Power Corporation of Canada: Financial Results for 2004.MONTREAL Montreal (mŏn'trēôl`), Fr. Montréal (môNrāäl`), city (1991 pop. 1,017,666), S Que., Canada, on Montreal island, surrounded by St. Lawrence River and Rivière des Prairies. -- Readers are referred to the disclaimer (networking) disclaimer - Statement ritually appended to many Usenet postings (sometimes automatically, by the posting software) reiterating the fact (which should be obvious, but is easily forgotten) that the article reflects its author's opinions and not necessarily those of the regarding Non-GAAP Financial Measures at the end of this release. Power Corporation of Canada's (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :POW.SV) operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before for the year ended December December: see month. 31, 2004 were $954 million or $2.08 per participating share, compared with $812 million or $1.76 per participating share in 2003, an increase of 18.3 per cent on a per share basis. Growth in operating earnings reflects a strong increase in the contribution from subsidiaries, driven by strong operating results at Power Financial Corporation, partly offset by a decrease in results from corporate activities. Other income was a charge of $5 million or $0.01 per participating share in 2004. In 2003, other income was $456 million or $1.03 per share and consisted primarily of the Corporation's share of other income of Power Financial, which included a significant dilution Dilution A reduction in earnings per share of common stock that occurs through the issuance of additional shares or the conversion of convertible securities. Notes: Adding to the number of shares outstanding reduces the value of holdings of existing shareholders. gain in connection with the acquisition of Canada Life Financial Canada Life Financial Corporation TSX: CL is a Canadian company that offers life, health, and disability insurance for groups and individuals. Founded in 1847, it was acquired by The Great-West Life Assurance Company in 2003, after rejecting a hostile takeover bid by Corporation by Great-West Lifeco The Great-West Life Assurance Company (known more commonly as Great-West Life) is a life and health insurance company. Its headquarters is located in Winnipeg, Manitoba, Canada and its CEO is Raymond L. McFeetors. Inc. Power Corporation's net earnings, for 2004 were $949 million or $2.07 per participating share, compared with $1.268 billion or $2.79 per share in 2003. FOURTH-QUARTER RESULTS For the three months ended December 31, 2004, Power Corporation's operating earnings were $242 million or $0.53 per participating share, compared with $217 million or $0.47 per share in 2003, an increase of 11.6 per cent on a per share basis, reflecting primarily strong growth in the contribution from Power Financial to operating earnings. Other income for the period was a net charge of $10 million or $0.02 per share, compared with a charge of $16 million or $0.03 per share in the fourth quarter of 2003. Net earnings for the fourth quarter of 2004 were $232 million or $0.51 per participating share, compared with $201 million or $0.44 per share for the same period in 2003. POWER FINANCIAL CORPORATION'S RESULTS Power Financial Corporation's operating earnings for the year ended December 31, 2004 were $1,553 million or $2.11 per share, compared with $1,261 million or $1.72 per share in 2003, an increase of 23.2 per cent on a per share basis. Growth in operating earnings reflects a substantial increase in the contribution from subsidiaries and affiliate Affiliate Relationship between two companies when one company owns substantial interest, but less than a majority of the voting stock of another company, or when two companies are both subsidiaries of a third company. See: Subsidiaries, parent company. .The contribution from Great-West Lifeco to Power Financial's operating earnings in 2004 includes the contribution for the full year from additional shares of Great-West Lifeco which were acquired in 2003, primarily during the month of July July: see month. . Other income in 2004 was $5 million or $0.01 per share, compared with $762 million or $1.09 per share in the preceding year. Other income in 2003 included a net dilution gain of $888 million, recorded in the third quarter, in connection with Great-West Lifeco's acquisition of Canada Life Financial Corporation in that year. Net earnings, including other income, were $1,558 million or $2.12 per share in 2004, compared with $2,023 million or $2.81 per share in 2003. Power Financial Corporation's operating earnings for the three months ended December 31, 2004 were $410 million or $0.56 per share, compared with $354 million or $0.48 per share in 2003, for an increase of 15.6 per cent on a per share basis. Other income consisted of a charge of $6 million or $0.01 per share for the quarter.Other income in the fourth quarter of 2003 was a charge of $36 million or $0.05 per share. Net earnings for the fourth quarter of 2004 were $404 million or $0.55 per share, compared with $318 million or $0.43 per share for the same period in 2003. Non-GAAP Financial Measures Operating earnings and operating earnings per share are non-GAAP financial measures that do not have standard meanings and may not be comparable to similar measures used by other issuers.
