洛茲集團 (L) 2004 Q4 法說會逐字稿

Good morning, and welcome to the Loews fourth-quarter and year-end results conference call. 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 Josh Kahn, Director of Investor Relations.

Thank you, Matt. Good morning, everyone. I'm Joshua Kahn, the Investor Relations Director for Loews. I'd like to welcome you to the Loews Corporation fourth-quarter and full-year 2004 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 Loews.com. The Carolina Group also issued a press release this morning announcing its results for the fourth quarter and full year 2004. The Carolina Group release is also available at the Loews website.

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

Before we began, I'd 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 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 this 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'd 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 reconciliation to 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 tuned in via our website, please dial 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 our Chief Executive Officer, Jim Tisch.

Thank you, Josh. The fourth quarter of 2004 capped off what was a strong year for Loews. Our operating businesses all registered very good results, either holding their good performance steady, or in some cases, making dramatic gains in the income that they reported for the year.

CNA's work in 2003 to restructure its business and to restore and realign its balance sheet served it well in '04. After recording substantial losses in '03 as a result of these efforts, CNA rebounded this past year to post significant earnings. The Company's performance is even more impressive in light of the fact that 4 severe storms battered the southeastern U.S. during hurricane season this year. Its capacity to absorb these catastrophic events without material damage to its operating results is also a testament to the improved ability of CNA to manage its exposure. We expect CNA to exhibit the same strength in years to come and to deliver steadily significant returns for loans overtime.

Lorillard also enjoyed a rebound of sorts in '04 after a particularly challenging '03. Marty Orlowski, who will join us in just a moment, will give you all the details. But the short version is that a better fundamental environment allowed Lorillard to reduce its promotional spending from a year earlier and still grow Newport shipment volume and marketshare. As a result, earnings improved, as well.

Just as last (technical difficulty) week, the tobacco industry also recorded a significant legal victory. The Washington, D.C. Court of Appeals essentially eliminated the chief financial risk of the U.S. Department of Justice's case against cigarette companies, ruling that the disgorgement of past profits it had sought under its regal (ph) lawsuit was not a legally permissible remedy. Although the DOJ can still seek a review of this decision, and although the industry otherwise still faces its share of legal obstacles, this latest verdict gives us further reason to believe in the emergence of a generally more favorable litigation environment for all tobacco companies.

Diamond Offshore enjoyed a long anticipated and long overdue recovery in offshore drilling activity in '04. As exploration companies re-up (ph) their drilling budgets, dayrates for rigs skyrocketed across the semisubmersible spectrum. A number of Diamond Offshore's fourth-generation semisubmersibles, for example, received commitment to work for as much as $150,000 per day in contrast to the $60,000 per day that they had received a year earlier. While the Company registered a loss for '04 on account of weakness in the offshore drilling market that persisted in the early part of the year, its fourth quarter was profitable. Prospects for continued strength in the offshore drilling sector are good, which will hopefully enable Diamond Offshore to build a sizable contract backlog stretching over a number of years.

Loews Hotels reaped the benefits of a rebounding lodging market this past quarter and year. For both periods, average room rates and occupancy rates were higher relative to the previous year. The Company's result would have improved even more dramatically year over year had it not been for the extreme hurricane season that disrupted traffic through its Florida hotel and inflicted a fair amount of property damage. Loews Hotels estimates that it lost roughly $5.6 million as a result of the late thunderstorms, while the rate of (ph) repair costs amounted to roughly $1 million. Nonetheless, results for the fourth quarter and year were strong, and importantly, appear set to continue through '05.

As we have announced in late November, we doubled down on our bet in the pipeline sector this year, buying Gulf South Pipeline from Entergy-Koch. As you may have noticed from today's earnings release, we will report our pipeline investments on an aggregated basis, and have renamed the holding company for these assets Boardwalk Pipeline. Although pipeline valuations had expanded significantly since our first foray into the sector almost 2 years ago, we expect our purchase of Gulf South, just like our investment in Texas Gas Transmission, to generate low double-digit cash-on-cash returns on equity overtime. We believe that the combination of our 2 pipeline systems will provide efficiencies and scale that will contribute to these returns.

