SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: AUGUST 4, 2008
(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))
------------------
ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On August 4, 2008, Principal Financial Group, Inc. publicly announced
information regarding its results of operations and financial condition for the
quarter ended June 30, 2008. The text of the announcement is included herewith
as Exhibit 99.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
99 Second Quarter 2008 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 5, 2008
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 2008 RESULTS
Des Moines, IA (August 4, 2008) - Principal Financial Group, Inc. (NYSE: PFG)
today announced net income available to common stockholders for the three months
ended June 30, 2008, of $168.3 million, or $0.64 per diluted share compared to
$303.8 million, or $1.12 per diluted share for the three months ended June 30,
2007. The company reported operating earnings of $253.7 million for second
quarter 2008, compared to $282.9 million for second quarter 2007. Operating
earnings per diluted share (EPS) for second quarter 2008 were $0.97 compared to
$1.05 for the same period in 2007. Operating revenues for second quarter 2008
were $2,789.1 million compared to $2,785.5 million for the same period last
year.(1)
"The Principal achieved very solid operating earnings in the second quarter,
with strong growth in our key sales, retention and AUM measures, despite
difficult market conditions. We again benefited from earnings diversification,
with Individual Annuities delivering record results, Principal International
delivering its second best quarter, and the Life and Health segment achieving
double-digit improvement from a year ago," said Larry Zimpleman, president and
chief executive officer. "With our asset management and accumulation segments
generating approximately three-fourths of total company earnings, strong net
cash flows have been critical, enabling us to withstand substantial equity
market declines over the past three quarters."
Net cash flow and other highlights:
o Second quarter 2008 net cash flows were $5.3 billion, an increase of
86 percent from second quarter 2007, for U.S. Asset Accumulation,
Principal International, and Principal Global Investors (unaffiliated
assets) on a combined basis.
o For the trailing twelve months ended June 30, 2008, the asset
management and accumulation segments generated $23.8 billion of net
cash flows, with U.S. Asset Accumulation flows doubling to $10.8
billion, Principal International's flows increasing 50 percent to $2.5
billion and Principal Global Investors' unaffiliated flows increasing
19 percent to $10.4 billion.
o 24 percent higher sales on a combined basis for the company's three
key retirement and investment businesses compared to second quarter
2007, including: $1.4 billion in second quarter 2008 for organic full
service accumulation; $2.5 billion for Principal Funds; and $1.5
billion for individual annuities. Combined sales from these three
businesses increased 56 percent over the trailing twelve months to
$24.6 billion.
o Total company assets under management (AUM) of $308.0 billion as of
June 30, 2008, an increase of nine percent from a year ago, including
$88.7 billion of third party assets for Principal Global Investors, an
increase of 32 percent(2).
3
"Clearly, the fundamentals of our business remain strong, with net cash flows
reflecting the competitive strength of our product and service offerings, our
distribution network, our investment performance and our asset retention
capabilities," said Zimpleman. "With our organic growth trends intact, we remain
confident in our ability to achieve our EPS and return on equity targets when
more normal markets return.
"Importantly, we experienced a significant improvement in our credit portfolio
during the quarter, with net unrealized losses related to credit spreads
improving by approximately $1 billion(3). The gain from the end of first quarter
2008 is a meaningful improvement from depressed valuations caused by turmoil in
the credit markets. We reiterate our confidence - in the quality of our
investment portfolio, and in the adequacy of our capital position."
NET INCOME
Net income available to common stockholders of $168.3 million reflects net
realized/unrealized capital losses of $85.4 million, which includes: $23.0
million of losses related to impairments of fixed maturity securities (including
$7.4 million related to Alt-A and subprime residential mortgages); $7.3 million
of impairments on equity securities; and capital losses of $55.7 million related
to hedging activities, primarily from the mark to market of interest rates
swaps.
SEGMENT HIGHLIGHTS
U.S. ASSET ACCUMULATION
Segment operating earnings for second quarter 2008 were $152.9 million, compared
to $164.5 million for the same period in 2007. Full service accumulation
earnings were $78.2 million in second quarter 2008, compared to $84.7 million in
second quarter 2007. The decline reflects $7.2 million from lower income tax
benefits, and $5.1 million after-tax of lower earnings due to market conditions,
including: lower earnings from market value adjustments on customer withdrawals,
lower yields on general account assets, and lower prepayment fee income. Full
service accumulation earnings benefited by $4.3 million after-tax in second
quarter 2008 due to lower operating expenses. The decline in segment earnings
from a year ago also reflects lower prepayment fee income of $4.5 million
after-tax for other businesses in the segment, primarily investment only and
full service payout.
