Vector Group Ltd (VGR) 2003 Q4 法說會逐字稿

Welcome to Vector Group's fourth quarter and full year 2003 earnings conference call. Before the call begins I would like to read a Safe Harbor statement. This statements made during 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. Now, I would like to turn the call over to the Chairman and the CEO of Vector Group, Bennett LeBow.

Thank you, operator. Good morning, and thank you all for joining us on Vector's fourth quarter and full year 2003 earnings conference call. With me today is Howard Lorber, President and Chief Operating Officer of Vector Group, Ron Bernstein, the President and CEO of Liggett Vector brands and Liggett. I would also like to take this opportunity to welcome Ron to the Vector board of directors. As you know, Ron and Henry Bernstein, a CPA and money manager, recently joined the Vector board.

On today's call, I will provide a brief update on our Quest brand and then outline our financial performance for the period and the year. Ron will then give his perspective on the tobacco industry, and specifically, our tobacco businesses. We will then all be available to answer your questions.

In general, the cigarette industry continues to operate into a head wind. New taxes in various jurisdictions and higher price points are affecting domestic sales, especially premium sales. Industrywide, total domestic shipments were down approximately 3.3%, year over year, and a continued ship was seen to third and fourth tier brands. Additionally, the large manufacturers have become increasingly aggressive with higher promotional values in an effort to narrow the gap between premium and discount brands and drive premium sales.

Despite difficult industry conditions, Liggett's performance continues to be strong relative to the market, and core brand growth remains solid. For the year, Liggett's overall retail shipments grew at a rate of 1%, compared to Big Four shipments that declined by over 4%. Liggett overall fourth-quarter shipments were effectively flat, compared to the prior-year period, while the Big Four had a decline of 2% over the prior year period. In this section, Ron will review the results in more detail with you.

Now, regarding Quest. With respect to Quest, we continue to move our strategy forward of gradually extending the brand's reach, both in terms of brand extensions and into new markets. Quest Menthol, which started to hit store shelves in the fourth quarter, is now available in over 15,000 targeted retail outlets in the seven initial launch states. In January, we introduced Quest and Quest Menthol into an expansion market in Arizona. So today Quest and Quest Menthol are available in eight states which account for approximately 31% of the domestic cigarette market.

Our Arizona expansion is focused on Tucson and Phoenix, which account for a little less than 1% of U.S. industry volume. Unlike the original seven states where Quest is discounted at a level that is close to parity with leading premium brands, in Arizona, Quest is being sold at a full margin, non-discount price, that effectively positions the brand at a super-premium price, something comparable to brands like Benson & Hedges and Merit.

The launch is being supported by a marketing and advertising campaign. We're advertising in newspapers, local magazines and regional issues of national magazines in the Arizona market. In addition, for the original seven states, we have resumed advertising support, using local newspapers to reach smokers in the general market.

For our efforts with Quest Menthol and in the Arizona market, we are continuing to learn more about a typical Quest smoker and why the product appeals to them. Research indicates that brand smokers, who are likely to be 30-years-old-plus, in terms of age, are premium-pack buyers who are less price sensitive. And even though it's too early to get any results from Arizona, retailers indicate the brand is gaining some early consumer trial from this type of consumer.

Based upon retail performance data for the fourth quarter ending December 31st, we have been able to ascertain that Quest did suffer modest declines in the fourth quarter, but continues to hold an approximate .5% market share in the brand's core retail universe. This universe is composed primarily of convenience stores, supermarkets, and high-volume tobacco stores, and totals about 6,000 outlets. Further, for the quarter, Quest saw a quarter share, 0.25 percent share, of the total industry volume that are sourced from approximately 100,000 retail outlets in the original seven states.

There continues to be in excess of 24,000 stores that are actually (phonetic) reordering in the seven states. Again, it's still too early to see how Quest is doing in Arizona. However, as I mentioned earlier, we have had positive feedback relating to early level of trial to brand, and we'll continue to read performance carefully.

