Great American Financial Resources Reports First Quarter Results.CINCINNATI -- Great American Financial Resources, Inc. ("GAFRI GAFRI Great American Financial Resources, Inc. ") (NYSE NYSE
See: New York Stock Exchange :GFR GFR - Grim File Reaper ) today reported net income of $20.0 million ($0.41 per diluted share) for the 2007 first quarter compared to $18.6 million ($0.39 per diluted share) in the 2006 first quarter. GAFRI's net income in the first quarter of 2006 includes certain items that may not be indicative of GAFRI's ongoing core operations. The table below identifies such items and reconciles net income determined in accordance with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records.
Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting ("GAAP GAAP
See: Generally Accepted Accounting Principles
See generally accepted accounting principles (GAAP). ") to "core net operating earnings Operating Earnings
Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue.
Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before from continuing operations continuing operations
Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the ," a non-GAAP measure that GAFRI believes is a useful tool for analysts and investors in analyzing ongoing operating trends.
Core Net Operating Earnings from Continuing Operations
Core net operating earnings from continuing operations before certain items ("core net operating earnings") were $20.0 million ($0.41 per diluted share) in the first quarter of 2007 compared to $18.8 million ($0.39 per diluted share) in the first quarter of 2006. The increase reflects improvement in GAFRI's supplemental insurance lines in 2007 due to the inclusion of Ceres Group (acquired in August 2006), as well as favorable items in certain supplemental segments in 2007 compared to unfavorable items in 2006. While the results of the supplemental lines were improved over the comparable period in 2006, increased lapses and lower premiums in the Medicare Supplement segment, primarily as a result of competition from Medicare Advantage, could adversely impact future results.
The improvement in supplemental lines in 2007 was largely offset by a decrease in core net operating earnings in the Company's fixed annuity Fixed Annuity
An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. The insurance company guarantees both earnings and principal. lines in 2007 compared to 2006. Results for the first quarter of 2006 included $3.2 million of net earnings related to a payment received from Palm Beach County, Florida Palm Beach County is a county located in the state of Florida. As of 2007, the county had a population of 1,351,236 according to the University of Florida, Bureau of Economic and Business Research. in exchange for the imposition of certain limitations on future development of a marina owned by the Company.
Financial Strength and Liquidity
GAFRI continued to achieve record levels of stockholders' equity Stockholders' Equity
The portion of the balance sheet that includes capital received from investors in exchange for stock (paid-in capital), donated capital, and retained earnings. This is equal to total assets minus liabilities, preferred stock and intangible assets. and book value per share. In addition, at March 31, 2007, GAFRI's debt to capital ratio was 20.5%. In March 2007, the Company redeemed all of its 8-7/8% trust preferred securities using funds borrowed under the Company's bank line of credit.
Statutory premiums of approximately $485 million in the first quarter of 2007 were more than 60% higher than the first quarter of 2006. This increase reflects substantially higher fixed indexed annuity premiums, partially offset by lower sales of traditional fixed annuities Fixed annuities
Contracts in which an insurance company or issuing financial institution pays a fixed dollar amount of money per period. compared to the first quarter of last year. GAFRI believes this is consistent with the current trend in the annuity marketplace. In addition, supplemental insurance premiums increased 48% over the comparable 2006 period as a result of the acquisition of the Ceres Group in August 2006.
Items Excluded from Core Net Operating Earnings
Discontinued Hotel Operations - In June 2006, GAFRI completed the sale of Chatham Bars Inn, its resort-hotel property located on Cape Cod Cape Cod, narrow peninsula of glacial origin, 399 sq mi (1,033 sq km), SE Mass., extending 65 mi (105 km) E and N into the Atlantic Ocean. It is generally flat, with sand dunes, low hills, and numerous lakes. , Massachusetts, for a price of $166 million. In accordance with GAAP, operations of this hotel have been reported as discontinued.
