ABM Industries Inc (ABM) 2004 Q4 法說會逐字稿

Good morning. My name is Latasha and I will be your conference facilitator. At this time, I would like to welcome everyone to the ABM Industries fourth quarter earnings update conference call. All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, this will be a question and answer period. If you would like to ask a question during this time, simply press star then the number one on your telephone key pad. If you would like to withdraw your question, press star, then the number two on your telephone key pad.

At this time, I would like to turn the call over to Mr. Henrik Slipsager, Chief Executive Officer. Please go ahead, sir.

Good morning. I'm Henrik Slipsager, President and CEO of ABM. Joining me today are George Sundby, Executive VP and CFO, Terry Petty, Executive VP and Chief Operating Officer, and Linda Auwers, our Senior VP and General Counsel. On the call today I will provide an overview of our unaudited operational results for the fourth quarter and year end October 31, 2004. George will discuss the issues regarding ABM's self insurance reserves and review in detail our unaudited financial results. I will then conclude the prepared remarks section of this call with a summary of our operational aspects for the quarter and fiscal 2004, as well as discussing our expectations for fiscal 2005. Before we begin, I would like Linda to present the Safe Harbor statement. Linda?

Thank you, Henry. Before we begin I need to tell you that our presentation today contains predictions, estimates, and other forward-looking statements. Our use of the words estimate, expect, and similar expressions is intended to identify these statements. These statements represent our current judgment on what the future holds.

While we we believe them to be reasonable, these statements are subject to risks and uncertainties that could cause actual results to differ materially. Some of the important factors relating to our business are described in our Forms 8-K, Form 10-Q quarterly reports, and the form 10-K that we filed earlier this year with the SEC.

Thank you, Linda. I'm very pleased with our operational results for fiscal 2004, as we achieved record revenue of over $2.4 billion, and an expected 19.3% increase in pre-tax income, from continuing operations, compared to fiscal 2003.

Please note that all the numbers I'm sharing concerning income from continuing operations, do not take into effect the increase in self insurance reserves. Excluding any impact from the increases in self insurance reserves, our earnings per diluted share for the quarter and for the year were at the high end of our guidance range. We expect to report earnings of 29 cents for the fourth quarter, and 85 -- 84 cents per diluted share for year-end October 31, 2004.

In addition to higher revenue, cash flow, and earnings, all of our operating units excluding lighting, experienced double digit gains in operating profits. We also improved our gross margins and decreased our SG&A as a percent of sales, due to more profitable acquisitions, new business gains in engineering and security, and the elimination of unprofitable contracts in Janitorial, Parking and Lighting.

Even though fiscal 2004 was a very good year operationally for ABM, we still have opportunities to improve. While Lighting may remain profitable, the operation was impacted by fewer retrofit projects and lower prices of renewed national contracts. To address these challenges, we made management changes early in the year and I am pleased with the progress our Lighting team has made in developing and implementing a new sales strategy, repositioning the salesforce, and controlling costs, through major reductions in staff. We are confident that these actions will lead to improved performance for Lighting in fiscal 2005.

Due to our strong balance sheet and positive cash flow from operations of over $63 million, we continue to build shareholder value through acquisitions and investments in our infrastructure. We ended fiscal 2004 with approximately $64 million in cash, and cash equivalents, and $231 million in working capital. And that is after the purchase of the Security Service of America and initial contract services, stock repurchases, and over 4% increase in dividends paid and approximately $11 million in capital expenditures.

Recently we were recognized for our IT investment efforts with information, we've named ABM as the 12th most innovative company, with the best business technology strategies, investments and processes. We are honored to receive this recognition which ranks companies not only on technological innovation, but also on cost effective use and deployment of its technology. With our goal of providing superior services, the technology we use enables ABM to better serve our customers, and continue strengthening our position as a leading facilities service contractor in the United States.

Before I get into more discussions of our line of business and with respect to fiscal 2004, I would like to turn the call over to George for a review of our consolidated unaudited financial results. George.

Thank you, Henrik. Good morning, and happy holidays to everyone.

As reported in yesterday's press release, the Company has changed its methodology associated with its insurance reserves. The change in accounting methodology will move our insurance reserves to the actuarial point estimate, which we feel is a more appropriate estimate of this liability, and result in a $27 million increase in the Company's self insurance reserves at October 31, 2004.

