SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 1, 2007
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
| Colorado | 333-01173 | 84-0467907 | |
| (State or other jurisdiction of incorporation) | (Commission File No.) | (IRS Employer Identification No.) | |
| 8515 East Orchard Road Greenwood Village, Colorado | 80111 | |
| (Address of Principal Executive offices) | (Zip Code) | |
| 8515 East Orchard Road, Greenwood Village, Colorado | 80111 | |
| (Address of Principal Executive offices) | (Zip Code) | |
(303) 737-3000
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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ITEM 2.02 | RESULTS OF OPERATIONS AND FINANCIAL CONDITION |
On August 1, 2007, Great-West Lifeco Inc., an indirect Canadian parent company of the Registrant, issued a press release regarding its financial results for the second quarter of 2007. The press release
includes a discussion of the financial results of the Registrant. A copy of the press release is attached as Exhibit 99 hereto. The dollar amounts referred to in the press release are in Canadian dollars unless otherwise stated.
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ITEM 7.01 | REGULATION FD DISCLOSURE |
On August 1, 2007, Great-West Lifeco Inc., an indirect Canadian parent company of the Registrant, issued a press release regarding its financial results for the second quarter of 2007. The press release includes a discussion of the financial results of the Registrant. A copy of the press release is attached as Exhibit 99 hereto. The dollar amounts referred to in the press release are in Canadian dollars unless otherwise stated.
ITEM 9.01 | FINANCIAL STATEMENTS AND EXHIBITS |
99 | Great-West Lifeco Inc. Press Release dated August 1, 2007 |
This Form 8-K contains forward-looking statements. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. In particular, statements using verbs such as “expect,” “anticipate,” “believe” or words of similar import generally involve forward-looking statements. Without limiting the foregoing, forward-looking statements include statements which represent the Registrant’s beliefs concerning future or projected levels of sales of the Registrant’s products, investment spreads or yields, or the earnings or profitability of the Registrant’s activities. Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Registrant’s control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Registrant. Whether or not actual results differ materially from forward-looking statements may depend on numerous foreseeable and unforeseeable events or developments, some of which may be national in scope, such as general economic conditions and interest rates, some of which may be related to the insurance industry generally, such as pricing competition, regulatory developments and industry consolidation, and others of which may relate to the Registrant specifically, such as credit, volatility and other risks associated with the Registrant’s investment portfolio, and other factors. Readers should also consider other matters, including any risks and uncertainties, discussed in documents filed by the Registrant and certain of its subsidiaries with the Securities and Exchange Commission.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: August 6, 2007
| GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY |
| By: /s/ Richard G. Schultz |
Name: Richard G. Schultz
Title: Chief Legal Officer, Corporate
and Secretary
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EXHIBIT INDEX
99 | Press Release issued by Great-West Lifeco Inc. on August 1, 2007 |
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Great-West
LIFECO Inc.
RELEASE
Readers are referred to the cautionary note regarding Forward-Looking Information and Non-GAAP Financial Measures at the end of this Release.
TSX:GWO
Great-West Lifeco reports second quarter 2007 results and dividend increase
Winnipeg, August 1, 2007 ... Great-West Lifeco Inc. (Lifeco) has reported net income attributable to common shareholders of $544 million for the three months ended June 30, 2007 compared to net income of $461 million reported a year ago. On a per share basis, this represents $0.610 per common share for the three months ended June 30, 2007, an increase of 18% compared to $0.516 per common share for 2006.
For the six months ended June 30, 2007 net income attributable to common shareholders was $1,058 million compared to $907 million reported a year ago. On a per share basis, this represents $1.186 per common share for the six months ended June 30, 2007, an increase of 17% compared to $1.017 per common share for 2006.
Lifeco reported earnings growth in all reporting segments, with significant growth in the Company’s European segment.
Highlights
• | Quarterly dividends declared were $0.2750 per common share, an increase of 2 cents per common share, or 8%, payable September 28, 2007. Dividends paid on common shares for the six months ended June 30, 2007 were 14% higher than a year ago. |
• | Earnings per common share for the second quarter of 2007 increased 18% compared to a year ago. |
• | Return on common shareholders’ equity was 21.5% for the twelve months ended June 30, 2007. |
Consolidated net income for Lifeco is comprised of the net income of The Great-West Life Assurance Company (Great-West Life), Canada Life Financial Corporation (CLFC), London Life Insurance Company (London Life) and Great-West Life & Annuity Insurance Company (GWL&A), together with Lifeco's corporate results.
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CANADA
Net income attributable to common shareholders for the second quarter of 2007 was $257 million compared to $245 million in 2006, an increase of 5%.
For the six months ended June 30, 2007, net income attributable to common shareholders was up 7% to $482 million from $449 million for the six months ended June 30, 2006. Individual Insurance & Investment Products earnings at $321 million were up 12% while Group Insurance earnings of $179 million were up 8%. Corporate earnings were down $16 million from 2006 reflecting the positive impact in 2006 of a change in Federal Corporate tax rates.
Total sales for the six months ended June 30, 2007 were $5,033 million, compared to $4,315 million in 2006, an increase of 17%.
Total assets under administration at June 30, 2007 were $101.1 billion, compared to $96.6 billion at December 31, 2006.
UNITED STATES
Net income attributable to common shareholders for the second quarter of 2007 increased 7% to $136 million from $127 million for the second quarter of 2006. For the six months ended June 30, 2007, net income attributable to common shareholders was up 7% to $278 million from $261 million for the six months ended June 30, 2006.
Total sales for the six months ended June 30, 2007 were $3,155 million, compared to $2,130 million in 2006, an increase of 48%.
Total assets under administration at June 30, 2007 were $45.9 billion, compared to $48.2 billion at December 31, 2006.
EUROPE
Net income attributable to common shareholders for the second quarter of 2007 increased 59% to $153 million from $96 million for the second quarter of 2006. For the six months ended June 30, 2007, net income attributable to common shareholders was up 45% to $300 million from $207 million for the six months ended June 30, 2006.
Total sales for the six months ended June 30, 2007 were $3,425 million, compared to $2,660 million in 2006, an increase of 29%.
Total assets under administration at June 30, 2007 were $64.5 billion, compared to $67.8 billion at December 31, 2006.
CORPORATE
Corporate net income for Lifeco attributable to common shareholders was a net charge of $2 million for the second quarter of 2007 and $2 million for the six months ended June 30, 2007 compared to net charges of $7 million and $10 million in 2006.
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QUARTERLY DIVIDENDS
At its meeting today, the Board of Directors approved a quarterly dividend of $0.2750 per share on the common shares of the Company payable September 28, 2007 to shareholders of record at the close of business August 31, 2007.
In addition, the Directors approved quarterly dividends on:
| • | Series D First Preferred Shares of $0.293750 per share; |
| • | Series E First Preferred Shares of $0.30 per share; |
| • | Series F First Preferred Shares of $0.36875 per share; |
| • | Series G First Preferred Shares of $0.325 per share; |
| • | Series H First Preferred Shares of $0.30313 per share; and |
| • | Series I First Preferred Shares of $0.28125 per share; |
all payable September 28, 2007 to shareholders of record at the close of business August 31, 2007.
For purposes of the Income Tax Act (Canada), and any similar provincial legislation, the dividends referred to above are eligible dividends.
GREAT-WEST LIFECO
Great-West Lifeco Inc. (TSX:GWO) is a financial services holding company with interests in the life insurance, health insurance, retirement savings, and reinsurance businesses. The Company has operations in Canada, the United States and Europe through The Great-West Life Assurance Company, London Life Insurance Company, The Canada Life Assurance Company and Great-West Life & Annuity Insurance Company. Lifeco and its companies have over $211 billion in assets under administration. Great-West Lifeco is a member of the Power Financial Corporation group of companies.
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Cautionary note regarding Forward-Looking Information
This release contains some forward-looking statements about the Company, including its business operations, strategy and expected financial performance and condition. 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,” “intends,” “plans,” “believes,” “estimates” or negative versions thereof and similar expressions. In addition, any statement that may be made concerning future financial performance (including revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future Company action is also a forward-looking statement. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to, among other things, risks, uncertainties and assumptions about the Company, economic factors and the financial services industry generally, including the insurance and mutual fund industries. They are not guarantees of future performance, and actual events and results could differ materially from those expressed or implied by forward-looking statements made by the Company due to, but not limited to, important factors such as sales levels, premium income, fee income, expense levels, mortality experience, morbidity experience, policy lapse rates and taxes, as well as general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings, catastrophic events, and the Company's ability to complete strategic transactions and integrate acquisitions. The reader is cautioned that the foregoing list of important factors is not exhaustive, and there may be other factors listed in other filings with securities regulators, including factors set out under “Risk Management and Control Practices” in the Company’s 2006 Annual Management’s Discussion and Analysis, which, along with other filings, is available for review at www.sedar.com. The reader is also cautioned to consider these and other factors carefully and to not place undue reliance on forward-looking statements. Other than as specifically required by applicable law, the Company has no intention to update any forward-looking statements whether as a result of new information, future events or otherwise.
Cautionary note regarding Non-GAAP Financial Measures
This release contains some non-GAAP financial measures. Terms by which non-GAAP financial measures are identified include but are not limited to “earnings before restructuring charges”, “adjusted net income”, “earnings before adjustments”, “premiums and deposits”, “sales”, and other similar expressions. Non-GAAP financial measures are used to provide management and investors with additional measures of performance. However, non-GAAP financial measures do not have standard meanings prescribed by GAAP and are not directly comparable to similar measures used by other companies. Please refer to the appropriate reconciliations of these non-GAAP financial measures to measures prescribed by GAAP.
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Further information
Selected financial information is attached.
