SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: AUGUST 2, 2004
(Date of earliest event reported)
PRINCIPAL FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-16725 42-1520346
(State or other jurisdiction (Commission file number) (I.R.S. Employer
of incorporation) Identification Number)
711 HIGH STREET, DES MOINES, IOWA 50392
(Address of principal executive offices)
(515) 247-5111
(Registrant's telephone number, including area code)
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ITEM 7. EXHIBITS
99 Second Quarter 2004 Earnings Release
ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On August 2, 2004, Principal Financial Group, Inc. publicly announced
information regarding its results of operations and financial condition for the
quarter ended June 30, 2004. The text of the announcement is included herewith
as Exhibit 99.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRINCIPAL FINANCIAL GROUP, INC.
By: /s/ Michael H. Gersie
------------------------------------
Name: Michael H. Gersie
Title: Executive Vice President and Chief
Financial Officer
Date: August 3, 2004
2
EXHIBIT 99
RELEASE: On receipt
MEDIA CONTACT: Jeff Rader, 515-247-7883, rader.jeff@principal.com
INVESTOR RELATIONS CONTACT: Tom Graf, 515-235-9500,
investor-relations@principal.com
PRINCIPAL FINANCIAL GROUP, INC. REPORTS SECOND QUARTER 2004 RESULTS
Des Moines, IA (August 2, 2004) -- Principal Financial Group, Inc. (NYSE: PFG)
today announced quarterly net income for the three months ended June 30, 2004,
of $119.7 million, or $0.37 per diluted share, compared to net income of $202.2
million, or $0.62 per diluted share for the three months ended June 30, 2003.
The decrease in net income primarily reflects a $54.0 million decline in the
results of mortgage banking (segment reported as discontinued operations)1 and a
$31.0 million increase in realized/unrealized capital losses compared to the
same period last year2. The company reported operating earnings of $173.4
million for second quarter 2004, compared to $165.6 million for second quarter
2003. Operating earnings per diluted share for second quarter 2004 were $0.54
compared to $0.51 for the same period in 2003. Operating revenues for second
quarter 2004 were $2,047.9 million compared to $1,968.0 million for the same
period last year3.
Highlights for the second quarter 2004 include:
o Record assets under management of $152.1 billion, up 19 percent from a year
ago, including 19 percent growth for U.S. Asset Management and
Accumulation, and 45 percent growth for International Asset Management and
Accumulation.
o Record operating earnings of $121.7 million for U.S. Asset Management and
Accumulation, including a record $56.6 million of earnings for Pension Full
Service Accumulation, which increased 33 percent over the prior year
quarter.
o Double-digit sales growth compared to the prior year of the company's key
retirement and investment products, including: pension full service
accumulation sales of $1.2 billion (all organic); a record $501 million of
individual annuities sales; and mutual funds sales of $733 million.
"Both second quarter operating results and The Principal's longer-term
performance demonstrate the increasing strength of our core asset accumulation
and asset management businesses," said J. Barry Griswell, chairman, president
and chief executive officer. "Our U.S. Asset Management and Accumulation segment
improved 15 percent compared to a year ago, delivering a fifth straight quarter
of record operating earnings. Over the trailing twelve-months, segment operating
earnings improved 27 percent, or nearly $100 million compared to the same period
ending a year ago. Outstanding segment growth over this period drove strong
growth in total company operating earnings, giving us continued confidence in
our ability to achieve our longer-term EPS growth targets and to create
outstanding shareholder value."
"We're also seeing signs of increasing strength in our two other operating
segments," said Griswell. "International Asset Management and Accumulation
delivered another very solid earnings quarter, 15 percent growth in operating
3
revenues, and record net customer cash flows of nearly $500 million. And while
earnings in the Life and Health Insurance segment were down for the quarter, we
are very encouraged by continued strong sales growth in the Individual Life
business and in each of the Specialty Benefits lines, as well as improved lapse
rates in Group Medical."
Assets under management were $152.1 billion as of June 30, 2004, an increase of
$2.3 billion, or 2 percent compared to March 31, 2004, and an increase of $24.1
billion, or 19 percent compared to June 30, 2003.
