SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1 TO FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ____________ to _____________
Commission File Number 1-6541
LOEWS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-2646102
(State or other jurisdiction (I.R.S. Employer
of 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)
The registrant hereby amends the following items, financial statements,
exhibits or other portions of its Annual Report on Form 10-K, as amended, for
the year ended December 31, 1996 as set forth in the pages attached hereto.
Part I: Item 1. Business.
(To correct typographical errors on pages 5 and 7)
1
LOEWS CORPORATION
INDEX TO AMENDMENT NO. 1
ANNUAL REPORT ON FORM 10-K/A FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Item Page
No. PART I No.
- ---- ----
<S> <C> <C>
1 BUSINESS ............................................................ 3
CNA Financial Corporation ......................................... 3
Lorillard, Inc. ................................................... 13
Loews Hotels Holding Corporation .................................. 21
Diamond Offshore Drilling, Inc. ................................... 22
Bulova Corporation ................................................ 24
Other Interests ................................................... 24
Signature ........................................................... 26
2
PART I
Item 1. Business.
Loews Corporation is a holding company. Its subsidiaries are engaged in the
following lines of business: property, casualty and life insurance (CNA
Financial Corporation, an 84% owned subsidiary); the production and sale of
cigarettes (Lorillard, Inc., a wholly owned subsidiary); the operation of hotels
(Loews Hotels Holding Corporation, a wholly owned subsidiary); the operation of
offshore oil and gas drilling rigs (Diamond Offshore Drilling, Inc., a 51% owned
subsidiary); and the distribution and sale of watches and clocks (Bulova
Corporation, a 97% owned subsidiary).
Unless the context otherwise requires, the terms "Company" and "Registrant" as
used herein mean Loews Corporation excluding its subsidiaries.
Information relating to the major business segments from which the Company's
consolidated revenues and income are derived is contained in Note 20 of the
Notes to Consolidated Financial Statements, included in Item 8.
CNA FINANCIAL CORPORATION
CNA Financial Corporation ("CNA") was incorporated in 1967 as the parent
company of Continental Casualty Company ("CCC"), incorporated in 1897, and
Continental Assurance Company ("CAC") incorporated in 1911. In 1975, CAC became
a wholly owned subsidiary of CCC. On May 10, 1995, CNA acquired all the
outstanding common stock of The Continental Corporation ("CIC") and it became a
wholly owned subsidiary of CNA. CIC, a New York corporation incorporated in
1968, is an insurance holding company. Its principal subsidiary, The Continental
Insurance Company, was organized in 1853.
CNA's property/casualty insurance operations are conducted by CCC and its
property/casualty insurance affiliates, and CIC and its property/casualty
insurance affiliates. Life insurance operations are conducted by CAC and its
life insurance affiliates. As a multiple-line insurer, CNA underwrites property,
casualty, life, and accident and health coverages as well as pension products
and annuities. CNA's principal market for insurance products is the United
States. CNA accounted for 83.08%, 78.75% and 81.27% of the Company's
consolidated total revenue for the years ended December 31, 1996, 1995 and 1994,
respectively.
The following provides information regarding CNA's property/casualty insurance
and life insurance operations.
PROPERTY/CASUALTY INSURANCE
CNA's property/casualty operations market commercial and personal lines of
property/casualty insurance through independent agents and brokers.
Commercial lines customers include large national corporations, small- and
medium-sized businesses, groups and associations, and professionals. Coverages
are written primarily through traditional insurance contracts under which risk
is transferred to the insurer. Many large commercial account policies are
written under retrospectively-rated contracts which are experience-rated.
Premiums for such contracts may be adjusted, subject to limitations set by
contract, based on loss experience of the insureds. Other experience-rated
policies include provisions for dividends based on loss experience. Experience-
rated contracts reduce but do not eliminate risk to the insurer.
Commercial business includes such lines as workers' compensation, general
liability and commercial automobile, professional and specialty, multiple peril,
and accident and health coverages as well as reinsurance. Professional and
specialty coverages include liability coverage for architects and engineers,
lawyers, accountants, medical and dental professionals; directors and officers
liability; and other specialized coverages. The major components of CNA's
commercial business are professional and specialty coverages, general liability
and commercial automobile, and workers' compensation, which accounted for 18%,
17% and 17%, respectively, of 1996 premiums earned.
3
The property/casualty group markets personal lines of insurance, primarily
automobile and homeowners coverages sold to individuals under monoline and
package policies.
CNA is required by the various states in which it does business to provide
coverage for risks that would not otherwise be considered under CNA's
underwriting standards. CNA's share of involuntary risks is mandatory and
generally a function of its share of the voluntary market by line of insurance
in each state. Premiums for involuntary risks result from mandatory
participation in residual markets. Property/casualty involuntary risks include
mandatory participation in residual markets, statutory assessments for
insolvencies of other insurers, and other charges.
CNA also provides loss control, policy administration and claim administration
services under service contracts for fees. Such services are provided primarily
in the workers' compensation market, where retention of more risk by the
employer through self-insurance or high-deductible programs has become
increasingly prevalent.
The following table sets forth supplemental data on a GAAP basis, except where
indicated, for the property/casualty business:
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995(a) 1994
- --------------------------------------------------------------------------------
(In millions of dollars)
<S> <C> <C> <C>
Commercial Premiums Earned:
Professional and specialty ......... $ 1,844.9 $ 1,557.7 $ 1,010.1
General liability and commercial
automobile ........................ 1,754.1 1,648.9 1,261.1
Workers' compensation .............. 1,542.5 1,475.8 1,426.3
Reinsurance and other .............. 1,188.9 973.9 773.5
Multiple peril ..................... 1,046.9 869.9 389.0
Accident and health ................ 919.0 699.1 557.1
- --------------------------------------------------------------------------------
$ 8,296.3 $ 7,225.3 $ 5,417.1
================================================================================
Personal Premiums Earned:
Personal lines packages ............ $ 1,063.3 $ 781.6 $ 562.6
Monoline automobile and property
coverages ......................... 366.5 325.4 314.2
Accident and health ................ 168.9 107.8 88.9
- --------------------------------------------------------------------------------
$ 1,598.7 $ 1,214.8 $ 965.7
================================================================================
Involuntary Risks Premiums Earned (b):
Workers' compensation .............. $ 135.6 $ 178.2 $ 350.0
Private passenger automobile ....... 57.9 79.7 46.4
Commercial automobile .............. 36.4 19.9 54.3
Property and multiple peril ........ 2.2 5.9 5.0
- --------------------------------------------------------------------------------
$ 232.1 $ 283.7 $ 455.7
================================================================================
Net Investment and Other Income:
Commercial ......................... $ 1,943.3 $ 1,713.1 $ 1,145.1
Personal ........................... 353.0 230.4 177.6
Involuntary risks .................. 93.4 104.3 88.1
- --------------------------------------------------------------------------------
$ 2,389.7 $ 2,047.8 $ 1,410.8
================================================================================
4
Year Ended December 31 1996 1995(a) 1994
- --------------------------------------------------------------------------------
(In millions of dollars)
<S> <C> <C> <C>
Underwriting Loss:
Commercial ......................... $ (853.1) $ (920.8) $ (945.7)
Personal ........................... (183.8) (101.9) (185.2)
Involuntary risks .................. (106.3) (98.8) (70.3)
- --------------------------------------------------------------------------------
$(1,143.2) $(1,121.5) $(1,201.2)
================================================================================
Trade Ratios-(c):
Loss ratio ........................ 76.4% 77.9% 81.9%
Expense ratio ...................... 30.9% 29.4% 28.3%
Combined ratio (before policyholder
dividends) ........................ 107.3% 107.3% 110.2%
Policyholder dividend ratio ........ 1.6% 3.0% 4.8%
Trade Ratios-Statutory basis (c):
Loss ratio ......................... 76.8% 78.6% 82.2%
Expense ratio ...................... 30.4% 29.2% 27.8%
Combined ratio (before policyholder
dividends) ........................ 107.2% 107.8% 110.0%
Policyholder dividend ratio ........ 1.4% 2.1% 3.8%
Other Data-Statutory basis (d):
Capital and surplus ................ $6,348.8 $5,695.9 $3,367.3
Written to surplus ratio ........... 1.6 1.7 2.0
- ----------------
(a) Premiums earned, net investment income and underwriting loss includes the
results of CIC since May 10, 1995.
(b) Property/casualty involuntary risks include mandatory participation in
residual markets, statutory assessments for insolvencies of other insurers and
other involuntary charges.
(c) GAAP trade ratios for 1995 reflect the results of CCC and its
property/casualty insurance subsidiaries for the year, and include the results
of CIC and its property/casualty insurance subsidiaries since May 10, 1995.
Statutory trade ratios reflect the results of CCC, and its property/casualty
insurance subsidiaries and CIC and its property/casualty insurance subsidiaries
for the entire year of 1995. Prior year ratios have not been restated to include
CIC. Trade ratios are industry measures of property/casualty underwriting
results. The loss ratio is the percentage of incurred claim and claim adjustment
expenses to premiums earned. Under generally accepted accounting principles, the
expense ratio is the percentage of underwriting expenses, including the change
in deferred acquisition costs, to premiums earned. Under statutory accounting
principles, the expense ratio is the percentage of underwriting expenses (with
no deferral of acquisition costs) to premiums written. The combined ratio is the
sum of the loss and expense ratios. The policyholder dividend ratio is the ratio
of dividends incurred to premiums earned.