POWER CORPORATION OF CANADA
CONSOLIDATED BALANCE SHEETS
December 31 December 31
(in millions of dollars) 2004 2003
--------------------------------------------------------------------
(unaudited)
ASSETS
Cash and cash equivalents 4,142 4,159
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Investments
Shares 4,073 3,915
Bonds 54,960 54,208
Mortgages and other loans 15,051 15,616
Loans to policyholders 6,499 6,566
Real estate 1,649 1,597
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82,232 81,902
Funds withheld by ceding insurers 2,337 4,142
Investment in affiliates, at equity 1,698 1,574
Goodwill and intangible assets (Note 2) 10,721 10,339
Future income taxes 573 692
Other assets 4,237 4,391
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105,940 107,199
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LIABILITIES
Policy liabilities
Actuarial liabilities 65,822 66,999
Other 4,273 4,499
Deposits and certificates 711 729
Funds held under reinsurance contracts 4,108 4,655
Long-term debt (Note 3) 3,640 4,289
Future income taxes 852 579
Other liabilities 8,423 8,936
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87,829 90,686
Non-controlling interests 11,509 10,471
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SHAREHOLDERS' EQUITY
Stated capital (Note 4)
Non-participating shares 545 549
Participating shares 389 373
Contributed surplus (Note 1) 16 -
Retained earnings 5,761 5,093
Foreign currency translation adjustments (109) 27
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6,602 6,042
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105,940 107,199
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POWER CORPORATION OF CANADA
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
For the three months For the years
(in millions of dollars, ended December 31 ended December 31
except per share amounts) 2004 2003 2004 2003
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REVENUES
Premium income (Note 9) 3,764 3,816 14,202 7,069
Net investment income 1,415 1,435 5,558 4,819
Fees and media income 1,203 1,040 4,563 3,859
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6,382 6,291 24,323 15,747
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EXPENSES
Paid or credited to
policyholders and
beneficiaries including
policyholder dividends
and experience refunds
(Note 9) 4,001 4,124 15,490 8,346
Commissions 535 419 1,880 1,376
Operating expenses 888 883 3,503 3,095
Interest expense 64 74 253 232
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5,488 5,500 21,126 13,049
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894 791 3,197 2,698
Share of earnings of affiliates 33 27 118 86
Other income (charges), net (Note 6) (37) (4) (49) 725
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Earnings before income taxes
and non-controlling interests 890 814 3,266 3,509
Income taxes 227 272 837 837
Non-controlling interests 431 341 1,480 1,404
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Net earnings 232 201 949 1,268
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Earnings per participating
share (Note 7)
Basic 0.51 0.44 2.07 2.79
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Diluted 0.50 0.43 2.03 2.74
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POWER CORPORATION OF CANADA
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(unaudited)
For the years
ended December 31
(in millions of dollars) 2004 2003
--------------------------------------------------------------------
Retained earnings, beginning of year
As previously reported 5,093 4,126
Change in accounting policy (Note 1) (4) -
--------------------------------------------------------------------
As restated 5,089 4,126
Add
Net earnings 949 1,268
--------------------------------------------------------------------
6,038 5,394
Deduct
Dividends
Non-participating shares 29 29
Participating shares 246 209
Premium on Subordinated voting shares
purchased for cancellation 3 57
Other (1) 6
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277 301
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Retained earnings, end of year 5,761 5,093
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POWER CORPORATION OF CANADA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the three months For the years
(in millions of dollars, ended December 31 ended December 31
except per share amounts) 2004 2003 2004 2003
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Operating activities
Net earnings 232 201 949 1,268
Non-cash charges (credits)
Increase (decrease) in
policy liabilities 512 (503) 685 (4,259)
Decrease (increase) in funds
withheld by ceding insurers (54) 513 1,805 644
Increase (decrease) in
funds held under
reinsurance contracts (548) (80) (548) 4,655
Amortization and depreciation 51 43 123 142
Future income taxes 145 (21) 210 (96)
Non-controlling interests 431 341 1,480 1,404
Dilution gain (1) - (9) (894)
Other (242) (597) (1,274) (240)
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526 (103) 3,421 2,624
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Financing activities
Dividends paid
By subsidiaries to
non-controlling interests (155) (130) (582) (459)
Non-participating shares (7) (8) (29) (29)
Participating shares (64) (54) (246) (208)
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(226) (192) (857) (696)
Issue of subordinate voting shares 2 1 16 6
Repurchase of participating
shares for cancellation - (59) (3) (59)
Repurchase of non-participating
shares for cancellation (1) (1) (4) (4)
Issue of common shares
by subsidiaries 3 5 66 150
Issue of preferred shares
by subsidiaries - - 300 350
Redemption of preferred
shares by subsidiaries (130) - (130) (252)
Repurchase of common shares
by subsidiaries (13) (69) (156) (158)
Repayment of
commercial paper
and other loans - (1,029) - (46)
Issue of long-term debt 210 607 210 1,757
Repayment of long-term debt (390) - (863) (403)
Other 17 (22) (72) 91
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(528) (759) (1,493) 736
--------------------------------------------------------------------
Investment activities
Bond sales and maturities 8,210 14,737 35,867 41,425
Mortgage loan repayments 950 573 2,650 1,890
Sale of shares 428 577 1,497 1,262
Proceeds from securitization 107 75 207 127
Change in loans to policyholders 118 (172) (47) (626)
Change in repurchase agreements (62) (373) 195 93
Reinsurance transactions 3 - (430) -
Acquisition of Canada
Life Financial Corporation - - - (1,826)
Acquisition of Investment
Planning Counsel Inc. 1 - (63) -
Investment in bonds (8,191) (14,921) (37,640) (42,340)
Investment in mortgage loans (923) (488) (2,422) (1,935)
Investment in shares (408) (95) (1,698) (669)
Other (25) 33 (61) 397
--------------------------------------------------------------------
208 (54) (1,945) (2,202)
--------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents 206 (916) (17) 1,158
Cash and cash equivalents,
beginning of period 3,936 5,075 4,159 3,001
--------------------------------------------------------------------
Cash and cash equivalents,
end of period 4,142 4,159 4,142 4,159
--------------------------------------------------------------------
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POWER CORPORATION OF CANADA
Notes to consolidated financial statements
(unaudited)
December 31, 2004
Note 1.Significant accounting policies The interim unaudited consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge of Power Corporation of Canada Power Corporation of Canada TSX: POW.SV is a major Canadian company with assets in North America and Europe in a number of industries. These industries include media, pulp and paper, and financial services. at December 31, 2004 have been prepared in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting in Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of , using the accounting policies described in Note 1 of the Corporation's consolidated financial statements for the year ended December 31, 2003, except as noted below. These interim consolidated financial statements should be read in conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with the consolidated financial statements and notes thereto there·to adv. 1. To that, this, or it. 2. Archaic In addition to that; furthermore. thereto Adverb Formal 1. to that or it 2. in the Corporation's annual report dated December 31, 2003. Stock Based Compensation Effective January January: see month. 1, 2004, the Canadian Institute of Chartered Accountants The Canadian Institute of Chartered Accountants (CICA) is the umbrella body for the Chartered Accountant profession in Canada and Bermuda. Membership of the CICA totals 70,000 Chartered Accountants and 8,500 students. (CICA CICA Competition In Contracting Act of 1984 (USA) CICA Canadian Institute of Chartered Accountants CICA Competition In Contracting Act CICA Criminal Injuries Compensation Authority (UK) ) Handbook
This article is about reference works. For the subnotebook computer, see .
