Income From Continuing Operations Per Diluted Share of $0.72
RICHMOND, Va., July 26 /PRNewswire-FirstCall/ -- Genworth Financial, Inc.
(NYSE: GNW) today reported income from continuing operations for the second
quarter of 2007 of $321 million, or $0.72 per diluted share. Income from
continuing operations for the second quarter of 2006 was $306 million, or
$0.66 per diluted share.
Three months ended June 30 (Unaudited)
2007 2006
Total Per diluted Total Per diluted
share share
(Amounts in millions, except
per share)
Income from continuing
operations $321 $0.72 $306 $0.66
Net income $387 $0.86 $317 $0.68
Net operating income(1) $351 $0.78 $328 $0.70
Weighted average diluted
shares 449.0 468.3
Net operating income for the second quarter of 2007 was $351 million, or
$0.78 per diluted share, compared to net operating income of $328 million, or
$0.70 per diluted share, in the second quarter of 2006.
(1) This is a financial measure not calculated based on U.S. Generally
Accepted Accounting Principles ("Non-GAAP"). See the Use of Non-GAAP
Measures section of this press release for additional information.
"Genworth made good progress expanding our wealth management and
retirement fee businesses and driving steady international growth", said
Michael D. Fraizer, chairman and chief executive. "We are affirming our
outlook for full-year operating earnings per diluted share of $3.15 to $3.25;
however, given the dynamics in the U.S. housing market, we feel a conservative
stance is appropriate which could take full-year 2007 results to the lower end
of the range."
Recent Highlights -- Business Growth
-- Retirement and wealth management lines showed strong progress in the
continued shift to fee-based products.
- Managed money assets under management (AUM) more than tripled to
$20.7 billion from the addition of AssetMark, strong net flows and
favorable equity market performance.
- Income distribution series(2) sales grew 54 percent to $472 million.
- AssetMark introduced a new series of fundamental index funds that
offer a unique alternative to traditional index fund offerings.
-- Universal life annualized first year deposits increased 50 percent.
-- Long term care (LTC) continued progress in broadening its growth
agenda.
- AARP selected Genworth as its provider to offer new long term care
insurance products to its approximately 38 million members.
- Sales of our linked-benefits product continued to build momentum,
adding $5 million in the quarter.
- Independent channel sales were up 11 percent to $30 million.
-- The International segment demonstrated strong sales growth.
- International mortgage new insurance written (NIW) was up 91
percent(3) on both flow and bulk growth, primarily in Canada and
Australia.
- Payment protection sales grew 59 percent(3) driven by solid growth
in central and southern Europe and in new markets, as well as a
large structured transaction with a lender in the U.K.
- Total mortgage insurance unearned premium reserve ended the quarter
at $2.9 billion.
-- U.S. mortgage insurance primary insurance in force (IIF) grew 33
percent on strong sales and flow persistency, driving a 28 percent
increase in earned premium.
(2) The Income Distribution Series products are comprised of our
retirement income deferred and immediate variable annuity products,
including those variable annuity products with rider options that
provide similar income features. These products do not include fixed
single premium immediate annuities or deferred annuities, which may
also serve income distribution needs. Sales data is available in the
company's financial supplement posted on the company's website.
(3) Excludes the impact of foreign exchange.
Recent Highlights -- Expense & Capital Management
-- Genworth plans to file for a premium rate increase of between 8 percent
and 12 percent on most of its old block of LTC policies. This block
represents approximately $700 million of annual in force premium.
-- Efficiencies created by Genworth's January 2007 organizational
realignment were evident in the company's adjusted expense ratio, which
declined 140 basis points to 10.4 percent. (4)
-- Genworth closed on the sale of the employee benefits group business and
recognized an after-tax gain on sale of discontinued operations of $60
million.
-- During the quarter, the company repurchased 16.5 million common shares
through an accelerated share repurchase program, mitigating the
dilutive impact of the conversion of the company's equity units. In
addition, 4.7 million common shares were repurchased in the open
market. As of June 30, approximately $100 million remained available
for additional share repurchase.
