Good morning, and welcome to the American Water's Second Quarter 2011 Earnings Conference Call. As a reminder, this call is being recorded and also being webcast with an accompanying slide presentation through the company's website, www.amwater.com. Following the earnings call, an audio archive of the call will be available through August 11 of 2011 by dialing (303) 590-3030 for U.S. and international callers. The access code for replay is 4456951. The online archive of the webcast will be available through September 6 of 2011 by accessing the Investor Relations page of the company's website located at www.amwater.com. [Operator Instructions] I would now like to introduce the host for today's call, Ed Vallejo, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to American Water's 2011 second quarter earnings conference call. As usual, we will keep our call to about an hour. At the end of our prepared statements, we will have time for questions. But before we begin, I would like to remind everyone that during the course of the conference call, both in our prepared remarks and answers to your questions, we may make statements related to future performance. Our statements represent our most reasonable estimates, however, since these estimates deal with future events, they are subject to numerous risks, uncertainties and other factors that may cause the actual performance of American Water to be materially different from the performance indicated or implied by such statements. Such risk factors are set forth in the company's SEC filings. Now I would like to turn the call over to American Water's President and CEO, Jeff Sterba.

Thanks, Ed. Good morning to all of you, and I appreciate you joining us this morning. In the room with Ed and I is Ellen Wolf, our Chief Financial Officer who will join me in the presentation; Walter Lynch, the President of Regulated Operations; and Kellye Walker, our Chief Administrative Officer and General Counsel. It's a pleasure to once again announce strong performance for the quarter from all of our lines of business, and this continues the trend of improving financial results that you've seen over the last year. As you can see on Slide 5, total system revenues increased 6.2% quarter-over-quarter to just under $675 million. Adjusted net income and earnings per share increased by 11.8% and 9.5% respectively over the prior year to a little over $81 million and $0.46 a share. You'll recall that we are showing these results with an adjustment to our GAAP earnings to exclude the benefit from the cessation of depreciation for assets under agreements for sale. And remember last quarter, that included our Arizona and New Mexico properties. For the second quarter, it also includes Ohio. This adjustment that we make enables there to be an apples-to-apples comparison to our earnings guidance. You'll note that cash flow from operations is the only one of the indicators that's slightly down from 2010. This is driven by a onetime tax refund received last year and an increase in pension investment this year. As you saw on our press release, we estimate that our earnings per share as adjusted will now be in the upper end of the guidance range of $1.65 to $1.75 per share based on our performance to date. And then Ellen will go into more details on this and our financials. But let me first speak about our portfolio optimization efforts…

Thank you, Jeff, and welcome to those of you who are joining us for our second quarter 2011 earnings conference call. Jeff has just reviewed with you some of the highlights of our strong second quarter. Now I'd like to review with you some of the key drivers of those results. For a more detailed discussion, please feel free to access our 10-Q through our IR website. The Q was filed with the SEC yesterday after the market closed. As Jeff just mentioned, overall, we had solid financial results for the second quarter of 2011, with increases in revenue, net income and earnings per share, as well as continued improvement in our regulated O&M efficiency ratio. These results are driven by our team's commitment to strategies that focused around value to our customers that result in value for our shareholders. For the quarter ended June 30, 2011, we reported operating revenues of approximately $674 million, a $39 million or approximately 6% increase over the $635 million reported for the second quarter of 2010. GAAP net income and earnings per share increased over 14%. However, they do include a benefit from the cessation of depreciation of our discontinued operations. Adjusted net income and adjusted earnings per share represent American Water's results as if we had continued to depreciate our discontinued operations. Our second quarter 2011 adjusted net income was approximately $81 million compared with around $73 million for the second quarter of 2010 or $0.46 per share compared with $0.42 per share in 2010. Included in these numbers is approximately a $0.03 per share contribution after depreciation from these discontinued operations. Now I'd like to turn the discussion to the various components of our net income starting with revenue. As Jeff mentioned, operating revenues increased $39 million quarter-over-quarter, with approximately 80%…

