01—Abstract
Summary
Summary of the 10-K filed March 27, 2003. Cited figures are marked; the original filing is the authoritative source.
Loews Corporation reported consolidated net income of $912.0 milliona for 2002, compared with a net loss of $587.1 million in 2001, and revenues of $17,495.4 million versus $18,769.6 million in 2001.
Results include a $31.0 millionb loss from discontinued operations at CNA and a $39.6 million charge for accounting changes related to goodwill. Consolidated net operating income, excluding net investment gains (losses), discontinued operations and accounting changes, was $1,099.3 million, compared with a loss of $1,333.1 million in 2001. Shareholders' equity rose to $11,235.2 million from $9,429.3 million, and book value per Loews common share increased to $61.68 from $49.24, driven largely by the February 2002 sale of 40,250,000 Carolina Group shares for net proceeds of $1.1 billion.
The company is a holding company whose main businesses are CNA Financial Corporation (90% owned, property and casualty and life insurance; 70.23% of 2002 consolidated revenue), Lorillard, Inc. (wholly owned cigarette maker; 22.18% of revenue), Loews Hotels, Diamond Offshore Drilling (54% owned) and Bulova Corporation (97% owned). The filing describes substantial tobacco litigation against Lorillard, including a $16.3 billionc punitive damage judgment in Engle v. R.J.
Reynolds that is under appeal, and ongoing State Settlement Agreement payments that the Company says will materially adversely affect its results and cash flows. CNA reported a combined property and casualty ratio of 109.6% on a GAAP basis for 2002, and recorded impairment losses of $890.0 milliond in 2002.
The 2001 and 2000 financial statements were restated to reflect an adjustment for CNA's life settlement contract accounting, following an SEC review. The filing also notes uncertainty around CNA's reserves, including asbestos and environmental claims, and a contractor exposure in which CNA may face surety losses of up to $200.0 million if the contractor's restructuring fails.
02—Key points
Key Highlights
- Consolidated net income of $912.0 million for 2002, versus a net loss of $587.1 million in 2001; net operating income of $1,099.3 million versus a loss of $1,333.1 million.
- Revenues of $17,495.4 million, down from $18,769.6 million in 2001.
- Shareholders' equity of $11,235.2 million; book value per Loews common share of $61.68, up from $49.24.
- Carolina Group tracking stock issued February 2002 for net proceeds of $1.1 billion; Carolina Group stock represents a 23.01% economic interest in Carolina Group, and 2002 net income attributable to Carolina Group stock was $140.7 million, or $3.50 per share.
- Tobacco litigation remains a major risk: a $16.3 billion punitive damage judgment against Lorillard in Engle is on appeal, and Lorillard expects 2003 State Settlement Agreement payments of $750.0 million to $800.0 million.
- CNA recorded a combined property and casualty GAAP ratio of 109.6% in 2002 and impairment losses of $890.0 million; CNA's loss reserves remain subject to asbestos and environmental uncertainty.
- 2001 and 2000 results were restated for CNA's life settlement contract accounting following an SEC review.
03—Questions
Frequently Asked Questions
Why did Loews swing from a net loss in 2001 to a profit in 2002?
The 2001 results included a $1,223.0 million adverse prior-year reserve development in other reserves, large second-quarter 2001 reserve strengthening, and WTC event losses of $468.0 million, all at CNA. In 2002, CNA's property and casualty underwriting results improved, with the combined ratio falling to 106.4% from 160.9% for the segment, and net income also reflected a $912.0 million consolidated total for the year.
What is the Carolina Group and what does its stock represent?
Carolina Group is a notional tracking group consisting of Loews' 100% ownership of Lorillard, an intergroup debt receivable of $2.4 billion bearing 8.0% interest due December 31, 2021, and related tobacco liabilities. Carolina Group stock has 1/10 of a vote per share and represents a 23.01% economic interest in that group, though the stock is not a separate legal entity.
What are the main litigation risks facing Lorillard?
Lorillard faces approximately 4,500 product liability cases pending against U.S. cigarette makers, about 4,075 of which name Lorillard, including roughly 2,800 flight attendant cases and about 1,100 West Virginia cases. The $16.3 billion Engle punitive damage judgment is under appeal before the Florida Third District Court of Appeal, and the Company says that an unfavorable outcome could materially affect its financial position.
What is the state of CNA's loss reserves?
CNA's net claim and claim adjustment expense reserves were $11,997.0 million for property and casualty at year-end 2002, with asbestos and environmental reserves of $1,231.0 million and $517.0 million net of reinsurance. The filing states that CNA may need to increase reserves materially in the future, and that asbestos and environmental claims involve substantial uncertainty.
Did the restatement change Loews' reported results?
Yes. The restatement adjusted CNA's life settlement contract accounting, increasing (decreasing) previously reported results by $2.0 million for 2001 and $(28.1) million for 2000, and decreasing earnings retained in the business by $193.9 million as of January 1, 2000. The 2001 net loss was restated to $(587.1) million from a previously reported $(589.1) million.
04—Continue