Fidelity National Information Services Q3 2007 Earnings Call Transcript

| About: Fidelity National (FIS)
This article is now exclusive for PRO subscribers.

Fidelity National Information Services Inc. (NYSE:FIS) Q3 2007 Earnings Call October 25, 2007 8:30 AM ET

Executives

Mary Waggoner - SVP of IR

Bill Foley - Executive Chairman

Lee Kennedy - President and CEO

Jeff Carbiener - EVP and CFO

Analysts

Dave Koning - Baird

Geoff Dunn - KBW

Tien-Tsin Huang - JP Morgan

James Kissane - Bear Stearns

Greg Smith - Merrill Lynch

Wayne Johnson - Raymond James

Nik Fisken - Stephens Incorporated

Paul Bartolai - Credit Suisse

David Tougot - First Manhattan

Operator

Ladies and gentlemen, thank you for standing by, and welcometo the FIS Third Quarter Earnings Conference Call. At this time, allparticipants are in a listen-only mode. Later, we will conduct aquestion-and-answer session and instructions will be given at that time.(Operator Instructions). As a reminder this conference is being recorded today,Thursday, October 25, 2007.

I'd now like to turn the conference over to Ms. MaryWaggoner, Head of Investor Relations. Please go ahead, ma'am.

Mary Waggoner

Thank you, Nicole. Good morning, everyone. Joining me todayto review our third quarter results in this morning's announcement regardingthe proposed spin-off of Lender Processing Services are Bill Foley, ExecutiveChairman; Lee Kennedy, President and Chief Executive Officer; and JeffCarbiener, Chief Financial Officer.

In addition to being recorded, this call is being audio castlive over the Internet. Telephone replay information is included in today'spress release and a replay will also be available on our website. Today'sdiscussion will contain references to non-GAAP and pro forma results, in orderto provide more meaningful comparisons between the periods presented.

As in the previous quarter, the 2006 and 2007 GAAP resultspresented in today's press results have been adjusted to improve comparability.Reconciliations between GAAP and non-GAAP results and a schedule showinghistorical details are provided in today's press release, which is alsoavailable on our website.

Before we continue, I would like to remind you that some ofthe comments made on today's call will contain forward-looking statements.These statements are subject to the risks and uncertainties described in ourearnings release and other filings with the SEC. The company expresslydisclaims any duty to update or revise those forward-looking statements.

Now, I will turn the call over to our Executive Chairman, BillFoley.

Bill Foley

Thanks, Mary, and good morning. Thanks for joining us today.FIS delivered another strong quarter of solid operating results in spite ofunprecedented turmoil throughout the real estate industry, which also impactedthe broader capital markets. We are very pleased with the results of all FIS'sbusiness units and we remain confident in our ability to generate solid financialresults well into the future.

Lee and Jeff will provide additional detail on the thirdquarter operating performance, and I will focus on our strategic initiatives.

On August 31, FIS finalized the sale of Property Insight to FNF.Property Insight, which markets aggregated title and property information totitle agencies, insurers and other organizations, fits better with the FNF titlebusiness.

On September 12, FIS completed the acquisition of eFunds, whichadds scale and product capability to our transaction processing and riskmanagement businesses. We believe that eFunds will be an excellent addition toFIS and will strengthen our overall competitive position. As Lee will covershortly, we are making good progress in integrating eFunds and FIS.

Now, I'd like to take a few minutes to discuss thismorning's announcements regarding plans to evaluate a spin-off of our lender servicesdivision businesses. Our transaction processing of lender services businesseseach had strong competitive position and excellent potential for future growth.

TPS serves a broad and diversified group of core and paymentprocessing clients worldwide and continues to gain scale on market share. LPShas evolved into a market-leading, multifaceted business that provides a broadrange of integrated data, servicing and technology solutions to large scalemortgage lenders.

From an operational point of view, the ability to leveragetechnology, operations and product development initiatives across our lenderand transaction processing businesses has been limited. Additionally, thebusinesses have competing investment and resource needs.

We believe that the businesses have distinct characteristicsthat may attract a different investor base. The perceived exposure to themortgage market has caused volatility in our stock price and investor base,despite the excellent financial performance of LPS, which has exceeded ourpeers. We believe that the value of the two separate businesses should begreater than the combined business and that two separate pure-play entitiesshould significantly enhance the shareholder value.

An independent TPS will be well positioned as a highperforming core bank and payment processing company, while an independent LPSwill be well positioned as the leading provider of uniquely integrated data,technology and servicing solutions for the lender and real estate industries.As separate companies, each will be able to invest independently in theirrespective businesses and pursue their own operational, financial and strategicinitiatives.

Shareholders will have the ability to optimize theirholdings in the company which best fits their investment criteria. We expect tostructure the proposed transaction as a leveraged spin. As currentlycontemplated, the company will contribute the assets of LPS into a newly formedsubsidiary in exchange for new LPS debt, securities and common stock.

FIS plans to retire a portion of its existing creditfacilities through a debt-for-debt exchange of new LPS debt for FIS debt thatis currently outstanding. Subsequently, FIS shareholders will receive new LPSshares on a pro rata basis and a tax-free spin-off. The transaction iscontingent upon receiving a tax-free ruling by the IRS, accomplishment of theaforementioned debt swap and will also be subject to review by the SEC. We arein the process of determining the optimal debt allocation and capital structureand will provide additional detail in the future.

Now, I'll turn the call over to Lee for a review of thethird quarter results.

Lee Kennedy

Thanks, Bill. Good morning, everyone, and thank you forjoining us today. I'll begin today's business review with a summary of thirdquarter results, including an update on our progress in integrating eFunds in FIS.Jeff Carbiener will follow me with the detailed financial report and outlookfor the remainder of the year.

Overall, it was a good quarter. We successfully managedthrough one of the most challenging real estate markets in the past 25 years,demonstrating the strength and diversity of our customer base, integratedproduct offerings and management teams.

Third quarter consolidated revenue increased 10.4%. EBITDAincreased 14.4%, and cash earnings per share came in at $0.63, which is a 10.5%increase over the prior year. Excluding eFunds, revenue increased 7.9%, drivenby 6.5% growth in Transaction Processing Services and 8.5% growth in LenderProcessing Services. EBITDA increased 12.1% and the EBITDA margin increased 100basis points to 27.4%.

The increase in Transaction Processing Services revenue wasdriven by strong growth in the International and Integrated Financial Solutionsbusinesses. International revenue increased 19.5% over the prior year, fueledby stronger core systems sales and excellent growth in our Brazilian card processingbusiness.

