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: APRIL 30, 2007
(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 April 30, 2007, Principal Financial Group, Inc. publicly announced
information regarding its results of operations and financial condition for the
quarter ended March 31, 2007. The text of the announcement is included herewith
as Exhibit 99.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
99 First Quarter 2007 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: May 1, 2007
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 FIRST QUARTER 2007 RESULTS
Des Moines, IA (April 30, 2007) - Principal Financial Group, Inc. (NYSE: PFG)
today announced net income available to common stockholders for the three months
ended March 31, 2007, of $257.1 million, or $0.95 per diluted share compared to
$285.7 million, or $1.01 per diluted share for the three months ended March 31,
2006. The company reported operating earnings of $236.8 million for first
quarter 2007, compared to $240.2 million for first quarter 2006. Operating
earnings per diluted share (EPS) for first quarter 2007 were $0.87 compared to
$0.85 for the same period in 2006.(1)
"We were very pleased with our core asset management and asset accumulation
businesses, where continued strong execution drove strong performance, but
disappointed with first quarter results for our insurance businesses, which were
heavily impacted by unfavorable claims experience," said J. Barry Griswell,
chairman and chief executive officer.
"Earnings in our U.S. and international asset management and accumulation
segments improved 13 percent from a year ago, to $198 million combined," said
Griswell. "Full service accumulation earnings improved 15 percent on strong
growth in account values, reflecting continued strong sales and retention. We
also successfully completed our integration of WM Advisors - mutual fund
earnings more than doubled from a year ago, and we achieved a $1.5 billion
increase in mutual funds sales, reflecting strong early results from our new
third party distribution, and outstanding growth from our existing channels."
"Reflecting continued strong investment performance across asset classes,
Principal Global Investors was awarded $2.2 billion of institutional mandates
during the quarter, including a billion-dollar international growth stock
mandate from Thrivent Investment Management," said Griswell. "Principal Global
Investors' net cash flows were a record $4.4 billion for the quarter,
contributing to $14 billion of net cash flows for the trailing twelve months and
a $52 billion increase in AUM for our asset manager."
"For the full year, we expect strong growth in assets under management and
account values to continue driving double-digit earnings growth for our core
asset management and accumulation businesses," said Griswell. "We also expect
results for our Individual Life and Specialty Benefits divisions to improve as
claims return to more normal levels. While this was a difficult quarter for the
Health division, returns are still very solid, with a 14 percent return on
equity for the trailing twelve months. Importantly, we expect the underlying
3
performance of the Health division to improve as we continue to focus on
expenses and improving network discounts."
"In light of adverse claims experience in the Health division, primarily
related to high deductible health plans, we're establishing total company
EPS guidance of $3.80 to $3.92 for 2007.(2) This compares to the range we
announced in December 2006 of $3.80 to $3.95 per diluted share," said
Griswell. "As always, we're highly focused on building long-term value for
our shareholders. We remain committed to and confident we can achieve our
longer-term performance objectives - 11 to 13 percent average annual growth
in EPS, and roughly 50 basis points average annual improvement in operating
ROE(3)." Additional highlights for first quarter 2007 include:
o Record operating revenues of $2,623.7 million compared to $2,353.9 million
for the same period last year.
o Record assets under management (AUM) of $270.1 billion, up $64.8 billion,
or 32 percent from a year ago(4).
o Continued strong sales of the company's three key retirement and investment
products, including: $2.5 billion for mutual funds; $2.2 billion for
organic full service accumulation; and $0.5 billion for individual
annuities.