We are working with our independent auditors and other advisors, along with the audit committee of the Board of Directors of ABM, to determine whether Generally Accepted Accounting Principles required that the $27 million adjustment to insurance reserves be accounted for as an expense in the fourth quarter of 2004, or whether approximately 22 million should be allocated to prior years.

The appropriate accounting is a charge in the fourth quarter of 2004, the impact would be approximately $16.4 million after tax, or 33 cents per diluted share. With the quantification of the change having been disclosed, our focus now returns to the determination of the correct accounting for this charge. We fully expect to complete our Form 10-K annual report filing by the January 14, 2005 deadline.

Let's now look at the fourth quarter. Excluding any impact from the insurance reserve methodology change, net income for the fourth quarter is expected to be $5.4 million or 11 cents per diluted share, compared to $64.5 million, or $1.29 per diluted share in the fourth quarter of 2003. As you will recall, the fourth quarter of 2003 includes a $51.6 million after-tax gain from the sale of our elevator operation. Accordingly, income from continuing operations for the fourth quarter of 2003 was $12.8 million, or 26 cents per diluted share.

Also as reported yesterday, the fourth quarter of 2004 includes a $15 million or 9.1 million after-tax, roughly 18 cents per diluted share, increase in insurance reserves related to the adverse developments, principally related to California worker comp claims, during the four-year period ended October 31, 2003. Excluding the impact of this charge, which I will talk about in a minute, income from continuing operations for the fourth quarter of 2004 is expected to be 14.5 million, or 29 cents per diluted share, which is up 13% when compared to the fourth quarter of 2003. Again, both amounts excludes the impact in insurance reserve methodology change as previously discussed.

As part of our normal internal control procedures, ABM retains an independent actuarial evaluation of its loss reserves as well as a funding estimate for the upcoming fiscal year. One of the observations during this year's study was a slowdown in our claim closing rates. Again, principally related to California worker compensation claims. As you may recall, we changed California claims handling from an in-house unit in early 2001, to a third party administrator, and then decided to obtain another third party administrator effective for claims reported since November 1, 2003.

We also had had a special study performed to review claim handling procedures to make sure such changes were properly considered by the independent actuaries. The findings which were also confirmed by two recently completed claims reviews indicated that the claims were not being adequately managed. The Company has notified the third party administrator of its test to move the claims to its current third party administrator. We expect that this move will be completed by the 14th of February, 2005. In addition to moving its claims administrator -- administration, we continue to evaluate our remedies against the third party administrator including recovery of damages.

As mentioned earlier, excluding both the impact of the insurance reserve increase and the methodology change, income from continuing operations is expected to be $14.5 million, or 29 cents per diluted share, up 13%, when compared to the comparable 2003 period. The fourth quarter 2004 benefited from one fewer workday, roughly 2.3 million pre-tax, and recent acquisitions. Security, Parking, Engineering, and Janitorial, all had double digit growth while Lighting was down 38%, due to lower retrofit project sales.

Sales and other income for the fourth quarter of 2004 are expected to be 630.9 million, up 9% from the 578.4 million in the fourth quarter of '03. Of the 52.5 million increase, acquisitions completed in '03 and '04 accounted for 35.4 million of the increase. Again, Parking, Security, Engineering, and Janitorial, all had double digit growth in revenue, while Lighting was 4% below the prior year.

Gross profit margin which is defined as sales and other income less operating expenses and cost of goods sold and excluding the $15 million insurance charge, is expected to be 10.8% in the fourth quarter, compared to 11% in the comparable period for 2003. The decline is principally due to the one extra workday. The effective federal and state income tax rate for income from continuing operations is expected to be 32.5% for the fourth quarter, which is 36.9% if you exclude the $15 million charge, and this compares to 33.4% last year. The estimated tax rate for fiscal 2004 reflects a higher estimated state income tax rate, due to the combined insurance tax return filing requirements in certain states, where separate income tax returns were previously filed.

Turning to the year, again, excluding the methodology change, income from continuing operations is expected to be $32.8 million, or 66 cents per diluted share, compared to 36.4 million, or 73 cents per diluted share. Again, excluding both the impact of the insurance reserve increase of $15 million, and the methodology change, income from continuing operations is expected to be 41.9 million, or 84 cents per diluted share, which is up 15% compared to the last year's period. Year-end '04 benefited from one fewer workday. And acquisitions completed in 2003 and '04 which contributed $3.8 million of additional profits.

