management’s discussion and analysis consolidated ...through pernod ricard. on march 14, 2012, gbl...

Management’s Discussion and Analysis

M a r C H 1 3 , 2 0 1 3

Consolidated Financial Statements and Notes

F o r t H e Y e a r e n d e d d e C e M b e r 3 1 , 2 0 1 2

this document is also available on www.sedar.com or on

the Corporation’s website, www.powercorporation.com.

additional printed copies of this document are available

from the Secretary, Power Corporation of Canada

751 Victoria Square, Montréal, québec, Canada H2Y 2J3

or

Suite 2600, richardson building, 1 lombard Place,

winnipeg, Manitoba, Canada r3b 0X5.

Ce document est aussi disponible sur le site www.sedar.com

ou sur le site web de la Société, www.powercorporation.com.

Si vous préférez recevoir ce document en français,

veuillez vous adresser au secrétaire,

Power Corporation du Canada

751, square Victoria, Montréal (québec) Canada H2Y 2J3

ou

bureau 2600, richardson building, 1 lombard Place,

winnipeg (Manitoba) Canada r3b 0X5.

GR

EA

T-WEST LIFEC

O IN

C.

IGM

FINA

NC

IAL IN

C.

PAR

GESA

HO

LDIN

G SA

PO

WER

FINA

NC

IAL C

OR

PO

RA

TION

PO

WER

CO

RP

OR

ATIO

N O

F CA

NA

DA

Power Corporation of CanadaP A R T A

Power Financial CorporationP A R T B

Great-West Lifeco Inc.P A R T C

IGM Financial Inc.P A R T D

Pargesa Holding SAP A R T E

Power Corporation of CanadaT A B L E O F C O N T E N T S

This document contains management’s discussion and analysis of the fi nancial condition and fi nancial performance of Power Corporation of Canada (the Corporation) for the year and three-month period ended December 31, 2012 and the audited consolidated fi nancial statements of the Corporation as at and for the year ended December 31, 2012. This document has been fi led with the securities regulatory authorities in each of the provinces and territories of Canada and mailed to shareholders of the Corporation in accordance with applicable securities laws.

P O W E R C O R P O R AT I O N O F C A N A DA 1

PCC_2012Com_ENG01_PCC_2013-03-11_v2.indd 1PCC_2012Com_ENG01_PCC_2013-03-11_v2.indd 1 13/03/13 10:47 AM13/03/13 10:47 AM

The trademarks contained in this report are owned by Power Corporation of Canada or by a member of the Power Corporation group of companiesTM. Trademarks that are not owned by Power Corporation are used with permission.

2 P O W E R C O R P O R AT I O N O F C A N A DA

PCC_2012Com_ENG01_PCC_2013-03-11_v2.indd 2PCC_2012Com_ENG01_PCC_2013-03-11_v2.indd 2 13/03/13 10:47 AM13/03/13 10:47 AM

PO

WER

CO

RP

OR

ATIO

N O

F CA

NA

DA

Power Corporation of CanadaP A R T A

Management’s Discussion and AnalysisP A G E A 2

Financial Statements and NotesP A G E A 3 1

P O W E R C O R P O R AT I O N O F C A N A DA A 1

PCC_2012Com_ENG01_PCC_2013-03-11_v2.indd A1PCC_2012Com_ENG01_PCC_2013-03-11_v2.indd A1 13/03/13 10:47 AM13/03/13 10:47 AM

PO

WER

CO

RP

OR

ATI

ON

OF

CA

NA

DA

POWERCORPORATIONOFCANADAMANAGEMENT’SDISCUSSIONANDANALYSIS

M A R C H 1 3 , 2 0 1 3ALLTABULARAMOUNTSAREINMILLIONSOFCANADIANDOLLARSUNLESSOTHERWISENOTED.Thefollowingsets forthmanagement’sdiscussionandanalysis(MD&A)ofthefinancialconditionandfinancialperformanceofPowerCorporationofCanada (PowerCorporationor theCorporation) for theyearand three‐month period ended December 31, 2012. This document should be read in conjunction with the auditedconsolidatedfinancialstatementsofPowerCorporationandnotestheretofortheyearendedDecember31,2012(the2012ConsolidatedFinancialStatements).Additional informationrelating toPowerCorporation, includingitsAnnualInformationForm,maybefoundontheCorporation’swebsiteatwww.powercorporation.comandonSEDARatwww.sedar.com.FORWARD‐LOOKINGSTATEMENTS › Certain statements in thisMD&A, other than statementsofhistorical fact, are forward‐looking statementsbasedoncertainassumptionsandreflecttheCorporation’scurrentexpectations,orwithrespecttodisclosureregardingtheCorporation’spublicsubsidiaries, reflect such subsidiaries’ disclosed current expectations. Forward‐looking statements areprovided for thepurposesof assisting thereaderinunderstandingtheCorporation’sfinancialperformance,financialpositionandcashflowsasatandfortheperiodsendedoncertaindatesand to present information about management’s current expectations and plans relating to the future and the reader is cautioned that suchstatementsmay not be appropriate for other purposes. These statementsmay include,without limitation, statements regarding the operations,business, financial condition, expected financial results, performance, prospects, opportunities, priorities, targets, goals, ongoing objectives,strategiesandoutlookoftheCorporationanditssubsidiaries,aswellastheoutlookforNorthAmericanandinternationaleconomiesforthecurrentfiscalyearandsubsequentperiods.Forward‐lookingstatements includestatements thatarepredictive innature,dependuponorrefer to futureevents or conditions, or include words such as “expects”, “anticipates”, “plans”, “believes”, “estimates”, “seeks”, “intends”, “targets”, “projects”,“forecasts”ornegativeversions thereofandothersimilarexpressions,or futureorconditionalverbssuchas“may”, “will”, “should”, “would”and“could”.Byitsnature,thisinformationissubjecttoinherentrisksanduncertaintiesthatmaybegeneralorspecificandwhichgiverisetothepossibilitythatexpectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and thatobjectives,strategicgoalsandprioritieswillnotbeachieved.Avarietyoffactors,manyofwhicharebeyondtheCorporation’sanditssubsidiaries’control,affecttheoperations,performanceandresultsoftheCorporationanditssubsidiariesandtheirbusinesses,andcouldcauseactualresultstodiffermateriallyfromcurrentexpectationsofestimatedoranticipatedeventsorresults.Thesefactorsinclude,butarenotlimitedto:theimpactorunanticipated impactofgeneraleconomic,politicalandmarket factors inNorthAmericaand internationally, interestand foreignexchangerates,globalequityandcapitalmarkets,managementofmarket liquidityand fundingrisks, changes inaccountingpoliciesandmethodsused toreportfinancialcondition(includinguncertaintiesassociatedwithcriticalaccountingassumptionsandestimates),theeffectofapplyingfutureaccountingchanges,businesscompetition,operationalandreputationalrisks,technologicalchange,changesingovernmentregulationandlegislation,changesintaxlaws,unexpectedjudicialorregulatoryproceedings,catastrophicevents,theCorporation’sanditssubsidiaries’abilitytocompletestrategictransactions, integrateacquisitionsandimplementothergrowthstrategies,andtheCorporation’sanditssubsidiaries’success inanticipatingandmanagingtheforegoingfactors.Thereaderiscautionedtoconsidertheseandotherfactors,uncertaintiesandpotentialeventscarefullyandnottoputunduerelianceonforward‐lookingstatements.Informationcontainedinforward‐lookingstatementsisbaseduponcertainmaterialassumptionsthatwereappliedindrawingaconclusion ormaking a forecast or projection, includingmanagement’s perceptions of historical trends, current conditions and expected futuredevelopments, aswell as other considerations that are believed to be appropriate in the circumstances, including that the list of factors in thepreviousparagraph,collectively,arenotexpectedtohaveamaterialimpactontheCorporationanditssubsidiaries.WhiletheCorporationconsiderstheseassumptionstobereasonablebasedoninformationcurrentlyavailabletomanagement,theymayprovetobeincorrect.OtherthanasspecificallyrequiredbyapplicableCanadianlaw,theCorporationundertakesnoobligationtoupdateanyforward‐lookingstatementtoreflecteventsorcircumstancesafterthedateonwhichsuchstatementismade,ortoreflecttheoccurrenceofunanticipatedevents,whetherasaresultofnewinformation,futureeventsorresults,orotherwise.Additional informationabouttherisksanduncertaintiesof theCorporation’sbusinessandmaterial factorsorassumptionsonwhich informationcontained in forward‐looking statements is based is provided in its disclosure materials, including this MD&A and its most recent AnnualInformationForm,filedwiththesecuritiesregulatoryauthoritiesinCanadaandavailableatwww.sedar.com.Thefollowingabbreviationsareusedthroughoutthisreport:ChinaAssetManagementCo.Ltd.(ChinaAMC);CITICPacificLimited(CITICPacific);Gescaltée(Gesca);Great‐WestLifecoInc.(Lifeco);GroupeBruxellesLambert(GBL);IGMFinancialInc.(IGM);LafargeSA(Lafarge);PargesaHoldingSA (Pargesa); Parjointco N.V. (Parjointco); Power Financial Corporation (Power Financial); Putnam Investments, LLC (Putnam); Square VictoriaCommunicationsGroup Inc. (SquareVictoriaCommunicationsGroup);SquareVictoriaDigitalProperties Inc. (SquareVictoriaDigitalProperties);SuezEnvironnementCompany(SuezEnvironnement);TheGreat‐WestLifeAssuranceCompany(Great‐WestLife);TotalSA(Total);VictoriaSquareVenturesInc.(VictoriaSquareVentures).Inaddition,IFRSreferstoInternationalFinancialReportingStandards.

