Net Income From Continuing Operations Per Diluted Share of $0.69
RICHMOND, Va., April 30 /PRNewswire-FirstCall/ -- Genworth Financial, Inc.
(NYSE: GNW) today reported net income from continuing operations for the first
quarter of 2007 of $314 million, or $0.69 per diluted share. Net income from
continuing operations for the first quarter of 2006 was $322 million, or $0.67
per diluted share. Net income from continuing operations for the first quarter
of 2007 included a non-recurring charge of $14 million for after-tax
reorganization related expenses and $12 million of after-tax net investment
losses. Net income from continuing operations for the first quarter of 2006
included $15 million of after-tax net investment losses.
Three months ended March 31 (Unaudited)
2007 2006
Total Per diluted Total Per diluted
share share
(Amounts in millions, except
per share)
Net income from continuing
operations $314 $0.69 $322 $0.67
Net operating income(1) $340 $0.75 $337 $0.70
Weighted average diluted shares 455.0 479.5
(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 for additional information.
Net operating income for the first quarter of 2007 was $340 million, or
$0.75 per diluted share, compared to net operating income of $337 million, or
$0.70 per diluted share, in the first quarter of 2006.
"Genworth is off to a sound start in 2007, with strong growth in key
platforms including fee-based managed money and retirement income, universal
life insurance and our international operations," said Michael D. Fraizer,
chairman and chief executive officer. "We remain focused on transitioning the
performance of our old long term care block of business and building growth
momentum in the U.S. mortgage insurance business."
Recent Highlights
-- Strong progress was made in the shift to fee-based products in the
Retirement and Protection segment.
-- Managed money assets under management (AUM) more than tripled to
$18.8 billion from strong organic growth and the addition of
AssetMark.
-- Income distribution series(2) sales increased 55 percent to $409
million.
-- Universal life annualized first year premiums increased 22 percent.
-- Long term care (LTC) continued repositioning for sales growth.
-- Independent channel sales grew 15 percent.
-- Genworth had $4 million of sales from a newly introduced linked
benefit products, and in April introduced a new individual LTC
product with lower premiums to enhance affordability options.
-- Strong international sales growth was driven by both increased
penetration with existing customers and from recently entered
countries.
-- Payment protection sales increased 28 percent(3) from higher
reinsurance volume in Canada, growth in the United Kingdom, and
expansion in Continental Europe.
-- International mortgage primary insurance in force (IIF) grew 32
percent,(3) reflecting strong growth in new insurance written (NIW)
including the company's first bulk transaction in Japan. The
unearned premium reserve increased 25 percent(3) to $2.5 billion.
-- U.S. mortgage insurance primary IIF grew 20 percent, representing
the fifth consecutive quarter of growth. NIW increased 93 percent
from strong flow and bulk sales. Flow persistency increased to 78
percent.
-- Recent cost efficiency studies in connection with Genworth's January
2007 business realignment and consolidation, identified $220 million of
cost savings and efficiencies over 2 years, of which approximately $100
million will be reinvested in strategic growth opportunities, and
approximately $75 million expected to contribute to income over that
period.
-- Genworth made sound progress on capital management initiatives,
including repurchasing $233 million of shares in the first quarter,
announcing an additional $600 million repurchase authorization and in
April, completing a $540 million term life XXX reserve securitization.
(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.
2007 Outlook
Genworth affirmed its 2007 outlook for net operating income of $3.15 to
$3.25 per diluted share.
Segment Results
Segment net operating income presented in the tables below exclude net
investment gains (losses) and other adjustments and reorganization costs
incurred, net of taxes. 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 first quarter of 2007 was a favorable
$4 million in the International segment.
Retirement and Protection
Segment net operating income
(in millions)
Q1 07 Q1 06
Managed Money $10 $2
Retirement Income 46 49
Institutional 14 10
Life Insurance 78 74
Long Term Care 37 43
Total Retirement and Protection $185 $178
Sales
(in millions) Q1 07 Q1 06
Managed Money $1,712 $582
Retirement Income 958 842
Institutional 622 757
Life Insurance 88 62
Long Term Care 52 48
Assets Under Management(4)
(in millions)
Fee-Based(5) $23,920 $8,796
Spread-Based(6) 31,565 31,704
Total Assets Under Management $55,485 $40,500
(4) Assets under management represent account values, net of reinsurance,
and managed third party assets.
(5) Fee-based includes managed money and retirement income fee-based
businesses.
(6) Spread-based includes retirement income and institutional spread-based
businesses.
Retirement and Protection segment net operating income increased 4 percent
in the first quarter to $185 million driven by a shift to fee-based managed
money and retirement income products. The increase was driven by five-fold
growth in managed money earnings, including a $4 million contribution from
AssetMark. Managed money AUM nearly tripled to $18.8 billion.