Security, Parking, Engineering, and Janitorial again all had double digit growth, while Lighting was down substantially due to lower sales. Fiscal year 2004 also includes $3.3 million of after-tax amortization, which is roughly 7 cents per diluted share, related to the acquired customer intangibles that were acquired in acquisitions in '03 and '04, as a result of our adopting EITF pronouncement 02-17. As Henrik mentioned, Sales and other income for the year is expected to be $2.42 billion, which is up 6.8%. Acquisitions completed in '03 and '04 accounted for roughly $131 million of the increase.

Parking, Security, Engineering and Janitorial, again all had double digit growth in revenue, while Lighting was down 12%. Gross profit margin for the period and excluding the $15 million insurance charge is expected to be 10.3%, which is up from the 10% from a year ago.

The effective tax rate for '04 is expected to be 35.2%, which compares to 33.6% last year. Excluding the $15 million charge, the effective tax rate would be 36.1%, and again is driven by the higher estimated state income tax rates. For fiscal year 2005, we anticipate an effective tax rate closer to 37.5%.

Turning to our statement of cash flows, cash from continuing operations for the fourth quarter is expected to be 20.8 million, compared to 10.9 million last year. For the year, cash from operations as Henrik indicated will be 64.2 million, compared to 53.7 million last year. Turning to our stock repurchase program, we are not in the market in the fourth quarter of 2004. Year-to-date purchases were 600,000 shares at a total cost of 11.1 million, which compares to 2 million shares purchased in '03 at a cost of 30.4 million.

As Henrik indicated, our balance sheet remains extremely strong with over 63 million of cash and cash equivalents and no debt. The major asset on our balance sheet continues to be accounts receivable, which increased to 331.2 million in the quarter. This compares with 294.2 million at the end of 2003. Accounts receivable that are over 90 days past due, finished the year at 20.7 million, which is 6.3% of our total, compared to 28.2 million last year, or 9.6% of the receivables outstanding. Our allowance for doubtful accounts was $8.7 million at the end of '04, which compares to $6.3 million at the end of 2003. Insurance reserves with the 15 million adverse worker compensation provision, would have been $154 million. With the change in methodology, we expect the insurance reserves to be over $181 million at the end of October 31, 2004. This compares with previously reported reserve levels of $136 million at July 31, and 127 million at October 31, 2003.

Please let me remind that you until the accounting for the methodology change is finalized, the prior reserve balances may change. We are working diligently to resolve this issue as quickly as possible. It is now my pleasure to turn you back to Henrik for our CEO's perspective on the fourth quarter and our forecast for 2005. Henrik?

Thank you, George. Before I review the operational results for the fourth quarter, and discuss some of the areas we plan to focus on for fiscal 2005, I would like to note that due to our strong financial position in increasing cash flow, our Board of Directors authorized a quarterly dividend of 10.5 cents, a sequential increase of 5%.

Now to discuss our unaudited operational results here again, I'm excluding any impact from the increase in insurance reserves. Janitorial, our janitorial operations delivered a solid performance for the fourth quarter and full year. Revenue for the quarter increased by over 5% due to strength in the mid-Atlantic and northeastern regions. For the year, revenue grew over 5% due to the (HGO) and initial acquisition, as well as new business in the Southwest and northern California, and expansion of services to customers in the Midwest.

Operating profits from continuing operations of the Janitorial business increased approximately 16.3% when compared to the same quarter in fiscal 2003, and 11.8% for the year. The increase in operating income came from overall improvement in job profitability across many of our regions and as a a result of one less workday compared to last year. For 2005, I expect our Janitorial operations to benefit as the high vacancy rates in some of the major metropolitan areas starts to decrease, and as we continue to expand our initial owner operated facilities, including Manufacturing, High-tech, and Industrial.

Parking. Parking built on a strong third quarter and delivered a solid fourth quarter as well. Sales for the fourth quarter increased by 2.5 million, or 2.6%, while operating profit increased by 38%, compared to the same quarter last year. For the year, we experienced a 49% increase in the operating profits, due to improved airport sales which generally improved with the increase in airline travel, the termination of unprofitable airport contracts, and improved margins on renegotiated contracts. After experiencing a challenging 2003, I'm very pleased with the progress made in 2004 by our partner operations. In 2004 we strengthened our airport business by starting contracts with Minneapolis/Saint Paul International and Colorado Springs airports. In addition we renewed contracts at two other locations.