Great-West Lifeco's second quarter analyst teleconference will be held Wednesday, August 1 at 3:00 p.m. (Eastern). The call can be accessed through www.greatwestlifeco.com or by phone, through listen-only lines at:
• | Participants in the Toronto area: 416-406-6419 |
• | Participants from North America: 1-888-575-8232 |
• | Participants from Overseas: Dial international access code first, then 800-9559-6849 |
A replay of the call will be available from August 1, until August 8, 2007, and can be accessed by calling 1-800-408-3053 or 416-695-5800 in Toronto (passcode: 3217094#).
Additional information relating to Lifeco, including the most recent interim unaudited financial statements, interim Management's Discussion and Analysis (MD&A), and CEO/CFO certificates will be filed on SEDAR at www.sedar.com.
For more information contact:
Marlene Klassen
Director, Media & Public Relations
(204) 946-7705
Great-West
LIFECO Inc.
FINANCIAL HIGHLIGHTS (unaudited) |
(in $ millions except per share amounts) |
|
| | For the three months
ended June 30 | | For the six months
ended June 30 | |
| | 2007 | | 2006 | | % Change | | 2007 | | 2006 | | % Change | |
| | | | | | | | | | | | | | | | | |
Premiums: | | | | | | | | | | | | | | | | | |
Life insurance, guaranteed annuities | | | | | | | | | | | | | | | | | |
and insured health products | | $ | 4,266 | | $ | 4,444 | | -4 | % | $ | 9,879 | | $ | 8,139 | | 21 | % |
Self-funded premium equivalents (ASO contracts) | | | 1,843 | | | 1,886 | | -2 | % | | 3,807 | | | 3,805 | | — | |
Segregated funds deposits: | | | | | | | | | | | | | | | | | |
Individual products | | | 2,352 | | | 2,148 | | 9 | % | | 5,053 | | | 4,169 | | 21 | % |
Group products | | | 1,428 | | | 1,168 | | 22 | % | | 3,144 | | | 2,721 | | 16 | % |
Proprietary mutual funds deposits | | | 203 | | | 163 | | 25 | % | | 423 | | | 324 | | 31 | % |
Total premiums and deposits | | | 10,092 | | | 9,809 | | 3 | % | | 22,306 | | | 19,158 | | 16 | % |
| | | | | | | | | | | | | | | | | |
Fee and other income | | | 749 | | | 667 | | 12 | % | | 1,513 | | | 1,324 | | 14 | % |
Paid or credited to policyholders | | | 2,764 | | | 4,959 | | -44 | % | | 8,348 | | | 8,960 | | -7 | % |
| | | | | | | | | | | | | | | | | |
Net income - common shareholders | | | 544 | | | 461 | | 18 | % | | 1,058 | | | 907 | | 17 | % |
| | | | | | | | | | | | | | | | | |
Per common share | | | | | | | | | | | | | | | | | |
Basic earnings | | $ | 0.610 | | $ | 0.516 | | 18 | % | $ | 1.186 | | $ | 1.017 | | 17 | % |
Dividends paid | | | 0.255 | | | 0.22375 | | 14 | % | | 0.510 | | | 0.4475 | | 14 | % |
Book value | | | | | | | | | | | 11.02 | | | 10.17 | | 8 | % |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Return on common shareholders’ equity (12 months): | | | | | | | | | | | 21.5 | % | | 21.7 | % | | |
At June 30 | | | | | | | | | | | | | | | | | |
Total assets | | | | | | | | | | $ | 117,056 | | $ | 113,019 | | 4 | % |
Segregated funds net assets | | | | | | | | | | | 92,224 | | | 78,349 | | 18 | % |
Proprietary mutual funds net assets | | | | | | | | | | | 2,252 | | | 1,577 | | 43 | % |
Total assets under administration | | | | | | | | | | $ | 211,532 | | $ | 192,945 | | 10 | % |
| | | | | | | | | | | | | | | | | |
Share capital and surplus | | | | | | | | | | $ | 10,934 | | $ | 10,162 | | 8 | % |
SUMMARY OF CONSOLIDATED OPERATIONS (unaudited) |
(in $ millions except per share amounts) |
| | For the three months | | For the six months | |
| | ended June 30 | | ended June 30 | |
| | 2007 | | 2006 | | 2007 | | 2006 | |
| | (note 1(a)) | | | | | (note 1(a)) | | | | |
Income | | | | | | | | | | | | | |
Premium income | | $ | 4,266 | | $ | 4,444 | | $ | 9,879 | | $ | 8,139 | |
Net investment income (note 3) | | | | | | | | | | | | | |
Regular net investment income | | | 1,487 | | | 1,516 | | | 2,905 | | | 2,839 | |
Changes in fair value on held for trading assets | | | (1,931 | ) | | — | | | (2,347 | ) | | — | |
Total net investment income | | | (444 | ) | | 1,516 | | | 558 | | | 2,839 | |
Fee and other income | | | 749 | | | 667 | | | 1,513 | | | 1,324 | |
| | | | | | | | | | | | | |
| | | 4,571 | | | 6,627 | | | 11,950 | | | 12,302 | |
| | | | | | | | | | | | | |
Benefits and expenses | | | | | | | | | | | | | |
Policyholder benefits | | | 3,742 | | | 3,898 | | | 9,188 | | | 7,482 | |
Policyholder dividends and experience refunds | | | 307 | | | 286 | | | 472 | | | 565 | |
Change in actuarial liabilities | | | (1,285 | ) | | 775 | | | (1,312 | ) | | 913 | |
Total paid or credited to policyholders | | | 2,764 | | | 4,959 | | | 8,348 | | | 8,960 | |
| | | | | | | | | | | | | |
Commissions | | | 374 | | | 332 | | | 752 | | | 674 | |
Operating expenses | | | 560 | | | 541 | | | 1,155 | | | 1,103 | |
Premium taxes | | | 58 | | | 66 | | | 122 | | | 126 | |
Financing charges (note 4) | | | 53 | | | 51 | | | 104 | | | 98 | |
Amortization of finite life intangible assets | | | 7 | | | 5 | | | 15 | | | 9 | |
| | | | | | | | | | | | | |
Net income before income taxes | | | 755 | | | 673 | | | 1,454 | | | 1,332 | |
| | | | | | | | | | | | | |
Income taxes- current | | | 205 | | | 110 | | | 354 | | | 227 | |
- future | | | (51 | ) | | 26 | | | (62 | ) | | 78 | |
| | | | | | | | | | | | | |
Net income before non-controlling interests | | | 601 | | | 537 | | | 1,162 | | | 1,027 | |
| | | | | | | | | | | | | |
Non-controlling interests (note 9) | | | 43 | | | 62 | | | 76 | | | 96 | |
| | | | | | | | | | | | | |
Net income | | | 558 | | | 475 | | | 1,086 | | | 931 | |
| | | | | | | | | | | | | |
Perpetual preferred share dividends | | | 14 | | | 14 | | | 28 | | | 24 | |
| | | | | | | | | | | | | |
Net income - common shareholders | | $ | 544 | | $ | 461 | | $ | 1,058 | | $ | 907 | |
| | | | | | | | | | | | | |
Earnings per common share (note 13) | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Basic | | $ | 0.610 | | $ | 0.516 | | $ | 1.186 | | $ | 1.017 | |
| | | | | | | | | | | | | |
Diluted | | $ | 0.606 | | $ | 0.513 | | $ | 1.177 | | $ | 1.010 | |
CONSOLIDATED BALANCE SHEETS (unaudited) |
(in $ millions) |
| | June 30, 2007 | | December 31, 2006 | | June 30, 2006 | |
| | (note 1(a)) | | | | | |
Assets | | | | | | | | | | |
| | | | | | | | | | |
Bonds (note 2) | | $ | 69,456 | | $ | 65,246 | | $ | 60,479 | |
Mortgage loans (note 2) | | | 15,172 | | | 15,334 | | | 14,855 | |
Stocks (note 2) | | | 5,866 | | | 4,766 | | | 4,236 | |
Real estate (note 2) | | | 2,207 | | | 2,216 | | | 1,868 | |
Loans to policyholders | | | 6,496 | | | 6,776 | | | 6,670 | |
Cash and cash equivalents | | | 4,132 | | | 3,083 | | | 3,186 | |
Funds held by ceding insurers | | | 1,720 | | | 12,371 | | | 11,526 | |
Goodwill | | | 5,439 | | | 5,444 | | | 5,324 | |
Intangible assets | | | 1,541 | | | 1,575 | | | 1,452 | |
Other assets (note 5) | | | 5,027 | | | 3,717 | | | 3,423 | |
| | | | | | | | | | |
Total assets | | $ | 117,056 | | $ | 120,528 | | $ | 113,019 | |
| | | | | | | | | | |
Liabilities | | | | | | | | | | |
| | | | | | | | | | |
Policy liabilities | | | | | | | | | | |
Actuarial liabilities | | $ | 87,773 | | $ | 89,490 | | $ | 81,221 | |
Provision for claims | | | 1,238 | | | 1,266 | | | 1,110 | |
Provision for policyholder dividends | | | 562 | | | 568 | | | 537 | |
Provision for experience rating refunds | | | 225 | | | 452 | | | 378 | |
Policyholder funds | | | 2,243 | | | 2,202 | | | 2,134 | |
| | | | | | | | | | |
| | | 92,041 | | | 93,978 | | | 85,380 | |
| | | | | | | | | | |
Debentures and other debt instruments (note 6) | | | 3,014 | | | 1,980 | | | 2,204 | |
Funds held under reinsurance contracts | | | 1,944 | | | 1,822 | | | 3,954 | |
Other liabilities (note 7) | | | 4,138 | | | 4,167 | | | 3,977 | |
Repurchase agreements | | | 975 | | | 997 | | | 1,049 | |
Deferred net realized gains | | | 176 | | | 2,821 | | | 2,693 | |
| | | | | | | | | | |
| | | 102,288 | | | 105,765 | | | 99,257 | |
| | | | | | | | | | |
Preferred shares (note 10) | | | 813 | | | 756 | | | 775 | |
Capital trust securities and debentures (note 8) | | | 638 | | | 646 | | | 647 | |
Non-controlling interests (note 9) | | | | | | | | | | |
Participating account surplus in subsidiaries | | | 2,021 | | | 1,884 | | | 1,814 | |
Preferred shares issued by subsidiaries | | | 209 | | | 209 | | | 209 | |
Perpetual preferred shares issued by subsidiaries | | | 153 | | | 154 | | | 155 | |
| | | | | | | | | | |
Share capital and surplus | | | | | | | | | | |
| | | | | | | | | | |
Share capital (note 10) | | | | | | | | | | |
Perpetual preferred shares | | | 1,099 | | | 1,099 | | | 1,099 | |
