| 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:October 27, 2011 | |||
| (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)) | |||
| Page 2 | |
| Item 2.02. Results of Operations and Financial Condition | |
| On October 27, 2011, Principal Financial Group, Inc. publicly announced information regarding its | |
| results of operations and financial condition for the quarter ended September 30, 2011. The text of | |
| the announcement is included herewith as Exhibit 99. | |
| Item 9.01 Financial Statements and Exhibits | |
| 99 Third Quarter 2011 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/ Terrance J. Lillis _______ |
| Name: | Terrance J. Lillis |
| Title: | Senior Vice President and Chief Financial |
| Officer | |
| Date: October 27, 2011 | |
| Page 3 | ||
| EXHIBIT 99 | ||
| Release: | On receipt, Oct. 27, 2011 | |
| Media contact: | Susan Houser, 515-248-2268,houser.susan@principal.com | |
| Investor contact: | John Egan, 515-235-9500,egan.john@principal.com | |
| Principal Financial Group, Inc. Announces Third Quarter 2011 Results | ||
| · | Third quarter 2011 operating earnings1of $192 million were down 12 percent from third | |
| quarter 2010; net income available to common shareholders was $64 million, a decrease of 55 | ||
| percent from third quarter 2010. | ||
| · | Year-to-date operating earnings were $661 million, an increase of 5 percent over the same | |
| period in 2010; year-to-date net income available to common shareholders was $518 million, an | ||
| increase of 11 percent over the same period in 2010. | ||
| · | Assets under management were $320.8 billion at the end of third quarter 2011, an increase of 5 | |
| percent compared to third quarter 2010. | ||
| · | Book value per share, excluding AOCI2, increased to a record high of $29.59, up 7 percent over | |
| third quarter 2010 and 1 percent sequentially. | ||
| (Des Moines, Iowa) – Principal Financial Group, Inc. (NYSE: PFG) today announced results for third quarter | ||
| 2011. The company reported operating earnings of $191.9 million for third quarter 2011, compared to $218.9 | ||
| million for third quarter 2010. Operating earnings per diluted share (EPS) were $0.61 for third quarter 2011, | ||
| compared to $0.68 for third quarter 2010. The company reported net income available to common stockholders | ||
| of $63.7 million, or $0.20 per diluted share for third quarter 2011, compared to $142.2 million, or $0.44 per | ||
| diluted share for third quarter 2010. Operating revenues for third quarter 2011 were $2,026.3 million compared | ||
| to $1,986.7 million for the same period last year. | ||
| “Although operating earnings were negatively impacted by extreme market events, the | ||
| momentum of our businesses remained strong in the third quarter,” said Larry D. Zimpleman, chairman, | ||
| president and chief executive officer. “We expect full-year 2011 sales and net cash flows for fee-based | ||
| businesses to be significantly improved from 2010.” | ||
| Added Terry Lillis, senior vice president and chief financial officer, “Our financial position | ||
| remains strong giving us the flexibility to continue to invest for future growth, as well as return capital to | ||
| shareholders. During the quarter, we completed our share repurchase programs, reducing our common shares | ||
| outstanding by 9.1 million shares. In addition, today we announced a $0.70 per share common stock annual | ||
| dividend, a 27 percent increase over 2010, further demonstrating our long-term commitment to shareholders.” | ||
| 1Use of non-GAAP financial measures is discussed in this release after Segment Highlights. |
| 2Accumulated Other Comprehensive Income |
| Page 4 |
| Key Highlights for the Third Quarter | |
| · | Strong sales in two key Retirement and Investor Services businesses in the third quarter, with $1.5 billion |
| for Full Service Accumulation and $2.6 billion for Principal Funds, contributing to positive net cash flows | |
| of $350 million for Full Service Accumulation and $180 million for Principal Funds. | |
