Readers are referred to the Forward-looking Information and Non-GAAP
Financial Measures at the end of this release.
MONTREAL, March 21 /CNW Telbec/ - Power Corporation of Canada's operating earnings for the year ended December 31, 2006 were $1,166 million or $2.49 per participating share, compared with $1,071 million or $2.32 per participating share in 2005, an increase of 7.6% on a per share basis.
Growth in operating earnings reflects an increase in the contribution from subsidiaries, as well as an increase in results from corporate activities due to higher income from investments.
Other income was $227 million or $0.51 per participating share in 2006, and includes an amount of $236 million or $0.52 per share representing the impact of the gain recorded in the third quarter in connection with the sale by Groupe Bruxelles Lambert of its interest in Bertelsmann. In 2005, other items not included in operating earnings were a net charge of $18 million, or $0.04 per share.
Power Corporation's net earnings for 2006 were $1,393 million or $3.00 per participating share, compared with $1,053 million or $2.28 per share in 2005.
FOURTH-QUARTER RESULTS
----------------------
For the three months ended December 31, 2006, Power Corporation's operating earnings were $300 million or $0.64 per participating share, compared with $290 million or $0.62 per share in 2005, an increase of 3.0% on a per share basis.
Other income in the fourth quarter of 2006 was a charge of $11 million or $0.02 per participating share. In the fourth quarter of 2005, other items not included in operating earnings were a net charge of $5 million or $0.01 per share.
Net earnings for the fourth quarter of 2006 were $289 million or $0.62 per participating share, compared with $285 million or $0.61 per share for the same period in 2005.
POWER FINANCIAL CORPORATION'S RESULTS
-------------------------------------
Power Financial Corporation's operating earnings for the year ended December 31, 2006 were $1,802 million or $2.46 per share, compared with $1,694 million or $2.33 per share in 2005. This represents a 5.7 per cent increase on a per share basis (11.6 per cent based upon Lifeco's net income on a constant currency basis).
The increase in operating earnings in 2006 reflects growth in the contribution from Power Financial's subsidiaries and affiliate.
Other items not included in operating earnings were $353 million or $0.50 per share in 2006, including primarily an amount of $356 million or $0.50 per share, representing the impact of the gain recorded in the third quarter in connection with the sale by Groupe Bruxelles Lambert of its interest in Bertelsmann. In 2005, other items not included in operating earnings were a net charge of $33 million, or $0.05 per share, and were composed primarily of Power Financial's share, in the amount of $31 million or $0.05 per share, of provisions for expected losses arising from hurricane damage recorded by Lifeco.
As a result, net earnings were $2,155 million or $2.96 per share in 2006, compared with $1,661 million or $2.28 per share in 2005.
Power Financial Corporation's operating earnings for the three months ended December 31, 2006 were $472 million or $0.65 per share, compared with $450 million or $0.61 per share in 2005.
Other income in the fourth quarter of 2006 was $2 million. In the fourth quarter of 2005, other items not included in operating earnings were a charge of $9 million or $0.01 per share.
As a result, net earnings for the fourth quarter of 2006 were $474 million or $0.65 per share, compared with $441 million or $0.60 per share for the same period in 2005.
Forward-looking Information
---------------------------
Certain statements in this press release, other than statements of historical fact, are forward-looking statements based on certain assumptions and reflect Power's or its subsidiaries' and affiliates' current expectations. These statements may include without limitation, statements regarding the operations, business, financial condition, priorities, ongoing objectives, strategies and outlook of Power or its subsidiaries and affiliates for the current fiscal year and subsequent periods. Forward-looking statements include statements that are predictive in nature, depend upon or refer to future events or conditions, or include words such as "expects", "anticipates", "plans", "believes", "estimates", "intends", "targets", "projects", "forecasts" or negative versions thereof and other similar expressions, or future or conditional verbs such as "may", "will", "should", "would" and "could".
This information is based upon certain material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking statements, including the perception of historical trends, current conditions and expected future developments as well as other factors that are believed to be appropriate in the circumstances.
