01—Abstract
Summary
Summary of the 10-K filed February 16, 2017. Cited figures are marked; the original filing is the authoritative source.
Loews Corporation reported net income attributable to Loews Corporation of $654 milliona, or $1.93 per share, for 2016, compared with $260 million, or $0.72 per share, in 2015.
Total revenues were $13.105 billionb in 2016 versus $13.415 billion in 2015. The filing attributes the improvement mainly to the absence of the 2015 long term care reserve charge at CNA and lower asset impairment charges at Diamond Offshore, partly offset by lower earnings at Diamond Offshore. Net income for 2016 included a $267 million after-tax asset impairment charge at Diamond Offshore.
Loews is a holding company whose results depend on four operating subsidiaries: CNA Financial (90% owned, commercial property and casualty insurance, 71.6% of 2016 consolidated revenue), Diamond Offshore Drilling (53% owned, offshore drilling, 12.1%), Boardwalk Pipeline Partners (51% owned, natural gas and NGL transportation and storage, 10.0%), and Loews Hotels (wholly owned, 5.1%). Diamond Offshore remains under severe pressure, with a 2016 impairment loss of $680 millionc, a contract backlog of $3.6 billion as of January 1, 2017, and S&P downgrades to BB- in January 2017. The filing states that adverse market conditions are expected to continue for the foreseeable future.
At the parent level, Parent Company cash and investments net of receivables and payables totaled $5.0 billiond at December 31, 2016, up from $4.3 billion. The company received $780 million in dividends from subsidiaries in 2016, including a $485 million special dividend from CNA, and repurchased $134 million of treasury stock. Total shareholders' equity rose to $18.163 billion, and book value per share was $53.96.
02—Key points
Key Highlights
- Net income attributable to Loews Corporation was $654 million, or $1.93 per share, in 2016, up from $260 million, or $0.72 per share, in 2015.
- CNA Financial net income attributable to Loews was $774 million in 2016 versus $433 million in 2015, aided by the absence of the $177 million after-tax long term care reserve charge recorded in 2015.
- Diamond Offshore recorded a net loss attributable to Loews of $186 million in 2016 after an aggregate impairment loss of $680 million; contract drilling revenues fell to $1.525 billion from $2.360 billion.
- Boardwalk Pipeline net income attributable to Loews rose to $89 million from $74 million, and the partnership declared a quarterly distribution of $0.10 per common unit in February 2017.
- Parent Company cash and investments, net of receivables and payables, were $5.0 billion at December 31, 2016, and the company received $780 million in dividends from subsidiaries, including a $485 million special dividend from CNA.
- Moody's downgraded Loews' unsecured debt rating from A2 to A3 in March 2016; current ratings are A+ (S&P) and A (Fitch), both stable. Total debt was $10.778 billion at year-end 2016.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Loews kept $0.05.
- Revenue$13.11B100.0%
- Cost of revenue−$271.0M2.1%
- Gross profit$12.83B97.9%
- Operating costs−$12.18B92.9%
- Operating income$654.0M5.0%
- Interest, other & tax$-00.0%
- Net income$654.0M5.0%
Where FY2016 revenue went
$13.11B- Operating costs: $12.18B, 93% of revenue
- Net income: $654.0M, 5.0% of revenue
- Cost of revenue: $271.0M, 2.1% of revenue
Kept 5.0% as net incomeNet income $654.0M · 5.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 16, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $13.11B$13.41B | −2.3% |
| Cost of Revenue | $271.00M— | — |
| Gross Profit | $12.83B— | — |
| Operating Income | $654.00M$260.00M | +151.5% |
| Interest Expense | $536.00M$520.00M | +3.1% |
| Net Income | $654.00M$260.00M | +151.5% |
| EPS (Basic) | $1.93$0.72 | +168.1% |
| EPS (Diluted) | $1.93$0.72 | +168.1% |
| Shares Outstanding (Basic) | 337.95M362.43M | −6.8% |
| Shares Outstanding (Diluted) | 338.31M362.69M | −6.7% |
05—Questions
Frequently Asked Questions
Why did Loews' earnings improve in 2016?
The filing attributes the increase mainly to the 2015 long term care reserve charge at CNA (a $177 million after-tax charge) not recurring, and to lower asset impairment charges at Diamond Offshore ($267 million after tax in 2016 versus $341 million in 2015). Excluding these charges, net income increased $143 million on higher earnings at CNA and Boardwalk Pipeline and improved parent company investment results, partly offset by lower earnings at Diamond Offshore.
How is Diamond Offshore's business performing?
Diamond Offshore's contract drilling revenues fell to $1.525 billion in 2016 from $2.360 billion in 2015, and it recorded a pretax loss of $471 million. The filing says depressed market conditions are expected to continue for the foreseeable future, ten rigs were cold stacked as of January 30, 2017, and its contract backlog was $3.6 billion as of January 1, 2017. S&P cut its corporate credit rating to BB- in January 2017.
What is the status of CNA's long term care business?
CNA's long term care business is in run-off. A December 31, 2015 gross premium valuation indicated a $296 million premium deficiency, which led to a $177 million after-tax charge and an unlocking of reserve assumptions. The December 31, 2016 valuation showed a margin of approximately $255 million. The filing notes that a 10% increase in morbidity would reduce pretax income by an estimated $999 million, and that a reduction in the corporate tax rate to 20% would reduce pretax income by approximately $700 million.
What dividends and capital returns did Loews provide to shareholders?
Loews paid regular quarterly dividends of $0.0625 per share, totaling $0.25 per share for 2016, unchanged from 2015. In 2016 the company repurchased 3.4 million shares for $134 million. All outstanding treasury stock was retired by year-end.
What are the key risks the filing highlights for investors?
The filing highlights risks including the adequacy of CNA's insurance reserves, particularly for long term care and asbestos and environmental pollution (A&EP) claims; the continued downturn in offshore drilling demand and possible further impairments at Diamond Offshore; declining transportation rates and contract expirations at Boardwalk Pipeline; the Brexit referendum's effect on CNA's European operations; and the concentration of 50% of Loews Hotels' rooms in Florida. It also notes a pending class action lawsuit related to the CNA 401(k) Plus Plan, for which the likelihood of loss is reasonably possible but the amount cannot be estimated.
06—Continue