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Executives

Doug Simpson – VP, IR

Joe Swedish – President and CEO

Wayne DeVeydt – EVP and CFO

Analysts

Justin Lake – JP Morgan

A.J. Rice – UBS

Kevin Fischbeck – Bank of America

Josh Raskin – Barclays

Christine Arnold – Cowen

Chris Rigg – Susquehanna

Tom Carroll – Stifel, Nicolaus & Co.

Carl McDonald – Citigroup

Matthew Borsch – Goldman Sachs

Scott Fidel – Deutsche Bank

Dave Windley – Jefferies & Company, Inc.

Peter Costa – Wells Fargo

Andrew Schenker – Morgan Stanley

Ana Gupte – Leerink, Swann & Company

WellPoint Inc. (WLP) Q2 2014 Earnings Conference Call July 30, 2014 8:30 AM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the WellPoint Incorporated Second Quarter Results 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. (Operator instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to the company’s management. Please go ahead.

Doug Simpson

Good morning and welcome to WellPoint’s Second Quarter 2014 Earnings Call. This is Doug Simpson, Vice President of Investor Relations. Presenting this morning are Joe Swedish, President and CEO; Wayne DeVeydt, EVP and CFO.

Joe will start with the discussion of our Q2 2014 financial results as well as the macro backdrop, and then Wayne will review the quarter’s financial highlights in more detail and update you on our 2014 outlook. Q&A will follow Wayne’s remarks.

During the call this morning, we will reference certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available on our website at wellpoint.com.

We will also be making some forward-looking statements on this call. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of WellPoint.

These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review the risk factors discussed in today’s press release and in our quarterly and annual filings with the SEC.

I will now turn the call over to Joe.

Joe Swedish

Thank you, Doug, and good morning. We’re pleased to report strong second quarter results, which build upon the strength of our first quarters and positions us for an improved EPS outlook for the full year. We’re making substantial progress toward our strategic goals and we are seeing the benefits of our diversified platform and leading cost structure manifest in our financial results.

Our organic membership growth has improved meaningfully this year and we’ve made further inroads with our provider collaboration strategy to drive an improved quality and cost of care for our customers. We grew by another 328,000 members in the second quarter driven by contributions from both the public exchanges and the Medicaid expansion.

Demonstrating the reception of our value proposition in the marketplace, we’ve now added 1.6 million new members served so far in 2014, representing growth of 4.5% versus year-end 2013. Our growth has been balanced in 2014 with contributions from national accounts and the public exchanges in our commercial segment as well as Medicaid expansion activity in our government segment.

In Q2, our public exchange growth came in above earlier expectation reaching 769,000 members at the end of Q2. We’ve also added 446,000 Medicaid members in 2014. Looking ahead, we continue to see meaningful, long-term opportunities to grow our customer base across our commercial and government segments.

We expect 2014 will prove to be the first year of a multiyear opportunity to grow through continued growth of public exchanges as well as Medicaid expansion and new world [ph] opportunities.

In addition, dual eligible pilots have started to roll out in Virginia and Los Angeles County and we expect further activity over the next 12 months in this area. We will remain disciplined with our product design and pricing strategy to drive affordability to the largest potential customer base. We must also continue to ensure that we appropriately cover our forward view of medical cost trend to enhance product stability for our customers.

Now delving into second quarter results. We are very pleased with our Q2 results with solid contributions from both our commercial and government division. Specifically in the second quarter, we reported earnings per share of $2.56 on a GAAP basis and $2.44 on an adjusted basis.

Our GAAP EPS and adjusted EPS decreased from the second quarter of 2013, reflecting a change in the mix of our product portfolio and the implementation of the Affordable Care Act. However, our second quarter results do compare favorably to our initial expectations.

We also generated higher than expected operating cash flow of approximately $1.1 billion brining our year-to-date cash flow to approximately $2.5 billion. We’ve remained focused on our capital deployment strategies, repurchasing an additional 8.2 million shares during the quarter for approximately $814 million and paying $120.5 million dividends.

Year-to-date, we have repurchased 22.6 million shares or 7.7% of the shares outstanding at the beginning of the year for approximately $2.1 billion at a weighted average share price of $92.10.

Turning to our business segment performance, our commercial business had a solid quarter as we executed our public exchange strategy. With contributions from continued growth and public exchanges, commercial was able to maintain membership levels after the robust growth seen in Q1. Commercial revenues grew 1.7% year-over-year to nearly $10 billion even with the previously announced funding conversion of the New York State account which impacts revenues by about $2 billion a year.

Commercial operations declined as expected from 9.7% a year ago to 9.2% in the second quarter of 2014 due to our SG&A investment spending and the changing mix of business as we have discussed with you previously.

Similar to Q1, in our commercial business, our large group and exchange base membership trends in the quarter remain favorable while a small group remain under enrolment pressure. Individual memberships stood at over 2 million members at the end of the second quarter 2014, up a net 172,000 members during the quarter from open enrolment. Year-to-date, our total individual enrolment is up 267,000 members.

The implementation of our public exchange strategy is progressing well and provides a foundation for future commercial risk membership growth opportunities over the coming years. To update you on the various metrics, we added 769,000 individual members on the public exchanges through midyear, which was above our expectation of at least 600,000 we laid out on our first quarter conference call.

The general characteristic of exchange applicants including average age, continue to track well versus our expectation. Product selection and benefit levels have also been consistent with expectation.

We’ve been executing on our exchange rollout and have managed our exchange inventories in the second quarter through our planned levels. The paid claims trends thus far are encouraging. But we recognize it remains early in the year as many of these new members only joined our enrolment rolls in May.

Therefore, we continue to take a prudent view of our reserves in line of the potential uncertainties associated with this membership and expect to gain more information as this block contours in the Q3 and Q4.

We continue to account for risk quarters and risk adjustments at being a net zero impact for us in 2014 as we have discussed before and as reflected in our outlook. As we discussed last quarter, with respect to our small group business, we continue to be mindful of the potential for employer coverage changes in light of the exchanges as we did see Q2 small group member decline above our expectations.

Small group has now shed 218,000 members year-to-date and stands at 1.63 million members. These dynamics are reflected in our outlook.

In our local group business, we were pleased to have recently been awarded the contract for the New York Hotel trade which added 74,000 members on 7-1-14. In the State of Kentucky employees which will add roughly 240,000 members effective 1-1-15. We do expect to lose some enrolment in the State of Georgia accounted 2015 due to carrier additions on that contract.

