Readers are referred to the Forward-looking Statements and Non-GAAP
Financial Measures sections at the end of this release.
WINNIPEG, Aug. 2 /CNW Telbec/ - Power Corporation of Canada's operating earnings for the six-month period ended June 30, 2007 were $757 million or $1.62 per share, compared with $593 million or $1.27 per share in the corresponding period of 2006. This represents a 27.8% increase on a per share basis.
Growth in operating earnings reflects an increase of 18% in the contribution from Power Financial, as well as a significant increase in income from investments generated primarily by the Corporation's portfolio of investment in funds in North America, its interest in Sagard 1 Fund in Europe, and its operations as a Qualified Foreign Institutional Investor in China.
Other income was $2 million or $0.01 per share for the six-month period in 2007. Other income was also $2 million for the corresponding period in 2006.
As a result, net earnings for the six months ended June 30, 2007 were $759 million or $1.63 per share, compared with $595 million or $1.27 per share in the same period of 2006.
SECOND-QUARTER RESULTS
----------------------
For the quarter ended June 30, 2007, operating earnings of the Corporation were $394 million or $0.84 per share, compared with $339 million or $0.73 per share in the second quarter of 2006. This represents an increase of 15.4% on a per share basis.
Other income for the second quarter of 2007 was $2 million or $0.01 per share, compared with $2 million for the same quarter of 2006.
Net earnings for the quarter were therefore $396 million or $0.85 per share in 2007, compared with $341 million or $0.73 per share in 2006.
RESULTS OF POWER FINANCIAL CORPORATION
--------------------------------------
Power Financial Corporation's operating earnings for the six-month period ended June 30, 2007 were $1,052 million or $1.43 per share, compared with $891 million or $1.22 per share in the corresponding period of 2006. This represents an 18.1% increase on a per share basis.
Growth in operating earnings reflects primarily growth in the contribution from Power Financial's subsidiaries and affiliate.
Other income was $3 million for the six-month period ended June 30, 2007 or $0.01 per share, compared with a charge of $5 million or $0.01 per share for the same period in 2006, and therefore net earnings, including other income, for the six-month period ended June 30, 2007 were $1,055 million or $1.44 per share, compared with $886 million or $1.21 per share in the same period of 2006.
For the quarter ended June 30, 2007, operating earnings of Power Financial were $570 million or $0.78 per share, compared with $483 million or $0.66 per share in the second quarter of 2006. This represents an increase of 17.9% on a per share basis.
Other items for the second quarter of 2007 were $3 million or $0.01 per share, compared with a charge of $5 million or $0.01 per share for the same quarter of 2006.
Net earnings for the quarter were therefore $573 million or $0.79 per share in 2007, compared with $478 million or $0.65 per share in 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 September 24, 2007 October 15, 2007 To be determined
In accordance
with the articles
of the Corporation
-------------------------------------------------------------------------
Series A September 24, 2007 October 15, 2007 35 cents
-------------------------------------------------------------------------
Series B September 24, 2007 October 15, 2007 33.4375 cents
-------------------------------------------------------------------------
Series C September 24, 2007 October 15, 2007 36.25 cents
-------------------------------------------------------------------------
Series D September 24, 2007 October 15, 2007 31.25 cents
-------------------------------------------------------------------------
DIVIDENDS ON PARTICIPATING SHARES
---------------------------------
The Board of Directors also declared a quarterly dividend of 24.125 cents
on the Participating Preferred and Subordinate Voting Shares of the
Corporation, payable September 28, 2007 to shareholders of record September 7,
2007.
