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Loews Corporation Annual Report 1978

Loews Corporation Annual Report 1978 ~ r Ittt?~IL , ~ 1H 1~~i .l~f~iS Years Ended December 31, 1978 1977 (Restated) (Amounts in thousands, except per share data) Results of Operations: Revenues ................................................ $3,455,644 $3,238,412 Net Income ............................................... 168,165 174,349 Earnings Per Share-Primary ................................ 14.47 13.68 Earnings Per Share-Asuming Full Dilution .................... 10.02 9.70 Financial Position: Total Assets .............................................. 7,745,867 7,005,068 Shareholders' Equity ....................................... 856,053 728,054 Cash Dividends Per Share ................................... 1.20 1.20 P7,ico Range ol-' Con-imon Si oci, Loews Corporation's common stock is listed on the New York Stock Exchange. The following table sets forth the reported consolidated tape high and low sales prices in each calendar quarter of 1978 and 1977: 1978 1977 High Low High Low First Quarter .............................................. 381/z 311/s 371/2 32 Second Quarter ........................................... 465/s 361/z 345/s 271/s Third Quarter ............................................. 551/4 41 /s 341/z 271/z Fourth Quarter ............................................ 511/z 34'/s 363/s 31 - ' 111 710?^I(L!'111,L!(t The Company has paid quarterly cash dividends on its common stock in each year since 1967. Dividend payments of $.30 per share of common stock outstanding were paid in each calendar quarter of 1978 and 1977. Letter to Shareholders and Employees ................................................ 3 Operation Sections ................................................................ 6 Business Segments ................................................................ 14 Management's Discussion and Analysis of Summary of Operations ........................ 16 Summary of Operations ........................................................... 20 Financial Statements .............................................................. 23 Directory ........................................................................ 51 41 -1 i 1

Financial Highlights (conttnued) Total Assets Shareholders' Equity Revenues billions of dollars millions of dollars millions of dollars '74 '75 '76 '77 '78 9.0 960 7.5 800 6.0 640 4.5 480 3.0 320 1.5 160 0 0 '74 '75 '76 '77 '78 Earnings Per Share- Diluted dollars 4000 12.00 3200 2400 1600 800 9.00 6.00 3.00 M M W M M 0 M M M M M 0 '74 '75 '76 '77 '78 '74 '75 '76 '77 '78 Note: Amounts shown are for the years ended December 31, except for 1974, which is for the year ended August 31. ~£3 ~ N -~ CJ7 ~ r•.

i o Our Shrreholc'ers ancl "Emplo~~ees ~ Loews Corporation's performance in 1978 was outstanding-a second con- secutive year of substantial increases in revenues and operating income, marking historic highs. Assets increased to $7.7 billion in 1978, compared with $7.0 billion, as restated, at the end of 1977. Shareholders' equity increased to $856 million in 1978, from $728 million, as restated, in 1977. Income from continuing operations for the year amounted to $147.7 mil- lion, equal to $12.70 per share ($8.86 per share fully diluted), compared to $80.7 million, or $6.33 per share ($4.76 per share fully diluted), as restated, for the prior fiscal year. Net income for 1978 was $168.2 million, equivalent to $14.47 per share ($10.02 per share fully diluted). Net income, as restated, for the prior year of $174.3 million, or $13.68 per share ($9.70 per share fully diluted), in- cluded income from discontinued operations amounting to $45.7 million, or $3.59 per share ($2.41 per share fully diluted), relating to gain on the sale of the Company's cigarette business outside the United States. Net income in 1978 includes realized investment gains amounting to $16.9 mil- lion, or $1.46 per share ($.96 per share fully diluted), and equity in income of associated company of $3.6 million, or $.31 per share ($.20 per share fully diluted). 1977 net income included realized investment gains of $48.0 million, or $3.76 per share ($2.53 per share fully diluted). Loews gross revenues in 1978 increased to $3.5 billion from $3.2 billion in 1977. 1979 marks the 20th anniversary of Loews under present management. Twenty years ago, Loews' principal business was the operation of motion picture theatres. Assets at that time amounted to $86 million and net worth $59 million. Revenues in 1959 were $46 million and net income $2 million. Today Loews is one of the nation's largest diversified financial corpora- tions. Shareholders' equity has increased 1,350%; assets have grown 8,900°0; revenues have increased 7,400%; and income has increased 8,300%. In 1978 all Loews operations performed well, and each contributed to the ~ record results. tv ~ s ~ ~ w 3

