Argo Group International Holdings Ltd (ARGO) 2005 Q1 法說會逐字稿

Welcome to the first quarter 2005 Argonaut Group earnings conference call.

My name is Liz, and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will, however, be facilitating a question-and-answer session towards the end of this conference. [OPERATOR INSTRUCTIONS] I would like to turn the presensation over to your host for today's call, Mr. Mike Russel. Please go ahead.

Thank you, Liz, and good morning.

Welcome to Argonaut Group's 2005 first quarter earnings conference call. With me today is Mark Watson, President and Chief Executive Officer, and Mark Haushill, Corporate Senior Vice-President, Treasurer, and Senior Financial Officer.

We are pleased to have the opportunity to discuss with you the Company's results for the quarter, as well as some of it's the ongoing initiatives. Mark Watson will provide an overview of the Company's performance from operations, and Mark Haushill will provide an overview of the Company's financial results for the quarter. Please note, no earnings guidance will be provided during this call.

Before I turn the call over to Mark Watson, I would like to inform you this conference call is being recorded and that all participants presently are placed in a listen-only mode.

Following management's discussion, we'll open the conference call for questions.

Let me remind everyone that as a result of this conference call, Argonaut Group management may make comments that reflect their intentions, beliefs, and expectations for the future. As a result, these forward-looking statements are subject to certain risk factors, which could cause actual results to differ materially. These risks factors are listed in the Company's filings with the SEC, including Argonaut Group's form 10-K and form 8-K the Company filed yesterday afternoon, which contains the news release announcing 2005 first quarter results. Finally, Argonaut Group management may make references to the call to operating income, which is a non-GAAP measurement of financial results.

With that, I would like to introduce our President and Chief Executive Officer, Mark Watson. Mark.

Thank you, Mike. Good morning.

I appreciate you joining us today for our report of the 2005 first quarter results. In just a few minutes, our Chief Financial Officer, Mark Haushill, will discuss the financial results of the first quarter before we open the call to your questions. Ahead of that, I'll address our overall quarterly performance, briefly review marketplace conditions, and touch upon the strategic moves we've made since the start of the year.

From a performance standpoint, our first quarter picked up right where we left off in 2004, producing profitable operating results from consistent and disciplined underwriting. In fact, it is the best quarter we've had since I became President of our Argonaut Group five years ago.

All four of our business segments reported higher operating income and underwriting profits in the first quarter than in comparable quarters for 2004. -- for the first quarter of 2004.

Operating income increased substantially this quarter, up 46%, and our net income rose 42%, and fully diluted earnings per share was up 38%.

Our combined ratio for the group also improved compared to last year's first quarter as we went from a 97.9% combined ratio to a 95.6. We expect the group combined ratio will continue to trend throughout 2005 absent any significant event.

I should also that add that gross-written premiums, net-written premiums, and earned-premiums ended higher than in the first quarter of 2004. These are, in fact, a result of slightly higher rates which were up about 5% in some of our markets.

We continue to see pricing pressure in certain market segments, which we anticipate will continue through 2005, but our niche markets continue to be largely isolated from these competitive forces. Notwithstanding the first quarter and given consistent rate pressures in the marketplace, we believe aggregate pricing during 2005 will be relatively flat, meaning some rate improvement on casualty over the course of the year as we've seen so far, and perhaps some rate reduction in property going forward for the remainder of the year. This, of course, excludes what's happening in pricing on the large-account business which has become more competitive.

Our balance sheet remains strong with over 3.1 billion in total assets. I should add that we remain comfortable with our period reserves for our asbestos and environmental exposure, our worker's compensation reserves, as well as other loss reserves. In fact, for the quarter, we experienced slightly positive development from our reserves in the aggregate.

Before I turn the microphone over to Mark Haushill, I will like to address the importance of our strategic moves during the first quarter -- or, I should say, during the first part of the year.

On April 1st, we announced the acquisition of renewal rights and certain other assets of Interstate Insurance Group, a subsidiary of Fireman's Fund. This particular book of business compliments our current excess and surplus lines of business. It expands our product portfolio and geographic presence in the U.S., which we believe will further solidify our relationships with our distribution partners. Our renewal rights deal is our prime example of our strategy as work, which is to pursue high value opportunities that will produce more predictable revenue growth, as well as expand our presence within the niche market that we serve.

