RICHMOND, Va., Jan. 21 /PRNewswire-FirstCall/ -- Genworth Financial, Inc.
(NYSE:
GNW -
News) today reported historical net earnings from continuing operations
for the fourth quarter of 2004 of $346 million, or $0.70 per diluted share.
Historical net earnings from continuing operations for the fourth quarter of
2003 were $220 million, or $0.45 per diluted share.
In connection with the company's initial public offering (IPO) completed
on May 28, 2004, the company effected a corporate reorganization that included
a series of significant reinsurance, recapitalization and separation
transactions. As more fully explained at the end of this release, the company
is presenting pro forma financial information that reflects those transactions
to enable a more meaningful comparison of its period-to-period results.
Pro forma net earnings from continuing operations in the fourth quarter of
2004 were $346 million, or $0.70 per diluted share, compared to $211 million
or $0.43 per diluted share in the fourth quarter of 2003.
Pro forma net operating earnings for the fourth quarter of 2004 were $254
million, or $0.52 per diluted share, compared to $179 million or $0.37 per
diluted share in the fourth quarter of 2003.
Pro forma net operating earnings in the fourth quarter of 2004 consist of
pro forma net earnings from continuing operations, excluding after-tax net
realized investment losses of $1 million, a $68 million IPO-related net tax
benefit recorded during the quarter and a $25 million after-tax gain related
to our waiver of contractual rights under an outsourcing services agreement
with General Electric's (GE) global business processing operation, 60% of
which was sold in the fourth quarter. Pro forma net operating earnings in the
fourth quarter of 2004 included a one-time charge of $32 million after-tax on
a small run-off block of equity-indexed annuities resulting from an adjustment
of reserving processes.
Pro forma net operating earnings in the fourth quarter of 2003 consist of
pro forma net earnings from continuing operations, excluding after-tax net
realized investment gains of $32 million.
"Our overall business is on track with core growth in our three operating
segments, and we are well-positioned to achieve 2005 outlook of $2.30 - $2.40
net operating earnings per share for the year," said Michael D. Fraizer,
chairman and chief executive officer. "We look forward to providing
additional detail in our press release on January 27 and to discussing our
results on next Friday's conference call."
Management believes that the presentation of net operating earnings
enhances understanding and comparability of performance by highlighting
underlying business activity and profitability drivers. However, net
operating earnings should not be viewed as a substitute for net earnings
prepared under accounting principles generally accepted in the U.S. (GAAP).
(Please refer to the disclosure at the end of this release for a discussion of
the basis on which financial information is presented in this release.)
Detailed Earnings Release and Conference Call Information
Genworth will issue a detailed earnings release containing full fourth
quarter results and its financial supplement after the market closes on
January 27, 2005. A conference call will be held on January 28 from 10 a.m. to
11 a.m. (EDT) to discuss fourth quarter results and business outlook. This
two-staged approach enables Genworth to release its detailed earnings results
and financial supplement simultaneously, while also coordinating with the
reporting requirements of its majority stockholder, General Electric.
Genworth's conference call will be accessible via telephone and the
Internet. The detailed earnings release, fourth-quarter financial supplement
and conference call materials will be available on the company's website when
released. Investors are encouraged to review all of these materials. To
access the web cast, go to http://www.genworth.com at least 15 minutes prior
to the event to register and download and install any necessary software. To
access the call by telephone, please dial 1-800-599-9795 (U.S.) or
1-617-786-2905 (outside the U.S.) and enter the access code "Genworth" to
register. A replay of the call will be available from 1 p.m. EDT on January
28 through February 4, 2005 by dialing 1-888-286-8010 in the U.S. or
1-617-801-6888 (outside the U.S.) and entering the access code 62549597. The
call will also be replayed at the company's website during this same time
period.