CNA Fincncial Loews' 57°o-owned insurance subsidiary, CNA Financial Corporation, continued its excellent progress in 1978, reporting record revenues and earnings. Loews' equity in the earnings of CNA Financial contributed approximately 54°0 of income from continuing operations and 50% of net income, for 1978. This compares to 46°o and 43%, respectively, for 1977. Importantly, CNA is financially sound, aggressively postured in its markets and positioned for further growth. Existing products-both property and casualty, and life and health-are constantly improved and modernized. New policies, designed to meet the needs of the market, are being devel- oped and introduced successfully in partnership with CNA's independent agents. Underwriting and claims controls have been further strengthened and administrative systems enhanced. General Finance, CNA's consumer finance company, also reported record results, despite the increased cost of money associated with the rise in the prime interest rate. Lot'illard Over the last two years, Lorillard's rate of sales growth has surpassed that of all other cigarette manufacturers in the domestic market. Lorillard's dramatic success is a direct result of management's ability to anticipate the changing tastes of the smoking public and to successfully develop and market products in today's highly competitive marketplace. The low tar segment of the cigarette business, which Lorillard identified and entered early, is the emerging market of the late 70's and 80's. With the advantage of one of the most advanced research and development facilities in the industry, Lorillard today competes at every level of the "reduced tar" spectrum: Kent at 12 mg, Golden Lights at 8 mg, True at 5 mg, and the recently introduced Kent III at 3 mg. In 1978, Lorillard's Newport brand was the only major low filtration menthol brand to exhibit growth, achieving a growth rate of approxi- mately 17°,/0. Loews Hotels Loews Hotels' business continued strong in 1978 with increased occupancy levels and room rates. The Westbury Hotel, in Toronto, became the third property operated by our hotel division in Canada. In Europe, construction of the Loews Biarritz Hotel at the famous Biarritz Spa, on the west coast of France, is proceeding on schedule and is expected to open next year. The new Loews Anatole in Dallas opened in January 1979. This magnificent 1,001 room facility is expected to attract major convention business. In New York, Loews is currently renovating the famous Drake Hotel, as part of an ongoing program to maintain the high standards of Loews luxury hotels. 4

No Loews Theatres The nation's film industry experienced a revival in 1978 with new films of quality and audience appeal. Successful new films greatly contributed to the Theatre Divisiori s excellent performance. 1978 box office receipts increased 10% over 1977 as these films captured the public's attention. During the year, the Theatre Division acquired five single screen theatres in Cleveland. The properties acquired have been converted to multi-screen theatres with a total of ten screens. Bulova Watch Company A wholly-owned subsidiary of the Company on February 13, 1979 offered to acquire the outstanding shares of Bulova Watch Company, Inc. at a price of $10.00 a share. At the initial expiration of the Offer on February 28,1979, approximately 1,755,000 shares had been tendered. The shares tendered, together with 1,396,891 shares owned prior to commencement of the Offer, constituted approximately 83.7% of Bulova's outstanding shares. The Offer was extended to March 21,1979. Bulova manufactures and sells, in the United States and elsewhere, watches and clocks for consumer use and also sells timepiece parts and power cells to the trade. In addition, Bulova sells non-consumer products for defense and industrial use, includ- ing timing and other similar devices, quartz crystals and camera com- ponents. Residential Development As of September 1, 1978, Loews substantially completed the final project of its Loews/Snyder residential development activities. While there are still a few closings of developed properties to occur in 1979, residential development will no longer contribute significantly to the results of our operations. K x v- ~ In order to show the fundamental financial position of Loews we have added at the end of this annual report, at pages 49 and 50, a balance sheet and statement of income, accounting for CNA as an investment under the equity method of accounting, as compared to its consolidation in our financial statements in accordance with generally accepted accounting principles. From January 1, 1978 through March 1, 1979, the Company purchased in the open market 782,800 shares of its common stock and 514,800 warrants to purchase shares of the Company's common stock. A total of 1,709,500 shares and 649,600 warrants have been acquired since July 1977. On behalf of the Board of Directors, we again thank our employees and our shareholders for their support. Sincerely, ',~, 9- 7~4 Laurence A. Tisch Preston Robert Tisch Chairman of the Board President March 1, 1979 5