Consistent with our second quarter call, we remain on scheduleto convert both Brazilian card portfolios in 2008, beginning with ABN Amro inMarch followed by Bradesco in June. We are entering the final phase ofconversion testing with ABN and we do not expect the sale of ABN to impact theconversion of the bank's card portfolio to our Brazilian card processingplatform.

ABN remains highly committed to this project, which it viewsas critical to acquiring the products functionality and cost efficienciesnecessary to remain competitive in the Brazilian marketplace. Additionally, asa partner of the joint venture, ABN has a strong vested financial interest inthe success of the new card processing business.

We are also making good progress in automating andstreamlining our Brazilian item processing business. During the quarter, wemade substantial headway in rolling out our new imaging technology platform andin consolidating regional processing centers.

Continued strong new sales grew over a 7% increase inIntegrated Financial Solutions third quarter revenue. New sales increased 31%over the prior year with solid improvement across all product lines, includingcore processing, debit, credit, item processing, loyalty, and institutionmerchant processing services.

As we have discussed in the past, the majority of new saleswere generated by selling additional products and services to existingcustomers as well as new customers. The Bankers Bank, which providescorrespondent services to more than 1,400 community institutions, recentlyexpanded its long-term relationship with FIS. It will remarket our commercialcapture and remittance processing services to member institutions. In addition,we are pleased to be selected as the exclusive provider of credit cardprocessing services for The Bankers Bank.

We're also making great progress in consolidating ourUS-based item processing platforms and in streamlining operations. Over thepast year, we have reduced the number of banks running on the ABS and BMISplatforms by 50%, and we'll convert all remaining institutions by yearend 2008.This is an important step in reducing operating and support cost in our itemprocessing business. Customer satisfaction and retention in all core IFSbusinesses remains high.

Now I'll turn to EBS. Over the past several quarters, wediscussed a strong interest in our TouchPoint Channel Solution products. We'realso encouraged by the increased level of interest in our next generation profilecore processing platforms, and we believe that large and mid-Tier banks willstart replacing core processing systems within the next five years.

Most large banks are currently operating multiple coresystems, driven by outdated, 30-year old technology, which is very expensive tooperate and lacks flexibility. We have excellent customer relationships withmany of the nation's top-Tier banks, the majority of which are running on ourcore processing systems.

This puts us in an excellent position to receive strongconsideration when the banks move towards new core processing systemreplacement. Over the past few months, several of the nation's leadingfinancial institutions have launched exploratory core system initiatives withFIS.

Next, I'll provide an update on eFunds. As Bill mentioned,we completed the acquisition of eFunds on September 12. The combination hasbeen well received by customers and employees, and we're off to a strong start.We are impressed with the overall quality of eFunds's product offerings andbelieve the EFT, risk management and prepaid card services businesses willgenerate strong growth for our company. Consistent with the integration of Certegy,eFunds will be consolidated immediately into existing FIS business units, whichwill enable us to generate cost and revenue synergies more quickly.

The USpayments business, which includes eFunds, EFT, ACH, prepaid card and governmentservices, will be merged into Integrated Financial Solutions. eFunds riskmanagement business will become a part of Enterprise Banking Solutions and allinternational businesses will be merged into our existing internationalorganization.

We are confident that we will achieve the targeted $65million in annual cost savings by reducing corporate overhead, eliminatingredundant processing platforms, consolidating data centers and reducing generalsupport in operating expense. Jeff, will provide additional details on thetiming of these cost savings and the expected accretion later in the call.

Now we'll move on to Lender Processing Services, which has naturallygenerated a great deal of interest in discussions over the past couple ofmonths. Record delinquencies, falling home sales, declining portfolio valuesand a severe lack of liquidity, drove unprecedented market volatility duringthe quarter.

The excellent growth in LPS achieved when the overall marketdeclined approximately 25%, was driven by our strong competitive positions,broad range of integrated products and services, reputation for high quality serviceand our focus and experienced management team.

Third quarter lender services revenue increased 8.5% over theprior year. EBITDA increased 6.2% and the margin improved on a sequential basisto 33.9%. Customer share gains and strong demand for our integrated data andtechnology solutions generated excellent growth in default and appraisalservices.

I think it's important to note that the severity of themarket decline in the third quarter went well beyond normal real estate cycles.Over the past several quarters, FIS has consistently outperformed the marketand our industry peers, outpacing the decline of the overall mortgage market.

Lender services revenue growth has remained strong,increasing 7.5% in 2006 and 10.6% in the first nine month of 2007. This strongrevenue growth was achieved through the successful execution of key strategicinitiatives.

First, our business model was built on providing theindustry's most comprehensive range of data, products and outsourcing solutionsto large lenders with centralized operations. These lenders rely on FIS toprovide solutions, which reduce origination and servicing costs, and providetheir customers with a higher level of customer service. This large institutiondirect lender base has been more stable and dominant over the past few months.It will continue to strengthen in the future.

Secondly, we have successfully integrated the delivery andprocessing of our core and ancillary products, which reduces costs and providessuperior flexibility to our customers. The technology supporting our mortgageservicing platform and desktop process management systems is unmatched andprovides FIS with a significant competitive advantage.

In short, the investments that we have made to developscalable and flexible delivery and processing systems is paying off andtranslating directly into market share gains and strong revenue growth.

We believe future market trends will continue to work to ouradvantage. In the past, more than 60% of new loan origination was generated throughindirect wholesale and correspondent channels. Many of these independentmortgage brokers have either ceased operations or have significantly scaledback loan production.

The changing market conditions have resulted in a flight-to-qualityto large lenders with strong balance sheets and alternative funding sources.These large lenders require best-in-class technology solutions. A recentarticle in the American Banker, predicts that the five largest US bankingcompanies, all of which are FIS clients, will increase their share of themortgage originations and servicing markets from 31% to 50% over the next fewyears.

We've already started to see strong evidence of this shift.The top-Tier banks and lenders are generating a larger percentage of the overallvolume in a declining origination and refinance market. Before I turn the callover to Jeff, I'd like to reiterate a few of the points that Bill made earlierregarding the proposed spin off of our lender services business.

LPS is a great business and we intend to continue tostrengthen our market leadership position. Home lending is an important part ofthe overall economic growth of this country. It's an industry that's here tostay. Over the past several years, we have built very strong competitive positions.Our integrated technology and product capabilities are unmatched, and we expectto benefit from the changing market dynamics which will continue to drivehigher volumes to our customers.