For the six months ended June 30, 2004:
o Net income decreased to $313.3 million, or $0.98 per diluted share compared
to $357.9 million, or $1.09 per diluted share, during the same period a
year ago.
o Operating earnings increased 13 percent to $359.9 million, compared to
$317.3 million in the year earlier period.
o Operating earnings per share increased 17 percent to $1.12 per diluted
share compared to $0.96 per diluted share in the year earlier period.
o Operating revenues increased 4 percent to $4,091.1 million from $3,937.7
million during the same period a year ago.
SEGMENT HIGHLIGHTS
U.S. ASSET MANAGEMENT AND ACCUMULATION
Segment operating earnings for second quarter 2004 were a record $121.7 million,
compared to $105.7 million for the same period in 2003. The increase reflects
improved results in the pension business, which generated earnings of $93.7
million, a 12 percent increase compared to the same period a year ago, and
record earnings from Principal Global Investors.
Operating revenues for the second quarter increased to $906.8 million compared
to $862.0 million for the same period in 2003, primarily the result of increased
fees within the pension full service accumulation operations, and within
Principal Global Investors, reflecting growth in assets under management and the
acquisition of Post Advisory Group.
Segment assets under management continued to increase, reaching a record $127.6
billion as of June 30, 2004, an increase of 1 percent from $125.9 billion as of
March 31, 2004, and an increase of 19 percent from $107.6 billion as of June 30,
2003.
INTERNATIONAL ASSET MANAGEMENT AND ACCUMULATION
Segment operating earnings for second quarter 2004 were $9.3 million, compared
to $11.9 million for the same period in 2003. Second quarter 2003 earnings were
higher than normal due to several items, including a tax benefit for the Mexican
AFORE business.
Operating revenues were $122.3 million for second quarter 2004, compared to
$106.2 million for the same period last year, primarily reflecting increased
premium in Mexico and currency improvements in Chile.
Assets under management for the segment were $8.3 billion as of June 30, 2004,
compared to $8.2 billion as of March 31, 2004, and compared to $5.8 billion as
of June 30, 2003.
4
LIFE AND HEALTH INSURANCE
Segment operating earnings for second quarter 2004 were $56.9 million, compared
to $62.9 million for the same period in 2003. The decrease includes a premium
refund accrual in second quarter 2004 of $3.5 million, after tax, for pending
litigation in the Health division related to a business the company exited in
the 1990's.
Operating revenues increased to $1,030.7 million for the second quarter,
compared to $1,001.8 million for the same period in 2003, largely as a result of
increases within the Specialty Benefits insurance operations. Operating revenues
were down slightly in the Individual Life division, as the company continued its
shift in marketing emphasis from traditional premium-based products to fee-based
universal life and variable universal life products. Unlike traditional
premium-based products, universal life and variable universal life premium are
not reported as GAAP revenue. Operating revenues were up slightly in the health
business, primarily due to revenues generated from our 2004 acquisition of the
Molloy Companies (health administration and claims).
MORTGAGE BANKING
As a result of the sale of our mortgage banking operations, which closed on July
1, 2004, the operating earnings of the segment reflect only the corporate
overhead expenses allocated to the segment. This treatment is pursuant to
Statement of Financial Accounting Standard No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS ("SFAS 144"), whereby all revenues
and expenses (excluding corporate overhead allocated to the discontinued
segment) are reported as discontinued operations. Based on this treatment, the
segment generated an operating loss of $5.4 million in second quarter 2004,
compared to an operating loss of $4.5 million in the prior year quarter.
CORPORATE AND OTHER
Operating losses for second quarter 2004 were $9.1 million, compared to
operating losses of $10.4 million for the same period in 2003. Because the
corporate operations are varied, many items contributed to the variance. The
biggest contributor to the improvement was reduced interest expense stemming
from the early extinguishment of $200 million of surplus notes in first quarter
2004.
