World Kinect Corporation (WKC) Q2 2016 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the World Fuel Services 2016 Second Quarter Earnings Conference Call. My name is Kelmer and I will be coordinating the call this evening. During the presentation, all participants will be in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. Instructions on how to ask a question will be given at the beginning of the Q&A session. [Operator Instructions]. As a reminder, this conference is being recorded Wednesday, July 27, 2016. I would now like to turn the conference over to Mr. Glenn Klevitz, World Fuel's Vice President and Assistant Treasurer. Mr. Klevitz, you may begin your conference.

Thank you, Kelmer. Good evening everyone, and welcome to the World Fuel Services' second quarter 2016 earnings conference call. I'm Glenn Klevitz, World Fuel's Assistant Treasurer and I'll be doing the introductions on this evening 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, Chairman 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 Web site. Before we get started, I'd like to review World Fuel's Safe Harbor statement. Certain statements made today, including comments about World Fuel's expectations regarding future plans and performance 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 these factors that could cause the results to materially differ from these projections can be found in World Fuel's Form 10-K for the year-ended December 31, 2015, 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 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, Michael Kasbar.

Thank you, Glenn. Good morning everyone, and thank you for taking the time to join us today. Today we announced second quarter adjusted diluted earnings per share of $0.50. In the quarter, we continued to expand our market share across all three of our business segments and grew our global platform to a 21 billion gallon run rate. Our Aviation business performed remarkably well and as for the first time achieved a 7 billion gallon annual run rate, simultaneously outpacing market growth and containing cost by leveraging our integrated organization and systems to deliver full service solutions to our customers. Our Aviation and Corporate Integration team has been diligently engaged in completing the ExxonMobil transaction announced earlier this year which will expand our commercial and general aviation network by adding physical supply of more than 80 airports through Canada, France, UK, Germany, Italy, New Zealand, and Australia. Our Marine segment continued to experience weakness in the shipping industry with uncertainty around the timing of any meaningful recovery. There is a heightened focus in the industry on financial stability and liquidity as well as counterparty risk as this prolonged industry wide downturn weighs on the entire sector. As such, we're focused on reducing our cost structure to be aligned with the current realities while remaining well positioned for growth in the longer-term. During this extended period of market stagnation, our deep understanding of the underlying physical market, strong balance sheet, and singular global organization has helped us maintain market share and a profitable business by delivering a unique set of highly customized solutions to our clientele. In our Land segment, we are focused on building a national and eventually worldwide C&I platform to service local and global clients. We announced a few weeks ago that we acquired PAPCO, headquartered in Virginia Beach and Associated Petroleum Products headquartered in Tacoma, Washington. The addition of these two industry leading companies, combined with our existing retail and wholesale operations, will serve to further enhance the capability of our land fuels commercial and industrial platform to deliver energy solutions to customers across the United States. Both companies have solid management teams and an in-depth knowledge of our end user markets they serve that will immediately augment our distribution capabilities while expanding our supply relationships and product offerings. I would again like to welcome the PAPCO and Associated Petroleum Teams to the World Fuel Organization. Our global energy management business which provides energy advisory, consultancy, engineering, sustainability services, and natural gas and power merchant services continues to be an important part of our strategy of expanded service offerings to a broader array of energy consumers. We continue to be committed to providing global coverage with these products and services as we integrate newly acquired businesses onto our global platform. Recent investments in Multi-service Technology Solutions are beginning to yield improved sustained results. Multi-service has successfully closed the series of multi-year contracts in a variety of businesses in the U.S. and in over 15 countries covering payment solutions and transaction management which will result in meaningful revenue growth in 2017 and beyond. Multi-service provides sophisticated and cost effective procurement, sales, and payment solutions to a broad cross section of global clients. We are bullish about our future prospects to grow this business. During this time of rapid global change, it seems as though the entire world is in a period of transformation. Our company is transforming as well. We are becoming a technology enabled company and digitizing many processes that have previously been manual. We are leveraging global shared services and re-architecting our technology stack to leverage cloud services. We are rightsizing businesses that require it. We are exiting businesses that are no longer core to our strategy as a global energy management, logistics, transaction and payment solutions company. While these initiatives have been in motion for some time, we are accelerating them. At the same time, we have learned that cost cutting across the board is suboptimal. Therefore while we have preliminarily identified $15 million to $20 million of cost reduction opportunities, we continue to invest in businesses in areas where we believe we have growth opportunities and synergies within our vast portfolio of products, services, customers, suppliers, and partners. The consistent and continuing ability of our business model to generate positive cash flow irrespective of business cycle permits us to continue to invest in our growth imperatives, our global energy management solutions, our omnichannel energy fulfillment capability, our transaction management and payment offerings, and lastly, our underlying technology which ties everything together and allows us to profitably scale. We appreciate the continued support from our shareholders, customers, and suppliers and the tremendous engagement of our global teams. Now I will turn the call over to Ira for a financial review of our results.

