Tobacco Documents Online

brmeetir~ lannerswho thought tPhey had experienced everytlting. Loews Monte-Cario The Loews Hotels Division again achieved excellent results. Occupancy levels and average room rates both increased from the prior year. In 1978 Loews Hotels continued its prominence, expanding its presence in the hotel industry and maintaining its traditionally high standards of quality and service. The Hotels Division currently includes fifteen prime properties in key world markets. Loews Hotels is a select group by in- dustry standards. Operations encom- pass luxury, convention and resort properties. The opening of the first Loews "spa" resort will take place upon completion of the new Loews Biarritz Hotel, presently under construction on France's Atlantic Coast. Loews is pres- ently represented on the French Riviera by Loews Monte Carlo Hotel, which contains the only in-hotel casino in Europe. The Westbury, in Toronto, recently became the third hotel operated by Loews in Canada. A luxury facility of ~~. •r1UlIXE• great tradition, the Westbury has 546 comfortably proportioned rooms. A recent multi-million dollar refurbishing program will further enhance this attractive property. In January 1979, the Hotels Division opened the new Loews Anatole in Dallas, Texas. This 1001 room hotel with an architecturally unique atrium contains unexcelled convention facili- ties. The Loews Anatole will provide an elegant setting in Dallas, the con- vention center of the entire Southwest. In addition to the above hotels, Loews Hotels include the Regency, Drake, Warwick and Summit hotels, and the Ramada Inn and Howard Johnson MotorInn, in New York City; the Loews Paradise Island Hotel and Villas in the Bahamas; the Churchill and Montcalm hotels in London; L'Enfant Plaza Hotel in Washington, D.C.; La Cite Hotel in Montreal and Le Concorde Hotel in Quebec. The diversity and distinction of the Loews Hotels require flexibility in management and service skills. These attributes allow the division to profit- ably manage a range of facilities includ- ing ultra-luxury facilities as well as commercial center properties. The Loews Hotels Division has contin- ued its aggressive pursuit of hotel management opportunities-whether an existing property, such as the Westbury, or a new facility, such as the Loews Anatole. 10

LE MIRAMAR HOTEL & SPA, BIARRITZ, FRANCE OPENING SPRING 1980 NEW YORK MONTREAL,CANADA LONDON LOEVVS Le LOEWS Concorde SUNINJIT QUEBEC,CANADA NEWYORK "As distinctive as their signature. As exciting as their destinations. Loews Hotels"

1978 was an excellent year for the Loews Theatres Division. Box office receipts increased 10% over the pre- vious year, and income contribution increased 86% over 1977. The Division continued its expansion through acquisition as well as construc- tion of new theatres and increase of the number of screens at existing and newly acquired theatres. At year end 1978, Loews Theatres had 127 screens at 61 locations. Five single-screen theatres acquired in Cleveland last year were converted to provide a total of 10 screens. Other Loews theatres are currently being converted to twin, triplex and even quadruplex facilities. In March 1979, the Division opened two new 520-seat theatres in New York City-the Loews New York I and II- located at 66th Street and 2nd Avenue in Manhattan. Loews Theatres continues to build its reputation as a highly professional circuit of first-run theatres. Nation- wide, it enjoys an image of quality and prominent identification with the best entertainment for the film-going public. The Loews Theatres marketing and public relations staff is unique in the industry, particularly in its reputation for special attention to promotional activities. Individual attention is given not only to film previews and openings but to each film shown at a Loews Theatre. The Division has pioneered sophisticated methods of insuring audience comfort which are especially important in view of the large audi- ences attending today's major pro- ductions. In 1978 the Division benefited from a year of excellent film releases. Com- edies and musicals such as "Heaven Can Wait," "The Goodbye Girl," "Grease," and "Saturday Night Fever" were exhibited very successfully. Also pop- ular were action/adventure films, which included "Jaws II" and "Close Encoun- ters of the Third Kind." "Superman" has already broken several attendance records at Loews Theatres, and should continue to attract large audiences into 1979. 12

"The standard of quality for motion picture exhibition in America."

