Readers are referred to the Forward-looking Information and Non-GAAP
Financial Measures sections at the end of this release.
MONTREAL, Nov. 10 /CNW Telbec/ - Power Corporation of Canada's operating
earnings for the nine-month period ended September 30, 2006 were $866 million
or $1.85 per share, compared with $781 million or $1.70 per share in the
corresponding period of 2005. This represents an increase of 9.2% on a
per share basis.
Growth in the Corporation's operating earnings reflects primarily an
increase in the contribution from Power Financial Corporation, as well as an
increase in results from corporate activities due to higher income from
investments.
Other items not included in operating earnings were $238 million or
$0.53 per share in 2006. This figure includes the Corporation's share, in the
amount of $236 million, of the gain resulting from the sale by Groupe
Bruxelles Lambert of its 25.1% interest in Bertelsmann. For the nine-month
period in 2005, items not included in operating earnings were a charge of
$13 million or $0.03 per share in the aggregate, including a charge of
$14 million or $0.03 per share representing Power Corporation's share of a
specific charge recorded by Lifeco.
As a result, net earnings for the nine-month period ended September 30,
2006 were $1,104 million or $2.38 per share, compared with $768 million or
$1.67 for the same period in 2005.
THIRD QUARTER RESULTS
---------------------
For the quarter ended September 30, 2006, operating earnings of the
Corporation were $273 million or $0.58 per share, compared with $258 million
or $0.56 per share in the third quarter of 2005. This represents an increase
of 4.3% on a per share basis.
Other items for the quarter in 2006 were $236 million or $0.52 per share,
composed primarily of the Corporation's share of the gain related to the sale
by GBL of its interest in Bertelsmann. In the corresponding period in 2005,
items not included in operating earnings were a charge of $16 million or
$0.04 per share in the aggregate, and were primarily composed of the
Corporation's share, in the amount of $14 million or $0.03 per share, of a
specific charge recorded by Lifeco.
Therefore, net earnings for the three-month period ended September 30,
2006 were $509 million or $1.10 per share, compared with $242 million or
$0.52 per share in the third quarter of 2005.
RESULTS OF POWER FINANCIAL CORPORATION
--------------------------------------
Power Financial Corporation's operating earnings for the nine-month
period ended September 30, 2006 were $1,330 million or $1.81 per share,
compared with $1,244 million or $1.71 per share in the corresponding period in
2005. This represents a 6.1% increase on a per share basis.
The increase in operating earnings for the nine-month period in 2006
reflects growth in the contribution from Power Financial's subsidiaries and
affiliate and also reflects the negative impact of the rise of the Canadian
dollar on the growth of Lifeco's net income for the period. Based upon
Lifeco's growth in net income on a constant currency basis, Power Financial's
operating earnings on a per share basis for the nine-month period would have
increased by 12.4%.
Other items not included in operating earnings in 2006 were $351 million
or $0.50 per share, reflecting primarily Power Financial's share, in the
amount of $356 million, of the gain recorded by GBL from the sale of its 25.1%
interest in Bertelsmann. For the nine-month period in 2005, items not included
in operating earnings were a charge of $24 million or $0.03 per share in the
aggregate, and were composed primarily of a charge of $22 million or $0.03 per
share representing Power Financial's share of a specific charge of $30 million
recorded by Lifeco.
As a result, net earnings for the nine-month period ended September 30,
2006 were $1,681 million or $2.31 per share, compared with $1,220 million or
$1.68 per share for the same period in 2005.
For the quarter ended September 30, 2006, operating earnings of Power
Financial were $439 million or $0.60 per share, compared with $414 million or
$0.57 per share in the third quarter of 2005. This represents an increase of
4.8% on a per share basis.
Operating earnings on a per share basis would have increased by 12.7%
based upon Lifeco's growth in net income on a constant currency basis.
