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: MAY 1, 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 May 1, 2006, Principal Financial Group, Inc. publicly announced information
regarding its results of operations and financial condition for the quarter
ended March 31, 2006. The text of the announcement is included herewith as
Exhibit 99.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
99 First 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: May 2, 2006
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 2006 RESULTS
Des Moines, IA (May 1, 2006) - Principal Financial Group, Inc. (NYSE: PFG) today
announced net income available to common stockholders for the three months ended
March 31, 2006, of $285.7 million, or $1.01 per diluted share compared to $205.5
million, or $0.68 per diluted share for the three months ended March 31,
2005(1). The company reported record operating earnings of $240.2 million for
first quarter 2006, compared to $209.2 million for first quarter 2005. Operating
earnings per diluted share (EPS) for first quarter 2006 were a record $0.85
compared to $0.69 for the same period in 2005. Operating revenues for first
quarter 2006 were $2,343.1 million compared to $2,148.6 million for the same
period last year.(2)
Additional highlights for first quarter 2006 include:
o Record operating earnings of $157.8 million for U.S. Asset Management and
Accumulation, a 14 percent increase from first quarter 2005, reflecting
record earnings for Principal Global Investors, full service accumulation,
mutual funds and individual annuities;
o Record assets under management (AUM) of $205.3 billion, an increase of 19
percent, including organic growth of 35 percent for Principal International
and 25 percent for Principal Global Investors' third party AUM.
o Continued strong organic sales of the company's key retirement and
investment products, including a record $2.9 billion for full service
accumulation, a record $990 million for mutual funds and $539 million for
individual annuities.
"Our record first quarter performance - including 23 percent EPS growth and a 15
percent increase in operating earnings - reflects significant underlying growth
in our U.S. and international asset management and accumulation businesses, and
very solid performance from our life and health insurance businesses," said J.
Barry Griswell, chairman and chief executive officer.
"From a year ago, we've increased assets under management $32 billion, or 19
percent, and grown account values in our U.S. asset accumulation businesses
nearly $18 billion, or 16 percent," said Griswell. "These gains reflect our
commitment to innovative solutions for retirement plan and institutional
investors, an intensified focus on sales and customer retention, and continued
strong investment performance from Principal Global Investors."
"Importantly, across our businesses, we continue to anticipate and respond to
changing customer needs - in particular, increased demand for bundled retirement
solutions, voluntary benefits and consumer-driven healthcare," said Griswell.
"Total Retirement Suite SM, which provides exceptional integration of defined
benefit, defined contribution, employee stock ownership and nonqualified
retirement plans, produced nearly $1.7 billion of our record full service
accumulation sales. Success with Total Retirement Suite also contributed to
record first quarter sales of the individual life division's nonqualified
retirement solutions. In addition, we achieved record voluntary benefits sales
during the quarter, and high deductible health plans made up more than 10
percent of new member insured medical sales. These results demonstrate strong
acceptance of our offerings by employers seeking high quality, cost-effective,
value-added benefits."
SEGMENT HIGHLIGHTS
U.S. ASSET MANAGEMENT AND ACCUMULATION
Segment operating earnings for first quarter 2006 were $157.8 million, compared
to $138.6 million for the same period in 2005. Improvement for the segment was
primarily driven by a 21 percent increase in full service accumulation earnings,
which were a record $73.3 million in first quarter 2006 compared to $60.7
million in the same period a year ago. The increase in full service accumulation
earnings from a year ago was primarily the result of higher fees due to growth
in account values. The increase also reflects $4.8 million of tax benefits in
first quarter 2006, as a result of the final dividends received deduction tax
calculation for 2005, an increase of $2.1 million compared to the benefit in
first quarter 2005. Full service accumulation account values were $82.5 billion
as of March 31, 2006 compared to $69.0 billion as of March 31, 2005.
Operating revenues for the first quarter increased 10 percent to $1,049.8
million compared to $957.3 million for the same period in 2005, as revenues
increased in all businesses within the segment. Higher sales of single premium
group annuities were the largest contributor to the increase. The single premium
product, typically used to fund defined benefit plan terminations, can generate
large premiums from very few customers and tends to vary from period to period.
