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Executives

Michael Kasbar - President and CEO

Ira Birns - EVP and CFO

Jason Bewley - VP, Corporate Finance

Analysts

Jonathan Chappell - Evercore Partners

Gregory Lewis - Credit Suisse

Jack Atkins - Stephens Inc.

Kevin Sterling - BB&T Capital Markets, Stephens Inc.

Ken Hoexter - Bank of America

World Fuel Services Corporation (INT) Q2 2013 Earnings Conference Call July 31, 2013 5:00 PM ET

Operator

At this time, I’d like to welcome everyone to the World Fuel Services 2013 Second Quarter Earnings Call. My name is Mandy and I’ll be your event specialist today. All lines have been placed on mute prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

It is now my pleasure to turn the webcast over to Mr. Jason Bewley, Vice President of Corporate Finance. Mr. Bewley, you may begin your conference.

Jason Bewley

Good evening everyone. Welcome to the World Fuel Service 2013 Second Quarter Conference Call. My name is Jason Bewley, Vice President of Corporate Finance 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 this webcast or future webcast, please visit our website 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’ve all received a copy of our earnings release. If not, you can access the release on our website.

Before we get started, I’d like to review World Fuel Safe Harbor statement. Any statements made or discussed today that do not constitute or are not historical facts particularly comments regarding World Fuel’s future plans and expected performance are forward-looking statements that are based on assumptions that management believes are reasonable, but are subject to a range of uncertainties and risks that could cause World Fuel’s actual results to differ materially from the forward-looking information.

A summary of some of the risk factors that could cause results to materially differ from our projections can be found in our Form 10-K for the year ended December 31, 2012 and other reports filed with the Securities and Exchange Commission. Our comments will include non-GAAP financial measures as defined in Regulation G. The reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures is included in our press release and can be found on our website. We will begin with several minutes of prepared remarks, which will then be followed by a question-and-answer period.

At this time, I’d like to introduce our President and Chief Executive Officer, Michael Kasbar.

Michael Kasbar

Thank you, Jason, and good afternoon, everyone. Today we announce second quarter earnings of $51 million or $0.71 per diluted share or $0.80 per diluted share on a non-GAAP basis. We achieved solid results this quarter and we’re pleased with the outcome. Our team of 2,500 professionals around the world is continuing to create value despite challenging markets and it showed in our results. We ended the quarter with a healthy level of cash and liquidity and had consistent financial performance across the Company.

Our Aviation Group’s performance was in line with the first quarter as fuel and services for commercial airlines continue to do well as we had expected. Our business in Asia was particularly strong as we’ve seen 20% growth over the past year. The airline industry overall is experiencing good results as constraints on expansion has been maintained and consolidation has improved industry dynamics.

In business Aviation our technology offering is beginning to take shape and we had a good quarter despite the expected seasonal drop in our deicing business. AVCARD which was our first endeavor into technology back in 2007 has achieved an annually compounded growth rate of nearly 20% over the past three years, and now has over 2,500 active customers. It is a key component to our technology offering moving forward.

Turning to our government Aviation business, the results were steady compared to the first quarter. We had been anticipating a decline in this line of business as troops come home from Afghanistan and the level of U.S. involvement in the region begins to draw down. This forthcoming drop will likely impact World Fuel in the second half of the year, but we remain optimistic about new opportunities, our experience in this space will create for us going forward.

In our Marine business, we made a nice come back in the second quarter with gross profit up significantly from last quarter. We had said during our previous conference call that we were hopeful that first quarter would mark a low point for this segment from which we’d begin to experience a rebound.

That rebound was more profound in the second quarter than we had anticipated. Marine fuels experience more volatility during the quarter, which aided our derivatives activity and in addition we saw increased activity in our higher margin business lines, which further added to our financial performance.

Our general outlook on the challenging Marine market has not changed, but we’re hopeful our level of performance in the second quarter can be generally maintained despite these challenges. I’m very proud of the expertise and leadership of our global team in Marine.