A 2 P O W E R C O R P O R AT I O N O F C A N A DA


PO

WER

CO

RP

OR

ATIO

N O

F CA

NA

DA

OVERVIEWPowerCorporationisaholdingcompanywhoseprincipalassetisitscontrollinginterestinPowerFinancial.Asofthedatehereof,PowerCorporationholdsa66.0%equityandvotinginterestinPowerFinancial.POWER FINANCIAL CORPORATIONPower Financial holds substantial interests in the financial services sector in Canada, the United States andEurope,throughitscontrollinginterestsinLifecoandIGM.PowerFinancialalsoholds,togetherwiththeFrèregroupofBelgium,aninterestinPargesa.ForadescriptionoftheactivitiesandresultsofPowerFinancial,LifecoandIGM,readersarereferredtoPartsB,CandDofthisMD&A,whichconsistoftheirrespectiveannualMD&Asandfinancialstatements,aspreparedanddisclosedbythesecompanies inaccordancewithapplicablesecurities legislation.PowerFinancialCorporation(TSX:PWF),Great‐WestLifecoInc.(TSX:GWO)andIGMFinancialInc.(TSX:IGM)arepubliccompanieslistedontheTorontoStockExchange.ThisinformationisalsoavailableeitherdirectlyfromSEDAR(www.sedar.com)orfrom the websites of Power Financial (www.powerfinancial.com), Lifeco (www.greatwestlifeco.com) and IGM(www.igmfinancial.com),respectively.PartEconsistsof informationrelatingtoPargesa,whichisderivedfrompublicinformationissuedbyPargesaandavailableonitswebsite(www.pargesa.ch).As at December 31, 2012, Power Financial and IGM held 68.2% and 4.0%, respectively, of Lifeco’s commonshares,representingapproximately65%ofthevotingrightsattachedtoalloutstandingLifecovotingshares.Asat December 31, 2012, Power Financial and Great‐West Life, a subsidiary of Lifeco, held 58.7% and 3.7%,respectively,ofIGM’scommonshares.PowerFinancialEuropeB.V.,awhollyownedsubsidiaryofPowerFinancial,andtheFrèregroupeachholda50%interest in Parjointco,which, as at December 31, 2012, held a 55.6% equity interest in Pargesa, representing75.4%ofthevotingrightsofthatcompany.Thesefiguresdonotreflectthedilutionwhichcouldresultfromthepotential conversionofoutstandingdebentures convertible intonewbearer shares issuedbyPargesa in2006and2007.OnDecember17,2012,PowerFinancialandtheFrèregroupextendedthetermoftheagreementgoverningtheirstrategic partnership in Europe to December 31, 2029, with provision for possible further extension of theagreement.ThePargesa grouphasholdings inmajor companiesbased inEurope.These investments areheldbyPargesathroughitsaffiliatedBelgianholdingcompany,GroupeBruxellesLambert.AsatDecember31,2012,Pargesahelda50%equityinterestinGBL,representing52%ofthevotingrights.AsatDecember31,2012,Pargesa’sportfoliowascomposedof interestsinvarioussectors, includingprimarilymineral‐basedspecialtiesforindustrythroughImerys;cementandotherbuildingmaterialsthroughLafarge;oil,gas and alternative energies through Total; electricity, natural gas, and energy and environmental servicesthroughGDFSuez;waterandwastemanagementservicesthroughSuezEnvironnement;andwinesandspiritsthroughPernodRicard.OnMarch14,2012,GBL sold its interest inArkema forproceedsof€433millionandrealizedagainof€221million.OnMarch15,2012,GBLsold6.2millionsharesofPernodRicard,representingapproximately 2.3% of the share capital of Pernod Ricard, for proceeds of €499million and a gain of €240million.Followingthistransaction,GBLheld7.5%ofPernodRicard’ssharecapital.Inaddition,PargesaandGBLhavealsoinvested,orcommittedtoinvest, intheareaofFrenchprivateequities,includinginequityfundsSagard1andSagard2,whosemanagementcompanyisasubsidiaryoftheCorporation.



PO

WER

CO

RP

OR

ATI

ON

OF

CA

NA

DA

RECENTDEVELOPMENTSOnFebruary19,2013,Lifecoannounced that ithad reachedanagreementwith theGovernmentof Ireland toacquire, throughitssubsidiaryCanadaLifeLimited,allof thesharesof IrishLifeGroupLimited(IrishLife) for$1.75billion(€1.3billion).Establishedin1939,IrishLifeisthelargestlifeandpensionsgroupandinvestmentmanagerinIreland.Lifecoalsoannounceda$1.25billionofferingofsubscriptionreceiptsexchangeableintoLifecocommonsharesbywayofa$650millionboughtdealpublicofferingaswell as concurrentprivateplacementsof subscriptionreceiptstoPowerFinancialandIGMforanaggregateamountof$600million.OnMarch12,2013,PowerFinancialpurchased$550millionofLifecosubscriptionreceipts.On thatdate, IGMalsopurchased$50millionofLifecosubscriptionreceipts.EachsubscriptionreceiptentitlestheholdertoreceiveonecommonshareofLifecouponclosingof theacquisitionof IrishLife,withoutanyactionon thepartof theholder andwithout payment of additional consideration. Power Financial and IGM completed thepurchase ofsubscriptionreceiptsbyprivateplacementsconcurrentlywiththeclosingof theboughtdealpublicofferingofLifeco’ssubscriptionreceipts.Thepublicofferingandprivateplacementsofsubscriptionreceiptsareatthesamepriceof$25.70persubscriptionreceipt.ShouldthesubscriptionreceiptsbeconvertedintocommonsharesofLifeco,PowerFinancialwillhold,directlyandindirectly,a69.4%economicinterestinLifeco.TheacquisitionisexpectedtocloseinJulyof2013,andissubjecttocustomaryregulatoryapprovals,includingapprovalsfromtheEuropeanCommissionundertheEUMergerRegulation,andcertainclosingconditions.Power Financial also announced, on February 28, 2013, the closing of an offering of 12,000,000 4.80%Non‐Cumulative First Preferred Shares, Series S priced at $25.00 per share for gross proceeds of $300million.Proceeds from the issue were used to acquire the subscription receipts of Lifeco referred to above and tosupplementtheCorporation’sfinancialresources.



PO

WER

CO

RP

OR

ATIO

N O

F CA

NA

DA

COMMUNICATIONS – MEDIASquareVictoriaCommunicationsGroupisawhollyownedsubsidiaryofPowerCorporationwhichparticipatesinnumeroussectorsofthecommunicationsandmediaindustry,principallythroughitswhollyownedsubsidiariesGescaandSquareVictoriaDigitalProperties.Gesca,throughitssubsidiaries,isengagedinthepublicationofsevendailynewspapers,includingLaPresse,andtheoperationoftherelatedwebsiteLaPresse.ca.Square Victoria Digital Properties, directly or through its subsidiaries, produces television programming andinvestsinnewmediaventuresandstart‐updigitalprojects.SquareVictoriaDigitalPropertiesalsoholdsa50%interest in Workopolis, an Internet‐based career and recruitment business, an interest in the Olive CanadaNetwork,anonlineadvertisingnetwork,andaninterestinTuangoInc.,Québec’sleadingInternetgroupbuyingbusiness. Square Victoria Digital Properties also holds, through subsidiaries, a controlling interest in theCanadianrealestateInternetadvertisingbusinessBytheownerInc.ASIAInAsia,theCorporationheld,atDecember31,2012,a4.3%equityinterestinCITICPacific,apubliccorporationwhose shares are listed on the Hong Kong Stock Exchange. CITIC Pacific’s businesses include special steelmanufacturing, iron ore mining and property development. Most of CITIC Pacific’s assets are invested inmainlandChina,HongKongandAustralia.CITICPacific is subject to thepublicdisclosurerequirementsof theHongKongStockExchange.Power Corporation is involved in selected investment projects in China and, in October 2004, was granted alicence tooperate as aQualifiedForeign Institutional Investor (QFII) in theChinese “A” sharesmarket, for anamountofUS$50million.As atDecember31, 2012, themarket valueof the investments in thisprogramhadincreasedtoanamountofC$232million,excludingcashofC$12million.Inaddition,theCorporationhasdecidedtoinvestanamountofUS$50millioninChinesecompanieslistedontheHongKongStockExchange(“H”shares)andtheShenzhenorShanghaiStockExchange(“B”shares).AsatDecember31,2012,thefairvalueofthe“B”and“H” shares program was C$17 million, excluding cash of C$26 million. Together, the Chinese “A”, “B” and“H”shareactivitiesaredefinedbytheCorporationasSagardChina.TheCorporationalsoholdsa10%interestinChinaAMC,foracarryingvalueof$282millionasatDecember31,2012.ChinaAMCwasestablishedin1998andwasoneofthefirstassetmanagementcompaniesapprovedbytheChina Securities Regulatory Commission. It is recognized as the leading company in the Chinese assetmanagementsector.AtDecember31,2012,thecarryingvalueoftheCorporation’sinvestmentsinAsiawas$782million.



PO

WER

CO

RP

OR

ATI

ON

OF

CA

NA

DA

INVESTMENT IN FUNDS AND SECURITIESSagardPrivateEquityPartners(Sagard1),a€535million fund,was launched in2002.PowerCorporationandGBLmade commitments of €100million and €50million, respectively, to Sagard 1. Sagard 1 has completedtwelveinvestments,tenofwhichhadbeensoldbyDecember31,2012.Sagard 2 was launched in 2006 with the same investment strategy as Sagard 1. This fund closed with totalcommitmentsof€1.0billion.PowerCorporationmadea€200millioncommitment toSagard2,whilePargesaandGBLmadecommitmentsof€50millionand€150million,respectively.InNovember2009,theCorporation’scommitmentwas reduced to€160millionand the sizeof the fundwas reduced to€810million.Pargesa andGBL’scommitmentswerealsoreducedto€40millionand€120million,respectively.Asofthedateofthisreport,Sagard1heldtwoinvestmentsandSagard2heldseveninvestments.TheSagard1andSagard2 fundsaremanagedbySagardSAS,awhollyownedsubsidiaryof theCorporationbased inParis,France. Together, the Sagard 1 and Sagard 2 funds are defined by the Corporation as Sagard Europe.AtDecember31,2012, the remainingcarryingvalueofPowerCorporation’s investment inSagardEuropewas$129million.SagardCapitalPartners,L.P.(SagardCapital),aU.S.limitedpartnershipindirectlyownedbytheCorporation,hasmainlybeeninvestinginmid‐cappubliccompaniesintheUnitedStates,pursuanttoaplantoallocateaportionoftheCorporation’scashresourcestoselectedinvestmentopportunitiesinthatcountry.AtDecember31,2012,thecarryingvalueoftheseinvestmentsintheUnitedStateswas$369million.PowerCorporationhasinvestedformanyyearsinprivateequityfunds.Thecarryingvalueoftheseinvestmentswas $287 million at December 31, 2012. The Corporation has invested, directly or through wholly ownedsubsidiaries,inanumberofselectedhedgefundsandsecurities.AtDecember31,2012,thecarryingvalueoftheinvestmentsinhedgefundswas$67million.TheCorporationhasoutstandingcommitmentstomakefuturecapitalcontributionstoinvestmentfundsforanaggregateamountof$326millionasatDecember31,2012.TheCorporation,throughawhollyownedsubsidiaryheldbyVictoriaSquareVentures,hasinvestedinprivatelyheldPotentiaSolarInc.,arooftopsolarpowerproducerinOntario.TheseinvestmentsandtheinvestmentsinAsiasupportthediversificationstrategyoftheCorporation.However,theircontributiontooperatingearnings,bothintermsofmagnitudeandtimingisbynaturedifficulttopredict.