Actual results could differ materially from those projected and should not be relied upon as a prediction of future events. By its nature, this information is subject to inherent risks and uncertainties that may be general or specific. A variety of material factors, many of which are beyond Power's or its subsidiaries' and affiliates' control, affect the operations, performance and results of Power or its subsidiaries and affiliates and their business, and could cause actual results to differ materially from current expectations of estimated or anticipated events or results. These factors include but are not limited to: the impact or unanticipated impact of general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, management of market liquidity and funding risks, changes in accounting policies and methods used to report financial condition, including uncertainties associated with critical accounting assumptions and estimates, the effect of applying future accounting changes, business competition, technological change, changes in government regulation and legislation, changes in tax laws, unexpected judicial or regulatory proceedings, catastrophic events, Power's or its subsidiaries' or affiliates' ability to complete strategic transactions and integrate acquisitions and Power's or its subsidiaries' and its affiliates' success in anticipating and managing the foregoing risks.
The reader is cautioned that the foregoing list of factors is not exhaustive of the factors that may affect any of Power's or its subsidiaries' and affiliates' forward-looking statements. The reader is also cautioned to consider these and other factors carefully and not to put undue reliance on forward-looking statements.
Other than as specifically required by law, Power undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events, whether as a result of new information, future events or results otherwise.
Additional information about the risks and uncertainties of Power's business is provided in its disclosure materials, including its most recent Management's Discussion and Analysis and Annual Information Form, filed with the securities regulatory authorities in Canada, available at www.sedar.com.
Non-GAAP Financial Measures
----------------------------
In analysing the financial results of the Corporation and consistent with
the presentation in previous years, net earnings are subdivided into the
following components:
- operating earnings; and
- other items, which includes, but is not limited to, the impact on the
Corporation's net earnings of "Other Income" as presented in the
Corporation's Consolidated Statements of Earnings (net of income taxes
and non-controlling interests, if any).
Management has used these performance measures for many years in its
presentation and analysis of the financial performance of Power Corporation,
and believes that they provide additional meaningful information to readers in
their analysis of the results of the Corporation. "Operating earnings"
excludes the after-tax impact of any item that management considers to be of a
non-recurring nature or that could make the period-over-period comparison of
results from operations less meaningful, and also excludes the Corporation's
share of any such item presented in a comparable manner by its subsidiaries.
Operating earnings and operating earnings per share are non-GAAP financial
measures that do not have a standard meaning and may not be comparable to
similar measures used by other entities.
Attachments: Financial Information
Power Corporation of Canada
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------
December December
31, 2006 31, 2005
(in millions of dollars) (unaudited)
-------------------------------------------------------------------------
Assets
Cash and cash equivalents 5,785 5,332
-------------------------------------------------------------------------
Investments
Shares 5,598 4,867
Bonds 65,246 59,298
Mortgages and other loans 15,823 15,118
Loans to policyholders 6,776 6,646
Real estate 2,218 1,844
-------------------------------------------------------------------------
95,661 87,773
Funds held by ceding insurers 12,371 2,556
Investment in affiliates, at equity 2,182 1,554
Intangible assets 2,745 2,423
Goodwill 8,454 8,260
Future income taxes 406 476
Other assets 5,083 4,625
-------------------------------------------------------------------------
132,687 112,999
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities
Policy liabilities
Actuarial liabilities 89,363 71,263
Other 4,488 4,023
Deposits and certificates 778 693
Funds held under reinsurance contracts 1,822 4,221
Debentures and other borrowings (Note 2) 3,402 3,427
Preferred shares of subsidiaries 1,625 1,656
Capital trust securities and debentures (Note 3) 646 648
Future income taxes 909 865
Other liabilities 9,070 8,704
-------------------------------------------------------------------------
112,103 95,500
-------------------------------------------------------------------------
Non-controlling interests 11,983 10,240
-------------------------------------------------------------------------
Shareholders' Equity
Stated capital (Note 4)
Non-participating shares 795 795
Participating shares 442 417
Contributed surplus 59 37
Retained earnings 7,480 6,478
Foreign currency translation adjustments (175) (468)
-------------------------------------------------------------------------
8,601 7,259
-------------------------------------------------------------------------
132,687 112,999
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
-------------------------------------------------------------------------
