Fidelity National Financial Inc (FNF) 2006 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the FNF fourth quarter earnings 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 our fourth quarter 2006 earnings conference call. Joining me today are Bill Foley, Chairman and Chief Executive Officer, Al Stinson, Co-COO, Randy Quirk, Co-COO, and Tony Park, Chief Financial Officer.

On the call this morning, Bill Foley will begin with a brief strategic review of recent developments, and an overview of the businesses that now make up FNF after the fourth quarter organization. Randy Quirk will provide an overview of the title business, and Tony Park will finish with a review of the financial highlights. We will then open it up for your questions.

This conference call may contain 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 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, 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, a limited supply of mortgage funding, or a weak US economy; our potential inability to find suitable acquisition candidates, acquisitions in lines of business that will not necessarily be limited to our traditional areas of focus, or difficulties in integrating acquisitions, our dependence on operating subsidiaries as source of cash flow, significant competition that our subsidiaries face, compliance with extensive government regulation of our operating subsidiaries and other risks detailed in the statement regarding forward-looking 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 our website at FNF.com. It will also be available through phone replay beginning at 12:30 p.m. Eastern today through next Tuesday, February 13. The replay number is 800-475-6701 and the access code is 859634.

Let me now turn the call over to Bill Foley, our Chairman and Chief Executive Officer.

Thank you, Dan; 2006 was a year in which we continued to actively seek the maximization of value of FNF for our shareholders. We announced and completed the reorganization of the Company whereby we eliminated the Holding Company structure and created a set of transactions that allowed our shareholders to received two distinct securities; FNF and FIS in a tax-efficient manner. Each entity is now a stand-alone public Company that is free to pursue its own unique strategy in the interest of maximizing the value of its assets and continuing to create value for its shareholders.

FNF is now primarily composed of the Title Insurance Business, the Specialty Insurance Operations, and the 40% ownership stake in Sedgwick Claims Management Business. Title is obviously our largest and most mature business. It is a business that produced tremendous cash flow and returns, and allows us to pay our significant $1.20 annual cash dividend, which equates to a 5% [churn] deal. We intend to continue to run the Title Business in the same manner that we have for so many years. As you have heard Randy Quirk say before, and will hear him say again this morning, we will continue to monitor order counts, headcounts, and productivity metrics every week. We will make quick and decisive staffing decisions if the metrics dictate doing so.

We expect a difficult first quarter for the industry, and we have prepared ourselves accordingly. If the economy and interest rates remain near where they are today, we should see a pickup in activity in the spring and summer months, and the significant staffing cuts we made in the second half of 2006 will begin to pay dividends.

Our Specialty Insurance Operations are made up of three distinct business; Flood, Personal Lines, and Home Warranty Insurance. Flood insurance is about $150 million to $200 million annual revenue business, and we believe we are the nation's largest writer of flood insurance, with nearly 660,000 flood policies in-force as of December 31, 2006. We receive approximately $0.31 of each premium dollar for new and renewal policies, and a 3.3% override based upon the face amount of the claims that we process. 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 about a $160 million to $200 million annual revenue business, with policies in-force of more than 216,000 as of December 31, 2006. We are primarily underwriting traditional homeowners insurance through leads generated through our Title Insurance operations, as well as through an independent agent network. We have been operating at a combined ratio of 85% to 90% in the Personal Lines Business for most of 2006. However, we did experience an increase in claims during the fourth quarter due to an increase in fire and water-related claims.

Home Warranty is an $80 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 that consistently generates a 20% pre-tax margin for our Company.

Sedgwick is our 40%-owned third-party administrator, or TPA. Sedgwick designs, implements, and manages outsource TPA programs for Workers' Compensation, Liability and Disability Claims Management. Sedgwick now has approximately 1,200 clients, including 28 of the Fortune 100 and 86 of the Fortune 500. It has annualized revenue of more than $600 million, and EBITDA margins of greater than 15%. We have previously communicated a stated goal of seeing Sedgwick reach a revenue base of $1 billion over approximately the next 24 months, and then seeking the most efficient means of maximizing the value of Sedgwick for our shareholders.