Forward-looking Statements
--------------------------
Certain statements in this news 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
affiliatc 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 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 disclosatels, 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
-------------------------------------------------------------------------
June 30, December 31,
2007 2006
(in millions of dollars) (unaudited)
-------------------------------------------------------------------------
Assets
Cash and cash equivalents 6,647 5,785
-------------------------------------------------------------------------
Investments (Note 2)
Shares 7,423 5,598
Bonds 69,456 65,246
Mortgages and other loans 15,776 15,823
Loans to policyholders 6,496 6,776
Real estate 2,209 2,218
-------------------------------------------------------------------------
101,360 95,661
Funds held by ceding insurers 1,720 12,371
Investment in affiliates, at equity 3,538 2,182
Intangible assets 2,697 2,745
Goodwill 8,486 8,454
Future income taxes 455 471
Other assets 6,245 5,083
-------------------------------------------------------------------------
131,148 132,752
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities
Policy liabilities
Actuarial liabilities 87,773 89,490
Other 4,268 4,488
Deposits and certificates 778 778
Funds held under reinsurance contracts 1,944 1,822
Debentures and other borrowings (Note 3) 4,354 3,402
Preferred shares of subsidiaries 1,682 1,625
Capital trust securities and debentures (Note 4) 638 646
Future income taxes 933 909
Other liabilities 6,254 9,008
-------------------------------------------------------------------------
108,624 112,168
-------------------------------------------------------------------------
Non-controlling interests (Note 5) 12,630 11,983
-------------------------------------------------------------------------
Shareholders' Equity
Stated capital (Note 6)
Non-participating shares 795 795
Participating shares 473 442
Contributed surplus 68 59
Retained earnings 7,840 7,480
Accumulated other comprehensive income (loss)
(Note 7) 718 (175)
-------------------------------------------------------------------------
9,894 8,601
-------------------------------------------------------------------------
131,148 132,752
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
-------------------------------------------------------------------------
(unaudited) (in millions Three months ended Six months ended
of dollars, except per June 30 June 30
share amounts) 2007 2006 2007 2006
-------------------------------------------------------------------------
Revenues
Premium income 4,266 4,444 9,879 8,139
Net investment income
Regular net investment
income 1,601 1,590 3,162 2,964
Change in fair value on
held for trading assets (1,931) - (2,347) -
-----------------------------------------
(330) 1,590 815 2,964
Fees and media income 1,524 1,341 3,040 2,671
-------------------------------------------------------------------------
5,460 7,375 13,734 13,774
-------------------------------------------------------------------------
Expenses
Policyholders benefits,
dividends and experience
refunds, and change in
actuarial liabilities 2,764 4,959 8,348 8,960
Commissions 597 526 1,193 1,058
Operating expenses 935 878 1,903 1,782
Financing charges (Note 8) 90 86 176 168
-------------------------------------------------------------------------
4,386 6,449 11,620 11,968
-------------------------------------------------------------------------
1,074 926 2,114 1,806
Share of earnings of affiliates 75 68 87 75
Other income (charges), net 3 (8) 3 (8)
-------------------------------------------------------------------------
Earnings before income taxes
and non-controlling interests 1,152 986 2,204 1,873
Income taxes 266 200 517 454
Non-controlling interests
(Note 5) 490 445 928 824
-------------------------------------------------------------------------
Net earnings 396 341 759 595
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per participating
share (Note 9)
Basic 0.85 0.73 1.63 1.27
-------------------------------------------------------------------------
Diluted 0.84 0.73 1.62 1.26
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-------------------------------------------------------------------------
Three months ended Six months ended
(unaudited) June 30 June 30
(in millions of dollars) 2007 2006 2007 2006
-------------------------------------------------------------------------
Net earnings 396 341 759 595
-------------------------------------------------------------------------
Other comprehensive income (loss)
Net unrealized gains (losses)
on available-for-sale assets
Unrealized gains (losses) 437 - 457 -
Income tax on unrealized
gains (losses) (18) - (22) -
Reclassification of realized
(gains) losses to net
earnings (98) - (170) -
Income tax on reclassification
of realized (gains) losses
to net earnings 22 - 37 -
-------------------------------------------------------------------------
343 - 302 -
-------------------------------------------------------------------------
Net unrealized gains (losses)
on cash flow hedges
Unrealized gains (losses) (59) - (57) -
Income tax on unrealized
gains (losses) 21 - 21 -
Reclassification of realized
(gains) losses to net
earnings 13 - 40 -
Income tax on reclassification
of realized (gains) losses
to net earnings (2) - (7) -
-------------------------------------------------------------------------
