Molina Healthcare Inc (MOH) 2006 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Molina Healthcare year-end 2006 conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded Tuesday, February 13, 2007.

I would now like to turn the conference over to Juan Jose Orellana, Vice President of Investor Relations. Please go ahead, sir.

Thank you. Hello, everyone, and thank you for joining us. The purpose of this call is to discuss Molina Healthcare's fourth-quarter and year-end results for 2006. The Company's earnings release reporting its results was issued today after the market closed, and the earnings release is now posted for viewing on our Company website.

We would also like to thank those of you who attended our Investor Day in New York City on January 18 or listened to our webcast of the conference. For those who have not done so already, we encourage you to listen to the webcast as we covered a variety of topics, including a detailed review of our 2007 outlook during our management presentations.

Getting back to today's call, with me here today are Dr. Mario Molina, our CEO; John Molina, our CFO; Terry Bayer, our Chief Operating Officer, Dr. Michael Siegel, our interim Chief Medical Officer, and Joseph White, our Chief Accounting Officer. After the completion of our prepared remarks, we will open the call to take your questions.

Our comments today contain forward-looking statements under the United States securities laws. All of our forward-looking statements are based on current expectations and assumptions that are subject to numerous risks, known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially. A description of such risk factors can be found in our reports and filings with the Securities and Exchange Commission and also in our earnings release dated as of February 13, 2007, both of which can be accessed under the Investor Relations tab of our Company results -- I'm sorry, of our Company website.

All forward-looking statements made during today's call represent our judgment as of February 13, 2007, and we disclaim any obligation to update any forward-looking statement to conform this statement to actual results or changes in our expectations. This call is being recorded, and a 30-day replay of the conference call will be available over the Internet through the Company's website at www.MolinaHealthcare.com.

I would now like to turn the call over to Dr. Molina.

Thank you very much. Hello, everyone, and thank you for joining us. As usual, I would like to spend a few minutes discussing our business generally, and then we will turn to John for the details.

Since the summer of 2005, we have engaged in an extensive and transparent effort to improve our business, to strengthen our medical management, to contract with cost-effective providers and improve our unit costs, and to expand in new and existing markets through acquisitions, startups and by serving new populations.

We have been successful in these areas while generating results that are in line with our expectations. We are reporting today results of $1.62 in earnings per share for the year ended December 31, 2006. These results are consistent with the guidance we provided when we last talked about our 2006 outlook.

In our 2006 full-year results, the best example of our progress is demonstrated by the improvement in our year-over-year profitability. Our pretax margin grew by approximately 100 basis points, resulting in fully diluted earnings per share growth of approximately 66% in 2006 as compared to 2005. The margin expansion for the most part is the result of various actions aimed at containing medical costs. Throughout 2006 we have strengthened our ties to more cost-effective health care providers, strengthened our medical management, improved our claims payment process and further improved utilization and cost analysis. All of these initiatives will serve us well in the future.

There have been a number of events throughout 2006 that highlight the success as well as the challenges that we confront in managing our business. In 2006, for example, the Ohio Medicaid Managed Care expansion for both the TANF and ABD populations received a significant amount of attention and rightfully so since Ohio represents one of the largest expansion opportunities in our industry.

In 2006 Molina Healthcare was awarded Medicaid contracts in Ohio in all four regions in which we bid for both the TANF and ABD populations. We expect that these two populations combined could translate into approximately 160,000 members in Ohio by the end of 2007. As of December 2006, our Ohio subsidiary had about 76,000 members. Today that numbers stands at approximately 124,000 members.

Our Texas subsidiary, which began operations late in 2006, closed out the year with 19,000 members. Just this month we have begun to care for our first ABD members under the STAR+PLUS and long-term care programs in Texas.

Another business expansion in May 2006 was our acquisition of the Cape Health Plan in the state of Michigan. This end market acquisition added approximately 90,000 Medicaid members to our existing Michigan operation and expanded our geographic presence in Southeastern Michigan. The Cape acquisition further solidified Molina Healthcare of Michigan's market rank as the largest Medicaid health plan in the state and added to our management depth. This acquisition has performed and continues to perform in line with our expectations.

In addition to the previous business expansions, 2006 also included the resolution of two contested contracts. Our first contract dispute in 2006 involved the successful resolution of our appeal for the Riverside and San Bernardino County contracts in the state of California. Molina Healthcare was officially awarded these contracts after a legal ruling that brought to an end the 13-month dispute which had disrupted our California operation. We are pleased with the outcome and look forward to getting our California subsidiary back on track.

