洛茲集團 (L) 2006 Q3 法說會逐字稿

I would like to welcome everyone to the Loews 2006 Third Quarter Earnings Conference Call. [OPERATORS INSTRUCTIONS]. After the speakers' remarks, there will be a question-and-answer session. It is now my pleasure to turn the floor over to your host, Darren Daugherty. Sir, you may begin your conference.

Thank you, Natasha. Good morning, everyone and welcome to Loews Corporation's Third Quarter 2006 Earnings Conference Call. I'm Darren Daugherty, the Investor Relations Director for Loews. If you don't yet have a copy of the earnings release, for Loews Corporation the Carolina Group you may find them on our web site at Loews.com.

Today's discussion will be led by Jim Tisch, the Chief Executive Officer of Loews and Peter Keegan, the Chief Financial Officer of Loews then we'll be joined by Marty Orlowski of Lorillard Before we begin I would like to make a few brief disclosures concerning forward-looking statements. This call will include the use of statements that are forward-looking in nature. Actual results achieved by the Company may defer 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 made during the call. This disclaimer is only a brief summary of the Company's statutory forward-looking statements disclaimer. We urge you to read the full disclaimer which is included in the Company's 10-K and 10-Q filing with the SEC. I'd also like to remind you that during this call today we will discuss certain nonGAAP financial measures such as operating income and operating revenue With regard to such financial measures, please refer to our security filings for reconciliation to the most comparable GAAP measures.

After Jim, Peter and Marty have discussed our results, we'll have a question-and-answer session. If you would like to ask questions, and are listening via the web cast, please use the dial a number to participate. 877-692-2592. Now, I would like to turn the call over to our CEO, Jim Tisch.

Thank you, Darren. Good morning to everyone. Our third quarter results continue to build on an already healthy first half. During the past several years, our third quarters have been marked by hurricane-related losses but this year, mother nature left us basically unscathed.

Each of our subsidiaries delivered strong year-over-year profit growth, allowing Loews to obtain consulted net income of $635 million up from $302 million in the third quarter of '05. This represents an 11% increase year over year even after adjusting for the adverse impact of hurricanes in '05. CMA posted another solid quarter with net operating income of $283 million and net income of $311 million. CMA's third quarter earnings last year reflected substantial catastrophe losses which helped account for the over $320 million year-over-year improvement in net operating income.

But hurricanes are only part of the story. CMA's net investment income is strong and continues to exercise underwriting discipline and expenses are being aggressively managed. Net written premiums increased 6% within CMA's core P&C operations during the third quarter as CMA achieved high customer retention and garnered meaningful new business. On a year-to-date basis, the Company posted a 95.5% combined ratio in its core P&C operations with an expense ratio below 30%.

For the quarter, the combined ratio was 94.5%. Lorillard saw earnings increase over 13% versus the third quarter of last year resulting primarily from the increases in the unit volume sales. The volume strength resulted in an 80 basis point increase in domestic market share for the Newport brand versus last year. Lorillard management continues to do an excellent job of balancing market share and profitability.

In a few minutes, Marty Orlowski will provide further comments on results. Diamond offshore continues to take advantage of strong market conditions and deliver good results. Net income doubled to $164 million versus last year but with slightly lower on a sequential basis. Third quarter income income was way down by increased costs related to mooring enhancement activities, repair and maintenance expense resulting from the sustained high utilization of the fleet and special survey related costs.

Revenue for the third quarter was $514 million, up slightly versus the second quarter. Revenue was negatively impacted by mandatory downtime on a number of rigs as well as temporary decrease in day rates on short-term contracts for free semisubmersible rates. There has been some spotty weakness in the Gulf of Mexico jackup market, Diamond believes this will be alleviated by the ending of the hurricane season as well as by rigs leaving the Gulf of Mexico for international markets.

More broadly, diamond will benefit going forward as its rigs role roll off of older contracts and on to new ones at higher market rates. Currently approximately 99% of diamond's available rig days are contracted or committed through the end of '06 and about 76% of available days are contracted or committed through the end of '07. I remain confident that the major upgrades being made to the deep water semisubmersible's ocean endeavor and ocean monarch as well as the construction of two new jackup rigs, the Ocean Guild and the Ocean Ceptor, will provide excellent to returns for Diamond.

Operating revenues at [inaudible] partners were $133 million in the third quarter. A 10% increase over the prior year at third quarter. Gas storage and park and loan services showed particular strength primarily due to natural gas price spreads and volatility in falling gas prices. Operating income for the quarter increased to almost $45 million from $21 million in the prior year.

