01—Abstract
Summary
Summary of the 10-K filed March 3, 2005. Cited figures are marked; the original filing is the authoritative source.
Loews Corporation, a holding company, reported 2004 consolidated net income of $1,231.3 milliona, compared with a net loss of $610.7 million in 2003.
Net income attributable to Loews common stock was $1,046.8 millionb, or $5.64 per share, versus a loss of $3.91 per share in the prior year. Revenues were $15.2 billion, down from $16.5 billion, reflecting CNA's sales of its Group Benefits and individual life businesses. Results were helped by $116.5 million of after-tax income from Hellespont Shipping's sale of four ultra-large crude oil tankers, and were held back by $162.5 million of after-tax and minority-interest charges at CNA from Hurricanes Charley, Frances, Ivan and Jeanne, and a $352.9 million after-tax and minority-interest loss on the individual life sale.
The company's subsidiaries span commercial property and casualty insurance (CNA Financial, 91% owned), cigarettes (Lorillard, wholly owned), hotels, offshore drilling (Diamond Offshore, 55% owned), natural gas pipelines (Boardwalk Pipelines, which acquired Gulf South for about $1.14 billionc in December 2004), and watches and clocks (Bulova). Carolina Group tracking stock, which reflects Lorillard, has a 39.21% economic interest in its group. Shareholders' equity rose to $12,183.3 million from $11,054.3 million, and book value per Loews common share was $66.71.
The filing also details significant risks. Lorillard faces substantial tobacco litigation, including the Engle punitive damages judgment (vacated on appeal) and the $591.0 milliond Scott verdict.
Its State Settlement Agreement payments were about $830.0 million in 2004 and are estimated at $875.0 million to $925.0 million for 2005. CNA recorded a $80.5 million pretax impairment on loans to a national contractor, and further charges could follow.
02—Key points
Key Highlights
- Consolidated net income was $1,231.3 million in 2004, versus a net loss of $610.7 million in 2003; net income per Loews common share was $5.64 versus a loss of $3.91.
- Consolidated revenues were $15.2 billion, down from $16.5 billion, mainly from CNA's sales of its Group Benefits business (December 2003) and individual life business (April 2004).
- Hellespont Shipping's sale of four ultra-large crude oil tankers produced $116.5 million of after-tax income for Loews; CNA recorded $162.5 million of after-tax and minority-interest charges from 2004 hurricanes.
- Boardwalk Pipelines acquired Gulf South Pipeline for approximately $1.14 billion in December 2004, funded with $561.0 million of available cash and a $575.0 million interim loan.
- Lorillard's 2004 State Settlement Agreement cash payment was about $830.0 million, with 2005 payments estimated at $875.0 million to $925.0 million.
- Shareholders' equity increased to $12,183.3 million from $11,054.3 million, and book value per Loews common share rose to $66.71 from $60.92.
- CNA recorded an $80.5 million pretax impairment on loans to a national contractor, and further impairments may follow if draws exceed $106.0 million or the contractor's business plan changes.
03—Questions
Frequently Asked Questions
What drove the swing from a 2003 net loss to 2004 net income?
The 2003 results included $1,667.4 million (after tax and minority interest) of CNA prior-year reserve charges and a $356.9 million bad debt charge. In 2004, CNA's unfavorable prior-year development was much smaller (about $84.0 million after tax and minority interest, per the filing's segment table), and the 2003 Standard Lines and Other Insurance charges did not recur. Net income of $1,231.3 million for 2004 also benefited from the Hellespont gain.
What are the main risks to Lorillard's business?
The filing cites substantial tobacco litigation, including the Scott judgment of $591.0 million plus judicial interest of about $355.0 million, and the Engle case, which the Florida Third District Court of Appeal vacated. Other risks include State Settlement Agreement payments that the Company says will materially adversely affect future cash flows, deep-discount competition, excise tax increases, and a 2.0% compound annual decline in U.S. cigarette shipments from 1984 to 2004.
How is Carolina Group stock related to Loews common stock?
Carolina Group stock is a tracking stock reflecting a notional group of assets, mainly the Company's 100% ownership of Lorillard and an intergroup debt of $1.9 billion owed to the Loews Group. As of December 31, 2004, it represented a 39.19% economic interest in the Carolina Group. Holders of both classes are shareholders of Loews Corporation itself, and the board may reallocate assets between groups without shareholder consent.
What is CNA's exposure to asbestos and environmental claims?
At December 31, 2004, CNA carried $1,686.0 million of net asbestos reserves and $497.0 million of net environmental pollution and mass tort reserves. It recorded $54.0 million of unfavorable asbestos development in 2004, versus $642.0 million in 2003. The filing states that ultimate liability for these claims may exceed recorded reserves and that the amount cannot be reasonably estimated.
What did the filing say about the Company's debt and capital position?
Total debt was $6,990.3 million at year-end 2004, up from $5,820.2 million. Major 2004 and early 2005 transactions included $300.0 million of 5.3% notes due 2016, $250.0 million of Diamond Offshore 5.2% notes, a $549.0 million CNA 5.9% senior note offering, and a January 2005 issue of $300.0 million of 6.0% notes due 2035. The Company planned to redeem its 7.0% notes due 2023 with the proceeds.
04—Continue