The first quarter also brought some strategic agreements to our select market segment, which we used to refer to as specialty commercial, as well as our public entity segment.

In summary , I am pleased with our first quarter results and look to continue our momentum in the quarters to follow. We made several important strategic moves since the beginning of the year that should help us build upon this solid start to 2005.

I will be happy to answer your questions after Mark Haushill reviews our first quarter financial results in more detail.

Mark.

Thank you, Mark. Good morning.

I hope all of you had an opportunity to review the press release, but in case you have not, let me go through the financial results and add some clarity on a few items.

For the quarter ended the March 31, 2005 net income was $26 million or $0.83 per share on a fully diluted basis. This compared to net income of 18.3 million for the quarter ended March 31, 2004, or $0.60 a share on a fully diluted basis.

Our pretax operating income for the first quarter increased by 46%, to 23.1 million, compared to 15.8 million for the same quarter of last year. The increase was driven by underwriting income, which, for the first quarter of 2005, totaled 7.1 million, compared to 3.2 million a year ago. Investment income increased approximately 35% or 5.1 million over the same quarter last year.

The consolidated combined ratio was 95.6% compared to 97.9 for the same quarter last year. The loss ratio improved to 59.9% from 62.4% and was driven by improvements in our risk management, select markets, and public entity segments. This is the second conservative quarter in which our loss ratio was at or below 60%.

The expense ratio for the first quarter of 2005 was 35.7% as compared to 35.5% in 2004. Our expense ratio for the excess and surplus lines, select markets, and public entity segment, was below 33%, while the risk management segment expense ratio was about 50.7%. The risk management segment expense ratio will run higher due to the nature of large deductible policies written by this segment.

Investment income increased $5.1 million to 19.8 million due to rising interest rates over the past year, $1 million of interest associated with a tax refund, and increase in our invested assets. The increase in our invested assets resulted from cash flow generated other the last year, coupled with our trust-preferred issuances in 2004. Our participation in those trust-preferred markets last year, also is a primary driver the interest expense in the first quarter of 2005, compared to the first quarter of 2004.

During the first quarter of 2005, there were no significant impairments in the investment portfolio. For the first quarter, we reported a tax benefit of $1 million, which is complied of $7.9 million of tax expense, which was offset by reduction in evaluation allowance of $8.9 million. Tax expense of $7.9 million includes $1 million benefit related to the resolution of a California-franchise tax issue we discussed last quarter.

At March 31, 2005, the evaluation allowance is approximately $16 million.

Now, if I can, let me go through a few balance sheet items. The market value of the investment portfolio is about 1.8 billion. The unrealized gain in the portfolio as of March 31, 2005, decreased $27 million during the quarter and was approximately $57 million versus $84 million at year end. $25 million of the decrease in the unrealized gain is attributable to the fixed-income portfolio as interest rates rised during the quarter. The remaining $2 million decrease was due to the equity portion of the investment portfolio. All of the numbers I just cited are before tax.

Our strategy relative to the portfolio has been to match the duration of our portfolio to the expected term of our liability with the buy-for being on the shorter end as we expected interest rates to rise. Our pretax yield for the portfolio was approximately 4.2%. We are comfortable with both. -- we are actually -- relative our loss reserves, which total 1.6 billion at March 31, we did have favorable development of approximately 5.4 million during the quarter. The favorable development was primarily attributable to the risk management segment.

Shareholders' equity is now 614.5 million compared to 603 million at year-end.

Fully diluted book value is 19.94 per share at March 31, 2005.

Our leverage ratio at March 31, 2005, was approximately 15.5%, and we are comfortable with that level. Our leverage consists of variable rates, trust-preferred securities, aggregating about 113.5 million.

That concludes our prepared remarks.

Operator, we are prepared for questions.

[ OPERATOR INSTRUCTIONS ]

Your first question comes from the line of Greg Peters from Raymond James.

Good afternoon -- actually, it's good morning.

I had a couple questions, and I apologize if I missed some in your opening remarks.

I thought, perhaps, Mark Watson, you might provide us with an update on the re-insurance recoverable issues specifically as it relates to the Los Angeles Metropolitan Transit Authority and Trenwick, and then I will have a follow-up.

Good morning, Greg.

I don't think we have any change to report from our last call a quarter ago. We continue to be paid on our re-insurance recoverable balances from Trenwick, and we are still slugging through the re-insurance recoverables for the LA Metro rail.

