Readers are referred to the Forward-looking Information and Non-GAAP
Financial Measures sections at the end of this release.
WINNIPEG, MB, Aug. 3 /CNW Telbec/ - Power Corporation of Canada's
operating earnings for the six-month period ended June 30, 2006 were
$593 million or $1.27 per share, compared with $523 million or $1.14 per share
in the corresponding period of 2005. This represents an 11.7% increase on a
per share basis.
Growth in the Corporation's operating earnings reflects an increase in
the contribution from Power Financial Corporation. It also reflects an
increase in income from investments, which includes $32 million of pre-tax
gains in the second quarter contributed by Sagard, the European private equity
fund.
Other items not included in operating earnings were $2 million in the
six-month period in 2006, compared with $3 million in the corresponding period
in 2005.
As a result, net earnings for the six months ended June 30, 2006 were
$595 million or $1.27 per share, compared with $526 million or $1.14 per share
in 2005.
SECOND QUARTER RESULTS
----------------------
For the quarter ended June 30, 2006, operating earnings of the
Corporation were $339 million or $0.73 per share, compared with $292 million
or $0.64 per share in the second quarter in 2005. This represents an increase
of 14.9% on a per share basis. The increase reflects growth in the
contribution from subsidiaries, as well as higher income from investments, as
explained above.
Other items for the quarter in 2006 were $2 million, as in 2005.
Net earnings for the quarter were therefore $341 million or $0.73 per
share in 2006, compared with $294 million or $0.64 per share in 2005.
RESULTS OF POWER FINANCIAL CORPORATION
--------------------------------------
Power Financial Corporation's operating earnings for the six-month period
ended June 30, 2006 were $891 million or $1.22 per share, compared with
$830 million or $1.14 per share in the corresponding period in 2005. This
represents a 6.7% increase on a per share basis.
Growth in the Power Financial's operating earnings reflects an increase
in the contribution from its subsidiaries and affiliate.
Other items not included in operating earnings were a net charge of
$5 million or $0.01 per share in the six-month period in 2006. Other items
were nil in the six month period in 2005.
As a result, net earnings for the six-month period ended June 30, 2006
were $886 million or $1.21 per share, compared with $830 million or $1.14 per
share for the same period in 2005.
For the quarter ended June 30, 2006, operating earnings of Power
Financial were $483 million or $0.66 per share, compared with $449 million or
$0.62 per share in the second quarter of 2005, representing an increase of
7.1% on a per share basis.
Other items for the quarter in 2006 were a charge of $5 million or $0.01
per share, compared with a credit of $2 million in the second quarter of 2005.
Net earnings for the quarter were therefore $478 million or $0.65 per
share in 2006, compared with $451 million or $0.62 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 September 22, 2006 October 15, 2006 To be determined
In accordance with
the articles of the
Corporation
-------------------------------------------------------------------------
Series A September 22, 2006 October 15, 2006 35¿
-------------------------------------------------------------------------
Series B September 22, 2006 October 15, 2006 33.4375¿
-------------------------------------------------------------------------
Series C September 22, 2006 October 15, 2006 36.25¿
-------------------------------------------------------------------------
Series D September 22, 2006 October 15, 2006 31.25¿
-------------------------------------------------------------------------
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 September 29, 2006 to shareholders of record September 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 per the financial
statements.