But we believe our service levels and our cost of peer advantage leave us well-positioned for member retention and expect this will prove manageable in the broader context.

Finally, we’re roughly midway through the national account selling season and we feel good about our momentum in the market as our ability to improve healthcare affordability is resonating with customers. It’s early to peg a specific enrolment expectation for 2015. But we do expect to be a modest net grower again in 2015.

While the number of contracts after bid [ph] in 2015 is below that of the year ago, our competitive position remains strong. We believe we are well positioned for what we expect to be a ramp up in activity among national accounts as we look out to 2015.

Now turning to the government business segment. Our government business division had 326,000 members in the quarter driven by strong growth in Medicaid and generated revenues of $8.3 billion, up approximately 7.4% quarter-over-quarter. The government business represented 45% of our consolidated operating revenues in the quarter as our business continues to evolve and diversify.

Medicaid enrolment was up an additional 325,000 members in the second quarter, bringing year-to-date growth 446,000 members. We expect to continue growing Medicaid enrolment throughout the year driven by our recent RFP wins in Florida, Kentucky, Georgia and California as well as the ACA-driven expansion.

We’re raising our enrolment outlook for expansion members from 300,000 to 400,000 previously reported up to 400,000 to 500,000. As a result, we’re raising our total Medicaid enrolment outlook from 400,000 to 500,000 previously up to 500,000 to 600,000. As expected, Medicare enrolment was relatively stable in Q2 with a gain of 3,000 members.

Government operating margins improved 10 basis points year-over-year to 3.8% reflecting continued medical cost management efforts and an improvement in expense efficiency. Both Medicaid and Medicare margins track favorably relative to initial expectations. Our government business is growing along multiple fronts with the implementation of several recent go-live situations in New Jersey, Florida and Kentucky as well as dual-eligible pilots that will continue to grow in late 2014 and into 2015.

Looking ahead, in addition to Medicaid expansion, we continue to see substantial RFP opportunity for new business over the next year. We currently see a universe of opportunity of nearly $40 billion in contracts to be awarded by yearend 2015. While we do not comment on individual markets, we remain optimistic in our ability to gain meaningful net new business from these opportunities.

Dual-eligible programs have now started to launch with Virginia going live at the start of Q2 and we currently have roughly 5,000 members enrolled in that market. We also currently serve nearly 3,000 additional dual-eligible members in Los Angeles County which went live on July 1, 2014. We currently expect New York, Texas and the remaining counties in California to commence in early 2015.

So on the back of a strong second quarter and a strong first half overall, we are updating our 2014 financial outlook this morning. We now expect adjusted earnings per share of greater than $8.60 for the full year 2014, reflecting stronger enrolment and margin trends. We’re also raising our cash flow outlook which Wayne will discuss in more detail in a moment.

We believe this is a prudent outlook in light of the dynamic nature of our markets and the potential for further changes in the regulatory framework. It is early to offer any specifics on our 2015 outlook other than to say our goal is certainly to grow earnings over our current 2014 outlook driven by incremental contributions from new membership in both our commercial and government segments.

We will update you as the year progresses as we refine our views on enrolment and any timing issues and competitive landscape, rates and cost trend.

To conclude, we are pleased with our Q2 performance and we remain optimistic about our future growth opportunities across both our commercial and government business provisions. We remain focus on executing against these opportunities while remaining disciplined stewards of shareholder capital.

With that, I’ll now turn it over to Wayne.

Wayne DeVeydt

Thank you, Joe, and good morning. My comments today will focus on the key financial highlights from the second quarter of 2014. I’ll also provide an update on the 2014 outlook.

On a GAAP basis, we reported earnings per share of $2.56 for the second quarter of 2014. These results included net benefits of $0.12 per share reflecting net investment gains of approximately $0.13 per share partially offset by $0.01 per share of debt extinguishment expense recorded in the quarter.

Excluding these items, our adjusted EPS totaled $2.44 for the quarter. These results were favorable to our initial expectation and as Joe noted, we are pleased with how 2014 has progressed so far.

Medical enrolment grew by 328,000, a 0.9% sequentially to approximately 37.3 million medical members as of June 30th. This reflected membership gains in our Medicaid and individual business partially offset by declines in small group and some modest [ph] in group change in national during the quarter.

Operating revenue exceeded $18.2 billion in the quarter, an increase of approximately $738 million or 4.2% versus the second quarter of 2013 driven by enrolment growth in our commercial and government business. Revenue growth versus Q2 ‘13 was adversely impacted by the previously discussed impact of the transition of the State of New York account from fully insured to self-funded on January 1st.

The benefit expense ratio was 82.7% in the second quarter of 2014, a decrease of 120 basis points from the prior year quarter and favorable to our initial expectations. The decline reflected continued strong medical management and the impact of the premium revenue designed to help cover new healthcare reformed fees, partially offset by changes in our earnings pattern we have discussed previously.

We are pleased with gross margin performance in both of our businesses in the quarter and first half. And we are improving our MLR outlook for the year from 83.7% plus or minus 30 basis points to 83.5% plus or minus 30 basis points.

For the full year 2014, we continue to expect underlying local group medical cost trend to be in the range of 6.5% plus or minus 50 basis points with a bias towards the lower half of that range. Our SG&A expense ratio increased by 190 basis points from 2Q of 2013 as expected due to the inclusion of various healthcare reform fees in 2014 and continued spending in preparation for ACA-driven market changes.

Consistent with our best practice, we have included a roll forward of our medical claims payable balance in this morning’s press release. For the six months ended June 30, 2014, we experienced favorable prior year reserve development of $525 million which was modestly better than our expectation.

Development was consistent with the prior year debate period. We continue to maintain our upper single-digit margin for adverse deviation and believe our reserve balance remains consistent and strong as of June 30, 2014.

Days and claims payable was 44.8 days as of June 30th, up 0.6 days from 44.2 days as of March 31st and up 6.1 days compared from 38.7 days at the end of 2013. We expect DCP levels will come down over the next several quarters as our public exchange business further matures.

Our debt to capital ratio is 37.8% at June 30, 2014 down from 38.2% at March 31st and up from 36.9% from yearend 2013. We ended the second quarter with approximately $2.1 billion of cash investments at the parent company. And our investment portfolio was in an unrealized gain position of $1.2 billion as of June 30th.