Security. Sales of our Security business increased 61% for the fourth quarter, and 41% for the year. Primarily due to the SSA acquisition and the net effect of new business, including several major contracts awarded in the latter half of 2004. Also in November we announced a completion of the acquisition of Sentinel Guard Systems which will become part of our Commercial security services. The contribution for this acquisition will be reflected in our 2005 first quarter. Operating profits increased 54% for the quarter, and 38.8% for the year, primarily due to the operating profit for new business, and slightly improved margins on existing business. We believe that our Security company has a distinct competitive advantage, now that it is one of the largest U.S.-owned and operated Security enterprises. Fiscal 2005 will be our first full year in which we can market our national capabilities and work towards expanding the customer base that we acquired through the acquisition of SSA.

Engineering. Sales in our Engineering operation increased $20.5 million, or 11.4% during 2004, and 13% in the fourth quarter. In fiscal 2004, we experienced net new business in eight of nine regions in the country, most significantly in northern California. As the economy continues to improve, we anticipate clients will continue to increase the number of on-site engineers to service their properties. More impressive is the fact that our operating profits increased 27% for the quarter, and over 20% for the year, due to higher sales, with minimal overhead, added due to the leverage of our business model provides.

Lighting. As I mentioned in my opening remarks, Lighting remains an area for improvement. For the year, sales decreased by approximately 12%, and about 4% for the fourth quarter compared to last year. For the year, operating profit was $2.8 million, and operating profits for the fourth quarter was $1.1 million, compared to $1.8 million for the fourth quarter of 2003. We believe there is a lot of upside to this operation. And we have taken the proper steps to improve top and bottom line during the next 12-18 months.

In fiscal 2004, we hired Eric Lazier to oversee operations and we believe he is making the correct internal changes. In particular we are focusing our sales difference in local and regional accounts, those from one to six buildings, with strip malls and shopping centers, as well as commercial office areas in the warehouse districts. With a change in sales mix, we will be expecting to see a modest improvement in Lighting's margins executed on this initiative.

COMMair and Facilities service, sales for this segment increased by $4.1 million or 9% for the year. Higher sales were solely attributable to new major contracts awarded to Facility Services, as sales in the mechanical operations were flat. Operating profits increased 11% for the year and increase in operating profit is due primarily to higher sales in Facilities services from the new contracts, and longer staff reductions at both mechanical and facility services.

In 2005, we plan on combining the operation of COMMair and ABM Facility Services with ABM Engineering. We believe that the operations of the combined entity will be more efficient and provide a stronger platform in which to market its services. The combined enterprise will now be better equipped to target small to mid-sized commercial properties that can't afford stationary engineering solutions.

In closing, we are very pleased with the operational results for fiscal 2004, and we look forward to making improvement in our top and bottom line in fiscal 2005. We believe our national presence, diverse service capabilities, technology and financial strength, enables ABM to differentiate themselves, when compared to competition, and increase our leadership position, providing superior customer service to meet the increasing demand of our customers. As we enter fiscal 2005, we are excited about opportunities and committed to building on the success of 2004. We believe we will continue to produce positive results and improvements across all of our operations. We are beginning to see the preliminary signs of growth in the office market, with expansion, absorption, and construction. For the third calendar quarter, national downtown office vacancy rates remain flat at roughly 4% -- 14%, but the increased absorption is a sign that the calendar fourth quarter and beyond may be stronger.

We will continue to utilize our strong balance sheet and operating cash flow to capitalize on organic growth opportunities, to make complimentary and accretive acquisitions, and to increase shareholder value through our dividend plan and stock repurchase program. Based on current industry trends, with vacancy rates at current levels, our outlook we expect diluted earnings per share in the range of 95 cents to $1.00, for the first quarter we are projecting diluted earnings per share of 14 to 16 cents. Both fiscal 2005 and first quarter guidance include one additional workday. All numbers are exclusive of any future acquisitions.

At this time I would like to open the call up for questions.

At this time, I would like to remind everyone, if you would like to ask a question, please press star, then the number one on your telephone key pad. We will pause for just a moment to compile the Q&A roster. Your first question comes from Jeff Kessler with Lehman Brothers.

Henrik, the worker's compensation issue, maybe this is a question for George, to what extent is this an ABM issue, and to what extent is this an issue that your competition has to deal with? In other words, are you being -- is your review of this finding out that it is something that you have to deal with more than smaller companies? Or are smaller companies the ones who are really going to have to pay for this?

