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: OCTOBER 29, 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 October 29, 2007, Principal Financial Group, Inc. publicly announced
information regarding its results of operations and financial condition for the
quarter ended September 30, 2007. The text of the announcement is included
herewith as Exhibit 99.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
99 Third 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: October 30, 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 THIRD QUARTER 2007 RESULTS
Des Moines, IA (October 29, 2007) - Principal Financial Group, Inc. (NYSE: PFG)
today announced net income available to common stockholders for the three months
ended September 30, 2007, of $232.3 million(1), or $0.87 per diluted share
compared to $251.0 million, or $0.92 per diluted share for the three months
ended September 30, 2006. The company reported record operating earnings of
$312.9 million for third quarter 2007, compared to $254.7 million for third
quarter 2006(2). Operating earnings per diluted share for third quarter 2007
were a record $1.17 compared to $0.94 for the same period in 2006.(3)
"We're particularly pleased with third quarter 2007 performance, which coupled
continued strength and momentum in our asset management and accumulation
businesses with solid underlying earnings from the Life and Health Insurance
segment," said J. Barry Griswell, chairman and chief executive officer.
"Our U.S. and International Asset Management and Accumulation segments continue
to achieve significant growth in assets under management (AUM), driving total
company AUM up 42 percent, or $91 billion from a year ago, to a record $306
billion.(4) Approximately half of the increase is from strategic acquisitions,
the other half, from strong organic growth," said Griswell. "Growth in AUM, in
turn, is driving significant growth in operating earnings and operating earnings
per share, which are up 16 percent and 19 percent, respectively, year-to-date."
Added Larry Zimpleman, president and chief operating officer, "We believe this
strong financial performance and growth reflects our constant attention - to the
needs of our customers, and the financial advisors and consultants who serve
them."
"To meet those needs, we remain sharply focused on a number of key areas:
managing assets appropriate for retirement savings and other long-term
investment strategies; achieving strong investment performance; and delivering
bundled, cost-effective solutions like Total Retirement SUITE SM, which provides
meaningful benefits to plan sponsors and participants alike," said Zimpleman.
3
"That focus is driving continued strong sales and retention. Total company net
cash flows, nearly $19 billion over the trailing twelve months, include a record
$3.2 billion for U.S. Asset Accumulation in the third quarter, Principal Global
Investors' second best quarter of institutional net cash flows, at $2.8 billion,
and a record $1.5 billion of net cash flows for Principal International."
Additional highlights as of September 30, 2007:
o Record operating revenues for third quarter 2007 of $2,938.8 million
compared to $2,456.3 million for the same period a year ago.
o Record ROE(5) of 16.3 percent compared to 15.1 percent for the trailing
twelve months ended September 30, 2006.
o Continued strong organic sales of the company's key retirement and
investment products for the nine months ended September 30, 2007,
including: full service accumulation sales of $7.1 billion, up 32 percent
(record sales of $3.4 billion in third quarter 2007); mutual fund sales of
$6.7 billion, up 137 percent (sales of $2.0 billion in third quarter 2007);
and individual annuity sales of $2.3 billion, up 24 percent (record sales
of $1.2 billion in third quarter 2007).
SEGMENT HIGHLIGHTS
U.S. ASSET MANAGEMENT AND ACCUMULATION
Segment operating earnings for third quarter 2007 were a record $211.9 million,
compared to $157.4 million for the same period in 2006. Full service
accumulation earnings of $111.0 million for third quarter 2007 compare to $73.5
million for the same period a year ago, reflecting increased fees from higher
account values, and a $30.1 million benefit from unlocking deferred revenue and
expense assumptions, partially offset by a $2.2 million tax refinement charge.
Full service accumulation account values were $103.3 billion as of September 30,
2007, compared to $85.1 billion as of September 30, 2006.
Operating revenues were a record $1,509.8 million for third quarter 2007,
compared to $1,111.3 million for the same period in 2006. Excluding recognition
of previously deferred revenues as a result of assumption refinements described
above, segment revenues improved 27 percent, reflecting 20-plus percent revenue
growth in five of the segment's seven businesses.
Segment assets under management were a record $262.4 billion as of September 30,
2007, compared to $181.2 billion as of September 30, 2006.
INTERNATIONAL ASSET MANAGEMENT AND ACCUMULATION
Segment operating earnings for third quarter 2007 were a record $39.3 million
compared to $23.2 million for the same period in 2006. The increase from the
year ago quarter reflects continued strong growth in assets under management,
and a $9.2 million unlocking benefit from newly enacted regulations in Mexico,
which changed the fee and compensation structure of Mexican pension companies.
