Vector Group Ltd (VGR) 2004 Q2 法說會逐字稿

Welcome to the Vector Group's second-quarter 2004 earnings conference call. Before the call begins I would 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. Now I would like turn the call over to the President of Vector Group, Mr. Howard Lorber. Sir, the floor is yours.

Thank you, good morning and thank you for joining us on Vector's second-quarter 2004 earnings conference call. Ben is not feeling too great today so I will be handling the call in his absence. With me today is Ron Bernstein, the President and CEO of Liggett Vector Brands and Liggett. On today's call I will provide an overview of our business and the Vector Group performance for the quarter. Ron will then give his perspective on the tobacco industry and we will review the second-quarter performance of Liggett Group and Vector Tobacco. After that, we will be happy to take your questions.

Industry conditions remain unpredictable and extremely competitive. The big four companies continue to aggressively discount their products and have been successful at stabilizing their premium brand shipments. Particularly Philip Morris' Marlboro and RJR's Camel. The branded discount category continues to decline in general with significant declines in RJR's Doral and Brown & Williamson's GPC brands. The deep-discount category is not currently growing which reflects the aggressive pricing action of the big four at the premium level, as well as the modest improvement in the economy.

Notably, and somewhat disappointingly to us the FTC recently approved the RJR acquisition of B&W without any brand divestitures. This creates a Company with in excess of 29 percent of the share of the market and a significant concentration in the discount segment. Combined with Philip Morris' share in excess of 47 percent of the market, the two companies will control over 76 percent of the market. Based upon current and past practices, there can be very little doubt that Reynolds American will move aggressively to limit competition in the marketplace.

Industry wide total domestic first-half shipments declined in the 2 to 2.5 percent range. However, the consumer shift to third, fourth and fifth tier brands had dissipated during the first half of this year. Recognizing these market place trends Liggett has moved aggressively in the second quarter to protect its core brand volumes. This was accomplished by increased promotional spending on both the Liggett Select and Eve brands. As a result Liggett was able to grow Eve volume in the second-quarter by 5 percent over the prior year and 13 percent over the prior quarter. Liggett Select volume declined by a modest 3.8 over the prior year period but grew by 7.7 percent over the prior quarter. Overall Liggett volume declined by 7.7 percent over the prior year period and 5 percent over the prior quarter.

This is reflective of continuing declines in noncore brands, such as Pyramid, Jade, Control and private-label brands. With respect to Quest, the brand remains basically stable with performance in the seven states trending modestly downward during the second quarter. The Arizona market continues to perform well and is trending consistently with the performance in the original seven states. This is important because we continue to sell Quest without promotional spending in Arizona, which prices the brand approximately 750 a carton above Marlboro. This confirms that the Quest brand has significant price flexibility in the marketplace and is viewed by a segment of consumers as a relevantly differentiated product with a greater value than traditional cigarettes.

After significant review of Quest performance in its existing markets and careful consideration of current market conditions, we have determined that we will be not be launching Quest nationally during 2004. Further, given the competition for shelf space in the marketplace, which will likely get tougher with the RJR ***B&W merger and the expense associated with a conventional national launch, we do not believe that such a launch will make sense in the foreseeable future. As a result, we have determined that Quest, a unique product, needs a unique outlet for its sales and we are considering making Quest available for purchase over the Internet in early '05. We are currently addressing the operational issues necessary to enable us to sell Quest in this way and are working on clearing any regulatory hurdles. We will provide more details on the anticipated online launch during the next two quarter conference calls.

As most of you are aware, Quest 3 is currently made exclusively with burley tobacco. This gives Quest 3 unique taste characteristics that does not appeal to most consumers. We have been working for some time on the development of a flue-cured tobacco, which is much more popular in the United States as far as taste is concerned, without nicotine, and are pleased to report that we currently have a test crop growing in Louisiana. We expect to test this in cigarettes by the end of the year and if successful we would be able to blend no-nicotine flue-cured tobacco and no-nicotine burley tobacco into our Quest cigarettes by early '06. This should provide Quest 3 with a more typical American blend flavor and make it acceptable to a broader base of consumers.

In addition, we continue to work with the FDA and have received preliminary guidance from them as to the required research and regulatory filings necessary to eventually market Quest as a smoking cessation product. We are optimistic about this process and continue to believe that FDA approval of a smoking cessation regime is a key element to our long-term Quest strategy and we will continue to work toward that goal.