Good morning, Jeff. It is George. The charge that we took, we believe primarily relates to the inadequate management of the claim, as claims slow down in closing, they typically cost more. Our review of the types of injuries that we had in '04 versus '03 and prior, we didn't see any changes in the types or severity of the injuries. So we're hopeful that the actuarial estimate actually will be a little high, and that we can come up with better savings.

Okay, so this is primarily experience that you saw with regard to, particularly with one of your outsourcing agents?

That's correct.

All right. Second question, regards the obvious question we have to ask you, the quarter about Lighting, you briefly went through some of the changes you are making in lighting to get it more profitable. And get its improvement in line with what is going on in improvement in overall, in the overall commercial services business right now. About how long does your program envision getting Lighting back into place, and what type of profit level should we be expecting toward the middle of the year, or in the second half of the fiscal year?

Jeff, this is Henrik. Two things about Lighting. The fourth quarter, believe it or not, even though the numbers are small, was a positive quarter for Lighting, because this is the first time in a long time they met their own internal expectations. So I think to be quite frank, we're moving in the right direction there. Eric has made a number of changes. We have added a considerable amount of people on the sales staff, and I believe that the initiatives taken now will probably show greater improvement in the third and fourth quarter, than you'll see in the first and second quarter. But I think that the good news is, I think we for sure know where Lighting is heading. I think they have a very sound strategy going forward. And the strategy is -- that has been agreed upon, are being executed very professionally.

All right. One follow-up question, that is the (Torto Wheaten) surveys that are coming out are showing, you know, expected fall-offs in tenant vacancy, going down pretty rapidly. Expectations of 16 going down to 15, down to 13.5% for 2006. Have you taken this into account as you begin to -- begin to take a look at your 2005 fiscal year budgets?

Two things on that. First of all, we do make budgets, as you know, probably finalized back in August, September, and what you get is a result of those budgets. The changes that you're mentioning are not taken into consideration, we are continuing to do our forecast, and our budgets, on existing business conditions, and due to the relatively small change, I can't say if that's going to have any kind of impact for '05. Of course, we hope so. Because more activity among tenants, normally has a very good effect, but we have not taken anything into consideration, no.

Okay. Finally, at what point are you going to be able to determine or you believe your accountants will be able to determine, whether or not you are going to be able to take this charge in one year, or you're going to have spread it out over the last, you know, over the last four years, or as long as were you dealing with this -- with this outsourcer?

Jeff, it is George. We are working as diligently as possible. We expect our 10-K to be filed by the January 14 deadline, and we expect the accounting issue to be resolved well before that.

All right. Thank you.

Again, I would like to remind everyone, if you would like to ask a question, please press star, then the number one on your telephone key pad. Your next question comes from David Gold with Sidoti & Company.

Hi, good morning. George, can you explain a little bit more on the accounting methodology change? I guess I'm not familiar with how the actuarial point estimate, you know, that you're shifting to works, and I was hoping you could sort of explain the difference from how were you reserving before, versus the new process.

Good morning, David. At this point, we're really not comfortable with discussing the details until we have fully resolved the appropriate accounting. Once we make that determination, we will be making an announcement and an 8-K filing and providing further details as to the impact of the change of the methodology, both on current year, current quarter, and prior years. But at this point, the impact of the changes at October 31, is the $27 million increase that we've disclosed.

Sure, but generally speaking, can you talk a little bit about the process itself? So not necessarily specific to ABM, but basically what the difference is?

I would rather defer that until we've got the accounting results.

Okay. Let me, I guess, ask another. As you kind of look -- we're stepping up reserves pretty dramatically, obviously I guess you're not ready to talk about how this changes things on a go-forward basis, but presumably, we, based on the bad experience that we're having with this particular administrator, we likely have to step up reserves, sort of based on that experience? Would that be a fair way to look at things?

Two items, David. First of all, with regard to our forecast of 95 cents to a $1.00, the new methodology on insurance reserving is factored into that.

Uh-huh.

Second item is in essence, with the actuarial projection, based on really a status quo of our claims management, we anticipate and we're very hopeful and we will be aggressively going after, hopefully some reductions in our insurance reserves as we move these claims over to our other third party administrator.

Additionally, as you may have recalled, in October we announced that we hired Don Hroch, as our new Vice President of Risk Management. Don has extensive experience in claims management, and so I think combined with the new TPA that we're using, and we have over a year of experience now with that group, and with Don's expertise, that we should be successful in '05 of getting this problem under control.

Okay.