(unaudited) (in millions Three months ended For the years ended
of dollars, except per December 31 December 31
share amounts) 2006 2005 2006 2005
-------------------------------------------------------------------------
Revenues
Premium income 6,253 4,528 18,724 16,058
Net investment income 1,555 1,437 6,151 5,574
Fees and media income 1,434 1,271 5,429 4,929
-------------------------------------------------------------------------
9,242 7,236 30,304 26,561
-------------------------------------------------------------------------
Expenses
Paid or credited to
policyholders and
beneficiaries including
policyholder dividends
and experience refunds 6,677 4,888 20,508 17,435
Commissions 607 502 2,184 1,956
Operating expenses 966 893 3,610 3,524
Financing charges (Note 5) 86 78 344 336
-------------------------------------------------------------------------
8,336 6,361 26,646 23,251
-------------------------------------------------------------------------
906 875 3,658 3,310
Share of earnings of
affiliates 26 37 110 110
Other income (charges),
net (Note 6) (10) 2 338 (7)
-------------------------------------------------------------------------
Earnings before income
taxes and non-controlling
interests 922 914 4,106 3,413
Income taxes 212 244 940 902
Non-controlling interests 421 385 1,773 1,458
-------------------------------------------------------------------------
Net earnings 289 285 1,393 1,053
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per participating
share (Note 7)
Basic 0.62 0.61 3.00 2.28
-------------------------------------------------------------------------
Diluted 0.61 0.60 2.97 2.25
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
-------------------------------------------------------------------------
For the years ended December 31
(unaudited) (in millions of dollars) 2006 2005
-------------------------------------------------------------------------
Retained earnings, beginning of year 6,478 5,761
Add
Net earnings 1,393 1,053
-------------------------------------------------------------------------
7,871 6,814
-------------------------------------------------------------------------
Deduct
Dividends
Non-participating shares 42 32
Participating shares 343 292
Other 6 12
-------------------------------------------------------------------------
391 336
-------------------------------------------------------------------------
Retained earnings, end of year 7,480 6,478
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------
Three months ended For the years ended
(unaudited) December 31 December 31
(in millions dollars) 2006 2005 2006 2005
-------------------------------------------------------------------------
Operating activities
Net earnings 289 285 1,393 1,053
Non-cash charges (credits)
Increase (decrease) in
policy liabilities (15) 1,404 1,560 2,969
Decrease (increase) in
funds held by ceding
insurers (85) (576) 386 (219)
Increase (decrease)
in funds held under
reinsurance contracts 480 (554) (141) (543)
Amortization and
depreciation 32 27 115 112
Future income taxes (8) 89 49 148
Non-controlling
interests 421 385 1,773 1,458
Other 59 18 (426) 445
Change in non-cash
working capital (246) (371) (203) (839)
-------------------------------------------------------------------------
927 707 4,506 4,584
-------------------------------------------------------------------------
Financing activities
Dividends paid
By subsidiaries to
non-controlling
interests (189) (159) (716) (603)
Non-participating shares (10) (7) (41) (29)
Participating shares (89) (76) (343) (292)
-------------------------------------------------------------------------
(288) (242) (1,100) (924)
Issue of subordinate
voting shares (Note 4) - - 25 28
Issue of non-participating
shares - 250 - 250
Issue of common shares
by subsidiaries 7 5 38 29
Repurchase of common
shares by subsidiaries (11) (15) (67) (80)
Issue of preferred shares
by subsidiaries - 250 500 550
Redemption of preferred
shares by a subsidiary (1) (10) (31) (10)
Issue of debentures and
other borrowings (Note 2) 48 - 384 -
Repayment of debentures
and other borrowings - - (400) (186)
Other 64 (3) 59 (34)
-------------------------------------------------------------------------
(181) 235 (592) (377)
-------------------------------------------------------------------------
Investment activities
Bond sales and maturities 9,479 6,076 30,162 24,742
Mortgage loan repayments 713 (133) 2,147 2,045
Sales of shares 380 542 1,545 1,672
Real estate sales 7 126 181 200
Proceeds from
securitizations (Note 9) 283 63 1,302 251
Change in loans to
policyholders 221 (88) (18) (272)
Change in repurchase
agreements (38) (3) 94 224
Acquisition of intangible
assets (Note 11) - - (140) -
Acquisition of
businesses (Note 11) 1,378 22 1,378 22
Investment in bonds (11,545) (6,036) (33,636) (26,010)
Investment in mortgage
loans (899) 5 (4,062) (2,639)
Investment in shares (784) (980) (1,976) (2,315)
Investment in real estate (116) (177) (631) (588)
Other (66) (33) (87) (63)
-------------------------------------------------------------------------
(987) (616) (3,741) (2,731)
-------------------------------------------------------------------------
Effect of changes in
exchange rates on
cash and cash equivalents 209 (20) 280 (286)
Increase in cash and
cash equivalents (32) 306 453 1,190
Cash and cash equivalents,
beginning of period 5,817 5,026 5,332 4,142
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period 5,785 5,332 5,785 5,332
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Power Corporation of Canada
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 2006
ALL TABULAR AMOUNTS ARE IN MILLIONS OF CANADIAN DOLLARS UNLESS
OTHERWISE NOTED.