SEGMENT HIGHLIGHTS
U.S. ASSET MANAGEMENT AND ACCUMULATION
Segment operating earnings for first quarter 2007 were $178.4 million, compared
to $157.8 million for the same period in 2006. Full service accumulation
generated record earnings of $82.4 million, compared to $71.4 million in first
quarter 2006, as a result of increased fees from higher account values. Full
service accumulation account values were a record $94.9 billion as of March 31,
2007, compared to $82.5 billion as of March 31, 2006. The mutual funds business
also generated record earnings, $11.8 million for the quarter, compared to $5.8
million in first quarter 2006, reflecting earnings from the company's purchase
of WM Advisors, Inc., which closed effective December 31, 2006, and organic
growth in the business.
Operating revenues for the first quarter increased 21 percent to a record
$1,281.7 million compared to $1,060.6 million for the same period in 2006. The
full service accumulation and mutual fund businesses achieved record revenues in
the first quarter, and all businesses in the segment achieved double-digit
revenue growth compared to first quarter 2006.
Segment assets under management were a record $231.5 billion as of March 31,
2007, up 34 percent from $172.9 billion as of March 31, 2006.
INTERNATIONAL ASSET MANAGEMENT AND ACCUMULATION
Segment operating earnings for first quarter 2007 were $19.3 million, compared
to $17.6 million for the same period in 2006 primarily due to higher earnings in
Brazil and Hong Kong.
4
Operating revenues were $141.3 million for first quarter 2007, compared to
$143.4 million for the same period last year as lower sales of payout annuities
in Chile more than offset higher yields on invested assets and 10 percent growth
in fee revenues.
Segment assets under management were a record $22.0 billion as of March 31,
2007, up 36 percent from $16.1 billion as of March 31, 2006.(5)
LIFE AND HEALTH INSURANCE
Segment operating earnings for first quarter 2007 were $45.5 million, compared
to $70.4 million for the same period in 2006. Individual Life division earnings
were $15.4 million, compared to $27.1 million for first quarter 2006. The
decrease from a year ago primarily reflects unfavorable death claim costs, net
of reinsurance, and reduced investment income resulting from a lower asset base,
reflecting the division's release of excess statutory reserves to corporate in
2006. Health division earnings were $11.8 million, compared to $24.2 million for
first quarter 2006, as unfavorable experience related to prior year claim
development reduced division earnings by approximately $15 million. Specialty
Benefits division earnings were $18.3 million, a decline of $0.8 million as
growth in premiums for the division were offset by unfavorable claims costs,
primarily in the group life line.
Operating revenues were $1,212.4 million, a tenth consecutive record quarter for
the segment, and an increase of five percent from the same period in 2006,
primarily due to higher revenues in the Specialty Benefits division.
CORPORATE AND OTHER
Operating losses for first quarter 2007 were $6.4 million, compared to operating
losses of $5.6 million for the same period in 2006. Higher interest expense
related to the company's fourth quarter 2006 debt issuance, was substantially
offset by higher operating earnings from joint venture real estate sales
activity.
DISCLOSURES RELATED TO GUIDANCE
The company also expects 2007 net income available to common stockholders to
range from $3.60 to $3.75 per diluted share. This range reflects the company's
estimate for operating earnings per diluted share, adjusted for the company's
estimate of mortgage and credit losses only for the remainder of the year. There
are a number of items the company does not predict that could significantly
affect net income available to common stockholders and net income available to
common stockholders per diluted share, including, but not limited to:
mark-to-market on derivatives; changes to laws, regulations, or accounting
standards; and gains or losses from discontinued operations. Guidance for 2007
incorporates certain assumptions, including domestic equity market performance
improvement of roughly two percent per quarter. Guidance speaks only as of the
date it is made. The company does not undertake to update annual guidance during
the year, but may do so if significant changes occur in general business
conditions or company operations. Company guidance does not contemplate any
acquisition or divestiture activity other than where a definitive agreement has
been signed by the company and publicly announced.
5
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, 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; a pandemic, terrorist attack or other
catastrophic event; default of the company's re-insurers; and investment
portfolio risks.
