MetLife, Inc.
Q3 2018 Earnings Call Transcript

Published: 2 Nov 2018

[Operator:]

Welcome to the MetLife's Third Quarter 2018 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. As a reminder, this conference is being recorded. Before we get started, I would like to read the following statement on behalf of MetLife. Except with respect to historical information, statements made in this conference call constitute forward-looking statements within the meaning of the federal securities laws, including statements relating to trends in the company's operations and financial results and the business and the products of the company and its subsidiaries. MetLife's actual results may differ materially from the results anticipated in the forward-looking statements as a result of risks and uncertainties, including those described from time-to-time in MetLife's filings with the U.S. Securities and Exchange Commission, including in the Risk Factor section of those filings. MetLife specifically disclaims any obligation to update or revise any forward-looking statement, whether as a result of new information, future developments, or otherwise. With that, I would like to turn the call over to John Hall, Head of Investor Relations.

[John A. Hall:]

Thank you, Operator. Good morning, everyone, and welcome to MetLife's third quarter 2018 earnings call. On this call, we will be discussing certain financial measures not based on Generally Accepted Accounting Principles, so-called non-GAAP measures. Reconciliations of these non-GAAP measures and related definitions to the most comparable GAAP measures may be found on the Investor Relations' portion of MetLife.com, in our earnings release, and our quarterly financial supplements. A reconciliation of forward-looking financial information to the most directly comparable GAAP measure is not accessible because MetLife believes it's not possible to provide a reliable forecast of net investment and net derivative gains and losses, which can fluctuate from period-to-period and may have a significant impact on GAAP net income. Now, joining me this morning on the call are Steve Kandarian, Chairman, President and Chief Executive Officer; and John McCallion, Chief Financial Officer. Also here with us today to participate in the discussions are other members of senior management. Last night, we released an expanded set of supplemental slides, including substantial disclosure in the appendix on our long-term care book of business. The slides are available on our website. John McCallion will speak to the main body of the supplemental slides in his prepared remarks, if you wish to follow along. The content for the slides begins following the romanette pages that feature a number of GAAP reconciliations. After prepared remarks, we will have a Q&A session that will extend no longer than the top of the hour. Please limit yourself to one question and one follow-up, in fairness to all participants. With that, I will turn the call over to Steve.

[Steven A. Kandarian:]

Thank you, John, and good morning, everyone. MetLife has been engaged in one of the most ambitious transformations in its history. For a number of years, much of our business was characterized by capital-intensive long-tailed liabilities with low levels of free cash flow. Our strategy has been to transform MetLife into a company with a different profile, less capital-intensive, with shorter payback periods, and higher cash flow. While some of the business we wrote in years past will take time to run off our books, we believe we are now at an inflection point where the heavy lifting of our transformation is just about complete. We are executing more consistently and the results in the quarter and for the year-to-date 2018 demonstrate that our strategy is working. We delivered third quarter adjusted earnings of $1.4 billion, or $1.38 per share, up from $1.04 per share a year ago. Once again, our business fundamentals were strong

[John McCallion:]

