Service Corporation International (SCI) 2004 Q2 法說會逐字稿

Good day everyone, and welcome to the Service Corporation International second quarter 2004 earnings results conference call. Today's call is being recorded. At this time for opening remarks and introductions I would like to turn the call over to the Chairman and Chief Executive Officer, Mr. Robert L. Waltrip. Please go ahead, sir.

I would like to thank all of you for participating in this call. As normal, we'll have some prepared remarks and then we will open the meeting for questions as you have them. With that I'll turn it over to Eric Danberger for his remarks.

Thank you, Bob. Thanks for joining us this morning. I want to remind everyone that you will hear statements today on this conference call that are not historical facts and are forward-looking statements made in reliance on the safe harbor protections provided to us under the Private Securities Litigation Reform Act of 1995. These statements that will be made today may be accompanied by words such as believe, estimate, project, expect, predict, or other words that convey the uncertainty of future events or outcomes. All of these statements that we're making today are based on our assumptions that we believe are reasonable, however, there are many important factors that could cause these statements in the future to differ materially from the forward-looking statements made today in this conference call. Important factors which could cause these actual results to differ from our statements today are within our 10-K and our other SEC filings, including our press release which has been filed in 8-K. All of these are available on our website, which is www.sci-corp.com.

I also want to remind everyone that a replay of this conference call is also available on this website for approximately 90 days. With that, we'll start our prepared remarks. I'm going to turn the call over to our President and Chief Operating Officer, Tom Ryan.

Thank you, Eric. Before we begin my comments on the second quarter, I would like to offer our thoughts and prayers to the residents of Florida impacted by hurricane Charley; including the families we are presently serving and our own employees during this most difficult time. Now to my comments.

In the second quarter our North American operations performed admirably in the face of some very challenging market conditions. After a very strong first quarter, driven by higher numbers of client families served, the second quarter brought us back to a more normalized six-month period. That was within our expectations and leads us to believe we're on track to meet our annual guidance for earnings per share and for free cash flow. On a consolidated basis, the loss of operating results from joint venturing our French operations had a 3 cents per share impact on our second quarter results, as the proceeds remained in our cash balances throughout the second quarter. However, thanks to our employee's hard work and execution and the proceeds from the French and UK transaction, we are in a position of financial strength and flexibility that we have not enjoyed for some time. Our net debt dipped below $960 million, the lowest level of net debt since 1992. It has been a long journey for our employees and our shareholders to get to this position, and we thank you for your confidence .

We are very pleased to be able to give back to our shareholders with the announcement this morning of a $100 million share buy back program. While we still have much to accomplish, we move into the second half of 2004 with improved financial flexibility, a streamlined infrastructure, and a more disciplined operating structure. From this operating platform, you should expect continued margin improvement in 2004 as we grow our business long-term behind the discipline of our brands and development of our number one resource, our people. By simplifying and standardizing the processes by which we operate during 2003, we have reshaped the company to develop a more efficient infrastructure, and are yielding the benefits we projected. This enabled us to implement our new management structure in November of 2003. It is leaner, reduces bureaucracy and focuses us on accountability. While it is still early, we are very pleased with the progress from these changes. Now I would like to review with you our operational performance for the second quarter and first half of 2004.

Comparable North America funeral revenues were essentially flat in the second quarter as compared to the second quarter of 2003. A decrease in the number of funeral services performed and an increase in cremation mix were offset by an increase in our average revenue per funeral for both burial and cremation consumers. We experienced a funeral volume decrease of 3% for the quarter as compared to the prior year quarter. This trend is consistent with those experienced by our public competitors, CDC statistics, and feedback from our major industry suppliers. On a year-to-date basis, our comparable funeral volume is slightly ahead of first six months of 2003 and within our expectations of the period. Our average revenue per funeral for the second quarter of 2004 increased by a 3% above the prior year quarter. This is partially due to the increased success of our Dignity Memorial Funeral and Cremation package plan.

For the second quarter of 2004, approximately 17.5% of the total of the consumers we served on an at need basis selected a Dignity Memorial package. Remember, Dignity Memorial package plans provide our consumers with expanded contemporary product and service offerings and result in an higher average sale than the non-Dignity customer selection. This favorable impact was partially offset by the negative impact from the cremation mix increase of approximately 80 basis points for the quarter. For the year-to-date period, our average revenue per funeral increased by 2.1%, again, in line with our expectations on a year-to-date basis. For the second quarter, our comparable North American funeral margin was 18.3%, versus 18.8% in the prior year quarter. The gross margin decrease was primarily a result of the flat revenues from funeral operations reduced by increases in selling costs and rising energy prices, which impact utilities and vehicle costs. These increased costs were somewhat mitigated by reductions in overhead costs.

