GREAT-WEST LIFECO INC.
RELEASE
Readers are referred to the disclaimer regarding Forward-Looking Information
and Non-GAAP Financial Measures at the end of this Release.
TSX:GWO
Great-West Lifeco reports second quarter 2004 results,
dividend increase and announces two for one subdivision of common shares
Winnipeg, July 28, 2004 ... Great-West Lifeco Inc. (Lifeco) has reported net
income attributable to common shareholders, excluding restructuring charges
related to the acquisition of Canada Life Financial Corporation (CLFC), of $407
million for the three months ended June 30, 2004, compared to $261 million
reported a year ago, an increase of 56%. On a per share basis, this represents
$0.912 per common share for the second quarter of 2004, an increase of 28%,
compared to a year ago. Net income, after restructuring costs, attributable to
common shareholders for the quarter was $401 million or $0.898 per common share.
For the six months ended June 30, 2004, net income attributable to common
shareholders, excluding restructuring charges, was $790 million, an increase of
54% compared to $514 million for 2003, or $1.768 per common share, an increase
of 26% compared to $1.405 per common share for 2003. Net income, after
restructuring costs, attributable to common shareholders was $777 million or
$1.739 per common share for the six months of 2004.
Lifeco experienced solid growth overall in the second quarter, with strong
operating results in all major business segments, a substantial increase in
assets under administration, and significant growth in net income attributable
to common shareholders.
Highlights
o For the second quarter of 2004, common shareholder net income, excluding
restructuring charges, increased 56% compared to the second quarter of
2003.
o Return on common shareholders' equity, excluding restructuring costs, was
19.4% for the twelve months ended June 30, 2004.
o Earnings per common share, for the second quarter of 2004, excluding
restructuring charges, increased 28% compared to a year ago.
o Assets under administration at June 30, 2004 totalled $167.3 billion, up
$8.2 billion from December 31, 2003 levels.
o Quarterly dividends declared were 36.25(cent) per common share, an increase
of 4(cent) per share, payable September 30, 2004. Dividends paid on common
shares for the first six months of 2004 were 19% higher than a year ago.
Consolidated net earnings for Lifeco are the net operating earnings 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.
The results for the second quarter of 2004 include the effects of the Canada
Life Financial Corporation (CLFC) acquisition, which closed on July 10, 2003.
The comparative figures for 2003 do not include the results of CLFC.
Effective for the second quarter of 2004, the former Canada/Europe segment has
been separated into two segments, Canada and Europe for both current and
comparative information. The European segment is comprised of the European
insurance and annuity operations of CLFC, together with the reinsurance
operations of both CLFC and London Reinsurance Group Inc.
Canada
Consolidated net earnings of the Canadian segment of Lifeco attributable to
common shareholders for the second quarter of 2004 increased 55% to $181 million
from $117 million a year ago. For the six months ended June 30, 2004, earnings
were up 44% to $328 million, compared to $227 million at June 30, 2003.
Total premiums and deposits for the six months ended June 30, 2004 increased
$4.2 billion from 2003 levels, while fee income for the period increased $123
million.
In addition to the inclusion of CLFC business, results reflect strong operating
earnings for Great-West, London Life and Canada Life, including significant
increases in segregated funds deposits and growth in assets.
Total assets under administration at June 30, 2004 were $80.7 billion, up $4.4
billion from December 31, 2003 levels, with increases in general funds of $1.2
billion and in segregated funds of $3.2 billion.
Europe
Consolidated net earnings of the European segment of Lifeco attributable to
common shareholders for the second quarter of 2004 were $76 million, up from $12
million a year ago. For the six months ended June 30, 2004, earnings were $153
million, compared to $23 million at June 30, 2003.
Total premiums and deposits for the six months ended June 30, 2004 of $4.8
billion represents an increase of $2.7 billion from 2003 levels, and fee income
for the six months ended June 30, 2004 was $187 million.
The changes are almost entirely due to the inclusion of CLFC results in 2004.
Total assets under administration at June 30, 2004 were $38.4 billion, up $2.6
billion from December 31, 2003 levels, with increases in general funds of $1.0
billion and in segregated funds of $1.6 billion.
United States
Consolidated net earnings of the United States segment of Lifeco attributable to
common shareholders for the second quarter of 2004 increased 17% to $154 million
from $132 million a year ago. For the six months ended June 30, 2004, earnings
were up 19% to $313 million, compared to $264 million at June 30, 2003.
The increases were primarily related to favourable results for Financial
Services reflecting the inclusion of CLFC in 2004.
Total premiums and deposits for the six months ended June 30, 2004 reflect
increases for Financial Services retirement products and decreases in Healthcare
premiums, essentially reflecting the cession of Canada Life's U.S. group
business during the first quarter of 2004.
An increase in fee income for the six months ended June 30, 2004, compared to a
year ago, was mitigated by the change in the value of Canadian currency.
Total assets under administration were $48.2 billion at June 30, 2004 up $1.2
billion from December 31, 2003 levels, essentially reflecting increases in
segregated funds.
CORPORATE
Corporate net earnings for Lifeco, attributable to common shareholders, were a
net charge of $10 million for the second quarter of 2004, and a net charge of
$17 million for the six months ended June 30, 2004. These results are comprised
mainly of restructuring costs related to the CLFC acquisition.