Thank you, Mike, and happy birthday and good evening to everyone on the call. Consolidated revenue for the second quarter was $6.6 billion, down 22% compared to the second quarter of 2015. This decline was due to lower fuel prices, offset in part by increased volumes of the aviation and land segments. Our Aviation segment volume was 1.7 billion gallons in the second quarter, up approximately 150 million gallons or 10% year-over-year. Volume in our Marine segment for the second quarter was 8.2 million metric tons, a decrease of approximately 200,000 metric tons or 2% year-over-year. While Marine volume is down year-over-year, it returned to its highest level since the third quarter of 2015. Brokered business activity for the quarter was approximately 12% of total marine volumes, as compared to 13% in the second quarter of 2015. Our Land segment sold 1.2 billion gallons during the second quarter, up approximately 70 million gallons or 6% from the second quarter of last year. Lastly, total consolidated volume for the second quarter was 5.1 billion gallons, up approximately 175 million gallons or 4% year-over-year. Consolidated gross profit for the first quarter was $219 million, an increase of $28 million or 15% compared to the second quarter of last year. Our Aviation segment contributed $99 million of gross profit in the second quarter that's up $14 million or 16% compared to last year. For the quarter, the Aviation segment again benefited from increases in their core resale business in North America and Europe, as well as an increase in U.S. and foreign military-related activity when compared to the second quarter of last year. Overall, our Aviation segment outperformed our expectations in the second quarter as we head into the third quarter which has historically been a strong seasonal quarter for the Aviation segment. While speaking of the Aviation segment, I would like to provide a brief update on the acquisition of ExxonMobil's fueling operations at certain airports, which we announced earlier this year. While we do expect to begin closing certain portions of this transaction prior to year-end, we do not expect much related income over the balance of 2016 at this point in time. Excluding the potential impact of foreign currency exchange rates, we still expect this transaction to deliver accretion in the range originally forecast in the first 12 months following the full completion of the transaction. I would now like to briefly comment on a matter that we will disclose in our 10-Q to be filed shortly. On July 20, 2016, we were informed that the U.S. Department of Justice is conducting an investigation into the aviation and fuel supply industry, including certain activities of the company as well as other industry participants at an airport in Central America. We were served with formal request by the DOJ about our activities at that airport and our aviation fuel supply business more broadly and we're cooperating with this investigation. We really don't know much more about this matter at this time, therefore we don't have anything further to add. Moving onto the Marine segment, we generated gross profit of $40 million down $2 million or 5% year-over-year. The trends we began more than a year ago of considerably lower fuel prices, a weakened offshore market, and lower price volatility continue to impact overall unit margins to what remains a challenging marine market. While fuel prices increased during the second quarter, we only experienced modest improvement in our core marine resale business and we really didn't see any meaningful uptick in demand for price risk management products during the quarter. With that being said, we do expect to benefit from some seasonal business activity in marine in the third quarter which should drive some improvement in marine results. Our Land segment delivered gross profit of $80 million in the second quarter, an increase of $17 million or 26% year-over-year. The gross profit increase relates to activity from the Pester and Bergen Energi acquisitions and two smaller acquisitions that were not included in our prior year results, as well as increased profits from our North American retail, wholesale, and commercial and industrial businesses. While the second quarter is generally a seasonally weak quarter for Watson, second quarter results of this year were somewhat weaker than anticipated due to two things, extremely wet weather in the United Kingdom which impacted demand in the agricultural sector, as well as weakness with construction related customers as the UK construction industry experienced its weakest quarter since 2009. Non-fuel related gross profit associated with Multi-service was nearly $13 million in the second quarter, up 7% from the second quarter of last year. As we announced a few weeks ago, we completed the acquisitions of PAPCO and Associated Petroleum Products or APP and as Mike already stated, we're very excited to welcome their teams to World Fuel. While we still expect these acquisitions to generate $0.22 to $0.26 of accretion in the first 12 months, inclusive of deal synergies, we do not expect to begin realizing any significant synergies until 2017. As we look forward to the third quarter, the Land segment results should improve benefiting from the addition of the PAPCO and APP businesses as well as improvements in our Multi-service and global energy management