Boardwalk has declared a quarterly distribution of $0.40 per unit, a $0.02 increase over the prior quarter which is the third consecutive dividend increase since the Company went public. Boardwalk subsidiary Gulf South pipeline continues to make progress on the interstate pipeline expansion project that will make possible the transport of gas from the producing regions of east Texas to markets east of the Mississippi river. This is just one example of projects underway to leverage Boardwalk's infrastructure through organic growth in markets where capacity constraints create opportunities for expansion.

Those hotels benefited from ongoing strength in the luxury and upper upscale hotel segment. Room rates in the third quarter were up by over 8% versus '05 while Rev PAR increased by almost 6%. During the quarter, Rose Corporation repurchased 278,500 shares of its common stock at an average cost of $10.4 million. I will repeat my now familiar reminder. We do not discuss our future share repurchase plans and we think our actions fully express our position regarding the price of our stock and the strength of our balance sheet.

In August, Loews sold 15 million shares of Caroline Group Stock. We currently maintain a 37.7% economic interest in Carolina group. Also in August,CNA retired its series H preferred stock held by Loews which resulted in Loews receiving $728 million in cash and 7.9 million shares of CMA common stock. Loews now holds approximately 89% of CNA's outstanding common stock. I would now like to turn the call over to our CFO Pete Keegan.

Thanks, Jim and good morning everyone. In the third quarter Loews reported consolidated net income of $635.1 million versus consolidated net income of $302.2 million in the third quarter 2005. Net income for Loews common stock was $517.2 million or $0.94 per share versus net income of $234.7 million or $0.42 per share in the prior year's third quarter.

In 2005, consolidated results for the third quarter included catastrophe losses at CNA of $268.3 million result from Hurricanes Katrina, Rita, Dennis and Ophelia. Net operating income for Loews common stock defined as net income less investment gains was $480.8 million in the quarter versus $198.5 million in the prior year third quarter. Net investment gains were $30.7 million for the quarter down slightly from $34 million in the third quarter of 2005. Net income attributable to the Carolina group stock was $117.9 million or $1.17 per share in the third quarter of 2006 versus $67.5 million or $0.99 per share in the third quarter 2005. This increase is mostly attributable to higher unit sales volume.

Net income for Carolina group stock also reflects the higher weighted average number of Carolina group shares outstanding but the change in shares outstanding does not affect per share results. Lorillard contributed $109 million to net income for Loews common stock during the quarter versus $125.3 million in the prior year third quarter. Lorillard contribution was impacted by the reduction of Loews's economic interest in the Carolina Group.

As of September 30, Loews Corporation owned 65.4 million share equivalence representing a 37.7% economic interest in the Carolina group. Lorillard recorded charges of $149.3 million and 140.8 million after taxes for the third quarter of 2006 and 2005 respectively. To recur for obligations under the states settle agreement. CNA contributed 257 million to Loews operating income in the third quarter 2006 versus a loss of 31.2 million in the the third quarter 2005. In addition to the previously discussed reduction in catastrophic losses, solid performance within standard and specialty lines resulted from underwriting production including retention rate improvement along with improvements to expense management.

Loews' interest in CNA net realized investment gains and losses saw a decline from 38.6 million in the third quarter of '05 to $23.8 million in the third quarter of 2006. This is due to other than temporary impairments that were recorded primarily in the corporate and other taxable bonds sector. Boardwalk pipelines contribution to Loews' third quarter net income increased to three and a half times the prior year quarter from $4.5 million to $15.9 million. Operating revenues continued to benefit from demand for parking and lending and storage services.

Additionally, Boardwalk has declared a distribution of $0.40 per unit, an increase of $0.02 from the previous quarterly distribution. Diamond off shores contribution to net income from the quarter doubled from $40.6 million in the prior year's third quarter to $81.8 million. Diamond's contribution to revenue from the quarter increased to $527.6 million from $352.1 million in the prior year. While sequentially, this represented only a slight gain.

Sequential performance was encumbered by mandatory equipment downtime and some temporarily decreased day rates rather than a shift in market fundamentals. Loews hotels net income for the quarter was $5.1 million versus $3.7 million in the prior year third quarter. Favorable conditions in the lodging industry resulted in an 8.3% year-over-year increase in average room rates bringing the average rate $204.86 in the third quarter. Rev PAR increased year-over-year by 5.8% to $160.82 in the quarter.