Common shares | | | 4,688 | | | 4,676 | | | 4,671 | |
Accumulated surplus | | | 6,093 | | | 5,858 | | | 5,338 | |
Accumulated other comprehensive income | | | (977) | | | — | | | — | |
Contributed surplus | | | 31 | | | 28 | | | 23 | |
Currency translation account | | | — | | | (547) | | | (969) | |
| | | | | | | | | | |
| | | 10,934 | | | 11,114 | | | 10,162 | |
| | | | | | | | | | |
Liabilities, share capital and surplus | | $ | 117,056 | | $ | 120,528 | | $ | 113,019 | |
CONSOLIDATED STATEMENTS OF SURPLUS (unaudited) |
(in $ millions) |
| For the six months
ended June 30 | |
| | | 2007 | | | 2006 | |
| | | | | | | |
Accumulated surplus | | | | | | | |
Balance, beginning of year | | $ | 5,858 | | $ | 4,860 | |
Change in accounting policy (note 1(a)) | | | (368 | ) | | — | |
Net income | | | 1,086 | | | 931 | |
Common share cancellation excess | | | — | | | (24 | ) |
Share issue costs - preferred shares | | | — | | | (6 | ) |
Dividends to shareholders | | | | | | | |
Perpetual preferred shareholders | | | (28 | ) | | (24 | ) |
Common shareholders | | | (455 | ) | | (399 | ) |
| | | | | | | |
Balance, end of period | | $ | 6,093 | | $ | 5,338 | |
| | | | | | | |
Accumulated other comprehensive income, net of income taxes (note 14) | | | | | | | |
Balance, beginning of year | | $ | — | | $ | — | |
Reclassification from currency translation account (note 1(a)) | | | (547 | ) | | — | |
Change in accounting policy (note 1(a)) | | | 257 | | | — | |
Other comprehensive income | | | (687 | ) | | — | |
| | | | | | | |
Balance, end of period | | $ | (977 | ) | $ | — | |
| | | | | | | |
Contributed surplus | | | | | | | |
Balance, beginning of year | | $ | 28 | | $ | 19 | |
Stock option expense | | | | | | | |
Current year expense (note 11) | | | 3 | | | 5 | |
Exercised | | | — | | | (1 | ) |
| | | | | | | |
Balance, end of period | | $ | 31 | | $ | 23 | |
| | | | | | | |
Currency translation account | | | | | | | |
Balance, beginning of year | | $ | (547 | ) | $ | (849 | ) |
Reclassification to accumulated other comprehensive income (note 1(a)) | | | 547 | | | — | |
Change during the period | | | — | | | (120 | ) |
| | | | | | | |
Balance, end of period | | $ | — | | $ | (969 | ) |
| | | | | | | | |
SUMMARY OF CONSOLIDATED COMPREHENSIVE INCOME (unaudited) |
(in $ millions) |
| | For the three months | | For the
six months | |
| | ended June 30 | | ended June 30 | |
| | 2007 | | 2007 | |
| | (note 1(a)) | | (note 1(a)) | |
| | | | | |
Net income | | $ | 558 | | $ | 1,086 | |
| | | | | | | |
Other comprehensive income (loss), net of income taxes | | | | | | | |
Unrealized foreign exchange gains (losses) on translation of foreign
operations, net of tax of $0 and $0 | | | (513) | | | (588) | |
Unrealized gains (losses) on available for sale assets, net of tax
of $22 and $26 | | | (83) | | | (98) | |
Unrealized gains (losses) on cash flow hedges, net of tax of $21 and $21 | | | (38) | | | (38) | |
Reclassification of realized gains (losses) on available for sale assets,
net of tax of $5 and $12, to net income | | | (2) | | | (23) | |
Non-controlling interests (note 9) | | | 60 | | | 60 | |
| | | | | | | |
| | | (576) | | | (687) | |
| | | | | | | |
Comprehensive income | | $ | (18) | | $ | 399 | |
CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited) |
(in $ millions) |
| | For the three months ended June 30 | | For the six months
ended June 30 | |
| | 2007 | | 2006 | | 2007 | | 2006 | |
| | | | | | | | | |
Operations | | | | | | | | | | | | | |
Net income | | $ | 558 | | $ | 475 | | $ | 1,086 | | $ | 931 | |
Adjustments: | | | | | | | | | | | | | |
Change in policy liabilities | | | (1,496) | | | 274 | | | (1,548) | | | 403 | |
Change in funds held by ceding insurers | | | 153 | | | 379 | | | 441 | | | 431 | |
Change in funds held under reinsurance contracts | | | 24 | | | (19) | | | 50 | | | (97) | |
Change in current income taxes payable | | | 14 | | | 15 | | | (30) | | | (74) | |
Future income tax expense | | | (51) | | | 26 | | | (62) | | | 78 | |
Changes in fair value of financial instruments | | | 1,919 | | | — | | | 2,333 | | | — | |
Other | | | 153 | | | 649 | | | (818) | | | 75 | |
| | | | | | | | | | | | | |
Cash flows from operations | | | 1,274 | | | 1,799 | | | 1,452 | | | 1,747 | |
| | | | | | | | | | | | | |
Financing Activities | | | | | | | | | | | | | |
Issue of common shares | | | 1 | | | 5 | | | 12 | | | 17 | |
Issue of preferred shares | | | — | | | 300 | | | — | | | 300 | |
Purchased and cancelled common shares | | | — | | | (15) | | | — | | | (30) | |
Redemption of preferred shares | | | — | | | (12) | | | — | | | (12) | |
Issue of subordinated debentures in subsidiary | | | 1,000 | | | 336 | | | 1,000 | | | 336 | |
Issue of short term commercial paper | | | 124 | | | — | | | 124 | | | — | |
Repayment of debentures and other debt instruments | | | (18) | | | (10) | | | (27) | | | (22) | |
Share issue costs | | | — | | | (6) | | | — | | | (6) | |
Dividends paid | | | (242) | | | (213) | | | (483) | | | (423) | |
| | | | | | | | | | | | | |
| | | 865 | | | 385 | | | 626 | | | 160 | |
| | | | | | | | | | | | | |
Investment Activities | | | | | | | | | | | | | |
Bond sales and maturities | | | 5,287 | | | 6,200 | | | 11,819 | | | 13,332 | |
Mortgage loan repayments | | | 502 | | | 473 | | | 971 | | | 911 | |
Stock sales | | | 424 | | | 262 | | | 777 | | | 556 | |
Real estate sales | | | 15 | | | (74) | | | 34 | | | 45 | |
Change in loans to policyholders | | | (126) | | | (133) | | | (160) | | | (220) | |
Change in repurchase agreements | | | 160 | | | 4 | | | (267) | | | 118 | |
Investment in bonds | | | (5,362) | | | (7,412) | | | (11,305) | | | (14,505) | |
Investment in mortgage loans | | | (690) | | | (673) | | | (1,284) | | | (1,205) | |
Investment in stocks | | | (664 | | | (285) | | | (1,236) | | | (638) | |
Investment in real estate | | | (83) | | | (44) | | | (196) | | | (116) | |
| | | | | | | | | | | | | |
| | | (537) | | | (1,682) | | | (847) | | | (1,722) | |
| | | | | | | | | | | | | |
Effect of changes in exchange rates on cash | | | | | | | | | | | | | |
and cash equivalents | | | (166) | | | 10 | | | (182) | | | 40 | |
| | | | | | | | | | | | | |
Increase in cash and cash equivalents | | | 1,436 | | | 512 | | | 1,049 | | | 225 | |
| | | | | | | | | | | | | |
Cash and cash equivalents, beginning of period | | | 2,696 | | | 2,674 | | | 3,083 | | | 2,961 | |
| | | | | | | | | | | | | |
Cash and cash equivalents, end of period | | | 4,132 | | | 3,186 | | | 4,132 | | | 3,186 | |
Notes to Interim Consolidated Financial Statements (unaudited)
(in $ millions except per share amounts)
1. | Basis of Presentation and Summary of Accounting Policies |
The interim unaudited consolidated financial statements of Great-West Lifeco Inc. (Lifeco or the Company) at June 30, 2007 have been prepared in accordance with Canadian generally accepted accounting principles, using the same accounting policies and methods of computation followed in the consolidated financial statements for the year ended December 31, 2006 except as noted below. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s annual report dated December 31, 2006.
Effective January 1, 2007, the Company adopted the Canadian Institute of Chartered Accountants (CICA) Handbook Section 4211, Life Insurance Enterprises; Section 3855, Financial Instruments – Recognition and Measurement; Section 3865, Hedges; Section 1530, Comprehensive Income.
In addition to the adoption of the CICA standards, the Company adopted The Office of the Superintendent of Financial Institutions Canada Guideline D-10, Accounting for Financial Instruments Designated as “Held for Trading” (Fair Value Option)(OSFI D-10), which provides additional guidance to certain federally regulated financial institutions, including life insurance companies.
Under the new guidance, all financial assets, including derivatives, must be classified as available for sale, held for trading, held to maturity, or loans and receivables. All financial liabilities, including derivatives, must be classified as held for trading or other. All financial instruments classified as available for sale or held for trading are recognized at fair value on the Consolidated Balance Sheets while financial instruments classified as loans and receivables or other will continue to be measured at amortized cost using the effective interest rate method. The standards allow the Company to designate certain financial instruments, on initial recognition, as held for trading. This option has been limited by the requirements of OSFI D-10.