Thanks, Ellen. If you look at Slide 16, this is the slide -- the standard slide that we've talked about in the past in which you can track our progress. Most of these items, we have not talked about, so I'm not going to go back over them in detail. Let me just highlight a couple. First, one of the items that we've talked about before and Ellen also addressed was the issue of declining residential usage. And every rate case that we have filed this year, it has been addressed there. It is being addressed in different ways. I mean, as you know, there are really 3 different approaches that are being used, and which approach is used is really kind of dependent on where the negotiations and discussions are with that state and what the particular situation of that state may be. So in one instance, we filed, what I call, a more full decoupling mechanism that's like what we have in New York. In other states, we have filed changes in rate design that move us to more emphasis on the fixed and less on the volumetric component of the rate. And in other states, we have used regression analysis over a shorter period of time to do a forward-looking adjustment to residential consumption. So it kind of depends on, which approach we use depends on the state and their particular situation. But it is being addressed in all of the states, and we will continue to push on that hard. Ellen touched on both the improvements of operating efficiency and earned ROE. Let me just touch on one other aspect of growth. Let me use Homeowner Services this time to just highlight a few things that are going on. We are now moving warranty products into the commercial segment, which is something that we haven't in the past done. We've been focused on the homeowner side, and we're seeing a good opportunity into the commercial side. We're also exploring ways to expand home service warranty offerings into gas and electric line and appliance care areas to expand the portfolio of offerings that can be available to customers. So those are just a few of the things that continue to help us view that we'll be able to have reasonable growth out of our market-based operations. And as you can tell in the second quarter, as Ellen highlighted, we've picked up revenue of over $12 million and cost decreased of around $9 million. So adding to the bottom line. With that, we will be happy to take any questions that you may have.

[Operator Instructions] Our first question is from the line of Ryan Connors with Janney Montgomery Scott.

A very detailed review of the quarter, so I've actually got a couple of bigger picture questions. And first off, just actually on the market-based side. I know Jeff, you've talked, since you have joined the company, about rolling out kind of an innovative approach to contract operations on the municipal side, and there was an interesting kind of beta test of that in California with Rialto that did not work out. I wonder if you could just briefly summarize how that situation went down from your perspective? What the key drivers were behind that ultimately not making it across the goal line, and what the company learned about how it approaches those types of opportunities going forward? How you might tweak that model? And then finally, just what that says about the state of the appetite for contract operations on the municipal side?

Good question. A couple of things about the Rialto. A, it's not over. It's not been decided what happened as we ended up with a 2-2 vote out of the city council, and that's not a definitive vote. It just did, meant that the deal could not go forward at this stage. So there's still ongoing discussions because they still face a fairly significant problem back in some respects. It seems to be manifesting itself more significantly for them. But I think there are -- there's clearly are some learnings. One of the major challenges, and this can occur in a lot of the situations, is that there's a significant rate increase. Now in this situation, the significant rate increase is there regardless of the proposal we had in front of them. But I think one of the things that happened is that, that rate increase got tied to our proposal because it was a specific proposal. And their own analyst, the old R.W. Beck, SAIC firm, even demonstrated that they would still be facing a significant rate increase. But I think you get that label and it creates tension in a community, particularly during these economic times. The reality that Rialto and other communities have to face is okay. So if not this, then what. And it's the then what that I think some communities will struggle with. Our position and commitment is that we're interested in finding a different way to be able to provide value to those markets. We will not go back to doing it in the traditional, short term, contracted O&M way. And if we can't find a way to do that, well, then we just won't do it. I do believe, though, that there is a market. It's targeted. It's not a broad-based desire of cities to sell out their systems or to do something like this. But there are definitely multiple entities that do have an interest, and those conversations are starting to continue to move. And as I said, Rialto is still on the table. So I think the learnings for us, one, is that the rate impact that a city faces has got to be understood by the city, independent of what we propose. And they really have to help their constituency understand the need to raise rates. And that this is a way -- maybe the same rate increase, but it will create greater longer-term value. And if we can demonstrate that, then I think that business model could be successful.

Okay, and then on the regulated side, I just wanted to get some view on this issue of portfolio optimization or the swaps or whatever people are calling it. I think there's a broad consensus that, that game plan makes sense strategically. And obviously, there's more -- there's further overlap with your listed peers. There are other deals taking place, obviously, outside of even your own company. So it seems to be a very active period here in terms of assets management by you and your peers. What are the limits to that process continuing at this pace or even accelerating. I mean, are there limits to how quickly the industry can do these deals whether they're personnel, internally, whether they're regulatory in nature, or can we kind of expect this period of accelerated activity to kind of sustain itself for a little while?

