you saw the dramatic difference in volatility between 2011, 2012 and 2013. So certainly, our services are offering greater value if we're helping to navigate difficult markets, and our ability to add derivative products, we're quite competent at being able to do that.

So that's part of the mix. And we thought that it certainly gives a real picture to be able to see that. And it's a combination. Certainly, there is the dimension you talked about, in terms of not feeling the need to utilize their services. I think it's more of a case on our inability to take off contracts and to be able to add value and pick up some additional margin by virtue of that.

When you look at the Marine side, you've got your three segments that are driven by macro global economic drivers. Containers driven by retail, tankers driven by oil demand, bulk is driven by industrial activity, a combination of slow steaming, over supply of ships. It's really not a great picture. You've seen some of the reports that we have. A lot of folks feel that the worst is behind us and you'll start to see some recovery. But it's certainly not a pretty picture, by any stretch.

Wonderful. That's my two questions. I guess if I could get my follow-up then on the crude business. You mentioned a lot about crude movements.

But I guess my follow-up would just be, any update on the Lac-Megantic exposure, or process in the court's cases? Anything that I guess that stalled business for a little bit, now it's back? Any comment on that, Ira?

All we could say is there really haven't been any material developments in relation to that particular incident beyond the information that we provided on the third quarter call. What we provided on the third quarter call remains completely accurate.

Appreciate the time. Thank you.

And our next question comes from the line of Jack Atkins. Please proceed.

Great. Thanks for the time, guys. Mike, I guess first off, if we could talk a little bit more about the Watson transaction. I guess, I'd love to hear you maybe talk for a moment about World Fuel's expansion into the land-based fuels business in Europe. It seems like Watson's the first foothold in that market.

And maybe can you talk about the long-term strategy and how you want to tackle that. Is it a combination of organic and M&A? Or given the cultural differences between certain regions within Europe, is it more of an M&A strategy there?

Thanks, Jack. Listen, it's a combination. We are continuing to refine our strategy. Each market is different, in the same way that each Marine market and Aviation market has similarities but differences.

So the Land business has been growing, really didn't start to get serious about this business until 2008. So it 's picked up quite strongly over a very short period of time. It's a combination of organic and acquisition. We've been in that market in the UK for quite some time. And the idea now, as you look at our business from a macro perspective, we're a diversified distribution platform.

If you look at the organized oil community, we're bringing that downstream expertise, bringing that customer handling side of the equation. You're seeing diesel and light ends coming into play with the Marine side. So you see that we bought US Energy not too long ago, the natural gas mix. So we'll continue to march throughout the world.

As you see, we've got operations in about 35 countries, with offices. We're doing business in almost every country in the world. There is diesel or gasoline or ethanol or lubricants or bio diesel in all of these locations. So it's really a perfect expansion for us, into the marketplace. There are similarities and synergies between our Land business and our Aviation business, our Land business and our Marine business.

So we're playing that role of partnering up with the oil community and being a trusted distributor and marketer, dealing with the underwriting, creating those technology platforms. So we like it. We think it fits. We've got a lot of cross-segment synergies there.

The UK is a great place for us. It's a great market. We established a de novo operation. We started to buy some smaller companies. Watson is just a fantastic group. We have ubiquitous coverage throughout the United Kingdom. So we've got a fairly sizable distribution business there. And we expect that we'll we get some meaningful synergies.

But you've got diesel and gasoline consumption and distribution in almost every country in the world. So every single market is a candidate for us to go into, and you know that we operate in so many different countries. So selectively, we'll look to enter different markets.

But this certainly was a great addition, as we consolidate our position there. You've seen what we've done in the US and Brazil. We're a sizable distributor there. We have small operations in a number of other different locations that aren't particularly meaningful now, but give us a presence in those markets that allow us to expand our activity in a number of different countries.

Okay. That's great. Thank you for that detail. And then just quickly, back to the Lac-Megantic situation, I don't want to harp on that. But Ira or Mike, could you maybe just give us a timeline on that adjudication process there in Quebec? As far as I know, there are some provincial tribunals. I'm not asking for any color around it. I'm just trying to understand when do you think we could maybe get some sort of resolution, as it relates to that.

