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 Net income for the year ended December 31, 2005 was $682.4 million, compared to adjusted net income of $615.6 million in 2004, an increase of 10.9%. Diluted earnings per share were $2.56, an increase of 10.8% compared to adjusted earnings per share of $2.31 in 2004. Adjusted net income and earnings per share for 2004 excludes a non-recurring expense. Net income in 2004 without adjustment totalled $596.4 million and diluted earnings per share on this basis were $2.24.
Shareholders’ equity was $3.45 billion as at December 31, 2005, up from $3.15 billion at December 31, 2004. Return on average common equity was 20.0% for the year ended December 31, 2005 compared with adjusted return on average common equity of 19.8% in 2004. The quarterly dividend per common share was increased to 34.5 cents in 2005 from 30.0 cents at the end of 2004.
Non-GAAP financial Measures
Adjusted net income, diluted earnings per share (EPS) and return on common equity (ROE) for the year ended December 31, 2004 excluded a charge to earnings recorded in the fourth quarter of $28.8 million ($19.2 million after tax) which included both compensation payments to certain unitholders of Investors Group and related costs resulting from settlement agreements with regulatory agencies (unitholder compensation). Adjusted net income, EPS and ROE for the year ended December 31, 2003 exclude a dilution gain resulting from the reduction in the Company’s percentage ownership of GWL related to their acquisition of The Canada Life Assurance Company (Canada Life), a reversal of restructuring costs related to the acquisition of Mackenzie Financial Corporation (Mackenzie) and a non-cash income tax charge related to increases in Ontario tax rates. While these non-GAAP financial measures are used to provide management and investors with additional measures to assess earnings performance, they do not have standard meanings and are not directly comparable to similar measures used by other companies.
Earnings before interest and taxes (EBIT) and earnings before interest, taxes, depreciation and amortization (EBITDA) are also non-GAAP financial measures. EBIT and EBITDA are alternative measures of performance utilized by management, investors and investment analysts to evaluate and analyze the Company’s results. EBITDA is discussed further in the Consolidated Liquidity section later in this MD&A. These non-GAAP financial measures do not have standard meanings and are not directly comparable to any GAAP measure or to similar measures used by other companies.
The reconciliation of non-GAAP results to reported results in accordance with GAAP for net income, EPS and EBITDA is provided in Table 1. The reconciliation of non-GAAP results to reported results in accordance with GAAP related to EBIT is provided in Table 2.
Table 1: Reconciliation of non-GAAP financial measures
Reportable segments
IGM Financial’s reportable segments, which reflect the current organizational structure, are:
- Investors Group
- Mackenzie
- Corporate and Other
Management measures and evaluates the performance of these segments based on EBIT as shown in Table 2.
Discussion of Investors Group and Mackenzie Segment Operating Results is contained in their respective sections of this MD&A.
On May 10, 2004, the Company acquired a 74.7% interest in Investment Planning Counsel Inc. (Investment Planning Counsel). The Company’s operating results include its earnings from the date of acquisition which are reported in the Corporate and Other segment in Table 2. Additional information related to the acquisition is included in Note 21 to the Consolidated Financial Statements.
Earnings before interest and taxes for Corporate and Other, the segment which includes operating results for Investment Planning Counsel, net investment income earned on unallocated investments and other income as well as inter-segment eliminations, were $46.4 million for the year ended December 31, 2005 compared to $30.2 million in 2004. The increase of $16.2 million resulted primarily from:
- The inclusion of Investment Planning Counsel’s earnings before interest and taxes for the entire twelve months in 2005 compared with the period from May 10 to December 31, 2004 which accounted for an increase of $6.2 million.
- The elimination of certain provisions, established as a result of previous acquisitions, which were no longer required and which accounted for an increase in income of $10.4 million.
Certain items reflected in Table 2 are not allocated to segments:
- Interest expense – Represents both the interest cost on the remaining debt issued pursuant to the Mackenzie acquisition and dividends paid on the outstanding preferred shares, which have been reclassi fied from equity to liabilities (refer to Note 1 of the Consolidated Financial Statements). Interest expense on long-term debt issued in relation to the Mackenzie acquisition totalled $69.7 million in 2005 compared with $74.9 million in 2004. The decrease in expense was due to the repayment of the remaining $175 million balance of the Floating Bankers’ Acceptance related to the Mackenzie acquisition in the fourth quarter of 2004. Dividends paid on preferred shares were $20.7 million in both 2005 and 2004.
- Income taxes – The effective rate of tax in 2005 was 29.9% compared with 30.7% in 2004 as shown in Table 3.
The decrease in the effective tax rate relates primarily to the recognition of favourable tax experience which is reflected in Other items. Tax planning may allow the Company to record lower income taxes in the current period and, as well, income taxes recorded in prior periods may be adjusted in the current period to reflect management’s best estimates of the overall adequacy of its provisions. Any related tax benefits or changes in management’s best estimates are reflected in Other items, which also includes, but is not limited to, the effect of lower effective tax rates on income not subject to tax in Canada. Management monitors the status of its income tax filings, and regularly assesses the overall adequacy of its provision for income taxes.
Table 2: Consolidated operating results by segment
Table 3: Effective income tax rate
Selected annual information
Financial information for the three most recently completed years is included in Table 4.
- Net Income and Earnings per Share – Table 1 of the MD&A shows the reconciliation of non-GAAP financial results to GAAP results for the three years under review. Adjusted net income in 2004 was $615.6 million compared with adjusted net income in 2003 which was $533.5 million. Except as noted in the adjusted net income reconciliation in Table 1, variations in net income and total revenues result primarily from changes in total mutual fund assets under management. Average daily mutual fund assets under management by year are shown on Table 4. The impact on earnings and revenues of changes in mutual fund assets under management are discussed in the Review of Segment Operations sections of the MD&A for both Investors Group and Mackenzie.
- Dividends per Common Share – Dividends per common share have increased by approximately 16% in each of the three years under review.
Table 4: Selected annual information
Summary of quarterly results
Financial information for the eight most recently completed quarters is included in Table 5. Significant variation in quarterly earnings occurred in the fourth quarter of 2004 due to the $28.8 million charge ($19.2 million after-tax) recorded by IGM Financial related to unitholder compensation as described earlier in the Summary of Consolidated Operating Results. With the exception of the item noted above, there were no significant variations to quarterly results. Quarterly results are not subject to significant seasonal fluctuations because earnings are primarily dependent on the level of mutual fund assets under management. Average daily mutual fund assets under management by quarter are shown in the Summary of Quarterly Results on Table 5. Although mutual fund sales are generally higher in the first quarter of each year as a result of the RSP season, the impact of the higher sales on that quarter’s earnings is not significant.
Table 5: Summary of quarterly results
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