Changes in the fair value of financial instruments classified as held for trading are reported in net income. Unrealized gains or losses on financial instruments classified as available for sale are reported in Other Comprehensive Income until they are realized by the Company.
The new guidance introduces the concept of Consolidated Other Comprehensive Income, which tracks unrealized gains and losses experienced by the Company on certain investments and derivative instruments, and the currency translation account movement. Consolidated Other Comprehensive Income together with Consolidated Net Income provides the financial statement reader with Consolidated Comprehensive Income. Consolidated Comprehensive Income is the total of all realized and unrealized income, expenses, gains and losses related to the Consolidated Balance Sheets including currency translation gains and losses on foreign subsidiary operations.
Unless otherwise stated below, financial assets and liabilities will remain on the Consolidated Balance Sheets at amortized cost.
Certain investments, primarily investments actively traded in a public market, and certain financial liabilities are measured at their fair value. Investments backing actuarial liabilities, investments backing participating account surplus in The Canada Life Assurance Company (Canada Life), and preferred shares classified as liabilities are designated as held for trading using the fair value option. Changes in the fair value of these investments flow through net income. This impact is largely offset by corresponding changes in the actuarial liabilities which also flow through net income. Investments backing shareholder capital and surplus, with the exception of the investments backing participating account surplus in Canada Life, are classified as available for sale. Unrealized gains and losses on these investments flow through Other Comprehensive Income until they are realized. Certain investment portfolios are classified as held for trading as a reflection of their underlying nature. Changes in the fair value of these investments flow through net income. There has been no change to the Company’s method of accounting for real estate or loans.
Derivative instruments, previously off-balance sheet, are recognized at their market value in the Consolidated Balance Sheets (note 5 and 7). Changes in the fair value of derivatives are recognized in net income except for derivatives designated as effective cash flow hedges.
Derivatives embedded in financial instruments, or other contracts, which are not closely related to the host financial instrument, or contract, must be bifurcated and recognized independently. The change in accounting policy related to embedded derivatives did not have a significant impact on the financial statements of the Company.
Three types of hedging relationships are permitted under the new guidance: fair value hedges, cash flow hedges, and hedges of net investments in self-sustaining foreign operations. Changes in fair value hedges are recognized in net income. The effective portion of cash flow hedges and hedges of net investments in self-sustaining foreign operations is offset through Other Comprehensive Income until the variability in cash flows being hedged is recognized in net income.
Trade-date accounting will be used to account for all regular-way purchase or sale of investments traded on a public market and derivative instruments. Settlement-date accounting will be used to account for all regular-way purchase or sale of investments not traded on a public market.
Transaction costs for financial assets and liabilities classified or designated as held for trading will be recognized immediately in net income. Transaction costs for financial assets classified as available for sale or loans and receivables will be added to the value of the instrument at acquisition and be taken into net income using the effective interest rate method. Transaction costs for financial liabilities classified as other than held for trading will be recognized immediately in net income.
On January 1, 2007, transition adjustments were made to certain existing financial instruments to adjust their carrying value to market, to recognize derivative financial instruments on the balance sheet, to eliminate the recognition of deferred realized gains with corresponding adjustments to actuarial liabilities and opening accumulated surplus.
The following table summarizes the adjustments made to adopt the new standards:
| | December 31, | | | | Adjusted | |
| | 2006 | | Opening | | January 1, | |
| | as reported | | adjustments | | 2007 | |
| | (note 1(d)) | | | | | |
Assets | | | | | | | | | | |
| | | | | | | | | | |
Bonds | | $ | 65,246 | | $ | (65,246 | ) | $ | — | |
Classified as available for sale | | | — | | | 5,675 | | | 5,675 | |
Classified as held for trading | | | — | | | 48,799 | | | 48,799 | |
Designated as held for trading | | | — | | | 1,650 | | | 1,650 | |
Loans and receivables | | | — | | | 10,035 | | | 10,035 | |
| | | 65,246 | | | 913 | | | 66,159 | |
| | | | | | | | | | |
Mortgage loans | | | 15,334 | | | (46 | ) | | 15,288 | |
| | | | | | | | | | |
Stocks | | | 4,766 | | | (4,460 | ) | | 306 | |
Classified as available for sale | | | — | | | 904 | | | 904 | |
Classified as held for trading | | | — | | | 4,210 | | | 4,210 | |
| | | 4,766 | | | 654 | | | 5,420 | |
| | | | | | | | | | |
All other assets | | | 35,182 | | | (43 | ) | | 35,139 | |
| | | | | | | | | | |
Total assets | | $ | 120,528 | | $ | 1,478 | | $ | 122,006 | |
| | | | | | | | | | |
Liabilities | | | | | | | | | | |
| | | | | | | | | | |
Policy liabilities | | $ | 93,978 | | $ | 3,896 | | $ | 97,874 | |
Funds held under reinsurance contracts | | | 1,822 | | | 121 | | | 1,943 | |
Deferred net realized gains | | | 2,821 | | | (2,628 | ) | | 193 | |
Preferred share liability (Series D and E) | | | 756 | | | 71 | | | 827 | |
All other liabilities | | | 7,790 | | | — | | | 7,790 | |
| | | 107,167 | | | 1,460 | | | 108,627 | |
| | | | | | | | | | |
Non-controlling interests | | | | | | | | | | |
Participating account surplus in subsidiaries | | | 1,884 | | | 129 | | | 2,013 | |
Other non-controlling interests | | | 363 | | | — | | | 363 | |
| | | | | | | | | | |
Share capital and surplus | | | | | | | | | | |
| | | | | | | | | | |
Share capital | | | 5,775 | | | — | | | 5,775 | |
| | | | | | | | | | |
Shareholder surplus | | | | | | | | | | |
Accumulated surplus | | | 5,858 | | | (368 | ) | | 5,490 | |
Accumulated other comprehensive income | | | — | | | (290 | ) | | (290 | ) |
Contributed surplus | | | 28 | | | — | | | 28 | |
Currency translation account | | | (547 | ) | | 547 | | | — | |
| | | | | | | | | | |
| | | 11,114 | | | (111 | ) | | 11,003 | |
| | | | | | | | | | |
Liabilities, share capital and surplus | | $ | 120,528 | | $ | 1,478 | | $ | 122,006 | |
| (b) | Determining Variable Interest Entities |
The Company adopted the Emerging Issues Committee (EIC) of the CICA EIC-163, Determining the Variability to be Considered in Applying AcG-15 on January 1, 2007. EIC-163 provides additional guidance on consolidation of variable interest entities.
| (c) | New Accounting Requirements |
Capital Disclosures
Effective January 1, 2008, the Company will be required to comply with CICA Handbook Section 1535, Capital Disclosures. The section establishes standards for disclosing information that enables users of financial statements to evaluate the entity’s objectives, policies and processes for managing capital. The new requirements are for disclosure only and will not impact financial results of the Company.
Financial Instrument Disclosure and Presentation
Effective January 1, 2008, the Company will be required to comply with CICA Handbook Section 3862, Financial Instruments – Disclosures, and Section 3863, Financial Instruments – Presentation. These sections will replace existing Section 3861, Financial Instruments – Disclosure and Presentation. Presentation standards are carried forward unchanged. Disclosure standards are enhanced and expanded to complement the changes in accounting policy adopted in accordance with Section 3855, Financial Instruments – Recognition and Measurement.
Certain of the 2006 amounts presented for comparative purposes have been reclassified to conform to the presentation adopted in the current year. This reclassification has resulted in an increase to total assets of $65 at December 31, 2006 and $74 at June 30, 2006, with a corresponding increase in total liabilities.
Comparative figures have not been restated to conform with the new Financial Instruments accounting policies adopted January 1, 2007. CICA guidance explicitly prevents restatement of comparative information under the new standards.
| (a) | Carrying values of the portfolio investments are as follows: |
| | June 30, 2007 | | December 31, | | June 30, | |
| | Market Value | | Amortized Cost | | Total | | 2006 | | 2006 | |
| | | | | | | | | | | | | | | | | |
| | Available | | Held for trading1 | | Loans and | | Non-financial | | | | Carrying | | Carrying | |
| | for sale | | Designated | | Classified | | receivables | | Instruments | | | | value | | value | |
| | | | | | | | | | | | | | | | | |
Bonds | | | | | | | | | | | | | | | | | | | | | | | | | |
- government | | $ | 1,850 | | $ | 18,855 | | $ | 908 | | $ | 1,977 | | $ | — | | $ | 23,590 | | $ | 22,069 | | $ | 19,217 | |
- corporate | | | 3,213 | | | 34,646 | | | 684 | | | 7,323 | | | — | | | 45,866 | | | 43,177 | | | 41,262 | |
| | | 5,063 | | | 53,501 | | | 1,592 | | | 9,300 | | | — | | | 69,456 | | | 65,246 | | | 60,479 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage loans | | | | | | | | | | | | | | | | | | | | | | | | | |
- residential | | | — | | | — | | | — | | | 7,230 | | | — | | | 7,230 | | | 7,342 | | | 7,272 | |
- non-residential | | | — | | | — | | | — | | | 7,942 | | | — | | | 7,942 | | | 7,992 | | | 7,583 | |
| | | — | | | — | | | — | | | 15,172 | | | — | | | 15,172 | | | 15,334 | | | 14,855 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Stocks | | | 844 | | | 4,709 | | | — | | | — | | | 313 | | | 5,866 | | | 4,766 | | | 4,236 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate | | | — | | | — | | | — | | | — | | | 2,207 | | | 2,207 | | | 2,216 | | | 1,868 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 5,907 | | $ | 58,210 | | $ | 1,592 | | $ | 24,472 | | $ | 2,520 | | $ | 92,701 | | $ | 87,562 | | $ | 81,438 | |
1Investments can be held for trading in two ways: designated as held for trading at the option of management; or, classified as held for trading if they are actively traded for the purpose of earning investment income.