(d) Other data is determined on the statutory basis of accounting. In
addition, dividends of $545.0, $325.0 and $175.0 million were paid to CNA by CCC
in 1996, 1995 and 1994, respectively. Property/casualty insurance subsidiaries
have received, or will receive, reimbursement from CNA for general management
and administrative expenses, unallocated loss adjustment expenses and investment
expenses of $194.6, $197.0 and $169.6 million in 1996, 1995 and 1994,
respectively.
</TABLE>
5
The following table displays the distribution of gross written premium:
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
New York ............................... 9.3% 10.3% 8.6%
California ............................. 8.5 9.7 11.4
Texas .................................. 6.0 6.5 6.5
Illinois ............................... 5.3 5.2 4.9
Pennsylvania ........................... 4.9 5.4 5.7
Florida ................................ 4.2 4.1 4.6
New Jersey ............................. 4.1 4.6 3.2
All other states, countries or political
subdivisions (a) ...................... 46.8 44.4 43.2
Reinsurance assumed:
Voluntary ............................ 9.1 7.8 5.9
Involuntary .......................... 1.8 2.0 6.0
- --------------------------------------------------------------------------------
100.0% 100.0% 100.0%
================================================================================
- ---------------
(a) No other state, country or political subdivision accounts for more than
3.0% of gross written premium.
</TABLE>
The loss reserve development table below illustrates the change over time of
reserves established for property/casualty claim and claim expenses at the end
of various calendar years. The first section shows the reserves as originally
reported at the end of the stated year. The second section, reading down, shows
the cumulative amounts paid as of the end of successive years with respect to
that reserve liability. The third section, reading down, shows reestimates of
the original recorded reserve as of the end of each successive year which is the
result of CNA's expanded awareness of additional facts and circumstances that
pertain to the unsettled claims. The last section compares the latest
reestimated reserve to the reserve originally established, and indicates whether
or not the original reserve was adequate or inadequate to cover the estimated
costs of unsettled claims.
The loss reserve development table is cumulative and, therefore, ending
balances should not be added since the amount at the end of each calendar year
includes activity for both the current and prior years.
6
<TABLE>
<CAPTION>
Schedule of Property/Casualty Loss Reserve Development
- --------------------------------------------------------------------------------------------------------------
Year Ended December 31 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
(a) (a) (a) (a) (a) (a) (a) (a) (b) (c)
- --------------------------------------------------------------------------------------------------------------
(In millions of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross reserves for
unpaid claim and
claim expenses ...... - - - - 16,530 17,712 20,034 20,812 21,639 31,044 29,830
Ceded recoverable ..... - - - - 3,440 3,297 2,867 2,491 2,705 6,089 6,095
- --------------------------------------------------------------------------------------------------------------
Net reserves for
unpaid claim and
claim expenses ....... 6,243 8,045 9,552 11,267 13,090 14,415 17,167 18,321 18,934 24,955 23,735
Net Paid (Cumulative)
as of:
One year later ...... 1,335 1,763 2,040 2,670 3,285 3,411 3,706 3,629 3,656 6,510 -
Two years later ..... 2,383 2,961 3,622 4,724 5,623 6,024 6,354 6,143 7,087 - -
Three years later ... 3,197 4,031 4,977 6,294 7,490 7,946 8,121 8,764 - - -
Four years later .... 3,963 5,007 6,078 7,534 8,845 9,218 10,241 - - - -
Five years later .... 4,736 5,801 6,960 8,485 9,726 10,950 - - - - -
Six years later ..... 5,339 6,476 7,682 9,108 11,207 - - - - - -
Seven years later ... 5,880 7,061 8,142 10,393 - - - - - - -
Eight years later ... 6,382 7,426 9,303 - - - - - - - -
Nine years later .... 6,690 8,522 - - - - - - - - -
Ten years later ..... 7,738 - - - - - - - - - -
Net Reserves
Reestimated as of:
End of initial year . 6,243 8,045 9,552 11,267 13,090 14,415 17,167 18,321 18,934 24,955 23,735
One year later ...... 6,642 8,086 9,737 11,336 12,984 16,032 17,757 18,250 18,922 24,864 -
Two years later ..... 6,763 8,345 9,781 11,371 14,693 16,810 17,728 18,125 18,500 - -
Three years later ... 6,989 8,424 9,796 13,098 15,737 16,944 17,823 17,868 - - -
Four years later .... 7,166 8,516 11,471 14,118 15,977 17,376 17,765 - - - -
Five years later .... 7,314 10,196 12,496 14,396 16,440 17,329 - - - - -
Six years later ..... 9,022 11,239 12,742 14,811 16,430 - - - - - -
Seven years later ... 10,070 11,480 13,167 14,810 - - - - - - -
Eight years later ... 10,317 11,898 13,174 - - - - - - - -
Nine years later .... 10,755 11,925 - - - - - - - - -
Ten years later ..... 10,823 - - - - - - - - - -
- --------------------------------------------------------------------------------------------------------------
Total net (deficiency)
redundancy ........... (4,580) (3,880) (3,622) (3,543) (3,340) (2,914) (598) 453 434 91 -
==============================================================================================================
Reconciliation to
Gross Reestimated
Reserves:
Net reserves
reestimated .......... 10,823 11,925 13,174 14,810 16,430 17,329 17,765 17,868 18,500 24,864 -
Reestimated ceded
recoverable .......... - - - - 2,855 2,610 2,046 1,918 2,472 6,262 -
- --------------------------------------------------------------------------------------------------------------
Total gross
reestimated reserves - - - - 19,285 19,939 19,811 19,786 20,972 31,126 -
==============================================================================================================
Net (Deficiency)
Redundancy Related to:
Asbestos claims ..... (3,021) (2,973) (2,917) (2,818) (2,681) (2,634) (945) (345) (309) (51) -
Environmental claims (1,021) (1,007) (1,002) (975) (964) (918) (871) (425) (246) (65) -
- --------------------------------------------------------------------------------------------------------------
Total asbestos and
environmental ...... (4,042) (3,980) (3,919) (3,793) (3,645) (3,552) (1,816) (770) (555) (116) -
Other ............... (538) 100 297 250 305 638 1,218 1,223 989 207 -
- --------------------------------------------------------------------------------------------------------------
Total net (deficiency)
redundancy ........... (4,580) (3,880) (3,622) (3,543) (3,340) (2,914) (598) 453 434 91 -
==============================================================================================================
7
- ----------------
(a) Reflects reserves of CNA, excluding CIC reserves which were acquired on May
10, 1995. Accordingly, the reserve development (net reserves recorded at the end
of the year, as initially estimated, less net reserves reestimated as of
subsequent years) relates only to the operations of CNA and does not include
CIC.
(b) Reserve development related to the 1994 reserves of CNA, excluding CIC, as
determined by the balances in this column, plus adverse reserve development of
$134 million related to the reserves of CIC, acquired on May 10, 1995, which are
not reflected in this column, were recorded by CNA in 1995 and subsequent
periods.
(c) Includes CIC gross reserves of $9,713 million and net reserves of $6,063
million acquired on May 10, 1995 and subsequent development thereon.
</TABLE>
See Notes 1 and 10 of the Notes to Consolidated Financial Statements, included
in Item 8, for information regarding property/casualty claim and claim expenses
including reserve development for asbestos and environmental claims.
LIFE INSURANCE
CNA's life insurance operations market individual and group insurance products
through licensed agents, most of whom are independent contractors, who sell life
and/or group insurance for CNA and for other companies on a commission basis.
The individual insurance products consist primarily of term, universal life,
participating policies and annuity products. Products developed in 1996 included
a portfolio of variable products and new universal life products which are
expected to be marketed in 1997. Group insurance products include life, accident
and health (consisting primarily of major medical and hospitalization) and
pension products, such as guaranteed investment contracts and annuities. In the
medical and hospitalization market, CNA underwrites the Federal Employees Health
Benefits Program ("FEHBP") which had revenues of $2.1, $1.9 and $1.8 billion in
1996, 1995 and 1994, respectively. CNA has undertaken a number of initiatives to
enhance service, manage health care utilization demand and quality, and
strengthen CNA's networks of physicians, hospitals and other providers.
CNA's products are designed and priced using assumptions CNA management
believes to be reasonably conservative for mortality, morbidity, persistency,
expense levels and investment results. Underwriting practices that CNA
management believes are prudent are followed in selecting the risks that will be
insured. Further, actual experience related to pricing assumptions is monitored
closely so that prospective adjustments to these assumptions may be implemented
as necessary. CNA mitigates the risk related to persistency by including
contractual surrender charge provisions in its ordinary life and annuity
policies in the first five to ten years, thus providing for the recovery of
acquisition expenses. The investment portfolios supporting interest sensitive
products, including universal life and individual annuities, are managed
separately to minimize surrender and interest rate risk.
Profitability in the health insurance business continues to be impacted by
intense competition and rising medical costs. CNA has aggressively pursued
expense reduction through increases in automation and other productivity
improvements. Further, increasing costs of health care have resulted in a
continued market shift away from traditional forms of health coverage toward
managed care products and experience-rated plans. 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.