Second, our Indiana subsidiary was informed that it had not been selected to provide services in 2007 based on the scoring results of the state's Medicaid RFP. Molina Healthcare of Indiana's contract with the state, therefore, expired on December 31, 2006.

Enrollment figures for Indiana reported today are historical. Effective January 1, 2007, the Company no longer has any membership in Indiana. Business challenges and opportunities like these require the right leaders and robust infrastructure to get the job done. We continue to add management depth by developing internal talent, as well as by hiring capable professionals. Attendees and those listening in on our Investor Day webcast have firsthand exposure to our talented management team.

During the day we heard from Dr. Ann Wehr, currently President of our New Mexico Health Plan, who at the last year was that health plan's Chief Medical Officer. We also heard from Steve O'Dell, our California Health Plan President. Steve most recently surveyed as the Senior Vice President of the Health Plan Business Unit at First Consulting Group and previous to that served as Chief Operating Officer of Blue Cross Blue Shield of Colorado, Nevada and New Mexico.

Also speaking at our investor day was Jessie Thomas, our Ohio Health Plan President. Prior to joining Molina, Jessie served as Chief of the Office of Healthcare Purchasing at the Illinois Department of Healthcare and Family Services, and he has also served as the Executive Director of United Healthcare of Illinois AmeriChoice. Both Steve and Jessie are seasoned managers with successful track records and will recruit from outside of Molina.

We disclosed last week that Dr. William Bracciodieta has resigned from the Company to pursue other interests. Bill built a strong management team of medical professionals, and I am grateful for the success the department has had under Bill's leadership. We wish Bill much success in his future endeavors.

Dr. Michael Siegel our Vice President and Medical Director of Utilization Management and Quality Improvement who was recruited by Bill, will serve as the acting Chief Medical Officer while the Company conducts a national search for Bill's successor. Mike was responsible for managing our medical improvement plan and supports our state CMOs on a daily basis.

Finally, I mentioned that we held an Investor Day in New York City just a few weeks ago. Building on our previous investor day where we talked about medical management and recontracting, in our 2007 Investor Day, we covered administrative leverage and execution. Our first panel was comprised of three health plan executives with health plans demonstrating distinct characteristics -- a startup health plan in Ohio, an acquired health plan in New Mexico and a health plan in a turnaround situation in California.

Our second panel focused on improving our administrative efficiency. We believe the factors highlighted in each presentation will be important contributors to the success of our business plan in 2007. Clearly successful execution will entail continuing to manage our medical costs and controlling our administrative costs. I would now like to turn the call over to John.

Thank you, Mario. Net income for the fourth quarter ended December 31, 2006 was approximately $12 million or $0.41 per diluted share compared with net income of $11 million or $0.38 per diluted share for the quarter ended December 31, 2005. Net income for the year ended December 31, 2006 was $46 million or $1.62 per diluted share compared with net income of $28 million or $0.98 per diluted share for the year ended December 31, 2005. The growth in net income represents a 66% increase year-over-year. And as Mario mentioned, these results are consistent with our previously issued guidance range of $1.60 to $1.65 EPS for 2006.

Our medical care ratio increased to 85.1% in the fourth quarter of 2006 from 84.7% in the fourth quarter of 2005. However, if we carve out the Company's Ohio, Texas and Indiana startup health plans, the medical care ratio actually decreased to 84.1% from 84.3% year-over-year. Again, this calculation excludes our startups, but it does highlight the impact that startup operations in the early stages can have on our business. We have stated on various occasions that investors should expect the medical costs to be higher in the short run due to the complexity of migrating unmanaged populations to a Medicaid managed care environment.

On a sequential quarterly basis, the medical care ratio for the fourth quarter of 2006 increased to 85.1% from 84.1% in the third quarter of 2006. This sequential increase is consistent with the seasonality observed across our markets since the third quarter generally has the lowest medical care ratio. I would like to remind everyone that historically the Company experiences its highest medical care ratio in the first quarter followed by the second quarter. Medical care ratio is lowest in the third quarter and begins ticking up again in the fourth quarter.

Medical care ratios across our New Mexico and Washington health plans improved in 2006 when compared to 2005. On the other hand, consistent with our expectations, the Michigan Health Plan's acquisition of the CAPE Health Plan earlier in 2006 resulted in a higher medical care ratio than in 2005. As we have previously discussed, our California MCR for 2006 was negatively affected by various factors, including lack of rate increases, as well as high unit costs.

