洛茲集團 (L) 2002 Q2 法說會逐字稿

Good morning. My name is and I will be your conference facilitator today. At this time, I would like to welcome every to the Loews Corporation second quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you Mr. Kahn, you may begin your conference.

Thank you operator, and good morning everyone. Welcome to Loews Corporation's second quarter 2002 earnings conference call. My name is Joshua Kahn, I'm the Manager of Investor Relations for Loews. Right now you should have received a copy of our earnings release. If not, you may get a copy from our Website at loews.com. Carolina Group also issued a press release this morning announcing its results for the second quarter of 2002. The Carolina Group release is also available at the Loews' Website. The Chief Executive Officer of Loews, James Tisch, and the Chief Financial Officer of Loews, Peter Keegan, will lead today's discussion, and we'll be joined by Marty 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, anticipate, expect, 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 obligations to update or revise any forward-looking statements made during this call.

This forward-looking statement 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 time for questions after Jim and Peter have discussed our results. For those of you who have tuned in via our Website, please call 888-307-7192 during the Q&A session if you'd like to ask a question. Now I'd like to turn the call over to our Chief Executive Officer, Jim Tisch.

Thank you Josh. And welcome to everybody. The second quarter of '02 was an improved quarter for Loews Corporation. Our operating income, excluding unusual and extraordinary items increased significantly year over year, primarily because of improved performance of our CNA subsidiary. The book value per share at the end of the second quarter of '02, which is a measure that we use to grade ourselves rose to $59.18 from 57.29 per share at the end of the first quarter, and from $50.39 at year-end '01.

In the past quarter Loews purchased 3.3 million shares, at an aggregate cost of about $187 million, or just about $56.70 in the second quarter. As you know, we take an opportunistic approach to share repurchases, but at times we are precluded from buying in our own shares, and unfortunately that time included the past 30 days when Loews was unable to be in the marketplace to buy either shares of Loews or Carolina Group stock because we knew, we had a general idea of what the earnings were going to be for the quarter. Let me go through, briefly through each of our businesses and then I will turn this over to Pete, who can give you the financial review.

Lorillard performed well in this quarter, primarily as the result of its Newport brand. The Newport unit volume increased about 1.9 percent against the year earlier period, in spite of higher prices and also higher excise taxes in many states. We continued to cede market share in our discount segment as our focus remains on profitability, not on - not on market share, but we will have more from Marty Orlowsky on Lorillard in just a few minutes.

CNA had an improved quarter in the second quarter of 2002, hopefully most of you were in on the CNA conference call just prior to the CNA call, so I'm not going to repeat what was said there. Just some highlights, as you know CNA announced that was going to become the CEO of CNA, he succeeds who is going to become the Chairman of the Board.

We are continuing at CNA to see a signifiant increases in the price of insurance at our P&C business on the order of about 25 to 30 percent in this past quarter. We expect continued, better performance by CNA of our streaming - streamlining efforts and underwriting discipline in addition to the improved pricing environment .

At Diamond Offshore the results were weaker in the second quarter from a year ago period, reflecting the general softness in the offshore drilling sector. The revenues were down nearly 21 percent. Their rates were more or less unchanged in the quarter, but utilization rates were down sequentially and year-over-year across all three segments.

On the ocean as Diamond Offshore announced in late April that assemblies had failed on one of the rigs riser connections, making it entire rig was inoperable. The rig however did return to work in mid-May after successfully recovering the riser and the that were lost as a result of the disabled riser connections.

I want to complement the entire team at Diamond Offshore for their efforts with respect to the . It's operating at $75,000 a day and what could have easily been a three month downtime for the rig, because of their efforts turned in to only 30 days.

On the Ocean Rover, which is a sister rig to the , that upgrade is continuing to - to move forward. It's been in the shipyard since January of 2002 and continues on schedule and on budget. The upgrade is expected to be completed in the third quarter of 2003, so just about one year from now. And that - the expected of cost of that rig is about $300 million.

Additionally, we began our $100 million upgrade of five Gulf of Mexico jack ups, the timing seems to be pretty proficient as it looks like hopefully utilization is increasing in the Gulf of Mexico. Four jack ups and hopefully their in the not-too-distant future.

