Loews Corporation — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; unaudited. Loews is a holding company with insurance, offshore drilling, natural gas pipelines, exploration and production, and hotel operations. Comparisons are with Q1 2013 unless otherwise noted. Dollar amounts are in millions, except per-share data.
Financial performance
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Total revenues | $3,743 | $3,686 |
| Income before tax | $483 | $498 |
| Income from continuing operations | $391 | $389 |
| Continuing income attributable to Loews | $245 | $234 |
| Net income attributable to Loews | $59 | $242 |
| Diluted EPS | $0.15 | $0.62 |
| Operating cash flow | $423 | $608 |
| Investing cash flow | $(637) | $(633) |
| Financing cash flow | $233 | $(17) |
Continuing EPS attributable to Loews was $0.63 versus $0.60. The quarterly dividend was $0.0625 per share in both periods. Cash increased $6 to $301 during the quarter.
At March 31, total assets were $81,803 and total equity was $25,117. Short- and long-term debt totaled $11,310, compared with $10,846 at December 31, 2013. Investments were $52,063. Parent-company cash and investments, net of receivables and payables, were $5.0 billion, versus $4.7 billion at year-end. Book value per share was $50.89, up from $50.25 at year-end.
Material changes and segment results
- CNA: Continuing income declined to $222 from $242. Management cited lower investment income, higher catastrophe losses and less favorable prior-year development, partly offset by improved non-catastrophe underwriting and higher realized investment gains. Property and casualty combined ratio was 101.6% versus 101.5%; catastrophe losses were $74 pretax versus $39.
- Diamond Offshore: Loews-attributable earnings fell to $69 from $82 as lower utilization and higher interest expense outweighed higher dayrates. Contract drilling revenue was $685 versus $700. Management described weakening floater markets, oversupply and an uncertain near-term outlook.
- Boardwalk Pipeline: Loews-attributable result was a loss of $18 versus income of $33. Revenue rose to $357 from $329, but the quarter included a $94 pretax write-off of Bluegrass project costs. Cold weather supported some transportation and storage revenue; management expects unfavorable contract and market trends to persist.
- HighMount: Loews-attributable loss narrowed to $20 from $88, largely reflecting lower ceiling-test impairment charges of $29 versus $145. Production and equivalent sales declined; management noted continued commodity-price and drilling-economics challenges.
- Loews Hotels: Revenue increased to $105 from $94 and Loews-attributable income was $3 versus break-even. RevPAR rose to $188.04 from $170.22, with occupancy increasing to 75.5% from 71.1%.
- Corporate and other: Loews-attributable income was $11 versus a loss of $11, principally due to improved trading-portfolio investment results.
Unusual items, outlook and risks
- CNA agreed to sell most of its run-off annuity and pension deposit business through the sale of Continental Assurance Company. Closing was expected in Q2 2014, subject to regulatory approval and other conditions. The transaction generated a $214 after-tax impairment loss in discontinued operations; the loss attributable to Loews was $186. Assets of $3,486 and liabilities of $3,250 were classified as held for sale.
- Loews and Boardwalk stopped investing in the Bluegrass project after insufficient firm customer commitments and higher projected costs. The $94 pretax write-off was $55 after tax and noncontrolling interests; management did not expect significant additional charges.
- HighMount reported that 59.0% of estimated 2014 and 28.3% of estimated 2015 gas-equivalent production was hedged. It warned that continued adverse conditions could lead to further impairments.
- Capital plans included approximately $2.1 billion of Diamond Offshore capital expenditures, $420 million for Boardwalk Pipeline, $174 million for HighMount exploration and development, and $300 million for Loews Hotels in 2014. These are company estimates, not consolidated guidance.
- Key risks include insurance reserve uncertainty, catastrophe losses, investment and interest-rate exposure, drilling utilization and dayrates, pipeline contract renewals and capacity pricing, commodity prices, project execution, and subsidiary dividend restrictions. CNA reported $702 of quantified indemnification commitments and also had certain uncapped indemnifications.
- Management reported no material change in market-risk components and said disclosure controls were effective. It provided no consolidated earnings guidance in the supplied filing text.
Important facts for investors to verify
- Whether and when the CAC sale closed, its final proceeds and any related adjustments or obligations.
- Whether core continuing earnings and cash generation offset the unusual discontinued-operations loss.
- Updates to Diamond Offshore utilization, backlog, dayrates and newbuild commitments amid the stated market oversupply.
- Boardwalk Pipeline contract renewals, distributable cash flow and capital spending after the Bluegrass cancellation.
- HighMount reserve estimates, hedge coverage, covenant headroom and potential further impairments.
- Insurance reserve development, catastrophe experience and the effect of subsidiary restrictions on Loews parent-company liquidity.