Most importantly, in this year we continue to work with the FDA, and we have asked us to supply them with guidance as to the additional research and regulatory findings necessary to eventually market Quest as a smoking cessation product. We consider FDA approval of a smoking cessation regimen to be a key element to our long-term strategy, and we will continue to work toward that goal.

In summary, we continue to evaluate Quest's performance, and to consider options for expanding Quest further. We anticipate that we will have more to report to you about our expansion plans during the second quarter of this year.

Regarding Omni, we continue to believe that there is sufficient laboratory and human data to suggest that harm-reduction tobacco products are an achievable goal for persons who cannot stop smoking. Therefore, in addition to our continuing in-house research program, we have developed research collaborations with several companies and renowned medical centers in the United States.

At present we are just beginning these research studies with these medical centers and hope to have initial results later this year. The focus of these state-of-the-art research efforts is to develop convincing human proof, as opposed to animal studies only, which we did a year ago that the technological achievements that result in Omni can produce a cigarette with reduced potential to cause disease.

Let me now turn to the financials. Now I will quickly review the key financials for the three-month and full year ended December 31st, 2003, for Vector Group, our conventional cigarette business, and our Vector Tobacco New Technology cigarette subsidiary. Our conventional cigarette business includes sales for both Liggett Group cigarettes and our USA brand cigarettes from the Medallion acquisition.

For the quarter ended December 31st, 2003, Vector Group revenues were $129.5 million, compared to $124.5 million in the 2002 fourth quarter. The company recorded operating income of $1.9 million, compared to operating income of .9 million in the 2002 period. During the fourth quarter of 2003, the company recognized pretax restructuring and impairment charges of $1.2 million, in connection with our plans to move production of Quest and the other Vector Tobacco products to Liggett's Melbane manufacturing facility, which Ron will discuss.

Adjusting for the restructuring impairment charges, the company's operating income for the 2003 fourth quarter was $13.2 million, an increase from operating income of $.9 million in the 2002 period. Net income was $3.5 million, or 9 cents per diluted common share, compared to a net loss of $8.4 million, or 23 cents per diluted common share in the 2002 fourth quarter. For the 12 months ended December 31st, 2003, Vector Group revenues were $536.7 million, compared to $503.4 million in the 2002 period.

The company recorded an operating income of $4.3 million, compared to operating loss of $18.7 million in 2002 period. Again, adjusting for the $21.3 million of pretax charges in 2003, and a pretax restructuring charge of $3.5 million in 2002, operating income for the 2003 12-month period was $25.6 million, compared to an operating loss for the 2002 period of $15.2 million. Net loss was $15.6 million or 40 cents per diluted common share, compared to a net loss of $31.8 million or 87 cents per diluted common share in the 2002 12-month period.

Let's look at the performance of our conventional cigarette business. For the three months and full year ended December 31st, 2003, our conventional cigarettes have revenue of $121.8 million, and $503.2 million respectively, compared to $122.3 million and $495 million for the 2002 periods.

Operating income for the three months and full year ended December 31st, 2003, was $30.6 million for the quarter and $119.7 million respectively, compared to $32.1million and $102.7 million for the 2002 periods. The 2002 numbers, however, include only nine months of earnings from Medallion, which was acquired in April of 2002, and include the pretax restructuring charge of $3.5 million.

Our Vector Tobacco subsidiary continue to have significant expenditures for items such as R&D, initial advertising and marketing for the Quest launch, resulting in an operating loss of $12.8 million for the quarter, and $92.8 million for the 12 months ended December 31st, 2003. Compared to a loss of $23.3 million for the fourth quarter in December 31st, 2002, and a loss of $88.2 million for the 12 months ended December 31st, 2002. The 2003 numbers include the pretax restructuring and impairment charges of $1.2 million for the quarter and $21.3 million for the year.

