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RICHMOND, Va., April 15, 2005 /PRNewswire-FirstCall via COMTEX/ -- Genworth Financial, Inc.
(NYSE: GNW) today reported net earnings from continuing operations for the
first quarter of 2005 of $322 million, or $0.65 per diluted share. Net
earnings from continuing operations for the first quarter of 2004 were $260
million, or $0.53 per diluted share.
Net operating earnings for the first quarter of 2005 were $326 million, or
$0.66 per diluted share, compared to pro forma net operating earnings of $244
million or $0.50 per diluted share in the first quarter of 2004.
Net operating earnings consist of net earnings from continuing operations,
excluding after-tax net realized investment losses of $4 million in the first
quarter of 2005. Pro forma net operating earnings consists of pro forma net
earnings from continuing operations excluding after-tax net realized
investment gains of $10 million in the first quarter of 2004.
Net operating earnings for the first quarter of 2005 included
approximately $16 million, or $.03 per diluted share, of investment income
related to bond calls, prepayments, recoveries and partnership income.
"We are pleased with solid results across all operating segments this
quarter. Earnings in our mortgage insurance business were particularly
favorable, primarily related to lower than anticipated domestic delinquencies
and favorable foreign exchange," said Michael D. Fraizer, chairman and chief
executive officer. "We look forward to providing additional detail in our
press release on April 28 and to discussing the results on the conference call
on April 29."
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 U.S. generally accepted accounting principles (GAAP). 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. The company is presenting pro forma financial information for
2004 that reflects those transactions to enable a more meaningful comparison
of its period-to-period results. (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 first
quarter results and its financial supplement after the market closes on April
28, 2005. A conference call will be held on April 29 from 10 a.m. to 11 a.m.
(EDT) to discuss first 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, first 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 April 29
through May 6, 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 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 financial information as if the company had
been in existence throughout all relevant periods. The 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 financial information for periods
prior to the corporate reorganization is not comparable to 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 2004 contained in this
press release reflects the company's historical 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, 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 there from.
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 net
earnings from continuing operations, excluding 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 net operating earnings for the periods presented in this press
release.
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 net earnings to net operating earnings (as defined above)
for the three months ended March 31, 2005 and 2004 and to pro forma net
operating earnings for the three months ended March 31, 2004.
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, failure of
demand for long-term care insurance to increase as expected, 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 and increased regulatory scrutiny
into some aspects of the company's operations, 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's 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 22 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 to Net Operating Earnings
(Amounts in millions, except per share data)
Reconciliation of net earnings to net
operating earnings and pro forma net Three months ended March 31,
operating earnings 2005 2004
(Unaudited)
Net earnings $322 $272
Gain on sale of discontinued
operations, net of taxes - (7)
Cumulative effect of accounting
change, net of taxes - (5)
Net earnings from continuing
operations 322 260
Net realized losses (gains) on
investments, net of taxes 4 (10)
Net operating earnings $326 $250
Net earnings from continuing
operations $260
Excluded assets and liabilities (a) 1
Reinsurance transactions (b) 2
Capital structure and other (c) (9)
Pro forma net earnings from
continuing operations 254
Net realized gains on investments,
net of taxes (10)
Pro forma net operating earnings $244
Net earnings per common share
Basic $0.66 $0.56
Diluted $0.65 $0.56
Net earnings from continuing
operations per common share
Basic $0.66 $0.53
Diluted $0.65 $0.53
Net operating earnings per common share
Basic $0.67 $0.51
Diluted $0.66 $0.51
Pro forma net earnings from
continuing operations per common share
Basic $0.52
Diluted $0.52
Pro forma net operating earnings per
common share
Basic $0.50
Diluted $0.50
Average common shares outstanding
Basic 488.8 489.5
Diluted 494.3 489.5
Note: For a discussion of notes (a), (b), and (c) to these tables see
Notes To Pro Forma Financial Information below.
Notes to Pro Forma Financial Information
(a) Reflects adjustments to exclude amounts included in the company's
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 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. The company's pro forma statement of earnings for the three
months ended March 31, 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 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.
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 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) supporting the blocks of business reinsured for the
reinsurance, and (2) representing surplus of subsidiaries providing
assets that were contributed to UFLIC.
(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.
Investors: Jean Peters, +1-804-662-2693, jean.peters@genworth.com, or Alicia Charity
+1-804-662-2248, alicia.charity@genworth.com, or Media: Mike Kachel, +1-804-662-2534
mike.kachel@genworth.com, all of Genworth Financial, Inc.