| · | Unaffiliated deposits of $5.6 billion in the quarter led to net cash flows of $1.2 billion for Principal Global |
| Investors. | |
| · | Principal International net cash flows of $700 million and $3.1 billion of operations acquired with our |
| HSBC Mexican AFORE acquisition in the quarter contributed to a record $54.5 billion of assets under | |
| management. (Reported assets under management do not include an additional $7.3 billion of assets | |
| managed by our Chinese joint venture.) | |
| · | Continued momentum in U.S. Insurance Solutions with $41 million of Individual Life sales and $66 million |
| of Specialty Benefits sales. | |
| · | Strong capital position with an estimated risk based capital ratio of 455 percent at quarter end and |
| approximately $1.8 billion of excess capital.3 | |
| · | Principal Financial Group completed both Board authorized share repurchase programs and bought back 9.1 |
| million shares of common stock in the third quarter at an average share price of $24.16, bringing the year-to- | |
| date total number of shares repurchased to 16.8 million. | |
| Net Income | |
| Net income available to common stockholders of $63.7 million for third quarter 2011 reflects net realized | |
| capital losses of $63.7 million, which includes $30.0 million of losses related to credit gains and losses on | |
| sales and permanent impairments of fixed maturity securities, including $23.5 million of losses on | |
| commercial mortgage-backed securities. | |
| Net income also reflects a $79.4 million after-tax loss resulting from the impact of a court ruling regarding | |
| some uncertain tax positions and the estimated obligation associated with the New York State Insurance | |
| Department’s liquidation plan for Executive Life Insurance Company of New York. | |
| Segment Highlights | |
| Retirement and Investor Services | |
| Segment operating earnings for third quarter 2011 were $128.6 million, compared to $147.4 million for | |
| the same period in 2010. Full Service Accumulation earnings were $71.0 million compared to $80.3 million for | |
| the same period a year ago, reflecting an $8.3 million after-tax increase in deferred policy acquisition cost | |
| (DPAC) amortization expense due to negative equity market returns in the current quarter. Principal Fund’s | |
| earnings increased 47 percent from a year ago to $12.5 million, reflecting strong operating leverage on a 16 | |
| percent increase in average account values. Individual Annuities earnings were $15.0 million for third quarter | |
| 2011 compared to $31.9 million a year ago, reflecting a $10.5 million after-tax increase in DPAC amortization | |
| expense due to negative equity market returns in the current quarter. Bank and Trust Services earnings were up | |
| 26 percent from a year ago to $9.2 million due to margin improvement and expense management in the current | |
| quarter. Investment Only earnings were $11.5 million for third quarter 2011, compared to $13.9 million for the | |
| same period a year ago. The decline is primarily due to a 17 percent decrease in average account values, | |
| reflecting the company’s scale back of its institutional GIC and funding agreement business. Full Service Payout | |
| earnings increased 71 percent from the year ago quarter to $9.4 million in third quarter 2011 primarily due to | |
| more favorable mortality experience in the current quarter compared to the third quarter 2010. | |
| 3Excess capital includes cash at the holding company and capital at the life company above that needed to maintain a |
| 350 percent NAIC risk based capital ratio for the life company. |
| Page 5 |
| Operating revenues for third quarter 2011 were $995.5 million compared to $997.0 million for the |
| same period in 2010, as higher revenues for the accumulation businesses, which improved $42.2 million, or 6 |
| percent, from the year ago quarter were offset by a $43.7 million decline in revenues for the guaranteed |
| businesses. |
| Segment assets under management were $168.6 billion as of Sept. 30, 2011, compared to $168.8 |