8
The following table sets forth supplemental data for the life insurance
business:
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
- --------------------------------------------------------------------------------
(In millions of dollars)
<S> <C> <C> <C>
Individual Premiums:
Life and annuities .................. $ 629.1 $ 497.1 $ 369.4
Accident and health ................. 1.8 32.7 32.6
- --------------------------------------------------------------------------------
$ 630.9 $ 529.8 $ 402.0
================================================================================
Group Premiums:
Accident and health (a) ............. $2,548.0 $2,189.7 $2,111.2
Life and annuities .................. 194.9 312.9 165.0
- --------------------------------------------------------------------------------
$2,742.9 $2,502.6 $2,276.2
================================================================================
Net Investment Income and Other Income:
Individual .......................... $ 292.2 $ 247.3 $ 193.8
Group ............................... 214.2 198.1 166.4
- --------------------------------------------------------------------------------
$ 506.4 $ 445.4 $ 360.2
================================================================================
Income Excluding Realized Capital
Gains, Before Income Tax:
Individual .......................... $ 100.9 $ 65.4 $ 47.3
Group ............................... 69.8 94.9 87.1
- --------------------------------------------------------------------------------
$ 170.7 $ 160.3 $ 134.4
================================================================================
Gross Life Insurance in Force:
Individual (b) ...................... $172,213 $113,901 $ 80,560
Group ............................... 64,796 52,146 46,873
- --------------------------------------------------------------------------------
$237,009 $166,047 $127,433
================================================================================
Other Data-Statutory Basis (c):
Capital and surplus ................. $1,163.4 $1,127.6 $1,054.6
Capital and surplus-percent of total
liabilities ........................ 25.5% 28.2% 29.4%
Participating policyholders'-percent
of gross life insurance in force ... .5% .6% .9%
- --------------
(a) Group accident and health premiums include contracts involving U.S.
government employees and their dependents amounting to approximately $2.1, $1.9
and $1.8 billion in 1996, 1995 and 1994, respectively.
(b) Lapse ratios, for individual life insurance, as measured by surrenders and
withdrawals as a percentage of average ordinary life insurance in force were
7.2%, 9.4% and 9.7% in 1996, 1995 and 1994, respectively.
(c) Other Data is determined on the basis of statutory accounting practices.
Life insurance subsidiaries have received reimbursement from CNA for general
management and administrative expenses and investment expenses in the amounts of
$28.5, $21.3 and $24.7 million in 1996, 1995 and 1994, respectively. Statutory
capital and surplus as a percent of total liabilities is determined after
excluding Separate Account liabilities and reclassifying the statutorily
required Asset Valuation and Interest Maintenance Reserves as surplus.
</TABLE>
9
Guaranteed Investment Contracts
CAC writes the majority of its group pension products as guaranteed investment
contracts in a fixed Separate Account, which is permitted by Illinois insurance
statutes. CAC guarantees principal and a specified return to guaranteed
investment contract holders. This guarantee affords the contract holders
additional security, in the form of CAC's general account surplus, which
supports the principal and interest payments.
CNA manages the liquidity and interest rate risks on the guaranteed investment
contract portfolio by matching the approximate duration of fixed maturity
securities included in the investment portfolio supporting the guaranteed
investment contracts with the corresponding payout pattern of the contracts, and
assessing market value surrender charges on the majority of the contracts.
The table below shows a comparison of the duration of assets and contracts,
weighted average investment yield, weighted average interest crediting rates and
withdrawal characteristics of the guaranteed investment contract portfolio.
<TABLE>
<CAPTION>
December 31 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Duration in years:
Assets ............................. 3.12 3.12 3.23
Contracts .......................... 3.16 2.98 2.99
- --------------------------------------------------------------------------------
Difference ...................... (.04) .14 .24
================================================================================
Weighted average investment yield .... 7.44% 7.58% 7.67%
================================================================================
Weighted average interest crediting
rates ............................... 7.32% 7.45% 7.53%
================================================================================
Withdrawal Characteristics:
With market value adjustment ....... 95% 92% 79%
Non-withdrawable ................... 5 8 15
Without market value adjustment .... 6
- --------------------------------------------------------------------------------
Total ........................... 100% 100% 100%
================================================================================
</TABLE>
As shown above, the weighted average investment yields at December 31, 1996,
1995 and 1994 were more than the weighted average interest crediting rate.
INVESTMENTS
See Note 2 of the Notes to Consolidated Financial Statements, included in Item
8, for information regarding the investment portfolio.
OTHER
Competition: All aspects of the insurance business are highly competitive.
CNA's insurance operations compete with a large number of stock and mutual
insurance companies and other entities for both producers and customers and must
continuously allocate resources to refine and improve insurance products and
services. There are approximately 3,300 companies that sell property/casualty
insurance in the United States, approximately 900 of which operate in all or
most states. CNA's consolidated property/casualty subsidiaries (including CIC
for the full year of 1995) would have been ranked as the third largest
property/casualty insurance organization in 1995 based on statutory net written
premium. There are approximately 1,770 companies selling life insurance
(including accident and health insurance and pension products and annuities) in
the United States. CAC is ranked as the twenty-second largest life insurance
organization based on 1995 consolidated statutory premium volume.
10
Dividends by Insurance Subsidiaries: The payment of dividends to CNA by its
insurance affiliates without prior approval of the affiliate's domiciliary state
insurance commissioners is limited to amounts determined by formula in
accordance with the accounting practices prescribed or permitted by the states'
insurance departments. This formula varies by state. The formula for the
majority of states is the greater of 10% of prior year statutory surplus or
prior year statutory net income, less the aggregate of all dividends paid during
the twelve months prior to the date of payment. Some states, however, have an
additional stipulation that dividends cannot exceed prior year surplus. Based
upon the various state formulas, approximately $941.0 million in dividends can
be paid to CNA by its insurance affiliates in 1997 without prior approval. All
dividends must be reported to the domiciliary insurance department prior to
declaration and payment.
Regulation: The insurance industry is subject to comprehensive and detailed
regulation and supervision throughout the United States. Each state has
established supervisory agencies with broad administrative power relative to
licensing insurers and agents, approving policy forms, establishing reserve
requirements, fixing minimum interest rates for accumulation of surrender values
and maximum interest rates of policy loans, prescribing the form and content of
statutory financial reports, regulating solvency and the type and amount of
investments permitted. Regulatory powers also extend to premium rate regulations
which require that rates not be excessive, inadequate or unfairly
discriminatory. In addition to regulation of dividends by insurance subsidiaries
discussed above, intercompany transfers of assets may be subject to prior notice
or approval, depending on the size of such transfers and payments in relation to
the financial position of the insurance affiliates making the transfer.
Insurers are also required by the states to provide coverage to insureds who
would not otherwise be considered eligible by the insurers. Each state dictates
the types of insurance and the level of coverage which must be provided to such
involuntary risks. CNA's insurance subsidiaries' share of these involuntary
risks is mandatory and generally a function of its share of the voluntary market
by line of insurance in each state.
After failing to enact the massive health reform introduced in 1994, Congress
passed a health insurance reform bill in August of 1996 and the President signed
it into law (P.L. 104-191) on August 21, 1996. The new law does little for
Americans without health insurance but it will protect those who have health
insurance from losing it. The 105th Congress is expected to consider additional
incremental health care reform as it attempts to provide greater access and
affordability to Americans. Among the bills that have been introduced this year
are measures that would allow small businesses to band together to form
association health plans to buy insurance; bar the use of clauses restricting
what doctors can tell patients about treatment options; restructure the Medicare
program; subsidize health insurance for uninsured children; and limit or
prohibit underwriting on the basis of genetic information. CNA cannot predict if
any of these proposals will be enacted or the extent to which they may affect
the insurance industry.
Last year, a moderate product liability bill was vetoed and Congress was not
able to override the veto. This year, a similar product liability reform bill
was introduced in the Senate. The bill contains many of the provisions of the
vetoed bill and thus, CNA cannot predict if any reform will be adopted.
Although federal standards would create more uniform laws, tort reform
supporters still look primarily to the states for passage of reform measures.
Over the last decade, many states have passed some type of reform, but more
recently, state courts have modified or overturned approximately 38% of these
reforms. Additionally, new causes of action and theories of damages are more
frequently proposed in state courts or legislatures. Continued unpredictability
in the law means that insurance underwriting and rating is difficult in
commercial lines, professional liability, and some specialty coverages.
Environmental clean-up remains the subject of both federal and state
regulation. Last year Congress and the Clinton Administration failed to reach an
agreement on efforts to overhaul the federal Superfund hazardous waste program.
The legislative stalemate was the result of a failure by Superfund stakeholders
and Congress to reach a compromise on clean-up standards, the repeal of
retroactive liability and how to finance future clean-up costs. In the new
Congress, Superfund reform has been listed as one of the legislative priorities.
At this time CNA cannot predict if any reform will be enacted. 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
concerning clean-up of hazardous waste. Judicial interpretations in many cases
have expanded the scope of coverage and liability beyond the original intent of
the policies. See Note 10 of the Notes to Consolidated Financial Statements,
included in Item 8, for further discussion.
11
In recent years, increased scrutiny of state regulated insurer solvency
requirements by certain members of the U.S. Congress resulted in the National
Association of Insurance Commissioners developing industry minimum Risk-Based
Capital ("RBC") requirements, establishing a formal state accreditation process
designed to more closely regulate for solvency, minimize the diversity of
approved statutory accounting and actuarial practices, and increasing the annual
statutory statement disclosure requirements.