Other items for the quarter in 2006 were $356 million or $0.50 per share,
representing Power Financial's share of the gain recorded by GBL from the sale
of its interest in Bertelsmann. In the corresponding period in 2005, items not
included in operating earnings were a charge of $24 million or $0.03 per share
in the aggregate, and were composed primarily of Power Financial's share, in
the amount of $22 million or $0.03 per share, of a specific charge of
$30 million recorded by Lifeco.
Therefore, net earnings were $795 million or $1.10 per share for the
quarter ended September 30, 2006, compared with $390 million or $0.54 per
share in 2005.
<<
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 December 22, 2006 January 15, 2007 To be determined
In accordance
with the
articles of the
Corporation
-------------------------------------------------------------------------
Series A December 22, 2006 January 15, 2007 35 cents
-------------------------------------------------------------------------
Series B December 22, 2006 January 15, 2007 33.4375 cents
-------------------------------------------------------------------------
Series C December 22, 2006 January 15, 2007 36.25 cents
-------------------------------------------------------------------------
Series D December 22, 2006 January 15, 2007 31.25 cents
-------------------------------------------------------------------------
DIVIDENDS ON PARTICIPATING SHARES
---------------------------------
The Board of Directors also declared a dividend of 19.75 cents on the
Participating Preferred and Subordinate Voting Shares of the Corporation,
payable December 29, 2006 to shareholders of record December 8, 2006.
Forward-looking Information
---------------------------
Certain statements in this, 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 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 its 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
-------------------------------------------------------------------------
September 30, December 31,
2006 2005
(in millions of dollars) (unaudited)
-------------------------------------------------------------------------
Assets
Cash and cash equivalents 5,817 5,332
-------------------------------------------------------------------------
Investments
Shares 5,066 4,867
Bonds 62,558 59,298
Mortgages and other loans 15,722 15,118
Loans to policyholders 6,692 6,646
Real estate 2,052 1,844
-------------------------------------------------------------------------
92,090 87,773
Funds held by ceding insurers (Note 11) 11,596 2,556
Investment in affiliates, at equity 1,986 1,554
Intangible assets 2,557 2,419
Goodwill 8,286 8,264
Future income taxes 404 476
Other assets 4,978 4,625
-------------------------------------------------------------------------
127,714 112,999
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities
Policy liabilities
Actuarial liabilities (Note 11) 82,556 71,263
Other 4,209 4,023
Deposits and certificates 720 693
Funds held under reinsurance contracts 3,433 4,089
Debentures and other borrowings (Note 2) 3,345 3,427
Preferred shares of subsidiaries 1,629 1,656
Capital trust securities and debentures (Note 3) 647 648
Future income taxes 838 865
Other liabilities 10,758 8,836
-------------------------------------------------------------------------
108,135 95,500
-------------------------------------------------------------------------
Non-controlling interests 11,491 10,240
-------------------------------------------------------------------------
Shareholders' Equity
Stated capital (Note 4)
Non-participating shares 795 795
Participating shares 442 417
Contributed surplus 53 37
Retained earnings 7,291 6,478
Foreign currency translation adjustments (493) (468)
-------------------------------------------------------------------------
8,088 7,259
-------------------------------------------------------------------------
127,714 112,999
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
-------------------------------------------------------------------------
(unaudited) (in millions Three months ended Nine months ended
of dollars, except per September 30 September 30
share amounts) 2006 2005 2006 2005
-------------------------------------------------------------------------
Revenues
Premium income 4,332 3,186 12,471 11,530
Net investment income 1,632 1,427 4,596 4,137
Fees and media income 1,328 1,230 4,010 3,671
-------------------------------------------------------------------------
7,292 5,843 21,077 19,338
-------------------------------------------------------------------------
Expenses
Paid or credited to
policyholders and
beneficiaries including
policyholder dividends
and experience refunds 4,871 3,650 13,831 12,547
Commissions 523 465 1,592 1,467
Operating expenses 862 855 2,644 2,631
Financing charges
(Note 5) 90 86 258 258
-------------------------------------------------------------------------
6,346 5,056 18,325 16,903
-------------------------------------------------------------------------
946 787 2,752 2,435
Share of earnings of
affiliates 9 15 84 73
Other income (charges),
net (Note 6) 356 (3) 348 (9)
-------------------------------------------------------------------------
Earnings before income
taxes and non-controlling
interests 1,311 799 3,184 2,499
Income taxes 274 208 728 658
Non-controlling interests 528 349 1,352 1,073
-------------------------------------------------------------------------
