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 2005 results and dividend increase
Winnipeg, August 4, 2005 ... 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 $455
million for the three months ended June 30, 2005, compared to $407 million
reported a year ago, an increase of 12%. On a per share basis, this represents
$0.511 per common share for the second quarter of 2005, an increase of 12%
compared to a year ago. Net income, after restructuring costs, attributable to
common shareholders for the second quarter was $446 million, or $0.500 per
common share.
For the six months ended June 30, 2005, net income attributable to common
shareholders, excluding restructuring charges was $878 million, an increase of
11% compared to $790 million for 2004, or $0.986 per common share, an increase
of 12% compared to $0.884 per common share for 2004. Net income, after
restructuring costs, attributable to common shareholders was $865 million or
$0.971 per common share for the six months of 2005.
Lifeco experienced solid operating results in all major business segments and
significant growth in net income attributable to common shareholders.
Highlights
o In May, the Company's U.K. subsidiary, Canada Life Limited, reached an
agreement to acquire the payout annuity business of Phoenix and London
Assurance Company Limited, part of the Resolution Life Group. Assets and
liabilities were valued at $5.1 billion at year-end 2004. The Company began
to assume the risk effective July 1, 2005. The transaction is expected to
close in the fourth quarter.
o Earnings per common share for the second quarter of 2005, excluding
restructuring charges, increased 12% compared to a year ago.
o Return on common shareholders' equity, excluding restructuring costs, was
20.6% for the twelve months ended June 30, 2005.
o Assets under administration at June 30, 2005 totalled $170.1 billion, up
$5.2 billion from December 31, 2004 levels.
o Quarterly dividends declared were 21 cents per common share, an increase of
1.5 cents per share, payable September 30, 2005. Dividends paid on common
shares for the six months ended June 30, 2005 were 21% higher than a year
ago.
.../2
- 2 -
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.
CANADA
Consolidated net earnings of the Canadian segment of Lifeco attributable to
common shareholders for the second quarter of 2005 increased 17% to $212 million
from $181 million a year ago. For the six months ended June 30, 2005, earnings
were up 21% to $398 million, compared to $328 million at June 30, 2004.
Total sales for the six months ended June 30, 2005 were $3.4 billion, an
increase of $521 million over June 30, 2004 levels. Fee income for the period
increased $38 million.
Total assets under administration at June 30, 2005 were $84.4 billion, up $2.6
billion from December 31, 2004 levels, with increases in the general fund of
$0.8 billion and in segregated funds of $1.8 billion.
EUROPE
Consolidated net earnings of the European segment of Lifeco attributable to
common shareholders for the second quarter of 2005 increased 33% to $101 million
from $76 million a year ago. For the six months ended June 30, 2005, earnings
were up 32% to $202 million, compared to $153 million at June 30, 2004.
Total sales for the six months ended June 30, 2005 were $4.0 billion, an
increase of $142 million over June 30, 2004 levels. Fee income for the period
increased $75 million.
Total assets under administration at June 30, 2005 were $39.4 billion, up $0.5
billion from December 31, 2004 levels, essentially due to increases in
segregated funds.
UNITED STATES
Consolidated net earnings of the United States segment of Lifeco attributable to
common shareholders for the second quarter of 2005 in US $, increased 12% to
$109 million from $97 million a year ago. For the six months ended June 30,
2005, earnings in US $ were up 11% to $219 million, compared to $198 million at
June 30, 2004. Translated to Canadian $, earnings for the six months ended June
30, 2005 were $294 million, compared to $313 million a year ago.
Total sales for the six months ended June 30, 2005 were US $1.1 billion,
reflecting an increase in Financial Services sales, offset by lower Healthcare
sales compared to June 30, 2004. Fee income for the period increased by US $34
million.
Total assets under administration at US $37.7 billion at June 30, 2005, up $0.8
billion from December 31, 2004 levels, essentially due to increases in general
funds.