We generated stronger than expected operating cash flow of $1.1 billion in the second quarter or 1.5 times net income. On a year-to-date basis, we generated operating cash flow of approximately $2.5 billion, roughly 1.7 times net income.

We continue to expect cash flow timing to remain volatile, partially reflecting the timing of the exchange base enrolment this year and the timing of payments related to health insurer fee and the 3Rs. That said, cash flow trends in the first half of 2014 have been encouraging.

We repurchased more than 8.2 million shares for approximately $815 million during the quarter. This is on a weighted average price of $98.99. As of June 30th, we had approximately $1.6 billion of board approved repurchase authorization remaining which we intend to utilize over a multiyear period subject to market conditions. We used $120.5 million during the quarter for our cash dividend. And yesterday, the audit committee declared our third quarter dividend to shareholders.

Turning to our 2014 outlook, as Joe noted, we currently expect adjusted EPS to be greater than $8.60 in 2014. The increase in our full year outlook reflects a stronger operating income outlook due to the stronger moment and continued medical management and expense controls.

We are raising our enrollment outlook. And now expect enrollment in 2014 to grow by 1.4 million to 1.5 million members. The 37.05 million to 37.15 million by year end 2014. We’re also raising our cash flow forecast to greater than $2.7 billion for the full year. Note, that we do expect cash flow for Q3 to be negative as a result to defining of [ph] payments related to the insurer fee and taxes which are due in September.

We believe our updated outlook is reasonable as remains early in the year in which the industry is undergoing substantial change and our bias it to maintain a prudent stand in this dynamic environment. We may choose to opportunistically refinance certain debt if market conditions are favorable as the year progresses, such activity could result in onetime cost not included in our current guidance.

Finally, we’ve not yet made a decision on providing a cash EPS metric that some of our peers have. This is the metric we are considering adopting in 2015 to enhance comparability versus our peer group. In the mean time, we just remind you that our outlook reflects approximately $210 million of intangible asset, amortization expense in 2014 related to prior acquisitions including EMEA group [ph].

With that, I’ll turn the call back over to Joe.

Joe Swedish

Thanks Wayne. With that, operator, please open the queue for questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions).

Your first question comes from the line of Justin Lake from JP Morgan. Please go ahead.

Justin Lake – JP Morgan

Thanks. Good morning. First question is on medical cost trend. I know you reaffirmed guidance here. But curious where you see yourself currently within that range and whether you’re seeing any near-term data points indicating a pickup in trend given recent hospital reports?

Joe Swedish

Hey, Justin, good morning. Relative to that range, our bias is to the lower half of that range. It’s important to recognize that we obviously would be closer to the low-end of that range but it would not be [ph] for the incremental cost that we’ve included for our outlook on hep C drugs for the year.

So I would say, core trend is running well versus those expectations. And even inclusive of hep C cost, our bias is towards the lower half of that range.

Justin Lake – JP Morgan

Any near-term data points on scripts prior authorizations, things like that that would indicate that maybe we’re seeing a pickup here?

Joe Swedish

Nothing of concern Justin. If you look at the drug script volume that I think many of you have seen, it really commence rates with the volume just coming in from the ACA, both the Medicaid expansion and the exchange live [ph] that are coming in. So nothing surprising there. When we look at our bed days per thousand [ph] as well as the length of stay per thousand by line of business, I would say in all areas, they’re playing well versus expectation.

Justin Lake – JP Morgan

Great. And then just thinking ahead, I know how ‘15 specifically, but usually around this time of year, you’re able to help us out, just thinking about kind of headwinds, tailwinds for next year. So Wayne, can you – maybe you can lay some of those out for us?

Wayne DeVeydt

I think from a tailwind perspective Justin, clearly as you said, it is too early, but we do expect to continue to have positive momentum on a membership front. We expect to continue to grow in our commercial book as well as our government segment.

Additionally, I think a fair tailwind is that we begin to get full year run rate from some of the things that took place this year. As you know, the ACA membership came in at different points throughout the year, both the Medicaid expansion, the exchange and ultimately the duo opportunities [ph], as you know, just starts to ramp up this year.

So I would say from a top line growth perspective we said many reasons to see tailwinds that are there. And clearly our capital deployment will continue to be a tailwind for our investors as well.

From a headwind perspective, I would really frame it up as two things that we want to continue to keep an eye on. One is the industry tax increases by 40% next year. And that’s not isolated to WellPoint, that applies to the entire industry. I think one thing that’s isolated to us is that the small group attrition that we model for this year, more than half of that $250 million [ph] headwinds, we think we’ll be in a more accelerated timeframe over a shorter window of time, meaning this year and next year in a very longer period of time.

And then –

Justin Lake – JP Morgan

Great. Thanks for all the color.

Wayne DeVeydt

Yes. Thanks.

Operator

Your next question comes from the line of A.J. Rice from UBS. Please go ahead.

A.J. Rice – UBS

Thanks. Hello everybody. Your days and claims payable now are up six days year-to-date. Obviously you’ve said, you wanted to run with a little bit of caution reserves whatever [ph] until you get a full visibility on the exchange members. Can you give us given your book of business where you think over time that claims payable days might settle out? In other words, how much is sort of contingency now for the near-term? And what’s the current run rate of that given the book of business you have today?

Joe Swedish

Hey, A.J. good morning. First of all, I really appreciate the question. I think over time probably a more balanced DCP is going to be somewhere in the range of more of 39 to 42 range somewhere in there. The one thing that’s a little bit challenging right now as you can imagine is that, it’s difficult as an industry to really assess where risk adjustments will fall out, where risk orders will fall out.

And so, the one thing I want to highlight is well, we think we have a inappropriate level of conservatism for all the unknowns in our DCP, it doesn’t necessarily mean that if in fact, our reserves come in much better than we forecast at this point, then it would all translate to a bottom line drop. And some of that would then affect the risk corridor payment. And then some of that would have to go into our rebate [ph] calculation as well.

But all things being said, we’re pleased with the fact that we were able to main our strong DCP levels and actually grow them in 2Q. We think it gives us a lot more flexibility than in our outlook as we continue to evaluate how these things will settle out over the remainder of the year.