Third quarter 2007 earnings also included a $5.1 million experience benefit from
higher yields on invested assets in Chile due to unusually high inflation.
4
Operating revenues were a record $224.6 million for third quarter 2007, compared
to $169.2 million for the same period in 2006, primarily due to higher yields on
invested assets in Chile.
Segment assets under management were a record $26.9 billion as of September 30,
2007, compared to $17.8 billion as of September 30, 2006.
LIFE AND HEALTH INSURANCE
Segment operating earnings for third quarter 2007 were $73.4 million, compared
to $82.0 million for the same period in 2006. As previously disclosed, third
quarter 2006 earnings benefited by a total of $12.0 million, from reserve
refinements in the Health and Specialty Benefits divisions, and deferred policy
acquisition cost unlocking in the Individual Life division. Third quarter 2006
also benefited from earnings on a higher capital base in the Individual Life
division. Excluding these items, segment earnings improved 7 percent compared to
the year ago quarter, reflecting record earnings in the Specialty Benefits
division and solid underlying growth in the Individual Life division. Health
earnings declined from a year ago, primarily due to worsened loss ratios and a
decline in covered members, partially offset by expense improvements.
Operating revenues for third quarter 2007 were $1,211.6 million, an increase of
two percent from the same period in 2006. Specialty Benefits continued to
achieve strong growth, with revenues improving 12 percent from a year ago.
Individual Life revenues increased 4 percent, reflecting solid growth in
fee-based universal life and variable universal life products. Health revenues
decreased 5 percent, primarily due to lower insured medical covered members.
CORPORATE AND OTHER
Operating losses for third quarter 2007 were $11.7 million, compared to
operating losses of $7.9 million for the same period in 2006, reflecting higher
interest expense associated with the company's fourth quarter 2006 issuance of
long-term debt.
COMPANY OUTLOOK
The company has no current guidance for 2007 operating earnings per diluted
share. The most recent guidance for this measure was provided by the company, in
a public release, on April 30, 2007. As a reminder, company 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.
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, and in the
company's quarterly report on Form 10-Q for the quarter ended June 30, 2007,
filed by the company with the Securities and Exchange Commission. These risks
5
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.
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
On November 28, 2006, the Board authorized the repurchase of up to $250 million
of the company's outstanding common stock. This program was completed in July
2007, with third quarter repurchases of 0.6 million shares for $32.2 million. On
May 22, 2007, the Board authorized the repurchase of up to $250 million of the
company's outstanding common stock. During the third quarter, the company
repurchased 3.2 million shares for a cost of $180.0 million, under the May 2007
authorization. The company completed the remaining $70 million of that
authorization in October 2007, repurchasing 1.1 million shares.
EARNINGS CONFERENCE CALL
At 9:00 A.M. (CT) 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 (US callers) or (706) 645-9291 (International
callers). The access code for the replay is 16893229. Replays will be available
through November 6, 2007. The financial supplement is currently available on
company's 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
companies. A member of the Fortune 500, the Principal Financial Group has $306.0
billion in assets under management(7) and serves some 18.3 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.
###
6
SUMMARY OF SEGMENT AND PRINCIPAL FINANCIAL GROUP, INC. RESULTS
OPERATING EARNINGS (LOSS)* IN MILLIONS
THREE MONTHS ENDED, NINE MONTHS ENDED,
--------------------------------------------------------------------------
SEGMENT 9/30/07 9/30/06 9/30/07 9/30/06
--------------------------------------------------------------- ----------------- --------------- ----------------
U.S. ASSET MANAGEMENT AND ACCUMULATION $211.9 $157.4 $587.0 $466.4
--------------------------------------------------------------- ----------------- --------------- ----------------
INTERNATIONAL ASSET MANAGEMENT AND ACCUMULATION 39.3 23.2 85.3 56.9
--------------------------------------------------------------- ----------------- --------------- ----------------
LIFE AND HEALTH INSURANCE 73.4 82.0 179.0 217.6
------------------------------------------------- ------------- --------------- ----------------- ----------------
