Fidelity National Financial Inc (FNF) 2007 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the FNF second-quarter earnings conference call. At this time, all lines are in a listen-only mode. Later, there will be a question-and-answer session, and instructions will be given at that time. (OPERATOR INSTRUCTIONS). As a reminder, today's call is being recorded.

At this time, then, I would like to turn the conference over to Mr. Dan Murphy. Please go ahead, sir.

Thank you. Good afternoon, everyone, and thanks for joining us for our second-quarter 2007 earnings conference call. Joining me today are Bill Foley, our Chairman of the Board; Al Stinson, our Chief Executive Officer; Randy Quirk, Co-President; and Tony Park, CFO.

We have a slightly different format this afternoon. Bill Foley will begin with a brief strategic overview; Al Stinson will provide an update on our portfolio of companies; Randy Quirk will provide a more detailed look at the title business; and Tony Park will finish with a review of the financial highlights. We will then open the call up for your questions and finish with some concluding remarks from Bill Foley.

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 information currently available to management. Because such statements are based on expectations as to future economic performance and are not statements of facts, 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 U.S. 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 a source of cash flow; significant competition that our operating subsidiaries face; compliance with extensive government regulations 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 webcast at our website at fnf.com. It will also be available through phone replay beginning at 3.30PM Eastern Time today through next Wednesday, August 1. That replay number is 800-475-6701 with an access code of 877964.

Let me now turn the call over to our Chairman, Bill Foley.

Thanks, Dan. The second quarter was another successful quarter in managing our portfolio of companies, which include Fidelity National Title, our title insurance business; Specialty Insurance, which includes flood, personalized and home warranty insurance; Fidelity National Real Estate Services, or FNRES, which is our majority-owned real estate technology company; Cascade Timberlands, our majority-owned timber company; and Sedgwick, our minority-owned workers' comp management business.

As Chairman of FNF, I am going to primarily focus on strategic issues, the future direction of the Company and our ongoing attempt to maximize shareholder value. We will continue to seek out acquisitions and related businesses such as Ceridian and Sedgwick. Most likely, these will follow the current method of FNF taking a minority stake in larger companies with financial sponsor partners, but being, in effect, the managing partner. This model provides the maximum flexibility for FNF's balance sheet and allows us to maintain the investment-grade ratings that are so important for our core title business.

As we do today, we will continuously evaluate the optimal means to deploy available capital at FNF and maximize the value of FNF's attractive assets. Our first use of capital will remain our common stock dividend. We are committed to paying a significant cash dividend and would expect to continue to consistently increase the dividend over the upcoming years.

The other two main uses of cash will most likely be future acquisitions and stock repurchases. There will be times where one of these options is clearly more desirable than the other, as we have already seen during 2007.

As we said we would on our last earnings call, we did repurchase stock during the second quarter. From April 30 until the Ceridian announcement on May 30, we bought back 1.4 million shares of stock. However, we have temporarily halted the repurchase at the time of the Ceridian announcement, as we anticipated available cash being used to fund our share of the equity at the closing of that acquisition this fall.

We announced the acquisition of Ceridian in partnership with T.H. Lee back in late May. We continue to move toward a full closing on the transaction, as Ceridian's shareholders will vote on the acquisition at the Ceridian annual shareholders' meeting, which has been set for September 12.

While our title business had to navigate a difficult macro environment during the second quarter, we remain very excited about the future of FNF. I look forward to reporting on the continued evolution of FNF during our future earnings conference calls.

And now let me turn the call over to our CEO, Al Stinson.

Thank you, Bill. Despite being focus on reducing costs in the title business, we continue to seek out other ways to improve our title operations and the products that we offer. We are currently in the process of redomesticating Chicago Title from Missouri to the state of Nebraska and are confident we will receive the necessary approvals to do so.

We expect the redomestication of Chicago Title to Nebraska to provide access to approximately $200 million of incremental capital that has been trapped in Chicago Title because of the dividend regulations in the state of Missouri. This move will also allow us to more efficiently take dividends out of Chicago Title in the future under Nebraska regulations.

