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: JULY 31, 2006
(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)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
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ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On July 31, 2006, Principal Financial Group, Inc. publicly announced information
regarding its results of operations and financial condition for the quarter
ended June 30, 2006. The text of the announcement is included herewith as
Exhibit 99.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
99 Second Quarter 2006 Earnings Release
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 1, 2006
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 2006 RESULTS
Des Moines, IA (July 31, 2006) - Principal Financial Group, Inc. (NYSE: PFG)
today announced net income available to common stockholders for the three months
ended June 30, 2006, of $210.5 million, or $0.76 per diluted share compared to
net income available to common stockholders of $238.9 million, or $0.82 per
diluted share for the three months ended June 30, 2005. The company reported
operating earnings of $225.2 million for second quarter 2006, compared to $221.0
million for second quarter 2005. Operating earnings per diluted share (EPS) for
second quarter 2006 were $0.82 compared to $0.76 for the same period in 2005.
Operating revenues for second quarter 2006 were $2,467.3 million compared to
$2,190.8 million for the same period last year.(1)
"At $225 million of operating earnings, the June quarter was one of our best,
second only to our record first quarter 2006 performance," said J. Barry
Griswell, chairman and chief executive officer. "Through mid-year, EPS is up 16
percent, an extremely strong result as we continue to effectively execute our
growth strategy and manage our capital."
"In spite of second quarter equity market declines, U.S. Asset Management and
Accumulation earnings were up 16 percent from a year ago, driven by double-digit
earnings growth from full service accumulation and individual annuities, and
record earnings and 50-plus percent improvement from Principal Global Investors
and mutual funds," said Griswell. "Reflecting significant underlying growth in
account values and assets under management (AUM), U.S. Asset Management and
Accumulation earnings were up 15 percent, and International Asset Management and
Accumulation earnings were up 18 percent, combining for 74 percent of total
company earnings through six months."
"From a year ago, account values in our U.S. asset accumulation businesses are
up 14 percent, or nearly $16 billion. Principal Global Investors' third party
institutional assets under management are up $8 billion, or 20 percent, and
Principal International's AUM is up nearly $3 billion, or 23 percent,(2)" said
Griswell. "These gains reflect the competitive strength of our retirement and
income management offerings, strong investment performance from Principal Global
Investors, and our ongoing focus on distribution and customer satisfaction."
3
Additional highlights as of June 30, 2006:
o Record total company assets under management of $206.0 billion, an increase
of $24.7 billion, or 14 percent compared to June 30, 2005.
o Continued strong organic sales of the company's key retirement and
investment products. Through six months: full service accumulation sales
were $4.0 billion, up 57 percent ($1.1 billion of sales in second quarter
2006); mutual fund sales were $2.0 billion, up 20 percent; and individual
annuity sales were $1.2 billion, up 13 percent.
o Record operating revenues of $1.2 billion in second quarter 2006 for the
Life and Health Insurance segment, a seventh consecutive record quarter,
driven by record revenues from the Health and Specialty Benefits divisions.
Specialty Benefits also delivered record operating earnings of $25.7
million in the second quarter, up 21 percent from the prior year period.
SEGMENT HIGHLIGHTS
U.S. ASSET MANAGEMENT AND ACCUMULATION
Segment operating earnings for second quarter 2006 were $151.2 million, compared
to $130.5 million for the same period in 2005. Principal Global Investors
generated record earnings for the quarter of $24.1 million, a 51 percent
increase, reflecting management fee growth in all lines. Full service
accumulation earnings improved 12 percent to $69.6 million in second quarter,
primarily the result of increased fees generated from higher account values.
Full service accumulation account values were $82.4 billion as of June 30, 2006
compared to $71.0 billion as of June 30, 2005.