Business Segments Loews Corporation, through its subsidiaries, is engaged primarily in insurance (property, casualty and life), the production and sale of cigarettes and other tobacco products, the operation of hotels, the exhibition of motion pictures, consumer finance and asset management. The following table sets forth for the periods indicated the major sources of the Company's consolidated revenues and income before interest and corporate expenses, equity interests, discontinued operations, income taxes, minority interest and accounting changes. (Amounts in thousands) Four Months Ended Years Ended December 31, December 31, 1978 1977 (g) 1976 (g) 1975 (g) 1974 (b) Revenues (a) : Audited Property and casualty insurance (h) ............. $1,197,446 $1,143,662 $ 928,670 $ 822,838 Life insurance (h) ......'..... Sales of tobacco products, principally cigarettes (c) .... Hotels .................... Theatres .................. Residential development ..... Consumer finance ........... Investment income-net ...... Other ..................... Total revenues ........ 1,008,957 983,616 949,266 954,107 Year Ended August 31, 1974 813,496 735,727 627,429 586,404 $188,639 $537,555 141,011 117,718 100,094 74,616 24,214 70,100 47,338 41,452 33,235 38,371 10,532 32,565 61,325 73,843 45,778 35,184 13,968 38,717 125,126 112,770 103,536 99,269 34,968 21,294 12,247 14,724 9,972 27,840 25,977 8,330 2,623 5,049 3,440 8,194 $3,455,644 $3,238,412 $2,802,878 $2,630,562 $ 250,765 $ 714,971 Income Contribution (a) : Property and casualty insurance $ 142,706 $ 50,433 $ 31,249 $ 79,296 Life insurance .............. 58,794 42,617 29,642 9,074 Sales of tobacco products, principally cigarettes (e) .... 109,826 87,666 67,240 55,208 $ 14,753 $ 59,735 Hotels (f) .................. 31,242 26,686 32,354 21,095 6,312 18,742 Theatres ................... 9,744 5,242 4,582 7,459 1,379 6,925 Residential development (e) .. 15,647 18,761 8,416 (5,462) (648) (7,012) Consumer finance ........... 49,076 42,651 36,909 34,407 Investment income-net ...... 34,968 21,294 12,247 14,724 9,972 27,840 Other ..................... 17,819 (4,934) (10,139) (6,618) 508 2,911 Realized investment gains (losses) .................. 24,303 57,714 19,200 51,761 (134) 70 Income Before Interest and Corporate Expenses, Equity Interests, Discontinued Operations, Income Taxes, Minority Interest and Accounting Changes ......... 494,125 348,130 231,700 260,944 32,142 109,211 Interest and Corporate Expenses, Equity Interests, Discontinued Operations, Income Taxes and Minority Interest-net (d) ..... 325,960 173,781 144,141 180,667 18,289 63,300 Income Before Accounting Changes ................... 168,165 174,349 87,559 80,337 13,853 45,911 Cumulative Effect of Accounting Changes-net ............... (10,684) Net income .......... $ 168,165 $ 174,349 $ 76,875 $ 80,337 $ 13,853 $ 45,911 Identifiable Assets (a) : Property and casualty insurance $2,955,733 $2,468,282 $2,157,494 $1,918,736 $1,706,888 Life insurance .............. 2,832,216 2,593,227 2,467,030 2,182,339 2,037,139 Sales of tobacco products, principally cigarettes ...... 579,500 582,106 531,494 522,669 483,319 $ 441,689 Hotels .................... 195,561 176,364 208,462 205,278 174,467 175,286 Theatres .................. 29,834 29,830 30,890 35,414 41,866 38,737 Residential development ..... 83,261 88,553 94,355 126,237 135,084 130,629 Consumer finance ........... 549,548 489,370 442,621 455,139 453,222 Investments ............... 368,440 326,955 105,366 131,074 398,155 407,827 Other ..................... 140,354 239,867 185,860 227,966 275,542 32,684 Corporate ................. 11,420 10,514 12,486 7,228 6,348 20,466 Discontinued operations ..... 126,033 131,284 123,966 116,101 Total identifiable assets $7,745,867 $7,005,068 $6,362,091 $5,943,364 $5,835,996 $1,363,419 14 See Notes to Business Segments.

