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Lincoln National (NYSE:LNC)

Q2 2011 Earnings Call

August 03, 2011 11:00 am ET

Executives

Dennis Glass - Chief Executive Officer, President, Director, Member of Executive Committee, Member of Committee on Corporate Action and Head of Lincoln Financial Distributors

Randal Freitag - Chief Financial Officer and Executive Vice President

Jim Sjoreen -

Analysts

Joanne Smith - Scotia Capital Inc.

Thomas Gallagher - Crédit Suisse AG

Andrew Kligerman - UBS Investment Bank

Jay Gelb - Barclays Capital

John Nadel - Sterne Agee & Leach Inc.

Randy Binner - FBR Capital Markets & Co.

Jamminder Bhullar - JP Morgan Chase & Co

Nigel Dally - Morgan Stanley

Steven Schwartz - Raymond James & Associates, Inc.

Suneet Kamath - Sanford C. Bernstein & Co., Inc.

Edward Spehar - BofA Merrill Lynch

Christopher Giovanni - Goldman Sachs Group Inc.

Colin Devine - Citigroup Inc

Operator

Good morning, and thank you for joining Lincoln Financial Group Second Quarter 2011 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to the Senior Vice President of Investor Relations, Jim Sjoreen. Please go ahead, sir.

Jim Sjoreen

Thank you, operator, and good morning, and welcome to Lincoln Financial's Second Quarter Earnings Call. Before we begin, I have an important reminder. Any comments made during the call regarding future expectations, trends and market conditions, including comments about liquidity and capital resources, premiums, deposits, expenses and income from operations, are forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from current expectations. These risks and uncertainties are described in the cautionary statement disclosures in our earnings release issued yesterday and our reports on Forms 8-K, 10-Q and 10-K filed with the SEC.

We appreciate your participation today and invite you to visit Lincoln's website at www.lincolnfinancial.com, where you can find our press release and statistical supplement, which include a full reconciliation of the non-GAAP measures used in the call, including income from operations and return on equity, to their most comparable GAAP measures.

Presenting on today's call are Dennis Glass, President and Chief Executive Officer; and Randy Freitag, Chief Financial Officer. After their prepared remarks, we will move to the question-and-answer portion of the call.

I would now like to turn the call over to Dennis.

Dennis Glass

Thanks, Jim, and good morning. Our solid results this quarter, and last quarter, add up to a strong first half of the year, reflecting successive quarters of good sales, positive net flows, distribution productivity and expansion, and consistent presence in the market with good quality profitable retail products. Highlights in the quarter include sales increases in nearly every business, which, combined with higher equity markets, resulted in $5.4 billion of deposits, $164 billion of account balances and $1.4 billion of net flows.

The acceleration of our capital management activities to take advantage of our share price, an improvement of 70 basis points in consolidated return on equity year-to-date on a normalized basis and increased -- 8% increase in revenues, 20% increase in income from operations and a 28% increase in net income. Given these strong results, let's take a moment to look at a couple of highlights from our underlying businesses.

Sales in our individual Life business were up 12%, driven by continuing strength in MoneyGuard, which benefited from new distribution relationships and a 61% jump in the number of advisors recommending the product to their clients. We continue to improve our product offerings. Earlier this year, we've raised prices on our Survivorship Product to reflect the low interest rate environment and added a new flex pay funding option for consumers. We plan to introduce similar enhancements to our secondary guarantee UL product and further enhancements to our indexed UL products in the third quarter.

Our value proposition of consistency in the market, maintaining a full lineup of products and experienced wholesaling support allows us to capture and retain significant market share with major distribution partners. In fact, the first 6 months of the year, Lincoln is the #1 life provider in each of our top 10 strategic partner firms.

Our Annuity business, individual Annuity sales were up 4% with variable Annuity sales growing by 8%. Our value proposition with VAs is to offer good value, but not the most aggressive features and to continue to mitigate basis risk and hedge breakage while supporting consumer choice. For example, over the past several years, we had evolved our investment options to include more passively managed funds and asset allocation models, which improves a risk profile at the margin. This year, 39% of all flows into VAs has been into these kinds of investment selections. We added several new distribution relationships for our fixed and indexed solutions this quarter and they are now available in every wirehouse. We also recently introduced a guaranteed lifetime withdrawal benefit writer. These changes will provide a lift to sales as the environment for these products improve.

We had a solid quarter in Defined Contribution as we see the benefit of our investments and distribution, marketing and technology, and expect deposits to improve and close to turn positive in the second half as new plans currently in the pipeline come on board. We are gaining momentum in the small case market where we have grown our wholesaling group from 30 to 46, and we are pleased to see a double-digit increase this quarter in small case deposits. We expect similar momentum in the mid-large segment over the coming quarters. We have added senior-level talent to propel our distribution strategies, and in November, we will have achieved a significant milestone in our technology transformation in this segment as we begin to add new clients to our enhanced recordkeeping platform.

In our Group business, we have been focused on managing through elevated loss ratios, and we're pleased to see some improvement there as actions we instituted took hold. New business proposals and sales in the quarter were both up single digits, and we plan to launch a critical illness product in the third quarter to further round out our portfolio and position this business for the trend toward voluntary benefits.

Taken together, these measures give us confidence that the foundation is in place for increased sales momentum in the second half of the year. We continue to successfully leverage the strength and reach of Lincoln Financial Distributors. As I mentioned, we've increased shelf space for MoneyGuard and fixed annuities and have completed our plan expansion of a small case DC team and continue to build our team supporting mid to large plan sales. We, once again, saw an increase in the number of advisors who recommended Lincoln solutions already at over 40,000 through the first 6 months of the year, and we also saw increases in wholesaler productivity across most products. Lincoln Financial Network continues to execute on its growth strategy by retaining top-level financial planners and attracting experienced recruits.

LFN has increased net active producers by 125 from last year, which helped LFN to meaningfully contribute to Lincoln's growth in the quarter, including sales of Lincoln Life up 12%, Lincoln variable annuities up 13% and first year small case DC deposits up 16%.

Turning to the balance sheet. We remain well positioned from a capital and cash standpoint. We continue to main holding company cash in excess of our target, continue to generate healthy RBC ratios at our insurance subsidiaries and have undertaken meaningful capital management actions in the quarter. Over the past 2 years, we have taken steps to place our investment portfolio in a more defensive position, reducing our exposure to below investment-grade securities and more volatile investments as we ride out the slow economic recovery.

