洛茲集團 (L) 2004 Q3 法說會逐字稿

Good morning, and welcome to the Loews third quarter earnings release conference call. All have been placed on listen-only mode, and the floor will be open for questions and answers following the presentation. It's now my pleasure to turn to Josh Kahn, director of investor relations. Sir, you may begin.

Thank you, and good morning, everyone. I'm Joshua Kahn, the investor relations director for Loews. I'd like to welcome you to Loews Corporation's third quarter 2004 earnings conference call. By now you should have received a copy o f our earnings release. If not, you may get a copy Loews.com. Carolina Group also issued a press release this morning announcing its results for third quarter 2004. The Carolina group release is also available at the Loews web site. 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 statements that are forward-looking in nature. Actual results achieved by the company may differ materially from those projections made in any forward-looking statement. Forward-looking statements reflect circumstances at they are made, and the company expressly disclaims any obligation to update or revise any forward-looking statements made during this call. This disclaimer is only a brief summary of the company's statutory forward-looking statement disclaimer. You are urged to read this disclaimer, which is included the company's 10-K and 10-Q filing 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 in come. With regard to financial measures, please refer to our earnings release for reconciliation for the most comparable GAAP measures. There will be time for questions after Jim, Peter and Marty have discussed our results. For those of you who have turned in to our web site, please call 877-692-2592 during the Q&A session if you'd like to ask questions. Now I'd like to turn the call over to chief executive officer, Jim Tisch.

Thank you, Josh. Four hurricanes in five weak weeks is an unpleasant thing for anyone to endure. Yet in spite of our exposure to the severe '04 hurricane season, to our insurance offshore drilling, and hotel businesses, third quarter results for Loews were solid.

At CNA better underwriting discipline and the expense management continue to be the theme. Underlying the noise from reserve charges taken last year, and hurricane losses this past quarter, is a marked improvement in operating results. We are confident that in time, CNA's financial results will reflect this improved performance.

Lorillard had a good quarter and registering increases in revenues an income, both sequentially and year-over-year. Newport grew its share of the menthol market, while the competitive pressures from deep-discount brands continue to show signs of stabilizing. We'll return to Marty Orlowsky to give us more color on all things tobacco in just a moment.

Diamond Offshore was also impacted by inclimate weather in the Gulf of Mexico. Specifically, Hurricane Ivan, also known as Ivan the Terrible in the oil patch, caused a lot of damage to offshore drilling rigs in the region. It passed directly over a number of Diamond Offshore rigs, inflicting significant damage to three of these rigs. Fortunately, all but about $5 million in deductibles was covered by insurance policies. Two semi-submersibles affected by Ivan are again operating, while the one damaged Jackup, the Ocean Warwick, will have to spend time in the shipyard to undergo repairs.

Nevertheless, the real story from the Gulf is a significant ongoing rebound in the offshore drilling market. Sustained high commodity prices have finally encouraged exploration and production companies to resume significant capital spending programs. And as a result, the market for rigs has tightened materially, and day rates have increased dramatically.

Diamond Offshore saw demand for its fleet increase significantly for the quarter, prompting the company to reactivate rigs it had cold stocked during the slack market conditions.

Texas Gas continues to perform well, producing the consistent double-digit cash-on-cash returns that we had anticipated when we acquired the company in May of '03. During the second quarter, Texas Gas sign agreements with customers and filed an application with the FERT to expand its storage capacity. Due to the interest received during the marketing of additional storage capacity, Texas Gas has initiated a second open season for additional firm storage capacity to be add by late 2006. Both storage capacity expansion projects will be financed with funds generated from Texas Gas's operation.

Loews Hotels benefited from a generally robust lodging market, but was negatively impacted by the hurricanes that battled the state of Florida in August and September. Hurricane-related loss revenues are estimated about $5 million. An addition, Loews Hotel Orlando were damaged by the storms. Repair costs totaled almost $2 million and were shared by Loews Hotels and its Orlando partners.

For all of Loews Hotels, occupancy during the quarter was more or less flat against the previous year, mainly as a result of the negative impact from the severe hurricane season, while average room rates rose materially.

