Fidelity National Financial Inc (FNF) 2006 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, welcome to the FNF first-quarter earnings call. At this time all participants are in a listen-only mode mode. [OPERATOR INSTRUCTIONS] I would now like to turn the conference over to Dan Murphy. Please go ahead.

Thank you Mary. Good morning everyone and thank you for joining us for first-quarter 2006 earnings conference call. Joining me today are Bill Foley our Chairman and Chief Executive Officer; Al Stinson, our CFO; Randy Quirk, CEO of FNT; and Tony Park, CFO of FNT. On this call this morning we'll review the first-quarter results and also discuss our announced plan to eliminate holding company structure and for a new FNF and the existing FIS to become independent public companies. Bill Foley will begin with a very strategic review of recent developments for the FNF family of companies and discuss the specifics of the announced plan in detail. Randy Quirk will then review FNT's stand alone results, Al Stinson will finish with the review of the summary of financial highlights for the operating subs of FNF. We'll then take your questions and finish with some concluding remarks from Bill.

When we discuss the announced plan we will utilize several powerpoint slides which are available via webcast at our web site at FNF.com. If you are listening to this call via the telephone you need to also access the webcast if you would like to view those slides that we'll utilize in about five minutes.

This conference call contains forward-looking statements that involve a number of risks and uncertainties. Statements that are not historical facts including statements about our beliefs, and expectations are forward-looking statements. Forward-looking statements are based on management's beliefs, as well as assumptions made by and information currently available to management. Because such statements are based on expectations as to future economic performance and are not statements of fact actual results may differ materially from those projected. We undertake no obligation to update any forward-looking statements whether as a result of new information, future events are otherwise. The risk and uncertainties which forward-looking statements are subject to include, but are not limited to, the possibility that the proposal described in this conference call will not be completed, or will be completed in a different form or with different effects of holders of stock of FNF, FNT or FIS than described, or will not be successful in achieving the goals targeted. Changes in general economic, business, and political conditions including changes in the financial markets, adverse changes in the level of real estate activity which may be caused by among other things, high or increasing interest rates, limited supply of mortgage funding, or a weak U.S. economy, our potential inability to fine suitable acquisition candidates, acquisitions in lines of business that will not necessarily be limited -- limited to our tradition areas of focus, or difficulties in integrating acquisitions. ,our current dependence on operating subsidiaries as a source of cash flow, significant competition that our operating subsidiaries face, compliance with exten -- extensive government regulation of our operating subsidiaries, and other risks detailed in the statement regarding forward-looking information, risk factors, and other sections of Company's form 10-K and other filings with the SEC.

This conference call will available for replay via webcast at our website at FNF.com and will also be available through phone replay beginning at 1:30pm eastern time today, through next Thursday, May the 4th. The replay number is 800-475-6701 with an access code of 825716. Let me now turn the call over to Bill Foley our Chairman and Chief Executive Officer.

Thanks, Dan. We completed the merger of FIS and Certegy on February 1st and held our inaugural Investor Day on February 15th during which we provided a detailed review of the business and financial guidance for 2006. That included organic revenue growth of -- guidance of 4% to 6% EBITDA growth of 9% and 11% which implies approximately 1.1 million in EBITDA for 2006, free cash flow 475 million to 525 million, and diluted cash earnings per share of $2.11 to $2.17. For the first quarter FIS achieved strong performance stand alone financial results. Organic revenue growth of 8.7%, EBITDA was 245 million, which implies a 14% growth, free cash flow was 92 million, and cash earns per share were $0.45. These numbers indicate that FIS is off to a very strong start on all the metrics and remains in excellent shape to follow through on that 2006 guidance that was provided two and a half months ago.

We have talked to the past about revenue synergies being an opportunity for the combined FIS and Certegy. During the first two months of the combination we have seen concrete revenue synergies actually come fruition. Examples include selling core processing to a Certegy internet banking customer, selling internet banking to a core processing customer, selling Certegy bill pay to a core processing customer, and selling loyalty cards to a core processing customer. While many people question the reality of cross selling, we are encouraged with both the early successes and significant pipeline of opportunities for even more significant future revenue synergies. In late March FIS announced the formation of a long anticipated Brazilian card processing joint venture with Banco Bradesco and Banco ABN AMRO Real, making FIS the leading third-party card processor in Brazil. FIS owns 51% of the joint venture that will generate approximately two billion in revenue over of the next 12 years. While the conversion process will last as long as two years, this is an agreement will con -- that will contribute significantly to the longer term organic growth and profitability of FIS.