FORWARD LOOKING AND CAUTIONARY STATEMENTS
This press release contains forward-looking statements, including, without
limitation, statements as to sales targets, sales and earnings trends, and
management's beliefs, expectations, goals and opinions. These statements are
based on a number of assumptions concerning future conditions that may
ultimately prove to be inaccurate. Future events and their effects on the
company may not be those anticipated, and actual results may differ materially
from the results anticipated in these forward-looking statements. The risks,
uncertainties and factors that could cause or contribute to such material
differences are discussed in the company's annual report on Form 10-K for the
year ended December 31, 2003, and in the company's quarterly report on Form 10-Q
for the quarter ended March 31, 2004, filed by the company with the Securities
and Exchange Commission. These risks and uncertainties include, without
limitation: competitive factors; volatility of financial markets; decrease in
ratings; interest rate changes; inability to attract and retain sales
representatives; international business risks; foreign currency exchange rate
fluctuations; and investment portfolio risks.
5
OUTLOOK FOR FULL YEAR 2004
As communicated in the first quarter 2004 earnings release, the Company will no
longer provide any quarterly operating earnings per share guidance or net income
per share guidance. In light of the sale of Principal Residential Mortgage,
which closed on July 1, 2004, the Company is providing an update to full year
earnings per share and net income per share expectations. Based on an estimated
$20 million in 2004 for other after-tax adjustments in excess of net
realized/unrealized capital gains/losses, the company expects 2004 net income to
range from $2.34 to $2.38 per diluted share. The company expects 2004 operating
earnings to range from $2.28 to $2.32 per diluted share.4
SHARE REPURCHASES
In May 2003, the Board authorized a repurchase program of up to $300 million of
our outstanding common stock. This program was completed during the second
quarter. Concurrent with our announcement to sell the mortgage banking
operations, the Board authorized an additional repurchase program of up to $700
million. Under this new program, as of June 30, 2004, the company had
repurchased 2.1 million shares for $75.0 million, an average price per share of
$35.22. In total, the company repurchased 6.31 million shares during the second
quarter 2004 for approximately $222 million, or an average price per share of
$35.19.
STOCK OPTIONS
The Principal expenses employee stock options and the employee stock purchase
plan, resulting in an after-tax expense of $6.1 million and $11.4 million,
respectively for the three and six months ended June 30, 2004, compared to $4.7
million and $7.4 million, respectively for the three and six months ended June
30, 2003.
EARNINGS CONFERENCE CALL
At 9:00 A.M. (CST) tomorrow, Chairman, President and CEO J. Barry Griswell and
Executive Vice President and CFO Mike Gersie will lead a discussion during a
live conference call. Parties interested in listening to the conference call
live may access the webcast on the Principal Financial Group Investor Relations
(IR) website (www.principal.com/investor) or by dialing (800) 374-1609 (U.S. and
Canadian callers) or (706) 643-7701 (International callers) approximately 10
minutes prior to the start of the call. To access the call, leader name is Tom
Graf. Listeners can access an audio replay of the call on the IR website, or by
calling (800) 642-1687 (US and Canadian callers) or (706) 645-9291
(International callers). The access code for the replay is 8150995. Replays will
be available through August 10, 2004. The financial supplement is currently
available on our website and will be referred to during the conference call.
ABOUT THE PRINCIPAL FINANCIAL GROUP
The Principal Financial Group(R) (The Principal (R))5 is a leader in offering
businesses, individuals and institutional clients a wide range of financial
products and services, including retirement and investment services, life and
health insurance and banking through its diverse family of financial services
companies. A member of the Fortune 500, the Principal Financial Group has $152.1
billion in assets under management6 and serves some 14.6 million customers
worldwide from offices in Asia, Australia, Europe, Latin America and the United
States. Principal Financial Group, Inc. is traded on the New York Stock Exchange
under the ticker symbol PFG. For more information, visit WWW.PRINCIPAL.COM.