.../3
- 3 -
CORPORATE
Corporate net earnings for Lifeco attributable to common shareholders were a net
charge of $17 million for the second quarter of 2005, and a net charge of $29
million for the six months ended June 30, 2005. Restructuring costs related to
the CLFC acquisition were a major contributor to these results.
QUARTERLY DIVIDENDS
At its meeting today, the Board of Directors approved a quarterly dividend of
$0.21 per share on the common shares of the Company payable September 30, 2005
to shareholders of record at the close of business September 2, 2005.
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;
o Series F First Preferred Shares $0.36875 per share;
o Series G First Preferred Shares of $0.325 per share; and
o Series H First Preferred Shares of $0.16277 per share, conditional
upon issuance,
all payable September 30, 2005 to shareholders of record at the close of
business September 2, 2005.
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 have $170 billion in assets under administration. Great-West
Lifeco is a member of the Power Financial Corporation group of companies.
.../4
- 4 -
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. Other than as specifically required by
applicable law, the Company has no specific intention to update any
forward-looking statements whether as a result of new information, future events
or otherwise.
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.
.../5
- 5 -
Further information
Selected financial information is attached.
Great-West Lifeco's second quarter analyst teleconference will be held Thursday,
August 4, at 3:00 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: 416-340-8010
o Participants from North America: 1-866-540-8136
o Participants from Overseas: Dial international access code first, then
800-3207-7500
A replay of the call will be available from August 4, until August 11, and can
be accessed by calling 1-800-408-3053 or 416-695-5800 in Toronto (passcode:
3158756#).
Additional information relating to Lifeco, including 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.
- 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
------------------------------- -------------------------------
2005 2004 % Change 2005 2004 % Change
- -----------------------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance, guaranteed annuities and insured health products 3,788 $ 3,940 -4% $ 8,316 $ 7,351 13%
Self-funded premium equivalents (ASO contracts) 1,945 2,047 -5% 3,835 4,054 -5%
Segregated funds deposits:
Individual products 1,411 1,320 7% 2,983 2,978 0%
Group products 1,322 1,473 -10% 2,550 4,086 -38%
------------ -------- ----------- ---------- --------- --------
Total premiums and deposits 8,466 8,780 -4% 17,684 18,469 -4%
------------ -------- ----------- ---------- --------- --------
Fee and other income 616 587 5% 1,230 1,119 10%
Paid or credited to policyholders 4,081 4,333 -6% 8,897 8,102 10%
Net income - common shareholders before restructuring costs (1) 455 407 12% 878 790 11%
Restructuring costs after tax (1) 9 6 50% 13 13
Net income - common shareholders 446 401 11% 865 777 11%
- -----------------------------------------------------------------------------------------------------------------------------
Per Common Share
Basic earnings before restructuring costs (1) $ 0.511 $ 0.456 12% $ 0.986 $ 0.884 12%
Restructuring costs after tax (1) 0.011 0.008 38% 0.015 0.015
Basic earnings after restructuring costs 0.500 0.448 12% 0.971 0.869 12%
Dividends paid 0.195 0.16125 21% 0.39 0.3225 21%
Book value 9.64 9.07 6%
- -----------------------------------------------------------------------------------------------------------------------------
Return on common shareholders' equity (12 months):
Net income before restructuring costs (1) 20.6% 19.4%
Net income 20.3% 19.0%
- -----------------------------------------------------------------------------------------------------------------------------
At June 30
Total assets $ 98,254 $100,149 -2%
Segregated funds assets 71,878 67,200 7%
-------------------------------
Total assets under administration $ 170,132 $167,349 2%
===============================
Share capital and surplus $ 9,085 $ 8,286 10%
(1) Following the acquisition on 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 $350 that was recognized as part of the