The situation with Omni remains basically unchanged since the prior call. We continue to focus on conducting additional research and are making progress on the scientific front. We continue to believe in the long-term opportunities associated with a true reduced risk product and will provide further updates as appropriate through the year.

Now I will review the key financials for the three and six months ended June 30, 2004 for Vector Group, our conventional cigarette business and our Vector Tobacco new technology cigarette subsidiary. Our conventional cigarette business includes sales of both Liggett Group cigarettes and our USA brand cigarettes from the Medallion acquisition. For the second quarter ended June 30, 2004 Vector Group revenues were 121.9 million compared to 131.2 million in the 2003 second quarter. The Company recorded operating loss of 25 million compared to operating income of 823,000 in the 2003 period. During the second quarter of 2004 based upon the current Quest sales levels and uncertainties regarding the future strength of the brand, we wrote down approximately 95 percent of the carrying value of our Quest tobacco leaf inventory. This resulted in a pretax non-cash charge of 37 million.

It is important to note that all of the tobacco isn't paid for (ph) and the life of tobacco is quite long, so we anticipate that we may have the opportunity to recapture at least some of the value in the future. In addition, our quarterly results include pretax restructuring charges of 2.4 million in connection with our continued efforts to streamline operations and maximize efficiency at our Liggett and Vector Tobacco operations.

Adjusting for the inventory and restructuring charges, the Company's operating income for the 2004 second quarter was 14.4 million, an increase of 13.6 million from the 2003 period. Net loss was 16.9 million or 43 cents per diluted common share compared to a net loss of 4.9 million or 13 cents per diluted common share in the 2003 second quarter. After adjusting for the inventory and restructuring charges that we have just discussed, the Company had net income of 8.4 million or 20 cents per diluted common share in the 2004 second quarter, which represented an increase of 13.4 million from the 2003 period.

For the six months ended June 30, 2004 Vector Group revenues were 250.2 million compared to 264.3 million in the first half of 2003. The Company recorded operating losses of 11.2 million compared to operating income of 623,000 for the 2003 period. Adjusting for the inventory charge and pretax restructuring charges of 3 million, the Company's operating income for the six months ending June 30, '04 was 28.8 million, an increase of 28.2 million from the 2003 period. Net loss was 12.3 million or 31 cents per diluted common share compared to net loss of 9.8 million or 25 cents per diluted common share in the 2003 six-month period. Adjusting for the restructuring and inventory charges the Company had net income of 13.4 million or 33 cents per diluted common share in the first half of 2004, which represented an increase of 23.3 million from the '03 period.

Now I would like to 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 the operating companies.

Thanks, Howard, and good morning everybody. For the three and six months ended June 30, 2004 our conventional cigarettes generated revenues of $115.6 million and $237.8 million compared to 120.8 million and 245.7 million in the 2003 period. Operating income for the three and six months ended June 30, 2004 was $25.4 million and 53.2 million compared to 27.6 million and 57.8 million for the 2003 period. These numbers includes an adjustment to internal allocations of sales, marketing and administrative expenses of Liggett Vector brands between our conventional cigarette business and Vector Tobacco. This resulted in a $3.1 million and a $6.4 million increase in allocated expenses for the three and six-month periods at Liggett and a like reduction at Vector Tobacco. This had no impact on a consolidated basis.

Adjusting for a $1.9 million restructuring charge and the $3.1 million increase in the internal allocation of expenses, operating income at the conventional cigarette business was 30.4 million for the three months ended June 30th an increase of 2.8 million over the prior year period. For the six-month period ended June 30, 2004 adjusting for 2.4 million of restructuring charges and the $6.4 million increase in the internal allocation of expenses, operating income at the conventional cigarette business was $62 million an increase of $4.1 million over the prior year period.

Our Vector Tobacco subsidiary continued to have significant though reduced expenditures for items such as R&D and advertising related to Quest and recognized the $37 million inventory charge during the period. As a result of the above, Vector Tobacco's operating losses for the three and six months ended June 30, 2004 were $44.4 million and $53.1 million compared to operating losses of $21.2 million and $45.5 million for the prior year periods. Adjusting for the inventory charge, a restructuring charge of $396,000 and the decrease in the internal allocation of expenses previously referenced Vector Tobacco's operating loss for the second quarter of 2004 was $10.1 million, an improvement of $11.1 million from the prior year period.

