Fidelity National Financial Inc (FNF) 2006 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the FNF third-quarter earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. Dan Murphy. Please go ahead.

Thank you and good morning, everyone, and thanks for joining us for this combined FNF/FNT third-quarter 2006 earnings conference call. Joining me today are Bill Foley, Chairman and Chief Executive Officer, Al Stinson and Randy Quirk, Co-Chief Operating Officers, and Tony Park, Chief Financial Officer.

On our call this morning, we will begin a brief strategic review of recent developments from Bill Foley. Randy Quirk will provide an overview of the title business and Al Stinson would finish with a review of the financial highlights. We will then open it up for your questions and finish with some concluding remarks from Bill Foley.

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, or otherwise. The risks and uncertainties which forward-looking statements are subject to include, but are not limited to, the possibility that the merger of FNF with and into FIS, announced in April, will not be completed or will be completed in a different form or with different effect on holders of the stock of FNF or FIS 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 higher increasing interest rates, a limited supply of mortgage funding, or weak U.S. economy; compliance with extensive insurance regulations; regulatory investigations of the title insurance industry; our business concentration in the state of California, the source of over 20% of our title insurance premiums; our dependence on distributions from our title insurance underwriters as our main source of cash flow; competition from other title insurance companies; and other risks detailed in the statement regarding forward-looking statements information, risk factors, and other sections of the Company's Form 10-K and other filings with the SEC.

This conference call will be available for replay via webcast at our website at FNF.com. It will also be available through phone replay beginning at 1 p.m. Eastern Time today through next Thursday, November 2. The replay number is 800-475-6701 with an access code of 844667. Let me now turn the call over to Bill Foley, our Chairman and Chief Executive Officer.

Thanks, Dan. On Tuesday, October 24, we completed the distribution of FNT common stock to FNF shareholders. FNF transferred its specialty insurance business Sedgwick, a claims processing company, and a certain other assets to FNT for the issuance of 45,265,956 shares of FNT common stock. FNF shareholders then received all 188,441,997 shares of FNT common stock held by FNF upon the closing of the transaction.

The final exchange ratio was 1.047732 shares of FNT common stock for each share of FNF common stock, as there were 179,857,073 shares of FNF common stock outstanding at the time of the transaction. FNT is now a stand-alone company with all of its shares being held by the public and is a new member of the S&P mid-cap 400 index. Once the merger of FNF with and into FIS is completed on November 9, FNT will legally change its name to Fidelity National Financial Inc. and will begin trading under the symbol FNF on the New York Stock Exchange on November 10.

FNF's closing price on October 24 was adjusted for the value of the distribution of FNT stock to FNF shareholders. FNF will continue to trade as a public security until the merger with and into FIS is completed on November 9. As I have said, FNF will be merged into FIS on November 9. On that date, FNF shareholders will receive approximately 0.537228 shares of FIS stock for each share of FNF stock. This is an updated exchange ratio that takes into account the most updated FNF share count of 179,857,073 shares. After the merger, FNF will cease to exist as a legal entity and FIS will become an independent public company without a controlling shareholder.

FNT, which again will be renamed FNF on November 9, now consists of three major business units, title insurance, specialty insurance and Sedgwick and claims processing company. The real estate and mortgage markets have clearly slowed down from the frenetic pace over the past several years. Randy Quirk will go into much more detail on our title business, but we are definitely in a headcount and expense reduction mode. We constantly remind our managers that while we cannot control the size or strength of the mortgage and real estate markets, we can control the size of our Company and ensure that it is appropriately staffed for the size of the market as it exists today.

As we head into the normally seasonally slower fourth quarter and first quarter of next year, we expect to continue to reduce headcount in an attempt to maximize the margins and profits we generate from our title business. Our specialty insurance businesses continue to perform well and provide more recurring revenue and earnings stream that are not necessarily directly tied to mortgage originations. Flood insurance is about $160 million annual revenue business for us and we believe that we are the nation's largest writer of flood insurance, with nearly 660,000 flood policies in force on September 30.

