Power Financial Corporation

Power Financial Corporation

March 22, 2005 11:35 ET

Power Financial Corporation: Financial Results for 2004


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: POWER FINANCIAL CORPORATION

TSX SYMBOL: PWF

MARCH 22, 2005 - 11:35 ET

Power Financial Corporation: Financial Results for 2004

MONTREAL, QUEBEC--(CCNMatthews - March 22, 2005) - Power Financial
Corporation (TSX:PWF) - Readers are referred to the disclaimer regarding
Non-GAAP Financial Measures at the end of this release.

Power Financial Corporation's operating earnings for the year ended
December 31, 2004 were $1,553 million or $2.11 per share, compared with
$1,261 million or $1.72 per share in 2003, an increase of 23.2 per cent
on a per share basis.

Growth in operating earnings reflects a substantial increase in the
contribution from subsidiaries and affiliate. The contribution from
Great-West Lifeco to Power Financial's operating earnings in 2004
includes the contribution for the full year from additional shares of
Great-West Lifeco which were acquired in 2003, primarily during the
month of July.

Other income was $5 million or $0.01 per share in 2004, compared with
$762 million or $1.09 per share in the preceding year. Other income in
2003 included a net dilution gain of $888 million, recorded in the third
quarter, in connection with Great-West Lifeco's acquisition of Canada
Life Financial Corporation in that year.

Net earnings, including other income, were $1,558 million or $2.12 per
share in 2004, compared with $2,023 million or $2.81 per share in 2003.

FOURTH-QUARTER RESULTS

Power Financial Corporation's operating earnings for the three months
ended December 31, 2004 were $410 million or $0.56 per share, compared
with $354 million or $0.48 per share in 2003, for an increase of 15.6
per cent on a per share basis.

Other income consisted of a charge of $6 million or $0.01 per share for
the quarter. Other income in the fourth quarter of 2003 was a charge of
$36 million or $0.05 per share.

Net earnings for the fourth quarter of 2004 were $404 million or $0.55
per share, compared with $318 million or $0.43 per share for the same
period in 2003.

SUBSIDIARIES' AND AFFILIATE'S RESULTS

Great-West Lifeco Inc. (per share amounts have been adjusted to reflect
the two-for-one subdivision of common shares of Lifeco, effective
October 6, 2004)

Great-West Lifeco reported net income attributable to common
shareholders, excluding restructuring charges related to the acquisition
of CLFC, of $1,630 million for the twelve months ended December 31,
2004, compared with $1,215 million in 2003, an increase of 34 per cent.
On a per share basis, reflecting the fourth-quarter subdivision of
Great-West Lifeco common shares, this represented $1.827 per common
share for 2004, an increase of 22 per cent compared to the previous
year. Net income, after restructuring costs, attributable to common
shareholders, for 2004, was $1,600 million, up from $1,195 million in
2003.

For the fourth quarter ended December 31, 2004, net income attributable
to common shareholders, excluding restructuring charges, was $423
million or $0.475 per share, compared with $365 million or $0.411 per
share for the same period in 2003, an increase of 16 per cent. After
restructuring costs, net income attributable to common shareholders was
$409 million or $0.459 per share for the fourth quarter, compared with
$357 million or $0.403 per share in 2003.

IGM Financial Inc.

IGM Financial reported net income attributable to common shareholders,
excluding the items noted below, of $615.6 million for the year,
compared with $533.5 million in 2003. Earnings per share on this basis
were $2.31, compared with $2.01 in 2003, an increase of 14.9 per cent.

Net income in 2004 excludes a charge to earnings recorded in the fourth
quarter of $28.8 million ($19.2 million after tax) which includes both
compensation payments to certain unitholders of Investors Group and
related costs resulting from settlement agreements with regulatory
agencies (unitholder compensation). Net income in 2003 excludes:



- a dilution gain of $14.8 million recorded in the third quarter
resulting from the reduction of IGM Financial's percentage
ownership of Great-West Lifeco related to their acquisition of
Canada Life;
- the reversal of $24.8 million ($15.6 million after tax) of
restructuring costs related to the acquisition of Mackenzie
Financial Corporation recorded in the fourth quarter; and
- a non-cash income tax charge of $24.8 million recorded in the
fourth quarter arising from increases in Ontario income tax rates
and their effect on the future income tax liability related to
indefinite life intangible assets.


Net income attributable to common shareholders, including the items
noted above, was $596.4 million for the year, compared with $539.1
million in 2003. Earnings per share were $2.24, compared with $2.03 in
2003.

Net income attributable to common shareholders for the fourth quarter,
excluding unitholder compensation noted above, was $161.3 million or
$0.61 per share, compared with $143.8 million or $0.54 per share in 2003.

Net income attributable to common shareholders, including the items
noted above, was $142.1 million or $0.53 per share for the fourth
quarter in 2004, compared with $134.6 million or $0.51 per share in 2003.