Adjusting for these charges, Vector Tobacco's operating loss for the fourth quarter of 2003 was $11.6 million, a decrease from the $23.3 million loss in the prior year period. For 12 months ended December 31st, 2003, Vector Tobacco's operating loss would have been $71.5 million, versus $88.2 million for the same period of 2002.

Now let me turn the call over to Ron Bernstein, the President and CEO of Liggett Vector Brands and Liggett, who will update you on the performance of Liggett Group. Ron?

Thanks, Ben, and good morning, everybody. As Ben indicated, 2003 proved to be a difficult year for the cigarette industry in general. However, I'm pleased to report that, despite being affected by industry-related issues, Liggett Vector Brands continue to recognize growth in profitability and core brand volume in 2003.

The big four cigarette manufacturers, particularly Philip Morris and RJR, began 2003 desperate to stop the volume bleeding that they experienced in the second half of 2002. At the beginning of the year, an approximate price gap of 66% existed between premium and fourth tier discount products. By the end of 2003, that gap had been reduced to approximately 48%.

Ultimately, the means used to accomplish the price gap reduction was increased discounting of premium and branded discount products. And while this proved effective for Philip Morris from a volume perspective, it proved very costly to them from an earnings standpoint, as evidenced by PM USA's 20% decrease in earnings year over year. For the rest of the industry, the costs were also high but the volume results were generally not as good.

Based upon changes imposed on trade programs late in the year by Philip Morris and RJR, the industry saw significant negative inventory adjustments during the fourth quarter at both wholesale and retail, as the trade sought to increase the turn of their products and maximize their return on their investment dollars. As Ben indicated, this resulted in a decline of 6% of total industry fourth quarter shipments, compared to third quarter 2003.

In addition, the industry continued to be impacted by the growth of the non-participants of the massive settlement agreement. It is estimated that MPMs grew at a rate of approximately 25% in 2003, and now represent approximately 8.5% of the total market, up from less than 7% in 2002. It is important to note that the MPM growth rate slowed significantly in the second half of the year, and was actually in modest decline by year end.

In the face of all of this, Liggett did far better than hold its own. 2003 operating income was up by 17% over the prior year, and fourth quarter earnings were down a modest 4% over the prior year period, which is reflective of the trade inventory adjustments previously mentioned.

Our core Liggett Select brand had another outstanding year in 2003, with shipment growth in excess of 22% over 2002, and fourth quarter growth of 11% over the prior year period. As a basis of comparison, our primary discount competitor's major brand grew by just 5% annually and actually declined by 9% in the fourth quarter, compared to the prior year period.

Our strategy with Liggett Select remains consistent with that reported in previous calls. We continue to offer the consumer the best value proposition in the U.S. market with this brand. In the western regions where Liggett Select was first introduced, the brand advanced in rankings from being the tenth largest brand at year end 2002, to the ninth largest at the end of last year. Nationally Liggett Select moved ahead two places from the 16th to 14th largest brand by December 2003.

We continue to focus on building Liggett Select's share through the introduction of new chain accounts. Since October of 2003, we have added 184 new chain accounts, representing 11,394 stores. Among these are 1,482 K-Mart stores, 1,400 KC stores, 4,000 Walgreens and 400 Rite Aids in New York State. While we anticipate the growth rates for Liggett Select may slow in 2004, we are optimistic that the Liggett Brand family will continue to grow and outperform the market.

Eve also continued to perform well in 2003. Year over year, Eve shipments grew at a rate of just over 5%, and in the third quarter shipments grew at 18% compared to the prior year period. Eve's growth is reflective of the ongoing success of the targeted focus and pricing programs that we implemented in 2002.

Overall, Liggett Vector Brand shipments were up a modest 1% for the year and were effectively flat in the fourth quarter 2003, compared to the prior year period. This is reflective of continued declines in Pyramid, as well as the private label and control label categories, offset by the growth I discussed in our core brands, Liggett Select and Eve.

