================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-6541
------
LOEWS CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-2646102
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
667 MADISON AVENUE, NEW YORK, N.Y. 10021-8087
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 545-2000
----------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--------- ---------
Class Outstanding at November 4, 1994
- -------------------------- -------------------------------
Common stock, $1 par value 58,985,400 shares
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Page 1
INDEX
Part I. Financial Information Page No.
--------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets--
September 30, 1994 and December 31, 1993 ...................... 3
Consolidated Condensed Statements of Operations--
Three and Nine months ended September 30, 1994 and 1993 ....... 4
Consolidated Condensed Statements of Cash Flows--
Nine months ended September 30, 1994 and 1993 ................. 5
Notes to Consolidated Condensed Financial Statements ............ 6-15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................ 15-26
Part II. Other Information
Item 1. Legal Proceedings ......................................... 26-28
Item 6. Exhibits and Reports on Form 8-K .......................... 28
Exhibit 11--Statement Re Computation of Per Share Earnings
Assuming Full Dilution for the three and nine months ended
September 30, 1993 ............................................. 30
Exhibit 27--Financial Data Schedule for the nine months ended
September 30, 1994 ............................................ 31
Page 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
<TABLE>
<CAPTION>
Loews Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
- --------------------------------------------------------------------------------
(Amounts in thousands of dollars) September 30, December 31,
1994 1993
-----------------------------
<S> <C> <C>
Assets:
Investments:
Fixed maturities available for sale, amortized
cost of $21,812,259 and $17,132,086 .......... $21,234,700 $17,657,856
Equity securities available for sale, cost of
$1,146,784 and $1,028,733 .................... 1,411,737 1,240,256
Mortgage loans and notes receivable ........... 115,437 121,439
Policy loans .................................. 174,648 173,606
Other investments ............................. 106,626 72,085
Short-term investments ........................ 9,598,741 8,025,201
----------------------------
32,641,889 27,290,443
Cash ............................................ 144,327 155,703
Receivables-net ................................. 7,756,145 7,474,753
Inventories ..................................... 227,722 241,287
Investments in associated companies ............. 294,613 490,654
Property, plant and equipment-net ............... 1,091,141 1,038,179
Deferred income taxes ........................... 1,491,762 1,074,410
Other assets .................................... 639,378 564,600
Deferred policy acquisition costs of insurance
subsidiaries ................................... 1,028,332 979,166
Separate Account business ....................... 5,956,818 6,540,557
----------------------------
Total assets ............................... $51,272,127 $45,849,752
============================
Liabilities and Shareholders' Equity:
Insurance reserves and claims ................... $28,764,053 $27,439,003
Accounts payable and accrued liabilities ........ 609,752 705,034
Payable for securities purchased ................ 2,993,942 190,138
Securities sold under repurchase agreements ..... 3,391,355 613,250
Accrued taxes ................................... 195,705 209,861
Long-term debt, less unamortized discount ....... 2,146,859 2,195,670
Separate Account business ....................... 5,956,818 6,540,557
Deferred credits and participating policyholders'
equity ......................................... 825,764 795,767
----------------------------
Total liabilities .......................... 44,884,248 38,689,280
Minority interest ............................... 864,681 1,033,274
Shareholders' equity ............................ 5,523,198 6,127,198
----------------------------
Total liabilities and shareholders' equity . $51,272,127 $45,849,752
============================
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
Page 3
<TABLE>
<CAPTION>
Loews Corporation and Subsidiaries
Consolidated Condensed Statements of Operations
- -------------------------------------------------------------------------------------------------
(Amounts in thousands, except per share data) Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
----------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums:
Property and casualty ............... $1,759,281 $1,627,213 $ 5,086,484 $ 4,634,200
Life ................................ 641,972 608,244 1,980,195 1,791,203
Investment income, net of expenses,
principally of insurance subsidiaries 424,729 333,743 1,207,741 1,037,861
Realized investment (losses) gains .... (17,915) 171,377 (245,518) 788,080
Manufactured products (including excise
taxes of $114,368, $97,693, $324,350
and $272,947) ........................ 542,358 489,547 1,545,994 1,549,448
Other ................................. 194,879 186,810 568,905 534,351
----------------------------------------------------
Total .............................. 3,545,304 3,416,934 10,143,801 10,335,143
----------------------------------------------------
Expenses:
Insurance benefits and underwriting
expenses ............................. 2,324,656 2,747,368 7,011,510 7,065,200
Amortization of deferred policy
acquisition costs .................... 363,300 322,193 1,022,690 885,754
Cost of manufactured products sold .... 247,052 229,646 705,749 628,744
Selling, operating, advertising and
administrative expenses .............. 393,677 366,457 1,129,240 1,133,154
Interest .............................. 42,369 33,748 132,168 114,422
----------------------------------------------------
Total .............................. 3,371,054 3,699,412 10,001,357 9,827,274
----------------------------------------------------
174,250 (282,478) 142,444 507,869
----------------------------------------------------
Income taxes (benefits) ............... 30,126 (158,355) (37,445) 19,669
Minority interest ..................... 9,909 (34,508) (8,787) 32,482
----------------------------------------------------
Total .............................. 40,035 (192,863) (46,232) 52,151
----------------------------------------------------
Net income (loss) ....................... $ 134,215 $ (89,615) $ 188,676 $ 455,718
====================================================
Net income (loss) per share ............. $ 2.24 $ (1.40) $ 3.11 $ 7.06
====================================================
Cash dividends per share ................ $ .25 $ .25 $ .75 $ .75
====================================================
Weighted average number of shares
outstanding ............................ 59,946 64,018 60,589 64,533
====================================================
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
Page 4
<TABLE>
<CAPTION>
Loews Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
- --------------------------------------------------------------------------------
(Amounts in thousands) Nine Months Ended
September 30,
1994 1993
-----------------------------
<S> <C> <C>
Operating Activities:
Net income ................................... $ 188,676 $ 455,718
Adjustments to reconcile net income to net
cash provided by operating activities-net ... 163,456 (905,757)
Distribution of CBS equity earnings........... 86,382
Changes in assets and liabilities-net:
Receivables ................................ (360,685) 643,133
Inventories ................................ 13,565 (10,398)
Deferred policy acquisition costs .......... (49,166) (89,435)
Insurance reserves and claims .............. 1,316,938 1,020,910
Accounts payable and accrued liabilities ... (93,933) 224,493
Accrued taxes .............................. (43,673) 419
Other-net .................................. 21,188 (28,563)
----------------------------
1,242,748 1,310,520
----------------------------
Investing Activities:
Purchases of fixed maturities ................ (30,471,320) (28,365,545)
Proceeds from sales of fixed maturities ...... 22,115,211 30,680,889
Proceeds from maturities of fixed maturities . 3,837,635 1,612,223
Change in securities sold under repurchase
agreements .................................. 2,778,105 (610,987)
Purchases of equity securities ............... (838,293) (749,671)
Proceeds from sales of equity securities ..... 714,895 687,672
Purchases of subsidiary shares .............. (35,450)
Return of investment from CBS tender offer ... 183,991
Change in short-term investments ............. 894,364 (4,293,953)
Purchases of property, plant and equipment ... (160,862) (108,052)
Change in other investments .................. (21,437) 39,051
----------------------------
(1,003,161) (1,108,373)
----------------------------
Financing Activities:
Dividends paid to shareholders ............... (45,494) (48,449)
Purchases of treasury shares ................. (161,869) (104,179)
Issuance of long-term debt ................... 297,394
Principal payments on long-term debt ......... (51,762) (361,486)
Receipts credited to policyholders ........... 27,129 36,934
Withdrawals of policyholder account balances . (18,967) (12,625)
----------------------------
(250,963) (192,411)
----------------------------
Net change in cash ............................. (11,376) 9,736
Cash, beginning of period ...................... 155,703 105,308
----------------------------
Cash, end of period ............................ $ 144,327 $ 115,044
============================
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
Page 5
Loews Corporation and Subsidiaries
Notes to Consolidated Condensed Financial Statements
- --------------------------------------------------------------------------------
1. Reference is made to Notes to Consolidated Financial Statements in the 1993
Annual Report to Shareholders which should be read in conjunction with these
consolidated condensed financial statements.
2. The Company's inventories are comprised of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
--------------------------
(In thousands)
<S> <C> <C>
Leaf tobacco ................................ $ 91,438 $145,259
Manufactured stock .......................... 116,090 76,946
Materials, supplies, etc. ................... 20,194 19,082
----------------------
Total .................................. $227,722 $241,287
======================
</TABLE>
3. CNA assumes and cedes insurance with other insurers and reinsurers and
members of various reinsurance pools and associations. CNA utilizes
reinsurance arrangements to limit its maximum loss, to provide greater
diversification of risk and to minimize exposures on larger risks. The
reinsurance coverages are tailored to the specific risk characteristics of
each product line with CNA's retained amount varying by type of coverage.
Generally, reinsurance coverage for property risks is on an excess of loss,
per risk basis. Liability coverages are generally reinsured on a quota
share basis in excess of CNA's retained risk.