We have also implemented two new tools to help combat one of the largest problems facing U.S. consumers today, identity theft. First, we have teamed with ID Analytics and its ID Network to protect more consumers and lenders from the growing problem of mortgage fraud. We are confident that access to the ID Network will allow us to better authenticate identities during the life cycle of the real estate transaction.

Additionally, we announced a partnership with Experian Consumer Direct which will offer FNF title insurance customers a comprehensive online credit report, daily monitoring of that Experian credit report, and email alert notifications to inform consumers of key changes to their credit reporting.

These two partnerships put FNF at the forefront of the title insurance industry in fighting identity theft and mortgage fraud.

We had successful quarters in all three pieces of our Specialty Insurance business. As we said last quarter, we expected a seasonal improvement in flood insurance revenue during the second quarter. Flood provided 14% sequential revenue improvement from the first quarter and 10% revenue growth over the second quarter of 2006.

Personal lines revenue grew by 5% over the second quarter of 2006, slower than it has been growing recently. We are focused on profitable growth in the personal lines of business, so we are comfortable with a slower growth rate that provides improved profitability.

The loss ratio in the homeowners' business was 62% for the second quarter compared with 68% in the first quarter of this year.

Finally, home warranty continued to provide solid profits as it generated more than a 20% pretax margin again this quarter.

FNRES continues to make real progress in the evolution of Cyberhomes. Two weeks ago, FNRES and AOL announced an agreement where FNRES will aggregate broker and MLS listings for the 3 million monthly AOL Real Estate users and provide access to instant home evaluations through Cyberhomes at realestate.aol.com.

This combination marks an important shift for brokers and MLSs. One destination will now unify content and offer both listings search and home evaluation through a leading consumer destination in AOL Real Estate. We remain excited about the potential of Cyberhomes.

With Cascade, our timber company, we're moving ahead with plans to maximize the value of the 292,000 acres of land it owns on the eastern side of the Cascade Mountain Range in Oregon. This includes seeking entitlements for a 5000-acre resort overlay in the Bull Springs parcel; evaluating opportunities for a resort for the Crescent Creek property on the Gilchrist parcel; harvesting 23 million board feet during 2007; and potential sale of nonstrategic portions of the 292,000 acres.

Sedgwick continues to perform well. For the second quarter, it generated $164 million in revenue, with an EBITDA margin of approximately 13%. Attractively priced acquisitions have not been as available as we had hoped, but the underlying business at Sedgwick continues to perform well.

Let me turn the call to Randy Quirk to comment on the title insurance business.

Thank you, Al. Total open order volumes declined during the second quarter, breaking the normal seasonal pattern of increasing order volumes throughout the second quarter. Obviously, higher interest rates and the slowdown of the mortgage and real estate markets had a negative effect on order volumes during the quarter, particularly in the month of June.

For the entire quarter, we opened just over 622,000 total orders for a quarterly average of 9700 open orders per business day. On a monthly basis, we opened nearly 10,100 orders per day in April, 9800 orders per day in May and 9300 open orders per day in June.

Total open order volume decline by 11% from the prior year's second quarter and 5% sequentially from the first quarter of this year. The entire second-quarter decline came in June, as we saw a 5% sequential decline in open orders per day for the month of May. As would be expected in a period of slowed open order volumes, the closing percentage increased, averaging 66% during the second quarter versus 60% in the first quarter of this year and 68% in the second quarter of 2006.

Refinance orders comprised 58% of open order volumes for the second quarter versus 54% in the second quarter of 2006 and 62% in the first quarter of this year.

Finally, July order counts have remained at relatively consistent with June's reduced levels as we have averaged approximately 9300 open orders per day over the last two weeks. Obviously, with declining order counts during the quarter, we were focused on continuing to appropriately manage our headcount.

We began the quarter with approximately 12,400 employees in the field and ended the quarter with a little less than 11,900, a reduction of more than 500 positions or 4% during the second quarter. To put that in perspective, we had more than 18,000 employees at our peak in 2003. So we have eliminated 6100 positions or 34% of our field workforce since the summer of 2003.

We opened just over 17 orders per employee per month this quarter, consistent with the prior-year quarter, but down sequentially from 18 open orders in the first quarter.