We have also seen nice momentum at FNT. First we weathered the seasonally tough month of January and February and had a very nice month of the -- in the month -- very nice month of March. Second, the near term prospects of mortgage mar -- market appear to be improving as the Mortgage Bankers Association recently raised their forecast for 2006 total mortgage originations by nearly 5.5% to just shy of $2.4 trillion. Additional we are entering the historically seasonally strong spring and summer months. Our focus remains on maximizing the profitability of FNT in whatever markets we encounter. We recently raised the FNT cash dividend by 16% in the first quarter to $1.16 annually [and] at FNT's current price that equates to more than a 5% annual dividend yield. The business that make up speciality insurance operation continues to generate significant growth strong financial results in the first-quarter. Our flood insurance business continues to po -- provide the recurring revenue stream from the issuance and renewal of flood insurance policies with more than 565,000 flood policies in force on March 31st. We also had the overwrite revenue from the processing of flood insurance claims, particularly the final revenue from the Katrina-Rita and Wilma hurricanes of 2005. Our personal lines business continues to grow profitably as policies [enforced] at March 31st totaled more than 199,000, an increase of 62 ,000 policies, or 46% over March 31, 2005. Finally the home mortgage business continued to grow producing 9% top line growth for the first quarter over the prior year. Our last operating subsid -- subsidiary is Sedgwick, in which we acquired a 40% stake on January 31st. Sedgwick designs, implements, and manages innovative outsourced third-party administration, or TPA programs, for workers' compensation claims, management with -- liability claims management, and disability claims management. Our intent is to see Sedgwick continue to grow this historic organic growth rate of as high as 20% on it's $400 million revenue base. Additionally we're actively pursuing other acquisitions in the TPA space ultimately building the TPA vehicle with one billion in revenue over the next 18 to 24 months. Then we will better value what our options [worth].

Finally, this morning we announced plan that will eliminate FNF's holding company's structure and will result in what will become a new FNF and the existing FIS becoming completely independent public companies. The plan involves a number of transactions that will effectively result in thre -- the three public companies that currently comprise the FNF family of companies; FNF, FNT,and FIS becoming two public companies, a new FNF and the existing FIS. The new FNF will have no ownership interest in FIS. As Dan mentioned at beginning of call, we have powerpoint slides available on our website that we'll refer to as we walk through the steps of the series of transactions.

On the first slide you can see the current structure of FNF. FNF has four operating subsidiaries in FNT, FIS, Specialty Insurance, and Sedgwick. The second slide shows step one of the plan, which will involve FNF transferring Speciality Insurance, Sedgwick and it's other miscellaneous assets, including cash in the amount of approximately $220 million in exchange for stock of FNT. This step will be treated as tax-free transfer from FNF to FNT and will result in FNF owning more than 82.5% of FNT. That exact percentage will determine on the consideration given to those assets, which are currently -- which we are currently proposing to be between one billion and $1.25 billion. Slide three shows the second step, where in FNF will spin its ownership interest of FNT to current FNF shareholders in a tax-free distribution. This will result in current FNF shareholders owning something more than 82.5% of FNT and current FNT shareholders -- shareholders owning something less than 17.5% of FNT. This will effectively leave FNF with it's ownership at FIS as it's only asset. Next slide that shows step three, where in FIS will merge with FNF issuing FIS stock in the tax-free transaction for FNF shareholders thus making FIS independent of FNF ownership. FNF, which will essentially have no operations and no longer be publicly traded will merge into FIS. Finally, as slide five shows, we will rename FNT to Fidelity National Financial and this new FNF will trade under that -- trade under the ticker symbol FNF, with Title Insurance, Specialty Insurance, Sedgwick operations, and certain other miscellaneous operations.

FIS will also be a stand alone publicly traded company. Ultimately a current FNF shareholder will receive a tax-free distribution of FNT shares which will be renamed FNF, and will also receive FIS shares tax-free in the merger of old FNF and FIS. The new FNF will pay -- initially pay $1.16 per share annual cash dividend. I will tell you that say mouthful.

FNT and FIS have established special committees for their Boards -- of their Board of Directors to evaluate and negotiate and formal proposal once it is received from FNF. FNF has similarly established a special committee and has engaged Bear Stearns as its laid financial advisor on the series of transactions Happily, most of the transactions that we're talking about are within our controlled group.

We have always been committed to maximizing shareholder value for the benefit of the Company and its shareholders and this set of transactions is another example of that commit. While we were hopeful that the holding company structure with FNF having ownership stakes in public and private operating subsidiaries would allow for simpler valuations of pieces of FNF that simply has not proven to be the case as the market is significantly discounted the value of FNF in relation to the sum of its parts. The significant ownership stake that FNF has in both FNT and FIS limits the public float of each company, which may be significantly shrinking the universe of eligible shareholders for FNT and FIS, and limiting the trading liquidity and thus the valuation of the stock of both FNF and FIS. Additionally need for FNF to maintain more than an 80% ownership of FNT and our desire for FNF to maintain a majority ownership position in FIS could both potentially constrain those companies from pursuing attractive acquisition opportunities in the future. By eliminating the holding company and making FIS an independent company, we hope to simplify the profile of the FNF family companies, eliminate the discounts surrounding FNF, provide more valuable currencies for future acquisitions for both the new FNF and FIS and more fully realize the underlying value of the -- of all of the assets of FNF. Ultimately we have decided this plan is the best course of action and a tremendous opportunity for create additional value for our shareholders. Completion of the transaction will be subject to a number of conditions, including, but not limited to preparation of the definitive proposal for the transactions and negotiations of the definitive agreements, approval of the Board of Directors and shareholders of each of FNF, FNT, and FIS, the receipt of a private letter ruling from the Internal Revenue Service, the clearance of proxy statements and registration statements bit SEC, the receipt of all necessary regulatory approvals for the transfer of FNF Speciality Insurance Operations to FNT, and the spin-off of FNT's Insurance Operations, the receipt of neccessary approval under credit agreements under FNF, FNT and FIS and any other material agreements and any other conditions set forth in the definitive agreements for the transactions once they are completed. After that, I would now like to ask Randy Quirk, CEO Fidelity National Title Group to comment on the Title Business and highlights of the first-quarter for FNT.