The RBC formulas are designed to identify an insurer's minimum capital
requirements based upon the inherent risks (e.g., asset default, credit and
underwriting) of its operations. In addition to the minimum capital
requirements, the RBC formula and related regulations identify various levels of
capital adequacy and corresponding actions that the state insurance departments
should initiate. The level of capital adequacy below which insurance departments
would take action is defined as the Company Action Level. As of December 31,
1996, all of CNA's property/casualty and life insurance affiliates have adjusted
capital amounts in excess of Company Action Levels.
Reinsurance: See Notes 1 and 18 of the Notes to Consolidated Financial
Statements, included in Item 8, for information related to CNA's reinsurance
business.
Properties: CNA leases office space in various cities throughout the United
States and in other countries. The following table sets forth certain
information with respect to the principal office buildings owned or leased by
CNA:
<TABLE>
<CAPTION>
Size
Location (square feet) Principal Usage
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Owned:
CNA Plaza 1,144,378 Principal Executive Offices of CNA
333 S. Wabash
Chicago, Illinois
180 Maiden Lane 507,547 Property/Casualty Insurance Offices
New York, New York
55 E. Jackson Blvd. 308,750 Principal Executive Offices of CNA
Chicago, Illinois
401 Penn Street 251,691 Property/Casualty Insurance Offices
Reading, Pennsylvania
100 CNA Drive 251,363 Life Insurance Offices
Nashville, Tennessee
1100 Ward Avenue 93,771 First Insurance Company of Hawaii Ltd.
Honolulu, Hawaii Headquarters
Leased:
1 Continental Drive 490,993 Property/Casualty Insurance Offices
Cranbury, New Jersey
7361 Calhoun Place 224,725 Life Insurance Offices
Rockville, Maryland
1111 E. Broad St. 215,470 Property/Casualty Insurance Offices
Columbus, Ohio
200 S. Wacker Drive 214,997 Property/Casualty Insurance Offices
Chicago, Illinois
12
Size
Location (square feet) Principal Usage
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
333 Glen Street 157,825 Property/Casualty Insurance Offices
Glen Falls, New York Residual Market Center
111 Congressional Blvd. 118,215 Personal Lines
Indianapolis, Indiana
1431 Opus Place 106,151 Property/Casualty, Surety Insurance
Downers Grove, Illinois Offices
2401 Pleasant Valley 102,376 Commercial Operations
York, Pennsylvania
</TABLE>
LORILLARD, INC.
The Company's wholly owned subsidiary, Lorillard, Inc. ("Lorillard"), is
engaged, through its subsidiaries, in the production and sale of cigarettes. The
principal cigarette brand names of Lorillard are Newport, Kent and True.
Lorillard's largest selling brands are the Newport and Kent brands, which
accounted for approximately 73% and 10%, respectively, of Lorillard's sales in
1996.
Substantially all of Lorillard's sales are in the United States. Lorillard's
major trademarks outside of the United States were sold in 1977. Lorillard
accounted for 10.95%, 11.00% and 14.29% of the Company's consolidated total
revenue for the years ended December 31, 1996, 1995 and 1994, respectively.
Smoking and Health and Related Matters
For a number of years reports of the asserted harmful health effects of
cigarette smoking have engendered significant adverse publicity for the
cigarette industry, have caused a decline in the social acceptability of
cigarette smoking and have resulted in the implementation of numerous
restrictions on the marketing, advertising and use of cigarettes. Along with
significant increases in federal and state excise taxes on cigarettes, these
actions have, and are likely to continue to have, an adverse effect on cigarette
sales.
Litigation: A large number of lawsuits, including lawsuits brought by
individual plaintiffs ("Conventional Smoking and Health Cases"), purported class
actions ("Class Actions") and lawsuits brought on behalf of states and state
agencies ("Reimbursement Cases") have been commenced against Lorillard and other
tobacco manufacturers seeking substantial compensatory and punitive damages for
adverse health effects claimed to have resulted from cigarette smoking or
exposure to tobacco smoke. For information with respect to such litigation
pending as of February 1997, see Note 19 of the Notes to Consolidated Financial
Statements included in Item 8 of this Report and incorporated herein by
reference.
Set forth below is information regarding additional developments respecting
litigation through March 21, 1997:
Class Actions: Lacey v. Lorillard Tobacco Company, et al. Plaintiffs did not
notice an appeal within the requisite time period, and therefore, the final
judgment in favor of the defendants is no longer subject to appeal.
The following four additional Class Actions have been filed:
Baker v. American Tobacco Company, et al., (Circuit Court, Wayne County,
Michigan, filed February 4, 1997). Plaintiff seeks certification of this case as
a class action on behalf of individuals who have quit smoking and who would
benefit from medical monitoring. Lorillard is a defendant in the case. Plaintiff
seeks the creation of a medical monitoring fund to monitor the health of the
purported class members.
Ingle v. Philip Morris Incorporated, et al. (Circuit Court, McDowell County,
West Virginia, filed February 4, 1997). Plaintiff seeks certification of the
case as a class action on behalf of residents of West Virginia who have
13
received personal injuries as a result of smoking cigarettes. Lorillard is a
defendant in this case. Plaintiff seeks unspecified amounts in actual damages
and punitive damages and the creation of a medical monitoring fund.
Walls v. The American Tobacco Company, et al. (U.S. District Court, Northern
District, Oklahoma, filed February 6, 1997; removed from District Court, Creek
County, Oklahoma). Plaintiffs seek certification of the case as a class action
on behalf of residents of Oklahoma who have purchased cigarettes manufactured by
the defendants. The Company and Lorillard are defendants in the case. Plaintiffs
seek unspecified amounts in actual damages and punitive damages, disgorgement of
profits, and the creation of a medical monitoring fund. To date, none of the
defendants have received service of process.
Selcer v. R.J. Reynolds Tobacco Company, et al. (District Court, Clark County,
Nevada, filed on or about March 3, 1997). Plaintiffs seek certification of this
case as a class action on behalf of Nevada residents who have become addicted to
cigarette smoking. Lorillard is a defendant in this case. Plaintiffs seek
unspecified amounts in actual damages and punitive damages and disgorgement of
profits. To date, none of the defendants have received service of process.
Reimbursement Cases: McGraw v. The American Tobacco Company, et al. The court
has granted defendants' motion to dismiss eleven of the fourteen counts of the
complaint and has held that the plaintiffs in the action, the West Virginia
Public Employees Insurance Agency and West Virginia Department of Health and
Human Services, lack standing to sue for personal injuries. The court has heard
argument on defendants' motion to dismiss two of the three remaining counts of
the complaint and has taken the motion under advisement.
State of Florida, et al. v. The American Tobacco Company, et al. The United
States Supreme Court has denied the petition for writ of certiorari in the
declaratory judgment action filed by certain companies and trade associations.
Moore v. The American Tobacco Company et al. The Mississippi Supreme Court has
dismissed the petitions filed by the defendants in the case and separately by
the Governor of Mississippi.
City and County of San Francisco, et al. v. Philip Morris Incorporated, et al.
The court has granted, with leave to amend, defendants' motion to dismiss the
complaint.
The following additional Reimbursement Case has been filed:
State of Indiana v. Philip Morris Incorporated, et al. (Superior Court, Marion
County, Indiana, filed February 19, 1997), filed by the State of Indiana.
Lorillard is a defendant in the case.
In addition, there have been the following developments in the suits commenced
by Lorillard and other cigarette manufacturers seeking declaratory judgment or
injunctive relief in relation to the Reimbursement Cases:
Philip Morris Incorporated, et al. v. Graham, et al. The court has granted
defendants' motion to dismiss three of the five counts of the complaint and
plaintiffs have voluntarily dismissed the remaining counts. The court has
entered judgment in favor of the defendants. Plaintiffs do not intend to notice
an appeal from the judgment.
Philip Morris Incorporated, et al. v. Verniero, et al. The court has
consolidated this action with the case of State of New Jersey v. R.J. Reynolds
Tobacco Company, et al.
Reported Liggett Settlement: On March 20, 1997, Liggett Group, Inc. and its
parent company, Brooke Group, Ltd., Inc. ("Liggett"), and the Attorneys General
for twenty-two states, announced that they have reached agreement (the
"Settlement Agreement") to settle the reimbursement suits pending in those
states. The proposed settlements reportedly will require Liggett: to pay 25% of
its pre-tax profits, plus as much as $25.0 million, to the twenty-two states
annually for the next twenty-five years; to acknowledge that cigarette smoking
is addictive (Liggett will supplement the warning notices it places on its
cigarette packages to reflect that acknowledgment); to acknowledge that
cigarette smoking causes disease; to acknowledge that cigarette companies have
targeted marketing programs towards minors; and to cooperate in suits against
the other cigarette manufacturers by releasing Liggett documents to the
Attorneys General and to allow its employees to testify in these matters. The
Settlement Agreement also purports to be on behalf of "all persons who, prior to
or during the term of [the
14
Settlement Agreement], have smoked cigarettes or have used other tobacco
products and have suffered or claim to have suffered injury as a consequence
thereof."
On March 20, 1997, Lorillard and three other cigarette manufacturers filed
suit in the Superior Court of Forsyth County, North Carolina against Liggett.
The court entered a temporary restraining order on March 20, 1997 that prohibits
Liggett and certain persons related to it or acting in concert with it from
misusing or disclosing any privileged or confidential information relating to
plaintiffs, or involving matters in which plaintiffs and Liggett share a common
interest and resulting from communications between counsel for plaintiffs and
Liggett. The court further directed Liggett to appear before the court to
identify for an in camera inspection all documents Liggett has disclosed; to
show cause why Liggett and certain related persons should not be enjoined from
disclosing the privileged or confidential information pending trial in this
action; and to disclose to the court under seal the identity of the individuals
to whom Liggett has disclosed the confidential and privileged information to
date.