businesses and modest improvement in Watson despite some currency headwinds related to Brexit. As I continue with the remainder of the financial review, please note that the following figures exclude the impact of $5.9 million of non-recurring expenses in the second quarter as highlighted in our earnings release. This now is principally comprised of professional fees and severance costs related to multiple acquisitions completed or in progress. To assist all of you reconciling operating income results published in our earnings release, the breakdown of the $5.9 million is as follows: unallocated corporate expense is $2.9 million, and the amounts impacting the Aviation, Land, and Marine segment results were $2.2 million, $600,000 and $200,000 respectively. Operating expenses in the second quarter excluding our provision for bad debt were $165 million, up $18.5 million or 12% year-over-year. I should point out that 92% of year-over-year increase in operating expenses related to expenses of acquired businesses. In the third quarter, total operating expenses excluding bad debt expense should be in the range of $175 million to $179 million, 90% of this sequential increase relates to the PAPCO and APP acquisitions and their related expenses. As Mike mentioned, we have preliminarily identified opportunities to reduce our run rate of operating expenses and we have already identified $15 million to $20 million of cost reduction opportunities which we intend to execute on over the next several months. While we may begin realizing the benefit of these reductions later in the year, I would expect we will not realize the full impact until 2017. Our bad debt provision for the second quarter was $2.5 million effectively flat with the second quarter of last year. Consolidated income from operations for the second quarter was $52 million, up $10 million or 24% year-over-year. And non-operating expenses, which is principally interest expense in the second quarter was $8.7 million, that's $700,000 increase compared to the second quarter of last year which principally relates to higher average borrowings as well as slightly higher interest rates during the quarter. I would assume non-operating expenses to be approximately $9 million to $11 million in the third quarter. The company's effective tax rate for the second quarter was 19.4% compared to 13.7% in the second quarter of last year. We expect our tax rate for the second half of the year to be between 15% and 20%. I would like to point out that we recently identified an error in our 2015 provision for income taxes. Corrections associated with this error related to the second quarter of 2015 and other periods will be reflected on Form 8-K which we will be filing shortly. As noted in our earnings release, the total amount of corrections for the full year of 2015 specifically was $12.5 million. The second quarter 2015 tax rate which I just shared reflects the impact of such corrections, and to the year-over-year variances in net income and earnings per share, which I will provide in a moment. Adjusted net income was $35 million this quarter, up $4.3 million or 14% year-over-year. Non-GAAP net income, which also excludes intangible amortization and stock-based comp, was $44 million in the second quarter, an increase of $5.5 million or 14% year-over-year. Adjusted diluted earnings per share was $0.50 in the second quarter and that's a 16% increase over the second quarter of last year. Non-GAAP diluted earnings per share was $0.63 in the second quarter which is an increase of 17% compared to last year. Our total accounts receivable was $2 billion at quarter end, down more than $350 million compared to the second quarter of last year, principally related to the decline in average fuel prices offset in part by increased volumes in our aviation and land businesses. Net working capital was approximately $880 million, down $30 million compared to the second quarter of last year. We generated $63 million of cash flow from operations in the second quarter contributing to trailing 12-months operating cash flow of approximately $470 million and also marking our 16th consecutive quarter of generating positive operating cash flow. During the second quarter, we also returned $18 million to our shareholders by repurchasing approximately 400,000 shares of our common stock in the open market. As I have stated in the past, the principal objective of our share repurchase program is to offset the dilutive impact of employee stock awards. In addition we also repurchased shares when we feel such shares are significantly undervalued. So in closing, our balance sheet remained strong and liquid benefiting from consistent cash flow generation and prudent balance sheet management. This should continue to service well as we identify further organic growth initiatives which require capital and as we target additional strategic investment opportunities. With the ExxonMobil transaction expected to be completed over the next several months, and the completion of the PAPCO and APP acquisitions just after the second quarter close, combined with the expected impact of identified cost reduction opportunities, we have an even stronger foundation for growth and meaningful increased profitability as we look forward to 2017 and beyond. I will now like to turn the call back over to Kelmer our operator to open up the Q&A session. Thank you.

