洛茲集團 (L) 2002 Q1 法說會逐字稿

Good morning. My name is Corinthia and I will be your conference facilitator today. At this time I would like to welcome everyone to the Loews Corporation First Quarter Earnings 2002 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question and answer period. If you would like to ask a question during this time, simply press “*” then the number 1 on your telephone keypad. If you would like to withdraw your question, press the “#” key. Thank you. Mr. Kahn, you may begin your conference.

[TECHNICAL DIFFICULTY]

--will lead today’s discussion and we will be joined by Martin Orlowsky of Lorillard. Before we begin, I’d like to make a few brief disclosures concerning forward-looking statements. Statements will be made during this conference call using expressions such as, intend, anticipates, expects, believes, or similar terms and will include explanations of the company’s plans and objectives, as well as estimates of future performance and similar statements. These statements will be forward-looking in nature. The actual results achieved by the company may differ materially from the projections made in these forward-looking statements. The forward-looking statements speak only as of the time they are made and the company expressly disclaims any obligation to update or revise any forward-looking statements made during this call. This forward-looking statements disclaimer is only a brief summary of the company’s statutory forward-looking statements disclaimer. You are urged to read those disclaimers, which are included in the company’s 10-K and 10-Q filings with the SEC, in full. As the operator mentioned, there will be a time for questions after Jim and Peter have discussed our results. For those of you who have tuned-in to our website, please call [888]307-7192 during the Q and A session if you’d like to ask a question. I’d now like to turn over the call to our Chief Executive, Mr. James Tisch.

Thank you, Josh. And welcome to everybody to our first quarter, 2002 conference call. Our first quarter was a quarter of mixed results, but there was certainly an improved outlook for Loews Corporation. The earnings per share were significantly lower year-over-year, but that was primarily because of lower investment gains at our CNA subsidiary. Book value at the end of the first quarter of ’02 was $57.29 a share, up from $50.39 a share at the end of ’01. Contrary to what I said at the conference call at the end of the year, this was largely the result -- the increase in the book value was largely the result of the [Tanoani] Group’s stock offering, wherein Loews sold a 23 percent interest in the economic performance of Lorillard. Hopefully, this conference call will be 8K free. Loews repurchased during the quarter, 2.1 million shares at an aggregate cost of about $123 million. That’s 2.1 million shares of Loews. Or just about $58.50 per share in the first quarter of ’02. At this conference call I’d like to welcome Marty Orlowsky, who’s the CEO of Lorillard. After Pete Keegan gives his financial presentation, Marty’s going to give us a brief overview of Lorillard’s first quarter performance. He will also be available to answer any Lorillard-related questions that you may have.

The highlight of the quarter was the completion of the Carolina Group offering. In that offering, we sold 40.25 million shares of Carolina Group. The offering raised just over a billion dollars in proceeds for Loews. The Carolina Group structure includes $2.5 billion of notional intergroup debt that’s payable to Loews over 20 years.

And Loews retains 77 percent interest in the economic performance of Carolina Group after the repayment of the $2.5 billion of notional debt. There is no change in Loews’ 100 percent ownership of Lorillard. And as opposed to the sale of Lorillard stock, in this particular case, there was no tax -- this transaction was not taxable to Loews Corporation. In sum, this was a transaction that was good for everyone. It was good for Loews, in that it gave us the ability to diversify somewhat from the tobacco industry and likewise, it was an excellent transaction for the purchasers, who since the issue, have seen their stock go up almost 20 percent in just over three months. Briefly, let me mention Lorillard’s performance for the quarter and then Marty will go into much more depth.

Newport unit volume was up about 8.4 percent against the year earlier period. That’s extraordinary performance. But there are two explanations to mitigate it somewhat. Number one, it partially reflects wholesaler buying in advance of the April 1 price increase. And it also partially reflects restocking after the year-end de-loading by the wholesale trade. But, none-the-less, the performance was excellent. We continued to see market share in the discount segment as our focus remains on profitability, not on market share. You’ll hear much more from Marty on this as the call progresses. Concerning CNA, they had a relatively good quarter. Many of you, hopefully, heard the conference call prior to this conference call. And those that didn’t can listen to it at the CNA website at www.CNA.com.

