Loews Corporation — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Unaudited consolidated results. Loews is a holding company with insurance, natural gas pipeline, hotel and packaging businesses. Diamond Offshore was deconsolidated effective April 26, 2020, following its Chapter 11 filing.
Financial results and liquidity
| Metric (USD millions, except per-share data) | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 |
|---|---|---|---|---|
| Reported total revenues | 2,310 | 3,623 | 5,409 | 7,380 |
| Net income (loss) attributable to Loews | (835) | 249 | (1,467) | 643 |
| Diluted earnings (loss) per share | (2.96) | 0.82 | (5.16) | 2.09 |
| Operating cash flow | Not presented quarterly | Not presented quarterly | 440 | 474 |
Reported revenues include investment gains and losses, so the 2020 totals were affected by investment losses and the removal of Diamond Offshore from consolidation. Q2 pretax loss was $1.074 billion; H1 pretax loss was $2.195 billion. No consolidated profit-margin figure is provided.
- Primary unusual loss: Diamond Offshore deconsolidation produced a $1.211 billion pretax investment loss, or $957 million after tax, in Q2 and H1.
- Other material pressures: CNA catastrophe losses were $301 million in Q2 and $376 million in H1, versus $38 million and $96 million, respectively, in 2019. The 2020 losses included COVID-19, civil unrest and weather events. Diamond Offshore also recorded $774 million of rig impairment charges ($408 million after tax and noncontrolling interests) in H1.
- Cash flow: H1 investing activities used $325 million, versus $44 million provided in 2019; financing activities provided $222 million, versus $485 million used. Cash rose to $668 million from $336 million at year-end.
- Debt and liquidity: Balance-sheet short- and long-term debt totaled approximately $10.0 billion at June 30, compared with $11.5 billion at December 31, 2019. Loews issued $500 million of 3.2% senior notes due 2030 in May. Parent-company cash and investments, net of receivables and payables, were $3.6 billion, versus $3.3 billion at year-end.
- Balance sheet: Total assets were $78.4 billion versus $82.2 billion at year-end; total equity was $18.4 billion versus $21.9 billion. Changes include Diamond Offshore deconsolidation. Insurance reserves were $39.9 billion.
Material changes and operating segments
- CNA: Loews-attributable income was $135 million in Q2, down from $249 million; H1 income was $80 million, down from $554 million. P&C combined ratio rose to 112.3% in Q2 from 95.7%, and to 104.8% in H1 from 96.8%, reflecting catastrophe losses and, in Q2, unfavorable prior-year reserve development. Premium growth and higher Q2 investment gains partly offset these pressures.
- Boardwalk Pipelines: Loews-attributable income was $34 million in Q2 and $99 million in H1, versus $53 million and $132 million. Revenue fell year over year, partly due to contracts renewed at lower average rates. Management reported stable throughput and no significant operating disruption.
- Loews Hotels & Co: Loews-attributable losses were $72 million in Q2 and $97 million in H1, compared with income of $12 million and $25 million. Pandemic-related closures and very low occupancy drove substantial revenue declines; Q2 included $20 million of asset impairment charges and a $13 million hotel-sale gain.
- Corporate: Loews-attributable losses were $908 million in Q2 and $1.073 billion in H1, primarily reflecting the Diamond Offshore write-down. Parent-company investment income improved in Q2 but was a loss for H1.
- Altium Packaging: Revenue increased, supported by prior acquisitions and stronger first-quarter demand in some product categories; lower resin prices and reduced volumes partly offset growth.
Outlook, risks and contingencies
- No consolidated earnings or revenue guidance is given. Management emphasized that the duration and full effects of COVID-19 remain uncertain. Loews Hotels expects materially adverse operating results, financial condition and cash flows through 2020 and likely thereafter.
- CNA warned that further pandemic-related claims, litigation, premium reductions or refunds, customer credit losses, and investment-market volatility could materially affect results. The recorded COVID-19 losses are management’s best estimate, but ultimate losses remain uncertain.
- Loews Hotels was working with lenders on covenant waivers, use of restricted funds and payment deferrals; discussions could require principal paydowns or guarantees. No lender had notified the company of an event of default through the report date. Loews anticipated further capital support for the hotel business.
- Boardwalk reported approximately $1.2 billion of available revolving credit capacity and no debt maturities until February 2021; management expected operating cash flow and existing resources to fund 2020 operations and capital expenditures. Sustained weak energy prices could raise customer credit and contract-renewal risks.
- Other items to monitor include the Boardwalk Pipelines litigation set for trial in early 2021 and CNA’s $1.7 billion potential structured-settlement guarantee exposure, which CNA said was not likely to require payment because of trust collateral.
Key investor verification points
- Track whether CNA’s COVID-19 claims estimates, catastrophe losses, reserve development and premium collections change materially.
- Assess hotel reopening, occupancy, cash needs, lender concessions, covenant compliance and additional impairment risk.
- Confirm the lasting financial and reporting effects of Diamond Offshore’s bankruptcy, deconsolidation and rig impairments.
- Review parent-company liquidity and subsidiary dividend capacity, including regulatory limits on insurance-company distributions.
- Monitor Boardwalk customer credit quality, contract renewals and the timing and economics of growth projects.