PO

WER

CO

RP

OR

ATIO

N O

F CA

NA

DA

BASISOFPRESENTATIONThe2012ConsolidatedFinancialStatementshavebeenpreparedinaccordancewithIFRSandarepresentedinCanadiandollars.INCLUSION OF PARGESA’S RESULTSThe investment inParjointco isaccountedforbyPowerFinancialundertheequitymethodasPowerFinancialhasjointcontroloveritsactivities.Parjointco’sonlyinvestmentisitscontrollinginterestinPargesa.Asdescribedabove,thePargesaportfoliocurrentlyconsistsprimarilyofinvestmentsinImerys,Lafarge,Total,GDFSuez,SuezEnvironnementandPernodRicard,whichareheldthroughGBL,whichisconsolidatedinPargesa.Imerys’resultsare consolidated in the financial statements of GBL, while the contribution from Total, GDF Suez, SuezEnvironnement and Pernod Ricard to GBL’s operating earnings consists of the dividends received from thesecompanies. GBL accounts for its investment in Lafarge under the equity method, and consequently, thecontributionfromLafargetoGBL’searningsconsistsofGBL’sshareofLafarge’snetearnings.NON IFRS FINANCIAL MEASURESInanalyzingthefinancialresultsoftheCorporationandconsistentwiththepresentationinpreviousyears,netearningsattributabletoparticipatingshareholdersaresubdividedinthesection“ResultsofPowerCorporationofCanada”belowintothefollowingcomponents:

operatingearningsattributabletoparticipatingshareholders;and other items or non‐operating earnings, which include the after‐tax impact of any item that managementconsiders tobeofanon‐recurringnatureor thatcouldmake theperiod‐over‐periodcomparisonof resultsfromoperations lessmeaningful, and also include theCorporation’s shareof any such itempresented in acomparablemannerbyitssubsidiariesandjointlycontrolledcorporationsandassociates.PleasealsorefertothecommentsaboverelatedtotheinclusionofPargesa’sresults.Managementhasusedthesefinancialmeasuresformanyyears in itspresentationandanalysisofthefinancialperformanceofPowerCorporation,andbelievesthattheyprovideadditionalmeaningfulinformationtoreadersintheiranalysisoftheresultsoftheCorporation.Operating earnings attributable to participating shareholders and operating earnings per share are non‐IFRSfinancialmeasuresthatdonothaveastandardmeaningandmaynotbecomparabletosimilarmeasuresusedbyotherentities.Forareconciliationofthesenon‐IFRSmeasurestoresultsreportedinaccordancewithIFRS,see“Results of Power Corporation of Canada – Earnings Summary – Condensed Supplementary Statements ofEarnings”sectionbelow.



PO

WER

CO

RP

OR

ATI

ON

OF

CA

NA

DA

RESULTSOFPOWERCORPORATIONOFCANADAThissectionisanoverviewoftheresultsofPowerCorporation.Inthissection,consistentwithpastpractice,thecontributions from Power Financial, Square Victoria Communications Group, Victoria Square Ventures andSagard SAS are accounted for using the equitymethod in order to facilitate the discussion and analysis. Thispresentation has no impact on Power Corporation’s net earnings and is intended to assist readers in theiranalysisoftheresultsoftheCorporation.EARNINGS SUMMARY – CONDENSED SUPPLEMENTARY STATEMENTS OF EARNINGSThefollowingtableshowsareconciliationofnon‐IFRSfinancialmeasuresusedhereinfortheperiodsindicated,withthereportedresultsinaccordancewithIFRSfornetearningsattributabletoparticipatingshareholdersandearningspershare. Twelve months ended Three months ended December 31,2012 December 31,2011 December 31,2012 September 30,2012 December 31,2011Contributiontooperatingearningsfromsubsidiaries 1,108 1,150 268 300 279ResultsfromcorporateactivitiesIncomefrominvestments 27 159 (1) (19)Operatingandotherexpenses (122) (116) (32) (29) (28)Dividendsonnon‐participatingshares (50) (41) (13) (12) (10)Operatingearningsattributabletoparticipatingshareholders 963 1,152 222 240 241Otheritems (131) (77) (140) (36) 73Netearningsattributabletoparticipatingshareholders 832 1,075 82 204 314Earningspershare(attributabletoparticipatingshareholders)–operatingearnings 2.09 2.50 0.48 0.52 0.52–non‐operatingearnings (0.28) (0.16) (0.30) (0.08) 0.16–netearnings 1.81 2.34 0.18 0.44 0.68

OPERATING EARNINGS ATTRIBUTABLE TO PARTICIPATING SHAREHOLDERSOperatingearningsattributabletoparticipatingshareholdersforthetwelve‐monthperiodendedDecember31,2012 were $963 million or $2.09 per share, compared with $1,152 million or $2.50 per share in thecorrespondingperiodin2011,adecreaseof16.4%onapersharebasis.Operating earnings attributable to participating shareholders for the three‐monthperiod endedDecember31,2012were$222millionor$0.48pershare,comparedwith$241millionor$0.52pershareinthecorrespondingperiod in 2011, a decrease of 7.6% on a per share basis. Operating earnings attributable to participatingshareholderswere$240millionor$0.52pershareinthethirdquarterof2012.Adiscussion of the reasons for period‐over‐period changes in operating earnings attributable to participatingshareholdersisincludedinthefollowingsectionsofthisMD&A.



PO

WER

CO

RP

OR

ATIO

N O

F CA

NA

DA

CONTRIBUTION TO OPERATING EARNINGS FROM SUBSIDIARIESPowerCorporation’sshareofoperatingearningsfromitssubsidiarieswas$1,108millionforthetwelve‐monthperiodendedDecember31,2012,comparedwith$1,150millionforthesameperiodin2011,adecreaseof3.7%.Power Corporation’s share of operating earnings from its subsidiaries was $268million for the three‐monthperiodendedDecember31,2012,comparedwith$279millionforthesameperiodin2011,adecreaseof3.9%.Power Corporation’s share of operating earnings from its subsidiaries was $300million in the third quarterof2012.PowerFinancial,whichmakesthemostsignificantcontributiontotheCorporation’searnings,reportedoperatingearningsattributabletocommonshareholdersof$1,686millionor$2.38pershareforthetwelve‐monthperiodendedDecember31,2012,comparedwith$1,729millionor$2.44pershareinthesameperiodin2011.Forthethree‐month period ended December 31, 2012, Power Financial reported operating earnings attributable tocommonshareholdersof$406millionor$0.57pershare,comparedwith$422millionor$0.60pershareinthesameperiodin2011.Forthethree‐monthperiodendedSeptember30,2012,PowerFinancialreportedoperatingearningsattributabletocommonshareholdersof$460millionor$0.65pershare.ForamorecompletediscussionoftheresultsofPowerFinancial,LifecoandIGM,readersarereferredtoPartsB,CandDofthisMD&A,whichconsistoftheirrespectiveannualMD&Asandfinancialstatements,aspreparedanddisclosedbythesecompaniesinaccordancewithapplicablesecuritieslegislation.PartEconsistsofinformationrelatingtoPargesa,whichisderivedfrompublicinformationissuedbyPargesa.

RESULTS FROM CORPORATE ACTIVITIESResults from corporate activities include income from investments, operating expenses, financing charges,depreciationandincometaxes.Corporate activities represented a net charge of $95million in the twelve‐month period endedDecember31,2012,comparedwithanetcontributionof$43millioninthecorrespondingperiodin2011.Corporateactivitiesrepresentedanetchargeof$33millioninthethree‐monthperiodendedDecember31,2012,comparedwithanetchargeof$28millioninthecorrespondingperiodin2011,andanetchargeof$48millioninthethree‐monthperiodendedSeptember30,2012.Thevariationintheresultsfromcorporateactivitiesisduetohigherincomefrominvestmentsin2011ashighlightedinthetableonthefollowingpage.Operating and other expenses were $122 million in the twelve‐month period ended December 31, 2012,compared with $116million in the corresponding period in 2011. Operating and other expenses were$32million in the fourth quarter of 2012, compared with $28 million in the fourth quarter of 2011 and$29millioninthethirdquarterof2012.



PO

WER

CO

RP

OR

ATI

ON

OF

CA

NA

DA

Thefollowingtableprovidesabreakdownofincomefrominvestmentsfortheperiodsindicated: Twelve months ended Three months ended December 31,2012 December 31,2011 December 31,2012 September 30,2012 December 31,2011DividendsfromCITICPacific 9 9 – 3 –SagardChina (35) 7 (2) (16) 5SagardCapital 49 15 (5) (5) (1)SagardEurope (15) 82 (6) (1) (6)Investmentfundsandhedgefunds 12 39 8 1 2Other 7 7 4 (1) – 27 159 (1) (19) –The income frominvestmentsshownabovearenetof impairmentchargesof$60million in the twelve‐monthperiodendedDecember31,2012,comparedwith$19millionin2011.Impairmentchargeswere$7millioninthethree‐monthperiodendedDecember31,2012,thesameasinthecorrespondingperiodof2011,and$22millioninthethree‐monthperiodendedSeptember30,2012.Impairmentchargeswerealsorecordedinotheritemsasexplainedbelow.Under IFRS,asignificantorprolongeddecline in the fairvalueofan investment inanavailable‐for‐saleequityinstrumentbelow itscost isobjectiveevidenceof impairment. Once impaired,anysubsequentdecrease in themarketpriceofastockisautomaticallyrecognizedasanimpairmentloss.Arecoveryofthepriceofastockthathasbeen impaired is accounted for throughother comprehensive income. Such recoverywill impact earningsonlyuponthedisposaloftheinvestment.Readersarecautionedthattheamountandtimingofcontributionsfrominvestmentfundsandhedgefunds,aswellasfromSagardChina,SagardCapitalandSagardEurope,aredifficulttopredictandcanalsobeaffectedbyforeignexchangefluctuations.OTHER ITEMS Twelve months ended Three months ended December 31,2012 December 31,2011 December 31,2012 September 30,2012 December 31,2011PowerCorporation’sshareofotheritemsofLifeco (65) 58 (65) 58IGM 7 23 10 12Pargesa 19 (86) (29) 3OtherImpairmentchargeonCITICPacific (36) (72) (36)ImpairmentchargesrecordedbySquareVictoriaCommunicationGroup (56) (56) (131) (77) (140) (36) 73Other itemsnot included inoperatingearningswereanet chargeof $131million in the twelve‐monthperiodendedDecember31,2012,comparedwithanetchargeof$77millioninthecorrespondingperiodin2011.Otheritems not included in operating earningswere a net charge of $140million in the three‐month period endedDecember31, 2012, comparedwith a contribution of $73million in the corresponding period of 2011, and achargeof$36millioninthethirdquarterof2012.