Not a great answer. It's Ira, Jack. But the best we could tell you is that in matters such as this, with all the different parties involved and complications, the expectation is this will clearly not be months, but years, before a formal resolution. Easily, a year or two. But very difficult to pinpoint accurately.

Okay. That makes sense. And then Ira, just one last question here on the housekeeping side. I think I may have missed this, but in the past, you've broken out the gross profit contribution from multi-service. Did you give that in your prepared comments and I just missed it? I was just curious what that was in the quarter?

I believe that I did. But in the quarter, the related gross profit was about $13 million.

Okay. Great. Thanks again, guys.

(Operator instructions)

And our next question comes from the line of Jon Chappell. Please proceed.

Thanks. Good afternoon, guys. Mike, or maybe Ira, I just wanted to ask a question about the Land side. It's obviously grown pretty significantly, as Mike mentioned in his answer to a previous question. But the margins have also been ramping up, even stronger than the volume side. Obviously, multi-service had something to do with that. I would assume Watson, maybe, as well.

Is there any way to talk about -- and I know it's difficult to break down organic versus inorganic, because you've been such an acquisitive company -- but how the acquisition strategy, particularly as you built in Land, has impacted the ramp in the margins there? And when you look at Watson, should we expect to see another kind of cross selling opportunity where margins could potentially improve even greater than the volume potential?

I'll start. Mike can chime in. But I would say a lot of it is the mix of business. For point of clarification, Jon, Watson's obviously has no impact so far, because we haven't closed yet. So in terms of the results you're looking at, those are Watson-free, so to speak. I'll get back to that in a moment.

I would say over the last several quarters, it's clearly been more mix than anything else. This quarter, margins are up sequentially, driven a bit by crude, that has margins slightly higher. We had a better quarter in crude. But also a mix of some of our international activity in the UK, the pre-Watson activity, that was a bit stronger this quarter. So that's principally what you've seen so far.

Watson will indeed have a positive impact going forward, adding hundreds of millions of gallons at an average margin which is certainly higher than the Land average gross margin today. And as you mentioned -- I know I'm going back and forth -- if you're looking at total GP over volume, which includes multi-service -- to Jack's last question, that's obviously had an impact as well, although should probably strip that out when you're looking at fuel-related margins, anyway.

Just to add a little bit of color onto that. Our margins in our core business activity is relatively stable. It doesn't really change that much. We are in distribution businesses. A lot of this is contractual. There is some spot business activity. But it is fairly stable.

When you look at our Company, we are a broad-based in a diversified downstream distribution company that's added a lot of solutions, have transaction processing and fuel cards, and we've brought in other products like natural gas, and we've selectively entered the supply chain to create value. So from time to time, you're going to see an uptick. Obviously, we prefer mountains rather than valleys. We know that everyone's looking for ever increasing predictable returns.

But you are going to see, with that crude spread -- I don't want to say we don't care what the crude spread is. We're offering the market an efficient distribution channel and marketing channel and dealing with the underwriting. So from time to time, those spreads are going to have an impact on margin; but the underlying business is reasonably stable, from a margin perspective.

All right. That's very helpful, Mike. Thanks -- and Ira. My second question has to do with the Marine business. Mike, you said you think the worst is in the rear-view mirror. I would tend to agree with that. You also said a transitional year. I would agree with that, as well.

It's certainly not going to bounce back to probably even mid-cycle levels within the next 12 months. How are you think about layering back on risk in that business, as we kind of lift off the bottom but probably still in the period of pretty significant volatility?

You know, it's a very good question. I think we certainly see what you see. We certainly read what you write. And there are pockets of opportunities. So we feel that we've got great position within the marketplace. It's primarily a spot market, as you know.

So our risk profile, I don't think is going to change dramatically. Our underwriting is a reflection of the marketplace. So as things become safer, we'll let out more rope. I don't think we're going to change our fundamental discipline, in terms of risk.