We receive approximately $0.31 on each premium dollar for new and renewal policies and a 3.3% override based on the face amount of the claims that we process. As you might expect, the flood policies are concentrated in coastal and flood-prone states such as Florida, Louisiana and Texas. It is important to remember that we take no underwriting risk in the flood business, as the underwriting risk is assumed by the federal government. We are simply paid to manage the program, process new and renewal policies and process the related flood insurance claims.

Personal lines is also about $160 million annual revenue business with policies in force of nearly 215,000 as of September 30. The state of California represented 34% of those in-force policies, with a total of 10 states representing 80% of the policies in force. California is an attractive market for homeowners insurance as the largest risk in the state is earthquake risk, which is not covered under a standard California homeowners policy. We generated a combined ratio of 85% in the personal lines business for the third quarter of 2006.

Finally, home warranty is an $8 million annual revenue business. Home warranty insurance is a one-year renewable policy that covers the major mechanical household systems and appliances such as electric, central heating, interior plumbing, and dishwashers. Home warranty is a higher incidence, very low severity insurance business. It generated an 18% pretax margin for us in this quarter.

Sedgwick is our 40%-owned third-party administrator. Sedgwick designs, implements managed outsourced third-party administration programs for workers compensation claims management, liability claims management, and disability claims management. Sedgwick recently completed two acquisitions in the third quarter. The first was VPA Inc., a privately held claims services organization specializing in absent and disability benefit management programs for large employers. VPA had annual revenue of approximately $20 million.

The second was CompManagement Inc. or CMI. CMI and its affiliates provide third-party claims administration and a variety of related claims, risk, and benefit consulting services to clients nationwide. CMI's 2005 revenue was $145 million.

Sedgwick now has approximately 1,200 clients with 28 of the Fortune 100 and 86 of the Fortune 500 as clients and has annual EBITDA margins of greater than 15% on its run rate revenue of more than $600 million, nearing our stated goal of seeing Sedgwick reach a revenue base of $1 billion over approximately the next 18 months. At some point over those next 18 months, we will seek the most efficient means of maximizing the value of Sedgwick for our shareholders.

FIS had another very strong quarter with total revenue growth of 10.2% and EBITDA growth of more than 10%. FIS is delivering on two significant long-term objectives it presented at the time of the FIS/Certegy merger. First, organic revenue growth has accelerated significantly due to the improvement of the sales organization, cross-selling existing customers, developing new products and services that leverage the core processing capability, and putting the best resources behind new, large targeted customer opportunities.

There are significant examples of this success. Chase, the nation's third-largest mortgage service or with more than 4 million mortgage loans, is FIS's newest mortgage loan processing customer win, and this will give FIS more than 60% market share in the mortgage processing business. BB&T, then nation's ninth largest financial institution, is FIS's newest and largest credit card processing customer after having been a longtime mortgage and consumer loan processing customer.

Barksdale Federal Credit Union was a longtime card customer which has agreed to convert to FIS's MISER core processing platform. The FIS Group has signed on more than 80 de novo financial institutions over the last 20 months, an industry-leading figure in addition to the more than $60 million in incremental merger-related sales in the last eight months. The Brazilian card and item processing operations that are expected to generate more than $3 billion in total contract value over the next 12 years are proceeding on schedule.

These are just a few significant examples of successes FIS has generated so far in 2006. The second objective of FIS was to become a leaner, faster, more efficient organization, which it is well on its way to achieving through its success in meeting its year-end goal of $30 million in cost synergies and annualized cost synergies of $50 million, as well as through further ongoing integration efforts.

Finally, yesterday FNT's Board of Directors approved a three-year stock repurchase program under which FNT can repurchase up to 25 million shares of its common stock. In light of the valuation the market is affording FNT, we believe that repurchase of our stock is an attractive investment opportunity, an efficient use of our strong cash flow, and a great way to return significant value to our stockholders. Let me now as Randy Quirk to comment on the title business.

Thank you, Bill. Total open order volumes remained relatively consistent during the third quarter. For the third quarter, we opened more than 663,000 total orders for a quarterly average of just over 10,500 open orders per business day. We opened a 208,000 orders in July or 10,400 per day, 243,000 a day orders in August or 10,550 per day, and 213,000 orders in September or 10,006 orders per day. While total open order volumes remained near 10,500 per day throughout the quarter, the mix of orders between purchase and refinance transactions did change significantly during the quarter.

