洛茲集團 (L) 2003 Q4 法說會逐字稿

Welcome to the Loews 2003 year end results conference call. At this time all participants have been placed on a listen-only mode and the floor will be open for questions and answers following the presentation. It is now my pleasure to turn the floor over to your host, Mr. Josh Kahn, Director of Investor Relations. Sir, you may begin.

Thank you. Good morning everyone. This is Joshua Kahn, investor relations manager for Loews. I would like to welcome you to our fourth quarter and full year 2003 earnings conference call.

By now you should have received a copy of our earnings release; if not you may get a copy from our Website at Lowes.com. Carolina Group also issued a press release this morning announcing its results for the fourth quarter of 2003 and for the full year as well. The Carolina Group release is also available at the Lowe's Website.

The Chief Executive Officer of Loews, James Tisch, and the Chief Financial Officer of Loews, Peter Keegan, will lead today's discussion, and will be joined by Martin Orlowsky of Lorillard.

Before we begin I would like to make a few brief disclosures concerning forward-looking statements. This conference call will include the use of statement that are forward-looking in nature. Actual results achieved by the Company may differ materially from those projections made in any forward-looking statements. Forward-looking statements reflect circumstances at the time they are made, and the Company expressly disclaims any obligation to update or revise any forward-looking statements made during his call. This disclaimer is only a brief summary of the Company's statutory forward-looking statements disclaimer. You are urged to read this disclaimer, which is included in the Company's 10-K and 10-Q filings with the SEC, in full.

I would also like to remind you that during this call today we may discuss certain non-GAAP financial measures such as operating income. With regard to such financial measures, please refer to our earnings release for a reconciliation to the most comparable GAAP measures.

There will be time for discussion -- for questions after Jim, Peter and Marty, have discussed our results. For those of you who have tuned in via our Website, please call 877-692-2592 during the Q&A session if you would like to ask a question.

Now I would like to turn the call over to our Chief Executive Officer, Jim Tisch.

Thank you, Josh. The fourth quarter was generally a good one for Loews, or as one analyst recently said on the CNA call, it was a boring quarter. In any event, the fourth quarter was a nice way to end a year that I might otherwise like to forget.

Although 2003 was challenging for Loews, it was also a year of considerable and important progress. The most noteworthy developments of the year, as you are probably aware, took place at CNA. Last year, CNA made great efforts to restore and realign its balance sheet to accurately reflect the development of claims on policies written before 2001. As you know, it began a thorough review of its entire reserve base in the early summer of '03, the results of which were assessed by a leading international actuarial firm.

While the outcome of the review was an unwelcome large charge in the third quarter, it represented a committed genuine effort to create a focused, consistently profitable commercial property and casualty insurance company. In order to support the statutory capital adversely impacted by these charges, CNA developed a capital plan comprised of a number of components, including substantial financial support from Loews.

In the fourth quarter, Loews purchased $750 million of a new series of CNA non-voting convertible stock, that will subsequently convert to slightly more than 32 million common shares of CNA, and will bring Loews' stake in CNA to just over 91 percent. As part of CNA's capital plan, Loews also agreed to commit as much as $500 million more of capital in the event that the sale of certain business units did not yet requisite amounts by February 26 of this year. I'm happy to report that CNA was able to find buyers for all of the major units that it had planned to divest, including the reinsurance, group, and life units.

As you may have already seen, last week CNA reached an agreement to sell its life business to Swiss Re. When this sale closes, which we anticipate to happen by the end of the first quarter, CNA will have fully completed its capital plan and will be well on the way to full implementation of its recovery plan.

In the midst of CNA's reconfiguration, its property casualty group, the Company's primary business, continued to display the operating strength it has exhibited over the past few years. In 2003 it reported a gross accident year loss ratio of 65 percent, down from 72 percent in '02 and 83 percent in '01. It also saw premium rates increase by 19 percent over the previous year, while still retaining 75 percent of its business. Overall, the commercial property casualty group continues to shift from a higher volatility book of business to a more moderate one, and to focus on optimizing its portfolio rather than just growing it. While the contributed net operating losses for the year 2003 of $1.5 billion reflect the previously mentioned charges, CNA's fourth quarter contributed net operating income of $184 million, and it should hopefully be a measure of the business in years to come.

Loews' ability to assist CNA's restructuring is in large part the product of its conservative capital structure. At year end '03, Loews had $2.1 billion in cash after its $750 million investment in CNA, and just about $2.3 billion of debt at the holding company level.