Well, in any of, each of these transactions, you have to look at it on its own merits. And in one of the things that at least we're sensitive to is also transaction cost. So there are times you may be able to do something but the transaction costs that could be associated with regulatory approvals, et cetera, can take those whatever the benefits may be to something that just doesn't make it worthwhile. That said, I think the good thing that has happened is that the dialogue has opened up, instead of people kind of hunkered down behind their own walls to have the conversations about how can we benefit the overall industry and our customers. And if there are ways to do that, that are sensible for owners and customers and passed regulatory muster, then there will be a basis to pursue them. I'm not sure that I would forecast that we're going to see a huge rash of this because transactions are still fairly labor-intensive, and there's a pace at which it can go. And I think we and others in the industry were fundamentally based on being utilities that provide service to customers. Transactions are not our business. They can be a way in which we enhance our business.

The next question is from the line of Mike Roomberg with Ladenburg Thalmann & Co. Michael Roomberg - Ladenburg Thalmann & Co. Inc.: I just want to start off with the New Jersey rate request that was just filed last week. It was a bit earlier than we had expected previously. I know that you guys have been on about a 24-month filing schedule. And I guess, given that you have a 10 3 ROE in the state right now, and/or from what I understand, also in the midst of the proceeding with prospective bids. I just want to get your perspective on why now and kind of the rationale behind that?

Okay, this is Walter Lynch. I'll take the question. The New Jersey rate request is really tied to the significant capital that we've been putting into the system since our last rate increase. It's really about $300 million, and a big portion of that is the new plant that we're putting up in Short Hills, New Jersey. And that will be completed the summer of 2012. So it's really tied to the capital and the necessary infrastructure investment that we're making in the systems in New Jersey. Michael Roomberg - Ladenburg Thalmann & Co. Inc.: Okay, understood. But is there any kind of read-throughs to, say, other states that you have filed on a more rapid filing? I think you last filed 16 months ago as opposed to, again, the 24 months historical precedent. Is there any read-through in terms of your filing timelines in other states that we can read from this?

Hi, this is Ellen. The way we file rate cases is really around our capital investment. And as we noted in New Jersey, what we have is an accelerated capital investment because of the need to upgrade and update and put a more modern plant in replacing something that's over 100 years old. You'll note we also filed in Pennsylvania because we have a major project that we had talked about going on there, as well in Pittsburgh. So really the drive around our rate cases is the timing of any major capital investment. Michael Roomberg - Ladenburg Thalmann & Co. Inc.: Okay, understood. So I guess -- you mentioned Pennsylvania. We follow 2 other companies that have very significant presence in Pennsylvania. And both of them this year are recording a tax benefit related to -- a unique tax benefit in Pennsylvania for bonus depreciation. One has been reporting it as onetime item. One has been reporting it as a lower overall general tax rate. Do you guys -- it seems that your tax rate is up a bit this year on a consolidated basis. Given that PA is about 25% of your company, is that something that you guys are not accruing and I just -- in terms of figuring out how that compares to next year's results or estimates, I'm just trying to get a handle on that, can you help me with that?

Sure, and let me do that in 2 parts and not just Pennsylvania. Let me go back to 2008 where as a company, we were very -- took the position to apply for a repairs and maintenance deduction, which was not required but was something we took the initiative on because it does provide a cash flow benefit to us, and therefore, our customers. We filed for that back in 2008 and have recorded the benefit of that back at that time and in 2009. And that is one of the main drivers of our tax loss carryforwards that we have that are going to benefit us for a number of years. In 2011, you might remember, on our first quarter, we did announce a benefit of a little under $5 million for Pennsylvania related to adopting bonus depreciation and therefore, realizing a state benefit in the first quarter. And again, we did announce that and took that benefit in the first quarter of 2011. Michael Roomberg - Ladenburg Thalmann & Co. Inc.: Okay, I see. And then, I guess lastly, we were impressed to see the dividend grow at a 9% year-over-year rate and with this most recent increase. I'm just wondering, as you go forward and think about the payout ratio, et cetera, whether or not you see that as being a sustainable rate or something that you even could grow. Can you comment on that?

You said 9%. I mean, I think it is a 5% growth rate. That's what we have sustained since the IPO. We've talked to an awful lot of our owners about the issue of dividends and the balance between being able to reinvest that capital at a strong regulated rate versus paying it out in dividends, and what's really come out of those conversations in our belief is striking the right balance. And then, what's really important to people is consistency in its growth. And that's really where we're focused. We don't necessarily look at the payout ratio as driving the decision. But obviously, we're in a situation where earnings are growing a bit more rapidly than the dividend is increasing, which has been increasing at 5% a year.