Our membership at year-end stood at almost 1.1 million members, up 21% from a year ago. This increased enrollment is primarily attributed to the significant membership gains in our expansion states -- Ohio, Texas and Indiana -- and the acquired membership in Michigan related to the Cape acquisition. In Ohio, for example, we have grown to approximately 124,000 members with almost 50,000 members coming on since December of 2006.

As Mario talked about during our investor day, rapid enrollment growth is common when the state is undergoing a managed care expansion. However, the magnitude and timing is not necessarily predictable. When all Medicaid beneficiaries covered in a state's program have been enrolled in managed care, enrollment levels tend to stabilize and membership gains are slow and sporadic depending on programmatic changes such as recertifications or other expenses. This can be observed in some of our existing health plans where the membership remains relatively stable.

For the fourth quarter of 2006, premium revenues were approximately $544 million, an increase of $124 million or 30% over premium revenue in the fourth quarter of 2005. For all of 2006, premium revenues increased by $345 million or 21% to $2 billion compared to premium revenues in 2005 of $1.6 billion. The increases in premium revenues were driven by membership growth, mainly due to our acquisitions in California in 2005 and Michigan in 2006 combined with the membership gains in our startup health plans.

Investment income also increased in 2006 as a result of higher cash balances invested at higher interest rates. The increase in cash balance was due to the growth of our business and the corresponding increase in cash that builds as premium revenues are received before health care claims are paid.

General and administrative expenses, including premium taxes, were $61 million for the fourth quarter of 2006, representing 11.1% of total revenue as compared with $46 million or 10.8% of total revenue for fourth quarter of 2005. Our core G&A or G&A less premium taxes decreased to 7.9% in the fourth quarter of 2006 as compared with 8.3% in the fourth quarter of 2005. The year-over-year decrease was mainly a result of increased revenue in 2006. The Company remained consistent in its reserving methodology. Days and claims payable increased sequentially to 57 days at December 31, 2006, up from 54 days at September 30, 2006.

On the balance sheet, we would like to point out that our receivables have increased by approximately $41 million in 2006 when compared to 2005. Most of this increase was in California where we received December 2006 payments early in 2007 and Utah where receipts on our cost plus contract tend to fluctuate.

Cash flow from operating activities for all of 2006 was $106 million. As the Company continues to grow, we expect cash flow to exceed net income. Excluding the impact of growth, we would expect cash flow to approximate net income plus depreciation and amortization.

The Company finished the fourth quarter of 2006 with cash and investments at the parent company of approximately $34 million. Our subsidiaries had a combined $98 million in excess statutory equity. Our current borrowing on our $180 million credit facilities stands at approximately $45 million.

Now moving onto the outlook for this year. As Juan Jose pointed out at the beginning of the call, we encourage investors to listen to our Investor Day webcast. During that presentation, we discussed the risks and opportunities to our 2007 estimates in greater detail. As stated at our Investor Day at January 18, our guidance for 2007 is as follows.

We expect earnings per diluted shares to be in the range of $1.75 to $1.90. We expect net income to be in the range of $50.5 million to $54.9 million. We expect premium revenue of approximately $2.6 billion. We expect the medical care ratio will be approximately 86.2%. We expect core G&A or G&A excluding premium taxes will decline to approximately 7.0%. We expect G&A including premium taxes will be approximately 10.3%. Our guidance assumes weighted average diluted shares outstanding of 28.9 million and an effective tax rate of 38.4%. Our guidance figures do not include future acquisitions or expansions.

As I discussed at our Investor Day, and I would like to reemphasize today, we expect the $1.75 to $1.90 EPS to be loaded towards the back half of the year. We expect to experience higher medical costs in the first half of the year because of the high enrollment growth in Ohio and Texas, and we will deploy significant resources to get those members into appropriate patterns of care.

Additionally we have long noted that seasonality across all of our health plans has led to higher medical costs in the first half of the year, most notably in the first quarter.

Our guidance does not include any P&L impact from period claims development. As we have said before, both on these calls and in investor presentations, our estimates will never be perfect. We will always have prior period development. That is not the same, though, as saying that our results include the effect of prior period development. In other words, you can expect that our IBNR roll-forward table for the first quarter of 2007 will show large, favorable, prior period development. This is inevitable as we work through the allowance for adverse claims development established at the end of any reporting period.