LPS has done a good job building strong integrated productsand services that increase customer operating efficiencies and improve thelevel of service provided to their consumers. Our transaction processing andlender services business have generated strong organic growth. Each haveexperienced management teams and both are leaders in their respective markets.

However, each business is unique and distinct, servingdifferent customers and markets and potentially investors. The opportunities toleverage technology, product development and operations between the twobusinesses are limited. Each segment is well positioned to competitively standon its own.

We believe the separation will provide more flexible productdevelopment and capital allocation, driving higher value to our customers andshareholders. We believe the separation of FIS and the two independent publiccompanies will drive strong benefits to our customers, our employees and theorganizations that invest in our company.

I will now turn the call over to Jeff for a detailedfinancial review. Jeff?

Jeff Carbiener                

Thanks, Lee, and good morning. Consolidated revenues grew10.4% during the third quarter and consolidated EBITDA grew 14.4%. Theseresults were impacted by the sale of Property Insight, which has beenreclassified as discontinued operations for all periods presented and by eFundswhich was included in the FIS operating results after the acquisition wascompleted on September 12th.

Because the acquisition was completed so near the end of thequarter, my comments today on revenue and EBITDA will focus on FIS on astandalone basis, excluding eFunds results. In future periods, the threeprimary eFunds business units will be included in the TPS subsegments that Leedescribed earlier. Also, within the next few weeks, we will provide quarterlypro forma financials for 2006 and 2007, to assist you in modeling the combinedentity.

Consolidated third quarter revenue, excluding eFunds,increased 7.9% with TPS revenue increasing by 6.5% to $692.9 million and LPSrevenues increasing 8.5% to $444.2 million. The 6.5% increase in TPS revenuewas driven by a 7% increase in IFS revenues and a 19.5% increase ininternational revenues.

The 19.5% increase in international revenue to $142.1million was driven by strong growth in our card operations in Braziland Australiaalong with growth in core bank processing in EMEA and favorable currencyimpacts. IFS revenues increased 7% to $296.1 million in the quarter, fueled bydouble-digit growth in item processing and e-business and solid growth in ourcredit card operation.

EBS revenue of $255.5 million, was comparable to the prioryear quarter. Increases in processing revenues and implementation servicesdriven by new customer installations were offset by higher projects specificrevenue in the third quarter of 2006 and difficult year-over-year comparison incheck. As guided in the past quarters, when revenue growth was extremelystrong, this is a channel mostly subject to variability in quarter-to-quarterresults.

Our pipeline remains strong, especially demand for TouchPointapplications, and we expect solid annual growth in this segment. Lenderprocessing revenues increased 8.5% to $444.2 million, driven by 16.1% growth ininformation services, which more than offset a small decline in mortgageprocessing revenue. In information services, strong growth in default andappraisal services more than offset the declines in origination-orientedproducts such as tax, property exchange and title and closing services.

A combination of new customers' signings and increased foreclosureactivity drove accelerated growth in default in the third quarter, while marketshare gains and the ongoing trend to outsource drove strong double-digit growthin valuation services. We expect the trends in default to continue, as we areseeing increased volumes in our front-end foreclosure services as well assizable volume increases in our back-end REO asset management services.

Also, as Lee has mentioned, as large scale vendors continueto gain market share, there is increasing demand for our centralized automatedend-to-end solutions especially in the areas of title, closing, appraisalservices. These factors, combined with our broad mix of products and services, havedriven solid growth in lender processing over the past 18 months, even thoughthe origination of refund markets have been steadily declining and will likelycontinue to do so.

Mortgage processing revenues of $92.4 million, were $1.2million or 1.3% over the third quarter of 2006. Higher professional servicesrevenue in the prior year quarter, combined with substantial deferredconversion services work for Chase and Wachovia in the current year quarter, impactedthe year-over-year growth rate.

The average number of loans processed, increased 2.3% to$28.3 million compared to the third quarter of 2006. While FIS typicallybenefits from consolidation in the mortgage industry due to our strong marketshare, we are anticipating a decline in average loan count in the fourthquarter driven by the acquisition of ABN's $1.5 million mortgage loan portfolioby Citibank.

Looking ahead, we would expect total loans to increase asour large processing clients continue to gain share. In addition, Chase andWachovia will add more than $6 million in loans to our mortgage servicingplatform once fully converted. And as we've discussed in previous calls, thepipeline of home equity prospects continues to grow as lenders seek toconsolidate mortgage processing platforms to achieve better risk mitigation andsecuritization functionality.

Moving to EBITDA, consolidated EBITDA, excluding eFunds, increased12.1% to $312.7 million, with an EBITDA margin of 27.4%, a 100 basis pointimprovement compared to the prior year quarter.

Given the difficult market conditions faced during thequarter, we focused on efficiency and expense control. These initiativesincluded headcount reductions, reduction in management incentive compensation,consolidation of operating centers and decreases and other discretionaryspending.

TPS’ EBITDA increased 14% to $179.1 million driven byleverage on new sales and targeted expense reductions. TPS’ EBITDA margin was25.9% compared to 24.2% in the third quarter of 2006. Adjusting for thehistorical Brazil BPO operating losses in the prior year, TPS still experiencedmargin improvement, which further demonstrates the benefits we are seeing fromincreasing scale and effective expense management.

Lender processing EBITDA of $150.8 million increased 6.2%compared to the third quarter of 2006 and the EBITDA margin was 33.9% comparedto 34.7% in the prior year. On a sequential basis, the margin improved to 150basis points driven by continued expansion in default services margins andrigorous cost management.

Excluding eFunds, corporate expense totaled $17.3 millioncompared to $20.3 million in the third quarter of 2006. The decrease isattributable to reduced compensation and benefits expenses.

Turning to cash earnings and free cash flow, we will nowspeak about consolidated operating results, which include eFunds. Cashearnings, which we define as net income plus after-tax purchase amortization,totaled $124.3 million or $0.63 per diluted share, compared to $0.57 in thethird quarter of 2006.

After-tax purchase amortization declined to $26.6 millioncompared to $29 million in the prior year quarter. These results exclude the after-taxgains of $159.4 million, which are primarily related to the sale of Covansysstock and Property Insight. Also excluded are restructuring and other chargesof $12.9 million.

These charges were primarily the result of a write-down,which is included in D&A, related to our agreement to provide customizedsoftware, application management and on-site support for certain CSC corebanking platforms. CSC's recent purchase of expenses substantially altered ourview on the future value of the arrangement.