Very briefly, CNA is continuing to see very significant price increases in the P and C business. Wherein the prices are now -- our prices that we’re receiving are now increasing on the order of 25 percent or more. And likewise, the reinsurance business and our life insurance business are performing well. We expect to see continued improved performance by CNA as their streamlining efforts and their underwriting discipline gain traction. At Diamond Offshore, the results were weaker in the first quarter than the year ago period, as the revenues dropped by 5.6 percent reflective of a weaker offshore drilling environment. The Jack-Up market has shown some improvement. Average day rates were somewhat lower on a sequential quarter basis for Diamond Offshore’s Jack-Up fleet, but the utilization rate rose in comparison to the fourth quarter of ’01 and we’re continuing to see improvement from the end of the quarter. The deep-water segment continued to lag during the first quarter. Our average day rates dropped 3 percent on a sequential basis, but more importantly, utilization fell by 10 percentage points against the fourth quarter of ’01. That was due to substantially weaker Gulf of Mexico drilling activity. But once again, I’m pleased to say that we are seeing significant signs of a pick up in that market. With respect to the Ocean Baroness, it was delivered during the first quarter, on time and under budget. It began a short-term contract in March of ’02, Offshore Malaysia. Unfortunately, in late April, Diamond Offshore announced that the bolt assemblies apparently failed in one of the rig’s riser connections, causing its riser to separate and causing drilling operations to cease.

The cause of that failure is still being ascertained, but Diamond Offshore currently believes that the successful recovery and repair of the subsea equipment can be conducted in very short order. Finally, with respect to Diamond Offshore, the Ocean Rover arrived in the Singapore shipyard in January of ’02, to begin its upgrade to fifth generation deep-water status. That upgrade, as many of you know, is very similar to the upgrade that we just completed on the Baroness. The upgrade for the Rover is expected to be completed in the third quarter of ’03 and is expected to have a cost of approximately $200 million. In the hotel business, Loews Hotels results are improving as the travel and leisure market continues to rebound from last year’s malaise. The occupancy continues to down-stack. We’re now only about 1 percentage point lower than the first quarter of ’01 in terms of occupancy, but we’re still rebuilding room rates. Right now, they’re down about 9 percent from last year. But that is an improvement from where we were in the fourth quarter. The New York and Miami hotels are among the somewhat weaker units. The Philadelphia hotel, which was opened in 2000, has showed strong improvement in revenues and in profits. Finally, the Royal Pacific Resort, at Universal in Orlando, which is our third hotel project in the park, is scheduled to open this summer. And I encourage one and all to go see the three hotels that we have there; the Royal Pacific, the Portofino Bay Hotel and the Hard Rock Hotel. It’s really quite an extraordinary project that’s been built there. Results at Bulova were also somewhat weaker relative to last year’s quarter.

00:9:57 The Bulova and Caravelle brand volumes were down measurably, but the Clark volumes were up stronger in the first quarter of ’02. We added the Wittnauer and Harley Davidson brands and they have performed above expectations and are doing very well. Our well-rounded portfolio of brands at Bulova and the increased operating efficiency, should continue to sustain Bulova’s market position, especially as the recovery in consumer confidence continues. To sum up, overall, despite lower net operating income, we at Loews are seeing encouraging improvement in all of our businesses. Now, some of that improvement may be difficult for you to see, because we at Loews believe in following generally accepted accounting principles. And with the advent of Carolina Group, some of our financial statements may be a little more difficult for you to understand. So, let me turn this call over to Pete Keegan, who can begin to explain exactly what’s going on in our financial statements.

Thanks, Jim. Loews reported net income of $1.23 a share in the first quarter of 2002, compared to net income of $2.40 a share in the first quarter of ’01. First quarter ’02 results exclude net income attributable to the Carolina Group’s stock, of $18 million or 45 cents per Carolina Group’s share. The primary reason for the decline in earnings was the decline in net investment gains. In the first quarter of ’02, net investment gains were $15.5 million, or 8 cents per share, versus $228.9 million, or $1.16 per share in the first quarter of 2001. Lorillard contributed $149 million to Loews’ net income in the first quarter of 2002. This represents Loews’ 76.83 percent interest in the earnings of Carolina Group, of which Lorillard is the principal asset. Lorillard’s first quarter 2001 net income contribution to Loews, of $164.4 million represents 100 percent economic interest in Lorillard. A hundred percent economic interest in Lorillard in the first quarter of 2002, would have yielded a contribution of $167 million to Loews’ net income. Lorillard’s performance in the first quarter of ’02 was again, driven by Newport, which saw its shipment volumes increase by 8.4 percent, versus the first quarter of 2001. But separately, Carolina Group also reported net income and pro forma net income for the first quarter of 2002. Net income attributable to Carolina Group’s stock, was $18 million, or 45 cents per share for the quarter. This reflects two months of actual results, commencing with the IPO of Carolina Group in early February of 2002. Now, we’ve also provided a pro forma calculation in the Carolina Group press release.