We estimate that our direct operations were running at refinance transactions of just over 50% of total open order volumes in the second quarter. This refinance percentage increased throughout the third quarter, hitting close to 60% of total open orders by the end of the third quarter as the drop in interest rates and more specifically mortgage rates caused an increase in refinance order volumes particularly on the West Coast.

The good news for the quarter was that those total open order volumes remained consistent despite the volume of media reports that showed the housing market to be cooling considerably during the late summer and early fall. However, it was the increase in refinance orders that allowed those order volumes to remain consistent, and those refinance transactions generate on average about half the premium of a resale order. So if order counts are the same but the mix tilts more towards refinance transactions, we can do our best to minimize the effect on the pretax margins but we do earn less from a refinance transaction than from a resale transaction.

Our focus remains on maximizing profitability even in a tougher market environment. We continue to monitor order counts, head count and productivity metrics every week. We have made significant headcount reductions during the third quarter. We began the third quarter with approximately 13,500 employees in our title field operations and we eliminated approximately 650 positions during the quarter, which is a reduction of about 5% of our title field workforce. As we head into the normally seasonally slower Thanksgiving and Christmas holiday seasons and first quarter of 2007, we expect to continue to see a reduction in headcount over the next three to four months.

On the commercial title side, we opened nearly 12,000 commercial orders and closed approximately 7,700 commercial orders in our national commercial divisions during the third quarter of 2006, generating more than $66 million in revenue. This translated into 14% of total FNT direct title premiums for the third quarter and represents a 9% decrease from the third quarter of 2005 and a 4% sequential decrease from the second quarter of 2006.

From an expense standpoint, personnel expenses decreased by $75 million or 15% for the third quarter 2006 over the third quarter of 2005. Sequentially, personnel expenses declined $30 million or 6.5% from the second quarter of this year. As a percent of title and escrow revenue, personnel expenses were 30% for the third quarter of 2006, the same as in the third quarter for 2005 and a sequential improvement from the 31% for the second quarter of 2006.

Operating expenses decreased by $23 million or 9% for the third quarter 2006 versus the third quarter of 2005 and by $9 million sequentially or 4% from the second quarter of this year. As a percent of title and escrow revenue, other operating expenses were 15.5% for the third quarter of 2006, the same as the second quarter of 2006 but an increase from the 14% for the third quarter of 2005. Let me now turn the call over to Al Stinson to review the financial highlights.

Thank you, Randy. FNF's net earnings were $128 million or $0.70 per share in the third quarter, with cash flow from operations of $277 million. On October 24, as Bill mentioned, FNF completed the transfer of the specialty insurance business, Sedgwick, and certain other assets of FNF for the issue of FNT common stock. FNF then distributed all of its shares of FNT to FNF shareholders. I am going to walk through the highlights for those businesses that now comprise FNT and then touch on the financial highlights of FIS, which will be an independent company once the merger of FNF with and into FIS occurs on November 9.

FNT generated $1.5 billion in revenue for the quarter and a pretax margin of 10.7%. Those results do not include an $8.4 million pretax impairment charge taken on an individual equity position in FNT's investment portfolio. Excluding that impairment charge, the pretax margin was 11.1%. Net earnings were $103 million with earnings per share of $0.60 and $0.63 before the impact of the impairment charge. Cash flow from operations was $113 million for the third quarter and return on average equity was 15.9%. The increased annual dividend of a $1.20 per share equates to a current yield of nearly 5.3%.

FNT continued to provide for title claim losses at 7.5% of gross title premiums in the third quarter of 2006. As we continue to build the absolute level of reserves on the balance sheet, we expect to provide for title claim losses at 7.5% of gross title premiums for at least the remainder of 2006. Actual claims paid during the quarter were $72 million, resulting in a $16 million increase to balance sheet reserves to nearly $1.15 billion.

FNT's debt at September 30 consisted of the $500 million face value in senior notes and $75 million outstanding under a credit facility. The debt-to-total-cap ratio was just under 18% at September 30. On a pro forma basis, new FNS debt-to-total-cap ratio would be 12.8% after the paydown of the $75 million I mentioned previously that occurred on the 24th of this month.