Before I turn the call over to Randy to add his comments on the quarter, let me say there has obviously been a lot of focus lately on global economic uncertainty with the debt ceiling negotiations, evolving conditions in Europe and recent weakness in U.S. economic indicators. It's important to recognize that the policy and strategy actions we took over the past few years position us to compete in an increasingly volatile environment without sacrificing the product and distribution consistency that our partners expect of Lincoln.

Some of these actions include: Raising prices and reducing tail risks in our product designs; deleveraging the holding company balance sheet; reducing credit risk in the investment portfolio; and importantly, moving from a net borrowed position to a strong net cash position at the holding company. Individually, these are all important and prudent steps. Electively, it represents significant and long-lasting improvement for the company and its ability to form more consistently in the future and in volatile markets. And we have already seen this in our first half results. With that, let me turn it over to Randy.

Randal Freitag

Thank you, Dennis. Last night, we reported income from operations of $349 million or $1.09 per share for the second quarter. Our second quarter results closely mirror those of the first. Overall, strong top and bottom line performance across the businesses. The operating revenue is up over 8%, normalized earnings of $0.98 per share, up 15% from last year, a very strong capital position and continued improvement in our risk profile.

Consolidated return on equity for the quarter was 11.3% or 10.2% when looking at normalized earnings, continuing a trend of improvement in this key evaluation metric. Return on equity growth has been driven primarily by strong earnings results, the lesser impact from accelerated share buybacks. Operating earnings benefited from strong margin performance across the businesses, most notably interest margin where strong income from alternative investments and prepayment fees added to interest spreads. Base spreads, that is excluding excess alternative and prepayment fee income, remain steady when compared to the second quarter of 2010, despite the persistent low interest rate environment that has existed over that period.

During the quarter, we entered into $300 million of interest rate locks, increasing our total to $1.3 billion. The rate locks, which were entered into interest rate level that would help to support current interest spreads will mature over the next 5 years. As you know, we have previously disclosed the potential implications to earnings if prevailing interest rates that remain at depressed levels for a few more years.

Based on an update as of June 30, and assuming that 10-year treasury stays at 3%, earnings will decline by approximately $20 million in 2012 and $40 million in 2013. It's worth noting that this is an exercise that runs counter to what the forward curve indicates in what we believe will happen to rates over the next few years. Nonetheless, you can see that the projections represent a relatively small percentage of total annual earnings.

Turning to segment results and starting with Annuities. Positive flows in markets produced another strong quarter, driving a 21% increase in total account balances to a record $89 billion. Earnings during the quarter of $150 million were up 29% over the prior year quarter as growth in the equity markets led to improved mortality results, positive retrospective and lock-in and a 14% increase in revenues.

And our Defined Contribution business, account values were up 15% to $40 billion and revenues grew 6%, leading to an 18% increase in earnings to $42 million. Pretax margin in the quarter came in at a strong 23% compared to 20% in the second quarter of 2010.

Turning to our Life Insurance segment. Earnings drivers performed as expected. Life Insurance in force up 3% and account balance is up 8% quarter-over-quarter. Normalized interest spreads remained strong, in the 190-basis point range, having increased modestly from the year-ago level, supported by the long-duration nature of the assets and liabilities in our Life business.

Life earnings of $152 million, essentially flat with the prior year. As a reminder, we have executed reserve financings over the past year, which will benefit in the enterprise in total have pulled income out of the Life segment.

In the Group Protection segment, non-medical net earned premium grew 7%, which, despite a soft sales environment, continues to benefit from good persistency and pricing increases. Non-medical loss ratio for the quarter came in at 73.4%, continuing the trend of improvement seen in the first quarter. Embedded in this quarter's number is a 50-basis point reduction in the discount rate of 4.25% for 2011 new claiming curls. This increased the loss ratio by about 1% for the quarter.

Premium growth, improving loss ratios and strong investment income drove earnings of $26 million, up 15% from the second quarter of 2010. I think that we still need to be somewhat cautious in this business as unemployment levels in the economy pressure incidence. That continues to run above our long-term expectations, although down from the highs seen at the end of 2010. So while some caution is still called for, there's an encouraging development to see loss ratios responding to the actions that we've taken, including premium increases and additional resources applied to claims management.

Turning to expenses. Expense management was strong during the quarter with expense ratios declining on both a sequential and a quarter-over-quarter basis. Realize that while G&A was up 4% over 2010 levels, this was due primarily to sales growth and targeted strategic investment-related spends. As we move to the remainder of the year, I do expect expenses to increase, primarily the result of growth in strategic investment-related spends across the company, besides this at $0.01 to $0.02 per share per quarter relative to second quarter expense levels.

Finally, let me provide some comments on capital, risk management and related activities. Credit profile of our invested assets continues to improve below investment grade assets declining to just over 6% over the portfolio, down over 3% from the peak. Recently, we have seen limited value in the high-yield space and must have been following a higher quality investment strategy, primarily investment-grade bonds and commercial mortgages.

Additionally, we have been selectively de-risking the portfolio of assets that are more sensitive to the economy. Looking forward, if and when value comes back into our credit-sensitive assets, we would anticipate that we would allocate more to these asset classes. The variable annuity hedge program continued its history of strong performance and ended the quarter with hedged assets of $1 billion, well in excess of the hedge liability of $350 million. Estimated RBC is unchanged from first quarter levels at approximately 500%. Total adjusted capital of $7.3 billion was up approximately $100 million for the quarter after taking dividends to the holding company of $150 million.

During the quarter, we continued our capital redeployment activities to repurchase of $150 million of common stock. It was an opportune time given the weakness in the share price. And if you recall, this represents the balance of the buyback guidance provided on last quarter's call.

Looking ahead, we generate $350 million to $400 million of free cash flow at the holding company each year and have $1.6 billion of capital in excess of targeted levels, positioning us to continue capital deployment activities with our share buybacks. I'm going to move away from specific guidance. Anticipate that share buybacks will continue in coming quarters.