6 ~te w~h only 3 mg, tar. 1978 was the finest year in Lorillard's 218-year history. At the end of 1978 Lorillard had attained a unique position in the cigarette industry, continuing its ever-strengthening share of the market. Lorillard's domestic market share rose to 9.1%, an increase of 3.4% over its 1977 market share. Over the last two years combined sales growth has exceeded that of all other competing manufacturers, a growth rate twelve times the industry average. Each major Lorillard brand participated in the increased market share: 11 NEWPORT's sales increased by 17% in 1978. Of all major low filtration menthol brands in the industry, only NEWPORT enjoyed growth in 1978. 11 TRUE continued its sales growth, and in 1978 reported an all-time high in unit sales and market share. F-1 GOLDEN LIGHTS replaced "KENT" GOLDEN LIGHTS in the marketplace in late 1978. Sales ex- ceeded the prior year by 25%. 0 KENT successfully test marketed another brand extension, KENT III, which moved into national distribution in late January 1979. t'~t.~it~e so:v taste I ~'~~r3.~ "~h~ ~ Lorillard's record income contribution in 1978 is a direct result of thorough and accurately predictive planning combined with Lorillard's ability to anticipate the changing demands and smoking tastes of an increasingly more sophisticated consumer. Lorillard's well-structured and aggres- sive objectives have been attained through a process of: El Identifying perceived tastes of cigarette consumers; El Developing superior products to meet those needs; and 11 Creating persuasive advertising to articulate the attributes of those products. In 1976, one of every five cigarettes sold was a low tar brand. By 1978, low tar cigarettes represented one third of the market. This trend continues and Lorillard has aggressively positioned itself in each bracket of this growing segment of the total market. The Divi- sion is represented by KENT at 12 mg of tar, GOLDEN LIGHTS at 8 mg, TRUE at 5 mg, and the new KENT III at 3 mg. Kent III is an ultra low tar cigarette with good satisfying taste. Early results of its national introduction indicate that it should contribute significantly to further market share growth and to Lorillard's position as the industry's fast~st growing manufacturer.

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Insurance CNA Financial Corporation reported record revenues and earnings in 1978. CNA's dramatic progress reflects the growth of its basic financial, managerial and marketing strengths which have enhanced its position among the major multi-line insurers serving America. New products and modifications were introduced in 1978 in both the property and casualty and life and health insur- ance areas. Personal lines were ex- panded, and life insurance sales reached new levels. CNA strengthened its position as a major underwriter of commercial lines, and broadened its client base. In 1978, CNA initiated a nationwide advertising and marketing campaign underscoring the company's commit- ment to its independent agents. CNA's company-agent relationships, among the most advanced in the industry, were furthered by the introduction of CNA's High Performance Agents Program and by introduction of an expanded agent incentive plan. CNA's product lines continue to be refined in coordination with agent representative councils. Product-related achievements in 1978 included: 0 Modification and further success of modernized commercial package poli- 8 I I 4 cies, which provide combinations of commercial coverage designed to suit specific needs of medium to large busi- nesses and small local businesses. El Introduction of a new guaranteed cost portfolio of life insurance products, designed to be both competitive and most affordable in relation to the coverage provided. 0 Simplification and refinement of complete guides to insure proper train- ing and effective sales techniques for pension sales business. 1:1 Design of CNA's unique Single Step policy which combines auto and home- owners' insurance in one policy in re- sponse to agent needs in Arkansas. The Arkansas program demonstrated CNA's responsiveness to agent con- cerns by supporting the efforts of inde- pendent agents to compete with direct writing companies which market their policies through captive employee sales persons. The company continues to emphasize tighter cost controls and efficiencies, as well as underwriting and claims han- dling professionalism at all levels. CNA's consumer finance subsidiary, General Finance, also enjoyed record earnings in 1978. Loans outstanding reached the highest level in the 53-year history of General Finance, which presently serves more than 540,000 customers through 528 offices in 26 states. i

CNA believes workin with agents is one of the most effective ways we he p keep insurance affordable. "I don1deal with CNAs cqmputers. I deal with CNAs people. A big insurance company like CNA needs its computers. But this is a people business. And, to help me and my clients here in Lawrence, I need CNA's people. People who listen when I tell them about my clients' special problems. People I can count on to come back with an answer. After all, it's my job to understand my clients' needs. I deal with CNA because they have people who are willing to do the same!f /NSURANCE FROM ~_ -A "Judge us by the agents who represent us." -Robert Johnson IndependentInsurance Agent Landreth, McGrew & Johnson Lawrence, Kansas