That calculation is done beginning in January of 2001, as if the Carolina Group had existed at that point in time. And the purpose of that calculation is so you can see comparable year-to-year results and also to provide information which is consistent with the way the security analysts have looked at the Carolina Group, from the point of the IPO forward. Pro forma net income for the first quarter 2002, which assumes that the Carolina Group’s stocks had been issued on January 1st, amounted to $32 million, or 80 cents per share of Carolina Group’s stock. This compares with first quarter 2001 pro forma net income attributable to Carolina Group’s stock, of 31.3 million, or 78 cents per share. Pro forma information is based on the historical financial statements of Carolina Group, adjusted to accrue interest expense at 8 percent per annum and 2.5 billion of notional intergroup debt as well as for related tax effects.

CNA contributed 101.4 million to Loews’ net operating income in the first quarter of ’02, versus 105.8 million in the first quarter of ’01. The decrease in the net operating income was due, principally, to lower net investment income, driven by lower portfolio yields, higher interest costs on funds withheld, and lower limited partnership income. These decreases were partially offset by improved underwriting results in the property casualty segment. Loews’ interest in CNA net realized investment gains was also lower as net realized gains at CNA decreased by $205 million. Diamond Offshore’s contribution to net profits declined by 8.7 million in the first quarter 2002 -- declined to 8.7 million, from 14.7 million in the first quarter of ’01.

Day rates improved year-over-year in the high specification floaters and other semi-submersible rig categories. And declined year-over-year for jack-ups. Utilization rates declined year-over-year for both high spec floaters and jack-ups, but improved for other semi-submersibles. Loews’ Hotels net income in the first quarter of ’02 increased 9 percent, as a result of increased contribution from its Orlando properties as well as lower interest depreciation in pre-opening costs. Average room rates for all hotels were 9 percent lower, as against the year earlier period, while occupancy for all hotels declined from 73.6 percent in the first quarter of ’01, to 72.6 percent in the first quarter of ’02. Bulova’s contribution to Loews’ first quarter ’02 net income was 33 percent lower, versus the first quarter of ’01. As the companies Bulova and Caravelle watch brands recorded lower unit volumes, partially offset by higher clock unit volumes and the addition of the Wittnauer and Harley-Davidson brands. Net investment income in other declined from a gain of 3.7 million in the first quarter of ’01, to a loss of 16.3 million in the first quarter of ’02. Mainly due to lower yields and lower invested assets as well as lower income from shipping operations. The effective tax rate for the first quarter of ’02 was 35.48 percent, versus 35.58 percent on the first quarter of ’01. And now, I’ll turn the discussion over to Marty Orlowsky, of Lorillard. Marty?

Thank you, Peter. From the first quarter of ’02, as you’ve heard, Lorillard had very positive and strong results. And as you also heard, and I won’t repeat it for the third time, Newport led the way with a very substantial increase in its unit volume as far as wholesale shipments are concerned. Another way to look at Lorillard’s performance, to get a better picture of the underlying strength of Lorillard in the first quarter, particularly Newport, is to analyze what we consider to be the retail movement of the brand, as opposed to home sale shipments. We receive weekly reports from wholesalers that provide us with information regarding the number of units they ship to their retail customers. And we believe that’s a very good reflection. It’s the closest and best reflection of retail movement, although not perfect. If we look at it on the basis of this retail shipment data, Newport increased its market share, again, on [that] basis by .7 of a share point. Importantly, it also increased its share of the menthol segment by 1.7 segment share points. Clearly, given this data, we believe that we had a very, very strong performance factor, in addition to the fact that our overall wholesale shipment volume was up year-over-year, quarter-over-quarter. We feel this is a good reflection of the direction that we’ve pursued consistently, over a number of years, and that it continues to pay out with respect to performance results. Now, clearly, as has often been mentioned, the first quarter shipments -- at the wholesale level, were affected by several factors, as Jim mentioned.

The wholesalers refilled their pipeline, as well as retailers, given the fact that they cut back their inventories at the end of the fourth quarter of ’01; because of the federal excise tax increase taking effect and a [floorcast] impact to them. So, part of the first quarter results at that level, are due to refilling of the inventory levels. Another element that came into play was wholesalers who were loading in anticipation of a price increase. And finally, there certainly was the reflection that I just provided as far as our retail shipment numbers. We believe that Newport’s marketing programs had a very positive impact and a continuing one on behalf of the brand. Our other brands were, on a retail level, had modest to more than modest declines in share. The ones that, again, were Lorillard debt, have suffered declines are our two discount brands, Old Gold and Maverick. They’ve been declining for several years and they’re losing business at the expense of the super discount, where deep savings brand that are competing out there. We chose not to compete on an equal basis in an attempt to reverse the declines in those two brands. Our other two premium price brands lost modest amounts of retail market share and we feel as a result, that we had a very, very good first quarter. Okay, thank you. Operator, I think we’re ready for questions.