The ceding of insurance does not discharge the primary liability of the
original insurer. CNA places reinsurance with other carriers only after
careful review of the nature of the contract and a thorough assessment of
the reinsurers' credit quality and claim settlement performance. Further,
for carriers that are not authorized reinsurers in Illinois (Continental
Casualty Company's state of domicile), CNA receives collateral primarily in
the form of bank letters of credit, securing a large portion of the
recoverables. At September 30, 1994, such collateral totaled approximately
$162,000,000. CNA's largest recoverable from a single reinsurer, including
prepaid reinsurance premiums, at September 30, 1994 was approximately
$464,000,000 with Lloyd's of London. The recoverable from Lloyd's of London
is dispersed among thousands of individual members who have unlimited
liability, most of which are Illinois authorized reinsurers.
Page 6
The effects of reinsurance on written premiums and earned premiums, in
millions, are as follows:
<TABLE>
<CAPTION>
Written Premiums--
Nine Months Ended September 30,
-------------- 1994 --------------- -------------- 1993 --------------
Direct Assumed Ceded Net Direct Assumed Ceded Net
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Contracts:
Long Duration . $ 382.5 $ 85.1 $ 19.0 $ 448.6 $ 303.4 $ 109.6 $ 16.8 $ 396.2
Short Duration 6,306.0 1,030.1 457.0 6,879.1 5,667.6 923.9 374.5 6,217.0
-------------------------------------------------------------------------
Total ....... $6,688.5 $1,115.2 $476.0 $7,327.7 $5,971.0 $1,033.5 $391.3 $6,613.2
=========================================================================
<CAPTION>
Three Months Ended September 30,
-------------- 1994 --------------- -------------- 1993 -------------
Direct Assumed Ceded Net Direct Assumed Ceded Net
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Contracts:
Long Duration . $ 122.7 $ 27.2 $ 7.0 $ 142.9 $ 105.3 $ 29.9 $ 6.6 $ 128.6
Short Duration 2,121.4 302.2 143.1 2,280.5 1,971.3 293.0 122.5 2,141.8
-------------------------------------------------------------------------
Total ....... $2,244.1 $ 329.4 $150.1 $2,423.4 $2,076.6 $ 322.9 $129.1 $2,270.4
=========================================================================
<CAPTION>
Earned Premiums--
Nine Months Ended September 30,
-------------- 1994 --------------- -------------- 1993 --------------
Direct Assumed Ceded Net Direct Assumed Ceded Net
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Contracts:
Long Duration . $ 315.9 $ 85.1 $ 19.0 $ 382.0 $ 253.6 $ 106.2 $ 16.8 $ 343.0
Short Duration 6,127.0 1,025.2 451.9 6,700.3 5,609.3 852.6 362.2 6,099.7
-------------------------------------------------------------------------
Total ....... $6,442.9 $1,110.3 $470.9 $7,082.3 $5,862.9 $ 958.8 $379.0 $6,442.7
=========================================================================
<CAPTION>
Three Months Ended September 30,
---------------1994---------------- ---------------1993---------------
Direct Assumed Ceded Net Direct Assumed Ceded Net
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Contracts:
Long Duration . $ 92.7 $ 27.2 $ 7.0 $ 112.9 $ 86.7 $ 29.6 $ 6.6 $ 109.7
Short Duration 2,130.7 316.2 153.3 2,293.6 1,962.6 280.8 111.9 2,131.5
-------------------------------------------------------------------------
Total ....... $2,223.4 $ 343.4 $160.3 $2,406.5 $2,049.3 $ 310.4 $118.5 $2,241.2
=========================================================================
</TABLE>
Insurance claims and policyholders' benefits are net of reinsurance
recoveries of $489.7 and $(37.4) million for the nine months ended September
30, 1994 and 1993, respectively.
4. In September 1994, CBS Inc. completed a cash tender offer at an amount
exceeding its net book value per share for repurchase of its common stock
Page 7
aggregating approximately $1,137,500,000 or 22% of its common shares. The
Company tendered its shares and received cash amounting to $270,373,000,
comprised of $86,382,000 realization of previously undistributed earnings
and $183,991,000 representing a return of the Company's investment. As a
result of the tender, the Company's ownership in CBS decreased from
approximately 19.2% to 17.9% and the Company's additional paid-in capital
increased by $11,531,000.
5. Shareholders' equity:
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
----------------------------
(In thousands of dollars)
<S> <C> <C>
Preferred stock, $.10 par value,
Authorized--25,000,000 shares
Common stock, $1 par value:
Authorized--200,000,000 shares
Issued--61,524,700 shares ................. $ 61,525 $ 61,525
Additional paid-in capital .................. 228,389 210,289
Earnings retained in the business ........... 5,619,842 5,476,660
Unrealized (depreciation) appreciation ...... (166,529) 406,736
Pension liability adjustment ................ (28,012) (28,012)
--------------------------
Total ................................ 5,715,215 6,127,198
Less common stock (2,160,000 shares) held in
treasury, at cost .......................... 192,017
--------------------------
Total ................................ $5,523,198 $6,127,198
==========================
</TABLE>
The $573.3 million decrease in unrealized appreciation reflects the impact
that the rise in interest rates has had on the Company's fixed income
investments.
6. Pending litigation includes claims seeking damages for cancer and other
health effects claimed to have resulted from use of tobacco products. It is
not possible to predict the outcome of pending litigation; however, on the
basis of the facts presently known to it, management does not believe the
actions pending will have a material adverse effect upon the financial
condition or results of operations of the Company. Should additional facts
arise in the future indicating a probable adverse determination of any such
actions, such ultimate determination might have a material adverse effect
upon the Company's financial condition.
Fibreboard Litigation--As previously reported in Note 16 of the Notes to the
Consolidated Financial Statements in the 1993 Annual Report to Shareholders,
CNA's primary property/casualty subsidiary, Continental Casualty Company
("Continental"), is party to litigation with Fibreboard Corporation
("Fibreboard") involving coverage for certain asbestos-related claims and
defense costs (San Francisco Superior Court, Judicial Council Coordination
Proceeding 1072). As described below, Continental, Fibreboard, another
insurer ("Pacific Indemnity") (a subsidiary of the Chubb Corporation), and a
negotiating committee of asbestos claimant attorneys have reached a Global
Settlement (the "Global Settlement") to resolve all future asbestos-related
Page 8
bodily injury claims involving Fibreboard. Continental, Fibreboard and
Pacific Indemnity have also reached an agreement, which is subject to court
approval (the "Trilateral Agreement"), on a settlement to resolve the
coverage litigation in the event the Global Settlement does not obtain final
court approval. The implementation of the Global Settlement or the
Trilateral Agreement would have the effect of settling Continental's
litigation with Fibreboard.
On July 29, 1994 the United States District Court for the Eastern District
of Texas preliminarily approved the Global Settlement agreement, and ordered
that a fairness hearing be held beginning on December 12, 1994, to determine
whether to finally approve the Global Settlement agreement. CNA and other
parties to the Global Settlement agreement initiated a comprehensive
communication program in August 1994 to ensure that all potential claimants
have notice of their rights and possible benefits under the Global
Settlement.
Coverage Litigation--Between 1928 and 1971, Fibreboard manufactured
insulation products containing asbestos. Since the 1970's, thousands of
claims have been filed against Fibreboard by individuals claiming bodily
injury as a result of asbestos exposure.
Continental insured Fibreboard under a comprehensive general liability
policy between May 4, 1957 and March 15, 1959. Fibreboard disputed the
coverage positions taken by its insurers and, in 1979, Fireman's Fund,
another of Fibreboard's insurers, brought suit with respect to coverage for
defense and indemnity costs. In January 1990, the San Francisco Superior
Court (Judicial Council Coordination Proceeding 1072) rendered a decision
against the insurers including Continental and Pacific Indemnity. The court
held that the insurers owed a duty to defend and indemnify Fibreboard for
certain of the asbestos-related bodily injury claims asserted against
Fibreboard (in the case of Continental, for all claims involving exposure to
Fibreboard's asbestos products if there was exposure to asbestos at any time
prior to 1959 including years prior to 1957, regardless of when the claims
were asserted or injuries manifested) and that the policies contained no
aggregate limit of liability in relation to such claims. The judgment was
appealed.
The Court of Appeal entered an opinion on November 15, 1993, as modified on
December 13, 1993, which substantially affirmed the lower court's decisions
on scope of coverage and trigger of coverage issues, as described below.
The Court of Appeal withheld its ruling on the issues discrete to
Continental and Pacific Indemnity pending final court approval of either the
Global Settlement or the Trilateral Agreement described below. On January
27, 1994, the California Supreme Court granted a Petition for Review filed
by several insurers, including Continental, of, among other things, the
trigger and scope of coverage issues. The order granting review has no
effect on the Court of Appeal's order severing the issues unique to
Continental and Pacific Indemnity. Continental cannot predict the time
frame within which the issues before the California Supreme Court may be
resolved. If neither the Global Settlement nor the Trilateral Agreement is
approved, it is anticipated that Continental and Pacific Indemnity will
resume the appeal process. Continental's appeal of the coverage judgment
raises many legal issues. Key issues on appeal under the policy are trigger
of coverage, scope of coverage, dual coverage requirements and number of
occurrences:
. The trial court adopted a continuous trigger of coverage theory under
which all insurance policies in effect at any time from first exposure to
asbestos until the date of the claim filing or death are triggered. The
Court of Appeal endorsed the continuous trigger theory, but modified the
Page 9
ruling to provide that policies are triggered by a claimant's first
exposure to the policyholder's products, as opposed to the first exposure
to any asbestos product. Therefore, an insurance policy is not triggered
if a claimant's first exposure to the policyholder's product took place
after the policy period. The court, however, placed the burden on the
insurer to prove the claimant was not exposed to its policyholder's
product before or during the policy period. The trigger of coverage issue
is now on appeal to the California Supreme Court.