In late December, we invested $50 million in certain assets for a 61% ownership position in Fidelity National Real Estate Solutions, or FNRES. FIS had owned 100% of FNRES prior to our investment. We believe that FNRES can best receive its long-term success through this partnership of FNF and FIS, with FNF providing significant customer contacts through a distributive sales force while FIS lends its technological expertise and data capabilities. While not financially significant today, we are excited about the potential for FNRES becoming a leading provider of real-estate content, products, and services to consumers, lenders, and other real-estate industry participants.

Our main focus will be on the cyberhomes.com portal. Cyberhomes is a newly created real estate portal which generates leads by offering home valuation tools to consumers. Additionally yesterday, we announced the acquisition of GoApply, a provider of online mortgage leads to lenders and brokers. Its customers include nearly 30 mortgage lenders and more than 2,500 mortgage brokers. GoApply will provide a tremendous platform to deliver consumer traffic to the cyberhomes portal.

Finally, we mentioned on our last earning call our Board of Directors approved a three-year, 25 million share repurchase program in our Board Meeting back in October. We said that at that time, that the repurchase of our stock was an attractive investment opportunity, and an efficient use of our cash flow and a great way to return significant value to our stock holders. We have not yet repurchased any shares under the program. However, we are evaluating various strategies that might allow us to purchase a significant portion of that 25 million share authorization either with the proceeds of additional non-diluted financing, cash generated by our businesses, or some combination of the two. We are not in a position to further discuss any of those strategies at this time and we can't guarantee that we will implement one of those strategies to repurchase a large amount of shares of stock.

Let me now ask Randy Quirk to comment on the Title Insurance Business in more detail.

Thank you Bill. Total open-order volumes followed a distinct seasonal pattern in the fourth quarter. For the entire quarter, we opened 617,000 total orders for a quarterly average of nearly 10,000 open orders per business day. In October, we opened at 227,000 orders, or just over 10,300 openings per day. November remained consistent with 207,000 orders, or 10,350 orders per day. The seasonal effect became apparent in December when we opened 183,000 orders, or just over 9,100 order per day. The month of January has seen a nice pickup in open order volumes back to more than 10,000 open orders per day in line with the levels we saw back in October and November.

Refinance orders continue to show strength, as refis comprised more than 60% of open order volumes for the fourth quarter, with December showing refinance transactions at more than 65% of total open order volume. Refinance transactions were just under 65% of open orders for the month of January.

As we noted last quarter, the good news is that total open order volumes remain resilient in the face of a softer national real estate market. However, it has been the increase in refinance orders that has allowed those order volumes to remain strong, and those refinance transactions generate on average about half the premium and half of the absolute profit of a resale order.

It may be starting to sound like a broken record, but our focus remains on maximizing profitability, even in a slower market environment. We continue to monitor order count, headcount, and productivity metrics every week. Based on the analysis of those metrics, we further reduced headcount during the fourth quarter. We began the fourth quarter with approximately 12,850 employees in our Title Field operations, and we eliminated another 500 positions during that quarter, which is a reduction of about 4% of our Title Field workforce. Our focus on headcount allowed us to produce a 10.8% pre-tax margin in the fourth quarter.

From an expense standpoint, personnel expenses decreased by $47 million or 10% for the fourth quarter 2006 over the fourth quarter of 2005. As a percent of title and escrow revenue, personnel expenses were 31% for the fourth quarter of 2006, versus 32% for the fourth quarter of 2005.

Other operating expenses decreased by $2.5 million or 1% for the fourth quarter of 2006 versus the fourth quarter of 2005. As a percent of title and escrow revenue, other operating expenses were 16% for the fourth quarter of 2006 versus 15% for the fourth quarter of 2005. We have said many times that other operating expenses are less variable than personnel expenses, and we have less ability to conscientiously reduce those expenses when compared to the personnel line. Combined personnel and other operating expenses were 47% of title and escrow revenue for the fourth quarter of both 2006 and 2005, despite a 17% decline in closed orders and an 8.5% decline in revenue from the prior year.