(27) - (3) -
-------------------------------------------------------------------------
Net unrealized gains (losses)
on foreign currency translation (640) (116) (695) (48)
-------------------------------------------------------------------------
Other comprehensive income
(loss) before non-controlling
interests (324) (116) (396) (48)
Non-controlling interests 247 42 304 13
-------------------------------------------------------------------------
Other comprehensive income (loss) (77) (74) (92) (35)
-------------------------------------------------------------------------
Comprehensive income 319 267 667 560
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------
Six months ended June 30
(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 31 15
-------------------------------------------------------------------------
Participating shares, end of period 473 432
-------------------------------------------------------------------------
Contributed surplus
Contributed surplus, beginning of year 59 37
Stock options expense 14 16
Non-controlling interests (5) (6)
-------------------------------------------------------------------------
Contributed surplus, end of period 68 47
-------------------------------------------------------------------------
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 759 595
Dividends to shareholders
Non-participating shares (21) (21)
Participating shares (199) (165)
Other 2 (3)
-------------------------------------------------------------------------
Retained earnings, end of period 7,840 6,884
-------------------------------------------------------------------------
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) (92) (35)
-------------------------------------------------------------------------
Accumulated other comprehensive income (loss),
end of period 718 (503)
-------------------------------------------------------------------------
Total Shareholders' Equity 9,894 7,655
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------
Three months ended Six months ended
(unaudited) June 30 June 30
(in millions of dollars) 2007 2006 2007 2006
-------------------------------------------------------------------------
Operating activities
Net earnings 396 341 759 595
Non-cash charges (credits)
Increase (decrease) in
policy liabilities (1,496) 274 (1,548) 403
Decrease (increase) in
funds held by ceding
insurers 153 379 441 431
Increase (decrease) in
funds held under
reinsurance contracts 24 (19) 50 (97)
Amortization and
depreciation 29 28 61 55
Future income taxes (59) (3) (53) 72
Non-controlling interests 490 445 928 824
Other 1,920 297 2,519 (106)
Change in non-cash working
capital 137 344 (1,299) (153)
-------------------------------------------------------------------------
1,594 2,086 1,858 2,024
-------------------------------------------------------------------------
Financing activities
Dividends paid
By subsidiaries to non-
controlling interests (202) (174) (397) (344)
Non-participating shares (11) (10) (21) (20)
Participating shares (109) (89) (199) (165)
-------------------------------------------------------------------------
(322) (273) (617) (529)
Issue of subordinated voting
shares 1 4 31 15
Issue of common shares by
subsidiaries 7 6 26 24
Repurchase of common shares
by subsidiaries (31) (15) (49) (37)
Issue of preferred shares by
a subsidiary - 300 - 300
Repurchase of preferred shares
by a subsidiary - (12) - (12)
Issue of debentures and other
borrowings 1,000 336 1,013 336
Repayment of debentures and
other borrowings (5) - (5) (150)
Other 77 (53) 97 (46)
-------------------------------------------------------------------------
727 293 496 (99)
-------------------------------------------------------------------------
Investment activities
Bond sales and maturities 5,287 6,200 11,819 13,332
Mortgage loan repayments 502 473 971 911
Sales of shares 546 312 959 673
Real estate sales 15 (74) 34 45
Proceeds from securitizations 347 547 658 633
Change in loans to
policyholders (126) (133) (160) (220)
Change in repurchase
agreements 160 4 (267) 118
Investment in bonds (5,362) (7,412) (11,305) (14,505)
Investment in mortgage loans (1,116) (1,109) (2,055) (1,895)
Investment in shares (980) (375) (1,755) (775)
Investment in real estate (83) (44) (196) (116)
Other (4) (8) (13) (9)
-------------------------------------------------------------------------
(814) (1,619) (1,310) (1,808)
-------------------------------------------------------------------------
Effect of changes in exchange
rates on cash and cash
equivalents (166) 10 (182) 40
Increase (decrease) in cash
and cash equivalents 1,341 770 862 157
Cash and cash equivalents,
beginning of period 5,306 4,719 5,785 5,332
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period 6,647 5,489 6,647 5,489
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Power Corporation of Canada
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 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 June 30, 2007 have been prepared in accordance
with generally accepted accounting principles in Canada (GAAP). 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 financial 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 for the adoption of the new rules on Financial
Instruments as described 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 Great-West Lifeco Inc. (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 Lifeco's method of accounting
for real estate or loans.