Operating revenues for the second quarter increased 15 percent to $1,116.2
million compared to $971.1 million for the same period in 2005, as revenues
increased in all businesses within the segment. Higher single premium group
annuities sales were the largest single contributor to the increase. The
product, typically used to fund defined benefit plan terminations, can generate
large premiums from very few customers and therefore tends to vary from period
to period. Excluding this product, segment revenues increased nine percent,
primarily due to record revenues in the full service accumulation, individual
annuities and mutual funds businesses.
Segment assets under management continued to increase, reaching a record $174.9
billion as of June 30, 2006, up 13 percent from $154.8 billion as of June 30,
2005.
INTERNATIONAL ASSET MANAGEMENT AND ACCUMULATION
Segment operating earnings for second quarter 2006 were $16.1 million. This
compares to second quarter 2005 earnings of $19.1 million. On a comparable basis
earnings improved from a year ago, excluding high inflation linked investment
yields in Chile and a tax benefit associated with the American Jobs Creation Act
in second quarter 2005.
Operating revenues were $164.2 million for second quarter 2006, compared to
$158.2 million for the same period last year, as favorable currency translation
in Chile and Brazil was partially offset by lower sales of single premium
annuities with life contingencies in Mexico and Chile.
Assets under management for the segment were $16.3 billion as of June 30, 2006,
compared to $11.8 billion as of June 30, 2005.
4
LIFE AND HEALTH INSURANCE
Segment operating earnings for second quarter 2006 were $65.2 million. Compared
to the year ago quarter, higher earnings in the Specialty Benefits division, due
to solid growth and a $3.4 million benefit from a long-term disability reserve
refinement, were more than offset by lower earnings in the Individual Life and
Health divisions. Second quarter 2005 earnings of $76.3 million included a $6.6
million benefit in the Individual Life division, primarily from methodology
improvements related to reinsurance values, as well as better than normal claims
experience in the group disability and insured medical lines. Individual life
earnings also declined from a year ago due to higher claims in second quarter
2006.
For the seventh consecutive quarter the segment generated record operating
revenues, an increase of nine percent from the same period in 2005. The 16
percent increase in Specialty Benefits revenues was driven by strong sales and
steady retention in each of the Specialty Benefits lines. Health revenues
increased 11 percent, primarily due to a nine percent increase in insured
medical covered members. Individual Life revenues decreased slightly, 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 deposits are not reported as GAAP revenue.
CORPORATE AND OTHER
Operating losses for second quarter 2006 were $7.3 million, compared to
operating losses of $4.9 million for the same period in 2005. Higher losses in
second quarter 2006 reflect the second quarter 2006 declaration of a preferred
stock dividend, the cost of which reduced segment operating earnings by $8.3
million, with no corresponding activity in the second quarter 2005. The earnings
impact of this item was substantially offset by $5.4 million of higher operating
earnings from joint venture real estate activity in second quarter 2006 compared
to second quarter 2005.
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. The company does not
undertake to update these statements, which 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, 2005, and in the
company's quarterly report on Form 10-Q for the quarter ended March 31, 2006,
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
USE OF NON-GAAP FINANCIAL MEASURES
The company uses a number of non-GAAP financial measures that management
believes are useful to investors because they illustrate the performance of
normal, ongoing operations, which is important in understanding and evaluating
the company's financial condition and results of operations. They are not,
however, a substitute for U.S. GAAP financial measures. Therefore, the company
has provided reconciliations of the non-GAAP measures to the most directly
comparable U.S. GAAP measure at the end of the release. The company adjusts U.S.
GAAP measures for items not directly related to ongoing operations. However, it
is possible these adjusting items have occurred in the past and could recur in
the future. Management also uses non-GAAP measures for goal setting, determining
employee and senior management awards and compensation, and evaluating
performance on a basis comparable to that used by investors and securities
analysts.