Regarding our Land segment, I’d like to first take a moment to address the recent rail incident in Quebec. As you’re probably aware, the train involved with the derailment was transporting product held in the name of the subsidiary of World Fuel, acting on behalf of our crude oil trading joint venture. We realized this has been a great tragedy for the local community and we want to again express our deepest sympathies and condolences to the victims, the families and all of those who have been affected by this tragic accident. I’ll be providing some additional information in a few minutes.

As for our second quarter results in Land, sequential gross profit fell this quarter as we had expected. In the first quarter we had exceptionally strong performance across many of our lines of business, but in the second quarter Land’s overall performance was impacted by lower margins in our crude oil marketing joint venture. Specifically the narrowing of the spread between WTI and Brent put pressure on our spot crude business, which largely drove the sequential decrease this quarter.

However, moving forward, we’ve exciting opportunities in Land, both from organic growth and a strong acquisition pipeline in the U.S. and throughout the world. For example, we’re working together with the Multi Service team to identify further growth opportunities and revenue synergies among our Land customers in area such as the multi service fleet card and private label products.

Overall I’m pleased with our results in our performance this quarter. I’m very proud of our team members who provide service around the clock and around the globe to our many customers. World Fuel plays an important role in the supply chain for both our supply partners and our customers with complex fuel logistics and financing needs.

For Marine to Aviation to Land, we continue to pursue profitable organic growth across our business lines. Over the last four years since the market has reached bottom in early 2009, we’ve grown volume nearly 20% compounded annually and remained focused on identifying strategic opportunities and accretive acquisitions. The Company has positioned well for the future and we’re excited about the long-term opportunities that lie ahead.

With that, I’ll now turn the call over to Ira for a financial review of our results this quarter. Ira?

Ira Birns

Thank you, Mike, and good evening everybody. Consolidated revenue for the second quarter was $10.5 billion, up 3% sequentially and 9% compared to the second quarter of last year. The year-over-year change in revenue was entirely attributable to the increase in volume across all three of our business segments.

Our Aviation segment generated revenue of $3.7 billion, down $186 million or 5% sequentially, but up $197 million or 6% year-over-year. The year-over-year increase was entirely due to the increase in volume.

Our Marine segment revenues were $4 billion, that’s up $250 million or 7% sequentially, and $200 million or 5% year-over-year. The entire year-over-year increase in Marine was a result of the increase in volume as well.

And finally, the Land segment generated revenues of $2.8 billion, up $231 million or 9% sequentially and $464 million or 20% year-over-year. The year-over-year increase principally relates to the acquisitions of Carter and Multi Service.

Our Aviation segment sold a record 1.2 billion gallons of fuel during the second quarter, up 78 million gallons or 7% sequentially and a 136 million gallons or 13% year-over-year. Volume in our Marine segment for the second quarter was 7.3 million metric tons, up 500,000 metric tons or 8% compared to last quarter and up 1 million metric tons or 15% year-over-year. Fuel reselling activities constituted approximately 92% of total Marine business activity in the quarter, which is inline with last quarter.

Our Land segment sold a record 904 million gallons during the second quarter, up 63 million gallons or 8% sequentially and 146 million gallons or 19% from last year’s second quarter. Overall this quarter for the first time, we achieved the volume run rate surpassing 4 billion gallons, representing a compound annual growth rate of nearly 20% since the trough in the market in early 2009.

Consolidated gross profit for the second quarter was $188 million, which represents an increase of $6 million or 3% sequentially and $16 million or 10% compared to the second quarter of last year.

Our Aviation segment contributed $76 million in gross profit in the second quarter, a slight decrease of $1 million or 1% sequentially, but up $7 million or 10% year-over-year. While we did witness volatility in the spread between jet fuel and heating oil prices during the second quarter, we were able to mitigate much of this risk during the quarter. Therefore while we were negatively impacted by such volatility, the net impact to our results was minimal.

Our jet fuel inventory position from our self supply model was approximately 98 million gallons or $270 million at the end of the second quarter. Overall we saw increased activity in both commercial and business aviation during the second quarter and expect this trend to continue and what should be a seasonally strong third quarter. While government activity was generally stable in the second quarter, it is likely that our volume of government activity will decline in the second half of the year.