SUBDIVISION OF COMMON SHARES
Lifeco announced its intention to subdivide its outstanding common shares on a
two for one basis. Details of the manner in which the subdivision will be
effected, including record date, will be announced later.
Quarterly Dividends
At its meeting today, the Board of Directors approved a quarterly dividend of
$0.3625 per share on the common shares of the Company payable September 30, 2004
to shareholders of record at the close of business September 2, 2004.
In addition, the Directors approved quarterly dividends on:
o Series D First Preferred Shares $0.293750 per share;
o Series E First Preferred Shares $0.30 per share; and
o Series F First Preferred Shares $0.36875 per share payable September 30,
2004 to shareholders of record at the close of business September 2, 2004;
o Class A, Series 1 Preferred Shares $0.3125 per share payable October 31,
2004 to shareholders of record at the close of business October 1, 2004.
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 and internationally
through The Great-West Life Assurance Company, London Life Insurance Company and
The Canada Life Assurance Company, and in the United States through Great-West
Life & Annuity Insurance Company and The Canada Life Assurance Company. Lifeco
and its companies, including Canada Life have more than $167 billion in assets
under administration. Great-West Lifeco is a member of the Power Financial
Corporation group of companies.
Forward-Looking Information and Non-GAAP Financial Measures
This release may contain 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
insurance industry generally. 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 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. The reader is also
cautioned to consider these and other factors carefully and not place undue
reliance on forward-looking statements.
Net income, basic earnings per common share and return on common shareholders'
equity are presented before restructuring as a measure of earnings performance
excluding acquisition related restructuring charges. These are non-GAAP
financial measures that do not have standard meanings and are not directly
comparable to similar measures used by other issuers.
Further information
Selected financial information is attached.
Great-West Lifeco's second quarter analyst teleconference will be held
Wednesday, July 28, at 2:00 p.m. (Eastern). The call can be accessed through
www.greatwestlifeco.com or by phone, through listen-only lines at:
o Participants in the Toronto area: 416-405-8532
o Participants from North America: 1-877-295-2825
o Participants from Overseas: Dial international access code first, then
800-3420-4230.
A replay of the call will be available from July 28, until August 4, and can be
accessed by calling 1-800-408-3053 or 416-695-5800 in Toronto (passcode:
3079757#).
Additional information relating to Lifeco, including most recent interim
unaudited financial statements, interim Management's Discussion and Analysis
(MD&A), Annual Information Form (AIF) and CEO/CFO certificates will be filed on
SEDAR at www.sedar.com.
-end-
For more information contact:
Marlene Klassen
Director, Media & Public Relations
(204) 946-7705
marlene.klassen@gwl.ca
FINANCIAL HIGHLIGHTS (unaudited)
(in $ millions, except per share amounts)
For the three months ended For the six months ended
June 30 June 30
------------------------------- -------------------------------
---------------------------------------------------------------
2004 2003 % Change 2004 2003 % Change
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance, guaranteed annuities and insured health $ 3,940 $ 2,669 48% $ 7,351 $ 5,618 31%
products
Self-funded premium equivalents (ASO contracts) (1) 2,047 2,055 0% 4,054 4,221 -4%
Segregated funds deposits: (1)
Individual products 1,320 331 299% 2,978 857 247%
Group products 1,473 930 58% 4,086 1,975 107%
------------------------------- -------------------------------
------------------------------- -------------------------------
Total premiums and deposits 8,780 5,985 47% 18,469 12,671 46%
------------------------------- -------------------------------
------------------------------- -------------------------------
Fee and other income 587 399 47% 1,119 832 34%
Paid or credited to policyholders 4,333 2,959 46% 8,102 6,281 29%
Net income attributable to:
Preferred shareholders 14 6 133% 28 12 133%
Common shareholders before restructuring costs (2) 407 261 56% 790 514 54%
Restructuring costs after tax (2) 6 - 13 -
Common shareholders 401 261 54% 777 514 51%
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Per Common Share
Basic earnings before restructuring costs (2) $ 0.912 $ 0.715 28% $ 1.768 $ 1.405 26%
Restructuring costs after tax (2) 0.014 - 0.029 -
Basic earnings after restructuring costs 0.898 0.715 26% 1.739 1.405 24%
Dividends paid 0.3225 0.270 19% 0.645 0.540 19%
Book value per common share 18.14 11.21 62%
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Return on common shareholders' equity (12 months):
Net income before restructuring costs (2) 19.4% 24.5%
Net income 19.0% 24.5%
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
At June 30
Total assets $ 100,149 $ 57,705 74%
Segregated funds assets (1) 67,200 35,142 91%
-------------------------------
-------------------------------
Total assets under administration $ 167,349 $ 92,847 80%
===============================
===============================
Capital stock and surplus $ 9,213 $ 4,525 104%
(1) Segregated funds deposits and self-funded premium equivalents
(ASO contracts)
The financial statements of a life insurance company do not include the
assets, liabilities, deposits and withdrawals of segregated funds or the
claims payments related to administrative services only (ASO) Group health
contracts. However, the Company does earn fee and other income related to
these contracts. Both segregated fund and ASO contracts are an important
aspect of the overall business of the Company and should be considered when
comparing volumes, size and trends.