v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. to require expense treatment of all stock-based compensation and payments for options granted beginning on or after January 1, 2002. As permitted by this standard, this change in accounting policy has been applied retroactively ret·ro·ac·tive adj. Influencing or applying to a period prior to enactment: a retroactive pay increase. [French rétroactif, from Latin without restatement Restatement A revision in a company's earlier financial statements. Notes: The need for restating financial figures can result from fraud, misrepresentation, or a simple clerical error. of prior years' financial statements and, results in a $4 million reduction in retained earnings Retained Earnings The percentage of net earnings not paid out in dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders equity on the balance sheet. and $4 million increase in contributed surplus. See also Note 4. Hedging hedging, in commerce, method by which traders use two counterbalancing investment strategies so as to minimize any losses caused by price fluctuations. It is generally used by traders on the commodities market. Relationships Accounting Guideline guideline Medtalk A series of recommendations by a body of experts in a particular discipline. See Cancer screening guidelines, Cardiac profile guidelines, Gatekeeper guidelines, Harvard guidelines, Transfusion guidelines. 13 - Hedging Relationships (AcG-13) specifies the circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or in which hedge accounting Why is hedge accounting necessary? Many financial institutions and corporate businesses (entities) use derivative financial instruments to hedge their exposure to different risks (eg interest rate risk, foreign exchange risk, commodity risk, etc). is appropriate, including the identification, documentation, designation DESIGNATION, wills. The expression used by a testator, instead of the name of the person or the thing he is desirous to name; for example, a legacy to. the eldest son of such a person, would be a designation of the legatee. Vide 1 Rop. Leg. ch. 2. 2. , and effectiveness of hedges and the discontinuance Cessation; ending; giving up. The discontinuance of a lawsuit, also known as a dismissal or a non-suit, is the voluntary or involuntary termination of an action. DISCONTINUANCE, pleading. A chasm or interruption in the pleading. 2. of hedge accounting. Subsequent to January 1, 2004, derivatives derivatives In finance, contracts whose value is derived from another asset, which can include stocks, bonds, currencies, interest rates, commodities, and related indexes. Purchasers of derivatives are essentially wagering on the future performance of that asset. that do not qualify for hedge accounting will be carried at fair value on the consolidated balance sheets consolidated balance sheet A balance sheet in which assets and liabilities of a parent company and its controlled subsidiaries are combined, thereby presenting balance sheet items for the parent and its subsidiaries as if they were a single firm. , and changes in fair value will be recorded in the consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: statements of earnings.Non-qualifying derivatives will continue to be utilized on a basis consistent with the risk management policies of the Corporation and will be monitored by the Corporation for effectiveness as economic hedges even if the specific hedge accounting requirements of AcG-13 are not met.The Corporation reassessed its hedging relationships as at January 1, 2004 and determined that the adoption of the new recommendation did not have a material effect on the Corporation's consolidated financial statements. Interim Financial Statements Effective June June: see month. 30, 2004, the CICA Handbook Section 1751 Interim Financial Statements was amended to require disclosure of the total benefit cost for employee future benefits. (see Note 12) Name change of a subsidiary During the second quarter of 2004, Investors Group Inc. received shareholder and regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. approval to change its name to IGM Financial IGM Financial Inc. is one of Canada's premier personal financial services companies, and the country's largest manager and distributor of mutual funds and other managed asset products, with $121 billion in total assets under management (as at January 31, 2007). Inc. (IGM). Comparative figures Certain of the 2003 amounts presented for comparative purposes have been reclassified to conform with the presentation adopted in the current year. Note 2.Goodwill and intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. A summary of changes in the Corporation's goodwill and intangible assets for the year ended December 31, 2004 is as follows: Intangible (in millions of dollars) Goodwill assets Total -------------------------------------------------------------------- Balance, beginning of year 8,012 2,327 10,339 Change in allocation of the purchase price of Canada Life Financial Corporation (CLFC) 66 127 193 Acquisition of Investment Planning Counsel Inc. (IPC) (Note 11) 102 41 143 Amortization of finite life intangible assets (20) (20) Other, including effect of repurchase of common shares by subsidiaries 65 1 66 -------------------------------------------------------------------- Balance, end of year 8,245 2,476 10,721 -------------------------------------------------------------------- -------------------------------------------------------------------- At December 31, 2004, intangible assets are composed of finite finite - compact life intangibles Property that is a "right" such as a patent, Copyright, or trademark, or one that is lacking physical existence, such as good will. ($477 million) subject to amortization and indefinite INDEFINITE. That which is undefined; uncertain. INDEFINITE, NUMBER. A number which may be increased or diminished at pleasure. 