Our Marine segment rebounded significantly from the first quarter and delivered a strong quarter, generating $52 million in gross profit, which is up $11 million or 26% sequentially, and $600,000 or 1% year-over-year. While volatility in increased higher margin business activity contributed the second quarter results, the macro environment remains challenging and therefore it is difficult to project the sustainability of the results achieved this quarter over the second half of the year.

Our Land segment delivered gross profit of $60 million in the second quarter, down $4 million or 6% sequentially, but up $9 million or 17% year-over-year. Fuel related Land business activities generated gross profit of $49 million, down $4 million or 7% sequentially and $2 million or 5% year-over-year. As projected on last quarter’s call, profitability in our crude business declined during the second quarter and may decline further in the second half of the year, if the spread between Brent and WTI continues to narrow.

Multi Service continues to perform well, while we continue to explore new opportunities and drive further efficiencies in this exciting business. And finally as Mike mentioned, the pipeline for acquisitions in our Land segment is strong and we continue to pursue such opportunities in the U.S. and other parts of the world.

With respect to our crude oil joint ventures, I’d like to provide you with some information about the incidence in Lac-Megantic, Quebec. On the morning of July 6, a train carrying 50,000 barrels of crude oil derailed in Lac-Megantic. We contracted with Canadian Pacific Railway on behalf of our crude oil marketing and joint venture DPTS Marketing for the transportation of the tanker cars and crude oil from New Town, North Dakota to a customer in New Brunswick, Canada.

Canadian Pacific Railway subcontracted the portion of that route to the Montreal Main and Atlantic Railway, MMA. The crude oil being transported was owned by one of our subsidiaries, which was acting on behalf of DPTS Marketing.

The tanker cars carrying the crude oil were leased by us from various lessors and subleased to the joint venture. The derailment resulted in significant loss of life as well as property and environmental damage. We are deeply saddened by this tragic event and once again extent our sincere condolences for the families of those who are lost as well as for the entire community of Lac-Megantic, and all of those that have been affected.

Investigations into the causes of the derailment are being conducted by various Canadian governmental agencies and are still ongoing. Although we maintain insurance coverage, covering risks associated with incidence such as this, it is too early to know the extent of the liabilities or to what extent such coverage will apply and therefore what if any exposure they have beyond that which is covered by our insurance policies. With respect to the crude oil loss and the tanker cars, which were damaged or destroyed in the incident, we believe any related losses will be fully covered by insurance.

Operating expenses in the second quarter excluding our provision for bad debt, were $117 million, up $3 million sequentially were effectively flat after excluding Multi Service and CarterEnergy when compared to the second quarter of 2012.

Overall, operating expenses as a percentage of gross profit only declined slightly on a sequential basis, we continue to focus on driving further operating efficiencies and improving this metric going forward. Looking forward, I’d assume overall operating expenses excluding bad debt expense of approximately $116 million to $120 million in the third quarter.

Turning to the balance sheet, our accounts receivable balance grew to $2.6 billion at the end of the second quarter, up nearly $100 million compared to the first quarter and up approximately $500 million compared to the second quarter of last year. Our bad debt expense in the second quarter was approximately $2.7 million, up $1.6 million sequentially and $2 million compared to the second quarter of 2012.

Both the sequential and year-over-year increase in bad debt expense was principally related to the increase level of accounts receivable. Consolidated income from operations for the second quarter was $68.7 million, an increase of $2 million or 3% sequentially, but down $4 million or 5% year-over-year.

For the quarter, income from operations on our Aviation segment was $34 million, that’s down $1 million or 3% sequentially, but up $8 million or 31% compared to the second quarter of 2012. Our Marine segment’s income from operations was $24 million for the second quarter, an increase of $9 million or 58% sequentially, but down $4 million or 14% compared to last year’s second quarter.

And finally, our Land segment had income from operations of $21 million, that’s down $6 million or 23% sequentially, and $7 million or 26% year-over-year.