Finally, the fourth quarter was strong in our Commercial Title Business. We opened more than 12,600 commercial orders in our national commercial divisions, and closed approximately 8,300 commercial orders, both sequential increases over the third quarter, generating more than $89 million in revenue. While the open and closed commercial order count was down for the fourth quarter of '05 by 6% and 9% respectively, the $89 million in revenue was an $8.6 million, or 11% increase over the prior year. This commercial revenue accounted for nearly 17% of total direct title premiums for the fourth quarter.

Finally, we announced the acquisition of ATI yesterday. ATI is a document management company that offers software applications, custom-designed workflow solutions, and project management expertise, as well as document convergence services. FNF has been a customer of ATI for some time. We do not have a full-scale in-house document scanning and management solution, but the acquisition of ATI allows us to develop a focused in-house document scanning and management solution, and eliminate the expense of outsourcing that function to an external vendor.

Let me now turn the call over to Tony Park to review the financial highlights.

Thank you, Randy. We are going to focus on the pro forma financial results and comparisons, as we believe those are the most beneficial in analyzing our operations as they are currently organized. These pro forma results exclude the financial results of FIS and all transaction costs related to the reorganization completed in the fourth quarter. Instead of saying "pro forma" over and over, please be aware that all of the numbers I mention are going to be pro forma.

FNF generated a little more than $1.5 billion in revenue in the fourth quarter, with nearly $1.4 billion of that coming from the Title Operations, $90 million from Specialty Insurance, and $55 million from the combination of interest in investment income and realized gains in the investment portfolio. Pre-tax earnings were $144 million versus $295 million in the prior year quarter, and net earnings were $93 million versus $190 million in the fourth quarter of 2005.

While Title revenue and earnings were certainly down, the Specialty Insurance segment had the largest percentage decline in revenue and earnings. We will talk about those declines in more detail when we review the results of the Specialty Insurance segment. The Title segment generated more than $1.4 billion in total revenue for the fourth quarter. This was an 8.5% decline from the fourth quarter of 2005, and a 4.2% sequential decline from the third quarter of 2006.

As Randy mentioned, the focus during the quarter was on expense management; most notably personnel costs of $435 million were down $47 million or 9.7% from the fourth quarter of 2005, a larger decline than the corresponding 8.5% revenue decrease. We expect a much smaller decrease in personnel expenses in the first quarter as we have payroll-related tax contributions that restart at the beginning January.

We continued to provide for Title Claim losses at 7.5% of gross Title premiums in the fourth quarter of 2006, as we continued 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 the foreseeable future. Actual Title claims paid during the quarter were $72.5 million, resulting in a $13 million increase to balance sheet reserves. The Specialty Insurance loss provision was $44 million in the fourth quarter, comparable to the prior year but an increase from the $30 million in the third quarter of 2006 due to higher fire and weather-related losses in the homeowners business in the fourth quarter. The total balance sheet reserve stood at more than $1.2 billion at year-end. Overall, the Title segment produced pre-tax earnings of more than $155 million resulting in a pre-tax margin of 10.8%.

Specialty Insurance revenue was $95 million for the fourth quarter, including investment income. Flood insurance generated $29 million in revenue, a decrease from the $41 million in revenue recognized in the third quarter of 2006 and $126 million in the fourth quarter of 2005. The decline from the fourth quarter of 2005 was due to the $100 million of revenue related to processing of Hurricane Katrina flood claims in the prior year. The decline from the third quarter of 2006 is primarily seasonal. The fourth quarter is a seasonally slower quarter for flood insurance revenue, as the largest demand for flood policies is normally in the spring and summer periods of the second and third quarters, and we recognize our commission revenue when the policy is originated or renewed. We expect another seasonal pickup as we enter the spring and summer months this year.

Personal Lines Insurance contributed $40 million in revenue, growing by 24% over the fourth quarter of 2005, and produced a combined ratio of 109% for the fourth quarter and 88% for all of 2006. As I mentioned, losses increased during the fourth quarter due to increased fire losses and some losses related to the ice storm that swept through much of the country in December.