Thank you, Steve, and good morning. I will begin by discussing the 3Q 2018 supplemental slides that we released last evening, along with our earnings release and quarterly financial supplement. These slides cover our third quarter 2018 financial results, including our actuarial assumption review and other insurance adjustments as well as business highlights. In addition, we are offering a deeper dive into our long-term care block, given its focus with analysts and investors. Starting on page 4, this schedule provides a comparison of net income and adjusted earnings in the third quarter. Net income was $880 million, or roughly $500 million below adjusted earnings of $1.4 billion. The primary drivers for this variance were net derivative losses and the non-adjusted earnings impact from the actuarial assumption review. Higher interest rates, strong U.S. equity markets, and the weakening of the yen combined to drive the net derivative loss. Overall, the results in the investment portfolio and hedging program performed as expected. Now, let's turn to page 5. We have completed our annual actuarial assumption review during the third quarter. Before I speak to the total review, I would like to first address the review as it pertains to long-term care. During the quarter, our actuarial team reviewed all LTC assumptions, models, and the loss recognition testing process. Our review was supplemented by a third-party actuarial review. The short-form conclusion was that no long-term care reserve unlocking was needed. We continue to have a substantial loss recognition testing margin associated with long-term care. As of September 30, this was $2.1 billion. In addition, we increased the amount of disclosure regarding our long-term care block of business. The disclosure can be found in the appendix to the supplemental slides. Along with the granular detail on the long-term care block, we have provided the assumptions underlying our base GAAP and statutory reserves, as well as the assumptions supporting our GAAP loss recognition testing and our statutory asset adequacy testing. Further, we provided a set of sensitivities associated with our GAAP loss recognition testing margin. Keep in mind that MetLife is not in loss recognition, so our LTC sensitivities relate to our loss recognition testing margin, rather than our base reserves. Following the review, we continue to reflect improving morbidity in our loss recognition testing assumptions at a rate of 50 basis points per year. This judgment is supported by a third-party review of our actual morbidity experience, which is tracking at an annual rate of improvement of roughly 2%, more than the assumed rate, but still building statistical significance. It is important to note the removal of this assumption would be fully covered by our loss recognition testing margin. Our statutory long-term care reserves total $14.7 billion. They do not assume any improvement in morbidity in the formulation of base reserves or in the statutory asset adequacy testing process. Our statutory LTC reserves are $2.6 billion greater than our GAAP LTC reserves, which speaks to the strength of the protection provided to our long-term care policyholders. We take in roughly $750 million of long-term care premium each year, which is an important contributor to reserve growth and loss recognition testing margin over time. Importantly, premiums grew last year by 7% from rate increases. And we've achieved another 3% in rate increases year-to-date, which serves to better support our LTC block of business. I will now briefly discuss the balance of our actuarial assumption review on page 6. During the quarter, the actuarial assumption review and other insurance adjustments reduced adjusted earnings by $68 million. There were a number of pieces that were largely offsetting and each segment was modestly impacted. Among the larger contributors were

[Operator:]

Thank you. Your first question comes from the line of Ryan Krueger from KBW. Please go ahead.

[Ryan Krueger:]

Hi, thanks. Good morning. I had a question on Group Benefits. The underwriting performance has been very strong this year, for both MetLife and pretty much the entire industry. Can you give us some additional perspective on what you're seeing and, I guess, if we continue to stay in a good economic environment, if you think results can continue to trend more favorably than you would typically expect longer term?

[Michel A. Khalaf:]

Yeah, hi, Ryan. This is Michel. So, as Steve mentioned in his opening, obviously, the favorable economic environment does help in terms of the underwriting performance. If you think about disability, for example, where we've seen very good results this quarter, lower incidence, high recovery experience. So that's one factor. We always like to be cautious and guide towards the range that we provide for our underwriting experience, but we do think that some of the benefit could be sustainable. I would also point out that if you look at our results over the last three quarters, the diversity of our business is an important factor. In the first quarter, our dental performance was strong. Q2, life underwriting was strong. Q3, disability in particular, but also if you look at our life mortality, it's at the lower end of the range. So we think some of this is sustainable. I would also point out in non-medical health, in particular, that our shift towards voluntary benefits, accident & health, in particular, should over time also help lower our benefit ratio there.

[Ryan Krueger:]

Thanks. And then, just one on the interest rate caps in retirement, John, could you give us some kind of perspective on just how much that's contributing right now to spreads, so we can think about the impacts when it runs off?

[John McCallion:]

Sure. So as I said last quarter, our interest rate caps, given where LIBOR is today, is providing a offset. And it's effectively neutralized the sensitivities we gave back in December of last year in terms of the outlook call. And I think the other aspect, we also said there were certain management actions we took in terms of how we manage the liability side of the balance sheet as well. So the combination of those has probably helped us in, call it, the 5 to 7 basis point range.

[Ryan Krueger:]

Okay, great. Thank you.

[Operator:]

Your next question comes from the line of Tom Gallagher from Evercore. Please go ahead.

[Thomas Gallagher:]

Good morning. Just a few long-term care questions, can you comment on what's going on with underlying long-term care claim trends? I know, John, you had mentioned you're seeing favorable experience. That probably puts you in the minority in terms of from everyone else we're hearing from on underlying claim trends. Is it frequency, severity, claim durations? Can you give a little color in terms of what you're seeing on the claims side?

[John McCallion:]

Yes, sure. I would probably just keep it pretty simple. I don't know if we're seeing favorable. I'd say they're in line with expectations. And I think just overall, the underwriting profit in the business is performing as expected. I'm not so sure I'd say they are favorable relative to expectations.