A 1 0 P O W E R C O R P O R AT I O N O F C A N A DA


PO

WER

CO

RP

OR

ATIO

N O

F CA

NA

DA

Otheritemsin2012mainlycomprisedthefollowing: The Corporation’s share of a charge reported by Lifeco relating to litigation provision adjustments of$65million,netoftax,inthefourthquarter. TheCorporation’s shareof anon‐cash income tax charge recordedby IGM in the secondquarter resultingfrom increases in Ontario corporate income tax rates and their effect on the deferred income tax liabilityrelatedtoindefinitelifeintangibleassetsarisingfrompriorbusinessacquisitions,aswellastherecordinginthe fourth quarter of 2012of a favourable change in income taxprovision estimates related to certain taxfilings. TheCorporation’sshareofGBL’swrite‐downofitsinvestmentinGDFSuezinthefourthquarter,representinganamountof$32million,netofforeigncurrencygainsrecordedbyPowerFinancialandPargesa. TheCorporation’sshareofthegainsrealizedbyGBLinthefirstquarteronthepartialdisposalofitsinterestinPernodRicardintheamountof$30millionandonthedisposalofitsinterestinArkemaintheamountof$28million. TheCorporation’sshareofachargeforgoodwillimpairmentandrestructuringchargesrecordedbyLafargeinthefirstandsecondquarters. Animpairmentchargeof$36millionontheCorporation’s investment inCITICPacificrecordedinthethirdquarter.Asimilarchargehadbeenrecordedinthethirdquarterof2011intheamountof$72million. Impairmentchargestotalling$56milliontakenonindefinitelifeintangibles,goodwillandaninvestmentinajointlycontrolledcorporationatSquareVictoriaCommunicationsGroup.Otheritemsin2011mainlycomprisedthefollowing: Acontributionof$58millionrepresentingtheCorporation’sshareofnon‐operatingearningsofLifeco.Inthefourthquarterof2011,Lifecore‐evaluatedandreducedalitigationprovisionestablishedinthethirdquarterof2010whichpositivelyimpactedLifeco’scommonshareholders’netearningsby$223million.Additionally,in the fourth quarter of 2011, Lifeco established a provision of $99 million after tax in respect of thesettlementoflitigationrelatingtoitsownershipinaU.S.‐basedprivateequityfirm.ThenetimpacttoLifecoofthesetwounrelatedmatterswas$124million. TheCorporation’sshareofanamountrecordedbyIGMinthethirdquarterrelatingtochangesinthestatusofcertain income tax filings as well as the Corporation’s share of the gain on the disposal of M.R.S. TrustCompanyandM.R.S.Inc.byIGM. The Corporation’s share of GBL’s write‐down of its investment in Lafarge, representing an amount of$87millionrecordedinthethirdquarter. TheimpairmentchargeonCITICPacificmentionedabove.

NET EARNINGS ATTRIBUTABLE TO PARTICIPATING SHAREHOLDERSNetearningsattributable toparticipatingshareholders for the twelve‐monthperiodendedDecember31,2012were $832million or $1.81per share, comparedwith $1,075million or $2.34per share in the correspondingperiodin2011.Net earnings attributable to participating shareholders for the three‐month period endedDecember31, 2012were$82millionor$0.18pershare,comparedwith$314millionor$0.68pershareinthecorrespondingperiodin2011,and$204millionor$0.44pershareinthethirdquarterof2012.Adiscussionofperiod‐over‐periodchangesinnetearningsattributabletoparticipatingshareholdersisincludedintheforegoingsectionsofthisMD&A.P O W E R C O R P O R AT I O N O F C A N A DA A 1 1


PO

WER

CO

RP

OR

ATI

ON

OF

CA

NA

DA

CONDENSEDSUPPLEMENTARYBALANCESHEETS Consolidated basis Equity basisAsatDecember31 2012 2011 2012 2011AssetsCashandcashequivalents[1] 3,540 3,741 624 666InvestmentsinParjointco,jointlycontrolledcorporationsandassociates 2,293 2,341Investmentsinsubsidiariesatequity 8,055 7,832Investments 125,712 118,966 1,664 1,557Fundsheldbycedinginsurers 10,537 9,923Reinsuranceassets 2,064 2,061Intangibleassets 5,081 5,107Goodwill 8,738 8,828Otherassets 8,732 7,947 330 339Interestonaccountofsegregatedfundpolicyholders 104,948 96,582Totalassets 271,645 255,496 10,673 10,394LiabilitiesInsuranceandinvestmentcontractliabilities 120,658 115,512Obligationstosecuritizationentities 4,701 3,827Debenturesanddebtinstruments 6,351 6,296 400 400Capitaltrustsecurities 119 533Otherliabilities 8,163 7,711 174 169Investmentandinsurancecontractsonaccountofsegregatedfundpolicyholders 104,948 96,582Totalliabilities 244,940 230,461 574 569EquityNon‐participatingshares 977 779 977 779Participatingshareholders’equity 9,122 9,046 9,122 9,046Non‐controllinginterests[2] 16,606 15,210Totalequity 26,705 25,035 10,099 9,825Totalliabilitiesandequity 271,645 255,496 10,673 10,394[1] Undertheequitybasispresentation,cashequivalentsinclude$521million($365millionatDecember31,2011)offixedincomesecuritieswithmaturitiesofmorethan90days.IntheConsolidatedFinancialStatements,thisamountofcashequivalentsisclassifiedininvestments.[2] Non‐controlling interests include the Corporation’s non‐controlling interests in the common equity of Power Financial as well as theparticipatingaccountsurplusinLifeco’sinsurancesubsidiariesandperpetualpreferredsharesissuedbysubsidiariestothirdparties.

CONSOLIDATED BASISTheconsolidatedbalancesheetsincludePowerFinancial’s,Lifeco’sandIGM’sassetsandliabilities.PartsB,CandDofthisMD&Arelatingtothesesubsidiariesincludeapresentationoftheirbalancesheets.TotalassetsoftheCorporationincreasedto$271.6billionatDecember31,2012,comparedwith$255.5billionatDecember31,2011.Investments at December 31, 2012 were $125.7 billion, a $6.7 billion increase from December 31, 2011,primarilyrelatedtoLifeco’sactivities.Seealsothediscussioninthe“CashFlows”sectionbelow.Liabilities increased from$230.5billionatDecember31,2011 to$244.9billionatDecember31,2012,mainlyduetoanincreaseinLifeco’sinsuranceandinvestmentcontractliabilitiesaswellasinvestmentandinsurancecontractsonaccountofsegregatedfundpolicyholders.



PO

WER

CO

RP

OR

ATIO

N O

F CA

NA

DA

ASSETS UNDER ADMINISTRATIONAssetsunderadministrationofLifecoandIGMareasfollows:(inbillionsofCanadiandollars)AsatDecember31 2012 2011AssetsundermanagementofLifecoInvestedassets 120.0 114.6Othercorporateassets 28.8 27.6Segregatedfundsnetassets 104.9 96.6Proprietarymutualfundsandinstitutionalnetassets 134.6 125.4 388.3 364.2AssetsundermanagementofIGM 120.7 118.7Totalassetsundermanagement 509.0 482.9OtherassetsunderadministrationofLifeco 157.5 137.8Totalassetsunderadministration 666.5 620.7TotalassetsunderadministrationatDecember31,2012increasedby$45.8billionfromDecember31,2011:

Total assets under administration by Lifeco at December 31, 2012 increased by $43.8 billion fromDecember31,2011.Segregatedfundsincreasedbyapproximately$8.3billionandproprietarymutualfundsand institutionalnetassets increasedby$9.2billion,primarilyasa resultof lowergovernmentbondratesand, to a lesser extent, higher U.S. equity market levels. Other assets under administration increased by$19.7billion,primarilyasaresultofnewplansalesandimprovedU.S.equitymarketlevels.Investedassetsincreasedbyapproximately$5.4billion,primarilyduetoassetgrowthandanincreaseinbondfairvaluesasaresult of lower government bond rates. SeePart C of thisMD&A for further informationonLifeco’s assetsunderadministration. IGM’sassetsundermanagement,atmarketvalue,were$120.7billionatDecember31,2012,comparedwith$118.7billionatDecember31,2011.Thisincreaseof$2.0billionsinceDecember31,2011representsmarketand income gains of $7.6 billion less net redemptions of $5.6 billion. See Part D of thisMD&A for furtherinformationonIGM’sassetsundermanagement.

EQUITY BASISUnder the equitybasispresentation,PowerFinancial, SquareVictoriaCommunicationsGroup,VictoriaSquareVenturesandSagardSASareaccountedforbytheCorporationusingtheequitymethod.Thispresentationhasnoimpact on Power Corporation’s shareholders’ equity and is intended to assist readers in isolating thecontributionofthesecompaniestotheassetsandliabilitiesoftheCorporation.Cash and cash equivalents held by Power Corporation amounted to $624 million at December 31, 2012,comparedwith$666millionat theendofDecember2011 (see “CashFlows–EquityBasis” sectionbelow fordetails).Inmanagingitsowncashandcashequivalents,theCorporationmayholdcashbalancesorinvestinshort‐termpaperorequivalents,aswellasdeposits,denominatedinforeigncurrenciesandthusbeexposedtofluctuationsinexchangerates.Inordertoprotectagainstsuchfluctuations,theCorporationmay,fromtimetotime,enterintocurrency‐hedging transactions with counterparties with high credit ratings. As at December 31, 2012,approximately72%ofthe$624millionofcashandcashequivalentswasdenominatedinCanadiandollarsorinforeigncurrencieswithcurrencyhedgesinplace.

P O W E R C O R P O R AT I O N O F C A N A DA A 1 3


PO

WER

CO

RP

OR

ATI

ON

OF

CA

NA

DA

ThecarryingvalueundertheequitymethodofaccountingofPowerCorporation’sinvestmentsinitssubsidiaries(PowerFinancial,SquareVictoriaCommunicationsGroup,VictoriaSquareVenturesandSagardSAS)increasedto$8,055million atDecember31,2012, comparedwith $7,832million atDecember31, 2011, as outlined in thefollowingtable:Carryingvalue,atthebeginning 7,832Shareofoperatingearnings 1,108Shareofotheritems (95)Shareofothercomprehensiveincome(loss) (113)Dividends (655)Investmentinsubsidiaries 126Other,includingeffectofchangeinownership (148)Carryingvalue,attheend 8,055Investmentsotherthansubsidiariesandaffiliatesamountedto$1,664millionatDecember31,2012,comparedwith$1,557millionatDecember31,2011.Theseareportfolio investmentsaccounted forasavailable‐for‐saleinvestments.Thefollowingtableprovidesfurtherdetailoninvestments:AsatDecember31 2012 2011 Cost Unrealizedgain (loss) Fair value Cost Unrealizedgain (loss) Fair valueCITICPacific 202 31 233 238 50 288ChinaAMC 282 282 282 282SagardChina 210 39 249 263 (6) 257SagardCapital 264 105 369 136 100 236SagardEurope 124 5 129 116 5 121Investmentfunds 237 50 287 230 46 276Hedgefunds 58 9 67 43 10 53Other 43 5 48 44 44 1,420 244 1,664 1,352 205 1,557



PO

WER

CO

RP

OR

ATIO

N O

F CA

NA

DA

EQUITYNon‐participating shares of the Corporation consist of six series of First Preferred Shares with an aggregatestated capital amount of $977million as atDecember31, 2012 (comparedwith five serieswith an aggregatestatedcapitalamountof$779millionasatDecember31,2011),ofwhich$950millionarenon‐cumulative.Allofthese series are perpetual preferred shares and are redeemable in whole or in part at the option of theCorporation fromspecificdates.TheFirstPreferredShares,1986Series,witha statedvalueof $27millionatDecember31,2012($29millionattheendof2011),haveasinkingfundprovisionunderwhichtheCorporationwillmakeall reasonableefforts topurchaseon theopenmarket20,000sharesperquarter.During the twelvemonthsendedDecember31,2012,theCorporationpurchased40,000suchshares.Excludingnon‐participatingshares,participatingshareholders’equitywas$9,122millionatDecember31,2012,comparedwith$9,046millionatDecember31,2011.This$76millionincreasewasprimarilydueto: A$145million increase in retainedearnings, reflectingmainlynetearningsof$882million, lessdividendsdeclaredof$584millionandadecreaseof$153millionrepresenting:

Theeffectsofchangesinownershipduetotherepurchasebyasubsidiaryofcommonsharesatapriceinexcessofthestatedvalueofsuchsharesandtheissuanceofcommonsharesbysubsidiaries,intheamountof$102million. TheCorporation’sshareofchargestoretainedearningsinsubsidiariesforanamountof$46million. ShareissueexpensesoftheCorporationforanamountof$5million.