Retirement income earnings declined $3 million to $46 million in the
current quarter, reflecting the absence of $6 million of favorable items,
which occurred in the prior year period. Excluding prior year items, earnings
grew by 7 percent driven by a 72 percent increase in fee-based assets under
management, partially offset by a 5 percent decline in spread-based retail
assets and $3 million in lower service-related fees. Institutional earnings
were up 40 percent to $14 million driven by a 10 percent increase in assets
under management and improved spreads. Life insurance earnings were up 5
percent to $78 million from growth in premiums and policy fees, partially
offset by less favorable mortality. Long term care (LTC) results reflected
lower expenses and solid performance in newer issued policies, offset by
higher losses in the older LTC books of business and lower investment yields.
The prior year quarter included $5 million of favorable reserve items.
Managed money sales nearly tripled to $1.7 billion, reflecting strong
organic growth and the AssetMark acquisition. Income distribution series
product sales increased by $145 million to $409 million as a result of strong
growth in the guaranteed minimum withdrawal benefit for life product. Lower
spread-based, fixed annuity sales reflected the unfavorable yield curve
environment that continued to make alternative products attractive. Total life
sales increased 42 percent to $88 million, as a doubling of universal life
sales more than offset a 15 percent decline in term life sales. Universal life
sales in the quarter included $48 million of excess deposits. Lower term life
sales reflected the continued competitive pricing environment and an ongoing
shift by brokerage general agents toward universal life products. LTC sales
increased 8 percent from $4 million in sales of a newly introduced linked
benefit product that combines universal life and LTC product features.
Consistent individual LTC growth in the independent sales channel offset a
decline in the career sales channel as it transitions to an entrepreneurial
sales model.
International
Segment net operating income
(in millions)
Q1 07 Q1 06
Mortgage Insurance
-- Canada $55 $46
-- Australia 36 30
-- Other International 3 1
Payment Protection 29 25
Total International $123 $102
Sales
(in billions) Q1 07 Q1 06
Mortgage Insurance
-- Canada $6.4 $4.0
-- Australia 13.1 12.4
Other International 8.7 4.0
Total Mortgage Insurance $28.2 $20.4
Payment Protection $ 0.6 $ 0.4
International net operating income increased 17 percent to $123 million.
In Canada, net operating income was up 22 percent reflecting solid revenue
growth and a stable loss environment. In Australia, net operating income
increased 13 percent from double-digit revenue growth and favorable taxes,
partially offset by higher losses. Other international mortgage insurance
results reflected strong earnings growth in Europe partially offset by
expenses related to investment in newer markets. Payment protection earnings
increased 8 percent from strong premium growth and lower taxes.
International mortgage insurance NIW increased 33 percent from higher flow
sales in Canada and Europe and increased bulk sales in Australia, Europe and
Japan. In Canada, flow sales increased 53 percent as the company continued to
gain share in a growing market. In Australia, sales increased 36 percent after
adjusting for a net catch-up in client sales reporting of $3 billion in the
comparable quarters, and included a $1.8 billion increase in bulk sales in the
current period. In other international mortgage insurance, sales increased
$4.7 billion from strong growth in southern Europe and the U.K., and the
completion of a $2.6 billion bulk transaction in Japan. Payment protection
sales increased 28 percent as a result of higher volume in Canada, volume
growth in the U.K. and expansion in Continental Europe.
U.S. Mortgage Insurance
(in millions)
Q1 07 Q1 06
Segment Net Operating Income $65 $72
Primary Insurance In Force
(in billions) $120.5 $100.5
Primary Sales
(in billions)
Flow $6.9 $5.5
Bulk 6.1 1.3
Total Primary Sales $13.0 $6.8
U.S. Mortgage Insurance net operating income declined $7 million to $65
million, as 18 percent premium growth was more than offset by $33 million of
higher losses. Losses in the first quarter of 2006 were highly favorable,
primarily from an unusual decrease in delinquency counts.
Primary IIF increased for the fifth sequential quarter to $120.5 billion
reflecting strong sales growth and higher persistency. U.S. flow mortgage
insurance sales grew 25 percent, reflecting growth in the mortgage insurance
market. U.S. bulk mortgage insurance sales increased $4.8 billion.
Paid claims increased 23 percent or $7 million. The increase in paid
claims was primarily in the Great Lakes region and from claims paid on higher
average loan balances. Excluding the Great Lakes, claims increased 13 percent.
Loss reserves increased sequentially $14 million in the quarter from higher
reserves per delinquency associated with larger loan balances and increased
foreclosure inventories. Primary delinquency counts were down 4 percent on a
sequential quarter basis, consistent with historical seasonal trends.
