Readers are referred to the Forward-looking Statements and Non-GAAP
Financial Measures at the end of this release.
MONTREAL, May 10 /CNW Telbec/ - Power Corporation of Canada's operating earnings for the three-month period ended March 31, 2007 were $363 million or $0.78 per share, compared with $254 million or $0.54 per share in the corresponding period of 2006. This represents a 44% increase on a per share basis.
Growth in operating earnings in 2007 reflects a strong growth in the contribution from Power Financial, as well as a high level of income from investments, mainly generated by the Corporation's investment in the Sagard 1 Fund in Europe and the Corporation's QFII operations in China.
Other income was nil in the first quarter of 2007 as in the first quarter of 2006.
As a result, net earnings for the period were $363 million or $0.78 per share, compared with $254 million or $0.54 per share in the first quarter of 2006.
RESULTS OF POWER FINANCIAL CORPORATION
--------------------------------------
Power Financial Corporation's operating earnings for the three-month period ended March 31, 2007 were $482 million or $0.66 per share, compared with $408 million or $0.56 per share in the corresponding period in 2006. This represents an 18.4% increase on a per share basis.
Growth in operating earnings reflects primarily growth in the contribution from the Power Financial's subsidiaries and affiliate.
Other income was nil in the first quarters of 2007 and 2006, and therefore net earnings, including other income, for the three-month period ended March 31, 2007 were $482 million or $0.66 per share, compared with $408 million or $0.56 per share in the first quarter of 2006.
DIVIDENDS ON PREFERRED SHARES
-----------------------------
The Board of Directors today declared quarterly dividends on the Corporation's preferred shares, as follows:
-------------------------------------------------------------------------
Type of shares Record Date Payment Date Amount
-------------------------------------------------------------------------
1986 Series June 22, 2007 July 15, 2007 To be determined
In accordance
with the articles
of the Corporation
-------------------------------------------------------------------------
Series A June 22, 2007 July 15, 2007 35 cents
-------------------------------------------------------------------------
Series B June 22, 2007 July 15, 2007 33.4375 cents
-------------------------------------------------------------------------
Series C June 22, 2007 July 15, 2007 36.25 cents
-------------------------------------------------------------------------
Series D June 22, 2007 July 15, 2007 31.25 cents
-------------------------------------------------------------------------
DIVIDENDS ON PARTICIPATING SHARES
---------------------------------
The Board of Directors also declared a dividend of 24.125 cents on the
Participating Preferred and Subordinate Voting Shares of the Corporation,
payable June 29, 2007 to shareholders of record June 8, 2007. This represents
an increase of 4.375 cents or 22.2% over the previous quarterly dividend of
19.75 cents.
Forward-looking Statements
--------------------------
Certain statements in this press release, other than statements of
historical fact, are forward-looking statements based on certain assumptions
and reflect the Corporation's or its subsidiaries' or affiliates' current
expectations. These statements may include, without limitation, statements
regarding the operations, business, financial condition, priorities, ongoing
objectives, strategies and outlook of Power Corporation, its subsidiaries or
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.
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 the Corporation's, its subsidiaries' and affiliates'
control, affect the operations, performance and results of the Corporation's,
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, the Corporation's, its
subsidiaries' or affiliates' ability to complete strategic transactions and
integrate acquisitions, and the Corporation's or its subsidiaries' or 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 the Corporation's, 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, the Corporation 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 or otherwise.
