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Great American Financial Resources, Inc. ("GAFRI") (NYSE:GFR) 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 ("GAAP") to "core net operating earnings from
continuing operations," 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 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 in exchange for the
imposition of certain limitations on future development of a marina
owned by the Company.
Three months endedMarch 31,
In millions, except per share amounts
2007
2006
Components of net income:
Core net operating earnings from continuing
operations (before items below)
$20.0
$18.8
Discontinued hotel operations
-
(0.5)
Realized gains, net
-
0.3
Net income
$20.0
$18.6
Components of diluted EPS:
Core net operating earnings (before items below)
$0.41
$0.39
Discontinued hotel operations
-
(0.01)
Realized gains, net
-
0.01
Net income
$0.41
$0.39
Financial Strength and Liquidity
GAFRI continued to achieve record levels of stockholders' equity 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.
Premiums
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 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, 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") (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 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.
About GAFRI
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 and a variety of
supplemental insurance products.
Forward-Looking Statements
The Private Securities Litigation Reform Act 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.
Conference Call
GAFRI's results will be discussed as part of a conference call on
Tuesday, May 1 at 11:30 a.m. (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 section.
GREAT AMERICAN FINANCIAL RESOURCES, INC.
Summary of Earnings
(In millions, except per share amounts)
Three months endedMarch 31,
2007
2006
Revenues:
Life, accident and health premiums (a)(b)
$
106.6
$
76.5
Net investment income
158.2
147.9
Realized gains (losses) on:
Investments
1.1
4.1
Retirement of debt
(1.1)
(3.7)
Other income
27.1
24.6(c)
291.9
249.4
Costs and Expenses:
Annuity benefits
88.8
82.8
Life, accident and health benefits (a)
85.4
64.3
Insurance acquisition expenses (a)
44.5
32.0
Interest and debt expenses
5.7
6.2
Other expenses
37.8
34.6
262.2
219.9
Operating earnings before income taxes
29.7
29.5
Provision for income taxes
9.7
10.4
Income from continuing operations
20.0
19.1
Discontinued hotel operations, net of tax (d)
-
(0.5)
Net Income
$
20.0
$
18.6
Average common shares outstanding - diluted
48.4
48.0
Diluted earnings per common share:
Continuing operations
$
0.41
$
0.40
Discontinued hotel operations (d)
-
(0.01)
Net income
$
0.41
$
0.39
Supplemental Information
Fixed indexed annuity premiums (b)
$
240.0
$
53.9
Traditional fixed annuity premiums (b)
115.6
144.5
Variable annuity premiums (b)
23.0
24.0
Total statutory premiums, includinglife, accident and health
premiums
$
484.5
$
296.9
Book value per share, excluding unrealized gainson fixed
maturities
$
22.83
$
20.61
Book value per share, including all unrealizedgains
$
23.30
$
19.64
(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.