CORPORATE AND OTHER (11.7) (7.9) (18.7) (20.8)
---------------------------------------------- ---------------- --------------- ----------------- ----------------
OPERATING EARNINGS 312.9 254.7 832.6 720.1
--------------------------------------------------------------- ----------------- --------------- ----------------
NET REALIZED/UNREALIZED CAPITAL
GAINS (LOSSES), AS ADJUSTED (59.4) (3.7) (18.2) 8.3
--------------------------------------------------------------- ----------------- --------------- ----------------
OTHER AFTER-TAX ADJUSTMENTS (21.2) 0.0 (21.2) 18.8
--------------------------------------------------------------- ----------------- --------------- ----------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $232.3 $251.0 $793.2 $747.2
------------------------------------------------------------------------------------------------------------------
PER DILUTED SHARE
THREE MONTHS ENDED, NINE MONTHS ENDED,
--------------------------------------------------------------------------
9/30/07 9/30/06 9/30/07 9/30/06
OPERATING EARNINGS $ 1.17 $ 0.94 $ 3.09 $ 2.60
--------------------------------------------------------------- ----------------- --------------- ----------------
NET REALIZED/UNREALIZED CAPITAL
GAINS (LOSSES), AS ADJUSTED (0.22) (0.02) (0.07) 0.03
--------------------------------------------------------------- ----------------- --------------- ----------------
OTHER AFTER-TAX ADJUSTMENTS (0.08) 0.00 (0.08) 0.07
--------------------------------------------------------------- ----------------- --------------- ----------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 0.87 $ 0.92 $ 2.94 $ 2.70
--------------------------------------------------------------- ----------------- --------------- ----------------
WEIGHTED-AVERAGE DILUTED COMMON SHARES
OUTSTANDING (IN MILLIONS) 267.3 272.1 269.5 276.7
--------------------------------------------------------------- ----------------- --------------- ----------------
*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: 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 the company's consolidated financial performance, management believes
the presentation of segment operating earnings enhances the understanding of
results of operations by highlighting earnings attributable to the normal,
ongoing operations of the company's businesses.
7
PRINCIPAL FINANCIAL GROUP, INC.
RESULTS OF OPERATIONS
(IN MILLIONS)
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------- ------------------------------
9/30/07 9/30/06 9/30/07 9/30/06
---------------- --------------- -------------- ---------------
Premiums and other considerations $1,171.4 $1,060.0 $3,456.0 $ 3,206.4
Fees and other revenues 738.5 465.3 1,953.9 1,387.5
Net investment income 1,028.9 931.0 2,928.4 2,694.6
Net realized/unrealized capital gains (losses) (89.3) (6.7) 3.7 23.1
---------------- --------------- -------------- ---------------
TOTAL REVENUES 2,849.5 2,449.6 8,342.0 7,311.6
---------------- --------------- -------------- ---------------
Benefits, claims, and settlement expenses 1,643.2 1,426.2 4,725.9 4,227.6
Dividends to policyholders 73.9 73.0 221.9 217.4
Operating expenses 800.9 619.5 2,316.0 1,865.8
---------------- --------------- -------------- ---------------
TOTAL EXPENSES 2,518.0 2,118.7 7,263.8 6,310.8
---------------- --------------- -------------- ---------------
Income from continuing operations before income
taxes 331.5 330.9 1,078.2 1,000.8
Income taxes 91.0 72.1 260.3 229.4
---------------- --------------- -------------- ---------------
Income from continuing operations, net of related 240.5 258.8 817.9 771.4
income taxes
Income from discontinued operations, net of
related taxes 0.0 0.4 0.0 0.5
-------------- --------------- -------------- ---------------
NET INCOME 240.5 259.2 817.9 771.9
Preferred stock dividends 8.2 8.2 24.7 24.7
------------- --------------- -------------- ---------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 232.3 $251.0 $ 793.2 $ 747.2
Less:
Net realized/unrealized capital gains (losses),
as adjusted (59.4) (3.7) (18.2) 8.3
Other after-tax adjustments (21.2) 0.0 (21.2) 18.8
------------- --------------- -------------- ---------------
OPERATING EARNINGS $ 312.9 $254.7 $ 832.6 $ 720.1
============= =============== ============== ===============
SELECTED BALANCE SHEET STATISTICS
PERIOD ENDED
------------------------------------------------------------
09/30/07 12/31/06 09/30/06
-------------------- --------------------- -----------------
Total assets (in billions) $ 155.6 $ 143.7 $ 136.2
Total common equity (in millions) $7,326.3 $ 7,318.8 $ 7,146.1
Total common equity excluding accumulated other
comprehensive income (in millions) $6,937.9 $ 6,471.9 $ 6,368.5
End of period common shares outstanding
(in millions) 262.5 268.4 269.6