Additional information about the risks and uncertainties of the
Corporation's business is provided in its disclosure materials, including its
most recent Management's Discussion and Analysis of Operating Results 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 tax
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 (unaudited)
Power Corporation of Canada
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------
March 31, December 31,
2007 2006
(in millions of dollars) (unaudited)
-------------------------------------------------------------------------
Assets
Cash and cash equivalents 5,306 5,785
-------------------------------------------------------------------------
Investments (Note 2)
Shares 6,785 5,598
Bonds 74,861 65,246
Mortgages and other loans 15,881 15,823
Loans to policyholders 6,731 6,776
Real estate 2,226 2,218
-------------------------------------------------------------------------
106,484 95,661
Funds held by ceding insurers 1,866 12,371
Investment in affiliates, at equity 3,372 2,182
Intangible assets 2,734 2,745
Goodwill 8,477 8,454
Future income taxes 412 471
Other assets 6,485 5,083
-------------------------------------------------------------------------
135,136 132,752
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities
Policy liabilities
Actuarial liabilities 92,786 89,490
Other 4,382 4,488
Deposits and certificates 808 778
Funds held under reinsurance contracts 1,964 1,822
Debentures and other borrowings (Note 3) 3,404 3,402
Preferred shares of subsidiaries 1,694 1,625
Capital trust securities and debentures (Note 4) 634 646
Future income taxes 972 909
Other liabilities 6,130 9,008
-------------------------------------------------------------------------
112,774 112,168
-------------------------------------------------------------------------
Non-controlling interests (Note 5) 12,675 11,983
-------------------------------------------------------------------------
Shareholders' Equity
Stated capital (Note 6)
Non-participating shares 795 795
Participating shares 472 442
Contributed surplus 63 59
Retained earnings 7,562 7,480
Accumulated other comprehensive income (loss)
(Note 7) 795 (175)
-------------------------------------------------------------------------
9,687 8,601
-------------------------------------------------------------------------
135,136 132,752
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
-------------------------------------------------------------------------
Three months ended March 31
(unaudited)
(in millions of dollars, except per share amounts) 2007 2006
-------------------------------------------------------------------------
Revenues
Premium income 5,613 3,695
Net investment income 1,145 1,374
Fees and media income 1,516 1,330
-------------------------------------------------------------------------
8,274 6,399
-------------------------------------------------------------------------
Expenses
Paid or credited to policyholders and
beneficiaries including policyholder dividends
and experience refunds 5,584 4,001
Commissions 596 532
Operating expenses 968 904
Financing charges (Note 8) 86 82
-------------------------------------------------------------------------
7,234 5,519
-------------------------------------------------------------------------
1,040 880
Share of earnings of affiliates 12 7
-------------------------------------------------------------------------
Earnings before income taxes and non-controlling
interests 1,052 887
Income taxes 251 254
Non-controlling interests (Note 5) 438 379
-------------------------------------------------------------------------
Net earnings 363 254
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per participating share (Note 9)
Basic 0.78 0.54
-------------------------------------------------------------------------
Diluted 0.77 0.54
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-------------------------------------------------------------------------
Three months ended March 31
(unaudited) (in millions of dollars) 2007 2006
-------------------------------------------------------------------------
Net earnings 363 254
-------------------------------------------------------------------------
Other comprehensive income (loss)
Net unrealized gains (losses) on
available-for-sale assets
Unrealized gains (losses) 20 -
Income tax on unrealized gains (losses) (4) -
Reclassification of realized (gains) losses
to net earnings (72) -
Income tax on reclassification of realized
(gains) losses to net earnings 15 -
-------------------------------------------------------------------------
(41) -
-------------------------------------------------------------------------
Net unrealized gains (losses) on cash flow hedges
Unrealized gains (losses) 2 -
Income tax on unrealized gains (losses) - -
Reclassification of realized (gains) losses to
net earnings 27 -
Income tax on reclassification of realized
(gains) losses to net earnings (5) -
-------------------------------------------------------------------------
24 -
-------------------------------------------------------------------------
Net unrealized gains (losses) on foreign
currency translation (55) 68
-------------------------------------------------------------------------
Other comprehensive income (loss) before
non-controlling interests (72) 68
Non-controlling interests 57 (29)
-------------------------------------------------------------------------
Other comprehensive income (loss) (15) 39
-------------------------------------------------------------------------
Comprehensive income (loss) 348 293
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------
Three months ended March 31
(unaudited) (in millions of dollars) 2007 2006
-------------------------------------------------------------------------
Stated capital - Non-participating shares
Non-participating shares, beginning of year 795 795
Issue of non-participating shares - -
-------------------------------------------------------------------------