SHARE REPURCHASES
In May 2006, the company completed the $250 million share repurchase program
authorized by the Board in November 2005. Under this program, the company
repurchased 5.1 million common shares for a cost of $250.0 million. Also in May
2006, following the Board's share repurchase authorization of up to $500
million, the company entered into an accelerated common stock repurchase
agreement with an investment bank. Under this agreement, the company paid $500
million and received an initial delivery of approximately 7.7 million common
shares, while retaining the right to receive additional common shares depending
on the volume weighted average share price of the company's common stock over
the program's execution period. The program is expected to be completed in
fourth quarter 2006, at which time the company will receive any remaining common
shares owed to it under the agreement.
EARNINGS CONFERENCE CALL
At 9:00 A.M. (CDT) tomorrow, Chairman 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 company's Investor Relations (IR) website
(www.principal.com/investor) or by dialing (800) 374-1609 (U.S. 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 callers) or (706) 645-9291 (International callers). The access code
for the replay is 2068246. Replays will be available through August 8, 2006. The
financial supplement is currently available on our website and may be referred
to during the conference call.
6
ABOUT THE PRINCIPAL FINANCIAL GROUP The Principal
Financial Group(R) (The Principal (R))(3) 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 $206.0
billion in assets under management(4) and serves some 16.3 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.
###
7
SUMMARY OF SEGMENT AND PRINCIPAL FINANCIAL GROUP, INC. RESULTS
OPERATING EARNINGS (LOSS)* IN MILLIONS
------------------------------ ------------------------------
THREE MONTHS ENDED, SIX MONTHS ENDED,
SEGMENT 6/30/06 6/30/05 6/30/06 6/30/05
---------------------------------------------------- --------------- -------------- -------------- ---------------
U.S. ASSET MANAGEMENT AND ACCUMULATION $151.2 $130.5 $309.0 $269.1
---------------------------------------------------- --------------- -------------- -------------- ---------------
INTERNATIONAL ASSET MANAGEMENT AND ACCUMULATION 16.1 19.1 33.7 28.6
---------------------------------------------------- --------------- -------------- -------------- ---------------
LIFE AND HEALTH INSURANCE 65.2 76.3 135.6 145.8
---------------------------------------------------- --------------- -------------- -------------- ---------------
CORPORATE AND OTHER (7.3) (4.9) (12.9) (13.3)
---------------------------------------------------- --------------- -------------- -------------- ---------------
OPERATING EARNINGS 225.2 221.0 465.4 430.2
---------------------------------------------------- --------------- -------------- -------------- ---------------
NET REALIZED/UNREALIZED CAPITAL
GAINS (LOSSES), AS ADJUSTED (12.9) 3.2 12.0 (0.5)
---------------------------------------------------- --------------- -------------- -------------- ---------------
OTHER AFTER-TAX ADJUSTMENTS (1.8) 14.7 18.8 14.7
---------------------------------------------------- --------------- -------------- -------------- ---------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $210.5 $238.9 $496.2 $444.4
---------------------------------------------------- --------------- -------------- -------------- ---------------
PER DILUTED SHARE
------------------------------ ------------------------------
THREE MONTHS ENDED, SIX MONTHS ENDED,
--------------- -------------- -------------- ---------------
6/30/06 6/30/05 6/30/06 6/30/05
--------------- -------------- -------------- ---------------
OPERATING EARNINGS $ 0.82 $ 0.76 $ 1.67 $ 1.44
---------------------------------------------------- --------------- -------------- -------------- ---------------
NET REALIZED/UNREALIZED CAPITAL
GAINS (LOSSES), AS ADJUSTED (0.05) 0.01 0.04 --
---------------------------------------------------- --------------- -------------- -------------- ---------------
OTHER AFTER-TAX ADJUSTMENTS (0.01) 0.05 0.07 0.05
---------------------------------------------------- --------------- -------------- -------------- ---------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 0.76 $ 0.82 $ 1.78 $ 1.49
---------------------------------------------------- --------------- -------------- -------------- ---------------
WEIGHTED-AVERAGE DILUTED COMMON SHARES OUTSTANDING 276.2 291.4 279.0 298.2
--------------- -------------- -------------- ---------------
*OPERATING EARNINGS VERSUS U.S. GAAP (GAAP) NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS
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 investors and securities
analysts. Segment operating earnings are determined by adjusting U.S. GAAP net
income available to common stockholders 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, management believes the presentation of
segment operating earnings enhances the understanding of our results of
operations by highlighting earnings attributable to the normal, ongoing
operations of the company's businesses.