Book value per common share $ 27.91 $ 27.27 $ 26.51
Book value per common share excluding
accumulated other comprehensive income $ 26.43 $ 24.11 $ 23.62
8
PRINCIPAL FINANCIAL GROUP, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO U.S. GAAP
(IN MILLIONS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- ------------------------------
9/30/07 9/30/06 9/30/07 9/30/06
--------------- --------------- --------------- ---------------
DILUTED EARNINGS PER COMMON SHARE:
Operating Earnings 1.17 0.94 3.09 2.60
Net realized/unrealized capital gains (losses) (0.22) (0.02) (0.07) 0.03
Other after-tax adjustments (0.08) 0.00 (0.08) 0.07
--------------- --------------- --------------- ---------------
Net income available to common stockholders 0.87 0.92 2.94 2.70
=============== =============== =============== ===============
BOOK VALUE PER COMMON SHARE EXCLUDING ACCUMULATED OTHER
COMPREHENSIVE INCOME:
Book value per common share excluding accumulated other
comprehensive income 26.43 23.62 26.43 23.62
Net unrealized capital gains 1.40 3.05 1.40 3.05
Foreign currency translation 0.03 (0.12) 0.03 (0.12)
Net unrecognized post-retirement benefit obligations 0.05 0.00 0.05 0.00
Minimum pension liability 0.00 (0.04) 0.00 (0.04)
--------------- --------------- --------------- ---------------
Book value per common share including accumulated other
comprehensive income 27.91 26.51 27.91 26.51
=============== =============== =============== ===============
OPERATING REVENUES:
USAMA 1,509.8 1,111.3 4,178.0 3,299.4
IAMA 224.6 169.2 540.9 476.8
Life and Health 1,211.6 1,183.4 3,635.5 3,526.1
Corporate and Other (7.2) (7.6) (6.4) (13.5)
--------------- --------------- --------------- ---------------
Total operating revenues 2,938.8 2,456.3 8,348.0 7,288.8
Add:
Net realized/unrealized capital gains (losses) and related
adjustments (89.3) (6.1) (6.0) 23.6
Less: Operating revenues from discontinued real estate 0.0 0.6 0.0 0.8
--------------- --------------- --------------- ---------------
Total GAAP revenues 2,849.5 2,449.6 8,342.0 7,311.6
=============== =============== =============== ===============
OPERATING EARNINGS:
USAMA 211.9 157.4 587.0 466.4
IAMA 39.3 23.2 85.3 56.9
Life and Health 73.4 82.0 179.0 217.6
Corporate and Other (11.7) (7.9) (18.7) (20.8)
--------------- --------------- --------------- ---------------
Total operating earnings 312.9 254.7 832.6 720.1
Net realized/unrealized capital gains (losses) (59.4) (3.7) (18.2) 8.3
Other after-tax adjustments (21.2) 0.0 (21.2) 18.8
--------------- --------------- --------------- ---------------
Net income available to common stockholders 232.3 251.0 793.2 747.2
=============== =============== =============== ===============
NET REALIZED/UNREALIZED CAPITAL GAINS (LOSSES):
Net realized/unrealized capital gains (losses), as adjusted (59.4) (3.7) (18.2) 8.3
Add:
Periodic settlements and accruals on non-hedge derivatives 5.4 0.0 14.9 0.0
Amortization of DPAC and sale inducement costs 6.0 (5.1) 4.9 (3.9)
Capital gains (losses) distributed (2.9) 2.2 7.7 5.8
Tax impacts (32.8) (2.5) (7.1) 8.6
Minority interest capital gains (losses) (0.2) 3.0 6.7 4.8
Less related fee adjustments:
Unearned front-end fee income 7.9 0.5 8.7 1.6
Certain market value adjustments to fee revenues (2.5) 0.1 (3.5) (1.1)
--------------- --------------- --------------- ---------------
GAAP net realized/unrealized capital gains (losses) (89.3) (6.7) 3.7 23.1
=============== =============== =============== ===============
OTHER AFTER TAX ADJUSTMENTS:
IRS audit issue 0.0 0.0 0.0 18.8
Tax refinements relaed to prior years (21.2) 0.0 (21.2) 0.0
--------------- --------------- --------------- ---------------
Total other after-tax adjustments (21.2) 0.0 (21.2) 18.8
=============== =============== =============== ===============
9
(1) Net income of $232.3 million reflects: net realized/unrealized capital
losses of $59.4 million, primarily related to unrealized capital losses
from net hedging activities and the mark-to-market of credit default swaps;
and a $21.2 million other after-tax adjustments charge due to tax
refinements related to prior years.
(2) See Segment Highlights for items benefiting operating earnings for both
periods.
(3) Use of non-GAAP financial measures is discussed in this release after
Segment Highlights.
(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 December 31, 2006, and from the acquisition of Morley Financial
Services, Inc. which were $13.7 billion as of closing, effective August 31,
2007. Total company AUM also includes $2.2 billion of AUM from operations
acquired during first quarter 2007 by CIMB-Principal, the company's joint
venture in Malaysia.
(5) Operating return on average equity excluding other comprehensive income.
(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 September 30, 2007