Vector Group Ltd (VGR) 2002 Q1 法說會逐字稿

Good morning ladies and gentlemen and welcome to Vector Group's first quarter 2002 earnings conference call. Before the call begins, I'd like to read a safe harbor statement. The statements made during this conference call which are not historical facts are forward looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward looking statements. These risks are described in more detail in the company's Securities and Exchange Commission filings.

It is now my pleasure to turn the floor over to Chairman and Chief Executive Officer of Vector Group Bennett LeBow. Sir, you may begin.

Thank you. Good morning and thank you all for joining us at Vector's first quarter 2002 conference call. With me today is Ron Bernstein subsidiary and Chief Executive Officer of newly formed Vector branch. In terms of the structure of today's call, let me first begin by updating you on our businesses focusing on Vector which I'm sure you are all interested in and then by outlining our performance. perspective tobacco business. In a moment we will be available to answer your questions.

During the first quarter we focus and put in place the best infrastructure possible to maximize selling distribution of all of our group and Vector tobacco products through a newly formed Vector branch. We have made significant progress in training respective sales forces to sell all Vector products and I'm pleased to report that effort is on schedule. As of today the vast majority of our combined 350 person sales force has completed their initial training and now are on the street selling both Liggett and Vector products. We expect this sales force will grow to 400 by the end of the third quarter and to 500 by yearend. We should start seeing an impact on top line sales with the extended sales force as the year progresses.

As we indicated in our 2001 year end call in April, the Omni product continued to be challenged by the lack of distribution and awareness and sales in the first quarter remained at a low level. We continue to run a number of tests on Omni both in the lab and in the marketplace. The records are to deliver the best product possible to consumers and to drive higher levels of sales over the long-term. in the marketplace is that while consumers generally enjoy the product and like the taste, the reduced carcinogen message is not clearly penetrating the smokers. It appears that many people quote this product as just another light cigarette and don't quite understand the major differences that reduced carcinogens brings. Given that problem, we are working on that to enhance within FTC guidelines the consumer awareness and understanding of this very unique cigarette. We are also exploring potential new packaging, as I'm sure you are all aware as well as new tag lines for the product.

Clearly this is continuing work in progress. Importantly though we are also conducting some new biological tests comparing the effects of Omni to other leading brands. And while it's too early to announce any detailed lab test results we will say that we are encouraged by what we've seen thus far. Depending on the final results, these tests may provide us with data necessary to make stronger, more explicit statements about the relative benefits of the product and our advertising going forward. Accordingly, we will be limiting our expend for Omni in the early summer months as we continue with the laboratory and marketplace studies. It is important to note that while we are temporarily curtailing ad expenditures related to Omni in the near term, we are however continuing to push forward on the sales and distribution front. We remain committed to Omni and continue to believe that the product can form well with the right support and message. As a major sign, there are vision for Omni's , let me quote the following to you all.

First, Mr. Geoffrey Bible, Chairman of Philip Morris in his annual message to shareholders about a month ago stated "We continue to devote major resources to the research and development of new reduced risk tobacco products both in the US and internationally." And secondly, Mr. Martin Broughton, Chairman of BAT, remarks in his annual meeting about a month ago stated, "We aspire to be the first to launch successfully a new generation of tobacco products that over time will be recognized by scientific and regulatory authorities as posing substantially reduced risks to health." Clearly, everyone, the number one and number two tobacco companies in the world agree with our concept and their entry into this marketplace we believe should help to educate the consumer and expand the category. And our Quest product continues to progress towards launch.