Management has used these performance measures for many years in its
presentation and analysis of the financial performance of Power, 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 form operations less meaningful, including its share of any such item
presented in a comparable manner by Lifeco and IGM. 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,
2006 2005
(in millions of dollars) (unaudited)
-------------------------------------------------------------------------
Assets
Cash and cash equivalents 5,489 5,332
-------------------------------------------------------------------------
Investments
Shares 5,043 4,867
Bonds 60,479 59,298
Mortgages and other loans 15,428 15,118
Loans to policyholders 6,670 6,646
Real estate 1,870 1,844
-------------------------------------------------------------------------
89,490 87,773
Funds held by ceding insurers 11,526 2,556
Investment in affiliates, at equity 1,629 1,554
Intangible assets 2,418 2,419
Goodwill 8,281 8,264
Future income taxes 394 476
Other assets 4,660 4,625
-------------------------------------------------------------------------
123,887 112,999
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities
Policy liabilities
Actuarial liabilities 81,105 71,263
Other 4,159 3,787
Deposits and certificates 669 693
Funds held under reinsurance contracts 3,954 4,325
Debentures and other borrowings (Note 2) 3,599 3,427
Preferred shares of subsidiaries 1,644 1,656
Capital trust securities and debentures (Note 3) 647 648
Future income taxes 836 865
Other liabilities 8,669 8,836
-------------------------------------------------------------------------
105,282 95,500
-------------------------------------------------------------------------
Non-controlling interests 10,950 10,240
-------------------------------------------------------------------------
Shareholders' Equity
Stated capital (Note 4)
Non-participating shares 795 795
Participating shares 432 417
Contributed surplus 47 37
Retained earnings 6,884 6,478
Foreign currency translation adjustments (503) (468)
-------------------------------------------------------------------------
7,655 7,259
-------------------------------------------------------------------------
123,887 112,999
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
-------------------------------------------------------------------------
Three months Six months
(unaudited) (in millions of ended ended
dollars, except per share June 30 June 30
amounts) 2006 2005 2006 2005
-------------------------------------------------------------------------
Revenues
Premium income 4,444 3,784 8,139 8,344
Net investment income 1,599 1,384 2,985 2,725
Fees and media income 1,347 1,247 2,682 2,441
-------------------------------------------------------------------------
7,390 6,415 13,806 13,510
-------------------------------------------------------------------------
Expenses
Paid or credited to policyholders
and beneficiaries including
policyholder dividends and
experience refunds 4,959 4,081 8,960 8,897
Commissions 532 504 1,069 1,002
Operating expenses 878 879 1,782 1,776
Financing charges (Note 5) 86 86 168 172
-------------------------------------------------------------------------
6,455 5,550 11,979 11,847
-------------------------------------------------------------------------
935 865 1,827 1,663
Share of earnings of affiliates 68 50 75 58
Other income (charges), net
(Note 6) (8) (2) (8) (6)
-------------------------------------------------------------------------
Earnings before income taxes
and non-controlling interests 995 913 1,894 1,715
Income taxes 202 232 459 453
Non-controlling interests 452 387 840 736
-------------------------------------------------------------------------
Net earnings 341 294 595 526
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per participating
share (Note 7)
Basic 0.73 0.64 1.27 1.14
-------------------------------------------------------------------------
Diluted 0.73 0.63 1.26 1.13
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
-------------------------------------------------------------------------
Six months ended June 30
(unaudited) (in millions of dollars) 2006 2005
-------------------------------------------------------------------------
Retained earnings, beginning of year 6,478 5,761
Add
Net earnings 595 526
-------------------------------------------------------------------------
7,073 6,287
-------------------------------------------------------------------------
Deduct
Dividends
Non-participating shares 21 15
Participating shares 165 140
Other 3 -
-------------------------------------------------------------------------
189 155
-------------------------------------------------------------------------
Retained earnings, end of period 6,884 6,132
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------
Three months Six months
ended ended
June 30 June 30
(unaudited) (in millions of dollars) 2006 2005 2006 2005
-------------------------------------------------------------------------
Operating activities
Net earnings 341 294 595 526
Non-cash charges (credits)
Increase (decrease) in policy
liabilities 274 579 403 1,458