In late November of last year, Loews executed the sale of slightly more than 18 million shares of the 133.5 million share equivalents of Carolina Group that it had owned. This transaction, which was meant to shore up Loews' liquidity position, yielded about $400 million for Loews.

And while we're on the subject of Carolina Group, 2003 was a relatively difficult year in terms of earnings for the tobacco industry. A number of factors combined to make this the case, including the weak U.S. economy, higher excise tax rates, the competitive threat of deep discount cigarette brands, the proliferation of counterfeit cigarettes, and competitive price discounting. Because of these factors, Lorillard significantly increased its promotional spending on Newport this past year. The result was an increase in the brand's market share but also a decrease in Lorillard's net income in the fourth quarter and for the full year. But even in spite of its lower profit performance, Lorillard still earned over $580 million in 2003. As we say, that's better than a sharp stick in the eye. I'll leave it to Martin Orlowsky to tell you more in just a few minutes.

Diamond Offshore broke back into the black in the fourth quarter after three quarters of losses in '03. While Diamond Offshore's results improved -- mainly as a result of eliminating costs, optimizing rig configurations and developing new markets -- there were also signs later in the year that drilling activity was beginning to pick up. The Gulf of Mexico jack-up market showed the most improvement, as average dayrates for Diamond Offshore's jack-up fleet averaged about $30,000 by the end of the year. Jack-up utilization also increased over the third quarter and the fourth quarter of '02. The recent strength of the jack-up market has coincided with the completion of Diamond Offshore's jack-up upgrade program, allowing the Company to compete for business with state-of-the-art equipment.

Bulova had a good year in the context of a very challenging retail environment, registering earnings that were more or less unchanged from the previous year. It continued to expand internationally in '03, making its first foray into Europe by establishing a new subsidiary in Switzerland to handle European sales and distribution.

Loews Hotels enjoyed the benefits of a rebounding lodging market this past quarter and year. For both periods, average room rates and occupancy rates were both higher relative to the previous year, with New York and Miami properties registering the strongest revenue gains. As a result, net income improved for the quarter and the year. Loews Hotels' portfolio of properties also underwent a fair amount of change in '03, as it sold the Metropolitan Hotel -- a New York hotel it had owned since 1961 -- and entered into a number of new management contracts, including agreements for the Don Cesar (ph) in St. Pete Beach, Florida, a hotel in Beverly Hills, California now called the Loews Beverly Hills hotel, and the Loews New Orleans Hotel located in -- guess where everybody?

The Texas gas and natural gas pipeline operation Loews acquired in the second quarter of '03 had the best year in its history. Income was at an all-time company high, even in spite of -- and also in some ways because of -- the Company's restructuring as a result of its acquisition. We continued to be very pleased with the addition of Texas Gas to the Loews family, and believe it will be a significant contributor of cash flow to Loews.

With that I would like to turn the call over to our CFO, Pete Keegan, who will drill deeper into our financial results.

Thanks, Jim. Net income for Loews common stock was $332.6 million, or $1.79 per share in the fourth quarter of 2003, compared to net income of $224.4 million, or $1.21 per share in the fourth quarter of 2002. For the full year 2003, Loews reported a net loss attributable to Loews common stock of 725.9 million, or a loss of $3.91 per share, versus net income of $771.3 million, or $4.11 per share in 2002. The net loss for 2003 reflects net prior year development charges at CNA announced earlier in the year totaling $1.667 billion. The net loss also included a loss of $116.4 million from CNA's sale of its group benefits business to Hartford Financial Services Group.

Net investment gains were $37.5 million in the fourth quarter of '03, versus losses of $24.2 million in the fourth quarter of '02, while net investment gains were 339.7 million in the full year 2003, versus losses of 122 million in the full year 2002. Fourth quarter '03 net investment gains include the previously mentioned loss from the sale of CNA's group business.

Net operating income, excluding investment gains and losses and adjustments for discontinued operations, was 295.1 million in the fourth quarter of 2003 versus 246.8 million in the fourth quarter of '02, and a loss of 1.121 billion in the full year 2003 versus income of 959 million in 2002.

Loews' fourth quarter 2003 net operating income excludes net income attributable to Carolina Group stock of 34.8 million, or 74 cents per Carolina Group share. Net income for Carolina Group stock was 36.9 million, or 92 cents per Carolina Group share in the fourth quarter of '02. Loews' full year 2003 results exclude net income attributable to Carolina Group stock of 115.2 million, or $2.76 per Carolina Group share. In 2002, net income attributable to Carolina Group stock (technical difficulty) 40.7 million, or $3.50 per Carolina Group share in 2002.