Thank you. [Operator Instructions]. Our first question comes from the line of Jon Chappell with Evercore ISI. Please proceed with your question.

Both questions are around just trying to figure out kind of great run rate as we kind of read through seasonality and then the offset of strategic investments and I guess some potentially organic costs. So first if we look to last year as a guide on the seasonal decline in 2Q looks like this year may be it wasn't as bad but just wondering about the third quarter snapback done. Ira in your comments you mentioned last year seasonal recovery a little bit in Watson and then also in Marine but the magnitude that we saw last year, was that clean on an organic basis, was there any inorganic or M&A bounce to that. How should we think about that for this year relative to 2015?

Good question and thanks Jonathan. I think rather than looking at relative to 2015, I think I would focus more on the specifics of this year because the actual comparisons are not going to be exactly the same. So don't include the three segments again, I'm happy you asked the question. Aviation always has or traditionally has their seasonally strongest quarter in Q3. So we expect the Aviation results will improve. Although I will caveat that by saying that second quarter Aviation results were stronger than expected. So the improvement will not be as dramatic as it was last year. But we do expect to see seasonal improvement in the Aviation business. In Marine, we unfortunately don't expect the whole lot of improvement based upon where the market is today and where the market has been. But we do have some seasonal business that we also had last year that's specific to one individual contract that comes through in the third quarter that should add a couple million dollars of profitability to Marine in the third quarter. Aside from that, we're not necessarily expecting much more. And then if you go to the Land business, while as you remember Watson traditionally sees the most significant increases in the colder, winter months since the third quarter includes September and some people start gearing up for the winter, Watson should do a little bit better than it did in Q2. But we do have some headwinds from Brexit. We didn't see much of the currency impact in Q2; we will see more of it in Q3 assuming the Pound stays where it is. But we will also see the benefit of APP and PAPCO which both closed on July 1. So you will see a pick up from the acquisitions, if you see a little bit of pickup from Watson and we also expect to see a little bit of pick up in our global energy management business and in Multi-Service. So the most significant quarter-over-quarter increase should be in the Land space. So that's the summary of all the three segments. Hope that answered your question the way you're looking to have it answered.

Yes, very helpful. Thank you. And then obviously with $15 million to $20 million of identified cost cuts, I would imagine most of that is going to be flat. But kind of the way that Mike described it as being kind of non-core businesses, divestitures, and "rightsizing" seems like may be some organic growth may be stripped away from that as well. So obviously a lot of accretion coming up from Exxon, from PAPCO et cetera but is the kind of core organic business as we look forward going to have a much lower organic growth rate as you rightsize businesses?

Well that's the -- I think that's the art of it right, so you want to make sure that you're doing this the right way. So we have exited some business, the crude oil side anything that is no longer part of the core activity. We got involved in structured finance after the financial crisis 2008/2009. We weren't really getting sufficient returns on that, so we are redeploying that capital. But the trick obviously is to not take too much of the muscle away and that's what we've have focused on. But the organic side obviously is buy and build and I'm feeling better about our ability to drive more organic growth. So we hope to be reporting that to you and be able to show that to you as a function of not only leveraging the acquisitions we have but with some of the additional horsepower that we brought on to the company to drive some of that.

Okay. And then finally with my hopefully super quick follow-up, Mike you mentioned some multi-year contracts on signed by Multi-Service that will start to have a meaningful impact on the top-line in 2017. Is there any way to kind of quantify the magnitude of the disclosure of Multi-Service next year?

Yes, I would say, we are always breaking out net gross profit for Multi-Service in my remarks every quarter and if all those contracts comes through to the extent we anticipate their gross profit could be up 20% plus in 2017.