If I recall, when I was looking at your 10-K, you seemed -- some of the language you seemed to have in there regarding the Los Angeles Metropolitan Transit Authority recoverable was somewhat positive. It noted recent wins in terms of court cases on that subject. I am wondering if there's should be another data point that we should be looking in the near future, if there's another upcoming case, or something we should be looking out for?

You are right . We did have a number of wins at the end of last year. I think that will put us in a position to try and resolve the thing completely this year, although that hasn't happened yet, but I am optimistic that we will get some closure and finality on that subject this year.

Okay.

I wanted to circle back then, from a big picture perspective, in looking at your results, and I'm curious about what kind of targets you have from a corporate perspective in terms of return on equity, and also, I thought you might use that as an opportunity to talk about the individual targets you might have from a return on equity basis at the individual segments within Argonaut.

Our target ROE, which, as we all know, we are at yet, is a 15% ROE. Although, I would note that each quarter we get a little bit closer to that. That's true for each one of our business segments individually, not just the group in the aggregate. Obviously, some of our business segments are already exceeding that, like our excess and surplus lines segment, which accounts for about half of the business we write today, and given the renewal rights acquisition that we announced at the beginning of April, it is likely to exceed 50% by the end of the year.

For select markets, which I think I said in the call we used to refer to as commercial -- specialty commercial -- and public entity, we are getting closer to that target. And then, the outlier is risk management, which is improved from this time a year ago, but, of course, is still not generating the return that we'd like to see, and that's where a lot of my attention is focused right now. Yes, it is important that we as a group achieve an acceptable return on capital, but we are not going to get there if all four business segments don't do it at the same time.

In the risk management segment, the volumes came in a little bit lower than expected, and I guess what I was looking for there -- maybe reflected some lingering benefits of the Kemper renewal rights deal that you did sometime ago. Is there anything going on in the risk management business that's caused the volume to come off a little bit, or is it just market conditions, or was I looking at it wrong?

No, I think you're quite observant. As I mentioned in my opening remarks, the place we are seeing the most price competition is on the large accounts. While that wasn't affecting risk management too much in the fourth quarter, it has had a tremendous effect on our top line -- maybe "tremendous" is too big a word -- but it has had an effect on the top line in the first quarter, primarily on a written basis, not so much on an earned basis.

And, of course, our expenses have come down as our premium has come down. We would expect, as Mark Haushill said, to have a higher expense ratio today than we did a year ago because of the change in mix of business. As we're now writing more large deductible accounts in the portfolio than we were a year ago. But there is a fair amount of competition for our larger accounts, and there is some irrational behavior, and we are just walking away.

Okay. Fair enough.

I'll re-queue for some follow-ups.

Your next question comes from the line of Bijan Moazami. Please go ahead.

Good morning, everyone.

Mark Haushill mentioned there was $5.4 million of favorable reserves from risk management. I was wondering if you can attribute that to the legislative action that was passed in California last year, and whether or not we should expect some additional benefit from those legislative actions going forward?

Bijan, I think some of that is attributable to California, but most of that occurred across the book, meaning in states outside of California as well as California.

I think it is possible that we could see some more benefit going forward in terms of positive development, and if we do, it will most likely be given from improvements in California.

Is it because of a drop in frequency, or is it severity issues?

Both.

Both.

I also notice your specialty commercial lines grew very nicely. I was wondering if you could comment on the opportunities you see in the program business?

Funny you should mention that. There have been a number of opportunities that have presented themselves over the first part of this year. We haven't done too many of them, but there's certainly more opportunities today than there were a year ago. Some of that may be a function of the change in the marketplace. I also think it is a change in the strategy of our business, and market participants better understanding our strategy and how they can fit into that.

And, just a question that I probably asked last quarter -- also, have you guys noticed any drop in the retention ratio at colony?

I think it has been pretty stable. Submission activity continues to increase year over year, and I don't think there's been too much change in the retention ratio.

Thank you.

Your next question comes from the line of Mark Lane from William Blair & Company. Please go ahead.

Thank you. Good morning.

Good morning.

Couple questions and a follow-up on previous questions.

The first thing you mentioned was about the combined ratio, with the improvement in the year-over-year and you had said that you thought that that would continue through the rest of the year. Did you mean that the improvement, or the first quarter level was a pretty decent level of profitability to expect outside any catastrophes or anything unusual?