Changes inother comprehensive incomewerea lossof $78million,madeupof theCorporation’s shareofother comprehensive income of its subsidiaries for a loss of $113million, whichwas partially offset by apositivevariationof$35millionprimarilyinconnectionwiththeCorporation’sinvestments. Issuanceofatotalof101,912SubordinateVotingSharesduringthetwelve‐monthperiodendedDecember31,2012undertheCorporation’sExecutiveStockOptionPlan.Asaresultoftheabove,thebookvalueperparticipatingshareoftheCorporationwas$19.83atDecember31,2012,comparedwith$19.67attheendof2011.OnFebruary28,2012,theCorporationissued8,000,0005.60%Non‐CumulativeFirstPreferredShares,SeriesGforgrossproceedsof$200million.The Corporation filed a short‐formbase shelf prospectus dated November 23, 2012, pursuant towhich, for aperiod of 25months thereafter, the Corporationmay issue up to an aggregate of $1 billion of First PreferredShares, Subordinate Voting Shares and unsecured debt securities, or any combination thereof. This filingprovidestheCorporationwiththeflexibilitytoaccessdebtandequitymarketsonatimelybasistomakechangestotheCorporation’scapitalstructureinresponsetochangesineconomicconditionsandchangesinitsfinancialcondition.

OUTSTANDING NUMBER OF PARTICIPATING SHARESAsofthedatehereof,therewere48,854,772ParticipatingPreferredSharesoftheCorporationoutstanding,thesame as at December 31, 2011, and 411,144,806 Subordinate Voting Shares of the Corporation outstanding,compared with 411,042,894 at December 31, 2011. The increase in the number of outstanding SubordinateVotingSharesreflectstheexerciseofoptionsundertheCorporation’sExecutiveStockOptionPlan.Asofthedatehereof, optionswere outstanding to purchaseup to 16,593,490 SubordinateVoting Shares of theCorporationundertheCorporation’sExecutiveStockOptionPlan.



PO

WER

CO

RP

OR

ATI

ON

OF

CA

NA

DA

CASHFLOWS

CONDENSED CONSOLIDATED CASH FLOWSFortheyearsendedDecember31 2012 2011Cashflowfromoperatingactivities 5,235 5,425Cashflowfromfinancingactivities (207) (2,306)Cashflowfrominvestingactivities (5,221) (3,130)Effectofchangesinexchangeratesoncashandcashequivalents (8) 24Increase(decrease)incashandcashequivalents–continuingoperations (201) 13Cashandcashequivalents,atthebeginning 3,741 4,016Less:cashandcashequivalentsfromdiscontinuedoperations–beginningofperiod (288)Cashandcashequivalents,attheend–continuingoperations 3,540 3,741Onaconsolidatedbasis,cashandcashequivalentsfromcontinuingoperationsdecreasedby$201millioninthetwelve‐monthperiodendedDecember31,2012,comparedwithanincreaseof$13millioninthecorrespondingperiodin2011.Operating activities produced a net inflow of $5,235million in the twelve‐month period endedDecember31,2012,comparedwithanetinflowof$5,425millioninthecorrespondingperiodof2011.Operatingactivitiesduringthetwelve‐monthperiodendedDecember31,2012,comparedtothesameperiodin2011,included: Lifeco’s cash flow from operations was a net inflow of $4,722 million, compared with a net inflow of$4,844million in thecorrespondingperiod in2011.Cashprovidedbyoperatingactivities isusedbyLifecoprimarily to pay policy benefits, policyholder dividends and claims, as well as operating expenses andcommissions. Cash flows generated by operations aremainly invested by Lifeco to support future liabilitycashrequirements. Operating activities of IGM which, after payment of commissions, generated cash flows of $710 million,comparedwith$777millioninthecorrespondingperiodof2011.Cash flows from financing activities, which include dividends paid on the participating and non‐participatingsharesoftheCorporation,aswellasdividendspaidbysubsidiariestonon‐controllinginterests,resultedinanetoutflowof$207millioninthetwelve‐monthperiodendedDecember31,2012,comparedwithanetoutflowof$2,306millioninthecorrespondingperiodof2011.Financingactivitiesduringthetwelve‐monthperiodendedDecember31,2012,comparedtothesameperiodin2011,included: Dividends paid by the Corporation and by its subsidiaries to non‐controlling interests of $1,690 million,comparedwith$1,654millioninthecorrespondingperiodof2011. Issuance of Subordinate Voting Shares of the Corporation of $2 million pursuant to the Corporation’sExecutiveStockOptionPlan,comparedwithanissuanceof$22millioninthecorrespondingperiodin2011. Repurchase of non‐participating shares by the Corporation of $2 million, compared with repurchases of$4millioninthecorrespondingperiodof2011. IssuanceofcommonsharesbysubsidiariesoftheCorporationforanamountof$64million,thesameasinthecorrespondingperiodof2011.



PO

WER

CO

RP

OR

ATIO

N O

F CA

NA

DA

Issuance of non‐participating shares by the Corporation for an amount of $200 million, compared to noissuanceinthecorrespondingperiodof2011. IssuanceofpreferredsharesbysubsidiariesoftheCorporationforanamountof$900million,comparedtonoissuanceinthecorrespondingperiodof2011. Repurchase for cancellation by subsidiaries of the Corporation of their common shares for an amount of$215million,comparedwith$186millioninthecorrespondingperiodof2011. Net increase in debt instruments of $85million, compared with a net decrease of $5 million in thecorrespondingperiodof2011. No repayment of long‐term debentures by IGM, compared with repayment of long‐term debentures of$450millioninthecorrespondingperiodof2011. Net inflow of $874million arising from obligations to securitization entities at IGM, comparedwith a netinflowof$319millioninthecorrespondingperiodof2011. Net payment of $2 million by IGM arising from obligations related to assets sold under repurchaseagreements, compared to a net payment of $408million in 2011. The net payment in 2011 included thesettlementof$428millioninobligationsrelatedtothesaleof$426millioninCanadaMortgageBonds,whichisreportedininvestingactivities. RedemptionofcapitaltrustsecuritiesbysubsidiariesofLifecoforanamountof$409million,comparedwithnoredemptionsinthecorrespondingperiodof2011.Cashflowsfrominvestingactivitiesresultedinanetoutflowof$5,221millioninthetwelve‐monthperiodendedDecember31,2012,comparedwithanetoutflowof$3,130millioninthecorrespondingperiodof2011.Investingactivitiesduringthetwelve‐monthperiodendedDecember31,2012,comparedtothesameperiodin2011,included: Investing activities at Lifeco resulted in a net outflow of $3,838 million, compared with a net outflow of$3,407millioninthecorrespondingperiodof2011. Investing activities at IGM resulted in a net outflow of $839 million, compared with a net inflow of$229millioninthecorrespondingperiodof2011. TheCorporation’sinvestingactivitiesrepresentedanetoutflowof$208million,comparedwithanetoutflowof $250million in the corresponding period of 2011 as shown in the “Cash Flows – Equity Basis” sectionbelow. In addition, the Corporation and Power Financial increased their level of fixed income securities withmaturitiesofmorethan90days,resultinginanetoutflowof$351million,comparedwithareductioninthecorrespondingperiodof2011foranetinflowof$225million.CashflowsfromactivitiesofPowerFinancial,LifecoandIGMaredescribedintheirrespectiveMD&AsinPartsB,CandDofthisMD&A.



PO

WER

CO

RP

OR

ATI

ON

OF

CA

NA

DA

CASH FLOWS – EQUITY BASISFortheyearsendedDecember31 2012 2011CashflowfromoperatingactivitiesNetearningsbeforedividendsonnon‐participatingshares 882 1,116Earningsfromsubsidiariesnotreceivedincash (358) (490)Impairmentcharges 96 91Netgainsondisposalofinvestments (80) (169)Other 13 41 553 589CashflowfromfinancingactivitiesDividendspaidonparticipatingandnon‐participatingshares (582) (574)Issuanceofsubordinatevotingshares 2 22Issuanceofnon‐participatingshares 200Other (7) (4) (387) (556)CashflowfrominvestingactivitiesProceedsfromdisposalofinvestments 267 332Investmentinsubsidiaries (126) (7)Purchaseofinvestments (347) (567)Other (2) (8) (208) (250)Increase(decrease)incashandcashequivalents (42) (217)Cashandcashequivalents,beginningofperiod 666 883Cashandcashequivalents,endofperiod 624 666Power Corporation is a holding company. As such, corporate cash flows from operations, before payment ofdividendsonnon‐participatingsharesandonparticipatingshares,areprincipallymadeupofdividendsreceivedfromitssubsidiariesandincomefrominvestments,lessoperatingexpenses,financingcharges,andincometaxes.DividendsreceivedfromPowerFinancial,whichisalsoaholdingcompany,representasignificantcomponentofthe Corporation’s corporate cash flows. In each quarter of 2012, Power Financial declared dividends on itsCommon Shares of $0.35 per share, the same as in the corresponding quarters of 2011. Power Corporationreceiveddividendsof$655millionfromPowerFinancialin2012,thesameasin2011.TheabilityofPowerFinancial tomeet itsobligationsgenerally andpaydividendsdepends inparticularuponreceipt of sufficient funds from its subsidiaries. The payment of interest and dividends by Power Financial’sprincipalsubsidiariesissubjecttorestrictionssetoutinrelevantcorporateandinsurancelawsandregulations,whichrequirethatsolvencyandcapitalstandardsbemaintained.Aswell,thecapitalizationofcertainofPowerFinancial’ssubsidiariestakesintoaccounttheviewsexpressedbythevariouscreditratingagenciesthatprovideratingsrelatedtofinancialstrengthandothermeasuresrelatingtothosecompanies.Inthetwelve‐monthperiodendedDecember31,2012,thedividendsdeclaredontheCorporation’sparticipatingsharesamountedto$1.16pershare,thesameasinthecorrespondingperiodin2011.InvestmentinsubsidiariesiscomprisedofaloantoSquareVictoriaCommunicationsGroupandaninvestmentinthecommonsharesofVictoriaSquareVentures.