To wrap up and expand on Dennis's comments. It's important to note some of the important actions we have taken to improve both the balance sheet and consistency of quarterly results. As equity markets and interest rates struggled, we reset our long-term earned rate for both, reducing the risk of volatility from unfavorable movements in DAC and VOBA. We put lingering issues such as the Transamerica and Swiss Re litigation behind us. And on the capital leverage and liquidity front, over the last few years, we have grown insurance company capital by over $2 billion, executed a numerous reserve financings so that today nearly 80% of our finance reserves are covered by the long-term solutions that are matched with the duration of the liabilities. Reduced long-term financial leverage by over 5 percentage points to 20%, and went from a net short-term borrowed position at our holding company to today, where we hold net caps of $700 million. Fred [ph] mentioned each of these actions before, but sometimes it's important to step back and look at the totality of what we've done because it is actions like these that have positioned us to report consistent high-quality earnings as we move forward. With that, let me turn the call over to the operator for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Suneet Kamath of Sanford Bernstein.

Suneet Kamath - Sanford C. Bernstein & Co., Inc.

Question about the interest rate guidance, just to make sure that I have the numbers correct. You said assuming a 3-year -- a 3% tenure, excuse me, you said $20 million in 2012 and $40 million in 2013, is that correct?

Randal Freitag

Yes, Suneet, that's correct.

Suneet Kamath - Sanford C. Bernstein & Co., Inc.

Okay. So if I go back to, I guess, earlier this year, I think in some of your conference presentations you provided some data on this. And I think the 2012 estimate at that time was something -- again, I think the assumptions were the same, was something like $71 million hit. So if that's correct, what specifically has changed in terms of dropping that impact?

Randal Freitag

Suneet, we've given impacts of low interest rates 3 different times. One time was the 10-year treasury at 2.5%. At that time, the year one impact was approximately $30 million. And then, we gave the impact when the 10-year treasury was closer to approximately 335. At that time, the year one impact was in the range of $20 million. So I think where we sit today and with the guidance using a 10-year treasury of 3%, we're very consistent with those results, with the year one impact, as I mentioned, of $20 million. If you think about sensitivity around that, it really go back to that earliest guidance where the 10-year treasury was at 2.5% and look at that year one impact of $30 million. That should give you a good range for potential impacts of low interest rates.

Suneet Kamath - Sanford C. Bernstein & Co., Inc.

Got it. And then just a quick follow-up. This is all just operating earnings drags as opposed to anything in terms of DAC or reserved builds that could happen, is that correct? And can you provide any sensitivities around -- or thoughts around the potential for something other than just kind of normal earnings drag?

Randal Freitag

Yes. Suneet. By giving these impacts for the next few years, I'm really giving you the impacts that I believe could happen. Other issues, I really don't see happening over the next few years.

Dennis Glass

Let me just reemphasize that. When we give this guidance, we're inclusive of both operating income and balance sheet implications. So to be quite clear, the operating earnings impact from reduced margins to declining interest rates over the next couple of years is the only impact that we see from low interest rates.

Operator

.

Our next question comes from Nigel Dally of Morgan Stanley.

Nigel Dally - Morgan Stanley

With capital, encouraging to hear plans for continued buybacks at the close of the year. But can you provide us an update with all the capital management alternatives, such as your plans for leverage reduction, how you're viewing the dividend and anything on the consolidation front?

Randal Freitag

Yes. Let me tackle those in order. Looking at share buybacks, we're generating cash flow at the holding company, as I mentioned, $350 million to $400 million, to be right around $400 million this year. That really looked -- provides the pool that I would look to for share buyback potential for the year. As you're right, we've done $225 million to the first half of the year. Look to that number when thinking about share buybacks. Dividends, we'll discuss that with the board in the fourth quarter, so no further guidance right now on that. On the deleveraging front, we have a fourth quarter maturity of $250 million. I'd look to access cash at the holding company right now. As I mentioned, we have $700 million of excess cash, which is a couple of hundred million in excess of our targeted level of $500 million. So current plans are to repay that fourth quarter maturity with excess cash.

Dennis Glass

And Nigel, the only thing I would add to that, and you've heard me say this before specifically with the respect to dividends, it's our intention and hope that overtime we can increase the level meaningly from where it is today. When that happens, as Randy says, a board decision. But certainly, the board and I are consistent in our desire to see that, get the dividend rate get higher.

Nigel Dally - Morgan Stanley

Okay. And then any comments on the consolidation front?

Dennis Glass

On the what front?

Nigel Dally - Morgan Stanley

]

Consolidation, any acquisition opportunities?

Dennis Glass

M&A in the business?

Nigel Dally - Morgan Stanley

Yes.

Dennis Glass

I think M&A has been slowed down, and certainly in the Life industry probably more widely because of the economic uncertainty. So there may be deals done in the industry, but it seems quite quiet right now. From our perspective, specifically, we continue to look for opportunities to strategically improve the business, and we've said and continue to be consistent that if we were to do something, if we're able to buy something and that's not sure, we -- our priorities would be to expand the Group Protection and DC business.

Operator

Our next question comes from Jay Gelb of Barclays Capital.

Jay Gelb - Barclays Capital

Could you remind us how you calculate the $1.6 billion of excess capital? And where would your -- with a 500% risk-based capital ratio, that seems awfully high, so I'm just trying to get a sense what a realistic target is.

Randal Freitag

Jay, when we calculate the $1.6 billion, we're using a 400% RBC ratio and $500 million of cash at the holding company. So mathematically, $1.6 billion is the numbers in excess of that. I mean when you look at the Life company capital, I'd go back to my earlier discussion, we're looking at the free cash flow as the cash we have available really for capital deployment, but some usage of the excess capital that we have at the holding company. In terms of Life company, I think Life company capital, when you look at the environment today, it's obviously volatile. I think we're going to continue to be somewhat cautious with the usage of that Life company capital.

Jay Gelb - Barclays Capital

I see. And on a separate issue, you gave us the sensitivity of interest rates stay lower for longer, what if the yield curve flattens, how should we be thinking about the potential impact there?

Randal Freitag

Jay, I'm going to step to the guidance we've given on interest rates, which is the 10-year at 3% and the previous guidance we've given and a yield curve that is shaped of somewhat like it is today. When you think about the flattening of the yield curve, the impacts of math would -- we really haven't contemplated in terms of guidance. I don't think we would see large negative impacts from the flattening of the yield curve. It's tough to say what the other macroeconomic factors that would be in place if that were to happen.

Dennis Glass

Yes, I think, but just add to Randy's comments, most of what we're talking about in terms of the impact on earnings comes from the in force business. Some of this question, in particular, flattening of the yield curve probably doesn't change that much with that being the impact from the in force business. But it does open questions about not just for Lincoln, but for everybody else, product development and product changes and other bigger, not in force but new business issues. Again, even if that were to happen, we're pretty confident that we can maintain good quality retail products in the marketplace across the board, that we could change pricing. And that the products would still be viewed by the consumer as a quality in meeting needs.