Basis of Historical and Pro Forma Financial Information
As part of a corporate reorganization effected in connection with the
company's IPO, the company acquired substantially all of the assets and
liabilities of GE Financial Assurance Holdings, Inc. (GEFAHI), an indirect
subsidiary of GE. The company also acquired certain other insurance businesses
that were owned by other GE subsidiaries but managed by members of the
company's management team. In consideration for the assets that the company
acquired and the liabilities that the company assumed, the company issued
various equity and debt securities to GEFAHI.
The company has prepared its historical financial information as if the
company had been in existence throughout all relevant periods. The historical
financial information through the date of the corporate reorganization (May
24, 2004) includes all businesses that were owned by GEFAHI, including those
that were not transferred to the company, as well as the other insurance
businesses that the company acquired from other GE subsidiaries in connection
with the corporate reorganization. As a result, the company's historical
financial information for periods prior to the corporate reorganization is not
comparable to historical financial information for periods ending after that
date.
Prior to the completion of the IPO, the company entered into several
significant reinsurance transactions with Union Fidelity Life Insurance
Company (UFLIC), an indirect subsidiary of GE. As part of these transactions,
the company ceded to UFLIC, effective as of January 1, 2004, policy
obligations under all of its in-force structured settlement contracts, which
had reserves of $12.0 billion, and substantially all of its in-force variable
annuity contracts, which had general account reserves of $2.8 billion and
separate account reserves of $7.9 billion, each as of December 31, 2003. These
contracts represent substantially all of the company's contracts that were in
force as of December 31, 2003 for these products. In addition, effective as of
January 1, 2004, the company ceded to UFLIC policy obligations under a block
of long-term care insurance policies, which had reserves of $1.5 billion as of
December 31, 2003. As part of the reinsurance transactions, UFLIC ceded to the
company in-force blocks of Medicare supplement insurance, which had reserves
of $19 million.
The unaudited pro forma financial information for 2003 contained in this
press release was previously published in the prospectuses for the company's
initial public offering and related offerings and reflects the company's
historical combined financial information as adjusted to give effect to the
transactions described below and certain other transactions as if each had
occurred as of January 1, 2003. The unaudited pro forma financial information
for 2004 contained in this press release reflects the company's historical
combined financial information as adjusted to give effect to these
transactions as if each had occurred as of January 1, 2004. The following
transactions are reflected in the unaudited pro forma financial information:
* the removal of certain businesses of GEFAHI that were not transferred
to the company in connection with the corporate reorganization;
* the reinsurance transactions with UFLIC;
* the issuance of equity and debt securities to GEFAHI in exchange for
the assets that the company acquired and the liabilities that the
company assumed in connection with the corporate reorganization; and
* the issuance and sale of $1.9 billion of senior notes and $500 million
of commercial paper and the application of the proceeds therefrom.
If the unaudited pro forma financial information for 2004 had been
adjusted to give effect to these transactions as if each had occurred as of
January 1, 2003, rather than January 1, 2004, then full year pro forma
revenues would have been approximately $90 million higher, pro forma benefits
and expenses would have been approximately $77 million higher and pro forma
net earnings from continuing operations would have been approximately $8
million higher.
The unaudited pro forma financial information is based upon available
information and assumptions that the company believes are reasonable. The
unaudited pro forma financial information is for illustrative and
informational purposes only and is not intended to represent or be indicative
of what the company's financial condition or results of operations would have
been had the transactions described above occurred on the dates indicated, nor
what they may be in the future.
Use of Non-GAAP Measures
This press release includes the non-GAAP financial measure entitled "net
operating earnings." The company defines net operating earnings as pro forma
net earnings from continuing operations, excluding pro forma after-tax net
realized investment gains and losses (which can fluctuate significantly from
period to period), changes in accounting principles and non-recurring,
infrequent or unusual items. There were no non-recurring, infrequent or
unusual items excluded from pro forma net operating earnings for the periods
presented in this press release other than a $68 million IPO related net tax
benefit recorded during the fourth quarter of 2004 and a $25 million after-tax
gain related to our waiver of contractual rights under an outsourcing services
agreement with GE's global business processing operation, 60% of which was
sold in the fourth quarter of 2004.