Non-participating shares, end of period 795 795
-------------------------------------------------------------------------
Stated capital - Participating shares
Participating shares, beginning of year 442 417
Issue of participating shares under stock option plan 30 11
-------------------------------------------------------------------------
Participating shares, end of period 472 428
-------------------------------------------------------------------------
Contributed surplus
Contributed surplus, beginning of year 59 37
Stock options 6 7
Non-controlling interests (2) (2)
-------------------------------------------------------------------------
Contributed surplus, end of period 63 42
-------------------------------------------------------------------------
Retained earnings
Retained earnings, beginning of year
As previously reported 7,480 6,478
Change in accounting policy (Note 1) (181) -
-------------------------------------------------------------------------
As restated 7,299 6,478
Net earnings 363 254
Dividends to shareholders
Non-participating shares (10) (10)
Participating shares (90) (76)
-------------------------------------------------------------------------
Retained earnings, end of period 7,562 6,646
-------------------------------------------------------------------------
Accumulated other comprehensive income (loss)
(Note 7)
Accumulated other comprehensive income (loss),
beginning of year (175) (468)
Change in accounting policy (Note 1) 985 -
Other comprehensive income (loss) (15) 39
-------------------------------------------------------------------------
Accumulated other comprehensive income (loss),
end of period 795 (429)
-------------------------------------------------------------------------
Total Shareholders' Equity 9,687 7,482
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------
Three months ended March 31
(unaudited) (in millions of dollars) 2007 2006
-------------------------------------------------------------------------
Operating activities
Net earnings 363 254
Non-cash charges (credits)
Increase (decrease) in policy liabilities (52) 129
Decrease (increase) in funds held by ceding
insurers 288 52
Increase (decrease) in funds held under
reinsurance contracts 26 (78)
Amortization and depreciation 32 27
Future income taxes 6 75
Non-controlling interests 438 379
Other 579 (403)
Change in non-cash working capital (1,436) (497)
-------------------------------------------------------------------------
244 (62)
-------------------------------------------------------------------------
Financing activities
Dividends paid
By subsidiaries to non-controlling interests (195) (170)
Non-participating shares (10) (10)
Participating shares (90) (76)
-------------------------------------------------------------------------
(295) (256)
Issue of subordinated voting shares 30 11
Issue of common shares by subsidiaries 19 18
Repurchase of common shares by subsidiaries (18) (22)
Issuance of debentures and other borrowings 13 -
Repayment of debentures and other borrowings - (150)
Other 20 7
-------------------------------------------------------------------------
(231) (392)
-------------------------------------------------------------------------
Investment activities
Bond sales and maturities 6,532 7,132
Mortgage loan repayments 469 438
Sales of shares 433 361
Real estate sales 19 119
Proceeds from securitizations 311 86
Change in loans to policyholders (34) (87)
Change in repurchase agreements (427) 114
Investment in bonds (5,943) (7,093)
Investment in mortgage loans (939) (786)
Investment in shares (775) (400)
Investment in real estate (113) (72)
Other (9) (1)
-------------------------------------------------------------------------
(476) (189)
-------------------------------------------------------------------------
Effect of changes in exchange rates on cash and
cash equivalents (16) 30
Increase (decrease) in cash and cash equivalents (479) (613)
Cash and cash equivalents, beginning of period 5,785 5,332
-------------------------------------------------------------------------
Cash and cash equivalents, end of period 5,306 4,719
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Power Corporation of Canada
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 2007
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 March 31, 2007 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, 2006. 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, 2006,
except as noted below.
A) CHANGES IN ACCOUNTING POLICIES - FINANCIAL INSTRUMENTS
Effective January 1, 2007, the Corporation adopted the Canadian Institute
of Chartered Accountants (CICA) Handbook Section 4211, Life Insurance
Enterprises; Section 3855, Financial Instruments - Recognition and
Measurement; Section 3865, Hedges; Section 1530, Comprehensive Income.
Under these new standards, all financial assets, including derivatives,
must be classified as available for sale, held for trading, held to
maturity, or loans and receivables. All financial liabilities, including
derivatives, must be classified as held for trading or other. All
financial instruments classified as available for sale or held for
trading are recognized at fair value on the Consolidated Balance Sheet
while financial instruments classified as loans and receivables or other
will continue to be measured at amortized cost using the effective
interest rate method. The standards allow the Corporation to designate
certain financial instruments, on initial recognition, as held for
trading.
Changes in the fair value of financial instruments classified as held for
trading are reported in Net earnings. Unrealized gains or losses on
financial instruments classified as available for sale are reported in
Other comprehensive income until they are realized by the Corporation or
until the assets are other than temporarily impaired, at which time they
are recorded in the Consolidated Statements of Earnings.