Thank you, Bill. The last two quarters have shown a return into the seasonality that we have historically seen in the Title Insurance Business as forces other than significantly declining interest rates and tremendous appreciation of home prices have begun to influence the markets. We experienced a normal, seasonal slow start to the year in January and built momentum in open orders per day in both February and March. We opened 215,000 orders or 10,750 orders per day in January, 213,200 or 11,200 orders per day in February, and 255,600 orders or 11,100 orders per day in March. Additionally our earnings for the move March were significantly higher -- larger -- significantly larger than our combined earnings for the months of January and February. And the increasing trend in absolute open order volumes throughout first-quarter provides momentum as we enter the second-quarter. In the first few weeks of April we experienced open order volume of more than 11,200 orders per day.

Our focus remains on maximizing profitability in any type of market environment. We did further reduce headcount by approximately 600 employees during the first-quarter primarily in January and February. With open order volumes showing strength, and progression into the historically seasonally stronger second and third-quarters, we do not anticipate further staff reductions and are more likely to see slight increases if volumes show a seasonal increase this spring and summer. We will continue to closely monitor our weekly open order accounts and make staffing adjustments and then as -- as those order volumes dictate, whether it be up or down.

On the Commercial Title side, we opened more than 14,000 commercial orders and closed more than 8,000 commercial orders in our National Commercial divisions, during the first-quarter of 2006 generating more than $65 million in revenue. This translates into 14% of total FNT direct title premiums for the first-quarter. From the expense standpoint, personal expenses increased by 28 million or 7% for the first-quarter of 2006 over the first -- first quarter of 2005. However, personal expenses declined by 30 million or 6% sequentially from the fourth quarter of 2005. As a percent of title and escrow revenue, personnel experiences were 34% for the first-quarter of 2006 and 34% for the first-quarter of 2005. Operating expenses increased by one million for the first-quarter of 2006 over the first-quarter of 2005, and declined by $25 million or 10% sequentially from the fourth quarter of 2005. As a percent of title and escrow revenue, other operating expenses were 16% for the first quarter of 2006 versus 17% for the first quarter of 2005. We provided for claims losses at 7.5% of gross title premiums in the first quarter of 2006. As we continue to build the absolute level of reserves on our balance sheet, to remain in the range that our actuaries believe is adequate in relation to our title premium revenue stream. We expect to provide the claims losses at 7.5% of gross title premium for the -- foreseeable future in 2006. Actual claims paid during the quarter were $54 million, resulting in a $26 million increase to our balance sheet reserves to nearly $1.1 billion.

Our debt at March 31st consisted of the 500 million face value in senior notes and 100 million outstanding under our credit facility and our debt to total capital ratio was 19% at March 31st. Finally our investment portfolio totaled 3.8 billion at March 31st. There are certain legal and regulatory restrictions on some of those investments, including secure trust deposits of approximately $840 million and statutory premium reserves for underwriters of $1.5 million. So approximately -- approximately 1.4 billion was theoretically available for use with about 150 million in non-regulated entities and 1.25 billion held through regulated underwriters. We have remaining capacity to dividend approximately $250 million of that $1.25 billion out of regulated entities in 2006. So we should have access to an additional $400 million in free cash for the reminder of 2006 made up the of the [250] million in additional dividends out of underwriters and $150 million in cash currently available. We will also generate cash at the unregulated entities during 2006, which will be in addition to the $400 million. Let me now turn the call over to Al Stinson to review the financial highlights for FNF's operating subsidiaries.

Thank you Randy. Net earnings were 106 million or $0.59 per share in the quarter with cash flow from operations of 16 million. Cash flow from operations was reduced by the approximately 109 million in the first quarter due to the payment of the tax liability associated with the October 2005 distribution of FNT stock. We have three fully or majority owned operating subsidiaries, FNT, FIS and Speciality Insurance. Each of which is a reporting segment. Sedgwick our minority owned operating subsidiary is treated under the equity method of accounting and is not a separate operating subsidiary for segment reporting purposes. FNT generated nearly 1.4 billion in revenue for the quarter and a pre-tax margin of 8.8%. That margin was dragged down by the seasonally low -- seasonally slow months of January and February. As Randy mentioned we expect that manager to improve in the second-quarter. Net earnings were 79 million with earnings per share of $0.46. Cash flow from operations was $80 million for the first-quarter, essentially equal to net earnings as the first quarter is consistently our weakest cash flow quarter due primarily to bonus payouts. Re -- return on average eq -- equity was 12.7% for the first-quarter. The annual dividend of $1.16 per share, which was increased by 16% in the first-quarter equates to a current yield of more than 5%. FIS generated 904 million in total revenue for the first-quarter. Those reported results include one month of a legacy FNF -- FIS business and two months of the new FIS. As Bill mentioned on a pro forma stand alone base as if the merger had taken place on January 1st, FIS revenue would have been 994 million, which is an org -- which is a organic growth rate of 8.7%. The transaction processing segment contributed 593 million of that revenue or 60% of total FIS revenue. And lender processing generated 401 million or 40% of the total.