Management believes that analysis of net operating earnings enhances
understanding and comparability of performance by highlighting underlying
business activity and profitability drivers. However, net operating earnings
should not be viewed as a substitute for GAAP net earnings. In addition, the
company's definition of net operating earnings may differ from the definitions
used by other companies. The table at the end of this press release provides a
reconciliation of pro forma net operating earnings (as defined above) to
historical and pro forma net earnings.
Due to the unpredictable nature of the items excluded from the company's
definition of net operating earnings, the company is unable to reconcile its
outlook for net operating earnings to net earnings from continuing operations
presented in accordance with GAAP. The company's outlook for pro forma net
operating earnings is presented on a basis consistent with the other pro forma
financial information presented elsewhere in this press release.
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, 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, unexpected changes in mortality and morbidity
rates, accelerated amortization of deferred acquisition costs and
present value of future profits, impairment of the value of goodwill,
decreases in the volume of mortgage originations, increases in mortgage
insurance cancellations, increases in the use of captive reinsurance in
the mortgage insurance market, the influence of large mortgage lenders
and investors, foreign exchange rate fluctuations, insufficiency of
reserves, legal constraints on dividend distributions by subsidiaries,
illiquid investments, competition, inability to attract or retain
independent sales intermediaries and dedicated sales specialists,
defaults by counterparties, regulatory restrictions on the company's
operations, changes in applicable laws and regulations, legal or
regulatory actions or investigations, political or economic
instability and the threat of terrorism; and
* Risks relating to the company's separation from GE, including the loss
of benefits associated with GE's brand and reputation, the company's
need to establish the new Genworth brand identity quickly and
effectively, the company's inability to present financial information
in SEC filings that accurately represents the results the company would
have achieved as a stand-alone company, the possibility that the
company will not be able to replace services previously provided by GE
on comparable terms, uncertainty of amounts and timing of payments that
the company has agreed to make to GE under the company' tax matters
agreement and other matters relating to that agreement, potential
conflicts of interest with GE and GE's engaging in the same type of
business as the company does in the future.
The company undertakes no obligation to publicly update any forward-
looking statement, whether as a result of new information, future developments
or otherwise.
About Genworth Financial
Genworth is a leading insurance holding company, serving the lifestyle
protection, retirement income, investment and mortgage insurance needs of more
than 15 million customers, and has operations in 20 countries, including the
U.S., Canada, Australia, the U.K. and more than a dozen other European
countries. For more information, visit http://www.genworth.com.
Reconciliation of Company Net Earnings to
Pro Forma Net Operating Earnings
Three months ended
December 31,
(Amounts in millions, except per share data) 2004 2003
(Unaudited)
Net earnings $346 $213
Loss on sale of discontinued
operations, net of taxes - 7
Net earnings from continuing
operations 346 220
Excluded assets and liabilities (a) - (3)
Reinsurance transactions (b) - 4
Capital structure and other (c) - (10)
Pro forma net earnings from
continuing operations 346 211
Pro forma net realized (gains) losses
on investments, net of taxes 1 (32)
One-time net tax benefit related to
initial public offering (68) -
Gain on outsourcing services
agreement, net of taxes (25) -
Pro forma net operating earnings $254 $179
Net earnings per share
Basic $0.71 $0.44
Diluted $0.70 $0.44
Net earnings from continuing
operations per share
Basic $0.71 $0.45
Diluted $0.70 $0.45
Pro forma net earnings from
continuing operations per share
Basic $0.71 $0.43
Diluted $0.70 $0.43
Pro forma net operating earnings per
share
Basic $0.52 $0.37
Diluted $0.52 $0.37
Shares outstanding
Basic 489.6 489.5
Diluted 492.4 489.5
Notes to Pro Forma Financial Information and Reconciliation Tables
- (a) Reflects adjustments to exclude amounts included in the company's
historical combined earnings relating to (1) certain businesses (formerly
reported in the company's Affinity Segment) and certain investment
partnerships, which in each case were not transferred to the company, and (2)
net realized investment (gains) losses and related tax benefit arising from
sales of Affinity segment assets that were reflected in the company's
Corporate and Other Segment.