The remainder of the Corporation's investments in shares was 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
standards: 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 made 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 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.
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.
These new requirements are for disclosure only and will not impact
financial results of the Corporation.
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 prohibits the restatement of comparative information
under these new standards.
NOTE 2 INVESTMENTS
June 30, 2007
---------------------------------------------------
Market value Amortized cost Total
-------------------- ------------------------------
Non-
finan-
Loans cial December
Available Held for and re- ins- 31,
for sale trading ceivables truments 2006
-------------------------------------------------- ---------
Shares 2,714 4,709 - - 7,423 5,598
Bonds 5,063 55,093 9,300 - 69,456 65,246
Mortgages and
other loans - - 15,776 - 15,776 15,823
Loans to
policyholders - - 6,496 - 6,496 6,776
Real estate - - - 2,209 2,209 2,218
-------------------------------------------------------------------------
7,777 59,802 31,572 2,209 101,360 95,661
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 3 DEBENTURES AND OTHER BORROWINGS
-------------------------------------------------------------------------
June 30, 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) 184 205
7.153% subordinated debentures due May 16, 2046,
unsecured (US$300 million) 318 351
Subordinated debentures due June 21, 2067
bearing an interest rate of 5.691% until
2017 and, thereafter, at a rate equal to the
Canadian 90-day Bankers' Acceptance rate plus
1.49%, unsecured 1,000 -
Notes payable with interest of 8.0% 7 8
Other
Term loan at prime plus a premium varying
between 1.0% and 1.75% Acceptance plus a
premium varying between 2.0% and 2.75% due
May 13, 2013 50 50
Bank loan at prime plus a premium, varying
between 0.375% to 1.5%, or Bankers' Acceptance
plus a premium varying between 1.375% and 2.5%
due May 13, 2010 41 33
-------------------------------------------------------------------------
4,354 3,402
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the second quarter of 2007, Lifeco issued $1.0 billion of 5.691%
Subordinated Debentures through its wholly-owned subsidiary Great-West
Lifeco Finance (Delaware) LP. The subordinated debentures are due
June 21, 2067 and bear an interest rate of 5.691% until June 21, 2017.
After June 21, 2017, the subordinated debentures will bear an interest
rate of the three month bankers' acceptance rate plus 1.49%. The
subordinated debentures may be redeemed by Lifeco at the principal amount
plus any unpaid and accrued interest after June 21, 2017.
NOTE 4 CAPITAL TRUST SECURITIES AND DEBENTURES
-------------------------------------------------------------------------
June 30, 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 29 31
Capital trust securities held by consolidated
group as temporary investments (191) (185)
-------------------------------------------------------------------------
638 646
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
June 30, December 31,
2007 2006
-------------------------------------------------------------------------
Non-controlling interests include
Participating policyholders 2,021 1,884
Preferred shareholders (perpetual) of
subsidiaries 2,652 2,653
Common shareholders of subsidiaries 7,957 7,446
-------------------------------------------------------------------------
12,630 11,983
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
Three months ended March 31 2007 2006 2007 2006
-------------------------------------------------------------------------
Earnings attributable to non-
controlling interests include
Earnings attributable to
participating policyholders 38 57 67 87
Dividends to preferred
shareholders (perpetual) of
subsidiaries 38 35 75 65
Earnings attributable to
common shareholders of
subsidiaries 414 353 786 672
-------------------------------------------------------------------------
490 445 928 824
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 6 CAPITAL STOCK AND STOCK OPTION PLAN
STATED CAPITAL
-------------------------------------------------------------------------
June 30, 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 - 404,876,082 (2006 - 402,606,144) shares 446 415
-------------------------------------------------------------------------
473 442
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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). 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 second quarter of 2007).