On the closed order side, our 11.5 closed orders per employee per month declined from approximately 12 closed orders per employee per month in the second quarter of 2006, but improved sequentially from 11 closings per employee per month for the first quarter of this year.

While orders per day have shown a significant 5% decline from May to June, we are encouraged that our staffing cuts have allowed our open and closed order productivity metrics to remain relatively stable. We are continuing to closely monitor the direction of open order accounts and will continue to make adjustments if we experience further weakness in order volume.

In addition to the staffing reductions in the operations, we regularly attempt to seek ways to reduce costs in our corporate and other administrative field functions. We believe that the corporate and administrative areas should be held to the same productivity standards as our fields operations, and we have once again asked them to take a hard look at their operations and find ways to operate more efficiently.

We have identified more than 140 headcount reductions, which amounts to more than 10% of our corporate and administrative staff. These reductions will come from a variety of areas, including corporate accounting, agency accounting, trust accounting, payroll, corporate tax, underwriting, field administrative assistants, regulatory, litigation, claims and IT.

From an expense standpoint, title personnel expenses decreased by $41 million or 9% for the second quarter of 2007 over the second quarter of 2006, reflecting both the 1600 headcount reductions and the benefit of the variable component of compensation expense, particularly in commissions and bonuses. Other operating expenses for the second quarter of 2007 were flat versus the second quarter of 2006. As we have said many times, these other operating expenses are much less variable than the personnel expense line.

The second quarter was again strong in our commercial title business. We opened nearly 14,700 commercial orders in our national commercial divisions and closed approximately 8700 commercial orders, generating nearly $87 million in revenue. This was a 26% increase over the second quarter of 2006. And commercial revenue accounted for more than 19% of total direct title premiums in the second quarter.

Finally, on the California front, Commissioner Poizner resubmitted his rate reduction and data collection proposal on June 28. The most significant change was the postponement of the implementation of the rate reduction by 12 more months, to October of 2009. We expect the Office of Administrative Law to issue its decision on the proposed regulation no later than August 10, which is 30 business days from the original submission.

The Commissioner has stated that he does not believe that the setting of rates is the optimal plan of actions. And as a result of our interaction with the Commissioner and his department, we are encouraged that the industry and the Commissioner can negotiate a mutually agreeable outcome.

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

Thank you, Randy. FNF generated $1.5 billion in revenue for the second quarter, with pretax earnings of $126 million, net earnings of $85 million and cash flow from operations of $145 million. This compares to prior-year pro forma revenue of $1.7 billion, pretax earnings of $197 million and net earnings of $125 million.

The title segment generated $1.4 billion in total revenue for the second quarter. This was a 12.4% decline from the second quarter of 2006. Pretax margin for the title segment was 9.6%, a 40 basis point improvement from the 9.2% pretax margin in the first quarter, but a decline from 12.3% in the second quarter of 2006.

Personnel costs of $426 million were down $41 million or 8.7% versus the second quarter of 2006. As Randy mentioned, other operating costs were flat with the prior-year quarter, primarily due to increased legal and regulatory costs. Additionally, we experienced reduced earnings credits.

Earnings credits are recorded as a credit against other operating expenses. There were two reasons for this decrease in earnings credits. First, with the slowdown in order volumes, there are fewer escrow deposits from which FNF can earn credits from the depository financial institution. These earnings credits offset expenses that we incur at the bank, so fewer escrow deposits leads to fewer earnings credits, which leads to higher operating expenses.

Additionally, we directed the depository institutions to invest more of the escrow funds in tax-exempt securities, which lowered the gross earnings credits we received. However, we did receive the benefit of these tax-exempt securities in our income tax line.

Specialty Insurance revenue was $104 million for the second quarter, including $4 million in investment income. Flood insurance generated $38 million in revenue, a 10% improvement over the second quarter of 2006.

Personal lines insurance contributed $41 million in revenue, growing by 5% over the second quarter of 2006, with the homeowners' business producing a loss ratio of 62% for the quarter. Home warranty produced $18 million in revenue during the second quarter and generated a pretax margin of 21%. The total Specialty Insurance loss provision was $35 million in the second quarter.