Income attributable to Carolina Group stock declined year-over-year in the fourth quarter 2003, as net sales fell 46.6 million as a result of Lorillard's increased promotional spending, which was offset somewhat by an increase in total domestic cigarette volumes of 6.9 percent. For the full year, income attributable to Carolina Group stock also declined versus that of 2002 on increased promotional spending and slightly lower domestic cigarette volumes. On a sequential quarter basis, income attributable to Carolina Group stock improved by $8 million, or 30 percent.

As a result of the sale of 18.055 million shares of Carolina Group stock by Loews on November 25, 2003, the weighted average number of Carolina Group shares outstanding increased from 39.91 million in the fourth quarter '02 to 47.17 million in the fourth quarter 2003, and from 40.15 million for all of 2003 to 41.74 million for all of 2003. Loews currently holds 66.6 percent of the total shares and share equivalents (indiscernible) Carolina Group.

Lorillard contributed 109.7 million to net income attributable to Loews common stock in the fourth quarter of '03, versus 151.8 million in the fourth quarter of '02. For the full year, Lorillard contributed 470.9 million to net income for Loews common stock versus 630.4 million in 2002. Full year results include a total of 34.6 million in after-tax charges to settle litigation with tobacco growers and to resolve indemnification claims and trademark matters in connection with a 1997 sale by Lorillard of its international business.

Lorillard recorded charges of 489.5 million and 646.1 million, after taxes, for the years ending December 31st '03 and '02, respectively (indiscernible) obligations under various settlement agreements. Lorillard's after-tax settlement charges were 119.9 million in the fourth quarter of '03 and 135.5 million in the fourth quarter of '02.

CNA contributed 184.3 million to Loews' net operating income in the fourth quarter of '03, versus 102.2 million in the fourth quarter of '02. For the year 2003, CNA contributed a loss of 1.523 billion to Loews' net operating results, versus income of 363.4 million in 2002. Loews' interest in CNA's net realized investment gains and losses improved to a loss of 15.5 million in the fourth quarter of '03 from a loss of 56.1 million in the fourth quarter '02, and improved to a gain of 265.7 million in the full year of '03 from a loss of 133 million in 2002. CNA's fourth quarter and full year net investment results include the loss on the sale of CNA's group business in the fourth quarter.

Diamond Offshore's contribution to net profits declined to a loss of 0.7 million in the fourth quarter of '03 from income of 0.9 million in the fourth quarter of '02. Diamond Offshore's net profit contribution for the year fell to a loss of 27.2 million in 2003 from income of 14.1 million in 2002. These results reflect the weakness of the offshore drilling market during the year. Dayrates were lower fir mid and deep water semisubmersibles in the fourth quarter versus the same period last, while utilization for these rigs were flat to slightly higher. The jack-up segment was the strongest of Diamond Offshore's rig categories, as both dayrates and utilization improved year-over-year from the fourth quarter.

Loews Hotels benefited from a rebounding travel and leisure industry, as results from continuing operations improved to breakeven in the fourth quarter of '03 from a loss of 1.7 million in the fourth quarter of '02, and to income of 11.2 million in the full year 2003 from 8.7 million in 2002. In the quarter, occupancy for all hotels was 70.9 percent, an improvement of 5.8 percentage points over the fourth quarter 2002. As the same time, average room rates rose to $178.93 from $167.32. For the year, 2003 occupancy was 73 percent versus 71 percent in 2002, while average room rates increased 2.7 percent to $171.69 from $167.10.

Bulova's contribution of 5.3 million to Loews' fourth quarter 2003 net income was flat when compared to the fourth quarter of '02, while Bulova's contribution to Loews' full year 2003 net income was also flat at 11.8 million, against 2002. Bulova's performance in 2003 benefited from higher watch and clock selling prices, but was negatively impacted by lower watch and clock sales volumes.

Texas Gas Transmission, which Loews acquired in May of 2003, reported net income of 18.7 million in the fourth quarter 2003 and 22.5 million in the period that Loews owned Texas Gas in 2003. Given that Texas Gas has been a Loews subsidiary for less than one year, there are no readily comparable year-over-year earnings numbers.

Net investment income and other -- which is comprised of Loews' investment income, income from shipping operations and corporate operations, including interest expense -- declined from a loss of 11.7 million in the fourth quarter 2002 to a loss of 22.2 million in the fourth quarter 2003, and declined from a loss of 68.5 million for the full year 2003 -- 2002 to a loss of 86.3 million for the full year 2003. The bulk of the decline in both the quarter and the year resulted from lower investment income, offset somewhat by higher income from shipping operations. At December 31st, 2003, total cash and investments -- excluding CNA, Diamond Offshore, and Texas Gas -- was $3.74 billion. 2.1 billion of cash and investments were at the holding company level, and 1.53 billion resided at Lorillard.