A.J. Rice – UBS

Okay. And maybe one follow up would be that there’s been a lot of discussion about on the exchange, just that we would see aggregate signups and then we have attrition over the course of the year. More recently, there’s been some discussion about maybe more are signing up because of life change events that was originally expected. Do you have any visibility on sort of what’s happening post the ending of open enrollment relative to month to month membership signups?

Joe Swedish

Hey, A.J. this is Joe, good morning. I appreciate the question. To maybe calibrate, we’re pleased within our exchange enrollment. Just to give you a sense again, as we stated earlier, we’ve added 769,000 lives year to date. And that is net of all lapses as best we can tell at the moment.

Clearly as the Europe progresses we’ll be monitoring it very closely. But having said that, what we’ve observed thus far and what we’re expecting is well within our expectations going to year end. It’s still little earlier in the year to figure out exactly we’re going to land. But again, we’re continuing to monitor the haps progression. So that net again, I think we’ve accounted for it, and it’s meeting expectations.

A.J. Rice – UBS

Okay. All right, thanks a lot.

Operator

Your next question comes from the line of Kevin Fischbeck from Bank of America. Please go ahead.

Kevin Fischbeck – Bank of America

Great. Thanks. I just want to go back to your comments about the RFP pipeline of $40 billion through the end of 2014, just wanted to understand, does that all new things or does that include things like New York roll out and Texas roll out? And to the extent that is that all business in your existing markets or would you consider entering into new markets that are not blues markets for you?

Joe Swedish

Hi, Kevin. First of all, let me clarify the $40 billion in RFP opportunity through the end of 2015. So it’s both the remainder of this year and through the end of next year. Of the $40 billion, I’d say about $9 billion represents existing opportunities through a combination of [indiscernible] re-procurement or potential expansion. With the other $31 billion truly representing new opportunities for our organization.

So again, I think we feel very good about the value proposition we’re bringing to states. We know they’re seeing that value proposition. We think it’s a big reason we continue to not only be invited in the [indiscernible] process but continue to be successful. As you know last year, we went eight for eight [ph], the team continues to win in new areas.

And so, we like our chances. This is probably the best way to put it on the other $31 billion as well re-procuring some of the expansion on the $9 billion.

And yes, maybe let me just underscore, I think we can target probably at least six areas of pursuit for us. Obviously many of you are well known to you like the dual demo [ph] pursuit, behavioral health pursuit and a variety of aspects of this line of business. So we’re targeting, we’re very focused I think as Wayne pointed out, our RFP process is very sound, very competitive and we feel very optimistic about the potential in all these areas.

Kevin Fischbeck – Bank of America

Okay, great. And then just a question on the small group margin compression that you’ve mentioned a couple of times or profit compression, it sounds like from the counter from this [ph] other companies is that they’re seeing maybe less dumping than they kind of expected before. Can you just give us a little more color exactly how you’re seeing the pressure, because it sounds you are seeing membership losses? But how much of it is membership losses versus actual margin compression in that business?

Wayne DeVeydt

Kevin, one thing to keep in mind with the small group is we fundamentally believe that over time that that business will migrate either to an exchange-like margin while remaining in small group or migrating to an exchange-like margin because it ultimately migrates to a public exchange.

And so from our perspective, it’s not so much what leaves that we pick back up. It’s the combination of also what stays with us and where the margins for tractions occur. The one thing that we’re not concerned with because we expected this to occur over a five-year period. But we just wanted to highlight, we think that trend is going to be faster and maybe what we thought about say 12 months ago at this point in time.

And so we’re seeing some margin compression occur as expected and as planned in the small group book which is seeing a few more leap sooner than we had expected. But as you can see for the exchange enrolment, we’ve been quite successful in picking up many of them as they go to that transition.

Kevin Fischbeck – Bank of America

Okay, okay. So is it going to be when you think about that from the next step from here, is it more about margin compression on that existing book or is it about dumping and potentially picking them up on the exchange?

Wayne DeVeydt

I think it’s both. I think you’re going to see continued margin compression in the existing book as they stay in and then I think you move over [ph]. The last thing I would say, though, is that if you look at the existing book, the active cancel loss ratio is positive for us. So for those that are leaving, they’d appear to be moving to the exchanges in those individuals generally with a high MLR. And so by having them actually migrate over to the exchange, when you have 3R protections outlined, it’s actually a positive too.

So you lose out on the migration, but you at least move them on to protected environment on t he higher risk business.

Kevin Fischbeck – Bank of America

Interesting. All right, thank you.

Operator

Your next question comes from the line of Josh Raskin from Barclays. Please go ahead.

Josh Raskin – Barclays

Hi, thanks, good morning. Just following up on the small group. Wayne, could you let us know – I think you said you had it 1.63 million live in the small group currently. So I’m curious what the overall margin on that is and maybe even just relative to y our overall pre-taxes in the quarters.

Wayne DeVeydt

Hey Josh, good morning. We do not provide margins by business segment. I will tell you that the margins are in the single-digit range, but none in the double-digit range. And to give you at least a gauge of where they’re migrating to as we said, we anticipated that if margins were to be cut in half and move to more of a what I’ll call more of a exchange-like margin in the 3% to 5% range. But that would translate to $400 million plus headwind.

The fact that we’re incurring more than half of that headwind this year at least gives you kind of a gauge of how it’s migrating from say upper single-digit down to a more lower mid single-digit range.

Josh Raskin – Barclays

Okay, perfect. That’s helpful. And then to sum the exchanges, I just want to understand a little bit more. It sounded like you just mentioned the 3% to 5%. Are you guy still comfortable with – and I guess there’s a couple of questions in here. Are you still comfortable with that 3% to 5% margin for the full year? Are you monitoring the others? It seems like everyone else is kind of suggesting that obviously their losses are coming in bigger than expected. So is it conceivable you might actually have a payable for the 3Rs as opposed to receivable. Are you guys looking at things like that?

Wayne DeVeydt

Yes, Josh, very good questions. The short answer is yes. That’s part of the reason that we’re booking closer to the lower end to that margin range and then maintaining the high DCP levels that we have.

As the year progresses, [indiscernible] that if those preserves prove to be conservative. And our run rate that we saw in the first half continues in the second half, we would then move from that lower range of 3%, start migrating closer to 5%, but we would be giving back 50% of every dollar above 3% back into the kitty if you will for the corridor.