PO

WER

CO

RP

OR

ATIO

N O

F CA

NA

DA

SUMMARYOFCRITICALACCOUNTINGESTIMATESANDJUDGMENTSThe preparation of financial statements in conformity with IFRS requires management to adopt accountingpolicies and to make estimates and assumptions that affect amounts reported in the Corporation’s 2012Consolidated Financial Statements. The major accounting policies and related critical accounting estimatesunderlyingtheCorporation’s2012ConsolidatedFinancialStatementsaresummarizedbelow.Inapplyingthesepolicies,managementmakessubjectiveandcomplexjudgmentsthatfrequentlyrequireestimatesaboutmattersthatare inherentlyuncertain.Manyof thesepoliciesarecommoninthe insuranceandother financialservicesindustries; others are specific to the Corporation’s businesses and operations. The significant accountingestimatesandjudgmentsareasfollows:INSURANCE AND INVESTMENT CONTRACT LIABILITIESInsuranceandinvestmentcontractliabilitiesrepresenttheamountsrequired,inadditiontofuturepremiumsandinvestment income, to provide for future benefit payments, policyholder dividends, commission and policyadministrativeexpenses forall insuranceandannuitypolicies in forcewithLifeco.TheAppointedActuariesofLifeco’ssubsidiarycompaniesareresponsiblefordeterminingtheamountoftheliabilitiestomakeappropriateprovisions for Lifeco’s obligations to policyholders. The Appointed Actuaries determine the liabilities forinsurance and investment contracts using generally accepted actuarial practices, according to the standardsestablishedbytheCanadianInstituteofActuaries.ThevaluationusestheCanadianAssetLiabilityMethod.Thismethodinvolvestheprojectionoffutureeventsinordertodeterminetheamountofassetsthatmustbesetasidecurrentlytoprovideforallfutureobligationsandinvolvesasignificantamountofjudgment.In the computationof insurance contract liabilities, valuation assumptionshavebeenmade regarding ratesofmortality/morbidity, investment returns, levelsofoperatingexpenses, ratesofpolicy terminationandratesofutilization of elective policy options or provisions. The valuation assumptions use best estimates of futureexperiencetogetherwithamarginforadversedeviation.Thesemarginsarenecessarytoprovideforpossibilitiesofmisestimationand/orfuturedeteriorationinthebestestimateassumptionsandprovidereasonableassurancethat insurance contract liabilities cover a range of possible outcomes. Margins are reviewed periodically forcontinuedappropriateness.Additional detail regarding these estimates can be found in Note 2 to the Corporation’s 2012 ConsolidatedFinancialStatements.SeealsoPartCofthisMD&A.

FAIR VALUE MEASUREMENTFinancial and other instruments held by the Corporation and its subsidiaries include portfolio investments,variousderivativefinancialinstruments,anddebenturesanddebtinstruments.FinancialinstrumentcarryingvaluesreflecttheliquidityofthemarketsandtheliquiditypremiumsembeddedinthemarketpricingmethodstheCorporationreliesupon.InaccordancewithIFRS7,FinancialInstruments–Disclosure,theCorporation’sassetsandliabilitiesrecordedatfairvaluehavebeencategorizedbaseduponthefollowingfairvaluehierarchy: Level 1 inputs utilize observable, quoted prices (unadjusted) in active markets for identical assets orliabilitiesthattheCorporationhastheabilitytoaccess. Level 2 inputs utilize other‐than‐quoted prices included in Level 1 that are observable for the asset orliability,eitherdirectlyorindirectly. Level 3 inputs utilize one ormore significant inputs that are not based on observablemarket inputs andincludesituationswherethereislittle,ifany,marketactivityfortheassetorliability.



PO

WER

CO

RP

OR

ATI

ON

OF

CA

NA

DA

Incertaincases,theinputsusedtomeasurefairvaluemayfallintodifferentlevelsofthefairvaluehierarchy.Insuchcases,thelevelinthefairvaluehierarchywithinwhichthefairvaluemeasurementinitsentiretyfallshasbeendeterminedbasedonthelowestlevelinputthatissignificanttothefairvaluemeasurementinitsentirety.The Corporation’s assessment of the significance of a particular input to the fair value measurement in itsentiretyrequiresjudgmentandconsidersfactorsspecifictotheassetorliability.RefertoNote26totheCorporation’s2012ConsolidatedFinancialStatementsfordisclosureoftheCorporation’sfinancialinstrumentsfairvaluemeasurementasatDecember31,2012.Fair values for bonds classified as fair value through profit or loss or available for sale are determined usingquotedmarketprices.Wherepricesarenotquoted inanormallyactivemarket, fairvaluesaredeterminedbyvaluationmodelsprimarilyusingobservablemarketdatainputs.Fairvaluesforbondsandmortgagesandotherloans,classifiedasloansandreceivables,aredeterminedbydiscountingexpectedfuturecashflowsusingcurrentmarketrates.Fairvalues forpublic stocksaregenerallydeterminedby the lastbidprice for thesecurity fromtheexchangewhere it is principally traded. Fair values for stocks for which there is no active market are determined bydiscounting expected future cash flows based on expected dividends and where market value cannot bemeasured reliably, fair value is estimated to be equal to cost. Fair values for investment properties aredeterminedusingindependentappraisalservicesandincludemanagementadjustmentsformaterialchangesinpropertycashflows,capitalexpendituresorgeneralmarketconditionsintheinterimperiodbetweenappraisals.IMPAIRMENT OF INVESTMENTSInvestments are reviewed regularly on an individual basis to determine impairment status. The Corporationconsiders various factors in the impairment evaluation process, including, but not limited to, the financialconditionoftheissuer,specificadverseconditionsaffectinganindustryorregion,declineinfairvaluenotrelatedtointerestrates,bankruptcyordefaultsanddelinquencyinpaymentsofinterestorprincipal.Impairmentlosseson available‐for‐sale shares are recorded if the loss is significant or prolonged and subsequent losses arerecordedinnetearnings.Investmentsaredeemedtobeimpairedwhenthereisnolongerreasonableassuranceoftimelycollectionofthefullamountoftheprincipalandinterestdue.Thefairvalueofaninvestmentisnotadefinitiveindicatorofimpairment,asitmaybesignificantlyinfluencedbyotherfactors,includingtheremainingterm to maturity and liquidity of the asset. However, market price must be taken into consideration whenevaluatingimpairment.Forimpairedmortgagesandotherloans,andbondsclassifiedasloansandreceivables,provisionsareestablishedor impairmentsrecordedtoadjust thecarryingvaluetothenetrealizableamount.Whereverpossible, the fairvalueofcollateralunderlyingtheloansorobservablemarketpriceisusedtoestablishnetrealizablevalue.Forimpaired available‐for‐sale bonds, recorded at fair value, the accumulated loss recorded in investmentrevaluationreservesisreclassifiedtonetinvestmentincome.Impairmentsonavailable‐for‐saledebtinstrumentsarereversedifthereisobjectiveevidencethatapermanentrecoveryhasoccurred.Allgainsandlossesonbondsclassifiedordesignatedasfairvaluethroughprofitorlossarealreadyrecordedinearnings,thereforeareductionduetoimpairmentofassetswillberecordedinearnings.Aswell,whendeterminedtobeimpaired,contractualinterestisnolongeraccruedandpreviousinterestaccrualsarereversed.



PO

WER

CO

RP

OR

ATIO

N O

F CA

NA

DA

GOODWILL AND INTANGIBLES IMPAIRMENT TESTINGGoodwill and intangible assets are tested for impairment annually ormore frequently if events indicate thatimpairmentmayhaveoccurred.Intangibleassetsthatwerepreviouslyimpairedarereviewedateachreportingdate for evidence of reversal. In the event that certain conditions have beenmet, the Corporation would berequiredtoreversetheimpairmentchargeoraportionthereof.Goodwillhasbeenallocated tocashgeneratingunits (CGU), representing the lowest level inwhichgoodwill ismonitoredforinternalreportingpurposes.GoodwillistestedforimpairmentbycomparingthecarryingvalueoftheCGUgroupstotherecoverableamounttowhichthegoodwillhasbeenallocated.Intangibleassetsaretestedforimpairmentbycomparingtheasset’scarryingamounttoitsrecoverableamount.Animpairmentlossisrecognizedfortheamountbywhichtheasset’scarryingamountexceedsitsrecoverableamount.Therecoverableamountisthehigheroftheasset’sfairvaluelesscosttosellandvalueinuse,whichiscalculatedusingthepresentvalueofestimatedfuturecashflowsexpectedtobegenerated.INCOME TAXESTheCorporation is subject to income tax laws in various jurisdictions. The Corporation’s and its subsidiaries’operationsarecomplexandrelated tax interpretations, regulationsand legislation thatpertain to itsactivitiesare subject to continual change. Lifeco’s primary Canadian operating subsidiaries are subject to a regime ofspecializedrulesprescribedunderthe IncomeTaxAct(Canada)forpurposesofdeterminingtheamountofthecompanies’incomethatwillbesubjecttotaxinCanada.Accordingly,theprovisionforincometaxesrepresentstheapplicablecorporation’smanagement’sinterpretationoftherelevanttaxlawsanditsestimateofcurrentandfutureincometaximplicationsofthetransactionsandeventsduringtheperiod.Deferredtaxassetsandliabilitiesarerecordedbasedonexpectedfuturetaxratesandmanagement’sassumptionsregardingtheexpectedtimingofthe reversal of temporary differences. The Corporation has substantial deferred income tax assets. Therecognitionofdeferredtaxassetsdependsonmanagement’sassumptionthatfutureearningswillbesufficienttorealize thedeferredbenefit.Theamountof theasset recorded isbasedonmanagement’sbest estimateof thetimingofthereversaloftheasset.TheauditandreviewactivitiesoftheCanadaRevenueAgencyandotherjurisdictions’taxauthoritiesaffecttheultimate determination of the amounts of income taxes payable or receivable, future income tax assets orliabilitiesandincometaxexpense.Therefore,therecanbenoassurancethattaxeswillbepayableasanticipatedand/or the amount and timing of receipt or use of the tax‐related assets will be as currently expected.Management’sexperienceindicatesthetaxationauthoritiesaremoreaggressivelypursuingperceivedtaxissuesandhaveincreasedtheresourcestheyputtotheseefforts.

PENSION PLANS AND OTHER POST EMPLOYMENT BENEFITSThe Corporation and its subsidiaries maintain defined benefit pension plans as well as defined contributionpensionplans for eligibleemployeesandadvisors.Theplansprovidepensionsbasedon lengthof serviceandfinalaverageearnings.Certainpensionpaymentsare indexedeitheronanadhocbasisoraguaranteedbasis.The defined contribution pension plans provide pension benefits based on accumulated employee andCorporation contributions. The Corporation and its subsidiaries also provide certain post‐employmenthealthcare,dentalandlifeinsurancebenefitstoeligibleretirees,employeesandadvisors.Forfurtherinformationon theCorporation’spensionplans andotherpost‐employmentbenefits refer toNote24 to theCorporation’s2012ConsolidatedFinancialStatements.Accountingforpensionandotherpost‐employmentbenefitsrequiresestimatesoffuturereturnsonplanassets,expectedincreasesincompensationlevels,trendsinhealthcarecosts,andtheperiodoftimeoverwhichbenefitswill be paid, as well as the appropriate discount rate for accrued benefit obligations. These assumptions aredetermined by management using actuarial methods and are reviewed and approved annually. Emergingexperience,whichmaydifferfromtheassumptions,willberevealedinfuturevaluationsandwillaffectthefuturefinancialpositionoftheplansandnetperiodicbenefitcosts.P O W E R C O R P O R AT I O N O F C A N A DA A 21