(4) GAAP basis expense ratio declined 90 basis points to 17.9 percent. A
reconciliation of expense ratio to adjusted expense ratio is at the
end of this press release.
Segment Results
Net operating income presented in the tables below excludes net investment
gains (losses) and other adjustments, net of taxes, as well as the results
from our discontinued operations. In the discussion of results, all
percentage changes referenced exclude the impact of foreign exchange. The
impact of foreign exchange on net operating income in the second quarter of
2007 was a favorable $10 million in the International segment.
A reconciliation from net operating income (loss) of segments and
Corporate and Other activities to net income is included at the end of this
press release.
Retirement and Protection
Retirement and Protection
Net Operating Income
(in millions)
Q2 07 Q2 06
Managed Money $11 $6
Retirement Income 43 38
Institutional 10 13
Life Insurance 75 77
Long Term Care 41 37
Total Retirement and Protection $180 $171
Sales & Flows
(in millions) Q2 07 Q2 06
Managed Money
Gross Flows $1,759 $643
Net Flows 1,265 478
Retirement Income 982 967
Institutional 1,007 379
Life Insurance 85 69
Long Term Care 54 51
Assets Under Management(5)
(in millions)
Fee-Based(6) $26,550 $9,523
Spread-Based(7) 31,856 31,575
Total Assets Under Management $58,406 $41,098
(5) Assets under management represent account values, net of reinsurance,
and managed third party assets.
(6) Fee-based includes managed money and retirement income fee-based
businesses.
(7) Spread-based includes retirement income spread-based and institutional
businesses.
Retirement and Protection's net operating income increased 5 percent to
$180 million. Managed money earnings grew 83 percent from AUM that more than
tripled. Earnings in fee-based retirement products increased 89 percent as
AUM grew to $5.9 billion or 74 percent, partially offset by lower service
related fees. Spread-based retirement income earnings decreased 10 percent
driven by a decline in account balances primarily related to the planned
run-off of low return fixed annuities. The decline in account balances was
partially offset by wider spreads. Institutional earnings of $10 million were
down from the prior year, which included $3 million of additional investment
income items. Life insurance earnings were $75 million, down slightly as new
business growth was more than offset by less favorable mortality compared to
one year ago. LTC earnings increased 11 percent to $41 million and included
$9 million of favorable investment income. Results in the prior year included
$6 million of net favorable items. Excluding these items, LTC earnings were
about flat as the performance of newer issued policies was offset by
unfavorable performance of older blocks of business.
Managed money gross flows nearly tripled to $1.8 billion, and net flows
were $1.3 billion, reflecting sales from AssetMark, distribution expansion and
new product introductions. Income distribution series product sales increased
54 percent to $472 million from strong growth in the guaranteed minimum
withdrawal benefit for life product and favorable equity markets. Lower fixed
annuity sales reflected both the unfavorable yield curve environment and
competitive pressures. Institutional sales of $1.0 billion included $650
million of funding agreements backing notes. Total life sales grew 23 percent
to $85 million, as universal life sales increased 75 percent, including $41
million of excess deposits. Term life sales declined 22 percent in a
competitive pricing environment. LTC sales increased 6 percent to $54
million, driven by $5 million in sales from the recently introduced
linked-benefits product that combines both LTC and universal life product
features. Independent channel sales growth of 11 percent was partially offset
by a decline in the career channel.
International
International
Net Operating Income
(in millions)
Q2 07 Q2 06
Mortgage Insurance
-- Canada $59 $51
-- Australia 44 35
-- Other International 4 4
Payment Protection 35 29
Total International $142 $119
Sales
(in billions) Q207 Q2 06
Mortgage Insurance
-- Canada $21.5 $6.2
-- Australia 17.5 9.6
-- Other International 5.5 5.9
Total Mortgage Insurance $44.5 $21.7
Payment Protection $0.9 $0.5
International's net operating income increased 11 percent from strong
growth in Canada, Australia and payment protection. In Canada, net operating
income was up 12 percent reflecting strong revenue growth, partially offset by
normal loss seasoning. In Australia, net operating income increased 11 percent
driven by strong double-digit revenue growth, partially offset by higher
losses. Payment protection income increased 10 percent primarily from revenue
growth. Income in both Australia and payment protection benefited from
improved effective tax rates. Other international mortgage insurance results
were flat as revenue growth was offset by higher losses and investments in new
markets.