purchase equation of CLFC, and $98 to be charged to income as it is
incurred. 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
-------------------------- ----------------------------
2005 2004 2005 2004
-------------------------- ----------------------------
Income
Premium income $ 3,788 $ 3,940 $ 8,316 $ 7,351
Net investment income 1,327 1,357 2,619 2,715
Fee and other income 616 587 1,230 1,119
-------------- ---------- ------------ ----------
5,731 5,884 12,165 11,185
-------------- ---------- ------------ -----------
Benefits and Expenses
Paid or credited to policyholders and beneficiaries
including policyholder dividends and experience refunds 4,081 4,333 8,897 8,102
Commissions 331 314 660 605
Operating expenses 553 572 1,117 1,156
Premium taxes 64 63 125 115
Financing charges (note 3) 49 50 97 102
Amortization of finite life intangible assets 4 4 9 7
Restructuring costs (note 2) 11 9 18 18
-------------- ---------- ------------ ----------
Net income before income taxes 638 539 1,242 1,080
Income taxes - current 170 40 199 204
- future (18) 90 102 63
-------------- ---------- ------------ ----------
Net income before non-controlling interests 486 409 941 813
Non-controlling interests (note 6) 33 5 62 30
-------------- ---------- ------------ ----------
Net income - shareholders 453 404 879 783
Perpetual preferred share dividends 7 3 14 6
-------------- ---------- ------------ ----------
Net income - common shareholders $ 446 $ 401 $ 865 $ 777
============== =========== ============ ==========
Earnings per common share (note 10)
Basic $ 0.500 $ 0.448 $ 0.971 $ 0.869
======================================================
Diluted $ 0.496 $ 0.444 $ 0.962 $ 0.861
======================================================
CONSOLIDATED BALANCE SHEET (unaudited)
(in $ millions)
June 30, December 31, June 30,
2005 2004 2004
--------------- -------------- --------------
Assets
Bonds $ 56,446 $ 54,960 $ 56,560
Mortgage loans 14,659 14,554 15,058
Stocks 3,635 3,405 3,395
Real estate 1,785 1,646 1,629
Loans to policyholders 6,778 6,499 6,918
Cash and certificates of deposit 2,826 2,472 2,336
Funds held by ceding insurers 2,106 2,337 3,872
Goodwill 5,329 5,328 5,332
Intangible assets 1,483 1,508 1,530
Other assets 3,207 3,142 3,519
--------------- -------------- --------------
Total assets $ 98,254 $ 95,851 $ 100,149
=============== ============== ==============
Liabilities
Policy liabilities
Actuarial liabilities $ 67,183 $ 65,822 $ 69,866
Provision for claims 1,209 997 1,060
Provision for policyholder dividends 591 589 541
Provision for experience rating refunds 468 611 639
Policyholder funds 2,048 2,076 2,180
--------------- -------------- --------------
71,499 70,095 74,286
Debentures and other borrowings (note 4) 2,073 2,088 2,385
Funds held under reinsurance contracts 4,331 4,374 4,630
Other liabilities 4,190 4,356 4,213
Repurchase agreements 1,095 676 626
Deferred net realized gains 2,453 2,164 2,300
--------------- -------------- --------------
85,641 83,753 88,440
Preferred shares (note 7) 797 797 927
Capital trust securities and debentures (note 5) 650 651 543
Non-controlling interests (note 6)
Participating surplus in subsidiaries 1,714 1,654 1,584
Preferred shares issued by subsidiaries 209 209 209
Perpetual preferred shares issued by subsidiaries 158 159 160
Share capital and surplus
Share capital (note 7)
Perpetual preferred shares 499 499 199
Common shares 4,658 4,651 4,654
Surplus 4,402 3,904 3,437
Currency translation account (474) (426) (4)
--------------- -------------- --------------
9,085 8,628 8,286
--------------- -------------- --------------
Liabilities, share capital and surplus $ 98,254 $ 95,851 $ 100,149
=============== ============== ==============
CONSOLIDATED STATEMENT OF SURPLUS (unaudited)
(in $ millions)
For the six months
ended June 30
----------------------------
2005 2004
------------- ------------
Balance, beginning of year $ 3,904 $ 2,993
Net income 879 783
Change in accounting policy - stock option expense - (4)
Contributed surplus - Stock option expense
Change in accounting policy - 5
Current year expense (note 8) 3 3
Repatriation of Canada Life seed capital from participating policyholder account - 21
Common share cancellation excess (22) (70)
Dividends to shareholders
Perpetual preferred shareholders (14) (6)
Common shareholders (348) (288)
------------- ------------