Net earnings 509 242 1,104 768
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per participating
share (Note 7)
Basic 1.10 0.52 2.38 1.67
-------------------------------------------------------------------------
Diluted 1.09 0.52 2.36 1.64
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
-------------------------------------------------------------------------
Nine months ended September 30
(unaudited) (in millions of dollars) 2006 2005
-------------------------------------------------------------------------
Retained earnings, beginning of year 6,478 5,761
Add
Net earnings 1,104 768
-------------------------------------------------------------------------
7,582 6,529
-------------------------------------------------------------------------
Deduct
Dividends
Non-participating shares 32 22
Participating shares 254 216
Other 5 2
-------------------------------------------------------------------------
291 240
-------------------------------------------------------------------------
Retained earnings, end of period 7,291 6,289
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------
Three months ended Nine months ended
(unaudited) (in millions September 30 September 30
of dollars) 2006 2005 2006 2005
-------------------------------------------------------------------------
Operating activities
Net earnings 509 242 1,104 768
Non-cash charges
(credits)
Increase (decrease) in
policy liabilities 1,172 107 1,575 1,565
Decrease (increase) in
funds held by ceding
insurers 40 127 471 357
Increase (decrease) in
funds held under
reinsurance contracts (524) 79 (621) 11
Amortization and
depreciation 28 28 83 85
Future income taxes (15) (75) 57 59
Non-controlling
interests 528 349 1,352 1,073
Other (379) 16 (266) 427
Change in non-cash
working capital 196 190 (176) (468)
-------------------------------------------------------------------------
1,555 1,063 3,579 3,877
-------------------------------------------------------------------------
Financing activities
Dividends paid
By subsidiaries to
non-controlling
interests (183) (153) (527) (444)
Non-participating
shares (11) (7) (31) (22)
Participating shares (89) (76) (254) (216)
-------------------------------------------------------------------------
(283) (236) (812) (682)
Issue of subordinate
voting shares (Note 4) 10 9 25 28
Issue of common shares by
subsidiaries 7 8 31 24
Repurchase of common shares
by subsidiaries (19) (26) (56) (65)
Issue of preferred shares
by subsidiaries 200 300 500 300
Repurchase of preferred
shares by a subsidiary (18) - (30) -
Issue of subordinated
debentures (Note 2) - - 336 -
Repayment of debentures
and other borrowings (250) (150) (400) (186)
Other 41 (2) (5) (31)
-------------------------------------------------------------------------
(312) (97) (411) (612)
-------------------------------------------------------------------------
Investment activities
Bond sales and
maturities 7,351 5,110 20,683 18,666
Mortgage loan repayments 523 611 1,434 2,178
Sales of shares 492 424 1,165 1,130
Real estate sales 129 6 174 74
Proceeds from
securitizations (Note 9) 386 57 1,019 188
Change in loans to
policyholders (19) (12) (239) (184)
Change in repurchase
agreements 14 (163) 132 227
Acquisition of intangible
assets (Note 11) (141) - (141) -
Investment in bonds (7,586) (4,904) (22,091) (19,974)
Investment in mortgage
loans (1,268) (659) (3,163) (2,644)
Investment in shares (417) (463) (1,192) (1,335)
Investment in real estate (399) (186) (515) (411)
Other (11) 12 (20) (30)
-------------------------------------------------------------------------
(946) (167) (2,754) (2,115)
-------------------------------------------------------------------------
Effect of changes in
exchange rates on cash
and cash equivalents 31 (168) 71 (266)
Increase in cash and cash
equivalents 328 631 485 884
Cash and cash equivalents,
beginning of period 5,489 4,395 5,332 4,142
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period 5,817 5,026 5,817 5,026
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Power Corporation of Canada
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 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 September 30, 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
-------------------------------------------------------------------------
September 30, December 31,
2006 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,
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) 196 205
7.153% subordinated debentures due May 16, 2046
unsecured (US$300 million) 336 -
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 Bankers' Acceptance
plus a premium varying between 2.0% and 2.5%
due May 13, 2013 50 50
-------------------------------------------------------------------------
3,345 3,427
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the second quarter of 2006, Great-West Lifeco Inc. (Lifeco) issued
$336 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
-------------------------------------------------------------------------
September 30, December 31,
2006 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 32 34
Capital trust securities held by consolidated
group as temporary investments (185) (186)
-------------------------------------------------------------------------
647 648
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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.