The Consolidated Statements of Comprehensive Income have been included in
the Corporation's financial statements. The Consolidated Statements of
Changes in Shareholders' Equity have replaced the Consolidated Statements
of Retained Earnings in the Corporation's financial statements.
Unrealized gains and losses on financial assets classified as available
for sale, the effective portion of changes in the fair value of cash flow
hedging instruments and unrealized foreign currency translation gains and
losses are recorded in the Consolidated Statements of Comprehensive
Income on a net of tax basis. Other comprehensive income amounts arising
from using the equity method to account for the Corporation's investment
in its affiliates are recorded in the Consolidated Statements of
Comprehensive Income. Accumulated other comprehensive income forms part
of Shareholders' equity.
With respect to Lifeco, certain investments, primarily investments
actively traded in a public market, and certain financial liabilities are
measured at their fair value. Investments backing actuarial liabilities,
investments backing participating account surplus in The Canada Life
Assurance Company (Canada Life), and preferred shares classified as
liabilities are designated as held for trading using the fair value
option. Changes in the fair value of these investments flow through Net
earnings. This impact is largely offset by corresponding changes in the
actuarial liabilities which also flow through Net earnings. Investments
backing Lifeco's shareholder capital and surplus, with the exception of
the investments backing participating account surplus in Canada Life, are
classified as available for sale. Unrealized gains and losses on these
investments flow through Other comprehensive income until they are
realized. Certain investment portfolios are classified as held for
trading as a reflection of their underlying nature. Changes in the fair
value of these investments flow through Net earnings. There has been no
change to the Corporation's method of accounting for real estate or
loans.
The remainder of the Corporation's investments in shares were designated
as available for sale. The loans portfolio was designated as loans and
receivables and is carried at amortized cost.
Derivative instruments, previously off-balance sheet, are recognized at
their market value in the Consolidated Balance Sheet. Changes in the fair
value of derivatives are recognized in Net earnings except for
derivatives designated as effective cash flow hedges.
Derivatives embedded in financial instruments, or other contracts, which
are not closely related to the host financial instrument, or contract,
must be bifurcated and recognized independently. The change in accounting
policy related to embedded derivatives did not have a significant impact
on the financial statements of the Corporation.
Three types of hedging relationships are permitted under the new
guidance: fair value hedges, cash flow hedges, and hedges of net
investments in self-sustaining foreign operations. Changes in fair value
hedges are recognized in net earnings. The effective portion of cash flow
hedges, and hedges of net investments in self-sustaining foreign
operations, are offset through Other comprehensive income until the
variability in cash flows being hedged is recognized in net earnings.
On January 1, 2007, transition adjustments were made to certain existing
financial instruments to adjust their carrying value to market, to
recognize derivative financial instruments on the balance sheet, to
eliminate the recognition of deferred realized gains of Lifeco with
corresponding adjustments to actuarial liabilities and opening retained
earnings.
The following table summarizes the adjustments required to adopt the new
standards:
-------------------------------------------------------------------------
December 31, Change in January 1,
2006 accounting 2007
As reported policy Adjusted
-------------------------------------------------------------------------
Assets
Cash and cash equivalents 5,785 - 5,785
-------------------------------------------------------------------------
Investments
Shares 5,598 844 6,442
Bonds 65,246 1,016 66,262
Mortgages and other loans 15,823 (46) 15,777
Loans to policyholders 6,776 - 6,776
Real estate 2,218 - 2,218
-------------------------------------------------------------------------
95,661 1,814 97,475
Investment in affiliates, at equity 2,182 1,157 3,339
All other assets 29,124 (150) 28,974
-------------------------------------------------------------------------
132,752 2,821 135,573
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities
Policy liabilities
Actuarial liabilities 89,490 3,896 93,386
Other 4,488 - 4,488
Debentures and other borrowings 3,402 - 3,402
Preferred shares of subsidiaries 1,625 71 1,696
Capital trust securities and debentures 646 - 646
Future income taxes 909 25 934
All other liabilities 11,608 (2,464) 9,144
-------------------------------------------------------------------------
112,168 1,528 113,696
-------------------------------------------------------------------------
Non-controlling interests 11,983 489 12,472
-------------------------------------------------------------------------
Shareholders' Equity
Stated capital
Non-participating preferred shares 795 - 795
Participating shares 442 - 442
Contributed surplus 59 - 59
Retained earnings 7,480 (181) 7,299
Accumulated other comprehensive income - 810 810
Foreign currency translation adjustments (175) 175 -
-------------------------------------------------------------------------
8,601 804 9,405
-------------------------------------------------------------------------
132,752 2,821 135,573
-------------------------------------------------------------------------
B) FUTURE ACCOUNTING CHANGES
Capital Disclosures
-------------------
Effective January 1, 2008, the Corporation will be required to comply
with CICA Handbook Section 1535, Capital Disclosures. The Section
establishes standards for disclosing information that enables users of
financial statements to evaluate the entity's objectives, policies and
processes for managing capital. The new requirements are for disclosure
only and will not impact the financial results of the Corporation.