Pargesa Holding S.A.

Parjointco N.V. holds Power Financial's interests in Pargesa Holding
S.A. The contribution from Parjointco to operating earnings was $126
million in 2004, compared with $88 million in 2003, while contribution
to other income was $29 million in 2004, compared with a charge of $3
million in 2003.

For the three-month period ended December 31, 2004, the contribution
from Parjointco to operating earnings was $38 million and $15 million to
other income, as against $29 million and a charge of $25 million
respectively in the fourth quarter of 2003.

COMMON SHARE DIVIDEND

The Board of Directors today declared a quarterly dividend of 20.25
cents per share on the Corporation's common shares payable April 29,
2005 to shareholders of record April 8, 2005.

PREFERRED SHARE DIVIDENDS

A quarterly dividend was declared on the Series A First Preferred Shares
payable May 15, 2005 to shareholders of record April 22, 2005 in an
amount to be determined by applying the Quarterly Dividend Rate, as
defined in the Articles of Continuance of the Corporation, to $25.00.

In addition, the Board declared quarterly dividends on the following
series of the Corporation's Non-Cumulative First Preferred Shares
payable April 30, 2005 to shareholders of record April 8, 2005, as
follows:



- Series C, 32.50 cents per share;
- Series D, 34.375 cents per share;
- Series E, 32.8125 cents per share;
- Series F, 36.875 cents per share;
- Series H, 35.9375 cents per share;
- Series I, 37.50 cents per share; and
- Series J, 29.375 cents per share.

Non-GAAP Financial Measures

Operating earnings and operating earnings per share are non-GAAP
financial measures that do not have standard meanings and may not be
comparable to similar measures used by other issuers.



POWER FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS



December 31 December 31
(in millions of dollars) 2004 2003
--------------------------------------------------------------------
(unaudited)
ASSETS

Cash and cash equivalents 3,623 3,646
--------------------------------------------------------------------

Investments
Shares 3,284 3,073
Bonds 54,960 54,208
Mortgages and other loans 15,051 15,616
Loans to policyholders 6,499 6,566
Real estate 1,649 1,597
--------------------------------------------------------------------
81,443 81,060

Funds withheld by ceding insurers 2,337 4,142
Investment in affiliate, at equity 1,647 1,550
Goodwill and intangible assets (Note 2) 10,593 10,210
Future income taxes 553 666
Other assets 3,983 4,162
--------------------------------------------------------------------

104,179 105,436
--------------------------------------------------------------------
--------------------------------------------------------------------



LIABILITIES

Policy liabilities
Actuarial liabilities 65,822 66,999
Other 4,273 4,499
Deposits and certificates 711 729
Funds held under reinsurance contracts 4,108 4,655
Long-term debt (Note 3) 3,554 4,198
Future income taxes 818 539
Other liabilities 8,250 8,722
--------------------------------------------------------------------
87,536 90,341

Non-controlling interests 7,659 6,958
--------------------------------------------------------------------



SHAREHOLDERS' EQUITY

Stated capital (Note 4)
Preferred shares 1,250 1,250
Common shares 593 556
Contributed surplus (Note 1) 21 -
Retained earnings 7,267 6,284
Foreign currency translation adjustments (147) 47
--------------------------------------------------------------------
8,984 8,137
--------------------------------------------------------------------

104,179 105,436
--------------------------------------------------------------------
--------------------------------------------------------------------


POWER FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)

(in millions of dollars, except per share amounts)

For the three months For the years
ended December 31 ended December 31
2004 2003 2004 2003
--------------------------------------------------------------------

REVENUES
Premium income (Note 9) 3,764 3,816 14,202 7,069
Net investment income 1,413 1,431 5,509 4,773
Fee income 1,092 942 4,211 3,527
--------------------------------------------------------------------
6,269 6,189 23,922 15,369
--------------------------------------------------------------------

EXPENSES
Paid or credited to
policyholders and
beneficiaries including
policyholder dividends
and experience refunds
(Note 9) 4,001 4,124 15,490 8,346
Commissions 535 419 1,880 1,376
Operating expenses 768 777 3,096 2,726
Interest expense 61 71 243 223
--------------------------------------------------------------------
5,365 5,391 20,709 12,671
--------------------------------------------------------------------

904 798 3,213 2,698

Share of earnings
of affiliate 38 29 126 88
Other income (charges),
net (Note 6) (31) (10) (35) 783
--------------------------------------------------------------------

Earnings before income
taxes and non-controlling
interests 911 817 3,304 3,569

Income taxes 222 274 832 850
Non-controlling interests 285 225 914 696
--------------------------------------------------------------------
Net earnings 404 318 1,558 2,023
--------------------------------------------------------------------
--------------------------------------------------------------------

Earnings per common
share (Note 7)
Basic 0.55 0.43 2.12 2.81
--------------------------------------------------------------------