(2) Following the acquisition of Canada Life Financial Corporation (CLFC) by
the Company, a plan was developed to restructure and exit selected
operations of CLFC (see note 2 in the Company's interim financial
statements). The costs include approximately $350 that was recognized as
part of the purchase equation of CLFC, and $98 to be charged to income as
it is incurred. Of this latter amount, shareholder net income for the six
months ended June 30, 2004 includes restructuring costs of $13 after tax or
$.029 per common share; shareholder net income for the three months ended
June 30, 2004 includes restructuring costs of $6 after tax or $.014 per
common share. Net income, basic earnings per common share and return on
common shareholders' equity are presented before restructuring as a measure
of earnings performance, excluding restructuring charges related to the
acquisition of CLFC, and incurred during the period.
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
------------------------------------------------------
------------------------------------------------------
2004 2003 2004 2003
------------------------------------------------------
------------------------------------------------------
Income
Premium income $ 3,940 $ 2,669 $ 7,351 $ 5,618
Net investment income 1,325 903 2,649 1,851
Fee and other income 587 399 1,119 832
------------------------------------------------------
------------------------------------------------------
5,852 3,971 11,119 8,301
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------------------------------------------------------
Benefits and Expenses
Paid or credited to policyholders and beneficiaries
including policyholder dividends and experience 4,333 2,959 8,102 6,281
refund
Commissions 314 163 605 333
Operating expenses 572 402 1,156 832
Restructuring costs (note 2) 9 - 18 -
Premium taxes 63 32 115 62
Amortization of finite life intangible assets (note 3) 4 - 7 -
Distribution on capital trust securities (note 5) 7 4 14 9
------------------------------------------------------
------------------------------------------------------
Net income before income taxes 550 411 1,102 784
Income taxes - current 40 163 204 244
- future 90 (48) 63 (23)
------------------------------------------------------
------------------------------------------------------
Net income before non-controlling interests 420 296 835 563
Non-controlling interests (note 5) 5 29 30 37
------------------------------------------------------
------------------------------------------------------
Net income $ 415 $ 267 $ 805 $ 526
======================================================
======================================================
Earnings per common share (note 10)
Basic $ 0.898 $ 0.715 $ 1.739 $ 1.405
======================================================
======================================================
Diluted $ 0.890 $ 0.707 $ 1.723 $ 1.390
======================================================
======================================================
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Summary of Net Income
Preferred shareholder dividends $ 14 $ 6 $ 28 $ 12
Net income - common shareholders 401 261 777 514
------------------------------------------------------
------------------------------------------------------
Net income $ 415 $ 267 $ 805 $ 526
======================================================
======================================================
Average number of shares outstanding - basic 446,517,952 365,889,909
Average number of shares outstanding - diluted 450,628,780 369,836,804
CONSOLIDATED BALANCE SHEET (unaudited)
(in $ millions)
June 30, December 31, June 30,
2004 2003 2003
--------------- -------------- --------------
--------------- -------------- --------------
Assets
Bonds $ 56,560 $ 54,208 $ 32,761
Mortgage loans 15,058 15,088 7,441
Stocks 3,395 3,199 1,445
Real estate 1,629 1,594 1,122
Loans to policyholders 6,918 6,566 5,581
Cash and certificates of deposit 2,336 2,461 1,195
Funds withheld by ceding insurers 3,872 4,142 4,617
Premiums in course of collection 436 448 307
Interest due and accrued 849 882 446
Future income taxes 389 482 131
Goodwill (note 3(a)) 5,332 5,265 1,147
Intangible assets (note 3(b)) 1,530 1,398 529
Other assets 1,845 1,718 983
--------------- -------------- --------------
--------------- -------------- --------------
Total assets $ 100,149 $ 97,451 $ 57,705
=============== ============== ==============
=============== ============== ==============
Liabilities
Policy liabilities
Actuarial liabilities $ 69,866 $ 66,999 $ 41,825
Provision for claims 1,060 1,092 572
Provision for policyholder dividends 541 544 349
Provision for experience rating refunds 639 840 808
Policyholder funds 2,180 2,023 1,881
--------------- -------------- --------------
--------------- -------------- --------------
74,286 71,498 45,435
Commercial paper and other loans (note 4) 2,385 2,576 1,547
Current income taxes 403 619 509
Funds held under reinsurance contracts 4,375 4,655 -
Future income taxes 87 - -
Other liabilities 3,978 4,355 2,436
Repurchase agreements 626 503 255
Net deferred gains on portfolio investments sold 2,300 2,237 1,012
--------------- -------------- --------------
--------------- -------------- --------------
88,440 86,443 51,194
Non-controlling interests (note 5) 2,496 2,418 1,986
Capital Stock and Surplus
Capital stock (note 6) 5,780 5,783 1,983
Surplus 3,437 2,993 2,651
Provision for unrealized gain (loss) on translation
of net investment in foreign operations (4) (186) (109)
