Jul 31, 2009
Executives
Jim Sjoreen – VP, IR Dennis Glass – President and CEO Fred Crawford – CFO
Analysts
Ed Spehar – Merrill Lynch Tom Gallagher – Credit Suisse Jimmy Bhullar – JP Morgan Mark Finkelstein – FPK Colin Devine – Citigroup John Nadel – Sterne Agee Steven Schwartz – Raymond James & Associates Eric Berg – Barclays Capital
Operator
Good day everyone, and thank you for joining Lincoln Financial Group's second quarter 2009 earnings conference call. At this time, all lines are in a listen-only mode.
Later, we will announce the opportunity for questions, and instructions will be given at that time. (Operator instructions) Today's conference is being recorded.
At this time, I would like to turn the conference over to the Vice President of Investor Relations Mr. Jim Sjoreen.
Jim Sjoreen
Thank you, operator. 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 report on forms 8-K, 10-Q and 10-K filed with the SEC.
We appreciate your participation today, and invite to you visit Lincoln's website, 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. A general account supplement is again available on the website as well.
Presenting on today's call are Dennis Glass, President and Chief Executive Officer, and Fred Crawford, Chief Financial Officer. After their prepared remarks, we will move to the question-and-answer portion of the call.
At this time, I would like to now turn the call over to Dennis.
Dennis Glass
Thanks, Jim, and good morning to all of you on the call. Over the past two quarters, we have responded to external challenges by taking aggressive steps including a diverse set of capital actions, expensive save initiatives, and product and distribution improvements to accommodate changing client preferences and economic realities.
These actions have improved our capital position and will better protect the company against external factors, while supporting continued growth in our business. I want to share four key thoughts about where Lincoln is today.
First, due to the successful completion of our capital plan, we have a strong capital base with a significant cushion for potential adverse development in the economy and capital to support business growth. Second, the quarter’s results demonstrate that the fundamentals of the business are healthy.
Third, our distribution models are flexible and resilient. We will continue to maximize the benefit of having one of the strongest and most diverse distribution platforms in the industry married to our innovative product development capabilities.
And finally, while participation in the Capital Purchase Program may alter some business practices at the margin, we believe there is enough flexibility in the terms to allow us to implement them without significant disruption to the business. To put CPP in perspective, the financing accessed under the program represent only 6% of our total capitalization.
Given this low amount, we expect to be able to repay this capital without significant earnings impact as economic conditions improve. Summarizing the components of our capital plan, we access the public markets to issue $690 million in equity and $500 in debt, and we closed a $950 million of CPP.
Importantly, we believe this was the right mix to maximize long term earnings per share accretion and shareholder value. We also announced the sale of our UK operations, which we expect will result in net cash proceeds of approximately $300 million, which we intend to redeploy into our core businesses.
These actions including contributing $1 billion in capital to our flagship life company, have strengthened our capital and liquidity positions and stabilized our insurance strength and credit ratings. While the economic outlook remains uncertain, I am comfortable that we have planned appropriately for adverse scenarios while keeping our focus squarely on the strength of our franchise to produce results and grow shareholder value.
Turning to operating results, consolidated net flows doubled over the prior year quarter and are up sequentially. Persistency, mortality, and loss ratios were favorable in our major businesses.
We are also seeing very good employee retention and improving productivity levels in our distribution companies. Expense initiatives are on target and the restructuring charge we reported this quarter is the result of finalizing our work force reduction in June.
Two key business drivers are clearly evident in our results this quarter, the strength and flexibility of our distribution platforms and the strength and relevance of our products. At Lincoln Financial Distributors, we made a number of strategic moves designed to drive a more diverse mix of sales, increased productivity and respond to evolving consumer product preferences.
We expanded distribution reach by adding key product lines to individual wholesalers and focusing on cross product sales. For example, our VA wholesalers are now offering fixed and index products to more fully leveraged existing advisor relationships.
We were also able to quickly adapt our sales strategies to focus on fixed annuities, MoneyGuard, and term insurance as the economic downturn highlighted the importance of multiple product solutions. We are pleased with the early result of this effort.
These and other strategic actions are already driving improvement in wholesaler productivity and increasing exposure for the breath of Lincoln’s product offerings with our strategic partners. At Lincoln Financial Network, the number of active LFN producers has been growing steadily for two years and that growth trend continued during the first half of 2009 reaching more than 7,400 producers.
The LFN affiliation model continues to attract seasoned advisors. In the first half of the year, average production for new recruit is up 20% compared to all of 2008.
The retention of existing advisors has also been excellent and it is an important driver of Lincoln Financial Network’s operating performance. Turning to our manufacturing businesses, the results in our retirement and insurance solution segments demonstrate the adaptability of our product strategy.
For example, in our retirement solutions business, sales of index annuities increased 77% sequentially reflecting a return by consumers to the equity markets but with a healthier respect for the risks involved. And despite market uncertainty, VA sales were also up 9%, and total annuity deposits increased by almost 20% sequentially quarter-over-quarter.
Through price and featured changes, we have dialed in and will continue to dial in the appropriate risk profile to ensure that VA products continue to offer value to both the customer and the company. In our DC business, net flows continue to be positive story with a 39% increase over a year ago.
Net flows are particularly strong in the 403(b) market reflecting the strength of our platform, the value of our advice model, and our ability to capitalize on a consolidating market. Our insurance solutions business has also benefited from product and market diversity.
Consumers reacted to economic turmoil by changing their life insurance buying habits, seeking temporary protection, making their insurance dollars do double duty, and by buying smaller amounts of permanent coverage. Our term and MoneyGuard offerings allowed us to capitalize on these trends with double digit growth in each line.
And while we have seen declines in US sales on a premium basis, as consumers reduce the size of their permanent insurance purchases, our case count has increased 27% year-over-year positioning us to maintain our leadership in this product. One very significant product development, given increased costs in the capital market is our updated pricing and redesign of our secondary guarantee UL products suite.
Our UL plans are being priced such that we would expect overall returns in line with our goals without a capital solution, while still providing a competitive market position. If capital solutions become viable, as they have in the past and less expensive, we have the ability to achieve even higher returns.
In our Group Protection business, sales were up 10% over the first quarter, similar to our experience in adapting the VA and UL product lines to anticipate emerging trends, we emphasize our voluntary group offerings as employers reduce benefits and employees take on that responsibility. Voluntary sales were 38% of total Group Protection sales in the first half of 2009 versus 32% a year ago.