Now I would like to turn the call over to our CFO, Pete Keegan, who will speak in greater detail about the financial performance of Loews this the past quarter.

Thank you, Jim, and good morning, everybody.

Loews reported net income of $277.6 million in the third quarter of 2004. Compared to a loss of $1.38 billion in the third quarter of 2003. Net income for Loews common stock was $224.2 million, or $1.21 per share in the third quarter of 2004, versus a loss of $1.41 billion, or $7.60 per share, in the third quarter 2003.

Third quarter '04 results include income of 116.5 million after taxes, related to cash distribution from Loews's investment in Hellespont Shipping Corporation, following the sale of its four ULCC tankers. Third quarter results also include 158.8 million after taxes and minority interest of charges due to losses at CNA, caused by the four hurricanes to hit the southeastern United States in August and September.

Third quarter 2003 results include charges by CNA for net prior year development of 1.35 billion, and an increase in bad debt reserves of 298.9 million after taxes and minority interest. Net investment results declined from a gain of 107.8 million in the third quarter of 2003, to a loss of 21.7 million in the third quarter of 2004. The decline is due primarily to losses at CNA related to derivative securities held to protect the value of the fixed maturity portfolio against an increase in interest rates.

While the decrease in long-term interest rates during the third quarter resulted in a realized loss related to the derivatives, the fair value of CNA's fixed maturity portfolio benefited from the interest rate movements, resulting in substantial increase in the company's shareholder's equity.

Net income for Carolina Group stock was 53.4 million, or 92 cents per Carolina group share in the third quarter 2004, against 26.8 million with 67 cents per Carolina group share in the third quarter of 2003. Third quarter '04 income, for Carolina Group stock includes net earnings attributable to 57.965 million Carolina Group shares. Loews sold 18.055 million shares of its interest in Carolina group in the fourth quarter of 2003.

Quarter three 2003 income attributable to Carolina Group stock includes net earnings with 39.91 million of Carolina group shares. Lorillard contributed $130.5 million to net income, for Loews common stock in the third quarter of 2004. This represents Loews's 66.57% interest in the in the net income of Carolina Group of which Lorillard is the principal asset.

Lorillard's 121.9 million contribution in the third quarter of '03 represents the 76.99% economic interest in Carolina Group Loews held at that the time.

CNA contributed $16.8 million including investment gains and losses to Loews third quarter 2004 net income, versus a loss of $1.68 billion in the third quarter of '03. Excuse me, that 168 excluded investment gains and losses.

Third quarter 2004 results include the previously mentioned charges related to hurricane losses, while third quarter 2003 results reflect the aforementioned charges related to prior year development and increases in bad debt reserves.

CNA's net realized investment gains and losses declined from a gain of 94.7 million in the third quarter of '03, to a loss of 38.2 million in the third quarter of '04. CNA's third quarter '04 net investment performance reflects the losses related to derivative securities discussed earlier.

Loews Hotel's net income declined slightly from break-even in the third quarter of 2003, to a loss of .8 million in the third quarter 2004. Average room rates across Loews Hotels increased by 6%, while occupancy was 77.4% in the third quarter of '04, versus 77.9% a year earlier. Occupancy for Loews Hotel during the fourth -- during the 2004 quarter was negatively impacted by lower occupancy rates at the company's Florida hotels, as a result of the severe hurricane season. Loews Hotels third quarter 2004 net loss was negatively impacted by .6 million related to repairs of hurricane damage sustained at its Orlando properties.

Diamond Offshore's contribution to net profits improved to .1 million in the third quarter 2004, from a loss of 5.1 million in the improved t of 2003. Damage sustained during Hurricane Ivan negatively impacted Diamond's Offshore's contribution by $2.3 million after taxes and minority interests. The company's high specification floater segment sort of declined in both day rate and utilization versus the year-ago quarter, while utilization improved and day rates declined slightly in other semi-submersible rigs statement. Diamond Offshore's Jackup rates registered significant year-over-year gains in both day rates and utilization .