As you may know, we are working with Dr. Jed Rose of Duke University who was one of the inventors of the nicotine patch on our Quest product and its potential role as a smoking cessation device. Dr. Rose and his team of researchers have been running tests on a prototype model of our Quest product. In early April, Dr. Rose released some initial test results suggesting that nicotine free cigarettes could be an effective method of reducing nicotine dependence for some people. We are very encouraged by these initial results. We are continuing to work with Dr. Rose to find the best ways to use a nicotine free cigarette such as Quest to help break the nicotine dependence for smokers. In terms of progressing toward the actual Quest launch, we are presently conducting final consumer taste tests with the results available in the next two weeks. Depending on these results, we intend to commence marketing to consumers on a regional basis in late July with an official retail launch to consumers in September. Since this is a nicotine free cigarette, the challenge here has been to compensate for the lack of nicotine impact primarily in the non-menthol version. The menthol version seems to be going very well, the menthol note making up a lot for the lack of nicotine impact.

Now I will quickly review the key financials for the quarter ending March 31, 2002 for Vector Group, Liggett Group and Vector Tobacco. First, let me quickly revisit the new revenue recognition rules. As of January 1, 2002, we and the industry adopted new required accounting standards mandating that certain sales incentives currently reported as operating selling general and administrative expenses be shown as a reduction of operating revenues. The adoption of the new accounting standards will have no impact, no impact on our net earnings or basic or diluted earnings per share. I will quickly review the key financials of the quarter ending March 31, 2002. For comparative purposes, we've excluded New Valley Minority interest and the operations of . The following financial results reflect a new revenue recognition requirements on our current and comparative basis.

Vector Group revenues were 97.2 million compared to 77.7 million in the 2001 first quarter. The company recorded an operating loss of 13.7 million compared to operating income of 2.6 million in the 2001 period. Net loss was 11.9 million or $.36 per diluted common share compared to net income of 2.6 million or $.09 per diluted common share in the 2001 first quarter. As previously disclosed, Vector Group took a $3 1/2 million restructuring charge on the first quarter in connection with the creation of the new Liggett Vector branch related to elimination of redundant positions, consolidation of sales and marketing operations and systems integration.

Now for Liggett's performance. The three months ended March 31, 2002 Liggett Group, the company's US tobacco business, had revenues of 94.1 million compared to 75.0 million for the three months ended March 31, 2001. Liggett's operating income was 21.2 million for the first quarter 2002 compared to 19.6 million for the three months ended March 31, 2001. The first quarter numbers exclude charges related to restructuring costs, factory relocation, non-cash compensation and expense. Liggett continued to have strong cash flows from operations. For the three months ended March 31, 2002 Liggett's EBITDA increased to 22.3 million from 20.9 million for the same period in 2001. Revenues derived from Vector Tobacco's first product Omni which began selling in November 2001 was approximately 2.7 million. As previously mentioned, we're taking a number of steps to improve long-term performance of this brand. Vector Tobacco's significant expenditures for items such as R & D and advertising coupled with only nominal first quarter revenues resulted in operating loss of approximately 24.5 million for the quarter. Let me now turn the call over to Ron Bernstein President of Liggett who will update on the performance there. Ron.

Thank you Ben. In the first quarter of 2002, Liggett continued to grow our overall unit volume with unit sales up 21 percent over the prior period. During the quarter, Liggett continued to do well at pursuing its primary objectives, increased growth in premium brand sales and Liggett Select. However, Liggett's profit performance while improved over the prior year period was limited primarily due to the declines in Pyramid and the private label brands and to increased spending in the premium brand category. I will address these issues further shortly.

First as I mentioned, premium brand sales continue to increase with unit growth of almost 40 percent over the prior year period. In the first quarter, Jade represented almost 30 percent of total premium sales and sales of Eve were basically on par with those of the prior year period. To support the ongoing development of the premium category and to maintain the introductory momentum on Jade in what is proving to be a highly competitive marketplace, we increased promotional spending rates on most premium brand sales. In the first quarter, Liggett Select continued its extraordinary development generating growth of 123 percent over the prior year period. All indications are that this brand is really taking hold in the marketplace and is maintaining its momentum despite ongoing attacks from the market's lowest end producers.