Pro forma EBITDA for the quarter was 245 million an EBITDA margin of 24.6% and actual EBITDA was 202 million. Pro forma free cash flow defined as net income plus depreciation and amortization less CapEx was 92 million and actual cash flow was 67 million for the first-quarter. Pro forma cash earnings defined as net earnings plus amortization of intangibles net of income tax were 800 -- or 87 million for the first-quarter and actual cash earnings were 64 million. Speciality Insurance revenue was 107 million for the quarter.Flood insurance generated 48 million, which includes approximately 16 million in final revenue from the 2005 Katrina, Rita and Wilma hurricane related flood processing claims. Personal insurance contributed 35 million in revenue, growing by 47% over the first-quarter of 2005. And home warranty produced 20 million in revenue during the first-quarter, a 9% increase over the first-quarter of 2005. The overall pretax margin of Specialty Insurance was 29.4% [before] the first-quarter, producing pre-tax earnings of $32 million. Our share of Sedgwick's net earnings was less than one million for the two months of ownership during the quarter. While we did not consolidate the results Sedgwick had revenue of 102 million and EBITDA of 12.5 million, interest expense of just under four million on the 350 million in debt from the acquisition and net earnings of two million for the -- for the full first-quarter. Finally, FNF at 200 million in cash at the holding company level at March 31 and no outstanding debt. Let me turn the call back to our operator to allow for questions.

[OPERATOR INSTRUCTIONS] Jeff Dunn

Thanks Good morning. Al, I -- I'm sorry just missed the cash the holding company number?

200 million, Jeff.

200 okay. And then Bill could you maybe explain on this whole restructuring transaction the FIS piece of it? How, I guess in more detail FIS effectively gets folded into FIS and FNF shareholders get FIS shares in return

Sure, Jeff. One the issues we have been facing with record regard to FIS ownership position, in FIS was the low tax basis that FNF has in those shares. So we didn't have a an efficient way to -- just to move those shares out to our shareholders. And what -- what has developed is that we have developed this -- this strategy in terms of developing the spin-off structure that the contribution of assets down to FNT and thereby leaving FNF with only a single asset, basically 50.7% ownership in -- in FIS. And in effect what happens is FNF is merged into FIS and the shareholders of FNF will receive shares at FIS. The exchange rate being approximately one to one. That is if you own 100 shares, let's make it simple, 101.4 shares of FNF you should receive approximately 50.7 shares of FIS, because we own 50.7% of FIS. So it's -- when I say one per one it's an exchange ratio based upon -- on one -- one dollar for one -- one dollar of equity for one dollar of equity. Now that exchange ratio is subject to negotiation between the two special committees, the FNF special committee and special committee of the FIS Board. But it's -- there are arguments why it might -- why you -- why it might be a little less or arguments why it might be a little bit more and so we're just guessing it's going to be around the one poi -- the one to one level. And more will be revealed over the next 30 to 45 days as the special committees do their work in conjunction with their financial advisors

And what is the -- is there any value for FIS to do this or are they effectively just swapping shares from you to individuals?

They're -- they are effectively -- they'er not being diluted in terms of number of shares outstanding, because those shares are already held by FNF so there's a much larger shareholder base. But there are a lot of positives for FIS as -- as we have been examining this transaction. First, it frees FIS from FNF's control position. And when I say "Control position," FNF a -- is highly motivated to maintain a greater than 50% ownership interest in FIS because we want to consolidate the results. And we are then going to have to -- FIS is then going to have to either keep on acquiring shares as options or exercise, and restrict the manner in which FIS issues shares. So FIS is going to be in the position of making acquisitions for cash and not for stock. So once this transaction happens FIS will be free to examine a number of different financial alternatives relative to acquiring other companies for stock. Or if a large organization presents itself to FIS -- sell, they may want to buy FIS. We are, as you know from past dealings with us, we're -- we're very flexible.

So as I said, it allows FIS to utilize it's stock as currency for acquisitions and employee compensation. It certainly increases the [float] of FIS stocks, which should allow it to -- allow it to trade more in a level -- more equivalent to what it's peers trade at, and those peers are a number of companies, such as Open Solutions and Flightserv you know the list, as well -- as well as I do. And finally because FIS is a controlled subsidiary it's not included with any of the [indices]. And FIS is going to have a market cap, or has a market cap roughly equivalent with Flightserv. Flightserv is in the S&P 500. At some time you would think that -- that FIS would be certainly included in the S&P mid-cap and maybe the S&P 500 which, again, it supports -- supports a higher stock price. So those are just a few of the reasons from the FIS perspective that we think this is a terrific idea

Okay I want to give others a shot on the line, but one last question. When you think about the TPA space and what you might do with that when you get to the revenue scale, does your experience with the processor and holding company discount, et cetera, make you reconsider spinning out only a piece or IPOing a piece and maybe look to IPO the entire thing?