As a result of our consistent reserving methodology, however, medical expense for the first quarter will include an amount necessary to replenish the allowance for adverse claims development. The offset of the decrease in the allowance for adverse development at December 31, 2006 against the increase in the allowance at March 31, 2007 should result in a neutral impact of prior period development on the first-quarter 2007 earnings.

Some of the changes we are expecting in 2007 are as follows. On the revenue side, we will have a full year of Cape Health Plan, additional revenue from Ohio and Texas, additional revenues from the dual eligibles, and there will be no revenues associated with the Indiana contract. On the medical care front, we anticipate higher medical care ratios, specifically in the first half of the year, related to the expansions and pent-up demand in Texas and Ohio and also from the dual eligible expansions. Partially offsetting these expected increases are medical cost reductions and our efforts in the state of California.

In 2007 higher premium revenue, coupled with administrative costs that are expected to remain flat on a per member per month basis, should help reduce our core G&A ratio. We also anticipate higher investment income as a result of higher balances of cash to invest. Interest expense is expected to be higher because we borrow to fund capital infusions in Ohio, Indiana, Texas and California.

Risks related to meeting our EPS guidance range, therefore, include startup medical costs, startup enrollment, medical cost improvements in California, growth in the Medicare S&P program and startup capital requirements. These factors could negatively affect our projections. However, they must be weighed against opportunities that could actually deliver benefits above our estimates.

Operator, that concludes our prepared remarks. We are now ready to take questions.

(OPERATOR INSTRUCTIONS). Greg Nersessian, Credit Suisse.

My first question was just on the EPS guidance for 2007. You don't give the quarterly guidance, but in the first quarter of '06, EPS was down about 20% relative to the fourth quarter of '05. Should we expect a similar amount of seasonality, or would that amount be greater based on the expansion in Ohio and Texas that you mentioned?

I think it is going to be -- the impact on Ohio and Texas is going to be greater than what we saw from '05 to '06. So what I would really look at is the medical care ratios. I would look at it in perspective for the entirety of the year we are looking at 86.1. So if it is going to be that on average, it is going to be higher and sort of rolldown as is the custom with our seasonality and just the impact of Ohio and Texas coming in at the front half of the year.

Okay. Fair enough. On the Ohio enrollment that you mentioned, both the current enrollment and the -- or maybe based on the full-year enrollment. Could you break that out for us in terms of how many of those lives are HANF versus ABD?

I think we're looking at somewhere around 140 HANF members and about 20 ABD.

Okay. Perfect. And then I guess my last question was just on, were there any new rate increases this quarter? Washington I think may have been one that you could update us on or California, any new news there?

Hold on. I happen to have a schedule right here. In Washington we're looking at a blended increase that went into effect in January of about 4%. In Ohio we're looking at 1%.

And then was there any change in California and San Bernardino in the L.A. counties?

We are looking at a combined for California of about 1.7%. We still don't have the final rates yet for the San Diego GMC.

Okay. But the 1.7, that includes the healthy families,the CHIP program, or that is just the Medicaid?

It does, but it is very small in California.

Bill Georges, JPMorgan.

Can you just follow-up on that last question, peck through the other states and remind us of when and what rate increases you might be expecting?

Sure. Let me run down through them. California we're expecting 1.7%

Is that January '07?

Yes. In the healthy families, the CHIP contract that Greg is talking about is about -- we are looking at a July 1 date. But it has a minimal impact. Ohio is a 1% effective January 1. Washington I said was 4%. We are expecting a 2% in Michigan, and that is October of '07. And for New Mexico and Texas, we are not anticipating or guiding to any rate increase.

Okay. And then in the press release, you guys give great color by state in terms of the medical loss ratio. I'm wondering if you could highlight some of the moving parts may be at a more granular level going into some of the components of cost trends? Is there any outliers, any color that you could give there?

I don't think so. I would refer folks back to the investor day presentation where we went pretty thoroughly through those states which are going to be the big cost drivers of the medical cost trends. You got Ohio and Texas moving up. The Medicare S&P would move the cost trend up. On the other hand, we are expecting to see some decrease from California.

Okay. And then one quick last question. Was there any impact from prior period developments in quarter's earnings?

No.

Joshua Raskin, Lehman Brothers.

The first question just on Ohio. I am curious when do you think you're going to get a good enough set of data to determine utilization and MCR trends? Obviously I know some of that is just coming on this month, but when do you think you will have a firm grasp on Ohio?

Well, we expect to have all the membership rolled in around May. And you figure it is going to take several months for enough claim development to really be able to give us an accurate picture. So I would say what, four months beyond May, John, do you think?