[Thomas Gallagher:]

Okay. And then, just on the disclosure that you put out for long-term care, I guess a few things that stand out is the fact that you're not in loss recognition testing and your loss recognition testing margin is over 10%. But is there anything other than those that you would point out that you feel like where your block stands out is less risky or in better shape than others?

[John McCallion:]

Yes. I think I would probably reiterate things we said in the past. We believe the profile of the block is in decent shape. Obviously, our relationship of group to individual, the amount of lifetime benefits we have, things like that and kind of things we've reiterated before. And then, I'd say the second thing that we talked about is just the work we've done on rate increases over the years has been beneficial. We have $750 million of premium in this block that we receive every year. We got a 7% increase last year. We've got another 3% through nine months this year. So, I think those probably at a high level are the two factors I would point to.

[Thomas Gallagher:]

Okay. Thanks.

[Operator:]

Your next question comes from the line of Jimmy Bhullar from JPMorgan. Please go ahead.

[Jamminder Singh Bhullar:]

Hi, good morning. I just had a question on your expectations for spreads, given what's happened with rates. Where do you think rates need to go for spread compression to sort of cease? And then if you could quantify how much of a benefit you are getting from interest rate protection and any color on how these expire over time?

[Steven J. Goulart:]

Hey, Jimmy, let me take the first one. This is Steve Goulart. And we'll just talk a little bit about spreads. Steve gave some of the statistics for what's happening in our overall portfolio. We've talked a lot in the past about the roll-off reinvest dilemma and we continue to see that spread narrowing as we see interest rates climbing. That's the outcome that we expected and obviously an outcome that we're very pleased to see happening. So, we continue to see that happening. I think if we see interest rates behave as, say, the forward curve or our plan projects, we continue to see that gap narrowing and I think it's favorable. I think I'd even go so far as to say that in several quarters, we're likely to basically be at breakeven.

[John McCallion:]

And, Jimmy, this is John. I'll take the second one. So, I would probably go back to the response to Ryan's comment. So, we certainly have some interest rate caps today, given where LIBOR has rose to and it hasn't changed much in the last three months. Those caps we have that are giving that protection today and really neutralizing the sensitivity in our RIS business, they will roll-off into the fourth quarter and the first quarter of 2019. Now, we have other caps in 2019, although they're at higher strikes. So, I think what we'll do on the outlook call is work through it and maybe a more robust sensitivity for you as we think about the outlook.

[Jamminder Singh Bhullar:]

And your comments on spreads maybe neutralizing or spread compression neutralizing sometime in the next several quarters, does that take into account the expiration of the caps?

[John McCallion:]

Right, so...

[Jamminder Singh Bhullar:]

Or is that just a differential between portfolio yields and maturing or new money versus maturing loans?

[John McCallion:]

Yes. So, spreads, I'm focusing on RIS right now.

[Jamminder Singh Bhullar:]

Yes.

[John McCallion:]

And we gave a sensitivity in the outlook call last December that indicated with a rising LIBOR rate, that we would have a negative spread compression. And what I'm saying is that the caps, given how fast or how high it has risen, it's some of these out of the money caps are now in the money and they are neutralizing that sensitivity. So, we are not seeing that negative spread compression as a result of the caps and how high LIBOR has risen. That will roll-off, all else equal, in the next few quarters and then we'll have to give you an updated outlook for that.

[Operator:]

Your next question comes from the line of Andrew Kligerman from Credit Suisse. Please go ahead. Andrew Kligerman - Credit Suisse Securities (USA) LLC Hey, morning. First question is on the direct expense ratio. And it looks like you have another, I don't know, 80-plus basis points, 100 basis points to go that would be about $400 million. And this quarter, you spent $88 million on expense cost initiatives. If the plan is to complete the direct expense ratio reduction in two years, could you talk about the geography of where you're going to see it, the timing of when we're going to see it? Are we going to actually see $400 million drop to the bottom-line?