At Loews Hotels the results were weaker relative to the second quarter of 2001, as the travel and leisure markets suffered from the adverse economic conditions. Our occupancy rates in the second quarter were generally flat, only down about two percentage points from the second quarter of 2001.

Our room rates continue to lag, down about 8.4 percent from last year.

The hardest hit markets for us have been New York and Miami. On the other hand, the Philadelphia hotel, which opened in 2000, again showed strong improvement in both revenues and in profits.

The Royal Pacific Resort at Universal Orlando, which is our newest hotel and is the third hotel in Orlando at the Universal theme park, opened at the beginning of July. The first month of operation have been dramatically stronger than projected. Our occupancy for the first month of July was about 91 percent.

For Bulova we have stronger results relative to last year's second quarter. That's largely due to the addition of our Wittnauer brands in the third quarter of '01 and the sales resulting from a licensing agreement signed in May of '01 with Harley Davidson.

Weak economic conditions continue to effect the company's performance though. Bulova and Caravelle brand names unit sales declined in the second quarter of '02 but the clock volumes are up strongly in the quarter. As I say, go figure. We do have a well-rounded brand - portfolio of brands and increased operating efficiency and international expansion efforts should continue to sustain Bulova's successes.

Let me talk for just a moment about investments and investment losses. While we were able to dodge the Enron and Global Crossing bullets, we go hit by the frauds at WorldCom and Adelphia. We had net write-downs at CNA for corporate bonds that amounted to about $190 million, most of which was for WorldCom and also Adelphia. Losses at Loews relate primarily to losses in equity portfolios that we maintain.

To sum up, despite the weak overall economic conditions we're seeing pretty solid trends in a number of our businesses. Having said that, I'd like to turn this over to Pete who can give you some more insights into the numbers.

Thanks, Jim, and good morning everyone.

Loews reported net income of 85 cents a share in the second quarter of '02, compared to a net loss of $7.18 per share in the second quarter of 2001. The second quarter of '02 results exclude net income attributable to the Carolina Group stock of 41.4 million or $1.03 per Carolina Group share.

Quarter two 2002 results include a charge of 1.8 billion after taxes and minority interests at CNA related to reserve adjustments. Quarter two 2001 net income also includes an after-tax charge of 121 million at Lorillard related to an agreement with the class in the Engle case.

In the second quarter of 2002 net investment losses were 119.1 million versus a gain of 280.7 million in the second quarter of 2001.

Consolidated net operating income, excluding net investment gains or losses and adjustments for discontinued operations as well as the second quarter 2001 charges at CNA and Lorillard mentioned previously, was 321 million in the second quarter of '02 versus 233 million in the second quarter of 2001.

Lorillard contributed 163.7 million in the second quarter of '02 to net income available to Loews common stockholders. This represents Loews as 76.83 percent interest in the earnings of Carolina Group, of which Lorillard is the principal asset, in addition to interest income after taxes on the 2.5 billion of notional inter-group debt.

Lorillard's second quarter 2001 net income contribution to Loews of 80.1 million, which includes the charge related to the agreement with the Engle class, represents the 100 percent economic interest in Lorillard held by Loews at that time.

Carolina Group also reported net income for the second quarter of '02. Net income attributable to Carolina Group stock was 41.4 million or $1.03 per share for the quarter. Because the IPO of Carolina Group stock by Loews took place in early February 2002, there are no actual year-over-year comparative results for Carolina Group, however we have provided in the Carolina Group press release pro forma results, which treat Carolina Group as if it had existed at the beginning of 2001. On this basis, Carolina Group net income per share was 29 cents in the second quarter of 2001. Adjusted for the agreement with the class in the Angle case, net income per share in the second quarter 2001 would have been 98 cents per share.

CNA contributed 127.8 million to Loews' net operating income in the second quarter of '02, versus a loss of 1.8 billion in the second quarter of '01. Quarter two '01 results include a $1.8 billion charge after taxes and minority interest, related to reserve adjustments. Excluding the second quarter '01 charge, the year over year performance of CNA's contribution to Loews' second quarter net operating income was favorably impacted in the second quarter of '02 by improved underwriting results in the property casualty segments.