Moving to free cash flow, which also includes eFunds, resultsfor the partial month of September, free cash flow, which we defined as netincome plus depreciation and amortization, less capital expenditures, was $129million. Capital expenditures totaled $90.7 million and were somewhat above ourexpectations due to new enterprise like software license agreements negotiatedduring the quarter and higher than expected new product enhancements.

The new software agreements will result in reduced futureoperating expenses and the product enhancements will drive future revenuegrowth opportunities. We expect capital expenditures to return to morenormalized levels in the fourth quarter, and we now expect the year to finishout approximately $325 million, which does include eFunds.

The uses of free cash flow during the quarter included $9.7million in shareholder dividends, $80 million in share repurchases, debtrepayment of $335 million and acquisitions net of cash required, totaling $1.7billion. We experienced net uses of working capital during the quarterapproximately of $20 million, driven by strong revenue growth in our defaultservices products, which have longer collection cycles tied to the ultimatesale of the public property.

Additionally, changes in deferred costs and revenues andcash needs for our gaming division within check services impacted workingcapital during the quarter. Based on our projections, we expect a similar useof working capital in the fourth quarter.

At quarter end, we had approximately $279 million in cashand total debt outstanding of $4.3 billion. This includes the new $1.6 billionterm B loan related to our purchase of eFunds which is priced at LIBOR plus175. We also instituted $1 billion in new interest rate swaps, which have atwo-year term at a fixed LIBOR rate of 4.73%.

Including these new swaps, approximately $2.2 billion of ourtotal debt has LIBOR rates fixed at an average rate of approximately 4.7%, andwe also have another $300 million in fixed-rate debt with an average interestrate of less than 5%.

I'll conclude with a few comments about our outlook for theremainder of the year and a preliminary look at the expected contribution by eFundsto cash earnings per share in 2008.

As stated in our press release, we now expect full year 2007adjusted net earnings of approximately $1.90 per diluted share, which has beenadjusted to reflect the $0.03 impact from the sale of Property Insight and$0.04 impact for purchase amortization associated with the acquisition ofeFunds.

We expect cash earnings to be at the low end of our previouslyannounced guidance of $2.44 to $2.50 per diluted share, which reflects theimpact of the sale of Property Insight. eFunds is expected to be neutral to 2007cash earnings per diluted share.

On a FIS standalone basis, we are maintaining our previousrevenue guidance of 9% to 11% and EBITDA guidance of 10% to 12%. Including eFunds,we now expect full year revenue and EBITDA growth of approximately 14% to 16%.

Based on our preliminary projections, eFunds is expected toadd between $0.05 and $0.10 to cash earnings per diluted share in 2008,assuming $35 million to $50 million in 2008 cost savings. We expect to beginachieving the targeted annual run rate savings of $65 million by the end of2009. Again, these are preliminary estimates, which we'll be firming upthroughout the budgeting process.

Now, I'll turn it back to Lee.

Lee Kennedy

Thanks, Jeff. Operator, that concludes our prepared remarks thismorning, and we're now ready to take questions.

Question-and-AnswerSession

Operator

Thank you. (Operator Instructions)

Our first question comes from the line of Dave Koning withBaird. Please go ahead.

Dave Koning - Baird

Yeah. Hi, guys. Nice quarter.

Lee Kennedy

Thank you.

Dave Koning - Baird

I guess, first of all, when we look at the lender businessand we think about defaults accelerating during Q3, did it continue toaccelerate into September and October? And then, I guess on a similar note,when we kind of look at the purchase in refi sensitive businesses how didtrends in terms of accelerating and decelerating trends kind of work through Q3and into the early parts of Q4?

Lee Kennedy

It continues to accelerate on the default side, and we'veonly seen really some of the early stages of what's likely to happen. So thatbusiness is going to exhibit really strong growth characteristic, I think, wellin beyond next year. So we're in very, very good shape there.

Jeff Carbiener

Yeah. Just if you look at the amount of volume that areflowing into our foreclosure and bankruptcy referral services, which are reallythe front-end, it's really the start of the foreclosure process, we saw volumesincreasing 60, I think it was 63% in Q3. Now it's consistent throughout thequarter.

Lee Kennedy

Yeah. I think one upside and one plus in addition to whatJeff just covered is we have a very, very full pipeline of large institutionsthat traditionally have operated their default programs in-house. And as theyare experiencing increasing volumes, they've started to talk to us about handlingsome of the overflow and some of the business that they normally would dowithin their own institution. So that business is really a very, very goodbusiness for us, and it's going to continue to be so well into the future.

Dave Koning - Baird

Great. And then, I guess just on the purchase and refisensitive business, did those experienced decelerating growth through Q3 andinto Q4 so far?

Jeff Carbiener

The origination sensitive businesses that I mentioned suchas the title and closing services and property exchange, in fact, yes, they didshow decreases in volumes during the quarter. The decreases in volumes in noway match the market decline on it. So, some of the reasons we talked about thefact that we have the relationships with the big banks that are still makingthe loans. So when activity is occurring, we're seeing the advantages of that.But, yes, we did see a decline, but nowhere near…

Lee Kennedy

The one area that we saw which was very, very strong, which actuallysurprised us a little bit during the quarter, was our appraisal business. That wasstill exhibiting strong growth characteristics. We're getting a lot of sharefrom in-house providers. And that business is kind of going counter cyclical towhat we would think would have happened. So it will continue on also.

Dave Koning - Baird

Great. Thank you.

Operator

Thank You. Our next question comes from the line of GeoffDunn with KBW. Please go ahead.

Geoff Dunn - KBW

Thanks. Good morning. With respect to the spin, if Iremember correctly the old spin-off was bought in with ALLTEL for technologicalefficiency opportunities. So, is there any challenge in spinning that out orare most of those efficiencies built into mortgage processing platform?

Bill Foley

Geoff, it's Bill. Really the technology, the IT based, theinfrastructure is really separate between the two businesses, TPS and LPS. Andthe primary technology that is key to LPS is based upon the mortgage servicingplatform. And that platform has been significantly expanded over the last threeyears in terms of enhancements, but relative to be able to offer additionalproducts and services that directly tied in and integrated into that platform.

So the two businesses really are separate. And one of thingsthat we originally thought, say, three years ago was there will be more cross-sellingto mortgage lenders of various TPS products and services, and that reallyhasn't happened. And further, LPS is more transactionally-oriented as opposedto recurring revenue and long-term contract of revenue base.

And so, we've really felt like -- just to give our investorsa chance to pick and choose between two very different businesses. And it turnsthe remaining FIS into a business that looks lot more like Jack Henry with thebig bank aspect to it and a more robust payment fees. Anything to add to that,Lee?