Randal Freitag

And Jay, I would add just the overall position of the balance sheet and liquidity of the holding company, we're very comfortable from a balance sheet and a capital standpoint that we're well positioned to handle any environment that comes our way for the next few years.

Jay Gelb - Barclays Capital

All right. It just feels that you have an added potential lever there for ROE enhancement, but I understand your position.

Operator

Our next question comes from Randy Binner of FBR Capital Markets.

Randy Binner - FBR Capital Markets & Co.

The question on a lot of people's minds, and just kind of picking up on where Suneet left off is just I think it will be helpful to just to review with the DAC charge that was taken in the third quarter of last year as well as the goodwill test of last year. Just in my recollection is that both of those tests were kind of meant to be for a 10-year yield environment where the 10-year was at 250. So I think it will be helpful for myself and others just to hear a quick review of where that DAC test was done relative to the 10-year. And with goodwill in particular, I think the discount rate in new business quality also played in, so if you could elaborate on those 2 items that would be great.

Randal Freitag

Sure, Randy. I'll start with goodwill. The goodwill is, first and foremost, a test of the Life production. Life production continues to run strong, so that is a good indicator of where we stand on Life goodwill. On the interest rate side, I'd say the impacts are somewhat neutral to relative to last year's tests, and that rates that come down tend to pull the discount rate down, while at the same time, putting some pressure on margins. So I would describe interest rates as neutral, while the main driver, the Life production, continues to run strong. On the J curve front, if you remember, we assessed that at last year in the third quarter with the 10-year, right at about 2.5%, so right in the range where we are today. What happened then was then that the rate, the new money rate graded up over an 8-year period. We're running pretty close to the J curve at that time. I'd say, we're up a couple 2, 3 basis points behind, but a relatively small impact, a real small impact relative to the assumption change that we made last year.

Randy Binner - FBR Capital Markets & Co.

So by and large, on the DAC front, that set of assumption has already been kind of reset for this low-yield environment that we're finding now?

Randal Freitag

Absolutely, Randy. I'd say we feel real good about where we are from a DAC standpoint relative to interest rate assumption.

Operator

Our next question comes from Chris Giovanni of Goldman Sachs.

Christopher Giovanni - Goldman Sachs Group Inc.

Just a couple of questions. One for Randy, I wanted to see if you can provide an update on your sensitivity to moves in the equity markets on your earnings and then sort of a rough justice impact to RBC, assuming maybe a 100-point decline in the S&P.

Randal Freitag

The impact on the earnings of movements to a -- of a certain percentage in the equity markets is primarily an item that occurs obviously in the DC and the Annuity business. I would say, roughly speaking, that growth in the equity markets is pretty closely linked to the growth in the earnings. So if you saw equity markets move up, pick a number, 2% or 3%, you see earnings move up like amount across the whole business. I would say it's fairly similar in the DC space. Those are the 2 primary areas where I'd look to an impact from any movement in the equity markets. Chris, could you repeat your last question?

Christopher Giovanni - Goldman Sachs Group Inc.

Just in terms of maybe a 100-point decline in the S&P, what does that do to your RBC ratio?

Randal Freitag

Yes. The impact of a movement in the S&P in RBC ratio would be relatively small. Remember that, as I mentioned in my comments, we're sitting here today with a hedge program, with assets that exceed liabilities and that includes statutory liabilities at $650 million. So it's a significant amount of cushion against any impact on RBC from movements in the equity markets, so very well positioned from that standpoint.

Christopher Giovanni - Goldman Sachs Group Inc.

Sort of what level of S&P then where we need to see to sort of absorb that cushion?

Randal Freitag

It's impacted by movements in factors outside of just movements in the equity markets. I would roughly estimate that you'd be at S&P levels in the 800 to 900 range.

Christopher Giovanni - Goldman Sachs Group Inc.

Okay, that's helpful. And then just one for Dennis, if you can maybe give us sort of a bit of an update in the VA space in terms of what you're seeing in terms of, maybe a pickup in competition, and then maybe any changes sort of in guarantee features or pricing.

Dennis Glass

Competition in any particular quarter, I've heard that some companies have reported some pretty big swings, can result from any number of things, including moving from a higher or more-rich product to a less-rich product. So it's hard really to judge in any particular quarter what the competition is doing. And I would come back to what I've said in previous analyst calls that, to a large extent, we're trying to sell products on our terms and in amounts that we feel good with respect to our overall business mix. And so what we're focusing on is the continuation of our value proposition, distribution productivity and, as I mentioned already today, we obviously, keep an eye on hedge risk and continue to try to make asset improvements that help on that front. So from Lincoln's perspective, irrespective of what others may be doing, we continue to sell in good volumes, good increases and on our terms. So I feel pretty good about what we're doing. And I'll come back to and say at some level, the competition is important. But just to repeat, market share is not, I think, a good place to focus on because you can get market share by franking up products that are good for the consumers, but not for the shareholders.

Christopher Giovanni - Goldman Sachs Group Inc.

If I can sneak just one last one in. Just in terms of -- you mentioned in the comment in terms of increasing global uncertainty, can you maybe provide a bit of an update in terms of what Fred's looking at? What you guys are seeing and thinking about in terms of long-term strategic planning and M&A strategies?

Dennis Glass

Yes, I can. And it starts with we strongly believe in the fundamental business model that we have right now across all of our businesses, our distribution strength, the pricing of our products and of course, that will change as need be, the

balance sheet, all the things that we've been saying now for quite a while were very -- the fundamentals of distribution product, balance sheet strength are as strong now as they have been for years. So it's continuing to execute, by and large, on the strategy that's in place. On top of that, we would, at some point, if the right opportunity comes along, like to move our DC and our Group Protection business to a little bit larger percentage of our overall earnings mix and capital allocation. We've been in business for a long time. Opportunities for strategic and sound acquisitions come and go, but you can't count on it. And so we continue to focus on the fundamentals of the businesses that we're in, and growing on an organic basis.

Randal Freitag

Before we move to the next question, I want to go back to the earlier question on the impact of the movements in the S&P to earnings. I talked about the impact on the Annuity and the DC business. You bring it all together and you look in total across the company. We find there's about 1% movement in the S&P, currently has an impact of about $3 million to $5 million to earnings on a total organization.