Well yes, that's a very good point, Jeff, because what we attempted to do with the [FN] -- it was a holding company structure was we felt we would have the -- have the ability to make a number of acquisitions and build an even larger company, but it doesn't work out that way because of the discount associated with the -- on the sum of the parts valuation. So, you have to learn by -- you have to learn from history and history tells us that if we were to spin out just a piece of that or distribute just a piece of it that it probably would trade at a discount. And we have -- we have partners in that transaction and they are financial sponsors and of course you know they are motivated to turn investments to cash. So there are a lot -- the two primary alternatives probably for that Speciality Insurance Business, after its built, are either for FNF to buy it all and own it and have -- have another business that is trading at maybe a slightly higher PE than the Title Business and that's more consistent in it's revenue growth, or sell it, or IPO the entire -- the entire business. So we're going to be very, very flexible as we look at that -- that particular business. Of course, Speciality because we're at the point that any of those alternatives make any sense today, but we're working hard on that business. We love the business.

Okay great. Thank you.

Mike Vinciquerra.

Good morning. If nothing else you certainly keep us busy [inaudible], but I think this transaction makes -- makes the most sense here. One -- one other thing on the TPA, when you guys look for acquisitions I presume those companies tade at a higher multiple than the new FNF will itself. So I assume those will be mostly cash based. Will you also only be looking at minority stakes like you did with Sedgwick?

In the TPA space we're -- we're probably -- we have probably sealed our fate in terms that we own 40% with our two financial sponsor partners and those will be leveraged acquisitions and we have several of them that are before us today. There may be a situation that if there is a public company that FNF would address that and perhaps contribute it to get a bigger ownership percentage of overall TPA. But the ones we're looking at today are cash acquisitions and the larger -- the larger ones we're looking at have leverage associated with them, and equity contribution. Our -- our financial sponsor partners, though, are very receptive to putting a bit more equity than they normally do. As you know on the Sedgwick transaction we -- we contributed almost 50% equity when we bought that company and the next ones we do, some may be in a that same range or just slightly under that.

Okay. Thank you. And then thinking about the business relationship that we have always talked about, the benefits of having the combined FIS data piece with the Title Subsidiary, do you -- what's the business relationship going to be as far as being able to bundle products and being able to offer that synergy that you thought was there before?

We're still going to be able to do that and there -- there are existing contractor relations -- relationships between both FIS and FNT as we stand today. For example, FIS is a title insurance agent of FNT with regard to its LSI business and it's a significant title agent. It's probably our -- our largest title insurance agent in the country. And our -- our national closing services do sell FIS products and receive -- receive fees for doing that. So there -- there is that cross-selling opportunity. So we have a terrific -- terrific relationship today and part of the reason we have some of the management being involved in both companies on a good-forward basis is to ensure that we get the cooperation from both organizations. And I think positively about the relationship as opposed to -- as opposed to being worried about really kind of minor issues that always come up when you have that -- this kind of situation.

Technically thought will FIS actually have to compete for those closing services business from the title subsidiary?

Well, they do today. Frankly we have -- we have our service linked business, which competes directly with LSI and they -- and they do -- they do compete. The title businesses have their own default processing business, it's not as nearly as large as the FIS business. But there will be some competition. But when we designed and developed FNT and we set it up six months ago as -- as a sister company to FIS, we really wanted FNT to focus on refinance, resale transactions, commercial transactions, and agency business as opposed to getting into the data businesses. One thing we learned from our investor base was that despite the fact we grow our businesses on a number of different lines the -- our investor base primarily thought of FNF as a Title Insurance Company and gave us a price [inaudible] ratio of roughly what title insurance companies trade at. So we accept that. And we're going to -- FNF -- new FNF will be a title insurance company, we'll look for other acquisitions that will diversify and smooth our earnings stream, but we probably won't be looking for -- for high PE businesses. We'll leave that -- those kind of acquisitions to the new FIS.

Okay. Thank you And just finally, I know you don't -- there's a a lot of things going on here, but as far as rough timetable are we talking months, we talking a couple of quarters? How -- how long do you think this whole process probably ends up taking?

I believe it's going to take 90 to 150 days and as I said during the presentation, fortunately, most of the timeline -- the critical time -- time points are internally -- are internally controlled. In other words, we have -- we do have the three separate public companies and we're very respectful of that. We do have the three special committees, the three set of special financial advisors. But it's not like dealing with an independent third-party. We can certainly help move along the process in terms of negotiations, to ensure that people are responding promptly to each other and fairly at arm's length. So once we get everything negotiated and we have to get the private letter ruling from the IRS. Best case, probably 90, worst case, probably 150. Al do you agree with that -- that kind of time frame?

Yes. One of the big pacing items will be the tax ruling. But i think 90 -- 90 to 150 days is pretty realistic.

Q. Okay thanks very much

[Darren Peller].

Hi guys. Thank you. First question I have is about the $1.1 -- $1.25 billion you described if you could shed more light on where that number actually is, how you really derive that number?