Your first question comes from Michael Millman, from Salomon Smith Barney

[inaudible] could you talk a little bit about the diversification that you mentioned with the CG proceeds in sort of a related vein, could you give us some idea on the equity met basis what free cash flow or what cash flow was in the first quarter? Also, what, again on the equity basis, what your cash position was, and what your investment amount is and generally, how that investment is split?

Let me start off with the diversification question and then I’ll turn this over to Pete to answer the accounting question. With respect to diversification, we have been saying for more than the past ten years that we’ve been looking for other businesses to acquire. In fact, we were saying that before we got into the offshore drilling business. There is nothing new that results from the sale of Carolina Group with respect to our efforts to find other businesses. We are constantly looking for businesses. That’s nothing new. We have very stringent requirements for those with respect to returns to share holders. And, we can’t define exactly -- it’s sort of like pornography, we can’t define exactly what we’re looking for, but we believe that when we come up with it, we’re going to know that it’s really the one that fits the bill. So, we’re continuing to look and so far haven’t found anything that fills our bill. Let me turn this now over to Pete who can talk to you about the cash flow and cash position numbers.

End of the quarter, Mike, are on an equity basis, and that is excluding basically, excluding CNA and Diamond Offshore. The cash position was about 4.3 -- a little over $4.3 billion. Cash flow in the quarter was largely affected by the IPO, but it was basically net cash in of about $1,050,000,000. And did you have another question there that I didn’t answer?

Just, you said that cash flow, including the Carolina was about a billion 05?

Yeah, it includes the impact of the IPO, the cash flow in from the proceeds of the ---.

Okay, so basically, the cash flow was primarily what you got from the proceeds?

That would be about 90 percent of it, yeah.

Yeah, it dwarfs everything else, because it was a billion, 70 million [inaudible].

The other question Pete, was, what else is in current assets are in investments? How is that split between equities, between bonds, or [unintelligible]?

[unintelligible] There are -- sorry, it’s primarily in cash with some fixed income; primarily treasury. There is a relatively minor amount of equity that’s in the portfolio. [unintelligible]most of the fixed income is short term.

And, I assume that there’s no [unintelligible] [calls]?

Nothing to speak of, no.

Thank you.

Your next question comes from Martin Feldman, from Merrill Lynch

Thank you. Good morning everyone. Marty, the first question is most specifically for you. Could you give us an idea of what you feel happened to your volumes on an adjusted basis? In other words, taking into account the unloading that occurred for the two factors you described. What do you think your underlying volume changes might have been had it not been for those factors?

Martin, before Marty answers, I just want to welcome you back to the investment analyst world and wish you good luck at Merrill Lynch.

Thank you. I should say I’m really pleased to be -- delighted to be here. I think the platform is pretty much second-to-none.

That’s what you told us about Salomon’s.

Well, I guess I was wrong. Marty, let’s talk tobacco.

Well, I can’t resist this one Martin. I must say, since you’ve joined Merrill, your questions have become much simpler and shorter. They used to be a bit more involved. So ---.

I think that’s because I, you know, I think that was during the IPO process. Now I’m just, you know, another analyst at another firm trying to figure out, you know, how much higher your stock price is going to go.

Here you go. To answer your question, we had Newport, for example, we had an increase, as we said, 8.4 percent, which translates into about 648 million units shipped through wholesale. I would estimate that about 300 million of that 648 was attributable to the load that took place in anticipation of pricing change. And that would be the most significant. I will also add that as we’ve seen in the past, the major brands, and really it comes down, primarily, to two brands, Newport and Marlboro, tend to be disproportionately loaded. Given the fact that they’re so large, they have higher velocity of movement out of the wholesalers warehouses. Consequently, we, on behalf of Newport and Phillip Morris, Marlboro, tends to have higher participation. Not necessarily voluntarily, but none-the-less. So, we have had a sort of disproportionate effect. But about 300 million is what we’re looking at.

Okay. Marty, does that mean -- are you suggesting that for the other manufacturers, that their one-time gain would have been, I mean, proportionately, slightly smaller than yours and Phillip Morris’? And therefore, for the rest of the year, their changes shouldn’t be as great as perhaps, yours?