As Ben noted, Quest suffered modest declines during the fourth quarter, maintaining approximately .5% market share in the brand's core retail universe. Additionally, Quest had an approximate .25% share of the total industry volume that resourced from approximately 100 retail outlets in the original seven states. The 24,000 outlets that actively transgressed (phonetic) have a strong effective weighted distribution and contribute 62% of total industry volume in the seven states.

As previously indicated, Quest Menthol was introduced to the market late in the fourth quarter, and Arizona was opened up as a new market in January 2004. Additionally, effective in January, we made some adjustments to our discounting and advertising strategy in the seven original states. It's too early to report on these recent events, but we anticipate providing analysis during the first quarter conference call.

On the legislative front, we continue to make progress in promoting the passage of the allocatable share and complementary legislation to the MSA. At this point, 22 states have passed the allocatable share legislation, and 42 have passed the complementary legislation. Combined, this legislation will significantly limit the ability of the MPMs to operate with unfair pricing advantages and should serve to help stabilize the discount segment of the industry. It is important to note that, despite the passage of legislation, we do not believe that any states are yet actively enforcing these laws, and significant activity continues among the MPMs. However, we continue to believe that enforcement activity will increase this year and that over the next two years, the MPMs should become less of a factor in the market.

Finally, I'm pleased to report that we successfully completed the transition of moving production from the Vector Tobacco Timberlake facility to the Liggett Group Melbane facility during the fourth quarter. The move was completed on time and on budget, and all products are now being produced in Melbane. I'm also pleased to report that we are in negotiations to sell the Timberlake facility, including all the equipment not relocated to Melbane. We will provide more detail on this transaction in the coming weeks.

As a reminder, we are under contract to sell buildings associated with Liggett's old manufacturing facility in Durham and anticipate completing this sale during the fourth quarter 2004. We continue to look closely at the cost basis of our various companies and remain committed to operating the most efficient and effective company in our industry. Thanks for your attention. Back to you, Ben.

Okay, thanks, Ron. As you know, we recently declared our quarterly cash dividend of 40 cents per share, to holding the record (phonetic), as of March 19, 2004, payable March 29th. I wish to once again reaffirm that our cash dividend policy remains the same. Now operator, would you please open the call for questions?

Thank you. If you would like to ask a question, please press the numbers 1, followed by four on your touch-tone phone. We do ask if you are on a speaker phone to please pick up your hand set to provide optimum sound quality. Once again that's one, followed by four, to ask your question. Our first question is coming from Donald Lipkin of Bear Stearns.

Good morning.

Good morning.

Could you tell us, what were the total -- maybe you said it, but I didn't get it -- the total shipments for the company for the quarter and the year, and versus the prior year?

The dollars, you are talking about?

No, no. Units, right. Yeah, units.

Okay. Ron, do you have that?

The total shipments for the year were just under 10 billion, compared to 9 -- excuse me. Just under 10 billion the year before.

So, very similar?

Yes. We basically-- as we said, it was basically flat year over year.

It was up about 2%.

Right. And could you tell us what -- because, you know, when you look at the MSA ink numbers, or at least as reported by some of the tobacco manufacturers, it looks like shipments were down 5.1%, but they are obviously not capturing certain shipments. Could you tell us what your estimate is, industry, what shipments were for the year?

Well, it really depends. The reported shipments under MSAI, from a retail standpoint, were about 350 million units. However, if you take the full non-reported, we believe that the industry was up around 404 to 406 billion.

Billion. Okay. And then, how would that compare to your estimate for the prior year?

It was down about 3.3%.

Okay. So 404 to 406 would be the total. And what -- and so you're saying that you believe that about 8.5% of that were the MPMs?

That's correct.

And then the rest of that above 350 would be the SPMs? The subsequent -- (inaudible)

It would be other non-reported. Yes, it would be SPMs who do not report. Basically, the MSAI data consists of the Big Four and us.

Okay. Right.

So everybody else is out, they are not included in that number.

