01—Abstract
Summary
Summary of the 10-K filed February 27, 2008. Cited figures are marked; the original filing is the authoritative source.
Loews Corporation is a holding company whose subsidiaries operate in commercial property and casualty insurance (CNA Financial Corporation, an 89% owned subsidiary, accounting for 53.8% of consolidated total revenue in 2007), cigarette production (Lorillard, Inc., a wholly owned subsidiary, 22.2% of revenue), offshore drilling (Diamond Offshore Drilling, Inc., 51% owned, 14.2% of revenue), natural gas exploration and production (HighMount Exploration & Production LLC, wholly owned, acquired July 31, 2007 from Dominion Resources for $4.0 billiona), natural gas pipelines (Boardwalk Pipeline Partners, LP, 70% owned, 3.7% of revenue), and hotels (Loews Hotels Holding Corporation, wholly owned, 2.1% of revenue).
For 2007, consolidated net income was $2,489 millionb, compared with $2,491 million in 2006, and net income attributable to Loews common stock was $1,956 million, or $3.65 per share. The decline in common-stock income reflected reduced investment income, reduced results at CNA, and a smaller share of Carolina Group earnings after the 2006 sales of Carolina Group stock, partially offset by higher Lorillard results. CNA recorded $428 million (after tax and minority interest) of other-than-temporary impairment losses in 2007.
The company announced on December 17, 2007 a plan to dispose of its entire interest in Lorillard in a tax-free manner, which would eliminate the Carolina Group tracking stock and establish Lorillard as an independent public company. The separation is conditioned on, among other things, a favorable IRS ruling and effectiveness of Lorillard's registration statement. In January 2008, Loews sold Bulova Corporation to Citizen Watch Co., Ltd. for approximately $250 millionc, subject to adjustment, and expects a pretax gain of approximately $105 million.
Lorillard faces substantial tobacco litigation, including approximately 3,775 pending cases, and made State Settlement Agreement payments of $945 milliond in 2007, with 2008 payments expected to be approximately $1,050 million to $1,100 million. Loews' parent company cash and investments, net of receivables and payables, totaled $3.8 billion at December 31, 2007, down from $5.3 billion a year earlier, after the HighMount acquisition and share repurchases.
02—Key points
Key Highlights
- Holding company with six operating lines: CNA (commercial P&C insurance), Lorillard (cigarettes), Diamond Offshore (drilling), HighMount (natural gas E&P), Boardwalk Pipeline (interstate gas transmission), and Loews Hotels.
- Total consolidated revenues were $18,380 million in 2007, up from $17,702 million in 2006; income from continuing operations was $2,481 million, compared with $2,502 million.
- Net income attributable to Loews common stock was $1,956 million, or $3.65 per share, versus $2,075 million, or $3.75 per share, in 2006.
- HighMount acquired exploration and production assets from Dominion Resources for $4.0 billion on July 31, 2007, funded with approximately $2.4 billion in cash and $1.6 billion of term loans; estimated proved reserves were approximately 2.5 trillion cubic feet equivalent.
- Board approved a plan on December 17, 2007 to dispose of the entire Lorillard interest, eliminating the Carolina Group tracking stock; the separation is subject to an IRS ruling and other conditions.
- Shareholders' equity rose to $17,591 million at year end 2007 from $16,502 million, and book value per Loews common share was $32.40 versus $30.14.
- Boardwalk Pipeline's pipeline expansion projects are estimated to cost approximately $4.5 billion in total, with cost increases and delays reported.
03—Questions
Frequently Asked Questions
What did Loews report as net income for 2007?
Consolidated net income was $2,489 million in 2007, compared with $2,491 million in 2006. Net income attributable to Loews common stock was $1,956 million, or $3.65 per share, and net income attributable to Carolina Group stock was $533 million, or $4.91 per share.
What is the planned separation of Lorillard?
Loews plans to dispose of its entire ownership interest in Lorillard in a tax-free manner. Carolina Group stock holders would receive one share of Lorillard common stock for each Carolina Group share, and Loews would dispose of its remaining Lorillard shares through an exchange offer for Loews common stock or, if the exchange offer is not fully subscribed, as a pro rata dividend. The separation is conditioned on an IRS ruling, an opinion of counsel on tax-free treatment, and effectiveness of Lorillard's registration statement.
How was the HighMount acquisition financed?
HighMount acquired the assets from Dominion Resources subsidiaries for $4.0 billion, subject to adjustment. The acquisition was funded with approximately $2.4 billion in cash, provided as a capital contribution from Loews, and $1.6 billion of term loans entered into by HighMount, which bear interest at LIBOR plus a margin and are swapped to a fixed rate of 5.8%.
What litigation risks does Lorillard face?
Lorillard is a defendant in approximately 3,775 tobacco-related cases in the United States, and Loews is a defendant in four product liability cases. The filing notes that the Scott judgment reduced the award but remains subject to further proceedings, that the federal government's reimbursement case verdict is on appeal, and that the Schwab class action for 'lights' cigarettes has been certified. Lorillard recorded a pretax provision of approximately $66 million related to the Scott matter in the fourth quarter of 2007.
What is the status of the Bulova sale?
Loews sold Bulova Corporation to Citizen Watch Co., Ltd. in January 2008 for approximately $250 million, subject to adjustment. Bulova's results are reported as discontinued operations for all periods presented, and Loews expects to record a pretax gain of approximately $105 million.
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