Home Warranty produced $18 million in revenue during the fourth quarter, a slight decrease from the fourth quarter of 2005, but generated a pre-tax margin of 23%. The overall pre-tax margin for Specialty Insurance was 5.3% for the fourth quarter, producing pre-tax earnings of $5 million. Again the lower Specialty Insurance earnings were driven by two things; first, the prior year included $100 million of very high-margin Hurricane Katrina-related flood claims processing revenue; and second, sequentially higher homeowners' losses in the fourth quarter, primarily from increased fire losses and other claims related to severe weather during November and December.

Our share of Sedgwick's net earnings was approximately $2 million for the fourth quarter. While we do not consolidate the results, Sedgwick had revenue of $155 million and EBITDA of approximately $23 million for the fourth quarter.

Debt at December 31 consisted of $491 million in Senior Notes due in 2011 and 2013. The debt-to-total capital ratio of 12.2% provides significant flexibility on our balance sheet. At our current rating level, Moody's has said that they expect the debt-to-capital ratio of FNF to remain below 30%.

Finally, our investment portfolio totals $4.8 billion at December 31. There are approximately $3 billion of legal, regulatory, and other restrictions on some of those investments, including secure trust deposits of approximately $900 million and statutory premium reserves for underwriters of approximately $1.7 billion. There are also some less liquid investments, like our ownership stake in Sedgwick and working capital needs at some underwritten Title companies, which total $300 million and we backed this out as another category of restrictions.

So of the gross $4.8 billion, approximately $1.8 billion was theoretically available for use, with about $1.5 billion held at regulated underwriters and $300 million in non-regulated entities. We also have an estimated $250 million of dividend capacity from our underwriters in 2007.

Let me now turn the call back to our Operator to allow for any questions.

Thank you. [OPERATOR INSTRUCTIONS].

Mike Vinciquerra.

Thank you, good morning; just on the -- I know you guys are actively managing the headcount as you always do in the Title space, but at this point, you see the surge in refinance volumes, and you had cut employee counts in the fourth quarter, are you needing to actually hire back at this point to handle the volume, or are you guys sufficiently staffed at this point?

Hey Mike, we are sufficiently staffed at this point; we will not need to increase staff to go through the fourth quarter, through the first quarter; in fact, we continue to slightly reduce staff as we move through. So these, the good news and the bad news about going into the first quarter is that we've had significant increase in that mix of business towards the refinance side in November and December. We expect many of those transactions will fall out. You get a lower closing ratio on refinance business so we don't expect any real movement, certainly no upward movement in staffing levels going into the first quarter.

I see, okay thank you. A separate issue, you mentioned Sedgwick, the $155 million in revenues; is the goal continue, does that continue to be to reach $1 billion annual threshold and then at that point decide if there's something you need to do with that business in terms of separating it as a public entity?

Mike, that's correct. We made two acquisitions during 2006, and that run rate will now start kicking in as we move through 2007. We have a couple of goals with Sedgwick; we're evaluating various alternatives that would enable us to recover a portion of our investment, and obviously that would be some sort of re-capitalization of Sedgwick based upon its higher EBITDA run rate. And then finally over the next couple of years, as that business continues to grow, and we anticipate it growing at least 15% per year, we would then look at some alternatives relative to an IPO in a monetization of the Company, and then perhaps a distribution of our shares to our shareholders.

So we may not track, at this point there are not additional acquisitions pending for Sedgwick. We feel like we need to consolidate the two that were made in '06 and just run the business very, very efficiently. But in the interim, really take a look at some alternatives relative to recovering part of our investment so that would come back to FNF.

The downside of that is the consolidation or the consolidation of earnings on the equity method; it's probably going to be about nil if we do some kind of recap.

I see, okay thank you. And then just finally, the ATI transaction I guess you said you announced yesterday, was there any third-party business there and will that be impacted at all by bringing it in-house?

Actually, the third-party business was about 85% of its revenue. FNF and its various subsidiaries were doing $3.5 million or so, $4 million of total business. And really the goal with ATI, as Randy mentioned, is to take that out to our customer base, particularly our lender customer base and grow that business. We really believe this is $150 million to $200 million business over the next three to five years, and starting at a fairly low base. It's a great add to us; it's not a significant business component, but it gives us more capability, you know capability we really needed when we were outsourcing.