Continental's position is that its policy is triggered under California
law by manifestation of appreciable harm during the policy period. The
bodily injury cannot be said to occur within the meaning of the policy
until actual physical symptoms and associated functional impairment
manifest themselves. Thus, Continental's position is that if existing
California law were applied, there would be no coverage under
Continental's policy.
. The scope of coverage decision imposed a form of "joint and several"
liability that makes each triggered policy liable in whole for each
covered claim, regardless of the length of the period the policy was in
effect. This decision was affirmed by the Court of Appeal, and is now on
appeal to the California Supreme Court. Continental's position is that
liability for asbestos claims should be shared not jointly, but severally
and on a pro rata basis between the insurers and insured. Under this
theory, Continental would only be liable for that proportion of the bodily
injury that occurred during the 22-month period its policy was in force.
. Continental maintains that both the occurrence and the injury resulting
therefrom must happen during the policy period for the policy to be
triggered. Consequently, if the court holds that the occurrence is
exposure to asbestos, Continental's position is that coverage under the
Continental policy is restricted to those who actually inhaled Fibreboard
asbestos fibers and suffered injury from May 4, 1957 to March 15, 1959.
The Court of Appeal withheld ruling on this issue, as noted above.
. Continental's policy had a $1 million per occurrence limit. Continental
contends the number of occurrences under California law must be determined
by the general cause of the injuries, not the number of claimants, and
that the cause of the injury was the continuous sale and manufacture of
the product. Because the manufacture and sale proceeded from two
locations, Continental maintains that there were only two occurrences and
thus only $2 million of coverage under the policy. However, the per
occurrence limit was interpreted by the trial court to mean that each
claim submitted by each individual constituted a separate occurrence. The
Court of Appeal withheld ruling on this issue, as noted above.
Under various reinsurance agreements, Continental has asserted a right to
reimbursement for a portion of its potential exposure to Fibreboard. The
reinsurers have disputed Continental's right to reimbursement and have taken
the position that any claim by Continental is subject to arbitration under
provisions in the reinsurance agreement. A federal court has ruled that the
dispute must be resolved by arbitration. There can be no assurance that
Continental will be successful in obtaining a recovery under its reinsurance
agreements.
On April 9, 1993, Continental and Fibreboard entered into an agreement
pursuant to which, among other things, the parties agreed to use their best
efforts to negotiate and finalize a global class action settlement with
asbestos-related bodily injury and death claimants.
Through September 30, 1994, Continental, Fibreboard and plaintiff attorneys
Page 10
had reached settlements with respect to approximately 135,500 claims,
subject to resolution of the coverage issues, for a maximum settlement
amount of approximately $1.57 billion. If neither the Global Settlement nor
the Trilateral Agreement receives final court approval, Continental's
obligation to pay under all settlements will be partially subject to the
results of the pending appeal in the coverage litigation. Minimum amounts
payable under all such agreements, regardless of the outcome of coverage
litigation, total approximately $719.1 million, of which $403.5 million was
paid through September 30, 1994. Continental may negotiate other agreements
with various classes of claimants including groups who may have previously
reached agreement with Fibreboard.
Continental will continue to pursue its appeals in respect of the coverage
litigation and all other litigation involving Fibreboard if a Global
Settlement or the Trilateral Agreement cannot be implemented.
Global Settlement--On August 27, 1993, Continental, Pacific Indemnity,
Fibreboard and a negotiating committee of asbestos claimant attorneys
reached an agreement in principle for an omnibus settlement to resolve all
future asbestos-related bodily injury claims involving Fibreboard. The
Global Settlement was executed on December 23, 1993. The agreement calls
for contribution by Continental and Pacific Indemnity of an aggregate of
$1.525 billion to a trust fund for a class of all future asbestos claimants,
defined generally as those persons whose claims against Fibreboard were
neither filed nor settled before August 27, 1993. An additional $10 million
is to be contributed to the fund by Fibreboard. The Global Settlement is
subject to court approval and possible appeals. As noted below, there is
limited precedent with settlements which determine the rights of future
claimants to seek relief.
Subsequent to the announcement of the agreement in principle, Continental,
Fibreboard and Pacific Indemnity entered into the Trilateral Agreement which
sets forth the parties' obligations in the event the Global Settlement is
not approved by the court. In such case, Continental and Pacific Indemnity
would contribute to a settlement fund an aggregate of $2 billion, less
certain adjustments. Such fund would be devoted to the payment of
Fibreboard's asbestos liabilities other than liabilities in respect of
previously settled claims. Continental's share of such fund would be $1.44
billion reduced by a portion of an additional payment of $635 million which
Pacific Indemnity has agreed to pay in respect of unsettled present claims
and previously settled claims. Continental has agreed that if either the
Global Settlement or the Trilateral Agreement is approved, it will assume
responsibility for the claims that had been settled and paid before August
27, 1993. A portion of the additional $635 million to be contributed by
Pacific Indemnity would be applied to the payment of such claims as well.
As a part of the Global Settlement and the Trilateral Agreement, Continental
would be released by Fibreboard from any further liability under the
comprehensive general liability policy written for Fibreboard by
Continental, including but not limited to liability for asbestos-related
claims against Fibreboard. The Trilateral Agreement is subject to court
approval and possible appeals.
Continental and Fibreboard have entered into a supplemental agreement (the
"Supplemental Agreement") which governs the interim arrangements and
obligations between the parties until such time as the Global Settlement is
either approved or disapproved by the court and also governs certain
obligations between the parties in the event the Global Settlement is
approved, including the payment of claims which are not included in the
Global Settlement.
In addition, Continental and Pacific Indemnity have entered into an
Page 11
agreement (the "Continental-Pacific Agreement") which sets forth the
parties' agreement with respect to the means for allocating among themselves
responsibility for payments arising out of the Fibreboard insurance policies
whether or not the Global Settlement or the Trilateral Agreement is
approved. Under the Continental-Pacific Agreement, Continental and Pacific
Indemnity have agreed to pay 64.71% and 35.29%, respectively, of the $1.525
billion plus expenses and interest accrued in escrow to be used to satisfy
the claims of future claimants. If neither the Global Settlement nor the
Trilateral Agreement is approved, Continental and Pacific Indemnity would
share, in the same percentages, most but not all liabilities and costs of
either insurer including, but not limited to, liabilities in respect of
unsettled present claims and presently settled claims (regardless of whether
either such insurer would otherwise have any liability therefor). If either
the Trilateral Agreement or the Global Settlement is approved by the court,
Pacific Indemnity's share for unsettled present claims and presently settled
claims will be $635 million.
Reserves--In the fourth quarter of 1992, Continental increased its reserve
with respect to potential exposure to asbestos-related bodily injury cases
by $1.5 billion. In connection with the agreement in principle announced on
August 27, 1993, Continental added $500 million to such claim reserve. The
Fibreboard litigation represents the major portion of Continental's
asbestos-related claim exposure.
There are inherent uncertainties in establishing a reserve for complex
litigation of this type. Courts have tended to impose joint and several
liability, and because the number of manufacturers who remain potentially
liable for asbestos-related injuries has diminished on account of
bankruptcies, as has the potential number of insurers due to operation of
policy limits, the liability of the remaining defendants is difficult to
estimate. Further, a recent trend by courts to consolidate like cases into
mass tort trials limits the discovery ability of insurers, generally does
not allow for individual claim adjudication, restricts the identification of
appropriate allocation methods and thereby results in an increasing
likelihood for fraud and disproportionate and potentially excessive
judgments. Additionally, management believes that recent court decisions
would appear to be based on social or other considerations irrespective of
the facts and legal issues involved.
The Global Settlement and the Trilateral Agreement are subject to court
approval. There is limited precedent with settlements which determine the
rights of future claimants to seek relief. It is extremely difficult to
assess the magnitude of Continental's potential liability in respect of such
future claimants if neither the Global Settlement nor the Trilateral
Agreement is approved and upheld, keeping in mind that Continental's
potential liability is limited to persons exposed to asbestos prior to the
termination of the policy in 1959.
Projections by experts of future trends differ widely, based upon different
assumptions with respect to a host of complex variables. Some recently
published studies, not specifically related to Fibreboard, conclude that the
number of future asbestos-related bodily injury claims against asbestos
manufacturers could be several times the number of claims brought to date.
Such studies include claims asserted against asbestos manufacturers for all
years, including claims filed or projected to be filed in respect of periods
after 1959. As indicated above, as of September 30, 1994 Continental,
Fibreboard and plaintiff attorneys have reached settlements with respect to
approximately 135,500 claims, subject to the resolution of coverage issues.
Such amount does not include presently pending or unsettled claims, claims
previously dismissed or claims settled pursuant to agreements to which
Continental is not a party.