So I will use the word meaningful because obviously we are working off a relatively small base but I think that meaningful in many ways because I think it's the beginning of Multi-Service starting to step out. And we put fantastic team there and this is a number of different contracts that they have that's fairly broad based. So we feel really good about that and we expect to see more and that start to be real contributor to the company.

Great and I'm sorry Ira what was it in 2Q, the Multi-Service contribution?

$13 million.

$13 million, all right. Thanks a lot for your help Ira and Mike.

Thanks.

The next question comes from the line of Greg Lewis with Credit Suisse. Please proceed with your question.

Mike it seems like -- it seems like the company is trying to finally turn the page, you talked about this $15 million to $20 million. I guess from your view, what has changed and that has sort of made you, I mean this seems kind of like a step out for you where you're going to be shutting some businesses, was it I guess I'm just curious on the timing and why now?

Well if you look at, that's a combination of things. So one is you do have a fairly prolonged downturn within the Marine business and one of it is -- one aspect is just simply a recognition of that and dealing with that. The other part of it is as every company looks to scale; they have challenges with costs exploded. So you need to cut back from time to time and look at those activities that are not giving you the returns, that you're looking for and the combination of our organization growing up and getting that increased discipline in today's marketplace where you don't have robust growth, you need to operate extremely well. We've been fortunate through the history of the evolution of our company that we've never had to be in this position. So it is little bit of a new move. So you're right, Greg, and I answered this question a little tentatively and as I made in my remarks I made in my prepared comments in the past I mean we've done some cut cost, some cost cutting but it's been across the board and we kind of learned that was not necessarily the best scenario. So we're being more selective looking to maintain organic but it's really a commitment in every company I think as you grow, we don't do everything right and as joined going back in doing Spring-cleaning. So I think this becomes an annual sort of review and it's also driving a more professional performance culture in the business. So it's a combination of things and it's just simply a recognition of the global environment that we're in and the challenges of scaling and going from what was very entrepreneurial to just being entrepreneurial.

Okay. And then I think you kind of mentioned it when you called out Marine but as we think about taking out these cost of scaling out of businesses, are there any sort of cyclical where we really like Aviation and we're not going to pull anything out of Aviation or is it kind of going to be little business derivative services across the whole spectrum?

No it's really -- it's really there is this is equal opportunity performance management, so it's really trying to create a higher standard in the company, more financial discipline, and really having a finer strategic stream and economic stream where we are converging and getting focus with fewer things that will allocate more resources on to get scale and competitive advantage.

Okay. And then I guess my follow-up would be just in thinking about the decision to sort of scale back, I know in the past, Ira and Glenn have talked about the opportunities for acquisitions should we think about acquisitions being on hold as sort of company looks internally do rightsize itself?

Absolutely not, we certainly have a lot on our plate and I will tell you, I'm very proud of this organization. It's quite extraordinary that commitment and the engagement that the organization has and the level of professionalism, this company is different today than it was three months ago. So we built up significant muscle, intellectual capital, some of the folks you heard me call them out in previous phone calls, some of them are new, some of them aren't, we have got a fantastic mix and with the acquired companies comes additional talent and those companies have acquired companies. So organic growth obviously is something that we're pretty serious focused on and that's where some of the folks that we brought into the company are driving that in a systemic way leveraging technology is an enormous driver in this company. But our capability on the acquisition side is significant. Ira has brought on some additional folks. So we feel pretty good about that so, we're not going to stop and I think that our acquisition and integration capabilities just gotten a stronger and we have I think the financial, we're about to continue that dynamic as we expand our EBITDA and our capability.

Okay, guys. Thank you very much for the timing. It sounds good to me.

Thanks, Greg.

The next question comes from the line of Jack Atkins with Stephens Inc. Please proceed with your question.

Great. Thank you for the time this evening guys.

Thanks, Jack.

Hi, Jack.

So, I guess Mike just a follow-up on your answer to Greg's last question but you said that this is a different organization than it was even three months ago. Could you may be expand a little bit on the some of the catalyst for that change, what's driving that?