On March 21, 1997, the court in the case of Butler v. Philip Morris, Inc., et
al., ordered Liggett, among other things, to submit documents in its possession
that are subject to claims of a joint defense or common interest privilege or
other protection from discovery, for an in camera review and determination by
the court as to the validity of such claims. The court also ordered Liggett to
serve all counsel a copy of the descriptive logs of the submitted documents.
Butler is a Conventional Smoking and Health Case pending in a state court in
Mississippi alleging injury to an individual from exposure to environmental
tobacco smoke. The Company and Lorillard are defendants in the case. Trial in
this case is scheduled to begin on August 18, 1997.
On March 20, 1997, the case of Fletcher, et al. v. Liggett was filed in the
Circuit Court of Mobile County, Alabama. The plaintiffs seek certification of
the case as a class action on behalf of all residents of the United States. The
complaint seeks certification of two subclasses; a personal injury subclass and
a recoupment subclass. The personal injury subclass purports to be comprised of
individual smokers; the estates, representatives, spouses or heirs of the
individual smokers; and individuals who allege injury from exposure to
environmental tobacco smoke. The recoupment subclass purports to be comprised of
individuals who have incurred economic loss as a result of payments for the
treatments of diseases or medical conditions allegedly caused by cigarette
smoking or exposure to environmental tobacco smoke. Neither the Company nor
Lorillard is a defendant in Fletcher. The claims in Fletcher purportedly are
covered by the Settlement Agreement. The court has conditionally certified the
case as a class action and has provisionally accepted the Settlement Agreement.
The court has scheduled a full hearing for July 11, 1997 to determine whether
the Settlement Agreement is fair to the plaintiffs in this action.
Lorillard continues to believe that there are a number of valid defenses to
smoking and health litigation pending against it, and Lorillard will continue to
vigorously defend against all such claims. Recent press reports have discussed
proposals to establish a comprehensive legislative solution to smoking and
health claims against the tobacco industry. The Company believes that any such
legislation would involve significant, and perhaps insurmountable, difficulties
in reconciling the views of many competing interests. However, the Company will
explore and is prepared to discuss all reasonable measures to resolve these
matters. The Company would not contemplate making further comment as to the
existence or progress of any such discussions.
Other Legal Proceedings: In addition to the litigation referred to above,
Lorillard has been notified of several governmental investigations pending
against Lorillard and other tobacco manufacturers, which are described below.
Department of Justice Investigation - Early in 1994, the Energy and Commerce
Subcommittee on Health and the Environment of the U.S. House of Representatives
(the "Subcommittee") launched an oversight investigation into tobacco products,
including possible regulation of nicotine-containing cigarettes as drugs. During
the course of such investigation, the Subcommittee held hearings at which
executives of each of the major tobacco manufacturers testified. Following the
November 1994 elections, the incoming Chairman of the Energy and Commerce
Committee indicated that this investigation by the Subcommittee would not
continue, and on December 20, 1994, the outgoing majority staff of the
Subcommittee issued two final reports. One of these reports questioned the
scientific practices of what it characterized as the tobacco industry's "long-
running campaign" related to ETS, but reached no final conclusions. The second
report asserted that documents obtained from American Tobacco Company, a
competitor of Lorillard's, "reflect an intense research and commercial interest
in nicotine."
15
The U.S. Department of Justice is investigating allegations of perjury in
connection with the testimony provided by tobacco industry executives, including
Lorillard executives, to the Subcommittee in April 1994. Lorillard has not
received any request for documents or testimony. It is impossible at this time
to predict the outcome of this investigation.
In 1996 Lorillard responded to a grand jury subpoena for documents in
connection with a grand jury investigation commenced in 1992 by the United
States Attorney's Office for the Eastern District of New York regarding possible
fraud by Lorillard and other tobacco companies relating to smoking and health
research undertaken or administered by the Council for Tobacco Research - USA,
Inc. There have been no requests for any testimony by any Lorillard personnel.
At the present time, Lorillard is unable to predict whether the United States
Attorney's Office will ultimately determine to bring any proceeding against
Lorillard. An adverse outcome of this investigation could result in criminal,
administrative or other proceedings against Lorillard.
In March 1996, the Company and Lorillard each received a grand jury subpoena
duces tecum from the United States Attorney's Office for the Southern District
of New York seeking documents, advertisements or related materials distributed
by the Company and Lorillard to members of the general public relating to, among
other things, the health effects of cigarettes, nicotine or tobacco products,
the addictiveness of such products, and Congressional hearings relating to
cigarettes or the tobacco industry. The Company and Lorillard responded to the
subpoena. The Company and Lorillard were informed in the latter part of 1996
that responsibility for this investigation has been transferred from the United
States Attorney's Office for the Southern District of New York to the United
States Department of Justice in Washington, D.C. It is impossible at this time
to predict the ultimate outcome of this investigation.
Legislation and Regulation: Federal Legislation - The Federal Comprehensive
Smoking Education Act, which became effective in 1985, requires the use on
cigarette packaging and advertising of one of the following four warning
statements, on a rotating basis: (1) "SURGEON GENERAL'S WARNING: Smoking Causes
Lung Cancer, Heart Disease, Emphysema, And May Complicate Pregnancy." (2)
"SURGEON GENERAL'S WARNING: Quitting Smoking Now Greatly Reduces Serious Risks
to Your Health." (3) "SURGEON GENERAL'S WARNING: Smoking By Pregnant Women May
Result in Fetal Injury, Premature Birth, and Low Birth Weight." (4) "SURGEON
GENERAL'S WARNING: Cigarette Smoke Contains Carbon Monoxide." Four shortened
versions of these statements are required, on a rotating basis, for use on
billboards. This law also requires that each person who manufactures, packages
or imports cigarettes shall annually provide to the Secretary of Health and
Human Services a list of the ingredients added to tobacco in the manufacture of
cigarettes. Such list of ingredients may be submitted in a manner which does not
identify the company which uses the ingredients or the brand of cigarettes which
contain the ingredients.
Prior to the effective date of the Comprehensive Smoking Education Act,
federal law had, since 1965, required that cigarette packaging bear a warning
statement which from 1970 to 1985 was as follows: "Warning: The Surgeon General
Has Determined That Cigarette Smoking Is Dangerous to Your Health." In addition,
in 1972 Lorillard and other cigarette manufacturers had agreed, pursuant to
consent orders entered into with the Federal Trade Commission ("FTC"), to
include this health warning statement in print advertising, on billboards and on
certain categories of point-of-sale display materials relating to cigarettes. In
addition, advertising of cigarettes has been prohibited on radio and television
since 1971.
From time to time, bills have been introduced in Congress, among other things,
to end or limit the price supports for leaf tobacco; to prohibit all tobacco
advertising and promotion; to require new health warnings on cigarette packages
and advertising; to subject cigarettes generally to regulation under the
Consumer Products Safety Act or the Food, Drug and Cosmetics Act; to authorize
the establishment of various anti-smoking education programs; to provide that
current federal law should not be construed to relieve any person of liability
under common or state law; to permit state and local governments to restrict the
sale and distribution of cigarettes and the placement of billboard and transit
advertising of tobacco products; to provide that cigarette advertising not be
deductible as a business expense; to prohibit the mailing of unsolicited samples
of cigarettes and otherwise to restrict the sale or distribution of cigarettes;
to impose an additional excise tax on cigarettes; to require that cigarettes be
manufactured in a manner that will cause them, under certain circumstances, to
be self-extinguishing; and to subject cigarettes to regulation in various ways
by the U.S. Department of Health and Human Services, including regulation by the
Food and Drug Administration.
16
In 1995, Congress passed legislation prohibiting the sale of cigarettes by
vending machines on certain federal property, and the General Services
Administration has published implementing regulations. In January 1996, the
Substance Abuse and Mental Health Services Administration("SAMHSA") issued final
regulations implementing a 1992 law (Section 1926 of the Public Health Service
Act), which requires the states to enforce their minimum sales-age laws as a
condition of receiving federal substance abuse block grants.
Food and Drug Administration Regulation of Tobacco Products - On August 28,
1996, the Food and Drug Administration ("FDA") published regulations (the "FDA
Regulations") in final form severely restricting cigarette advertising and
promotion and limiting the manner in which tobacco products can be sold. In
enacting the FDA Regulations, the FDA determined that nicotine is a drug and
that cigarettes are a nicotine delivery system and, accordingly, subject to FDA
regulatory authority as medical devices. The FDA premised its regulations on the
need to reduce smoking by underage youth and young adults. The FDA Regulations
become effective in stages, as follows:
(i) Regulations regarding minimum sales age, effective February 28, 1997.
These regulations make unlawful the sale of cigarettes to anyone under age 18.
These regulations also require proof of age to be demanded from any person under
age 27 who attempts to purchase cigarettes.
(ii) Regulations regarding advertising and billboards, vending machines, self-
service displays, sampling premiums, and package labels, effective August 28,
1997. These regulations limit all cigarette advertising to black and white, text
only format in most publications and outdoor advertising such as billboards. The
regulations also prohibit billboards advertising cigarettes within 1,000 feet of
a school or playground, require that the established name for the product
("Cigarettes") and an intended use statement ("Nicotine - Delivery Device For
Persons 18 or Older") be included on all cigarette packages and advertising, ban
vending machine sales, product sampling, and the use of cigarette brand names,
logos and trademarks on premium items, and prohibit the furnishing of any
premium item in consideration for the purchase of cigarettes or the redemption
of proofs-of-purchase coupons.