Page 12
Another aspect of the complexity in establishing a reserve arises from the
widely disparate values that have been ascribed to claims by courts and in
the context of settlements. Under the terms of a settlement reached with
plaintiffs' counsel in August 1993, the expected settlement for
approximately 49,500 claims for exposure to asbestos both prior to and after
1959 is currently averaging approximately $13,200 per claim for the before
1959 claims processed through September 30, 1994. Based on reports by
Fibreboard, between September 1988 and April 1993, Fibreboard resolved
approximately 40,000 claims (other than by the assignment process noted
above), approximately 45% of which involved no cost to Fibreboard other than
defense costs, with the remaining claims involving the payment of
approximately $11,000 per claim. On the other hand, a trial court in Texas
in 1990 rendered a verdict in which Fibreboard's liability in respect of
2,300 claims was found to be approximately $310,000 per claim including
interest and punitive damages. Fibreboard entered into a settlement of such
claims by means of an assignment of its potential proceeds from its policy
with Continental. Continental intervened and settled these claims for
approximately $77,000 on average, with a portion of the payment contingent
on approval of the Global Settlement or the Trilateral Agreement, and if
neither is approved, subject to resolution of the coverage appeal.
Continental believes that as a result of the Global Settlement and the
Trilateral Agreement it has greatly reduced the uncertainty of its exposure
with respect to the Fibreboard matter. However, if neither the Global
Settlement nor the Trilateral Agreement are approved and upheld, in light of
the factors discussed herein the range of Continental's potential liability
cannot be meaningfully estimated and there can be no assurance that the
reserves established would be sufficient to pay all amounts which ultimately
could become payable in respect of asbestos-related bodily injury
liabilities.
While it is possible that the ultimate outcome of this matter could have a
material adverse impact on the equity of CNA, management does not believe
that a further loss material to equity is probable. Management will
continue to monitor the potential liabilities with respect to asbestos-
related bodily injury claims and will make adjustments to the claim reserves
if warranted.
Environmental Pollution--Potential exposures exist for claims involving
environmental pollution, including toxic waste clean-up. Environmental
pollution clean-up is the subject of both federal and state regulation. By
some estimates, there are thousands of potential waste sites subject to
clean-up. The insurance industry is involved in extensive litigation
regarding coverage issues. Judicial interpretations in many cases have
expanded the scope of coverage and liability beyond the original intent of
the policies.
Under federal regulation, the Comprehensive Environmental Response
Compensation and Liability Act of 1980 ("Superfund") governs the clean-up
and restoration of abandoned toxic waste sites and formalizes the concept of
legal liability for clean-up and restoration by "Potentially Responsible
Parties" ("PRP's"). Superfund establishes a mechanism to pay for clean-up
of waste sites if PRP's fail to do so, and to assign liability to PRP's.
The extent of liability to be allocated to a PRP is dependent on a variety
of factors. Further, the number of waste sites subject to clean-up is
unknown. To date, approximately 1,300 clean-up sites have been identified
by the Environmental Protection Agency. On the other hand, the
Congressional Budget Office is estimating that there will be 4,500 National
Priority List sites, and other estimates project as many as 30,000 sites
will require clean-up. Very few sites have been subject to clean-up to
date. The extent of clean-up necessary and the assignment of liability has
Page 13
not been established.
CNA and the insurance industry are disputing coverage for many such claims.
Key coverage issues include whether Superfund response cost are considered
damages under the policies, trigger of coverage, applicability of pollution
exclusions, the potential for joint and several liability and definition of
an occurrence. Similar coverage issues exist for clean-up of waste sites
not covered under Superfund. To date, courts have been inconsistent in
their rulings on these issues.
A number of proposals to reform Superfund have been made by various parties,
however it appears none will be enacted by Congress in 1994. While CNA
expects that the next Congress will address this issue, no predictions can
be made as to what positions the Congress or the Administration will take
and what legislation, if any, will result.
Due to the inherent uncertainties described above, including the
inconsistency of court decisions, the number of waste sites subject to
clean-up, and the standards for clean-up and liability, the exposure to CNA
for environmental pollution claims cannot be meaningfully quantified. CNA
identified reserves only for reported environmental pollution claims. In
1993, CNA allocated approximately $340 million of claims and claims expense
reserves for unreported environmental pollution claims in addition to the
$94 million of reserves recorded for reported claims. At September 30,
1994, reserves for reported and unreported claims were $105 and $351
million, respectively. Claims and claims expense reserves represent
management's estimates of ultimate liabilities based on currently available
facts and law. However, in addition to the uncertainties previously
discussed, additional issues related to, among other things, specific policy
provisions, multiple insurers and allocation of liability among insurers,
consequences of conduct by the insured, missing policies and proof of
coverage make quantification of liabilities exceptionally difficult and
subject to later adjustment based on new data.
The number of claims filed for environmental pollution coverage continues to
increase. Approximately 1,400 claims were reported in the first nine months
of 1994 and approximately 19,500 claims have been reported to date. Pending
claims totaled approximately 9,900 and 10,100 at September 30, 1994 and
December 31, 1993, respectively. Approximately 9,600 claims were closed
through September 30, 1994, of which approximately 8,650 claims were settled
without payment, except for claim expenses of $25 million. Settlements for
the remaining 950 claims totaled $120 million, plus claim expenses of $29
million. Adverse reserve development for environmental claims totaled $100
and $73 million for the nine months ended September 30, 1994 and 1993,
respectively. The foregoing claims statistics represent claims for accident
years 1988 and prior, which coincides with CNA's adoption of the Simplified
Commercial General Liability coverage form which included an absolute
pollution exclusion. In previous filings, such disclosures included claims
for all accident years.
The results of operations in future years may continue to be adversely
affected by environmental pollution claims and claims expenses. Management
will continue to monitor potential liabilities and make further adjustments
as warranted.
7. In the opinion of Management, the accompanying consolidated condensed
financial statements reflect all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position as of
September 30, 1994 and December 31, 1993 and the results of operations for
the three and nine months and the changes in cash flows for the nine months
ended September 30, 1994 and 1993, respectively.
Page 14
Results of operations for the third quarter and first nine months of each of
the years is not necessarily indicative of results of operations for that
entire year.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
-----------------------------------------------------------------------
Liquidity and Capital Resources:
- -------------------------------
Insurance
- ---------
Property and casualty and life insurance operations are wholly owned
subsidiaries of CNA Financial Corporation ("CNA"). CNA is an 84% owned
subsidiary of the Company--
The prolonged soft market in commercial property/casualty lines that depressed
property/casualty earnings last year in much of the insurance industry did not
change significantly in the first nine months of 1994. Significant catastrophe
claims related to the Los Angeles earthquake and severe winter storms, and
declining bond portfolios due to rising interest rates put additional pressure
on the industry.
Total industry catastrophe losses of $12.7 billion through the third quarter
have already made 1994 the second worse year on record for catastrophic losses,
behind the record $22.9 billion in 1992. In spite of these losses, there have
not been substantial increases in rates, except in certain geographic regions
and lines of property insurance. In addition, complex and costly litigation has
been continuing, fueled by the tendency of the courts to interpret insurance
contracts beyond their stated intent.
On the other hand, the workers' compensation line has improved steadily since
1992. Legislative reforms have cut costs in some states, residual market losses
have dropped and the insurance regulators have sharpened their focus on workers'
compensation fraud. The life/health insurance industry is also benefiting from
favorable trends. Solid profits for the industry reflect lower crediting rates
on interest-sensitive products, expense reduction, improved investment results
and moderation in the rise of health care costs.
CNA continues to focus on the risk characteristics and premium rates in
commercial lines. CNA will continue to seek business in lines where it has a
sizable market share, substantial experience, and foresees clear profit
potential over the long term. At the same time, however, the emphasis is on
reasonable rates rather than volume growth.
Net operating income for the life group increased, although negatively
affected by intense competition and high health care costs which have resulted
in a continued market shift away from traditional indemnity forms of health
coverage toward managed care products. Although comprehensive national health
reform failed this year, political pressures for expanded access and cost
reduction will continue to accelerate the spread of managed care. CNA's
strength in the managed care environment is its access to networks of efficient
providers of high-quality medical services. CNA's ability to compete in this
market will be increasingly dependent on its ability to control costs through
managed care techniques, innovation, and quality customer-focused service in
order to properly position CNA in the evolving health care environment.
The federal government's initiative to control health care costs and provide
universal access to quality health care may impact both individual and group
Page 15
accident and health, workers' compensation, automobile liability and medical
malpractice businesses of CNA.
For the first nine months of 1994, the statutory surplus of the property and
casualty insurance subsidiaries decreased 8.0% to approximately $3.3 billion.
The decrease resulted from the aforementioned catastrophe losses and net
realized investment losses. The statutory surplus of the life insurance
subsidiaries remained at $1.0 billion.
As discussed in Note 6 of the Notes to Consolidated Condensed Financial
Statements, Continental Casualty Company ("Casualty") greatly reduced a major
source of financial uncertainty by reaching a Global Settlement to resolve all
future asbestos-related bodily injury claims involving Fibreboard, a former
asbestos manufacturer. The agreement, executed in December 1993, was reached
with Fibreboard, Pacific Indemnity Company ("Pacific") (a subsidiary of the
Chubb Corporation) and a negotiating committee of asbestos claimant attorneys.