In our asset management business, Delaware posted strong retail sales and another quarter of positive net flows. Investment performance was strong during the quarter, in fact each of Delaware’s 11 largest mutual funds beat its Lipper peer group’s average return over a one year period.
In summary, in the face of a lot of negative noise and real economic challenges, our second quarter and first half demonstrates our ability to take action and achieve results. Our solid fundamentals underscore the strength of Lincoln’s business model.
We have sufficient capital and liquidity, a diverse and innovative product portfolio, two powerful distribution platforms, loyal distribution partners, and the ability to attract and retain talented individuals to help us build the business. And now, let me turn the call over to Fred.
Fred Crawford
Thank you, Dennis. We recorded income from operations of $212 million or $0.81 per share.
Two items worth noting with respect to our reported earnings, first, with the announcement of the sale of our UK business, we have reclassified the UK segment earnings to discontinued operations. We also recognized a restructuring charge related to our $250 million cost reduction effort.
Together, these items impacted results in the quarter by about $28 million. Setting these two items aside, alternative investments impacted earnings in the quarter negatively by $29 million.
The impact felt most significantly in our life segment. The majority of the poor performance is the result of receiving final audited year-end results on various partnerships.
The timing of the year-end audits and the lag impact on performance is not unusual for venture capital, energy and real estate partnerships. The magnitude, however, was larger than normal, a result of severe market conditions and related impact on year-end valuations.
There were a few additional items having a more modest impact on the quarter, notably favorable mortality in our life segment, favorable loss ratios in our group business, offset to some degree by excess liquidity impacting fixed margins in our retirement businesses, liquidity we have since put to work investing longer term. Turning to items that impacted net income in the period, net realized losses and impairments on invested assets were $109 million after tax.
Growth in investment losses were $236 million pretax and pre-DAC. Significant concentrations included RMBS, which represented about $75 million of the losses, followed by $42 million for CIT.
We also recorded $59 million pretax and pre-DAC of commercial real estate losses split between reserve increases on mortgage loans and losses on real estate equity investments. Our direct commercial mortgage portfolio is diversified and benefits from years of conservative underwriting standards.
The portfolio is very granular with an average loan size of $58.8 million. Loan to value is throughout all the years of origination were made in a range of 50% to 65%, and that service coverage stands today at 16 times with 98% of loans amortizing.
Total delinquencies and foreclosures are running less than 1% of the portfolio involving just six out of over 1,300 mortgage loans on our books today. Our rather CMBS portfolio is well positioned with 80% of the securities rated AA or better and with collateral originated in 2005 and earlier.
We experienced positive variable annuity results contributing a $127 million pretax and before the effects of FAS 157 non-performance factor. The positive results in the quarter were driven by strong underlying fund performance and by being modestly under hedged on interest rates as we adjust our hedge program to better align with statutory reserving.
The FAS 157 non-performance risk factor impacting the quarter was $316 million pretax loss driven by narrowing credit spreads and importantly, a significant reduction in the hedge liability. The hedge liability reduction was the result of an increase in interest rates and to a lesser degree, market appreciation and reduced volatility.
We ended the quarter with hedge assets modestly in excess of our hedge target for the economic calculation of the benefit liabilities. Finally, we recorded an estimated loss of $170 million on the sale of our UK business.
We sold at a discount to embedded value due to the run off nature of the business, and proceeds were reduced by the low tax basis in the legal entity. Turning to capital, I think it is safe to say this was probably the most active quarter in our company’s history.
Our goal is to stabilize ratings and position the company for upgrade as market conditions improve, secure reasonable amount of excess or contingent capital, and execute with an eye towards reducing the overall cost of capital recognizing we believe our stock to be trading below intrinsic value. I am going to focus on the pro forma aspects of the capital raise starting with operating earnings per share.
We issued a total 46 million shares of common stock with the exercise of the green shoot. Because this came at the end of the quarter, it had very little impact on average shares outstanding.
In addition, we issued roughly 13 million warrants for LNC common stock under the terms of the CPP program in July. These warrants carry a strike price of $10.92 per share and will be accounted for using the treasury stock method, adding about 5 million shares to our diluted count at today’s stock price.
We will see the full impact of the added shares in our diluted EPS in the third quarter. We are still working through some of the technical aspects of the accounting on the CPP issuance given the unique nature of these securities.
The 5% preferred dividend will come through equity having no impact on operating or net income, however, it will be included in earnings when computing our earnings per share. Of the $2.1 billion in net capital proceeds raised, we retain $1.1 billion at the holding company reducing commercial paper down to $200 million and paying off borrowings from inter company liquidity accounts.
Throughout the third quarter, we plan to settle into approximately $700 million of holding company cash and cash equivalents on hand. We contributed the remaining $1 billion to our principal life insurance subsidiary in July upon the closing of the CPP investment.
Excluding the impact of our $1 billion contribution, we ended the quarter with an estimated RBC of roughly 350%. The moving parts included $455 million of dividends to the holding company, realized losses and ratings migration, these negatives to RBC offset by the contribution of the media assets and improved statutory earnings due to the recovery in the equity markets and strong life results.
The $1 billion capital contribution will contribute roughly 70 percentage points to RBC. Our current capital plans set aside $500 million for VACARVM, recognizing this is a preliminary estimate and contemplate actions to better manage the capital requirements as we move towards implementation.
Markets will greatly influence the ultimate capital required in other words determining reserves and valuing the derivative assets supporting those reserves. We hope to close on the UK transaction in the October timeframe, at this time, we plan to use a majority of the $300 million in proceeds to support our life company capital position.
Let me now turn to a few brief comments on the business segments starting with our retirement businesses. Average account values in our variable annuity business increased roughly $5 billion in the quarter driving expense assessment revenue up 8% sequentially.
With the market appreciation in the quarter, the net amount at risk on our debt benefits decreased by approximately 30% driving down related mortality expense in the quarter. Recognizing that first quarter had significant positive tax benefits, pretax income improved as expected held back a bit by alternative investment income and remaining very liquid for the most of the quarter.
Improved persistency and steady positive flows have allowed us to release that liquidity which will contribute to fixed margins in future periods. Our Defined Contribution business performed as expected with average variable account values up about $2 billion driving overall expense assessment revenue up 10% sequentially.