Excluding this product, revenues for the segment increased 7 percent, primarily
due to record revenues in the full service accumulation and individual annuity
businesses.
Segment assets under management were a record $173.9 billion as of March 31,
2006, up 6 percent from $164.3 billion as of December 31, 2005, and up 18
percent from $148.0 billion as of March 31, 2005.
INTERNATIONAL ASSET MANAGEMENT AND ACCUMULATION
Segment operating earnings for first quarter 2006 were $17.6 million, compared
to $9.5 million for the same period in 2005. Improvement for the segment from a
year ago was primarily due to higher earnings in Brazil, Chile, and Hong Kong,
as well as $3.0 million of benefits in first quarter 2006 for expense and
deferred policy acquisition cost refinements.
Operating revenues were $143.4 million for first quarter 2006, compared to
$132.8 million for the same period last year, primarily reflecting favorable
currency translation in Chile, Mexico, and Brazil, and growth in Brazil, India
and Hong Kong.
Assets under management for the segment were $16.1 billion as of March 31, 2006,
compared to $15.4 billion as of December 31, 2005, and compared to $10.6 billion
as of March 31, 2005.(3)
LIFE AND HEALTH INSURANCE
Segment operating earnings for first quarter 2006 were $70.4 million. This
compares to $69.5 million for the same period in 2005, which benefited by $3.9
million due to favorable deferred policy acquisition cost adjustments in the
individual life division. Improvement for the segment from a year ago primarily
reflects improved loss ratios and solid growth in the Specialty Benefits
division.
Operating revenues increased to a record $1,159.6 million for the quarter,
compared to $1,068.6 million for the same period in 2005. Specialty Benefits
revenues increased 18 percent, driven by strong sales and steady retention in
each of the division's product lines. Health division revenues increased 10
percent, primarily due to a 9 percent increase in insured medical covered
members. Individual Life revenues decreased 1 percent, 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 first quarter 2006 were $5.6 million, compared to operating
losses of $8.4 million for the same period in 2005. Improved first quarter 2006
results reflect increased net investment income, due to higher operating
performance on joint venture real estate and a larger asset base for the
segment. Additional benefits from tax-related matters contributed $3.9 million
to the positive variance. These items were substantially offset by the first
quarter 2006 declaration of a preferred stock dividend, the cost of which
reduced operating earnings by $8.2 million with no corresponding activity in
first 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. These statements are
based on a number of assumptions concerning future conditions that may
ultimately prove to be inaccurate. Future events and their effects on the
company may not be those anticipated, and actual results may differ materially
from the results anticipated in these forward-looking statements. The risks,
uncertainties and factors that could cause or contribute to such material
differences are discussed in the company's annual report on Form 10-K for the
year ended December 31, 2005, 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.
SHARE REPURCHASES
In November 2005, the Board authorized the repurchase of up to $250 million of
the company's outstanding common stock. As of March 31, 2006, under this program
the company repurchased 3.4 million shares for $162.3 million, an average cost
of $48.34 per share.
STOCK OPTIONS
On January 1, 2006, the company adopted Statement of Financial Accounting
Standards 123 (revised 2004), SHARE-BASED PAYMENT ("SFAS 123R"). SFAS 123R
requires all share-based payments to employees to be recognized at fair-value in
the financial statements. Adoption of SFAS 123R did not have a material impact
on our consolidated financial statements as the company began expensing all
stock options, using a fair-value based method, effective for the year beginning
January 1, 2002. In addition, any stock options granted prior to January 1,
2002, are fully vested.
EARNINGS CONFERENCE CALL
At 9:00 A.M. (CST) 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 7218877. Replays will be available through May 9, 2006. The
financial supplement is currently available on our website and will be referred
to during the conference call.
ABOUT THE PRINCIPAL FINANCIAL GROUP
The Principal Financial Group(R) (The Principal (R))(4) 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 $205.3
billion in assets under management(5) and serves some 16.0 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.