Net investment income and other which is comprised of Loews corporate investment income, interest expense and the operations of the Bulova Corporation decreased from $55.6 million to $20.1 million versus the prior year third quarter. The decline relatively to last year was primarily due to the performance of the Company's trading portfolio which in the third quarter of 2005 included a $26.5 million after tax gain related to interest rates. As of September 30, 2006, cash and investments at Loews was $5.6 billion. This includes proceeds of $728 million from the recent redemption of CNA series H preferred stock as well as $1.6 billion year-to-date from the sale of Carolina group shares.

During the quarter, the Company repurchased $278,500 shares of Loews common stock at an aggregate cost of $10.4 million. Debt of $1.2 billion at the holding company level was unchanged from the previous quarter and includes $300 million that will mature during the fourth quarter. Lorillard ended the quarter with cash and investments of $1.8 billion. Carolina group notional debt was $1.35 billion at the end of the quarter. And now I'll turn things over to Marty Orlowski of Lorillard.

Thank you, Peter. Lorillard's operating income was stated for the third quarter of '06 of $329 million increased by $40 million to 13.8% versus the same period last year and for the nine months ending September 30, 2006, compared with the [inaudible] bonding period of 2005, operating income of $894.9 million was up $130.3 million was 17%.

Net income for the third quarter of '06 versus the third quarter of '05 was up 13% or $26 million and for the first nine months of 2006, compared with the first nine months of 2005, net income was up 95.6 million or 19.3%. Operating a net income gains for the third quarter of 2006 will positively affected by increased wholesale unit shipments particularly for the Newport brand that was influenced by underlying growth and demand. To a lesser extent, incremental inventory building purchases by Lorillard's largest wholesale customer.

As a result of these two factors, Lorillard's US shipment volume was up 5.5% and Newport increased 6.2% for the third quarter of '06 versus the third quarter of '05. Lorillard's wholesale shipment share of the U.S. domestic market reached 10% for the third quarter of 2006. Up 0.8 of a share point versus the third quarter of '05. Newport achieved a 9.2% share of the market up 0.8 of a share point as compared with the third quarter of '05. At the retail level, both Lorillard's and Newport's market shares were up 0.5 of a share point for the third quarter of '06 versus the same quarter a year ago.

The total industry retail [inaudible] segment share was 27.1% in the third quarter of '06, an increase of 0.7 of a segment share point over the same period a year ago. Newport's share of the menthol segment for the third quarter of '06 was 33.6% up 1.1 segment share points versus the third quarter of '05. On a sequential basis, Newport's third quarter of '06 retail share of 9.33 was up 0.37 of a point over the second quarter of '06. Lorillard's key business strategy of attempting to balance promotion spending behind Newport and overall profit results remains the same as I've stated in the past.

We'll continue to assess the Newport brand's performance relative to competitive factors and trends to determine appropriate levels of support at any given point in time with the long-term goal of sustaining and/or increasing Newport's position in the market place. As many of you may be aware, last week Lorillard announced that it entered into a joint venture agreement with Swedish Match North America to market and develop a select line of smokeless tobacco products in the United States. We anticipate that an initial product offering may be launched on some basis of geographic distribution in the not-too-distant future. Lorillard does not expect this venture will have any material impact on the near term. Any ultimate financial impact obviously will depend on the success of the new product line.

That completes my comments. I'll turn it back to Darren. Thank you.

Thank you, Marty. At this time, we would like to open up to questions.

[OPERATOR INSTRUCTIONS] We'll pause for a moment to compile the Q&A roster. Your first question comes from Bob Glasspiegel of Langen McAlenney.

With such an incredible liquidity at the holding company, what would be the pluses and minuses of considering a special dividend?

Well, there are a number of things we can do with our cash. We can use it to repurchase shares. We can use it to pay dividends. We can use the cash for acquisitions. Or we can just let it set on our balance sheet.

As you know, Bob, we have a history of operating with a lot of cash on our balance sheet because we feel that gives us an opportunity to buy assets at very attractive prices if we have enough patience. So, the idea of a special dividend I think would really be the idea of paying a special dividend would be made at some point when we felt that we didn't see any significant opportunities and that we didn't think there would be any in the future.

The magnitude, Jimmy of your cash position, for following the company for 20 plus years, is much more than I ever remember. Just thinking back, have there been deals that you were prohibited from doing because you didn't have a sufficient hoard of cash?