For the year-to-date period, ended June, 2004, our comparable North American funeral margin was 21.9%, versus 21.4% in the prior year-to-date period. This margin is in line with our expectations on a year-to-date basis. During the first half of 2004, prearranged funeral sales production, on a comparable basis, improved by $17.9 million, or approximately 10.4%. This reverses the downward trend experienced in 2003 as we went through some major changes in our sales organization. A substantial portion of this improvement is attributable to increased Dignity plan sales being added to our pre-need funeral backlog. For the first half of 2004, 24.4% of pre-need funeral sales were a Dignity sale, a substantial improvement over the comparable period in 2003. This will enhance revenues in future periods. Comparable North American cemetery revenues, for the second quarter, decreased by 3.9%, or $5 .9 million, as compared to the prior year quarter. This decrease is primarily attributable to a decline in cemetery trust fund income.

Cemetery operating revenues increased slightly during the period. Increases in at-need revenues help to offset declines in recognized pre-need revenues, primarily associated with fewer completed cemetery development contracts. For the year-to-date period, comparable North American cemetery revenues are $4.1 million ahead of prior year period levels. This is ahead of our expectations for the year to date period, as increases in recognized sales have more than offset the anticipated revenue reduction from pure completed cemetery development projects. For the second quarter, our comparable North American cemetery margin was 15.1% versus 16.7% in the prior year period. The decline in trust fund income was partially offset by reductions in overhead costs. For the year-to-date period, our comparable North American cemetery margin was 15.8%, versus 17.9% in the prior year period. This margin is slightly behind the percentage margin we anticipated on a year-to-date basis. While revenues have exceeded our expectations, the associated selling costs have exceeded our plan.

We believe that selling costs as a percentage of revenues should trend down throughout the rest of the year, as we improve in our ability to manage in the new compensation structure. This structure, as you'll remember, has a component of fixed costs that must be managed more closely than in a full commission environment. We believe this new compensation plan will allow us over the long-term to attract and retain high quality sales professionals in our organization. During the first half of 2004, pre-need cemetery sales production, at comparable locations, increased $1.2 million, or 1%, versus the first half of 2003. While some of these sales result in immediate recognition, most get deferred into the pre-need cemetery backlog. This is an important barometer for future growth in our cemetery business. We surely recognize the long-term success of SCI can only be achieved by delivering top line growth in a challenging revenue environment. We are working diligently on our long-term growth initiatives, which focus on delivering revenues through three primary avenues.

Number one, investing capital and revenue growth in our existing businesses through more contemporary marketing of the Dignity Memorial brand, which includes promotion through relationships with strategically aligned affinity partners, utilization of effective merchandising tools in our funeral locations, and continued investment in strategic cemetery property in our existing cemetaries. These strategies are our primary focus today.

Second, growing through strategic acquisitions of funeral homes and high internment cemetaries in large metropolitan markets. Construction of new funeral facilities and through the continued growth of our franchising network. This will come slowly, as businesses become available and we solidify the Dignity standards, certification, training and value for potential affiliates. When these opportunities are not readily available, we will look to other forms of delivering value to our shareholders, such as the recently announced share buyback program.

And number three, ensuring that we attract, hire, develop and retain the best and the brightest people we possibly can. This emphasis on leadership, development, training and certification will be delivered through our Dignity University, which officially opened its doors on July 1st. This could have the greatest impact on the long-term opportunities for SCI. With that, I would like to thank you and hand it over to Jeff Curtiss, our Chief Financial Officer. Jeff.

Thanks, Tom. SCI delayed its second quarter earnings release and 10-Q filing to be sure that our trust reconciliation adjustments and our FIN 46 disclosures were probably handled. Our revenues and gross profits were disclosed in our 12 B-25 SEC filing, and our 10-Q reflects these same numbers. During the first half of 2004, excluding its joint ventured French operation, SCI generated free cash flow of approximately $106 million, compared to approximately $107 million in the same period of 2003. Strong free cash flow in the first quarter of 2004 was normalized by weaker cash flows in the second quarter of 2004. SCI's definition of free cash flow is included in the second quarter earnings press release issued this morning. Excluding our French joint ventured operations, free cash flow in the second quarter of 2004 was down $23 million from comparable amounts for the same period of 2003, primarily due to less funeral volume and higher levels of working capital in the second quarter of 2004. Expected deposits of trust funds in Florida and changes in the timing of payments associated with accounts payable were the drivers of the increased working capital in the second quarter of 2004.