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% 2.3%
Expected volatility 15.5% 19.0%
Risk-free interest rate 4.0% 4.3%
Expected life (years) 7 7
Fair value per option granted ($/option) $7.11 $7.29
-------------------------------------------------------------------------
Compensation expense relating to the stock options granted by the
Corporation and its subsidiaries amounted to $8 million in the second
quarter of 2007 ($9 million in 2006) and $14 million for the six months
ended June 30, 2007 ($16 million in 2006).
Options were outstanding at June 30, 2007 to purchase, until March 25,
2017, 11,133,972 subordinate voting shares at various prices from
$11.3625 to $37.07. During the six months ended June 30, 2007,
2,269,938 subordinate voting shares (1,485,015 in 2006) were issued under
the Corporation's plan for an aggregate consideration of $31 million
($15 million in 2006).
NOTE 7 ACCUMULATED OTHER COMPREHENSIVE INCOME
Unrealized gains (losses), on
--------------------------------------------------------------
Foreign
Six months ended Available- Cash currency
June 30, 2007 for-sale flow transla-
assets hedges tion 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) 287 (17) (695) (425)
Income taxes 15 14 - 29
---------------------------------------------
302 (3) (695) (396)
---------------------------------------------
Non-controlling interests (26) (1) 331 304
-------------------------------------------------------------------------
276 (4) (364) (92)
-------------------------------------------------------------------------
Balance, end of period 1,275 (18) (539) 718
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Unrealized gains (losses), on
--------------------------------------------------------------
Foreign
Available- Cash currency
Six months ended for-sale flow transla-
June 30, 2006 assets hedges tion Total
-------------------------------------------------------------------------
Balance, beginning of year - - (468) (468)
---------------------------------------------
Other comprehensive income
(loss) - - (48) (48)
Income taxes - - - -
---------------------------------------------
- - (48) (48)
---------------------------------------------
Non-controlling interests - - 13 13
-------------------------------------------------------------------------
- - (35) (35)
-------------------------------------------------------------------------
Balance, end of period - - (503) (503)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 Six months ended
June 30 June 30
2007 2006 2007 2006
-------------------------------------------------------------------------
Interest on debentures and
other borrowings 59 56 115 109
Preferred share dividends 18 18 36 37
Unrealized gains on preferred
shares classified as held for
trading (12) - (14) -
Subordinated debenture issue
costs 13 - 13 -
Interest on capital trust
debentures 12 12 24 24
Distributions on capital trust
securities held by consolidated
group as temporary investments (2) (2) (5) (5)
Other 2 2 7 3
-------------------------------------------------------------------------
90 86 176 168
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 Six months ended
June 30 June 30
2007 2006 2007 2006
-------------------------------------------------------------------------
Net earnings 396 341 759 595
Dividends on non-participating
shares (11) (10) (21) (21)
-------------------------------------------------------------------------
Net earnings available to
participating shareholders 385 331 738 574
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted number of participating
shares outstanding (millions)
- Basic 453.7 450.5 453.0 450.0
Exercise of stock options 11.1 10.4 11.1 10.4
Shares assumed to be repurchased
with proceeds from exercise of
stock options (6.6) (5.5) (6.8) (5.4)
-------------------------------------------------------------------------
Weighted number of participating
shares outstanding (millions)
- Diluted 458.2 455.4 457.3 455.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 10 PENSION PLANS AND OTHER POST-RETIREMENT BENEFITS
The total benefit costs included in operating expenses are as follows:
-------------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
2007 2006 2007 2006
-------------------------------------------------------------------------
Pension plans 15 24 31 49
Other post-retirement benefits 8 7 15 15
-------------------------------------------------------------------------
23 31 46 64
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 11 SECURITIZATIONS
During the second quarter of 2007, IGM Financial Inc. (IGM) securitized
$351 million ($550 million in 2006) of residential mortgages through
sales to commercial paper conduits and received net cash proceeds of
$347 million ($547 million in 2006). IGM's retained interest in the
securitized loans was valued at $5 million ($6 million in 2006). A pre-
tax loss on sale of $1 million ($3 million in 2006) was recognized and
reported in Net investment income in the Consolidated Statements of
Earnings.