P WA" 2116;r. AM dui: : mm ; .&A= UMEM. (a)-The acquisition of a controlling interest in CNA was effective as of December 31, 1974. Accord- ingly, no effect of such investment is reflected in this table for periods prior to the year ended December 31, 1975 (other than dividends earned prior to the acquisition date which are not significant in relation to total revenues or income for the respective periods). See Note 6 to Consolidated Financial Statements-"Cost in excess of net assets acquired-CNA" for information concerning purchase value adjustments relating to consolidation of the revenues and income of CNA. (b)-The Company, effective December 31, 1974, changed its fiscal year from a year ending August 31 to a year ending December 31. (c)-Includes tobacco excise taxes of $217,715, $210,868, $191,410, $189,840, $64,051, and $196,966 paid on sales of manufactured products for the respective periods. (d)-Includes interest expense of $25,750, $25,815, $23,319 and $26,599 for the four years ended December 31, 1978, respectively, related to the consumer finance industry segment. (e)-See Note 1 to Consolidated Financial Statements for a description of inventory methods. Prior to September 1, 1973 leaf tobacco, manufactured stock and materials and supplies inventory costs were computed on an average cost basis. In addition, the Company during the years ended December 31, 1975 and August 31, 1974, made charges to operations, net of taxes, of $3,219 and $4,700, respec- tively, as a result of reviews of its residential development activities. Such charges increased cost of manufactured products sold by $6,191 and $9,000 in the respective years. (f)-Includes unrealized (losses) gains of ($4,659), ($3,045), $5,267, $5,549, ($231), and $1,115 for the respective periods related to the translation of foreign currencies at current rates with respect to long-term liabilities arising from the capitalization of leases on foreign properties. Management believes that inclusion of foreign currency translation gains or losses is non-economic. See Note 1 to Consolidated Financial Statements-"Translation of Foreign Currency." (g)-Restated to give retroactive effect to application of provisions of the Statement of Position (SOP) of the American Institute of Certified Public Accountants (AICPA) regarding "Accounting for Property and Liability Insurance Companies"; the net effect of which was to decrease net income for 1978 by $1,799 and restate the years ended December 31, 1977, 1976 and 1975, resulting in a (decrease) increase in net income of ($3,012), ($16,702) and $11,305, respectively. (h)-The following information relating to insurance business segment revenues and pre-tax oper- ating income (loss), in millions of dollars by product line, are reflected on the basis of CNA's historic costs and do not reflect the effect of purchase value adjustments included in Loews' financial statements : The property and casualty insurance business segment includes revenues of $1,063.4, $1,023.4, $810.7 and $724.3 for the respective years applicable to commercial lines; and $130.5, $115.0, $109.4 and $90.5 for the respective years applicable to personal lines. Pre-tax operating income (loss) for commercial lines amounted to $125.7, $31.8, $17.3 and $38.4, respectively; and for personal lines amounted to $10.4, $3.2, ($.1) and ($2.6), respectively. The life insurance business segment includes revenues of $352.2, $343.7, $348.6 and $351.4, for the respective years, applicable to individual life products, and $663.6, $657.0, $613.8 and $616.8, for the respective years, applicable to group life products. Pre-tax operating income for individual life products for the respective years amounted to $27.0, $30.8, $18.2 and $9.1; and for group life products amounted to $32.4, $18.9, $11.9 and $5.3. 15 Im R a, i s