As Tom mentioned, SCI's total debt less cash and cash equivalents at June 30th was less than $960 million. At June 30th, 2004, SCI also had 349 million of surety bonds outstanding and 72 million of letters of credit outstanding. During the second quarter of 2004, SCI liquidated its debt and equity holdings in its UK affiliate, collecting $53.8 million in aggregate. On July 22nd, 2004, Standard & Poor's increased SCI's credit rating to a BB stable rating from a BB- stable rating. On August 11th, SCI completed a new $200 million bank credit agreement. The terms of this credit agreement will be filed as an exhibit to our 10-Q, which will be filed today. The credit agreement provides increased financial flexibility in terms of acquisitions, dividends and share repurchases and allows SCI to undertake its announced $100 million open market share repurchase initiative. SCI's general & administrative expenses in the second quarter of 2004 decreased due to approximately $10 million less of litigation-related costs in the second quarter of 2004, versus the same period of prior year.

Further, general & administrative expenses for the second quarter of 2003 included $4.6 million of accelerated systems amortization costs. Excluding both these items, second quarter general & administrative expenses increased about 2.3 million in 2004 versus 2003; due primarily to 2004 long-term incentive accrual increases and increased costs associated with implementing our new point of sale information system, HMIS. We have determined that SCI will need to spend substantially more money on Sarbanes-Oxley section 404 internal controls compliance in the second half of 2004 than initially contemplated, due to the necessity of testing internal controls in approximately 475 locations that represent 60% of our total revenue and assets. Sarbanes-Oxley internal and external compliance costs for SCI in 2004, including the new audit attestation costs may well approach 4 to $5 million. Interest expense in the second quarter of 2004 was down from the same period of prior year, primarily due to reduced levels of borrowings in 2004.

Gains and losses on the extinguishment of debt reflect costs associated with the tender offer for the 200 million of 2005 bonds, the cost of the call of our 2008 convertible debt, the expensing of capitalized costs, and losses on open market purchases of 2005 debt. Gains and losses on asset dispositions reflects the remainder of the UK gain, offset by net losses on other US-based sale transactions and an adjustment to our gain on the joint venture of our French business. The other operating income amount reflects a noncash $6.9 million credit to income associated with reconciling our detailed trust accounts and pre-need backlog to the SCI general ledger. This noncash credit is based on estimates which are being validated with contract reviews of many of our 400,000 pre-need funeral contracts and more than double that amount of our pre-need cemetery contracts. These contract reviews are expected to be completed before SCI files its 10-K. In the longer term, completing these contract reviews and related reconciliations will improve our data integrity in our new information system, HMIS, and be beneficial for our Sarbanes-Oxley section 404, internal control compliance efforts.

SCI's tax rate for the second quarter of 2004 was favorably impacted by the $8 million noncash benefit associated with the divestment of its UK joint venture shares. This benefit is primarily a tax accrual reversal. We expect our full year tax rate to be in the 13 to 18% range, although it is possible that the rate may be less. The discontinued operations amounts in the second quarter of 2004 reflect a further $15 million write down of our Argentine business, which is held for sale, offset by a $49 million noncash U.S. tax benefit that will be available to SCI once it completes the sale transaction. Our Argentine business has positive cash flow and several potential buyers have expressed an interest in it. The second quarter balance sheet reflects the discontinued assets and liabilities separately and the discontinued assets and liabilities reflect the reserve for the cumulative peso currency depreciation that has taken place during our period of ownership of this business.

SCI's $2.8 billion of funeral, cemetery merchandise and endowment care trust funds had mixed performance during the second quarter of 2004. Year-to-date trust returns -- trust fund returns are reasonably good because of the strong performance in the first quarter. These returns include the impact of both earned income and changes in portfolio value, but do not include the trust management fees or related costs of approximately 1.1% per annum. In the second quarter of 2004, the funeral trust had a positive quarterly return of 0.77%. The cemetery and merchandise and service trust had a negative quarterly return of 0.11%, and the endowment care trust had a negative quarterly return of 1.87%. Year-to-date returns of these trusts are all positive at 3.8%, 2.6% and 1.27%, respectively. In addition, the current market value of our portfolio of trust investments at June 30, 2004, exceeded our costs of these investments in the trust by approximately $95 million. Our cash balance pension plan incurred a 0.10% negative quarterly return for the second quarter of 2004. This plan had a year-to-date return of a positive 2%. The fair market value of the assets in the plan at June 30th was approximately $92 million. We have yet to see the expected benefit from the realignment of the investments in this plan, which were done at the end of March so that about 50% of the assets are in hedge funds and the other 50% are in more traditional asset classes, including debt and equity securities.