Balance, end of period $ 4,402 $ 3,437
============= ============
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
(in $ millions)
For the three months For the six months
ended June 30 ended June 30
-------------------------------- ---------------------------------
2005 2004 2005 2004
--------------- --------------- --------------- ---------------
Operations
Net income $ 453 $ 404 $ 879 $ 783
Adjustments for non-cash items:
Change in policy liabilities 579 1,003 1,458 1,680
Change in funds held by ceding insurers 102 42 230 270
Change in funds held under reinsurance contracts (70) (160) (68) (334)
Change in current income taxes payable 82 (147) (71) (218)
Future income tax expense (18) 90 102 63
Other 364 (400) 2 (442)
--------------- --------------- --------------- ---------------
Cash flows from operations 1,492 832 2,532 1,802
Financing Activities
Issue of common shares 2 3 12 15
Purchased and cancelled common shares (14) (55) (27) (88)
Repayment of debentures and other borrowings (21) 6 (22) (2)
Partial repayment of five-year term facility - (200) - (200)
Dividends paid (181) (147) (362) (294)
--------------- --------------- --------------- ---------------
(214) (393) (399) (569)
Investment Activities
Bond sales and maturities 11,326 9,988 20,549 20,203
Mortgage loan repayments 725 646 1,567 1,101
Stock sales 360 232 600 650
Real estate sales 32 21 68 55
Change in loans to policyholders (135) (181) (172) (192)
Change in repurchase agreements 278 (124) 390 103
Reinsurance transactions - (8) - (436)
Investment in bonds (12,535) (10,257) (22,063) (21,170)
Investment in mortgage loans (771) (349) (1,741) (815)
Investment in stocks (363) (290) (752) (790)
Investment in real estate (173) (46) (225) (67)
--------------- --------------- --------------- ---------------
(1,256) (368) (1,779) (1,358)
Increase (decrease) in cash and certificates of deposit 22 71 354 (125)
Cash and certificates of deposit, beginning of period 2,804 2,265 2,472 2,461
--------------- --------------- --------------- ---------------
Cash and certificates of deposit, end of period $ 2,826 $ 2,336 $ 2,826 $ 2,336
=============== =============== =============== ===============
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, 2005 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, 2004, 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, 2004.
(b) New Accounting Requirements for 2005
Consolidation of Variable Interest Entities
Effective January 1, 2005, the Company adopted the Canadian Institute
of Chartered Accountants (CICA) Handbook Accounting Guideline on
Consolidation of Variable Interest Entities. As a result, the Company
will no longer consolidate Great-West Life Capital Trust (GWLCT) and
Canada Life Capital Trust (CLCT) but will recognize the related
debentures, refer to note 5. There is no impact of this change in
accounting policy to common shareholder net income or basic earnings
per common share.
Financial Instruments - Disclosure and Presentation
Effective January 1, 2005, the CICA Handbook Section on Financial
Instruments - Disclosure and Presentation was amended to require
liability classification, for certain financial instruments. This
change in accounting policy has been applied retroactively, refer to
notes 5 and 7. There is no impact of this change in accounting policy
to common shareholder net income or basic earnings per common share.
(c) Certain of 2004 amounts presented for comparative purposes have been
reclassified to conform to the presentation adopted in the current
year.
2. Restructuring Costs
Restructuring costs related to the acquisition of Canada Life Financial
Corporation (CLFC) incurred for the six months ended June 30, 2005 were $68
($110 for the six months ended June 30, 2004). Of this amount $18 before
tax ($13 after tax) ($18 before tax ($13 after tax) in 2004) was charged to
income and $50 ($92 in 2004) was charged against the amount accrued as part
of the purchase equation of CLFC. Of the $448 total estimated restructuring
costs, $413 of these costs have been utilized with the remaining $35
expected to be utilized in 2005. These restructuring costs are related to
the elimination of duplicate systems, exiting and consolidating operations
and compensation costs. These activities are expected to be substantially
completed by the end of 2005.