(iii) Regulations prohibiting use of cigarette brand names to sponsor sporting
and cultural events and requiring cigarette manufacturers to comply with certain
stringent FDA regulations (known as "good manufacturing practices") governing
the manufacture and distribution of medical devices, effective August 28, 1998.
The FDA has announced that it will "contract" with states to jointly enforce
the FDA Regulations. State regulations narrower in scope and not inconsistent
with the FDA Regulations may be exempt from the pre-emptive effect of the
federal rules and be enforced concurrently.
Lorillard and other cigarette manufacturers have filed a lawsuit in the United
States District Court for the Middle District of North Carolina challenging the
FDA's assertion of jurisdiction over cigarettes and seeking both preliminary and
permanent injunctive relief (Liggett Group has agreed to withdraw from this
lawsuit). The complaint in the case, Coyne Beahm, Inc., et al. v. United States
Food & Drug Administration, et al., asserts that the FDA lacks authority to
regulate cigarettes and that the proposed rules violate the Federal Food, Drug
and Cosmetic Act, the Federal Cigarette Labeling and Advertising Act and the
United States Constitution. Lawsuits challenging the FDA's rule making also have
been filed in the same court by several smokeless tobacco manufacturers, several
national advertising trade associations and the National Association of
Convenience Stores.
The plaintiffs have moved for summary judgment on jurisdictional, statutory
and First Amendment grounds. Oral argument on the motions was heard on February
10, 1997, and a decision is pending.
It is uncertain whether Congress will pass legislation that would moot the FDA
Regulations and whether the manufacturers will succeed in securing judicial
relief. Accordingly, any impact on Lorillard from the FDA Regulations cannot be
predicted at this time.
Environmental Tobacco Smoke - Studies with respect to the alleged health risk
to nonsmokers of environmental tobacco smoke ("ETS") have received significant
publicity. In 1986, the Surgeon General of the United States and the National
Academy of Sciences reported that ETS puts nonsmokers at an increased risk of
lung cancer and respiratory illness. In January 1993, the United States
Environmental Protection Agency released a report (the "EPA Risk Assessment")
concluding that ETS is a human lung carcinogen in adults, causes increased
respiratory tract disease, middle ear disorders and increases the severity and
frequency of asthma in children.
17
In recent years, many federal, state, local and municipal governments and
agencies, as well as private businesses, have adopted legislation or regulations
which prohibit or restrict, or are intended to discourage, smoking, including
legislation or regulations prohibiting or restricting smoking in various places
such as public buildings and facilities, stores and restaurants, on domestic
airline flights and in the workplace, and the sale of cigarettes in vending
machines. This trend has increased significantly since the release of the EPA
Risk Assessment. Additional laws, regulations and policies intended to prohibit,
restrict or discourage smoking are being proposed or considered by various
federal, state and local governments, agencies and private businesses with
increasing frequency.
In 1994, the Occupational Safety and Health Administration published a
proposed rule on air quality in indoor workplaces. The proposed rule would
require employers in the United States to prohibit smoking indoors or to
restrict smoking to a separate room with outside exhaust and negative air
pressure. A period of public comment on the proposed rules has ended. Hearings
on the proposed rules were conducted in late 1994 and early 1995. It is
impossible at this time to predict whether or in what form the proposed rules
will be adopted.
Fire Safe Cigarettes - A 1984 federal law established a Technical Study Group
to conduct a study and report to the Congress regarding the technical and
commercial feasibility of developing cigarettes that will have a minimum
propensity to ignite upholstered furniture or mattresses. The Technical Study
Group concluded in 1987 that it was technically feasible and may be commercially
feasible to develop such cigarettes. In accordance with a 1990 federal law the
Consumer Product Safety Commission issued a report in August 1993, concluding
that, while it is practicable to develop a performance standard to reduce
cigarette ignition propensity, it is unclear that such a standard will
effectively address the number of cigarette ignited fires. Several states also
have considered legislation authorizing or directing the establishment of
cigarette fire-safety standards from time to time. Currently, New York and
Oregon are considering such legislation.
Ingredient Disclosure - On August 2, 1996, the Governor of Massachusetts
signed legislation (the "ingredient disclosure legislation") requiring each
manufacturer of cigarettes and smokeless tobacco sold in the commonwealth to
submit to the Department of Public Health ("DPH"), beginning in 1997, an annual
report (1) identifying, for each brand, certain "added constituents," and (2)
providing, for each brand, nicotine-yield ratings based on standards to be
developed by the DPH. The legislation provides for the public release of this
information, which includes flavorings and other trade-secret ingredients used
in cigarettes.
The cigarette and smokeless tobacco manufacturers have filed suit in federal
district court in Boston challenging the ingredient disclosure legislation;
Philip Morris Incorporated v. Harshbarger, Civil Action No. 96-11599-GAO (D.
Mass.) and United States Tobacco Company v. Harshbarger, Civil Action No. 96-
11619-GAO (D. Mass.). Their complaints assert that the legislation conflicts
with, and is pre-empted by, federal law and is otherwise unconstitutional. On
February 7, 1997 the Court ruled that the ingredient disclosure legislation was
not pre-empted by federal law. The manufacturers have appealed the trial court's
preemption ruling, and they continue to pursue their other claims in the
district court.
In November 1996, the DPH published proposed regulations implementing the
ingredient disclosure legislation. Public hearings on the proposed regulations
were held on January 30 and 31, 1997 and written comments were submitted on
February 21, 1997.
Any impact on Lorillard from the ingredient disclosure legislation and any
implementing regulations cannot be predicted at this time. It is uncertain
whether the manufacturers will succeed in their legal challenges to the
legislation; if they ultimately are required to disclose their trade secrets to
the DPH and the DPH releases this information, further litigation seeking
compensation for the taking of the manufacturers' property may ensue. It is also
uncertain whether proposed regulations will be modified before they are
promulgated in final form, and whether the manufacturers will challenge them as
so promulgated.
Other similar laws, regulations and policies are being proposed or considered
by various federal, state and local governments and agencies and could, if
adopted, have a material adverse effect on the financial condition and results
of operations of the Company.
18
Business Operations
Advertising and Sales Promotion: Lorillard's principal brands are advertised
and promoted extensively. Introduction of new brands, brand extensions and
packings require the expenditures of substantial sums for advertising and sales
promotion, with no assurance of consumer acceptance. The advertising media
presently used by Lorillard include magazines, newspapers, out-of-home
advertising, direct mail and point-of-sale display materials. Sales promotion
activities are conducted by distribution of samples and store coupons,
point-of-sale display advertising, advertising of promotions in print media, and
personal contact with distributors, retailers and consumers. All of these
activities would be severely affected by the new FDA Regulations (see "Food and
Drug Administration Regulation of Tobacco Products," above).
Distribution Methods: Lorillard distributes its products through direct sales
to distributors, who in turn service retail outlets, and through chain store
organizations and vending machine operators, many of whom purchase their
requirements directly, and by direct sales to the U.S. Armed Forces. Lorillard's
tobacco products are stored in public warehouses throughout the country to
provide for rapid distribution to customers.
Lorillard has approximately 1,500 direct customers and is not dependent on any
one customer or group of customers. Lorillard does not have any backlog orders.
Tobacco and Tobacco Prices: The two main classes of tobacco grown in the
United States are flue-cured tobacco, grown mostly in Virginia, North Carolina,
South Carolina, Georgia and Florida; and burley, grown mostly in Kentucky and
Tennessee. Lorillard purchases flue-cured tobacco and burley tobacco for use in
cigarettes. Most of the tobacco of these classes used by Lorillard is purchased
by commission buyers at tobacco auctions. Lorillard also purchases various types
of Near Eastern tobacco, grown in Turkey and eight other Near Eastern countries.
In addition, Lorillard purchases substantial quantities of aged tobacco from
various sources, including cooperatives financed under the Commodity Credit
Corporation program, to supplement tobacco inventories.
Due to the varying size and quality of annual crops and other economic
factors, tobacco prices in the past have been subject to fluctuation. Among the
economic factors are federal government control of acreage and poundage in the
flue-cured producing areas and poundage control in the burley areas. These
controls together with support prices have substantially affected the market
prices of tobacco. The approximate average auction prices per pound for
flue-cured tobacco were $1.794 in 1995 and $1.837 in 1996 and for burley tobacco
were $1.854 in 1995 and $1.920 in 1996. The prices paid by Lorillard have
generally been consistent with this trend. Lorillard believes that its current
leaf inventories are adequately balanced for its present production
requirements. Because the process of aging tobacco normally requires
approximately two years, Lorillard at all times has on hand large quantities of
leaf tobacco. See Note 1 of the Notes to Consolidated Financial Statements,
included in Item 8, for inventory costing method.
Prices: In March 1997 and April 1996 Lorillard increased the wholesale price
of its king size and 100/120 millimeter cigarettes by $2.50 and $2.00 per
thousand in the aggregate, respectively.
Taxes: Federal excise taxes included in the price of cigarettes are $12.00 per
thousand cigarettes. Excise taxes, which are levied upon and paid by the
distributors, are also in effect in the fifty states, the District of Columbia
and many municipalities. The state taxes generally range from 2.5 cents to 82.5
cents per package of twenty cigarettes.