On February 1st, 2004, SCI began trusting, as a financial assurance mechanism in Florida, rather than an surety bonding on new Florida pre-need business. SCI's net trust deposits in Florida from February 1st through June 30, 2004 were approximately $6.5 million, which decreased our 2004 year-to-date free cash flow. No trust deposits were made in 2003 in Florida because SCI used surety bonding as its financial assurance mechanism on new business in that year. During July and August, SCI has been successful at securing the return of approximately $35 million of collateral previously pledged to SCI's sureties. At this time, SCI currently has cash balances exceeding $300 million and it currently has very modest amounts of debt maturing during the remainder of 2004 and 2005. Our liquidity, modest debt maturities and new credit agreement provides SCI with significant financial flexibility to consider capital structure modifications or strategic acquisitions. With those comments, operator, we will now go to questions and answers.

Thank you. The question-and-answer session will be conducted electronically today. [Caller Instructions] And we'll pause for just a moment. Our first question today will come from Bill Burns with Johnson Rice.

Hi, good morning everyone. Just a couple of quick questions. First question is about-- you confirmed your earnings guidance of 42 to 50 cents. And I just want to be clear what the base for that over the-- year-to-date. Over the first two quarters.

Bill, this is Tom.

Hi, Tom.

First of all, the guidance we gave, 42 to 50 cents, you'll recall excluded any gain items or special accounting-type items, and encompassed a 15 to 18% tax rate when we developed that.

Right.

So with regards to where we are today, because of the way that that tax rate got taken in, you'll recall a lot of benefits are occurring in the first six months of the year and we expect a more normalized tax rate on the back half of the year. But effectively, if you look at our pro forma EPS results, they are very much in line with the guidance that we've given. As a matter of fact, they tend toward the upper end of that guidance as we look out over the rest of the year. So we're very comfortable with the guidance we gave of 42 to 50, with those two caveats, and continue to be comfortable with the free cash flow guidance that we provided at the beginning of the year.

Okay. And then maybe just another question about the operating income, the 6.9 million, that was with respect to the trust accounts. It sounded like this is an ongoing process, so we may see more of this in the future?

We think we have made the necessary entries so that essentially any ongoing process will basically true up and validate the entries that have been made. On the other hand, obviously if our estimates in the entries were incorrect, we may have to have some other adjustment, but we don't consider the adjustment we made as material and we would not expect any true up that would occur to it to be material either.

Okay. Thanks, Jeff.

And we'll take our next question today from A. J. Rice with Merrill Lynch.

Good morning. It's actually Chris Rigg for A. J. You wrote about in your press release and you also talked about the increased flexibility with the new credit facility. I was wondering if you could provide a little more color in terms of what the increased flexibility actually is in terms of what it'll allow you to do in terms of share buyback, dividends, acquisitions, et cetera.

Well, it will be filed first with our 10-Q, which will be filed today. So you'll be able to read it in detail. I would summarize though the flexibility that we have, a required network covenant in it that begins at 1.4 billion, while our net worth is about a little over 1.8 billion, actually approaching 1.9 billion. So obviously there's a lot of flexibility in that particular covenant. I would also say that the amount of acquisitions that we can do has been significantly increased relative to the previous credit agreement, probably to the point where we won't use the total flexibility that we have in the agreement, but we wanted to make it so that the credit agreement wasn't inhibiting what management wished to do.

Okay. But on top of that, you have the $100 million buyback in place. Is there anything prohibiting from you from upping that in -- within the same year or from putting in a dividend at the same time based on your current net worth and current state of operations?

No, it would just require that the board concur with that action.

Okay. Okay. And then with regard to acquisitions, what are you guys seeing out there in terms of acquisition environment and how's -- I guess the bid ask spread look and how are you guys doing with your potential deals in the future?