PO

WER

CO

RP

OR

ATI

ON

OF

CA

NA

DA

DEFERRED SELLING COMMISSIONSCommissionspaidonthesaleofcertainmutualfundproductsaredeferredandamortizedovertheirusefullives,notexceedingaperiodof fiveyears. IGMregularlyreviews thecarryingvalueofdeferredsellingcommissionswith respect to any events or circumstances that indicate impairment. Among the tests performed by IGM toassess recoverability is the comparison of the future economic benefits derived from the deferred sellingcommission asset in relation to its carrying value. At December 31, 2012, there were no indications ofimpairmenttodeferredsellingcommissions.FUTUREACCOUNTINGCHANGESThe Corporation continuously monitors the potential changes proposed by the International AccountingStandards Board (IASB) and analyzes the effect that changes in the standardsmay have on the Corporation’sconsolidatedfinancialstatementswhentheybecomeeffective:

EffectivefortheCorporationin2013IAS19–EmployeeBenefits Effective on January 1, 2013, the Corporationwill adopt the amended IAS 19,EmployeeBenefits.TheamendedIAS19includesrequirementsforthemeasurement,presentationanddisclosurefordefinedbenefitplans.Amendmentsinclude:

Theeliminationofthedeferralandamortizationapproach(corridorapproach)forrecognizingactuarialgainsand losses in net earnings. Actuarial gains and losses will be recognized in other comprehensive income.Actuarialgainsandlossesrecognizedinothercomprehensiveincomewillnotbereclassifiedtonetearningsinsubsequentperiods. Theeliminationoftheconceptofanexpectedreturnonassets (EROA).AmendedIAS19requirestheuseofthe discount rate in the place of EROA in the determination of the net interest component of the pensionexpense.Thisdiscountrateisdeterminedbyreferencetomarketyieldsattheendofthereportingperiodonhigh‐qualitycorporatebonds. Changes in the recognition of past service costs. Past service costs resulting from plan amendments orcurtailmentswillberecognizedinnetearningsintheperiodinwhichtheplanamendmentsorcurtailmentsoccur,withoutregardtovesting.InaccordancewiththetransitionalprovisionsinIAS19,thischangeinIFRSwillbeappliedretroactivelyandisanticipated todecrease equityby approximately $600million at January1, 2012 (decreaseof $350million inshareholders’ equity, and $250 million in non‐controlling interests) with an additional decrease to equity ofapproximately $300million at January 1, 2013 (decrease of $170 million in shareholders’ equity and$130million in non‐controlling interests). Furthermore, the effect of applying this standard retroactivelywilldecreaseearningsbeforetaxbyapproximately$22millionfortheyearendedDecember31,2012.

IFRS 10 – Consolidated Financial Statements Effective for the Corporation on January 1, 2013, IFRS 10,Consolidated Financial Statements uses consolidation principles based on a revised definition of control. Thedefinitionofcontrolisdependentonthepoweroftheinvestortodirecttheactivitiesoftheinvestee,theabilityoftheinvestortoderivevariablereturnsfromitsholdingsintheinvestee,andadirectlinkbetweenthepowertodirectactivitiesandreceivebenefits.The IASB issued amendments to IFRS 10 and IFRS 12 in October 2012 that introduced an exception fromconsolidationforthecontrolledentitiesofinvestmententities.LifecocontinuestoreviewthefinancialreportingofthesegregatedfundsfortheriskofpolicyholderspresentedwithinLifeco’sfinancialstatementstodeterminewhetheritwouldbedifferentthanthecurrentreportingunderIFRS.



PO

WER

CO

RP

OR

ATIO

N O

F CA

NA

DA

IFRS11–JointArrangements EffectivefortheCorporationonJanuary1,2013,IFRS11,JointArrangementsseparates jointly controlled entities between joint operations and joint ventures. The standard eliminates theoptionofusingproportionateconsolidation inaccounting for interests in jointventures, requiringanentity touse the equity method of accounting. The standard is not expected to have a significant impact on theCorporation’sfinancialpositionorresultsofoperations.IFRS12–DisclosureofInterestinOtherEntitiesEffectivefortheCorporationonJanuary1,2013,IFRS12,Disclosureof Interest inOtherEntities proposes new disclosure requirements for the interest an entity has insubsidiaries,jointarrangements,associates,andstructuredentities.Thestandardrequiresenhanceddisclosure,includinghowcontrolwasdeterminedandanyrestrictionsthatmightexistonconsolidatedassetsandliabilitiespresentedwithinthefinancialstatements.Thestandardisexpectedtoresultinadditionaldisclosures.IFRS13 – FairValueMeasurement Effective for the Corporation on January 1, 2013, IFRS13, Fair ValueMeasurement provides guidance to increase consistency and comparability in fair value measurements andrelated disclosures through a “fair value hierarchy”. The hierarchy categorizes the inputs used in valuationtechniques into three levels. The hierarchy gives the highest priority to (unadjusted) quoted prices in activemarketsforidenticalassetsorliabilitiesandthelowestprioritytounobservableinputs.ThestandardrelatesprimarilytodisclosureandwillnotimpactthefinancialresultsoftheCorporation.IAS 1 – Presentation of Financial Statements Effective for the Corporation on January 1, 2013, IAS 1,Presentation ofFinancial Statements includes requirements that other comprehensive income be classified bynature and grouped between those items thatwill be classified subsequently to profit or loss (when specificconditionsaremet)andthosethatwillnotbereclassified.ThisrevisedstandardrelatesonlytopresentationandwillnotimpactthefinancialresultsoftheCorporation.IFRS7–FinancialInstruments:DisclosureEffectivefortheCorporationonJanuary1,2013,theIASBissuedamendments to IFRS 7 regarding disclosure of offsetting financial assets and financial liabilities. Theamendmentswillallowusersoffinancialstatementstoimprove theirunderstandingoftransfertransactionsoffinancialassets(forexample,securitizations),includingunderstandingthepossibleeffectsofanyrisksthatmayremain with the entity that transferred the assets. The amendments also require additional disclosures if adisproportionateamountoftransfertransactionsareundertakenneartheendofareportingperiod.ThisrevisedstandardrelatesonlytodisclosureandwillnotimpactthefinancialresultsoftheCorporation.EffectivefortheCorporationsubsequentto2013IFRS4–InsuranceContractsTheIASBissuedanexposuredraftproposingchangestotheaccountingstandardforinsurancecontractsinJuly2010.Theproposalwouldrequireaninsurertomeasureinsuranceliabilitiesusinga model focusing on the amount, timing, and uncertainty of future cash flows associated with fulfilling itsinsurance contracts. This is vastly different from the connection between insurance assets and liabilitiesconsideredundertheCanadianAssetLiabilityMethod(CALM)andmaycausesignificantvolatilityintheresultsof Lifeco. The exposure draft also proposes changes to the presentation and disclosure within the financialstatements.Sincethereleaseoftheexposuredraft,therehavebeendiscussionswithintheinsuranceindustryandbetweenaccountingstandardssettersgloballyrecommendingsignificantchangestothe2010exposuredraft.Atthistimenonewstandardhasbeeneitherre‐exposedorreleased.Lifecowillcontinue tomeasure insurancecontract liabilities usingCALMuntil such timewhenanewIFRS forinsurancecontractmeasurementisissued.Afinalstandardisnotexpectedtobeimplementedforseveralyears;Lifecocontinuestoactivelymonitordevelopmentsinthisarea.



PO

WER

CO

RP

OR

ATI

ON

OF

CA

NA

DA

IFRS9–FinancialInstrumentsEffectivefortheCorporationonJanuary1,2015,IFRS9,FinancialInstrumentsrequiresallfinancialassetstobeclassifiedoninitialrecognitionatamortizedcostorfairvaluewhileeliminatingtheexistingcategoriesofavailableforsale,heldtomaturity,andloansandreceivables.Thenewstandardalsorequires: embeddedderivativestobeassessedforclassificationtogetherwiththeirfinancialassethost; anexpectedlossimpairmentmethodbeusedforfinancialassets;and amendmentstothecriteriaforhedgeaccountingandmeasuringeffectiveness.ThefullimpactofIFRS9ontheCorporationwillbeevaluatedaftertheremainingstagesoftheIASB’sprojecttoreplace IAS 39, Financial Instruments: Recognition and Measurement – impairment methodology, hedgeaccounting, and asset and liability offsetting – are finalized. The current timetable for adoption of IFRS 9,

FinancialInstrumentsisfortheannualperiodbeginningJanuary1,2015;however,theCorporationcontinuestomonitorthisstandardinconjunctionwithdevelopmentstoIFRS4.IAS 32 – Financial Instruments: Presentation Effective for the Corporation on January 1, 2014, IAS 32,FinancialInstruments:Presentationclarifiestheexistingrequirementsforoffsettingfinancialassetsandfinancialliabilities.TheCorporationisevaluatingtheimpactthisstandardwillhaveonthepresentationofitsfinancialstatements.ExposuredraftsnotyeteffectiveIAS17–Leases TheIASBissuedanexposuredraftproposinganewaccountingmodelforleaseswherebothlesseesandlessorswouldrecordtheassetsandliabilitiesonthebalancesheetatthepresentvalueoftheleasepaymentsarisingfromallleasecontracts.Thenewclassificationwouldbetheright‐of‐usemodel,replacingtheoperatingandfinanceleaseaccountingmodelsthatcurrentlyexist.Thefullimpactofadoptionoftheproposedchangeswillbedeterminedoncethefinalleasesstandardisissued.IAS18–RevenueTheIASBissuedasecondexposuredraftinNovember2011whichproposedasinglerevenuerecognitionstandardtoalignthefinancialreportingofrevenuefromcontractswithcustomersandrelatedcosts.A companywould recognize revenuewhen it transfers goods or services to a customer in the amount of theconsiderationthecompanyexpectstoreceivefromthecustomer.The full impact of adoption of the proposed changes will be determined once the final revenue recognitionstandardisissued,whichistargetedforreleasein2013.