The agreement calls for Casualty and Pacific to contribute an aggregate of
$1.525 billion to a trust fund for a class of all future asbestos claimants.
Casualty funded its obligations under the agreement by depositing approximately
$1.0 billion into an escrow account at the end of 1993. The escrow account is
included in the short-term investment portfolio. CNA believes based on current
information that the reserves established in connection with this matter will be
sufficient to cover all asbestos-related Fibreboard claims. CNA believes that
as a result of the Global Settlement and the Trilateral Agreement referred to in
Note 6, it has greatly reduced the uncertainty of its exposure with respect to
the Fibreboard matter. However, if neither the Global Settlement, nor the
Trilateral Agreement is approved and upheld, in light of the factors discussed
herein the range of Continental's potential liability cannot be meaningfully
estimated and there can be no assurance that the reserves established would be
sufficient to pay all amounts which ultimately could become payable in respect
of asbestos-related bodily injury liabilities.
On July 29, 1994 the United States District Court for the Eastern District of
Texas preliminarily approved the Global Settlement agreement, and ordered that a
fairness hearing be held on December 12, 1994 to determine whether to finally
approve the Global Settlement agreement. CNA and other parties to the Global
Settlement agreement initiated a comprehensive communication program in August
1994 to ensure that all potential claimants have notice of their rights and
possible benefits under the Global Settlement.
CNA and the insurance industry are exposed to an unknown amount of liability
for environmental pollution, primarily related to toxic waste site clean-up.
See Note 6 of the Notes to Consolidated Condensed Financial Statements for a
further discussion of environmental pollution exposures.
The liquidity requirements of CNA are met primarily by funds generated from
operations. The principal operating cash flow sources of CNA's property and
casualty and life insurance subsidiaries are premiums and investment income.
The primary operating cash flow uses are payments for claims, policy benefits
and operating expenses.
For the first nine months of 1994, CNA's operating activities generated net
cash flows of $745 million, compared to $964 million for the same period in
1993. The decrease in cash flows is due primarily to Fibreboard claim payments,
catastrophe claim payments and a decline in tax recoveries. Net cash flows are
invested in marketable securities. Investment strategies employed by CNA's
insurance subsidiaries consider the cash flow requirements of the insurance
products sold and the tax attributes of the various types of marketable
investments.
Page 16
Investments
- -----------
A summary of CNA's general account fixed income securities portfolio and
short-term investments are as follows:
<TABLE>
<CAPTION>
Change in
Unrealized
September 30, December 31, (Losses)
1994 1993 Gains
--------------------------------------
(In millions)
<S> <C> <C> <C>
Fixed income securities:
U.S. Treasury securities and
obligations of government agencies .. $11,200 $ 6,554 $ (562)
Asset-backed securities .............. 2,258 2,547 (125)
Tax exempt securities ................ 4,225 5,015 (205)
Other ................................ 3,508 3,491 (199)
----------------------------------
Total fixed income securities ... 21,191 17,607 (1,091)
Stocks ................................. 659 508 (26)
Short-term and other investments........ 6,180 7,248 11
----------------------------------
Total ........................... $28,030 $25,363 $(1,106)
==================================
Short-term investments:
Security repurchase collateral ....... $ 3,538 $ 623
Escrow ............................... 1,008 987
Others ............................... 1,305 5,334
Other investments ...................... 329 304
---------------------
Total short-term and other
investments .................... $ 6,180 $ 7,248
=====================
</TABLE>
Debt security carrying values are highly susceptible to changes in interest
rates and were adversely affected as a general rise in interest rates occurred
throughout 1994.
CNA's general account investment portfolio is managed to maximize after tax
investment return, while minimizing credit risks, with investments concentrated
in high quality securities to support its insurance underwriting operations.
CNA has the capacity to hold its fixed income portfolio to maturity. However,
securities may be sold as part of CNA's asset/liability strategies or to take
advantage of investment opportunities generated by changing interest rates,
prepayments, tax and credit considerations, or other similar factors.
Accordingly, fixed income securities are classified as available for sale.
During the first nine months of 1994, CNA's consolidated investments increased
by $2.7 billion, to $28.0 billion. This increase is due to a $2.9 billion
increase in collateral related to securities sold under agreements to
repurchase. The general account portfolio consists primarily of high quality
marketable debt securities, approximately 96% of which are rated as investment
Page 17
grade. At September 30, 1994, tax exempt securities and short-term investments
excluding collateral for securities sold under repurchase agreements, comprised
approximately 15% and 8%, respectively, of the general account's total
investment portfolio compared to 19% and 28%, respectively, at December 31,
1993. At September 30, 1994, the major component of the short-term investment
portfolio was approximately $1.0 billion of high grade commercial paper.
Collateral for securities sold under repurchase agreements totaled $3.5 billion
and were invested in high grade commercial paper.
CNA holds a small amount of derivative financial investments for the purposes
of enhancing income and total return and/or hedging long-term investments. The
derivative securities are marketed-to-market. At September 30, 1994 the
notional value of written financial options and interest rate swap agreements
amounted to $675 million. CNA does not expect to recognize material gains or
losses related to these investments.
As of September 30, 1994, the market value of CNA's general account
investments in bonds and redeemable preferred stocks was $21.2 billion and was
less than amortized cost by approximately $587 million. This compares to $504
million of net unrealized investment gains at December 31, 1993. The unrealized
losses are the result of a general increase in interest rates. Interest rates
on U.S. government securities due in one year increased 240 basis points while
the rates on five and ten year U.S. government bonds rose 207 and 177 basis
points, respectively, from year-end 1993 levels. The gross unrealized
investment gains and losses for the fixed income securities portfolio at
September 30, 1994, were $212 and $799 million, respectively, compared to $564
and $60 million, respectively, at December 31, 1993.
Net unrealized investment losses on general account bonds at September 30,
1994 include net unrealized investment losses on high yield securities of $94
million, compared to net unrealized investment gains of $15 million at December
31, 1993. High yield securities are bonds rated as below investment grade by
bond rating agencies, plus private placements and other unrated securities
which, in the opinion of management, are below investment grade. Fair values of
high yield securities in the general account were $1.0 billion at September 30,
1994, compared to $727 million at December 31, 1993.
At September 30, 1994, total Separate Account cash and investments amounted to
$6.0 billion with taxable debt securities representing approximately 90% of the
Separate Accounts' portfolio. Approximately 87% of Separate Account investments
are used to fund guaranteed investment contracts ("GIC's") for which CNA's life
insurance affiliate guarantees principal and a specified return to the contract
holders. The fair value of all fixed income securities in the GIC portfolio was
$4.7 billion compared to $5.4 billion at December 31, 1993. At September 30,
1994, amortized cost exceeded fair values by approximately $115 million. This
compares with fair values exceeding amortized cost by approximately $148 million
at December 31, 1993. The gross unrealized investment gains and losses for the
GIC fixed income securities portfolio at September 30, 1994 were $56 and $171
million, respectively.
Carrying values of high yield securities in the GIC portfolio were $1.2
billion at September 30, 1994, compared to $1.1 billion at December 31, 1993.
Net unrealized investment losses on high yield securities held in such Separate
Accounts were $73 million at September 30, 1994, compared to net unrealized
gains of $56 million at December 31, 1993.
High yield securities generally involve a greater degree of risk than that of
investment grade securities. Expected returns should, however, compensate for
the added risk. The risk is also considered in the interest rate assumptions in
the underlying insurance products. At September 30, 1994, CNA's concentration
in high yield bonds, including Separate Accounts, was approximately 4.9% of its
Page 18
total assets. In addition, CNA's investment in mortgage loans and investment
real estate are substantially below the industry average, representing less than
one quarter of one percent of its total assets.
Included in CNA's fixed income securities at September 30, 1994 (general and
GIC portfolios) are $4.0 billion of asset-backed securities, consisting of
approximately 51% in collateralized mortgage obligations ("CMO's"), 17% in
corporate asset-backed obligations, and 32% in U.S. government agency issued
pass-through certificates. The majority of CMO's held are U.S. government
agency issues, which are actively traded in liquid markets and are priced
monthly by broker-dealers. At September 30, 1994, the fair values of asset-
backed securities was less than amortized cost by approximately $110 million
compared to unrealized investment gains of $87 million at December 31, 1993.
CNA limits the risks associated with interest rate fluctuations and prepayment
by concentrating its CMO investments in early planned amortization classes with
wide bands and relatively short principal repayment windows.
Over the last few years, much concern has been raised regarding the quality of
insurance company invested assets. At September 30, 1994, 63% of the general
account's debt securities portfolio was invested in U.S. government securities,
19% in other AAA rated securities and 11% in AA and A rated securities. CNA's
GIC fixed income portfolio is comprised of 22% U.S. government securities, 21%
other AAA rated securities and 20% in AA and A rated securities. These ratings
are primarily from nationally recognized rating agencies (95% of the general
account portfolio and 94% of the GIC portfolio).
Cigarettes
- ----------
Lorillard, Inc. and subsidiaries ("Lorillard")--
For a number of years through 1992 leading cigarette marketers, including
Lorillard, had increased the price of their premium brands. For the period 1982
to 1992 the annual price increase for Lorillard's premium brands averaged
approximately 10%. Lorillard's cash flows from operations during this period
benefited significantly from these price increases since virtually all of
Lorillard's sales are in the premium priced segment, with Newport accounting for
more than two-thirds of Lorillard's total unit sales.