For the six-month period ending June 30, 2004 adjusting for the inventory charge, restructuring charges of $660,000 and the decrease in the internal allocation of expenses Vector Tobacco's operating loss was $21.9 million, an improvement of $23.6 million from the prior year period. We do anticipate that expenses will continue to decline at Vector Tobacco as we realize the full benefit of our cost-cutting actions.

As Howard previously indicated, the current conditions in the marketplace are highly competitive and very challenging. The big four companies, particularly Philip Morris and R.J. Reynolds have moved aggressively to narrow the price gap between premium and discount brands. This has enabled them to maintain and in some instances increase share and volume. At the same time, despite more legislative pressure, the non participating manufacturers of the Master Settlement agreement continue to price significantly below us in the marketplace.

As a result, we are currently squeezed between these two groups with limited short-term opportunities for growth. Recognizing this trend early, we were able to adjust pricing during the second quarter and limit Liggett Select's volume declines to only 3.8 percent over the prior year period, while growing the brand by 7.7 percent over the first quarter. This enabled us to maintain momentum on the brand and assure that our key customers remained competitive. On a year-to-date basis Liggett Select has grown 1.4 percent over the prior year period.

I am pleased to report that despite the difficult conditions, Liggett Select has performed very well in our new accounts. As an example, after less than eight weeks of sales in Wal-Mart, Liggett Select has already achieved a 2 percent market share in their 2950 stores. At Stuart's in upstate New York we have achieved a 1.5 percent share in their 310 stores in less than four weeks. During the second- quarter we introduced new and improved Liggett Select packaging which reflects the true quality that the brand represents. We raised the price of Liggett Select by one dollar per carton, effective August first, and we expect the brand to deliver stronger margins throughout the remainder of the year. We also expect that our continued strong performance in new chain accounts will provide us with long-term growth opportunities for the brand.

Our other core conventional brand, Eve, continues to do well growing at a rate of 5 percent over the prior year period and 12.6 percent over the prior quarter. This is reflective of the pricing adjustments made on the brand earlier in the year and our sales force’s tactical focus on Eve at retail.

As announced during the previous conference call, we continue to make efforts to maximize the efficiency of the Company and in April we eliminated 83 positions from our organization. This resulted in a total charge of approximately $1.8 million with 0.4 million taken in the first quarter and 1.4 million taken in the second quarter. In conjunction with this action we realigned our sales force to improve the efficiency of the Liggett Vector brand selling organization. The realignment, which includes changes in calling patterns as well as the elimination of certain full-time sales representatives and the addition of part-time merchandisers, has enabled us to enhance the call frequencies on key profitable accounts and position the Company to maximize opportunities in new chain accounts.

Regarding Quest and following up on Howard's comments, we believe that the Internet may present an opportunity to take the brand forward in a manner that is consistent with its unique characteristics. Despite the highly competitive environment for retail shelf space and limited advertising opportunities, Quest continues to maintain an approximate 0.42 percent market share in its core retail outlets in the seven states and is currently holding an approximate 0.46 percent share in the Arizona core outlets. This reflects the fact that Quest is a viable consumer proposition when available to its target audience but requires an alternative means of reaching them in the current environment.

Relative to the nonparticipants of the Master Settlement Agreement, we continue to see progress on the legislative front with 36 states having now passed the allocable share legislation. The result of this and the increased promotions of the big four have clearly stopped the growth of the NPMs. However, they are not going away. Instead, they are fighting for survival and doing their best to hold volume by slashing margins and pushing deals. Obviously this is something that cannot be maintained indefinitely. But in the short-term will continue to strain our margins. We are seeing some of the larger NPMs now negotiating to become participants in the MSA, which if fairly applied should level the playing field and provide Liggett a long-term advantage.

We believe that this year will remain highly competitive in the marketplace with almost frantic competition from the NPMs as they seek a basis for survival. Combined with Philip Morris and RJR's ongoing and successful actions to narrow the price gap between premium and discount cigarettes, it is anticipated that margins and volume growth will remain strained throughout the balance of the year. The impact of the new Reynolds American remains to be seen, but all indications are that it will further serve to limit competition in an already difficult marketplace.