Limited partnership income increased year over year, but portfolio yields were generally lower. Loews' interest in CNA's net realized investment gains was lower in the second quarter of '02 versus '01, falling from a gain of 271.7 million to a loss of 93.9 million. The second quarter '02 loss relates primarily to losses from write-downs of WorldCom and Adelphia corporate bond investments.

Diamond Offshore's contribution to net profits declined to 1.7 million in the second quarter of '02, from 17.8 million in the second quarter of '01. Day rates fell year over year in high tech floaters and jackup rig categories, and increased for other semisubs. Utilization rates were year over year for all rig segments. Loews Hotel's net income in the second quarter of '02 fell 30 percent year over year as a result of continued general weakness in the travel and leisure industry. Strong results from its Philadelphia and Orlando properties, which include the addition of the Royal Pacific Hotel in mid June, were offset primarily by decreased income from New York, Miami, and San Diego hotels.

Average room rates for all hotels were 8.4 percent lower as against the year earlier period, while occupancy for all hotels was essentially flat. Bulova's contribution to Loews' second quarter '02 net income increased 44 percent year over year, helped by the addition of the Wittnauer watch brand in the third quarter of '01, and the success of the license agreement signed in May 2001 with Harley Davidson. The company's Bulova and Caravelle watch brands recorded lower unit volumes, while clock unit volumes increased 21 and a half percent year over year. Net investment income in other declined from a loss of 3.2 million in the second quarter of '01 to a loss of 22.9 million in the second quarter of '02. The change was due mainly to lower investment income as a result of lower yields. And back to you Josh.

We're going to turn the call over to Marty Orlowsky now. Carolina Group and Lorillard.

Thanks. Morning everyone. Second quarter wholesale shipments for Lorillard were affected as they were for the industry to some extent by a deload that took place in the month of April, following a price increase late March, where wholesalers tended to advance buy, therefore inflate to some extent as well the first quarter shipments, particularly in March. Even though there was this deload effect that affected the industry, as well as Lorillard, overall Lorillard's premium units were up slightly, and in terms of shipments for the quarter and up for the six months 3.4 percent.

Newport, as Jim indicated, was up 1.9 percent for the quarter and through the first half of 2002, was increased by five percent year-over-year.

Our discount units primarily made up of Old Gold and Maverick continued to demonstrate losses for the quarter. They accounted for 70 percent of our total unit losses for our portfolio. For the first six months it was a 75 percent loss due to the discount brands. There is a modest improvement in the second quarter of our discount brands loss rate due mainly to a very slight increase in the deceleration of loss on the part of Old Gold.

From a retail standpoint, and by that as I'm mentioned on previous calls, retail in our terms is based on shipment data that we received from wholesalers to their retail accounts, which we feel reflects a more accurate view of consumer take away for Lorillard, on that basis, Newport was up for - through the first six months of the year versus last year by about four tenths of a percent.

Newport also continued to increase its share of the menthol segment through the first six months of the year, achieving slightly over 30 percent share of the menthol segment. In general, menthol held its ratio of sales to non-menthol at about 26 percent of total industry units.

Now I'd like to just spend a brief - brief amount of time to talk about the fact that we at Lorillard have made a decision, and I might add this decision was made prior to any announcements by any one of our competitors, that we modestly increase our promotion dollar support behind Newport for the back half of 2002. Our basis for this is not predicated on any particular as I said, competitive action, nor is it particularly geared toward addressing the super discount brands that are continuing to grow. It is based on our assessment of the marketplace opportunity for Newport to build and to continue to build as we have in the past, profitable market share. We are basing this on a - on a reassessment of our opportunity in the marketplace, by virtue of establishing a new retail segmentation strategy that will guide our investments into those retail stores that will offer us the best basis to build our business and our market share on a profitable level. This is - this decision was made in consistent with some of our experience where we saw investments in certain types of stores generally increasing our - our market share and our profit return.

They will be selectively applied in terms of the increased promotional investment and - and it will also be based on a secondary level in recognition of the fact that many states have passed a rather substantial state tax excise increases and we feel there will be some degree of price pressure at the consumer level resulting from those tax increases.

And with that, I'll turn it back to .

As the operator mentioned, there will be time for - for - I'm sorry, I guess we're going to take some questions now, right?