Texas Gas contributed $1 million in net income to Loews in the third quarter of 2004, versus 2.2 million in the third quarter of 2003. Revenues for the quarter increased 4.9%, but where were offset by higher operating expenses which primarily reflect timing and accrual issues.

Net investment income and other, which includes income from Loews's Bulova subsidiary, as well as corporate overhead and interest expense improved from loss of 16.8 million in the third quarter of 2003, to income of 98.3 million in the third quarter of 2004.

Quarter three 2004 investment income includes net income of 116.5 million from Hellespont following the sale of its four ULCC tankers.

Bulova recorded a $1 million net loss in the third quarter of 2004 while it contributed 1.6 million to Loews's net income in the third quarter 2003.

At September 30th, 2004, total cash and net investments, excluding CNA, Diamond Offshore and Texas Gas was $4.4 billion; 2.6 billion of cash and investments with the holding company level, and $1.7 billion resided at Lorillard. Long-term debt, which includes debt of the holding company and loews Hotels was 2.45 billion at the end of third quarter.

That concludes my remarks, and I will know turn it over to Marty Orlowsky of Lorillard.

Thank you, Peter, and good morning, everyone. Lorillard's financial performance is reported for the third quarter of 2004 reflected positive results in terms of operating income and net earnings, as compared with the third quarter of '03, reflecting increases of plus 25.2% and plus 27.6% respectively. This was achieved despite a decline of 3.5% for total Lorillard shipments when comparing the same periods.

Contributing to the improved Q3 '04 financial performance were the following factors. The ongoing effects the reduction in the cash discount rate offered to direct-buying customers initiated in February 2004 continued -- continuing lower return goods expense, lower promotional expenses, and one-time state tax refund of about 1.4 million after tax.

While we expect in the short term to benefit from some of the financial improvements demonstrated in the third quarter of 2004 , we would caution that the same order of magnitude of improvement might not be applicable to future quarters. We believe that over the first nine months of 2004, a degree of marketplace stability has prevailed relative to competitive factors and trends. We will continue as we have in past to evaluate them in order to maintain our core objective, and that is, strike a balance between profitability and Newport's long-term competitive market share position.

As mentioned, total wholesale shipments for Q3 '04 versus Q3 '03 were off by 3.5%. Domestic shipments declined by 3.9%. And Newport's domestic U.S. shipments were down 3.1%. In part, third quarter 2004 volumes were off due to fewer promotional units in the quarter as compared to the prior year quarter, as well as timing related to a major wholesaler LIFO order that occurred in the third quarter of 2003.

Total Lorillard shipments for the nine months ending September 30, 2004 versus the comparable period a year ago ,were down marginally, Minus four-tenths of a percent. Domestic units were off minus six-tenths of a percent, and Newport was up slightly Plus two-tenths of a percent. Total domestic Lorillard wholesale shipments share, as estimated by MSA, for the third quarter of '04 versus the third quarter of '03 was 8.73%, down from 8.4%.

Newport shipment share of 7.93% was off slightly by 300ths of a share point. For the nine months ending September 30, 2004, as compared with the same period in 2003, Lorillard's shipment share was 8.76%, up sixteen-hundredths of a share point, and Newport's share was 7.95%, up twenty-one-hundredths of a share point.

Viewing performance as per Lorillard's retail database, shipments for the third quarter of '04 were up slightly plus seven-tenths of a percent, over the comparable period a year ago. And Newport's retail shipments reflected 1.9% gain for the quarter versus Q3 '03.

Retail market share for Newport in the third quarter of '04 was 8.45%, a gain of .27 share points over the same quarter a year ago.

Sequentially, Newport continued to build retail share in the third quarter versus the second quarter of this year, improving by .22 share points. Newport's retail share of the menthol segment for the third quarter of '04 was 31.4%, a gain of nine-tenths segment share points versus the third quarter of 2003.

And now I will turn it back to Josh.

Thank you, Marty. Operator, we would like to open the line up to questions at this point.