Lee Kennedy

No. I think it covers it well.

Geoff Dunn - KBW

This may be too early, but touching what you said about the cross-sell,I think most of the cross-sell successes has probably been through the mortgageprocessing client base. But do you foresee having an upscale in thesebusinesses to generate your own organic growth or would you look, maybe, justfind a strategic partner that has complementary businesses for additional cross-sellin the future?

Lee Kennedy

I think these businesses are strong enough to stand on theirown. If you just take a look at the sales progress we made over the last two yearit's been phenomenal. So very, very good strong sales efforts and results, andthey are clearly strong enough. They have a lot of capability, a lot of productdiversity, a lot of good technology that's available to the market. So theanswer is yes.

Geoff Dunn - KBW

Great. Thank you. Looks like a good spend.

Lee Kennedy

Thanks

Operator

Thank you. Our next question comes from the line of Tien-TsinHuang with JP Morgan. Please go ahead.

Tien-Tsin Huang - JPMorgan

Hi. Thanks. Any update on the check services strategicreview?

Lee Kennedy

Yes, we're making progress. More than likely, thebusinesses, the bad business will be separated into three distinct sections.One, a business that we operate out of Australia,that's check country. We have another business and that will go with our POSbusiness or US-based POS business. We have a gaming business that will beseparated also. So, we'll take a look at it in that basis. A lot of interest orinterest on at least two of the segments and we're making good progress. We'lllet you know as we move forward.

Tien-Tsin Huang - JPMorgan

In the disclosure that you gave at the strategic review,there's quite a bit of decline in the check services operating income. Is thatclient attrition, pricing…

Lee Kennedy

It's not client attrition at all. In fact, we still aregaining market share. It all relates to a certain portion of check writersconverting to plastic instruments. And so the check erosion has accelerated. That'sone of the reasons why we want to move that business out and find alternativesfor it. That did impact the TPS growth rate this quarter. So that was one ofthe major factors that drove that softening. It had nothing to do with our corebusiness. The core business remains strong. But that factor, it demonstrateswhy we want to find an alternative for check.

Tien-Tsin Huang - JPMorgan

Right. So if we were to exclude the impact of check, what wouldthe TPS growth look like?

Jeff Carbiener

It would have been in the low single-digits from a growthstandpoint.

Tien-Tsin Huang - JPMorgan

Low single-digits?

Jeff Carbiener

And remember, the reason it has more of an impact onprofitability is that…

Lee Kennedy

That was the opposite. I think his question was what wouldTPS look like?

Jeff Carbiener

EBS was low single-digit. I'm sorry. It has a much smallerimpact on the overall TPS. A few percentage points on the check side, that'swhat the impact was.

Tien-Tsin Huang - JPMorgan

On the EBS business?

Jeff Carbiener

Yes. And then there was one other factor. Keep in mind, inthe last quarter, the same quarter of last year, we had a very strong quarter.We had over 10% growth in that business. We pointed out at that time that someof the revenue that we got in was non-repetitive, it was project related,professional service related and that also impacted this quarter. So, if youcall both of those out and look at our TPS business or EBS business, it stillremains very strong. It's a good business and there shouldn't be any reason tobe concerned with decelerating growth in that business.

Tien-Tsin Huang - JPMorgan

Got it. And then eFunds, in terms of the outlook, I thinkeFunds itself gave some long-term guidance in their last 10-Q. Any reason whywe can't rely upon those figures as the target longer-term?

Lee Kennedy

When we purchased that company, we took into accountexpected attrition and there are some accounts that will likely move away fromeFunds. And we want to get the base correct and get the numbers correct beforewe disclose that to the marketplace. So we've got a little bit of more work todo on that. And once we get it, we will get it to you as quickly as possible.

Tien-Tsin Huang - JPMorgan

Okay.

Jeff Carbiener

A good thing to point to in the outlook is if you look atthe last quarter that eFunds announced, they were actually a few cents belowwhat consensus was, but our projections when we were doing due diligence matchedup with their actual results. So we have adjusted our expectations.

Lee Kennedy

Yes, the good news is we haven't had any surprises relativeto the eFunds acquisition. We're in good shape with the numbers that we used asa base, and we're working towards getting you more information.

Tien-Tsin Huang - JPMorgan

Yes, you have done very well with the acquisitions. Just thelast question, just curious, how much cash do you need to run each of thebusinesses between LPS and TPS roughly?

Lee Kennedy

At this point in time, you need more on the TPS side becausewe have more cash intense businesses such as the gaming business within checkservices division where we sell ATM services. In a lot of cases, when we saleATM services, we take responsibility for funding the cash into those ATMs.

Tien-Tsin Huang - JPMorgan

Okay. So you seem a little bit more cash than indistribution between TPS and LPS?

Lee Kennedy

Yes, we're more weighted on the TPS side. On the LPS side,there really is accounts receivable, and that's all related to our defaultservice business. So it is both businesses, but slanted and leaning towardsTPS.

Tien-Tsin Huang - JPMorgan

Okay. Thanks for that.

Lee Kennedy

And just keep in mind, some of that goes away. If we'resuccessful in divesting or finding another alternative for our gaming business,we're not going to be using cash to fund ATMs and all sort of check cashingkiosks that we have within the casinos, that all cuts cash usage down quite abit.

Jeff Carbiener

One of the thing that's probably an important point inmodeling going forward, if you're trying to break the businesses apart, is thatwhen you look at our overall CapEx spending, a lion's share of that spendingfalls on the TPS side, because you are dealing with the technology company thathas to continually invest in those platforms. Yes, we have that on the mortgageprocessing side, but it's nowhere near the level of spend we have ontransaction processing.

Tien-Tsin Huang - JP Morgan

Got it.

Jeff Carbiener

On a working a capital standpoint we talked about, the usesfrom the CapEx standpoint much more heavy towards TPS.

Tien-Tsin Huang - JP Morgan

That is helpful. Thank you.

Lee Kennedy

You’re welcome.

Operator

Thank you. Our next question comes from the line of JamesKissane. Please state your company followed by your question.

James Kissane - BearStearns

Bear Stearns. I know it's early, but do you have a sense ofthe incremental public company cost?

Bill Foley

Not really. I mean the audit is going to be split and themanagement is basically in place for each respective business. It's reallypretty minor.

Lee Kennedy

It should be pretty minor on the technology side. We'reoperating two pretty distinct operations there. So, there is not a lot ofadditive expense. You'll have obviously certain positions that will have to befilled in one company where they don't exist today. But, I think, overall, Jim,if you just take a look at what we've done in the past, it shouldn't besignificant at all.