Yes. Q&A period, please.

At this time, I would like to remind everyone in order to ask a question, please press star then the number one on your telephone keypad. We'll pause for just a moment to prepare the Q&A roster.

Operator, do we have any questions?

Yes, sir, please hold for your first question.

Thank you.

OK, sir, your first question comes from of Merrill Lynch.

Good morning, everyone.

Morning.

Hi. Jim, perhaps a question for you first. I was intrigued by your comments concerning the buyback for Loews in which you said for the last month or so you've not been able to buyback stock in the group of either Loews or Carolina Group. Have you - I mean, in the original prospectus on Carolina Group all the residual cash was going to repay the principle on the notional inter-group debt. Has anything changed there and could we expect the company perhaps to buy back stock in Carolina Group ...

I do ...

... in the foreseeable future?

Yeah. I think you're reading of the prospectus is a bit inaccurate. The prospectus talks about how we were going to build up over the first several years a cash balance of about $150 million. And the prospectus also said that funds that had been built up could be used for a number of items including a payment of dividends, repayment of debt, and also the repurchase of shares.

OK. So that's - OK, that's very - that's very, very helpful indeed, Jim. But it refers to the 150 cushion not to the residual cash over the 150 cushion. Is that correct?

That's correct. It says that we can raise - build up to 150 million but no more. To the extent that there's more either the dividends would have to be raised or debt would be paid down.

Jim, has Loews board formerly authorized the company to buy back stock in Carolina if it was to choose to do so?

Yes. You'll notice at the end of our Carolina Group press release it says, "Depending upon market conditions, the company for the account of Carolina Group from time to time may purchase shares of Carolina Group stock in the open market or otherwise."

OK. I hadn't see that. I'm very pleased about that. That's great.

One or two questions for Marty. Marty, some numbers, could you tell us what the MSA accruals were in the quarter?

And what - perhaps while you're looking for those, another number that I'd be interested in your views on, what were distributor inventories for your - for your product this - in the second quarter of this year versus last year?

Second quarter this year - it was a little lower second quarter of this year versus last.

Could you put some time on it, days perhaps this year versus days versus last year?

No, I can't. I don't have that information I'm afraid.

OK.

And our expense for settlements in MSA-related and tobacco-grower related for the second quarter were 291.9 million.

And those were accruals?

No, those were expense. I don't have accurals.

Those were the actual expenses. OK.

Those were accruals.

Accruals.

Marty ...

They're accruals.

... Marty, they're accruals.

, those are not the cash payments.

OK. Marty, another number, I mean, your actual group total cigarette volumes versus just the U.S.?

I'm not sure I understand your question.

Well, if we include the territories in Puerto Rico, just what the total volume number was in the quarter?

The total volume for the quarter, total volume for the quarter was 9,583,000,000.

OK. That's great. Then the last question, can you give us any additional detail on the money you're going to put into the market, and what I'm specifically interested in is, perhaps the split, or how you see the money being used to help win additional retail share for Newport within the premium segment, versus helping to stem any future, you know, declines in the premium segment to cheaper smokes in the market?

Well we don't really make the distinction in terms of our perspective as to a portion of the dollars that will address either one of the two factors you're raising. Our, as I indicated, the basic premise for our investment strategy here is predicated on the fact that we believe we can build profitable volume, period. And where that volume comes from is really not material.

OK. And we should just, I mean I think you did so-so, but we should think of this additional expenditure as essentially a one-time only number for this year? Or not?

Well at this moment that's our plan. In terms of what I discussed, we have no particular intention of going beyond that, but that's always subject to change obviously.

we haven't put together our plans for next year, so it's really too early to tell what we're going to do.

OK. Well, thanks for taking all the questions.

OK.

Your next question comes from of Royal Capital.

Hi, I just had a couple of financial questions. What is the total amount of CNA shares that you hold as of this call? Or if you can give me that number, given that you did buy some during, as your press release says.

Let's take them one at a time. As of June 30th we owned 201,278,500 CNA shares.

OK. And then what are your total shares outstanding that are going to be, I guess in the queue?

Well for ...

Of Loews.

Loews, 185,805,400.

OK. That's what will be in the 10-Q?