Not necessarily. And I really can’t speak for the other companies very specifically. I will say this. We don’t believe Brown and Williamson participated much in the load process. They were in the process themselves, of preparing for a packaging change on Kool. Consequently, they had very high promotional values, as I think you well know, on that brand, to try to flush out the old packaging, in preparation for the new packaging coming in. So, there was that effect. In Reynold’s case, they also had some changes on the Doral brand that might have affected their numbers. So, it’s not that easy to characterize precisely. Certainly, I can’t do that, for the other companies. They did -- I can just make a general statement, that they were less proportionately involved in a load than we were.

Okay. Marty, looking specifically at Newport, clearly there are the 170 basis points gained -- sorry, the 70 basis points gained that you described earlier, was very good result at retail. Where do you think that gain came from? I mean, we’ve seen RJR talk about repositioning Salem. There was some [pin picked] markets that they spoke about and they’ve not, in fact, decided to go ahead with, you know, on a nation-wide basis with that launch at the moment. Is it disproportionate [inaudible] portion of your market share gains coming from Salem?

Yes. Based on our data source and our numbers, Salem lost -- and I don’t have their overall market share. Again, we gained 170 basis points. I like that number better. In the menthol segment. And as a result, Salem I believe, lost about a little over 1 percent of segment share -- 1.1 percent points of segment share. And frankly, Marlboro Menthol was down somewhat on segment share. The only one that’s sort of a flat pattern -- this is for the first quarter, incidentally, [inaudible]. The only other brand that showed any kind of what I’ll consider reasonable positive result, was Kool. They were up modestly, a tick, in segment share. And that is attributable as I said, to a very, very heavy promotional effort, in fact, ranging at about 10, or I believe, $10 off a carton or maybe even a little more than that at retail.

Okay. Marty, I mean, just looking at, I think in the quarter, your proportion of premium brands to total brands was something like 94.4 percent. Up strongly over 2001. I mean, we should expect, presumably, that to be your policy over the next few quarters, year or so, I mean we really should see further declines in Old Gold and Maverick?

No. We will see additional declines on both Maverick and Old Gold, however, we expect that the declines in Old Gold will moderate substantially. We’ve already seen that happen this first quarter. And actually -- but, Maverick is continuing at a very high rate of decline and we don’t see any in the short-run, we don’t see any change to that pattern.

Right. Okay. Well, thank you very much for that. Just, do you have a -- or perhaps this is a question for Peter, but do you have a depreciation number for the quarter for Carolina Group?

Yeah, Carolina Group?

Yeah, and Peter, just a question or perhaps a more important question. Can you give us some guidance on how the investment income -- on what sort of rate you expect to see for the investment income for Carolina Group for the remainder of the year? Bearing in mind that during the IPO process, you had spoken about a change in some of the securities that you were buying and perhaps getting a little more aggressive on those rates.

Well, it’s going to be difficult to really figure out what the growth in Carolina Group income is because there are going to be dividends that are going to be paid, there may be denotional debt that’s going to be repaid that would take away from Carolina Group income. And likewise, interest rates are moving allover. Right now, we’re putting some of the money into intermediate term bonds, but not a lot. So, the rest of the money is going into cash and a lot of that return will depend a lot on what Allen Greenspan does.

Okay. Let me ask the question another way, perhaps, which perhaps you can answer this one. But, if we were to look at the complete mix of Carolina’s investments at the moment, what is the rate that you might be looking to get? Or what has it been in, say, the last month or during the quarter? Just the current rate.

Maybe 4 percent, which reflects about 2 percent in the money markets and 5.25 percent in the out to ten year market.

Great. Peter, do you have the depreciation number?

It’s, for Lorillard, which is the same as Carolina Group, it’s 9.9 million.

9.9 million. And final point. Do you have an MSA accrual number for Lorillard?

Yeah, hold on.

Marty, just while Peter’s looking, the modest decline in shipments ---.

What happened to the last question?

This is my -- it’s just to fill some blank time here. But, can you comment at all about Kent? And just, the volumes were down I think, 12 percent. Can you give us an outlook? Are you a bit disappointed with that number?

No. In fact, I think it’s an improvement over the full year 2001 rate of decline, frankly. Again, going back to our retail movement data. Kent’s market share was only off .06 of a share point. So, we think that that was a pretty positive number and certainly is going to generate a fair amount of profit contribution.

The pre-tax MSA and forced date accrual was 296 million in the first quarter of ’02.

Okay. Thanks, Peter. And Marty, and actually all of you. Thanks very much for taking all of these questions and for your comments to start out.

Thank you ever so much, Martin.

Great. Bye

Your next question comes from Rob Campagnino, from Prudential Security

Okay. Good morning gentlemen. That was close to my name. How are you doing today? Quick question. I’ll actually keep my questions fairly brief. Could you speak to the dynamics of the menthol market? You said that you gained 1.7 share points. How about the overall menthol market?