Contributing to the effects of the markets were the $300 million in positive flows. Overall, we ended the period with total retirement account values of $94 billion, an increase of about $10 billion sequentially.
Of the $94 billion, $31 billion is attributed to our Defined Contribution business, individual fixed annuities including fixed portion of variable annuities totaled roughly $17 billion, and the remaining $46 billion represents separate account variable annuities, about 50% of which carry a living benefit guarantee. A diversified platform with positive flows across most major product classes year-to-date.
In our life business, fundamentals remained stable when normalizing for the reinsurance transaction completed at the end of the first quarter. Average UL and VUL in-force and account values were both down 4%, this primarily the result of the reinsurance transaction which transferred approximately $20 billion of face amount and $1.6 billion of account value.
We estimate the reinsurance transaction reduced life segment earnings in the quarter by roughly $6 million. We experienced favorable mortality in the period which contributed roughly $5 million to the segment’s results.
Turning to our group business, another strong earnings performance, with favorable loss ratios coming in at roughly 68%. The disability lines continued to outperform.
We believe as do others in the industry that the weak job market has actually contributed to lower rates of incidents. Life loss ratios were also strong relative to recent periods.
While we have enjoyed a consistent string of favorable quarters, we would expect loss ratios in the low 70% range for the remainder of the year. Net earned premium increased 5% over the comparable 2008 quarter.
While pleased with the growth, this is where we are experiencing the impact of current economic conditions, the headwinds of lower overall employment and salary levels. Delaware posted a profitable quarter driven by positive flows year-to-date, recovery in the markets and positive seed capital returns of roughly $3 million in the period.
Second-quarter market recovery drove period ending assets under management up $10 billion in the quarter. At current market levels, we expect quarterly earnings to remain in the mid single digits throughout the remainder of 2009.
So we enter the third quarter on solid financial footing. Core earnings drivers of positive flows, account value growth, improved fixed margins as we return to being more fully invested, and greater traction in our expense initiatives should benefit income from operations.
Alternative investments can be variable, but I would expect performance to turn around as we move forward in 2009. On the capital front, we have significantly improved our financial flexibility at the holding company and insurance capitalization has positioned to absorb future market driven capital needs.
Dialogue with the rating agencies have been positive in terms of the steps we have taken in the past few quarters. Gross unrealized losses down roughly $2.5 billion in the quarter suggests default risk is starting to moderate.
However, given its early days in the recovery, markets will continue to be volatile at times and we have positioned our capital accordingly. Now, let me turn it back to Dennis for some closing remarks.
Dennis Glass
Thanks, Fred. In conclusion, let me just reiterate what I think are the most important points about Lincoln today and you heard them repeat it several times.
First and again, we have a strong capital base with a significant cushion for potential adverse developments in the economy along with capital to support business growth. Second, the fundamentals of the business are healthy.
Third, our distribution organizations and product development capabilities are nimble and responsive providing us with a solid platform for growth. And four, many of our initiatives are focused on lowering cost and reducing product capital requirements to improve earnings and ROE over the long term.
Now with that, let me turn it to the operator for questions.
Operator
Thank you. (Operator instructions) And we will go first to Ed Spehar with Merrill Lynch.
Ed Spehar – Merrill Lynch
Thank you. Good morning.
Just two questions, first, Fred, I was wondering if you could comment on the viability or desirability of some sort of macro hedge considering the fact that the S&P is close to 1,000 and volatility has come down, is that something that you are thinking about and perhaps make some sense to protect capital? -- given uncertainty you mentioned VACARVM for example.
And then the second question is on the individual annuity DAC line, the amortization rate seemed to be higher this quarter than what we have seen in prior quarters, was there anything unusual there or is that the kind of rate we should be thinking about going forward? Thanks.
Fred Crawford
Ed, in terms of the macro hedge, we absolutely are contemplating those kinds of strategy as a company, have been talking and working within our equity risk management group on those efforts. We do believe the concepts of the macro hedge is becoming much more popular, not simply because there's a level of market recovery but more so because it feathers into this notion of converting your more GAAP oriented hedge programs to account for some of the more statutory issues going forward and moving stat reserves.
Said another way, stat reserving is much more sensitive to equity market movement than it is to the other Greeks, namely interest rates and volatility given the standard scenario under VACARVM. So companies are not only looking at a macro hedge in terms of long-term risk management characteristics, but also with an eye towards statutory reserving.
So we have been working on potential solutions in that regard. We do think that recent run up in the markets makes it more attractive to look at that.
As I mentioned in my comments, we have pulled off a little bit of our interest rate cover again in recognition of it being less sensitive on a statutory basis. We can divert some of that risk management funding towards a macro hedge, but you have to very careful on how you put that in place and weigh very carefully all the costs and sensitivity around GAAP and stat financials.
And that's what we're working on right now. In terms of debt amortization issues, I don’t know, Doug, if you have any comments, Doug Miller is next to me and he may be able to comment on some of the moving parts.
Doug Miller
This is one of the things that we’ve got is a little bit of noise in the DAC line related to the presentation that we're using related to the guaranteed death benefit and the movement in the benefit ratio and lock-in. So we are getting noise coming through that DAC amortization line related to that which is offset by DAC offset that's running through our operating realized gain and loss line related to the DB.
So a lot of the change you're seeing is a result of the movement in the DB benefit ratio and lock-in. And we can talk about that more off-line.
Ed Spehar – Merrill Lynch
Okay. Thank you.
Operator
Thank you. We will go next to Tom Gallagher with Credit Suisse.
Tom Gallagher - Credit Suisse
Hi, just couple of questions. First is, Dennis, just related to one comment you made, I was hoping you could expand on that.
You had mentioned that you expect to repay the CPP without significant impact as capital markets improve if I heard you correctly. Can you just elaborate a bit on what you mean by without a significant impact?
I assume there could still be a fairly a heavy level of dilution from a follow-on capital raise. Or is that not accurate?
And then, I had a follow-up to that. Why don't I start with that?
Dennis Glass
Okay, Tom. Let me respond to that.
One, again, as we were deciding on the mix, we did as we have said a couple of times this morning raise equity already. And then we took some flexible CPP, really more in the context of cushion for possible adverse events.