Realized Gains, net - Realized gains, net is made up of realized gains and losses on sales of investments, impairments on securities and loss on early retirement of debt. Many analysts and investors consider such items to be non-recurring or non-core. Accordingly, GAFRI excludes such items from its calculation of Core Net Operating Earnings.
Unsolicited Buyout Proposal From American Financial Group
As previously announced, American Financial Group, Inc. ("AFG AFG Afghanistan (international vehicle registration)
AFG American Financial Group
AFG Assistance to Firefighters Grant
AFG Arbeitsförderungsgesetz (German: Labor Advancement Law)
AFG Accreditation for Growth ") (NYSE: AFG) submitted an unsolicited proposal to the Board of Directors of GAFRI to acquire the shares of GAFRI common stock that AFG and its subsidiaries do not already own for $23.50 per share in cash. AFG and its subsidiaries own approximately 81% of the outstanding shares of GAFRI. For more information about this proposal, please refer to the Form 8-K Form 8-K
The form required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock.
See 8-K. filed by GAFRI with the Securities and Exchange Commission ("SEC").
The GAFRI Board of Directors has formed a Special Committee comprised of independent directors for the purpose of considering the proposal from AFG. The Special Committee will review and evaluate AFG's offer and make a recommendation to the GAFRI Board. There can be no assurance that the proposed transaction or any other transaction will be approved or completed.
GAFRI is a Cincinnati-based insurance holding company with more than $13 billion in assets. The Company's subsidiaries include Great American Life Insurance Company, Annuity Investors Life Insurance Company, Central Reserve Life Insurance Company, Continental General Insurance Company, United Teacher Associates Insurance Company and Loyal American Life Insurance Company. Through these companies, GAFRI markets traditional fixed, indexed and variable annuities Variable annuities
Investment contracts whose issuer pays a periodic amount linked to the investment performance of an underlying portfolio. and a variety of supplemental insurance products.
The Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995 encourages corporations to provide investors with information about the Company's anticipated performance and provides protection from liability if future results are not the same as management's expectations. Documents may contain certain forward-looking statements that are based on assumptions which management believes are reasonable but, by their nature, inherently uncertain. Future results could differ materially from those projected. Factors that could cause such differences include, but are not limited to: changes in economic conditions including interest rates, performance of the capital markets, regulatory actions and competitive pressures. Forward-looking statements are made only as of the date of their release and GAFRI does not have any obligation to update any forward-looking statements to reflect subsequent events or circumstances.
GAFRI's results will be discussed as part of a conference call on Tuesday, May 1 at 11:30 a.m. (EDT EDT
Eastern Daylight Time
EDT Eastern Daylight Time
EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York
EDT ) being conducted by American Financial Group, Inc., GAFRI's majority shareholder. Toll-free telephone access will be available by dialing 1-800-295-4740 (International dial in 617-614-3925). Please dial in 5 to 10 minutes prior to the scheduled start time of the call. A replay of the call will also be available two hours following the completion of the call, at approximately 1:30 p.m. and will run until 11:59 p.m. on May 8, 2007. To listen to the replay, dial 1-888-286-8010 (International dial in 617-801-6888) and provide the confirmation code 81801949. The conference call will also be broadcast live over the Internet. To listen to the call via the Internet, go to AFG's website, www.afginc.com, and follow the instructions at the Webcast link in the Investor Relations Investor relations
The process by which the corporation communicates with its investors. section.
[TABLE OMITTED] (a) The increase in 2007 reflects primarily the acquisition of Ceres Group, Inc. in August 2006. (b) For GAAP purposes, annuity premiums are accounted for as deposits rather than revenues. (c) Other income for 2006 includes $4.9 million of income resulting from the March 2006 payment received from Palm Beach County, Florida in exchange for the imposition of certain limitations on future development of a marina owned by the Company. (d) The operations of Chatham Bars Inn (sold in June 2006) are reflected as discontinued operations in accordance with Statement of Financial Accounting Standards No. 144.