And now I would like to turn the call over to Marty Orlowsky.

Thank you, Peter. Good morning. Fourth quarter 2003 unit volume and share of market results for Lorillard continued to reflect the positive effects of the increased promotional spending in support of Newport that were initiated beginning with the second quarter of '03. Lorillard's objective of stabilizing and/or growing Newport's share of market was accomplished for the full year of '03, and the fourth quarter was a further reflection of this pattern in terms of sequential growth.

The increased cost of doing business, principally driven by promotional expenditures, resulted in an operating income decline of approximately 21 percent for the full year 2003 as compared with 2002, excluding 57 million of onetime pre-tax charges related to previously disclosed payments associated with trademark indemnification litigation matters.

However, when viewing results on an operating income per thousand basis for the fourth quarter and full year 2003, Lorillard's performance compares favorably with that of the other major tobacco companies. Further, although the fourth quarter of '03 continued similar levels of spending support as compared to the third quarter of '03 for Newport, viewing third and fourth quarter operating income per thousand results, we see a slight improvement for the last quarter of the year.

For the fourth quarter, operating income per thousand was $26.13 per thousand, versus 24.67 per thousand for the third quarter of 2003. This is an indication of the efficient returns derived from our selective promotional investment strategy in generating positive volume and marketshare performance for Newport.

For the full year 2003, excluding onetime pre-tax charges, operating income was 27.21 per thousand, or about 19 percent below that of 2002. Total Lorillard wholesale unit shipments for the fourth quarter of 2003 increased 8.1 percent when compared with a relatively weak fourth quarter a year ago. Domestic U.S. shipments for Lorillard reflected a 6.9 percent increase, and for Newport an 8.9 percent increase -- again, comparing this with a poor performing fourth quarter of 2002.

For the full year 2003, total Lorillard shipments were down 2.3 percent versus the full year of 2002. Total domestic units were off 2.8 percent and Newport domestic shipments were down slightly by about 6/10 of 1 percent, when comparing 2003 with 2002.

Overall, Lorillard's share of domestic wholesale shipments increased 0.22 points for the year 2003 versus 2002, and Newport's share was up 0.37 points comparing the same periods. Based on wholesale shipments, Newport's share of the premium price segment was 11.3 percent for 2003 versus 10.9 percent in 2002, an increase of 4/10 of a share point.

Based on our retail database, Lorillard's results for 2003 compared with 2002 demonstrated positive performance. Newport experienced steady share growth on a sequential basis beginning the second quarter of '03, and Newport finished the year with a 0.52 share point gain versus 2002.

For the menthol segment, Lorillard's retail database indicates that Newport increased its share to 30.5 percent in 2003 as compared with 29.3 percent in 2002, an increase of 1.2 segment share points. The brand's performance is a direct result of the promotional spending increases that occurred during last year.

As I stated previously, our strategy to more competitively support Newport has achieved its intended results. Given current trends in the industry, on a competitive and overall basis, Lorillard will continue to invest in Newport to sustain the positive momentum generated in the third and fourth quarters of last year.

I will turn it back to Peter or Joshua.

I will take it over and pass it along to the operator. We will take some questions now, please.

(OPERATOR INSTRUCTIONS). Bonnie Herzog, Smith Barney.

I have a question -- first, on the level of promotional spending, if you can address it, Marty. You did just make a comment that you are going to continue to invest behind Newport into this year. Can we expect to see the same level of spending, or do you think you are going to pull back a little bit versus or relative to 2003? How should we look at this --?

I'm not going to comment very specifically other than what I said regarding our intention. And I will leave it at that, Bonnie.

Can you talk to this point? Obviously, there have been a lot of contract changes that have been made by yourself as well as your major competitors in the trade. I'm curious if you can share with us some of the feedback you have received from the trade and how they are responding to all these contract changes? Have there been any opportunities for your company, given some of your competitor's changes? Have there been any openings for you to get into new accounts, based on some of these changes?

When you say contact changes, I gather you are referring to the merchandising plans?

Yes.

We have seen, for us, some modest improvement in our ability to generate incremental space through the actions -- as a result of actions taken by our competitors. I would not say there was a significant shift one way or the other as a result of it. I guess I would characterize it as being a relatively modest change, and generally some improvement in our position. Although we are still constrained by some of the other companies' plans.