[John McCallion:]

Right. So, I would just reference back to the direct expense ratio slide. We've used a ratio. We believe that using the ratio of revenues to our fixed cost is an indicator of profit margin expansion. So I would argue that we have seen that already, but not all of it yet. Our target is to get to a net $800 million (39

[John McCallion:]

We're focusing on our fixed costs across the firm. And it's everyone's contributing. This is a full team effort. We are obviously having to leverage and our goal here is not just to kind of do these things and then see expenses creep back up. This is a unit cost initiative. Our objective is to improve this direct expense ratio by 200 basis points and keep it there. Andrew Kligerman - Credit Suisse Securities (USA) LLC Got it. And then...

[John McCallion:]

And to do that, we're making quite a bit of investments around technology to build the platform to leverage that operational leverage. Andrew Kligerman - Credit Suisse Securities (USA) LLC Got it, thanks. And then, lastly on share repurchases, you've done $2.8 billion year-to-date. Now you've upped the authorization and you have about less than $2.5 billion on it, which is terrific. Do you think you'll do this over the course of now through 2019? Will it all get deployed?

[John McCallion:]

Yes. Our objective is to finish the remainder on the $1.5 billion authorization, which we will do by no later than end of the year. And then we'll reevaluate along the way. I think it's fair to say that the $2 billion would be done no later than end of year next year. Andrew Kligerman - Credit Suisse Securities (USA) LLC Terrific. Thanks a lot.

[Operator:]

Your next question comes from the line of Suneet Kamath from Citi. Please go ahead.

[Suneet Kamath:]

Thanks. And thanks for all the long-term care disclosures. That was helpful. In terms of the loss recognition testing assumptions, did you make any changes to those underlying assumptions as you went through this third quarter review?

[John McCallion:]

Yeah, hi, Suneet, it's John. Yeah, we did make a few changes. So we dropped our ultimate lapse assumption roughly 20 basis points in the aggregate. We were at roughly 1% before. We're down to 80 basis points now. We probably made some changes to utilization, but it varied by block and so there was really probably nothing material in aggregate, but we did make some changes throughout. And I think other than that, those are probably the most material changes.

[Suneet Kamath:]

So that $2.1 billion margin, there is no big change to that in the aggregate?

[John McCallion:]

I would say not material. Yes.

[Suneet Kamath:]

Okay. And then my quick follow-up is just on the morbidity improvement. I think you said in your prepared remarks that you're seeing maybe 2% morbidity improvement, which, again, is quite a bit different from what we're hearing from other companies. So any sense of like how much claims experience you've seen so far maybe relative to inception, and any sense in terms of why you're seeing it versus perhaps some other companies that aren't seeing it yet?

[John McCallion:]

Yes. I think I would reference, we still are building statistical significance in the data. So it's still relatively early. I don't think we could draw a conclusion that would cause us to change our current assumption. But what we're saying is early signs are indicating that it's higher than that. But we need to see the data emerge and kind of build that statistical significance, as I mentioned. It's hard for me. I'm not going to speculate as to why we're seeing it and others are not. But I think it's important to leverage your own data and make the appropriate conclusions off of that.

[Operator:]

Your next question comes from the line of John Nadel from UBS. Please go ahead.

[John Nadel:]

Hi, hey, thank you. Good morning. I guess a couple questions, just thinking about favorability of underwriting results. And I guess in particular on the group side, if you could characterize what portion of better results this quarter, you think, is just akin to more typical seasonal pattern. 3Q, I think, tends to be a little bit better anyway. And how much of that is more difficult to think about trending? And then the second part of the question is just to think about January 1, 2019 renewals. I think there's been an expectation that maybe the positive impact of tax reform and maybe some of the good underwriting results we've seen would maybe put some downward pressure on premium rates for renewal business heading into 2019. And can you sort of talk to what you're seeing, if anything, in that respect.

[Michel A. Khalaf:]