Operating revenues for the second quarter decreased one percent to $1,255.7
million, compared to $1,265.9 million for the same period in 2007. Excluding
lower single premium group annuity sales, revenues for the segment increased
four percent. Single premium group annuities, which are typically used to fund
defined benefit plan terminations, generate large premiums from a small number
of customers and tend to vary from period to period.
Segment assets under management were $173.2 billion as of June 30, 2008,
compared to $173.1 billion as of June 30, 2007.
4
GLOBAL ASSET MANAGEMENT
Segment operating earnings for second quarter 2008 were $23.7 million, compared
to $32.2 million for the same period in 2007. Fee mandate business earnings were
$23.4 million in second quarter 2008, compared to $23.7 million in second
quarter 2007. Higher earnings in the current quarter from growth in asset
management fees were offset by a slowdown in the real estate markets. In
addition, second quarter 2007 earnings benefited from a mandate that pays
performance incentives once every three years. Spread and securitization
business earnings of $0.3 million in second quarter 2008 compare to earnings of
$8.5 million in second quarter 2007. The decline from a year ago reflects
current inactivity in the commercial mortgage backed securitization (CMBS)
business due to adverse credit market conditions.
Operating revenues were $146.1 million for second quarter 2008, compared to
$154.5 million for the same period in 2007. Strong growth in unaffiliated
management fees of $11.0 million or 20 percent(4) was more than offset by lower
real estate transaction and borrower fees and lower revenues from the CMBS
business.
Third party assets under management were $88.7 billion as of June 30, 2008, up
32 percent from $67.1 billion as of June 30, 2007.
INTERNATIONAL ASSET MANAGEMENT AND ACCUMULATION
Segment operating earnings for second quarter 2008 were $31.8 million compared
to $26.7 million for the same period in 2007, reflecting continued strong growth
in assets under management. Second quarter 2008 also benefited from higher
yields on invested assets in Chile due to higher inflation.
Operating revenues were $251.2 million for second quarter 2008, compared to
$175.0 million for the same period last year primarily due to higher investment
yields and higher sales of payout annuities in Chile, and continued growth in
assets under management.
Segment assets under management were $30.0 billion as of June 30, 2008, compared
to $25.3 billion as of June 30, 2007.
LIFE AND HEALTH INSURANCE
Segment operating earnings for second quarter 2008 were $66.7 million, compared
to $60.1 million for the same period in 2007. Specialty Benefits earnings were a
record $30.9 million compared to $23.1 million in second quarter 2007,
reflecting favorable claims experience, particularly in the individual
disability line, and growth in the business. Individual Life earnings were $24.0
million compared to $23.6 million in second quarter 2007. Health division
earnings were $11.8 million, compared to $13.4 million for second quarter 2007.
The decrease reflects a decline in covered members, and reduced investment
income from a lower asset base reflecting the division's return of capital to
the corporate and other segment at year-end 2007.
Operating revenues were $1,180.6 million, compared to $1,211.5 million for the
same period a year ago. Individual Life and Specialty Benefits continued to
achieve solid growth, with revenues in both divisions increasing four percent.
5
Health division revenues decreased 12 percent, primarily due to a decrease in
covered members.
CORPORATE AND OTHER
Operating losses for second quarter 2008 were $21.4 million, compared to
operating losses of $0.6 million for the same period in 2007. Second quarter
2007 results reflected higher invested assets and higher operating earnings from
real estate sales 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, 2007, and in the
company's quarterly report on Form 10-Q for the quarter ended March 31, 2008,
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.
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
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, President and CEO Larry Zimpleman, and Executive
Vice President and CFO Mike Gersie will lead a discussion of results, asset
quality and capital adequacy 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 53322914. Replays will be available
through August 13, 2008. The financial supplement is currently available on
company's website and may be referred to during the conference call.