We raised prices on Liggett Select last September and have not seen any negative affects to this point. Sales of private label brands were down 28 percent from the prior year period. We expect these trends to improve as the year goes on but also expect overall private label sales will be down from the prior year. This is reflective of the organizational restructuring of one private label customer that plans to close 15 percent of its stores during the course of the year and a narrowing of the gap between private label and premium prices caused by the significant discounts being offered on some premium brands. We will continue to watch this trend, but are not particularly alarmed by it at the time.

Unit sales of Pyramid continue to decline at an approximate annual rate of 20 percent and we expect that trend will continue. Pyramid is currently at a slightly higher price point than Liggett Select and we are allowing it to seek its volume level without providing much support. Gradually as we continue to grow Liggett Select, we expect it will replace the Pyramid business. The transition to our combined Liggett Vector sales and marketing operation is proceeding on time and on budget. As Ben indicated, all 350 Liggett Vector sales personnel have been through initial training and are now representing all brand families in the marketplace. We expect sales to strengthen throughout the year as the sales force becomes more proficient and continues to grow.

As a reminder, we intend to grow the sales force to 500 sales people by year-end. In conjunction with the restructuring of our sales and marketing operations, we have recently conducted a comprehensive business review and feel very confident about the state of Liggett's business and its prospects going forward. As we work through the sales force transition, we expect second quarter profits may be somewhat weaker than projections but we fully expect the trends to strengthen significantly towards the end of the quarter and through the second half of the year. We thus reaffirm our previous operating income guidance of 140 to 145 million dollars for Liggett for the year. Thank you for your attention and back to you Ben.

OK Ron. Thanks Ron. And as Ron has reaffirmed the Liggett operating income guidance, let me now also reaffirm that our dividend policy remains the same. Ladies and gentlemen, that concludes our prepared remarks and now operator, would you please open the call for questions.

Thank you very much sir. The floor is now open for questions. If you have a question or a comment at this time, you may press one followed by four on your touch-tone phone. If at any point your question is answered, you may remove yourself from the queue by pressing the pound key. Questions will be taken in the order they are received and we do ask that while posing your question, that you pick up your handset to provide optimum sound quality.

Our first question is coming from of CIBC Oppenheimer.

Hi guys. Wanted to ask, I noticed in the queue yesterday that you had issued another 30 million in bonds and my understanding of about 350 million or so in cash and securities, and I'm just wondering why you issued more debt?

We agreed to acquire Medallion for 110 million dollars, we wanted to do that by just limiting the amount of equity invested we'd make into Medallion. It was strictly to ensure that over a period of time, this was strictly a limited equity investment and just a financial arrangement. In other words, I looked at it as over six, seven years we get our money back after considering taxes, considering you know royalties and everything else, but it's a straight, like a lease arrangement over seven years, it was a wash deal. So, it was just a financial arrangement to, not that we needed the money or anything, just to say that we wanted to limit our equity investment in Medallion and we limited it to 25 million dollars. In other words, we were willing to thrown out 25 million dollars in equity into the Medallion and that was the only reason for it.

OK. Another question I noticed in the footnotes related to the bonds was something related to a nothing in the agreement, I'm quoting verbatim right now, nothing in the agreement shall be deemed to prohibit a merger between New Valley and Vector, can you tell me what that's all about?

It's just a standard covenant. There is nothing unique about that. I mean, I don't know exactly why it's in there, but it's to make sure we had flexibility to do whatever we want to do. There's nothing there.

OK. All right. Thank you.

Thank you. Our next question is coming from Martin Feldman of Merrill Lynch.

Hi Ben.

Hi Martin.

Ben, you spoke a bit about Omni and what the consumer acceptance and the fact that you're going to be adjusting your marketing campaigns a bit, can you tell us what you found out about Omni so far? How does the consumer see it? What's some changes you think you need to make? How has it been perceived in the marketplace?

Let me have Ron answer that.

Hi Marty.

Hi.

