Loews Corporation 2019 Form 10-K Summary
Business context and reporting period
Loews Corporation is a holding company with five reportable segments: CNA Financial (commercial property and casualty insurance), Diamond Offshore (offshore drilling), Boardwalk Pipelines (natural gas and NGL transportation and storage), Loews Hotels & Co, and Corporate, which includes Altium Packaging. This filing reports the fiscal year ended December 31, 2019; comparisons are primarily with 2018. Amounts are in U.S. dollars unless stated otherwise.
Financial performance and position
- Revenue: $14.931 billion, up 6.2% from $14.066 billion. CNA contributed 72.3% of consolidated revenue.
- Profit: Income before tax was $1.119 billion versus $834 million; net income was $871 million versus $706 million. Net income attributable to Loews was $932 million, up from $636 million; diluted EPS was $3.07 versus $1.99. The attributable net margin was approximately 6.2% (versus 4.5% in 2018); pretax margin was approximately 7.5% (versus 5.9%).
- Operating cash flow: $1.741 billion, compared with $4.222 billion in 2018. Investing cash flow was an outflow of $671 million and financing cash flow an outflow of $1.144 billion. The filing’s cash flow reconciliation includes large trading-securities movements, so operating cash flow should be assessed alongside its components.
- Balance sheet and liquidity: Total assets were $82.243 billion, total equity $21.930 billion, and reported debt $11.533 billion, versus $78.316 billion, $21.386 billion, and $11.376 billion, respectively, at year-end 2018. Cash was $336 million and investments were $51.250 billion. Parent Company cash and investments, net of receivables and payables, totaled $3.3 billion.
- Capital returns: Loews repurchased 21.5 million shares for approximately $1.1 billion in 2019 and paid $0.25 per share in dividends. The filing reports 290.97 million shares outstanding on a year-end selected-data basis and 287.77 million shares outstanding on February 7, 2020.
Material changes versus 2018
- CNA: Loews-attributable income rose to $894 million from $726 million. CNA benefited from higher investment income and underwriting results, but recorded a $151 million after-tax and noncontrolling-interest charge for a long-term-care active-life reserve premium deficiency. Its P&C combined ratio was 96.7%, unchanged year over year; favorable prior-year reserve development decreased to $73 million from $181 million.
- Diamond Offshore: Loews-attributable loss widened to $175 million from $112 million. Contract drilling revenue fell $125 million, while contract drilling expense rose $70 million. Backlog declined to $1.6 billion at January 1, 2020 from $2.0 billion a year earlier.
- Boardwalk Pipelines: Loews-attributable income increased to $209 million from $135 million. Growth projects supported revenue, while some contract restructurings and expirations were renewed at lower average rates. Loews’s ownership increased to 100% following its 2018 purchase of the remaining units.
- Loews Hotels: Loews-attributable results shifted to a $31 million loss from $48 million of income. Revenue was affected by renovations and hotel sales; impairment charges increased to $99 million from $22 million.
- Corporate and Altium Packaging: Corporate segment income improved to $35 million from a $161 million loss, principally reflecting stronger parent-company investment results. Altium revenue was $932 million, up from $867 million, including acquisition contributions.
Outlook, risks, contingencies and unusual items
- No consolidated earnings guidance was provided. Management described a continuing challenging offshore drilling downturn. Diamond Offshore expected negative aggregate cash flow in 2020, planned capital expenditures of approximately $190–$210 million, and expected to draw on its credit facilities. Its credit ratings were below investment grade.
- Boardwalk expected approximately $475 million of 2020 capital expenditures, including about $320 million for growth projects, and expected its existing capital resources to fund 2020 operations. It also expected about $460 million of spending on growth projects under construction through 2022. New pipeline-safety requirements could increase costs or cause delays.
- Loews Hotels had several development projects expected to open in 2020 and 2022. The filing highlights exposure to economic and travel conditions, seasonality, regional concentration in Florida, competition, construction costs and disease outbreaks, including coronavirus.
- Key insurance risks include uncertainty in long-tail claim reserves, long-term-care assumptions and catastrophe losses. The long-term-care premium deficiency followed lower expected reinvestment rates and changes in persistency assumptions. CNA’s $4.0 billion A&EP loss portfolio transfer had $3.2 billion cumulatively ceded at year-end; further losses above the limit, or counterparty nonperformance, could affect results.
- Other risks include subsidiary debt and refinancing needs, interest rates and investment-market volatility, customer concentration at Diamond Offshore, regulatory and environmental requirements, climate-related policy and demand changes, cyber incidents, and limits on subsidiary dividends to the holding company.
- Unusual items include $99 million of hotel impairment charges; the CNA long-term-care reserve charge; and CNA’s $21 million pretax loss on refinancing notes. Loews reported no off-balance-sheet arrangements at year-end. The financial-statement audit opinion was unqualified, and management and the auditor reported effective internal control over financial reporting.
Important facts for investors to verify
- Review CNA’s long-term-care reserve assumptions, future premium-rate approvals and sensitivity disclosures, and monitor subsequent reserve development.
- Assess Diamond Offshore’s liquidity runway, 2020 cash-flow expectations, debt covenants and refinancing options alongside the declining backlog and contract expirations.
- Check Boardwalk’s contract renewals, project spending, pipeline-safety compliance costs and available borrowing capacity.
- Evaluate whether hotel impairments, development commitments and Florida concentration affect future returns, and monitor the impact of travel and health risks.
- Reconcile the filing’s $11.533 billion reported debt carrying amount with its contractual-obligations table, which lists $16.279 billion of debt payments including estimated future interest; distinguish these measures when assessing leverage.
- Track the effect of share repurchases and subsidiary distributions on per-share results and parent-company liquidity, noting that subsidiary distributions are subject to regulatory, covenant and funding constraints.