6
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 $308.0
billion in assets under management(6) and serves some 19.0 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,
---------------------------- ---------------------------
6/30/08 6/30/07 6/30/08 6/30/07
---------------------------- ---------------------------
U.S. ASSET ACCUMULATION $152.9 $164.5 $292.0 $319.2
GLOBAL ASSET MANAGEMENT 23.7 32.2 26.4 55.9
INTERNATIONAL ASSET MANAGEMENT AND ACCUMULATION 31.8 26.7 63.5 46.0
LIFE AND HEALTH INSURANCE 66.7 60.1 145.9 105.6
CORPORATE AND OTHER (21.4) (0.6) (32.8) (7.0)
OPERATING EARNINGS 253.7 282.9 495.0 519.7
NET REALIZED/UNREALIZED CAPITAL
GAINS (LOSSES), AS ADJUSTED (85.4) 20.9 (160.1) 41.2
OTHER AFTER-TAX ADJUSTMENTS 0.0 0.0 7.6 0.0
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $168.3 $303.8 $342.5 $560.9
PER DILUTED SHARE
THREE MONTHS ENDED, SIX MONTHS ENDED,
---------------------------- ----------------------------
6/30/08 6/30/07 6/30/08 6/30/07
---------------------------- ----------------------------
OPERATING EARNINGS $ 0.97 $1.05 $1.90 $ 1.92
NET REALIZED/UNREALIZED CAPITAL
GAINS (LOSSES), AS ADJUSTED (0.33) 0.07 (0.62) 0.15
OTHER AFTER-TAX ADJUSTMENTS 0.00 0.00 0.03 0.00
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 0.64 $1.12 $1.31 $ 2.07
WEIGHTED-AVERAGE DILUTED COMMON SHARES OUTSTANDING 261.2 270.3 261.2 270.6
*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, as a basis for 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.
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 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.
8
PRINCIPAL FINANCIAL GROUP, INC.
RESULTS OF OPERATIONS
(IN MILLIONS)
THREE MONTHS ENDED, SIX MONTHS ENDED,
6/30/08 6/30/07 6/30/08 6/30/07
---------------- ---------------- ---------------- ---------------
Premiums and other considerations $ 1,156.2 $ 1,176.9 $ 2,209.2 $ 2,284.6
Fees and other revenues 622.5 622.9 1,235.9 1,215.4
Net investment income 991.0 976.6 1,951.3 1,899.8
Net realized/unrealized capital gains (losses) (111.5) 55.4 (237.5) 93.0
---------------- ---------------- ---------------- ---------------
TOTAL REVENUES 2,658.2 2,831.8 5,158.9 5,492.8
---------------- ---------------- ---------------- ---------------
Benefits, claims, and settlement expenses 1,634.0 1,584.7 3,106.0 3,082.7
Dividends to policyholders 69.0 74.0 139.8 148.0
Operating expenses 749.2 760.4 1,495.1 1,515.1
---------------- ---------------- ---------------- ---------------
TOTAL EXPENSES 2,452.2 2,419.1 4,740.9 4,745.8
---------------- ---------------- ---------------- ---------------
Income from continuing operations before income
taxes 206.0 412.7 418.0 747.0
Income taxes 29.4 100.4 59.0 169.4
---------------- ---------------- ---------------- ---------------
Income from continuing operations, net of related 176.6 312.3 359.0 577.6
income taxes
Loss from discontinued operations, net of related
taxes 0.0 (0.2) 0.0 (0.2)
---------------- ---------------- ---------------- ---------------
NET INCOME 176.6 312.1 359.0 577.4
Preferred stock dividends 8.3 8.3 16.5 16.5
---------------- ---------------- ---------------- ---------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 168.3 $ 303.8 $ 342.5 $ 560.9
Less:
Net realized/unrealized capital gains (losses), as
adjusted (85.4) 20.9 (160.1) 41.2
Other after-tax adjustments 0.0 0.0 7.6 0.0
---------------- ---------------- ---------------- ---------------
OPERATING EARNINGS $ 253.7 $ 282.9 $ 495.0 $ 519.7
================ ================ ================ ===============
SELECTED BALANCE SHEET STATISTICS
------------------------------------------------------------
PERIOD ENDED,
------------------------------------------------------------
6/30/08 12/31/07 6/30/07
-------------------- --------------------- -----------------
Total assets (in billions) $ 151.5 $ 154.5 $ 150.8
Total common equity (in millions) $ 6,077.9 $ 6,879.7 $ 7,444.7
Total common equity excluding accumulated other
comprehensive income (in millions) $ 6,851.8 $ 6,459.5 $ 6,890.7
End of period common shares outstanding
(in millions) 259.0 259.1 266.0
Book value per common share $ 23.47 $ 26.55 $ 27.99
Book value per common share excluding
accumulated other comprehensive income $ 26.45 $ 24.93 $ 25.90
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,
--------------- ------------- ------------- ------------