SHARE REPURCHASES
On November 28, 2006, the Board authorized the repurchase of up to $250 million
of the company's outstanding common stock. Share repurchase activity under this
program began in January 2007. As of March 31, 2007, the company had repurchased
1.6 million shares under this program, at a cost of $100 million.
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 reporting periods. 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.
EARNINGS CONFERENCE CALL
At 9:00 A.M. (CST) tomorrow, Chairman and CEO J. Barry Griswell, President and
COO Larry Zimpleman, and Executive Vice President and CFO Mike Gersie will lead
a discussion of results 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 (U.S. callers) or (706) 645-9291 (International
callers). The access code for the replay is 3510915. Replays will be available
through May 8, 2007. The financial supplement is currently available on our
website and may be referred to during the conference call.
ABOUT THE PRINCIPAL FINANCIAL GROUP
The Principal Financial Group(R) (The Principal (R))(6) 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
6
companies. A member of the Fortune 500, the Principal Financial Group has $270.1
billion in assets under management(7) and serves some 18.2 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,
--------------------------------------------
SEGMENT 3/31/07 3/31/06
--------------------------------------------------------------------------------
U.S. ASSET MANAGEMENT AND
ACCUMULATION $178.4 $157.8
INTERNATIONAL ASSET MANAGEMENT AND
ACCUMULATION 19.3 17.6
LIFE AND HEALTH INSURANCE 45.5 70.4
CORPORATE AND OTHER (6.4) (5.6)
OPERATING EARNINGS 236.8 240.2
NET REALIZED/UNREALIZED CAPITAL
GAINS, AS ADJUSTED 20.3 24.9
OTHER AFTER-TAX ADJUSTMENTS 0.0 20.6
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS $257.1 $285.7
PER DILUTED SHARE
--------------------------------------------
THREE MONTHS ENDED,
--------------------------------------------
3/31/07 3/31/06
--------------------------------------------
OPERATING EARNINGS $ 0.87 $ 0.85
NET REALIZED/UNREALIZED CAPITAL
GAINS, AS ADJUSTED 0.08 0.09
OTHER AFTER-TAX ADJUSTMENTS 0.00 0.07
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS $ 0.95 $ 1.01
WEIGHTED-AVERAGE DILUTED COMMON
SHARES OUTSTANDING 270.9 281.9
*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 the company
believes are not indicative of overall operating trends. Note: it is possible
these adjusting items 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,
--------------------------------
3/31/07 3/31/06
---------------- ---------------
Premiums and other considerations $1,107.7 $1,041.8
Fees and other revenues 592.5 459.6
Net investment income 923.1 851.9
Net realized/unrealized capital gains 37.6 48.9
---------------- ---------------
TOTAL REVENUES 2,660.9 2,402.2
---------------- ---------------
Benefits, claims, and settlement expenses 1,498.0 1,341.8
Dividends to policyholders 74.0 71.9
Operating expenses 754.7 615.2
---------------- ---------------
TOTAL EXPENSES 2,326.7 2,028.9
---------------- ---------------
Income from continuing operations before
income taxes 334.2 373.3
Income taxes 68.9 79.6
---------------- ---------------
Income from continuing operations, net of
related income taxes 265.3 293.7
Income from discontinued operations, net of
related taxes 0.0 0.2
---------------- ---------------
NET INCOME 265.3 293.9
Preferred stock dividends 8.2 8.2
---------------- ---------------
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS $ 257.1 $ 285.7
Less:
Net realized/unrealized capital gains, as
adjusted 20.3 24.9
Other after-tax adjustments 0.0 20.6
---------------- ---------------
OPERATING EARNINGS $ 236.8 $ 240.2
================ ===============
SELECTED BALANCE SHEET STATISTICS
PERIOD ENDED,
-----------------------------------------
3/31/07 12/31/06 3/31/06
----------- ---------------- ------------