Okay. Very good. All right. And thank you very much, I appreciate it. Oh, one other question. What do you think of these -- you were saying allocatable share legislation which, I mean, in some states, some of the news stories you read, that there does seem to be some enforcement. But what do you think of this new trend of passing actual fees, additional fees per pack, on the MPMs?

Well, I think Michigan passed legislation to that effect, and I think there's a couple of other states that are moving on it. You know, we -- we, obviously, you know, from the standpoint of our perspective, you know, the states have to assess what their cost is of enforcement procedures against these MPMs. So we think if there's a real cost there, that it's a good thing and it's a good thing for the industry.

Great. Okay. Thanks for your help.

Thank you. Our next question is coming from Joel Luton of APS Financial.

Good morning, guys. Could you give us a little guidance on maybe the forecast for '04 in terms of EBITDA for Liggett? And, you know, a little bit more detail of what your expectations are for Vector Tobacco, you know. Do you plan to spend as much in '04,as you did in '03, or do you plan to cut that back?

Let me just answer the Vector Tobacco piece. First of all, the spending has been cut back significantly. It will be nothing like those types of spending in '04. We're down to a mode of just doing research Omni and these test markets at the present time on Quest. So we'll have no spending up. In addition, as you know, we have moved all production to Melbane. You are talking a much, you know, greatly reduced, let's say 60-70-80% reduction in those costs. What was the other question, Joel?

In terms of the Liggett --

Ron, you can take that.

The best I can give you is, I think the total will be higher than 2003.

Right. What was the EBITDA for Liggett in '03? 119?

Just under 120.

Okay. And -- and do you have expectations of what your cash position may be at the end of next -- at the end of '04? Do you think your cash position will be about the same where it is now or do you anticipate it will decline further?

I think it will go up somewhat.

Yeah, I mean, cash should be improved at the end of 2004.

Even with the dividends, the cash should go up somewhat.

Okay. In terms of -- you know, kind of what are the -- when you said you had a .5% market share in your core markets on the Quest, is that a disappointment so far? I mean, I know at one time you were, like, tracking, you know, 1% market share in those cores. You know, how do you interpret those numbers? And, you know, is that a disappointment or does that send you a positive signal at this point in time?

Do you want me to answer that, Ben?

Yeah, go ahead.

Basically, I would say that we obviously would like to have those numbers to be higher, but we feel that there is a core strength to the brand and that it's actually held its own very well during a very difficult period in the marketplace. As you know, the -- we basically did not do any advertising in the second half of last year, and yet we still effectively came close to retaining the base share that we have.

Now we've started advertising again at this point, and, you know, the brand is continuing to show that it has -- that it has staying power in the marketplace. So I would say that we obviously want to see it go higher. We'd like it to be higher than what it is, but I wouldn't characterize ut that we are disappointed in it.

Okay. Thanks a lot.

You're welcome.

Thank you. Our next question is coming from Mitch Pendis of RBC Dain Rauscher.

Hi, guys. Nice quarter.

Thank you.

A couple of questions, if you don't mind. New Valley is, obviously, majority owned by Vector. Can you shed some light on some of the operations over there and the prospects for turning around some losses and recovery?

Howard, do you want to take that?

The basic New Valley now is, New Valley's basic holdings are about 80-some-odd-million dollars in cash and securities, and 50% of an entity that controls what we refer to as Prudential Builder Settlements, which is a large residential real estate brokerage operation. That is doing very well. So, therefore, we expect that will, you know, obviously enhance the profitability of New Valley.

Besides that, we have some real estate investments which are doing very well. But the only thing on the operating side, Mitch, I think, as you know, realistically, is the real estate brokerage end of it, which, as I said, is doing well. I think partly, obviously, the market is very strong in the New York area and we're benefiting from that. And we had a very good first year 2003, with the purchase of those signing (phonetic) and 2004 is starting well to do real gangbusters, so it looks good from that perspective.

Also, you mentioned that-- I read in the reports, obviously, that Henry Bernstein has been added on the board. He's seen also on New Valley as well, am I right?