Corporate and Other
Corporate and Other
(in millions) Q1 07 Q1 06
Net operating loss ($33) ($15)
Corporate and Other net operating loss was $33 million reflecting lower
income related to reduced partnership distributions and increased expenses.
Stockholders' Equity
Stockholders' equity as of March 31, 2007 was $13.3 billion, or $30.43 per
share, compared with $12.5 billion, or $27.37 per share, as of March 31, 2006.
Stockholders' equity, excluding accumulated other comprehensive income, as of
March 31, 2007 was $12.2 billion, or $27.89 per share, compared with $11.7
billion, or $25.74 per share, as of March 31, 2006.
Share Repurchases
During the quarter, Genworth repurchased 6.6 million shares at a weighted
average price of $35.16 per share. As of March 31, 2007, Genworth had the
authority to repurchase an additional $867 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 and
may be used for general corporate purposes, including reissuances in
connection with acquisitions, employee stock option exercises or other
employee stock plans.
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 with a presence in more than 25 countries. For
more information, visit genworth.com.
Conference Call and Financial Supplement Information
This press release and the first quarter 2007 financial supplement are now
posted on the company's website. Also posted on the company's website is a
graphical depiction of the company's new segmentation that is effective
beginning with the first quarter of 2007. Investors are encouraged to review
all of these materials. Genworth will conduct a conference call on May 1 from
9 a.m. to 10 a.m. (EDT) 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 May 1 conference call is 1-866-875-7108 or
1-706-634-9180 (outside the U.S.). 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. A replay of the
call will be available at 1-800-642-1687 or 1-706-645-9291 (outside the U.S.);
pass code 5654632. A downloadable podcast/MP3 file will be available within 24
hours of the earnings call. The webcast replay and file download will be
available through May 15, 2007.
Use of Non-GAAP Measures
This press release includes the non-GAAP financial measure entitled "net
operating income." The company defines net operating income as net income from
continuing operations excluding after-tax net investment gains (losses), which
can fluctuate significantly from period to period, changes in accounting
principles and infrequent or unusual non-operating items. There were no
infrequent or unusual non-operating items excluded from net operating income
for the periods presented in this press release other than a $14 million
after-tax expense recorded in the first quarter of 2007 related to
reorganization costs.
Management believes that analysis of net operating income enhances
understanding and comparability of performance by highlighting underlying
business activity and profitability drivers. 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. The table at the end of this press release includes a
reconciliation of net income to net operating income.
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.
For a reconciliation of segment net income to segment net operating
income, see the company's first quarter 2007 financial supplement on the
company's website at http://www.genworth.com or in the company's Current
Report on Form 8-K furnished on April 30, 2007.
Definition of Sales
The term "sales" as used in this press release means (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 products; (3) new
deposits for managed assets; (4) written premiums, deposits and premium
equivalents for third-party administered business, gross of ceded reinsurance
and cancellations 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 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.
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 if the company were
to raise premiums on 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.
Net Income and Net Operating Income
(amounts in millions, except per share data)
Three months ended March 31,
2007 2006
REVENUES:
Premiums $1,511 $1,371
Net investment income 984 912
Net investment gains (losses) (19) (22)
Policy fees and other income 234 181
Total revenues 2,710 2,442
BENEFITS AND EXPENSES:
Benefits and other changes in policy reserves 1,067 915
Interest credited 385 372
Acquisition and operating expenses, net of
deferrals 489 436
Amortization of deferred acquisition costs and
intangibles 213 164
Interest expense 107 82
Total benefits and expenses 2,261 1,969
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES 449 473
Provision for income taxes 135 151
INCOME FROM CONTINUING OPERATIONS 314 322
Income from discontinued operations, net of taxes 10 8
NET INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGE 324 330
Cumulative effect of accounting change, net of
taxes -- 4
NET INCOME 324 334
ADJUSTMENTS TO NET INCOME:
Income from discontinued operations, net of taxes (10) (8)
Net investment (gains) losses, net of taxes and
other adjustments 12 15
Expenses related to reorganization, net of taxes 14 --
Cumulative effect of accounting change, net of
taxes -- (4)
NET OPERATING INCOME $340 $337
Net earnings from continuing operations per
common share:
Basic $0.71 $0.69
Diluted $0.69 $0.67
Net earnings per common share:
Basic $0.74 $0.72
Diluted $0.71 $0.70
Net operating earnings per common share:
Basic $0.77 $0.72
Diluted $0.75 $0.70
Weighted-average common shares outstanding:
Basic 441.0 467.0
Diluted 455.0 479.5
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.