- (b) Reflects adjustments to record the effects of the reinsurance
transactions the company entered into with, and the related contribution the
company made to, UFLIC, an indirect subsidiary of GE. As part of these
transactions, the company ceded to UFLIC all of its in-force structured
settlement contracts, substantially all of its in-force variable annuity
contracts, and a block of long-term care insurance policies that it reinsured
from Travelers in 2000, and it assumed from UFLIC a block of Medicare
supplement insurance, all effective as of January 1, 2004. The unaudited pro
forma earnings information for 2003 gives effect to the reinsurance
transactions as if each occurred as of January 1, 2003 and excludes the
effects of all ceded reinsured contracts that were issued before January 1,
2003. The unaudited pro forma earnings information for 2004 gives effect to
the reinsurance transactions as if each had occurred as of January 1, 2004 and
excludes the effects of all ceded reinsured contracts that were issued before
January 1, 2004. The company has continued to sell variable annuities and
structured settlements after completion of the reinsurance transactions and is
retaining that business for its own account, subject to third party
reinsurance in the ordinary course of business.
As a result, the company's unaudited pro forma combined statement of
earnings reflects premiums and fees from these products issued after January
1, 2003 (in the case of pro forma information for 2003), even though variable
annuities and structured settlements issued during such year are included in
the blocks of policies reinsured to UFLIC. The company's pro forma combined
statements of earnings for the years ended December 31, 2003 and 2004 exclude
the impact of the entire block of long-term care insurance policies that the
company ceded to UFLIC as the company did not issue any new policies for this
block in 2003 or 2004, and the company will not issue any in the future.
Under the reinsurance transactions, the company receives an expense
allowance to reimburse it for costs it incurs to service the reinsured blocks.
Actual costs and expense allowance amounts will be determined by expense
studies to be conducted periodically. The pro forma adjustments have been
prepared assuming that actual costs incurred during the pro forma periods, as
determined under the company's historical cost structure and allocation
methods, were reimbursed by an expense allowance.
In addition to investment assets transferred to UFLIC in exchange for a
reinsurance recoverable asset from UFLIC, concurrently, the company
contributed $1.836 billion of capital to UFLIC which primarily represented the
excess statutory capital in the company's insurance subsidiaries after giving
effect to the reinsurance transactions. As a significant portion of the assets
transferred and contributed were not owned for the entire period, the pro
forma earnings adjustments to reduce net investment income and net realized
investment gains were based upon a proportional allocation of investment
income from the investment assets historically identified (1) as supporting
the blocks of business reinsured for the reinsurance, and (2) as representing
surplus of subsidiaries providing assets to be contributed to UFLIC for the
contribution.
(c) Reflects adjustments for changes in the company's capitalization to
exclude the impact of commercial paper, short-term borrowings from GE Capital
and derivatives that were not transferred to the company in connection with
the corporate reorganization and to include the impact of the issuance of $600
million of the company's 6.00% Equity Units and $100 million of the company's
5.25% mandatory redeemable Series A Cumulative Preferred Stock, both of which
were completed on May 28, 2004, the issuance of 3, 5, 10 and 30 year notes
totaling $1.9 billion which was completed June 15, 2004, and the issuance of
$500 million of commercial paper which was completed June 14, 2004, as well as
interest expense related to the accretion of the company's obligation to GE
under the Tax Matters Agreement and the tax impacts resulting from these
changes in the company's capitalization.
Source:
Genworth Financial, Inc.