| billion as of Sept. 30, 2010. |
| Principal Global Investors |
| Segment operating earnings for third quarter 2011 were $19.1 million, a 27 percent increase |
| compared to the year ago quarter, primarily due to the increase in revenue and operating leverage. |
| Operating revenues for third quarter were $132.9 million, compared to $118.0 million for the same |
| period in 2010, primarily due to higher asset management and transaction fees. |
| Unaffiliated assets under management were $77.8 billion as of Sept. 30, 2011, compared to $76.2 |
| billion as of Sept. 30, 2010 as we saw strong demand in several of our investment strategies. |
| Principal International |
| Segment operating earnings were $36.6 million in third quarter 2011, an 11 percent increase |
| compared to the prior year quarter. The improvement was primarily due to the increase in assets under |
| management. |
| Operating revenues were $220.2 million for third quarter 2011, compared to $200.1 million for the |
| same period in 2010, primarily due to growth in assets under management. |
| Segment assets under management were a record $54.5 billion as of Sept. 30, 2011, up from $42.3 |
| billion as of Sept. 30, 2010. This includes $5.6 billion of net cash flows over the trailing twelve months, or 13 |
| percent of beginning of period assets under management and $3.1 billion from the HSBC AFORE acquisition |
| in Mexico. Reported assets under management do not include an additional $7.3 billion of assets managed by |
| our Chinese joint venture. |
| U.S. Insurance Solutions |
| Segment operating earnings for third quarter 2011 were $47.6 million, compared to $47.3 million |
| for the same period in 2010. Specialty Benefits earnings were $21.8 million in third quarter 2011, down from |
| $24.7 million for the same period in 2010. The decrease was driven by a higher loss ratio in the current |
| quarter compared to the year ago quarter, exhibiting normal quarterly volatility. Individual Life earnings were |
| $25.8 million in the third quarter, compared to $22.6 million in third quarter 2010 as the growth in the block of |
| business was partially offset by $3.3 million after-tax of higher DPAC amortization expense due to negative |
| equity market returns in the current quarter. |
| Page 6 |
| Segment operating revenues for third quarter 2011 were $734.3 million compared to $690.7 million |
| for the same period a year ago due to higher premiums and fees in Individual Life and positive trends in both |
| sales and client retention in Specialty Benefits. |
| Corporate |
| Operating losses for third quarter 2011 were $40.0 million compared to operating losses of $23.9 |
| million in third quarter 2010 primarily due to lower variable investment income on excess capital at the holding |
| company due to negative marks caused by widening of credit spreads. |
| Forward looking and cautionary statements |
| This press release contains forward-looking statements, including, without limitation, statements as to |
| operating earnings, net income available to common stockholders, net cash flows, realized and unrealized |
| gains and losses, capital and liquidity positions, 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 Dec. 31, 2010, and in the company’s quarterly report on Form 10-Q for the |
| quarter ended June 30, 2011, filed by the company with the Securities and Exchange Commission, as updated |
| or supplemented from time to time in subsequent filings. These risks and uncertainties include, without |
| limitation: adverse capital and credit market conditions may significantly affect the company’s ability to meet |
| liquidity needs, access to capital and cost of capital; continued difficult conditions in the global capital markets |
| and the economy generally; continued volatility or further declines in the equity markets; changes in interest |
| rates or credit spreads; the company’s investment portfolio is subject to several risks that may diminish the value |
| of its invested assets and the investment returns credited to customers; the company’s valuation of securities may |