So we think our approach leaves us hopefully nothing but upside, though, as you migrate through those different corridors if you will. But that’s part of the reason for our conservative posture as of June 30th.

Josh Raskin – Barclays

Okay, that makes a ton of sense. And then what do you do about pricing for ‘15 then? If you’re potentially in a payable situation, are there situations where you actually may be modestly reduced – your increases or at least increase your rate less than you would have in a separate – in a different scenario?

Wayne DeVeydt

Yes, I think our goal is to be competitive in the market and if it results in the fact that our pricing has a rebate to the consumer or is spanning money to a corridor that we otherwise wouldn’t have to do, we’d rather let the consumer have that benefit.

And so our goal is to provide that enterprising and then as I think you’ll see in many of our public exchange market, I think the stability in the book that we created this year is why we have rate increases that are lower than the average increase you’re seeing from many of our competitors.

Josh Raskin – Barclays

Okay, perfect. Thanks.

Operator

Your next question comes from the line of Christine Arnold from Cowen. Please go ahead.

Christine Arnold – Cowen

Good morning. Thank you for the question. Two quick questions here. With respect to the public exchange membership, you had membership that came on in the first quarter, what do you know about that membership in terms of kind of profitability and lapses?

And then also on small group, are you considering refilling your non-ACA products so that those that early renewed in the fourth quarter of ‘13 can renew again in the fourth quarter ‘14?

Joe Swedish

Hey, Christine, good morning. In terms of profitability and lapses, I think we would say that the things are panning slightly better than our expectations would be. Again, we priced for degree of adverse selection in the first wave that we would have expected.

We saw higher MLR on the book, but not as high as what we priced for it. And so we’re encouraged by that data. And we now have six months of data on that group. So that continues to be encouraging. But I think it’s important to recognize too that we think there’s a delayed behavior that we know we had a lot of storms in the first quarter. We know a lot of people are still understanding how to use the system. And we think it’s a reason to maintain the prudent reserve outlook that we have at this point in time.

In terms of early renewals, I think our strategy is to just ensure that where the law allows us to do early renewals and where we can maintain an appropriate margin and retain the member. It is fully our intent to strive to keep that strategy.

Christine Arnold – Cowen

So we’ll be refilling those money for your products in the small group?

Joe Swedish

Yes.

Christine Arnold – Cowen

Right.

Joe Swedish

Christine, it’s Joe. I just want to focus on three elements that I think is really important to highlight regarding our experience thus far because we’ve sighted this in the past. I think it’s worth underscoring yet again that we’ve attracted a balance risk pool of members. And that’s critically important in terms of having met our expectations in that regard.

Secondly, the average age of the enrollees is also attracting very close to our expectation which kind of gives us very strong comfort that we’re in a good place relative to pricing to ‘14 as well as the experience that we expected.

And finally, the product selection by the enrollees has played out as expected. So when we put all that together, I think we’ve landed in a very good place year-to-date. We don’t expect any material change relative to that going to the end of the year.

And I might add also that the grandmother strategies that we’ve employed are markets specific. I think we’ve been very tailored in our approach.

So again, underscore yet again. I think we’ve modeled this very effectively, executed very effectively. And we’re expecting a good path the year-end.

Christine Arnold – Cowen

Okay, thank you

Operator

Your next question comes from the line of Chris Rigg from Susquehanna. Please go head.

Chris Rigg – Susquehanna

Good morning. Thanks for taking my questions. I guess the first question is that at this point have any sense or what percentage of the public exchange and roll lease were previously ensured versus uninsured?

Joe Swedish

So this is Joe again. That’s a tough one because as you well know, there wasn’t a specific question asked that enrollees, one of their running share ensured. I think we can go to some of the publicly disclosed information around studies of the form like by the Kaiser Foundation, I think in the main are referencing something in the order of 40%, 50%, take your pick.

In our circumstance, I think we’re kind of landing in about the same position. So I can’t give you any specifics beyond that other than I think strong guesses or assumptions based on what we’re seeing.

Chris Rigg – Susquehanna

Okay. And then just to follow up on some of the risk or 3R questions from earlier. So I think in the prepared remarks you said that you’re really assuming risk corridor, risk adjusted sort of doesn’t contribute anything for this year, but then Wayne, I think you just said you’re kind of going towards the low end of the 3% to 5% range in case you have a payable.

I guess I’m just trying to sort of mesh those two together. If you’re kind of assuming zero, why it’s also assuming a lower end of the market range. Thanks.

Wayne DeVeydt

Hey Chris, I appreciate the question. And I understand the complexities of this accounting and trying to describe it. But think about it with a lens that if we’ve maintained a strong reserve balance sheet which we believe we have and we believe the DCPs can support and you can see the underwriting run rate looks positive along with the cash flows, by taking a zero posture on both risk corridors and risk adjusters, what it does allow us to do then that if that run rate improves, for every dollar then that we put into the kitty, we will create a payable for $0.50 on the dollar, but $0.50 on that dollar will actually drop to the bottom line then.

So from a conservative posture, it’s not just about how do you account for risk adjuster versus the corridor, but it’s also how does that then tie-in to your ultimate balance sheet conservatism or lack thereof.]

So again with the posture, we’ve taken if the run rate proves that we have a margin greater than three, you are correct, I will then be able to – I will have to book a payable which may not appear to be conservative, but on the contrary it’s conservative because that means I have earnings better than what I’ve actually recorded year-to-date.

Chris Rigg – Susquehanna

Okay, thanks a lot.

Operator

Your next question comes from the line of Tom Carroll from Stifel. Please go ahead.

Tom Carroll – Stifel, Nicolaus & Co.

Hey, thank you. So, Wayne, I just want a quick follow-up on that on your last response just in terms of the accounting for the 3Rs. So it sounds like you are building a payable but not necessarily explicit to the 3Rs that you would end up just throwing back to the system if in fact you do end up in a payable situation. But it sounds like you’re putting more than you need such that some of it drops back in the form of development into next year. Is that the way to think about it? Maybe go over that one more time if you don’t mind.

Wayne DeVeydt

Tom, I think the way you phrased it is actually a good way to look at it, right, that there’s a multitude of blankets of payables you could put up. And I think for us, like taking the most conservative posture right on the balance sheet itself is it covers you for the multiple outcomes that could occur recognizing that if that balance sheet proves to be conservative, then you will not only have potentially some liabilities but you would only have a liability commensurate with whatever upside you would have and then some.