During the six-months ended June 30, 2007, IGM securitized $664 million
($639 million in 2006) of residential mortgages through sales to
commercial paper conduits and received net cash proceeds of $658 million
($633 million in 2006). IGM's retained interest in the securitized loans
was valued at $14 million ($8 million in 2006). A pre-tax gain on sale of
$2 million (a loss of $2 million 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 Par-
June 30, 2007 Lifeco IGM jointco Other Total
-------------------------------------------------------------------------
Revenues
Premium income 4,266 - - - 4,266
Net investment income (444) 45 - 69 (330)
Fees and media income 749 677 - 98 1,524
-------------------------------------------------------------------------
4,571 722 - 167 5,460
-------------------------------------------------------------------------
Expenses
Policyholders benefits,
dividends and
experience refunds,
and change in
actuarial liabilities 2,764 - - - 2,764
Commissions 374 237 - (14) 597
Operating expenses 625 154 - 156 935
Financing charges 53 22 - 15 90
-------------------------------------------------------------------------
3,816 413 - 157 4,386
-------------------------------------------------------------------------
755 309 - 10 1,074
Share of earnings of
affiliates - - 80 (5) 75
Other income (charges),
net - - 3 - 3
-------------------------------------------------------------------------
Earnings before income
taxes and non-controlling
interests 755 309 83 5 1,152
Income taxes 154 93 - 19 266
Non-controlling
interests 346 135 28 (19) 490
-------------------------------------------------------------------------
Contribution to
consolidated net
earnings 255 81 55 5 396
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Information on Profit Measure
-------------------------------------------------------------------------
Three months ended Par-
June 30, 2007 Lifeco IGM jointco Other Total
-------------------------------------------------------------------------
Revenues
Premium income 4,444 - - - 4,444
Net investment income 1,516 50 - 24 1,590
Fees and media income 667 587 - 87 1,341
-------------------------------------------------------------------------
6,627 637 - 111 7,375
-------------------------------------------------------------------------
Expenses
Policyholders benefits,
dividends and
experience refunds,
and change in
actuarial liabilities 4,959 - - - 4,959
Commissions 332 206 - (12) 526
Operating expenses 612 142 - 124 878
Financing charges 51 22 - 13 86
-------------------------------------------------------------------------
5,954 370 - 125 6,449
-------------------------------------------------------------------------
673 267 - (14) 926
Share of earnings of
affiliates - - 72 (4) 68
Other income (charge),
net - - (13) 5 (8)
-------------------------------------------------------------------------
Earnings before income
taxes and non-controlling
interests 673 267 59 (13) 986
Income taxes 136 66 - (2) 200
Non-controlling
interests 322 126 20 (23) 445
-------------------------------------------------------------------------
Contribution to
consolidated net
earnings 215 75 39 12 341
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Information on Profit Measure
-------------------------------------------------------------------------
Six months ended Par-
June 30, 2007 Lifeco IGM jointco Other Total
-------------------------------------------------------------------------
Revenues
Premium income 9,879 - - - 9,879
Net investment income 558 108 - 149 815
Fees and media income 1,513 1,335 - 192 3,040
-------------------------------------------------------------------------
11,950 1,443 - 341 13,734
-------------------------------------------------------------------------
Expenses
Policyholders benefits,
dividends and
experience refunds,
and change in
actuarial liabilities 8,348 - - - 8,348
Commissions 752 468 - (27) 1,193
Operating expenses 1,292 311 - 300 1,903
Financing charges 104 44 - 28 176
-------------------------------------------------------------------------
10,496 823 - 301 11,620
-------------------------------------------------------------------------
1,454 620 - 40 2,114
Share of earnings of
affiliates - - 98 (11) 87
Other income (charges),