Basically as Ben mentioned in his comments that the challenge with Omni or any new category of cigarettes is the consumer's sense of the benefit that's being provided to them and that what we have found in the testing that we've done is that consumers are generally confused and looking at light cigarettes as if they are the same as a reduced carcinogen cigarette. So what we're doing and what we're focusing on is enhancing that message to make it clearer to them. From the standpoint of consumer acceptance, the product is testing out very well. People who smoke it are liking it and there are pockets within the country where we are seeing consistent repeat orders.

And Marty, you have a lot of consumers that don't even know what the word carcinogen means.

Ben, that's a concern that I have, I mean, you're trying to take a fairly complicated idea and put it into very simple words and then market it.

Right and the problem is you have FTC guidelines you've got to follow. I mean, there is limit to what we can say. I mean, what we've said so far according to our attorneys is pushing the envelope as it is. And all we're saying is that we reduce the carcinogens in which we measure. Now, you can't come out, we can't until we get our biological testing done and more data, then we can't come out and say, you know, it definitely reduces cancer or , into that nature because we don't have the proof of that yet.

But before any of that happens, do you think you can make some material changes in the communications in the marketing that will help to educate the consumer?

Well, as I mentioned in my speech, Marty, we're waiting for the results of some biological testing which so far is very encouraging. When we have some more data to make some more statements, we'll go very seriously explore, I don't want to use the words, but how far we can push the envelope so to speak to get the message out. And by the way, this is a problem we have and this is a problem that the other companies are going to have too. I mean, with Advance and with Philip Morris, whatever they're doing, I mean, as I said also, I mean, Philip Morris and BAT coming out with their products, which they say they're coming out with, will help educate the consumer and help us to get a share of that marketplace.

So it is, and by the way, you know, filters took about eight years to get accepted back in the late 50s. Light cigarettes have taken, I don't know how long, just as long if not longer, and you know, today filters are 98 percent of the market and today lights are 60 percent of the market. So it's a long-term educational problem which we're working on and reduced carcinogens, you know, we're saying reduced carcinogens they can read on the warning label says it's never been proved etc., etc., etc., people are confused.

Ben, does the consumer have any different impression of Advance versus Omni?

Our sense Marty is, the answer to that is no, you know, not to get into data that's proprietary, but we feel from what we've seen that Omni has measured up very favorably relative to Advance in the marketplace.

Yeah, and that's only in Indianapolis don't forget, Marty, that's not across the country.

And Omni has done very well in Indianapolis.

In Indianapolis we beat them. But I don't think that means much. It's a question of how much promotional spending and advertising.

Well, I think there's another issue there and that's the issue is that there is more awareness in that marketplace because there is more activity and I think that's an important element that we have to keep in focus.

This is a situation where we welcome competition and again if you read the annual reports and the annual statements of the two top companies, they're coming, it's just a question of when they're going to do it. feldman: Right. On a different subject Ron, can you just tell us excluding obviously just on the traditional products, can you just give us your mix of premium versus discount or higher margin product this quarter versus the same period last year?

Let me just take a look here.

It's up, let me just get the actual numbers.

Yeah, I mean, it's up, last quarter our premium was 120 million against a total volume of 1.6.

Versus 120 of how much?

1.6.

Right.

And this year it's 160 against 1.9.

And what was it in the previous quarter, the last quarter of 2001?

220 against 2.6. They key is and that you have to keep in focus, the percentage rate is remaining about the same, but the discount category is growing substantially. So what's happening is that the premium category is growing along with it and not outgrowing the discount category at this point.

Right. Last point. Can you just give us some color on how Jade is doing?

Jade is solid. It's ...

What are you annualizing at, at the moment?

Say, I'm sorry?

What are you annualizing at, at the moment on Jade?

You know, I'd rather not get into those projections at this point. But Jade is continuing to build in the marketplace and we're satisfied with, as we expand distribution which is what our primary objective is during this year, that Jade is continuing to move into new locations and we expect that it's going to get good acceptance.

OK. Great. Well, thanks for taking the questions.