Decrease (increase) in funds
held by ceding insurers 379 102 431 230
Increase (decrease) in funds
held under reinsurance
contracts (19) (70) (97) (68)
Amortization and depreciation 28 28 55 57
Future income taxes (1) (14) 77 137
Non-controlling interests 452 387 840 736
Other 288 419 92 396
Change in non-cash working
capital 344 15 (372) (658)
-------------------------------------------------------------------------
2,086 1,740 2,024 2,814
-------------------------------------------------------------------------
Financing activities
Dividends paid
By subsidiaries to
non-controlling interests (174) (144) (344) (291)
Non-participating shares (10) (8) (20) (15)
Participating shares (89) (76) (165) (140)
-------------------------------------------------------------------------
(273) (228) (529) (446)
Issue of subordinated voting
shares 4 2 15 19
Issue of common shares by
subsidiaries 6 3 24 16
Repurchase of common shares
by subsidiaries (15) (22) (37) (39)
Issue of preferred shares by
a subsidiary 300 - 300 -
Repurchase of preferred share
by a subsidiary (12) - (12) -
Issue of subordinated
debentures 336 - 336 -
Repayment of debentures and
other borrowings - - (150) (36)
Other (53) (59) (46) (29)
-------------------------------------------------------------------------
293 (304) (99) (515)
-------------------------------------------------------------------------
Investment activities
Bond sales and maturities 9,570 11,326 23,353 20,549
Mortgage loan repayments 473 725 911 1,567
Sales of shares 309 427 673 706
Real estate sales (74) 32 45 68
Proceeds from securitizations 547 82 633 131
Change in loans to
policyholders (133) (135) (220) (172)
Change in repurchase agreements 4 278 118 390
Investment in bonds (10,782) (12,535) (23,526) (22,063)
Investment in mortgage loans (1,109) (881) (1,895) (1,985)
Investment in shares (375) (421) (775) (872)
Investment in real estate (44) (173) (116) (225)
Other (8) (1) (9) (42)
-------------------------------------------------------------------------
(1,619) (1,276) (1,808) (1,948)
-------------------------------------------------------------------------
Effect of changes in exchange
rates on cash and cash
equivalents 10 (72) 40 (98)
Increase (decrease) in cash
and cash equivalents 770 88 157 253
Cash and cash equivalents,
beginning of period 4,719 4,307 5,332 4,142
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period 5,489 4,395 5,489 4,395
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Power Corporation of Canada
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 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 June 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
-------------------------------------------------------------------------
June 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 253 256
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) 197 205
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 Banker's
Acceptance plus a premium varying between 2.0%
and 2.5% due May 13, 2013 50 50
-------------------------------------------------------------------------
3,599 3,427
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the second quarter of 2006, 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
-------------------------------------------------------------------------
June 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
-------------------------------------------------------------------------
June 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 - 401,749,709 (2005 - 400,264,694) shares 405 390
-------------------------------------------------------------------------
432 417
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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
quarter 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 quarter 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
-------------------------------------------------------------------------
In addition, stock options were also granted by subsidiaries during the
six months ended June 30, 2006. Compensation expense relating to stock
options granted by the Corporation and its subsidiaries amounted to
$9 million in the second quarter of 2006 ($6 million in 2005) and
$16 million for the six months ended June 30, 2006 ($12 million in 2005).
Options were outstanding at June 30, 2006 to purchase, until May 16,
2016, up to an aggregate of 13,051,270 subordinate voting shares at
various prices from $11.3625 to $33.285 per share. During the three
months ended June 30, 2006, 200,000 subordinate voting shares (410,130
in 2005) were issued under the Corporation's plan for an aggregate
consideration of $4 million ($2 million in 2005). During the six months
ended 2006, 1,485,015 subordinate voting shares (3,365,075 in 2005) were
issued for an aggregate consideration of $15 million ($19 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 Six months
ended ended
June 30 June 30
2006 2005 2006 2005
-------------------------------------------------------------------------
Interest on debentures and
other borrowings 58 59 112 117
Preferred share dividends 18 17 37 36
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)