It's human capital. I mean it's -- it's maturity of a lot of young people really smart young people that we brought into the company and some senior folks and really shuffling the deck. So we think that we've got a much tighter focused organization and things take time. I mean we have brought a lot of things into this company, we brought a lot of people into this company and things simply take time. And we now have I think greater focus on business, we got a better management team, we've got a better management process. So it doesn't take first take a lot actually but this is all coming together and we've been spending years working on this. So I think we got a unique company. I don't think there is anybody in the world that does what we do. We got two established global business Marine and Aviation that's doing business in 200 countries, we've got two businesses that hunt globally Multi-service and our global energy management. We've got in-country businesses on the physical side where we've got significantly better practitioners. We've set up councils to focus on important area, so, technology, sales, supply. So it's just a maturation of the company and we have been working on for a long time and I certainly feel pretty proud to come to work every day and the level of progress that we're making is significant so, we have a long way to go. We want to be delivering better results I could tell you that but, no it's not easy, there is a lot going on in the world and we are looking to get much keener focus on a limited set of activities like I said we've been entrepreneurial and now we're looking to converge on core activities that we can really drive technology that's something that has taken a long time. We didn't do it in a perfect way, putting technology into existing businesses and particularly one you've acquired new added businesses, it’s like putting rebar's in dry cement. So this is something that we have been working on for a long time and our senior management team is very driven on process improvement and leveraging technology and we're starting to see the beginnings of that they're approved. So we're in the early inning still sorry but we think we're turning the corner.

Okay, that's helpful color there, Mike. And then, just a kind of get some clarification of the $15 million to $20 million in cost reduction opportunities means is that $15 million to $20 million a net profit in, operating profit improvement target I mean I guess I'm just a little bit confused if there is some divestures going on there, more of these for these profitable business that you're divesting or these all taking entities, just kind of, I'm trying to see what?

It's OpEx; it's really just not just to avoid any confusion I think but we talking about a couple of different things. But when we mentioned a $15 to $20 million that's OpEx take out. Now we may take some of that and reinvest in a couple areas that we think has substantial growth opportunities where we may be underinvested. And so what that's all about. To the extent we make some decisions to exit something down the road that's a different arguably a different analysis that could increase our cost reduction and they have an offsetting GP reduction as well, but that that's outside the $15 million to $20 million.

Okay, okay that's helpful, Ira thank you for that. And then I may have missed it if you talked about it what the statement due to the income taxes were there any statement from the first quarter as well and could you go through that if there was?

If there was any statement, it was a revision just to clarify.

A revision, yes, excuse me, yes.

And I can go through the numbers with you, but what I prefer to do is that will be out in the in the 8-K which is going to be filed shortly and you'll see the impact on all the quarters of 2015. There was a more substantial, it was very limited impact in the second quarter, the most substantial impact was in the third quarter followed by the first and there was next to no impact in the fourth quarter. So two-and-a-quarters last year is where that $12.5 million I referred to resided pretty much.

Okay. I've got one follow-up I'll just jump back in queue. Thank you.

Okay.

Our next question comes from the line of Ken Hoexter with Merrill Lynch. Please proceed with your question.

Hi Ira and Mike, just a real quickly on that tax, what led to that tax catch?

The best way I could explain it Ken, is it's related to interpretation on a very complex tax matter that that we made several years ago. And the impact over the years was fairly minimal and then the number got a lot bigger in 2015. As we started planning for some related activities, because related to some intercompany loans that had a foreign currency element attached to them we discover that the interpretation that was made years ago was not correct. So that's really how we caught it was -- we caught it in the process of some tax planning that was going on during the second quarter for latter part of the year into 2017 and 2018.

So by calling this out yourself there's no penalty or could there be a penalty or anything else that could follow from this?

Don't believe there be any penalty related to this under the process you need to go through with your auditors, which have a quantitative and a qualitative element associated with its deemed to be immaterial and that's why there was no reason to restate our financials, but a situation like this is still very wise to provide revised information. So that's what we did.

Okay that's helpful. Ira did I catch you say that Exxon was delayed in terms of the benefit or were you just pushing the gains and integration from PAPCO associated and account into next year. I just didn't it sound like you were saying may be Exxon was a little bit delayed.