The next question is from the line of Heike Doerr with Robert W. Baird. Heike Doerr - Robert W. Baird & Co. Incorporated: I had a couple of questions. First, on your infrastructure surcharges. On Slide 10, Ellen, can you tell us how much of this $41 million in revenue increase is attributable to base [ph] rates versus how much of that is from these infrastructure surcharges?

Yes, and Heike, the majority of that is from rate increases. When you look at the total amount for the year, it again helps us close regulatory lag. It is really around the rate cases that drive that increase. Heike Doerr - Robert W. Baird & Co. Incorporated: But would you say it's 25% of that $41 million, maybe only 10%. How should we think about it?

I would think about it as a small portion of that. Heike Doerr - Robert W. Baird & Co. Incorporated: Okay, and on Slide 11, where you list the infrastructure surcharges by state, is this as of the beginning of 2010, this $34 million? Or is this just in 2011 you've had $34 million of infrastructure surcharges awarded?

This would be those infrastructure surcharges that have been awarded in 2010 or 2011 that have not been covered by the rate cases above. So to the extent, if we had had an Illinois decision, that Illinois -- that $1.6 million that's on the chart, that is since the rate case has been decided. Heike Doerr - Robert W. Baird & Co. Incorporated: Okay, do you know year-to-date, how many infrastructure surcharges have been awarded just in calendar 2011?

I will have to get you that number, Heike, offhand, I don't know. We'll be looking at -- we can get to this. Heike Doerr - Robert W. Baird & Co. Incorporated: And on the consumption pattern, if we look at the differences between the first quarter and the second quarter, what jumps out is that you had seen a modest increase in industrial consumption in the first quarter. And in the second quarter, we saw that going back to being a decline as it had been with residential and commercial. Can you tell us what's going on there?

Heike, it's difficult to tell what goes on in any one category. But generally, we look at the first quarter as a cleaner quarter, and that is not impacted by weather. Heike Doerr - Robert W. Baird & Co. Incorporated: Is industrial impacted by weather, though?

Just to the extent they're watering their lawns or their plant sites and things like that.

Well, and also remember that some of our industrial load is in that floodplain area, that in the second quarter had real challenges relative to their operation. If you think about the food processors, a number of the food processors actually got stranded. They couldn't even get to their plants for processing, and that's where we saw some of the volume. Heike Doerr - Robert W. Baird & Co. Incorporated: Okay, that's helpful. And as a final question, just to make sure that we're all talking apples-to-apples for how your guidance looks compared to what the earnings are. In the first quarter, we had been talking about $0.24 from continuing operations and $0.03 of discontinued operations. But I don't recall us really talking about the cessation of depreciation. Can you reconcile that for me, so that first quarter and second quarter, we're looking at them the same way?

Yes. I think in the first quarter, we did talk about cessation of depreciation. The number for that first quarter was about the same, $0.03. So when you look at the discontinued ops, it has a $0.03 boost in it for the first quarter related to that depreciation.

And Ellen, for the year, we expect that to be equal to $0.09.

About $0.09. This is a little higher than you heard at the end of the first quarter because we've now added Ohio to the discontinued operations.

The next question is from the line of Brian Chin with Citigroup.

There's been quite a bit of activity from other high-quality credit players about placing capital out there at very, very low cost. Is there any opportunity that you guys see about potentially refinancing some of your fixed-rate debt just to take advantage of a little bit lower cost debt that's out there.

Okay, let me -- if you look at our interest rate year -- our interest expense year-over-year, you will notice that we are about flat in our interest expense. And included in there is about a $3 million benefit that we got from doing some refinancing. So pulling that out, year-over-year, you'll see a decrease in our interest. And that is really driven by the fact that we did a number of refinancings back in 2010 and are seeing the benefits of them this year, as well as some -- we will always continue to look at refinancing opportunities throughout 2011.

Given the magnitude of where bond yields have fallen, since you did that large set in 2010, are there sort of any items that come to mind as being readily available now?

Yes. And again, we just look at it on an ongoing basis. We have nothing out there at the moment, but we will continue to look.

The next question is from the line of Barry Klein with Macquarie Research.

I have 2 unrelated questions. Can you please expand on Jeff's comments with regard to your strategic positioning in Pennsylvania and the Marcellus Shale? And what your plans with regard to the Marcellus Shale are? Also with regard to your NOLs, where do they stand and over what period do you expect to utilize them?

Let me ask Walter to answer the first one.