2. When a corporation is composed of an indefinite number of persons, any number of them consisting of a majority of those life intangibles ($1,999 million). The indefinite life intangible assets represent the fair value of mutual fund management and customer related contracts ($963 million), trade names ($268 million), brands and trademarks($414 million) and the shareholders' portion of acquired future participating profits ($354 million). The change in the allocation The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as of the purchase price of CLFC CLFC Creating Lasting Family Connections (New Hampshire) CLFC Clear Lake Fencing Club (Texas) during 2004 consists of decreases in the values of invested and other assets other assets Assets of relatively small value. For financial reporting purposes, firms frequently combine small assets into a single category rather than listing each item separately. acquired of $91 million, increases in the value of intangible assets of $127 million (finite life intangible assets relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc distribution channels), increases in the value of policy liabilities assumed of $164 million and decreases in the value of other liabilities other liabilities Small and relatively insignificant liabilities. For financial reporting purposes, firms often combine small liabilities into this single category rather than listing each liability separately. assumed of $62 million. Note 3.Long-term Debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt.
December 31 December 31
(in millions of dollars) 2004 2003
--------------------------------------------------------------------
Power Financial Corporation
7.65% debentures, due January 5, 2006 150 150
6.90% debentures, due March 11, 2033 250 250
IGM Financial Inc.
Floating Bankers' Acceptance, due May 30, 2006 - 175
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.
Five year term facility at rates of:
$118 (2003 - $471) at Canadian 90-day
Bankers' Acceptance; $31 (2003 - $125)
at 90-day LIBOR rate 149 596
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 274 278
Subordinated debentures due
December 11, 2013 bearing a fixed rate
of 5.8% until 2008 and, thereafter,
at a rate equal to the Canadian 90-day
Bankers' Acceptance rate plus 1%, unsecured 210 210
6.75% Debentures due August 10, 2015, unsecured 200 200
6.14% Debentures due March 21, 2018, unsecured 200 200
6.40% 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 (U.S.$175) 210 -
7.25% Subordinated capital
income securities redeemable
on or after June 30, 2004,
due June 30, 2048. Unsecured (U.S.$175) - 226
Other notes payable with interest of 8.0% 10 12
Other
Bank loan at prime plus a premium varying
between 0.875% and 3.750%, due December 31, 2007 86 91
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3,640 4,289
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Note 4. Capital stock and Stock option plan
Stated Capital
December 31 December 31
(in millions of dollars) 2004 2003
--------------------------------------------------------------------
Non-participating shares
Cumulative Redeemable First
Preferred Shares, 1986 Series
Authorized - Unlimited number of shares
Issued - 899,878 (2003 - 979,878) shares 45 49
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
--------------------------------------------------------------------
545 549
--------------------------------------------------------------------
--------------------------------------------------------------------
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 - 396,091,064
(2003 - 393,859,900) shares 362 346
--------------------------------------------------------------------
389 373
--------------------------------------------------------------------
--------------------------------------------------------------------
On July 13, 2004, the holders of Subordinate Voting Shares Voting Shares Shares that give the stockholder the right to vote on matters of corporate policy making as well as who will compose the members of the board of directors. Notes: Different classes of shares, such as preferred stock, sometimes don't allow for voting rights. and Participating Preferred Shares Preferred shares Preferred shares give investors a fixed dividend from the company's earnings and entitle them to be paid before common shareholders. See: Preferred stock. of the Corporation approved a subdivision of the Corporation's Subordinate Voting Shares and Participating Preferred Shares on a two-for-one basis. The subdivision, which was effective July 23, 2004, increased the number of Subordinate Voting Shares outstanding from 197,608,500 to 395,217,000 Subordinate Voting Shares and the number of Participating Preferred Shares outstanding from 24,427,386 to 48,854,772 Participating Preferred Shares. Stock-Based Compensation Starting in 2004, compensation expense is recorded for options granted under the Corporation's and its subsidiaries' stock option plans since January 1, 2002, based on the fair value of the options at the grant date, amortized over the vesting Vesting The process by which employees accrue non-forfeitable rights over employer contributions that are made to the employee's qualified retirement plan account. Notes: period. Compensation expense of $18 million has been recognized for the year ended December 31, 2004. Under the Corporation's stock option plan 1,662,100 options were granted during the second quarter of 2004 (no options were granted in the other quarters of 2004 and no options were granted in 2003).The fair value of options granted ($7.92 per option) was estimated using the Black-Scholes option-pricing model Black-Scholes option-pricing model A model for pricing call options based on arbitrage arguments. Uses the stock price, the exercise price, the risk-free interest rate, the time to expiration, and the expected standard deviation of the stock return. with the following assumptions: dividend yield of 2%, expected volatility Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the of 24%, risk-free interest rate Risk-Free Interest Rate Describes return available to an investor in a security somehow guaranteed to produce that return. The risk-free interest rate compensataes the investor for the temporary sacrifice of consumption. of 5% and expected life of 7 years. In addition, stock options were granted by subsidiaries. For the year ended December 31, 2003, the intrinsic value Intrinsic Value 1. The value of a company or an asset based on an underlying perception of the value. 2. For call options, this is the difference between the underlying stock's price and the strike price. based method of accounting for stock options was applied. Under this method, no compensation expense is recorded for options granted by the Corporation and its subsidiaries.Had the fair value based accounting method been applied for the options granted since January 1, 2002, the Corporation's net earnings for the year ended December 31, 2003 would have been reduced by less than $3 million and earnings per participating share would have been reduced by less than $0.01. Options were outstanding at December 31, 2004 to purchase, until May 16, 2014, 16,066,940 subordinate voting shares at various prices from $5.21875to $26.375 per share. For the year ended December 31, 2004, 2,367,164 shares (1,102,196 in 2003) were issued under the Corporation's plan for an aggregate consideration of $16 million ($6 million in 2003). Note 5.Segmented information