Thanks for your attention, and back to you, Howard.

Thanks a lot, Ron. Before I finish the prepared remarks I wish to once again reaffirm that our cash dividend policy remains the same.

Now operator, could you please open the call for questions?

(OPERATOR INSTRUCTIONS) Derrick Wenger of Jefferies & Co.

I just want to know the capital expenditure plans for this year and if you have any outlook on next year as well?

Yes, relative to this year we are anticipating that we will have in the range of approximately 5 to $6 million. And we are running depreciation somewhere in the range of $7 to $8 million. And we don't have anything yet on 2005.

Okay. Thank you.

Joel Luton of APS Financial.

This may be a question more suited for Ben, but I will direct it to Howard. In terms of the Company’s leverage, you have increased your debt ever since you sold the brands to Philip Morris. I look at what has happened with the Quest and the Omni, and they really haven't panned out as expected. What is your strategy going forward with respect to your debt levels? Do you plan to use your free cash to start reducing debt and kind of shore up the balance sheet, or what are your thoughts on that area?

Yes, I think that is the plan. I think as we have free cash, as the expenditure levels go down for Vector Tobacco that will create some free cash in addition to some asset sales, like we announced that we sold the old Vector Tobacco factory. Also have scheduled to close on some sale of some old Liggett factories in Durham. Our plans for those proceeds are pretty much to retire debt, so to start lowering our debt levels and start deleveraging.

Ron, I saw in the Q that on the advertising, I guess the print advertising on the Quest, that apparently you were getting some flak from the State Attorney Generals on some of the claims made on that product. And as far as I can see you all aren't making any tremendous claims but can you comment on that issue?

Yes, basically the questions evolve around whether or not there is an implication that Quest is a smoking cessation product or not, as well as questions as to whether the sheer or the mere absence of nicotine implies a health claim. We are maintaining a dialogue with them, but we have pretty strong beliefs that our advertising has been well vetted and meets the appropriate guidelines.

Let me add something on that. I was at at least most of the meetings if not all with the Attorneys General on this. They had two issues. One was when you say 1, 2, 3 with arrows does that basically -- does the arrows take people to believe that that is the way you stop smoking, and therefore it's a smoking cessation claim. So we are looking at possibly changing our advertising a little bit on that. That's being worked on. And I sort of understand that. The one I didn't understand is they sort of worry also about there being an implied health claim and what is the implied health claim? That even if you just say nicotine-free, that people are going to think that it's better. Well, I brought Webster's dictionary with me. I showed them the definition of nicotine which basically said it's a very harmful substance. So I said well, if the dictionary says it is a bad substance and it’s nicotine-free, of course it's implied that it may be better. But this is how they think. So we basically try to work with them and deal with it. But those are their two areas of concern.

Okay. And anything on the stock dividend and the 5 percent dividend?

In all fairness, we have not even discussed it yet.

Okay. Thanks.

Andrew Shapiro of Lawndale Capital Management.

A few questions, if I could ask here on regarding your big cash forward and your big asset over at New Valley. It looks like this quarter the New Valley obviously mitigated the losses and activity over at Vector, and that is where really all the liquidity, or the cash resides. As you are continuing to pay the dividend over at Vector, and you have the leverage already there, what are your thoughts, or is it one of the alternatives that you viably consider in terms of a dividend coming up from New Valley into Vector? And of course to the rest of the New Valley shareholders?

We have not considered that. We are hoping that the cash will be used at the New Valley level for acquisitions, probably in our real estate business or as we have said in the past, if there is some great opportunity in a different industry we would consider it at the New Valley level. We don't have any immediate plans for a dividend in cash out of New Valley.

Okay, so the cash stays down there and in terms of your acquisitions, real estate or anything else that appears interesting, is there with the decline in the market things the way they've been, are there acquisitions in front of you that are regularly evaluated, hot? Can you give any kind of guidance, input with respect to there is a large cash hoard that does not earn much of a rate of return, as to when and how it might get deployed in terms of aggressiveness or timing?

Some of our cash dumping has been in marketable securities, and we have happened to done very well in those over the last year. So it's not like it is all sitting in money market funds earning a half a percent. We've had some very good investments in a couple of situations, as you are aware of like Midas (ph) being one. And so I would say that we are always looking. It has been very hard the last few years because you have the big private equity players stepping up to the plate with $3 billion, $5 billion funds, and we don't have that type of money.