Diluted 0.55 0.43 2.11 2.78
--------------------------------------------------------------------



POWER FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(unaudited)


For the years
ended December 31
(in millions of dollars) 2004 2003
--------------------------------------------------------------------

Retained earnings, beginning of year
As previously reported 6,284 4,758
Change in accounting policy (Note 1) (6) -
--------------------------------------------------------------------

As restated 6,278 4,758

Add
Net earnings 1,558 2,023
--------------------------------------------------------------------

7,836 6,781

Deduct
Dividends
Preferred shares 66 67
Common shares 514 420
Other (11) 10
--------------------------------------------------------------------

569 497
--------------------------------------------------------------------

Retained earnings, end of year 7,267 6,284
--------------------------------------------------------------------
--------------------------------------------------------------------


POWER FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

(in millions of dollars)


For the three months For the years
ended December 31 ended December 31
2004 2003 2004 2003
--------------------------------------------------------------------

Operating activities
Net earnings 404 318 1,558 2,023
Non-cash charges
(credits)
Increase (decrease)
in policy
liabilities 512 (503) 685 (4,259)
Decrease (increase)
in funds withheld
by ceding insurers (54) 513 1,805 644
Increase (derease)
in funds held under
reinsurance
contracts (548) (80) (548) 4,655
Amortization and
depreciation 48 39 108 124
Future income taxes 142 (27) 213 (105)
Non-controlling
interests 285 225 914 696
Dilution gain (1) - (9) (894)
Other (242) (614) (1,290) (350)
--------------------------------------------------------------------

546 (129) 3,436 2,534
--------------------------------------------------------------------

Financing activities
Dividends paid
By subsidiaries to
non-controlling
interests (95) (78) (354) (263)
Preferred shares (17) (17) (66) (64)
Common shares (129) (105) (485) (404)
--------------------------------------------------------------------
(241) (200) (905) (731)

Issue of common shares - - 37 8
Issue of preferred
shares - - - 350
Redemption of
preferred shares - - - (150)
Issue of common
shares by
subsidiaries 3 5 29 142
Issue of preferred
shares by a
subsidiary - - 300 -
Repurchase of common
shares by
subsidiaries (13) (69) (156) (158)
Repurchase of
preferred shares by
subsidiaries (130) - (130) (102)
Repayment of
commercial paper and
other loans - (1,029) - (46)
Issue of
long-term debt 210 596 210 1,746
Repayment of
long-term debt (385) - (858) (403)
Other 17 (22) (75) 91
--------------------------------------------------------------------

(539) (719) (1,548) 747
--------------------------------------------------------------------

Investment activities
Bond sales and
maturities 8,210 14,737 35,867 41,425
Mortgage loan
repayments 950 573 2,650 1,890
Sale of shares 342 581 1,355 1,256
Proceeds from
securitization 107 75 207 127
Change in loans to
policyholders 118 (172) (47) (626)
Change in repurchase
agreements (62) (373) 195 93
Reinsurance
transactions 3 - (430) -
Acquisition of
Canada Life Financial
Corporation - - - (1,826)
Acquisition of
Investment Planning
Counsel Inc. 1 - (63) -
Investment
in bonds (8,191) (14,921) (37,640) (42,340)
Investment in
mortgage loans (923) (488) (2,422) (1,935)
Investment in shares (367) (74) (1,524) (552)
Other (25) 36 (59) 416
--------------------------------------------------------------------

163 (26) (1,911) (2,072)
--------------------------------------------------------------------

Increase (decrease) in
cash and cash
equivalents 170 (874) (23) 1,209

Cash and cash
equivalents,
beginning of period 3,453 4,520 3,646 2,437
--------------------------------------------------------------------

Cash and cash
equivalents, end
of period 3,623 3,646 3,623 3,646
--------------------------------------------------------------------
--------------------------------------------------------------------



POWER FINANCIAL CORPORATION

Notes to consolidated financial statements
(unaudited)

December 31, 2004


Note 1. Significant accounting policies

The interim unaudited consolidated financial statements of Power
Financial Corporation at December 31, 2004 have been prepared in
accordance with generally accepted accounting principles in Canada,
using the accounting policies described in Note 1 of the Corporation's
consolidated financial statements for the year ended December 31, 2003,
except as noted below. These interim consolidated financial statements
should be read in conjunction with the consolidated financial statements
and notes thereto in the Corporation's annual report dated December 31,
2003.

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 for options granted beginning
on or after January 1, 2002. As permitted by this standard, this change
in accounting policy has been applied retroactively without restatement
of prior years' financial statements and results in a $6 million
reduction in retained earnings and $6 million increase in contributed
surplus. See also Note 4.