Yeah, hi, John. This is Michel. So if you think about our favorable underwriting results in the quarter, we mentioned disability. We had favorable renewal results, lower incidence and more favorable claim recovery experience. As I mentioned earlier, the healthy economy may be a contributing factor to this. So certain aspects of that we think are sustainable. I also mentioned that as we continue to shift our business mix more towards voluntary, we are likely to see over time improvements in our non-medical health benefits ratio. So those are some elements. I should point out here that the return of the health insurance tax, the HIT, in 2018 that was out in 2017. It's back in 2018. It will be out again in 2019. It will create some volatility that helps our non-medical health benefit ratio in 2018. So those are some of the elements that I will point out to. And on the life side, we mentioned that mortality was at the low end of our guidance range for the year. We think we'll be within that guidance range. With regards to January 1, 2019, so what I'll say first is that we are, so far, pleased with our renewals and sales and the large case segment for January 1, 2019, where most of the renewals and sales are already done. I think those are in line with expectation. We are winning our fair share of new sales and we are renewing in accordance with expectation. Too early to tell, as far as the med and lower end of the market, but we continue to see very good momentum on the voluntary front. And we think that will continue into January 1, 2019. As far as the competitive environment is concerned, we are seeing a aggressiveness, particularly in dental, I would say, somewhat in disability. But we continue to be able to compete, especially that we focus on customers and intermediaries that look beyond just the lower price and where our service capabilities, our product set are major factors in our ability to win.

[John Nadel:]

Thank you for that. I mean, if I could just sort of follow it up with what I think is my takeaway from your commentary, Michel. It sounds like we really shouldn't expect any significant difference or shift in margin for the business based on 2019 pricing, really more just the function of overall economic conditions. Is that a fair summary of your comment?

[Michel A. Khalaf:]

Yes. I mean, I think that the tax will impact the dental business in particular, but other than that, yes, I would say you're spot on.

[John Nadel:]

Thank you.

[Operator:]

Your next question comes from the line of Alex Scott from Goldman Sachs. Please go ahead.

[Alex Scott:]

Thanks. I guess the first question I had was just on MetLife Holdings, any color you can give around the life business, variable annuities? I guess, in particular, on the life side, if any of the action from reinsurers and repricing is impacting you guys at all? And then on the variable annuity and fixed annuity side, if there's anything you learned through the actuarial process or just the experience that you can provide color on.

[John McCallion:]

Hey Alex, it's John. So, on the first one, I'd say no, nothing material that we're seeing in terms of the reinsurance pricing question you had. In terms of the actuarial review, look, as we said before and you saw on the supplemental slide, it's a variety of things and that's no exception for MetLife Holdings. Actually, the largest item in there is the closed block. It was about half of it. And we just had update to our estimated gross margins and that had an impact on DAC that came through. So, it's a little over half of the actuarial update there.

[Alex Scott:]

Okay. And then maybe just one quick one on LatAm, I think the growth rates on premiums have been sort of hitting your guide. This quarter, it was a little lower. Any kind of update around how you view that mid to high single-digit growth rate and sort of the impact that the political landscape's having across some of those geographies.

[Oscar Schmidt:]

Yeah, Alex, this is Oscar. So, let me start with premiums and fees. So, we have a 7% growth year-over-year on constant currency. But you need to consider the divestiture of our Afore in Mexico a year ago. If you adjust for that, it's one percentage above, which is 8% year-over-year, which we find good according to our expectations. If you go to sales, sales was also affected by the divestiture of Afore, but in this case, it's four percentage points. So, if you adjust for that, our sales growth is approximately 6% year-over-year on constant currency, which we find good. Remember that our top-line growth, our revenue growth, for us, it's a combination of sales as well as higher persistency. We're putting a lot of attention on persistency. Now, your second question is about the political landscape. So, I guess, let me answer two-fold. The two countries are weaker more on Chile and Mexico. Chile, the President announced last Sunday, the project for pension reform. We find it very positive in terms of reaffirming the system, reaffirming the private system, the AFPs in general. Now, obviously, this is going to take time, we think probably more than a year. The conversion or process may be 1.5 years. So it's going to be a long process, but this is the first obviously signed development in the Congress. We think it's a good project. (5

[Alex Scott:]

All right. Thank you.

[Operator:]

Your next question comes from the line of Humphrey Lee from Dowling & Partners. Please go ahead.

[Humphrey Hung Fai Lee:]

Good morning and thank you for taking my question. I have a question related to the unit cost initiatives. So you have $184 million spent year-to-date on an after-tax basis or maybe roughly $230 million pre-tax. I'm just trying to see if you are still on track to your $330 million pre-tax target for the full year of 2018?

[John McCallion:]

Yes, we are, Humphrey.

[Humphrey Hung Fai Lee:]

Okay. And then a quick question for Michel, just to follow-up on the group pricing, you've talked about dental a little bit aggressive and then so is disability. I was just wondering for that aggressiveness, is it aggressive but rational or you are seeing some irrational behavior in the marketplace?