So, yes, I mean if you were asking us today, we think the balance sheet is prudently conservative for all the unknown. I think I really want to emphasize that it’s prudently conservative based on all the unknowns. The cash flow would seem to imply that it could be more conservative than needed. And we want to see some of that cash flow continue in the second half. But if it does, that would argue that there could be upside to our outlook.

Tom Carroll – Stifel, Nicolaus & Co.

And then do you have any additional visibility on the health profile of the exchange enrolment that came in with the April, May bolus?

Wayne DeVeydt

It’s still early on that group as well. I would say generally though, with the younger population and what we saw in the first quarter enrolments, the second quarter was clearly younger which generally translates to a slightly healthier population.

But as Joe mentioned, the key to the strategy about how we priced our book was a balanced risk pool. So we aren’t necessarily viewing one member any differently than another member as long as we get a balanced risk pool. And we think that’s really what the goal of the ACA was to create a balanced risk pool and we think our strategy has done that.

So in general, it’s a little early though on that group to declare whether they’re healthier than average yet because the actual claims volume’s just starting to come in on them.

Tom Carroll – Stifel, Nicolaus & Co.

One more admin question. Wayne, I think you mentioned – you said you had claims development of what, $525 million favorable. How does that compare to the same period last year? Is it more or less?

Wayne DeVeydt

That’s a really good question. On an absolute dollar basis, it looks like it’s just barely below last year. But when you consider that we had fewer members at the end of last year than we did the year before and then you reflected medical trend adjustment, it’s actually slightly better than our expectations. But by having a higher DCP, we believe we’ve reestablished it all.

Tom Carroll – Stifel, Nicolaus & Co.

What was the number for last year?

Wayne DeVeydt

I don’t have that in front of me, Tom, but if you go to the press release –

Tom Carroll – Stifel, Nicolaus & Co.

Yes, I can find it. It’s not materially different though.

Wayne DeVeydt

– you’ll see it there. But it was within less than $10 million – in fact, if you could just give me a second, I can quote it to you. Last year was $532 million, Tom, this year is $524.7 million. So you’re looking at roughly a $7 million delta [ph] year-over-year.

Tom Carroll – Stifel, Nicolaus & Co.

Yes. Okay, thanks so much.

Wayne DeVeydt

Thank you.

Operator

Your next question comes from the line of Carl McDonald from Citigroup. Please go ahead.

Carl McDonald – Citigroup

Thanks. First question was just the current assumption around payment of the Medicaid industry fee and whether that contributed to the increase in guidance.

Wayne DeVeydt

Hi, Carl. Yes, good question. If you remember on our first quarter call, we had assumed about $0.05 in our outlook for the year based on the positive momentum we were having. The outlook has been improved by an additional $0.05 in terms of what we’re expecting there. So we have about $0.10 reflected in both first half actual as well as our outlook for the remainder of the year in total.

It’s important to recognize too that we’re still working through the hep C situation with our states and we’re expecting hopefully some relief there.

And then finally though, I would say the State of Texas is the one state that we’ve not factored in some of the reimbursement levels around the non-deductibility component. We believe for a sustainable model that this is really an important factor that still needs to be addressed. But we have about $0.10 for full year earnings and outlook combined.

Carl McDonald – Citigroup

Great. And then coming back to the discussion around the 3Rs, just wanted to try to make a distinction between risk adjustment and the risk carter [ph]. So is it right to think if it turns out you always pick a number, $250 million of risk adjustment, 100% of that goes away versus if it’s a risk carter [ph] adjustment you get to keep 50%. Is that sort of the right way to think about it?

Wayne DeVeydt

Carl, this is a real fair question. And the answer is yes, that’s how you would think about it. Understand, though, there’s a Wakely [ph] study going on right now as well. And while the data is still somewhat immature, we have a gauge of where we think we’re going to land and whether we’re going to be a net receiver or net payer at this point.

And again, I would tell you even on that we’ve taken a conservative posture. So while there is theoretically the possibility that the study could be completely wrong and that at the end of the year we could have something swing in the complete opposite direction, we would still look at it as our DCP, our reserve balance sheet has that covered.

But again, I would tell you we actually have a third party data point to point to now that would tell us that we’re probably being at least prudently conservative on the risk adjuster as well.

Carl McDonald – Citigroup

Got it. All right, thank you.

Operator

Your next question comes from the line of Matthew Borsch from Goldman Sachs. Please go ahead.

Matthew Borsch – Goldman Sachs

Yes. Hi, good morning. Just a question on back to the 3Rs for a moment. Are you expecting some tailwind in the back half of the year from the reinsurance – another company talked about GAAP limiting their ability to accrue reinsurance according to what they would expect for the full year versus simply booking what they’d actually seen, where are you on that?

Wayne DeVeydt

So, Matt, I would say this response to that. I cannot speak to that competitor’s actual accounting practices. I can tell you though the way the accounting rules work. You will have a higher MLR earlier in the year as a result of how the reinsurance component works than you would in the back half of the year. That is a factually true statement.

And so best chain dynamic is in fact playing out in how we look at it as well. But again, I can’t speak to the specifics of how it may have affected their MLR consolidated.

Matthew Borsch – Goldman Sachs

What about yours though, I mean is that a material factor for you in the back half?

Wayne DeVeydt

It’s not a material factor. I mean I think when you have a balanced risk pool like we have for us, we feel that we’re going to get a very similar flow of reinsurance kind of from quarter to quarter. But again, I will tell you that to the extent somebody burns through the first 45,000 in the first half of the year, you will have a higher MLR than you will on the back half when the next 200,000 is essentially covered by reinsurance and yet you’re getting premium on it.

So again, accounting wise, the math makes perfectly good sense. But from our perspective, our book is pretty balanced, so we don’t necessarily get a big pickup in either direction.

Matthew Borsch – Goldman Sachs

And shifting gears, on question for guidance off the top of my head where you guys are on participation in the new Florida Medicaid program but to the extent you do have some visibility on how that started, can you comment on utilization or anything else that you’re seeing there?

Wayne DeVeydt

Yes, Matt, I would say that from our standpoint in terms of the expansion in Florida, we haven’t seen anything alarming at this point. We continue to monitor and stay focused on our medical cost management. It’s really early there to be honest, though.