Hedging Relationships

Accounting Guideline 13 - Hedging Relationships (AcG-13) specifies the
circumstances in which hedge accounting is appropriate, including the
identification, documentation, designation, and effectiveness of hedges
and the discontinuance of hedge accounting. Subsequent to January 1,
2004, derivatives that do not qualify for hedge accounting will be
carried at fair value on the consolidated balance sheets, and changes in
fair value will be recorded in the consolidated statements of earnings.
Non-qualifying derivatives will continue to be utilized on a basis
consistent with the risk management policies of the Corporation and will
be monitored by the Corporation for effectiveness as economic hedges
even if the specific hedge accounting requirements of AcG-13 are not
met. The Corporation reassessed its hedging relationships as at January
1, 2004 and determined that the adoption of the new recommendation did
not have a material effect on the Corporation's consolidated financial
statements.

Interim Financial Statements

Effective June 30, 2004, the CICA Handbook Section 1751 Interim
Financial Statements was amended to require disclosure of the total
benefit cost for employee future benefits. (see Note 12)

Name change of a subsidiary

During the second quarter of 2004, Investors Group Inc. received
shareholder and regulatory approval to change its name to IGM Financial
Inc. (IGM).

Comparative figures

Certain of the 2003 amounts presented for comparative purposes have been
reclassified to conform with the presentation adopted in the current
year.


Note 2. Goodwill and intangible assets

A summary of changes in the Corporation's goodwill and intangible assets
for the year ended December 31, 2004 is as follows:



Intangible
(in millions of dollars) Goodwill assets Total
--------------------------------------------------------------------

Balance, beginning of year 7,952 2,258 10,210
Change in allocation of the
purchase price of Canada Life
Financial Corporation (CLFC) 66 127 193
Acquisition of Investment
Planning Counsel Inc. (IPC)
(Note 11) 102 41 143
Amortization of finite life
intangible assets (19) (19)
Other, including effect of
repurchase of common shares
by subsidiaries 65 1 66
--------------------------------------------------------------------
Balance, end of year 8,185 2,408 10,593
--------------------------------------------------------------------
--------------------------------------------------------------------


At December 31, 2004, intangible assets are composed of finite life
intangibles ($409 million) subject to amortization and indefinite life
intangibles ($1,999 million).

The indefinite life intangible assets represent the fair value of mutual
fund management and customer related contracts ($963 million), trade
names ($268 million), brands and trademarks ($414 million) and the
shareholders' portion of acquired future participating profits ($354
million).

The change in the allocation of the purchase price of CLFC during 2004
consists of decreases in the values of invested and other assets
acquired of $91 million, increases in the value of intangible assets of
$127 million (finite life intangible assets relating to distribution
channels), increases in the value of policy liablilities assumed of $164
million and decreases in the value of other liabilities assumed of $62
million.


Note 3. Long-term Debt



December 31 December 31
(in millions of dollars) 2004 2003
--------------------------------------------------------------------
Power Financial Corporation
7.65% debentures, due January 5, 2006 150 150
6.90% debentures, due March 11, 2033 250 250

IGM Financial Inc.
Floating Bankers' Acceptance,
due May 30, 2006 - 175
6.75% Debentures 2001 Series,
due May 9, 2011 450 450
6.58% Debentures 2003 Series,
due March 7, 2018 150 150
6.65% Debentures 1997 Series,
due December 13, 2027 125 125
7.45% Debentures 2001 Series,
due May 9, 2031 150 150
7.00% Debentures 2002 Series,
due December 31, 2032 175 175
7.11% Debentures 2003 Series,
due March 7, 2033 150 150

Great-West Lifeco Inc.
Five year term facility at rates of:
$118 (2003 - $471) at Canadian 90-day
Bankers' Acceptance; $31 (2003 - $125)
at 90-day LIBOR rate 149 596
Subordinated debentures due
September 19, 2011 bearing a fixed rate
of 8% until 2006 and, thereafter, at a
rate equal to the Canadian 90-day
Bankers' Acceptance rate plus 1%,
unsecured 274 278
Subordinated debentures due
December 11, 2013 bearing a fixed rate
of 5.8% until 2008 and, thereafter, at a
rate equal to the Canadian 90-day
Bankers' Acceptance rate plus 1%,
unsecured 210 210
6.75% Debentures due August 10, 2015,
unsecured 200 200
6.14% Debentures due March 21, 2018,
unsecured 200 200
6.40% Debentures due December 11, 2028,
unsecured 101 101
6.74% Debentures due November 24, 2031,
unsecured 200 200
6.67% Debentures due March 21, 2033,
unsecured 400 400
6.625% Deferrable debentures due
November 15, 2034, unsecured (U.S.$175) 210 -
7.25% Subordinated capital income
securities redeemable on or after
June 30, 2004, due June 30, 2048.
Unsecured (U.S.$175) - 226
Other notes payable with
interest of 8.0% 10 12
--------------------------------------------------------------------
3,554 4,198
--------------------------------------------------------------------
--------------------------------------------------------------------


Note 4. Capital stock and Stock option plan

Stated Capital

Authorized
Unlimited number of first preferred shares, issuable in series,
of second preferred shares, issuable in series, and of common
shares.