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
The interim unaudited consolidated financial statements of Power
Corporation of Canada at December 31, 2006 have been prepared in
accordance with generally accepted accounting principles in Canada
(GAAP). These interim unaudited consolidated financial statements should
be read in conjunction with the audited consolidated financial statements
and notes thereto for the year ended December 31, 2005. These interim
unaudited consolidated financial statements do not include all
disclosures required for annual financial statements.
The interim unaudited consolidated statements have been prepared using
the same accounting policies described in Note 1 of the Corporation's
consolidated financial statements for the year ended December 31, 2005.
COMPARATIVE FIGURES
Certain of the 2005 amounts presented for comparative purposes have been
reclassified to conform with the presentation adopted in the current
year.
NOTE 2 DEBENTURES AND OTHER BORROWINGS
-------------------------------------------------------------------------
December December
31, 2006 31, 2005
-------------------------------------------------------------------------
Power Financial Corporation
7.65% debentures, repaid January 5, 2006 - 150
6.90% debentures, due March 11, 2033 250 250
IGM Financial Inc.
6.75% debentures 2001 Series, due May 9, 2011 450 450
6.58% debentures 2003 Series, due March 7, 2018 150 150
6.65% debentures 1997 Series, due December 13, 2027 125 125
7.45% debentures 2001 Series, due May 9, 2031 150 150
7.00% debentures 2002 Series, due December 31, 2032 175 175
7.11% debentures 2003 Series, due March 7, 2033 150 150
Great-West Lifeco Inc.
Subordinated debentures due September 19, 2011
bearing a fixed rate of 8% until 2006 and,
thereafter, at a rate equal to the Canadian
90-day Bankers' Acceptance rate plus 1%,
unsecured, repaid September 19, 2006 - 256
Subordinated debentures due December 11, 2013
bearing a fixed rate of 5.80% until 2008 and,
thereafter, at a rate equal to the Canadian
90-day Bankers' Acceptance rate plus 1%, unsecured 204 206
6.75% debentures due August 10, 2015, unsecured 200 200
6.14% debentures due March 21, 2018, unsecured 200 200
6.40% subordinated debentures due December 11, 2028 101 101
6.74% debentures due November 24, 2031, unsecured 200 200
6.67% debentures due March 21, 2033, unsecured 400 400
6.625% deferrable debentures due November 15, 2034,
unsecured (US$175 million) 205 205
7.153% subordinated debentures due May 16, 2046
unsecured (US$300 million) 351 -
Other notes payable with interest rate of 8.0% 8 9
Other
Term loan at prime plus a premium varying between
1.0% and 1.5% or Banker's Acceptance rate plus
a premium varying between 2.0% and 2.5% due May 13,
2013 (effective rate of 8.22% at December 31, 2006,
8.6% at December 31, 2005) 50 50
Bank loan at prime plus a premium, varying between
0.375% to 2.5% due May 13, 2010 (effective rate
6.08% at December 31, 2006) 33 -
-------------------------------------------------------------------------
3,402 3,427
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the second quarter of 2006, Great-West Lifeco Inc. (Lifeco) issued
$351 million (US$300 million) in Fixed/Adjustable Rate Enhanced Capital
Advantaged Subordinated Debentures through its wholly owned subsidiary,
Great-West Life & Annuity Capital, LP II. The subordinated debentures are
due May 16, 2046 and bear an annual interest rate of 7.153% until May 16,
2016. After May 16, 2016, the subordinated debentures will bear an
interest rate of 2.538% plus the 3-month LIBOR rate. The subordinated
debentures are redeemable at the principal amount plus any accrued and
unpaid interest after May 16, 2016.
NOTE 3 CAPITAL TRUST SECURITIES AND DEBENTURES
-------------------------------------------------------------------------
December December
31, 2006 31, 2005
-------------------------------------------------------------------------
Capital trust debentures
5.995% senior debentures due December 31, 2052,
unsecured (GWLCT) 350 350
6.679% senior debentures due June 30, 2052,
unsecured (CLCT) 300 300
7.529% senior debentures due June 30, 2052,
unsecured (CLCT) 150 150
-------------------------------------------------------------------------
800 800
Acquisition-related fair market value adjustment 31 34
Trust securities held by the consolidated group as
temporary investments (185) (186)
-------------------------------------------------------------------------
646 648
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Great-West Life Capital Trust (GWLCT), a trust established by The Great-
West Life Assurance Company (Great-West Life), had issued $350 million of
capital trust securities, the proceeds of which were used by GWLCT to
purchase Great-West Life senior debentures in the amount of $350 million,
and Canada Life Capital Trust (CLCT), a trust established by The Canada
Life Assurance Company (Canada Life), had issued $450 million of capital
trust securities, the proceeds of which were used by CLCT to purchase
Canada Life senior debentures in the amount of $450 million.