Thank you. Our next question is coming from of Jeffries and Company. langer: Yes gentlemen. If you can walk me through the calculation of EBITDA from the loss report on the income statement, specifically the various components of the factory relocation restructuring on cash compensation, settlement expense, etc.?

I mean, fundamentally, there are several line items, you know, between the operating income and EBITDA, effectively its virtually all depreciation. Of the, you know, when you factor in, as Ben indicated, we had about three and a half million dollars of expenses associated with the structure, the creation of Liggett Vector brands and the elimination of functions at Liggett, and that's really the primary issue, I mean, that's pretty much the most of that, the rest is pretty small.

If you take Liggett's EBITDA or , whichever one, and take from that the Vector Tobacco losses, I don't have a corporate overhead numbers still handy, can we do this? Can we get somebody to put that together for you and fax it to you?

Well that would be great. lebow: We'll be happy to do that.

The cash flow statement in the queue, it doesn't have the D & A figure. What's the D & A figure?

What's D & A?

Depreciation and amortization, 1.2 million in the first quarter for Liggett. Yeah.

Yeah, but it shows Vector Tobacco's depreciation also. We'll get you as much of that detail as we can. If you want to give me a call after the call, we'll get somebody to get that information for you, all right?

No problem.

Thank you. Our next question is coming from Richard Hayden of Omega Advisors.

I kind of guessed the last question was driving toward that, that 140 million, that operating income, is that the equivalent of ?

Yes for Liggett.

That's correct.

How would that translate down to a net profit?

Well, obviously, you've got to take all the corporate overhead and Vector Tobacco losses and interest expense and of course, you know...

So it's before corporate overhead?

Yeah, it's before corporate overhead, it's strictly the Liggett operating subsidiary.

number of corporate allocations, do you have that number?

The corporate allocations for that number? Well, the corporate overhead runs in the 20 million dollar a year range. So you take that plus the and subtract the Vector Tobacco losses and the interest expense. Again, we don't have those numbers handy right this second.

OK.

Thank you.

And also the point is, we're not giving out any guidance on Vector Tobacco. The problem with Vector Tobacco is that it's very, very difficult to project the Omni sales and the Quest sales at this point. So that's a difficult number for us to even project ourselves.

Thank you. Our next question is coming from Fred Burrows of Salomon, Smith and Barney.

Good morning Ben. Good morning Ron. Quick question on the hard packs. Will Omni be manufactured and offered in hard packs any time soon? And also, are you going to be introducing Quest in hard pack?

The answer to both is yes.

Yes, we were just waiting for the equipment to come in. The equipment is, I think one piece of equipment is in and another one is coming in July. After July we will have hard packs available for both of those.

And also hard packs 100s as well.

Also, it is my understanding that the Philip Morris sales force has been pretty aggressive with the retailers such as coming into their stores and threatening to pull their own stock unless the retailer removes some of the Omni displays or puts the cigarettes behind the counter and they also have a cash incentive program to target a certain market share of their own product at each retail level, a cash incentive program. Some of these seem to be anti-competitive practices and I was wondering, is there anything that you were doing to combat that or is there any way the FTC could get involved with some of these practices which seem to be somewhat anti-competitive?

Sure, there are a couple of things. First of all the other companies had filed a lawsuit against Philip Morris regarding this and you may have seen about a month ago, it was dismissed on summary judgment by a judge down in North Carolina. In addition though there are some movements afoot in various states to pass law to make it very clear that these practices are not welcome in these various states and politically of course we're working to help those get those laws passed. It is an issue and it is a problem but on the Omni side, I'll let Ron address the marketing for you, but that's what is happening in the political arena.