Thank you, the floor is now open for questions. If you have a question, please press star, one, on our touch-tone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. We do ask that while you pose your question, that you pick up your handset to ensure proper sound quality.

Our first question from David Adelman of Morgan Stanley.

Good morning, everyone. Marty I wanted to ask you a few questions. First from Q2 to Q3, you mentioned many factors that helped operating income, but am I correct, that the largest single one was reduced promotional spending?

Yes.

And as a follow-up, what -- what did you see in the marketplace that caused you to strategically to choose to bring down promotional spending somewhat?

I think on the -- on at least one previous call I mentioned that beginning in 2004 we implemented some different procedures in terms of how we allocate buy-downs to individual retailers, and we began to benefit from that beginning in January of '04. And so there was some fairly significant effect as a result of that in the third quarter. Secondly, we had fewer promotional units, I think I mentioned that, in the third quarter of '04 as it compared with either the second quarter this year or the third quarter of last year. And finally, we made some adjustments in terms of how and where we promoted at different values. That also affected our spending and promotion.

Okay. And then lastly, could either you or Peter comment on what the total cash is at Carolina Group, in other words, both Lorillard's cash and the cash that you keep separately at the Carolina Group level. Was that totaled at the end of the third quarter?

Yeah. The Carolina Group cash reserve is 100 million and that's really where it's been for quite a while. And the Lorillard cash is 1673.

Okay. Thank you very much.

Thank you, and our next question is coming from Martin Feldman of Merrill Lynch.

Thanks, good morning, everyone.

Good morning.

Marty, could you just give us -- you mentioned this wholesaler issue. Could you just expand on that, or give a little color there?

I'm sorry, wholesaler issue?

Yeah, on the timing of the wholesaler --

Well -- we have one very large wholesaler who had a LIFO order that impacted us in the third quarter of '03, and due to timing it did not occur in the third quarter of this year. That is what it amounts to.

Okay.

And accounted for between fewer promotional units in the third quarter and that wholesale order that accounted for a fair amount of the decline in units shipped quarter-over-quarter.

And Marty, if we look at the menthol segment, is it, do you still believe, although slowly, it's still growing?

Well, our numbers would indicate and you know, it varies slightly each quarter. It's been running around 27% of the total market. And it's pretty stable at that number.

You mean during the quarter it was stable? Because I think up until the half year there'd been some modest growth.

There was growth. I think it was 26 and a fraction throughout 2003, and it sort of inched up to somewhere around 27% this year.

Would you expect it to see it continue to grow?

Hard to answer that. I would say that it's going to hover -- you know, historically it's been in the 25-26% range. I think some of the growth may be, in shipment terms, may be influenced by a fair amount of free goods that some of our competitive menthol brands are executing at retail. So that may tend to inflate it a little bit. I would say 27 is a pretty stable number.

Marty, can you talk a little bit about the competitive environment for the menthol segment generally. I mean we see PM USA continue to be particularly agressive with Marlboro menthol adding I think an extra $2 per carton by way of the discounting. We haven't yet seen what's Reynolds American is going to do with Salem and Kool. But can you talk a little about just the competitive environment in the quarter specifically for the menthol category.

I really don't think there's been any substantive change that occurred during the third quarter as compared with the prior two quarters. And for that matter, not essentially different than it was throughout most of 2003, with the exception of Lorillard, who ratcheted up promotion beginning in the third quarter of 2003. So essentially I would have to say the competitive sort of landscape has not been very different. You are correct, Marlboro menthol particularly, has pretty much remained the same. Heavy -- heavier promotion on the 72s, and continued heavy promotion on the rest of line. We've not seen any major deviations on the past quarters on the part Reynolds American brand. So really nothing very significant occurred.

Thanks for that Marty, and Jim if I might, a question for you. Could you just give a little color to the $8 million in investment income and where that came from? And as part of the same question, could you just confirm that about $40 million of Carolina debt was paid down during the quarter?

Well, the Carolina debt that was paid down during the quarter was resulted from the excess cash that we had after the dividend that we received from Lorillard, less the dividend payments that were made. So that totaled about $40 million. I'm not exactly sure what you are talking about with respect to the $8 million gain?