Information on profit measure
(in millions of dollars)
--------------------------------------------------------------------
For the three months
ended December 31, 2004 LIFECO IGM PARJOINTCO OTHER TOTAL
--------------------------------------------------------------------
REVENUES
Premium income 3,764 3,764
Net investment income 1,345 47 23 1,415
Fees and media income 599 501 103 1,203
--------------------------------------------------------------------
5,708 548 - 126 6,382
--------------------------------------------------------------------
EXPENSES
Insurance claims 4,001 4,001
Commissions 379 164 (8) 535
Operating expenses 630 124 134 888
Interest expense - 19 45 64
--------------------------------------------------------------------
5,010 307 - 171 5,488
--------------------------------------------------------------------
698 241 - (45) 894
Share of earnings
of affiliates 38 (5) 33
Other income - net (18) (29) 15 (5) (37)
--------------------------------------------------------------------
Earnings before
the following 680 212 53 (55) 890
Income taxes 158 64 - 5 227
Non-controlling interests 333 93 18 (13) 431
--------------------------------------------------------------------
Contribution to consolidated
net earnings 189 55 35 (47) 232
--------------------------------------------------------------------
--------------------------------------------------------------------
Information on profit measure
(in millions of dollars)
--------------------------------------------------------------------
For the three months
ended December 31, 2003 LIFECO IGM PARJOINTCO OTHER TOTAL
--------------------------------------------------------------------
REVENUES
Premium income 3,816 3,816
Net investment income 1,362 38 35 1,435
Fees and media income 501 446 93 1,040
--------------------------------------------------------------------
5,679 484 - 128 6,291
--------------------------------------------------------------------
EXPENSES
Insurance claims 4,124 4,124
Commissions 298 126 (5) 419
Operating expenses 645 120 118 883
Interest expense - 23 51 74
--------------------------------------------------------------------
5,067 269 - 164 5,500
--------------------------------------------------------------------
612 215 - (36) 791
Share of earnings
of affiliates 29 (2) 27
Other income - net (10) 25 (25) 6 (4)
--------------------------------------------------------------------
Earnings before
the following 602 240 4 (32) 814
Income taxes 174 99 (1) 272
Non-controlling interests 261 87 1 (8) 341
--------------------------------------------------------------------
Contribution to consolidated
net earnings 167 54 3 (23) 201
--------------------------------------------------------------------
--------------------------------------------------------------------
Information on profit measure
(in millions of dollars)
--------------------------------------------------------------------
For the year
ended December 31, 2004 LIFECO IGM PARJOINTCO OTHER TOTAL
--------------------------------------------------------------------
REVENUES
Premium income 14,202 14,202
Net investment income 5,266 163 129 5,558
Fees and media income 2,273 1,956 334 4,563
--------------------------------------------------------------------
21,741 2,119 - 463 24,323
--------------------------------------------------------------------
EXPENSES
Insurance claims 15,490 15,490
Commissions 1,281 617 (18) 1,880
Operating expenses 2,533 515 455 3,503
Interest expense - 75 178 253
--------------------------------------------------------------------
19,304 1,207 - 615 21,126
--------------------------------------------------------------------
2,437 912 - (152) 3,197
Share of earnings
of affiliates 126 (8) 118
Other income - net (44) (29) 29 (5) (49)
--------------------------------------------------------------------
Earnings before
the following 2,393 883 155 (165) 3,266
Income taxes 566 265 6 837
Non-controlling interests 1,088 388 52 (48) 1,480
--------------------------------------------------------------------
Contribution to consolidated
net earnings 739 230 103 (123) 949
--------------------------------------------------------------------
--------------------------------------------------------------------
Information on profit measure
(in millions of dollars)
--------------------------------------------------------------------
For the year
ended December 31, 2003 LIFECO IGM PARJOINTCO OTHER TOTAL
--------------------------------------------------------------------
REVENUES
Premium income 7,069 7,069
Net investment income 4,529 160 130 4,819
Fees and media income 1,831 1,714 314 3,859
--------------------------------------------------------------------
13,429 1,874 - 444 15,747
--------------------------------------------------------------------
EXPENSES
Insurance claims 8,346 8,346
Commissions 919 475 (18) 1,376
Operating expenses 2,199 494 402 3,095
Interest expense - 85 147 232
--------------------------------------------------------------------
11,464 1,054 - 531 13,049
--------------------------------------------------------------------
1,965 820 - (87) 2,698
Share of earnings
of affiliates 88 (2) 86
Other income - net (31) 40 (3) 719 725
--------------------------------------------------------------------
Earnings before
the following 1,934 860 85 630 3,509
Income taxes 550 299 (12) 837
Non-controlling interests 795 349 28 232 1,404
--------------------------------------------------------------------
Contribution to consolidated
net earnings 589 212 57 410 1,268
--------------------------------------------------------------------
--------------------------------------------------------------------