Distributions and interest on the capital trust securities are classified
as financing charges on the Consolidated Statements of Earnings
(see Note 5).
NOTE 4 CAPITAL STOCK AND STOCK OPTION PLAN
STATED CAPITAL
-------------------------------------------------------------------------
December December
31, 2006 31, 2005
-------------------------------------------------------------------------
Non-participating shares
Cumulative Redeemable First Preferred Shares,
1986 Series
Authorized - Unlimited number of shares
Issued - 899,878 shares 45 45
Series A First Preferred Shares
Authorized and issued - 6,000,000 shares 150 150
Series B First Preferred Shares
Authorized and issued - 8,000,000 shares 200 200
Series C First Preferred Shares
Authorized and issued - 6,000,000 shares 150 150
Series D First Preferred Shares
Authorized and issued - 10,000,000 shares 250 250
-------------------------------------------------------------------------
795 795
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Participating shares
Participating Preferred Shares
Authorized - Unlimited number of shares
Issued - 48,854,772 shares 27 27
Subordinate Voting Shares
Authorized - Unlimited number of shares
Issued - 402,606,144 (2005 - 400,264,694) shares 415 390
-------------------------------------------------------------------------
442 417
-------------------------------------------------------------------------
-------------------------------------------------------------------------
STOCK-BASED COMPENSATION
During the second quarter of 2006, 1,342,075 options were granted under
the Corporation's stock option plan (no options were granted in the
first, third and fourth quarters of 2006).
During the fourth quarter of 2005, 108,400 options were granted under the
Corporation's stock option plan and during the first quarter of 2005,
1,192,500 options were granted (no options were granted in the second and
third quarters of 2005).
The fair value of these options was estimated using the Black-Scholes
option-pricing model with the following assumptions:
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
Dividend yield 2.3% 1.9%
Expected volatility 19.0% 24.0%
Risk-free interest rate 4.3% 4.1%
Expected life (years) 7 7
Fair value per stock option ($/option) $7.29 $8.64
-------------------------------------------------------------------------
Compensation expense relating to stock options granted by the Corporation
and its subsidiaries amounted to $8 million in the fourth quarter of 2006
($5 million in 2005) and $33 million for the year ended December 31, 2006
($26 million in 2005).
Options were outstanding at December 31, 2006 to purchase, until May 16,
2016, up to an aggregate of 12,194,835 subordinate voting shares at
various prices from $11.3625 to $33.285 per share. During the three
months ended December 31, 2006, 5,000 subordinate voting shares (505 in
2005) were issued under the Corporation's plan for an aggregate
consideration of $0 million ($0 million in 2005). During the year
ended December 31, 2006, 2,341,450 subordinate voting shares
(4,173,630 in 2005) were issued for an aggregate consideration of
$25 million ($28 million in 2005).
NOTE 5 FINANCING CHARGES
Financing charges include interest on debentures and other borrowings,
distributions and interest on capital trust securities and debentures,
and dividends on preferred shares classified as liabilities.
-------------------------------------------------------------------------
Three months ended For the years ended
December 31 December 31
2006 2005 2006 2005
-------------------------------------------------------------------------
Interest on debentures and
other borrowings 57 49 224 223
Preferred share dividends 18 19 73 75
Interest on capital trust
debentures 12 12 49 49
Distributions on capital trust
securities held by the
consolidated group as
temporary investments (3) (3) (12) (12)
Other 2 1 10 1
-------------------------------------------------------------------------
86 78 344 336
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 6 OTHER INCOME (CHARGES), NET
-------------------------------------------------------------------------
Three months ended For the years ended
December 31 December 31
2006 2005 2006 2005
-------------------------------------------------------------------------
Share of Pargesa's
non-operating earnings (2) - 341 11
Restructuring costs - Lifeco - - - (22)
Other (8) 2 (3) 4
-------------------------------------------------------------------------
(10) 2 338 (7)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The share of Pargesa's non-operating earnings includes an amount of
$356 million, which represents Power Financial Corporation's share of the
gain resulting from the disposal by Groupe Bruxelles Lambert of its 25.1%
equity interest in Bertelsmann AG.