| (b) | Stocks include the Company’s investment in an affiliated company, IGM Financial Inc. (IGM), a member of the Power Financial Corporation group of companies, over which it exerts significant influence but does not control. As a result of changes in circumstances, the investment is accounted for using the equity method of accounting as at January 1, 2007. The portfolio method of accounting was used to account for the Company’s investment in IGM in prior years. |
| | June 30, | | December 31, | | June 30, | |
| | 2007 | | 2006 | | 2006 | |
| | | | | | | | | | |
Carrying value, beginning of year | | $ | 306 | | $ | 276 | | $ | 276 | |
Equity method earnings | | | 14 | | | — | | | — | |
Dividends | | | (7 | ) | | — | | | — | |
Portfolio method earnings | | | — | | | 30 | | | 15 | |
| | | | | | | | | | |
Carrying value, end of period | | $ | 313 | | $ | 306 | | $ | 291 | |
| | | | | | | | | | |
Share of equity, end of period | | $ | 142 | | $ | 133 | | $ | 127 | |
| | | | | | | | | | |
Fair value, end of period | | $ | 476 | | $ | 452 | | $ | 410 | |
The Company owns 9,205,911 shares of IGM at June 30, 2007 (9,205,933 at December 31, 2006; 9,205,705 at June 30, 2006) representing a 3.48% ownership interest (3.48% at December 31, 2006; 3.48% at June 30, 2006).
Net investment income is comprised of the following:
For the three months | | | | Mortgage | | | | Real | | | | | |
ended June 30, 2007 | | Bonds | | loans | | Stocks | | estate | | Other | | Total | |
| | | | | | | | | | | | | | | | | | | |
Regular net investment income: | | | | | | | | | | | | | | | | | | | |
Investment income earned | | $ | 950 | | $ | 224 | | $ | 44 | | $ | 26 | | $ | 212 | | $ | 1,456 | |
Net realized gains (losses) | | | | | | | | | | | | | | | | | | | |
(available for sale) | | | 7 | | | — | | | — | | | — | | | — | | | 7 | |
Net realized gains (losses) | | | | | | | | | | | | | | | | | | | |
(other classifications) | | | 11 | | | 9 | | | — | | | — | | | — | | | 20 | |
Recovery of credit losses | | | — | | | 4 | | | — | | | — | | | — | | | 4 | |
Amortization of deferred net realized gains | | | — | | | — | | | — | | | 18 | | | — | | | 18 | |
Other income and expenses | | | — | | | — | | | — | | | — | | | (18 | ) | | (18 | ) |
| | | 968 | | | 237 | | | 44 | | | 44 | | | 194 | | | 1,487 | |
| | | | | | | | | | | | | | | | | | | |
Changes in fair value on held for trading assets: | | | | | | | | | | | | | | | | | | | |
Net realized/ unrealized gains (losses) | | | | | | | | | | | | | | | | | | | |
(classified held for trading) | | | (18 | ) | | — | | | — | | | — | | | — | | | (18 | ) |
Net realized/ unrealized gains (losses) | | | | | | | | | | | | | | | | | | | |
(designated held for trading) | | | (1,967 | ) | | — | | | 133 | | | — | | | (79 | ) | | (1,913 | ) |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | (1,985 | ) | | — | | | 133 | | | — | | | (79 | ) | | (1,931 | ) |
| | | | | | | | | | | | | | | | | | | |
Net investment income | | $ | (1,017 | ) | $ | 237 | | $ | 177 | | $ | 44 | | $ | 115 | | $ | (444 | ) |
For the three months
ended June 30, 2006 | | Bonds | | Mortgage loans | | Stocks | | Real estate | | Other | | Total | |
| | | | | | | | | | | | | | | | | | | |
Investment income earned | | $ | 1,009 | | $ | 215 | | $ | 32 | | $ | 28 | | $ | 107 | | $ | 1,391 | |
Amortization of net realized and | | | | | | | | | | | | | | | | | | | |
unrealized gains | | | 63 | | | 12 | | | 48 | | | 15 | | | — | | | 138 | |
Recovery for credit losses | | | 4 | | | 1 | | | — | | | — | | | — | | | 5 | |
Investment expenses | | | — | | | — | | | — | | | — | | | (18 | ) | | (18 | ) |
| | | | | | | | | | | | | | | | | | | |
Net investment income | | $ | 1,076 | | $ | 228 | | $ | 80 | | $ | 43 | | $ | 89 | | $ | 1,516 | |
For the six months
ended June 30, 2007 | | Bonds | | Mortgage
loans | | Stocks | | Real
estate | | Other | | Total | |
| | | | | | | | | | | | | |
Regular net investment income: | | | | | | | | | | | | | | | | | | | |
Investment income earned | | $ | 1,875 | | $ | 448 | | $ | 88 | | $ | 61 | | $ | 364 | | $ | 2,836 | |
Net realized gains (losses) | | | | | | | | | | | | | | | | | | | |
(available for sale) | | | 32 | | | — | | | 3 | | | — | | | — | | | 35 | |
Net realized gains (losses) | | | | | | | | | | | | | | | | | | | |
(other classifications) | | | 13 | | | 15 | | | — | | | — | | | — | | | 28 | |
Recovery of credit losses | | | 1 | | | 4 | | | — | | | — | | | — | | | 5 | |
Amortization of deferred net realized gains | | | — | | | — | | | — | | | 37 | | | — | | | 37 | |
Other income and expenses | | | — | | | — | | | — | | | — | | | (36 | ) | | (36 | ) |
| | | 1,921 | | | 467 | | | 91 | | | 98 | | | 328 | | | 2,905 | |
| | | | | | | | | | | | | | | | | | | |
Changes in fair value on held for trading assets: | | | | | | | | | | | | | | | | | | | |
Net realized/ unrealized gains (losses) | | | | | | | | | | | | | | | | | | | |
(classified held for trading) | | | (21 | ) | | — | | | — | | | — | | | — | | | (21 | ) |
Net realized/ unrealized gains (losses) | | | | | | | | | | | | | | | | | | | |
(designated held for trading) | | | (2,446 | ) | | — | | | 212 | | | — | | | (92 | ) | | (2,326 | ) |
| | | (2,467 | ) | | — | | | 212 | | | — | | | (92 | ) | | (2,347 | ) |
| | | | | | | | | | | | | | | | | | | |
Net investment income | | $ | (546 | ) | $ | 467 | | $ | 303 | | $ | 98 | | $ | 236 | | $ | 558 | |
For the six months
ended June 30, 2006 | | Bonds | | Mortgage loans | | Stocks | | Real estate | | Other | | Total | |
| | | | | | | | | | | | | |
Investment income earned | | $ | 1,809 | | $ | 431 | | $ | 65 | | $ | 54 | | $ | 206 | | $ | 2,565 | |
Amortization of net realized and | | | | | | | | | | | | | | | | | | | |
unrealized gains | | | 124 | | | 24 | | | 124 | | | 29 | | | — | | | 301 | |
Recovery for credit losses | | | 6 | | | 1 | | | — | | | — | | | — | | | 7 | |
Investment expenses | | | — | | | — | | | — | | | — | | | (34 | ) | | (34 | ) |
| | | | | | | | | | | | | | | | | | | |
Net investment income | | $ | 1,939 | | $ | 456 | | $ | 189 | | $ | 83 | | $ | 172 | | $ | 2,839 | |
| Financing charges consist of the following: |
| | For the three months ended June 30 | | For the six months ended June 30 | |
| | 2007 | | 2006 | | 2007 | | 2006 | |
| | | | | | | | | |
Interest on long-term debentures and other debt instruments | | $ | 32 | | $ | 30 | | $ | 62 | | $ | 57 | |
Preferred share dividends | | | 9 | | | 9 | | | 18 | | | 19 | |
Unrealized gains on preferred shares classified as | | | | | | | | | | | | | |
held for trading | | | (12 | ) | | — | | | (14 | ) | | — | |
Subordinated debenture issue costs | | | 13 | | | — | | | 13 | | | — | |
Other | | | 1 | | | 2 | | | 6 | | | 3 | |
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 | ) |
Total | | $ | 53 | | $ | 51 | | $ | 104 | | $ | 98 | |
Other assets consist of the following:
| | June 30, 2007 | | December 31, 2006 | | June 30, 2006 | |
| | | | | | | |
Premiums in course of collection | | $ | 535 | | $ | 566 | | $ | 572 | |
Interest due and accrued | | | 1,049 | | | 1,009 | | | 927 | |
Derivative financial instruments (note 1(a)) | | | 796 | | | — | | | — | |
Other investment receivables | | | 319 | | | — | | | — | |
Future income taxes | | | 398 | | | 369 | | | 367 | |
Fixed assets | | | 259 | | | 263 | | | 256 | |
Prepaid expenses | | | 55 | | | 64 | | | 76 | |
Accounts receivable | | | 709 | | | 754 | | | 648 | |
Accrued pension asset | | | 202 | | | 189 | | | 181 | |
Other | | | 705 | | | 503 | | | 396 | |
| | $ | 5,027 | | $ | 3,717 | | $ | 3,423 | |
6. | Debentures and Other Debt Instruments |
Debentures and other debt instruments consist of the following:
| June 30, 2007 | December 31 2006 | June 30, 2006 | |
Short term | | | | | | | | | |
Commercial paper and other short term debt instruments with interest
rates from 5.3% to 5.4% (5.2% to 5.3% in 2006) | $ | 200 | | $ | 110 | | $ | 103 | |
Revolving credit in respect of reinsurance business with interest rates
of 6.0% maturing within one year (6.0% in 2006) | | 1 | | | 1 | | | 2 | |
| | | | | | | | | |
Total short term | | 201 | | | 111 | | | 105 | |
Long term | | | | | | | | | |
Operating: | | | | | | | | | |
Note payable with interest rate of 8.0% | | 7 | | | 8 | | | 8 | |
Capital: | | | | | | | | | |
Lifeco | | | | | | | | | |
6.75% Debentures due August 10, 2015, unsecured | | 200 | | | 200 | | | 200 | |
6.14% Debentures due March 21, 2018, unsecured | | 200 | | | 200 | | | 200 | |
6.74% Debentures due November 24, 2031, unsecured | | 200 | | | 200 | | | 200 | |
6.67% Debentures due March 21, 2033, unsecured | | 400 | | | 400 | | | 400 | |
| | | | | | | | | |
| | 1,000 | | | 1,000 | | | 1,000 | |
Canada Life | | | | | | | | | |
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 | | — | | | — | | | 250 | |
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 | | 200 | | | 200 | | | 200 | |
6.40% Subordinated debentures due December 11, 2028, unsecured | | 100 | | | 100 | | | 100 | |
Acquisition related fair market value adjustment | | 4 | | | 5 | | | 8 | |
| | | | | | | | | |
| | 304 | | | 305 | | | 558 | |
Great-West Life & Annuity Insurance Capital, LP | | | | | | | | | |
6.625% Deferrable debentures due November 15, 2034,
unsecured (U.S.$175) | | 184 | | | 205 | | | 197 | |
| | | | | | | | | |
Great-West Life & Annuity Insurance Capital, LP II | | | | | | | | | |
7.153% Subordinated debentures due May 16, 2046,
unsecured (U.S.$300) | | 318 | | | 351 | | | 336 | |
| | | | | | | | | |
Great-West Lifeco Finance (Delaware) LP | | | | | | | | | |
Subordinated debentures due June 21, 2067 bearing an interest rate
of 5.691% until 2017 and, thereafter, at a rate equal to the Canadian
90-day Bankers’ Acceptance rate plus 1.49%, unsecured | | 1,000 | | | — | | | — | |
| | | | | | | | | |
Total long term | | 2,813 | | | 1,869 | | | 2,099 | |
| | | | | | | | | |
Total debentures and other debt instruments | $ | 3,014 | | $ | 1,980 | | $ | 2,204 | |
| | | | | | | | | | |
On June 20, 2007, Lifeco borrowed $124 under an existing revolving line of credit facility with a Canadian chartered bank.