Note 6. Other income (charges), net
For the three months For the years
ended December 31 ended December 31
(in millions of dollars) 2004 2003 2004 2003
--------------------------------------------------------------------
Share of Pargesa's
non-operating earnings 15 (25) 29 (3)
Gain resulting from the
dilution of the Corporation's
interest in Lifeco - - - 894
Gain resulting from the
dilution of the Corporation's
interest in IGM 1 - 9 -
Restructuring costs
- Lifeco (Note 8) (18) (10) (44) (31)
IGM special compensation
charge (Note 14) (29) - (29) -
Reversal of restructuring costs
related to Mackenzie - 25 - 25
Other (6) 6 (14) (160)
--------------------------------------------------------------------
(37) (4) (49) 725
--------------------------------------------------------------------
--------------------------------------------------------------------
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:
For the three months ended December 31
(in millions of dollars) 2004 2003
--------------------------------------------------------------------
Net earnings 232 201
Dividends on non-participating shares (7) (7)
--------------------------------------------------------------------
Net earnings available to participating shareholders 225 194
--------------------------------------------------------------------
Weighted number of participating shares
outstanding (millions)
Basic 444.8 444.1
Exercise of stock options 16.1 17.3
Shares assumed to be repurchased with proceeds
from exercise of stock options (7.2) (8.9)
--------------------------------------------------------------------
Weighted number of participating shares
outstanding (millions)
Diluted 453.7 452.5
--------------------------------------------------------------------
--------------------------------------------------------------------
For the years ended December 31
(in millions of dollars) 2004 2003
--------------------------------------------------------------------
Net earnings 949 1,268
Dividends on non-participating shares (29) (29)
--------------------------------------------------------------------
Net earnings available to participating shareholders 920 1,239
--------------------------------------------------------------------
Weighted number of participating shares
outstanding (millions)
Basic 444.0 444.5
Exercise of stock options 16.1 17.3
Shares assumed to be repurchased with proceeds
from exercise of stock options (7.7) (9.6)
--------------------------------------------------------------------
Weighted number of participating shares outstanding
(denominator) (millions)
Diluted 452.4 452.2
--------------------------------------------------------------------
--------------------------------------------------------------------
Note 8.Restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). costs Following the acquisition of CLFC on July 10, 2003, Lifeco developed a plan to restructure and integrate the operations of CLFC with its wholly owned subsidiaries Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. The Great-West Life Assurance The Great-West Life Insurance Company (known more commonly Great-West Life) is a life and health insurance company. Its headquarters is located in Winnipeg, Manitoba, Canada and its CEO is Raymond L. McFeetors. Company (Great-West), London Life Insurance Company London Life Insurance Company is a Canadian life insurance company best known for its "Freedom 55" slogan, evocative of saving money to an extent that would allow one to retire at age 55. (London London, city, Canada London, city (1991 pop. 303,165), SE Ont., Canada, on the Thames River. The site was chosen in 1792 by Governor Simcoe to be the capital of Upper Canada, but York was made capital instead. London was settled in 1826. Life) and Great-West Life & Annuity annuity: see insurance. annuity Payment made at a fixed interval. A common example is the payment received by retirees from their pension plan. There are two main classes of annuities: annuities certain and contingent annuities. Insurance Company (GWL&A). Costs are expected to be incurred as a result and consist primarily of exit and consolidation activities involving operations, facilities, systems and compensation costs. Significant administrative activities performed by CLFC prior to July 10, 2003 are being exited, restructured and integrated with the activities performed by Great-West, London Life and GWL&A. In Canada, selected administrative functions, facilities and systems are being restructured and integrated with Great-West and London Life functions. These activities are expected to be substantially completed by the end of 2005. In Europe Europe (y  r`əp), 6th largest continent, c.4,000,000 sq mi (10,360,000 sq km) including adjacent islands (1992 est. pop. 512,000,000). , selected administrative functions,
facilities and systems are being restructured and non-strategic
international operations Internal Operations (I.O., IO or I/O) is a fictional American Intelligence Agency in Wildstorm comics. It was originally called International Operations. I.O. first appeared in WildC.A.T.S. volume 1 #1 (August, 1992) and was created by Brandon Choi and Jim Lee. and locations are being exited. These
activities are expected to be substantially completed by the end of
2005. In the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , selected administrative functions,
facilities and systems are being restructured and integrated with
GWL&A functions. These activities have been substantially completed
as of December 31, 2004.Expected total restructuring costs were revised during the second quarter of 2004 from $497 million to $448 million. The revised expected total restructuring costs primarily reflect lower compensation costs being incurred. The costs include $350 million that was recognized as part of the finalization Writing the table of contents (TOC) on a recordable CD or DVD disc. The finalization process ensures that the disc can be played back on most CD and DVD players. See disc-at-once. of the allocation of the purchase equation of CLFC, a reduction of $62 million from December 31, 2003 estimate of $412 million. Costs of $98 million are expected to be charged to income as incurred, an increase of $13 million from December 31, 2003 estimate of $85 million. These costs are included in the consolidated statements of earnings in Other Income (Charges).