James Kissane - BearStearns

And can you give us a little insight in terms of the growthin appraisal versus the growth in default, maybe like a little color on thedifferences between those businesses?

Lee Kennedy

On the default side, it's just off the chart. I don't knowif we disclosed it this quarter, but it’s way north of 50%.

Jeff Carbiener

It’s north of 50%. And if you're looking at the growth inappraisal, you're talking over 20%.

James Kissane - BearStearns

And the margin differential on those businesses?

Jeff Carbiener

Yeah, there is a margin differential on those businesses. We'vebeen seeing margin expansion, quite dramatic margin expansion on the defaultside. We're starting to see our default margins, in the past we've talked aboutthe mid-teens in terms of EBITDA margin. We'd expand it up into now themid-to-high 20% margins on an EBITDA basis. So there is leverage in thatbusiness.

On the appraisal side, the margins pretty much run right around15% from an EBITDA standpoint. I mean you got to pay the appraiser the heavycost of sale and you don't have as much leverage that you can gain in thatbusiness line.

James Kissane - BearStearns

So what's the leverage point in default? I thought you hadto pay people to service their foreclosures?

Lee Kennedy

With default, you've got a combination of people-intensebusinesses, but you've also got technology services. We mentioned theforeclosure desktop workflow management system. Most of the customers that weload that use our front-end systems to manage their foreclosure process,they're using our technology. And that's a very, very high margin business forus.

Bill Foley

We can schedule it better. We can buy the services more costeffectively. So there is good leverage as you add additional volumes into themix in certain pieces of that business. So, the automation clearly has helpedus in a major way, Jim.

Jim Kissane - BearStearns

Great. Thank you.

Bill Foley

You’re welcome.

Operator

Thank you. Our next question comes from the line of GregSmith with Merrill Lynch. Please go ahead.

Greg Smith - MerrillLynch

Yeah. Hi, guys. Just following up on that on the margins, Ithink I can easily back into it, but, maybe, to save me a few minutes, can youjust give us the margins in the processing piece of lender and then everythingelse, I guess, the non-default, non-appraisal?

Lee Kennedy

Yeah. I mean our mortgage processing margins run well aboveour overall LPS margin levels. So they're on the high end. If you look at kindof the scale, you look at the mortgage processing margins right now, we're runningon the high end of the margin scale, roughly in the 40% range. We talked aboutthe fall which is now in that mid-20 range. It's the same thing for ourorigination services, we're in the mid-20s. I know we've given you the propertyvaluation, which runs in the mid-teens, that's kind of the point.

Greg Smith - MerrillLynch

Okay. Yeah. So the main point is default -- is now prettymuch, you know, if you want to make the argument default, counter cyclical,it's on par with the margins of the cyclical piece.

Lee Kennedy

Absolutely.

Greg Smith - MerrillLynch

But that cyclical piece is declining, but you guys arerapidly taking out cost as that's happening. Are you preserving the margins orare you getting reverse operating leverage on that side?

Lee Kennedy

We had been losing margins over the first couple ofquarters. We're starting to balance that out now. We're really starting to seethe margin degradation in Q4 last year, look back at lender processing marginswe dropped down, I think, 31.7%. So that was really our low watermark that we'vebeen climbing up from since then. We've expanded our margins by 220 basispoints since that low point of 31.7%.

So, it's been a process of getting into those businesses,where the volumes have been declining and taking out costs. And that's what allowedus to slowly take away that difference between the prior year. I mean we're downto 80 basis points in differential the prior year, I think last quarter we were250 basis points below. So that's the kind of progress we're making.

Greg Smith - MerrillLynch

Okay. And then on default, do you have the capacity to takeon more clients or are you capacity constrained where you've got to look, tellclients, hey, come back and talk to us in a few months or whatever?

Lee Kennedy

We have plenty of capacity. We have vendors and suppliersstanding in line to contract with us. And that is not a concern.

Greg Smith - MerrillLynch

Okay. Great. And then, I know it's sort of becoming a mute pointwith the spin, but can you give us any indication of what CapEx would look likefor the overall company for 2008 with eFunds in the mix?

Jeff Carbiener

Sure. We're still on the process of sizing up eFunds. So Ithink what we'll say is even though we were a little high this quarter, westill feel comfortable with the $250 million of CapEx for the FIS standalonebusiness. Right now, you can say the upper end of our CapEx would be at $290million, if we don't reduce any of that eFunds $40 million in annual spend. Webelieve we can reduce that as well. But we'll come out with guidance later.

Greg Smith - MerrillLynch

Okay. That's perfect. Then just one last quick one. I thinkyou talked about this, Jeff, the sequential decline in mortgage processingrevenues just from 2Q to 3Q what cause that?

Jeff Carbiener

Well, in the prior quarter we had one large conversionproject going on, and that was the Chase conversion. Now, we've added in, we'vestarted work on the Wachovia. So that's taken additional professional servicesresources that we're generating revenue and putting them onto these longer-termprojects where, based on revenue recognition, we have to take the revenues theywould have generated, the firm (inaudible) do the implementation of thecontract.

So it's really the fact that we're lucky enough. I mean thisis kind of the calm before the storm because we're sitting here working on theconversion efforts that will allow us to bring in 6 million new loans under oursystems through Chase and Wachovia. But during this time period where we havethe conversion works, we have a lot of deferred revenue.

Greg Smith - MerrillLynch

Okay. I'm sorry, I just want a one more quick one, am Iunderstanding you correct that lender will have about $1.6 billion of debt? Isit as simple as that right after the spin?

Bill Foley

Greg, that's kind of our performer right now, and that'sbased upon the fact that we have our three major banks engaged in discussionswith us to swap that $1.6 billion of eFunds debt into a new debt instrumentsdown at LPS. And that looks like it's going to be about the number, right inthat area.

Greg Smith - MerrillLynch

Okay. Perfect. Thanks a lot guys. I appreciate it.

Bill Foley

Welcome.

Operator

Thank you. Our next question comes from the line of WayneJohnson with Raymond James. Please go ahead.

Wayne Johnson -Raymond James

Hi, good morning. Just a quick follow-up on the debt side,how should we think about just the long-term debt targets over the next twoyears, and the pay down expectations regarding that metric?

Jeff Carbiener

Well, I think from our standpoint, we said it in the past, Imean, we generally will lever up to a large acquisition, and then we'llconcentrate on making sure that we put that pieces together and concentrate ourcash flow for the foreseeable future on paying down debt. I mean that's stillour expectations to use the majority of our free cash flow to pay down debtwith targeted share repurchases, pretty much designed to offset optiondilution.