I was asking where it came from; what sort of securities were you invested in to make the $8 million gain?

What 8 million, what are you referring to?

The investment income.

For Loews?

Well, as reported within Carolina Group.

Oh, within Carolina Group. Okay, I'm sorry. We have a substantial portion of the cash invested in simply cash-out, and then we also have a relatively small percent that is invested and has been invested for the past several years in what I would call "markets-neutral hedge funds" of one sort or another. And it's a diversified portfolio of funds and that is where the lion's share of the investment income came from.

This year the investment income has been relatively stable at more or less $8 million a quarter. Is that a sort of decent number to think about for the future on a quarterly basis? Because it used to swing by a lot more than that, but it seems to be quite stable.

What's happened is -- in past years we would make forays into the U.S. government bonded note market, and we would also would have capital gain that you would see, which was we would buy at one yield and sell a month or two or three months later at a lower yield giving us (1) higher investment income and also capital gains. This year we basically haven't been comfortable with the longer term interest rate markets, and so we stayed away from them. And therefore we've kept most of the cash in relatively low-yielding, but very safe short-term instruments.

Okay, but there is no reason not to believe that you couldn't go back to the long-term investments in the future if you wanted to.

Yeah, but don't count on us doing it with ten-year notes at 4%.

Okay, thanks very much.

Thank you, and next question is coming from Andrew Conway of Credit Suisse First Boston.

Morning, Marty. I had a question on the third quarter performance. If you could just share your personal report card on the quarter, just in terms of when we began it four months ago, your promotion spending versus volume result, were you a little disappointed with the volume result, even though it was a very tough comp? Are you pleased with the result on the business, just in terms of volume given the lower promotional units.

Obviously, I feel pretty good about the fact that be were able to demonstrate certainly on a retail quarter-to-quarter basis improvement, retail data-wise, and it was a very slight shipment share, about three-hundredths of a share point improvement third quarter over the second quarter of this year. So I think it speaks well to the equity value of Newport in the marketplace. So I wasn't particularly displeased by it certainly. I think it shows some sign of resiliency for the brand. Now whether that can sustain itself over time, depends obviously on a lot -- a lot of it depends on competitive actions, or reactions. We'll see.

Right, and in your view they are just in terms of the competitive environment with Reynolds American's portfolio, is it reasonable to think that your promotional dollars per pack can remain at the level we have seen over the last couple of quarters. How do you think we should think strategically about you're going to be steering the ship?

Well the only thing I can tell you from a strategic standpoint is what I have said on past calls, that we constantly evaluate the marketplace in terms trends and/or competitive spending, and we make the adjustments accordingly. So, you know, I'm -- I can't anticipate what it might be. I can only tell you that we will be consistent with our orientation towards re-evaluating or valuating performance as we go along and we will make the appropriate decisions according to that.

Is, is -- Marty -- is it realistic to think that you could see, you know, continual, although subtle improvement in your promotional efficiency, you know, given the environment as you see going forward?

It could be difficult for me to comment on that. I think that, you know, I don't have a crystal ball; none of us do. All I can tell you is that we will be consistent with our approach as we have in the past. As far as how we view the support behind Newport. And I really can't comment beyond that.

Great, thank you. Thanks, Marty. Thank you very much.

Thank you, our next question is coming from Judy Hong of Goldman Sachs.

Hi, everyone. I had a couple of questions for Marty as well. Marty, can you comment on whether there's any change in your strategy behind Maverick. We've seen of those deep-discount products raising prices recently, whether you think you can moderate some support that you have put behind Maverick where you continue to really position Maverick and grow within the discount segment?

Maverick is -- has remained unchanged, and we lowered the price point in May of '03, and we continue to be at that price point. We haven't made any, we haven't done anything differently over the past year and a half, or whatever it is. You know, I think it's premature, Judy, to sort of reach any conclusions about there were three minor companies that took price increases recently. It's very difficult at this point to determine where all of that will sort of net out. Obviously the more deep discount brands that take price increases, it will certainly narrow the gap, not on the between Maverick price points and those brands, but will also narrow the gap to some extent with premium price brand. So I really think it's too early to reach any conclusion with respect to what implications there might be that this recent activity.