8
PRINCIPAL FINANCIAL GROUP, INC.
RESULTS OF OPERATIONS
(IN MILLIONS)
-----------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
---------------- --------------- --------------- ---------------
6/30/06 6/30/05 6/30/06 6/30/05
---------------- --------------- --------------- ---------------
Premiums and other considerations $ 1,104.6 $ 948.9 $ 2,146.4 $ 1,883.0
Fees and other revenues 451.3 405.3 900.1 822.5
Net investment income 911.6 836.0 1,763.8 1,629.9
Net realized/unrealized capital gains (losses) (19.1) 10.2 29.8 8.7
---------------- --------------- --------------- ---------------
TOTAL REVENUES 2,448.4 2,200.4 4,840.1 4,344.1
---------------- --------------- --------------- ---------------
Benefits, claims, and settlement expenses 1,459.6 1,264.5 2,801.4 2,498.8
Dividends to policyholders 72.5 72.2 144.4 145.1
Operating expenses 619.8 580.8 1,224.2 1,137.7
---------------- --------------- --------------- ---------------
TOTAL EXPENSES 2,151.9 1,917.5 4,170.0 3,781.6
---------------- --------------- --------------- ---------------
Income from continuing operations before
income taxes 296.5 282.9 670.1 562.5
Income taxes 77.7 59.3 157.4 134.0
---------------- --------------- --------------- ---------------
Income from continuing operations, net of
related income taxes 218.8 223.6 512.7 428.5
Income from discontinued operations, net of
related taxes -- 15.3 -- 15.9
---------------- --------------- --------------- ---------------
NET INCOME 218.8 238.9 512.7 444.4
Preferred stock dividends 8.3 -- 16.5 --
---------------- --------------- --------------- ---------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 210.5 $ 238.9 $ 496.2 $ 444.4
Less:
Net realized/unrealized capital gains
(losses), as adjusted (12.9) 3.2 12.0 (0.5)
Other after-tax adjustments (1.8) 14.7 18.8 14.7
---------------- --------------- --------------- ---------------
OPERATING EARNINGS $ 225.2 $ 221.0 $ 465.4 $ 430.2
================ =============== =============== ===============
SELECTED BALANCE SHEET STATISTICS
PERIOD ENDED
------------------------------------------------------------
06/30/06 12/31/05 06/30/05
-------------------- --------------------- -----------------
Total assets (in billions) $ 131.4 $ 127.0 $ 117.2
Total common equity (in millions) $ 6,302.7 $ 7,265.2 $ 7,310.1
Total common equity excluding accumulated other
comprehensive income (in millions) $ 6,084.2 $ 6,270.4 $ 5,856.2
End of period common shares outstanding
(in millions) 269.1 280.6 279.4
Book value per common share $ 23.42 $ 25.89 $ 26.16
Book value per common share excluding
accumulated other comprehensive income $ 22.61 $ 22.35 $ 20.96
9
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
----------------------------- --------------------------------
6/30/06 6/30/05 6/30/06 6/30/05
--------------- -------------- --------------- ----------------
DILUTED EARNINGS PER COMMON SHARE:
Operating Earnings 0.82 0.76 1.67 1.44
Net realized/unrealized capital gains (losses) (0.05) 0.01 0.04 -
Other after-tax adjustments (0.01) 0.05 0.07 0.05
--------------- -------------- --------------- ----------------
Net income available to common stockholders 0.76 0.82 1.78 1.49
=============== ============== =============== ================
BOOK VALUE PER COMMON SHARE EXCLUDING ACCUMULATED OTHER
COMPREHENSIVE INCOME:
Book value per common share excluding accumulated other
comprehensive income 22.61 20.96 22.61 20.96
Net unrealized capital gains 1.05 5.46 1.05 5.46
Foreign currency translation (0.20) (0.24) (0.20) (0.24)
Minimum pension liability (0.04) (0.02) (0.04) (0.02)
--------------- -------------- --------------- ----------------
Book value per common share including accumulated other
comprehensive income 23.42 26.16 23.42 26.16
=============== ============== =============== ================
OPERATING REVENUES:
USAMA 1,116.2 971.1 2,166.0 1,928.4
IAMA 164.2 158.2 307.6 291.0
Life and Health 1,183.1 1,089.5 2,342.7 2,158.1
Corporate and Other 3.8 (28.0) (5.9) (38.1)
--------------- -------------- --------------- ----------------
Total operating revenues 2,467.3 2,190.8 4,810.4 4,339.4
Add: Net realized/unrealized capital gains (losses)
and related fee adjustments (18.9) 10.6 29.7 6.6
Less: Operating revenues from discontinued real estate - 1.0 - 1.9
--------------- -------------- --------------- ----------------
Total GAAP revenues 2,448.4 2,200.4 4,840.1 4,344.1
=============== ============== =============== ================
OPERATING EARNINGS:
USAMA 151.2 130.5 309.0 269.1
IAMA 16.1 19.1 33.7 28.6
Life and Health 65.2 76.3 135.6 145.8
Corporate and Other (7.3) (4.9) (12.9) (13.3)
--------------- -------------- --------------- ----------------
Total operating earnings 225.2 221.0 465.4 430.2
Net realized/unrealized capital gains (losses) (12.9) 3.2 12.0 (0.5)
Other after-tax adjustments (1.8) 14.7 18.8 14.7
--------------- -------------- --------------- ----------------
Net income available to common stockholders 210.5 238.9 496.2 444.4
=============== ============== =============== ================
NET REALIZED/UNREALIZED CAPITAL GAINS (LOSSES):
Net realized/unrealized capital gains (losses), as (12.9) 3.2 12.0 (0.5)
adjusted
Add:
Amortization of DPAC and sale inducement costs 0.6 4.4 1.2 3.9
Capital gains (losses) distributed - (0.2) 3.6 1.2
Tax impacts (4.8) 3.0 11.1 1.8
Minority interest capital gains (losses) (1.8) 0.2 1.8 0.2
Less related fee adjustments:
Unearned front-end fee income 0.5 1.4 1.1 1.8
Certain market value adjustments to fee revenues (0.3) (1.0) (1.2) (3.9)
--------------- -------------- --------------- ----------------
GAAP net realized/unrealized capital gains (losses) (19.1) 10.2 29.8 8.7
=============== ============== =============== ================
OTHER AFTER TAX ADJUSTMENTS:
IRS Audit Issue (1.8) - 18.8 -
Gain on disposal of discontinued real estate investments - 14.7 - 14.7
--------------- -------------- --------------- ----------------
Total other after-tax adjustments (1.8) 14.7 18.8 14.7
=============== ============== =============== ================
10
-------------
(1) Use of non-GAAP financial measures is discussed in this release after
Segment Highlights.
(2) In third quarter 2005, Principal International increased ownership is its
Malaysian joint venture (JV). As a result, AUM of $1.8 billion is included
in total AUM as of September 30, 2005. The increase in AUM above is on an
organic basis, and excludes the AUM associated with increased JV ownership.
(3) "The Principal Financial Group" and "The Principal" are registered service
marks of Principal Financial Services, Inc., a member of the Principal
Financial Group.
(4) As of June 30, 2006
11