Finally, FNT's investment portfolio totaled $4 billion at September 30. There are $2.5 billion of legal and regulatory restrictions on some of those investments, including secured trust deposits of approximately $900 million and statutory premium reserves for underwriters of approximately $1.6 billion. So of the gross $4 billion, approximately $1.5 billion was theoretically available for use, with about $150 million in nonregulated entities and nearly $1.35 billion held through regulated underwriters.

We have a total of approximately $570 million of cash available for use in the fourth quarter and beyond. That includes the $150 million currently at FNT, fourth-quarter dividend capacity from underwriters of $145 million, and the $275 million in cash that came over from FNF in the transfer of most of the assets of FNF to FNT.

Specialty insurance revenue was $104 million for the third quarter. Flood insurance generated $42 million in revenue, a slight increase over the third quarter 2005 revenue of $41 million. Personal lines insurance contributed $38 million in revenue, growing by 19% over the third quarter of 2005, and achieved a combined ratio of 85% for the third quarter. Home warranty produced $19 million in revenue during the third quarter, essentially equal to the third quarter of 2005 with a pretax margin of 18%. The overall pretax margin for specialty insurance was 18.4% for the third quarter, producing pretax earnings of $19.1 million.

Our share of Sedgwick's net earnings recorded on the equity method was nearly $2 million for the third quarter. While we do not consolidate the results, Sedgwick had revenues of $126 million and EBITDA of approximately $21 million, interest expense of $6 million, and net earnings of just over $4 million for the third quarter.

FIS generated nearly $1.1 billion in total revenue for the third quarter and, as Bill mentioned, this resulted in an impressive revenue growth rate of 10.2%. The transaction processing segment contributed approximately $650 million of that revenue or 60% of total FIS revenue. Lender processing generated approximately $430 million or 40% of total revenue. EBITDA for the quarter was more than $285 million with a margin of 26.5%.

For further details on FIS, you should refer to their separate earnings release or the replay of their conference call from earlier this morning. Let me turn the call back to our operator to allow for questions.

(OPERATOR INSTRUCTIONS) Mike Vinciquerra.

On the Sedgwick side of things, you mentioned the revenue, Al, about $126 million. What was the sequential change versus the second quarter just to give us a sense for it and if you could carve out any inorganic growth?

I don't have the numbers in front of me but I believe our revenue growth was -- I believe it was 15%, wasn't it, Bill, for the quarter?

I'm going to just run in the other room then and grab those papers. Mike, if I can just get those -- if you have another question for out Al.

Yes, fire another one and we will get that. We weren't thinking we would have a Sedgwick question.

Sorry about that. Well, I will follow up after the call if we have to. What is the remaining insider ownership going to be in the new FNF? Do you know what that is?

I guess, Dan, it's hard to calculate, but with the way we had to do the net exercise of our options -- I just can't give you that.

Mike, I don't know a number. It's still going to be significant.

It's going to be way up there, but with the recent net exercises of our options that we were required to do in the transaction, it is so recent but I don't really have a calculation.

So we have got you guys tied in, in other words?

Oh yes, you definitely have us tied in. Absolutely.

Then with what Randy was mentioning about the increase in refinance activity, historically from what I can tell you have typically have done better in refinance type of markets. Do you feel that that is still likely to be the case and therefore we may actually see some market share gains over the next quarter or two if these trends continue?

Well, Mike, you are correct. The refinance volume is picking up as we move through the third quarter, moving into the fourth quarter. We will have some additional refinance closings here in the fourth quarter. With our aggressive staff cuts, we will realize some of the financial benefit of that moving into the fourth quarter. So we do expect that we will do better. I don't know that it will be just because of the mix of business being on the refinance side. It will be a combination of additional volume on the refinance side and what we expect to be a strong fourth-quarter commercial close.

Are you getting a sense of that your major competitors are kind of following the same tack? I mean, are you cutting back such that you may actually be cutting back more than others and therefore losing share even though financially it is the right decision to make?