The components of that business is really cash and FNF has 220-230 million cash on hand towards the end of April has an investment in Sedgwick, which we made on January 31st of $132.5 million and you can argue, but hopefully it's worth at least what we paid for. A speciality insurance business is really where the questions will develop and that is speciality insurance is based upon multiple book and PE ratios and so the two advisors will be developing models to value that business. The components of those businesses are really cash. And currently FNF has 220 to $230 million cash on hand. That's at the -- towards the end of April or at least at today. Has an investment in Sedgwick, which we made in -- on January 31st of 132.5 million. You can argue about what that's worth, but hopefully it's worth at least what we paid for it. We have a Specialty Insurance Business that is really where the questions will develop and that is -- and specialty insurance is based upon multiple book, it's based upon PE ratios. And so the two investors -- the two advisors will be developing models to -- to value that business. And then there are certain real estate -- real estate assets probably to the tune of about $100 million of cost base that have been acquired over the last six months that need to be validated. And that's really where you come up with the one -- one billion to 1.25 billion. We didn't want to be more specific -- specific than that, but that's kind of the range we think it's going -- we at FNF believe it's going to be. And now it's up to the two special committees to determine what that value is.

The one thing I would point out is that remembering that FNF owns 82.5% of FNT, every dollar that we contribute to FNT, $0.825 just maintains our ownership position, so whether it's one billion or one billion 250 the ownership differential in FNT that FNF would own would probably vary between 85% and 86.5%, it's a very small number. So, FNF is not going to get real exercised about -- about getting the last dollar out of that valuation. We want to make sure the FNT shareholders are treated fairly as our own shareholders.

Okay. Thanks. And on the speciality side, given that's going to be part of the new FNF or FNT now, that part of the seg -- growth in the margins on that are still extremely strong. Part of that is still based off the hurricanes. I'm curious to know what kind of run rate you think there -- yoy see there?

We've been running combined ratios pretty consistently even while we been growing that business of about 80%. We have a terrific guy running that business. He is very, very strong. We generally don't -- are not acquiring other property and casualty businesses. We're buying books of business that we -- we go into a runoff -- we go into a runoff stage and we then convert to our own -- to our own book of business at generally higher rates. And he is growing in a business very, very, very effectively. So our goal of speciality insurance is to get the $1 billion in terms of -- in terms of total premium, and our current run rate is about $500 million. So we went to get a billion and get to a billion on the same time frame as we talked about for Specialty Insurance -- for -- for Sedgwick.

It seems like part of the strategy of initially having FIS together was sort of diversifying out of the mortgage cycle and now obviously you're going to have this FNF parent -- or not even parent but FNF level company that's obviously primarily Title Insurance with this Speciality side that's sort of still diversified. And I'm curious to know if you're going to expect to build on the old strategy with -- based off the Speciality side in terms of still diversifying?

Well we do want to grow the Specialty Insurance, we do want to diversify. Over the last three years we, in effect, acquired Alltel Information -- Information Services and that was about an $850 million revenue business and over the last three years created a $4 billion revenue business. And I would hope over the next three years we would do the same thing again in some line of business. And so we're going -- we're just going to re -- recreate what we've already done. In fact this project is called "Back to the Future". So that's what we're doing, back to the future.

And then lastly the Sedgwick segment being rolled up into the -- strategically, wouldn't that make more sense for that to be under the FIS wing?

No, Sedgwick's claims processing is very -- it's personnel intensive, the margins run at about 15%, so they don't have the same sort of -- the same sort of software and processing margins. So when we looked at that, that is really why we bought that at the FNF level. It was more of a processing -- a claims processing, manually intensive business as opposed to -- as opposed to a banking mortgage processing business.

Thank you very much guys.

You bet.

[Doug Rothschild].

Hey guys, congratulations on a great deal.

Thank you.

The F&C getting a billion to billion 25 in stock should I just assume the stock price will be whatever it is what the deal closes in terms of ratio?

That is correct. Yes it's going to be -- that is exactly correct.

And on FIS did you buy anymore stock during the quarter?

I don't think we --

I don't believe -- if we did it's very minor amounts

Nothing since we had our fourth-quarter call in mid-February.

Okay and last question, Bill, you said if you have 104 FNF you get 50.7 FIS. In my math that would be correct if FIS had the same number of shares as FNF?

Don't forget that's it's basically -- its really based upon just re-issuance to the same number of shares that FNF owns in FIS to the shareholders.

Right. But if you own 50.7% FIS that is about 97 million shares.

I'm sorry, you are absolutely correct.

It's more -- it's more like 0.544. You're absolutely correct. Yes, absolutely correct. I'm sorry. I'm glad you pointed that out because I would have -- you're exactly right. I shouldn't -- I shouldn't have tried to do the math on the phone. Congratulations, great deal.

Dawn Bruno.

A couple of quick questions. One, what is your total debt at Speciality Insurance and Sedgwick? What is your total debt at Speciality Insurance and Sedgwick?

Well Speciality Insurance, there is no -- we don't have any debt at Specialty Insurance. Sedgwick, the total there is about 315 -- $315 million and not consolidated because we only own 40% of the business.