So that it is -- again it’s a cushion and as improvements occur in the economy, if the capital markets clearly become settled and if our overall insurance RBC ratios and the like continue to improve, it just -- those would be the predicates for us to repay CPP. And if all those things are happening, our debt to equity ratios are improving, we are generating distributable cash flow from the operating subsidiaries, and so in the right market conditions again over the next two years and assume that they are improving, continuing to improve and don’t slide backwards, we believe that we could repay the TARP using either fixed debt, cash, possibly a small amount of equity, but we are focused on -- certainly we are not focused on replacing any large amount of CPP with additional equity offerings at this point.
And again, based on the expectations that things continue to improve.
Tom Gallagher - Credit Suisse
Okay. That’s helpful color.
A few other quick ones from me, I guess for Fred, the $500 million CARVM hit, if you will, appears to be based on an S&P 870 level, can you comment on will that have meaningful sensitivity, meaning we are at almost S&P at 1000, what would it be that S&P at 1000 if you've looked at that sensitivity. That's follow-up number one.
The second question I had was on, your estimated credit migration, a ratings migration rather its $500 million, does that contemplate that you are going to be tripping over the Indiana statute for admitted assets limitations, which is 10% of junk bonds? Or do you not see that as a real threat as it relates to credit migration?
Those are my two follow-ups.
Fred Crawford
Tom, in terms of VACARVM, right now what we are doing is setting aside -- and we had talked about this as part of our capital raising effort based on our estimates and they are in fact only estimates, we are setting aside $500 million of capital and its important to recognize that we use a captive as part of our an internal reinsurance plan to manage the capital. That results in having an amount of excess derivative assets available in our captive to offset the absolute jump in reserves related to VACARVM for the life company.
So that helps keep the number more in control, but what it also presents is a recognition that you need to be conscious of not only equity market movements and yes, as the equity markets move up, it certainly brings the VACARVM reserve down -- but you also have to be conscious of the value of the hedge assets that are there in support of that reserve and those assets move, as we all know, with markets interest rates and volatility. And so the sensitivities around it can be quite complicated which is why we have set aside a reasonably large amount of cushion to try to absorb any movements in the market going forward.
Now, when we did our capital offerings, we did some sensitivity analysis around capital on RBC to various moves in the markets, and we for example used roughly S&P levels at 900 and we came up with a capital plan at a 400% RBC as part of the capital raise in subsequent presentations. We stressed that for the markets down a 100 and then the markets down 200 i.e.
S&P 800 and 700, and that had a rather linear and its not perfectly linear but about $250 million and $500 million respective impact on the needs for capital. In a general way, that can give you some idea of sensitivity but I caution that the assets are moving around and it’s not a linear calculation.
It can get more extreme in lower levels of the market. And so that's why we need to remain cautious, but certainly market appreciation is helping out on the capital needs going forward.
Tom Gallagher - Credit Suisse
Okay. And then on the credit migration?
Fred Crawford
Credit migration -- first of all, we have experienced a level of credit migration year-to-date. My estimate is it's added in and around $100 million of capital need to the denominator.
And that's driven primarily by downgrades in corporates, split roughly between financials and industrials, and then the other half of the movement to below investment grade would be RMBS portfolio largely. So those are the two moving parts that are giving rise to higher increases and below investment grade and ratings migration.
The rules around admitted and non- admitted typically deal with total asset portfolio and not just available for sale and so that gives you a level of room before you start tripping into the 10% restrictions. So at the moment, I don’t have as greater concern, I think our view is that ratings migration will start to moderate as we go forward.
But as you know, we have a good level of ratings migration capital set aside in our capital plan also to account for this.
Tom Gallagher - Credit Suisse
Okay. Thanks.
Operator
Thank you. We will go next to Jimmy Bhullar with JP Morgan.
Jimmy Bhullar – JP Morgan
Hi, thank you. Fred, you spoke briefly about the losses on your alternative investments, I think $29 million in the second quarter, could you discuss what caused this?
What it hedge funds and what your outlook is for the second half of the year? And then secondly just in general terms, I think one of the concerns that the company has been the impact that TARP would have on your franchise in terms of sales or distribution relationships, I think it would be helpful if you just talk about -- you mentioned sales being up in many of the products in the second quarter?
Part of that's I guess seasonality as well, but how have trends held up since the second quarter to the extent you could talk about July production, if not specific then just broadly in all your businesses.
Fred Crawford
Sure, Jimmy. Its Fred, and then I will ask Dennis to comment on your second question.
In terms of where the losses were concentrated on investments on our alternative investments, first we are running at about $700 million or so of book alternative investments just to size it for you, about $180 million of that are hedge funds, about $304 million of it is VC, venture capital mezzanine type funds. And then the other concentrations are energy partnerships of about $98 million close to $100 million in real estate partnerships of $100 million.
Where we experienced a loss is in the period was, not in the hedge fund investments, those actually generated a gain in the period, pretax and pre-DAC of about $6 million. The losses came through the venture capital partnerships predominantly at about $34 million or roughly half of the number we posted, that’s pretax and pre-DAC.
And then the remaining half was more or less an even mix between energy partnerships and real estate partnerships. And that's why I made special comment of the receipt of the year-end audits in the second quarter.
These are partnerships whereas as you probably become familiar with, there is a lagging effect to it because you will receive, in particularly the year-end audits, you will receive those on a rather delayed basis. And in our dialogue with other investors and others who are experiencing this, one of the things we are seeing is that, its not just a matter of the severe markets in the fourth quarter and the audit process for that -- this was a particularly intense audit process for these partnerships because they were among other things adopting more stringent rules of engagement on valuing assets, namely FAS 157 and related type activities.
So we think that’s had a particularly strong impact on the results and that’s why I am more confident that going forward and wouldn’t expect to repeat. What we had more or less planned for is essentially zero impact from alternative investments that is not loss or gains as we go to this volatile period of time.
Again, our long term expectations and what has historically been the case as we have achieved to 10% returns in this portfolio, and we would expect eventually to climb back into those types of returns. Dennis?
Dennis Glass
Jimmy, on the CPP issue, first let me answer the question specifically as to any feedback that we have getting from distribution partners or individual financial advisors about, let’s call it, the potential taint of being included in the program and we can say without qualification the number of comments have been few and far between based on that specific issue. But I would like to go back to the broader question, which is our customers are attracted to Lincoln because of the points that we have been making all morning long, which is capital, rating agency kind of reactions, stock price has stabilized, the quality of our distribution, the quality of our products, so I think when you add up all of the things that Lincoln has as assets to continue to be dominant in some of the markets and significant in most of the markets, I just don’t see that one single factor of CPP participation as overwhelming the more fundamental strengths of the business.