So most of the things we look at seriously are distress type of opportunities, and obviously we look at them and if there was something we made a shot at trying to do this global start deal -- at the end of the day we thought it was too expensive and too much risk, we didn't do it but those are probably the type of things we would do non-real estate. On the real estate side we are always looking for acquisitions, whether it is actually buying real property or whether it is to enhance our Douglas Ellman brokerage operation.

Two follow-ups on that with respect to the real estate, when does the hotel in Hawaii open and is that on schedule?

It's on schedule, on budget. It should open, soft opening in October. They are taking reservations already, so we will be open this season.

Last question, Ladenburg last quarter there was the anticipation that two notes that New Valley had, one of them was going to get converted into equity, and then distributed out. That meeting got put off at Ladenburg, can you update us on the goings-on and the status of New Valley's investments there and distributions out?

I believe we have written down the note -- haven't we (indiscernible) we've written down the notes?

(multiple speakers) It was actually going be a nice windfall to all New Valley shareholders including Vector.

Need I tell you how the state of the brokerage industry right now. So, all I can say is if the market continued this way for a long period of time I don't think there would be much hope, hopefully things will change a little bit and we are looking for ways to enhance the business at Ladenburg. And then once there is more of a long-term plan then we will consider going forward and converting the notes. Right now it just doesn't mean anything because business is pretty lousy. So we are just sort of waiting it out a little bit.

Right, well the reason the delay occurred is that they had a capital issue, and it would seem that the conversion of debt into equity would have helped satisfy some of that issues.

Well, that doesn’t. No; that doesn’t. That’s just a debt-to-equity thing. And no. That is not true. The debt is at the parent company, so it had nothing to do with that. We just wanted -- it would look better for balance sheet purposes, and we are going to probably raise equity or try to raise some equity for Ladenburg and then maybe we will do it at that time, but we have not finalized the plans yet.

Very good, thank you.

(OPERATOR INSTRUCTIONS) Mark McMahon (ph) of Wachovia Securities.

I have got a couple questions for you. The one is kind of an odd duck question. Recently we were doing some exploratory on the Internet just punching in nicotine-free, Quest, Omni that sort of thing and an interesting study popped up out of the Asia Pacific rim. It was a fairly large study about 150, 200 pages it was talking about nicotine-free cigarettes and what their effect on a smoking population would be, and long story short, at the end of this study the doctor concluded that the results are inconclusive at this time. However they will be getting a real world opportunity to see a nicotine-free cigarette in action based on Quest being introduced into the Pacific region in a very short period of time. I was wondering if you can comment on what they are referring to.

Really there isn't anything much to say about it, Mark, because we have no plans at this point. There is nothing imminent relative to us introducing Quest into the Pacific Rim. There is somebody who is looking to do a test in the Pacific Rim, and we have had preliminary discussions with them about it. It is not -- it is a cessation related test similar to the type of thing that we are doing with Jed Rose here at Duke. It is not a market oriented type of test.

This study was based on, I think it was New Zealand.

That is correct.

The doctor seemed to imply that it was going to be widespread and that it would conform with some new governmental rules regarding nicotine levels in cigarettes.

Right. They are very proactive for their own purposes, and as I said we are working with them or talking with them at this point about how to coordinate that test.

Okay. You had mentioned you guys are raising the prices of Liggett Select by a dollar a carton but at the same token you're talking about how the competitive practices of the other tobacco companies is going to increase or at least remain the same for the foreseeable future, which would create margin pressures. How do you reconcile the fact that if you are raising prices by Liggett Select a dollar a carton which is pretty substantial, how that increases margin pressure for you?

It's about momentum, Mark, and what you have right now is the market is very dynamic. And as we started 2004 it was very soft. And we had reason to believe in the early stages of 2004 that it would stay very soft. As a result of that, we increased our promotional activity on as we said during the call on both Eve and Liggett Select. That helped to propel momentum on the brand. And in fact, the brand is operating very strongly. It also allowed us to work through our old packaging on Liggett Select so that we could introduce the new packaging on a broad basis. We are going into new markets now in terms of the development of our chain account business as opposed to the traditional business that we've done in independent stores, where pricing is less of a factor because we are not going head-to-head with renegades.