-------------------------------------------------------------------------
86 86 168 172
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 6 OTHER INCOME (CHARGES), NET
-------------------------------------------------------------------------
Three months Six months
ended ended
June 30 June 30
2006 2005 2006 2005
-------------------------------------------------------------------------
Share of Pargesa's non-operating
earnings (13) 9 (13) 10
Restructuring costs - Lifeco - (11) - (18)
Other 5 - 5 2
-------------------------------------------------------------------------
(8) (2) (8) (6)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 Six months
ended ended
June 30 June 30
2006 2005 2006 2005
-------------------------------------------------------------------------
Net earnings 341 294 595 526
Dividends on non-participating shares (10) (7) (21) (15)
-------------------------------------------------------------------------
Net earnings available to
participating shareholders 331 287 574 511
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted number of participating
shares outstanding (millions)
- Basic 450.5 448.0 450.0 447.1
Exercise of stock options 10.4 12.7 10.4 12.7
Shares assumed to be repurchased
with proceeds from exercise of
stock options (5.5) (6.2) (5.4) (6.2)
-------------------------------------------------------------------------
Weighted number of participating
shares outstanding (millions)
- Diluted 455.4 454.5 455.0 453.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 8 PENSION PLANS AND OTHER POST-RETIREMENT BENEFITS
The total benefit costs included in operating expenses are as follows:
-------------------------------------------------------------------------
Three months Six months
ended ended
June 30 June 30
2006 2005 2006 2005
-------------------------------------------------------------------------
Pension plans 19 19 47 40
Other post-retirement benefits 7 14 16 26
-------------------------------------------------------------------------
26 33 63 66
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 9 SECURITIZATIONS
During the second quarter of 2006, IGM Financial Inc. (IGM) securitized
$550 million (2005 - $83 million) of residential mortgages through sales
to commercial paper conduits that in turn issued securities to investors
and received net cash proceeds of $547 million (2005 - $82 million).
IGM's retained interest in the securitized loans was valued at $6 million
(2005 - $3 million). A pre-tax loss on sale of $3 million (2005 - gain of
$1 million) was recognized and reported in Net investment income in the
Consolidated Statements of Earnings.
During the six months ended June 30, 2006, IGM securitized $636 million
(2005 -$132 million) of residential mortgages through sales to commercial
paper conduits that in turn issued securities to investors and received
net cash proceeds of $633 million (2005 - $131 million). IGM's retained
interest in the securitized loans was valued at $8 million (2005 -
$4 million). A pre-tax loss on sale of $2 million (2005 - gain of
$2 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 June 30,
2006 Lifeco IGM Parjointco Other Total
-------------------------------------------------------------------------
Revenues
Premium income 4,444 - - - 4,444
Net investment
income 1,516 50 - 33 1,599
Fees and media
income 667 587 - 93 1,347
-------------------------------------------------------------------------
6,627 637 - 126 7,390
-------------------------------------------------------------------------
Expenses
Insurance
claims 4,959 - - - 4,959
Commissions 332 206 - (6) 532
Operating
expenses 612 142 - 124 878
Financing
charges 51 22 - 13 86
-------------------------------------------------------------------------
5,954 370 - 131 6,455
-------------------------------------------------------------------------
673 267 - (5) 935
Share of earnings
of affiliates - - 72 (4) 68
Other income
(charges) - net - - (13) 5 (8)
-------------------------------------------------------------------------
Earnings before
the following 673 267 59 (4) 995
Income taxes 136 66 - - 202
Non-controlling
interests 322 126 20 (16) 452
-------------------------------------------------------------------------
Contribution to
consolidated net
earnings 215 75 39 12 341
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Information on Profit Measure
-------------------------------------------------------------------------
Three months
ended June 30,
2005 Lifeco IGM Parjointco Other Total
-------------------------------------------------------------------------
Revenues
Premium income 3,784 3,784
Net investment
income 1,327 47 10 1,384
Fees and media
income 620 532 95 1,247
-------------------------------------------------------------------------
5,731 579 - 105 6,415
-------------------------------------------------------------------------
Expenses
Insurance
claims 4,081 4,081
Commissions 331 177 (4) 504
Operating
expenses 621 136 122 879
Financing
charges 49 23 14 86
-------------------------------------------------------------------------
5,082 336 - 132 5,550
-------------------------------------------------------------------------