While we do not consolidate the results, Sedgwick had revenue of $164 million and EBITDA of approximately $21 million for the second quarter. Our debt primarily consists of the $491 million face value in senior notes due in 2011 and 2013. The debt to total capital ratio was 12.3%.

Title claims paid during the quarter increased to $85 million versus a provision of $78 million. The $85 million includes one large claim of nearly $15 million that was paid during the quarter, but is expected to be fully recoverable through insurance. Net of this claim, paid claims of $70 million did increase by approximately $15 million sequentially from the first quarter, but remained below our provision of $78 million.

We have been investigating the source of claims paid for the last two quarters and have confirmed that the claims continue to come from three main categories -- title search and exam errors, fraud and forgery, and closing errors. While claims did increase in the second quarter, the increase was seen pretty consistently among those three major sources of claims, and there does not seem to be any apparent pattern of change in the source of claims during 2007.

We continued to provide for title claim losses at 7.5% of gross title premiums in the second quarter. As claims are reported and paid, we continually update our reserving models. Although loss development will always differ from what has been forecasted, that development typically moves in both directions. Through the first half of 2007, we have seen both positive and adverse development on various policy years, but the cumulative impact has not been significant.

The provision for income taxes was 32% for the second quarter, bringing our tax rate for the first six months of 2007 to 33.8%. The provision decline is related to the increased proportion of tax-exempt income in the fixed-income portfolio, as well as our decision to have a significant portion of our escrow deposits invested in tax-exempt securities. While that decision hurt the reported pretax margin, it was the best bottom-line economic decision for the Company. We currently expect the full-year tax rate to be 33.8%.

Finally, our investment portfolio totaled $4.8 billion at June 30. There are approximately $3.1 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 other restrictions, including less liquid investments, like our ownership stake in Sedgwick, cash held as collateral in our securities lending program and working capital needs at some underwritten title companies, all of which total approximately $500 million. And we back this out as another category of restrictions.

So of the gross $4.8 billion, approximately $1.75 billion was theoretically available for use, with about $1.6 billion held at regulated underwriters and approximately $150 million in nonregulated entities.

The decline in available cash from the end of the first quarter is primarily related to the common stock dividend paid at the end of June and the repurchase of stock during the second quarter, offset by dividends taken from the underwriters. In addition to the $150 million available, we also have $200 million of dividend capacity from our underwriters for the remainder of 2007, as well as the potential $200 million that could become available through the redomestication of Chicago Title.

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

(OPERATOR INSTRUCTIONS). Darrin Peller, Lehman Brothers.

Would you guys mind commenting again, just for clarity, just reviewing the claims numbers you just went through? You went through it a little quickly.

Sure. We had $85 million in claims paid during the second quarter, which was higher than we saw in the first quarter, but with one claim of $15 million that is fully recoverable through insurance, we had $70 million compared to -- I think it was $55 million in the first quarter. We see claims bounce around a little bit from quarter to quarter, up and down. But overall, we haven't seen a significant move one way or the other in terms of our loss reserve.

And then just a comment quickly on what's going on in California -- you mentioned August 10, and clearly if he rejects the proposal, obviously that would be a nice relief. But what are your plans in case it is actually approved, the OAL approves the insurance commissioner's proposal -- for next course of action?

Well, if the AOL does approve the regulations, then we, through the CLTA, California Land Title Association, will appeal and challenge that approval. In the meantime, we are working closely with the commissioner's office on several fronts relative to reform in our industry.

What the commission has been looking for is a way to turn our industry more closely towards the consumer. And so there are a couple of legislative issues that we're working on with him in a very close spirit of cooperation. But we're going to wait and see what the OAL comes up with. If need be, we will challenge that decision. But we're working very closely with the commissioner's office, as is the entire industry.

And then just one last question -- on the $200 million you mentioned that might free up, regarding the move of the operations into Nebraska, can that maybe lend to a possible buyback, even with the Ceridian deal? I'm kind of waiting for the approval.

Yes, we will have significant funds available, I believe, to do both Ceridian and a buyback. I think you will see us start back with the stock buyback in short order.

Geoff Dunn, KBW.

I know you guys manage your title business in a 90-day window, but when you look at this year, origination volumes currently are projected to be higher than next year. And you still, I think, have a very high mix of refi. When you put all the factors together that affect your business, do you think that a lower origination market next year, but with a more favorable mix of business, could end up yielding you a better environment than what you're seeing this year?