Yes. Yes, about four months.

About four months past the rollover enrollment.

And so for now you guys are just using sort of your actuarial assumptions from an accrual standpoint, and it does not sound like you're prepared to make any changes until you really get a full data set? Right? I guess it does make kind of sense to do that.

That is correct.

That is helpful. The second question, just new initiatives on the medical management side. I know you guys are in the sort of transition period from a CMO standpoint, but anything we should think of that is incremental, that is new, that has started in terms of new capabilities, things that you invested in in '06 that are just taking hold in 2007 from a medical management standpoint?

[Mike], do you want to address that?

One of the things we initiated last year was we did a national prevention program, and we are following the results of that through the course of the flu season this year. We also have made an effort to focus on ER utilization more, and we have several initiatives in progress to address that.

(inaudible). John, I know you guys don't give quarterly guidance, but the color on the first quarter in terms of a higher loss ratio, if you guys are thinking about 86 for the full year, I guess 86.1 for the full year, should we think of the differential in the first half versus second half as much as 100 basis points, or do you think that would be too high from a first-half versus second-half change?

No, I would say 100 basis points would probably be within the ballpark.

Okay. And obviously first quarter highest, second quarter next and then third quarter lowest; right?

That is correct.

Tom Carroll, Stifel Nicolaus.

A question on Indiana as you exit. What are your official requirements in terms of exiting that market? I mean is it incurred claims through 12/31? Are there any other charges that we can expect or expenses that you are going to be taking in first quarter '07?

Well, we are responsible for anyone who is in the hospital on December 31. So there is some spillover of patients who continue to be in the hospital after January 1. We are also responsible for the claims run out and some other filings and administrative work. We do have a staff on the ground in Indiana, and they will remain there for the time-being as we wrap up the contract.

Is there any official cutoff date as to when you are not responsible anymore?

We are responsible for any patients that are in the hospital as of December 31 through January 31, and then after that, we are not financially responsible.

And then in Texas, in terms of the STAR+PLUS program, what level of enrollment are you expecting in that program in '07? We have not talked about that in the past.

I think the number we're expecting is somewhere between 5,000 and 10,000 of the STAR+PLUS members.

Scott Fidel, Deutsche Bank.

The first question is, if you can just talk about how you expect -- I guess you gave an 84.2% MLR expectation for California in 2007. It looks like you showed some sequential improvement from Q4 to Q4, but still at around 89%. And maybe help us walk through how you expect to show that 500 basis points of improvement? Maybe how much of that would come from San Diego as compared to medical management initiatives? Just any color there, thanks.

We will let Joe White address that question.

The actual California MCR baked into our guidance for non-duals is 86.2%, not the 84.2% we shared on investor day in New York. So the $7.4 million number we shared there, as far as savings, is what is necessary to get us to 86.2%, which is what our guidance anticipates.

Okay. And I'm sorry, the 200 basis point differential, is that just an update to the guidance, or was that just something different than the 84.2% number you had?

No, no, it is not an update to the guidance. The actual guidance assumed 86.2%, not 84.2%.

It was just an error on the slide that we showed.

Got you. I understand. Okay. And then also if you could just talk about in terms of the Chief Medical Officer position and just with the turnaround plan, I know you had a number of initiatives ongoing. Where you essentially are in the turnaround plan with the medical cost action piece and sort of the transition that you're looking for with the departure of Dr. Bell?

This is Terry Bayer. The medical management action plans that were put in place under Bill's direction all are being managed by local Chief Medical Officers with the support of Dr. Siegel. So there is really no interruption in the cost-containment programs that have been put in place and are ongoing. And, as Mike mentioned, we will continue to add new initiatives as we identify new problems and the data presented.

Okay. And the last question just around the days. I know you had guided to 50 to 55 I think for 2007. How quickly would you expect the days to go back into that range with the California payment you received in January? Should that essentially return it to that, or do you expect it over a couple of quarters?

Scott, I'm not following you. The California payment, you are talking about days and times payable?

Yes. You said you had received one payment, December payment in January.

Actually that is on the revenue side. That was an AR issue, not a claims payable issue. But there are a number of days in claims payable. There is a number of factors that are going to push that number up and down a bit. As we get more members in places like Ohio and Texas, we would anticipate that that would have the effect of pushing the days and claims payable up some, especially as we make sure that we have got the appropriate accruals and reserves for that membership as it is brought on.