Wayne Johnson -Raymond James

Okay. And so, is there a specific figure in mind we shouldhave for next year on that?

Jeff Carbiener

Well, we haven't given any guidance on -- I mean,directionally, we're telling you that we're going use our cash flow to pay down,we haven't given you our 2008 projection.

Lee Kennedy

I think, Wayne, we'll be able to do that in the next quarterand get it more precise. So we can hold up on that, we'll get it to you asquickly as possible.

Wayne Johnson -Raymond James

Okay, great. Thank you very much.

Lee Kennedy

You’re welcome.

Operator

Thank you.

Jeff Carbiener

The one comment I will add in on that is that we do expectthat our leverage ratio based on our debt pay down next year would drop belowthree.

Operator

Thank you. Our next question comes from the line of NikFisken with Stephens Incorporated. Please, go ahead.

Nik Fisken - StephensIncorporated

Hi. Good morning, everybody.

Lee Kennedy

Good morning.

Nik Fisken - StephensIncorporated

Jeff, what was the EBITDA for eFunds and the EPS impact inQ3?

Jeff Carbiener

The EPS impact was basically neutral and the EBITDA impactwe had about $26 million in revenue with well over 24% EBITDA margin. I thinkit was about $6 million in actual EBITDA contribution.

Nik Fisken - StephensIncorporated

Okay. And Bill, when you guys were walking through where eacheFunds division was going to go, I didn't hear EBT and I didn't hear about $40million of debit software, the business is kind of the old oasis. Where are thosegoing to go? Does that mean we're going to sell them?

Bill Foley

No, EBT is actually going into IFS, so that will be there.The software business will be broken out into two segments. The international segmentwill roll up to the international business and the domestic segment will rollup to our EBS business. And that's relatively small. It's a very small piece ofthe software world. Debit and everything else will be organized by type ofcustomer served and by geography with the domestic business rolling up to IFSand the international business rolling into our international business.

Nik Fisken - StephensIncorporated

And what's our outlook for EBS enterprise, salesspecifically?

Bill Foley

Sales are very, very strong, not only strong on theTouchPoint side of the business, but also in getting increasing momentum on ourcore system platforms and the ones that we operate the upgrade. So thatbusiness has a full pipeline. We're in good shape with that business bothdomestically and internationally and we don't expect that to stop. In fact, weexpect the pipeline to strengthen as we move through next year.

Lee Kennedy

I think that it gives us a good view into the next couple ofyears, the way we're seeing the opportunities lay out, because we see theimmediate revenue opportunities being in the TouchPoint applications, becausewe've got such a strong pipeline, we've got so many deals in the hopper. But thefact that you're starting to see some of these larger institutions look at coretransformation projects, they'll start to put some budget money towards that inthe next year or so, but the real opportunities will come two and three yearsdown the road. So TouchPoint gives us good visibilityinto growth in the next 12 to 18 months, then it starts to shift into more ofthese core transformation projects.

Nik Fisken - StephensIncorporated

And I know it's lumpy, but would you think that if you lookout '08-'09 that it should fall in that 9% to 11% organic growth rate?

Lee Kennedy

I think it's a little bit early to really peg that number,but it ought to be comparable with what we've seen over the last year, year anda half.

Nikolai Fisken -Stephens Incorporated

Okay. Thanks so much.

Jeff Carbiener

You're welcome.

Operator

Thank you. Our next question comes from the line of PaulBartolai with Credit Suisse. Please go ahead.

Paul Bartolai -Credit Suisse

Thanks. Good morning. Just, first a question of clarifyingthe spin, I mean the way you phrased it is that you're contemplating it. That'sthe only question, are you getting the tax rate ruling in some of thoseadministrative issues out of the way?

Bill Foley

Well, Paul that's accurate. It appears that the tax rulingis going to be fairly routine, and we're not talking about anything that's outof the ordinary in this particular case. And the debt swap we've alreadyengaged in discussions with our three primary lenders, and they are veryreceptive with this transaction. So it's a more a matter of passage of time asopposed to major impediments.

Paul Bartolai -Credit Suisse

Okay. And just trying to make sure I understand the logicand the rationale here. I mean is the biggest issue just kind of the turmoilgoing on in the mortgage market and a desire to have two separate securitieswith two separate investors that might be looking at those securities.

Bill Foley

I mean that's a big piece of it, but as Lee and I've talkedabout the two businesses and as we've looked at them over the last year andeight months that Lee and I've been together, the banking business, the coreprocessing business and the payments businesses, it was really our focus interms of acquisitions, and we had not made any significant acquisitions on thelender side. And though the lender business will have excellent cash flow,great EBITDA, and it will be easily able to service the debt associated withthe swap, and it will then be able to engage in its own acquisition programsand be able to add to some of the businesses that it presently has.

We have a very, very strong platform with our mortgageservicing business and we've seen how we can sell off that platform in terms ofthe lender business very, very effectively. And as lenders consolidate, webecome a more important player. But it really allows management focus, andsometimes smaller is better, and focus in particularly business lines, and weend up being a more effective company or two companies as we separate out.

And it's unlike a lot of spins in that the management groupsare already in place. So it's not complicated, there is very little crossover.So a lot of all those reasons put together we felt like why this is a good timeto do it and why wait, why not do it now.

Lee Kennedy

There's one other story or factor relative to the way themarket views that business. The companies together, it's a very complex story,it's very difficult to understand it, it's very time consuming, this willsimplify, it make it easier. It will be a bit more peer comps on thetransaction processing sides. So we, hopefully, will trade up on that and gainvalue on the lender side because we think that lenders business is undervaluedas we move forward.

Paul Bartolai -Credit Suisse

Great. That's helpful. And then just looking back at thecore business, you mentioned that revenue impact from check on enterprise, justcurious if you could maybe quantify the margin impact. I know check is going todrag. You guys still had some pretty good margin expansion with that, justcurious if you could maybe help put some numbers around that?

Jeff Carbiener

Yes, our margins, I'll talk at the TPS level first. I meangoing through the businesses, if you back the check out of EBS, you'd be againin the low single digits. If you back check out of the overall TPS results, itwould have impacted about 2%. And if you backed it out of overall FIS, theimpacted revenue is about 1.4% positively. So, that's good. On the margin side,you would have seen margin list of, I think, about 100 basis points on the FISside, about 200 basis points on the TPS side.