net - - 3 - 3
-------------------------------------------------------------------------
Earnings before income
taxes and non-controlling
interests 1,454 620 101 29 2,204
Income taxes 292 192 - 33 517
Non-controlling
interests 666 269 34 (41) 928
-------------------------------------------------------------------------
Contribution to
consolidated net
earnings 496 159 67 37 759
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Information on Profit Measure
-------------------------------------------------------------------------
Six months ended Par-
June 30, 2006 Lifeco IGM jointco Other Total
-------------------------------------------------------------------------
Revenues
Premium income 8,139 - - - 8,139
Net investment income 2,839 107 - 18 2,964
Fees and media income 1,324 1,176 - 171 2,671
-------------------------------------------------------------------------
12,302 1,283 - 189 13,774
-------------------------------------------------------------------------
Expenses
Policyholders benefits,
dividends and
experience refunds,
and change in
actuarial liabilities 8,960 - - - 8,960
Commissions 674 408 - (24) 1,058
Operating expenses 1,238 291 - 253 1,782
Financing charges 98 44 - 26 168
-------------------------------------------------------------------------
10,970 743 - 255 11,968
-------------------------------------------------------------------------
1,332 540 - (66) 1,806
Share of earnings of
affiliates - - 82 (7) 75
Other income (charge),
net - - (13) 5 (8)
-------------------------------------------------------------------------
Earnings before income
taxes and non-controlling
interests 1,332 540 69 (68) 1,873
Income taxes 305 153 - (4) 454
Non-controlling interests 604 244 23 (47) 824
-------------------------------------------------------------------------
Contribution to
consolidated net
earnings 423 143 46 (17) 595
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 $371 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 $583 million (US$550 million). In aggregate these
transactions represent a value of approximately $4.1 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. Also refer to
note 14, Subsequent events.
(b) Other Acquisitions
On May 31, 2007, Great-West Life & Annuity Insurance Company (GWL&A)
acquired an 80% equity interest in Benefits Management Corporation (BMC).
The assets acquired, liabilities assumed and Lifeco equity interest in
the results of BMC's operations have been included in its consolidated
financial statements since that date. The acquisition will add
approximately 90,000 members to Lifeco's medical membership. BMC's
principal subsidiary, Allegiance Benefit Management, Inc., is a Montana-
based third party administrator of employee health plans.
The value of identifiable intangible assets acquired reflects the
estimated fair value of Lifeco's interest in BMC's customer base at the
time of acquisition. The value of the identifiable intangible assets will
be amortized in relation to the expected economic benefits of the
business acquired. If actual experience differs from expectations, the
amortization will be adjusted to reflect actual experience.
NOTE 14 SUBSEQUENT EVENTS
a) On July 5, 2007, Canada Life acquired all of the remaining outstanding
common shares of Crown Life Insurance Company (Crown Life) for cash
consideration of $115 million. The allocation of the purchase price to
the assets acquired and liabilities assumed is expected to be completed
during the remainder of 2007. It is anticipated that the acquisition will
result in an increase in invested assets of approximately $533 million,
an increase in other assets of approximately $32 million, an increase in
policyholder liabilities of approximately $383 million and an increase in
other liabilities of approximately $67 million. Results of Crown Life
will be included in the Consolidated Statements of Earnings from the date
of acquisition and are not expected to have a material impact to the
financial results of the Corporation.
b) Putnam Investments Trust
Related to the acquisition of Putnam Investments Trust, all regulatory
approvals have been received and the pre-closing conditions have been
satisfied. The transaction is expected to close in the third quarter.