You know ...

I don't have the Q, without having Q in front of me, so ...

... Q yet, so let's hold off on that one.

OK. And then finally, if you don't mind, could you help me understand the, at the holding company the cash that you have? I know you have 2.4 billion of debt, but how much cash do you have? I know you might have said that, I apologize if I missed it.

Excluding Diamond and CNA, we currently have cash of about 4.5 billion.

OK, and then how about without Lorillard?

Without Lorillard ...

Lorillard is about 1.8 billion.

Yes.

OK. Thank you very much guys.

You too.

Your next question comes from of .

Hey did, Jimmy that you were sadly frozen from buying Loews and Carolina Group in the meltdown in July. Did you take the opportunity to buy sort of peer companies that were also going down, and did you increase your commitment to equities?

Yes, I don't want to talk about what we are doing in individual products, so I'm going to pass on that.

We have very modestly increased our exposures to equities, though.

OK, what is - what is your sort of view on equities, bonds and your overall investment strategy going forward here?

On bonds I'm frustrated by the level of interest rates and we're - we're positioning ourselves for I'd say, and increase in interest rates, if I had to pick a direction.

On stocks I'm aggressively neutral.

OK, so - so given that we would expect the outlook for corporate expenses to rise given that investment income will be hurt by both lower - lower rates and increased commitments to short-terms? Is that a fair characterization, or if it's been equal?

No, I'll let you draw your own conclusion.

OK, well that's the conclusion I'll draw.

OK.

Thank you.

Your next question comes from of Prudential Securities.

Good morning, gentlemen.

Hi, .

Good morning, just a quick question for you. I'm sure you've seen that Philip Morris is - has this coupon campaign out that can give a small number of consumers up to $1.35 off on Marlboro when they use it in conjunction with their base discount rate. I was wondering, is - is that what we should suspect from you, not really a across the board increase in your base rate, but more discounting that gives your flexibility in terms of and geography?

Well I'm not sure, I think you're assessment of Philip Morris's program is correct there. Their coupon program, their direct mail program offers seven and a half - several coupons that are worth seven and a half dollars off a carton that can be applied to their current promotion at retail where they are discounting the price by the same amount, so that could equal $15.00 off a carton during the same period of time, and $1.50 off, I believe it's four packs - it's a $6.00 coupon. So their - their rate of discounting, and when you say small number, I've seen numbers of about 6 million mailings that they made, I don't consider that particularly small. Our program is not of the same nature, we're not going to double discount if you will in the same manner as Philip Morris is with their program. We are as I've said, going to be very selective in directing our promotional investments to retail stores as I indicated, that offer us the best potential opportunity to build our business.

OK, so the answer then would be just broadly yes then, that it is not going to be a broader across the board increase, but more something that's going to give you flexibility at - at the regional and channel level?

That's correct.

casmino. OK. Thank you very much.

OK.

Your next question comes from of Morgan Stanley.

Hi, good morning everyone.

Hi.

You know first ask you a question about the potential of share repurchases at CG. I was confused about something, would this be Loews buying stock in CG for it's own account, or in effect CG using its cash flow to reduce the number of shares outstanding?

It would be CG using it's cash flow to buy in shares.

OK. Fine. And then Marty, I was curious, as a starting point, can you quantify at all - can you put some parameters on how much more you intend to spend in the second half of this year versus what your prior plan was?

I - I don't think we want to get into any specific numbers as to what future spending is going to be.

OK. Can you talk a little bit more Marty, about the retail segments pacing strategy? In other words, do you see the greatest opportunity to grow - to grow Newport to be in stores and channels where menthol's developed but Newport isn't?

No. It's actually a combination of the two. It's based on stores that have high menthol sales as well as high Newport sales, and in addition to that, where there's relatively average Newport sales to high industry sales. So it's a combination of those. And we've seen responsiveness on the part of spending for Newport in both of those instances.

And, Marty, as it relates to the competitive set within menthol, can you comment on any performance change you've seen in Kool with it's new packaging and how Newport Medium has performed?