Obviously, that is difficult to say. We will continue to do what we have always done, and that is manage our expenses down along with the market. And we were pleased with our results in the second quarter with the staff reductions, what we're doing in the corporate overhead area. We are looking at all of our facilities around the country and consolidating facilities and also back-room functions anywhere we can.

As this market moves more towards the resale side with the refinance falling off over the next two or three quarters, based on MBA projections, we will get a higher fee per file. And if we continue to manage as aggressively as we have been, I believe we can still do a very good job protecting our margins. We are absolutely focused on that. Whether the numbers come in exactly where they are today, I don't know that. But this is a work in progress. We're focused on it. And I think there could be some advantages to the mix swinging more towards the resale side.

In addition to that, we are very optimistic about our commercial market. You can see after the first six months of this year we are well ahead, 20% ahead on revenue. Our commercial folks are projecting a very good second half of 2007. So we will just stay focused, stayed diligent, and just take it through the rest of the year.

And just a follow-up -- with respect to the fee per file, are you able to roughly break down how much of the pressure on that rate or average rate is due to the mix of business versus declining home values?

We have not done that yet. It is primarily the mix of business. The home values have not really begun to drop just yet. So you swing more towards the resale side, you get a better fee per file.

Brett Huff, Stephens.

A quick question on the cost initiatives that you are talking about. Is that largely focused on the other operating expense line item that you said is a little less variable over time? Or is that more across the board?

I would say it's across the board. It's personnel-related as well as other operating expenses. But it is both. Our operating expenses are less variable and take more time to pull out. As Randy mentioned, with closing facilities and certain initiatives, technology and other initiatives that we have, we have focused on bringing those operating expenses more in line. But certainly, we have more variable costs in the personnel side of things. And that is why you don't see as much movement on the other operating expenses.

And then just one other question -- just looking into the future, as you look towards how things will end up in the back half of the year from an EPS or an earnings point of view, does it get better or worse from here on in, given that you guys are so diligent about managing headcount?

Honestly, what we normally expect to see in the second quarter is a pickup in orders and acceleration of those orders through August, and we start getting closings in August, September and October. And this year, there was no pickup in orders.

So what Randy is doing is he is managing his expenses. We're now being very aggressive with regard to corporate overhead. We are not -- we can't anticipate or project that there's going to be really an improvement in the second half of the year. The year is just not going very well in terms of the real estate market. And we have, of course, been concerned about next year, which means we have got to keep on taking more and more costs out and reducing the size and scope of this Company in terms of its personnel costs and its direct operations base.

Bob Napoli, Piper Jaffray.

I agree with you that it is going to be tough the back half of this year and next year. Did you guys suggest -- do you think you could protect your margin at the current levels as we go through this tough next year or so?

That is really what Randy is focused on, is protecting that margin. If we can get just a little bit of improvement on the margin, we can start increasing the cash flow coming out of the title businesses.

So we would anticipate the back half of the year, the margin should improve slightly. Normally, it would improve a lot. We just haven't got a good real estate market.

With regards to Ceridian, you guys are going to invest $500 million into Ceridian?

Our commitment with Ceridian is to invest one-half of the equity required, which is $900 million. However, our financial sponsor partner T.H. Lee and ourselves have been contacting limited partners. And it appears that our ultimate investment will be between $500 and $600 million. We are basically, in effect, selling down, and we will own a smaller percentage of Ceridian at the end of the day. We do, however -- we will have our earned fees on the full $900 million commitment that we have made with -- that remains at T.H. Lee.

So that was always our goal, not to be overinvested in Ceridian. It is a big acquisition. It is a very attractive acquisition. We have a lot of confidence in the management of Ceridian. And frankly, while we thought that, 30 days ago, that there was a 50/50 chance that the transaction would not happen because of some shareholders of Ceridian that were not supporting the transaction or objecting to the transaction, but the way the credit markets have gone in the last three weeks, it just has a higher probability of occurring.

A higher probability of occurring, and I guess you are putting up, you said, $500 to $600 million out of FNF? You are going to sell down less? I guess that one big shareholder should be willing to take a chunk of that.