NOTE 7 EARNINGS PER SHARE
The following is a reconciliation of the numerators and the denominators
of the basic and diluted earnings per participating share computations:
-------------------------------------------------------------------------
Three months ended For the years ended
December 31 December 31
2006 2005 2006 2005
-------------------------------------------------------------------------
Net earnings 289 285 1,393 1,053
Dividends on non-participating
shares (11) (10) (42) (32)
-------------------------------------------------------------------------
Net earnings available to
participating shareholders 278 275 1,351 1,021
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted number of
participating shares
outstanding (millions)
- Basic 451.5 449.1 450.6 448.0
Exercise of stock options 12.2 12.0 12.2 12.0
Shares assumed to be
repurchased with proceeds
from exercise of stock
options (7.0) (6.1) (7.5) (6.0)
-------------------------------------------------------------------------
Weighted number of
participating shares
outstanding (millions)
- Diluted 456.7 455.0 455.3 454.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 8 PENSION PLANS AND OTHER POST-RETIREMENT BENEFITS
The total benefit costs included in operating expenses are as follows:
-------------------------------------------------------------------------
Three months ended For the years ended
December 31 December 31
2006 2005 2006 2005
-------------------------------------------------------------------------
Pension plans 34 20 102 83
Other post-retirement benefits 5 8 27 47
-------------------------------------------------------------------------
39 28 129 130
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 9 SECURITIZATIONS
During the fourth quarter of 2006, IGM Financial Inc. (IGM) securitized
$285 million (2005 - $63 million) of residential mortgages through sales
to commercial paper conduits that in turn issued securities to investors
and received net cash proceeds of $283 million (2005 - $63 million).
IGM's retained interest in the securitized loans was valued at
$26 million (2005 - $10 million). A pre-tax gain on sale of $4 million
(2005 - gain of $1 million) was recognized and reported in Net investment
income in the Consolidated Statements of Earnings.
During the twelve months ended December 31, 2006, IGM securitized
$1,311 million (2005 - $252 million) of residential mortgages through
sales to commercial paper conduits that in turn issued securities to
investors and received net cash proceeds of $1,302 million (2005 -
$251 million). IGM's retained interest in the securitized loans was
valued at $43 million (2005 - $16 million). A pre-tax gain on sale of
$5 million (2005 - gain of $4 million) was recognized and reported in Net
investment income in the Consolidated Statements of Earnings.
NOTE 10 SEGMENTED INFORMATION
Information on Profit Measure
-------------------------------------------------------------------------
Three months ended Par-
December 31, 2006 Lifeco IGM jointco Other Total
-------------------------------------------------------------------------
Revenues
Premium income 6,253 - - - 6,253
Net investment income 1,494 50 - 11 1,555
Fees and media income 706 628 - 100 1,434
-------------------------------------------------------------------------
8,453 678 - 111 9,242
-------------------------------------------------------------------------
Expenses
Insurance claims 6,677 - - - 6,677
Commissions 402 219 - (14) 607
Operating expenses 665 148 - 153 966
Financing charges 50 22 - 14 86
-------------------------------------------------------------------------
7,794 389 - 153 8,336
-------------------------------------------------------------------------
659 289 - (42) 906
Share of earnings
of affiliates - - 32 (6) 26
Other income
(charges), net - - (2) (8) (10)
-------------------------------------------------------------------------
Earnings before the
following: 659 289 30 (56) 922
Income taxes 124 89 - (1) 212
Non-controlling interests 306 126 10 (21) 421
-------------------------------------------------------------------------
Contribution to
consolidated net
earnings 229 74 20 (34) 289
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Information on Profit Measure
-------------------------------------------------------------------------
Three months ended Par-
December 31, 2005 Lifeco IGM jointco Other Total
-------------------------------------------------------------------------
Revenues
Premium income 4,528 - - - 4,528
Net investment income 1,374 47 - 16 1,437
Fees and media income 616 561 - 94 1,271
-------------------------------------------------------------------------
6,518 608 - 110 7,236
-------------------------------------------------------------------------
Expenses
Insurance claims 4,888 - - - 4,888
Commissions 330 189 - (17) 502
Operating expenses 605 141 - 147 893
Financing charges 41 22 - 15 78
-------------------------------------------------------------------------
5,864 352 - 145 6,361
-------------------------------------------------------------------------
654 256 - (35) 875
Share of earnings