Issued and outstanding December 31, 2004 December 31, 2003
--------------------------------------------------------------------
Number of Stated Number of Stated
shares capital shares capital
--------------------------------------------------------------------
(in millions (in millions
of dollars) of dollars)
--------------------------------------------------------------------
Preferred shares
Series A First
Preferred Shares 4,000,000 100 4,000,000 100
Series C First
Preferred Shares 6,000,000 150 6,000,000 150
Series D First
Preferred Shares 6,000,000 150 6,000,000 150
Series E First
Preferred Shares 8,000,000 200 8,000,000 200
Series F First
Preferred Shares 6,000,000 150 6,000,000 150
Series H First
Preferred Shares 6,000,000 150 6,000,000 150
Series I First
Preferred Shares 8,000,000 200 8,000,000 200
Series J First
Preferred Shares 6,000,000 150 6,000,000 150
--------------------------------------------------------------------

1,250 1,250
--------------------------------------------------------------------
--------------------------------------------------------------------

Common shares 704,813,680 593 696,833,680 556
--------------------------------------------------------------------
--------------------------------------------------------------------



On July 13, 2004, the common shareholders of the Corporation approved a
subdivision of the Corporation's common shares on a two-for-one basis.
The subdivision, which was effective July 23, 2004, increased the number
of common shares outstanding from 352,326,840 to 704,653,680 common
shares.


Stock-Based Compensation

Starting in 2004, compensation expense is recorded for options granted
under the Corporation's and its subsidiaries' stock option plans since
January 1, 2002, based on the fair value of the options at the grant
date, amortized over the vesting period. Compensation expense of $16
million has been recognized for the year ended December 31, 2004.

Under the Corporation's stock option plan 50,000 options were granted
during the second quarter of 2004 (no options were granted in the other
quarters of 2004). The fair value of options granted in 2004 ($6.63 per
option) was estimated using the Black-Scholes option-pricing model with
the following assumptions: dividend yield of 2.4%, expected volatility
of 21%, risk-free interest rate of 5% and expected life of 9 years. In
addition, stock options were granted by subsidiaries.

During the third quarter of 2003, 3,000,000 options were granted (no
options were granted in the other quarters of 2003). The fair value of
options granted in 2003 ($5.85 per option) was estimated using the
Black-Scholes option-pricing model with the following assumptions:
dividend yield of 2.4%, expected volatility of 21%, risk-free interest
rate of 5% and expected life of 9 years. In addition, stock options were
granted by subsidiaries.

For the year ended December 31, 2003, the intrinsic value based method
of accounting for stock options was applied. Under this method, no
compensation expense is recorded for options granted by the Corporation
and its subsidiaries. Had the fair value based accounting method been
applied for the options granted since January 1, 2002, the Corporation's
net earnings for the year ended December 31, 2003 would have been
reduced by less than $5 million and earnings per common share would have
been reduced by less than $0.01.

Options were outstanding at December 31, 2004 to purchase, until May 27,
2014, up to an aggregate of 6,410,000 common shares, at various prices
from $6.65938 to $26.965 per share. For the year ended December 31,
2004, 7,980,000 shares were issued (3,120,000 in 2003) under the
Corporation's plan for an aggregate consideration of $37 million ($8
million in 2003).


Note 5. Segmented information



Information on profit measure (in millions of dollars)
--------------------------------------------------------------------
For the three months
ended December 31, 2004 LIFECO IGM PARJOINTCO OTHER TOTAL
--------------------------------------------------------------------
REVENUES
Premium income 3,764 3,764
Net investment income 1,345 47 21 1,413
Fee income 599 501 (8) 1,092
--------------------------------------------------------------------
5,708 548 - 13 6,269
--------------------------------------------------------------------
EXPENSES
Insurance claims 4,001 4,001
Commissions 379 164 (8) 535
Operating expenses 630 124 14 768
Interest expense - 19 42 61
--------------------------------------------------------------------
5,010 307 - 48 5,365
--------------------------------------------------------------------
698 241 - (35) 904
Share of earnings
of affiliate 38 38
Other income - net (18) (29) 15 1 (31)
--------------------------------------------------------------------
Earnings before the
following 680 212 53 (34) 911
Income taxes 158 64 - 222
Non-controlling interests 237 65 (17) 285
--------------------------------------------------------------------

Contribution to consolidated
net earnings 285 83 53 (17) 404
--------------------------------------------------------------------
--------------------------------------------------------------------