As far as they're practices in the market, they are extremely aggressive and our belief is that aggressiveness does go over the line into anti-competitive types of activity. We're doing several things. One, as Ben indicated, is that we're looking to fight in the courtroom where we can in order to help to end those practices. But by expanding our own sales force, we are putting more pressure ourselves out on the street and going through and retailers, you know, there are some that may be are bullied. You know, certainly if there is any instances specifically, we're always eager to hear about them so that we can help rectify the situation and add that to the fuel on the fire, if you will, on the litigation front. But we really have found that retailers are not rejecting us in any broad scale way and in fact what we have found is that the general acceptance of our products into the marketplace is fairly good. The biggest challenge we have is relative to limitations because of the amount of space that Philip Morris demands and RJR as well frankly in each store in order to maximize their programs. So it's an ongoing struggle, but it's a courtroom battle and it's a street fight and we're prepared for both.

OK. Thank you.

Thank you. Our next question is coming from Larry Peck of .

Hi guys. It's Larry Peck with . Hi. Quick question regarding, I know you're not going to give guidance on Vector, but maybe you can talk a little bit about how much you spent on advertising in the first quarter and maybe how that's going to change in the second quarter.

Well, I can tell you, on the Omni side, we did spend in the first quarter and last year, we spent quite a bit November, December last year, we spent about 25 million dollars on advertising which although translated to sales, it did establish us in the marketplace as a mover in this area. Going forward as I said before we're waiting for some results, the biological testing results to decide exactly how we're going to proceed in getting the message across so I really don't have an answer for you going forward.

I mean, is it going to be significantly less than the 25 million?

Oh yeah, on the Omni side, well, it depends, it depends on how these biological tests happen and then some tests we may do. But I would say yes, for the rest of this year you can assume it will be substantially less.

Let me make a point to that because as we are going forward on the sales front, we are continuing to introduce Omni into more sales and into more stores all the time and that as soon as we have gotten to the point where we believe its appropriate to become more aggressive on the advertising side, that we're going to be starting from a much more solid base of distribution than we began at last time. The other point that I would make is that we're finding that the name recognition of Omni is actually very good in the marketplace. It doesn't certainly equate and has not to this point equated into sales, but as this category starts to grow, the name recognition that has already been established is going to pay us dividends over a long period of time.

OK. That's helpful. And one last question. You know, we're seeing a lot of headlines now about states looking to raise taxes on cigarettes, New York and California I guess is the most notable that I can think of, I'm just curious to get your overall thoughts on how that might, you know, whether that's going to happen and the effects of that.

It's definitely going to happen. It's happening and I think, you know, it's like the settlement with the AG's of the states, once somebody sees that there is money to be made, they're all going to take advantage of it. So, you know, you can anticipate with the limited exception of the tobacco states that you're going to see increases in virtually every states. But the bottom line is we're all playing on the same field in that regard and prices will be what they are, yeah, it certainly will enhance our discount sales because we, you know, as we continue to build our position in that arena, there is more opportunity again for people trading down.

OK. That's helpful. Thanks a lot.

You're welcome.

Once again, ladies and gentlemen, if you do have any other questions or comments at this time, you may press one followed by four on your touch-tone phone. Our next question is coming from Bill of Silvercreek Equity Management.

Ben, hi. My question has to do with marketing. I referred a colleague recently with what I thought was a fairly impressive marketing plan for Omni, he flew out and met with James Taylor, and I think the result was that the legal department determined that under the terms of MSA agreement, it was probably not appropriate to go ahead with it. And I guess my question is, how restrictive are the terms of the MSA in marketing this new Omni product?

I'm not sure what you're referring to. What did you propose to him? What did you say to him?

It was a marketing plan, kind of a consumer awareness pull through plan that James Taylor met with this person. But the answer came back from your group that the legal department that under the terms of the MSA probably wasn't correct to go ahead and implement this plan.

I'm not sure what you were proposing to do.

Without knowing specifically what it was, I'm not familiar ...

I'm not specific to this, I'm just wondering if the MSA is restrictive regarding the marketing of Omni.