The performance of Boardwalk Pipeline in '04 reflects the results for Texas Gas for the full year '04 and the results of Gulf South during the last few days of the year that we owned it. Texas Gas was able to increase its revenues in the fourth quarter and for the year, a significant feat in light of the fact that '03 was one of its best years ever. Income was slightly lower for the quarter, in part due to certain timing and accrual issues, yet the Company continues to deliver the consistent and significant annual cash flows we expected.

In 2004, Texas Gas made approximately $75 million in distribution to Loews. This was substantially more than the net earnings it recorded, and was possible because of the favorable tax structure under which Loews acquired the Company. We anticipate the same to apply to Gulf South, which was purchased under similar tax conditions.

And with that, I'd like to turn the call over to our CFO, Pete Keegan, who will review our financial results.

Thanks, Jim, and good morning, everyone. Net income for Loews' common stock was 446.7 million, or $2.41 per share in the fourth quarter of 2004, compared to net income of 332.6 million or $1.79 per share in the fourth quarter of 2003. For the full year 2004, Loews reported net income for Loews' common stock of 1,046,800,000, or $5.64 per share, versus a net loss of 725.9 million or a loss of $3.91 per share in 2003.

The net loss for 2003 reflects net prior year development charges at CNA totaling 1.667 billion after taxes and minority interest, as well as charges of 356.9 million for an increase in insurance-related bad debt reserves. The 2003 net loss also includes a loss of 116.4 million from CNA's sale of its Group Benefits business to Hartford Financial Services Group. 2004 net income includes a loss of 352.9 million related to CNA's sale of its individual life business.

Net investment gains were 85.6 million in the fourth quarter 2004 versus a loss of 12.8 million in the fourth quarter of 2003, while Loews recorded a net investment loss of 144.9 million for the full year 2004 versus investment gains of 263.1 million for the full year 2003. These results include the loss from CNA's sale of its individual life insurance business and 2004 and the loss from its sale of its group business and 2003. Net investment gains and losses are presented excluding results of Loews' corporate trading portfolio, which have been included as part of net investment income. Prior-year results have been reclassified to reflect this change, as well.

Net operating income excluding net investment gains or losses and adjustments for discontinued operations was 361.1 million in the fourth quarter of 2004 versus 345.4 million in the fourth quarter of 2003 -- an income of 1.191 billion in the full year 2004 versus a loss of 1.044 billion in 2003.

Net income for Carolina Group's stock was 56.1 million or 93 cents per Carolina Group share in the fourth quarter 2004 versus 34.8 million or 74 cents per Carolina Group share in the fourth quarter 2003. The full year 2004 net income for Carolina Group stock was 184.5 million, or $3.15 per Carolina Group share. In 2003, net income for Carolina Group stock was 115.2 million or $2.76 per Carolina Group share.

Income for Carolina Group's stock increased in the fourth quarter of 2004 as net sales increased to (ph) 44.8 million on total cigarette volume growth of 2.9 percent. For the full year, income for Carolina Group's stock also improved versus that of 2003 on decreased promotional spending and higher cigarette volumes.

As a result of the sale of 10 million shares of Carolina Group's stock by Loews in December of 2004, the weighted average number of Carolina Group's shares outstanding increased from 47.17 million in the fourth quarter of 2003 to 60.03 million in the fourth quarter of 2004, and from 41.74 million for all of 2003 to 58.49 million for all of 2004. Loews currently holds 60.8 percent of the total shares and share equivalents for Carolina Group.

Lorillard contributed 128.8 million to net income for Loews' common stock in the fourth quarter of 2004 versus 109.7 million in the fourth quarter of 2003. For the full year, Lorillard contributed 457.1 million to net income for Loews' common stock in 2004 versus 470.9 million in 2003. 2003 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 the 1977 sale by Lorillard of its international business.

Lorillard reported charges of 522.6 million and 489.5 million after taxes for the years ended December 31, 2004 and 2003, respectively, to accrue its obligations under various state settlement agreements. Lorillard's after-tax settlement charges were 124.3 million in the fourth quarter of 2004 and 119.9 million in the fourth quarter of 2003.