###
6
SUMMARY OF SEGMENT AND PRINCIPAL FINANCIAL GROUP, INC. RESULTS
OPERATING EARNINGS (LOSS)* IN MILLIONS
THREE MONTHS ENDED, SIX MONTHS ENDED,
------------------------------ ------------------------------
SEGMENT 6/30/04 6/30/03 6/30/04 6/30/03
---------------------------------------------------- --------------- -------------- -------------- ---------------
U.S. ASSET MANAGEMENT AND ACCUMULATION $121.7 $105.7 $241.2 $200.6
---------------------------------------------------- --------------- -------------- -------------- ---------------
INTERNATIONAL ASSET MANAGEMENT AND ACCUMULATION
9.3 11.9 17.9 18.5
---------------------------------------------------- --------------- -------------- -------------- ---------------
LIFE AND HEALTH INSURANCE 56.9 62.9 131.7 122.0
---------------------------------------------------- --------------- -------------- -------------- ---------------
MORTGAGE BANKING (5.4) (4.5) (10.3) (8.4)
---------------------------------------------------- --------------- -------------- -------------- ---------------
CORPORATE AND OTHER (9.1) (10.4) (20.6) (15.4)
---------------------------------------------------- --------------- -------------- -------------- ---------------
OPERATING EARNINGS 173.4 165.6 359.9 317.3
---------------------------------------------------- --------------- -------------- -------------- ---------------
NET REALIZED/UNREALIZED CAPITAL
LOSSES, AS ADJUSTED (44.5) (13.5) (67.6) (66.6)
---------------------------------------------------- --------------- -------------- -------------- ---------------
OTHER AFTER-TAX ADJUSTMENTS (9.2) 50.1 21.0 107.2
---------------------------------------------------- --------------- -------------- -------------- ---------------
NET INCOME ** $119.7 $202.2 $313.3 $357.9
------------------------------------------------------------------------------------------------------------------
PER DILUTED SHARE
------------------------------ ------------------------------
THREE MONTHS ENDED, SIX MONTHS ENDED,
--------------- -------------- -------------- ---------------
6/30/04 6/30/03 6/30/04 6/30/03
---------------------------------------------------- --------------- -------------- -------------- ---------------
OPERATING EARNINGS $ 0.54 $ 0.51 $ 1.12 $ 0.96
---------------------------------------------------- --------------- -------------- -------------- ---------------
NET REALIZED/UNREALIZED CAPITAL
LOSSES, AS ADJUSTED (0.14) (0.04) (0.21) (0.20)
---------------------------------------------------- --------------- -------------- -------------- ---------------
OTHER AFTER-TAX ADJUSTMENTS (0.03) 0.15 0.07 0.33
---------------------------------------------------- --------------- -------------- -------------- ---------------
NET INCOME $ 0.37 $ 0.62 $ 0.98 $ 1.09
---------------------------------------------------- --------------- -------------- -------------- ---------------
WEIGHTED-AVERAGE DILUTED SHARES OUTSTANDING 319.2 327.4 320.6 329.6
---------------------------------------------------- --------------- -------------- -------------- ---------------
*OPERATING EARNINGS VERSUS U.S. GAAP (GAAP) NET INCOME
Management uses operating earnings, which excludes the effect of net
realized/unrealized capital gains and losses, as adjusted, and other after-tax
adjustments, for goal setting, determining employee compensation, and evaluating
performance on a basis comparable to that used by securities analysts. Segment
operating earnings are determined by adjusting U.S. GAAP net income for net
realized/unrealized capital gains and losses, as adjusted, and other after-tax
adjustments we believe are not indicative of overall operating trends. Note:
after-tax adjustments have occurred in the past and could recur in future
reporting periods. While these items may be significant components in
understanding and assessing our consolidated financial performance, we believe
the presentation of segment operating earnings enhances the understanding of our
results of operations by highlighting earnings attributable to the normal,
ongoing operations of our businesses.
** Net income for the three months ended June 30, 2004 reflects net
realized/unrealized capital losses of $(44.5) million, which includes $(13.8)
million in credit losses stemming from impairments and credit impaired sales,
$(6.4) million of losses related to mark-to-market of seed money investments, as
well as $(9.2) million in other after-tax adjustments. The other after-tax
adjustments reflect the discontinued operations of Mortgage Banking - $(9.5)
million and Argentina - $0.3 million. Net income for the three months ended June
30, 2003 reflects net realized/unrealized capital losses of $(13.5) million,
which includes $(23.5) million in credit losses stemming from impairments and
credit impaired sales, $23.2 million of gains related to mark-to-market of seed
money investments, as well as $50.1 million in other after-tax adjustments. The
other after-tax adjustments reflect the discontinued operations of Mortgage
Banking - $52.1 million, Argentina - $(1.6) million, and BT Financial Group -
$(0.4) million.
7
PRINCIPAL FINANCIAL GROUP, INC.