Yes, particularly the Marcellus Shale. Our service territories overlap many of the drilling sites in Pennsylvania, primarily in our Northeast and Western operations, and that's where we've been selling a lot of water to the 12 different drilling companies we're working with. Year-to-date, through 6 months, we've sold approximately 120 million gallons of these 12 drillers through 29 connection points. So we've been working very closely with them, and again, many of our service territories overlap the drilling sites in Marcellus shale areas.

One of the things that I'm just thinking we may want to -- we may post on our web would be the map that shows all of where the wells -- the current wells are and the new wells are being drilled relative to our service territories because we're not heavily concentrated in the Eastern part of the state. We're more concentrated in the Western and up in the northeastern parts of the state, which are in fact, in that Marcellus region to a much greater degree.

And again, Jeff mentioned that some of the drillers extended lines to reduce the traffic in the areas where we serve. So that's a big benefit as well, and also prolonging the infrastructure of these roads that are in -- many of them are in rural areas. They're not designed for that kind of truck traffic.

Are you also looking at wastewater opportunities there as well, or is it purely selling the water?

We certainly are looking at wastewater opportunities. Frankly, what's happening today is the water is going through a reuse. So they dilute the liquids that come back up. About 40% of those liquids come back up fairly quickly to the surface through the well hole and are put into line pits. Then that's being diluted and being used for the next frac-ing. But there are certain situations where already we're starting to see the need for wastewater processing. And Pennsylvania has limited the ability of these high TDS water sources from being put through traditional wastewater treatment. We see wastewater treatment as an integral component of the integrated waste -- of the integrated water cycle. And in fact, are -- have a number of initiatives underway to expand that. So I won't comment any further on specific initiatives, but we are very definitely looking and working in the wastewater treatment area.

On your NOLs, we have significant NOLs. We have over $1 billion of NOLs. These NOLs do not begin expiring until sometime after 2024. But we anticipate utilizing those NOLs in a much shorter timeframe, somewhere in the next 7 to 10 years. A much more detailed analysis, if you would like, it is available on our 10-K on footnote 14.

The next question is from the line of David Paz with Bank of America. David Paz - BofA/Merrill Lynch: I just want to confirm, have you incorporated the July weather into your current guidance?

What we have said is our guidance assumes "normal weather patterns" for the remaining 6 months of the year. You never know, as a matter of fact, today, it's actually raining, and that's as we go into August. So we don't go into sort of predicting the future, and I don't know what will happen for the rest of the quarter. So at this stage, we assume a normal weather pattern. David Paz - BofA/Merrill Lynch: Okay, and does the lack of drought conditions in New Jersey, Pennsylvania, at least in July, how should we think about that affecting sales versus last year when there were drought conditions? In other words, when there are drought conditions, you cannot sell as much. And now that there aren't, maybe some more, however you -- whatever color you can add, that will be helpful.

What you have is that -- I don't know, if you want to call it a tipping point or what have you. But as you get hot and dry weather, obviously, that increases sales. You hit a point where drought conditions are imposed and people are first voluntarily and then maybe mandatorily restricted. So they do start to see a decline, but it's a decline from a pretty high level. So you've got to get there before you see the decline. David Paz - BofA/Merrill Lynch: Okay, and just speaking of long-term usage declines. I think you or maybe others in the water industry have said that the long-term decline has been roughly about 0.5%, maybe 0.6% per year. Is that still valid or now that you see an acceleration in the declines, should it, maybe is it a little higher?

Yes. We're looking at 0.5% to 1.5%. And we've done a lot of analysis on this using regression trend analysis, particularly in the winter months where weather is not impacting the results. And we're looking at that range of 0.5% to 1.5% typically.

And probably a little on the higher.

Yes, a little on the higher recently. David Paz - BofA/Merrill Lynch: Great, and one final question. Just you're -- I have noticed -- or maybe I missed it, but your long-term growth rate, is that still applicable, and does that apply to the upper end of the guidance which you guys expect to earn this year?

As a long-term growth rate, yes, it is still applicable. It is not an individual year-over-year. It's a trend. But yes, it is still applicable. David Paz - BofA/Merrill Lynch: So the base being the upper end of the guidance?

That's correct, yes.

[Operator Instructions] The next question is from the line of Garik Shmois with Longbow Research.

I just have one question. Just with respect to the recent debt deal in Congress and the potential cuts to the Department of Defense. Does that change your view at all as far as the long-term growth of the military contract business and maybe the rate of contract awards going forward?