Financial Instruments Disclosure and Presentation
-------------------------------------------------
Effective January 1, 2008, the Corporation will be required to comply
with CICA Handbook Section 3862, Financial Instruments - Disclosures, and
Section 3863, Financial Instruments - Presentation. These sections will
replace existing Section 3861, Financial Instruments - Disclosure and
Presentation. Presentation standards are carried forward unchanged.
Disclosure standards are enhanced and expanded to complement the changes
in accounting policy adopted in accordance with Section 3855, Financial
Instruments - Recognition and Measurement.
C) COMPARATIVE FIGURES
Certain of the 2006 amounts presented for comparative purposes have been
reclassified to conform to the presentation adopted in the current year.
Comparative figures have not been restated to conform with the new
Financial Instruments accounting policies adopted January 1, 2007. CICA
guidance explicitly prevents restatements of comparative information
under the new standards.
NOTE 2 INVESTMENTS
March 31, 2007
-------------------------------------------------
Non-
finan-
Loans cial
Available Held for and re- ins- December
for sale trading ceivables truments Total 31, 2006
------------------------------------------------- ---------
Shares 2,060 4,725 - - 6,785 5,598
Bonds 5,148 59,863 9,850 - 74,861 65,246
Mortgages and
other loans - - 15,881 - 15,881 15,823
Loans to
policyholders - - 6,731 - 6,731 6,776
Real estate - - - 2,226 2,226 2,218
-------------------------------------------------------------------------
7,208 64,588 32,462 2,226 106,484 95,661
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 3 DEBENTURES AND OTHER BORROWINGS
-------------------------------------------------------------------------
March 31, December 31,
2007 2006
-------------------------------------------------------------------------
Power Financial Corporation
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 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 203 204
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, unsecured 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) 201 205
7.153% subordinated debentures due May 16, 2046,
unsecured (US$300 million) 345 351
Notes payable with interest of 8.0% 8 8
Other
Term loan at prime plus a premium varying between
1.0% and 1.5% or Bankers' Acceptance plus a
premium varying between 2.0% and 2.5% due May 13,
2013 (effective rate of 8.22% at December 31, 2006) 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) 46 33
-------------------------------------------------------------------------
3,404 3,402
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 4 CAPITAL TRUST SECURITIES AND DEBENTURES
-------------------------------------------------------------------------
March 31, December 31,
2007 2006
-------------------------------------------------------------------------
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 30 31
Capital trust securities held by consolidated group
as temporary investments (196) (185)
-------------------------------------------------------------------------
634 646
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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.