Okay. And then on that note, and as it relates for the tobacco buy-out legislation, can you give us what percentage of your tobacco leaves are domestic produced, and how much you think the leave prices will come down in the U.S.

Well, we don't discuss our ratio of domestic leaf. As you are probably aware, there is a minimum pound requirement basis the settlement that most of the companies entered into last year. And with respect to future pricing, as a result of the support program being discontinued, we clearly believe that there will be a reduction in pricing. Obviously. But it's really hard to estimate at this point what it will get to. We are taking a very conservative view from our planning standpoint. We have built in assumptions on a reduction, but we are being very conservative in that. We're just going to have to wait to see where the market nets out.

Okay, that's all I have. Thanks.

Thank you, our next question is from Bob Glasspiegel of Langen Mcalenney.

Good morning. Jim, at the analyst meeting you said you were at least two quarters away from beginning reasonably thinking about a share re-purchase plan -- activity, rather. In light of the sale of the tankers, are we closer to that moment. Or do you think we're still a ways away?

We're almost two quarters away, anyway, so it's pretty much moot. But Bob, as you know, we don't like to comment on our share re-purchase plans, because we don't like people shooting against us.

I understand that, but I think at the analyst meeting, I thought you said that share re-purchase was not a viable option just from a capital position?

Let me put it to you this way. It's a more viable option now than it was back then.

Okay. So you could, if you wanted to do it, you could actually execute one here?

Yes.

Okay. And use the proceeds, any thoughts?

Which proceeds?

From the tanker sales?

Went into the corporate treasury, and it's not burning a hole in our pocket.

Okay, vested short-term, you're saying?

Yes.

Okay, and you see that as the use for the near term?

Yes.

Thank you very much.

Thank you, our next question is coming from Daniel Perez of Federated Investors.

Good morning. Hi. Question concerning the dividend. And the payout, I mean, this may also address the issue of share re-purchases. I hopefully you can address it. You have -- assuming earn roughly $3 a share this year. Your payout looks like it'd be around 61%, so more [inaudible - static] which has arguably re-investment opportunities as a payout around 62 % and Reynolds American, which closest to you, has stated it will be moving its payout closer to 75%. At what point can we look forward to a more appropriate level of dividend payout given the limited re-investment opportunities in the Lorillard business?

There are limited re-investment opportunities in Lorillard, but remember also that Lorillard has or Carolina Group has outstanding, just under $2 billion of the notional intergroup note. And what isn't being spent on dividends generally is being used to pay down that note, which it started out originally at $2.5 billion. That note is now a billion, 941 million dollars; it has an interest rate of 8%. So the sooner that note is paid down, the sooner there's more income for all other shareholders as that interest expense goes away, and also there will then be the cash flow available such that it can all be used for dividends. and assuming there is no income, nor all other shareholders is that interest expense gos away and also there will then be the cash flow available, such that it can all be used for dividends.

You more or less provided the same answer when this question was posed by me or by others on each conference call, but it continues to be a source of frustration, which I'm just hoping that it's clear to you that the investment community feels that that payout level is too low given that the notional level of debt, the high interest rate that is on that notional level of debt. It just, it remains a source of frustration for us.

Okay. Duly noted.

Thank you very much.

Thank you, our next question is coming from Michael Millman of Soleil Securities.

Thank you. I guess, question and maybe talk about this earlier and I missed it. Could you give us an idea of what you might pay down in this quarter on the notional debt, and secondly on the share re-purchase. It looks like you purchased 300 shares, but more importantly to what extent is your interest in purchasing or ability to purchase -- re-purchase shares related to the equity which seems to -- in CNA, which seems to be affected substantially by movement in rates?

First of all on the share re-purchase. I don't know that there was a share re-purchase -- I don't think there were any shares re-purchased this quarter. That's number one.