Yes, I would have bought AT&T if we had the cash. I mean, there are always -- my point is there are always bigger and bigger deals that you can do . And the size of the company now is $20 billion. You shouldn't look at the cash just in the context of it's the most cash we've had. I would venture to say that the amount of cash that we have as a percentage of our market value is not at the highest level that it has ever been at.

Ok. I'll have to go back to my memory bank further. On CNA, it seems with them back on their feet and a viable company, is this a position -- is this a position that is best -- as best I can remember, you've you've never sold a position and you know, have been buyers over time. Is this one of these Warren Buffett sacred holdings that you would never consider selling? Is there a magic amount of ownership you have to be at for tax or consolidation reasons? Might you consider improving the float further by selling shares with the Company back on its feet?

Bob, you know I can't answer that question other than to say that look at our history of us and our subsidiaries. First of all, we love all of our subsidiaries equally however we manage our investment to maximize the returns to our shareholders. Beyond that, I can't say what we would do with shares of CNA or for that matter, any of our other subsidiaries.

So you would never say never about selling any stock.

Never is a word that I rarely use.

Ok. Thank you very much.

Your next question comes from David Adelman of Morgan Stanley.

Good morning, everyone.

Good morning, David.

Jim, let me follow on that line of questioning for a second. The increase in the cash at the holding company level, is that part of a conscious plan as you look at different opportunities because it has obviously been going on. You've been building it up for a long period of time or is it the cumulative effect of a number of decisions that have been made?

You know, it is part of a conscious plan to focus on cash. We at the holding company think that earnings are nice but it doesn't buy you very much. And cash is the legal tender in this country that gives you buying power. So, we strongly encourage our subsidiaries to pay cash to -- up to the parent in the form of dividends, up to the parent and a minority holder of those subsidiaries. And that, to us, really reflects the true worth of our subsidiaries. So, the conscious plan is to collect cash at the parent company and then for the parent company to wait for the opportune time to deploy that cash.

Can you give us any sense of the likelihood of being able to do that in a value-enhancing way over the foreseeable future?

We don't have anything on our plate right now but as I've said many times before, the fact that we had cash on our balance sheet, gave us the ability to buy diamond offshore. Gave us the ability to buy Texas gas. Gave us the ability to buy gulf south. Gave us the ability to go into tankers, into Bulova Watch, our whole Modius Operandi is to work from a strong and conservative balance sheet and use our cash at times when we feel we can create extraordinary value for our shareholders.

Ok. And then Jim, one last thing for you, can you comment at all about your intentions regarding Carolina group both the structure of the investment but also where your economic ownership might evolve to over time?

The only thing I can say is just as I don't comment about our ownership position in CNA or any of other other subsidiaries or nor do I comment about our share repurchases, I'll just leave our position at Carolina group to speak for itself. We still have a very significant interest in Carolina group valued when you look at the notional debt that we have, combined with the economic interest in Carolina group, I think our value in Carolina group is still about $4 billion which last time I looked is bigger than anybody else's interest.

Right. Ok. Then, Marty. First, could you give us sort of an update on the prospects of proposition 86 being defeated in California.

I really can't comment on that. I have no insight to offer you on that one. From what little I know about it, it is a -- it seems like it may be very close one way or the other.

Ok. Can you quantify how much the trade inventory builds might have affected your shipments in the third quarter?

Of roughly -- our domestic units on Newport were up about 514 million units for the third quarter of '06 versus the third quarter of '05. About 100 million of those 514 were affected by the trade build.

Your trade customers, there are limits if they want to speculate on inventory. There are limits on how much you would allow them to purchase in a finite period of time.

Yes. But we can't control overtime so --

Sure.

But yes, we do have allocations and we pretty closely monitor that.

Ok. Marty, can you bring us into your thought process on promotional spending. It looked like it increased somewhat sequentially.

Yes. It was up somewhat sequentially and year-over-year, quarter over quarter. I saw your note, it wasn't quite up percentage wise as much as you indicated in your calculation but it was up. It is just -- it is not atypical of the way we've managed the investment spending behind Newport over time. As I -- on many occasion have emphasized that we're not managing quarter to quarter. We're looking at the long-term and it is just a matter of what we perceive to be an opportunity to build Newport's business or to try to improve certain trends at a given point in time and we make the decisions to do that. So, there's nothing more than what I've said all along.

The promotional environment has been status quo?

Pretty much. Yes.