of affiliates - - 39 (2) 37
Other income
(charges), net - - - 2 2
-------------------------------------------------------------------------
Earnings before the
following: 654 256 39 (35) 914
Income taxes 160 78 - 6 244
Non-controlling interests 282 110 13 (20) 385
-------------------------------------------------------------------------
Contribution to
consolidated net
earnings 212 68 26 (21) 285
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Information on Profit Measure
-------------------------------------------------------------------------
For the year ended Par-
December 31, 2006 Lifeco IGM jointco Other Total
-------------------------------------------------------------------------
Revenues
Premium income 18,724 - - - 18,724
Net investment income 5,910 212 - 29 6,151
Fees and media income 2,688 2,392 - 349 5,429
-------------------------------------------------------------------------
27,322 2,604 - 378 30,304
-------------------------------------------------------------------------
Expenses
Insurance claims 20,508 - - - 20,508
Commissions 1,401 833 - (50) 2,184
Operating expenses 2,507 573 - 530 3,610
Financing charges 202 88 - 54 344
-------------------------------------------------------------------------
24,618 1,494 - 534 26,646
-------------------------------------------------------------------------
2,704 1,110 - (156) 3,658
Share of earnings
of affiliates - - 126 (16) 110
Other income
(charges), net - - 341 (3) 338
-------------------------------------------------------------------------
Earnings before the
following: 2,704 1,110 467 (175) 4,106
Income taxes 615 331 - (6) 940
Non-controlling interests 1,213 491 157 (88) 1,773
-------------------------------------------------------------------------
Contribution to
consolidated net
earnings 876 288 310 (81) 1,393
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Information on Profit Measure
-------------------------------------------------------------------------
For the year ended Par-
December 31, 2005 Lifeco IGM jointco Other Total
-------------------------------------------------------------------------
Revenues
Premium income 16,058 - - - 16,058
Net investment income 5,389 183 - 2 5,574
Fees and media income 2,424 2,164 - 341 4,929
-------------------------------------------------------------------------
23,871 2,347 - 343 26,561
-------------------------------------------------------------------------
Expenses
Insurance claims 17,435 - - - 17,435
Commissions 1,284 726 - (54) 1,956
Operating expenses 2,454 555 - 515 3,524
Financing charges 187 90 - 59 336
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21,360 1,371 - 520 23,251
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2,511 976 - (177) 3,310
Share of earnings
of affiliates - - 121 (11) 110
Other income
(charges), net (22) - 11 4 (7)
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Earnings before the
following: 2,489 976 132 (184) 3,413
Income taxes 601 292 - 9 902
Non-controlling
interests 1,074 430 44 (90) 1,458
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Contribution to
consolidated net
earnings 814 254 88 (103) 1,053
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NOTE 11 ACQUISITIONS
a) On April 24, 2006, Crown Life Insurance Company (Crown Life) served
notice, pursuant to the terms of the 1999 acquisition of the majority
of the insurance operations of Crown Life by Canada Life, commencing a
process under which Canada Life may be required to acquire the common
shares of Crown Life. This transaction is expected to close in the
second quarter of 2007 and is not expected to have a material impact
on the financial position of the Corporation.
b) During the second quarter of 2006, Canada Life, through its wholly
owned United Kingdom subsidiary, Canada Life Limited, reached an
agreement to acquire the non-participating payout annuity business of
The Equitable Life Assurance Society in the United Kingdom. Under the
terms of the agreement, Canada Life Limited assumed this business on
an indemnity reinsurance basis with an effective date of January 1,
2006. The transfer closed on February 9, 2007. The transaction
resulted in an increase in funds held by ceding insurers and a
corresponding increase in policyholder liabilities of $10.2 billion
((pnds stlg)4.5 billion) on the Consolidated Balance Sheet at
December 31, 2006.
c) On September 22, 2006, Mackenzie Financial Corporation acquired the
assets of Cundill Investment Research Ltd. and related entities
(Cundill Group) for cash consideration, including transaction and
other related costs. There is contingent consideration due if certain
future revenue and assets under management targets are achieved and an
amount has been placed in escrow. The total contingent consideration
is not determinable at the present time. If additional consideration
becomes payable, it will be recognized as an additional cost of the
purchase.
The acquisition has been accounted for by the purchase method and the
results of the Cundill Group's operations have been included in the
Consolidated Financial Statements from the date of acquisition.