RESULTS OF OPERATIONS
(IN MILLIONS)
THREE MONTHS ENDED SIX MONTHS ENDED
---------------- --------------- --------------- ---------------
6/30/04 6/30/03 6/30/04 6/30/03
---------------- --------------- --------------- ---------------
Premiums and other considerations $892.6 $ 875.7 $1,813.0 $1,780.4
Fees and other revenues 364.2 276.7 696.8 543.3
Net investment income 789.2 808.8 1,575.4 1,601.8
Net realized/unrealized capital losses (66.3) (9.7) (108.8) (84.2)
---------------- --------------- --------------- ---------------
TOTAL REVENUES 1,979.7 1,951.5 3,976.4 3,841.3
---------------- --------------- --------------- ---------------
Benefits, claims, and settlement expenses 1,221.1 1,185.2 2,407.2 2,379.9
Dividends to policyholders 74.4 73.9 147.7 154.0
Operating expenses 521.1 490.3 1,050.6 975.6
---------------- --------------- --------------- ---------------
TOTAL EXPENSES 1,816.6 1,749.4 3,605.5 3,509.5
---------------- --------------- --------------- ---------------
Income from continuing operations before
income taxes 163.1 202.1 370.9 331.8
Income taxes 34.2 50.0 78.6 81.1
---------------- --------------- --------------- ---------------
Income from continuing operations, net of
related income taxes 128.9 152.1 292.3 250.7
Income (loss) from discontinued operations,
net of related taxes (9.2) 50.1 26.7 107.2
---------------- --------------- --------------- ---------------
Income before cumulative effect of
accounting change 119.7 202.2 319.0 357.9
Cumulative effect of accounting change, net
of related income taxes - - (5.7) -
---------------- --------------- --------------- ---------------
NET INCOME $119.7 $ 202.2 $ 313.3 $ 357.9
Less:
Net realized/unrealized capital losses, as
adjusted (44.5) (13.5) (67.6) (66.6)
Other after-tax adjustments (9.2) 50.1 21.0 107.2
---------------- --------------- --------------- ---------------
OPERATING EARNINGS $173.4 $ 165.6 $ 359.9 $ 317.3
================ =============== =============== ===============
SELECTED BALANCE SHEET STATISTICS
PERIOD ENDED
------------------------------------------------------------
6/30/04 12/31/03 6/30/03
--------------------- -------------------- -----------------
Total assets (in billions) $ 111.4 $ 107.8 $ 98.6
Total equity (in millions) $ 7,139.1 $ 7,399.6 $ 7,539.0
Total equity excluding accumulated other
comprehensive income (in millions) $ 6,378.0 $ 6,228.3 $ 6,118.4
End of period shares outstanding (in millions) 314.9 320.7 325.1
Book value per share $ 22.67 $ 23.07 $ 23.19
Book value per share excluding accumulated other
comprehensive income $ 20.25 $ 19.42 $ 18.82
8
PRINCIPAL FINANCIAL GROUP, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO U.S. GAAP
(IN MILLIONS, EXCEPT AS INDICATED)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ ---------------------------
6/30/04 6/30/03 6/30/04 6/30/03
-------------- ----------=---- ------------- -------------
DILUTED EARNINGS PER SHARE:
Operating Earnings 0.54 0.51 1.12 0.96
Net realized/unrealized capital losses (0.14) (0.04) (0.21) (0.20)
Other after-tax adjustments (0.03) 0.15 0.07 0.33
-------------- -------------- ------------- -------------
Net income 0.37 0.62 0.98 1.09
============== ============== ============= =============
BOOK VALUE EXCLUDING OTHER COMPREHENSIVE INCOME:
Book value excluding other comprehensive income 20.25 18.82 20.25 18.82
Net unrealized capital gains 2.94 4.83 2.94 4.83
Foreign currency translation (0.51) (0.46) (0.51) (0.46)
Minimum pension liability (0.01) - (0.01) -
-------------- -------------- ------------- -------------
Book value including other comprehensive income 22.67 23.19 22.67 23.19
============== ============== ============= =============
OPERATING REVENUES:
USAMA 906.8 862.0 1,800.1 1,741.9
IAMA 122.3 106.2 235.3 180.7
Life and Health 1,030.7 1,001.8 2,066.0 2,014.1
Mortgage Banking - - - -
Corporate and Other (11.9) (2.0) (10.3) 1.0
-------------- -------------- ------------- -------------
Total operating revenues 2,047.9 1,968.0 4,091.1 3,937.7
Net realized/unrealized capital losses and related fee