Well, we don't know that we are losing share. In fact I don't believe we are losing share particularly on the direct side and on the transactional side. We can't speak to what our competitors are doing, but we are being consistent with our culture and our methodology that we have used for many, many years and that is to measure the open orders and closed orders and to staff in real-time accordingly.

Okay, absolutely. Thanks very much.

[Darren Peller]

The first question I have is just a clarification. On I guess the reconciliation now that the new FNF is not going to be including FIS, when I look in the financials it says that the open orders -- I guess the orders closed, part of it was in FIS I think 147,000 open orders or 82,000 closed. How does that fall? That is all going over to the new FNF, right?

That is going over to FIS. Is that what we are talking about? It is going over to FIS and the relationship going forward is that FNF or the title underwriters will underwrite the business being performed in terms of default business and lender services business by FIS and the margin on that business is 12% plus some additional expenses that we charge. Out of that, we then put up our 7.5% loss percentage or claim loss percentage. So it is a very low-risk business that is being processed by FIS and those orders do transfer, but we do get a margin on that business.

Okay. Then with -- what was interesting to me is I was under the impression that with the higher refi activity, typically lower provisions would come with it. I guess kind of following the last question regarding refi being a better environment, it doesn't seem like it impacted you in a better way in this quarter considering margins. It seems like they took a hit somewhat from refi activity at least. But again, I thought offsetting that would be provisions, which were not very much lower. Is that going to be something that you may see lower down the road?

Well, we are reserving right now at 7.5% and we are trying -- we are continually dealing with our actuaries and our auditors to review that percentage with regard to adequacy. What is happening today is that while our revenues are declining, our absolute amount of dollars being put up in loss reserves also is declining. So the reserves are not building as they would have built back in 2003, 2004 and even part of 2005.

The adverse development that has resulted from the 2001 through 2005 loss years has a lot to do with the intensity of the business and the velocity of the business back in those years and, frankly, mistakes made by direct operations which are fairly small in size but numerous in terms of magnitude, and further agency business which, frankly, some of the agents were performing -- were not doing their job relative to underwriting their risks properly. We began being aggressive with regard to the agency business about two years ago and cutting agents that were either had high client claims positions -- that were generating high claims for us or were just not remitting. And we continued that process and accelerated it over the last 12 months and we are going to continue accelerating it.

That piece of the business which, if we can't make money on an agent we just aren't going to have that agency business, that had resulted in our overall national market share dropping somewhat. That is particularly true in the West, where agency splits are very, very low and just aren't profitable for us. So I have kind of rambled a bit but I hope I answered your question.

That's interesting because agency premiums were spilled out probably one of the highest levels they have been in a long time in terms of ratio to total overall title premiums. It is about 60%. Is that a number we should expect next quarter and the quarter after?

What you are going to see now is that the agency revenue should start dropping because there is a lag between the time the agents actually remit their premiums to us and the point in time versus direct operations. The direct operations, when it closes an escrow closing, that is income or revenue at that point in time.

The agency business, while we estimate premiums that are -- that we should be receiving, the actual volume of agency business lags somewhere between six and nine months from the direct business. So I believe going forward you are going to see a very good agency quarter in the fourth quarter and then beginning next year you will start seeing that agency business drop off a bit.

Geoffrey Dunn.

Bill, can you talk a little bit more about buyback? You have got a lot of cash. You have a lot of debt capacity under the new company. You are indicating that the stock is attractive here, but I am sure that you have several other things you are looking at, as usual. So it is a three-year plan, but how aggressive are you willing to be in the near term at these levels?

Well, I mean we have established an aggressive buyback plan. 25 million shares is a lot of stock, gets us down to under 200 million of outstanding shares. Frankly, as a large shareholder, I believe it is in the best interests of all our shareholders that we are fairly aggressive in terms of a buyback.

We will wait for opportunities and we will see where our stock price settles out based upon the real estate market. You can expect to see some significant buybacks, maybe not tomorrow but you can expect to see some significant buybacks over the next six to nine months because we intend to utilize that part of our cash in that fashion, pay dividends, buy stock back, and look for other special opportunities that will help balance our earnings stream.

Just on that comment, are you able to talk about any other special areas that might be catching your interest these days?