International mortgage insurance sales nearly doubled to $44.5 billion
from higher flow sales in our established markets and higher bulk sales in
Canada and Australia. In Canada, sales more than tripled with an increase in
flow sales of 55 percent as the company continued to gain share in a growing
market. Bulk sales increased $11.7 billion driven by two large transactions
with short durations. In Australia, sales grew 64 percent driven by an 11
percent increase in flow sales and a $5.7 billion increase in bulk sales.
Payment protection sales grew 59 percent on growth in central and southern
Europe, new markets and approximately $200 million from a structured
transaction with a lender in the U.K.
U.S. Mortgage Insurance
U.S. Mortgage Insurance
(in millions) Q2 07 Q2 06
Net Operating Income $66 $72
Primary Insurance In Force 135.5 102.0
(in billions)
Primary Risk In Force 25.8 22.1
(in billions)
Primary Sales
(in billions)
Flow $10.8 $6.7
Bulk 11.1 1.4
Total Primary Sales $21.9 $8.1
U.S. Mortgage Insurance's net operating income declined $6 million to $66
million, as a 28 percent increase in premiums was more than offset by higher
losses. Paid claims increased $8 million, before-tax, driven by higher
average claim amounts associated with higher loan balances. On a sequential
basis, loss reserves increased $19 million to $270 million. This was
principally the result of a 5 percent increase in flow delinquency counts
primarily in Florida, California and Arizona. Delinquencies in the Great
Lakes were stable.
Primary insurance in force (IIF) grew 33 percent to $135.5 billion as a
result of strong sales and 78 percent flow persistency. U.S. flow mortgage
insurance sales increased 61 percent reflecting the strong growth of the
mortgage insurance market and disciplined execution of growth initiatives.
Bulk sales increased $9.7 billion primarily from the execution of select
portfolio transactions.
Corporate and Other
Corporate and Other
(in millions) Q2 07 Q2 06
Net Operating Loss ($37) ($34)
Corporate and Other's net operating loss was $37 million reflecting higher
interest expense.
Investment Highlights
During the quarter, after-tax net investment income related to bond calls,
commercial mortgage loan prepayments, limited partnership investments and
commercial mortgage loan loss reserves was $16 million compared to $21 million
in the prior year quarter. After-tax net investment losses in the second
quarter of 2007 of $30 million included $9 million of impairments primarily
related to a single credit in the media sector, and $21 million related to
portfolio repositioning and other activities.
Stockholders' Equity
Stockholders' equity as of June 30, 2007 was $13.0 billion, or $29.31 per
share, compared with $12.2 billion, or $26.84 per share, as of June 30, 2006.
Stockholders' equity, excluding accumulated other comprehensive income, as of
June 30, 2007 was $12.4 billion, or $28.07 per share, compared with $12.0
billion, or $26.33 per share, as of June 30, 2006.
Share Repurchases
During the quarter, Genworth repurchased 21.2 million shares at a weighted
average price of $36.08 per share. As of June 30, 2007, Genworth had the
authority to repurchase approximately $100 million in 2007.
The timing of future share repurchases under the company's stock
repurchase program will depend on a variety of factors, including market
conditions, and may be suspended or discontinued at any time. Common stock
acquired through the repurchase program will be held as treasury shares until
such time as they may be reissued or retired by the company.
About Genworth Financial
Genworth is a leading financial security company meeting the retirement,
longevity and lifestyle protection, investment and mortgage insurance needs of
more than 15 million customers. It has a presence in more than 25 countries.
For more information, visit http://www.genworth.com.