During the second quarter of 2007, the Company issued $1.0 billion of 5.691% Subordinated Debentures through its wholly-owned subsidiary Great-West Lifeco Finance (Delaware) LP. The subordinated debentures are due June 21, 2067 and bear an interest rate of 5.691% until June 21, 2017. After June 21, 2017, the subordinated debentures will bear an interest rate of the three month bankers’ acceptance rate plus 1.49%. The subordinated debentures may be redeemed by the Company at the principal amount plus any unpaid and accrued interest after June 21, 2017.
Other liabilities consist of the following:
| | June 30, | | December 31, | | June 30, | |
| | 2007 | | 2006 | | 2006 | |
| | | | | | | | | | |
Current income taxes | | $ | 214 | | $ | 246 | | $ | 260 | |
Accounts payable | | | 383 | | | 459 | | | 384 | |
Post-retirement benefits provision | | | 521 | | | 520 | | | 521 | |
Bank overdraft | | | 430 | | | 446 | | | 464 | |
Future income taxes | | | 373 | | | 369 | | | 306 | |
Derivative financial instruments (note 1(a)) | | | 154 | | | — | | | 2 | |
Other | | | 2,063 | | | 2,127 | | | 2,040 | |
| | $ | 4,138 | | $ | 4,167 | | $ | 3,977 | |
8. | Capital Trust Securities and Debentures |
| | June 30, | | December 31, | | June 30, | |
| | 2007 | | 2006 | | 2006 | |
Capital trust debentures: | | | | | | | | | | |
5.995% Senior debentures due December 31, 2052, unsecured (GWLCT) | | | 350 | | | 350 | | | 350 | |
6.679% Senior debentures due June 30, 2052, unsecured (CLCT) | | | 300 | | | 300 | | | 300 | |
7.529% Senior debentures due June 30, 2052, unsecured (CLCT) | | | 150 | | | 150 | | | 150 | |
| | | | | | | | | | |
| | | 800 | | | 800 | | | 800 | |
Acquisition related fair market value adjustment | | | 29 | | | 31 | | | 32 | |
Trust securities held by consolidated group as temporary investments | | | (191 | ) | | (185 | ) | | (185 | ) |
| | | | | | | | | | |
Total | | $ | 638 | | $ | 646 | | $ | 647 | |
Great-West Life Capital Trust (GWLCT), a trust established by The Great-West Life Assurance Company (Great-West Life), had issued $350 of capital trust securities, the proceeds of which were used by GWLCT to purchase Great-West Life senior debentures in the amount of $350, and Canada Life Capital Trust (CLCT), a trust established by Canada Life, had issued $450 of capital trust securities, the proceeds of which were used by CLCT to purchase Canada Life senior debentures in the amount of $450.
9. | Non-Controlling Interests |
The Company controlled a 100% equity interest in Great-West Life, London Life Insurance Company (London Life), Canada Life and Great-West Life & Annuity Insurance Company (GWL&A) at June 30, 2007 and June 30, 2006.
| (a) | The non-controlling interests of Great-West Life, London Life, Canada Life, GWL&A and their subsidiaries reflected in the Summary of Consolidated Operations are as follows: |
| | For the three months | | For the six months | |
| | ended June 30 | | ended June 30 | |
| | 2007 | | 2006 | | 2007 | | 2006 | |
Participating account | | | | | | | | | | | | | |
Net income attributable to participating | | | | | | | | | | | | | |
account before policyholder dividends | | | | | | | | | | | | | |
Great-West Life | | $ | 31 | | $ | 30 | | $ | 61 | | $ | 59 | |
London Life | | | 180 | | | 190 | | | 346 | | | 352 | |
Canada Life | | | 52 | | | 45 | | | 105 | | | 92 | |
GWL&A | | | 24 | | | 26 | | | 74 | | | 69 | |
| | | 287 | | | 291 | | | 586 | | | 572 | |
| | | | | | | | | | | | | |
Policyholder dividends | | | | | | | | | | | | | |
Great-West Life | | | (27 | ) | | (25 | ) | | (54 | ) | | (51 | ) |
London Life | | | (149 | ) | | (141 | ) | | (295 | ) | | (280 | ) |
Canada Life | | | (51 | ) | | (44 | ) | | (103 | ) | | (90 | ) |
GWL&A | | | (22 | ) | | (24 | ) | | (67 | ) | | (64 | ) |
| | | (249 | ) | | (234 | ) | | (519 | ) | | (485 | ) |
Net income - participating account | | | 38 | | | 57 | | | 67 | | | 87 | |
| | | | | | | | | | | | | |
Preferred shareholder dividends of subsidiaries | | | 5 | | | 5 | | | 9 | | | 9 | |
| | | | | | | | | | | | | |
Total | | $ | 43 | | $ | 62 | | $ | 76 | | $ | 96 | |
| (b) | The carrying value of non-controlling interests consist of the following: |
| | June 30, | | December 31, | | June 30, | |
| | 2007 | | 2006 | | 2006 | |
Participating account surplus: | | | | | | | | | | |
Great-West Life | | $ | 409 | | $ | 370 | | $ | 380 | |
London Life | | | 1,430 | | | 1,275 | | | 1,218 | |
Canada Life | | | 30 | | | 35 | | | 27 | |
GWL&A | | | 243 | | | 204 | | | 189 | |
| | | | | | | | | | |
Participating account accumulated other comprehensive income: | | | | | | | | | | |
Great-West Life | | | 5 | | | — | | | — | |
London Life | | | (49 | ) | | — | | | — | |
Canada Life | | | 2 | | | — | | | — | |
GWL&A | | | (49 | ) | | — | | | — | |
| | | | | | | | | | |
| | $ | 2,021 | | $ | 1,884 | | $ | 1,814 | |
| | | | | | | | | | |
Preferred shares issued by subsidiaries: | | | | | | | | | | |
Great-West Life Series L, 5.20% Non-Cumulative | | $ | 52 | | $ | 52 | | $ | 52 | |
Great-West Life Series O, 5.55% Non-Cumulative | | | 157 | | | 157 | | | 157 | |
| | | | | | | | | | |
| | $ | 209 | | $ | 209 | | $ | 209 | |
| | | | | | | | | | |
Perpetual preferred shares issued by subsidiaries: | | | | | | | | | | |
CLFC Series B, 6.25% Non-Cumulative | | $ | 145 | | $ | 145 | | $ | 145 | |
Acquisition related fair market value adjustment | | | 8 | | | 9 | | | 10 | |
| | | | | | | | | | |
| | $ | 153 | | $ | 154 | | $ | 155 | |
| (c) | The non-controlling interests of Great-West Life, London Life, Canada Life, GWL&A and their subsidiaries reflected in Other Comprehensive Income are as follows: |
| | For the three months | | For the six months | |
| | ended June 30 | | ended June 30 | |
| | 2007 | | 2007 | |
Participating account | | | | | | | |
Other comprehensive income attributable | | | | | | | |
to participating account | | | | | | | |
Great-West Life | | $ | (4 | ) | $ | (5 | ) |
London Life | | | (34 | ) | | (34 | ) |
Canada Life | | | — | | | — | |
GWL&A | | | (22 | ) | | (21 | ) |
Other comprehensive income - | | | | | | | |
participating account | | $ | (60 | ) | $ | (60 | ) |
10. Capital
| Unlimited First Preferred Shares, Class A Preferred Shares and Second Preferred Shares, |
| | June 30, 2007 | | December 31, 2006 | | June 30, 2006 | |
| | Number | | Carrying
value | | Number | | Stated
value | | Number | | Stated
value | |
Classified as liabilities | | | | | | | | | | | | | | | | |
Preferred shares: | | | | | | | | | | | | | | | | |
Designated as held for trading (1) | | | | | | | | | | | | | | | | |
Series D, 4.70% Non-Cumulative | | | | | | | | | | | | | | | | |
First Preferred Shares | | 7,978,900 | | $ | 206 | | 7,978,900 | | $ | 199 | | 7,978,900 | | $ | 199 | |
Series E, 4.80% Non-Cumulative | | | | | | | | | | | | | | | | |
First Preferred Shares | | 22,282,215 | | | 607 | | 22,282,215 | | | 557 | | 23,022,915 | | | 576 | |
| | | | | | | | | | | | | | | | |
| | 30,261,115 | | $ | 813 | | 30,261,115 | | $ | 756 | | 31,001,815 | | $ | 775 | |
| | | | | | | | | | | | | | | | |
Classified as equity | | | | | | | | | | | | | | | | |
Perpetual preferred shares: | | | | | | | | | | | | | | | | |
