01—Abstract
Summary
Summary of the 10-K filed February 25, 2009. Cited figures are marked; the original filing is the authoritative source.
Loews Corporation is a holding company whose subsidiaries span commercial property and casualty insurance (CNA Financial, 90%a owned), offshore drilling (Diamond Offshore, 50.4% owned), natural gas exploration and production (HighMount, wholly owned), interstate natural gas pipelines (Boardwalk Pipeline Partners, 74% owned), and hotels (Loews Hotels, wholly owned).
In June 2008, Loews disposed of its entire interest in Lorillard, Inc. through the Separation, which produced a $4.3 billionb gain reported as discontinued operations. Net income for 2008 was $4.5 billion, but loss from continuing operations was $182 million, or $0.38 per share, compared with income from continuing operations of $1,587 million, or $2.96 per share, in 2007. The continuing-operations loss was driven by realized investment losses at CNA ($756 million after tax and minority interest for the full year), a $440 million after-tax non-cash impairment of HighMount's natural gas and oil properties, and a $314 million after-tax goodwill impairment at HighMount.
Book value per common share fell to $30.17c from $32.40. Diamond Offshore and Boardwalk Pipeline contributed improved operating results, and Diamond Offshore's contract drilling backlog was $10.3 billion as of February 5, 2009. The filing also highlights capital and liquidity pressure: Loews bought $1.25 billion of CNA senior preferred stock in November 2008, and Boardwalk Pipeline's expansion projects require significant additional financing, which Loews' board has committed to provide if external funds are unavailable on acceptable terms.
Management expects Loews Hotels' revenue per available room to decrease significantly in the near term, and Moody's and A.M. Best revised CNA's outlook to negative.
02—Key points
Key Highlights
- Net income of $4.53 billion in 2008, driven by a $4.3 billion tax-free gain on the Separation of Lorillard, versus $2.49 billion in 2007.
- Loss from continuing operations of $182 million ($0.38 per share) in 2008, versus income of $1,587 million ($2.96 per share) in 2007.
- HighMount recorded a $691 million ($440 million after tax) non-cash impairment of natural gas and oil properties and a $482 million ($314 million after tax) goodwill impairment in 2008.
- CNA realized investment losses of $756 million after tax and minority interest for 2008; CNA's combined GAAP ratio rose to 109.0% from 107.9%.
- Book value per Loews common share was $30.17 at December 31, 2008, down from $32.40 a year earlier.
- Loews purchased $1.25 billion of CNA's 2008 Senior Preferred stock in November 2008, and CNA suspended its common dividend in October 2008.
- Diamond Offshore's contract drilling backlog was $10.3 billion as of February 5, 2009, with some contracts extending to 2016.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 25, 2009Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $13.25B$14.30B | −7.4% |
| Operating Income | -$182.00M— | — |
| Interest Expense | $345.00M$319.00M | +8.2% |
| Net Income | $4.53B$2.49B | +82.1% |
05—Questions
Frequently Asked Questions
What drove Loews' 2008 results?
Net income was $4.53 billion, but this was driven by a $4.3 billion non-cash gain from the Separation of Lorillard, reported in discontinued operations. Continuing operations posted a $182 million loss, reflecting CNA's realized investment losses and lower investment income, plus HighMount's $691 million asset impairment and $482 million goodwill impairment.
Why did CNA's results weaken in 2008?
CNA recorded significant realized and unrealized investment losses, including other-than-temporary impairments, along with substantially lower net investment income. Catastrophe losses from hurricanes also rose, and CNA's GAAP combined ratio increased to 109.0% from 107.9%.
How is Loews managing capital needs at its subsidiaries?
Loews bought $1.25 billion of CNA senior preferred stock in November 2008 and CNA contributed capital to its principal insurance subsidiary. Loews also purchased $700 million of Boardwalk Pipeline class B units and $500 million of common units, and its board committed to fund Boardwalk's expansion projects if external financing is not available on acceptable terms.
What is the outlook for Loews Hotels and the energy businesses?
Management expects revenue per available room and operating results at Loews Hotels to decrease significantly in the near term due to reduced luxury hotel bookings. For HighMount, the filing notes lower commodity prices and a planned reduction in 2009 production volumes, and for Diamond Offshore, it cites falling energy prices and declining demand and pricing for available rigs.
What rating and dividend changes did CNA experience?
In February 2009, Moody's and A.M. Best revised CNA's rating outlooks from stable to negative. CNA suspended its quarterly common dividend in October 2008, and under the terms of the 2008 Senior Preferred, common stock repurchases are prohibited.
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