Information on profit measure (in millions of dollars)
--------------------------------------------------------------------
For the three months
ended December 31, 2003 LIFECO IGM PARJOINTCO OTHER TOTAL
--------------------------------------------------------------------
REVENUES
Premium income 3,816 3,816
Net investment income 1,362 38 31 1,431
Fee income 501 446 (5) 942
--------------------------------------------------------------------
5,679 484 - 26 6,189
--------------------------------------------------------------------
EXPENSES
Insurance claims 4,124 4,124
Commissions 298 126 (5) 419
Operating expenses 645 120 12 777
Interest expense - 23 48 71
--------------------------------------------------------------------
5,067 269 - 55 5,391
--------------------------------------------------------------------
612 215 - (29) 798
Share of earnings
of affiliate 29 29
Other income - net (10) 25 (25) - (10)
--------------------------------------------------------------------
Earnings before the
following 602 240 4 (29) 817
Income taxes 174 99 1 274
Non-controlling interests 179 60 (14) 225
--------------------------------------------------------------------

Contribution to consolidated
net earnings 249 81 4 (16) 318
--------------------------------------------------------------------
--------------------------------------------------------------------


Information on profit measure (in millions of dollars)
--------------------------------------------------------------------
For the year ended
December 31, 2004 LIFECO IGM PARJOINTCO OTHER TOTAL
--------------------------------------------------------------------
REVENUES
Premium income 14,202 14,202
Net investment income 5,266 163 80 5,509
Fee income 2,273 1,956 (18) 4,211
--------------------------------------------------------------------
21,741 2,119 - 62 23,922
--------------------------------------------------------------------
EXPENSES
Insurance claims 15,490 15,490
Commissions 1,281 617 (18) 1,880
Operating expenses 2,533 515 48 3,096
Interest expense - 75 168 243
--------------------------------------------------------------------
19,304 1,207 - 198 20,709
--------------------------------------------------------------------
2,437 912 - (136) 3,213
Share of earnings
of affiliate 126 126
Other income - net (44) (29) 29 9 (35)
--------------------------------------------------------------------
Earnings before
the following 2,393 883 155 (127) 3,304
Income taxes 566 265 1 832
Non-controlling interests 714 271 (71) 914
--------------------------------------------------------------------

Contribution to consolidated
net earnings 1,113 347 155 (57) 1,558
--------------------------------------------------------------------
--------------------------------------------------------------------


Information on profit measure (in millions of dollars)
--------------------------------------------------------------------
For the year ended
December 31, 2003 LIFECO IGM PARJOINTCO OTHER TOTAL
--------------------------------------------------------------------
REVENUES
Premium income 7,069 7,069
Net investment income 4,529 160 84 4,773
Fee income 1,831 1,714 (18) 3,527
--------------------------------------------------------------------
13,429 1,874 - 66 15,369
--------------------------------------------------------------------
EXPENSES
Insurance claims 8,346 8,346
Commissions 919 475 (18) 1,376
Operating expenses 2,199 494 33 2,726
Interest expense - 85 138 223
--------------------------------------------------------------------
11,464 1,054 - 153 12,671
--------------------------------------------------------------------
1,965 820 - (87) 2,698
Share of earnings
of affiliate 88 88
Other income - net (31) 40 (3) 777 783
--------------------------------------------------------------------
Earnings before
the following 1,934 860 85 690 3,569
Income taxes 550 299 1 850
Non-controlling interests 506 245 (55) 696
--------------------------------------------------------------------

Contribution to consolidated
net earnings 878 316 85 744 2,023
--------------------------------------------------------------------
--------------------------------------------------------------------


Note 6. Other income (charges), net

For the three months For the years
ended December 31 ended December 31
(in millions of dollars) 2004 2003 2004 2003
--------------------------------------------------------------------

Share of Pargesa's
non-operating earnings 15 (25) 29 (3)
Gain resulting from dilution
of the Corporation's interest
in Lifeco - - - 894
Gain resulting from dilution
of the Corporation's interest
in IGM 1 - 9 -
Restructuring costs -
Lifeco (Note 8) (18) (10) (44) (31)
Reversal of restructuring costs
related to Mackenzie - 25 - 25
IGM special compensation
charge (Note 14) (29) - (29) -
Other - - - (102)
--------------------------------------------------------------------
(31) (10) (35) 783
--------------------------------------------------------------------
--------------------------------------------------------------------


Note 7. Earnings per share

The following is a reconciliation of the numerators and the
denominators of the basic and diluted earnings per common share
computations:

For the three months ended December 31
(in millions of dollars) 2004 2003
--------------------------------------------------------------------

Net earnings 404 318
Dividends on preferred shares (17) (17)
--------------------------------------------------------------------

Net earnings available to common shareholders 387 301
--------------------------------------------------------------------

Weighted number of common shares
outstanding (millions)
Basic 704.8 696.8
Exercise of stock options 6.4 14.3
Shares assumed to be repurchased with proceeds
from exercise of stock options (3.7) (6.3)
--------------------------------------------------------------------