Effective August 9, 1993 in response to new lower pricing policies and
promotions by its competitors Lorillard reduced its premium brand wholesale
cigarette unit prices by approximately 25% to maintain its competitive position.
These price moves have established two price tiers for the industry, eliminating
much of the price confusion in the market place, and substantially narrowing the
price gap between premium and discount cigarettes. These developments appear to
have slowed the rapid growth of discount cigarettes. While promotional spending
can be reduced, the overall impact of the new lower pricing has reduced
Lorillard's revenues, income contribution and cash flow.
Smoking and Health and Related Matters--As previously reported, from time to
time bills have been introduced in Congress which would, among other things,
subject cigarettes to regulation in various ways by the U.S. Department of
Health & Human Services. Early in 1994, and in connection with one such bill,
the Energy and Commerce Subcommittee on Health and the Environment of the U.S.
House of Representatives ("the Subcommittee") began consideration of various
legislative proposals concerning regulation of cigarettes, and launched an
ongoing oversight investigation into tobacco products, including possible
regulation of nicotine-containing cigarettes as drugs. The Food and Drug
Administration of the U.S. Department of Health & Human Services is also
investigating whether the agency should regulate nicotine-containing cigarettes
as drugs. These investigations have included requests to Lorillard and other
Page 19
cigarette manufacturers for documents and information, and with respect to the
Subcommittee investigation, have included hearings in which representatives of
Lorillard and other cigarette manufacturers have testified. It is impossible at
this time to predict the ultimate outcome of these investigations.
By letter of June 6, 1994, Dr. Michael Eriksen, Director of the Office on
Smoking and Health of the Centers for Disease Control and Prevention of the
Department of Health & Human Services (the "CDC"), requested that Lorillard, as
well as each of the other major U.S. cigarette manufacturers, voluntarily submit
to his office certain information regarding cigarette ingredients, including the
identity and amount of each ingredient added to each brand of cigarettes,
analytical methods of measuring ingredients, the identity of substances added to
non-tobacco components of cigarette products, and citations to studies relied
upon to evaluate the safety of ingredients. On September 21, 1994, the major
U.S. cigarette manufacturers, including Lorillard, voluntarily submitted
information and materials in response to this request, with the understanding
that it be treated as confidential. It is impossible at this time to predict
the ultimate outcome of this inquiry.
On July 1, 1994, legislation in the state of Florida became effective that
permits the state to sue a manufacturer to recover Medicaid costs incurred by
the state that are claimed to result from the use of the manufacturer's product.
This new law significantly increases the likelihood that Lorillard will be sued
by the state of Florida for recovery of Medicaid costs that may be alleged to
have been incurred as a result of the use of its products. In any such suit,
the statute permits causation and damages to be proven by statistical analysis,
abrogates all affirmative defenses, adopts a "market share" liability theory,
applies joint and several liability and eliminates the statute of repose.
Although no action has been brought to date, the Governor of Florida has
threatened to use this new law primarily to recover damages from cigarette
manufacturers. An action for declaratory judgment has been commenced in Florida
state court by companies and trade associations in several potentially affected
industries challenging the Florida law. Lorillard also understands that
elements of the Florida business community have initiated an effort to repeal or
modify this law in a future legislative session. It is impossible at this time
to predict the ultimate outcome of this lawsuit or such efforts. Lorillard
understands that several other states, and the Congress, have considered or are
considering legislation similar to that passed in Florida.
In one state, Massachusetts, the Governor on July 10, 1994 signed legislation
authorizing that state's attorney general to bring an action against tobacco
manufacturers to recover medical assistance payments for which such companies
may be liable under existing law. The state of Mississippi, relying upon
existing law, filed a suit on May 23, 1994 against the major U.S. cigarette
manufacturers, including Lorillard, to recover Medicaid costs claimed to have
resulted from use of tobacco products. Similar suits have also been filed by
the states of Minnesota (Blue Cross/Blue Shield of Minnesota is also a
plaintiff) and West Virginia. Each of these three cases is in its early stages,
and it is not possible to predict the likely outcome of these cases or their
impact on Lorillard. However, the states pursuing these efforts are doing so at
the urging and with the assistance of well-known members of the plaintiffs bar,
and these lawyers have been meeting with attorneys general in other states to
encourage them to file similar suits. See Part II, Item 1, Legal Proceedings,
below.
Other
- -----
The Company enters into various transactions involving off-balance-sheet
financial instruments, including derivative financial investments, through a
variety of futures, swaps, options, forward and other contracts as part of its
Page 20
investing activities for purposes of enhancing income and total return and/or
hedging other positions in its portfolio. These financial instruments are
marked-to-market and gains or losses are included in realized investment gains
or losses. The Company does not expect to recognize material gains or losses
related to these investments.
Corporate
- ---------
In September 1994 the Company received approximately $270.4 million cash
proceeds related to a tender offer by CBS Inc.
During the nine months ended September 30, 1994 the Company purchased
2,160,000 shares of its outstanding Common Stock at an aggregate cost of
approximately $192.0 million. The funds required for such purchases were
provided from working capital. Depending on market conditions, the Company, from
time to time, purchases shares in the open market or otherwise.
In addition, the Company purchased 579,500 CNA common shares at an aggregate
cost of approximately $35.5 million during the third quarter of 1994.
Results of Operations:
- ----------------------
Revenues for the quarter and nine months ended September 30, 1994, increased
by $128.4 million, or 3.8%, and declined by $191.3 million, or 1.9%,
respectively, as compared to the prior year. Net income increased by $223.8
million, or 249.8%, and decreased by $267.0 million, or 58.6%, respectively, for
the quarter and nine months ended September 30, 1994, as compared to the prior
year. The following table sets forth the major sources of the Company's
consolidated revenues and net income.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------------------
1994 1993 1994 1993
----------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Revenues (a):
Property and casualty insurance ..... $2,110,394 $2,029,307 $ 5,988,501 $ 6,149,160
Life insurance ...................... 728,250 719,841 2,184,334 2,131,320
Cigarettes .......................... 506,139 446,378 1,444,740 1,444,616
Hotels .............................. 49,430 48,202 140,609 140,811
Watches and other timing devices .... 38,063 44,408 106,083 111,595
Drilling ............................ 79,212 75,186 228,025 205,969
Investment income-net (non-insurance
companies) ......................... 28,174 38,585 28,667 109,928
Equity in income of CBS Inc. ........ 9,243 20,884 39,949 52,084
Other and eliminations--net ......... (3,601) (5,857) (17,107) (10,340)
----------------------------------------------------
$3,545,304 $3,416,934 $10,143,801 $10,335,143
====================================================
Net income (loss) (a):
Property and casualty insurance ..... $ 40,819 $ (197,327) $ (37,716) $ 76,130
Life insurance ...................... 12,853 26,044 15,828 79,603
Cigarettes .......................... 93,858 58,345 262,844 263,594
Hotels .............................. 2,390 1,593 2,208 1,186
Watches and other timing devices .... 65 1,508 26 1,667
Drilling ............................ (8,799) (1,138) (23,196) (15,043)
Investment income-net (non-insurance
companies) ......................... 16,829 22,750 16,748 68,083
Equity in income of CBS Inc. ........ (503) 17,537 26,979 46,615
Interest expense and other--net ..... (23,297) (18,927) (75,045) (66,117)
----------------------------------------------------
$ 134,215 $ (89,615) $ 188,676 $ 455,718
====================================================
Page 21
(a) Includes realized investment (losses) gains as follows:
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------------------
1994 1993 1994 1993
----------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Property and casualty insurance ..... $ (7,035) $ 109,827 $ (127,799) $ 608,325
Life insurance ...................... (10,988) 38,856 (69,370) 111,594
Investment income-net ............... 108 22,694 (48,349) 68,161
----------------------------------------------------
$ (17,915) $ 171,377 $ (245,518) $ 788,080
====================================================
Net income (loss):
Property and casualty insurance ..... $ (3,560) $ 55,630 $ (71,957) $ 329,234
Life insurance ...................... (5,555) 18,662 (31,201) 53,356
Investment income-net ............... (376) 13,709 (31,656) 42,643
----------------------------------------------------
$ (9,491) $ 88,001 $ (134,814) $ 425,233
====================================================
</TABLE>
Insurance
- ---------
Property and casualty revenues, excluding realized investment (losses) gains,
increased by $197.9 and $575.5 million, or 10.3% and 10.4%, for the quarter and
nine months ended September 30, 1994, as compared to the same periods a year
ago.
Property and casualty premium revenues increased by $132.1 and $452.3 million,
or 8.1% and 9.8%, respectively, for the quarter and nine months ended September
30, 1994, from the prior year's comparable period. The increase was principally
attributable to increases in medium commercial accounts ($138 million), group
accident and health ($102 million), professional liability ($105 million) and
reinsurance ($100 million). Investment income increased $57.4 and $95.5
million, or 22.5% and 12.0%, for the quarter and nine months compared with the
same periods a year ago. Investment income increased primarily due to rising
investment yields in 1994 and the change in portfolio mix from shorter term
securities to longer maturities, primarily in government bonds.