NOTE 4 CAPITAL STOCK AND STOCK OPTION PLAN
STATED CAPITAL
-------------------------------------------------------------------------
September 30, December 31,
2006 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 - 402,601,144 (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
and third quarters of 2006).
During the first quarter of 2005, 1,192,500 options were granted under
the Corporation's stock option plan (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 option granted ($/option) $7.29 $8.64
-------------------------------------------------------------------------
Compensation expense relating to stock options granted by the Corporation
and its subsidiaries amounted to $9 million in the third quarter of 2006
($9 million in 2005) and $25 million for the nine months ended
September 30, 2006 ($21 million in 2005).
Options were outstanding at September 30, 2006 to purchase, until May 16,
2016, up to an aggregate of 12,199,835 subordinate voting shares at
various prices from $11.3625 to $33.285 per share. During the three
months ended September 30, 2006, 851,435 subordinate voting shares
(808,050 in 2005) were issued under the Corporation's plan for an
aggregate consideration of $10 million ($9 million in 2005). During the
nine months ended September 30, 2006, 2,336,450 subordinate voting shares
(4,173,125 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,
together with distributions and interest on capital trust securities and
debentures, and dividends on preferred shares classified as liabilities.
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
2006 2005 2006 2005
-------------------------------------------------------------------------
Interest on debentures
and other borrowings 63 57 175 174
Preferred share dividends 18 20 55 56
Interest on capital trust
debentures 13 13 37 37
Distributions on capital
trust securities held by
consolidated group as
temporary investments (4) (4) (9) (9)
-------------------------------------------------------------------------
90 86 258 258
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 6 OTHER INCOME (CHARGES), NET
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
2006 2005 2006 2005
-------------------------------------------------------------------------
Share of Pargesa's
non-operating earnings 356 1 343 11
Restructuring costs - Lifeco - (4) - (22)
Other - - 5 2
-------------------------------------------------------------------------
356 (3) 348 (9)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 Nine months ended
September 30 September 30
2006 2005 2006 2005
-------------------------------------------------------------------------
Net earnings 509 242 1,104 768
Dividends on
non-participating shares (11) (7) (32) (22)
-------------------------------------------------------------------------
Net earnings available to
participating shareholders 498 235 1,072 746
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted number of
participating shares
outstanding (millions)
- Basic 450.9 448.6 450.3 447.6
Exercise of stock options 9.7 11.9 9.7 11.9
Shares assumed to be
repurchased with proceeds
from exercise of stock
options (5.2) (5.7) (5.2) (5.8)
-------------------------------------------------------------------------
Weighted number of
participating shares
outstanding (millions)
- Diluted 455.4 454.8 454.8 453.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 8 PENSION PLANS AND OTHER POST-RETIREMENT BENEFITS
The total benefit costs included in operating expenses are as follows:
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
2006 2005 2006 2005
-------------------------------------------------------------------------
Pension plans 21 23 68 63
Other post-retirement
benefits 6 13 22 39
-------------------------------------------------------------------------
27 36 90 102
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 9 SECURITIZATIONS
During the third quarter of 2006, IGM Financial Inc. (IGM) securitized
$390 million (2005 - $57 million) of residential mortgages through sales
to commercial paper conduits that in turn issued securities to investors
and received net cash proceeds of $386 million (2005 - $57 million).