--------------- -------------- --------------
--------------- -------------- --------------
9,213 8,590 4,525
--------------- -------------- --------------
--------------- -------------- --------------
Liabilities, capital stock and surplus $ 100,149 $ 97,451 $ 57,705
=============== ============== ==============
=============== ============== ==============
CONSOLIDATED STATEMENT OF SURPLUS (unaudited)
(in $ millions)
For the six months
ended June 30
----------------------------
----------------------------
2004 2003
------------- ------------
------------- ------------
Balance, beginning of year $ 2,993 $ 2,382
Net income 805 526
Change in accounting policy (note 1(b)) (4) -
Contributed surplus - Stock option expense
Change in accounting policy (note 1(b)) 5 -
Current year expense (note 7) 3 -
Repatriation of Canada Life seed capital from participating policyholder account (note 5 (b)) 21 -
Common share cancellation excess (70) (47)
Dividends to shareholders
Preferred shareholders (28) (12)
Common shareholders (288) (198)
------------- ------------
------------- ------------
Balance, end of period $ 3,437 $ 2,651
============= ============
============= ============
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
(in $ millions)
For the three months For the six months
ended June 30 ended June 30
-------------------------------- ---------------------------------
-------------------------------- ---------------------------------
2004 2003 2004 2003
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Operations
Net income $ 415 $ 267 $ 805 $ 526
Adjustments for non-cash items:
Change in policy liabilities 1,003 (185) 1,680 (71)
Change in funds withheld by ceding insurers 42 174 270 169
Change in current income taxes payable (147) 64 (218) 57
Future income tax expense 90 (48) 63 (23)
Other (560) 146 (776) 575
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Cash flows from operations 843 418 1,824 1,233
Financing Activities
Issue of common shares 3 6 15 8
Purchased and cancelled common shares (55) (31) (88) (53)
Issue of debentures - - - 600
Repayment of commercial paper and other loans 6 11 (2) (3)
Partial repayment of five year term facility (note 4) (200) - (200) -
Debenture issue costs - - - (6)
Dividends paid (158) (105) (316) (210)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
(404) (119) (591) 336
Investment Activities
Bond sales and maturities 9,988 8,005 20,203 14,836
Mortgage loan repayments 646 308 1,101 641
Stock sales 232 71 650 296
Real estate sales 21 120 55 176
Change in loans to policyholders (181) (55) (192) (73)
Change in repurchase agreements (124) 65 103 (197)
Reinsurance transactions (8) - (436) -
Investment in bonds (10,257) (8,261) (21,170) (16,426)
Investment in mortgage loans (349) (183) (815) (306)
Investment in stocks (290) (129) (790) (214)
Investment in real estate (46) (11) (67) (19)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
(368) (70) (1,358) (1,286)
Increase (decrease) in cash and certificates of deposit 71 229 (125) 283
Cash and certificates of deposit, beginning of period 2,265 966 2,461 912
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Cash and certificates of deposit, end of period $ 2,336 $ 1,195 $ 2,336 $ 1,195
=============== =============== =============== ===============
=============== =============== =============== ===============
Notes to Interim Consolidated Financial Statements (unaudited)
(in $ millions, except per share amounts)
1. Basis of Presentation and Summary of Accounting Policies
(a) The interim unaudited consolidated financial statements of Great-West
Lifeco Inc. (Lifeco or the Company) at June 30, 2004 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, 2003,
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, 2003.
(b) New Accounting Requirements for 2004
Stock Based Compensation
Effective January 1, 2004, the Canadian Institute of Chartered Accountants
(CICA) Handbook Section 3870 Stock-Based Compensation and Other Stock-Based
Payments was amended to require expense treatment of all stock based
compensation and payments at grant date for options granted beginning on or
after January 1, 2002. This change in accounting policy has been applied
retroactively without restatement of prior years' financial statements and,
results in a charge of $4 to shareholders' surplus, a charge of $1 to
non-controlling interests and an increase in contributed surplus of $5.
Interim Financial Statements
Effective June 30, 2004, the CICA Handbook Section 1751 Interim Financial
Statements was amended to require disclosure of the total benefit cost for
employee future benefits. This change in accounting policy has been applied
prospectively (see note 9).
(c) Certain of 2003 amounts presented for comparative purposes have been
reclassified to conform to the presentation adopted in the current year.
2. Restructuring Costs
Following the acquisition of CLFC on July 10, 2003, the Company developed a
plan to restructure and exit selected operations of Canada Life Financial
Corporation (CLFC). The Company expects the restructuring to be
substantially completed by the end of 2004. Costs are expected to be
incurred as a result and consist primarily of exit and consolidation
activities involving operations, facilities, systems and compensation
costs. Expected total restructuring costs have been revised during the
second quarter of 2004 from $497 to $448. The costs include approximately
$350 that was recognized as part of the purchase equation of CLFC. Costs of
approximately $98 are expected to be charged to income as incurred.