But you feel like -- looking at it this year and the changes, you feel like you are at a better competitive advantage, relative to maybe even a year ago?

I don't know if I would go that far in saying that. I guess I would say it's kind of a status (indiscernible) --

Bonnie Herzog That is helpful. And then on your Maverick brand. It's been a few quarters now since you have lowered the price point on that brand. And clearly, the volume has responded positively to that. And I'm curious how the trade has been reacting to that? Has that allowed you, possibly, to get into new accounts or opened doors for you, now that you can go to -- whether it be a wholesaler or a retailer -- with more of a full portfolio, because you have this lower price point?

Clearly, Maverick's price reduction that occurred last May is helping us increase our space in cigarette stores, principally, which is one of the major classes of trade, as you well now, that discounted brands compete in. So again here -- and we have seen some steady gains in terms of our convenience store penetration. So yes, basically, clearly, the increase in shipments and the pricing has helped us increase our positions in both convenience store and cigarette store classes of trade.

Thank you. One final question, if I may, on the total menthol category. How has it been faring relative to the overall cigarette market? I'm sorry if you stated the marketshare that the menthol category now represents, but I would be curious to hear what has the growth rate been in 2003. And curious also to hear about the deep discount category, and if you are seeing -- it's a question we always ask you every quarter -- if you are seeing any new entrants coming into the menthol category?

The numbers I quoted in my prepared comments really spoke to Newport's share of the menthol segment. We have seen a slight increase in the overall penetration of menthol as a percentage of total -- of the total market. It was up for the year -- this is based on our retail data -- it was up for the year about 0.66 share points. So it went from 2605 2002 to 2671 in '03. Relative to the deep discount brands, we have seen a slight increase in share, less than 2/10 of a share point. But I clearly don't think that that gain was at the expense very much of premium price menthol brands; there's more interaction, obviously, in the so-called discount or saving segment, and that was down slightly. So most of the gain for the minors really are a result of interaction with the savings brands as opposed to premium menthol. There is no -- the only change in what I will call the deep discount area for menthol is the reduction of list price on Jade, the Liggett brand, which is (technical difficulty) menthol. They lowered it, I can't recall exactly to what level, but probably in the range of somewhere around $12 a carton, I guess. That was the only significant change. There really is not any single entry in the deep discount segment that is a freestanding menthol. So other than the Jade change, that is about where it is.

Bonnie Herzog Thank you so much. That was helpful.

Judy Hong, Goldman Sachs.

I want to start with a question for Jim. I guess one could argue that the tobacco litigation landscape has become more predictable recently. Some of the other holding companies that have tobacco and other assets in their business have been more expressive and been more vocal about looking at all options to enhance shareholder value more recently. Has you thinking changed in terms of looking at different options, including a major corporate restructuring, in light of the legal situation becoming more predictable recently?

No, I would not say that our thinking has changed at all. We were able to achieve value for Loews' shareholders through the issuance of Carolina Group's shares just over two years ago. And to the extent that the litigation environment improves, my sense is that Carolina Group shares will go up and Loews shareholders will benefit accordingly. With respect to spin-offs and split-offs and other corporate developments like that, we have no plans.

Thank you. Some questions to Marty, going back to the cigarette business. Since you guys started to spend more behind Newport, clearly we have seen share trends improving for that brand. I was just wondering, though, how much of the improvement is also driven by the fact that you've seen overall premium segment stabilizing, and that the overall deep discount segment is not growing anymore?

For one, let me address the last part of your point. Even though the growth rate of the deep discount segment was slightly down fourth quarter of last year versus the third quarter, overall for the year our numbers would indicate that the deep discount segment did increase to some extent. But to answer your question, I think that most of the growth on Newport came at the expense of its principal competitors in general. And I don't think -- I really don't have any data that would allow me to speak specifically as to what percentage of growth came from the general improvement in premium price brands. But clearly, Newport outperformed in 2003 versus 2002, and I think a lot of that growth came from competition.

Marty, just sticking with that for a second. Do you see the repositioning of Salem working better this time than in the past. In several months I think we still see Salem growing marketshare, and Newport is also growing as well. I'm just wondering if you think that the repositioning of Salem at this time is working better than maybe it has been in the past?

I think it's too early reach a conclusion as to what the sustainable growth is, if any, there will be on Salem. What we are still seeing, clearly, is the effects of the initial repositioning and very heavy promotional support behind the brand. As you well now, Reynolds redirected their strategy months ago, and defined Salem as one of two sort of emphasis brands that they are going to spend behind. So I think it's too early to say whether there is true underlying sustainable growth on the brand or any significant improvement versus its historical or most recent share trends. I would hesitate to comment further on that.