6/30/08 6/30/07 6/30/08 6/30/07
--------------- ------------- ------------- ------------
DILUTED EARNINGS PER COMMON SHARE:
Operating Earnings 0.97 1.05 1.90 1.92
Net realized/unrealized capital gains (losses) (0.33) 0.07 (0.62) 0.15
Other after-tax adjustments 0.00 0.00 0.03 0.00
--------------- ------------- ------------- ------------
Net income available to common stockholders 0.64 1.12 1.31 2.07
=============== ============= ============= ============
BOOK VALUE PER COMMON SHARE EXCLUDING ACCUMULATED OTHER
COMPREHENSIVE INCOME:
Book value per common share excluding accumulated other
comprehensive income 26.45 25.90 26.45 25.90
Net unrealized capital gains (3.49) 2.00 (3.49) 2.00
Foreign currency translation 0.27 0.04 0.27 0.04
Net unrecognized post-retirement benefit obligations 0.24 0.05 0.24 0.05
--------------- ------------- ------------- ------------
Book value per common share including accumulated other
comprehensive income 23.47 27.99 23.47 27.99
=============== ============= ============= ============
OPERATING REVENUES:
USAA 1,255.7 1,265.9 2,460.4 2,445.0
GAM 146.1 154.5 264.4 289.3
IAMA 251.2 175.0 434.9 316.3
Life and Health 1,180.6 1,211.5 2,368.2 2,423.9
Corporate and Other (44.5) (21.4) (99.8) (65.3)
--------------- ------------- ------------- ------------
Total operating revenues 2,789.1 2,785.5 5,428.1 5,409.2
Add:
Net realized/unrealized capital gains (losses) and related
adjustments (130.9) 46.1 (269.2) 83.3
Less: Operating revenues from discontinued real estate
0.0 (0.2) 0.0 (0.3)
--------------- ------------- ------------- ------------
Total GAAP revenues 2,658.2 2,831.8 5,158.9 5,492.8
=============== ============= ============= ============
OPERATING EARNINGS:
USAA 152.9 164.5 292.0 319.2
GAM 23.7 32.2 26.4 55.9
IAMA 31.8 26.7 63.5 46.0
Life and Health 66.7 60.1 145.9 105.6
Corporate and Other (21.4) (0.6) (32.8) (7.0)
--------------- ------------- ------------- ------------
Total operating earnings 253.7 282.9 495.0 519.7
Net realized/unrealized capital gains (losses) (85.4) 20.9 (160.1) 41.2
Other after-tax adjustments 0.0 0.0 7.6 0.0
--------------- ------------- ------------- ------------
Net income available to common stockholders 168.3 303.8 342.5 560.9
=============== ============= ============= ============
NET REALIZED/UNREALIZED CAPITAL GAINS (LOSSES):
Net realized/unrealized capital gains (losses), as adjusted (85.4) 20.9 (160.1) 41.2
Add:
Periodic settlements and accruals on non-hedge derivatives 19.4 9.5 28.2 9.5
Amortization of DPAC and sale inducement costs (16.4) (1.8) (29.9) (1.1)
Certain market value adjustments of embedded derivatives 3.2 0.0 3.2 0.0
Capital gains distributed 6.9 8.6 (2.4) 10.6
Tax impacts (42.2) 12.8 (76.3) 25.7
Minority interest capital gains (losses) 3.0 5.6 (3.7) 6.9
Less related fee adjustments:
Unearned front-end fee income 0.0 0.4 0.0 0.8
Certain market value adjustments to fee revenues 0.0 (0.2) (3.5) (1.0)
--------------- ------------- ------------- ------------
GAAP net realized/unrealized capital gains (losses) (111.5) 55.4 (237.5) 93.0
=============== ============= ============= ============
OTHER AFTER TAX ADJUSTMENTS:
Change in estimated loss related to a loss contingency reserve 0.0 0.0 7.6 0.0
--------------- ------------- ------------- ------------
Total other after-tax adjustments 0.0 0.0 7.6 0.0
=============== ============= ============= ============
10
(1) Use of non-GAAP financial measures is discussed in this release after
Segment Highlights.
(2) The increase from second quarter 2007 includes $13.7 billion of AUM related
to the company's third quarter 2007 acquisition of Morley Financial
Services, Inc.
(3) Gross unrealized losses for the company increased from $2.5 billion as of
March 31, 2008 to $2.7 billion as of June 30, 2008. The decrease in net
unrealized losses from improved credit spreads was more than offset by an
increase in net unrealized losses from other factors, the largest of which
was an increase in interest rates in the second quarter.
(4) The increase excludes revenues related to the company's third quarter 2007
acquisition of Morley Financial Services, Inc.
(5) "The Principal Financial Group" and "The Principal" are registered service
marks of Principal Financial Services, Inc., a member of the Principal
Financial Group.
(6) As of June 30, 2008
11