Operator

Our next question comes from Andrew Kligerman of UBS Securities.

Andrew Kligerman - UBS Investment Bank

Just sort of staying on the S&P issue. Where might your DAC get impacted? Where would the S&P have to hit? At which point would you have to take a DAC charge?

Randal Freitag

Okay, Andrew, as we've talked about in the past, we're very well positioned in our corridor with an assumption, effective long-term run rate assumption in our DAC models that assumes an immediate drop in the equity -- an immediate drop in account values of 15%, which equates to a drop in the equity markets of between 20% and 25%. Before we would have to consider an unlocking, we would even have to move through that, a negative unlocking through that. And it's probably in that same range that I've talked about earlier for capital impacted. In the S&P 800 range, S&P 500 operating at about 800, more than 800,000 to 900,000 [ph].

Andrew Kligerman - UBS Investment Bank

Any sense, Randy, of like what kind of impact. Hopefully, it won't happen again. I hate to see the S&P there. But any sense of the kind of impact or the range of impact that we might see there?

Randal Freitag

You know, Andrew, it all depends on the level that it would go to, right? But as we sit here today on the positive side, we're between $350 million and $400 million of positive good guide as of the end of the second quarter.

Andrew Kligerman - UBS Investment Bank

Perfect. And then just maybe a little color on the Group business. I mean the loss ratios have at least stable to modestly improved. You mentioned, I think, some increased pricing. Could I get a little color around what type of pricing increases were seen in dental and long-term disability?

Dennis Glass

Andrew, Dennis. First, I'd hope you ask the question, when we'd have to release and what level the S&P is going to have release this buildup cushion.

Andrew Kligerman - UBS Investment Bank

I hope that's the case.

Dennis Glass

But now to your specific question. We've taken 2 actions to help improve the loss ratios or 2 principal actions. One was to raise pricing and the second one was to increase resources on our claims management area. Let me speak to your specific question first, which is pricing. It's a little bit easier to measure pricing increases on renewals because you know exactly what you had and exactly what you're getting. So there on the non-dental business, we're getting about a 3% pop in pricing. on the non-dental business. On the dental business, we're a little bit north of 9%. So we're getting targeted price increases that we had hoped to achieve. On new business, across the board on the non-dental products, we've raised prices about 3%, so within that same range. And on dental, similarly. And at the moment, we're not having to discount too much in terms of pricing on a case, so that low-single digit is what we're achieving. And again, we're pretty happy to be able to do that. On the claim resource or, excuse me, on claims management, we are making good strides, particularly helped by some new sophisticated programming that we use to identify claims that have the most likelihood and opportunity to be managed. So across the board, good price increases and a lot more investment in technology to improve our claim management capability.

Operator

Our next question comes from Jammin Bhullar of JPMorgan.

Jamminder Bhullar - JP Morgan Chase & Co

I just had a question on DC flows, they were actually negative this quarter. And it looks like the withdrawal rate picked up. So I was just wondering what's going on there. And maybe if you're seeing any disruption related to the new record-keeping system that you're going onto in the fourth quarter. And if that is the case, then why wouldn't you see withdrawals for the next couple of quarters?

Dennis Glass

What we've said is that the negative flows this quarter were predominantly related to our mid- to large-case segment and that, just by its nature, is lumpy. I think, in fact, there was 2 cases that surrendered and they added up to $250 million. And one was -- both of them were competitive situations and we just couldn't manage the pricing. But let me come back to some of the more positive pieces of it, both in the small cases as well as the mid- to large-case market. In the small case, as I've said, we've finished our expansion of wholesalers and we're seeing double-digit increases in deposits in the small case market. We have a fairly significant, for us, pipeline of opportunity in the mid- to large-case market, and we typically convert those -- that pipeline at 10%, 15% of that. The 10% to 15% of that pipeline is giving us confidence that we'll see good results in the third quarter and the fourth quarter. And then I would add to this change in technology. In fact, particularly, in the consultant marketplace, there is one or 2 consultants that, I would say, put us in the penalty box. Not everyone did, but a couple did. And now hopefully, in the position to put the new business on the new platform in the third quarter. We'll be out of the penalty box and that should help us as well, probably more so in 2012 than in 2011 because these cases take time to -- the sales cycle is more than a couple of months on these cases. Okay?

Jamminder Bhullar - JP Morgan Chase & Co

And then -- and just one more on the share buybacks. I think you mentioned in your comments that you are going to continue buying back stock. You also said you've got about $1.6 billion of excess capital. So the question was, on the one hand you've got done [ph] in capital, but on the other side the economy is actually not that great. The market's pulled back, rates are low. So how do you think -- how should we think about buybacks? Would they remain at this type of a base or would they slow down until the economy improves or you're seeing signs of the market coming back?

Dennis Glass

Right now, let me just repeat a couple of things that Randy said. And again, this is the way he and I are thinking about it right now. We're generating and have continually generated free cash at the holding company in the neighborhood of $400 million. There's capital coming up from our subsidiaries to the holding company roughly $700 million and then reduced by $250 million, $260 million of debt interest expense, so it's in that $350 million to $400 million category. Right now, in terms of share repurchases and increases in the dividend, that's the pool that we're looking at. I think it will be pretty similar in 2012 to the experience we're heading in 2011. Again, to repeat what Randy said, we've used about $250 million of that. So if we went to the full amount, that would suggest a $150 million more capability. We're not saying we're going to do that. To your point, I think it's a very volatile time right now. Hopefully, there's been a little bit of an overreaction to some of the events over the last -- or some of the reported data over the last couple of weeks. So to summarize, we're thinking about $350 million to $400 million is kind of an ongoing pool of money available for share repurchases and dividend increases. We are going to further reduce leverage that's coming out of cash, so that doesn't affect that number. And then that leads to $1.6 billion. Right now, we're not thinking about using any significant amount of that for share repurchases. But as we've said in the past, when things improve and of course they haven't in the last 30 to 60 days, we'd be more willing to use that money for capital management activities or hopefully, as we talked earlier, there might be some acquisition opportunity that would strategically move us forward and use some of that $1.6 billion.

Operator

Your next question comes from Ed Spehar of Bank of America Merrill Lynch.

Edward Spehar - BofA Merrill Lynch

First of all, I hope you don't take the questions on M&A as any indication that any of us want to see a deal with the stock at less than 65% of book value.