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SUMMARY OF SEGMENT AND PRINCIPAL FINANCIAL GROUP, INC. RESULTS
----------------------------------------- --------------------------------------
OPERATING EARNINGS (LOSS)* IN MILLIONS
--------------------------------------
THREE MONTHS ENDED,
SEGMENT 03/31/06 03/31/05
--------------------------------------------------- ----------------------------- -----------------------------
U.S. ASSET MANAGEMENT AND ACCUMULATION $157.8 $138.6
--------------------------------------------------- ----------------------------- -----------------------------
INTERNATIONAL ASSET MANAGEMENT AND ACCUMULATION 17.6 9.5
--------------------------------------------------- ----------------------------- -----------------------------
LIFE AND HEALTH INSURANCE 70.4 69.5
--------------------------------------------------- ----------------------------- -----------------------------
CORPORATE AND OTHER (5.6) (8.4)
--------------------------------------------------- ----------------------------- -----------------------------
OPERATING EARNINGS 240.2 209.2
--------------------------------------------------- ----------------------------- -----------------------------
NET REALIZED/UNREALIZED CAPITAL
GAINS (LOSSES), AS ADJUSTED 24.9 (3.7)
--------------------------------------------------- ----------------------------- -----------------------------
OTHER AFTER-TAX ADJUSTMENTS 20.6 -
--------------------------------------------------- ----------------------------- -----------------------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $285.7 $205.5
--------------------------------------------------- ----------------------------- -----------------------------
PER DILUTED SHARE
--------------------------------------
THREE MONTHS ENDED,
--------------------------------------
03/31/06 03/31/05
----------------------------- ------------------ ----------
OPERATING EARNINGS $ 0.85 $ 0.69
--------------------------------------------------- ----------------------------- -----------------------------
NET REALIZED/UNREALIZED CAPITAL
GAINS (LOSSES), AS ADJUSTED 0.09 (0.01)
--------------------------------------------------- ----------------------------- -----------------------------
OTHER AFTER-TAX ADJUSTMENTS 0.07 -
--------------------------------------------------- ----------------------------- -----------------------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 1.01 $ 0.68
--------------------------------------------------- ----------------------------- -----------------------------
WEIGHTED-AVERAGE DILUTED COMMON SHARES OUTSTANDING 281.9 301.2
--------------------------------------------------- ----------------------------- -----------------------------
*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 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 not believed to be 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 results of operations by highlighting earnings
attributable to the normal, ongoing operations of the company's businesses.
PRINCIPAL FINANCIAL GROUP, INC
RESULTS OF OPERATIONS
(in millions)
------------------------------------------------------------------------- ----------------------------------
THREE MONTHS ENDED
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03/31/06 03/31/05
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Premiums and other considerations $1,041.8 $ 934.1
Fees and other revenues 448.8 417.2
Net investment income 852.2 793.9
Net realized/unrealized capital gains (losses) 48.9 (1.5)
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TOTAL REVENUES 2,391.7 2,143.7
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Benefits, claims, and settlement expenses 1,341.8 1,234.3
Dividends to policyholders 71.9 72.9
Operating expenses 604.4 556.9
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TOTAL EXPENSES 2,018.1 1,864.1
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Income from continuing operations before income taxes 373.6 279.6
Income taxes 79.7 74.7
-------------------------------------------------
Income from continuing operations, net of related
income taxes 293.9 204.9
Income from discontinued operations, net of related taxes - 0.6
-------------------------------------------------
NET INCOME 293.9 205.5
Preferred stock dividends 8.2 -
-------------------------------------------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 285.7 $ 205.5
Less:
Net realized/unrealized capital gains (losses),
as adjusted 24.9 (3.7)
Other after-tax adjustments 20.6 -
-------------------------------------------------
OPERATING EARNINGS $240.2 $209.2
=================================================
SELECTED BALANCE SHEET STATISTICS
PERIOD ENDED
----------------------------------------------------------------------
03/31/06 12/31/05 03/31/05
----------------------------------------------------------------------
Total assets (in billions) $ 132.0 $ 127.0 $ 113.5
Total common equity (in millions) $7,056.7 $ 7,265.2 $ 7,343.1
Total common equity excluding accumulated other
comprehensive income (in millions) $6,417.4 $ 6,270.4 $ 6,296.7
End of period common shares outstanding (in
millions) 277.6 280.6 296.8
Book value per common share $ 25.42 $ 25.89 $ 24.74
Book value per common share excluding
accumulated other comprehensive income $ 23.12 $ 22.35 $ 21.22
PRINCIPAL FINANCIAL GROUP, INC
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO U.S. GAAP
(in millions, except as indicated).