And finally, I would say that although there has been and continues to be a lot of discussion about CPP, it's really been focused on the large, systemic risk defined banks. And that -- there are 700 or 800 commercial banks that operate with CPP, without any serious deterioration to their business because of that one single fact.
And even though we are only one of two in the insurance industry that decided to take as a contingency to make sure that we have sufficient capital, again, to repeat, the strength of the franchise, the quality of the products, the quality of distribution, I think are much more important issues, and the stability of stock price and ratings, are much more in aggregate important issues than CPP is.
Jimmy Bhullar – JP Morgan
Any comments on [ph] sales trends?
Dennis Glass
Sales trends continue as we have seen them in the second quarter to the extent that there is ups and downs in the sales trends -- back to your specific question, I don’t see that as related to CPP, just to general market conditions.
Jimmy Bhullar – JP Morgan
Okay. Thanks.
Operator
Thank you. We will go next to Mark Finkelstein with FPK.
Mark Finkelstein – FPK
Hi, good morning. A couple of questions, I guess firstly you mentioned replacing the guaranteed UL product, I guess not incorporating any assumptions around the capital solution.
I guess how will that affect your competitive positioning? And how should we think about that in the context of kind of back half of ’09 sales?
Dennis Glass
We think that -- not do we think -- as we look at the scan of pricing on that product, it's pretty obvious. You can do good comparisons because there's only one variable.
Well, there's a couple of variables, but it's a more transparent pricing. The new products will be very competitive.
Some of our other competitors are improving --increasing their pricing. So the short answer is, we don’t expect any significant change in our market position or sales as a result of the redesign.
Mark Finkelstein – FPK
Okay. And then I guess Fred, what is the status?
I know you were working on a -- kind of a securitization structure through an LSE capacity. What is the current status of that?
And I guess just given the commentary on the guaranteed UL, is that off the table for now?
Fred Crawford
No, its still important that we continue to pursue securitization solutions because while the product modifications are important, they really represent more of new business go forward. You still have to deal with in force account value related reserve redundancy or excess reserves.
And so it's important for us to continue to pursuing it. We are -- we have put in place many of the mechanics to execute on the transaction and now need to just simply get the right funding vehicle put in place, and that’s what we are working on right now.
And again, we are focused on long term structures, I would say in and around the roughly $250 million to $300 million type range is the size, and that tends to be the size of transactions you are looking at these days. That’s what we hope to get done this year.
I think improving overall capital markets and credit markets and so forth broad well for these solutions developing over time, but its something that we are working on currently. I don’t have any time line for it other than we are heavily focused on it.
Mark Finkelstein – FPK
Okay. And then I guess just following up on one comment you made earlier, which was I think the proceeds of the UK, sounds like you are going to put it into the stat company?
I guess just help us understand why kind of put it in versus holding it at the holding company and just seeing where we kind of end the year in S&P [ph].
Fred Crawford
What I said more specifically was that it would be our intention currently to use a majority of the proceeds to support our life capital position. And the reason I used those words carefully was that, it will very much depend upon how we see things proceed in terms of the market as to what we need and where we need it.
But as you may recall from both the capital raising effort as well as more recent dialogue around capital planning, we do have plans to contribute upwards of $750 million into the life company over the course of 2009. This includes the media assets that we contribute recently, but also other transactions including the UK.
And so we can support life capital if necessary with the proceeds of the UK, but we can do it in multiple ways. We can do it through investing contribution done in the life company or we can also do it by supporting our captive reinsurers if that goes to capital support for the life company.
So we want to remain flexible there Mark, which you are absolutely right. If conditions continue to improve and capital conditions clear up, then it simply represents financial flexibility.
Mark Finkelstein – FPK
Okay. And I'll does ask one other quick question.
With the sale of the UK, are we done with the sale of corporate assets? I know there was media speculation on another asset, but where are we at?
Dennis Glass
We don’t comment on M&A acquisitions, but I would take a little different approach to the question and say that in terms of executing on transactions for the sake of providing additional contingent capital for possible adverse developments, I think what we have done today so far takes that off the table.
Mark Finkelstein – FPK
Okay. And that’s helpful.
Thank you.
Operator
Thank you. Next, we will go to Colin Devine with Citigroup.
Colin Devine – Citigroup
Good morning. Couple of quick questions, on the variable annuity living benefit (inaudible) withdrawal benefit piece.
What percentage of that in terms of by guaranteed amount was in force at the end of ’07 and how much of that would have the automatic 5% step up that I believe your products offer? That's question one.
Question two, you talked about the changes to the UL no-lapse products in terms of pricing. Did you reduce your lapse rate assumption included in that?
And then lastly, Dennis, you are talking about retention and how that’s going very well with respect to employees. Has there been a cost of this in terms of holding on to your wholesalers and if there has, has that been capitalized or just run straight to the P&L?
Dennis Glass
Fred will take the UL question.
Fred Crawford
Yes, and we will have some close lookup the account value percentage on the 5% roll up again to 2007 if we can get that number if I am understanding that right. You are saying that the total account value how much of that was withdrawal benefit and how much of that withdrawal benefit was the 5% product.
Colin Devine – Citigroup
Right. It’s getting at how much of that is tied to an S&P more to probably an average of about 1450 that would have had a guarantee reset that year and then is rolling up going forward.
Fred Crawford
Right. In terms of the UL question just to hit that, one of the things that we have done actually for quite a while importantly is really ratchet down the long-term lapse assumptions related to universal life.
And particularly, when we see universal life business on our books approaching ten years in duration, we crank down this lapse rates down between 1% and 2%. This is very low historical lapse rates even with secondary guarantees that typically run higher than that, but we are in fact currently seeing a little bit of lapsation in the secondary guarantee business.
Colin Devine – Citigroup
Just to interrupt for a sec -- you reduced them by 1% to 2% or you reduced them to 1% to 2%? Big difference.
Fred Crawford
Yes. We reduced that to 1% to 2%, absolutely.
As you know, lapse rates can run 5%, 6% but you want to be very careful about that and you want to dynamically reduce those in your -- both in your profitability assumptions and your DAC assumptions. So I feel pretty good about that and to relate to any sort of forward risk on profitability and DAC, Colin, in terms of the UL issue.