The following details the amount and status of restructuring and exit
program costs for the period ended June 30, 2004:
Expected Amounts Amounts Total amounts Balance
total costs utilized - 2003 utilized - 2004 utilized June 30, 2004
------------- --------------- --------------- ----------------- ---------------
Eliminating duplicate systems $ 128 $ 13 $ 30 $ 43 $ 85
Exiting and consolidating operations 115 28 30 58 57
Compensation costs 205 84 50 134 71
------------- --------------- --------------- ----------------- ---------------
$ 448 $ 125 $ 110 $ 235 $ 213
============= =============== =============== ================= ===============
Accrued on acquisition $ 350 $ 94 $ 92 $ 186 $ 164
Expense as incurred 98 31 18 49 49
------------- --------------- --------------- ----------------- ---------------
$ 448 $ 125 $ 110 $ 235 $ 213
============= =============== =============== ================= ===============
Canada $ 356 $ 95 $ 87 $ 182 $ 174
Europe 47 13 4 17 30
United States 45 17 19 36 9
------------- --------------- --------------- ---------------- ---------------
$ 448 $ 125 $ 110 $ 235 $ 213
============= =============== =============== ================= ===============
3. Goodwill and Intangible Assets
(a) Carrying value of goodwill and changes in carrying value of goodwill for
the six months ended June 30 are as follows:
2004 2003
------------ ---------------
Balance, beginning of year $5,265 $ 1,158
Changes in allocation of purchase price of CLFC 66 -
Changes in foreign exchange rates 1 (11)
------------ ---------------
------------ ---------------
Balance, end of period $5,332 $ 1,147
============ ===============
The change in the allocation of the purchase price of CLFC consists of
decreases in the values of invested and other assets acquired of $91,
increases in the value of intangible assets of $127, increases in the
value of policy liabilities assumed of $164 and decreases in the value
of other liabilities assumed of $62.
The goodwill arising from the CLFC acquisition may be adjusted in 2004
in terms of amount and allocation to the Company's major reportable
segments as part of the finalization of the allocation of the purchase
price to the assets acquired and liabilities assumed of CLFC.
(b) Carrying value of intangible assets and changes in carrying value of
intangible assets for the six months ended June 30 are as follows:
2004 2003
------------ ---------------
Balance, beginning of year $1,398 $ 529
Changes in allocation of purchase price of CLFC 127 -
Amortization of finite life intangible assets (7) -
Changes in foreign exchange rates 12 -
------------ ---------------
------------ ---------------
Balance, end of period $1,530 $ 529
============ ===============
During 2004, as part of the revision of the allocation of the purchase
price of CLFC the Company identified $127 of additional finite life
intangible assets relating to distribution channels of CLFC. These
finite life intangible assets are amortized on a straight-line basis
over a period not exceeding 30 years.
4. Commercial Paper and Other Loans
Commercial paper and other loans consist of the following:
June 30, December 31, June 30,
2004 2003 2003
------------- --------------- ------------
Short Term
Commercial paper and other short term borrowings with interest rates
from 1.2% to 1.3% (1.4% in 2003) $ 130 $ 124 $ 138
Revolving credit in respect of reinsurance business with interest rates
from 1.3% to 2.8% maturing within one year (1.6% to 3.4% in 2003) 25 29 33
------------------------------ ------------
Total short term 155 153 171
------------------------------ ------------
Long Term
Operating:
First mortgages secured by real estate and limited
recourse mortgages at interest rates from
6.4% to 11.4% in 2003 - - 126
Other notes payable with interest of 8.0% 11 12 13
------------------------------ ------------
11 12 139
------------------------------ ------------
Capital:
Five year term facility at rates of: $237 at Canadian 90-day
Bankers' Acceptance, $79 at 30-day Bankers' Acceptance; $62
at 90-day LIBOR rate
$20 at 30-day LIBOR rate 398 596 -
Subordinated debentures due September 11, 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% 276 278 -
Series A 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% 210 210 -
6.75% Debentures due August 10, 2015, unsecured 200 200 200
6.14% Debentures due March 21, 2018, unsecured 200 200 200
Series B 6.40% Debentures due December 11, 2028, unsecured 101 101 -
6.74% Debentures due November 24, 2031, unsecured 200 200 200
6.67% Debentures due March 21, 2033, unsecured 400 400 400
7.25% Subordinated capital income securities redeemable by the Company
on or after June 30, 2004, due June 30, 2048, unsecured (U.S.$175) 234 226 237
------------------------------ ------------
Sub total 2,219 2,411 1,237
------------------------------ ------------
Total long term 2,230 2,423 1,376
------------------------------ ------------
Total $ 2,385 $ 2,576 $ 1,547
============================== ============
On June 30, 2004 the Company repaid $200 principal amount of the five year
term facility.