Ok. And then two last things, Marty. Can you frame for us the sort of what the reasonable range of possibilities are in terms of how long it may take to get appellate finality in Ingle?

Good question, David. I have no idea. We saw what occurred for the Florida State Supreme Court to reach their basic decision. I have no idea.

Ok. And then lastly, can you provide some more color on the smokeless tobacco arrangement with Swedish Match, what type of product it would be, what are you bringing to the arrangement, would it be branded under any of your cigarette names?

Those all very good questions and I'm really not going to give any specific response to whatever we may develop over time with Swedish match North America other than what our statement -- what the statement said. We look at it as an opportunity. We have certain strengths, obviously, in a broad basis in marketing and sales of tobacco products. Although obviously nothing specific with respect to smokeless. And Swedish Match clearly has opportunity to provide some real strength in terms of product development. So, hopefully between our two strengths in those areas, something positive may emerge over time.

Ok, thank you very much.

Thank you.

Your next question comes from Phillip Salles Of Credit Suisse First Boston.

Yes, good morning. Congratulations on a strong performance here with Lorillard. Most of my questions have been addressed already by David. But but let me throw in a couple of them if I may. First from a household keeping perspective, Marty, what is the scheduled increase in your MSA payments for next year, please.

Next year?

Yes.

I can't give you a specific number for next year other than to say as I think you're aware, there is a step up. If you look at it on a very rough adjusted basis, the step up is roughly a billion to the industry. If you take a very, very rough calculation of our market share, we're somewhere in the $100 million range of in terms of of what that represents in gross dollars. That doesn't account for any other factors. I really can't comment on that at this point.

Ok. Then, moving to the particular results, a decline in Puerto Rico in terms of units shipped. Anything particular behind that decline, Marty?

No, nothing other than an inventory adjustment made. There was a change of ownership in the Company that handles the business in Puerto Rico that buys the Newports from fundamentally and it doesn't imply anything in terms of a negative. It was simply a matter of an inventory adjustment that they went through as part of their process of taking over the business.

Ok. And then perhaps my final question, perhaps for Jim, if I may this morning, Jim, you talked about building of the cash at the [inaudible] The dividends being up streamed from the up cost. You said it is great to have cash because that really allows you to do things. You mentioned acquisitions. Now, as it relates to Lorillard, obviously, there's not a lot that one can do at least domestically. But would you completely rule out doing anything at all abroad in the tobacco space given that you sold a number of years ago your international operations?

Well, previously, I said that I rarely say never and I'm not going to say never about getting into the international tobacco business but I would say that it is not high on our radar list at all.

Ok. And then maybe just -- in that same venue, as you know, Jim, and same for Marty,. Imperil tobacco this morning indicated when they're going to come to the U.S. market, it will be organically. How do you see them being successful just trying to do this organically in a market where they don't have lots of distribution and how do you view potential entry of imperial changing the competitive landscape in the near term, if at all? Thank you.

I can't see -- from my standpoint, I can't see anything today that would indicate that Imperial's entry into the U.S. market on any major basis is going to have any particular effect. I doubt that they're going to go into the discount segment. So, I would see basically, it is a nonevent as far as I'm concerned at this point in time. They do have some business here, I believe. But I don't see anything of any consequence that would affect the market place.

Great. Thank you so much, Marty.

Ok.

Your next question comes from Christine Farkas of Merrill Lynch.

Thank you very much. A few questions for Marty, if I could. Just back to the inventory load, Marty. Would you just confirm what your expectation would be for that load to reverse next quarter, is that fair?

It is difficult to say. It may reverse itself. In the fourth quarter. It may not. You know, I really don't know. I can't tell you factually when it will happen. Obviously at some point it is going to happen.

Ok. Great. Moving to smokeless, I know you've talked about over time or having a limited impact in the near term here. Could you quantify any expected annual investments related to this venture?

Well, by virtue of our saying material fact, it works both ways. We do not foresee any significant certainly not material investments behind the activity that we're going to engage in. Obviously there will be some expense related to that. Certainly nothing very significant.

Will those expenses be quantified or broken out as they occur?

I suppose so. If it is material of any nature, yes.

Ok. Great. In California, Marty, could you tell me what your market share is?

I don't really know offhand. I don't know what the market share is offhand.

It is below your national market share.

We're underdeveloped generally in California. So, yes, it is below our market share.

Ok.

Fairly substantially below our market share.

A couple hundred basis points.

Maybe. I don't know. I'm going to guess and say that it is more than half below our market share -- our average national market share.