The overall menthol market for the first quarter was actually up modestly. Again, I have to keep qualifying my source here. It’s based on our -- as the segment data was, based on our retail data. Menthol was up about 1, for the first quarter ’01 -- I’m sorry. It was up about 1 point for ’02, over ’01; 27 percent, versus 26 percent. But, that’s been a pattern over time. I wouldn’t react to that necessarily. It’s been pretty flat at roughly 25 percent of the market for the last 25 years.

Absolutely. I was just looking at the dynamics within that. And one question, I don’t know if this is the appropriate forum. But, have you given any consideration to appealing the judge’s decision in the Retail Leaders Case?

We are currently evaluating and assessing the judge’s decision. And based on that assessment, we will make the appropriate decision as to whether to appeal or not.

Okay. And just one final housekeeping question. At what point could we expect the EITF adjusted quarters for 2001? Or is it just going to be given on a ---.

We are stating that currently. I believe the release has it adjusted for that.

The other three quarters?

Oh, a restatement for the other three quarters?

I mean because we gave you a perspective. We weren’t expecting, you know, we weren’t planning to release that in advance.

So, that would just be given when the quarters report on a lapping basis then?

Right.

Okay. Thank you very much, gentlemen.

Thank you.

Your next question comes from Rod Midway, from Royal Capital.

Hi. Quick question on -- you said there was 4.3 billion of cash at the holding company. That does not include the holding company debt, I assume, the notional debt?

That does not include any debt.

Okay. And I meant the ---.

You put notional debt in and it doesn’t include Loews long-term debt out.

Okay. And is your long-term debt still 2.4 billion and the notional debt still 2.5 billion?

Correct.

And then a quick question on the buy-back of the shares. You had said in the past, I guess in previous years, that your buy-back, obviously, depends on the stock price and a number of things, including acquisition opportunities, just you see something that’s pornographic -- just kidding. You had said in the past that you feel comfortable buying-back approximately, you know, half a billion dollars before your rating agencies would have issues with that. Is that still a decent guidance of capital that could be used for buy-backs during the year?

Yeah, that’s about right.

Okay. Thank you very much.

Your next question comes from Bob [Glasetigo], from [Lang and MacLenny]

00:3:16 BOB GLASTETIGO: Good morning. I’ve got a painful question and what I’m driving at is just for future modeling, understanding how Carolina Group is going to flow through the Loews line. First quarter is complicated because you’ve got one month of 100 percent and two months of 76, but I assume the notional interest is in the Lorillard of the P and L, as opposed to the [parent]?

The difference, if you compare the press releases ---.

I’m trying to tie the 132 to the 149.

The difference is the interest on the notional debt.

But you had two months of -- okay, it’s an after tax number I guess, right? Okay, so two months of 50 million ---.

59 million tax effected is the difference. Is basically the difference between the 132 and the 149.

But basically, if I take that 132 and adjust the interest, I’ll be close to what the Loews line will show for Lorillard?

That’s correct.

Okay, thanks. Can we collapse through the corporate and other apparent line numbers and just give me the shipping and the interest numbers? We’re in about 2 percent on 4.3 billion? Is that what you were saying? In the parent line? You got it mostly in cash?

The parent line may have been a bit higher, I’m not exactly sure.

Okay. Well, maybe if you give me the actual ---.

The difference of $31 million is -- 21 of that is from investment income.

Yeah, but you’ve got a lot more -- you’ve got the billion of proceeds starting to work now at only, you’re saying, 2 percent rates. Is that a fair statement?

That’s right. That’s generally right.

And plus the other three is earning next to nothing. So, I mean, as we model that, it’s going to importantly depend on, you know, what you do with the money. And if you keep it short -- I assume that’s not your long-term plans with the cash at the holding company. But, right now you’re at a pretty depressed level.

That’s right, but there could be some periods when we think that government notes are attractive. And since the yield curve is so steep, through a very conservative trade, we could go from an average of 2 or 2.5 percent interest rates up to 5 percent interest rates. So, I understand it’s difficult for you to model, but you should understand that it’s also difficult and impossible for us to model as well.

I’m not asking for you to conform to my modeling needs, but I’m just trying to get a guess as to where it’s going. I mean, if we looked at CNA, just as a guide post, it looked like their cash position came down a little bit from 10 percent to 8 percent of the total portfolio in the quarter. Is that consistent with what Loews did as well? Or did you become a little less bearish on funds as the quarter ---.

Quarter we were in and out of the government market. So, it would all depend upon what day you asked us. On days when ---.