THREE MONTHS ENDED
-------------- ---------------
03/31/06 03/31/05
-------------- ---------------
DILUTED EARNINGS PER COMMON SHARE:
Operating Earnings 0.85 0.69
Net realized/unrealized capital gains (losses) 0.09 (0.01)
Other after-tax adjustments 0.07 -
-------------- ---------------
Net income available to common stockholders 1.01 0.68
============== ===============
BOOK VALUE PER COMMON SHARE EXCLUDING
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Book value per common share excluding accumulated other
comprehensive income 23.12 21.22
Net unrealized capital gains 2.43 3.85
Foreign currency translation (0.09) (0.31)
Minimum pension liability (0.04) (0.02)
-------------- ---------------
Book value per common share including accumulated
other comprehensive income 25.42 24.74
============== ===============
OPERATING REVENUES:
USAMA 1,049.8 957.3
IAMA 143.4 132.8
Life and Health 1,159.6 1,068.6
Corporate and Other (9.7) (10.1)
-------------- ---------------
Total operating revenues 2,343.1 2,148.6
Add: Net realized/unrealized capital gains (losses)
and related fee adjustments 48.6 (4.0)
Less: Operating revenues from discontinued real estate - 0.9
-------------- ---------------
Total GAAP revenues 2,391.7 2,143.7
============== ===============
OPERATING EARNINGS:
USAMA 157.8 138.6
IAMA 17.6 9.5
Life and Health 70.4 69.5
Corporate and Other (5.6) (8.4)
-------------- ---------------
Total operating earnings 240.2 209.2
Net realized/unrealized capital gain (losses) 24.9 (3.7)
Other after-tax adjustments 20.6 -
-------------- ---------------
Net income available to common stockholders 285.7 205.5
============== ===============
NET REALIZED/UNREALIZED CAPITAL GAINS (LOSSES):
Net realized/unrealized capital gains (losses), as adjusted 24.9 (3.7)
Add:
Amortization of DPAC and sale inducement costs 0.6 (0.5)
Capital gains distributed 3.6 1.4
Tax impacts 15.9 (1.2)
Minority interest capital gains 3.6 -
Less related fee adjustments:
Unearned front-end fee income 0.6 0.4
Certain market value adjustments to fee revenues (0.9) (2.9)
-------------- ---------------
GAAP net realized/unrealized capital gains (losses) 48.9 (1.5)
============== ===============
OTHER AFTER TAX ADJUSTMENTS:
IRS audit issues 20.6 -
-------------- ---------------
Total other after-tax adjustments 20.6 -
============== ===============
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 our
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 above reconciliations of the non-GAAP measures to the most directly
comparable U.S. GAAP measure. The company adjusts U.S. GAAP measures for items
not directly related to ongoing operations. However, it is possible that these
adjusting items have occurred in the past and could recur in the future.
Management also uses non-GAAP 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.
--------
(1) The increase in net income available to common stockholders, detailed at
the end of the release, reflects higher operating earnings, higher net
realized/unrealized capital gains, and positive other after-tax
adjustments.
(2) Use of non-GAAP financial measures is discussed at the end of this release.
(3) In third quarter 2005, Principal International increased ownership in its
Malaysian joint venture. As a result of increased ownership, joint venture
assets under management of $1.8 billion were included in AUM as of
September 30, 2005.
(4) "The Principal Financial Group" and "The Principal" are registered service
marks of Principal Financial Services, Inc., a member of the Principal
Financial Group.
(5) As of March 31, 2006.