And I guess an indication that your thought processes that the electronic mortgage and closing processes is many years off at this point?

Well, it's many years off, but actually we're really looking at it for ATI is the integrated, integrated with some of FIS' customer base and really moved toward a loan-boarding program for the mortgage servicing platform that FIS has, and ATI would be kind of the outsource service provider to FIS and a lot of its customers.

So we have some exciting ideas about ATI; we've put one of our key guys in charge of ATI, and he's moved back to California to be involved with ATI's growth, and he's a guy that knows his way around both FIS and FNF.

So we're pretty, we're excited about ATI, although it's a very small acquisition, a very small business at this point.

Okay, thanks Bill.

Darren Peller.

Hi guys; first question I had was regarding the buyback program. I may have just missed what you said, I don't know, but I know you commented say there was very little done this quarter, if any; first of all, why was that the case? I remember at the end of last quarter, you mentioned that there was going to be a fairly aggressive program. Can you just comment on that real quick?

Yeah, we really were letting things, letting the dust settle after our series of transactions that occurred in October and November and we just took a break in December. And at this point, we are evaluating some financial structures, restructuring that we enable us to repurchase shares on a non-diluted basis. And if that were the case, we would get pretty aggressive about the share repurchase program, and we'd try and fulfill our commitment to repurchase 25 million shares, but we'd be in a position to accelerate it.

At this time, I really can't say more about that financial restructuring. It's just something we're looking at. If that were not to happen, we would then start engaging in the balance of repurchase program; you'd start seeing activity in the next 60 days or so.

Oh so it's that soon basically in terms of when you'd actually decide on whatever this program may be will used or not.

Yes, it'll be in short order.

Okay; and then can you actually help me understand again, and I knew at the very end of the call I think Tony went through the cash numbers. Maybe you could just clarify real quickly exactly what the numbers end up summing to in terms of the excess cash you guys have now.

Tony Park; Yeah, we have about $1.8 billion of total cash available, but about $1.5 billion of that is in the regulated subsidiaries, of which in 2007 we expect to be able to bring up about $250 million. We have $300 million, a little over $300 million at year-end of unregulated cash that's at the Parent Company.

So there's $250 million plus the $300 million in terms of the dividend capacity and plus the $300 million in non-regulated?

Yeah, we have the $300 on the balance sheet; the $250 to upstream, as well as significant cash generated from our non-underwriting subsidiaries that will also upstream in 2007.

And then there was an $800 million line of credit that was untapped. Is that status quo right now?

Yeah, that's undrawn at $800 million.

And that's still LIBOR plus 50 I think it was?

Forty-five I think.

Forty-five, okay. And then quick last question; on the Specialty claims, can you just help us understand again exactly why there were so many more fire; I mean is this just a one-time kind of thing, or -- I mean is this something that would be -- first of all, was this something you'd see across the industry or was this specific to your Company? Was this one-time; I guess a little more color on that.

I think it is one-time; it was driven by fire, weather-related. The actual loss percentages for November and December were 79% and 92% respectively, which by our historical standards of 60% are extremely high. I think it's definitely one-time; the combined ratio was actually fairly favorable for the year at 88%, but I think you'll see us return to our more normalized combined ratio which includes the losses and the underwriting expenses, more what we've done about 85%.

Okay, thanks guys.

Nick Fisken.

Hey good morning everybody; what's a good run rate on corporate on a go-forward basis, and what exactly is being put in that division?

I would say about $15 million a quarter on a run-rate basis, which would include about $20 million in expenses, and about $5 million in revenue. Sedgwick is included in there, so Sedgwick's investment income, or our equity pickup in their earnings is in there as well as some other longer-term investments. We also have some Parent Company overhead costs that flow through there, including some stock comp costs, some personnel costs, and we also have all the debt at the Parent Company and that runs about $8 million in interest expense each quarter, so again $20 million expense, offset by about $5 million in income, so $15 million run-rate expense at the Parent Company.

Tony, what did we start the quarter with in terms of free unrestricted cash, because I thought it was a much higher number than 300?