Your operating profit per thousand in the fourth quarter improved slightly versus the third quarter. But if I look at different components, the revenue per thousand seemed to have improved sequentially, but the SG&A spending was up in the quarter. Was there any shift in terms of what kind of activities you were allocating your resources on in the fourth quarter versus the third quarter?

Not really. It may be timing factors that influenced the SG&A in the fourth quarter. I'm not specifically aware of any significant differences.

Martin Feldman, Merrill Lynch.

Can we just go back to -- my question was similar to the last one, at least my first question. I noticed that the (technical difficulty) Carolina Group (indiscernible) Lorillard enjoyed an improvement in operating margin of almost 100 basis points between the third and fourth quarters. And I was going to ask if you could give any additional color as to why that was.

I don't know specifically. I'm going to guess that maybe some part of it had to do with MSA accruals. And again, there might have been some timing issues that resulted in causing it to improve. Certainly -- and frankly, we may very well have experienced some more efficient, if you will, returns on our promotional investments. So --

But Marty, I just wanted to confirm -- not talking about the future, but simply the fourth quarter versus the third quarter. Your general level of promotional activity stayed constant during that period, right? There wasn't any material change?

Pretty much, yes (inaudible).

Okay. Just moving on a little bit -- you've seen this (indiscernible) -- again, by my calculations, the volumes of Maverick in the fourth quarter almost doubled over what they were in the first quarter of '03? Is that about correct?

They increased about -- I'm sorry, versus what quarter?

Fourth quarter versus the first quarter, maybe the fourth quarter versus the fourth quarter of the previous year, but they were --

It was up 60 percent versus the fourth quarter of year ago. So --

Okay. Why not adopt a similar strategy or do something equally interesting with Old Gold at this point?

Well, the issue there is whether or not we want to -- to do that we would have to take some degree of a hit on the profit contribution of Old Gold. And the way we are promoting Old Gold currently, even with the losses in volume, we are experiencing a reasonably good return in the form of profit contribution to the brand. So we are reluctant to make that decision on that basis.

So it's appropriate to see that brand as being harvested, and it will continue to drop in the sort of volume drops we've seen in the last few quarters?

We have in fact tested slightly more aggressive promotional discounting on Old Gold, and have seen some (indiscernible) modest volume improvement as a result of that. But again, our strategy is not really focused very intensely, as you well know, on the discount segment. We made the decision on Maverick because we felt it got to a low point that was low enough, and it made sense for us to have an entry down there on that basis. But we are not that committed to building volume in the savings (indiscernible). Obviously, our focus is on Newport.

Marty, just moving on (indiscernible) -- could you give us your number for worldwide volumes in the fourth quarter? In other words, your territory (indiscernible) including the territories outside the U.S.?

The number is -- what would you like?

The worldwide volume number for the fourth quarter.

The worldwide volume number for the fourth quarter was about 8.6 billion.

And just (indiscernible) I should call it minor matters, I think that's appropriate now -- if or when, I'm assuming when, the (indiscernible) case is eventually dismissed by the Florida Supreme Court, can you confirm the amount of money that Lorillard will get back?

We don't know if we are going to get any money back.

We don't anticipate getting any money back. We had put in $200 million as an enhanced bond, and -- we think that is non-refundable.

That was the part that went in return over the deal which was done with the plaintiffs, but wasn't there also $100 million per plaintiff filed with the court initially?

No. What happened is there was 100 million that was initially filed, and then there was an additional 100 that was put up. And we made the entire 200 non-refundable.

I see. So there's no cash coming back?

No. (multiple speakers) (indiscernible) where we are today.

Right. I mean, you could always seek to get it back.

That is correct.

A possibility.

, Okay. Can you confirm -- you're not a defendant in any (indiscernible)?

That is correct.

A final question for Peter Keegan. Peter, could you just confirm to me the total number of CG shares outstanding in the fourth quarter, including the shares held by Loews? And related to that, given that the deal occurred during the fourth, the right number of total shares in Carolina Group, including held by Loews, that we should be working for for the first quarter and beyond?

The total shares outstanding -- on an absolute, not a weighted basis -- are 173.41 million. That's what you should be working on going forward.

What was the right number to be using for the fourth quarter?

The number of shares outstanding in the fourth quarter did not -- the number of total shares outstanding in the fourth quarter did not increase.

Did not increase at all?