Dennis Glass

I think using equity right now is not a very good idea, Ed.

Edward Spehar - BofA Merrill Lynch

Well, yes, using any capacity, whether that's cash or equity, either way, it's using equity. I guess my question is on the buyback, is you've talked about a very substantial cushion. S&P 800, 900, both a stat and GAAP basis. You've talked about no material impact really from a 10-year treasury at really a 2.5%. And you look at an opportunity here for a permanent value creation with your stock with a 15% earnings yield. I'm wondering why and understand that it's an uncertain world, but uncertain worlds are the ones that create big opportunities if you're confident in the actual fundamental numbers you're talking about. And so what would it take for you to think about working down excess capital to buy the stock?

Dennis Glass

Let me just state -- restate what we just said. We said that we were going to buy shares back maybe up to $400 million this year, some question around that. We're going to take $250 million of cash out of the holding company position. We're already, if we do both, if we do more share repurchase, we're already moving $650 million of capital from the company. I think that's a pretty strong statement.

Randal Freitag

Yes. I just would reiterate, Ed, in terms of the movement you've seen from us and if we go back to the end of last year, we were talk about share buybacks this year of about $100 million. So as we have seen some stability lately, some of that stability has gone away but as we have seen the profile of the company continue to improve, as we seen that capital continue to remain strong, we have moved it up, the capital we're deploying, in the share buybacks from, as I mentioned, about $100 million estimated. This is recently, at the end of last year, to what Dennis talked about. And I talked about a little earlier, which is in the range of $400 million potentially this year.

Edward Spehar - BofA Merrill Lynch

No. I think it's great that the level this year versus last. I don't mean to say it isn't, I just -- when you look at where the stock is now, I'm just wondering if it doesn't make sense to be even more aggressive. Just one other question, Dennis, on VA. I think that you've got a couple of big -- the big 3, I think there's some indication that Met might reduce the attractiveness at least somewhat of this new product that they've come out with when they refile the next version. Pru has reduced the guarantee percentage, or sorry, the roll-up percentage, Jackson National has said publicly that they're going to be less aggressive with product in the second half of the year versus the first. If all that stuff is true, how much of an appetite do you have? And I think it's good to hear you're not -- market share isn't what drives you, but it sounds like there might be an opportunity to write more business as you head into the second half of the year and do you have the appetite for it?

Dennis Glass

We're not going to make any product feature change to drive sales. We keep pretty close attention to what the competition is doing and although I can't comment specifically in any of the 3 that you've mentioned, it does seem like people are coming back to where we are or have been on roll operation and other features. So we will just, Ed, I'm happy with what we're doing. And I mean that in the perspective of volume of sales and selling on our terms. We could see that improve a little bit in which we'll be comfortable. But kind of sales growth that you've seen over the last couple of quarters is, we're pretty comfortable at that level and somewhat higher than that level if the competitive situation changes.

Operator

Our next question comes from Colin Devine of Citi.

Colin Devine - Citigroup Inc

I had one question, if we could talk about the no-lapse guarantee reserves, and what you're holding on a GAAP level relative to what you hold on a stat under the HR [ph] blocks?

Randal Freitag

Yes, Colin. Remembering that stat and GAAP accounting has some linked -- significant differences not just in the reserve levels, but in the assets you hold including DAC asset that you hold on a GAAP basis. The net balance sheet of the 2 items is much closer than the reserve levels, I think, would indicate. On a GAAP basis, we're building up SLP reserves. We haven't building up SLP reserves for some time now to the point now where we have built SLP reserves in the range of $1.5 billion behind that book of business. On the stat basis, we have total stat reserves in the range of $14 billion or so, and we have total GAAP reserves of $11 billion. So when you take that GAAP reserve of $11 billion and you add in the SLP reserve to that number, you have a difference in that $2 billion to $3 billion range. Let me restate that, Colin. I believe that the $11 billion includes the $1.5 billion of SLP reserves. So you have about a $3 billion difference. Remember that we have been doing excessive reserve financings of statutory reserves with this business. We've continued those over the last year and we anticipate we'll be able to continue to do those as we move forward. So we'd anticipate that, that difference would come down as we move forward.

Colin Devine - Citigroup Inc

Okay. So if I hear that, are you saying that you think on a GAAP basis that you're going to get your no-lapse guarantee reserve level up to somewhere close to what it is on the stat?

Randal Freitag

No. The stat reserve number of $14 billion is a gross number. Remember that we have, as I mentioned earlier, financed reserves in the range right now of $2.5 billion. So when you net out that $2.5 billion, remember what you see is that that GAAP and stat reserves are very much in alignment. I don't anticipate any negative impact on GAAP reserves from SGUL.

Colin Devine - Citigroup Inc

Okay. And just to clarify what you've financed. Did you fully finance it or did you reinsure part of the mortality exposure only?

Randal Freitag

No. It's a separate issues. We obviously have reinsurance on all of our products, on exposures above our retained amount. Our financings are discrete transactions we enter into on specific books of business. We've done a number of those that have added up to the $2.5 billion that I talked about.

Operator

Our next question comes from Thomas Gallagher of Credit Suisse.

Thomas Gallagher - Crédit Suisse AG

Follow-up on reserves, but if I look at Page 24, there was an increase in Life Insurance reserves in the quarter, but it was offset by a DAC reduction. Now my understanding is that it was related to the systems conversion that's going on. So my question is, can you give us a little bit of color what exactly is going on there? And also, is that systems conversion occurring for both GAAP and statutory?

Randal Freitag

Yes, the conversion is occurring for both. We've been going through this process for over a year now. And we probably have about that time left, even though we anticipate that we're going to complete the majority of this work, hopefully, by the end of the year or early into next year. And I would say that the impact we took this quarter hopefully represents the bulk of any sort of noise that you'll see around that item. Looking at the specific adjustments, what you find inside these models, as that these numbers do move together. If one goes up for instance, the liability goes up, DAC tend -- will be moved down. So the models are not independent, but they're related. So I'm not surprised at all that the fact that one went up would cause the other one to go down. As we estimated earlier in the year, the impacts almost perfectly offset each other. So a noise, I think, that you saw this quarter, while some may continuously go forward. I think you've sighted sort of seeing the peak of this quarter and the noise offset each other in the 2 lines as you had mentioned.