The following details the amount and status of restructuring and exit
program costs:
Expected Amounts Amounts Total Balance
(in millions Total utilized utilized amounts December 31,
of dollars) costs - 2003 - 2004 utilized 2004
--------------------------------------------------------------------
Eliminating
duplicate
systems 128 13 50 63 65
Exiting and
consolidating
operations 115 28 68 96 19
Compensation costs 205 84 102 186 19
--------------------------------------------------------------------
448 125 220 345 103
--------------------------------------------------------------------
--------------------------------------------------------------------
Accrued on acquisition 350 94 176 270 80
Expense as incurred 98 31 44 75 23
--------------------------------------------------------------------
448 125 220 345 103
--------------------------------------------------------------------
--------------------------------------------------------------------
Note 9.Reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. transactions During the first quarter of 2004, Lifeco's indirect subsidiary, Canada Life, ceded 100% of its U.S. group insurance business to a third party on an indemnity Recompense for loss, damage, or injuries; restitution or reimbursement. An indemnity contract arises when one individual takes on the obligation to pay for any loss or damage that has been or might be incurred by another individual. reinsurance basis. The ceded premiums of $416 million associated with the transaction have been recorded on the consolidated statement of earnings as a reduction to premium income with a corresponding reduction to the change in actuarial ac·tu·ar·y n. pl. ac·tu·ar·ies A statistician who computes insurance risks and premiums. [Latin liabilities. For the consolidated balance sheet, this transaction resulted in a reduction of cash and other assets of $416 million, a reduction of policyholder Policyholder An individual who owns an insurance policy. liabilities of $384 million, and a reduction of other liabilities of $32 million. Note 10.Commitments London Reinsurance Group Inc. (LRG LRG Large LRG Liquefied Refinery Gases LRG Local and Regional Governments LRG Long Range Aircraft LRG Looking Real Good LRG Location Reference Group LRG Local Reference Group LRG Library Resource Guide (Information Today, Inc) ), an indirect subsidiary of Lifeco has a syndicated letter of credit facility providing U.S. $970 million in letters of credit capacity.At December 31, 2003 LRG had issued U.S. $925 million in letters of credit under the facility.On January 5, 2004 two transactions resulted in the reduction of total issued letters of credit to U.S. $818 million. LRG has issued U.S. $748 million in letters of credit as at December 31, 2004 under this facility. As part of the 1999 acquisition by CLFC of the majority of Crown Life Insurance Company's (Crown Life) insurance operations, CLFC has the option, or may be obligated ob·li·gate tr.v. ob·li·gat·ed, ob·li·gat·ing, ob·li·gates 1. To bind, compel, or constrain by a social, legal, or moral tie. See Synonyms at force. 2. To cause to be grateful or indebted; oblige. , to acquire the common shares of Crown Life and, through assumption reinsurance Assumption reinsurance is a form of reinsurance whereby the reinsurer is substituted for the ceding insurer and becomes directly liable for policy claims. This ordinarily requires a notice and release from affected policyholders. , the remaining insurance business of Crown Life at any time after January 1, 2004, subject to certain conditions, in which case CLFC would receive assets with a value equal to the liabilities assumed. The purchase price for the shares would be the fair value of the assets backing Crown Life's common shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. . Note 11.Acquisition of Investment Planning Counsel Inc. (IPC (1) (InterProcess Communication) The exchange of data between one program and another either within the same computer or over a network. It implies a protocol that guarantees a response to a request. ) On May 10, 2004, IGM acquired 74.7% of the outstanding common shares of IPC, a Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. financial services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. company. The results of its operations have been included in the consolidated financial statements since that date. The aggregate purchase price was $99 million, including $75 million of cash, including transaction costs Transaction Costs Costs incurred when buying or selling securities. These include brokers' commissions and spreads (the difference between the price the dealer paid for a security and the price they can sell it). , and common shares valued at $24 million. The value of the 734,796 common shares issued was determined based on the weighted-average market price of IGM's shares over the two-day period before and after the terms of the acquisition was agreed to and announced. The following table summarizes the fair value of the assets acquired and liabilities assumed at the date of acquisition. The purchase price allocation is preliminary and based on IGM's best estimates. The final purchase price allocations will be completed as soon as IGM has gathered all the significant information considered necessary in order to finalize fi·nal·ize tr.v. fi·nal·ized, fi·nal·iz·ing, fi·nal·iz·es To put into final form; complete or conclude: "They have jointly agreed ... this allocation.
(in millions of dollars)
Fair value of assets acquired:
Cash and cash equivalents 12
Deferred selling commissions 8
Future income taxes 2
Other assets 28
Finite-life intangible assets 41
--------------------------------------------------------------------
91
--------------------------------------------------------------------
Liabilities assumed:
Deposits 21
Other liabilities 50
Long-term debt 23
--------------------------------------------------------------------
94
--------------------------------------------------------------------
Fair value of net assets acquired (3)
Goodwill 102
--------------------------------------------------------------------
Total purchase consideration 99
--------------------------------------------------------------------
--------------------------------------------------------------------
Included in Other liabilities are accruals for contract termination
costs of $27 million which were paid during the second quarter, and
other restructuring costs of $6 million related to the acquisition.