Total assets (in billions) $ 146.6 $ 143.7 $ 132.0
Total common equity (in millions) $ 7,565.0 $7,318.8 $7,056.7
Total common equity excluding
accumulated other comprehensive
income (in millions) $ 6,667.3 $6,471.9 $ 6,417.4
End of period common shares outstanding
(in millions) 267.4 268.4 277.6
Book value per common share $ 28.29 $ 27.27 $ 25.42
Book value per common share excluding
accumulated other comprehensive
income $ 24.93 $ 24.11 $ 23.12
9
PRINCIPAL FINANCIAL GROUP, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO U.S. GAAP
(IN MILLIONS, EXCEPT AS INDICATED)
THREE MONTHS ENDED,
------------------------------------
3/31/07 3/31/06
------------------- ----------------
DILUTED EARNINGS PER COMMON SHARE:
Operating Earnings 0.87 0.85
Net realized/unrealized capital gains 0.08 0.09
Other after-tax adjustments 0.00 0.07
------------------- ----------------
Net income available to common
stockholders 0.95 1.01
=================== ================
BOOK VALUE PER COMMON SHARE EXCLUDING
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Book value per common share excluding
accumulated other comprehensive income 24.93 23.12
Net unrealized capital gains 3.41 2.43
Foreign currency translation (0.10) (0.09)
Net unrecognized post-retirement benefit
obligations 0.05 -
Minimum pension liability - (0.04)
------------------- ----------------
Book value per common share including
accumulated other comprehensive income 28.29 25.42
=================== ================
OPERATING REVENUES:
USAMA 1,281.7 1,060.6
IAMA 141.3 143.4
Life and Health 1,212.4 1,159.6
Corporate and Other (11.7) (9.7)
------------------- ----------------
Total operating revenues 2,623.7 2,353.9
Add: Net realized/unrealized capital
gains and related fee adjustments 37.2 48.6
Less: Operating revenues from
discontinued real estate 0.0 0.3
------------------- ----------------
Total GAAP revenues 2,660.9 2,402.2
=================== ================
OPERATING EARNINGS:
USAMA 178.4 157.8
IAMA 19.3 17.6
Life and Health 45.5 70.4
Corporate and Other (6.4) (5.6)
------------------- ----------------
Total operating earnings 236.8 240.2
Net realized/unrealized capital gains 20.3 24.9
Other after-tax adjustments 0.0 20.6
------------------- ----------------
Net income available to common stockholders 257.1 285.7
=================== ================
NET REALIZED/UNREALIZED CAPITAL GAINS:
Net realized/unrealized capital gains,
as adjusted 20.3 24.9
Add:
Amortization of DPAC and sale inducement
costs 0.7 0.6
Capital gains distributed 2.0 3.6
Tax impacts 12.9 15.9
Minority interest capital gains 1.3 3.6
Less related fee adjustments:
Unearned front-end fee income 0.4 0.6
Certain market value adjustments to
fee revenues (0.8) (0.9)
------------------- ----------------
GAAP net realized/unrealized capital gains 37.6 48.9
=================== ================
OTHER AFTER TAX ADJUSTMENTS:
IRS Audit Issue - 20.6
------------------- ----------------
Total other after-tax adjustments 0.0 20.6
=================== ================
10
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(1) Use of non-GAAP financial measures is discussed in this release after
Segment Highlights.
(2) Disclosures related to guidance are discussed in this release after Segment
Highlights.
(3) Operating return on average equity excluding other comprehensive income
(4) Total company AUM, as well as AUM in the U.S. Asset Management and
Accumulation segment, includes assets under management from the company's
acquisition of WM Advisors, Inc., which were $27.9 billion as of closing,
effective Dec. 31, 2006.
(5) Includes $2.2 billion of AUM from operations acquired during first quarter
2007 by CIMB-Principal , the company's joint venture in Malaysia.
(6) "The Principal Financial Group" and "The Principal" are registered service
marks of Principal Financial Services, Inc., a member of the Principal
Financial Group.
(7) As of March 31, 2007
11