MGti'ILig2Y{2PYlt 'S Di5CZl55lDYl GlrZti-AnGlll/SiS Of Summary of OpeYRliOYIS (Not covered by Auditors' Opinion) Year Ended December 31, 1978 Compared with Year Ended December 31, 1977 (As Restated) Revenues for the year ended December 31, 1978 increased 6.7% over the revenues reported for the year earlier period. Net income decreased 3.5% compared with the preceding year. Net income reflects a 21.2% return on average shareholders' equity. Contributing factors by business segment are as follows: Property and casualty insurance Revenues and income contribution increased $53,784,000, or 4.7% and $92,273,000 or 183.0%, respectively, compared to the prior year. All major insurance lines had increased revenues, primarily due to premium rate increases. The income contribution increase is primarily attributable to (a) improved underwriting results due to more stringent underwriting and claims controls and increased premium rates; and (b) an increase in investment income of $29,687,000, or 23.4%, reflecting increased invested assets. Life insurance Revenues increased by $25,341,000, or 2.6% compared to the year earlier period. Income contribution increased by $16,177,000, or 38.0%, due to higher premium volume, improved underwriting results in the group life and health lines and higher investment income ($6,536,000 or 4.3%) related to increased invested assets. Sales o f tobacco products Revenues and income contribution increased $77,769,000, or 10.6% and $22,160,000 or 25.3%, respectively, compared to 1977. Price increases effective in August 1977 and July 1978 and increased unit sales partially offset by increased costs, contributed to the increased revenues and income contribution in 1978. Hotels Revenues increased by $23,293,000 or 19.8%, compared with the previous year. Income contribution increased by $4,556,000, or 17.1%. Increased average rates per room, the addition of two hotels and improved occupancies offset partially by absence of sales proceeds relating to the hotel properties sold in 1977 contributed primarily to the increased hotel revenues. The increase in income contribution was attributable to the increased revenues partially offset by higher costs and increased unrealized foreign currency translation losses related to long-term liabili- ties associated with the capitalization of leases ($4,659,000 in 1978 compared to $3,045,000 in 1977). Management believes that the inclusion of these foreign currency translation gains or losses is non-economic. 16

Theatres Revenues increased by $5,886,000, representing a 14.2% increase when compared to the year earlier period, as a result of higher average ticket prices, gain on sale of a theatre property and increased attendance. The increase in income contribution of $4,502,000, or 85.9%, reflects increased revenues offset by higher film rental costs. Residential development Revenues and income contribution decreased by $12,518,000, or 17.0%, and $3,114,000 or 16.6%, respectively, as a result of reduced unit sales and higher costs partially offset by sales of higher priced units. Consumer f inance A $12,356,000, or 11.0%, increase in revenues, reflecting loan portfolio increases resulted in an increased income contribution of $6,425,000, or 15.1%. Investment income Revenues and income contribution increased $13,674,000, or 64.2%, as a result of increased invested assets compared to the prior year. Realized investment gains Realized investment gains reflect a decrease in realized security gains of the Company. Due to purchase value accounting, security gains relating to CNA exceeded the Company's equity in those results as reported by CNA by $3,755,000 in 1978 ($34,303,000 in 1977) because the cost basis of securities to CNA exceeds the cost basis of such securities to the Company. Interest and corporate expenses, equity interests, discontinued operations, income taxes and minority interest The increase in 1978 is primarily attributable to increased minority interest related to CNA's improved income, higher income taxes related to the increased income from continuing operations, increased interest expense and the inclusion in 1977 of the income from discontinued operations of the international cigarette business which consisted of the results of operations of that segment prior to sale and gain on sale in June 1977. 17

