For Loews Corp. and its CNA Financial Corp. property/casualty insurance affiliate, the number three isn’t much of a charm.
To correct what both companies call “classification errors” stemming from activities at CNA, they will restate their cash flows for 2003 and 2004 and the first three quarters of 2005,
Filed in separate 8-Ks, the announcements by the two companies marked the third time in less than a year that Loews and CNA, its 91percent-owned unit, have restated results to correct their cash flow statements, according to Reuters.
Both companies attributed the latest restatements to CNA’s lack of “an effectively designed control process to ensure correct classification of cash flow activity in its cash flow statements.”
One reason for the revisions is that the companies need to reclassify some cash flow items from investing to operating activities. Those activities are net purchases and sales of trading securities; changes in net receivables and payables from unsettled investment purchases; and sales related to trading securities.
Also, cash flows from equity investments in CNA will be reclassified to distinguish between return on investments, which will be reflected within operating cash flows, and return of investments, which will be reflected within investing cash flows. All amounts were previously classified as investing cash flows.
The two companies also stated that deposits and withdrawals tied to investment-contract products issued by CNA will be reflected within financing cash flows. In the past, the companies reported amounts related to certain investment contracts under operating cash flows.
The companies will reclassify the impact of CNA’s cumulative translation adjustment from an investing activity to an operating activity.
For 2003 and 2004, the restatements will boost cash flow from operating activities by $782 million at Loews and $683 million at CNA. At the same time, the revisions will slash cash flow from investing activities by $436 million at Loews and $338 million at CNA, and cut cash flow from financing activities by $371 million at both companies.
Loews and CNA both gave assurances that the restatements would have no impact on the total change in cash from continuing operations.
Last month, the two companies announced a restatement to fix CNA’s accounting connected to a 1995 merger with Continental Corp for businesses CNA acquired and later exited from, according to Reuters.
In May 2005, Loews and CNA restated results from 2002 to 2004 to fix CNA’s accounting for reinsurance with a former affiliate, the wire service noted.