There are restrictions relative to the marketing of cigarettes and certainly they're pretty general in nature relative to promoting at sports events or concerts or within ranges of schools and things of that nature. In terms of what you say, that tends to be governed more by the FTC than the MSA and I would guess that if it's a content issue, that it would probably relate to FTC concerns as opposed to MSA concerns.

Yeah, that's probably, regarding Omni, that's probably the problem, it's the FTC guidelines, not the MSA guidelines.

But we'll look at it specifically.

OK. Thank you.

Unfortunately ladies and gentlemen, due to time constraints, we only have time for one last question. Our last question will be coming from Peter of Gorilla Capital.

Hey Ben.

Hi Peter. How are you?

Good. I'm just confused about one thing, so maybe, and I know people have tried to ask this question, so let me take another stab at it. If the Liggett Tobacco Company was an independent unit, if there was no Vector around anywhere, is there any way to figure out what Liggett would be earning?

Yes, I mean, I told you this before, let me just look next year when the MSA payments .

Right. OK.

Looking next year, which then would include our full Medallion, you know, carve out, plus the increased MSA, we have a carve out of 8.2 billion units next year, 8.2, and we figure each billion units, each one billion unit is worth about 21 million dollars of EBITDA. OK? So, 21 times 8.2 is about 170 million. Now that's marketing margin on discount cigarettes. All right? That's 8.2 billion units of discount. Now, you have SG&A on top of that. All right? Just to take away from that. By the premium sales, our premium business assuming it's about a billion or billion and one, brings in around 40-50 million dollars of marketing margin also. So, the question is, what's your SG&A? Now, just to maintain this, you don't need 500 sales people. All right? But if you were to cut the sales force down to a reasonable force to maintain this 8.2 million carve out and to maintain a billion or billion two, billion three of premium you have 170 million dollars in EBITDA, period. will run about 50 million on a reasonable basis assuming not 500 sales people, etc., etc.

Right. Wait a second, then am I supposed to add so many per premium?

That includes the premium.

That includes the premium. OK. And what does that work out to on an EPS basis after I pay interest and everything?

Well, assuming you get rid of the corporate overhead and everything else?

Yeah.

OK, so times 170 and I think, what, about 40 million shares, interest, I don't, just ten, 15 million let's say, say 20 million off of 170, so 150 after tax is 100, so 275 a share, something like that.

So, tell me if this is reasonable. If tomorrow you said this Vector's been a mistake, I got three options, one is Vector becomes a huge success, makes a lot of money, then I don't have to worry about this analysis. Two is you say Vector isn't going to work, I've got core earnings of 275 a share, and so what I'm basically doing as I'm looking at the stock is I'm saying OK, I got the 275 a share is worth, I'll just pick a number, $30 a share, I've got to decide whether Vector's, whether the opportunity in Vector is worth minus ten and a half here.

Right.

OK.

That's about right. OK. The only I'd give there a little bit is I would probably, we would probably maintain the R & D. OK? Vector's R & D because it's not a wash out, I mean, you've got these two major companies saying they're coming with products. I mean, you can't assume that Vector, this Vector stuff is going to go completely away, that's the wrong assumption. At least in the next, when I say near term a year or two, that type of thing, so if we had to go down to that level and wait for the other companies to come out and expand the marketplace, we could obviously do that. But we would maintain the R & D, which will run 15-20 million, in that range.

But back to your earlier comment, the Liggett earnings give you enough to keep the dividend at its current level.

Yeah, of course.

Thanks.

And then 275 you know is the Liggett's number and the dividend today is $1.60.

Thank you. I would now like to turn the floor back over to Mr. LeBow for any further closing comments.

OK guys. If you have any other real, any detailed questions, please don't hesitate to give me a call or Howard Lorber a call. Our number in New York, we're here all day if you have anything in detail you want to ask us, is 212-409-2800 and thank you all. We'll see you again in the next quarter. Thank you.

Thank you. Ladies and gentlemen, thank you very much for your participation. This does conclude today's Vector Group conference call. You may disconnect your lines at this time and have a wonderful day.