Loews Corporation 2009 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2009. Loews is a diversified holding company with major operations in commercial insurance, offshore drilling, natural gas production and transportation, and hotels. Figures are U.S. dollars; financial amounts are in millions unless stated otherwise.
Financial performance and condition
| Metric | 2009 | 2008 |
|---|---|---|
| Revenue | $14,117 | $13,247 |
| Income before tax | $1,730 | $587 |
| Income from continuing operations attributable to Loews common stock | $566; $1.31 per share | Loss of $182; loss of $0.38 per share |
| Net income attributable to Loews Corporation | $564 | $4,530 |
| Cash from operating activities, consolidated | $4,591 | $3,371 |
| Total assets | $74,070 | $69,870 |
| Debt | $9,485 | $8,258 |
| Shareholders’ equity | $16,899 | $13,133 |
Fourth-quarter revenue was $3,822, versus $2,743 in Q4 2008. Continuing income attributable to Loews common stock was $403 ($0.94 per share), compared with a loss of $958 ($2.20 per share) a year earlier.
Consolidated operating cash flow improved, but is affected by large insurance-investment and working-capital flows. Parent-company cash and investments, net of receivables and payables, were $3.0 billion at year-end, versus $2.3 billion in 2008. Loews reported no off-balance-sheet arrangements. The filing does not provide a single consolidated operating-margin measure; CNA’s commercial combined ratios were 86.5% for Specialty and 105.1% for Commercial.
Material changes and segment highlights
- Year-over-year earnings comparison is distorted: 2008 net income included a $4.3 billion tax-free gain from the Lorillard separation and a $75 million after-tax Bulova sale gain. Loews had fully separated from Lorillard in June 2008; 2009 results therefore exclude its operating business.
- Investment recovery improved results: CNA’s investment income increased, including stronger limited-partnership results, while realized investment losses attributable to Loews declined to $503 from $754. CNA nevertheless recorded significant impairment losses; consolidated OTTI losses recognized in earnings were $1,352, compared with $1,484.
- HighMount: Natural-gas prices and production volumes weakened. The company recorded a $1,036 pretax ($660 after-tax) non-cash property impairment in 2009, following a $691 pretax property impairment and $482 pretax goodwill impairment in 2008. HighMount’s net loss was $537; proved reserves fell to 1.964 Tcfe from 2.203 Tcfe.
- Diamond Offshore: Revenue rose 4.8% to $3,654 and net income attributable to Loews rose 5.1% to $643. Backlog was approximately $8.5 billion as of February 1, 2010, down from $10.9 billion a year earlier. The company acquired two deepwater rigs and issued $1.0 billion of senior notes during 2009.
- Boardwalk Pipeline: Revenue rose to $910, but Loews-attributable net income fell to $67 from $125. Pipeline anomalies, pressure restrictions and shutdowns reduced throughput and revenue while expansion-related depreciation, property taxes and interest increased.
- Loews Hotels: Revenue fell 25.3% to $284 and the segment recorded a $34 net loss. Occupancy declined to 66.4% from 73.3%; revenue per available room fell to $134.60 from $183.01. Charges included a $27 million impairment of the Loews Lake Las Vegas investment.
Liquidity, debt and capital allocation
- Year-end consolidated debt was $9.485 billion; the filing’s debt maturity and payment schedule includes estimated future interest and totals $13.668 billion. Subsidiary debt and liquidity vary materially across the group.
- Loews depends substantially on subsidiary distributions. Those distributions may be limited by insurance regulation, subsidiary financing covenants and other legal restrictions.
- Parent cash and investments rose primarily on $954 million of subsidiary dividends, CNA’s $250 million preferred-stock repayment, investment income and Boardwalk repayments. Offsetting uses included $348 million of Loews share repurchases, subsidiary investments and $108 million of common dividends.
- Loews repurchased 10.5 million shares for $348 million in 2009; it repurchased another 2.7 million shares for $96 million through February 12, 2010. The regular common dividend was $0.0625 per quarter, or $0.25 for 2009.
- CNA had $1.0 billion of Loews-held senior preferred stock outstanding at year-end after redeeming $250 million. Boardwalk had $554 million drawn under its $1.0 billion revolver at year-end and reported $629 million drawn by February 12, 2010; about $954 million of debt, including that borrowing, was due in 2012.
Outlook, risks and unusual items
- No consolidated earnings guidance is provided. Management said it continued to pursue conservative financial strategies while seeking growth through existing businesses, acquisitions, dispositions and efficiencies.
- Management identified recession-related pressure on insurance exposures and premiums, drilling demand and dayrates, natural-gas prices and hotel demand. Diamond Offshore cited customer credit concerns, contract renegotiations, lower new-contract dayrates and idle rigs, while noting its backlog as a partial buffer.
- Boardwalk’s higher-pressure operating authority is a key execution risk: PHMSA approved its 42-inch expansion projects, but approval for the Fayetteville Lateral remained outstanding. Further remediation, lower capacity or alternative upgrades could raise costs or impair contracted service.
- CNA’s loss reserves remain judgment-sensitive. In 2009, CNA recorded $155 million of unfavorable asbestos and environmental reserve development, including $79 million for asbestos and $76 million for environmental pollution. The filing says additional A&E exposure could be material but cannot currently be reasonably estimated.
- Other significant risks include investment valuation and further impairment, insurance reserve adequacy, catastrophe losses, reinsurance collectability, subsidiary access to capital, regulatory changes, competition, environmental liabilities, climate-related regulation, and litigation. Loews remained a defendant in three tobacco-related suits; Lorillard agreed to indemnify Loews under the Separation Agreement, subject to collectability and enforceability.
- Auditors issued an unqualified opinion on the consolidated financial statements and internal controls; management also concluded controls were effective. Accounting changes included new guidance on noncontrolling interests, oil-and-gas reserve reporting and investment impairments.
Most important facts for investors to verify
- Separate recurring operating performance from the 2008 Lorillard separation gain and the 2009 HighMount impairment and CNA investment effects.
- Review CNA reserve development, particularly asbestos, environmental pollution, workers’ compensation and the sensitivity estimates disclosed in the filing.
- Track HighMount’s prices, hedge coverage, reserve revisions and ceiling-test exposure; its 2010–2011 hedges covered approximately 64% and 35% of estimated production, respectively.
- Confirm Boardwalk’s pipeline remediation progress, PHMSA approvals, throughput recovery, contract renewals and 2012 refinancing plan.
- Assess Diamond Offshore backlog conversion, utilization and dayrates against the downturn, new rig supply, customer credit quality and capital spending.
- Evaluate parent-company liquidity and dividend capacity in light of subsidiary distribution constraints, debt maturities, buybacks and ongoing capital needs.