I think what we're seeing out there, Chris, is slowly moving back, the bid and the ask coming closer together. I think we would expect that we would have an acquisition or two within this calendar 2004, but surely not a big movement or big opportunity for a variety of acquisitions across the country. I think we're continuing to see people that expectations are a little too high and-- but we'll be out there, we'll be talking to them. And, like said, I would expect us to have an acquisition or two sometime in 2004.

Okay. And then one last question, if I could. With regard to Dignity Memorial, I know you guys had set out pretty broad expectations for getting that rolled out into your funeral homes this is year. I was just wondering if you could update us on the progress and as to where you guys stand?

Sure, the latest data I have is we have now rolled into 250 of our locations as of August 1st. We would anticipate by the end of the year, Chris, that we could have that in place in probably 450 to 500 locations, and then probably have it installed in the rest of our wholly-owned locations sometime in the latter part of 2005. So our expectations are for that type of pace.

Okay. Thanks a lot.

Okay.

[Caller Instructions] We'll take our next question from Lee Cooperman with Omega Advisors.

Thank you very much. Historically I've been a big fan of stock repurchase when it's practiced by companies that have truly undervalued stocks but the results in the last half a dozen years of stock repurchase for most companies have been nothing short of disastrous. My question is how much thought has gone into the decision to repurchase stock as opposed to paying a cash dividend? In other words, if the average stock is yielding 2% for every share you buyback, you're buying back 50 years worth of dividends. So I'm curious, have you guys studied this thing carefully to conclude that the 100 million is better off in stock repurchase than dividend payment?

The issues were fully vented at our most recent board meeting and this is the conclusion they arrived at.

Is the same way of saying that the board believes the stock is substantially undervalued in the market and is a good investment for all the shareholder to reduce the capitalization?

Well, I think there's a variety of reasons each individual board member probably made his own vote. Lee, if you remember, we just had convertible debt converted into common not too long ago and we had expected more of that to be cashed out. So that obviously was one of the considerations that our board took into account in deciding to undertake this share repurchase.

But that's kind of like a sum cost. In other words, it seems to me that the decision and I'll be happy to take this offline, but the decision to buy back stock ought to be based upon a view that its substantially undervalued or we're better not off not buying back stock but paying the money back to shareholders in the form of a dividend. Because each are equally tax effective until the Mr. Kerry, if he does get elected, changes the rules. This is very important to me because I'm not selling my stock back to the company in this buy back so by your reducing the capitalization, you're increasing my ownership; and I'm fine with that as long as we're buying back undervalued stock. I think this really requires a great deal of thought and reflection. I just want to make sure that thought and reflection has gone into it.

It has.

Okay. Thank you.

Our next question today will come from Paul Waner with D2 Capital.

Hi, actually this is Dave Steinberg, D2 Capital. I wish to follow up on Mr. Cooper man's thought process, but a little bit more specifically regarding -- you guys have used metrics deciding when you're going to be buying back your debt versus equity and you've been balancing this over the last couple of years. What is the metric and thought that's gone into, at least, the size of the 100 million versus 200 or 300 to create more, let's call it, shareholder equity and earnings momentum given that you don't have great, you know, super duper top line growth in the general business? And so we can get a little bit of an idea of kind of where your heads are at in terms of that balancing act, at least between debt repurchase, stock repurchase and dividends.

Well, all can I say is this is what the board approved.

You mean so there's not a metric that you guys have used versus looking at what your interest expense is, versus where your cash return on capital, return on price of stock is? Because clearly you're going to be buying back your converts, you know, you maybe hoped you were going to get more stock in at $7 or wherever the conversion price roughly is and now the thing is clearly much lower. So, I was just kind of--you know going back to the question, has that metric been worked out amongst yourselves?

This is Tom Ryan. We obviously, when we looked at this--and we've been looking at it for some time, we have metrics that we evaluate the repurchase of debt, the repurchase of stock. We've evaluated dividend and we have those in place and, you know, from this point in time, buying back our debt doesn't appear to be a good use of our cash and some form of return to shareholders was appropriate. The board decided a share buyback was in our best interest at this level and the other -- again, you know, we have not given up evaluating what a dividend could be some day. At this point in time we didn't feel it was appropriate. So,yes, we have those in place. I don't think it'd be appropriate to share those externally.

Okay. Thank you.

[Caller Instructions] We'll go to Dan Jenkins with State of Wisconsin Board.

Hi. I was wondering if you've talked to the rating agencies and, you know, you mentioned that S & P upgraded you. I wondered if you had talked to Moody's at all and how the stock buyback figures in with that, if you've, you know, spoken to them before you initiated this authorization?