3. Financing Charges
Financing charges include interest on long-term debentures and other
borrowings, previously classified as part of net investment income,
together with distributions and interest on capital trust securities and
debentures and preferred shares now classified as liabilities as described
in notes 5 and 7 to the financial statements.
For the three months For the six months
ended June 30 ended June 30
------------------------------------ ------------------------------------
2005 2004 2005 2004
----------------- ----------------- ----------------- -----------------
Interest on long-term debentures
and other borrowings $ 30 $ 32 $ 59 $ 66
Preferred share dividends 9 11 19 22
Distributions and interest on capital
trust securities and debentures 12 12 24 24
Distributions on capital trust securities
held by consolidated group as
temporary investments (2) (5) (5) (10)
----------------- ----------------- ----------------- -----------------
Total $ 49 $ 50 $ 97 $ 102
================= ================= ================= =================
4.Debentures and Other Borrowings
Debentures and other borrowings consist of the following:
June 30, December 31, June 30,
2005 2004 2004
----------------- --------------- ---------------
Short Term
Commercial paper and other short term borrowings with interest
rates from 3.0% to 3.6% (2.2% to 2.5% in 2004) $ 97 $ 114 $ 130
Revolving credit in respect of reinsurance business with interest rates
from 3.3% to 4.1% maturing within one year (2.2% to 3.2% in 2004) 18 20 25
----------------- --------------- ---------------
Total Short Term 115 134 155
Long Term
Operating:
Notes payable with interest rate of 8.0% 10 10 11
Capital:
Lifeco
Five year term facility at rates of: $119 at Canadian 90-day Bankers'
Acceptance; $31 at 90-day LIBOR rate 150 149 398
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
----------------- --------------- ---------------
1,150 1,149 1,398
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 250 250 250
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 32 35 37
----------------- --------------- ---------------
582 585 587
Great-West Life & Annuity Insurance Capital, LP
6.625% Deferrable debentures due November 15, 2034, unsecured 216 210 -
GWL&A
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
----------------- --------------- ---------------
Total Long Term 1,958 1,954 2,230
----------------- --------------- ---------------
Total Debentures and Other Borrowings $ 2,073 $ 2,088 $ 2,385
================= =============== ===============
5. Capital Trust Securities and Debentures
June 30, December 31, June 30,
2005 2004 2004
----------------- ------------------ -----------------
Capital trust securities:
Trust securities issued by GWLCT $ - $ 350 $ 350
Trust securities issued by CLCT - 450 450
----------------- ------------------ -----------------
- 800 800
Capital trust debentures:
5.995% Senior debentures due December 31, 2052, unsecured (GWLCT) 350 - -
6.679% Senior debentures due June 30, 2052, unsecured (CLCT) 300 - -
7.529% Senior debentures due June 30, 2052, unsecured (CLCT) 150 - -
----------------- ------------------ -----------------
800 - -
Acquisition related fair market value adjustment 36 37 39
Trust securities held by consolidated group
as temporary investments (186) (186) (296)
----------------- ------------------ -----------------
Total $ 650 $ 651 $ 543
================= ================== =================
GWLCT, a trust established by The Great-West Life Assurance Company
(Great-West), had issued $350 of capital trust securities, the proceeds of
which were used by GWLCT to purchase Great-West senior debentures in the
amount of $350, and CLCT, a trust established by The Canada Life Assurance
Company (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. Effective January 1, 2005 the Company is
not consolidating GWLCT and CLCT. The impact of this is to not recognize
the capital trust securities issued by GWLCT and CLCT and to recognize the
debentures issued to the trusts by Great-West and Canada Life. As a result,
distributions and interest on the capital trust securities have been
reclassified to financing charges on the Summary of Consolidated Operations
(see note 3).
6. Non-Controlling Interests
The Company controlled a 100% equity interest in Great-West, London Life
Insurance Company (London Life), Canada Life and Great-West Life & Annuity
Assurance Company (GWL&A) at June 30, 2005 and June 30, 2004.