Life insurance revenues, excluding realized investment (losses) gains,
increased by $58.3 and $234.0 million, or 8.6% and 11.6%, as compared to the
same period a year ago. Life premium revenues increased by $33.7 and $189.0
million, or 5.5% and 10.6%, respectively, for the quarter and nine months ended
September 30, 1994 with the primary growth for the nine-month period
attributable to a $117 million increase in group operations and a $52 million
increase in pension operations. Life investment income increased by $17.2 and
$32.3 million, or 27.5% and 16.5%, respectively, for the quarter and nine months
ended September 30, 1994, compared to the same periods a year ago primarily due
to the first quarter shift out of short-term investments described earlier.
Property and casualty underwriting losses for the quarter and nine months
ended September 30, 1994 were $293.3 and $983.1 million, compared to $827.0 and
$1,518.3 million for the same periods in 1993. The statutory combined ratios
for the quarter and nine months ended September 30, 1994 were 112.9 and 115.9,
Page 22
respectively, compared with 148.9 and 131.2 for the same periods in 1993.
Catastrophe losses for the quarter and nine months ended September 30, 1994 were
$47 and $213 million, respectively, compared with $43 and $88 million for the
respective periods in 1993. Most of the 1994 third quarter catastrophe loss was
additional development related to the Northridge earthquake that occurred in the
first quarter. The catastrophe losses masked the continuing improvement in
underwriting experience. Results for the first nine months of 1994 reflect
favorable reserve development of $104 million, which is net of a $100 million
increase in claims and claims expense reserves for unreported environmental
pollution claims. The favorable reserve development for the quarter ended
September 30, 1994 was $72 million which is net of a $45 million increase in
claims and claims expense reserves for unreported environmental pollution
claims.
The components of CNA's realized investment (losses) gains are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-----------------------------------------------------
1994 1993 1994 1993
-----------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Bonds:
U.S. Government....................... $ (9.9) $ 41.7 $ (155.1) $ 105.0
Tax exempt............................ (1.9) 80.9 21.2 386.4
Asset-backed.......................... (16.5) (13.0) (60.9) 66.3
Taxable............................... (1.7) 38.0 (40.9) 112.8
----------------------------------------------------
Total bonds...................... (30.0) 147.6 (235.7) 670.5
Stocks.................................. 4.7 12.2 37.4 62.8
Derivative and Other.................... 7.2 2.7 1.1 .4
----------------------------------------------------
Total realized investment
(losses) gains.................. $ (18.1) $ 162.5 $ (197.2) $ 733.7
====================================================
</TABLE>
In early 1994, CNA began to reposition its portfolios to longer maturities.
The repositioning of the portfolios was undertaken in order to improve future
overall investment returns. As a result, both the Casualty and Life Groups
shifted out of their short-term portfolios into five and ten year government
securities resulting in a decrease in short-term investments. Short-term
investments (excluding investments relating to loaned securities) for the
Casualty Group decreased from $5.1 billion at December 31, 1993 to $2.1 billion
at September 30, 1994, and the Life Group decreased from $1.2 billion at
December 31, 1993 to $171.2 million at September 30, 1994. These actions were
taken in a period of rising interest rates which resulted in realized losses on
sales from the investment portfolio.
For the nine months ended September 30, 1994, CNA sold approximately $27
billion of fixed income and equity securities, realizing pre-tax losses of
$194.4 million. Of the $27 billion of securities sold, approximately $15.8 and
$5.9 billion, respectively, were from the U.S. government and asset-backed bond
portfolios.
Cigarettes
- ----------
Revenues for the quarter and nine months ended September 30, 1994 increased by
$59.8 million, or 13.4%, and $.1 million, or less than 1%, and net income
Page 23
increased by $35.5 million, or 60.9%, and decreased by $.8 million, or .3%,
respectively, as compared to the corresponding periods of the prior year.
The increased revenues are composed of an increase of approximately $72.7 and
$234.4 million, or 16.3% and 16.2%, due to higher unit sales volume for the
quarter and nine months ended September 30, 1994, partially offset by a decline
of approximately $12.9 and $234.3 million, or 2.9% and 16.2%, reflecting a
reduction in unit prices as compared to the corresponding periods of the prior
year. Net income increased for the quarter due primarily to increased unit
sales. Net income declined during the nine month period due to the lower unit
prices, partially offset by an approximately 20% reduction in advertising, trade
and sales promotion expenses.
Lorillard's cigarette unit sales volume increased 16.7% and 19.3% for the
quarter and nine months ended September 30, 1994, as compared to the prior year,
due primarily to increased promotional campaigns for existing brands and
introduction of a new brand, and for the nine month period, the new lower
pricing structure discussed above (see Liquidity and Capital Resources -
Cigarettes) and extremely light shipments in early 1993 resulting from increased
unit purchases in December 1992 in anticipation of a federal excise tax
increase.
For the third quarter, total domestic industry unit sales increased 5.3% with
the overwhelming majority of the increase being in the premium price segment.
The discount brand category's share of industry sales decreased from 33.6% in
the 1993 third quarter to an average of approximately 32.6% during the first
nine months of 1994.
Hotels
- ------
Revenues for the quarter and nine months ended September 30, 1994, increased
by $1.2 million, or 2.5%, and decreased $.2 million, or .1%, respectively, as
compared to the prior year. Net income increased by $.8 and $1.0 million, or
50.0% and 86.2%, for the quarter and nine months ended September 30, 1994, as
compared to the prior year.
Revenues increased for the quarter ended September 30, 1994, as compared to
the prior year, due primarily to higher overall occupancy rates, partially
offset by lower occupancy and average room rates at the Loews Monte Carlo Hotel.
Revenues decreased during the nine months ended September 30, 1994, as compared
to the prior year, due primarily to lower average room rates at the Loews Monte
Carlo Hotel, partially offset by higher occupancy rates.
Net income increased for the quarter and nine months ended September 30, 1994,
as compared to the prior year, due to the increased occupancy rates, partially
offset by the lower revenues for the nine month period as noted above.
Watches and Other Timing Devices
- --------------------------------
Revenues for the quarter and nine months ended September 30, 1994 decreased by
$6.3 and $5.5 million, or 14.3% and 4.9%, and net income decreased $1.4 and $1.6
million, or 95.7% and 98.4%, respectively, as compared to the prior year.
Revenues decreased for the quarter and nine months ended September 30, 1994,
as compared to the prior year, due primarily to lower unit sales of the consumer
products division and a $1.6 million favorable settlement of contract claims
with the U.S. government in 1993, as compared to $.4 million in 1994. The
decline in revenues was partially offset by increased defense sales related to
shipments to the U.S. government of the M762 fuze for the nine month period and
Page 24
higher royalty income for the quarter. Bulova continues to expect, however,
that industrial and defense revenues will not improve significantly over the
prior year due primarily to the decline in U.S. government defense spending. In
addition, the nine months ended September 30, 1993 included a pre-tax gain of
$3.2 million from asset dispositions.
Net income declined during the quarter and nine months ended September 30,
1994, as compared to the prior year, due primarily to the decreased revenues and
gain from asset dispositions as described above and accruals for environmental
liabilities of $.5 and $.8 million for the quarter and nine months ended
September 30, 1994, respectively, partially offset by an adjustment to gross
margin which increased pre-tax income by approximately $.8 and $2.4 million for
the quarter and nine months ended September 30, 1994, respectively.
Drilling
- --------
Revenues for the quarter and nine months ended September 30, 1994 increased by
$4.0 and $22.1 million, or 5.4% and 10.7%, and net loss increased by $7.7 and
$8.2 million, respectively, as compared to the prior year.
Revenues for the quarter and nine months ended September 30, 1994 increased by
$12.3 and $24.7 million, or 16.8% and 12.1%, respectively, due to higher
dayrates, partially offset by a decline of $6.5 and $.5 million, or 8.9% and
.3%, respectively, due to lower utilization rates. Revenues from Diamond
Offshore's turnkey division increased $.5 and $7.6 million, or .6% and 3.7%,
respectively, for the quarter and nine months ended September 30, 1994, as
compared to the prior year.
The decline in utilization is primarily associated with domestic activity.
Gulf of Mexico utilization remains stronger than that of international rigs, but
has decreased significantly from the prior year primarily as a result of
continuing volatility of crude oil prices. The utilization rate for Diamond
Offshore's domestic rigs was 80.4% for the third quarter of 1994 as compared to
96.6% for the prior year's quarter.
In response to a change in customer demand, in May 1993 Diamond Offshore began
offering a portfolio of drilling and production services to complement its
offshore daywork contract drilling business. These services include overall
project management and drilling and/or production operations on a turnkey or
modified-turnkey basis. The turnkey division generated $3.3 million in revenues
and $.8 million of net income for the quarter. For the nine months ended
September 30, 1994, Diamond Offshore completed six such turnkey wells.
The Company added three semisubmersibles to its international operations
during the third quarter of 1994. The rigs were purchased for $25 million, with
two of the three rigs having contracts for work upon purchase. The Company's
offshore rig fleet now includes 39 units, consisting of 24 semisubmersibles, 14
jackups, and one drillship.
Other
- -----
Revenues and net income for the quarter and nine months ended September 30,
1994, decreased by $19.8 and $100.2 million, or 36.9% and 66.0%, and by $28.3
and $79.9 million, respectively, as compared to the prior year. Other
operations consist primarily of investment income of non-insurance companies and
the Company's investment in CBS Inc.