Thomas Gallagher - Crédit Suisse AG

Got it. And so Randy, if you -- given that it's been done for both GAAP and stat, for GAAP, you have the DAC offset. Is it fair to assume on stat you got the reserve, 150 million reserve increase but no offsetting impact? So was there a statutory charge this quarter related to this? Or can you help me...

Randal Freitag

There was no stat-related impact. Remember that the statutory assumptions, which are really set of issue and locked in, so you don't have that perspective nature that you see inside the GAAP, which is really what drives some of the calculational differences inside the GAAP reserves and DAC balances.

Thomas Gallagher - Crédit Suisse AG

Got it. Okay. And then just one question on EITF 09-G. Can you give us an update on where you stand there, any quantification of it? And also a related question, is it both DAC and VOBA that are potentially falling under the scope here or is VOBA excluded?

Randal Freitag

Yes. The VOBA does not get impacted by the EITF 09-G, it's just DAC balances. So the VOBA we established back at time of the merger will not be adjusted as we look to do our retrospective adjustment. In terms of where we are today, really say the first half of this year has been about interpreting the rules. So we've gone through the rules. We've come up with our interpretations. We've pretty much completed our review with our auditors, so we have them onboard with our interpretations. Last half of the year and I would really say the next quarter, will be about determining the specific impacts. We do anticipate that we will do the retrospective adjustment that it is allowed as part of the process. So uncertain what the net impact is going to be, but we should be on track to provide a pretty good guidance as we move into the third quarter call, I would imagine.

Thomas Gallagher - Crédit Suisse AG

Okay. And just how much of your $9.3 billion of DAC and VOBA is VOBA?

Randal Freitag

The VOBA balance, I don't have that number right on me. Jim can provide that number off-line.

Operator

Our next question comes from Steven Schwartz of Raymond James.

Steven Schwartz - Raymond James & Associates, Inc.

A couple of questions on Annuities. Something Dennis caught me by surprise. You mentioned I think that you had introduced a GLWB. I mean you've had income for Life for quite a while, which could be used like a GLWB. I think you've had lifetime income advantage for a long, long time now. So what is it that you did?

Dennis Glass

I made that comment in reference to adding it to our fixed products.

Steven Schwartz - Raymond James & Associates, Inc.

Okay. All right, I didn't get that. And then another one, if I may. What is today the reliance sensitivity, however, you want to put it, to American funds?

Dennis Glass

I'd have to find the breakout, which I don't have right in front of me, of the balances, and our VAs between the 2 products. Why don't I ask Jim to get back to you on that?

Operator

Our next question comes from John Nadel of Stern Agee.

John Nadel - Sterne Agee & Leach Inc.

So if the 10-year sits at 3%, you've got about 3% pressure on earnings 2 years out. If we're at 2.5% on the tenure, you've got maybe 5% pressure, again, 2 years out. So to be frank, that seems pretty trivial when you put it in that kind of context and yet it seems to be low interest rates remains the single biggest reason your stock continues to trade at this consistent discount versus the group. So you see how the market would be wrong on a given stock or even on a given issue like this for a relatively short period of time. But this discount remains intact now for a long period of time. What is it that we're all missing? I mean, in terms of the risk to the balance sheet or the risk to reserves or capital. I mean, this clearly can't be. This discount can't -- versus the group can't simply be because of 3% to 5% earnings risk.

Dennis Glass

I think it's a very good question because what you say is accurate. And I guess, possibly, because there's been more volatility in our balance sheet such as the $130 million hit to DAC, I guess third quarter of 2010 that it's left an impression that, that might happen again.

John Nadel - Sterne Agee & Leach Inc.

I don't know. Manulife has more volatility than that and they traded the premium to you.

Dennis Glass

Well, let me say this. We think that the premium isn't warranted by the facts or the discount isn't warranted by the facts.

Randal Freitag

I'd echo Dennis's comments, and I think you saw that in the quarter when we accelerated our share buybacks that we had announced earlier. We did $150 million of share buybacks. We don't agree with the marketplace that the share price should be priced like this. Let me [indiscernible] response to an earlier question. We have [indiscernible] $3 billion is our total VOBA.

John Nadel - Sterne Agee & Leach Inc.

So just following up on that, that leaves $1 billion of DAC, just to be clear?

Randal Freitag

Yes.

John Nadel - Sterne Agee & Leach Inc.

Okay. I guess I would just -- I'm not sure exactly what to ask you for to help us get more comfortable with the risk that, perhaps, the difference between your UL of statutory and GAAP reserves that, that difference between the 2 needs to close over time and then that's a charge to equity. Or you know where I'm getting at, I mean, I understand -- I clearly understood Colin's line of questioning and I guess that difference between those 2 reserve levels, I think that probably at the end of the day, is the weight on your stock. So can you, Randy, maybe you can go through that a bit one more time for us?

Randal Freitag

Yes. And let me go back to that because I think I fumbled that question a little bit. We have net statutory reserves, that is reserves after financings that we've put in place, in the range of $11.5 billion and we have GAAP reserves of about $11 billion. The numbers are relatively close. Now let me be clear. I see no additional reserves that we need to put up on either a GAAP or a stat basis on SGUL for the foreseeable future. Those differences in reserves are solely due to the different calculational techniques.

John Nadel - Sterne Agee & Leach Inc.

Okay. That was pretty clear.

Dennis Glass

Maybe I'll expand a little bit on the question of valuation. We worked hard since the crisis to make changes, fundamental changes, so that the volatility that we saw during the crisis, predominantly driven by balance sheet issues don't reoccur. I'll just go back in time. We've had good sales, positive net flows because of the strength of our products, the strength of our distribution in every quarter with the exception of one, I think, over the last 36 months for sure and probably even before that. So the fundamentals of the business model continue and did continue right through the crisis. The crisis hurt us a little bit on 2 reasons: One, asset losses; and two, at a moment in time, we had a net borrowed position and $500 million worth of debt maturing, and it's spooked the market. We've resolved those problems. Increased -- or lower the risk of our overall investment portfolio and now have about 18 months to 24 months of cash on the balance sheet so we can finance ourselves over that period of time if the world ever gets back to where it was, a short, 24 to 30 months ago. So this is why we keep reiterating the fact that the fundamental operating platform of the company has worked throughout the last 3 years and we've made significant changes on the balance sheet, cash and investment risk. And I'll also add to that repriced our products, reduced the tail risks, took the charges that we need to take related to low interest rates. And we think we're in a very solid position to move forward and continue to kind of demonstrate good results.