(a) The non-controlling interests of GWL&A, Great-West, London Life, Canada
Life 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
---------------------- ----------------------
2005 2004 2005 2004
---------- ----------- ----------- ----------
Participating policyholder
Net income attributable to participating
policyholder before policyholder dividends
Great-West $ 30 $ 25 $ 60 $ 49
London Life 155 136 304 278
Canada Life 47 39 90 85
GWL&A 30 43 80 101
Policyholder dividends
Great-West (24) (22) (48) (44)
London Life (135) (128) (267) (258)
Canada Life (46) (49) (89) (95)
GWL&A (28) (43) (77) (95)
---------- ----------- ----------- ----------
Net income 29 1 53 21
---------- ----------- ----------- ----------
Preferred shareholder dividends of subsidiaries 4 4 9 9
---------- ----------- ----------- ----------
Total $ 33 $ 5 $ 62 $ 30
========== =========== =========== ==========
(b) The carrying value of non-controlling interests consist of the following:
June 30, December 31, June 30,
2005 2004 2004
------------- ----------- -------------
Participating surplus
Great-West $ 372 $ 360 $ 349
London Life 1,118 1,081 1,007
Canada Life 18 17 12
GWL&A 206 196 216
------------- ----------- -------------
$ 1,714 $ 1,654 $ 1,584
============= =========== =============
Preferred shares issued by subsidiaries:
Great-West Series L, 5.20% Non-Cumulative $ 52 $ 52 $ 52
Great-West 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 13 14 15
------------- ----------- -------------
$ 158 $ 159 $ 160
============= =========== =============
7. Share Capital
Authorized
Unlimited First Preferred Shares, Class A Preferred Shares and Second Preferred Shares
Unlimited Common Shares
Issued and Outstanding
June 30, 2005 December 31, 2004 June 30, 2004
------------------------- ------------------------ -------------------------
Number Stated Value Number Stated Value Number Stated Value
------------------------- ------------- ---------- -------------------------
Preferred Shares:
Classified as liabilities (1)
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 23,868,115 597 23,868,115 597 23,868,131 597
Series 1, 5.00% Non-Cumulative,
First Preferred Shares - - - - 5,192,242 130
------------------------- ------------- ---------- -------------------------
31,868,115 $ 797 31,868,115 $ 797 37,060,373 $ 927
========================= ============= ========== =========================
Perpetual Preferred Shares:
Classified as equity
Series F, 5.90% Non-Cumulative
First Preferred Shares 7,957,001 $ 199 7,957,001 $ 199 7,957,006 $ 199
Series G, 5.20% Non-Cumulative
First Preferred shares 12,000,000 300 12,000,000 300 - -
------------------------- ------------- ---------- -------------------------
19,957,001 $ 499 19,957,001 $ 499 7,957,006 $ 199
========================= ============= ========== =========================
Common Shares:
Balance, beginning of year 890,592,348 $ 4,651 893,123,924 $ 4,657 893,123,924 $ 4,657
Purchased and cancelled under
Normal Course Issuer Bid (989,100) (5) (5,217,700) (26) (3,550,200) (18)
Issued under Stock Option Plan 1,375,830 12 2,686,124 20 2,070,878 15
------------------------- ------------- ---------- -------------------------
Balance, end of period 890,979,078 $ 4,658 890,592,348 $ 4,651 891,644,602 $ 4,654
========================= ============= ========== =========================
(1)The adoption of the amendments to the CICA Handbook section on Financial
Instruments - Disclosure and Presentation (refer to note 1(b)) resulted
in the reclassification of the Series D, 4.70% Non-Cumulative, First
Preferred Shares and the Series E, 4.80% Non-Cumulative, First Preferred
Shares to liabilities. Dividends on preferred shares classified as
liabilities have been reclassified as financing charges (refer to note
3).