How about both. Mark, I think that the first quarter combined ratio is a good benchmark to look at for the remainder of the year. We are hopeful that we'll continue to expand our business and keep our expenses flatter, or improve them during the course of the year, which should show continued improvement in the combined ratio over the course of the year.

Okay.

Mark, this is Mark Haushill too.

Remember, when we do renewal rights deals, typically there can be some pressure on expense ratio until the earned catches up.

On that topic, if you look at Interstate and some of the other things that you put into place since the beginning of the year -- what sort of growth do you expect or look to premium on an absolute basis would you expect from those strategies?

I would expect from the Interstate transaction that we would write, perhaps an additional 50 to 75 million this year -- gross. Our net premium would likely be 75% of that, and then, of course, earned will follow.

Yeah.

What about some of the other things that you had announced, or is that really the major?

The other announcements we've had during the year are more along the lines of endorsements from state restaurant associations for great central as well as a market endorsement for our public entity operation.

It is hard to say how much new business those will generate, although they typically do lead to additional business generation beyond what we expected before we had them in place.

Okay.

Just a question of clarification on the 5.4 million of favorable development within risk management.

You mentioned that you had net favorable development in the aggregate,. So what about the reserve movement more broadly, would -- is 5.4 million all the favorable development for the quarter, or was there anything that was offsetting that negatively?

Mark, this is Mark Haushill.

The other segments within the group didn't develop adversely at all. The answer to your question is the favorable development was derived from risk management.

What years was the favorable development associated with -- what asset years?

The most recent asset years -- '01 to '04.

Okay. So even a little bit from '04?

Yes.

Okay. Thank you.

Next question comes from the line of Mark Finkelstein from Cochran, Caronia.

Going back to Interstate Insurance Group and growth generally -- I guess -- do you have any updated views in terms of your capital position and ability to support the ramp up in that business over the next -- call it -- two years?

I think that we'll get a pretty good indication of what the ramp up in the business will be in the coming three or four months. Obviously, depending upon how much we write, that may or may not require us to change our capital position. But, as of right now, I am comfortable with the amount of capital that we have on the balance sheet today to support that business opportunity, and we are pretty comfortable with our access to capital should we need more. At this point, we are comfortable with the amount of capital we have on the books to write the business that's coming in the door.

Okay.

And then, I guess just going back to the risk management business and the expense ratio in the 51% range. I mean, understanding that's risk management business in the expense ratio is going to be higher, but do you see an opportunity to bring that down or through efficiencies or other opportunities, or do you see it lingering at that 50, 51% level?

I see it coming down slightly as we gain some efficiencies, but, again, we would expect the expense ratio to be probably in the low-40's going forward. We would also expect the loss ratio to come down a bit more as well.

Even considering the favorable development on that business in the quarter?

Well, I wasn't taking that into consideration, Mark. We would expect the risk management business to run at a combined ratio in the low 90's. We would expect both the loss and the expense side to come down, but mainly the expense side.

Okay. Perfect.

Thank you.

Your next question comes from the line of Mark Dwelle with Ferris, Baker Watts. Please go ahead.

Good morning.

You have provided good incites on the renewal writes deal, I want to ask a couple more questions along those lines.

Has that -- as that business becomes to come on the books, can we assume a fairly reasonable or level pattern of renewal rights, which is to say, will there be any quarters where there might be a higher level of business coming online?

No, for the ENS business -- again, this business is very similar to what we already write, which is small accounts. You don't have spikes at the beginning of quarters. So it should be fairly smooth over the course of the year. It may be up or down a couple million dollars one quarter to the next, but I wouldn't expect much more volatility than that.

Okay.

Then, similarly, since it is sort of new business to you, would you contemplate putting that on a relatively higher expected loss ratios, or will that be likewise, fairly homogenous as far as combined ratio expectations with current ENS business?

I would expect that we'll book it a lot more like the business we already have on the books. That's one of the nice things about a renewal writes transaction, while it is new business to us, it is not new business to the team that's writing the business, which, of course, now, they've joined Argonaut.

Good point.

One of the reasons we look at renewal writes transactions is we think our data suggests for the deals we've done over the next four years, that the business we acquire from a renewal rights transaction will perform a lot more like our renewal book, than new business.