Colin Devine – Citigroup
So there shouldn’t be a goodwill problem there?
Fred Crawford
No. I mean I think again on the goodwill, goodwill brings a lot of other things into play with respect to the life business.
We took a pretty good hard run at it as part of both our year end process and the first quarter process, and while we do have a high level of goodwill on the business, the core fundamentals continue to operate pretty well driving profitability. So when it comes to lapse related activities in particular relative to our assumptions, I don’t have concerns in that regard.
So as we sit there today, I feel pretty comfortable there. One of the things I would say just on account value, this may not get exactly to your question in terms of the technical number question, we will try to get that but one of the things that we have seen in the quarter is a pretty substantial drop in the net amount of risk across our products.
To give you an idea, we had a net amount of risk on living benefits that we calculated as being in and around $5 billion at the end of the first quarter this year with the S&P drop. That net amount of risk number has gone down to about $2.9 billion given the market recovery in the period.
Its even more dramatically the case on debt benefits where we were approaching a little north of $16 billion in net amount of risk on our death benefits and that came down to around $11 billion range, down pretty significantly from the market. So you can see that, well, of course sensitive on the downside when you do start to see market recovery, that NAR starts to squeeze in very quickly and that’s what you are seeing among other things, positive statutory results I think undoubtedly across the industry related to AG 34 reserves.
You are seeing a lowering of mortality expense drag on the annuities business because the benefit ratio is reducing in terms of its drag on earnings. So all of those things can start reversing out in addition to expense assessment increases pretty nicely when you see a market recovery.
Colin Devine – Citigroup
Were those figures gross of any hedged benefits? Or net?
Fred Crawford
Yes. Those are just focusing on the NAR.
They are not trying to net out any hedge performance and it is just what’s actually happening with the actual account value. So good progress there and obviously with continued recovery in the third quarter, that’s only improving but its still volatile time and its early.
And so having the hedge program be effective as it is, is important and having some capital set aside recognizing volatility is also important these days. I don't know if you-all have any information for Colin on the account (inaudible).
Doug Miller
Well, I think I will come at it maybe in a different way. We aren't going to break it out by year, but can speak to I mean its hard to keep track of all the benefit iterations that come out.
We actually didn’t launch our lifetime income advantage 5% step-up product until ‘08. So we didn't have a traditional solution or traditional product that was built that way, but in ’07, we did have a product called 4LATER [ph] which was a -- really a precursor of connecting the i4LIFE [ph] down the road.
It did have some guarantee growth to it, but if you recall, we billed it so it wasn't an annual step-up, not really wanting to run into that space but recognizing the importance of predictability around income. So the 4LATER product was what we had at that period of time along with still selling a large amount of what is really in these markets a simple high watermark design around our withdrawal benefit.
Colin Devine – Citigroup
So the stuff in force at the end of ’07 would have reset I assume to -- let's take the average S&P level for the year. Its not going to grow step up you are saying at a 5% clip from that?
Dennis Glass
The dominant piece of the block of business would be account value driven, not guarantee growth driven.
Colin Devine – Citigroup
Okay. I think you just said it reset at an average S&P, but okay.
Dennis Glass
Yes, Colin, if I could move to your question about retention, let me first answer specifically that there is no broad based incentives that have put in place to retain wholesalers, so specific answer to your question on that is no. If there are occasional guarantees that are put in place because we have a talented wholesalers that we want to hold on to and not may be specifically because he's being -- or she is being -- recruited by one of the competitors.
We just want to make sure that we keep them sometimes particularly in declining markets, we might provide a base higher than what we ordinarily would to. Any of our distribution -- most of our distribution costs are capitalized, but again in the context of our total expense or Lincoln Financial Distributors, it is really any retention issues or costs are fairly insignificant.
I'd make a couple other quick comments. One, again we continue to have in my perspective and talk to a lot of competitors, we continue to have a really talented and dedicated group of wholesalers at Lincoln that like being part of LFD.
The fact that we are a major player in the marketplace with consistent approaches to the business, consistent product development in the business, that’s a very strong draw to Lincoln. And importantly, some of the changes that we are making has a very direct impact on the ability of our wholesalers to make more money.
So for example, in the past, if all you sell, which is the way we do it, it is the choice product and no other product, and the choice product or VAs in general trail off. You now are able to put into your portfolio other products such as fixed or index annuities and so you have an opportunity to keep your income at levels that would otherwise not to be available to you if we stuck with the old system.
So again, a high quality force. I think they believe in Lincoln because of a lot of things, but we are consistently in a market, consistently focused on trying to develop methodologies for them to have a great career and make a lot of money, we like to see it make a lot of money.
And so that, in my view, is what’s holding our retention rates low. I would -- I would follow by saying--
Colin Devine – Citigroup
Retention rate high -- I think you meant, Dennis.
Dennis Glass
Retention rate high -- I'm sorry. I would say that from time to time, we loose somebody to a competitor that puts $1 million on the table, and in cases like that, we are $1 million guarantee for a year.
In cases like that, we shake hands and we say best of luck because we can’t afford to pay those prices.
Colin Devine – Citigroup
Right. Thank you.
Dennis Glass
Okay.
Operator
Thank you. We will go next to John Nadel with Sterne, Agee & Leach, Inc.
John Nadel – Sterne Agee
Hi, close enough, good afternoon everybody. I had a couple of quick questions.
One, I want to think about that $250 million expense target and I know there was some discussion of it last quarter, could you remind us -- there is going to be some DAC offset, some timing, could you -- how much of that gets to the bottom line after tax, after DAC offsets and at what point in 2010, are you sort of on that run rate to get to $250 million?
Dennis Glass
Yes, approximately $90 million after tax, after DAC. Of those, the $250 million and the reason it's not higher than that, of course, at least on the GAAP books, some of the saves would otherwise have been capitalized.
So the answer is $90 million at lower run rate than 2008. Of the $90 million, we expect to get $45 million in calendar year 2009, $45 million and the expectation was that the majority of that would be in the second half of the year.
So I would say that of the $45 million, we have got something in the neighborhood of $10 million already in the run rate in the second quarter, leaving an incremental $35 million to benefit the last two quarters of the year. Okay?
But the run rate, we've got $8 million of the $45 million already in, we would probably pick up another $5 million or $6 million incremental run rate in the third quarter and another $10 million or $11 million run rate in the fourth quarter.