Paul Bartolai -Credit Suisse

So 200 basis excluding check and TPS?

Jeff Carbiener

Yes.

Paul Bartolai -Credit Suisse

Great. And then you talked a bit about the eFunds costsavings. Just curious if you could give us any insights on what you think earlyon as far as the revenue synergy goes and the opportunities you might seethere?

Lee Kennedy

It's really too early for that. We're in the process oforganizing the sale forces and getting target accounts identified. So, I thinkwe're going to have to differ on that as far as the potential. I'll say that wedemonstrated a strong ability to put sales organizations together and leverageexisting relationships by cross-selling more products and services into that.

And we started initial work that we've done on eFundsindicates to us that there's going to also be strong opportunities with the integrationof that company. So we're going to be consistent, I think, with what we'veachieved on the IFS side, but it's going to take some to get to our specificnumbers.

Paul Bartolai -Credit Suisse

Okay. And then switching to lender, obviously, some goodsequential improvement in margins there. Is there any seasonality to themargins in that business, or as the fall continues to scale up and you get costbenefits out of business, should we continue to expect margins to expandsequentially in LPS?

Bill Foley

Normally, the seasonality is based upon the second or thirdquarters as being the strongest quarters during the year. And of course, thisyear there was a complete collapse in the refinance and the title closing sideof LPS. The fall business is basically doubling year-over-year. So inSeptember, the fall business doubled from September of '06 and the trend iscontinuing. So, it is irrespective of timing during the year. It's just reallya cratering going on in terms of home ownership in default.

Paul Bartolai -Credit Suisse

But as far as the margins go, I mean…

Bill Foley

Margins keep on expanding, because we keep on getting moreleverage. So EBITDA margin keeps expanding.

Lee Kennedy

Yes, as Bill said, it's a transactional business. So whatdrives margins is the transaction for the most part. So we have upside and we'llmake that clear in the fourth quarter when we give guidance.

Paul Bartolai -Credit Suisse

Okay, great. And then just last question. Earlier in theyear, I think at the Analyst Day you talked about some real basic assumptionsfor '08 in terms of revenue growth and margins. I mean even with everythinggoing on, I mean are you still comfortable with on organic basis kind of that 7%to 9% revenue growth and the margin expansion you talked about?

Jeff Carbiener

Yes, we are.

Paul Bartolai -Credit Suisse

Okay, great. Thank you.

Jeff Carbiener

You’re welcome.

Mary Waggoner

Operator, we have time for one more question.

Operator

Thank you. The next question comes from David Tougot withFirst Manhattan. Please go ahead.

David Tougot - First Manhattan

Thank you. Lee and Jeff, what are the most important thingsyou've learned during your due diligence on eFunds over the last couple ofmonths, especially with respect to the quality of products and services? Andthen, secondly, how would you characterize the costs takeout targets for '08and '09? Is this sort of low hanging fruit or is there some heavy listinginvolved?

Lee Kennedy

Good question, David. I think the most important thing thatwe've learned is there is probably a little bit more upside in certainbusinesses than what we originally thought. And I'll give you kind of the nutshellreason for that. eFunds was organized on a very, very matrix basis. So therereally wasn't a continuous business unit that supported the given product. Andthat lack of having strong accountability in my opinion hurt some of therevenue growth and some of the profitability growth that they had in thatbusiness. So that's the good news.

We can get in and we can fix that and get that organized theright way. Consistent with what I covered in my script, the product capabilityreally is very, very good. When you look at their debit capability and look attheir prepaid card capability, you look at their risk management capabilitywhere they're really dominant in the marketplace in providing that services tothe financial institutions, we have found very few cases where that product setneeded a lot of work or wasn't really, really strong.

So those are the two good messages. They have a goodmanagement team at the middle level, and we're moving some of the people up inthe organization. They've been integrated into our existing businesses, and weexpect to produce some really good results with it. So overall, theobservations have been very, very good. I think we understand why they have beenweak in revenue growth and profitability growth at times over the last fewyears. I think we can correct that and we're moving pretty quick in thatdirection.

Jeff Carbiener

I think the matrix organization has made them inefficient, one,but it also pretty much caused them to get three, four customer service too,because customers didn't have any one point they can go to. I think it's beenreal important. What we've recognized is it's very important that we get a goodstage time with these customers right away, because most of these customers ofeFunds are also customers of FIS, and we have to create reputations with thesecustomers. So getting in and making sure that we get the satisfaction level,that's very important on the front-end.

In terms of the cost takeouts, we've kind of bucketed theminto three categories, first being the typical corporate type expenses, corporatefunctions coming out the (inaudible) corporate expenses, public company costs,consolidation of benefits plans, things like that. Those are fairly easy toget. The one thing that I would say is that because we're closing thistransaction so late in the year, we're not going to be moving accountingsystems in the fourth quarter when we have to go through stocks and through auditand all that good stuff.

We're not going to be moving benefit plans in the fourthquarter. Those things will tail off into the first quarter of the year. Soyou're not going to see a whole lot of synergy fall into Q4. You should seethat start to fall, the low hanging fruit that starts to fall into Q1. Then thenext layer will be things like facilities consolidation, because as we get theheadcounts out, then we go after the facilities and start to push those downand really consolidate, and get those facility costs out.

Then the last delay, which is really the tougher one rightnow to predict the exact timing on is the consolidation of technology platformsand technology centers because that takes a little bit more planning, a littlebit more project work and a little bit more capital on the front-end, and a lotmore analysis just above the business case.

So those are kind of the three levels. Like I said, rightnow, we're keeping a pretty broad range out there until we get some of theseprojects really nailed down. The $35 million to $50 million we're comfortablewith, and the $65 million full year run rate, once we get into '09, I thinkthat's very achievable.

Lee Kennedy

The first part, David, to make sure that we get theprocessing right and get the reliability factors off. Once we are through withthat we'll move quickly to get the expense out.

David Tougot - Manhattan

Great. Thank you very much.

Lee Kennedy

You're welcome.

Mary Waggoner

Thank you for joining us this morning. Please remain on theline for the telephone replay information.

Operator

Ladies and gentlemen, this conference will be available forreplay after 12 pm today through November 10, 2007 at midnight. You may accessthe AT&T Executive Replay System at anytime by dialing 1-800-475-6701 andentering the access code 890767. International participants may dial320-365-3844. Those numbers again are 1-800-475-6701, 320-365-3844, and accesscode 890767.

That does conclude our conference for today. Thank you foryour participation and for using AT&T Executive Teleconferencing. You maynow disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!