PO

WER

CO

RP

OR

ATIO

N O

F CA

NA

DA

RISKFACTORSTherearecertainrisksinherentinaninvestmentinthesecuritiesoftheCorporationandintheactivitiesoftheCorporation, including the following and others disclosed elsewhere in this MD&A, which investors shouldcarefullyconsiderbeforeinvestinginsecuritiesoftheCorporation.Thisdescriptionofrisksdoesnotincludeallpossiblerisks,andtheremaybeotherrisksofwhichtheCorporationisnotcurrentlyaware.Power Corporation is a holding companywhose principal asset is its controlling interest in Power Financial.PowerFinancialholdssubstantialinterestsinthefinancialservicessectorthroughitscontrollinginterestineachof Lifeco and IGM. As a result, investors in Power Corporation are subject to the risks attributable to itssubsidiaries, including those as the principal shareholder of Power Financial, which in turn has the risksattributabletoitssubsidiaries,includingthoseastheprincipalshareholderofeachofLifecoandIGM.PartsCandDofthisMD&AfurtherdescriberisksrelatedtoLifecoandIGM,respectively.Asaholdingcompany,PowerCorporation’sabilitytopayinterestandotheroperatingexpensesanddividends,tomeet its obligations and to complete current or desirable future enhancement opportunities or acquisitionsgenerallydependsuponreceiptofsufficientdividendsfromitsprincipalsubsidiariesandotherinvestmentsanditsabilitytoraiseadditionalcapital.ThelikelihoodthatshareholdersofPowerCorporationwillreceivedividendswillbedependentupontheoperatingperformance,profitability, financialpositionandcreditworthinessoftheprincipaldirectand indirect subsidiariesofPowerCorporationandon theirability topaydividends toPowerCorporation. The payment of interest and dividends by certain of these principal subsidiaries to PowerCorporation isalsosubject torestrictionsset forth in insurance,securitiesandcorporate lawsandregulationswhichrequire thatsolvencyandcapitalstandardsbemaintainedbysuchcompanies. If required, theabilityofPower Corporation to arrange additional financing in the future will depend in part upon prevailing marketconditionsaswellasthebusinessperformanceofPowerCorporationanditssubsidiaries.Inrecentyears,globalfinancial conditions andmarket events have experienced increased volatility and resulted in the tightening ofcreditthathasreducedavailableliquidityandoveralleconomicactivity.Therecanbenoassurancethatdebtorequityfinancingwillbeavailable,or,togetherwithinternallygeneratedfunds,willbesufficienttomeetorsatisfyPowerCorporation’sobjectivesorrequirementsor,iftheforegoingareavailabletoPowerCorporation,thattheywillbeontermsacceptabletoPowerCorporation.TheinabilityofPowerCorporationtoaccesssufficientcapitalonacceptabletermscouldhaveamaterialadverseeffectonPowerCorporation’sbusiness,prospects,dividendpayingcapabilityandfinancialcondition,andfurtherenhancementopportunitiesoracquisitions.ThemarketpriceforPowerCorporation’ssecuritiesmaybevolatileandsubjecttowidefluctuationsinresponseto numerous factors, many of which are beyond Power Corporation’s control. Economic conditions mayadversely affect Power Corporation, including fluctuations in foreign exchange, inflation and interest rates, aswell asmonetarypolicies,business investmentand thehealthof capitalmarkets inCanada, theUnitedStates,EuropeandAsia. Inrecentyears, financialmarketshaveexperiencedsignificantpriceandvolume fluctuationsthathaveaffected themarketpricesof equity securitiesheld by theCorporationand its subsidiaries and thathaveoftenbeenunrelatedtotheoperatingperformance,underlyingassetvaluesorprospectsofsuchcompanies.Additionally,thesefactors,aswellasotherrelatedfactors,maycausedecreasesinassetvaluesthataredeemedtobesignificantorprolonged,whichmayresultinimpairmentlosses.Inperiodsofincreasedlevelsofvolatilityandrelatedmarket turmoil,PowerCorporation’ssubsidiaries’operationscouldbeadversely impactedandthetradingpriceofPowerCorporation’ssecuritiesmaybeadverselyaffected.



PO

WER

CO

RP

OR

ATI

ON

OF

CA

NA

DA

OFF‐BALANCESHEETARRANGEMENTS

GUARANTEESInthenormalcourseoftheirbusinesses,theCorporationanditssubsidiariesmayenterintocertainagreements,thenatureofwhichprecludesthepossibilityofmakingareasonableestimateofthemaximumpotentialamounttheCorporationorsubsidiarycouldberequiredtopaythirdparties,assomeoftheseagreementsdonotspecifyamaximumamountandtheamountsaredependentontheoutcomeoffuturecontingentevents,thenatureandlikelihoodofwhichcannotbedetermined.LETTERS OF CREDITInthenormalcourseoftheirreinsurancebusiness,Lifeco’ssubsidiariesprovidelettersofcredittootherpartiesorbeneficiaries.AbeneficiarywilltypicallyholdaletterofcreditascollateralinordertosecurestatutorycreditforreservescededtooramountsduefromLifeco’ssubsidiaries.Aletterofcreditmaybedrawnupondemand.Ifan amount is drawn on a letter of credit by a beneficiary, the bank issuing the letter of creditwillmake apaymenttothebeneficiaryfortheamountdrawn,andLifeco’ssubsidiarieswillbecomeobligatedtorepaythisamounttothebank.Lifeco,throughcertainof itsoperatingsubsidiaries,hasprovidedlettersofcredittobothexternalandinternalparties,whicharedescribedinNote30totheCorporation’s2012ConsolidatedFinancialStatements.

CONTINGENTLIABILITIESTheCorporation and its subsidiaries are from time to time subject to legal actions, including arbitrations andclassactions,arisinginthenormalcourseofbusiness.It is inherentlydifficulttopredicttheoutcomeofanyofthese proceedingswith certainty, and it is possible that an adverse resolution could have amaterial adverseeffectontheconsolidatedfinancialpositionoftheCorporation.However,basedoninformationpresentlyknown,itisnotexpectedthatanyoftheexistinglegalactions,eitherindividuallyorintheaggregate,willhaveamaterialadverseeffectontheconsolidatedfinancialpositionoftheCorporation.AsubsidiaryofLifecohasdeclaredapartialwindupinrespectofanOntariodefinedbenefitpensionplanwhichwillnot likelybecompleted forsometime.Thepartialwindup could involvethedistributionof theamountofactuarial surplus, if any, attributable to the wound‐up portion of the plan. In addition to the regulatoryproceedings involving this partial windup, a related class action proceeding has been commenced in Ontariorelatedtothepartialwindupandthreepotentialpartialwindupsundertheplan.Theclassactionalsochallengesthe validity of charging expenses to the plan. The provisions for certain Canadian retirement plans in theamounts of $97million after tax established by Lifeco’s subsidiaries in the third quarter of 2007 have beenreducedto$34million.Actualresultscoulddifferfromtheseestimates.TheCourtofAppeal forOntarioreleasedadecisiononNovember3,2011 inregard to the involvementof theparticipatingaccountsofLifecosubsidiariesLondonLifeandGreat‐WestLifeinthefinancingoftheacquisitionofLondonInsuranceGroupInc.in1997(the“AppealDecision”).The Appeal Decision ruled Lifeco subsidiaries achieved substantial success and required that there beadjustmentstotheoriginaltrial judgmentregardingamountswhichweretobereallocatedtotheparticipatingaccounts going forward. Any monies to be reallocated to the participating accounts will be dealt with inaccordance with Lifeco subsidiaries’ participating policyholder dividend policies in the ordinary course ofbusiness.No awards are to be paid out to individual classmembers. OnMay 24, 2012, the SupremeCourt ofCanadadismissedtheplaintiff’sapplicationforleavetoappealtheAppealDecision.TheAppealDecisiondirectedthepartiesbacktothetrial judgetoworkout theremaining issues.OnJanuary24,2013theOntarioSuperiorCourtofJusticereleasedadecisionorderingthat$285millionbereallocatedtotheparticipatingaccountsurplus.Lifecowillbeappealingthatdecision.A 2 6 P O W E R C O R P O R AT I O N O F C A N A DA


PO

WER

CO

RP

OR

ATIO

N O

F CA

NA

DA

During the fourth quarter of 2011, in response to the Appeal Decision, Lifeco re‐evaluated and reduced thelitigationprovisionestablishedinthethirdquarterof2010,whichpositivelyimpactedcommonshareholdernetearningsofLifecoin2011by$223millionaftertax(PowerCorporation’sshare–$104million).During the subsequent event period, in response to the Ontario Superior Court of Justice decision onJanuary24,2013, Lifeco established an incremental provision of $140 million after tax in the commonshareholdersaccountofLifeco(PowerCorporation’sshare–$65million).Lifeconowholds$290millioninafter‐taxprovisionsfortheseproceedings.Regardlessoftheultimateoutcomeofthiscase,therewillnotbeanyimpactonthecapitalpositionofLifecooronparticipatingpolicycontracttermsandconditions.Basedoninformationpresentlyknown,thismatterisnotexpectedtohaveamaterialadverseeffectontheconsolidatedfinancialpositionoftheCorporation.Inconnectionwiththeacquisitionof itssubsidiaryPutnam,Lifecohasanindemnityfromathirdpartyagainstliabilities arising from certain litigation and regulatory actions involving Putnam. Putnam continues to havepotentialliabilityforthesemattersintheeventtheindemnityisnothonoured.Lifecoexpectstheindemnitywillcontinue to be honoured and that any liability of Putnam would not have a material adverse effect on itsconsolidatedfinancialposition.On October 17, 2012, a subsidiary of Lifeco received an administrative complaint from the MassachusettsSecurities Division in relation to that subsidiary’s role as collateral manager of two collateralized debtobligations.Thecomplaintisseekingcertainremedies,includingthedisgorgementoffees,aciviladministrativefineandaceaseanddesistorder.Inaddition,thatsamesubsidiaryisadefendantintwocivillitigationmattersbroughtbyinstitutionsinvolvedinthosecollateralizeddebtobligations.Basedoninformationpresentlyknown,Lifecobelievesthesemattersarewithoutmerit.Thepotentialoutcomeofthesemattersisnotyetdetermined.SubsidiariesofLifecohaveaninvestmentinaUSA‐basedprivateequitypartnershipwhereinadisputearoseoverthe terms of the partnership agreement. Lifeco established a provision in the fourth quarter of 2011 for$99millionaftertax.ThedisputewasresolvedonJanuary10,2012,andasaresult,Lifeconolongerholdstheprovision.COMMITMENTS/CONTRACTUALOBLIGATIONSThefollowingtableprovidesasummaryoffutureconsolidatedcontractualobligations. Payments due by period

Total Less than1 year 1–5 years More than5 yearsLong‐termdebt[1] 6,351 303 388 5,660Depositsandcertificates 163 145 13 5Obligationstosecuritizationentities 4,701 789 3,877 35Operatingleases[2] 769 159 440 170Purchaseobligations[3] 83 58 25 –Contractualcommitments[4] 842 – – –Total 12,909 – – –Lettersofcredit[5][1] PleaserefertoNote13totheCorporation’s2012ConsolidatedFinancialStatementsforfurtherinformation.[2] Includesofficespaceandcertainequipmentusedinthenormalcourseofbusiness.Leasepaymentsarechargedtooperationsintheperiodofuse.[3] PurchaseobligationsarecommitmentsofLifecotoacquiregoodsandservices,essentiallyrelatedtoinformationservices.[4] Includes$516millionofcommitmentsbyLifeco.Thesecontractualcommitmentsareessentiallycommitmentsofinvestmenttransactionsmadeinthenormalcourseofoperations,inaccordancewithitspoliciesandguidelines,whicharetobedisburseduponfulfilmentofcertaincontractconditions. The balance represents $326million of outstanding commitments from the Corporation tomake future capital contributions toinvestmentfunds;theexactamountandtimingofeachcapitalcontributioncannotbedetermined.[5] PleaserefertoNote30totheCorporation’s2012ConsolidatedFinancialStatementsandtoPartCofthisMD&A.P O W E R C O R P O R AT I O N O F C A N A DA A 2 7


PO

WER

CO

RP

OR

ATI

ON

OF

CA

NA

DA

FINANCIALINSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTSThefollowingtablepresentsthefairvalueoftheCorporation’sfinancialinstruments.Fairvaluerepresentstheamountthatwouldbeexchangedinanarm’s‐lengthtransactionbetweenwillingpartiesandisbest

management’s discussion and analysis consolidated ...through pernod ricard. on march 14, 2012, gbl...

Documents