Again, we don't budget to write all of it -- or plan to write all of it -- we plan to write a portion of it, and it's that business that fits our business model and the risk profile and appetite that we are comfortable with. So we are not stretching very far beyond what we are already doing.

That's helpful, thanks.

One last question -- as the results have come in fairly good, would you be contemplating any share buy-backs or any sort of capital structure changes over the near term?

At this point, just as I don't know we need any capital to run our business today, I am not sure that we don't need any less capital to run our business today either. So, I don't think we would be looking at share buy-backs anytime soon.

Okay. That's helpful.

Thank you.

[OPERATOR INSTRUCTIONS] Next question is a follow-up from Mr. Greg Peters of Raymond James. Please go ahead.

Okay, Mark. Just as a follow-up to that last question, I think in prior conference calls, you've indicated that you thought the board might reconsider the reinstitution of a dividend at some point this year if results continued to get better and stabilize. I am curious if there's been any change in your thinking on that matter?

I think we are likely to discussion that matter at our upcoming board meeting. I am not certain what the outcome of that will be.

Okay.

Particularly in light of having just made another acquisition, I think, right now, we are still in growth mode. I know the first quarter didn't reflect that, but the remaining quarters of this year will show us growing at a pretty good clip from some of the initiatives and investment we made at the end of last year and beginning of this year.

That's a good answer, Mark, I appreciate that.

When I look at the risk management business -- and I appreciate your comments before regarding return on equity targets, et cetera -- it seems like this business, in particular, has been a little bit more of a struggle to get going in the right direction than your other segments. I am curious if you have some sort of timeline identified in terms of getting them on the path that you are looking for?

I think if you look at the financial results of last year, all of last year versus the year before -- meaning 2004 versus 2003 in the the first quarter of this year versus the first quarter of last year -- we are on path. Albeit, it is a bumpy one and somewhat frustrating one. From an underwriting perspective, Greg, our underwriting results improved over $30 million year-over-year from 2003 to 2004, and it improved again this year by a few million dollars as well. I believe that will continue. The question is, with the market conditions changing, how much more improvement can we expect this year?

We suggested that year we would be squarely in an underwriting profit position for 2005 for risk management, and I think we have to figure out what we are going to do in the marketplace to keep writing business and make sure that we're prudent on the expense side in order for that to occur.

But I think -- again, the trend continues in a positive way. It is just a question of how quickly can we get the combined ratio of risk management in line with the other business segments of the group.

And you are not prepared to give us a time frame on when you think that might happen at this point?

I have been very clear to everyone, it is happening this year. What I said a minute ago was, with the market changing, I am scratching my head trying to figure out if that's a first quarter or if that's a trend.

Okay.

Your answers before I know incorporated some of the comments you made in your opening comments. I did not catch your opening comments, so excuse this next question because I am sure you probably already answered it, but I want to hear it again.

It she specifically relates to pricing conditions by segment. Since we have dealt pretty extensively with risk management, I am more focused on excess and surplus lines, and if you can talk to us about how pricing has developed this year. My sense is it started aggressive at the beginning of the year, maybe stabilized a little bit. I am not sure. Your business is different from many others, and I thought I would get your characterization on it, please.

I made some very general comments about pricing at the beginning of the call. I didn't go through each business unit, but I am happy to do that.

Ironically, I'm not -- other than the large accounts, where I think everybody is seeing the same aggressive price competition -- and I define "large" as 100,000 in premium and over, particularly, the $500,000 accounts on up -- I don't think we're seeing the same pricing pressure that some of the other companies have been reporting on. I attribute that to two things -- one, because our niche focus on small accounts, and our niche focus on underwriting certain industry segments that we think we know pretty well. So if you look at the public entity business first, our rates were actually pretty flat there for all lines of business.For ENS, we actually -- in the aggregate, we're up about 3.5% for the first quarter, including property, which was up slightly -- about 2.5% for the first quarter.

This is for pricing you're talking about?

I'm talking about rates, which drive pricing.

What about exposure? Was there any change in exposure?

Not very much.

Okay.

Casualty was relatively flat depending upon which business line you were talking about. We saw 5 to 10% increase in rates in some of our specialty products within ENS, specifically Allied Medical. For our select market segments, we were up 4%, that included both property and casualty, although mostly driven by casualty. We found the most improvement in our religious institutions segment. We also saw some improvement in both commercial auto surety for our mining operation in Rockwood where we saw rates up about 3% for the quarter.