8. Stock Based Compensation
Under the Company's stock option plan 100,000 options were granted during
the first quarter and no options were granted during the second quarter of
2005 (282,000 options were granted during the first quarter and 285,000
options were granted during the second quarter of 2004). The
weighted-average fair value of options granted during the six months ended
June 30, 2005 was $6.68 per option ($6.45 per option during the six months
ended June 30, 2004). Compensation expense of $3 after tax has been
recognized in the Summary of Consolidated Operations for the six months
ended June 30, 2005 ($3 after tax for the six months ended June 30, 2004).
9. 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
-------------------------------------- ---------------------------------------
2005 2004 2005 2004
------------------ ------------------ ------------------ -------------------
Pension benefits $ 15 $ 13 $ 33 29
Other benefits 12 14 22 28
------------------ ------------------ ------------------ -------------------
Total $ 27 $ 27 $ 55 $ 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
----------------------- -------------------------------
2005 2004 2005 2004
----------- ----------- -------------- ---------------
a) Earnings
Net income - common shareholders $ 446 $ 401 $ 865 $ 777
=========== =========== ============== ===============
b) Number of Common Shares at June 30
Average number of common shares outstanding 890,986,618 893,035,904
Add:
-Potential exercise of outstanding stock options 7,892,591 8,221,656
-------------- ---------------
Average number of common shares outstanding - diluted basis 898,879,209 901,257,560
============== ===============
Earnings per Common Share
Basic $ 0.500 $ 0.448 $ 0.971 $ 0.869
=========== =========== ============== ===============
Diluted $ 0.496 $ 0.444 $ 0.962 $ 0.861
=========== =========== ============== ===============
11. Related Party Transactions (changes since December 31, 2004 annual report)
GWL&A received $414 of funds that were invested by affiliated mutual funds
and other investment options of the Company's segregated funds. The Company
recorded this transaction as premium income in the general account. All
transactions were at market terms and conditions.
12. Segmented Information
Consolidated Operations
For the three months ended June 30, 2005
United Lifeco
Canada Europe States Corporate Total
------------- ------------- ------------- ------------ --------------
Income:
Premium income $ 1,593 $ 1,623 $ 572 $ - $ 3,788
Net investment income 693 252 385 (3) 1,327
Fee and other income 189 131 296 - 616
------------- ------------- ------------- ------------ --------------
Total income 2,475 2,006 1,253 (3) 5,731
------------- ------------- ------------- ------------ --------------
Benefits and Expenses:
Paid or credited to policyholders 1,666 1,683 732 - 4,081
Other 497 191 308 1 997
Restructuring costs - - - 11 11
Amortization of intangible assets 3 1 - - 4
------------- ------------- ------------- ------------ --------------
Net operating income
before income taxes 309 131 213 (15) 638
Income taxes 64 25 61 2 152
------------- ------------- ------------- ------------ --------------
Net income before non-controlling
interests 245 106 152 (17) 486
Non-controlling interests 26 5 2 - 33
------------- ------------- ------------- ------------ --------------
Net income - shareholders 219 101 150 (17) 453
Perpetual preferred share dividends 7 - - - 7
------------- ------------- ------------- ------------ --------------
Net income - common shareholders $ 212 $ 101 $ 150 $ (17) $ 446
============= ============= ============= ============ ==============
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 652 273 432 - 1,357
Fee and other income 169 104 314 - 587
------------- ------------ ------------- ------------ -------------
Total income 2,418 2,260 1,206 - 5,884
------------- ------------ ------------- ------------ -------------
Benefits and Expenses:
Paid or credited to policyholders 1,687 2,005 641 - 4,333
Other 509 157 331 2 999
Restructuring costs - - - 9 9
Amortization of intangible assets 3 1 - - 4
------------- ------------ ------------- ------------ -------------
Net operating income
before income taxes 219 97 234 (11) 539
Income taxes 29 24 78 (1) 130
------------- ------------ ------------- ------------ -------------
Net income before non-controlling
interests 190 73 156 (10) 409