John Nadel – Sterne Agee
Okay.
Dennis Glass
Those are, let me hasten--
John Nadel – Sterne Agee
Yes. I understand.
Dennis Glass
That was a broad--
John Nadel – Sterne Agee
Yes.
Dennis Glass
That too point-specific for what will actually probably happen.
John Nadel – Sterne Agee
I understand. And then the way to think about that has been at the by the end of – is it by the fourth quarter of 2010 maybe you are sort of at the quarterly run rate that gets you to $90 million?
Dennis Glass
Yes.
John Nadel – Sterne Agee
Okay. So just a progression, a constant progression.
Dennis Glass
Right.
John Nadel – Sterne Agee
Okay. And then, Fred, I was interested in your comment, I believe it was in your prepared remarks that you talked about the eye toward cost of capital with respect to the capital raising transactions and the plan -- the capital plan overall.
And I guess I am interested in where you think the cost of capital is for Lincoln Financial today sort of market levels. And then, how do we think about, at what point, after expense saves, after some recovery in the business, that sort of thing.
At what point, are you at the point where you are earning above that cost of capital?
Fred Crawford
Yes. That’s a --
John Nadel – Sterne Agee
May be we need an hour or two for that.
Fred Crawford
Well, those of you who know me and may be are even tired of it. We could take a lot of time on that thing, but you could get very theoretical I mean starting with just what is the beta of the company these days when you think of that relative to cost of capital and so forth, but what I think is important is that what we sort of think about over a long period of time and not a point in time.
One of the things I happen to think about Lincoln is that, the current implied cost of capital of the company is probably much higher than it really deserves in the sense that we have a much more balanced business, fairly substantial amount of low beta business that often gets ignored in the limelight of variable annuities and what's taking place there.
John Nadel – Sterne Agee
Yes.
Fred Crawford
And so, what I have generally done overtime is assumed cost of capital including debt cost of capital, running in and around the 10% range and expecting to get returns on our products on a levered basis north of that to create shareholder value. Now, there will be times where we have run of cost of capital due to very low debt cost and relatively low risk in the marketplace down into the eights and nines, you could argue our life business runs with our cost of capital in the 8% to 9%, and perhaps our variable businesses is running in a cost of capital that’s more than low teens.
And so what’s that blended approach. That would be my rough justice on it.
I do know that one of the things we pay very careful attention to is cost of capital assumptions when we are doing, for example, our goodwill work and we are using discount rates to discount back those businesses.
John Nadel – Sterne Agee
Yes.
Fred Crawford
And more recently and as a matter of being conservative in our approach, we have been hiking up those discount rates quite considerably on our businesses just to stress them when thinking about things like goodwill impairment. Example being variable business is up into the mid teens with life businesses in and around the 10% range, 11% range depending on the business, but that’s for purposes of being conservative.
What we would expect over time is for things to settle in much lower from a cost of capital. But we price our products to exceed it, particularly when levered, and generate returns for the shareholders, but -- so that's a bit of a discussion but hopefully gives you some color and context.
John Nadel – Sterne Agee
Understand. And then last quick one I had for you guys, I think it was last quarter based on statutory results.
I don't remember exactly what the test is, but I suspect I can probably steer you to remind you of what I am talking about is I think on the statutory basis, you have a trailing sort of four quarter net income test on a line of credit trigger or on some kind of a trigger that might cause you to have to issue a little bit of equity?
Fred Crawford
Yes. What you are talking about is the capital securities and the alternative payment mechanism that triggers, yes.
And obviously what’s happened in that regard is we put some distance between ourselves in that kind of a situation by virtue of the equity raise in--
John Nadel – Sterne Agee
Yes. Okay.
Fred Crawford
What you are going to see is, we will be updating our disclosures around sensitivity on that in the 10-Q and I will leave the details for that, but obviously the $690 million, net $650 after deal cost raised on the equity side is helpful to building some cushion distance between us and that payment trigger.
John Nadel – Sterne Agee
Figured that was the case. Just wanted to confirm.
Thank you.
Operator
Thank you. We will go next to Steven Schwartz with Raymond James & Associates.
Steven Schwartz – Raymond James & Associates
Hi, good morning everybody or good afternoon I guess now. Two things, first a quickie, any update on the DI business and the thoughts on the DI business that you got back from Swiss Re?
Anything new there?
Fred Crawford
Nothing new, Steven. We do -- as part of really the normal course of action of doing a reserve reviews as part of absorbing that business into our shop, we will be doing that along just as we would review any of the reserves in the business.
So that will be conducted throughout the remainder of the year. At the moment, we don’t anticipate any issues, but we simply haven’t conducted all of that, remembering that we haven't really owned this business for the better part of seven, eight years and so we need to get reacquainted.
We did establish some money obviously as part of the charge we took here on that decision, which is helpful but we have not finalized our review of the year reserves at that time. We'll simply be conducting that here as we go towards the end of the year.
Steven Schwartz – Raymond James & Associates
Okay. Dennis, going back on marketing and the effects of everything that's happened in marketing, you know, clearly the variable business, the pure equity link business wasn't that -- wasn't what you were doing prior to 2007 when all this happened.
It was still good I am sure, you picked up a lot in the fixed business, you picked up a lot in the index annuity business, what I am wondering is has the distribution shifted and because of the products that are being sold, because of the products that are popular now? For example I know Raymond James, we don't did indexed annuities, but I know there are plenty of NMOs out there that do a ton of indexed annuities, may be those NMOs are little less rating sensitive than Raymond James might be.
And what I am concerned with is that, the market was up last quarter, the market is up this quarter, people forget, they move back into the equity markets. And maybe your sales are being supported by a product being popular in a less rating sensitive distribution channel, whereas a sales move back to equity link type products, you might wind up having to compete in a distribution channel that is more rating sensitive.
If you hopefully you understood where was going with that?
Fred Crawford
Yes. What we find is that the least rating sensitive business lines are the transactional lines.
So mutual funds, variable annuities, index annuities are the least sensitive to ratings and of course particularly in the wires, that’s where we distribute a lot of those products. The most sensitive product line to ratings is probably the life line.
And the ratings that we are carrying are consistent with our principle competitors and particularly to the extent that we have stabilized the earnings. Really very interesting, its not just the ratings from Standard & Poor’s.