We haven't seen too many things going down, but then again, we're not seeing substantial rate improvements either. I think we're pretty comfortable with our booked business, both in terms of exposure and select rate increases that we're getting. I think in most cases, we're on the casualty side. We're pretty close to keeping up with loss-cost inflation, but if we're getting a little bit of ground, it's not much. And, you'll note that our loss ratio tick for the last couple of years has probably been a bit higher than our competitors, which I think has got us in a pretty conservative position.

Should I then assume that your loss picks for the '05 for the year are going to be even more conservative than they have been for the '04 or '03 year?

No, but I think we should conclude that we remain relatively conservative compared to those two years -- or equally conservative.

Thanks so much for the answers.

Your next call comes from the line of Mark Lane from William Blair & Company.

Just a few follow-ups -- first of all, within the select markets group, can you provide any clarity regarding what contribution this quarter was from the renewal rights deals from last year -- what was incremental?

Are you talking on the gross written premium side?

Yes, on the gross-written premium side.

I think it was less than 15 million. I'm not sure -- but I think we'll be disclosing that in a few.

10 to 15 million roughly?

Right.

And then -- the summary you gave to Greg's question regarding the different segments -- what about risk management rates overall?

Well, the rates for the business we are renewing are actually up year-over-year, and for the business we're writing new, the rate that we're getting is up over average, but we're not writing as much of it this year as we were a year ago. So the business on the books looks really good, we just need to write more of it.

And on the ENS, can you just provide a bit more clarity -- submission activity is up year-over-year, rates are up modestly, exposures are flat, retentions are relatively stable, why wasn't there more top-line growth for the quarter then?

I can't answer that.

Okay.

Your next question comes from the line of Dan [Maiser] JMP Asset Management. Please go ahead.

On the interstate transaction, what kind of costs you were taking in, how many people. The estimates came down to about 5 to 7 million pre-tax. I was just wondering what your expectations are there?

We hired about 70 people, and the benefit of doing them is that you don't kick out another company's balance sheet, and therefore, they're liability and particularly their loss reserve, the downside is you don't pick up any earned premium, so there's no revenue to offset the payroll burn in the beginning. Now, it's not 100% because we also typically enter into other services agreement that defers some compensation expense, so it's not an exact science when you try and predict how much burn there will be from one quarter to the next.

Usually, it takes two or three quarters to make up for the difference. In this case, the burn will be several million dollars for the next couple of quarters.

Can you provide insight on -- do you know why farmers would be interested in doing renewal rights transaction?

I'm not going to try and speak for reason Fireman's Fund decided to exit the business other than I think what they announced was it wasn't strategic for them. All I can tell you is that we've spent a whole lot of time looking at the business several months before we acquired it and we liked the profile and we like the compliment and similarity of the risk profile to the business we were already writing. Given the way that we run business, it will be very profitable for us certainly in the near term.

On organic growth, last quarter conference call you targeted a 5 to 15% on organic growth. It looked like this quarter came in just a little bit negative with the renewal right transactions last year. Are you still targeting that 5 to 15%?

Given the market conditions, I think we'll be closer to the 5% end in terms of organic growth, but with some of the acquisition activity that we've already had in the year and what we may have, that we will still be in the double-digit range of total growth for the year.

On your finite arrangement -- you're obviously in a very different capital position than you were back in '02 and '03, is there any potential or exploring the possibility of commuting that transaction?

That's certainly an option, but remember it's an adverse loss development cover, and it's there in case we have adverse development to our balance sheet, and of course, we're seeing now positive development, so you make a point. I don't worry so much about our ocean going into run-off, they actually announced that some time ago. Our balances are fully collateralized, aso I'm not too worried about the credit issue within our ocean. When the time is right and it makes sense, we will look at commuting that transaction, but it will be because it makes sense from a business perspective and not a credit perspective.

And, Dan, this is Mark Haushill. Recall when that transaction was initially entered into, it was on a funds withheld basis.

Okay. So you have the funds on your balance sheet? Okay. Great. Thanks.

Ladies and gentlemen, your q-and-a session has now come to a close. I will turn it back over to Mark Watson.

Thank you for joining us today. We look forward to talking to you next quarter once we complete the second quarter of 2005.