Consolidated EBITDA for the second quarter was $79 million, an increase of $3 million or 4% sequentially and $5 million or 6% year-over-year. Non-operating expenses primarily consisting of interest expense were $4.8 million in the second quarter, up $1 million compared to the first quarter and down $800,000 from the second quarter of 2012.

Such expenses were inline with guidance provided during our first quarter’s call. The sequential increase was principally driven by higher average borrowings during the second quarter and the year-over-year decline is principally driven by lower average borrowing rates. Excluding any foreign exchange impact, I’d once again expect non-operating expenses to be approximately $4.5 million to $5.5 million in the third quarter.

Our effective tax rate for the second quarter was 18.1% compared to 19.4% last quarter and 17.9% in the second quarter of last year. We continue to expect the tax rate to be in the range of 17% to 20% for the balance of this year.

Our net income for the second quarter was $51 million, an increase of $2 million or 5% both sequentially and year-over-year. Non-GAAP net income, which excludes amortization of acquisition related identified intangible assets and stock-based compensation, was $57.5 million in the second, an increase of $3 million or 5% sequentially and $5 million or 9% year-over-year.

Diluted earnings per share for the second quarter was $0.71, an increase of $0.03 or 4% both sequentially and year-over-year. Non-GAAP diluted earnings per share was $0.80 in the second quarter, an increase of $0.03 or 4% sequentially and $0.06 or 8% year-over-year.

Trailing 12-month non-GAAP diluted earnings per share is now $3.11. We continue to believe this metric is a more meaningful measure of our economic results. Our overall net trade cycle improved to 7.9 days compared to 8.2 days in the first quarter and 8.1 days in the second quarter of last year. The 7.9 day net trade cycle is our lowest net trade cycle since the third quarter of 2011. Our cash position rose to $232 million at the end of the second quarter compared to $173 million at the end of the fourth quarter and $137 million in the second quarter of last year. We generated $25 million of operating cash flow during the quarter bringing total year-to-date operating cash flow to $134 million compared to a use of cash of $57 million during the first six months of last year. Over the past 12 months we have now generated more than $335 million of operating cash flow further enhancing our liquidity profile.

In closing our second quarter once again displayed the strength and diversity of our business model. We are pleased with our segments that are performing giving market conditions which remain challenging. Despite macro market conditions we have significant opportunities to further grow our business both organically and through further strategic investments. Our healthy liquidity profile was further strengthened this quarter allowing us to be fully flexible when the right opportunities come along as we continue to execute on our long-term growth strategy.

I would now like to turn the call back over to the operator to begin the Q&A session. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question today is with Jon Chappell with Evercore Partners. Please post your question.

Jonathan Chappell - Evercore Partners

Thank you. Good afternoon guys. Ira I understand that it's a little bit early in the investigation process for the derailment and I appreciate the information you were able to provide. Just a question regarding kind of normal course of business; have you yet have any customers potentially kind of scale back doing business with you guys because the potential liabilities associated with this tragic accident?

Michael Kasbar

None, whatsoever Jonathan; it’s Michael Kasbar. So, no not in the least.

Jonathan Chappell - Evercore Partners

All right. Thanks Mike. My second question keeping this brief, on the Marine side the volumes took a huge step up and obviously the profitability did as well. I can understand the volatility, the derivative products and other value added products helping with the margin side, but the volume uptick was pretty surprising as well. Is this a sign that despite the challenging environment that you’re still speaking about that you maybe opening up the risk profile a little bit? I noticed in your queue there’s an outstanding claim from STX, which is to be expected given what's going on with STX, but you’re kind of searching for more business now thinking maybe the worst is behind this on the Marine side?

Michael Kasbar

No, absolutely not. It's really steady as she goes, nothing has really changed. Our team is quite innovative. One of the real benefits that we’ve got in our Company it's truly a global business. We’ve got a lot of talented, dedicated folks that really worked the market extremely well. We benefited from some volatility within the quarter that our guys, I mean the ladies were able to create some value and their ability to identify niche market areas where there’s a certain amount of expertise that’s required allowed us to earn some additional margin for providing that level of service. So, certainly the risk profile has not increased. The market is still kind of tricky as you know as well as with anyone. So, it's really just the continuing leverage of our global team, and the benefit of some amount of volatility that we capitalized in the quarter.