I’m saying March 31st, versus January 1st.

JAMES TISCH Oh, Bob, I really don’t remember what we were doing on any one specific day. But, the numbers are going to move around, is the best I can tell you.

Okay. Thank you.

Your next question comes from Bonnie Herzog, from Salomon Smith Barney.

Morning everyone.

Hi, Bonnie. And welcome to Salomon Smith Barney. You can talk to Martin about which place is better.

[Fagues]. I just have a couple of quick questions, from Marty. In terms of your profits per stick in the quarter, am I correct? Did they increased by around 5 percent? And if that’s true, isn’t that a little bit of a slower run rate, Marty? And maybe you could talk through ---.

Which profit are you talking about, Bonnie, [unintelligible]?

Looking at operating income or EBIT, per 1000 really. I mean it’s up, which is good, you’re growing, you continue to take, you know, profits ---.

Our operating -- this is Lorillard, I’m not dealing with Carolina Group here.

Correct.

Our percentage change on operating income were, which is in our terms, it’s EBITDA I guess. I’m sorry, no. It includes depreciation. We’re up 5.7 percent for the quarter. We were up 8.1 percent in the first quarter of ’01, versus ’00. However, our operating income was up 7.7 percent in the first quarter of ’02, versus 3.9 percent for the first quarter of ’01, versus ’00.

Bonnie?

Yes?

If you look at the Carolina Group press release, on the pro forma schedule, everything down through the investment income line is in fact, the Lorillard results for the quarter.

Okay. Yeah, and I guess all I’m trying to get at or try to understand in the quarter. I mean your profits are definitely up, which is great. But, you know, it’s my understanding, I believe you promoted a little bit more in the quarter. Maybe you can kind of talk through that. Or where you see the promotional environment. You know, is the activity increasing in general and what you’re expecting for the next several quarters.

We went through a reanalysis and a re-evaluation of our promotional strategies, coming into 2002. That did not necessarily imply that we were going to substantially increase in absolute dollars, what we would spend. We did make some geographic reallocations, in terms of market importance, where we spend our dollars. Obviously, this was all driven by Newport. And secondly, as a result of that -- and we made some timing differences. So, yes, there was a bit more in promotional dollars than was expended in the first quarter. This was not in reaction, by the way, to any competitive movement. It was a solely a -- it was a self-initiated process, because we felt we wanted to be more efficient in how we allocated, and hopefully more effective, and I think the first quarter results for Newport demonstrated that.

Absolutely. And so we can expect that for the next several quarters, Marty?

Oh, I wouldn’t go that far, Bonnie.

We’re not in the business of issuing forecasts.

But, we had a good first quarter and I’ll leave it at that.

Okay. And then Newport retail share, as you mentioned, was up 70 basis points?

Yes.

Where are you at right now then? In terms of total Newport retail share?

At 8 point -- I’m not on the right page, Bonnie, so bear with me.

8.5 maybe?

8.32.

32, okay. And then I have another question. During the fourth quarter conference call you guys talked about an adjustment that needed to be made to the settlement costs as a result of the Engel agreement. And I think you projected at that time, that the settlement costs should have been $40 million less in the fourth quarter. And I’m just wondering if that’s still the appropriate amount?

Well, that number’s correct. But it wasn’t in relation to the Engel agreement. There was some confusion, as I remember, about how to deal with that number. It was not related to Engel though.

Oh, I thought it had to do with it, because you guys took the Engel ---.

I’m sorry. Yes. I’m sorry, I’m confused myself. Because the settlement reduced our operating income. Our operating income is the key factor that is adjusted for settlement payment. So, yes, you’re correct. That adjustment related to the operating income reduction.

So, 40 million is still the good number?

Yes.

Perfect. Okay, thank you so much.

Okay.

Your next question comes from Adrian Day, from Global Strategic Management.

[unintelligible] answered and I’m sorry, I forgot how to withdraw. Thank you.

I think you just did.

Your next question comes from Michael Lewitts, from JL Advisors.

Morning. Could you just give a quick update on what’s going on in Florida now, with Engel. And maybe a timeline of events to look forward?

Once again, the plaintiff’s attorney is attempting to get an extension on the filing of the brief. He’s already had one or two extensions previously. We don’t know what the ultimate status will be, but it’s likely or possible that he will get another extension. This will push back any oral arguments before the Third District Court of Appeals, in Florida. Probably to sometime in the early part of next year. But the precise time would be difficult to say. Other than that, there really aren’t any other developments.

What would be the timing on the decision of the extension? I assume it could be denied, right?

Yeah, but it’s not likely it will be.

Not likely? Okay. Thanks very much.