649 243 - (27) 865
Share of earnings
of affiliates - - 52 (2) 50
Other income
(charges) - net (11) - 9 - (2)
-------------------------------------------------------------------------
Earnings before
the following 638 243 61 (29) 913
Income taxes 152 74 - 6 232
Non-controlling
interests 276 107 21 (17) 387
-------------------------------------------------------------------------
Contribution to
consolidated net
earnings 210 62 40 (18) 294
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Information on Profit Measure
-------------------------------------------------------------------------
Six months
ended June 30,
2006 Lifeco IGM Parjointco Other Total
-------------------------------------------------------------------------
Revenues
Premium income 8,139 - - - 8,139
Net investment
income 2,839 107 - 39 2,985
Fees and media
income 1,324 1,176 - 182 2,682
-------------------------------------------------------------------------
12,302 1,283 - 221 13,806
-------------------------------------------------------------------------
Expenses
Insurance
claims 8,960 - - - 8,960
Commissions 674 408 - (13) 1,069
Operating
expenses 1,238 291 - 253 1,782
Financing
charges 98 44 - 26 168
-------------------------------------------------------------------------
10,970 743 - 266 11,979
-------------------------------------------------------------------------
1,332 540 - (45) 1,827
Share of earnings
of affiliates - - 82 (7) 75
Other income
(charges) - net - - (13) 5 (8)
-------------------------------------------------------------------------
Earnings before
the following 1,332 540 69 (47) 1,894
Income taxes 305 153 - 1 459
Non-controlling
interests 604 244 23 (31) 840
-------------------------------------------------------------------------
Contribution to
consolidated net
earnings 423 143 46 (17) 595
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Information on Profit Measure
-------------------------------------------------------------------------
Six months
ended June 30,
2005 Lifeco IGM Parjointco Other Total
-------------------------------------------------------------------------
Revenues
Premium income 8,344 8,344
Net investment
income 2,619 97 9 2,725
Fees and media
income 1,202 1,055 184 2,441
-------------------------------------------------------------------------
12,165 1,152 - 193 13,510
-------------------------------------------------------------------------
Expenses
Insurance
claims 8,897 8,897
Commissions 660 353 (11) 1,002
Operating
expenses 1,251 279 246 1,776
Financing
charges 97 45 30 172
-------------------------------------------------------------------------
10,905 677 - 265 11,847
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1,260 475 - (72) 1,663
Share of earnings
of affiliates - - 63 (5) 58
Other income
(charges) - net (18) - 10 2 (6)
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Earnings before
the following 1,242 475 73 (75) 1,715
Income taxes 301 145 - 7 453
Non-controlling
interests 535 208 25 (32) 736
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Contribution to
consolidated
net earnings 406 122 48 (50) 526
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NOTE 11 ACQUISITIONS
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 $9.4 billion ((pnds stlg)4.6 billion) on the
consolidated balance sheet at June 30, 2006.
During the second quarter of 2006, Great-West Life & Annuity Insurance
Company, entered into an 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 is expected to close in the fourth
quarter of 2006, subject to regulatory approval in the United States, and
is expected to increase assets and policyholder liabilities by
approximately $1.6 billion (U.S. $1.4 billion) on the consolidated
balance sheet. In addition, Lifeco will receive fee income by providing
administrative services and recordkeeping functions on approximately
$6.8 billion (U.S. $6.1 billion) of participant account values.
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 SUBSEQUENT EVENTS
On May 25, 2006, Groupe Bruxelles Lambert (GBL), Pargesa's affiliated
Belgian holding company, and Bertelsmann AG announced that they had
reached an agreement in principle, pursuant to which GBL would sell back
to Bertelsmann AG its 25.1% equity interest in that company, for cash
consideration of Euro 4.5 billion. This transaction was completed on
July 4, 2006. Power Financial Corporation's share of the gain recorded as
a result of this transaction will amount to approximately $350 million
(representing $230 million for the Corporation's share), which will be
recorded by the Corporation in the third quarter of 2006.
On July 18, 2006, Power Financial Corporation announced that it had
agreed to issue 8,000,000 Non-cumulative First Preferred Shares, Series
L, for gross proceeds of $200 million. The Preferred Shares, priced at
$25 per share, carry an annual dividend yield of 5.10%. Closing is
expected on August 4, 2006.
In July 2006, the Corporation has committed to invest up to Euro
200 million (approximately $285 million) in Sagard 2, a private equity
fund.
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