5. Non-Controlling Interests
The Company controlled a 100% equity interest in The Great-West Life
Assurance Company (Great-West), London Life Insurance Company (London Life)
and Great-West Life & Annuity Insurance Company (GWL&A) at June 30, 2004,
December 31, 2003 and June 30, 2003 and in The Canada Life Assurance
Company (Canada Life) at June 30, 2004 and December 31, 2003. The
non-controlling interests of GWL&A, Great-West, London Life, Canada Life
and its subsidiaries are:
For the three months For the six months
ended June 30 ended June 30
---------------------------------------------
a) 2004 2003 2004 2003
---------- --------- ------------- -----------
---------- --------- ------------- -----------
Participating policyholder
Net income attributable to participating
policyholder before policyholder dividends
Great-West $ 25 $ 25 $ 49 $ 50
London Life 136 155 278 288
Canada Life 39 - 85 -
GWL&A 43 42 101 89
Policyholder dividends
Great-West (22) (22) (44) (45)
London Life (128) (135) (258) (265)
Canada Life (49) - (95) -
GWL&A (43) (40) (95) (87)
---------- ---------------------- -----------
---------- ---------------------- -----------
Net income 1 25 21 30
---------- ---------------------- -----------
Preferred shareholder dividends of subsidiaries 4 3 9 6
Non-controlling interests in capital stock and surplus - 1 - 1
---------- ---------------------- -----------
---------- ---------------------- -----------
Total $ 5 $ 29 $ 30 $ 37
========== ====================== ===========
Distribution on Great-West Life Capital Trust $ 5 $ 5 $ 10 $ 10
Securities
Distribution on Canada Life Capital Trust Securities 7 - 14 -
Trust units held by consolidated group as
temporary investments (5) (1) (10) (1)
---------- ---------------------- -----------
---------- ---------------------- -----------
Total $ 7 $ 4 $ 14 $ 9
========== ====================== ===========
b) As at
June 30, December 31, June 30,
2004 2003 2003
------------- ------------ -------------
Participating policyholder
undistributed surplus
Great-West $ 349 $ 345 $ 335
London Life 1,007 985 928
Canada Life 12 50 -
GWL&A 216 202 210
------------- ------------ -------------
1,584 1,582 1,473
Preferred shareholders of subsidiaries 369 370 209
Non-controlling interests in capital stock and surplus - - 1
Trust units issued by Great-West Life Capital Trust 350 350 350
Trust units issued by Canada Life Capital Trust 450 450 -
Acquisition related fair market value adjustment 39 41 -
Trust securities held by consolidated group
as temporary investments (296) (375) (47)
------------- ------------ -------------
543 466 303
------------- ------------ -------------
$ 2,496 $ 2,418 $ 1,986
============= ============ =============
On demutualization, $50 of seed capital was transferred from the
shareholder account to the participating policyholder account of Canada
Life. In accordance with the Conversion Proposal of The Canada Life
Assurance Company and subject to approval by OSFI, the seed capital amount,
together with a reasonable rate of return, may be transferred to the
shareholder account if the seed capital is no longer required to support
the new participating policies.
During the second quarter of 2004, following OSFI approval, $21 of seed
capital related to the Irish open block of the participating policyholder
account, together with accrued interest of $5 (after tax), was transferred
from the participating account to the shareholder account. The repatriation
resulted in an increase in shareholder surplus of $21 and a decrease in
non-controlling interests of $21.
6. Capital Stock
Authorized
Unlimited First Preferred Shares, Class A Preferred Shares and Second Preferred Shares
Unlimited Common Shares
Issued and Outstanding
June 30, 2004 December 31, 2003 June 30, 2003
-------------------------- ------------------------- --------------------------
-------------------------------------------------------------------------------
Number Stated Value Number Stated Value Number Stated Value
------------ -------------------------- ------------------------- -------------
------------ ------------- ------------ ------------ ------------ -------------
Preferred Shares:
Series C, 7.75% Non-Cumulative
First Preferred Shares - $ - - $ - 4,000,000 $ 100
Series D, 4.70% Non-Cumulative
First Preferred Shares 8,000,000 200 8,000,000 200 8,000,000 200
Series E, 4.80% Non-Cumulative
First Preferred Shares 23,868,131 597 23,868,131 597 - -
Series F, 5.90% Non-Cumulative
First Preferred Shares 7,957,006 199 7,957,006 199 - -
Series 1, 5.00% Non-Cumulative
Class A Preferred Shares 5,192,242 130 5,192,242 130 5,192,242 130
------------ ------------- ------------ ------------ ------------ -------------
------------ ------------- ------------ ------------ ------------ -------------
Balance, end of period 45,017,379 $ 1,126 45,017,379 $ 1,126 17,192,242 $ 430
------------ ------------- ------------ ------------ ------------ -------------
------------ ------------- ------------ ------------ ------------ -------------
Common Shares:
Balance, beginning of year 446,561,962 $ 4,657 366,376,712 $ 1,552 366,376,712 $ 1,552
Purchased and cancelled under
Normal Course Issuer Bid (1,775,100) (18) (3,853,600) (32) (1,411,900) (6)
Issued under Stock Option Plan 1,035,439 15 840,937 13 497,871 7
Private placement - - 23,964,213 900 - -
Issued on acquisition of CLFC - - 55,958,505 2,102 - -
Issued and exchange for vested
CLFC options - - 3,275,195 122 - -
------------ ------------- ------------ ------------ ------------ -------------
------------ ------------- ------------ ------------ ------------ -------------
Balance, end of period 445,822,301 $ 4,654 446,561,962 $ 4,657 365,462,683 $ 1,553
------------ ------------- ------------ ------------ ------------ -------------
------------ ------------- ------------ ------------ ------------ -------------
Total Capital Stock $ 5,780 $ 5,783 $ 1,983
============= ============ =============
============= ============ =============
7. Stock Based Compensation
Under the Company's stock option plan 141,000 options were granted during
the first quarter, and 142,500 options were granted during the second
quarter of 2004 (367,000 options were granted during the first quarter, and
131,750 options were granted during the second quarter of 2003). The
weighted-average fair value of options granted during the six months ended
June 30, 2004 was $12.90 per option ($9.93 per option during the six months
ended June 30, 2003). The fair value of each option granted was estimated
using the Black-Scholes option-pricing model with the following weighted
average assumptions used for the options granted for the three months ended
June 30, 2004 and June 30, 2003 respectively: dividend yield 2.723%
(2.815%), expected volatility 25.45% (26.18%), risk-free interest rate
4.344% (4.724%), and expected life of 7 years (7 years).