Now in Ohio we have a capitated contract, which will offset partially the increase in liability. And then, as we discussed at the investor day, we have a number of IT initiatives which we are hoping will bring down the time with which it takes us to pay a claim. And depending on how quickly and how successfully those initiatives are ramped up, we may see the days go down some as we pay through the inventory faster.

Okay. So in terms of thinking about the first half relative to the second half, basically higher MLRs and higher days in the first half and then likely a drop in MLRs, as well as days in the back half of the year?

I would say that is a fair characterization. Again, I would just caveat it depending on these IT initiatives how quickly they take hold could push those down a little bit early.

(OPERATOR INSTRUCTIONS). Matt Perry, Wachovia Securities.

Just a couple of quick questions. Maybe you can go into a little more detail. You know your press release gives some good state level detail on some of the improvements in medical costs, but in Michigan it seems like maybe you're still running above the MCR of last year. I guess can you give us a little more data around what the MCR has been there, and what might need to happen to lower that MCR?

Remember Michigan is really made up of sort of two health plans that we have put together. Our existing health plan, and then we layered in the CAPE acquisition sort of midpoint of last year. The CAPE health plan was running a medical care ratio higher than our Michigan plan. So that brought up the average when we combined the plans. I think that what is going to be the initiatives that get us lower MCR in Michigan are just going to be the time it takes for the medical management staff in Michigan to take what has worked for the Molina plan and bridge it over all the patients.

Okay. And then kind of a separate topic, do you plan to -- and remind me if you've mentioned this before -- do you plan to report your '07 results excluding the premium taxes in the revenue and SG&A, or will you still include those in both lines?

No, we will include those in both lines. We will then highlight what the SG&A is without those premium taxes.

Okay. All right. Thank you. That is all I had.

Brian Wright, Jefferies & Co.

Can you help us out with the admin levels relative to the fourth quarter and the first quarter? Sequentially how should we think about that moving?

We are expecting on the admin side absent the premium taxes that our per member per month admin costs will be relatively flat fourth quarter to first quarter. And so with the increase in revenue, we would expect the percentage to decline. That is for the core G&A. Ohio has I think a 4% premium tax. So, as more of our enrollment comes in from Ohio, I think Mario mentioned we have increased by about 15,000 members in the first quarter. You will see an increase in the premium tax line.

Okay. And then on the Ohio capitation, is that a new contract for '07 relative to '06?

No.

And then what percent of medical cost is that in Ohio?

Let me just comment, when you think of Ohio, you have got the four regions, and they are all rolling in. So the capitated agreement is a significant contract in the central region that as we expand to the other regions, the impact of that contract plays less of a role. So we're in the middle of this rollout, and this is going to continue to shift over the coming months until it stabilizes.

It is a capitated contract for pediatric care in the central region.

Okay. Thank you.

Just to add, we began in the central region, so that contract and the contract in central controlled more of our enrollment. But, as we have expanded into the additional regions going forward, including for the ABD population, that shift is occurring, and it is less impactful as the additional regions dilute it.

Carl McDonald, CIBC World Markets.

My question was just on California, specifically if you can give us an update on the progress of the uninsured initiative? I think the recent chatter has been that that maybe losing a little bit of traction. So I want to see if that is first consistent with your comments and then second what the potential timing on that would be in terms of it getting picked up by the Legislature?

Well, I am not sure that it has really lost any steam. I think that if anything there are a lot more other proposals that have come forward. The governors was probably the most comprehensive, but there have been a couple of proposals coming in the Senate, and in the assembly, both of which the Senate and the assembly versions have a lot of things to recommend them as well. So I think there's still a lot of interest and activity. There are going to be some hearings in the assembly budget committee chaired by member [Dimalli], and I think we will hear more about this as the year progresses, and we get into the summer, and we get close to having a budget.

I would not say at this point that it has run out of steam. In fact, if anything, I would say that there are probably a lot more other ideas being thrown around to augment the governor's proposal.

Okay. And in terms of hearings, is that something that is going to happen over the next couple of weeks, or is that something that we should think about more as occurring over the next couple of months?

I think it is going to occur over the next couple of months. This is a big initiative, and a lot of people are going to want to weigh in on it. So there will be a lot of debate. As far as implementation, I don't see it happening before next year.

Sirs, there are no further questions at this time. I will now turn the call back to you. Please continue with your presentation.

I want to thank all of you for joining us. We will look forward to our next call. And I just want to take a moment to thank all the employees. We had a good year, and I appreciate your contribution.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you and have a great day.