Great, that's helpful. Do you have the depreciation expense for the quarter, Marty?

Yes, I do. Somewhere.

Marty, I have it. $8.2 million in the quarter.

Great. And a final question --

Excuse me. I pulled the wrong line.

It is 12.8 million.

Great. Final question, Marty, if I could. Just in terms of your overall strategy and clearly we've seen the profitability improving very nicely but with respect to your premium mix, it has deteriorated a little bit year-over-year, sequentially as well, how are you managing the overall mix relative to I guess your promotional strategy? Is there a priority in terms of maintaining Newport or the premium mix within your overall portfolio?

I'm not sure I understand when you say our premium mix is deteriorated overtime..

Your premium volumes make up a slightly smaller share over your overall portfolio than it did a year ago.

That's because Maverick has performed so well.

Sure.

It is really insignificant in the scheme of things. I would not even closely characterize the ratio of premium to discount as anything significant. I think we're about 95% premium and 5% discount and as Jim pointed out, Maverick, in fact we had a pretty strong third quarter for Maverick was up a fair amount relatively speaking and so that affects it but it is certainly not of any significant consideration in terms of our strategic approach.

Got it. Thanks a lot. That's all.

Your next question comes from Nik Modi of UBS.

Quick question for you, Marty on the restructuring that you announced last quarter. Just curious what the impact was this quarter and maybe if you can give us more clarity over the next year of what you're doing.

For the third quarter, the impact was a little less than a million dollars. I think I indicated on the last call that the vast majority of the impact was -- took place during the second quarter. We could expect a little more than that in the fourth quarter. But that should be about it. Once we get through the fourth quarter, when I say a little more than the million, it is going to maybe somewhere in the range of a couple of million. Depends on certain expenses as they come in. It is not significant.

Just on the savings side, is there a number you can share with us in terms of how much flowed through?

Not at this point, no. I'm not going to.

Ok. Then the last question, can you clarify for us, you're not really that heavily involved in the prop 86 battle out there given you have limited exposure in California, is that a fair assessment?

That's fair.

That's it for me.

Thank you.

Once again, if you would like to pose a question, press star 1 on your telephone key pad at this time. Your next question comes from Richard Larkin of JB Hanour.

I have a question about payment obligations under the master settlement and the dispute regarding the nonparticipating manufacturer's adjustment. I believe you guys have about $108 million in the disputed escrow account trying to get a refund on overpayments from the settlement. But there I guess litigation and future decisions that had to be made. Can you give any kind of timetable or outlook for resolution of that issue? It involves again about $108 million for 2003.

Right. We've expensed that so it is not going to have any effect unless we get it all back. It is difficult to give you a timetable for resolution. We've had a number of individual situations in state courts and in virtually all so far, the state court that is hearing the case decided that the issue should go to arbitration. And one state, the decision went the other way. Those decisions may be under appeal by the state attorney generals general. So, there is a whole process going on. The litigation at this point and time, the deals with what is the method which by which the decision will be made with respect to the disposition of the dollars whether it will go to arbitration or heard in a state court. So, it is really up in the air. And it could take a fair amount of time. Again, it won't have any -- doesn't have any financial material financial effects since we already expensed this.

Unless you -- it goes in your favor.

Yes, obviously.

The main issue is whether or not it could be demonstrated that the states didn't diligently enforce those statutes. Do you have any feelings about whether or not that's a winnable case?

Yes. I'm not going to speculate on outcome but certainly, we feel that there is a basis otherwise we wouldn't be in the position we're in the first place. We feel there is a basis to proceed with this thing. So, we win or not, who knows.

That's what I thought. One last question. I believe Philip Morris and Reynolds have both indicated they're also going to challenge the payments for the 2004 year but that I guess any decision on whether or not to pay and dispute or hold back wouldn't be happening until April of next year. Have you guys given any thought as to whether or not you would seek a 2004 adjustment?

Well, I think -- A, we have not thought about it necessarily. I think we would use the same logic to move forward as we did the last time around. If the circumstances and the factors are similar, then we would most likely approach it that way.

Thank you, gentlemen.

Thank you.

There appears to be no further questions at this time.

Thank you for joining us on the call this morning. As a reminder, a replay of this call will be available on our website, Loews.com at approximately two hours. The earnings conference call held earlier this morning by CNA, our PNC insurance subsidiary will also be archived for replay on its website at CNA.com. Thank you again.

Thank you.