CNA contributed 187.9 million to Loews' net operating income in the fourth quarter 2004 versus 184.3 million in the fourth quarter of 2003. For the year 2004, CNA contributed income of 558.1 million to Loews' net operating results versus a loss of 1.524 billion in 2003. 2003 results include charges at CNA of 1.667 billion relating to reserve strengthening actions and 356.9 million to increase bad debt reserve. Loews' interest in CNA's net realized investment gains and losses improved to a gain of 94.5 million in the fourth quarter of 2004 from a loss of 15.5 million in the fourth quarter of 2003, and declined to a loss of 137.1 million in the full year 2004 from a gain of 265.7 million in 2003. CNA's full-year net investment results include the loss related to the sale of its individual life insurance business, while the fourth-quarter and full-year 2003 net investment results include the loss on the sale of CNA's group business.

Diamond Offshore's contribution to net profits improved to income of 4.2 million in the fourth quarter 2004 from a loss of 0.7 million in the fourth quarter of 2003. Diamond Offshore's net profit contribution for the year improved to a loss of 9.3 million in 2004 from a loss of 27.2 million in 2003. These results reflect the strength of the offshore drilling market during the second half of the year. Dayrates were generally flat for high-specification semisubmersibles in the fourth quarter versus the same period last year, and were higher for other semisubmersibles and jackups over that same time period. Utilization rates were significantly higher for all of Diamond Offshore rig types.

Loews Hotels benefit from the strength of the travel and leisure industry, as its net income improved to 7.4 million in the fourth quarter 2004 from breakeven in the fourth quarter 2003, and to income of 21.4 million in the full year of 2004 from 11.2 million in 2003. In the quarter, occupancy for all hotels was 71.8 percent, up from 70.9 percent in the fourth quarter 2003. At the same time, average room rates rose to $192.83 from $178.93. For the year 2004, occupancy was 77.9 percent versus 74.5 percent in 2003, while average room rates increased 4.7 percent to $180.72 from $172.53.

Subsequent to the purchase of Gulf South Pipeline by Loews late last year, Loews renamed the holding company for its pipeline investments Boardwalk Pipelines. The results reported for Boardwalk Pipelines consolidate the results of Texas Gas and Gulf South. For the fourth quarter of 2004, Boardwalk Pipelines reported net income of 16.8 million, which primarily reflects the results of Texas Gas, as Loews only owned Gulf South during the last few days of 2004. Net income declined slightly from the 18.7 million Texas Gas recorded in the fourth quarter of 2003. Pipeline results amounted to 48.8 million for all of 2004 as against 22.5 million for 2003. These numbers aren't comparable, however, as Loews first purchased Texas Gas in May of 2003 and did not report a full year of pipeline earnings until 2004.

Net investment income and other, which is comprised of Loews' investment income, including investment gains and losses from the corporate trading portfolio, corporate interest expense, income from operations of Bulova and shipping and other unallocated expenses declined from 33.4 million in the fourth quarter 2003 to 16 million in the fourth quarter of 2004, and increased from 2.1 million for the full year 2003 to 115.6 million for the full year 2004. Income after taxes of 116.5 million from the sale of an affiliates 4 ULCC (ph) tankers is reflected in the full year 2004 number.

At December 31, 2004, total cash and investment, excluding CNA, Diamond Offshore, and Texas Gas, was $4.2 billion. Approximately 2.6 billion of cash and investments were at the holding company level, and 1.6 billion resided at Lorillard. Loews and Loews Hotels together had 2.45 billion of long-term debt at the end of the year.

And that concludes my remarks, and now I'll turn it over to Marty Orlowsky.

Thank you, Peter. Good morning, everyone. Lorillard sub (ph) fourth quarter '04 operating and net incomes of 278.8 million and 185.3 million were up 25.5 percent and 27.8 percent, respectively, as compared with the fourth quarter of 2003. On a full-year basis of comparison with 2003, including onetime charges relating to certain legal settlements during 2003, operating income was up about $1 billion -- I'm sorry, operating income of about $1 billion was up 11 percent, and net income of 242.3 million increased by 10.5 percent. Excluding the 2003 charges of just under 35 million after-tax, net income in 2004 versus 2003 was up 4.2 percent, or $26 million.

As expressed on previous calls, several factors contributed to the increased financial performance of 2004 as compared with 2003. These include -- total units shipped increased 0.4 percent, and domestic units were up 0.2 percent. Newport's domestic shipments increased by 1.2 percent over 2003, and 2004 had 1 less shipping day than 2003. So on an adjusted basis, Newport's domestic units would have been up 1.6 percent versus 2003. Other factors contributing to the improved financial results are attributable to -- a reduction in the cash discount credit paid to direct buying accounts; lower returned goods expenses; favorable tax credits and rates; and efficiencies related to the implementation of our retail discounting program.