The purchase price has been allocated to intangible assets on a
preliminary basis and will be completed as soon as Mackenzie Financial
Corporation has gathered all the significant information considered
necessary in order to finalize this allocation.
d) On October 2, 2006, GWL&A acquired several parts of the full service-
bundled, small and midsized 401(k) as well as some defined benefit
plan business from Metropolitan Life Insurance Company and its
affiliates (MetLife). The acquisition includes the associated
dedicated distribution group, including wholesalers, relationship
managers and sales associates. Under the terms of the agreement, GWL&A
assumed the general account business on a coinsurance basis and the
segregated account business totalling $1.7 billion (US $1.5 billion)
of policyholder liabilities on a modified coinsurance basis with an
effective date of October 2, 2006. Arrangements are being made to
transfer the policies to GWL&A and the transfer is expected to take
place over a three year period.
Under the modified-coinsurance agreement, MetLife retains the
approximately $2.6 billion (US $2.3 billion) of segregated account
assets and liabilities but cedes to GWL&A all of the net profits and
losses and related net cash flows. In addition, GWL&A acquired
approximately $3.9 billion (US $3.4 billion) of participant account
values for which it will provide administrative services and
recordkeeping functions and receive fee income.
e) On October 26, 2006, Gesca Ltee acquired an additional interest of 30%
in Workopolis for a cash consideration of $86 million increasing its
ownership to 50%. This acquisition, accounted for using the purchase
method of accounting, has been reflected in the Consolidated Financial
Statements since the date of acquisition.
f) On November 30, 2006, Lifeco acquired all outstanding common shares of
Indiana Healthcare Network, Inc.
g) On December 29, 2006, GWL&A acquired the full service-bundled, defined
contribution business from U.S. Bank. The acquired business primarily
relates to the administration of 401(k) plans which represent more
than $10.5 billion (US $9.0 billion) in retirement plan assets. The
acquisition includes the retention of relationship managers and sales
and client service specialists.
h) During 2005, Canada Life, through its wholly owned United Kingdom
subsidiary, Canada Life Limited, acquired the assets and liabilities
associated with the in-force annuity in payment business of Phoenix
and London Assurance Limited, part of the Resolution Life Group which
is based in the United Kingdom. The transaction resulted in an
increase in invested assets and a corresponding increase in
policyholder liabilities of $4.4 billion on the Consolidated Balance
Sheet.
NOTE 12 REINSURANCE TRANSACTION
During the third quarter of 2006, GWL&A recaptured a reinsurance
agreement on certain blocks of group annuity business. The recaptured
premiums of $562 million associated with the transaction have been
recorded in the Consolidated Statement of Earnings as an increase in
premium income with a corresponding increase to the change in actuarial
liabilities. For the Consolidated Balance Sheet, this transaction
resulted in a reduction of $582 million to funds held under reinsurance
contracts with a corresponding increase in policyholder liabilities.
During 2006, Great-West Life and London Life recaptured 50% of a
reinsurance agreement on certain blocks of group life and long term
disability business. The recaptured premiums of $1,560 million associated
with the transaction have been recorded in the Consolidated Statement of
Earnings as an increase to premium income with a corresponding increase
to the change in actuarial liabilities and provision for claims. For the
Consolidated Balance Sheet, this transaction resulted in a reduction of
$1,671 million to funds held under reinsurance contracts with a
corresponding increase in policyholder liabilities.
NOTE 13 SUBSEQUENT EVENT
On February 1, 2007, Lifeco announced that it had entered into agreements
with Marsh & McLennan Companies, Inc. whereby Lifeco will acquire the
asset management business of Putnam Investment Trust (Putnam), and Great-
West Life will acquire Putnam's 25% interest in T.H. Lee Partners for
approximately $410 million (U.S. $350 million). The parties will make an
election under section 338(h)(10) of the U.S. Internal Revenue Code that
will result in a tax benefit that Lifeco intends to securitize for
approximately $644 million (U.S. $550 million). In aggregate these
transactions represent a value of approximately $4.6 billion
(U.S. $3.9 billion).
Funding for the transaction will come from internal resources as well as
from proceeds of an issue of Lifeco common shares of no more than
$1.2 billion, the issuance of debentures and hybrids, a bank credit
facility, and an acquisition tax benefit securitization. The transaction
is expected to close in the second quarter of 2007, subject to regulatory
approval and certain other conditions.