Series F, 5.90% Non-Cumulative | | | | | | | | | | | | | | | | |
First Preferred Shares | | 7,957,001 | | $ | 199 | | 7,957,001 | | $ | 199 | | 7,957,001 | | $ | 199 | |
Series G, 5.20% Non-Cumulative | | | | | | | | | | | | | | | | |
First Preferred Shares | | 12,000,000 | | | 300 | | 12,000,000 | | | 300 | | 12,000,000 | | | 300 | |
Series H, 4.85% Non-Cumulative | | | | | | | | | | | | | | | | |
First Preferred Shares | | 12,000,000 | | | 300 | | 12,000,000 | | | 300 | | 12,000,000 | | | 300 | |
Series I, 4.50% Non-Cumulative | | | | | | | | | | | | | | | | |
First Preferred Shares | | 12,000,000 | | | 300 | | 12,000,000 | | | 300 | | 12,000,000 | | | 300 | |
| | | | | | | | | | | | | | | | |
| | 43,957,001 | | $ | 1,099 | | 43,957,001 | | $ | 1,099 | | 43,957,001 | | $ | 1,099 | |
| | | | | | | | | | | | | | | | |
Common shares: | | | | | | | | | | | | | | | | |
Balance, beginning of year | | 891,151,789 | | $ | 4,676 | | 890,689,076 | | $ | 4,660 | | 890,689,076 | | $ | 4,660 | |
Purchased and cancelled under | | | | | | | | | | | | | | | | |
Normal Course Issuer Bid | | — | | | — | | (1,847,300 | ) | | (9 | ) | (1,023,300 | ) | | (6 | ) |
Issued under Stock Option Plan | | 1,082,557 | | | 12 | | 2,310,013 | | | 25 | | 1,604,850 | | | 17 | |
| | | | | | | | | | | | | | | | |
Balance, end of period | | 892,234,346 | | $ | 4,688 | | 891,151,789 | | $ | 4,676 | | 891,270,626 | | $ | 4,671 | |
| | | | | | | | | | | | | | | | |
(1)The Company has elected to designate the outstanding Preferred Shares Series D and Series E, as held for trading resulting in an increase of $71 in the carrying value effective January 1, 2007 (see note 1(a)). The effect of the change at June 30, 2007 is an increase of $57 (Series D - $7, Series E -$50). The stated value at maturity is $25.00 per share plus accrued dividends.
11. Stock Based Compensation
No options were granted under the Company’s stock option plan during the second quarter 2007 and 1,749,000 options were granted during the first quarter of 2007 (no options were granted during the first quarter of 2006 and 50,000 options were granted during the second quarter of 2006). The weighted-average fair value of options granted during the six months ended June 30, 2007 were $7.49 per option ($5.48 per option during the six months ended June 30, 2006). Compensation expense of $3 after tax has been recognized in the Summary of Consolidated Operations for the six months ended June 30, 2007 ($5 after tax for the six months ended June 30, 2006).
12. | Pension Plans and Other Post Retirement Benefits |
| The total benefit costs included in operating expenses are as follows: |
| | For the three months | | For the six months | |
| | ended June 30 | | ended June 30 | |
| | 2007 | | 2006 | | 2007 | | 2006 | |
| | | | | | | | | | | | | |
Pension benefits | | $ | 11 | | $ | 19 | | $ | 22 | | $ | 39 | |
Other benefits | | | 5 | | | 5 | | | 10 | | | 11 | |
| | | | | | | | | | | | | |
Total | | $ | 16 | | $ | 24 | | $ | 32 | | $ | 50 | |
13. | Earnings Per Common Share |
| | | For the three months | | For the six months | | |
| | | ended June 30 | | ended June 30 | | |
| | | 2007 | | | 2006 | | 2007 | | 2006 | | |
a) Earnings | | | | | | | | | | | | |
| | | | | | | | | | | | |
Net income - common shareholders | | $ | 544 | | $ | 461 | $ | 1,058 | $ | 907 | | |
| | | | | | | | | | | |
b) Number of common shares | | | | | | | | | | | |
| | | | | | | | | | | |
Average number of common shares outstanding | | | 892,170,991 | | | 890,989,489 | | 891,871,142 | | 890,989,489 | |
Add: | | | | | | | | | | | |
| | | | | | | | | | | |
-Potential exercise of outstanding stock options | | | 6,612,015 | | | 6,649,699 | | 6,818,203 | | 6,649,699 | |
| | | | | | | | | | | |
Average number of common shares outstanding - diluted basis | | | 898,783,006 | | | 897,639,188 | | 898,689,345 | | 897,639,188 | |
| | | | | | | | | | | |
Earnings per common share | | | | | | | | | | | |
| | | | | | | | | | | |
Basic | | $ | 0.610 | | $ | 0.516 | $ | 1.186 | $ | 1.017 | |
| | | | | | | | | | | |
Diluted | | $ | 0.606 | | $ | 0.513 | $ | 1.177 | $ | 1.010 | |
| | | | | | | | | | | | | | | |
| 14. | Accumulated Other Comprehensive Income |
| | For the six months ended June 30, 2007 | |
| | Unrealized foreign exchange gains (losses) on translation of foreign operation | | Unrealized gains (losses) on available for sale assets | | Unrealized gains (losses) on cash flow hedges | | Total | | Non – controlling interest | | Shareholder | |
| | | | | | | | | | | | | |
Balance, beginning of year | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | | | | | | | | | | | | | | | | |
Opening transition adjustments | | | (591 | ) | | 379 | | | — | | | (212 | ) | | 26 | | | (186 | ) |
Income tax | | | — | | | (108 | ) | | — | | | (108 | ) | | 4 | | | (104 | ) |
| | | (591 | ) | | 271 | | | — | | | (320 | ) | | 30 | | | (290 | ) |
| | | | | | | | | | | | | | | | | | | |
Other comprehensive income | | | (588 | ) | | (159 | ) | | (59 | ) | | (806 | ) | | 64 | | | (742 | ) |
Income tax | | | — | | | 38 | | | 21 | | | 59 | | | (4 | ) | | 55 | |
| | | (588 | ) | | (121 | ) | | (38 | ) | | (747 | ) | | 60 | | | (687 | ) |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Balance, end of period | | $ | (1,179 | ) | $ | 150 | | $ | (38 | ) | $ | (1,067 | ) | $ | 90 | | $ | (977 | ) |
| (a) | Putnam Investment Trust |
On February 1, 2007, Lifeco announced that it had entered into agreements with Marsh & McLennan Companies, Inc. whereby Lifeco will acquire the asset management business of Putnam Investment Trust (Putnam), and Great-West Life will acquire Putnam’s 25% interest in T.H. Lee Partners for approximately $371 (U.S. $350). The parties will make an election under section 338(h)(10) of the U.S. Internal Revenue Code that will result in a tax benefit that Lifeco intends to securitize for approximately $583 (U.S. $550). In aggregate these transactions represent a value of approximately $4.1 billion (U.S. $3.9 billion).
Funding for the transaction will come from internal resources as well as from proceeds of an issue of Lifeco common shares of no more than $1.2 billion, the issuance of debentures and hybrids, a bank credit facility, and an acquisition tax benefit securitization.
| Also refer to note 17, Subsequent Events. |
On May 31, 2007, GWL&A acquired an 80% equity interest in Benefits Management Corporation (BMC). The assets acquired, liabilities assumed and the Company’s equity interest in the results of BMC’s operations have been included in its consolidated financial statements since that date. The acquisition will add approximately 90,000 members to the Company’s medical membership. BMC’s principal subsidiary, Allegiance Benefit Management, Inc., is a Montana-based third-party administrator of employee health plans.
The value of identifiable intangible assets acquired reflects the estimated fair value of the Company’s interest in BMC’s customer base at the time of acquisition. The value of the identifiable intangible assets will be amortized in relation to the expected economic benefits of the business acquired. If actual experience differs from expectations, the amortization will be adjusted to reflect actual experience.