We have spoken with Moody's and they told us that one of the reasons that they didn't make a ratings announcement action was they wanted to see what level we were going to undertake, either a share repurchase or a dividend program. We have informed them of what the board decided. And I'm sure that in due course they'll issue whatever they think is appropriate for our rating. My personal view is that the amount of resources we're using for this program shouldn't change our ratings, at least in an adverse manner. I think the financial improvement we've made over time makes us deserve a BB rating and, obviously, we don't have that yet at Moody's.

Given the fact that you've initiated this, are you pretty comfortable then with where your balance sheet is now? Is it essentially -- have you completed your debt reduction plans for the near term?

We are happy with where our balance sheet is today and, as Tom mentioned, I don't think it would make sense at this point in time to aggressively pursue our debt in open market transactions.

Okay. Thank you.

Our next question comes from Jennifer Childe with Bear Stearns.

Good morning. A couple of questions. First, I was a little confused with your answer to the question about your EPS guidance. Is it fair to say that you -- that in the 42 to 50 cent guidance figure you're excluding the same items you excluded to get to today's pro forma EPS?

No, it's not. There's two things in the pro forma section that you're looking at the front, Jennifer, assumes a normalized tax rate. The guidance of 42 to 50 cents assumes a tax rate of 15 to 18. Otherwise I think they're very comparable, Eric correct me if I'm wrong, that is the major difference between the two.

So the other operating income, other income, all that stuff's excluded?

Right. All the kind of unusual items which, unfortunately we continue to have, those are-- the difference is excluded from both. And so as you think about one versus the other, think about a 15 to 18% tax rate, which is what-- the way we have to book the gains; because a lot of these gains on UK or France or loss on Argentina all impact our tax rate. So 15 to 18% was our best estimate of what it'll be for the year, but from a normalized basis, as you look at us, for instance into 2005, we're trying to give you a pro forma look as to where we are in order to base what you'd expect from us in future years.

Okay. Got it. And are there any other foreign operations besides Chile and Argentina?

Yes. We still have a -- an interest in funeral business in Singapore. We also have a small investment in Germany, and with the assets of Argentina and Chile, I just didn't want to leave out Uruguay. We have two cemetaries in Uruguay, which are operated really under the Argentine management team and should be thought of in association with them.

Okay. And could you give us an update on your domestic funeral home and cemetery portfolio? Do you still have a number of properties that are up for sale?

We really don't, Jennifer. Really we're done with, you know, if you recall what we entitled Napper 1 and Napper 2 initiatives which were, kind of, large scale analysis and sale of our businesses. What we do now is, within our management teams, we're consistently evaluating, as senior management, on a quarterly basis the results of our operations of our businesses. I think what you'll find over time is, from time to time we will pare businesses out of our portfolio that are underperformers. At the same time we'll be looking for better fits from an acquisition standpoint. So we don't have any businesses necessarily held for sale into the future. Having said that, we're holding our businesses very accountable for returning an adequate return to our shareholders. So from time to time, you may see us sell, but it's more from a performance management perspective as opposed to any kind of program sale.

Okay. And can you update us on when you expect to be a cash taxpayer?

I think probably around 2007. It depends, obviously, on our taxable income as we go forward. But the closing of a transaction with Argentina would be helpful in deferring our taxes.

Okay. Thanks. Just last question. Can you update us on the litigation situation?

Jennifer, as you a know, we have primarily two hubs of litigation. We've been discussing one is our Menora-related litigation in Florida. The court has approved issuance of the notices, the notices have been distributed and we're waiting for that notice period to be concluded. And hopefully to get the courts final approval of the class settlement.

The shareholders litigation here in Texas is a little further behind. We have agreed with the plaintiffs on the -- we have reached an agreement on a class settlement. Parties have agreed on a class notice. It's been submitted to the court and are waiting for the judge to authorize the notices to be mailed. There are a few opt out cases, which are reported in our 10-Q and some would be opt out, some people that have brought actions even before the opt out period has begun. But agreements have been reached in both cases and we're at those stages of the class settlements.

So agreements have been reached with the opt out cases?

No, with have reached agreement for the class settlements an the opt out cases have yet to be dealt with.

Okay. Thanks a lot.

And we have no further questions at this time. Mr. Waltrip, I'll turn things back over to you for any additional or closing remarks.

Thank all of you for participating in this call and we'll talk to you the next quarter. Thanks.

And that does conclude today's conference. Thank you everyone for your participation.