That's correct.

Okay. Are there any other inter-connections that we should know about?

Yeah. He's also on the board-- he's also on the board of Ladenberg.

He's also on Ladenberg?

Now, Ladenberg, we don't directly control anymore. It's been spun off to the shareholders.

Okay.

He's on those three boards and functions on the audit committees as a CPA. It's very difficult now with new rules to find independent directors that are qualified. And you-- basically, to qualify, it looks like you have to be a CPA, okay? And it's not easy to find, you know, people that qualify that want to serve.

Okay. You also mentioned, though, that he's a money manager, and I'm just wondering what type of position he's holding in either Vector or New Valley or any of these other companies? And this would be, obviously, a full disclosure-type question.

I don't know the answer, to be honest.

What's the question again?

What does he hold, what positions? In other words, is he trading Vector and New Valley securities, does he own stock for his customers or himself?

I don't know.

I believe that he is a shareholder, because he got involved originally in New Valley through the old bankruptcy. I believe he is a shareholder in New Valley.

He owns B's, we know that.

Yeah. He had owned B's, which are now warrants, effectively.

He owns some common stock and some warrants in New Valley.

Okay. If it's possible, I'd like to get an answer about that off this call, if we could. I'll call back.

Yeah, no problem.

Last question, you mentioned that you're expecting sales of buildings in Q4. Can you give us an idea of how much -- how much in proceeds you can expect from that sale?

The contract that we have, if it closes in the fourth quarter, would be in the range of $15 million. That's for the Liggett Durham facilities, not for the Vector Timberlake facilities.

These are for the old, old buildings.

Right.

Got it. Okay. All right, thanks, guys.

You're welcome.

Thank you. Once again, if you do have a question, please press the numbers one, followed by four on your touch-tone phone telephone. Our next question is coming from Mark Mantagna of Jefferies & Company.

Hi. A few questions. I wonder if you could tell us what your projected MSA payment per-thousand-cigarette-sold is for '04 and '05?

For '04? Go ahead.

The MSA rate, we don't -- we're not disclosing what the -- what our net payment would be.

That's fine, whatever the rate.

Yeah. The rate is approximately $20 per thousand.

Okay. What about for '05?

For '05, it -- it will likely be slightly higher than that, but don't know yet. It depends on the calculation of industry volume and the growth of the MPMs, which are things that, you know -- I mean, we are barely able to calculate that for 2004, so 2005 is an unknown. But it should be somewhat higher, although not markedly higher than that.

Okay. Also, in terms of your ad budget for the fourth quarter, I'm wondering what your Quest ad budget was for the fourth quarter of this past year?

Past year?

Yeah, versus the previous year's fourth quarter, and then the overall ad budget for 2004 projected versus 2003 actual.

Well, what I can tell you is that the fourth quarter advertising budget for Quest was virtually nothing. All of the activity on Quest in the fourth quarter was point-of-sale-promotion type of spending. Ben, I don't have the fourth quarter 2002 handy, but --

I'm trying to remember --

I think the heavy expenditures really came in starting in the first quarter.

Okay.

So there really was nothing of significance in the fourth quarter of 2002 that I'm aware of.

And, as far as going forward, the levels will be far less than what we had ran with the start-up in 2003. But, again, we're not prepared to say any more than the equivalent would be, of what we are going to be spending, would be an annual national theoretical of approximately $45 million. But that, when you take that into seven states and Arizona, the amount is obviously significantly less than that.

Okay. All right, next question. I'm just wondering in terms of how many units were shipped for the fourth quarter for Liggett division, premium versus discount, and then the Vector division, the total amount shipped for Quest cigarettes.

Well, as you know, we're not reporting the Quest volumes.

Okay.

And for Liggett in the fourth quarter, we were looking at approximately 2.4 billion.

2.4 billion what?

Total units.

Oh, that's right. I'm sorry.

2.4 for the fourth quarter. Units.