Conference Call and Financial Supplement Information
This press release and the second quarter 2007 financial supplement are
now posted on the company's website. Investors are encouraged to review all
of these materials.
Genworth will conduct a conference call on July 27 from 9 a.m. to 10 a.m.
(ET) to discuss the quarter's results and outlook. The conference call will be
accessible via telephone and the Internet. The dial-in number for Genworth's
July 27 conference call is 1-866-875-7108 or 1-706-634-9180 (outside the
U.S.), passcode 6329775. To participate in the call by webcast, register at
http://investor.genworth.com at least 15 minutes prior to the webcast to
download and install any necessary software.
The webcast will be archived on the company's website and a replay of the
call will be available at 1-800-642-1687 or 1-706-645-9291 (outside the U.S.);
passcode 6329775. The replay will be available through August 10, 2007.
Use of Non-GAAP Measures
This press release includes the non-GAAP financial measure entitled "net
operating income." Our chief operating decision maker evaluates segment
performance and allocates resources on the basis of net operating income. We
define net operating income (loss) as income (loss) from continuing operations
excluding after-tax net investment gains (losses) and other adjustments and
infrequent or unusual non-operating items. We exclude net investment gains
(losses) and infrequent or unusual non-operating items because we do not
consider them to be related to the operating performance of our segments and
Corporate and Other activities. A significant component of our net investment
gains (losses) are the result of credit-related impairments and credit-related
gains and losses, the timing of which can vary significantly depending on
market credit cycles. In addition, the size and timing of other investment
gains (losses) are often subject to our discretion and are influenced by
market opportunities, as well as asset-liability matching considerations.
Infrequent or unusual non-operating items are also excluded from net operating
income if, in our opinion, they are not indicative of overall operating
trends. While some of these items may be significant components of net income
in accordance with U.S. GAAP, we believe that net operating income, and
measures that are derived from or incorporate net operating income, are
appropriate measures that are useful to investors because they identify the
income attributable to the ongoing operations of the business. However, net
operating income should not be viewed as a substitute for GAAP net income. In
addition, the company's definition of net operating income may differ from the
definitions used by other companies. There were no infrequent or unusual
non-operating items excluded from net operating income for the periods
presented in this press release. The table at the end of this press release
reflects net operating income (loss) as determined in accordance with
Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information, and a reconciliation of net
operating income (loss) of our segments and Corporate and Other activities to
net income for the three months ended June 30, 2007 and 2006.
Due to the unpredictable nature of the items excluded from the company's
definition of net operating income, the company is unable to reconcile its
outlook for net operating income to net income presented in accordance with
GAAP.
The company references the non-GAAP financial measure entitled "expense
ratio" as a measure of productivity. The company defines adjusted expense
ratio as acquisition and operating expenses, net of deferrals, divided by
total revenues, excluding the effects of the company's managed money and
payment protection insurance businesses. The managed money and payment
protection insurance businesses are excluded from this ratio as its expense
base is comprised of varying levels of non-deferrable acquisition costs.
Management believes that the expense ratio analysis enhances understanding of
the productivity of the company. However, the adjusted expense ratio as
defined by the company should not be viewed as a substitute for GAAP
acquisition and operating expenses, net of deferrals, divided by total
revenues. The tables at the end of this press release include a
reconciliation of the adjusted expense ratio, as defined, to the GAAP measure.
Definition of Selected Operating Performance Measures
Management regularly monitors and reports a production volume metric
referred to as "sales," which is a measure commonly used in the insurance
industry as a measure of volume of new and renewal business generated in a
period. "Sales" refers to (1) annualized first-year premiums for term life
insurance, long term care insurance and Medicare supplement insurance; (2) new
and additional premiums/deposits for universal life insurance, linked-
benefits, spread-based and variable annuity products; (3) gross and net flows
for our managed money business which represents gross flows net of
redemptions; (4) written premiums and deposits, gross of ceded reinsurance and
cancellations, and premium equivalents, where we can earn a fee for
administrative services only business, for payment protection insurance; (5)
new insurance written for mortgage insurance, which in each case reflects the
amount of business the company generated during each period presented; and (6)
written premiums net of cancellations for our Mexican insurance operations.