Well, for the last six months or so since we have applied for the revenue ruling, we basically have gone silent. We couldn't engage in any negotiations. We did not even look at any books that were presented by investment bankers when they tried to come down and visit with us. But our long-term interests have always been in expanding our specialty insurance business.

We have a really an excellent web-based offering and the fellow running that business for us, a very skilled guy who runs 80 to 85% combined ratios very consistently, is actively looking for books of business which we would just assume, thereby getting penetration of various marketplaces and further smaller P&C companies in particular parts of the company that we could acquire and pay cash for or pay stock and cash.

So our ROE on our specialty business is running about 23% and we are very happy with that. We really want to grow that business and I have told Mark Davey that his goal is to get the $1 billion in our property casualty business and we need to get to it fairly quickly. So that is one area we are interested in. The Sedgwick business, which by the way, Mike, had a sequence of growth rate about 18% in the third quarter in terms of revenue and that is a growth rate we expect to see going forward on our organic business, but next year in the first three quarters or so it will run over 30% because of the CMI acquisition.

So I just wanted to clarify that one issue, but in terms of other areas of interest we are very interested in companies that are heavy in paper and personnel-intensive that we believe we can manage those businesses very effectively, become more cost-effective in those businesses, and maybe even engage in some significant off-shoring activities. So that is where we are going to be focused and over the next six months or so you can expect to see some fair-sized acquisitions in that sort of space.

Last question for Randy, obviously the margin fell a little under pressure this quarter but I was surprised at how far you took the dollar costs down. As you plan for a slower fourth quarter and head into '07, are you in a position if we are looking at call it a 2/2 market next year, do you think we are in a position where we could actually see margins sustained flat into the following year?

Well, we are going to continue to reduce staff. We are consolidating branches over in the West. This is where most of the activity has been in terms of the decline in the marketplace. Once this levels out, we could sustain margins because we are not chasing the expense side as we have through the first nine months of this year. We have actually been reducing staff through the first nine months. We have taken out 1,350 employees.

Again, with our facility consolidation, we are now in the process of subleasing somewhere of a number of 80 locations over in the West. So once we level off with those expenses and we level off with the volume of orders and even with the current mix, we should be able to sustain margins going into next year.

You know, Geoff, I would just add one thing to that if I could. That is that the first quarter for us this coming year is going to be a tough quarter. We are going to be moving into that quarter with fairly low order flows and we are going to -- it is going to be tough for the industry in terms of the first quarter. Then if rates stay where they are or start moving down a bit, we can start seeing some pretty good improvements through the balance of next year.

Okay. Thanks.

[Nick Biskin]

So if I look at the fourth quarter pre-tax margin for title, should that be flat sequentially with 11/1?

I don't believe it will be flat. We really can't predict the margins, but we will continue to control this expense side as we go through this fourth quarter and this first quarter. As Bill had mentioned, the first quarter can be difficult with the seasonal effect of January and February well as the back end of the fourth quarter. We will be looking at a strong commercial finish, but I don't know if we could commit to that.

Our goal is going to be to maintain at least that 10% margin level. That is the goal and Randy is trying to run his business and reduce staff to get to that point.

Okay. Al, what was the -- can you give us some details on that equity impairment?

Well, we had one equity issue that we have had and we monitored it for a few months. Under the rules, the rules are fairly tight on how you evaluate impairment and we reached the point where we just had to write it down and provide for impairment. I can't give you a lot of details -- I don't want to go into what stock it was and all of that but it is in the big scheme of things relative to a $4 billion investment portfolio you will have one of those every now and then, not often.

This particular issue or stock had been purchased over time by a previous money manager that we had working with our equity portfolio and it is a small issue. It is fairly thinly traded. He is no longer managing our funds. He was actually -- we actually stopped using him about a year ago. This was the last carryover security that he had that he had had in our equity portfolio, and it probably wasn't an appropriate holding and we wanted to take action to write it down.

You guys have -- especially Randy has done at better job than all the predictors on the refi, purchase, split kind of outlook because you guys are closer to the business. Randy, what kind of color would you give us on Q4 '07?

Q4 of '07?