Properties: The properties of Lorillard are employed principally in the
processing and storage of tobacco and in the manufacture and storage of
cigarettes. Its principal properties are owned in fee. With minor exceptions,
all machinery used by Lorillard is owned by it. All properties are in good
condition. Lorillard's manufacturing plant is located on approximately 79 acres
in Greensboro, North Carolina. This 942,600 square foot plant contains modern
high speed cigarette manufacturing machinery. A warehouse was added in early
1995 with shipping and receiving areas totaling 54,800 square feet. Lorillard
also has facilities for receiving and storing leaf tobacco in Danville,
Virginia, containing approximately 1,500,000 square feet. A modern research
facility containing approximately 82,000 square feet is also located at
Greensboro.
Lorillard leases a corporate office in Orangeburg, New York, an executive
office in New York City and sales offices in major cities throughout the United
States. In May 1997 Lorillard will relocate its New York executive
19
office to a 130,000 square-foot, four-story office building in Greensboro, North
Carolina. This move allows Lorillard to consolidate its operations in
Greensboro, the site of its manufacturing facility.
Competition: Substantially all of Lorillard's products are sold within the
United States in highly competitive markets where its principal competitors are
the four other major U.S. cigarette manufacturers (Philip Morris, R.J. Reynolds
("RJR"), Brown & Williamson and Liggett Group). According to the Maxwell
Consumer Report, a quarterly statistical survey of the cigarette industry, in
calendar year 1996 Lorillard ranked fourth in the industry with an 8.4% share of
the market. Philip Morris and RJR accounted for approximately 47.8% and 24.6%,
respectively, of the U.S. cigarette market, according to the Maxwell Consumer
Report.
The following table sets forth cigarette sales in the United States by the
industry and by Lorillard, as reported in the Maxwell Consumer Report. This
table indicates the relative position of Lorillard in the industry:
<TABLE>
<CAPTION>
Industry Lorillard Lorillard
Calendar Year (000) (000) to Industry
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1996 ................................. 483,300,000 40,400,000 8.4%
1995 ................................. 481,100,000 38,580,000 8.0%
1994 ................................. 489,600,000 36,610,000 7.5%
</TABLE>
- ---------------
The Bureau of Alcohol, Tobacco and Firearms reports Lorillard's share of total
taxable factory removals of all cigarettes to be 7.9% and 7.5% for 1995 and
1994, respectively. Data for 1996 is not currently available.
The Maxwell Consumer Report divides the cigarette market into two price
segments, the premium price segment and the discount or reduced price segment.
According to the Maxwell Consumer Report the reduced price segment decreased in
1996 to approximately 28.5% from approximately 30.0% of the market in 1995.
Virtually all of Lorillard's sales are in the premium price segment where
Lorillard's share increased from 10.9% in 1995 to 11.0% in 1996, according to
the Maxwell Consumer Report.
20
LOEWS HOTELS HOLDING CORPORATION
The subsidiaries of Loews Hotels Holding Corporation ("Loews Hotels"), a
wholly owned subsidiary of the Company, presently operate the following 14
hotels. Loews Hotels accounted for .98%, 1.17% and 1.61% of the Company's
consolidated total revenue for the years ended December 31, 1996, 1995 and 1994,
respectively.
<TABLE>
<CAPTION>
Number of
Rooms (Year
Name and Location Type Opened) Owned, Leased or Managed
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loews Annapolis Luxury Hotel 217 Owned
Annapolis, Maryland (1986(2))
Loews Coronado Bay Resort Luxury Hotel 450 Management contract expiring 2011,
San Diego, California (1991) with renewal options for 10 years (3)
Loews Giorgio Luxury Hotel 197 Owned
Denver, Colorado (1986(2))
Howard Johnson Hotel (1) Commercial Hotel 300 Owned
New York, New York (1962)
Loews Le Concorde Luxury Hotel 424 Land lease expiring 2069
Quebec City, Canada (1974(2))
Loews L'Enfant Plaza Luxury Hotel 372 Management contract expiring 2003 (3)
Washington, D.C. (1973)
Loews Monte Carlo Resort Hotel 622 Lease expiring 2002, with renewal
Monte Carlo, Monaco (1975) options for 20 years
Loews New York First Class Hotel 765 Owned
New York, New York (1961)
Days Hotel (1) Commercial Hotel 366 Owned
New York, New York (1962)
Regency Luxury Hotel 496 Land Lease expiring 2013, with
New York, New York (1963) renewal options for 47 years
Loews Santa Monica Beach Luxury Hotel 350 Management contract expiring 2007,
Santa Monica, California (1989) with renewal options for 10 years
Loews Vanderbilt Plaza Luxury Hotel 342 Owned
Nashville, Tennessee (1984(2))
Loews Ventana Canyon Resort Resort Hotel 398 Management contract expiring 2004,
Tucson, Arizona (1984) with renewal options for 10 years (3)
Loews Vogue Luxury Hotel 154 Owned
Montreal, Canada (1990(2))
- -------------
(1) Operated by Loews Hotels under license agreements pursuant to which Loews
Hotels pays royalty fees on sales, as defined in the agreements, for the
use of the respective trade names, trademarks and other rights.
(2) The Le Concorde, Giorgio, Vanderbilt Plaza, Annapolis and Vogue Hotels
were acquired by Loews Hotels in 1987, 1989, 1989, 1990 and 1995,
respectively.
(3) These management contracts are subject to termination rights.
</TABLE>
21
A Loews Hotels subsidiary is presently constructing an 800 room convention
center hotel in Miami Beach, Florida. The hotel is being constructed on land
leased from the Miami Beach Redevelopment Agency under a 100 year ground lease.
The hotel is expected to open in late 1998. In addition, a Loews Hotels
subsidiary has entered into an agreement to develop hotels at Universal City
Florida, an 840 acre world class entertainment resort, as part of a joint
venture with Universal, Inc. and the Rank Organisation, owners of the resort.
The hotels which are operated by Loews Hotels contain shops, a variety of
restaurants and lounges, and some contain parking facilities, swimming pools,
tennis courts and access to golf courses.
The hotels owned by Loews Hotels are subject to mortgage indebtedness
aggregating approximately $42.2 million at December 31, 1996 with interest rates
ranging from 9% to 11%, and maturing between 1998 and 1999. In addition, certain
hotels are held under leases which are subject to formula derived rental
increases, with rentals aggregating approximately $7.3 million for the year
ended December 31, 1996.
Competition from other hotels, motor hotels and inns, including facilities
owned by local interests and by national and international chains, is vigorous
in all areas in which Loews Hotels operates. The demand for hotel rooms in many
areas is seasonal and dependent on general and local economic conditions. Loews
Hotels properties also compete with facilities offering similar services in
locations other than those in which the company's hotels are located.
Competition among luxury hotels is based primarily on location and service.
Competition among resort and commercial hotels is based on price as well as
location and service. Because of the competitive nature of the industry, hotels
must continually make expenditures for updating, refurnishing and repairs and
maintenance, in order to prevent competitive obsolescence.
DIAMOND OFFSHORE DRILLING, INC.
Diamond Offshore Drilling Inc. ("Diamond Offshore"), is engaged, through its
subsidiaries, in the business of owning and operating drilling rigs that are
used primarily in drilling of offshore oil and gas wells on a contract basis for
companies engaged in exploration and production of hydrocarbons. Diamond
Offshore operates 46 offshore rigs. On December 31, 1996, Diamond Offshore
exited the land drilling business with the sale of its land rigs and associated
equipment for approximately $26 million. Diamond Offshore accounted for 3.17%,
1.82% and 2.25% of the Company's consolidated total revenue for the years ended
December 31, 1996, 1995 and 1994, respectively.
On April 29, 1996 Diamond Offshore acquired Arethusa (Off-Shore) Limited
("Arethusa"). Holders of Arethusa stock received 17.9 million shares of common
stock issued by Diamond Offshore based on a ratio of .88 shares for each share
of Arethusa common stock. The Company recognized a gain of approximately $186.6
million and its interest in Diamond Offshore declined to approximately 51%.
Arethusa owned and/or operated a fleet of thirteen mobile offshore drilling rigs
and provided drilling services worldwide to international and government-
controlled oil and gas companies. The fleet consisted of eight semisubmersible
rigs and five jackup rigs.
Drilling Units and Equipment: Diamond Offshore currently owns and operates 46
mobile offshore drilling rigs (30 semisubmersible rigs, 15 jackup rigs and one
drillship) and related equipment. Offshore rigs are mobile units that can be
relocated via either self propulsion or by the use of tugs enabling them to be
repositioned based on market demand.
Semisubmersible rigs are supported by large pontoons and are partially
submerged during drilling for greater stability. They are generally designed for
deep water depths of up to 5,000 feet. Diamond Offshore owns and operates three
fourth-generation semisubmersible rigs. These rigs are equipped with advanced
drilling equipment, are capable of operations in deep water or harsh
environments, and command high premiums from operators. Diamond Offshore's 30
semisubmersible rigs are currently located as follows: 16 in the Gulf of Mexico,
four in the North Sea, four in Brazil and the remaining rigs are located in
various foreign markets.