That's something we've really taken a pretty close look at, and you never really know. I don't think it is going to alter or slow down the pace at which outsourcing and privatization is done. Over time, it certainly may impact the overall number of bases because I think it is a reasonable expectation through this process, you'll see another brack. So over time, it will certainly impose or that the potential for base closings. But in fact, it may accelerate some things. So, for example, in the base privatization today, there's a requirement that privatization bids must provide at least a 10% savings. When you really get into a budget crunch, if it's not 10%, you go to 0. Or do you, as the government say, "Wait a minute, if we can, say, save 3% or 5% or help avoid some capital expenditures that we don't have the money for, then privatization still makes sense." So there's a counterbalance where it can, in fact, speed up some of the opportunities to take over bases that are currently not in that state.

The next question is a follow-up from the line of Mike Roomberg with Ladenburg Thalmann & Co. Michael Roomberg - Ladenburg Thalmann & Co. Inc.: I just have a follow-up for Ellen, if you will, on the NOL point. I just want to know, are the NOLs held exclusively at the parent company level, or are some portion of those NOLs held ais the utility level only because I believe there's different regulatory treatment for those. If they are, indeed, held at that level?

Yes, the NOLs I mentioned are the federal NOLs, but there are state-specific NOLs as well that are down at the different states. And then even at the federal NOLs are taken into account differently by each state and the rate setting process, not so much the future NOLs but the historic, anything we have in the way of deferred taxes.

The next question is from the line Cleo Zagrean with Macquarie Capital.

Can you help us understand the different factors that quarter-to-quarter affect the progress on the regulated O&M efficiency ratio? For example, Q1 of this year versus Q2. And then longer-term, what are the key drivers that will get you to the 40% level within 5 years?

Ellen, touch on the quarter-to-quarter, and I'll take the longer one.

One of the reasons we look at O&M over a 12-month period is because we do have fluctuations in the revenue that go up or down. And remember the calculation of that amount is O&M expenses less the impact of purchase order divided by revenue. And so you will see fluctuations quarter-to-quarter just based on weather or usage impacts in the quarter on the revenue side. But our expenses are controlled and you'll see that except for power and chemical, they do not or not impacted by quarter-over-quarter variations. So again, you will see that difference from quarter-to-quarter, but the way to look at is really over a 12-month cycle.

And for the long-term, year-over-year, some of the actions we're taking obviously is to reduce our labor expense, make sure that our employees are as efficient as possible. And also leveraging our purchasing. And I mention this every quarter, but we continue to realize significant savings year-over-year in energy, doing a reverse options in our big states, New Jersey and Pennsylvania. And then some of the other expense items such as paving services, our fleet and chemicals where we've been able to show significant reductions year-over-year.

Just to add to what Walter said. Our biggest expenditure other than labor is power. And so we've got a number of major energy efficiency elements going into place. Then after that is chemicals, and as Walter said, this is where our supply chain really gets exercised. At the end of the day, though, the major element for us will be efficiency and productivity and the ability to utilize systems we currently do not have relative to both our financial record keeping, our human resource record keeping, our asset management and our customer care system. As you know, we're going through a replacement of those major systems as we speak.

The next question is a follow-up from the line of Heike Doerr with Robert W. Baird. Heike Doerr - Robert W. Baird & Co. Incorporated: Just to follow on this topic of efficiency ratio. I know over the longer term, you are looking to get below 40%, in I believe the next 5 years. Do you have a more shorter-term goal, and where we're expecting you to be by the end of this year?

Heike, as we said, our longer-term goal is 40%. It's being driven as was mentioned a lot by putting in new systems because our infrastructure in terms of IT systems is very antiquated and old, can't do some basic things that need to drive our expenses down. And again, we're looking to see continuous improvement within the majority of it coming towards the end as we put those systems in.

Heike, yes, I think it's fair to say there will -- it's probably a little back-end loaded for the reason that Ellen mentioned. But with that said, we're going to continue to drive it down every year.

Thank you. This concludes the question-and-answer portion of the call. I would like to turn it back over to Jeff Sterba for closing remarks.

Well, let me thank you for joining us this morning and appreciate all the questions. Feel free to obviously get hold of Ed or any of us. If you have questions in the meantime, and we will certainly be back on the line after the third quarter, which you know is important to us and be able to report on what I believe will be continued great progress. Thanks.

Ladies and gentlemen, this does conclude the conference call. You may now disconnect, and thank you for your participation.