adjustments (68.2) (16.5) (114.7) (96.4)
-------------- -------------- ------------- -------------
Total GAAP revenues 1,979.7 1,951.5 3,976.4 3,841.3
============== ============== ============= =============
OPERATING EARNINGS:
USAMA 121.7 105.7 241.2 200.6
IAMA 9.3 11.9 17.9 18.5
Life and Health 56.9 62.9 131.7 122.0
Mortgage Banking (5.4) (4.5) (10.3) (8.4)
Corporate and Other (9.1) (10.4) (20.6) (15.4)
-------------- -------------- ------------- -------------
Total operating earnings 173.4 165.6 359.9 317.3
Net realized/unrealized capital losses (44.5) (13.5) (67.6) (66.6)
Other after-tax adjustments (9.2) 50.1 21.0 107.2
-------------- -------------- ------------- -------------
Net income 119.7 202.2 313.3 357.9
============== ============== ============= =============
NET REALIZED/UNREALIZED CAPITAL GAINS (LOSSES):
Net realized/unrealized capital losses, as adjusted (44.5) (13.5) (67.6) (66.6)
Add:
Amortization of DPAC and sale inducement costs (0.5) 0.4 (2.6) (3.3)
Capital gains (losses) distributed (0.8) 1.9 1.2 1.0
Tax impacts (22.5) (4.9) (45.9) (27.2)
Minority interest capital gains 0.1 (0.4) 0.2 (0.3)
Less related fee adjustments:
Unearned front-end fee income 1.0 (0.1) (0.1) 4.3
Certain market value adjustments to fee revenues (2.9) (6.7) (5.8) (16.5)
-------------- -------------- ------------- -------------
GAAP net realized/unrealized capital losses (66.3) (9.7) (108.8) (84.2)
============== ============== ============= =============
OTHER AFTER TAX ADJUSTMENTS:
SOP 03-1 implementation - - (5.7) -
Discontinued operations - Mortgage Banking (9.5) 52.1 26.5 110.9
Discontinued operations - Argentina 0.3 (1.6) 0.2 (2.6)
Discontinued operations - BT Financial Group - (0.4) - (1.1)
-------------- -------------- ------------- -------------
Total other after-tax adjustments (9.2) 50.1 21.0 107.2
============== ============== ============= =============
9
----------------
1 The decline reflects significantly lower results from mortgage production
operations compared to gains in the prior year period, due to the changing
loan origination environment, partially offset by lower losses from
mortgage servicing rights adjustments.
2 The difference primarily relates to $(6.4) million of losses in second
quarter 2004 related to mark-to-market of seed money investments, compared
to gains of $23.2 million in second quarter 2003.
3 We use a number of non-GAAP financial measures that management believes are
useful to investors because they illustrate the performance of our normal,
ongoing operations, which is important in understanding and evaluating our
financial condition and results of operations. While such measures are
consistent with measures utilized by investors to evaluate performance,
they are not a substitute for U.S. GAAP financial measures. Therefore, we
have provided reconciliations of the non-GAAP financial measures, including
consolidated operating earnings and consolidated operating revenues, to the
most directly comparable U.S. GAAP financial measure at the end of the
release. We adjust U.S. GAAP financial measures for items not directly
related to ongoing operations. However, it is possible that these adjusting
items have occurred in the past and could recur in the future. Management
also uses non-GAAP financial measures for goal setting, determining
employee and senior management awards and compensation, and evaluating
performance on a basis comparable to that used by securities analysts.
4 Full year 2004 guidance is based on certain assumptions, including domestic
equity market performance improvement of roughly 2% per quarter. Other
items that we are unable to predict could significantly affect net income
such as changes to laws, regulations, or accounting standards, litigation,
or gains or losses from discontinued operations.
5 "The Principal Financial Group(R)" and "The Principal(R)" are registered
service marks of Principal Financial Services, Inc., a member of the
Principal Financial Group.
6 As of June 30, 2004.
10