In accordance with the fair value based method of accounting compensation
expense has been recorded on the options granted under the Company's stock
option plan since January 1, 2002 based on the fair value of the options
granted, amortized over the vesting period. Compensation expense of $3
million, after tax, has been recognized for the six months ended June 30,
2004. For the six months ended June 30, 2003, the intrinsic value based
method of accounting was applied, and as a result, no compensation expense
was recorded for options granted under the Company's plan. Had the fair
value based method of accounting been applied, compensation expense, net of
tax, would have been recorded for the options granted under the Company's
plan since January 1, 2002. The Company's net income for the six months
ended June 30, 2003 on this basis would have been reduced by less than $1
million.
8. Reinsurance Transactions
During the first quarter of 2004, the Company's indirect subsidiary, Canada
Life, ceded 100% of its U.S. group insurance business to a third party on
an indemnity reinsurance basis. The ceded premiums of $429 associated with
the transaction have been recorded in the Summary of Consolidated
Operations as a reduction of premium income with a corresponding reduction
to the change in actuarial liabilities. For the Consolidated Balance Sheet,
this transaction resulted in a reduction of cash and other assets of $464,
a reduction of policyholder liabilities of $429, and a reduction of other
liabilities of $35.
9. Pension Plans and Other Post Retirement Benefits
The total benefit costs for the periods ending June 30, 2004 included in
benefits and expenses are as follows:
For the three months For the six months
ended June 30 ended June 30
---------------------- ----------------------
---------------------- ----------------------
Pension benefits $ 18 $ 29
Other benefits 14 28
---------------------- ----------------------
---------------------- ----------------------
Total $ 32 $ 57
====================== ======================
====================== ======================
10. Earnings Per Common Share
The following table provides the reconciliation between basic and diluted earnings per common share:
For the three months For the six months
ended June 30 ended June 30
----------------------- -------------------------------
----------------------- -------------------------------
2004 2003 2004 2003
----------- ----------- -------------- ---------------
----------- ----------- -------------- ---------------
a) Earnings
Net income - common shareholders $ 401 $ 261 $ 777 $ 514
=========== =========== ============== ===============
=========== =========== ============== ===============
b) Number of Common Shares at June 30
Average number of common shares outstanding 446,517,952 365,889,909
Add:
-Potential exercise of outstanding stock options 4,110,828 3,946,895
-------------- ---------------
-------------- ---------------
Average number of common shares outstanding - diluted basis 450,628,780 369,836,804
============== ===============
============== ===============
Earnings per Common Share
Basic $ 0.898 $ 0.715 $ 1.739 $ 1.405
=========== =========== ============== ===============
=========== =========== ============== ===============
Diluted $ 0.890 $ 0.707 $ 1.723 $ 1.390
=========== =========== ============== ===============
=========== =========== ============== ===============
11. Commitments (changes since December 31, 2003 annual report)
LRG has a syndicated letter of credit facility providing U.S. $1,100 in
letters of credit capacity. At December 31, 2003 LRG had issued U.S. $925
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.
LRG has issued U.S. $830 in letters of credit as at June 30, 2004 for this
facility.
12. Segmented Information
Effective for the second quarter of 2004 the Company has changed its major
reportable segments by separating the former Canada/Europe segment into two
segments, Canada and Europe. The segments reflect the management structure
and organization of the Company. Comparative information has been separated
on the same basis.
The Canada segment includes the net consolidated Canadian operations of
Great-West and its wholly owned subsidiaries CLFC and LIG. The Europe
segment includes the net consolidated European and International operations
of CLFC together with reinsurance operations of CLFC and LRG.