NOTE 5 NON-CONTROLLING INTERESTS
-------------------------------------------------------------------------
March 31, December 31,
2007 2006
-------------------------------------------------------------------------
Non-controlling interests include
Participating policyholders 2,042 1,884
Preferred shareholders of subsidiaries 2,653 2,653
Common shareholders of subsidiaries 7,980 7,446
-------------------------------------------------------------------------
12,675 11,983
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three months ended March 31 2007 2006
-------------------------------------------------------------------------
Earnings attributable to non-controlling
interests include
Earnings attributable to participating
policyholders 29 30
Dividends to preferred shareholders of subsidiaries 37 30
Earnings attributable to common shareholders
of subsidiaries 372 319
-------------------------------------------------------------------------
438 379
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 6 CAPITAL STOCK AND STOCK OPTION PLAN
STATED CAPITAL
-------------------------------------------------------------------------
March 31, December 31,
2007 2006
-------------------------------------------------------------------------
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 - 404,851,082 (2006 - 402,606,144) shares 445 415
-------------------------------------------------------------------------
472 442
-------------------------------------------------------------------------
-------------------------------------------------------------------------
STOCK-BASED COMPENSATION
During the first quarter of 2007, 1,209,075 options were granted under
the Corporation's stock option plan (no options were granted in the
first quarter of 2006). The fair value of these options was estimated
using the Black-Scholes option-pricing model with the following
assumptions:
-------------------------------------------------------------------------
2007 2006
-------------------------------------------------------------------------
Dividend yield 2.1% -
Expected volatility 15.5% -
Risk-free interest rate 4.0% -
Expected life (years) 7 -
Fair value per option granted ($/option) $7.11 -
-------------------------------------------------------------------------
For the three months ended March 31, 2007, compensation expense relating
to the stock options granted by the Corporation and its subsidiaries
amounted to $6 million ($7 million in 2006).
Options were outstanding at March 31, 2007 to purchase, until March 25,
2017, 11,158,972 subordinate voting shares at various prices from
$11.3625 to $37.07. During the three months ended March 31, 2007,
2,244,938 subordinate voting shares (1,285,015 in 2006) were issued under
the Corporation's plan for an aggregate consideration of $30 million
($11 million in 2006).
NOTE 7 ACCUMULATED OTHER COMPREHENSIVE INCOME
Unrealized gains (losses), on
-----------------------------------------------------------
Available- Foreign
Three months ended for-sale Cash flow currency
March 31, 2007 assets hedges translation Total
-------------------------------------------------------------------------
Balance, beginning of year - - (175) (175)
-------------------------------------------------
Change in accounting
policy (note 1) 1,708 (43) - 1,665
Income taxes (135) 8 - (127)
-------------------------------------------------
1,573 (35) - 1,538
-------------------------------------------------
Non-controlling interests (574) 21 - (553)
-------------------------------------------------------------------------
Net change in accounting
policy 999 (14) - 985
-------------------------------------------------------------------------
Other comprehensive income
(loss) (52) 29 (55) (78)
Income taxes 11 (5) - 6
-------------------------------------------------
(41) 24 (55) (72)
-------------------------------------------------
Non-controlling interests 39 (15) 33 57
-------------------------------------------------------------------------
(2) 9 (22) (15)
-------------------------------------------------------------------------
Balance, end of period 997 (5) (197) 795
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Unrealized gains (losses), on
-----------------------------------------------------------
Available- Foreign
Three months ended for-sale Cash flow currency
March 31, 2006 assets hedges translation Total
-------------------------------------------------------------------------
Balance, beginning of year - - (468) (468)
-------------------------------------------------
Other comprehensive
income (loss) - - 68 68
Income taxes - - - -
-------------------------------------------------
- - 68 68
-------------------------------------------------
Non-controlling interests - - (29) (29)
-------------------------------------------------------------------------
- - 39 39
-------------------------------------------------------------------------
Balance, end of period - - (429) (429)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 8 FINANCING CHARGES
Financing charges include interest on debentures and other borrowings,
together with distributions and interest on capital trust securities and
debentures, and dividends on preferred shares classified as liabilities.