Q4 and 2007. Sorry.

Well, again, I think Q4 and the first quarter of '07 we are going to have the effect of refinance closings, which will press the average fee per file. We will have a strong finish on commercial, which will boost the average fee per file. So we are looking at perhaps the fourth quarter remaining the same in the fee per file. We will have the seasonal effect. We will have the seasonal effect of November and December, so that will slow it down a bit, but we are going to continue I believe to see the refinance mix being at 60%.

So we know where we are going to be in the fourth quarter and the first quarter. January and February is going to be short months and as traditional as it has been in the last five years.

So we should continue to see pretty substantial headcount reductions?

We are going to continue with the headcount reductions. Even through the month of October so far we are down another 100 employees, so we are continuing with that. We do measure this very, very closely and we will continue with the consolidation if necessary, particularly in the West, where the greatest falloff in the market is.

Adam Weinrich.

My question has been answered. Thank you.

Jim Edelman.

Just a question on the fee per file. It actually held up pretty well at 15.82, a little bit are than the average of the first two quarters. I would have thought that with a higher refi mix that would go down.

Well, the commercial has still been good and the refinance mix, what we have rolled to the opening side on refinance in the third quarter is going to on the closing side spill over into the fourth quarter still. So there could still be a bit of a falloff on the fee per file going into the fourth quarter, but that will be supported by the commercial closings.

That fee per file is down a little bit from the second quarter. It was 15.97 in the second quarter.

(OPERATOR INSTRUCTIONS) Geoffrey Dunn.

Randy, I wanted to follow up. I think you touched a little bit on the early trends in October, but can you give us some specific idea of where open orders per day are running? In terms of a closing ratio, third quarter seemed a little below normal. If that trend also persisting?

It has really been about a 65% closing ratio. So it has been more traditional. What we did find is on the resale side you have got contingency buyers, so the real estate resale transaction is staying in play longer from opening to closing. Also with the refinance closings coming up on the opening side, there tends to be a little bit more falloff on the closing side with people shopping loans. So we see a 1% or 2% change in that regard.

In terms of the order levels, we are pretty steady on those. We expect that they will settle out through the back end of the year, with December where it typically slows down in the last few weeks. But we are looking at we think a fairly stable and steady open orders.

Okay, thank you.

Jim Edelman.

Just a capital question. With your share repurchase of 25 million shares and your dividend of $1.20 and then if I just sort of pencil out your current earnings run rate, that seems to eat up a lot of your cash flow there. Then on the call you were talking about making some acquisitions, some of your specialty business lines. Can you just talk about capital management in general?

Sure. Well, the share repurchase is a three-year program and at today's level that is roughly $500 million. Depending on the level of the stock, we may exhaust that program earlier rather than later, which would defer acquisitions. We felt when we did our reorganization and created the FNT Title Group with the other assets that were dropped into it and then separated out FIS that FNT, the reality was as much as we try to change it and make it into a higher price earnings stock, it just wasn't being successful.

So we accept what it is. We are real estate cyclical and we are going to be a 7 to 10 P/E company, but we are going to help sustain that P/E ratio with a solid dividend and the yield of over 5% at our present stock price makes us a much more attractive investment than our competitors, which yield between 1 and 2 percentages or just over 2%. So the dividend is sacrosanct. The stock buyback we are going to engage in and we are going to look at acquisitions.

Always remember that our total debt to cap now is roughly 12%. So we have an $800 million line of credit. We have roughly $600 million of cash available -- it's $1.4 billion. So the dividend is in good shape. Our stock buyback should be in good shape. We should have the ability to make selected acquisitions.

Thanks.

There are no further questions at this time. Please continue.

With the transfer of certain assets and the distribution of FNT stock to FNF shareholders, we have completed the first step in the reorganization that we announced back in April. FNT is now an independent public company. With the merger of FNF with and into FIS on November 9, FIS will also become an independent public company without a control shareholder. FNF shareholders will receive stock in FIS.

While we are now nearing the completion of these specific transactions, in the future we will continue to strive toward our ongoing goal of seeking to maximize shareholder value. Thanks for joining us this morning.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference service. You may now disconnect.