Jackup rigs stand on the ocean floor with their drilling platforms "jacked up"
on support legs above the water. They are used extensively for drilling in water
depths from 20 feet to 350 feet. Twelve of Diamond Offshore's jackup rigs are
cantilevered rigs capable of over platform development drilling and workover as
well as exploratory drilling. Of Diamond Offshore's 15 jackup rigs, 12 are
currently located in the Gulf of Mexico.
22
Diamond Offshore's drillship is self-propelled and designed to drill in deep
water. Shaped like a conventional vessel, it is the most mobile of the major rig
types. Diamond Offshore's drillship is currently being upgraded to operate in
the deep water market of the Gulf of Mexico and is scheduled to be completed in
mid-1997.
Drilling Contracts and Rig Utilization: Contracts for Diamond Offshore's
drilling rigs are offered worldwide for either a fixed term, which may range
from a few months to several years, or on a well-to-well basis. In general,
Diamond Offshore seeks to have a reasonable balance of single well, well-to-well
and term contracts to minimize the downside impact of a decline in the market
while still participating in the benefit of increasing dayrates in a rising
market. Although most of Diamond Offshore's semisubmersible rigs are committed
on a term basis, its jackup rigs are primarily committed for short-term single
well or well-to-well arrangements.
The deep water and harsh environment markets for semisubmersible rigs have
experienced improved demand and higher dayrates during the past two years, due
in part to the increasing impact of technological advances that have broadened
opportunities for offshore exploration and development. Both the Gulf of Mexico
and the North Sea semisubmersible markets experienced increased utilization and
significantly higher dayrates since 1995. All of Diamond Offshore's markets
experienced increased utilization and higher dayrates in 1996, and customers
increasingly are seeking to contract rigs for a fixed term (as opposed to
contracts for the drilling of a single well or a group of wells). Diamond
Offshore's semisubmersible rigs marketed and available for contract are
essentially working at full utilization and, of its 30 semisubmersibles, 25 have
term commitments with renewal opportunities staggered through 2001.
The market for jackup rigs in the Gulf of Mexico, which weakened during 1994,
began to stabilize during 1995 and strengthened significantly in 1996. Diamond
Offshore's marketed jackup rigs in the Gulf of Mexico are currently experiencing
full utilization, although contracts generally remain on a short-term or well-
to-well basis, which is typical for the prevailing market conditions. Diamond
Offshore cannot predict whether and, if so, to what extent these recently
improved conditions will continue.
Competition: The contract drilling industry is highly competitive. Customers
often award contracts on a competitive bid basis, and although a customer
selecting a rig may consider, among other things, a contractor's safety record,
crew quality and quality of service and equipment, the historical oversupply of
rigs has created an intensely competitive market in which price is the primary
factor in determining the selection of a drilling contractor. However, due to
the recent escalation of drilling activity, rig availability has, in some cases,
also become a consideration. Diamond Offshore believes that competition for
drilling contracts will continue to be intense for the foreseeable future.
Contractors are also able to adjust localized supply and demand imbalances by
moving rigs from areas of low utilization and dayrates to areas of greater
activity and relatively higher dayrates. In addition, there are inactive non-
marketed rigs or rigs being operated in non-drilling activities that could be
reactivated to meet an increase in demand for drilling rigs in any given market.
Such movements or reactivations or a decrease in drilling activity in any major
market could depress dayrates and could adversely affect utilization of Diamond
Offshore's rigs.
Operating Risks and Regulation: Diamond Offshore's operations are subject to
hazards inherent in the drilling of oil and gas wells such as blowouts,
reservoir damage, loss of production, loss of well control, cratering or fires,
the occurrence of which could result in the suspension of drilling operations,
injury to or death of rig and other personnel and damage to or destruction of
Diamond Offshore's, its customer's or a third party's property or equipment.
Damage to the environment could also result from Diamond Offshore's operations,
particularly through oil spillage or uncontrolled fires. In addition, offshore
drilling operations are subject to perils peculiar to marine operations,
including capsizing, grounding, collision and loss or damage from severe
weather. Diamond Offshore has insurance coverage and contractual indemnification
for certain risks, but there can be no assurance that such coverage or
indemnification will adequately cover Diamond Offshore's loss or liability in
many circumstances, or that Diamond Offshore will continue to carry such
insurance or receive such indemnification. Except with respect to certain
semisubmersible rigs, Diamond Offshore does not maintain business interruption
insurance and may elect to discontinue existing coverage at any time.
Diamond Offshore's operations are subject to numerous federal, state and local
environmental laws and regulations that relate directly or indirectly to its
operations, including certain regulations controlling the discharge of materials
into the environment, requiring removal and clean-up under certain
circumstances, or otherwise relating to the protection of the environment. For
example, Diamond Offshore may be liable for damages and costs
23
incurred in connection with oil spills for which it is held responsible. Laws
and regulations protecting the environment have become increasingly stringent in
recent years and may in certain circumstances impose "strict liability"
rendering a company liable for environmental damage without regard to negligence
or fault on the part of such company. Such laws and regulations may expose
Diamond Offshore to liability for the conduct of or conditions caused by others,
or for acts of Diamond Offshore that were in compliance with all applicable laws
at the time such acts were performed. The application of these requirements or
the adoption of new requirements could have a material adverse effect on Diamond
Offshore.
Properties: Diamond Offshore owns an eight-story office building located in
Houston, Texas containing approximately 182,000 net rentable square feet, which
is used for its corporate headquarters. A portion of the building is currently
occupied by other tenants under leases which expire through 2005. Diamond
Offshore also owns an 18,000 square foot building and 20 acres of land in New
Iberia, Louisiana for its offshore drilling warehouse and storage facility, and
a 13,000 square foot building and five acres of land in Aberdeen, Scotland for
its North Sea operations. In addition, Diamond Offshore leases additional
office, warehouse and storage facilities and lots in Louisiana, Scotland,
Australia, Brazil and various other foreign locations to support its offshore
drilling operations.
BULOVA CORPORATION
Bulova Corporation ("Bulova") is engaged in the distribution and sale of
watches, clocks and timepiece parts for consumer use. Bulova accounted for .59%,
.59% and 1.12% of the Company's consolidated total revenue for the years ended
December 31, 1996, 1995 and 1994, respectively.
Bulova's principal watch brands are Bulova, Caravelle, Accutron and
Sportstime. Clocks are principally sold under the Bulova brand name. All watches
and clocks are purchased from foreign suppliers. Bulova's principal markets are
the United States and Canada. In most other areas of the world Bulova has
appointed licensees who market watches under Bulova's trademarks in return for a
royalty. The business is seasonal, with the greatest sales coming in the third
and fourth quarters in expectation of the holiday selling season. The business
is intensely competitive. The principal methods of competition are price,
styling, product availability, aftersale service, warranty and product
performance.
Properties: Bulova owns an 80,000 square foot plant in Woodside, New York
which is used for its principal executive and sales office, watch distribution,
service and warehouse purposes, and leases a 71,000 square foot plant in
Maspeth, New York for clock service and warehouse purposes and a 25,000 square
foot plant in Toronto, Canada for watch and clock sales and service.
OTHER INTERESTS
A subsidiary of the Company owns a 49% common stock interest in a joint
venture which is engaged in the business of owning and operating six large crude
oil tankers that are used primarily to transport crude oil from the Persian Gulf
to a limited number of ports in the Far East, Northern Europe and the United
States.
EMPLOYEE RELATIONS
The Company, inclusive of its operating subsidiaries as described below,
employed approximately 35,300 persons at December 31, 1996 and considers its
employee relations to be satisfactory.
Lorillard employed approximately 3,600 persons at December 31, 1996.
Approximately 1,400 of these employees are represented by labor unions under
separate contracts with many local unions expiring at varying times and
severally renegotiated and renewed.
Lorillard has collective bargaining agreements covering hourly rated
production and service employees at various Lorillard plants with the Tobacco
Workers International Union, the International Brotherhood of Firemen and
Oilers, and the International Association of Machinists. Lorillard has
experienced satisfactory labor relations and provides a retirement plan, a
deferred profit sharing plan, and other benefits for its hourly paid employees
who are represented by the foregoing unions. In addition, Lorillard provides to
its salaried employees a retirement plan, group life, disability and health
insurance program and a savings plan.
24
Loews Hotels employed approximately 2,800 persons at December 31, 1996,
approximately 1,800 of whom are union members covered under collective
bargaining agreements. Loews Hotels has experienced satisfactory labor relations
and provides comprehensive benefit plans for its hourly paid employees.
The Company maintains a retirement plan, group life, disability and health
insurance program and a savings plan for salaried employees. Loews Hotels
salaried employees also participate in these benefit plans.
CNA and its subsidiaries employ approximately 24,300 full-time equivalent
persons and has experienced satisfactory labor relations. CNA has never had work
stoppages due to labor disputes. CNA and its subsidiaries have comprehensive
benefit plans for substantially all of their employees, including retirement
plans, savings plans, disability programs, group life programs and group health
care programs.
Diamond Offshore employed approximately 3,770 persons at December 31, 1996,
approximately 160 of whom are union members. Diamond Offshore has experienced
satisfactory labor relations and provides comprehensive benefit plans for its
employees.
Bulova and its subsidiaries employ approximately 440 persons, approximately
135 of whom are union members. Bulova and its subsidiaries have experienced
satisfactory labor relations. Bulova has comprehensive benefit plans for
substantially all employees.
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ Peter W. Keegan
_________________________
Peter W. Keegan
Senior Vice President
and Chief Financial Officer
Dated: April 9, 1997
26