As I've mentioned in the past them well again today, a degree of caution is appropriate regarding the effects of these factors and there implications as it might affect future performance. Lorillard's core strategy of balancing Newport's market performance with profit return remains the same as it has been, and that is -- we will continue to monitor Newport's progress in the market, as well as any competitive influences that may affect the brand's trends. And we will make whatever adjustments to spending we can consistent with our strategy.

In terms of shipment market share, Lorillard's overall share for the year 2004 was 8.77 percent, an increase of 0.18 share points over 2003. Newport's shipment market share for 2004 was 7.96 percent, an increase of 0.24 points versus 2003. At the retail level, basis (ph) our data reflecting movement from wholesalers to their retail accounts, Lorillard share was 9.23 percent for the full year 2004 versus 8.98 percent in 2003, an increase of 0.25 points. Newport's retail share was up 0.3 points at 8.4 percent. Newport's share of the menthol segment -- again, as derived from our retail database -- was 31.3 percent in 2004 versus 30.5 percent in 2003, an increase of 0.8 segment share points.

Sequentially, Newport's retail market share increased just under 0.1 share points in the fourth-quarter of '04 versus the third quarter of '03 from 8.45 percent to 8.54 percent. And its share of the menthol segment increased .50 points comparing the same periods to 32.5 percent of the segment in the fourth quarter of 2004.

And now, I'll turn it back to Josh.

Thank you, Marty. Matt, we'd like to open up the call to questions now, please.

(Operator Instructions). Bonnie Herzog, Smith Barney.

Marty, actually, I have a few questions for you, if I may. First of all, I'd be curious to hear if you feel like you have finally found the right balance between your promotional spending and volume growth. You did talk about it a little bit. And so far, we've seen some really good results coming out of your business. So are you happy, or do you think that you will continue to tweak this?

Well, I think we found the right balance through 2004, given competitive factors and the responsiveness of Newport to the promotional support program in place. Obviously, depending on any number of variables that can take place in the future, we may have to adjust for that. But certainly, for 2004, given the context (technical difficulty) we were operating in, it was obviously a very good balance.

Okay. And then, of course, Newport volume was very strong in the quarter. And it was lapping, I believe, a difficult comp on a year-over-year basis. What do you attribute this to? I am curious to hear -- what are the main reasons why you've been able to really generate some strong growth in that brand? Maybe talk a little bit about pricing.

And then also curious about the overall menthol category. Is it growing fast? Are you seeing some signs of a pickup there?

Well, let me answer the last part first. The menthol category for the year basis, our retail numbers was relatively flat as a percent of total industry units. So we haven't seen any significant shift in terms of the category's penetration of the market.

With respect to the Newport's performance, we had made adjustments -- not necessarily in terms of spending, per se. But we've made adjustments all through 2004 with respect to how we allocate our funds on a marked-to-market (ph) basis. And as a result of that, we saw, as I indicated earlier, a greater degree of responsiveness to Newport's units as a consequence of some of the changes that we made in terms of how we allocate money for promotional purposes on a marked-to-market basis. That essentially is, I think, the major reason for the performance.

In addition, obviously, there has been some stability, without question, with respect to pricing across the board -- by that, I mean across -- with the deep discounts and the premium brands. There has been pretty much -- and I think I've used this term a few times in the past -- a status quo market with respect to pricing issues. So I think Newport enjoyed good success because of the changes that I mentioned and the nature of the market itself.

(technical difficulty) just better allocation of some of your programs with the retailers, possibly wholesalers, and then just from a wholesale list price, (indiscernible) if you actually didn't change Newport pricing, correct?

No, we did not make a wholesale list price change on Newport. And we did not change anything in terms of promotional dollars with respect to wholesalers. The changes that I'm talking about really deal strictly at the retail level.

Okay. And then maybe 1 final question, if I may, just on innovation. To me, it has seemed that both Phillip Morris and Reynolds have really continued to, I guess, increase the level of innovation. And of course, they're your 2 main competitors. I'm curious -- do you have any plans for innovation in the calendar year 2005?