IGM's retained interest in the securitized loans was valued at
$10 million (2005 - $2 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 nine months ended September 30, 2006, IGM securitized
$1,026 million (2005 - $189 million) of residential mortgages through
sales to commercial paper conduits that in turn issued securities to
investors and received net cash proceeds of $ 1,019 million (2005 -
$188 million). IGM's retained interest in the securitized loans was
valued at $17 million (2005 - $6 million). A pre-tax gain on sale of
$1 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
September 30,
2006 Lifeco IGM Parjointco Other Total
-------------------------------------------------------------------------
Revenues
Premium income 4,332 - 4,332
Net investment
income 1,577 55 - 1,632
Fees and media
income 658 588 82 1,328
-------------------------------------------------------------------------
6,567 643 - 82 7,292
-------------------------------------------------------------------------
Expenses
Insurance
claims 4,871 - 4,871
Commissions 325 206 (8) 523
Operating
expenses 604 134 124 862
Financing
charges 54 22 14 90
-------------------------------------------------------------------------
5,854 362 - 130 6,346
-------------------------------------------------------------------------
713 281 - (48) 946
Share of earnings
of affiliates - - 12 (3) 9
Other income
(charges), net - - 356 - 356
-------------------------------------------------------------------------
Earnings before
the following: 713 281 368 (51) 1,311
Income taxes 186 89 - (1) 274
Non-controlling
interests 303 121 124 (20) 528
-------------------------------------------------------------------------
Contribution to
consolidated net
earnings 224 71 244 (30) 509
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Information on
Profit Measure
-------------------------------------------------------------------------
Three months
ended
September 30,
2005 Lifeco IGM Parjointco Other Total
-------------------------------------------------------------------------
Revenues
Premium income 3,186 - 3,186
Net investment
income 1,396 39 (8) 1,427
Fees and media
income 606 548 76 1,230
-------------------------------------------------------------------------
5,188 587 - 68 5,843
-------------------------------------------------------------------------
Expenses
Insurance
claims 3,650 - 3,650
Commissions 294 184 (13) 465
Operating
expenses 598 135 122 855
Financing
charges 49 23 14 86
-------------------------------------------------------------------------
4,591 342 - 123 5,056
-------------------------------------------------------------------------
597 245 - (55) 787
Share of earnings
of affiliates - - 19 (4) 15
Other income
(charges), net (4) - 1 - (3)
-------------------------------------------------------------------------
Earnings before
the following: 593 245 20 (59) 799
Income taxes 140 69 - (1) 208
Non-controlling
interests 257 112 6 (26) 349
-------------------------------------------------------------------------
Contribution to
consolidated net
earnings 196 64 14 (32) 242
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Information on
Profit Measure
-------------------------------------------------------------------------
Nine months
ended
September 30,
2006 Lifeco IGM Parjointco Other Total
-------------------------------------------------------------------------
Revenues
Premium income 12,471 - 12,471
Net investment
income 4,416 162 18 4,596
Fees and media
income 1,982 1,764 264 4,010
-------------------------------------------------------------------------
18,869 1,926 - 282 21,077
-------------------------------------------------------------------------
Expenses
Insurance
claims 13,831 - 13,831
Commissions 999 614 (21) 1,592
Operating
expenses 1,842 425 377 2,644
Financing
charges 152 66 40 258
-------------------------------------------------------------------------
16,824 1,105 - 396 18,325
-------------------------------------------------------------------------
2,045 821 - (114) 2,752
Share of earnings
of affiliates - - 94 (10) 84
Other income
(charges), net - - 343 5 348
-------------------------------------------------------------------------
Earnings before
the following: 2,045 821 437 (119) 3,184
Income taxes 491 242 - (5) 728
Non-controlling