Yes.

And basically 94% of that was discount.

Okay. And then, for this new year, are you expecting the same general pricing pressures as you had -- it sounds like you are expecting the same pricing pressures, but would you expect to have a similar, say, margin decline like Philip Morris experienced or will it be less of a decline in terms of, say, their profits?

No, I mean, we -- obviously, you know, the pressure that existed over 2003, Mark, was relative to the substantial increases in discounting that they did.

Right.

And obviously, our volume, you know, particularly with the Liggett Select brand, was able to continue to grow at a pretty substantial rate. We -- we have increased -- we increased our margin position over 2003, and we're obviously going to look to do what we can to -- to certainly hold that margin and hopefully improve upon it, relative to 2003. So I don't anticipate that we are going to see a substantial margin drop relative to what Philip Morris experienced, no.

Okay. All right. That's good enough. Thanks.

You're welcome.

Thank you. We have a follow-up question coming from Joel Luton.

Yes, Ben, is there any additional collaring on the tax liability issue with regard to Philip Morris?

No, nothing (inaudible) there. Everything is the same, status quo, as you know it.

Okay. Thanks.

All right.

Thank you. We have a follow-up question coming from Mitch Pendis.

Yes, hi. I was just wondering, after I got off the call a minute ago, if you can elaborate a little more on the difference in the sales price per carton on the Quest from the Arizona versus the eastern states?

Yeah, go ahead, Ron.

The difference is approximately $6.50 per carton.

Okay. Can you tell me what it is on the East Coast versus the West Coast, then?

In terms of -- I'm not sure what you are asking me.

The sale price per carton.

You know, it varies across the -- across the states, based upon state excise taxes. But I would say what we're looking at is something in the range of about $3.75--

75 cents.

--Yeah, 75 cents per pack In the East and then you would simply would add 65 cents on top of that for Arizona.

But, again, the markets are different because of state excise taxes. So, you know, they differ based upon, you know, in New York state where you've got, you know $1.50 plus $1.50 in New York, you know, compared to Arizona where -- I don't have it handy , but-

Mitch, in Arizona, Quest is being sold at a higher price than Marlboro, you understand that?

Yes, you mentioned the super premium. But what is it at the wholesale side, though? What do you sell it for?

It's the same. I mean, the list price is a premium list price.

Right.

Which is like $27 and change per carton, and then the discounting of it is what determines how much it sells for and that discounting is done at retail.

Can you give me an idea just of a comparative number, what do you sell the Liggett Select per carton for?

$12.99.

$12.99? Okay. Thank you, gentlemen.

Thank you, and we have time for one further question, coming from Larry Schumacher of Oppenheimer.

Hi, guys. I actually had two questions. I don't know if this was addressed yet, but what is the board's policy with regards to the dividend, and second -- well, answer that question first.

The policy is the same. We declare and continue to declare a 40 cent dividend quarterly. It's not going to change in that regard.

And the second question was, have you given guidance for '04?

No, we have not.

No.

Do you plan on it? Can you?

Well, I think Ron did say during the call that we anticipate it would be higher than it would was in '03.

We anticipate that Liggett -- Liggett's earnings will be higher and Vector Tobacco's losses will be lower.

Okay. And then, I guess a follow-up would be, with regard to the dividend, if it looks like '03 clearly doesn't cover the-- the earnings don't cover the dividend. How does that continue?

Well, again, you have to look at this year's earnings and losses. You know, the dividends -- Liggett by itself is bringing in, let's say, $120 million of EBITDA. The dividend is $65 million. So, if you ignore tax issues for a second, you know, you have enough to cover the dividend.

Okay. Great. Thank you.

You're welcome.

Thank you. That will conclude our question-and-answer session. Are there any closing comments?

No. Thank you everybody for joining us and we'll see you again on the first quarter call.

Thanks a lot.

Thank you all for your participation. That does conclude your teleconference. You may disconnect your lines at this time. Have a great day.