Well, Bonnie, when you use the term "innovation," (technical difficulty) effective (ph), I did not see any innovative initiatives necessarily throughout the year. If you're defining innovation as line extending which took place, I don't think that that necessarily, A, qualifies as an innovative action on anybody's part. And obviously, we didn't line extend. So I'm not quite clear when you use the term "innovation."

Okay, fine, it's a broad term. And you're right. There were more line extensions -- obviously, not new brands were brought into the market. I'm thinking of Phillip Morris's shorter Marlboro menthol. I'm thinking about some of the changes that Reynolds continues to make on Camel in terms of line extensions, packaging changes, things like that. So I'm just wondering if there's something that you're planning on doing in that way in 2005?

Anything we might do in the future or have done in the past with respect to line extending or reconfiguring the size of a product is obviously based on what we think the return on investment will be. And I must say that from where I sit, in looking at some of the actions by some of our competitors in that arena, I would not necessarily think they particularly added value in basic terms to their portfolios. Yes, it results in a bump in units shipped. But I think you have look at the underlying businesses. And from our analysis, we did not see those types of actions by our competitors necessarily adding true value to their brands.

Bob Glasspiegel, Langen Mcalenney.

Good morning. I was wondering if we could go through the corporate investment income and other line. The fourth-quarter earnings of 16.9 million, when added to the 9-month as-reported level of 60.5 don't equal the full year. It looks like there might have been a reclassification.

There was a reclass, Bob.

Okay. Could you go through what that was?

We basically took -- mainly to conform within the Company of what CNA does. But they have always had trading securities out of investment gains and losses. So we felt it was better to have a consistent presentation. So we've taken trading securities, which previously for Loews were investment gains and losses, and moved them up to other income.

This is for Loews or for CNA? I've lost you on that.

This is for Loews. CNA have always done it that way. For Loews, we basically moved it upstairs so that the presentation across the Company is consistent.

Does that change the earnings power of this line, or did you just make money this quarter and this year and don't look for it to continue?

It doesn't change net income at all.

I know. I'm just saying, but operating income -- to the extent we're modeling operating income --

Well, it put in about 30 -- it actually declined on a quarter-to-quarter -- the amount was moved up went down on a quarter-to-quarter basis.

The absolute (multiple speakers) -- I don't want to drag down the call. But the absolute level of earnings ex gains went up for the year and the quarter and the 9 months --

Well, the year is up. And the major reason the year is up is because we have the sale of tankers is in that line. (multiple speakers) It's about 115 -- do you have the number (multiple speakers)

It's almost $180 million pretax.

Pretax.

Right.

And then we also had -- for the quarter, we had trading portfolio gains in '04 of about 38 million compared to 77 million in the prior year. And for the full year, we had trading portfolio gains of about 98 million compared to about 118 in the prior year.

So the impact of moving it up was to decrease that operating income line.

Year-over-year, but not absolutely -- I'm looking at absolutely --

Absolutely, it increases it year-over-year, it makes it go --

So just over the last 15, 20 years, trading has been generating profits, generally?

Yes.

Okay. So we should look for investment income net to sort of be a profitable number in '05 rather than the drag it has been with interest dominating in the past --

As you know, we can't make a projection for '05.

Judy Hong, Goldman Sachs.

Marty, I guess I have a few questions for you. I know that you gave us the share numbers at the retail level. Do you have the volume change numbers for the company and for Newport?

Yes, our -- are you talking about the fourth quarter? Our numbers for the fourth quarter overall reflect a 9 percent increase in volume for the fourth quarter of '04 versus '03. And Newport's volumes -- again, basis our numbers -- was up 10 percent for the fourth quarter over -- of '04 versus '03. I noticed in your write-up, you said there was a 2 percent decline as reported by RI Marlon (ph). And as I've also said in the past, they tend -- the way they measure tends to understate our performance.

Okay, that's fair. And I guess just more broadly speaking, Marty, as we think about Carolina Group's outlook for the next few years and looking at the industry dynamics, do you think we're at a point where things have now become a lot more predictable, that we can now reasonably expect to see Carolina Group delivering profit growth in sort of mid single digits, high single digit level?