Weighted number of common shares
outstanding (millions)
Diluted 707.5 704.8
--------------------------------------------------------------------
--------------------------------------------------------------------


For the years ended December 31
(in millions of dollars) 2004 2003
--------------------------------------------------------------------

Net earnings 1,558 2,023
Dividends on preferred shares (66) (67)
--------------------------------------------------------------------

Net earnings available to common shareholders 1,492 1,956
--------------------------------------------------------------------

Weighted number of common shares
outstanding (millions)
Basic 703.9 696.3
Exercise of stock options 6.4 14.3
Shares assumed to be repurchased with
proceeds from exercise of stock options (4.0) (6.9)
--------------------------------------------------------------------

Weighted number of common shares
outstanding (denominator) (millions)
Diluted 706.3 703.7
--------------------------------------------------------------------
--------------------------------------------------------------------


Note 8. Restructuring costs

Following the acquisition of CLFC on July 10, 2003, Lifeco developed a
plan to restructure and integrate the operations of CLFC with its wholly
owned subsidiaries The Great-West Life Assurance Company (Great-West),
London Life Insurance Company (London Life) and Great-West Life &
Annuity Insurance Company (GWL&A). Costs are expected to be incurred as
a result and consist primarily of exit and consolidation activities
involving operations, facilities, systems and compensation costs.

Significant administrative activities performed by CLFC prior to July
10, 2003 are being exited, restructured and integrated with the
activities performed by Great-West, London Life and GWL&A. In Canada,
selected administrative functions, facilities and systems are being
restructured and integrated with Great-West and London Life functions.
These activities are expected to be substantially completed by the end
of 2005. In Europe, selected administrative functions, facilities and
systems are being restructured and non-strategic international
operations and locations are being exited. These activities are expected
to be substantially completed by the end of 2005. In the United States,
selected administrative functions, facilities and systems are being
restructured and integrated with GWL&A functions. These activities have
been substantially completed as of December 31, 2004.

Expected total restructuring costs were revised during the second
quarter of 2004 from $497 million to $448 million. The revised expected
total restructuring costs primarily reflect lower compensation costs
being incurred. The costs include $350 million that was recognized as
part of the finalization of the allocation of the purchase equation of
CLFC, a reduction of $62 million from December 31, 2003 estimate of $412
million. Costs of $98 million are expected to be charged to income as
incurred, an increase of $13 million from December 31, 2003 estimate of
$85 million. These costs are included in the consolidated statements of
earnings in Other Income (Charges).

The following details the amount and status of restructuring and exit
program costs:



(in millions of dollars)

Expected Amounts Amounts Total Balance
Total utilized utilized amounts December 31,
costs - 2003 - 2004 utilized 2004
-------------------------------------------------------------------
Eliminating
duplicate
systems 128 13 50 63 65
Exiting and
consolidating
operations 115 28 68 96 19
Compensation
costs 205 84 102 186 19
-------------------------------------------------------------------
448 125 220 345 103
-------------------------------------------------------------------
-------------------------------------------------------------------

Accrued on
acquisition 350 94 176 270 80
Expense as
incurred 98 31 44 75 23
-------------------------------------------------------------------
448 125 220 345 103
-------------------------------------------------------------------
-------------------------------------------------------------------


Note 9. Reinsurance transactions

During the first quarter of 2004, Lifeco's indirect subsidiary, Canada
Life, ceded 100% of its U.S. group insurance business to a third party
on an indemnity reinsurance basis. The ceded premiums of $416 million
associated with the transaction have been recorded on the consolidated
statement of earnings as a reduction to premium income with a
corresponding reduction to the change in actuarial liabilities. For the
consolidated balance sheet, this transaction resulted in a reduction of
cash and other assets of $416 million, a reduction of policyholder
liabilities of $384 million, and a reduction of other liabilities of $32
million.

Note 10. Commitments

London Reinsurance Group Inc. (LRG), an indirect subsidiary of Lifeco
has a syndicated letter of credit facility providing U.S. $970 million
in letters of credit capacity. At December 31, 2003 LRG had issued U.S.
$925 million in letters of credit under the facility. On January 5,
2004 two transactions resulted in the reduction of total issued letters
of credit to U.S. $818 million. LRG has issued U.S. $748 million in
letters of credit as at December 31, 2004 under this facility.

As part of the 1999 acquisition by CLFC of the majority of Crown Life
Insurance Company's (Crown Life) insurance operations, CLFC has the
option, or may be obligated, to acquire the common shares of Crown Life
and, through assumption reinsurance, the remaining insurance business of
Crown Life at any time after January 1, 2004, subject to certain
conditions, in which case CLFC would receive assets with a value equal
to the liabilities assumed. The purchase price for the shares would be
the fair value of the assets backing Crown Life's common shareholders'
equity.