interests 907 365 147 (67) 1,352
-------------------------------------------------------------------------
Contribution to
consolidated net
earnings 647 214 290 (47) 1,104
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Information on Profit Measure
-------------------------------------------------------------------------
Nine months
ended
September 30,
2005 Lifeco IGM Parjointco Other Total
-------------------------------------------------------------------------
Revenues
Premium income 11,530 - 11,530
Net investment
income 4,015 136 (14) 4,137
Fees and media
income 1,808 1,603 260 3,671
-------------------------------------------------------------------------
17,353 1,739 - 246 19,338
-------------------------------------------------------------------------
Expenses
Insurance
claims 12,547 - 12,547
Commissions 954 537 (24) 1,467
Operating
expenses 1,849 414 368 2,631
Financing
charges 146 68 44 258
-------------------------------------------------------------------------
15,496 1,019 - 388 16,903
-------------------------------------------------------------------------
1,857 720 - (142) 2,435
Share of earnings
of affiliates - - 82 (9) 73
Other income
(charges), net (22) - 11 2 (9)
-------------------------------------------------------------------------
Earnings before
the following: 1,835 720 93 (149) 2,499
Income taxes 441 214 - 3 658
Non-controlling
interests 792 320 31 (70) 1,073
-------------------------------------------------------------------------
Contribution to
consolidated net
earnings 602 186 62 (82) 768
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 11 ACQUISITIONS
a) In the third quarter of 2006, Mackenzie Financial Corporation
(Mackenzie), a subsidiary of IGM, 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 met. The preliminary purchase price has
been allocated to intangible assets and will be completed as soon as
Mackenzie has gathered all the significant information considered
necessary in order to finalize this allocation.
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. Arrangements are being made to transfer the policies to Lifeco
and the transfer is expected to be completed in the first quarter of
2007 subject to regulatory and court approval. The transaction
resulted in an increase in funds held by ceding insurers and a
corresponding increase in policyholder liabilities of $9.5 billion
((pnds stlg)4.6 billion) on the Consolidated Balance Sheet at
September 30, 2006.
c) During the second quarter of 2006, Great-West Life & Annuity Insurance
Company (GWL&A) entered into a reinsurance agreement to acquire
several parts of the full service-bundled, small and midsize 401(k),
as well as some defined benefit plan business, of Metropolitan Life
Insurance Company and its affiliates. The acquisition also includes
the associated dedicated distribution group, including wholesalers,
relationship managers and sales associates. The transaction closed on
October 2, 2006, and is expected to increase assets and policyholder
liabilities by approximately $1.6 billion (US$1.4 billion) on the
Consolidated Balance Sheet. In addition, Lifeco will receive fee
income by providing administrative services and recordkeeping
functions on approximately $7.1 billion (US$6.3 billion) of
participant account values.
In anticipation of a large receipt of cash in early October associated
with the above transaction, Lifeco purchased approximately
$1.6 billion (US$1.4 billion) of U.S. government securities at close
of business on September 29, 2006 in order to fix the interest rate
earned. These purchases coincided with the pricing of the reinsurance
transaction which settled on October 2, 2006. The securities purchases
settled in early October. The transaction resulted in an increase in
invested assets and a corresponding increase in other liabilities of
approximately $1.6 billion (US$1.4 billion) at September 30, 2006.
d) 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 not expected to have a
material impact on the financial position of the Corporation.
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 Statements 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 $557 million to funds held under reinsurance
contracts with a corresponding increase in policyholder liabilities.
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