Note 12. Pension Plans and Other Post Retirement Benefits
The total benefit costs for the periods ending December 31, 2004
included in operating expenses are as follows:
For the three months For the year
ended December 31 ended December 31
(in millions of dollars) 2004 2004
--------------------------------------------------------------------
Pension benefits 15 65
Other benefits 12 53
--------------------------------------------------------------------
27 118
--------------------------------------------------------------------
--------------------------------------------------------------------
Note 13.Securitizations During the fourth quarter, IGM securitized securitized Of, related to, or being debt securities that are secured with assets. For example, mortgage purchase bonds are secured by mortgages that have been purchased with the bond issue's proceeds. $108 million of residential mortgages through sales to commercial paper conduits that in turn issued securities to investors and received net cash proceeds of $107 million. IGM's retained interest Retained interest (also colloquially known as a payout penalty) is future, currently unpaid, interest that some lenders add to the remaining principal of a loan to determine a payout figure in the event that the loan is terminated before the completion of the original term. in the securitized loans was valued at $3 million. A pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta gain on sale of $2 million was recognized and reported in Net investment income in the consolidated statements of earnings. For the year ended December 31, 2004, IGM securitized $208 million of residential mortgages through sales to commercial paper conduits that in turn issued securities to investors and received net cash proceeds of $207 million. IGM's retained interest in the securitized loans was valued at $5 million. A pre-tax gain on sale of $3 million was recognized and reported in Net investment income in the consolidated statements of earnings. Note 14.Contingencies Contingencies (ISSN 1048-9851) is the bimonthly magazine of the American Academy of Actuaries, providing a large and diverse readership with general interest and technical articles on a wide range of issues related to the actuarial profession. On December 16, 2004 the Ontario Securities Commission The Ontario Securities Commission (OSC) is a regulatory agency which administers and enforces securities legislation in the Canadian province of Ontario. The OSC is an Ontario Crown corporation which reports to the Ontario legislature through the Minister of Finance. (OSC O.S.C. n. short for Order to Show Cause. (See: Order to Show Cause) ) and the Manitoba Manitoba (mănĭtō`bə), province (2001 pop. 1,119,583), 250,934 sq mi (650,930 sq km), including 39,215 sq mi (101,580 sq km) of water surface, W central Canada. Securities Commission (MSC (1) (MSC.Software Corporation, Santa Ana, CA, www.mscsoftware.com) Founded in 1963 by Richard H. MacNeal and Robert G. Schwendler, MSC is the world's largest provider of mechanical computer aided engineering (MCAE) strategies, simulation software and services. ) approved a settlement agreement between I.G. Investment Management, Ltd. (IGIM IGIM I Got It Made ) and the OSC regarding trading by an institutional client of Investors Group Inc. (IG) in mutual funds managed by IGIM.IG agreed to provide compensation of $19.2 million, plus interest at 5% per annum Per annum Yearly. from the settlement date to the approval of the plan of distribution, to affected unitholders.Also on December 16, 2004 a hearing panel of the Mutual Fund Dealers Association of Canada (MFDA MFDA Mutual Fund Dealers Association MFDA Michigan Funeral Directors Association MFDA Menomonee Falls Dart Association ) approved a settlement agreement between Investors Group Financial Services Inc. and the MFDA regarding the same matter, providing for a compensation of $2.65 million, plus interest on the foregoing basis, to affected unitholders and payment of a fine of $2.65 million to the MFDA.The compensations are to be made pursuant to a distribution plan to be developed by IG together with an independent consultant and approved by the OSC and the MSC. IGM recorded a $19.2 million after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. charge to income in the fourth quarter to reflect these settlements and related costs. IGM is subject to legal actions, including class actions, arising in the normal course of its business.Two class actions related to alleged market timing trading activity in mutual funds of IGM have been commenced. IGM entered into settlement agreements in 2004 with a number of its securities regulators in respect of such market timing trading activity.Although it is difficult to predict the outcome of such legal actions, based on current knowledge and consultation with legal counsel, management does not expect the outcome of any of these matters, individually or in aggregate, to have a material adverse effect on IGM's consolidated financial position. Lifeco and its subsidiaries are subject to legal actions, including proposed class actions, arising in the normal course of its business. There are two proposed class proceedings in Ontario Ontario, city, United States Ontario, city (1990 pop. 133,179), San Bernardino co., S Calif., near Los Angeles, in a region of vineyards; inc. 1891. regarding the participation of the London Life participating policyholder account in the financing of the acquisition of London Life Insurance group in 1997 by Great-West. These proceedings are in their early stages, and it is difficult to predict the outcome with certainty CERTAINTY, UNCERTAINTY, contracts. In matters of obligation, a thing is certain, when its essence, quality, and quantity, are described, distinctly set forth, Dig. 12, 1, 6. It is uncertain, when the description is not that of one individual object, but designates only the kind. Louis. . However, based on information presently known, these proceedings are not expected to have a material adverse effect on Lifeco's consolidated financial position. POWER CORPORATION OF CANADA (TSX:POW.SV) |
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