Consolidated Operations
For the three months ended June 30, 2004
United Lifeco
Canada Europe States Corporate Total
------------ ------------- ------------ ------------- -------------
Income:
Premium income $ 1,597 $ 1,883 $ 460 $ - $ 3,940
Net investment income 625 273 427 - 1,325
Fee and other income 169 104 314 - 587
------------- ------------ ------------- -------------
------------
Total income 2,391 2,260 1,201 - 5,852
------------ ------------- ------------ ------------- -------------
Benefits and Expenses:
Paid or credited to policyholders 1,687 2,005 641 - 4,333
Other 464 157 326 2 949
Restructuring costs - - - 9 9
Amortization of intangible assets 3 1 - - 4
Distribution on capital
trust securities 7 - - - 7
------------ ------------- ------------ ------------- -------------
Net operating income
before income taxes 230 97 234 (11) 550
Income taxes 29 24 78 (1) 130
------------ ------------- ------------ ------------- -------------
Net income before non-controlling
interests 201 73 156 (10) 420
Non-controlling interests 6 (3) 2 - 5
------------ ------------- ------------ ------------- -------------
Net income $ 195 $ 76 $ 154 $ (10) $ 415
============ ============= ============ ============= =============
Summary of Net Income
Preferred shareholder dividends $ 14 $ - $ - $ - $ 14
Net income - common shareholders 181 76 154 (10) 401
------------ ------------- ------------ ------------- -------------
Net income $ 195 $ 76 $ 154 $ (10) $ 415
============ ============= ============ ============= =============
For the three months ended June 30, 2003
United Lifeco
Canada Europe States Corporate Total
------------ ------------- ------------ ------------- -------------
Income:
Premium income $ 1,146 $ 996 $ 527 $ - $ 2,669
Net investment income 440 122 341 - 903
Fee and other income 110 - 289 - 399
------------- ------------ ------------- -------------
------------
Total income 1,696 1,118 1,157 - 3,971
------------ ------------- ------------ ------------- -------------
Benefits and Expenses:
Paid or credited to policyholders 1,212 1,093 654 - 2,959
Other 288 8 301 - 597
Restructuring costs - - - - -
Amortization of intangible assets - - - - -
Distribution on capital
trust securities 4 - - - 4
------------ ------------- ------------ ------------- -------------
Net operating income
before income taxes 192 17 202 - 411
Income taxes 45 2 68 - 115
------------ ------------- ------------ ------------- -------------
Net income before non-controlling
interests 147 15 134 - 296
Non-controlling interests 24 3 2 - 29
------------ ------------- ------------ ------------- -------------
Net income $ 123 $ 12 $ 132 $ - $ 267
============ ============= ============ ============= =============
Summary of Net Income
Preferred shareholder dividends $ 6 $ - $ - $ - $ 6
Net income - common shareholders 117 12 132 - 261
------------ ------------- ------------ ------------- -------------
Net income $ 123 $ 12 $ 132 $ - $ 267
============ ============= ============ ============= =============
For the six months ended June 30, 2004
United Lifeco
Canada Europe States Corporate Total
------------ ------------- ------------ ------------- -------------
Income:
Premium income $ 3,475 $ 3,185 $ 691 $ - $ 7,351
Net investment income 1,270 521 858 - 2,649
Fee and other income 340 187 592 - 1,119
------------- ------------ ------------- -------------
------------
Total income 5,085 3,893 2,141 - 11,119
------------ ------------- ------------ ------------- -------------
Benefits and Expenses:
Paid or credited to policyholders 3,703 3,400 999 - 8,102
Other 911 302 661 2 1,876
Restructuring costs - - - 18 18
Amortization of intangible assets 6 1 - - 7
Distribution on capital
trust securities 14 - - - 14
------------ ------------- ------------ ------------- -------------
Net operating income
before income taxes 451 190 481 (20) 1,102
Income taxes 71 38 161 (3) 267
------------ ------------- ------------ ------------- -------------
Net income before non-controlling
interests 380 152 320 (17) 835
Non-controlling interests 24 (1) 7 - 30
------------ ------------- ------------ ------------- -------------
Net income $ 356 $ 153 $ 313 $ (17) $ 805
============ ============= ============ ============= =============
Summary of Net Income
Preferred shareholder dividends $ 28 $ - $ - $ - $ 28
Net income - common shareholders 328 153 313 (17) 777
------------ ------------- ------------ ------------- -------------
Net income $ 356 $ 153 $ 313 $ (17) $ 805
============ ============= ============ ============= =============
For the six months ended June 30, 2003
United Lifeco
Canada Europe States Corporate Total
------------ ------------- ------------ ------------- -------------
Income:
Premium income $ 2,277 $ 2,148 $ 1,193 $ - $ 5,618
Net investment income 869 288 694 - 1,851
Fee and other income 217 - 615 - 832
------------- ------------ ------------- -------------
------------
Total income 3,363 2,436 2,502 - 8,301
------------ ------------- ------------ ------------- -------------
Benefits and Expenses:
Paid or credited to policyholders 2,422 2,395 1,464 - 6,281
Other 578 15 634 - 1,227
Restructuring costs - - - - -
Amortization of intangible assets - - - - -
Distribution on capital
trust securities 9 - - - 9
------------ ------------- ------------ ------------- -------------
Net operating income
before income taxes 354 26 404 - 784
Income taxes 84 (1) 138 - 221
------------ ------------- ------------ ------------- -------------
Net income before non-controlling
interests 270 27 266 - 563
Non-controlling interests 31 4 2 - 37
------------ ------------- ------------ ------------- -------------
Net income $ 239 $ 23 $ 264 $ - $ 526
============ ============= ============ ============= =============
Summary of Net Income
Preferred shareholder dividends $ 12 $ - $ - $ - $ 12
Net income - common shareholders 227 23 264 - 514
------------ ------------- ------------ ------------- -------------
Net income $ 239 $ 23 $ 264 $ - $ 526
============ ============= ============ ============= =============