So you can argue that perhaps we've been a bit conservative, but that's the way we've run the Company. I don't think we're planning on changing that. So as the market does come out of its doldrums, which have been significant, we should have greater opportunities to bring more business into the house.

And potentially do more business with existing customers, as Mike said, letting out more rope, where we may have limits today that we could increase in an improving market, and more stability amongst certain customers.

Okay. And then just for my follow-up, along those same lines. I think I asked this probably 12 months ago, a little more relevant today, as we're less than 12 months away from it. But the emission control areas with the US and Europe and the change in the structure of the fuel that goes into the ships. You mentioned opportunities a couple of times.

Is that a pretty significant opportunity for you guys, given your global presence and scale? Or like your customers, is it going to be a pretty significant challenge for you, given the pretty vast change in the way that ships are fueled starting in ten and a half months?

Well, we thrive on change. And you can call that another form of market volatility. So anytime there's a change in regulations, it's certainly an additional challenge. But for us, it's a tremendous opportunity to provide service, because we are focused on those changes. We anticipate those changes. We have the staff to be able to sort out and prepare to provide solutions to our clientele.

Our Land business puts us in a good position. And the ubiquitous coverage that we have with our global teams to be able to source from different providers, and the relationships that we have cutting across Aviation, Marine and Land puts us in an excellent position. So while those regulations may not be happy news to ship owners, it's an opportunity for us to add value and provide solutions.

Okay. Great. Thanks for your time, Mike. Thanks, Ira.

Thanks, Jon.

And our next question comes from the line of Greg Lewis. Please proceed.

Thank you and good afternoon, guys. Ira, I guess I have a couple quick questions. One was, did the provision for bad debt expense impact the tax rate in the fourth quarter?

Not in a meaningful way, no.

Okay.

There's no tight correlation between the increase in the provision for bad debt and the lower tax rate.

Okay. So it wasn't an impact. Okay. And then just as I think about 2014 and 2015, it looks like return on capital for the Company's been in the 11% range. As we think about Marine, the Marine business is probably not going to really be a major contributor to an increase in return on capital. Aviation seems like it's also kind of static.

Should we be thinking that if there is going -- to get return on capital back into that 12%, 13%, 14% range, should we be thinking that primarily -- if that is to happen, it's primarily going to be driven by the Land segment? And I guess, the combination of multi-service?

I'm not sure I would completely agree with that. I think across all three of our businesses that we have today, including multi-service within Land, there are opportunities for improvement that are both growth related. And certainly, one may argue that Land may have more growth opportunities in the short-term. But that doesn't mean that Marine doesn't have those opportunities going forward.

But also, various efficiencies that we could drive, in terms of the working capital requirements, to support an individual business, even if it's not growing materially. So we look at that on a very regular basis. And when you have $41 billion enterprise, moving that needle from 11% to 12% is a lot more difficult than when the enterprise was half the size. But there's certainly opportunities there, but it's just more heavy lifting.

Now one thing that's worth noting is the fact that while our ROIC, or return on capital, has been in the 11%, 12% range and had been higher, our cost of capital is down dramatically, as well. And I know everyone calculates that in different ways. So we often look at the spread between the two. And ironically, today the spread between the two is higher than it's been in a while, because of the fact that our cost of capital has dropped more than our return on capital in the last couple of years.

So that's the equation that effectively drives shareholder value. So we try to look at those two in tandem, how do we get to the most efficient cost of capital? And how do we drive the best possible outcome from a return on capital standpoint?

But even in Marine, once again, even if they're bouncing around the bottom for a while longer, we spend a lot of time focusing on how we at least improve returns in a market that may not be growing rapidly. And of course, in Aviation and Land, we've got both dynamics in play, that give us greater opportunity in the short-term.

Okay. Perfect answer, Ira. Thank you for the time.

You're welcome.

And Mr. Kasbar, there are no further questions at this time. I will now turn the call back to you for closing remarks.

Thanks very much for joining us. We feel great about where we are in terms of our long-term positioning. We feel excellent about what our team is focused on. We thank you for your support and look forward to talking to you next quarter.