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Three months ended June 30th, (Unaudited)
2005 2004 2004
Pro Forma
Per Per Per
diluted diluted diluted
Total Share Total Share Total Share
(Amounts in millions,
except per share)
Net earnings $285 $0.60 $268 $0.55 $259 $0.53
Net operating earnings $285 $0.60 $285 $0.58 $277 $0.57
Weighted average diluted
shares 477.4 490.1 490.1
RICHMOND, Va., July 15 /PRNewswire-FirstCall/ -- Genworth Financial, Inc.
(NYSE: GNW) today reported net earnings for the second quarter of 2005 of $285
million, or $0.60 per diluted share. Net earnings for the second quarter of
2004 were $268 million, or $0.55 per diluted share.
Net operating earnings for the second quarter of 2005 were $285 million,
or $0.60 per diluted share, compared to pro forma net operating earnings of
$277 million or $0.57 per diluted share in the second quarter of 2004.
Pro forma net operating earnings in the second quarter of 2004 consists of
pro forma net earnings excluding after-tax net realized investment gains of $4
million and a $22 million IPO-related tax charge.
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 second
quarter results and its financial supplement after the market closes on July
28, 2005. A conference call will be held on July 29 from 10 a.m. to 11 a.m.
(EDT) to discuss second 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 July 29
through August 5, 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 21797395. 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 other than a $22 million IPO-related tax charge in the second 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 net earnings to net operating earnings (as defined above)
for the three months ended June 30, 2005 and 2004 and to pro forma net
operating earnings for the three months ended June 30, 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)
(Unaudited)
Three months
ended June 30,
2005 2004
Net earnings $285 $268
Net realized investment gains, net of taxes - (5)
Net tax expense related to initial public offering - 22
Net operating earnings $285 $285
Net earnings $268
Excluded assets and liabilities(a) 6
Reinsurance transactions(b) (6)
Capital structure and other(c) (9)
Pro forma net earnings 259
Net realized investment gains, net of taxes (4)
Net tax expense related to initial public offering 22
Pro forma net operating earnings $277
Net earnings per common share:
Basic $0.61 $0.55
Diluted $0.60 $0.55
Net operating earnings per common share:
Basic $0.61 $0.58
Diluted $0.60 $0.58
Pro forma net earnings per common share:
Basic $0.53
Diluted $0.53
Pro forma net operating earnings per common share:
Basic $0.57
Diluted $0.57
Weighted-average common shares outstanding:
Basic 470.4 489.5
Diluted 477.4 490.1
See Notes to table below
NOTES TO RECONCILIATION TO NET OPERATING EARNINGS
(a) Reflects adjustments to exclude amounts included in the company's
historical 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 June 30, 2004 excludes 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, with the reinsurance transactions, 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 as (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.
CONTACT: Investors: Jean Peters, +1-804-662-2693,
jean.peters@genworth.com, or Alicia Charity, +1-804-662-2248,
alicia.charity@genworth.com, or Media: Neal McGarity, +1-804-662-2534,
Neal.mcgarity@genworth.com, all of Genworth Financial, Inc.