Of course, the downgrades hurt, optically, but 30 or 90 days ago when our stock was bouncing around a little bit more and when our credit default spreads were wide, that had as much of an impact on some of our customers as just the absolute ratings. So the fact that we have solved, as we reiterated more times this morning then probably need to, the fact that we have solidified our capital base, we're seeing some stability in the stock price.
Our credit default swaps have come in from 2000 to 400. That's out in the marketplace.
And again, I think that’s more important in terms of the perception of Lincoln as a supplier product than some of the other noise. Will Fuller, who heads our distribution company, is with us in the room and I might just ask Will if he has anything to add to that.
Will Fuller
Yes, I think the evolving nature of our focus in distribution is really towards the client focus, and so as we look and take a client firm by firm view of their needs and their client bases and your product preferences, we have a greater ability to deliver the products that we have to them. So we are able to adapt and be nimble firm by firm based on their needs that goes back to your comment about Raymond James, for example not -- I think your comment was around Raymond James not having a specific focus on index annuities, but we found that other client firms did, and we now support them in that scenario.
And then secondly, the client focus allows us to really spin the time to keep a pulse on consumer sentiment, and be able to pick up on trends that are in the marketplace and take advantage of them. So doesn’t take our focus away from driving our core products, but helps us drive incremental growth in times of change, which we are living through, and also allows us to better diversify our sales mix, both are stated strategic goals of the company.
Steven Schwartz – Raymond James & Associates
Okay. Thanks, Will.
Fred Crawford
Thanks, Will.
Operator
Thank you. And we have time for just one final question.
We will go to Eric Berg with Barclays Capital.
Eric Berg – Barclays Capital
Thanks very much. I have two questions for Fred or Doug.
The first question takes us back to the question about ratings drift or ratings downgrade. Because the risk based capital formula is not sensitive to -- at least I do not believe sort of differences between say AA and A or A+ versus A versus A minus.
Am I right when I say, Fred, that the issue of required capital as you get ratings drift really is only -- the increase in required capital is really only relevant when you start getting major ratings downgrades? Or is there some subtlety or nuance that I need to be sensitive to again having to do with more modest ratings downgrades and I have one other question too.
Dennis Glass
Let me jump in here and make sure we are clear about my comment. My comment is that, what’s important to us, and again, it product line by product line and distribution system by distribution system, but what’s most important is that our relative ratings compare well with our -- with the firms that we compete with and we are in that position.
And now, I will turn over to Fred for the rest of the answer.
Fred Crawford
Well, just on ratings migration itself and its impacted the denominator of risk based capital, the reason -- you are right, Eric, that its an NAIC ratings situation. And so it's less sensitive to a particular notching exercise from rating agency to rating agency and more so when you have more significant downgrades across the board.
And you tend to focus a little bit more on the lower rated categories and movement there because there is a cliff aspect of it, that is, holding the capital requirements accelerate as you got down in the lower ratings. So movement from AAA to AA, and AA to A has less of an impact than falling out of the investment-grade into below-investment-grade, or out of NAIC-2 into NAIC-3 or 3 to 4 etc.
So that’s where I focus more of the real ratings migration impact that we are seeing in the denominator. You can sort of see in the raise in our below investment grade allocation over the last three, four quarters and that’s where we are experiencing some of the strain.
Now, ratings migration, as does VACARVM, these are the types of capital issues that are interesting to manage to because their capital issues that can take capital away, but also give it back in time. And so that’s why we tend to talk about it as reserving capital cushion for these events because we would expect things to moderate and start giving capital back in time.
Eric Berg – Barclays Capital
Second and final question relates to an important accounting policy at Lincoln, which I think is not unique but nonetheless -- other companies do it too, but nonetheless I'd like to understand the following accounting policy. Since issuing guarantees and your annuities, withdrawal benefits, death benefits, is really integral to the business.
I mean customers are buying these contracts in an important way because of the guarantees and who knows how much less interested they would be if there were no guarantees, but I think I am on solid, let’ say, they would be less interest. So since if you accept the argument that Lincoln is in the business of issuing guarantees and hedging those guarantees, if that’s a key part of what you folks do everyday to get customers and make money, why are the whole results of the GMDB and the GMWB excluded from operations?
Isn't that your business?
Fred Crawford
Yes. It is our business.
But what we are trying to do is we don’t exclude all of the economics from the death and living benefits. What we do is we exclude the mark-to-market noise that we would expect to be, that is non-cash and we believe to be less economic in the long run that is expected to even out over time.
So what do we want to include in operating earnings because it is part of our business is, we want to include the cost of hedging, okay. So whether its death benefits or living benefits, we want that cost or the amount of fees we set aside to support the hedge program to be running through operating earnings.
And then in particular, when it comes to the death benefits, we want the nature build in the SOP death benefit, the monies we also set aside out of our fees to support or build the future reserve. We also want that to be coming through operating earnings.
But the actual change or fluctuation in the reserve whereby we have hedge assets that fluctuate accordingly, we take that below the line and treat it a little bit like an unrealized gain and loss with the idea that we have kind of a hold to maturity expectation for eventually paying out on these guarantees, so similar to a bond situation. So because they are very long dated guarantees, because our actual payments of benefits, okay, are going on benefit, its so long dated.
The actual unrealized gains and losses from the portfolio, and a good example of this period, we did experienced gains for example in the actual hedge program, but we don’t take that through operating earnings because its unrealized at the moment. That will take sometime.
Now, eventually when and if these things go on benefit and we have to then reach into our hedge program to fund the reserves, should there be any shortfall in that. That sort of reserve change, that sort of issue would start to come through on the way of benefits in your operating earnings.
But that’s philosophically how we've approached it. Mechanically how you get there can be more complicated as you see in the death benefits, its very complicated mechanism to get there, much more easier on the living benefit side because both the benefit and the asset are dealt within our FAS 133 basis.
But that’s what we try to do here.
Eric Berg – Barclays Capital
I understand that now. Thanks very much.
Fred Crawford
Okay.
Operator
Thank you. With no further questions, I would like to turn the program back over to Mr.
Sjoreen for any additional or closing comments.
Jim Sjoreen
Well, we want to thank you all for joining us this morning for all your question. As always, we will take your questions on our Investor Relations line at 1-800-237-2920 or via email at [email protected].
Again, thank you for your time this morning and have a good day.
Operator
That does conclude today’s conference. And thank you for your participation.