On notional debt pay down, we can't yet say what is going to be paid down. That is determined based on the dividend that Lorillard pays up to Loews, and it's -- then we deduct the dividends that get paid on the Carolina Group shares, but that is all left up to the determination of the board of directors Loews Corporation. So it was $40 million that was paid down in the last quarter, but I can't say what is is going to be paid down in this quarter.

With respect to our views of CNA based on its book value, I would say that is just one factor that we use in evaluating CNA, and the book value, to some extent, as we see this quarter, reflects the level of interest rates and the unrealized gain or loss in CNA's portfolio. What we are most interested when we think about CNA, along with book value per share, is also the earnings power of CNA, and that is not a number per se, but just a sense that we have of CNA, its book of business, and what the prospects are for that business.

And could you take a little bit about that, if you didn't talk about it earlier in the call.

Talk about what?

What your sense of the earnings power is for CNA, and it's book of business, and where it may be going in relationship to how you think about share re-purchase for Loews?

Sure. First of all, we -- Loews already owns about 91 or 92% of CNA, and also owns over 800 million dollars of preferred stock in CNA. So share re-purchase -- re-purchase of CNA shares is not so high on our list.

I wasn't talking about CNA re-purchase shares. I was talking about your re-purchase shares as it relates to the earnings power or your view of CNA?

Okay.

Trying to get an idea of where you think CNA stands currently.

Let me just say that I'm very positive about CNA's prospects, about the way that they have re-underwritten their book of business. And about the profitability of the business, and I'm also feel very good about the level of reserves that CNA has. So overall I'm very positive about CNA's position.

Great. Thank you.

Thank you, our next question is coming from Rob Mudway of [inaudible - coughing] Capital.

Hi. Question on credit rating agencies, given the quarter and given the continued more, I guess, more stability that you are showing in CNA and Diamond's recovery, and Lorillard's stability. Have you had any progress with them in the last, you know, couple of quarters; is there any comments you could give on the credit rating agencies.

Yes. We have -- we have primarily CNA, but also Loews is in constant communication with the rating agencies. I am very frustrated by the negative watch that CNA is on. I think in the past year CNA has done basically what it had promised to the rating agencies that it would do. It's been able to show consistent earnings, and for the life of me, I would love for the rating agencies to not only lift the negative outlook, but also raise CNA's ratings.

If you look at the capital guidelines that the rating agencies have, you would see that CNA falls in the category of an A+ company as opposed to an A- company. And I think that it's pretty evident that there has been a dramatic change at CNA. That there is new management in place that is dramatically changed the business of CNA, and I would like, I would love for the rating agencies to show that they understand that by at least taking off the negative outlook and then raising the rating one or two steps.

With respect to Loews, as I said in the last meeting, last conference call, and I say again today, I don't understand the Moody's ratings on Loews at BOO1. We have $2.4 billion of debt. We now have $2.7 billion of cash. We have nothing really to do with that cash other than to pay down debt. And nonetheless even with that, even with the diversification of our businesses, even with the cash -- free cash flow that we have coming up to Loews, they still insist on rating us in the BAA category. I would urge you to send your cards and letters to Moody's, and tell them that they take away from their own credibility by keeping us at such a ridiculously low rating.

Can I ask a related question? Do they still remain a, unfortunately for whatever that reason they have their views and they haven't changed them, do they remain a governor, or a reason why buy-backs by Loews of its own stock, whenever you do deem that is appropriate, and those comments aside, do they still stop you from doing that for the most part?

I would say it's a consideration, but if we wanted to we could re-purchase those shares.

Okay. And my last question is, is the Hellespont sale. How much was that in cash, because your holding company cash went up about $300 million. I was just curious if that was all because of the sale of ships.

Pretax cash was about 300 million. We still are not quite certain what the tax effect of that is going to be on a cash basis. So, ultimately, it will be less than that.

Okay. Thank you.

Thank you, gentlemen, there appear to be no further questions at this time.

Okay. Thank you. We'll end the call there then, please.

Thank you. This does conclude this morning's teleconference. You may disconnect your lines, and enjoy your day.