Well, I can't really comment on that specifically, other than to say pretty much what I stated earlier, and that is we're always -- our objective certainly is to improve profitability. There's no question about that. But again, we have also stated that our strategy, if you will, is to ensure that Newport remains a viable competitive factor in the marketplace. And that's the balance issue that we always talk about. So as long as the marketplace remains pretty much the way it's been, then we will make the investments accordingly. If it changes, were going to have to respond to that change.

Okay, maybe just asking it a little bit differently, is your level of caution that you've talked about in the prepared remarks lower now that it has been in the last few years? Would that be a fair statement?

I'd rather not characterize the degree of caution in terms of the use of the word. I'm not -- I really can't characterize that any way other than to say our objective is to improve profitability. And we will attempt to do that, consistent with our strategy.

Okay. Now in just looking at your investment income for the quarter, it was up pretty nicely versus a year ago and also versus the prior quarters. Was there any onetime gain to happen in that line item?

I'm not certain of that. I can't really answer that (technical difficulty)

Are you talking about the Carolina Group or Loews?

I'm talking about Carolina Group.

It was probably just some -- I don't know of anything in specific. It may have come, though, from the limited partnerships that we have at Carolina Group. We have now I guess about $130 million or so of limited partnership investments. And those could have performed well. The other thing is that interest rates have gone up. And so that instead of earning 1 percent on cash in the fourth quarter, for example, which we earned in the fourth quarter of '03 and the fourth quarter of '04, because we said (ph) that we had cash balances, we earned in excess of 2 percent. So interest rates doubled. And that's now helping us.

David Adelman, Morgan Stanley.

Pete, first, you have a number on the holding company cash flow for the full year? It was mentioned that the pipelines generated 75 million for the holding company, but what was it overall? Do you know?

There are a lot of ins and outs because we bought Gulf South. But cash balances were about 2.2 billion, a little above that, at the beginning of year, and ended up at 2.6 billion, roughly.

Okay. And can you give us a general indication -- do you feel like you're making any progress with the credit rating agencies with respect to either CNA or Loews' credit rating?

We haven't spoken to them. But you can be sure that we will. CNA has put in 5 very consistent quarters, and have totally refocused itself. So I think that CNA at the very least should have the negative outlook erased from its, expunged from its record. And I'm looking forward to that.

And also at some point -- I don't know exactly when, but I'm looking for an upgrade in CNA claims paying ability. When you look at CNA based on statistics, CNA should probably be rated 2 rating levels higher. And what CNA has to do now with the rating agency is show that it can continue to earn these consistent earnings. I have every belief that they will be able to achieve that, and I hope that the rating agencies decide to raise the ratings after 6 or 8 quarters as opposed to 10 or 12 quarters. But we'll have to wait on that.

With respect to Loews Corporation, I don't understand what the rating agencies are looking for. The Moody's rating I consider to be ridiculous -- Baa1. We have, as you know, more cash than debt. We have significant cash coming in in the form of dividends from subsidiaries. We have improving businesses across the board. We have multiple businesses so that we don't have the risk of any 1 particular business. I mean, in my opinion, the credit of Loews is as close as an industrial company can come to being bulletproof, yet Moody's still has us at Baa1. And you can be sure that when we speak to them, we say to them the same thing that we're saying to you. And we say it with the same vigor and vehemence.

Okay, now that the Gulf South transaction is closed, can you quantify for us your expected synergy savings?

I'd prefer not to. I think I would like to stick with what my formulation has been all long, that being that we expect to achieve from our investments in our natural gas pipelines a low double-digit cash-on-cash return on equity. Texas Gas Transmission did that this past year, paying us about $75 million on an equity investment of a little over $500 million. We have an equity investment in Gulf South of about $550 million. And we still expect to achieve from both companies that low double-digit cash-on-cash return on the equity.

Okay, and Jim, can you talk about the prospects or your intent to raise the dividend at Carolina Group? It hasn't been raised since, I think, early '03. Obviously, they had significant earnings growth on an underlying basis in '04 versus '03.

There are 2 things to do with cash from -- cash dividends that Loews receives from Carolina Group. Either, 1, we can pay them as dividends, or number 2, we can pay down the debt. In paying down the debt, we reduce the interest charges on the debt. And that debt then reduces yet even more rapidly.

For example, in the past, in '04, we had our interest expense of $157.5 million, down from $182 million. That's the -- the dividend, as you know, is a decision of the Board of Directors. But right now, I think that the focus is on trying to bring down the debt, which currently has an interest rate of 8 percent -- to bring that down, and then once that's brought down, then cash dividends to shareholders could increase dramatically, as all the earnings from Lorillard would then be paid out as dividends, both to our Carolina Group holders as well as Loews Corporation.