-------------------------------------------------------------------------
Three months ended March 31 2007 2006
-------------------------------------------------------------------------
Interest on debentures and other borrowings 56 53
Preferred share dividends 16 19
Interest on capital trust debentures 12 12
Distributions on capital trust securities held
by consolidated group as temporary investments (3) (3)
Other 5 1
-------------------------------------------------------------------------
86 82
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 9 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 March 31 2007 2006
-------------------------------------------------------------------------
Net earnings 363 254
Dividends on non-participating shares (10) (10)
-------------------------------------------------------------------------
Net earnings available to participating shareholders 353 244
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted number of participating shares
outstanding (millions)
- Basic 452.4 449.6
Exercise of stock options 11.2 11.9
Shares assumed to be repurchased with proceeds
from exercise of stock options (7.0) (6.7)
-------------------------------------------------------------------------
Weighted number of participating shares
outstanding (millions)
- Diluted 456.6 454.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 10 PENSION PLANS AND OTHER POST-RETIREMENT BENEFITS
The total benefit costs included in operating expenses are as follows:
-------------------------------------------------------------------------
Three months ended March 31 2007 2006
-------------------------------------------------------------------------
Pension plans 16 25
Other post-retirement benefits 7 8
-------------------------------------------------------------------------
23 33
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 11 SECURITIZATIONS
During the first quarter of 2007, IGM Financial Inc. (IGM) securitized
$314 million ($86 million in 2006) of residential mortgages through sales
to commercial paper conduits and received net cash proceeds of
$311 million ($86 million in 2006). IGM's retained interest in the
securitized loans was valued at $9 million ($2 million in 2006). A pre-
tax gain on sale of $3 million (nil in 2006) was recognized and reported
in Net investment income in the Consolidated Statements of Earnings.
NOTE 12 SEGMENTED INFORMATION
Information on Profit Measure
-------------------------------------------------------------------------
Three months ended
March 31, 2007 Lifeco IGM Parjointco Other Total
-------------------------------------------------------------------------
Revenues
Premium income 5,613 - - - 5,613
Net investment
income 1,002 63 - 80 1,145
Fees and media
income 764 658 - 94 1,516
-------------------------------------------------------------------------
7,379 721 - 174 8,274
-------------------------------------------------------------------------
Expenses
Paid or credited
to policyholders
and
beneficiaries
including
policyholder
dividends and
experience
refunds 5,584 - - - 5,584
Commissions 378 231 - (13) 596
Operating
expenses 667 157 - 144 968
Financing
charges 51 22 - 13 86
-------------------------------------------------------------------------
6,680 410 - 144 7,234
-------------------------------------------------------------------------
699 311 - 30 1,040
Share of earnings
of affiliates - - 18 (6) 12
-------------------------------------------------------------------------
Earnings before
income taxes and
non-controlling
interests 699 311 18 24 1,052
Income taxes 138 99 - 14 251
Non-controlling
interests 320 134 6 (22) 438
-------------------------------------------------------------------------
Contribution to
consolidated net
earnings 241 78 12 32 363
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Information on
Profit Measure
-------------------------------------------------------------------------
Three months ended
March 31, 2006 Lifeco IGM Parjointco Other Total
-------------------------------------------------------------------------
Revenues
Premium income 3,695 - - - 3,695
Net investment
income 1,323 57 - (6) 1,374
Fees and media
income 657 589 - 84 1,330
-------------------------------------------------------------------------
5,675 646 - 78 6,399
-------------------------------------------------------------------------
Expenses
Paid or credited
to policyholders
and
beneficiaries
including
policyholder
dividends and
experience
refunds 4,001 - - - 4,001
Commissions 342 202 - (12) 532
Operating
expenses 626 149 - 129 904
Financing
charges 47 22 - 13 82
-------------------------------------------------------------------------
5,016 373 - 130 5,519
-------------------------------------------------------------------------
659 273 - (52) 880
Share of earnings
of affiliates - - 10 (3) 7
-------------------------------------------------------------------------
Earnings before
income taxes and
non-controlling
interests 659 273 10 (55) 887
Income taxes 169 87 - (2) 254
Non-controlling
interests 282 118 3 (24) 379
-------------------------------------------------------------------------
Contribution to
consolidated net
earnings 208 68 7 (29) 254
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 13 ACQUISITIONS
(a) Putnam Investments Trust
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 Investments Trust (Putnam), and
Great-West Life will acquire Putnam's 25% interest in T.H. Lee Partners
for approximately $402 million (US$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 $632 million (US$550 million). In aggregate these
transactions represent a value of approximately $4.5 billion
(US$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. This transaction
is subject to regulatory approval and certain other conditions.
(b) Other Acquisitions
On April 9, 2007, Great-West Life Annuity Insurance Company (GWL&A)
entered into an agreement to acquire an 80% majority interest in Benefit
Management Corp., whose principal subsidiary is Allegiance Benefit Plan
Management, Inc., a Montana-based third-party administrator of employee
health plans.