[Michel A. Khalaf:]

Yeah, hi, Humphrey I think you always do see one or two carriers that are overly aggressive, potentially irrational. That's not unusual. We continue to be disciplined in our approach, selective in avoiding situations where pricing is overly aggressive. So that's been our approach and will continue to be our approach, but there is irrational behavior from time-to-time and, in particular, in dental.

[Humphrey Hung Fai Lee:]

Okay. Got it. Thank you.

[Operator:]

Your next question comes from the line of Joshua Shanker from Deutsche Bank. Please go ahead.

[Joshua Shanker:]

Yeah, thank you very much. I was curious about what kind of deployable cash you have on hand right now, the pace of dividends that will come from the subs over the next year. And if we can look out a year or two in advance if your financial leverage is going to change with the buyback.

[John McCallion:]

Hey, Joshua, this is John. I would just reiterate our outlook guidance around free cash flow. It's 65% to 75% over the average of two years. So I would say there's no change to that. In terms of leverage, we've done quite a bit of delevering to-date. The guidance we had given was for 2018, we had net liability management of $1 billion to $2 billion, would take effect this year. We've done about $1 billion and we'll reevaluate whether we do any additional delevering to give ourselves some additional financial flexibility.

[Joshua Shanker:]

And in terms of cash on hand right now?

[John McCallion:]

$4.5 billion as of September 30.

[Joshua Shanker:]

Thank you,

[Operator:]

Your next question comes from the line of Randy Binner from B. Riley FBR. Please go ahead.

[Randy Binner:]

Yeah, thanks. This is actually picking up on Suneet's line of questioning. And the question is your view as a market leader on how this body of industry data and assumptions is coming together around long-term care disclosure. Your disclosures are good. And we're getting much more granularity and sensitivity from all the carriers. But I'm just curious if you have a view on kind of the progress and quality of the disclosures we're getting. And I think it's important what your view is, because this is become a gating factor for a lot of investors looking at the space. So just want to get your view on how you think the kind of body of industry disclosures coming together on long-term care?

[Steven A. Kandarian:]

This is Steve speaking. It's difficult for me to opine on other people's processes, but we certainly looked at this very, very carefully. As we mentioned in our comments this morning, we brought in an outside actuarial firm to review what we were doing. We wanted to make sure we had access to benchmarking from others. We looked at our models. We made sure they were validated. And we examined all of our actuarial and morbidity trend experience and so on. So we know the sensitivity around this issue in the industry with investors, with analysts and that's why we spent the extra time and effort, both internally and bringing an external firm to validate all these measures.

[Randy Binner:]

I mean, with that external firm, is your sense that you're conservative to what has become the industry baseline or just are more in line with it?

[Steven A. Kandarian:]

I'm not going to opine on as to others, but I'll simply say that we benchmarked against others in terms of our own assumptions to make sure that what we were using was appropriate.

[Randy Binner:]

All right. Thank you.

[Operator:]

Your next question comes from the line of John Barnidge from Sandler O'Neill. Please go ahead.

[John Bakewell Barnidge:]

Thank you. Japan annuity sales essentially doubled in the quarter and has been a material grower recently. Can you talk about why you're comfortable with pricing of that product? Is there something like where participants have exited and you're filling a role and where is the share coming from? Thank you.

[Kishore Ponnavolu:]

Hi, this is Kishore Ponnavolu. If you look at our annuity sales, they're up 91% quarter-over-quarter. And you take the annuity sales and break them out, single premium sales account for 80% of the overall sales. And then, also, the growth rate for single premium is much higher, at least in this quarter, than level premium. And so, let's spend a little bit time about on the single premium products per se. These are five and 10-year products, tightly duration matched. So, if you look at the ALM risk, there's nothing there. And also, these are foreign currency products. So, these are predominantly U.S. dollar-denominated, where we have considerable experience in terms of investment for matching liability. These policies also have an MVA and that certainly ensures that there's appropriate risk sharing from market risk perspective. So, overall, we are very comfortable with these products.

[Operator:]

And at this time, there are no further questions.

[John A. Hall:]

Great, that brings us to the top of the hour. Thank you, everyone. We look forward to speaking with you on December 14 for our annual outlook call.

[Operator:]

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive TeleConference. You may now disconnect.