John Nadel - Sterne Agee & Leach Inc.

So then, Dennis, if I can just follow up on all of that, so I mean, clearly, so much progress, the world is a volatile place but certainly better than it was a couple of years ago. Your capital position is strong, your risk-based capital ratio is strong. And yet if I look at a shorter period of time, just, let's call it the second quarter, from the beginning of the second quarter to the end of the second quarter, your excess capital is unchanged. In essence, you bought back stock to the tune of your free cash flow during the quarter. With all of this confidence with your own understanding of your earnings risk to low rates to equity markets, if there's this big of a disconnect between your understanding of that risk and the market's understanding of that risk, to Ed's point earlier, why not spend some of the unbalance sheet excess capital, work that down in addition to spending your free cash flow, buying back your stock at what -- at least what I would expect in your view is an extraordinarily attractive price even if the market doesn't recognize it.

Dennis Glass

Yes. And again, let me repeat what I said and what Randy said, the progress that we've made and the improvements that we've seen caused us to dramatically increase our actions in and around share repurchases. I think in a, contemplating in a 12-month period, removing $650 million of capital from this company and a combination of share repurchases and debt reductions is a very strong statement by management on the confidence that we have going forward. Now with respect to dipping into the $1.6 billion, that is something we're more cautious about not because we don't have strong belief about the strength of the company because we do obviously, we keep saying it, but because the rating agencies have not quite come along, haven't come along quite as quickly. And again, we're only 2 years away from the biggest calamity in recent history economically and in capital markets. And so those 2 things, and quite candidly, the results that we've seen -- or not the results, but the reports that we've seen over the last 24 months, excuse me, 24 to 48 hours, I guess, have suggested that the economy is still fairly tepid. So we're just, perhaps, abundantly cautious, but cautious. Again, I'll come back to removing $650 million of capital from the company, permitting capital from the company in a 6 months period is a fairly strong statement by management.

Operator

We have time for one further question, from Joanne Smith of Scotia Capital.

Joanne Smith - Scotia Capital Inc.

Maybe I'll approach it in a little bit different way on what the market's missing. If I go back to 2008 and 2009, it was the investment portfolio that really got you into trouble and the lack of available cash on the balance sheet. I guess part of the reasons that you were holding a lot of commercial back mortgage, CMBS and RMBS on your balance sheet was because you didn't have the large capability, in-house capability to underwrite your own commercial loans. And so you had this dependency on packaged securities. And I'm looking at the disclosures as of March 31, and there's still $9.3 billion of RMBS on your balance sheet at fair value. So do you think that there is something in the market that still has that fear that there could be significant asset losses? We all know that the residential real estate market still is very, very bad. So maybe you could give us a little bit more color on where you stand in terms of the quality of that portfolio and any potential impairments.

Randal Freitag

Joanne, let me unwind a few of those comments. First on the commercial mortgage loan front. We originate many commercial mortgage loans. We have a $7 billion book of commercial mortgage loans and believe we have one of the best underwriting platforms in the industry. I think that's been borne out by the experience, which has been stellar even through the credit crisis that we've been through over the last couple of years. On the CMBS side, relatively speaking, we have had actually a lower exposure than our peer companies at about $2.5 billion and we've had pretty good experience in that CMBS book also, but some losses recently coming from some of the lower rated collateral. But all in, very good performance from what is a relatively smaller piece of the book. On the RMBS side, which is where we experienced our losses, by and large, in the last couple of years, I'd say that today, we sit in a very good position. And that I think we've been through with the worst of the worst, you really started to see -- if you break that book up into its component parts, what you'll really see is sub-prime metrics really stabilizing across that book, all the metrics getting very close to stabilizing and really the prime book, really where you're experiencing any losses that you experienced today, which have been relatively modest in recent quarters. So in terms of both asset classes, we feel very good about where we are today. In a broader issue of the general account, over the last 2 years, Fred and team, I think have done an amazing amount of work to clear out issues, holdings that we believe are potentially subjected to more stress in an economically stressed environment, so feel very good about where we are. But you've heard us say this in the past, it is credit at the end of the day, that is the only item that has generated any capital losses for Lincoln over the years, not the hedge program, not interest rates, it's been credit, it's the only area. So we feel very good about where we are. That's the one area -- that's an area where we continue -- we're very focused on remaining cautious.

Joanne Smith - Scotia Capital Inc.

Randy, I'm just going to use the example of Ashlock [ph] for example. There was a period of time where they try to argue to the market that the European financial institution holdings that they have in their investment portfolio were money good and money good, and that's all they preached for a really long time. And it didn't matter whether they were money good. What mattered was the fact that the market wanted to get rid of them and so they did or largely did. So maybe you need to -- maybe the market's telling you that you need to reconsider the RMBS portfolio.

Randal Freitag

Yes. Joanne, let me -- we did quote, there's one point I didn't speak to that you made on the RMBS side. Of that $9 billion exposure, fully, $7 billion is agency RMBS. And it's actually -- in terms of what the market thinks, straighting up [ph] a significant premium to its amortized cost. We feel very good once again, Joanne, just to reiterate, very good about the things we've done inside the general account. But we continue to invest what I would describe, cautiously, very highly rated investment-grade corporate, commercial mortgage loans. As I mentioned in my comments, they really haven't seen value recently in the high-yield space, and we continue to selectively de-risk where we see issues.

Joanne Smith - Scotia Capital Inc.

You've already won me over, Randy. So I'm just trying to figure why the market has your stock trading at 65% above. Just about one last question, and that is going back to the 09-G. I thought that in the first quarter, you gave an estimate of the impact of that was going to be about $200 million to $250 million. Are you saying that, that estimate is no longer accurate?

Randal Freitag

Joanne, I don't remember what you're referring to, but we have not given any guidance on what the impact on results is going to be on 09-G because we simply don't know yet. As I mentioned, first half of the year was really about interpreting rules and sitting down with our auditors and getting them onboard with our interpretation. It's really in the next quarter when we'll be determining what the impacts of those interpretations are.

Operator

I'd like to turn the conference back over to Mr. Sjoreen.

Jim Sjoreen

Well, I want to thank everybody for taking the time to join us on our call this morning. As always, we'll take your questions on our Investor Relations line at 1 (800) 237-2920 or via e-mail at our Investor Relations website. Again, thank you, and have a good day.

Operator

Ladies and gentlemen, this does conclude today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.

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