I mean you’re looking at less than 60 days of experience at this point in time. But based on what we’ve seen, I mean we look at drug data and other data points, we’re just not seeing anything alarming.

Matthew Borsch – Goldman Sachs

All right, thank you.

Operator

Your next question comes from the line of Scott Fidel from Deutsche Bank. Please go ahead.

Scott Fidel – Deutsche Bank

Thanks. I just want to follow up on some of the discussion around small group and some of the attrition that you were seeing this year. And just interested, Wayne, just we can go on through the small group rate filings for 2015 in considerable detail and we’ve been seeing some of the lowest proposed increases that we’ve seen in frankly maybe ever. But certainly in a number of years, particularly amongst [indiscernible] non-profits and just interested in your view on how the initial rate filings are developing in small group for 2015 and if you think that maybe what we’re seeing with some of these proposed rates is the response to the attrition that’s going on in small group and a reaction to try to protect those books of businesses from outgoing [ph] into the exchanges.

Wayne DeVeydt

Hi, Scoot, good morning. Our experience so far on our small grade filings has been encouraging. I think as we show our regulators the basis for how we’re building those filings, we’re trying to make sure they understand that the risk pool is changing though, that as people lead the current small group pool and migrate to exchanges that those created a different risk pool.

But in general, we’re seeing a pretty good profile there. Trend was lower in ‘13 though, so I think what you saw was not fully reflected in the 2014 rates when people first priced and now I think you’re really starting to see the ‘13 and ‘14 trends get reflected in the ‘15 pricing. So I think it’s – when you’re doing an apples to apples, I think ‘13’s trend coupled with ‘14’s is kind of distorting some of the ‘15 pricing.

But all that being said, it would only be prudent to hang on to those members at margins that are least commensurate to or slightly better than what you would see in an exchange. And I think that is a reasonable strategy that people will deploy.

Scott Fidel – Deutsche Bank

Okay. And then just I had a follow-up question. Just last quarter you guys gave us sort of a mix of the hep C spending by market segment, commercial versus Medicare versus Medicaid, just interested if there was any changes in that mix. And then just overall, how the hep C spending look for 2Q relative to 1Q.

Joe Swedish

Yes, Scott. Just as a reminder, we had more than doubled our hep C cost in our pricing for the current year as compared to the prior year. And then in our outlook after Q1, we had in an incremental $100 million to that outlook. I would say that hep C has pretty much played with those expectations. We’re not seeing upside versus that expectation at this point in time, but we’re not seeing downside.

The trend in the last say four weeks seems to be coming down a bit. But we believe you’ll see a spike later in the year when the new hep C drugs come back out. So I think an early indicator meaning the last four weeks or so might imply that it’s a little conservative. But we actually don’t think it is because we really do think there will be a spike when the new drugs hit the market.

So I think net-net for all of our segments, they’re playing as expected that we reported last time. And I think what you’ll find is that the additional $100 million is probably going to be necessary.

Scott Fidel – Deutsche Bank

Okay. And the mix just still look like 40% commercial, 30% Medicaid, 25% Medicare [ph]?

Joe Swedish

Yes. It’s very consistent with what we had in Q1.

Scott Fidel – Deutsche Bank

Okay. Thank you.

Operator

Your next question comes from the line of Dave Windley from Jefferies. Please go ahead.

Dave Windley – Jefferies & Company, Inc.

Hi, thanks. So in the exchange market, I think we’re seeing some new entrance in the pricing that we can see some new entrance coming in lower than some of the 2014 encumbrance in some cases. Are you seeing that and can you kind of rationalize that or do you think that is in fact irrational pricing? And just be curious your thoughts on some kind of low price new entrance.

Joe Swedish

Yes. I think it’s a good question. This is Joe. I think that we fully expect it that there would be new entrance in the market place. So it’s certainly not a surprise. And we certainly underscored that our ability and desire to compete in markets like that.

We have not seen what I call irrational pricing. Certainly, there would be flex happening in pricing market to market. But does far, we haven’t seen anything that would give us great concern regarding irrational pricing.

Dave Windley – Jefferies & Company, Inc.

Okay. Wayne, I wanted to clarify, I think you talked to maybe Tom’s earlier question about PPD, did I understand you to say that you feel like you’ve basically put all of the favorable prior period development back up in reserve this year. So there’s no benefit to 2014 earnings that would become a headwind this 2015 year-over-year?

Wayne DeVeydt

As of June 30, we believe that is the case.

Dave Windley – Jefferies & Company, Inc.

Okay, great. Thank you.

Operator

(Operator instructions) Next, we’ll go to the line of Peter Costa from Wells Fargo. Please go ahead.

Peter Costa – Wells Fargo

Hi, just quickly, the claims paid this year has dropped in your reserve the whole forward table [ph] to 77% down from 79% last year, can you explain why that’s happening? Is that related to your rise in DCP or is there anything else going on there?

Wayne DeVeydt

Part of it is related to the rise in DCP and part of it really is just related to the mass of enrollment that we saw come in with the exchanges. The other thing I would tell you Pete is receipts are coming in slower than what we’ve seen historically. So we don’t just track – we track the time between when a claim is actually incurred versus the day we receive it from the providers through a payment cycle.

So our payment cycles are just down slightly because of our DCP metric, coupled with the fact that with the volume that we saw coming in, we wanted to make sure resources were deployed to a lot of exchange membership to get them processed timely. But as of June 30, I would tell you that everything is stabilized, the inventories are stabilized, levels are consistent with past levels. Days worked on hand for the company as a whole is generally below five. So I’d say, things look pretty steady at this point. But the biggest thing has been receipt times that have [ph] slowing down in terms of when we’re receiving from the provider.

Dave Windley – Jefferies & Company, Inc.

Okay. And then any update on our PBM contract?

Wayne DeVeydt

Nothing new at this point. They continue to be a good partner. And we’re looking forward to build and maintain our relationship with them.

Dave Windley – Jefferies & Company, Inc.

Okay. Thanks.

Operator

Your next question comes from the line of Andrew Schenker from Morgan Stanley. Please go ahead.

Andrew Schenker – Morgan Stanley

Thanks switching back to Medicaid here. I was wondering if you could tell us your experiences on the expansion life [ph]? It appears the new rates cells are more than accurate to cover the cost of these populations? You just tell us what you’re seeing there? Thanks.