| include methodologies, estimations and assumptions that are subject to differing interpretations; the |
| determination of the amount of allowances and impairments taken on the company’s investments requires |
| estimations and assumptions that are subject to differing interpretations; gross unrealized losses may be realized |
| or result in future impairments; competition from companies that may have greater financial resources, broader |
| arrays of products, higher ratings and stronger financial performance; a downgrade in the company’s financial |
| strength or credit ratings; inability to attract and retain sales representatives and develop new distribution |
| sources; international business risks; the company’s actual experience could differ significantly from its pricing |
| and reserving assumptions; the company’s ability to pay stockholder dividends and meet its obligations may be |
| constrained by the limitations on dividends or distributions Iowa insurance laws impose on Principal Life; the |
| pattern of amortizing the company’s DPAC and other actuarial balances on its universal life-type insurance |
| contracts, participating life insurance policies and certain investment contracts may change; the company may |
| need to fund deficiencies in its “Closed Block” assets that support participating ordinary life insurance policies |
| that had a dividend scale in force at the time of Principal Life’s 1998 conversion into a stock life insurance |
| company; the company’s reinsurers could default on their obligations or increase their rates; risks arising from |
| acquisitions of businesses; changes in laws, regulations or accounting standards; a computer system failure or |
| security breach could disrupt the company’s business, and damage its reputation; results of litigation and |
| regulatory investigations; from time to time the company may become subject to tax audits, tax litigation or |
| similar proceedings, and as a result it may owe additional taxes, interest and penalties in amounts that may be |
| material; fluctuations in foreign currency exchange rates; and applicable laws and the company’s stockholder |
| rights plan, certificate of incorporation and by-laws may discourage takeovers and business combinations that |
| some stockholders might consider in their best interests. |
| Page 7 |
| 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, as a basis for 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 | |
| On Friday, Oct. 28, 2011 at 10:00 a.m. (ET), Chairman, President and Chief Executive Officer Larry | |
| Zimpleman and Senior Vice President and Chief Financial Officer Terry Lillis will lead a discussion of | |
| results, asset quality and capital adequacy during a live conference call, which can be accessed as follows: | |
| · | Via live Internet webcast. Please go towww.principal.com/investorat least 10-15 minutes prior to the |
| start of the call to register, and to download and install any necessary audio software. | |
| · | Via telephone by dialing 800-374-1609 (U.S. and Canadian callers) or 706-643-7701 (International |
| callers) approximately 10 minutes prior to the start of the call. The access code is 13931944. | |
| · | Replay of the earnings call via telephone is available by dialing 855-859-2056 (U.S. and Canadian |
| callers) or 404-537-3406 (International callers). The access code is 13931944. This replay will be | |
| available approximately two hours after the completion of the live earnings call through the end of day | |
| November 4, 2011. | |
| · | Replay of the earnings call via webcast as well as a transcript of the call will be available after the call at: |
| www.principal.com/investor. | |
| The company's financial supplement and additional investment portfolio detail for third quarter 2011 is | |
| currently available atwww.principal.com/investor, and may be referred to during the call. | |
| About the Principal Financial Group | |
| The Principal Financial GroupÒ(The Principal®)4is a leader in offering businesses, individuals and | |