Non-controlling interests 6 (3) 2 - 5
------------- ------------ ------------- ------------ -------------
Net income - shareholders 184 76 154 (10) 404
Perpetual preferred share dividends 3 - - - 3
------------- ------------ ------------- ------------ -------------
Net income - common shareholders $ 181 $ 76 $ 154 $ (10) $ 401
============= ============ ============= ============ =============
For the six months ended June 30, 2005
United Lifeco
Canada Europe States Corporate Total
------------- ------------ ------------- ------------ -------------
Income:
Premium income $ 3,102 $ 3,438 $ 1,776 $ - $ 8,316
Net investment income 1,377 492 756 (6) 2,619
Fee and other income 378 262 590 - 1,230
------------- ------------ ------------- ------------ -------------
Total income 4,857 4,192 3,122 (6) 12,165
------------- ------------ ------------- ------------ -------------
Benefits and Expenses:
Paid or credited to policyholders 3,185 3,624 2,088 - 8,897
Other 1,076 309 612 2 1,999
Restructuring costs - - - 18 18
Amortization of intangible assets 7 2 - - 9
------------- ------------ ------------- ------------ -------------
Net operating income
before income taxes 589 257 422 (26) 1,242
Income taxes 125 48 125 3 301
------------- ------------ ------------- ------------ -------------
Net income before non-controlling
interests 464 209 297 (29) 941
Non-controlling interests 52 7 3 - 62
------------- ------------ ------------- ------------ -------------
Net income - shareholders 412 202 294 (29) 879
Perpetual preferred share dividends 14 - - - 14
------------- ------------ ------------- ------------ -------------
Net income - common shareholders $ 398 $ 202 $ 294 $ (29) $ 865
============= ============ ============= ============ =============
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 1,327 521 867 - 2,715
Fee and other income 340 187 592 - 1,119
------------- ------------ ------------- ------------ -------------
Total income 5,142 3,893 2,150 - 11,185
------------- ------------ ------------- ------------ -------------
Benefits and Expenses:
Paid or credited to policyholders 3,703 3,400 999 - 8,102
Other 1,004 302 670 2 1,978
Restructuring costs - - - 18 18
Amortization of intangible assets 6 1 - - 7
------------- ------------ ------------- ------------ -------------
Net operating income
before income taxes 429 190 481 (20) 1,080
Income taxes 71 38 161 (3) 267
------------- ------------ ------------- ------------ -------------
Net income before non-controlling
interests 358 152 320 (17) 813
Non-controlling interests 24 (1) 7 - 30
------------- ------------ ------------- ------------ -------------
Net income - shareholders 334 153 313 (17) 783
Perpetual preferred share dividends 6 - - - 6
------------- ------------ ------------- ------------ -------------
Net income - common shareholders $ 328 $ 153 $ 313 $ (17) $ 777
============= ============ ============= ============ =============
13. Subsequent Events
On May 12, 2005, Canada Life, through its wholly owned United Kingdom
subsidiary, Canada Life Limited, entered into an agreement to acquire the
assets and liabilities associated with the in-force annuity in payment
business of Phoenix and London Assurance Company Limited, part of the
Resolution Life Group which is based in the United Kingdom. The assets and
liabilities were valued at $5.1 billion as at December 31, 2004. Under the
agreement, from July 1, 2005, Canada Life Limited assumed 100% of this
business block on an indemnity reinsurance basis and, subject to the
sanction of the Court in London, this reinsured business is expected
formally to transfer to Canada Life Limited on December 31, 2005. Although
the final transaction amount will depend on the value of the liabilities at
the date of closing, it is anticipated to result in an increase in invested
assets and a corresponding increase in policyholder liabilities of
approximately $5.1 billion.
On July 21, 2005, the Company entered into an agreement with a syndicate of
underwriters under which the underwriters have agreed to buy 12,000,000
4.85% Non-cumulative First Preferred Shares Series H from the Company for
sale to the public at a price of $25 per Preferred Share, representing an
aggregate issue amount of $300. The Company has granted the underwriters an
option to purchase up to an additional 2,000,000 Preferred Shares. The
offering is expected to close August 12, 2005.