Okay, let me ask Marty a couple of quick question. Marty, was the per-pack level of promotional spending slightly higher sequentially from Q3 to Q4?

No, it was a little lower.

It was -- okay. And then, can you explain -- the dynamic of having accrued through the 9 months the phase 2 MSA costs, and then presumably not having to make those payments because of the tobacco quota buyout. Did you reverse or start to reverse some of those accruals in the fourth quarter?

No, we did not (technical difficulty) reverse any accruals. And we accrue a year in advance of when the payment is due. So we're fully accrued -- expensed, actually, for any payments that might be due relative to 2004. And we were accruing, were expensing in 2004 for 2005. So we did not reverse anything. We're fully covered for any contingent result that might come about as a consequence of how this thing ultimately turns out.

So, Marty, so I understand though -- if the status quo remained, and the lower court ruling were upheld that you're not obligated to make those payments, you would ultimately reverse the expense and the accrual.

That's correct.

Okay. The last question I wanted to ask you are just about overall operating conditions in the U.S. market. Is there any visible change in either volume trends or marketshare trends subsequent to the late December promotional and wholesale pricing moves across the industry?

No, I think it's too early to discern any kind of trend change, if any does occur. Clearly, actions by a lot of the deep discount manufacturers in raising prices, the other action -- pricing actions by other major manufacturers as well as ourselves -- I think it's going to take some time for the market to settle in and determine where it's going to go. So right now, it's very difficult to, as I said, to identify any particular trends that might take place.

Okay. Actually, Marty, could you mention for the fourth quarter under your accel (ph) program, what you have as the marketshare changes year over year for the key competitive ramps -- Kool, Salem, and Marlboro Menthol, please?

Yes, bear with me one second. Fourth quarter -- all right, for the fourth quarter, Kool is up 0.04 share points over the fourth quarter of '03. Salem is up 0.29. And Marlboro Menthol is up -- I'm sorry, I can't line up these numbers. I have a zillion numbers here. Let me just try that again. Kool was up 0.04; Marlboro Menthol was up 0.29; and Salem was down 0.12 share points.

Michael Millman, Soleil.

Thank you, and I apologize -- the transmission on this end has been choppy -- so if I ask a question that's been answered. A couple of things, though -- could you talk about under what conditions -- what conditions would be necessary before you start to monetize your Boardwalk Pipeline company?

You know, Michael, we're not even thinking about that. We're thinking about operating the companies together -- Gulf South and Texas Gas, getting the synergies from them. And just because we have a company doesn't mean that we have to take part of it public. And so we are just not thinking about that right now. And we haven't thought under what conditions we would do that.

Okay. Also, you talked about how you feel that the credit agencies aren't giving you your due, and you have all this cash flow, and you're bulletproof. Why aren't you showing this by repurchasing shares?

Well, as you know, Standard & Poor's has said in their write-ups on Loews that they want Loews to have $2.5 billion of cash. I'd appreciate it if you would send your cards and letters to Standard & Poor's telling them you think that's a ridiculous benchmark for them to have for Loews.

But beyond that, the other thing is that Loews is unlike other companies. Loews has a history of buying its shares when they are just very, very cheap. And even though S&P may give its release on that $2.5 billion number or requirement, that doesn't necessarily mean that we're going to buy in shares. When we buy in shares, we can't then turn around, unlike others, and sell them and a later point in time. So we are very careful when we do make those purchases.

Okay, and just some of the numbers I may have missed -- it sounded like that the holding company net cash is about 1 billion at this point?

No, no, no, no.

2.6 billion.

Is that including the 1.6?

No.

And so in total, it's 4.2?

That's correct.

I see. And what's the latest notional debt?

1,871,000,000.

Thank you. At this time, there appear to be no further questions. I would now like to turn the floor back to management for any further comments.

Okay, great. Thank you very much for joining us this morning. We'll end the call there. As a reminder, a replay of this call will be available on our website in about 2 hours or so. The earnings conference call held earlier this morning by CNA, our insurance subsidiary, will also be archived on its website a little bit later. And that will do it. Thank you very much.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.