Revenues and net income decreased due primarily to pre-tax realized investment
gains of $.1 million and losses of $48.3 million (realized losses of $.4 and
Page 25
$31.7 million after tax) for the quarter and nine months ended September 30,
1994, respectively, as compared to pre-tax realized investment gains of $22.7
and $68.2 million ($13.7 and $42.6 million after tax) in the prior year.
Exclusive of securities transactions, other revenues increased $2.8 and $16.3
million, or 9.0% and 19.6%, due primarily to increased investment income of
$12.2 and $35.2 million for the quarter and nine months ended September 30,
1994, respectively, as compared to the prior year. These increased revenues
were partially offset by losses reported in the Company's shipping operations
and lower results from the Company's investment in CBS Inc.
Exclusive of securities transactions, net income from other operations
decreased by $14.2 and $5.6 million for the quarter and nine months ended
September 30, 1994, respectively, as compared to the prior year, due primarily
to higher corporate interest expense resulting from an increased level of
borrowing, partially offset by increased investment income and premium paid on
redemption of debt in the second quarter of 1993.
Accounting Standards
- --------------------
In October 1994, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments." This
Statement requires disclosure about derivative financial instruments such as
future, forward, swap, option or other financial instruments with similar
characteristics and is effective for financial statements issued for fiscal
years ending after December 15, 1994.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." This Statement, as amended by SFAS No. 118, applies to
financial statements for fiscal years beginning after December 15, 1994 and will
not have a significant impact on the Company.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Reference is made to Note 6 to the Notes to Consolidated Condensed Financial
Statements in Part I, Item 1, Financial Statements.
In addition to the matters disclosed in Item 3, Legal Proceedings, of the
Company's 1993 annual report on Form 10-K, in Part II, Item 1, Legal Proceedings
on Form 10-Q for the quarter ended March 31, 1994, and in Part II, Item 1, Legal
Proceedings on Form 10-Q for the quarter ended June 30, 1994 (to each of which
reference is hereby made), the case of State of Minnesota, et al. v. Philip
Morris Incorporated, et al. (District Court, Second Judicial District, Ramsey
County, Minnesota, filed August 17, 1994), was commenced against Lorillard,
other cigarette manufacturers, The Tobacco Institute and the Council for Tobacco
Research. In this action, the State of Minnesota, by its Attorney General, and
Blue Cross and Blue Shield of Minnesota seek restitution of funds expended
through various programs to provide health care to eligible individuals for
diseases or illnesses allegedly caused by the use of tobacco products. Plaintiff
State of Minnesota individually seeks restitution of funds it has expended on
programs on smoking cessation. The plaintiffs also seek unspecified amounts in
actual damages, treble damages for violation of the Minnesota Antitrust Law, and
attorneys' fees.
The case of Granier, et al. v. The American Tobacco Company, et al. (U.S.
District Court, Eastern District, Louisiana, filed September 23, 1994), has been
Page 26
filed against Lorillard and other cigarette manufacturers. In this action,
plaintiffs seek certification of a class consisting of all residents or
domiciliaries of the United States who are addicted to nicotine, and of
survivors who claim their decedents were addicted to nicotine. Plaintiffs seek
unspecified amounts in actual damages, punitive damages and attorneys' fees.
Lorillard understands that an action has been initiated by the Attorney
General of the State of West Virginia, McGraw v. The American Tobacco Company,
et al. (Circuit Court, Kanawha County, West Virginia, filed September 20, 1994),
against Lorillard, other cigarette manufacturers, manufacturers of loose-leaf
and smokeless tobacco products, The Tobacco Institute, the Council for Tobacco
Research, the Company and other entities. Lorillard believes that none of the
named defendants have received service of process of this action. Plaintiff
seeks restitution of the funds that the state has paid under its Medicaid
program to provide health care to its citizens for diseases or illnesses
allegedly caused by the use of various tobacco products, unspecified amounts in
actual damages, punitive damages, treble damages for violations of the West
Virginia Antitrust Act, and attorneys' fees.
Six small claims court cases have been initiated against Lorillard in the
Municipal Court of Los Angeles County, California, Small Claims Division
(Koenigshofer v. Lorillard, filed August 12, 1994). The plaintiffs seek $5,000
in actual damages in each case. A consolidated trial in three of these cases
was held on October 13, 1994, during which the court issued a judgment in favor
of Lorillard based on California product liability statutes, the pendency of
cases against other cigarette manufacturers in another California county, and
plaintiffs' inappropriate attempt to divide their claims. Trials in the other
three cases against Lorillard are scheduled for December 1994.
In the case of Allman v. Philip Morris, Inc., et al. discussed in Part II,
Item 1, Legal Proceedings on Form 10-Q for the quarter ended March 31, 1994, the
court granted defendants' joint motion to dismiss with prejudice on September
21, 1994, based on the plaintiffs' lack of standing to bring a suit under the
Racketeer Influenced and Corrupt Organizations Act because their complaint
failed to allege an injury to business or property. Plaintiffs have appealed to
the United States Court of Appeals for the Ninth Circuit.
In the case of Engle, et al. v. R.J. Reynolds Tobacco Company, et al.,
discussed in Part II, Item 1, Legal Proceedings on Form 10-Q for the quarter
ended March 31, 1994, the court on October 31, 1994 granted plaintiffs' motion
for class certification. Defendants intend to appeal this ruling.
In the case of Broin v. Philip Morris Companies, Inc., et al., discussed in
Item 3, Legal Proceedings, on Form 10-K for the year ended December 31, 1993,
the Circuit Court of Dade County, Florida, will hear argument on plaintiffs'
motion for class certification on November 22, 1994.
As previously reported a number of lawsuits have been filed against Lorillard
and other manufacturers of tobacco products seeking damages for cancer and other
health effects claimed to have resulted from the use of cigarettes or from
exposure to tobacco smoke. Presently, 64 such cases are pending in the United
States federal and state courts against manufacturers of tobacco products
generally; Lorillard is a named defendant in 25 of these cases, including seven
cases in which the Company is also named as a defendant. Twenty-nine of these
cases, including thirteen against Lorillard (of which four also include the
Company), have been commenced since January 1, 1994.
In addition, as previously reported several additional cases have been filed
against Lorillard seeking damages for cancer and other health effects claimed to
have resulted from exposure to asbestos fibers which were incorporated, for a
limited period of time, almost forty years ago, into the filter material used in
Page 27
one of the brands of cigarettes manufactured by Lorillard. Presently 11 such
cases are pending in federal and state courts against Lorillard. Five such
cases have been filed since January 1, 1994.
Lorillard intends to defend vigorously all such actions which may be brought
against it.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits--
(11) Statement Re Computation of Per Share Earnings Assuming Full Dilution
for the three and nine months ended September 30, 1993.
(27) Financial Data Schedule for the nine months ended September 30, 1994.
(b) Current reports on Form 8-K--There were no reports on Form 8-K filed for
the three months ended September 30, 1994.
Page 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LOEWS CORPORATION
-----------------
(Registrant)
Dated: November 14, 1994 By Roy E. Posner
-------------------------
ROY E. POSNER
Senior Vice President and
Chief Financial Officer
(Duly authorized officer
and principal financial
officer)
Page 29
EXHIBIT 11
Loews Corporation and Subsidiaries
Statement Re Computation of Per Share Earnings Assuming Full Dilution
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands, except per share data)
----- September 30, 1993 -----
Three Months Nine Months
Ended Ended
------------------------------
<S> <C> <C>
Computation of Fully Diluted Net (Loss) Income:
Net (loss) income ............................ $(89,615) $455,718
Reduction of interest and debt expenses
related to notes assumed converted, net of
applicable federal income taxes ............. 3,923 11,548
--------------------------
Fully diluted net (loss) income .............. $(85,692) $467,266
==========================
Computation of Fully Diluted Shares:
Weighted average shares outstanding .......... 64,018 64,533
Add shares assumed to be issued upon
conversion of notes ......................... 2,150 2,150
--------------------------
Fully diluted shares ......................... 66,168 66,683
==========================
Net (Loss) income per share assuming full
dilution ...................................... $(1.30) $7.01
==========================
Page 30
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 144,327
<SECURITIES> 27,418,604
<RECEIVABLES> 7,891,359
<ALLOWANCES> 135,214
<INVENTORY> 227,722
<CURRENT-ASSETS> 0
<PP&E> 1,800,815
<DEPRECIATION> 709,674
<TOTAL-ASSETS> 51,272,127
<CURRENT-LIABILITIES> 0
<BONDS> 2,146,859
<COMMON> 61,525
0
0
<OTHER-SE> 5,461,673
<TOTAL-LIABILITY-AND-EQUITY> 51,272,127
<SALES> 1,545,994
<TOTAL-REVENUES> 10,143,801
<CGS> 705,749
<TOTAL-COSTS> 8,034,200
<OTHER-EXPENSES> 1,120,453
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 132,168
<INCOME-PRETAX> 142,444
<INCOME-TAX> (37,445)
<INCOME-CONTINUING> 188,676
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 188,676
<EPS-PRIMARY> 3.11
<EPS-DILUTED> 0
Page 31
</TABLE>