We don't think there is going to be another bid for Ceridian. And we do have a lot of confidence in the management that was put in place at Ceridian last fall. So we are looking forward to a very, very good investment and the ability to ultimately return a lot of value to our shareholders as we make progress through Ceridian.

Bill, the way the capital markets have changed so dramatically in the last 30 days -- do you have any other financing risks outside of the $500 to $600 million, any other commitments on the debt that's being provided or--?

No, we don't have -- we have a committed financing package to acquire Ceridian. And as we said, as Al mentioned, we shut down or stopped the stock buyback when Ceridian -- when it became clear that we were going to be a buyer of Ceridian and have just tried to get a good handle on our cash resources on hand. With the diminution in our share price over the last month or so, stock buyback looks to be much more attractive. So we are going to be undertaking that again, and we believe we can do both.

And on Sedgwick, the revenue and EBITDA numbers you gave, $164 and $21 million -- what was that a year ago? Last quarter, I have it at $161 million of revenue and $25 million of EBITDA.

They had a weak second quarter, and they basically were rightsizing their organization based upon new business being acquired. And that rightsizing occurred in June of this year. So we are anticipating a good acceleration in EBITDA growth during the balance of the year. So the first half of the year, we weren't very excited about. The back half of the year, EBITDA should be significantly improved.

Do you have that number from last year, the 2Q '06?

I know we're up in EBITDA over the last year. I will be honest with you, I can't remember the exact percent. I know that by the end of this year, we will be closer, probably over 15% for 2007 in EBITDA percentage.

And just on the California regulatory, just to follow up on that -- by August 10, you're hoping that the proposal that was made by the new insurance commissioner is rejected, I guess? The proposal was to move that back a year and gather a whole bunch of data and then sit down and figure out what to do. And there is a possibility that that process will not take place?

Yes, that is correct. We would like to see the OAL reject the regulations. In the meantime, though, we are working with the commissioner, and he has already indicated that rate reduction is not his optimal plan. Industry reform is. So again, we will appeal the decision of the OAL should they accept the regulations. But in the meantime, we are working very closely with the commissioner's office, as an industry.

Stephen Errico, Locust Wood Capital.

I just want to clarify -- on the Ceridian, you mentioned that the equity is $500 to $600 million. Isn't that both for you and your partner, so FNF's would be on the line for $250 to $300 million?

The total equity commitment is $1.8 billion, $900 million for FNF and $900 million for T.H. Lee, and both parties are selling down.

(OPERATOR INSTRUCTIONS). Darrin Peller, Lehman Brothers.

Just a quick follow-up on the regulatory issues again. So I guess I just want to understand -- what you're saying is that you are working now with the Department of Insurance on trying to find some kind of a compromise plan. Now, if it was approved by the OAL, and I guess theoretically it goes into law, how can it be changed after that? Do you have to write a new law to change it?

I think they are actually regulations, so the regulations become effective and then you appeal the regulation. So it's actually not a statute.

It doesn't go immediately into law.

So in other words, if it was approved, it is still not going to effect for, like, three years anyway, so I supposed in the interim, you can work with the Department of Insurance, find another solution that might be better for the entire industry and let that be put into regulation as well?

I think you summarized it very well.

They pushed it back to October.

So that actually is -- you gave an excellent summary of what the situation is.

(OPERATOR INSTRUCTIONS). And at this time, then, I'm showing no further questions in queue. I would like to turn the conference back over to Mr. Foley.

Thank you. We are all very excited about the future of FNF and the potential of our portfolio of companies. As I said earlier, I am going to primarily focus on strategic issues, the future direction of the Company and our ongoing attempt to maximize shareholder value.

We are committed to paying a significant cash dividend and we are expecting to consistently increase that dividend over the upcoming years. We will also continue to seek out acquisitions in related businesses such as Ceridian and Sedgwick.

We look forward to updating you on our results as we continue to seek out means to maximize shareholder value in the future. Thanks for being with us today.

Thank you. And ladies and gentlemen, that does conclude our conference for today. Thanks for your participation and for using AT&T's Executive Teleconference. You may now disconnect.