But the (indiscernible) earnings per share, for CG you use a weighted average number outstanding. So that is a different number.

Okay, can you just confirm what that -- was that number in the press release?

Yes, I think it's in the press release.

Bob Glaspegal (ph), (indiscernible).

I would like to drill a little deeper into Texas Gas. When you did the deal you said you wanted to -- hoped to get a 10 percent return on the 525 million cash. Is that how that worked out? What is the sort of pro forma '03 earnings for Texas Gas if you had owned it for the full year?

First of all, I don't think we said 10 percent return. I think we said low double-digit returns, and that is what we're achieving.

What would the pro forma earnings have been if you owned it for the full year?

I don't know that we have that number.

We don't have that.

Okay. Well what drives -- if we think about modeling for '04, what sort of factors have changed in the half-year, plus since you have done it?

Actually very little has changed in the past year. When we acquired Texas Gas it had a series of long-term contracts from customers reserving space on the system, and there has not get any significant change in those contracts.

Was there seasonality that would cause Q4 to be so much higher than Q3?

Yes there is, but we can take that off-line if you want.

Looking forward in the first half of '04 is there anything we should be aware of, like Q1 is more than Q2, or vice versa?

I am not 100 percent sure, Bob. We can talk about that with the Texas Gas management.

(indiscernible) debt owned by Loews at year end?

Say again?

(indiscernible) debt --

(indiscernible) debt is about $2 billion.

2032.

2032? Okay. The CNA future purchases that are going to happen in '04 -- that will be at the holding company? Where should we model the interest income?

For Loews?

Yes.

The purchases -- are you talking about the purchases of the surplus notes?

The prospective that you are going to earn about five (indiscernible)?

The surplus notes that Loews purchases will be purchased by the Loews holding company in the CNA casualty companies.

But the parent -- the interest income to Loews -- I know it's from hand to another, essentially. I know where to take it out at the CNA level. It comes back in at the parent level, or is it in the CNA level?

No, the parent level.

The last question is -- the interest that you aren't being paid but are owed from CNA on the old preferred --?

There's 750 million of preferred. Yes?

Right. How do you treat that in your Loews P&L? Again, it is from one hand to another largely, but I know where it comes out at the CNA level. Does it come back in at the Loews level, or do you just not take it out or put in?

No, we're not -- there's no income effect to Loews from the accretion in that.

Right. But there is an expense to CNA.

It's only at -- it's not an expense in the net income (multiple speakers) calculation, the per share calculation -- you treat it as if it is, but it is not an expense in the income statement.

I understand. But it does come out of the EPS to CNA, but when I --

In the income available for common calculation, yes.

So we're just taking 91 percent of a gross number ahead of -- before that's taken out, when you allocate it to the Loews level? There's no charge?

No.

Okay, I think I understand that. But I may have to follow it up with you. Thank you.

(OPERATOR INSTRUCTIONS). David Adelman, Morgan Stanley.

Marty, a couple questions. First, could you give us what the sequential increase in Newport's retail market share was in the fourth quarter?

Yes. The sequential increase in the fourth quarter over the third quarter was a little less than 2/10 of a share point, 0.16. We went from 8.23 percent of the market in the third quarter to 8.39 in the fourth.

Secondly, are you seeing any impact on Newport's business in these two market where Marlboro is being tested with a new menthol variance?

No, we are not seeing any change or effect on us. A lot of the Marlboro 72 business is highly promoted with buy-one-get-one-free. So that is a vast majority of their shipments, one could attribute to the buy-ones. But we're not seeing any real effect on it.

Thirdly, how do you reconcile the fact that on a per thousand basis, revenue per unit was up sequentially from Q3 to Q4, but you indicated earlier that promotional spending was largely flat?

It wasn't -- I said it was similar. I don't think I used the term flat. Our promotional spending was slightly less in the fourth quarter than it was in the third quarter. And that is a byproduct as well of Newport volumes, because obviously there is a correlation between the buy-down discounting and volume. So Newport -- overall Newport volume in the fourth quarter was slightly less than the third quarter, and that would affect the rate of spending.

Two last things, Marty. Do you expect that over time you'll be able to reestablish the traditional fairly large gap between Newport's promotional spending and the overall spend rates of your competitors?

At the risk of sounding -- I'm not attempting to sound facetious -- if I had a crystal ball I would know that. I really can't -- it's difficult answer that question. I think we have to come -- we have been responding on a competitive basis, and we have to see where things go over time in terms of any decisions we make with respect to how we will support Newport. It really is as much dictated by the general market conditions, excise taxes, etc., the economy, as well as competitive actions.