Yeah, we started, as you recall we had $150 million at FNT at 9/30; we added $275 million from the FNF transaction and brought up $145 million from our underwriters in the fourth quarter, so that, you might recall a $570 million starting point. From that, we paid dividends in fourth quarter, our common dividend of $65 million. We had fourth quarter debt repayments of $75, actually cost to $80 million; we put $50 million into Fidelity National Real Estate Solutions, and we had some other long-term investments of about $75 million. So that's how you get to roughly $300 million at year-end.

And what type of long-term investments? Not fixed income?

Not fixed income; other types of longer-term investments.

Okay, and on the cash deployment, can you give us an update in terms of we've seen a couple little deals last night but when should we start to expect some more sizeable cash deployment?

Well Nick, we're looking at a number of different investment opportunities as we speak. We're trying to be careful; we recognize that we have a limited amount of cash available, and if we were going to take down some debt, we want to make sure that it's the type of investment that could not only service that debt but return significant amounts of cash to us. And we're looking, and that's about all I can say.

And then Al, on the Specialty results, can you comment on how they've been, on how they did in January?

I think we had a few more weather-related types of claims in January, but for the quarter, it's too early for me to really comment. I think as we move through 2007, we'll return to our more normalized loss ratios.

Okay great, thank you.

Stephen [Aracol].

Hi guys, thanks for taking my question. Could you just give me a regulatory update starting with the insurance regulators in California and if you see any, just an overview of other States that might be issues this year?

Sure, as you know, the proposed regulations in California were submitted to the Office of Administrative Law in early January. They have until late February to either approve or disapprove those regulations. We oppose the regulations, as does the industry, and if they do come out of DOAL, we'll challenge them through our trade association, the California Land Title Association. We continue to meet with the Department of Insurance; we've met with the Insurance Commissioner. Meetings have been informative and constructive and we continue to work with the Department and see what the DOAL does.

In other States, as you know Texas just offered up a 2.5%, 3% reduction in rates; this is an ongoing process in Texas that they review every two to three years the rates in that State. Florida has asked for some information from us in terms of data call, and so that's an ongoing process; nothing imminent in that State. And New York seems to be behind us, so generally that's the overview from the States that are giving us some attention right now.

Thank you.

[OPERATOR INSTRUCTIONS].

Robert Napoli.

Thank you; a question on the, just on the dividend and now that you guys are totally done with your corporate maneuvers I guess for the near term, the dividend of $1.20, and I'm assuming that you're absolutely committed to that dividend, and what are the thoughts on growing the dividend?

[Bob] we are committed to the dividend; I mean it's really one of our highest priority uses of cash available, so we want to maintain the $1.20 dividend. Historically, if you take a look at our Company and particularly when we were primarily a Title Insurance, Title Insurance and revenue earnings based, as the economy came back, we would traditionally either have a stock dividend and maintain the dividend on the new number of shares or increase the dividend.

And it's a little premature to talk about that at this point because we have not had the increase business, but we anticipate that just as rates have gone up, rates will come down and the real estate market, the longer it stays in -- I wouldn't say the doldrums -- but in kind of a mediocre market, then the more aggressive the market will be when it recovers. And at that point in time when the cash flow justifies it, we'll take another good look at the dividend. We're committed to not only maintain the dividend but increasing the dividend over time.

Okay, and I guess your outlook on the mortgage market, for the housing and mortgage market for 2007, what's your feel from what you're seeing today? How's the, do you think, and everybody has an opinion, but from what you guys are seeing do you think that the housing market is near a bottom, the home purchase market; I mean do you expect 2007 to be, assuming rates stay around where they're at, to be a pretty good year for your Title Business?

We really believe the first quarter is going to be a tough quarter, and comp-to-comp it's going to difficult, it's going to be a little difficult. We believe the last three quarters are going to show a steady improvement in the housing market, and we believe 2008 will be a strong year. So that's really how Randy is structuring his businesses; he's continuing to take costs out, reduce staff, reduce offices, and that puts us at the point that we can have some real margin expansion when the housing market does recover.

So we really feel like we're close to a trough. We don't see too much more on the negative side happening, and we're just trying to manage our business through kind of a mediocre market.