I think I was saying a few things I'm happy you asked to clarify for everybody. So I think well I know at one point either doing Q&A or in my prepared remarks I try to give all of you a feel for the impact that we preliminary expected to see in the second half of this year. And then I gave another number which was expected accretion for the first 12 months following full completion of the deal which probably won't happen till at least the end of the first quarter of next year. So what I mentioned earlier was that the expectation now -- because of principally because of timing is that we won't see much accretion, we won't see any accretion in the third quarter, we may see a few pennies in the fourth quarter. And then as we approach Q2 of next year we should get in stride with the run rate originally projected with one caveat. Most of this income is coming through in foreign currencies and including the Pound for example, so currency exchange rates could have an impact on what that number may be and depending upon use on exchange rates as you get into 2017. For PAPCO and APP we had provided a first 12 month accretion estimate which included some synergies of $0.22 to $0.26. And the point I was trying to get across earlier is that, I don't want people to necessarily form the trap and just simply dividing that by four and assuming we necessarily see half of that in the second half of this year as we're not going to see many of the synergies that are built into that number for the first 12 months until the first and second quarters of next year. So we'll get a little less than half of that this year with a greater piece of that in the first two quarters of 2017.

Great. And I guess instead of a second question, just two clarifications here, your comp at $10 million, I'm sorry the $5.9 million charge you talked about in comp, was that in comp and benefits is that kind of why that was highest is that $4.8 million net of tax is taken out of comp?

$3 million approximately half or approximately $3 million of the $5.9 million was in compensation and the rest was in G&A.

Okay. And then I guess this is a clarification or a question but cash at $737 million, you bought back only $18 million is that because you want to -- you spent the $260 million for Exxon that's coming up and $230 million for PAPCO in this quarter, not last quarter is that I guess -- I think you said July 1. So you have got $200 million left and if my math is right then somewhere around there, does that mean so Mike, I think you were answering this question before but do you need some time then to rebuild the cash before you do acquisitions?

So to answer your first question, first Ken a great question again. So of the $737 million we will be using some of that for Exxon in stages over the next few months, first chunk will probably come out around the end of Q3 and then the rest of them will come out into the first quarter next year that I use up some of that cash. Again most of our cash is sitting offshore as you remember, so when we close PAPCO and APP on July 1 after the quarter ended, that was funded with borrowings. But even after that, our net debt and our total liquidity position is still strong and the acquisition pipeline, Mike may correct me but I would say is probably the strongest it's ever been and while we remain selective as we always have been, we are not seeing a need to slowdown and that announced as we find opportunities that we think are strategically accretive to the business and financially accretive to the business we're still pursuing them with the tremendous amount of fashion and so that really hasn't changed.

Great, appreciate the time and thanks guys.

Thanks, Ken.

Our next question is a follow-up question from the line of Jack Atkins with Stephens Inc. Please proceed with your questions.

Great, thanks and just a couple of quick follow-up items. The Ira when you are going through the expected improvement in the different business segment sequentially is that net of the I think Aviation had a $2.2 million of that $5.9 million in non-recurring items are we talking about improved off of that second quarter plus the add back of the $2.2 million or just want some clarification on that point?

Yes, I would say I'm talking about improvement off of the adjusted number excluding the impact of the $2.2 million.

Okay, that's helpful. And then in terms of the $15 million to $20 million in cost reduction actions could you kind of go through that again when you would expect to see that sort of show up in the P&L it doesn't sounds like it's going to really be until 2017; is that correct?

That's right. I mean we may see a little piece of that in the very latter part of the year so, part of the way through the fourth quarter. But reason, I said 2017 is because I wouldn't expect you to really see the significant impact of that until you get into the first quarter of next year.

Okay. Thank you here for the time.

Thanks, Jack.

Then something else I'll just add on because I think its meaningful is technology platforms are important than not easy to build and just as a reflects on the maturity that we got throughout higher organization, our Land business we started a while ago but we never really had a global platform which is a tough way to run a business. So in 2017 we will see rolling out Global Oracle Land technology platform, U.S., UK, Brazil probably towards the end of 2017 and that will be connected to truck automation. So that's what now some folks will come there will be industrial Internet where you now getting information and data massive amount of data that's going into end. So that's also going to give us pretty significant efficiencies and allow us to be a lot more cost effective. So we have those types of initiatives going throughout the entire company where activity that was manual is now going to be automated and that's going to have a significant impact.

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

Well thanks everybody for your support and staying late. We look forward to talking to you next quarter.