Okay. And then do you anticipate [requiring any consents] under the current FNT indentures for these transactions?

We'll probably require consent not from the -- not from the bonded ventures --

Correct, that's what I'm actually looking for.

No, we do not.

And then have you thought about what type of ratings impact, if if anything that this has on FNT ratings?

We have we believe it will be positive on FNT, because obviously we're adding well over or possibly over $1 billion of equity. So we have already had some preliminary conversations and will continue those, but I would anticipate positive impact on ratings.

Okay, perfect. Those were my only questions. Thank you very much

Adam Weinrich.

Good morning and could you just comment on -- comment on how much the different classes of [inaudible] shares will be treated under this, if there'll be any distinction made between the A and B shares?

Well, actually what's really going to happen is the A and B shares, the super voting stock will go away as part of this transaction. But it'll be a single class of stock.

But there won't be any -- any valuation difference or any difference in valuation made between the two classes when -- when the dis -- various distributions occur?

No there won't be any differentials but really what you are going to end up with FNT as one class of stock. We won't have a -- we won't have a super voting stock anymore.

Okay, thank you very much.

Andrew Bond.

Hi, I just wanted to clarify that the excess cash at FNF holding company, that's going to be part of the Sedgwick transaction and the 1.2 billion accounts for that extra cash?

The 1.2 billion or one billion to 1.2 billion evaluation includes -- includes the cash at the holding company.

And then secondly, if you could clarify the 90 to 100 -- 120 or 150 days, that's for the entire separation to take place or that's just for the three companies to come to a definitive agreement?

That is for the entire - that's for the entire transaction to close.

Okay, thank you.

We're on at fast-track.

Jeff Dunn.

Thanks, just a couple more detail questions. In your press release last night on FNT you talked about gradually increasing the $1.16 dividends towards the $2 trough level, can I assume correctly that that's probably no longer in the cards with the combined operation under the new FNF?

Jeff, we traditionally increased the dividend consistently by small amounts, ever since we have been a public company at FNF and what we're doing now for the FNF shareholders is they're going to get the benefit of the recent increase to the $1.16 of the dividend rate. And that dividend is constantly re-examined. As look back over our history we paid stock dividends -- stock dividends and then maintained the dividend rate on the additional shares outstanding we've increased the dividend, we've had stock splits. So you could anticipate a shareholder-friendly company going forward in FNF.

Okay and then I know that debt repayment at FNT had been talked about, 100, 150 million, is that still going to happen or would this transaction coming in the equity contribution, do you not feel the need to do that?

I believe we payed that short-term line of credit, which is just a line of credit facility. It's $100 million, it's in our -- in our cash flow to repay that this year. Not to say that if we found the right acquisition that we wouldn't -- that we wouldn't reload and borrow at the -- at the new FNF to make a -- help us make an acquisition. So we're going to repay it. that's in our cash flow projection for the year. But going forward we may have no debt or we may -- no new debt, or we may have some debt if we find something to buy:

Okay and just two number questions for Randy. You mentioned the April order per day. Could you just reiterate that number and also where is your headcount total stand today?

Sure, jeff. We're -- we're running at about 11, 11.2, 11,300 per day in April. As you know we pulled out another 600 people and reduced staff another 600 people in the first-quarter. We're running at about 13,500 going forward. As I mentioned in my statement we -- we have taken it down about as far as we need to right now. We're hitting our productivity numbers going into the second quarter. And so we have the momentum we need, we think we have the staffing in line based on the orders per day.

Great, thank you.

Steve Velgot.

Just a quick question, is there a tax that would be associated with the transaction, the first transaction in this the billion to 1.25 billion transfer of the Speciality Insurance and Sedgwick and other assets in change for FNT stock?

I don't believe that there's going to be any significant amount. You could have some -- some negligible amount, but all of these assets have been acquired fairly recently and have had high, fairly high tax base. I don't -- I don't think you are going to have any significant amount of taxes.

May we move on?

Yes.

Mike Vinciquerra.

Just for Randy. On the title side of things, I'm getting a sense that you're -- you may be losing a little bit of market share. I know there have been tractions in the industry over of the last quarter or two, but could you give us a sense as far as what you are seeing with competitors and whether or not I am look at numbers incorrectly and just peer title processing side?

Sure, Mike. We -- we look at this as -- that agency revenue that has been -- has been acquisitions in the industry, as you are aware of. There is a lot of activity over on the west coast relative to agency growth And also, Mike, what we have done in terms of market share, we have been in a underwriter program for about the last year or two to -- to move away from our low emitting agents and so that could also be contributing to some -- to some degree in the movement on the -- on the market share. But we really see it for the most part for agency revenue national -- nationwide.

Okay and then also on the commercial side, sounds like there has been some strength recently, how is your commercial business been trending? In your mind it seems like that's one that's actually offsetting some of the weakness we see in -- our residential.

A. Commercial has done very well in the first-quarter, it was avery strong first-quarter. Our revenue went up 26% year over year. And our average fee actually has come up right about 30%. So we have strong activity in our commercial centers around the nation, plus the cheaper files come up by about a third. So the traditions have been -- have been strong, and actually large.

Great, thank you.