Manago-ement's Discussion antl Analysis of Summary of Operations (continued) Year Ended December 31,1977 (As Restated) Compared with Year Ended December 31,1976 (As Restated) Revenues for the year ended December 31, 1977 reflect record levels for the third consecutive year and represent a 15.5% increase over the revenues reported for the year earlier period. Net income was the highest in the history of the Company and represents a 126.8% increase over the preceding year. These results reflect a 26.1% return on average shareholders' equity. Contributing factors by business segment are as follows: Property and casualty insurance Revenues increased $214,992,000, representing a 23.2% increase when compared to the prior year. Income contribution increased by $19,184,000 or 61.4%. All major insurance lines had increased revenues, which were attributable to premium rate increases as well as new product introductions. The increase in income contribution is primarily attributable to (a) improved underwriting results, increased premium rates and more stringent underwriting and claims controls; and (b) an increase in investment income of $17,316,000, or 15.8%, reflecting increased invested assets. Life insurance Revenues increased by $34,350,000, or 3.6% compared to the year earlier period. Income contribu- tion increased by $12,975,000, or 43.8%. New product introductions contributed significantly to the increase in life insurance revenues. Investment income, the principal contributing factor of the increased income contribution of the life insurance segment, increased by $12,835,000, or 9.2%. Sales o f tobacco products Domestic sales revenues increased by $108,298,000, or 17.3% compared to 1976. The income contri- bution from sales of tobacco products increased by $20,426,000, or 30.4%. The domestic cigarette business grew significantly in 1977. All of the major cigarette brands enjoyed increased unit volume, with a resultant 10% increase in share of the total domestic cigarette market. Tighter cost controls and a price increase effective in August 1977, together with the increased domestic unit sales, contributed to the increased income contribution in 1977. Hotels Revenues increased by $17,624,000, a 17.6% increase when compared to the previous year. Income contribution would have reflected an increase of $6,409,000, or 19.8%, but for adoption by the Company during 1977 of FASB Statement No. 13, "Accounting for Leases" which resulted in reflec- tion of a foreign currency loss in accordance with FASB Statement No. 8, "Foreign Currency Trans- actions." Application of these accounting pronouncements resulted in a decrease in income contribution of $5,668,000. Management believes that inclusion of foreign currency translation gains or losses is non-economic. Increased occupancies and increased average rates per room contributed primarily to the increased hotel revenues. The sale of two hotel properties contributed $2,347,000. 18

Theatres Revenues increased by $8,217,000, representing a 24.7% increase when compared to the year earlier period, as a result of increased paid attendance. . The increase in income contribution of $660,000, or 14.4% reflects increased revenues offset by higher film rental costs, higher operating costs and loss on the disposition of eight theatres. Residential development Revenues increased by $28,065,000, or 61.3%, and income contribution increased by $10,345,000, or 122.9%, primarily as a result of increased sales prices for units being sold in the remaining two projects. Consumer f inance A$9,234,000, or 8.9% increase in revenues, reflecting a 12% loan portfolio increase, together with additional operating efficiencies and cost controls, resulted in an increase in income contribution of $5,742,000, or 15.6%. Investment income Revenues and income contribution increased $9,047,000, or 73.9%, as a result of increased invested assets during the year. Realized investment gains Realized investment gains reflect an increase in realized security gains of the Company as well as CNA. Due to purchase value accounting, security gains relating to CNA exceeded the Company's equity in those results as reported by CNA by $34,303,000 in 1977 ($26,134,000 in 1976) because the cost basis of securities to CNA exceeds the cost basis of such securities to the Company. Interest and corporate expenses, equity interests, discontinued operations, income taxes and minority interest The increase in these expenses is largely attributable to increased income and increased minority interest related to higher CNA income. Discontinued operations consist of gain on the sale in June 1977 of the international cigarette business and the results of operations of that segment prior to the sale. The equity income in associated companies during 1976 consisted principally of equity in the income of Wheeling-Pittsburgh Steel Corporation. The Company announced at the end of 1976 that it would no longer reflect its equity in the income of Wheeling-Pittsburgh and would treat its invest- ment in the same manner as other holdings in its investment portfolio. Cumulative e f f ect o f accounting changes During 1976, CNA elected to adopt new methods of accounting for its reserve for credit losses in its finance subsidiary and of accounting for deferred tax credits. The Company's equity in the net cumulative effect of these accounting changes is reflected in 1976. 19