Jonathan Chappell - Evercore Partners

Okay, I understand. That’s my two. I’ll turn it over. Thanks, Mike.

Ira Birns

Thank you, Jon.

Operator

Thank you. Our next question is with Greg Lewis with Credit Suisse. Please post your question.

Michael Kasbar

Hi, Greg.

Gregory Lewis - Credit Suisse

Michael, could you talk a little bit about the land segment, and I mean -- I guess when we think about gross profit margins they sort of stepped down into the sort of the mid to low 2% range. As we think about that business going forward and we think about the potential from multi-service, how should we think about what those margins should look like going forward? Is it going to be something like we saw back up in Q1, or is it sort of -- do we think this is sort of a good level we should be thinking about?

Michael Kasbar

Yeah, I mean I don’t -- Ira, do you want to serve a comment on it? I will comment afterwards.

Ira Birns

Yeah, it's always – sure, Mike could add some color. It's always a tough question to answer. It clearly depends upon the mix of business. I would say clearly this quarter is probably more indicative of the current mix of business activity than couple of quarters back driven in part by the follow-up in crude which had been higher margin and that margin has declined over the last couple of quarters. But once again it really -- we always say Marine is spot, Aviation is more contract, land is a bit of a mix. So to the extent there is some stronger spot activity in some of the more profitable areas that could provide a boost to GP and margins and obviously vice versa.

Michael Kasbar

Our main line businesses have fairly stable margins. So our dealer business, our wholesale business, our card business, our end user business that’s relatively stable activity, they’re value added activities and it's continuing to add value, build our market share organically, obviously through acquisition. Some of the more commodity, sort of aspects of moving different products around some of our inventory activities, obviously you’re going to see some variability in those margins depending on market conditions and how well we capitalize on things. But the basic core business activity is remarkably stable.

Gregory Lewis - Credit Suisse

Okay, great. And then just touching on the incident up in Quebec, clearly you talked about in the prepared remarks about the insurance coverage on the cargo in the rail, beyond that when you’re moving crude by rail in general, what other types of insurance are sort of boilerplate that we should sort of expect. Is there in a certain amount of environmental and or accidental insurance that is typically carried on those types of -- for those types of transactions?

Ira Birns

Yeah, I mean overall Greg, we maintain general liability, environmental liability policies in the name of both World Fuel and the Joint Venture specific to the question about the crude business. And that probably, all of it I could describe so, various policies support different parts of our business. We had some that maybe unique to certain elements of the business in addition to the coverage that we have for product or property damage et cetera. So, I would call it the traditional suite of coverage with maybe the exception of environmental that may not apply to other types of businesses other than our own.

Gregory Lewis - Credit Suisse

All right, guys. Thanks for the time.

Operator

Thank you. Our next question is with Jack Atkins with Stephens. Please post your question.

Jack Atkins - Stephens Inc.

Good afternoon guys. Thanks for the time. Just going back to Greg’s question to follow-up on that briefly for a moment; is there any way you can sort of quantify what's your self insured portion of your environmental insurance is, and what maybe the cap to that insurance level is? I think that’s one thing people are trying to grapple with when they think about the ultimate exposure that you all might have there?

Ira Birns

Yeah, the only thing I can really in all fairness tell you at this time is that our deductibles are relatively low, but that’s within reason all that we could share at this point in time. So, our deductibles in general liability, environmental, product liabilities et cetera all are extremely low and clearly we have limits that we deem appropriate for the business that we do today.

Jack Atkins - Stephens Inc.

Okay. And then shifting over to the Marine side for a second, for my follow-up; Mike it's, I guess, I got a little bit of a conflicting message from you and Ira, well I guess in your prepared commentary. Would you say that you expect the Marine performance to -- that you saw in the second quarter to continue as you look in the back half of the year or does it sound like that just given what volatility is on more recently that maybe -- it maybe difficult to sort of see that second quarter repeat itself in the third and fourth. I just wanted to make sure I understood what you were saying there.