Consolidated Operations
For the three months ended June 30, 2007
| | | | United | | | | Lifeco | | | |
| | Canada | | States | | Europe | | Corporate | | Total | |
| | | | | | | | | | | |
Income: | | | | | | | | | | | |
Premium income | | $ | 1,888 | | $ | 673 | | $ | 1,705 | | $ | — | | $ | 4,266 | |
Net investment income | | | | | | | | | | | | | | | | |
Regular net investment income | | | 621 | | | 359 | | | 496 | | | 11 | | | 1,487 | |
Changes in fair value on held for trading assets | | | (643 | ) | | (229 | ) | | (1,059 | ) | | — | | | (1,931 | ) |
Total net investment income | | | (22 | ) | | 130 | | | (563 | ) | | 11 | | | (444 | ) |
Fee and other income | | | 254 | | | 326 | | | 169 | | | — | | | 749 | |
| | | | | | | | | | | | | | | | |
Total income | | | 2,120 | | | 1,129 | | | 1,311 | | | 11 | | | 4,571 | |
| | | | | | | | | | | | | | | | |
Benefits and expenses: | | | | | | | | | | | | | | | | |
Paid or credited to policyholders | | | 1,222 | | | 609 | | | 933 | | | — | | | 2,764 | |
Other | | | 519 | | | 319 | | | 192 | | | 15 | | | 1,045 | |
Amortization of finite life intangible assets | | | 3 | | | 3 | | | 1 | | | — | | | 7 | |
| | | | | | | | | | | | | | | | |
Net operating income | | | | | | | | | | | | | | | | |
before income taxes | | | 376 | | | 198 | | | 185 | | | (4 | ) | | 755 | |
| | | | | | | | | | | | | | | | |
Income taxes | | | 75 | | | 60 | | | 21 | | | (2 | ) | | 154 | |
| | | | | | | | | | | | | | | | |
Net income before non-controlling | | | | | | | | | | | | | | | | |
interests | | | 301 | | | 138 | | | 164 | | | (2 | ) | | 601 | |
| | | | | | | | | | | | | | | | |
Non-controlling interests | | | 34 | | | 2 | | | 7 | | | — | | | 43 | |
| | | | | | | | | | | | | | | | |
Net income - shareholders | | | 267 | | | 136 | | | 157 | | | (2 | ) | | 558 | |
| | | | | | | | | | | | | | | | |
Perpetual preferred share dividends | | | 10 | | | — | | | 4 | | | — | | | 14 | |
| | | | | | | | | | | | | | | | |
Net income - common shareholders | | $ | 257 | | $ | 136 | | $ | 153 | | $ | (2 | ) | $ | 544 | |
For the three months ended June 30, 2006
| | | | United | | | | Lifeco | | | |
| | Canada | | States | | Europe | | Corporate | | Total | |
| | | | | | | | | | | |
Income: | | | | | | | | | | | |
Premium income | | $ | 1,636 | | $ | 677 | | $ | 2,131 | | $ | — | | $ | 4,444 | |
Net investment income | | | 686 | | | 337 | | | 493 | | | — | | | 1,516 | |
Fee and other income | | | 223 | | | 290 | | | 154 | | | — | | | 667 | |
| | | | | | | | | | | | | | | | |
Total income | | | 2,545 | | | 1,304 | | | 2,778 | | | — | | | 6,627 | |
| | | | | | | | | | | | | | | | |
Benefits and expenses: | | | | | | | | | | | | | | | | |
Paid or credited to policyholders | | | 1,617 | | | 843 | | | 2,499 | | | — | | | 4,959 | |
Other | | | 527 | | | 286 | | | 176 | | | 1 | | | 990 | |
Amortization of finite life intangible assets | | | 4 | | | — | | | 1 | | | — | | | 5 | |
| | | | | | | | | | | | | | | | |
Net operating income | | | | | | | | | | | | | | | | |
before income taxes | | | 397 | | | 175 | | | 102 | | | (1 | ) | | 673 | |
| | | | | | | | | | | | | | | | |
Income taxes | | | 91 | | | 44 | | | (5 | ) | | 6 | | | 136 | |
| | | | | | | | | | | | | | | | |
Net income before non-controlling | | | | | | | | | | | | | | | | |
interests | | | 306 | | | 131 | | | 107 | | | (7 | ) | | 537 | |
| | | | | | | | | | | | | | | | |
Non-controlling interests | | | 50 | | | 4 | | | 8 | | | — | | | 62 | |
| | | | | | | | | | | | | | | | |
Net income - shareholders | | | 256 | | | 127 | | | 99 | | | (7 | ) | | 475 | |
| | | | | | | | | | | | | | | | |
Perpetual preferred share dividends | | | 11 | | | — | | | 3 | | | — | | | 14 | |
| | | | | | | | | | | | | | | | |
Net income - common shareholders | | $ | 245 | | $ | 127 | | $ | 96 | | $ | (7 | ) | $ | 461 | |
For the six months ended June 30, 2007
| | | | United | | | | Lifeco | | | |
| | Canada | | States | | Europe | | Corporate | | Total | |
| | | | | | | | | | | |
Income: | | | | | | | | | | | |
Premium income | | $ | 3,693 | | $ | 1,547 | | $ | 4,639 | | $ | — | | $ | 9,879 | |
Net investment income | | | | | | | | | | | | | | | | |
Regular net investment income | | | 1,246 | | | 740 | | | 907 | | | 12 | | | 2,905 | |
Changes in fair value on held for trading assets | | | (674 | ) | | (191 | ) | | (1,482 | ) | | — | | | (2,347 | ) |
Total net investment income | | | 572 | | | 549 | | | (575 | ) | | 12 | | | 558 | |
Fee and other income | | | 509 | | | 673 | | | 331 | | | — | | | 1,513 | |
| | | | | | | | | | | | | | | | |
Total income | | | 4,774 | | | 2,769 | | | 4,395 | | | 12 | | | 11,950 | |
| | | | | | | | | | | | | | | | |
Benefits and expenses: | | | | | | | | | | | | | | | | |
Paid or credited to policyholders | | | 2,990 | | | 1,698 | | | 3,660 | | | — | | | 8,348 | |
Other | | | 1,097 | | | 657 | | | 363 | | | 16 | | | 2,133 | |
Amortization of finite life intangible assets | | | 7 | | | 6 | | | 2 | | | — | | | 15 | |
| | | | | | | | | | | | | | | | |
Net operating income | | | | | | | | | | | | | | | | |
before income taxes | | | 680 | | | 408 | | | 370 | | | (4 | ) | | 1,454 | |
| | | | | | | | | | | | | | | | |
Income taxes | | | 119 | | | 122 | | | 53 | | | (2 | ) | | 292 | |
| | | | | | | | | | | | | | | | |
Net income before non-controlling | | | | | | | | | | | | | | | | |
interests | | | 561 | | | 286 | | | 317 | | | (2 | ) | | 1,162 | |
| | | | | | | | | | | | | | | | |
Non-controlling interests | | | 58 | | | 8 | | | 10 | | | — | | | 76 | |
| | | | | | | | | | | | | | | | |
Net income - shareholders | | | 503 | | | 278 | | | 307 | | | (2 | ) | | 1,086 | |
| | | | | | | | | | | | | | | | |
Perpetual preferred share dividends | | | 21 | | | — | | | 7 | | | — | | | 28 | |
| | | | | | | | | | | | | | | | |
Net income - common shareholders | | $ | 482 | | $ | 278 | | $ | 300 | | $ | (2 | ) | $ | 1,058 | |
For the six months ended June 30, 2006
| | | | United | | | | Lifeco | | | |
| | Canada | | States | | Europe | | Corporate | | Total | |
| | | | | | | | | | | |
Income: | | | | | | | | | | | |
Premium income | | $ | 3,211 | | $ | 1,369 | | $ | 3,559 | | $ | — | | $ | 8,139 | |
Net investment income | | | 1,370 | | | 672 | | | 797 | | | — | | | 2,839 | |
Fee and other income | | | 439 | | | 587 | | | 298 | | | — | | | 1,324 | |
| | | | | | | | | | | | | | | | |
Total income | | | 5,020 | | | 2,628 | | | 4,654 | | | — | | | 12,302 | |
| | | | | | | | | | | | | | | | |
Benefits and expenses: | | | | | | | | | | | | | | | | |
Paid or credited to policyholders | | | 3,145 | | | 1,681 | | | 4,134 | | | — | | | 8,960 | |
Other | | | 1,147 | | | 575 | | | 277 | | | 2 | | | 2,001 | |
Amortization of finite life intangible assets | | | 7 | | | — | | | 2 | | | — | | | 9 | |
| | | | | | | | | | | | | | | | |
Net operating income | | | | | | | | | | | | | | | | |
before income taxes | | | 721 | | | 372 | | | 241 | | | (2 | ) | | 1,332 | |
| | | | | | | | | | | | | | | | |
Income taxes | | | 173 | | | 105 | | | 19 | | | 8 | | | 305 | |
| | | | | | | | | | | | | | | | |
Net income before non-controlling | | | | | | | | | | | | | | | | |
interests | | | 548 | | | 267 | | | 222 | | | (10 | ) | | 1,027 | |
| | | | | | | | | | | | | | | | |
Non-controlling interests | | | 78 | | | 6 | | | 12 | | | — | | | 96 | |
| | | | | | | | | | | | | | | | |
Net income - shareholders | | | 470 | | | 261 | | | 210 | | | (10 | ) | | 931 | |
| | | | | | | | | | | | | | | | |
Perpetual preferred share dividends | | | 21 | | | — | | | 3 | | | — | | | 24 | |
| | | | | | | | | | | | | | | | |
Net income - common shareholders | | $ | 449 | | $ | 261 | | $ | 207 | | $ | (10 | ) | $ | 907 | |
| (a) | On July 5, 2007, Canada Life acquired all of the remaining outstanding common shares of Crown Life Insurance Company (Crown Life) for cash consideration of $115. The allocation of the purchase price to the assets acquired and liabilities assumed is expected to be completed during the remainder of 2007. It is anticipated that the acquisition will result in an increase in invested assets of approximately $533, an increase in other assets of approximately $32, an increase in policyholder liabilities of approximately $383 and an increase in other liabilities of approximately $67. Results of Crown Life will be included in the Summary of Consolidated Operations from the date of acquisition and are not expected to have a material impact to the financial results of the Company. |
| (b) | On July 23, 2007, Great-West Life announced its intention to redeem all 2,093,032 Non-Cumulative Preferred Shares, Series L on October 31, 2007 for cash redemption price of $25.00 per share. |
| (c) | Putnam Investment Trust |
Related to the acquisition of Putnam Investment Trust, all regulatory approvals have been received and the pre-closing conditions have been satisfied. The transaction is expected to close in the third quarter.