| institutional clients a wide range of financial products and services, including retirement and investment | |
| services, insurance, and banking through its diverse family of financial services companies. A member of the | |
| Fortune 500, the Principal Financial Group has $320.8 billion in assets under management5and serves some | |
| 17.8 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, visitwww.principal.com. | |
| Page 10 | ||||
| Principal Financial Group, Inc. | ||||
| Reconciliation of Non-GAAP Financial Measures to U.S. GAAP | ||||
| (in millions, except as indicated) | ||||
| Three Months Ended, | Nine Months Ended, | |||
| 9/30/11 | 9/30/10 | 9/30/11 | 9/30/10 | |
| Diluted Earnings Per Common Share: | ||||
| Operating earnings | $ 0.61 | $ 0.68 | $ 2.06 | $ 1.95 |
| Net realized capital losses | (0.21) | (0.10) | (0.30) | (0.48) |
| Other after-tax adjustments | (0.20) | (0.14) | (0.15) | (0.02) |
| Net income available to common stockholders | $ 0.20 | $ 0.44 | $ 1.61 | $ 1.45 |
| Book Value Per Common Share Excluding Accumulated | ||||
| Other Comprehensive Income: | ||||
| Book value per common share excluding accumulated other | ||||
| comprehensive income | $ 29.59 | $ 27.71 | $ 29.59 | $ 27.71 |
| Net unrealized capital gains | 2.67 | 2.18 | 2.67 | 2.18 |
| Foreign currency translation | (0.13) | 0.01 | (0.13) | 0.01 |
| Net unrecognized postretirement benefit obligations | (1.19) | (0.70) | (1.19) | (0.70) |
| Book value per common share including accumulated other | ||||
| comprehensive income | $ 30.94 | $ 29.20 | $ 30.94 | $ 29.20 |
| Operating Revenues: | ||||
| RIS | $ 995.5 | $ 997.0 | $ 3,057.4 | $ 3,031.0 |
| PGI | 132.9 | 118.0 | 394.5 | 346.1 |
| PI | 220.2 | 200.1 | 653.8 | 569.4 |
| USIS | 734.3 | 690.7 | 2,246.6 | 2,070.1 |
| Corporate | (56.6) | (19.1) | (130.3) | (81.2) |
| Total operating revenues | 2,026.3 | 1,986.7 | 6,222.0 | 5,935.4 |
| Net realized capital losses and related adjustments | (55.2) | (42.3) | (124.8) | (199.5) |
| Exited group medical insurance business | 117.7 | 344.1 | 553.4 | 1,050.2 |
| Total GAAP revenues | $ 2,088.8 | $ 2,288.5 | $ 6,650.6 | $ 6,786.1 |
| Operating Earnings: | ||||
| RIS | $ 128.6 | $ 147.4 | $ 449.2 | $ 433.4 |
| PGI | 19.1 | 15.0 | 56.5 | 39.3 |
| PI | 36.6 | 33.1 | 102.6 | 106.0 |
| USIS | 47.6 | 47.3 | 156.6 | 141.4 |
| Corporate | (40.0) | (23.9) | (103.9) | (89.4) |
| Total operating earnings | 191.9 | 218.9 | 661.0 | 630.7 |
| Net realized capital losses | (63.7) | (30.9) | (94.9) | (156.9) |
| Other after-tax adjustments | (64.5) | (45.8) | (48.1) | (6.8) |
| Net income available to common stockholders | $ 63.7 | $ 142.2 | $ 518.0 | $ 467.0 |
| Net Realized Capital Gains (Losses): | ||||
| Net realized capital losses, as adjusted | $ (63.7) | $ (30.9) | $ (94.9) | $ (156.9) |
| Certain derivative and hedging-related adjustments | 25.4 | 20.5 | 73.2 | 69.8 |
| Amortization of DPAC and sale inducement costs | 55.0 | 26.7 | 47.1 | 71.3 |
| Certain market value adjustments of embedded derivatives | (0.9) | (0.9) | (64.7) | (6.7) |
| Capital gains (losses) distributed | (9.7) | (0.1) | 2.0 | 2.2 |
| Tax impacts | (29.5) | (34.7) | (44.9) | (111.1) |
| Noncontrolling interest capital gains (losses) | (6.4) | (0.6) | 30.4 | 4.1 |
| Recognition of front-end fee revenues | (0.9) | (1.2) | 0.5 | (5.2) |
| Certain market value adjustments to fee revenues | - | 2.3 | 0.1 | 2.3 |
| Net realized capital gains (losses) associated with exited group | ||||
| medical insurance business | - | (1.8) | 0.2 | (2.4) |
| GAAP net realized capital losses | $ (30.7) | $ (20.7) | $ (51.0) | $ (132.6) |
| Other After-Tax Adjustments: | ||||
| Exited group medical insurance business | $ 14.9 | $ (45.8) | $ 50.8 | $ 1.0 |
| Court ruling regarding some uncertain tax positions | (68.9) | - | (68.9) | - |
| ELNY liquidation provision estimated obligation | (10.5) | - | (10.5) | - |
| Contribution to PFG Foundation | - | - | (19.5) | - |
| Tax impact of healthcare reform | - | - | - | (7.8) |
| Total other after-tax adjustments | $ (64.5) | $ (45.8) | $ (48.1) | $ (6.8) |