Sales do not include renewal premiums on policies or contracts written during
prior periods. The company considers annualized first-year premiums, new
premiums/deposits, written premiums, premiums equivalents and new insurance
written to be a measure of the company's operating performance because they
represent a measure of new sales of insurance policies or contracts during a
specified period, rather than a measure of the company's revenues or
profitability during that period. This operating measure enables the company
to compare its operating performance across periods without regard to revenues
or profitability related to policies or contracts sold in prior periods or
from investments or other sources.
Management regularly monitors and reports assets under management for our
managed money business. Assets under management for our managed money
business represent third-party assets under management that are not
consolidated in our financial statements. The company considers assets under
management for our managed money business to be a measure of the company's
operating performance because it represents a measure of the size of our
business at a specific date, rather than a measure of the company's revenues
or profitability during that period.
Cautionary Note Regarding Forward-Looking Statements
This press release contains certain "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements may be identified by words such as "expects,"
"intends," "anticipates," "plans," "believes," "seeks," "estimates," "will,"
or words of similar meaning and include, but are not limited to, statements
regarding the outlook for the company's future business and financial
performance. Forward-looking statements are based on management's current
expectations and assumptions, which are subject to inherent uncertainties,
risks and changes in circumstances that are difficult to predict. Actual
outcomes and results may differ materially due to global political, economic,
business, competitive, market, regulatory and other factors and risks,
including the following:
-- Risks relating to the company's businesses, including interest rate
fluctuations, downturns and volatility in equity markets, defaults in
portfolio securities, downgrades in the company's financial strength
and credit ratings, insufficiency of reserves, legal constraints on
dividend distributions by subsidiaries, competition, availability and
adequacy of reinsurance, defaults by counterparties, regulatory
restrictions on the company's operations and changes in applicable laws
and regulations, legal or regulatory investigations or actions,
political or economic instability, the failure or any compromise of the
security of the company's computer systems, and the occurrence of
natural or man-made disasters or a pandemic disease;
-- Risks relating to the company's Retirement and Protection segment,
including unexpected changes in morbidity and mortality, accelerated
amortization of deferred acquisition costs and present value of future
profits, goodwill impairments, reputational risks as a result of the
company's decision to file for an increase in premiums on certain
in-force long term care insurance products, medical advances such as
genetic mapping research, unexpected changes in persistency rates,
increases in statutory reserve requirements, and the failure of demand
for long term care insurance to increase as the company expects;
-- Risks relating to the company's International segment, including
political and economic instability, foreign exchange rate
fluctuations, unexpected changes in unemployment rates, deterioration
in economic conditions or decline in home price appreciation,
unexpected increases in mortgage insurance default rates or severity of
defaults, decreases in the volume of high loan-to-value international
mortgage originations, increased competition with government-owned and
government-sponsored entities offering mortgage insurance, changes in
regulations, and growth in the global mortgage insurance market that is
lower than the company expects;
-- Risks relating to the company's U.S. Mortgage Insurance segment,
including the influence of Fannie Mae, Freddie Mac and a small number
of large mortgage lenders and investors, decreases in the volume of
high-loan-to-value mortgage originations or increases in mortgage
insurance cancellations, increases in the use of simultaneous second
mortgages and other alternatives to private mortgage insurance and
reductions by lenders in the level of coverage they select, unexpected
increases in mortgage insurance default rates or severity of defaults,
deterioration in economic conditions or a decline in home price
appreciation, increases in the use of reinsurance with reinsurance
companies affiliated with the company's mortgage lending customers,
increased competition with government-owned and government-sponsored
entities offering mortgage insurance, changes in regulations, legal
actions under Real Estate Settlement Practices Act, and potential
liabilities in connection with the company's U.S. contract underwriting
services; and
-- Other risks, including the possibility that in certain circumstances
the company will be obligated to make payments to GE under the
company's tax matters agreement with GE even if the company's
corresponding tax savings are never realized and the company's payments
could be accelerated in the event of certain changes in control, and
provisions of the company's certificate of incorporation and bylaws and
the company's tax matters agreement with GE may discourage takeover
attempts and business combinations that stockholders might consider in
their best interests.