Michael Kasbar

No, Jack as you know it's a spot business. So, we need to earn that business every day, every month, every quarter. So, it's a slack demand, it's not a particularly easy market and with the lack of volatility that makes it even more challenging. So, we have -- I think that our team has done extraordinarily good time -- good job and we’ve grown our volume, but it certainly has fairly challenging environment. So, our comments really were that we don’t expect there to be any revelatory recovery any time soon. And it will be, I think a good outcome if we were to repeat this quarter.

Jack Atkins - Stephens Inc.

Okay. Thanks for that clarification.

Operator

Thank you. Our next question is with Ken Hoexter from Bank of America. Please post your question.

Ira Birns

Hi, Ken. Ken?

Operator

Sir, your line is live.

Michael Kasbar

I think we may have lost Ken.

Operator

Our next question is with Kevin Sterling with BB&T Capital Markets. Please post your question.

Kevin Sterling - BB&T Capital Markets, Stephens Inc.

Thank you. Good afternoon gentlemen.

Michael Kasbar

Hi, Kevin.

Kevin Sterling - BB&T Capital Markets, Stephens Inc.

With the Quebec oil spilling up, you guys gave good colors to what you guys did, so thank you very much. My question pertains to, is the three year joint venture Western Petroleum, and so can world feel the parent company be held liable as well or does it stop with Western since it really was operated through that joint venture?

Michael Kasbar

Yeah, so the underlying supply transaction was for the benefit of our crude oil trading joint venture with Dakota Plains.

Ira Birns

Yeah, Western isn’t the joint venture Kevin. It's Dakota Plains that’s the joint venture.

Kevin Sterling - BB&T Capital Markets, Stephens Inc.

Okay, but I guess, that would it -- I guess it's operated through Western, I mean could it – I mean would the liability kind of stop with Western as far as you can tell or?

Ira Birns

The only thing we could tell you is that while the title was in the name of World Fuel we have indemnification from the joint venture as we’re acting on behalf of the joint venture in these types of transactions, but obviously it's all pretty complicated and will be sorted out over time, but those are some of the clear facts.

Kevin Sterling - BB&T Capital Markets, Stephens Inc.

Okay, thank you. I appreciate that. Let’s kind of move to your land segment; you talked about the compression of the WTI Brent spread, if that widens, I think we’ve start to see it seeing it widen a little bit here, if that widens some more, do you anticipate this will help driving an improvement in your land net revenues in the back half of the year if that spread does widen?

Michael Kasbar

Absolutely without question. While it's compressed now, I think pretty safe to say that it will not stay there. It will definitely move around.

Kevin Sterling - BB&T Capital Markets, Stephens Inc.

Okay. Mike and Ira, those were two questions. Thanks for your time this evening.

Ira Birns

Thanks, Kevin.

Operator

Thank you. Our next question is with Ken Hoexter. Please post your question.

Ken Hoexter - Bank of America

Sorry about that, Ira I don’t know if you caught that, but we got disconnected. On the cost of legal and just, I guess as we think about where it would go and what scale, any exposure to credit lines affected or even discussions at this point or have you seen any impact on credit spreads or impacts to the cost of derivatives?

Ira Birns

No, I can answer that as a definitive no. We’ve seen none of that whatsoever.

Ken Hoexter - Bank of America

And your thoughts on the cost of legal; where would we see that?

Ira Birns

Well, to the extent we will obviously be incurring some legal costs, much of those costs are covered under recovery provisions under certain insurance policies. So, I can’t tell you if it will completely covered, but we certainly have the right to recover many of the costs we incur under a separate provision of our policies for defense coverage.

Ken Hoexter - Bank of America

Wonderful, I appreciate that. And then for a follow-up on Marine; you had a nice rebound on the gross profit per metric ton, just wondering what drives the volatility here, is it more volume driven or is it the quick move on the Marine side in rates or just pricing. What gets your gross profit moving on the variability?

Michael Kasbar

It's just volatility in pricing. So, movements in pricing – creates an opportunity for us to deploy our derivative strategy and create value in the market place for our customers and suppliers.