Note 11. Acquisition of Investment Planning Counsel Inc. (IPC)

On May 10, 2004, IGM acquired 74.7% of the outstanding common shares of
IPC, a Canadian financial services company. The results of its
operations have been included in the consolidated financial statements
since that date.

The aggregate purchase price was $99 million, including $75 million of
cash, including transaction costs, and common shares valued at $24
million. The value of the 734,796 common shares issued was determined
based on the weighted-average market price of IGM's shares over the
two-day period before and after the terms of the acquisition was agreed
to and announced.

The following table summarizes the fair value of the assets acquired and
liabilities assumed at the date of acquisition. The purchase price
allocation is preliminary and based on IGM's best estimates. The final
purchase price allocations will be completed as soon as IGM has gathered
all the significant information considered necessary in order to
finalize this allocation.



(in millions of dollars)

Fair value of assets acquired:
Cash and cash equivalents 12
Deferred selling commissions 8
Future income taxes 2
Other assets 28
Finite-life intangible assets 41
----------------------------------------------------------------
91
----------------------------------------------------------------
Liabilities assumed:
Deposits 21
Other liabilities 50
Long-term debt 23
----------------------------------------------------------------

94
----------------------------------------------------------------

Fair value of net assets acquired (3)
Goodwill 102
----------------------------------------------------------------

Total purchase consideration 99
----------------------------------------------------------------
----------------------------------------------------------------


Included in Other liabilities are accruals for contract
termination costs of $27 million which were paid during the
second quarter, and other restructuring costs of $6 million
related to the acquisition.

Note 12. Pension Plans and Other Post Retirement Benefits

The total benefit costs for the periods ending December 31, 2004
included in operating expenses are as follows:


For the three months For the year
ended December 31 ended December 31
(in millions of dollars) 2004 2004
-------------------------------------------------------------------

Pension benefits 13 54
Other benefits 7 46
-------------------------------------------------------------------
20 100
-------------------------------------------------------------------
-------------------------------------------------------------------


Note 13. Securitizations

During the fourth quarter, IGM securitized $108 million of residential
mortgages through sales to commercial paper conduits that in turn issued
securities to investors and received net cash proceeds of $107 million.
IGM's retained interest in the securitized loans was valued at $3
million. A pre-tax gain on sale of $2 million was recognized and
reported in Net investment income in the consolidated statements of
earnings.

For the year ended December 31, 2004, IGM securitized $208 million of
residential mortgages through sales to commercial paper conduits that in
turn issued securities to investors and received net cash proceeds of
$207 million. IGM's retained interest in the securitized loans was
valued at $5 million. A pre-tax gain on sale of $3 million was
recognized and reported in Net investment income in the consolidated
statements of earnings.

Note 14. Contingencies

On December 16, 2004 the Ontario Securities Commission (OSC) and the
Manitoba Securities Commission (MSC) approved a settlement agreement
between I.G. Investment Management, Ltd. (IGIM) and the OSC regarding
trading by an institutional client of Investors Group Inc. (IG) in
mutual funds managed by IGIM. IG agreed to provide compensation of
$19.2 million, plus interest at 5% per annum from the settlement date to
the approval of the plan of distribution, to affected unitholders. Also
on December 16, 2004 a hearing panel of the Mutual Fund Dealers
Association of Canada (MFDA) approved a settlement agreement between
Investors Group Financial Services Inc. and the MFDA regarding the same
matter, providing for a compensation of $2.65 million, plus interest on
the foregoing basis, to affected unitholders and payment of a fine of
$2.65 million to the MFDA. The compensations are to be made pursuant to
a distribution plan to be developed by IG together with an independent
consultant and approved by the OSC and the MSC. IGM recorded a $19.2
million after-tax charge to income in the fourth quarter to reflect
these settlements and related costs.

IGM is subject to legal actions, including class actions, arising in the
normal course of its business. Two class actions related to alleged
market timing trading activity in mutual funds of IGM have been
commenced. IGM entered into settlement agreements in 2004 with a number
of its securities regulators in respect of such market timing trading
activity. Although it is difficult to predict the outcome of such legal
actions, based on current knowledge and consultation with legal counsel,
management does not expect the outcome of any of these matters,
individually or in aggregate, to have a material adverse effect on IGM's
consolidated financial position.

Lifeco and its subsidiaries are subject to legal actions, including
proposed class actions, arising in the normal course of its business.
There are two proposed class proceedings in Ontario regarding the
participation of the London Life participating policyholder account in
the financing of the acquisition of London Life Insurance group in 1997
by Great-West. These proceedings are in their early stages, and it is
difficult to predict the outcome with certainty. However, based on
information presently known, these proceedings are not expected to have
a material adverse effect on Lifeco's consolidated financial position.

-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Power Financial Corporation
    Mr. Edward Johnson
    Vice-President, General Counsel
    and Secretary
    (514) 286-7400