In a lot of the new chains that we have been in talking about on the last three or four conference calls. So as a result of that, we have flexibility within the context of those accounts. And what we have to do is we have to -- the market has strengthened coming into the June period. Our Liggett Select sales strengthened significantly during June, and we anticipate that the market will hold some strength for the very short term. We then will have to take actions as necessary to adjust our promotions if we see further strain.

Also, the passage of the allocable share over the period of time now in 36 states is going to be a factor. So while the prices increased, you increase the List Price everywhere you have to look at your promotional basis or your promotional spending on more of a tactical level than a strategic level.

Would you be able to then segue into where you primarily saw the revenue decline? Was it based to the promotions, or was it based to a specific brand?

It was primarily reflective -- the overall revenues for Vector Group were reflective of lower volumes this year on Quest versus last year, as well as I indicated the 7 or 8 percent decline that we had in our noncore brands at Liggett. In addition to that, there was enhanced promotional spending during the second quarter in order to bridge that period of softness in the marketplace.

So you would attribute it, it was noncore brand so it wasn't affected by say Liggett Select in terms of volumes?

No. Other than the fact we increased promotion on Liggett Select, and remember with the accounting system that we have to use under GAAP our promotions come right off of our revenues.

Final question. I'm confused about your proposition of going on the Internet for Quest sales. As of right now you can buy Quest online, so I'm not quite sure what you are getting at.

It is a very different proposition, and if you go to the sites that are selling Quest, they are simply sites that are typically discount oriented sellers of cigarettes. We're talking about a very different proposition. We are talking about a Quest dedicated store, in essence, on the Internet. And I'm not going to go into too much detail on it right now, Mark, but there would be substantial advertising placed on the Internet in order to bring people to the Quest store. Nobody is advertising any of the sites that are existing on the Internet right now. And certainly the orientation isn't towards Quest with explanation.

Back when we first introduced Quest and we were doing Internet advertising in order to bring people to our website, we were getting somewhere in the range of 25,000 to 30,000 hits a week on that. And we believe that based upon what we've learned about the brand from a demographic standpoint, that the Quest smoker is most definitely an Internet user and most likely an Internet orderer of goods. So we believe that there is a unique opportunity for the brand on the Internet, and it is a dramatically different one than the sites that are currently selling, which only people who are looking for deals are going to.

Final real quick question is still on Quest, it looked to me when looking at a quarter-over-quarter basis that Quest sales actually increased by about 7, 8 percent, yet you have said I think two or three times now that it is either stable or in slight decline. But if I look at the Q it is actually up 7, 8 percent on a quarter-over-quarter, not year-over-year basis. And would you attribute that to Arizona?

You are looking at revenues, and remember we are selling Quest in Arizona without promotion.

Oh, I see. Okay. So that’s the top line. Okay.

We also have reduced our promotional spending in the seven states, as well. And that is the whole essence there is the pricing flexibility, which I think has become clear.

Thanks, you guys.

Larry Shoemaker of Oppenheimer & Co.

Never know who you are going to run into on one of these calls. Any chance that cash will be used for a share buyback?

The New Valley cash, at New Valley you mean?

No, Vector, was he talking about cash, the previous caller?

He was talking about cash, the prior -- That was cash at New Valley. There is not a lot of cash at the Vector level to do that, so the answer would be no there. New Valley does have a buyback for New Valley stock.

On a dividend issue the Board, management is going to maintain the current dividend policy. How does that happen? Where does the cash come from?

The cash in the past has come from -- we had substantial cash from the sale of the brands to Philip Morris and also from the convertible that we did, and a lot of that has been used to -- for the Omni and for the Quest on the Vector Tobacco. And now at this point basically the cash has to come from operations.

Is there a concern there that that could not happen?

There's always a possibility. We've managed to keep it, to generate enough to we believe to generate enough to keep the dividend. We look at it on a quarter to quarter basis. And with the decreases in the losses of Vector Tobacco our current plan is to continue to pay the dividend as is.

Okay. Thanks a lot.

There appear to be no further question at this time. I will now turn the call back over to Mr. Howard Lorber for any further closing comments.

Thank you all for being on this second quarter 2004 conference call. As always, Ron or myself or Ben is available if you need any of us please call us at the office. Have a great day.

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