[OPERATOR INSTRUCTIONS] [Sabah Heckmot].

Thank you. I was wondering if we can talk about the FIS balance sheet with this transaction in any way impacts the balance sheet out of gate? And also whether the targets that I heard back in February as far as reaching total debt of 2.5 billion by the end of this year and eventually down to two billion in a couple of years is still maintained or not?

From the accounting point of view, we really don't see any impact on the FIS balance sheet, because in effect all you're doing in this transaction is substituting one group of shareholders for another that own the 57%. That's all that occurs. We also will believe that with -- that FIS will -- will stay on course with its plan to -- to reduce debt just like we have always talked about. So no -- no real impact on the balance sheet.

Great, thanks you.

Darren Peller.

Yes, hi, in terms of the -- I just wanted to know if you guys mind commenting on the regulatory issues that -- similarly related to some headlines that occurred recently, along with what may be going on in the financial , the subcommittee in the house?

Well with the information we received from the subcommittee in the house was that basically the various -- the various Congressmen reiterated this title insurance is very valuable and it's an important part of the -- of the mortgage process. And we frankly don't see really much impact at all from -- on the -- on the federal basis. We are continuing as an industry to negotiate with the Attorney General of the State of New York, and we hope a resolution is resolve -- is reached in that -- in that setting fairly -- fairly soon. There are -- he has presented a number of ideas relative to agency splits and rates being charged in the state, which actually we are supportive of. And I believe in the next 30 to 60 days that -- that there'll be some announcements relative to -- relative to New York.

Okay and maybe I might have missed that, but the ratio of the agency to the [inaudible], is there any -- I think you touched on that before. Obviously it increased and I was wondering if you could comment on the run rate there?

Well the change in the ratio -- the ratio is in the neighborhood of 55 to 45 agency revenue to direct revenue. What we did see is particularly in the state of Florida a significant increase in agency revenue in the state of Florida based upon the 20-26-27% on appreciation of '05 over '04. So that's where we're seeing the largest growth.

And going forward, do you see a shift back or -- ?

Well, traditionally in the first-quarter of the year, the direct revenue is fairly -- is fairly light and we're receiving remittances from agents that were accumulated during the previous year. So the first-quarter normally is a higher agency revenue -- revenue split than the balance of the year. So I would -- you should see that -- that ratio move back toward 50-50 or even under 50-50 as we move through the year.

All right. Thank you guys

[Carl Ocamoto].

Are there still intercompany receivables between FNF and any of the subsidiaries and if so, how are they treated in the -- in the transaction?

Well there are I'm sure -- I can't articulate exactly how much, but they would be settled in the normal course of business each month just like we always do. So there is no -- no issue there particularly, it just would be settled.

And then how would that value be distributioned FNF shareholders?

A. Well they in effect I don't there there is an impact particularly on an FNF shareholder, because it's simply a balance sheet issue between the two companies. I don't know that there wou -- I can't see any impact particularly on the shareholders. Unless I misunderstand your question.

Or maybe I don't but do you extend that converted to cash -- does that cash goes to FNT or does it -- ?

That cash would go to FNT, whatever that cash balance is with the corresponding amount of stock coming back to -- to FNF.

So that's incorporated in your estimate from a billion to a billion 250?

Yes. That is correct and in effect we're -- we, when we say 220 to 230 million of cash, that is net after we would clean up any intercompany balances.

Okay. So effectively that takes everything out of FNF other than the shares in FIS?

We will not have a single asset left in FNF other than our ownership interest in FIS when we're done.

Perfect, thank you.

Brian Smith

Hi. Could you tell me what your expectation is for the capital structure for the new title operations, the new FNF?

Really the capital structure is the way FNT looks today plus -- plus the equity contribution.

Okay you don't anticipate any other changes there?

No, other -- just only the repayment some time during this -- this year of the $100 million drawn down to the line of credit at FNT.

All right. Thank you.

You bet.

Steve Velgot

Just a quick follow-up, have you contemplated or looked at previous control situations where you get a control premium and how could we think about what type of control premium that FNF may seek?

Well, you know, that is really between the two special committees and I -- I wouldn't -- I really don't want to comment on that, because FIS is going have its own -- it's own train of thought relative to what -- to a discount to an equal exchange ratio. So we ju -- we've assumed that it's a one for one, but we couldn't speculate. It's up to the special committees to figure out.

And did you mention what would be the argument for a discount to one to one?

Well, historically where minority interest's are being con -- contributed to -- to companies in this kind of transaction sometimes there is a discount to one to one, and sometimes there is a control premium. So we -- we're leaving -- we're leaving it to the special committees. I know they will -- I know they'll do their work and do a good job. Both companies were ably represented and ably advised.

Thank you.

And there are no further question at this time and I will turn it back to you Mr. Foley.

Thank you, we hope that once again we have proved our commitment to continually seek to maximize shareholder value. We believe that today's announcement of the plan to eliminate the holding company structure in a new FNF and the existing FIS to become independent companies will allow us to move closer to the ongoing goal of maximizing the value of our assets for or shareholders. Thanks again for joining us this morning.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. And for using AT&T executive teleconference. You may not disconnect.