You've done a great job, you know managing your margins through, so far through this, and obviously first quarter is always difficult, and maybe a little more difficult this year on a year-over-year basis than usual. But do you, in this kind of a market, do you expect, when you maintain 11% margin in the fourth quarter, can you do that on a full -- obviously you can't in the first quarter -- but on a full-year basis do you expect to have double-digit margins given what you see in the environment today in your Title Business?

We believe there's going to be margin expansion during this year. We really had a tough year last year, and first quarter will be a little difficult, but the next three quarters, we should get some pretty good margin expansion.

Okay, and then I guess on the ATI business, I don't' want to harp on this but you said $100, $150 build to $200 million business in two to three years. What is the revenue out of that business today?

The revenue is about $25 million.

About $25 million.

It's very small.

Okay, that would be some good value creation to be able to accomplish that. And then you talked a bit about the $50 million you invested into the --

FNRES.

Yes, FNRES; I just hadn't -- what are, what is the game plan for that investment, and I'm a little bit confused on, I mean you went through a lot of data there pretty quickly. And the GoApply business, it sounds like something you've invested in in the past.

Well, what we really want to accomplish with FNRES is the cyberhomes.com real estate portal, and today that portal is kind of a Zillow equivalent; it's a home valuation site that you go onto; you pull up the site and you get a valuation of your home, and some other information relative to your community. So it compares house values, whether appreciating or declining and a lot of different graphs and charts. And just as we speak, some additional content is being added to that site, specifically elementary, middle, and high school locations, drive times to those schools, the ratings of those schools by various parents and teachers.

And then finally, we're also integrating listings onto the site so the goal is that we will have very deep and robust listing content, so that if you went on the site to take a look at your house valuation, you would see a purple pin and you would pull up your house and if you looked at the same overview, aerial overview of your neighborhood and there were green dots, you could hit that green dot and that would be a house for sale and you could get all of the relative, all the listing information on that house, compare it to your house, compare the square footage, the number of bedrooms and bathrooms and type of roof and so on, the goal being that this will enable us to have a consumer-direct link that we can then use to attack the real estate marketplace in terms of agents and brokers and further sell other products and services either our own or third-party services to the consumer. So we become a very robust full-real estate portal.

And we haven't really publicized this site until today, and we do not intend to go live, or totally public until we have this listing content more online or more robust, but we're well on track. We have a great staff; we have excellent people that are developing this site for us, and the goal being that we again have a company that we anticipate is going to be very, very valuable, and we can evaluate what the alternatives are, whether it's a spinoff to our shareholders or an IPO, or just additional investments from third-party investors to help grow the business. But you'll be seeing some exciting things from cyberhomes if our plan succeeds, and we believe it will succeed but you never know.

And your $50 million investment gives you what ownership percentage?

Sixty-one percent.

And who owns the rest?

FIS, our sister company, or former sister company.

Okay, so you're working --

Working hand-in-hand. Actually, FIS owns the valuation material and the data that we're utilizing, and FNF is the provider of the access to the brokers and a lot of the sales tools. So it's really a partnership between the two companies.

Great, thank you.

Jim Edelman.

Hello; were you surprised by the 65% refinancing, and how do we think about what a trough could be if that number goes significantly lower? Thanks.

I wouldn't say that we were surprised by the 65%; it ran through most of the year at 58% to 60%, and it really just increased in the last two or three months with really, primarily with the resetting of the ARM. So it, we enjoyed the sustained volume and that 65% is on the opening side; now we have to see if they close in the first quarter. But I wouldn't say it was, totally surprised; it also reflected the falloff in the resale market in the latter half of 2006. So, no I wouldn't say we were totally surprised.

Thank you.

And there are no further questions at this time. I'll turn the conference back to Mr. Foley for closing remarks.

Thank you; during the fourth quarter, we completed the reorganization of the Company. FNF is now a stand-alone public Company that is free to pursue its own unique strategy in the interest of maximizing the value of its assets and continuing to create value for its shareholders. We look forward to updating you on our progress on our first quarter earnings call in late April.

Thanks again for joining us this morning.

And ladies and gentlemen that does conclude our conference for today. Thank you for your participation and for using the AT&T Executive Teleconference. You may now disconnect.