The company undertakes no obligation to publicly update any
forward-looking statement, whether as a result of new information, future
developments or otherwise.
Consolidated Statements of Income
(amounts in millions, except per share data)
Three months ended June 30,
2007 2006
REVENUES:
Premiums $1,549 $1,480
Net investment income 1,024 940
Net investment gains (losses) (51) (49)
Insurance and investment product fees and other 243 200
Total revenues 2,765 2,571
BENEFITS AND EXPENSES:
Benefits and other changes in policy reserves 1,090 978
Interest credited 391 378
Acquisition and operating expenses, net of
deferrals 495 483
Amortization of deferred acquisition costs and
intangibles 207 197
Interest expense 124 88
Total benefits and expenses 2,307 2,124
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 458 447
Provision for income taxes 137 141
INCOME FROM CONTINUING OPERATIONS 321 306
Income from discontinued operations, net of taxes 6 11
Gain on sale from discontinued operations, net
of taxes 60 -
NET INCOME $387 $317
Earnings from continuing operations per
common share:
Basic $0.73 $0.67
Diluted $0.72 $0.66
Earnings per common share:
Basic $0.88 $0.70
Diluted $0.86 $0.68
Weighted-average common shares outstanding:
Basic 439.4 455.8
Diluted 449.0 468.3
Reconciliation of Net Operating Income to Net Income
Three months ended June 30,
(Amounts in millions) 2007 2006
Net operating income (loss):
Retirement and Protection $180 $171
International 142 119
U.S. Mortgage Insurance 66 72
Corporate and Other (37) (34)
Net operating income 351 328
Net investment gains (losses), net of taxes
and other adjustments (30) (22)
Income from continuing operations 321 306
Income from discontinued operations, net of
taxes 6 11
Gain on sale from discontinued operations,
net of taxes 60 -
Net income $387 $317
Three months ended June 30,
(Amounts in millions, except per share
amounts) 2007 2006
Earnings per common share:
Basic $0.88 $0.70
Diluted $0.86 $0.68
Net operating earnings per common share:
Basic $0.80 $0.72
Diluted $0.78 $0.70
Weighted-average common shares outstanding:
Basic 439.4 455.8
Diluted 449.0 468.3
Reconciliation of Expense Ratio to Adjusted Expense Ratio
Three months ended June 30,
(Amounts in millions) 2007 2006
GAAP Basis Expense Ratio:
Acquisition and operating expenses, net of
deferrals (1) $495 $483
Total revenues (2) $2,765 $2,571
Expense ratio (1) divided by (2) 17.9 % 18.8 %
GAAP Basis, As Adjusted - Expense Ratio:
Acquisition and operating expenses, net of
deferrals $495 $483
Less managed money 65 39
Less payment protection insurance business 183 182
Adjusted acquisition and operating expenses,
net of deferrals (3) $247 $262
Total revenues $2,765 $2,571
Less managed money 82 47
Less payment protection insurance business 363 352
Less net investment gains (losses) (51) (49)
Adjusted total revenues (4) $2,371 $2,221
Adjusted expense ratio (3) divided by (4) 10.4 % 11.8 %
SOURCE Genworth Financial, Inc.
CONTACT: Investors, Alicia Charity, +1-804-662-2248, Alicia.charity@genworth.com
or Linnea Olsen, +1-804-662-2536,Linnea.olsen@genworth.com,
or Media, Tom Topinka, +1-804-662-2444,Thomas.topinka@genworth.com
all of Genworth Financial, Inc.
Web site: http://www.genworth.com
(GNW)
CO: Genworth Financial, Inc.
ST: Virginia
IN: FIN INS
SU: ERN CCA
LL-CS
-- NETH096 --
1234 07/26/2007 16:10 EDT http://www.prnewswire.com