And David, let me just add one thing.

Sure.

That is, that joining the difference service, we did find out for a fact that it doesn't look like our type of claims have changed. So it is not a severity of type of injuries. It is more related or only related to the management of those particular claims.

Uh-huh. Uh-huh. I see. And Henrik, as you kind of look at '05, two questions. One, if you can give us a sense of what type of revenue growth your forecast is predicated on? And then two, as you think about clients, when it comes to, you know, any step-up that may be necessary, is that something that you think you would be able to successfully pass through or is that something you might have to absorb?

Would you repeat that last question, David? I'm sorry.

Sure, first, the first part was on the revenue growth that's built into your forecast for EPS, and the second part was just along the lines of, if you need to take a step up, I remember if we go back to 2001, you were, you know, somewhat successful in basically in passing along some of the step-up that was required at that time on the reserve side, and I was just curious if it will be likely a similar scenario or if it is something that you might have to absorb.

Well, I would like to start with the last question first. The insurance and the rates that we are using and the experience we have with '04 claims doesn't mean that we have to go out to clients with increases. There is nothing negative developing in our insurance. It is very different from the problems we've had, in the past we've had a negative development. This -- let me describe it again, because as you can imagine, we spent many frustrating hours here discussing it.

Sure.

And the fact of life is that we have charged in our opinion the right rates to the clients, the growth in our insurance claims, et cetera, has not gone up, the type of claims are the same, and the hopeful impact in '05 on insurance would be that moving these claims from one provider to another provider is going to stop that negative development in the claims that we've experienced with the other carrier, and also hopefully we will be able to take action against that third party carrier, and the 15 million in our opinion as we speak, is after the worst case. So basically some of that money could come back.

Uh-huh.

Now, let me go to the sales. The sales number increase is not that huge. We expect around 8% increase in the year from around $2.4 billion to around $2.6 billion, and that is based only on same-store sales.

Uh-huh. Uh-huh. Okay. Perfect, thanks a lot.

Thank you, David.

Your next question comes from Pat English with FMI.

Good morning.

Good morning.

Just wanted to clear up, the methodology change has nothing to do with any claims performance, correct?

Correct.

And I should view that, or we should view that as strictly as an accounting change, or is it related partially to under reserving for self insurance?

Pat, I would say it is more of an accounting change.

Okay. And all of the discussions regarding the TPA, and the transitions there, are all related to the -- primarily the worker's comp issue out in California?

That's correct.

All right. Thank you.

Thank you.

Your next question comes from Tom Steinerbalic with (DIF David) Media.

Hi. I'm a media guy and I just want to get something accurate here. So in last year's filing with the SEC, the income from continuing operations line was 36,398. When you finally file your audited statements for this year, will that comparable number be the 32.8, or the 41.9?

Tom, this is George Sundby. That is the question that we don't have an answer for as yet, due to the accounting change on the insurance methodology. We have to take the 27 million in 2004, the number will be significantly less than the numbers that you had. If this requires a restatement, 22 of the 27 we estimate will go back to prior years. So unfortunately, at this point, we don't have a GAAP income number.

So you don't even know whether you're going to have to do this in the 2004 year, the change might be in 2005?

No, the change would either be in the fourth quarter of 2004, as one lump amount, or we would go back and restate prior years for the change in methodology, and in doing so, only about 5 million of the 27 would impact '04 results.

So that 36.4 could change, too, depending upon --

That's correct.

The choice. All right. So the only safe thing at this point is to use 41.9 and then asterisk the change? Essentially?

Yes.

Yeah, okay. Thanks.

Your next question comes from Scott Schnecberger with Lehman Brothers.

Are you there, Scott?

Sir, your line is open. You may proceed with your question.

Can you hear me now?

Yes.

Okay, great. Thanks. The -- you had mentioned in an earlier question that the '05 guidance of 95 cents to a dollar had these insurance issues factored in. Could you just elaborate a little bit more on the type of impact, if possible?

Well, as I indicated, we use a funding estimate provided by the actuary, and related to the exposures that we have in the growth in our insurance, and so the net increase in any one period is not expected to be significant with the change. But we have factored in, in the 95 cents to a dollar, providing for the new methodology.

Okay. Thanks.

Uh-huh.

At this time, there are no further questions.

Well, thank you very much for listening. Happy holidays to everybody. And I will talk to you in three months. Thanks.

This concludes today's ABM Industries fourth quarter earnings update. You may now disconnect.