I don’t recall the exact timing. He may have already received the extension, frankly. I’m just not totally up to speed on that. But, certainly, there’s been a series of extensions.

Okay. And with the federal government, anything new that you can shed light on there?

No. There is absolutely nothing new. There was one attempted discussion on the part of the industry and at the invitation of the Department of Justice that led to nothing and there have been no further conversations.

When was that?

Gosh, last year. Yeah, some time ago.

Okay. Thanks very much.

Okay.

Your next question comes from Jason Moment, of Faralon Capital.

Yes. I had a question on the cash position. When I did the numbers immediately after Carolina Group, the figures I had in mind were, at the holding company, the Loews level, Loews only money, you had about a billion-eight in cash, about a billion-73, I think in offering proceeds, and then the 2.5 in note receivables. So, I had a total of 5.37 billion in cash and then the 2.44 of debt that Loews is on the hook for. Can you walk me through? What’s the 4.3? How does that compare with the number you quoted here? Or that I quoted here, sorry.

Well, how did you get--do that again. How did you get the 5-7?

My impression was, that after Carolina Group, the holding company had a billion-eight of cash, accompanied by a billion-73 of offering proceeds, and 2.5 billion from the note receivable to Carolina Group ---.

But the 2.5 isn’t cash.

No, it isn’t cash.

I mean, basically, you’re right. The Loews cash is now about -- Loews only, is about 2.9, a little over 2.9.

Okay. That’s the comparable number then. Okay. So, what was the 4.3 billion then?

The 4.3 includes Lorillard’s cash.

Okay. I got you.

Next question?

Your next question comes from David Adelman, from Morgan Stanley.

Hi, David actually had to run out for a meeting. This is David Kaplan. Just had a couple of quick questions. First question was, the credit [memo] came in, is that accrued Q1 or Q2?

The credit memo would be Q1.

Q1, okay. And then, could you put the Kool competitor program in the context of other programs, you know, within the past year?

Kool has been fairly aggressively promoting the brand. BMW has been fairly aggressively promoting the Kool brand, actually for the last many years. But, they ratcheted- up the amount of discounts that they were applying on the brand beginning at some point last year and that has had some impact on its market share. But clearly at a cost. They further intensified their promotional effort behind Kool, as I indicated, in anticipation of their change of packaging design, the graphics, went up to about $10 or $11 off a carton or $1 or so off a pack. Certainly, that all had some kind of impact at the market share level. But, the question is, the sustainability of that.

Right. Okay. And could you also just talk about the deep discount brands sequentially?

Sequentially?

Yeah.

Over the top five mark? I’m not sure I understand your question.

Yeah, sequential growth.

Okay, just bear with me a second. You’re all invited to the Max Global Consumer Products Conference. I’ll be doing this, this afternoon at the Plaza Hotel.

Is that webcast?

Yes, it will be.

Okay.

And I will be covering all [unintelligible]. Not to suggest that -- I will certainly answer your question as soon as I find the right page.

David, we issued a release, by the way, with that webcast information.

On a brand basis, the top five brands as of the first quarter; USA Gold, which is a brand from Common Wealth Tobacco, again these are our retail movement shares. I had a 2.09 share, a .7 of a share point gain over first quarter a year ago. Liggett Select, which is obviously from Liggett, is the second largest, but a big difference, .82 share points and a .48 increase. The next brand is a brand called Tourney, and Tourney is a private label brand manufactured by Liggett for a very large convenience store chain, SuperAmerica. And that had a .45 share. It was actually down .05 of a share point. The fourth largest in the fourth quarter is Wave, from Japan Tobacco. It had .24 of a share point, with no gain or loss in market share year-over-year, quarter-over-quarter. And the fifth brand is USA, not to be confused with USA Gold. USA is a brand from Star Scientific Company and it had .2 of a share. So you can see there’s a pretty dramatic difference between the leading brand, USA Gold, and the fifth largest brand. I will also point out that these five brands account for about 47 percent of total super discount business.

Right. Okay, great, thanks a lot.

Okay.

Your next question comes from Eric [Vale], from [Paza] Capital.

Actually, you just answered my question. Thanks.

Your next question comes from Robert Lyons, from Institutional Capital.

Sorry, my question was answered, thanks.

At this time, there are no further questions.

Okay. Thank you. In that case, we’d like to thank everybody for joining us this morning. As a reminder, in about two hours, a replay of this call will be available through our website, Loews.com, until May 16, 2002. CNA’s call will also be archived later in the day on CNA’s website, until May 16th. And once again, thank you very much.

This concludes today’s Loews Corporation Conference Call. You may now disconnect.