OK. Kool has continued to show some upside I would not necessarily attribute to its new packaging but to its promotion levels. They, if you recall, for the most part of the first quarter and possibly into the second quarter were discounting Kool at the rate of about $10 a carton and/or a dollar a pack, which was significantly greater than we were. We were at 60 cents or $6 a carton. And we've seen, obviously, there's been some share increase on the part of Kool as a result of that.

And I'm sorry, I forgot the other part of your ...

Newport Medium.

Newport Medium? Newport Medium has performed about two-tenths of the market share based on our retail numbers.

OK. And then just one or two last things, Marty. Can you - can you give us your assessment of where we might be in the lifecycle of the smaller minor manufacturers? I mean, their pace of share growth seems to have picked up a little bit over the last several months. When do you think their share's going to level off or begin leveling off?

I would hope that you would have the answer to that question, David. It's hard to tell. I think, you know, to some extent - and I don't want to overstate this - the nature of pricing decisions by premium brands can have some effect, by also discount brands of the major companies. For example, RJ Reynolds is very aggressively supporting Doral in terms of price discounting. And, frankly, with this Marlboro promotion, which as I indicated, could offer up to $15 off a carton, that could have some effect.

But I think all of those will be relatively short term. I still feel that the rate of growth for the super discount brands will continue pretty much at the level that it's at for the foreseeable future. And it's been growing at roughly around the 25 percent level in terms of volume change.

I - and most of their gains, again, are coming from the discount brands or the generic brands, whatever you want to call them, from the major companies. So it's hard to predict when there will be a leveling off of that growth rate.

David, there's one other thing I'd add, and that is that they grew very rapidly because they had an umbrella in the - these minor manufacturers didn't have to pay any MSA payments based on their base volume. And now that there volumes are increasing rather significantly they are going to see very significant increases in their MSA payments.

And if you look at it based on the marginal cigarette, they're not paying that much less than the original four manufacturers with respect to MSA payments. That gap is narrowing significantly.

Right. And then, Marty, lastly, two quick things on California for you. What's your intelligence tell you about the likelihood of there being a very substantial excise tax increase in that state? That's the first part of the question. And secondly, how substantial an impact do you envision on potential smoking health cases going forward from the recent Supreme Court rulings?

All right. In terms of the California tax, it's really undetermined at this point as to which way it's going to go. There's certainly the possibility that given intramural political issues in the legislature there that it may not, it's part of their budget bill, and it may not see the light of day at least in the near-term. There certainly is, according to our information, a strong sentiment on part of some of the legislatures not to increase the tax on cigarettes, but it's something that is very difficult to assess as far as the ultimate outcome is concerned. Obviously we're very interested in the progression of events there.

With respect to the recent California state Supreme Court decision, you know, we don't feel it will have a monumental impact necessarily. It could obviously have some impacts on the, in the short-term on some of the cases that are under appeal, Mars and the RJ Reynolds cases that are being appealed. We do, we are encouraged by the language, and I think you and others have mentioned the tonality if you will of the, of the decision by the California State Supreme Court.

We also feel, although I wouldn't necessarily run too far with this one, that there is some benefit to the effect that the California State Supreme Court did in fact recognize that for the period of time that that legislation was in effect, that a dangerous product that people were aware of being such foreclosed liability. So there is sort of a record there of sorts. So it's a positive decision overall in general terms, and what specifically it will result in, in terms of future litigation I think really remains to be seen.

Thank you for taking all the questions.

One other thing I would say David about the California tax is just as in Wall Street, so to in taxation, there are both bears and pigs. And if taxes are raised too much, I think you could see a substantial volume of cigarettes being purchased either from Indian reservations, or through the Internet, and likewise you could see people traveling to other states that have significantly lower taxes. So I think the legislators have to be careful to make sure that they don't shoot themselves in the foot and actually raise taxes so much that they reduce their revenues.

Thank you.

Your next question comes from of Institutional Capital.

Hi, just one question on the energy side. Could you just update us on how tanker investments have been going? And I'm sure you can't quite answer this question, but in terms of Diamond Offshore at this level, you know, in the past you've sort of bought low and sold high, I think most recently selling high, now it's back low. Kind of what are your options there?