Ken Hoexter - Bank of America

So, do you prefer if prices are going in one direction or the other, or it's just volatility overall?

Michael Kasbar

Volatility in general is better for us. So price’s that are moving around and can make up their mind is certainly a good profile for us. Clearly the forward curve if you’ve got a backward dated market it allows us to lock in contracts for our clients over a period of time, liner style clients that want to lock in the value of that forward curve that’s a great profile for us. But just general volatility is a good thing for us because it allows us to create value within a spot market.

Ken Hoexter - Bank of America

Great. Michael, I appreciate the insight.

Ira Birns

Thanks, Ken.

Operator

Thank you. Our next question is a follow-up with Jack Atkins with Stephens. Please post your question.

Jack Atkins - Stephens Inc.

Yeah, thanks for the follow-up opportunity. So, I guess to kind of go back to the Quebec incident for a moment if I could; you all issued a statement on your website yesterday that sounded fairly definitive that you didn’t believe that you have liability in the sense, and I guess, I’m just curious if you would elaborate a bit what gives you that confidence with regard to that particular incident and the order from the Quebec Government about clean up expenses?

Michael Kasbar

Well, Jack listen, I think the statement is relatively straightforward. And the MMA and the Government are essentially managing the clean up. So that is what is occurring today, and that was really our position. So, I don’t really want to say a whole lot more about that. We certainly have fulfilled all of our responsibilities and have followed everything we should be following. So, the railroad carrying that product and the local authorities are in control, so we responded appropriately and certainly other things will occur, I can imagine, but we’ll obviously operate appropriately and within the letter of the law.

Jack Atkins - Stephens Inc.

Got you, and because as we’ve been consulting with environmental attorneys in Canada it seems to us as though in times of emergency situations that the local governmental authorities can compel those that held title or hold title to the commodity to pick up those expenses, and so we’re just wondering given that, the definitive statement that you made on the website made us think that there was something that we just weren’t aware of and I was just curious as to what's driving that, the strength of the statement I guess.

Michael Kasbar

Yeah, well listen. It was fundamentally an improper application of the law. So, the site is being cleaned up by what we believe to be competent folks that are handling that project. And that’s not the role that we should be playing as far as we understand. So, we have acted appropriately and until such time if that changes we’ll continue to do so.

Jack Atkins - Stephens Inc.

Okay, great; and last question from me, and I’ll turn it over. With respect to the Aviation segment, you’ll made some comments about the military demand being a little bit softer in the second half of the year as the withdrawal from Afghanistan accelerates. Could you just elaborate on that and help us understand sort of what’s the sequential impact we should be expecting, really as in the third and fourth quarter, just so we have that modeled correctly?

Michael Kasbar

Sequential impact of military in three and four throughputs for all?

Ira Birns

I mean we had shared the exact number, we just expect that the performance in Q3 and Q4 is likely to be lower than we saw in the first half of the year by few million dollars from a DP standpoint.

Jack Atkins - Stephens Inc.

And that’s Aviation overall, that’s going to be lower driven by that contract or that’s just that particular contract?

Ira Birns

No, that’s the discrete impact to performance in that area on the government side. That doesn’t mean that we may not be able to make that up with improvements in other areas. So, if you look at our performance, to say that maybe more clearly, look at our performance in the second quarter, that’s one flag we raised in terms of what maybe happening to government in the second half of the year. In my prepared remarks I also indicated that in our core business, we expect seasonal strength in the third quarter, which is a rising tide as opposed to having tide on the government side. So where those balance out, obviously we don’t have the exact answer for you. But there is certainly some positives to mix in with the government piece of the puzzle.

Jack Atkins - Stephens Inc.

Okay, great. Thanks so much for the clarification.

Ira Birns

You’re welcome.

Operator

Thank you. That was our last question. Ladies and gentlemen, this does conclude today’s conference call. We thank you for your participation. You may now disconnect.

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Source: World Fuel Services' CEO Discusses Q2 2013 Results - Earnings Call Transcript
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