Wayne DeVeydt

I’m sorry, [indiscernible] very beginning of your questions what –

Andrew Schenker – Morgan Stanley

I’m talking about the Medicaid expansion population, just talking about your experiences with them?

Joe Swedish

Yes. So one thing just to remind our listeners is that any time we enter a new market and even the market we existed in, but due to the new lives coming in through ACA expansion, we’ve always assumed that we would have a much higher MOR in our run rate MOR. Just under the simple premise that we’re talking completely unmanaged population and moving them into manage care.

In general, I’d say, things are playing well versus those expectations. But as I tried to remind folks that much of the expansion live [ph] as you can really have not started coming on until 2Q. And so, a lot of the data we have is still relatively immature. Cash flow would imply things look pretty good, but it’s really early at this point to declare victory or any concerns in either direction. But all in, our outlook assumes a higher MOR on the book, they would have had [ph] on our run rate book.

Andrew Schenker – Morgan Stanley

Okay. And maybe just talking about the run rate books here, how was the performance been in what we call the WellPoint legacy businesses versus AGP? Are you seeing a normalization there of margins? Thanks.

Joe Swedish

I would say that, Pete and the team have done an exceptional job of improving that business even faster than we have been anticipated and we are starting. We’re not at what I would call, Legacy Ameri-group margin Jet [ph] But we are closing the gap much quicker and those are much improved.

Andrew Schenker – Morgan Stanley

Thanks.

Operator

Your next question comes from the line of Ana Gupte from Leerink, Swann & Company. Please go ahead.

Ana Gupte – Leerink, Swann & Company

Yes. Thanks for taking the question. So I just wanted to follow up on the commercial medical cost trend. The first question if just looking at this whole notion of the Goldilocks scenario is dead if you will in hospital, some of them are have been seeing that does the [ph] cyclical rebound in – because of the economy, I would call Wayne used to talk about negative and group attrition. And I’m just wondering if in large group and potentially in self-insured, are you seeing a reversal of that trend? So possibly what the hospitals are seeing is related to more people coming into the employment pool, but you’re receiving premiums and not a per capita issue?

Wayne DeVeydt

Hey, Ana, good morning. Yes, what’s actually interesting is we have seen net negative in group change as far as you know the previous five years. In January and February where the first two months that we actually saw net positive in group change, but surprisingly, that trend is actually flipped in 2Q. And so, we’re starting to see negative again.

Now, it’s modest. I mean, really, really minor. I don’t want to – I don’t want to create an alarm that that’s going the wrong direction. But I don’t necessarily know that that’s the biggest driver. It may have been a driver for things that happened late in Q1 that got ultimately processed and built to us by Q2. But I don’t think it’s a big driver for what you’re seeing in Q2.

I do think that you’re adding a large uninsured population into the mix now. And you’re adding a large group of new Medicaid members into the mix now. And I think it’s why you can see a scenario where both the MCOs and the providers are both doing well, because you just – both parties have new volume coming into this the system that didn’t exist before.

Ana Gupte – Leerink, Swann & Company

Okay. So mostly Medicaid and exchanges, not really anything around cyclical? Just related to that then and back to the prior development question, I think you have – you’ve gotten the only [ph] big MCOs that have reported decent commercial, lots of pressure result [ph]. And I know you all do, but slightly differently. Your PYD is pretty much in lined with last year. I’m must wondering if that is because you were more conservative in estimating the second half particularly in the first quarter around grand fault where they see [ph] a disruption and so on as well as what you booked for the first quarter or is there actually no uptick at all, because there is a team emerging that a PYD is going down?

Joe Swedish

And again, I can only speak to our book. But I think it’s important to recognize when we price for this year, we did price for a rising trend. And I think we just had better data than others had in preparing for the exchange market. And I would argue, we had the best in class Medicaid management team in the country when the Ameri-group [ph] came in. And I think you just coupled those execution points together. And I think it’s fair to say, we had a nice conservative balance sheet.

So that differently helps but I don’t want to take away anything from this management team’s execution. This has because two solid years with this new team. And this thing is a very different company that what you saw in the previous five year.

Ana Gupte – Leerink, Swann & Company

So just to wrap up on that, and fiduciary [ph], you’re pretty comfortable that the second half your booking, your incurred estimated cost correctly. And then the pricing 2015, I’m assuming you continue to expect an uptick for ‘15 or are you expecting a flat spend [ph] from where you are say?

Wayne DeVeydt

We haven’t given guidance yet for ‘15. But fairly I think there are reasons to believe medical trend will have a reflection point at some point. And we think it’s prudent to take that view.

Ana Gupte – Leerink, Swann & Company

Thanks, Wayne, for the color.

Operator

Thank you. I’d now like to turn the conference back to the company’s management for closing remarks.

Joe Swedish

Great. I’d like to thank you all for joining us today and also for your questions. In closing, let me reiterate a few key messages I’d like for you to take away from this call today. Our strong second quarter built upon the results of last year demonstrates the success we’re having in attracting new customers across our commercial and government segment.

I do want to underscore that our associates have had a lot to do with this and also have a lot to be proud of given their commitment to the execution that advances our strategic priorities and also it helps us capitalize on future opportunities.

We recognize that our challenge going forward as an organization committed to serving our customers is to increasingly ground ourselves in our values especially being easy to do business with. Collectively and individually, we’re focused on doing the right thing, offer simple solutions, striving for excellence and delivering results.

Additionally, I want to reiterate a few points related to our call this morning. We’re pleased with our performance in Q2 and the entire first half of 2014. In our exchange business, enrolment tracked well through midyear with 769,000 new members added. And we believe that we’ve established prudent reserves for this business.

Our government business is growing along multiple fronts with the implementation of several recent go-live situations in New Jersey, Florida and Kentucky as well as dual-eligible pilots that will contribute to growth in late 2014 and into 2015.

And finally, we raised our 2014 adjusted EPS outlook from greater than $8.40 to greater than $8.60. And we also raised our membership growth and cash flow outlook for the year.

So I want to thank everyone for participating today. So operator, please provide the call replay instruction.

Operator

Thank you. Ladies and gentlemen, this conference will be available for replay after 11:00 AM Eastern Time today through August 13th. You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701 and entering the access code 310-062.

International participants dial 320-365-3844. Those numbers once again are 1-800-475-6701 or 320-365-3844 with the access code, 310-062. That does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

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