OK. First with respect to the tanker business, that's bouncing along pretty much at the bottom. We, as you know, have an investment in, right now we've taken delivery of two new supertankers, 440,000 ton ships. Those ships are operating I think at about 15 to $20,000 a day. We scrapped for we scrapped two of our older tankers, leaving just two tankers. Those tankers are currently laid up off of Greece and we're waiting to see if the market improves. Right now there is no indication that the tanker market is going to improve.

With respect to the Diamond Offshore repurchases, through the end of the quarter - through June 30 - Diamond had not repurchased any shares and I don't want to talk about what it's done since then. Let me just say though, that Diamond does have about $950 million in cash. It does have some capital commitments, but it still has significant cash and monitors the price of the stock all the time.

OK, actually I was kind of wondering about in the past you have had - I think it was high as 65 percent and now we're at you know, 50 percent.

We are at - we may have had 65 percent when Diamond first went public, but a month after that we acquired Offshore, which brought our ownership interest down to about 51 percent, which in our ownership interest I think currently is about 52 percent.

OK, thanks.

Your next question comes of Goldman Sachs.

Good morning. Just a question to you - for you Marty. As you pointed out, we've seen a pretty significant excise tax increases throughout the states even if you exclude California; I'm estimating it's something like 30 to 40 percent year-over-year, compared to less than five percent last year. I'm just wondering what your perspective is on how you think this increase is really going to affect the overall consumption and the industry's mix?

Well I think - you know the only thing I can go on is historical experience and what we've seen. Of course there's rather substantial increases this time around. We have seen on a percentage basis in the past significant tax increases, and for short periods of time there have been - there have been a depression in - as far as consumption goes, but over time it tends to pick up. I think there is one big difference today though there are more alternative forms available for consumers or smokers to buy their product today than there were in the past as well. So there might some mitigating affects from smokers. For example in New York state, even in the New York City area, there are a number of native American retail outlets that are easily accessible that offer very attractive differences in pricing than buying in a retail outlet that's subject to the excise tax.

So it's hard to say. Will it have some effect - you know, it obviously could but I - I think we have to wait and see how it evolves over time. Again, if history repeats itself to some extent, I'm not sure you know, that there will be a monumental impact on consumption.

So Marty, if these - at this point are you operating under the assumption that consumption is going to just continue to decline at one to two percent instead of really having a bigger impact over the next six to 12 months?

Yes. We're still holding to that .

Thanks.

OK.

We do have a follow up question from of Merrill Lynch.

Thanks, it's . Just a question for Jim or Peter. I mean, in connection with the Carolina Group potential buy back, help me understand the $150 million cushion as it's always - as I've always understood it was to help ensure that the dividend was paid comfortably and used for any needs that Carolina Group has. If or when you go ahead and buy stock as a result of cash from that - from that cushion, will you then have to grow the cushion back to sort of the $150-million level or are you, in fact, seeing that - happy seeing that cushion, I don't know, at some number lower than 150?

Yeah, I'd like to leave that up to the board of directors. But that 150 million can be replenished. It doesn't have to be replenished. It doesn't have to be replenished all in one quarter. Funds - cash flow from Lorillard to Carolina Group can be used to pay down debt, and can be used for dividend increases, and can be used for share purposes - share repurchases.

So it's a - as I say, a Chinese menu.

OK. And, Jim, just can you tell me if my logic is accurate here. If Carolina Group was to buyback say $100 million worth of stock at any one moment and then that fund, the 150 million, the cushion was obviously to grow from there from its own cash flows. Then the rate of repayment of principle of the notional inter-group debt to Loews from Carolina Group would slow slightly by the amount at which the cushion amount rises?

That's generally correct.

OK, thanks very much.

You do have a follow-up question from David of Morgan Stanley.

Marty, the comment about at retail Newport being up four-tenths, was that four-tenths in volume or four-tenths in share?

It's four-tenths of market share through the first six months of 2002.

OK. And then, Jim or Peter, has any of the inter-company debt been repaid to date?

No, it hasn't.

OK, thank you.

At this time there are no further questions. Gentlemen, do you have any closing remarks?

Yes, thanks for joining us. And as a reminder, about two hours after the end of this call there will be a replay available through our Web site, loews.com, until August 15th. CNA's call will also be archived on its Web site until August 15th. And that about does it. Thank you very much.

Thank you for participating in today conference. You may now disconnect.