And lastly, in Jim's earlier remarks, he mentioned counterfeiting. Are you seeing any change in the prevalence of the counterfeiting of the Newport brand in the United States?

Clearly, we discovered a fair amount, on a relative basis, of counterfeiting during the course of 2003. It is hard to answer because it's very difficult to quantify exactly how much is counterfeited. But given the level of activity that we are discovering, I would say in the fourth quarter it seemed to have been a little less intense, at least as far as what we could tell, than it was in previous quarters.

When you find it at retail, is it concentrated in a particular area in the country?

Yes, it's generally concentrated in California. That is the primary area. Some states in the Southwest, and a little bit in New York. And that is pretty much where it is, although sometimes it crops up in other places. California is the primary area.

Our final question is coming from Adrian Day, Global Strategic Management.

I had three quick questions, if I may. One is on Diamond Offshore. You sort of indicated the light is at the end of the tunnel. We seem to the hearing this from all of the drilling companies, and we seem to be hearing it for a couple of years, that things are improving but they have not improved yet. And I'm wondering if there's any kind of specifics you can give us on what makes you more certain now that the market is turning? And then the second thing was -- on Bulova, my impression is that Bulova is sort of on hold with Loews, that you're not really putting an awful lot of time and energy and attention to it. And I don't know if that is correct or if there is anything you are doing to improve or make Bulova more dynamic. And lastly, if you could give us an update on the tankers?

Let me start with Diamond Offshore. We are seeing improvement. It's mostly within the jack-up market. We've seen day rates increase to about $30,000 a day, and we have also, most importantly, seen utilization increase, so that there isn't significant amounts of time off. We have also been able, for the most part, to keep our semisubmersibles fully utilized -- not fully, but pretty well utilized. And in the past year we have chartered 4 of our semisubmersibles that would otherwise be laid up. We have charted them to Mexico, and they are working profitably in the Mexican sector of the Gulf of Mexico. So all of that has served to, for Diamond Offshore at least, create a better tone within the market. Also, for the most part our advanced rigs -- the fourth and fifth generation rigs are working, and we're starting to see some pickup in the Norwegian sector of the market.

So overall, the tone is slightly improved. I wouldn't say it is terrific, it's not that by a long shot, but there is improvement. And I think a lot of the bullishness also comes from the fact that we are saying oil prices very steadily at $34 a barrel, and we are seeing gas prices at about a $5.50 dollars an mcf on a rolling 12 months basis. And the thinkers in the industry believe that at those types of levels, that there will be significant amounts of increased drilling on the part of our customers. I hope they are right.

With respect to Bulova, you referred to the time and energy that we have put into it. Let me explain how Loews works. Each of our subsidiaries is responsible for their own business. And Loews gets involved when there are major strategic or investment or capital allocation decisions to be made. Bulova has been cranking along very quietly out in Queens, earning a very good rate of return for us and building its business. So the fact that you don't hear us talking about it much does not mean that we don't think about it or view it as an important part of Loews, but rather, it is one of those businesses that, for us, is pretty much no heavy lifting.

With respect to the tanker market, it is in a full-blown boom right now. At the beginning of October, day rates for the ships that we have were about 20 to $30,000 a day. By the second or third week in October, those day rates had increased to about 30 to $40,000 a day. And now in mid-February, those day rates are in excess of $100,000 a day. It costs about $15,000 a day to operate the ships, so you can imagine what the increase in operating earnings is.

The thing that I don't know is what is the effect on day rates of the recent announcement by OPEC to reduce its production. They are going to reduce production, so they say, by $1.5 million immediately, as OPEC countries stop cheating on their quotas. And then come April 1st, there's the expectation that they are going to reduce production another $1 million. If in fact they are able to reduce that total production by the 2.5 million barrels, I think that the $100,000 a day day rates they were seeing will be, at least temporarily, a thing of the past, until we see OPEC production -- and more specifically, Persian Gulf production -- increase back to the levels where we were at in the fall and in January. But the long and short of it is that -- I think what we're seeing here is that the tanker market is in pretty tight balance. That it only takes a little increase in demand in terms of ton mileage to cause very significant increases in day rates. And we're happy to be reaping the benefits of that.

Thank you for joining us this morning. Operator, we would like to make that the last question.

There are no further questions.

Thanks again. As a reminder, in about two hours a replay of this call will be available on our Website. CNA's call also be archived on its Website later this afternoon. That'll do it. Thank you very much.

Thank you. This does conclude today's teleconference.