Consolidated Statements of Fina
| Consolidated Statements of Financial Position (USD $) | ||
| In Millions | Jun. 30, 2009
| Dec. 31, 2008
|
| Assets | ||
| Fixed maturities, available-for-sale | 42298.6 | 40117.2 |
| Fixed maturities, trading | 869.6 | 843.4 |
| Equity securities, available-for-sale | 212.5 | 242.7 |
| Equity securities, trading | 170.4 | 158 |
| Mortgage loans | 12433.8 | 13113.6 |
| Real estate | 974.6 | 919.4 |
| Policy loans | 902.5 | 896.4 |
| Other investments | 2390.7 | 2816.6 |
| Total investments | 60252.7 | 59107.3 |
| Cash and cash equivalents | 4328.5 | 2,608 |
| Accrued investment income | 696.2 | 750.7 |
| Premiums due and other receivables | 1046.5 | 988.1 |
| Deferred policy acquisition costs | 4058.7 | 4,153 |
| Property and equipment | 506.1 | 518.2 |
| Goodwill | 384.1 | 375.5 |
| Other intangibles | 878.4 | 925.3 |
| Separate account assets | 55998.4 | 55142.6 |
| Other assets | 2,557 | 3613.7 |
| Total assets | 130706.6 | 128182.4 |
| Liabilities | ||
| Contractholder funds | 41449.8 | 43086.6 |
| Future policy benefits and claims | 18939.1 | 18494.2 |
| Other policyholder funds | 553.4 | 536.2 |
| Short-term debt | 159.5 | 500.9 |
| Long-term debt | 2033.3 | 1290.5 |
| Income taxes currently payable | 2.8 | 1.9 |
| Deferred income taxes | 116.7 | 102.8 |
| Separate account liabilities | 55998.4 | 55142.6 |
| Other liabilities | 5677.1 | 6457.4 |
| Total liabilities | 124930.1 | 125613.1 |
| Stockholders' equity | ||
| Common stock, par value $.01 per share - 2,500.0 million shares authorized, 446.2 million and 387.0 million shares issued, and 318.3 million and 259.3 million shares outstanding in 2009 and 2008 | 4.5 | 3.9 |
| Additional paid-in capital | 9459.8 | 8376.5 |
| Retained earnings | 3995.5 | 3722.5 |
| Accumulated other comprehensive loss | -3042.4 | -4911.6 |
| Treasury stock, at cost (127.9 million and 127.7 million shares in 2009 and 2008, respectively) | -4722.3 | -4718.6 |
| Total stockholders' equity attributable to Principal Financial Group, Inc. | 5695.2 | 2472.8 |
| Noncontrolling interest | 81.3 | 96.5 |
| Total stockholders' equity | 5776.5 | 2569.3 |
| Total liabilities and stockholders' equity | 130706.6 | 128182.4 |
| Series A preferred stock, par value $.01 per share with liquidation preference of $100 per share - 3.0 million shares authorized, issued and outstanding in 2009 and 2008 | ||
| Stockholders' equity | ||
| Preferred stock, value | 0 | 0 |
| Series B preferred stock, par value $.01 per share with liquidation preference of $25 per share - 10.0 million shares authorized, issued and outstanding in 2009 and 2008 | ||
| Stockholders' equity | ||
| Preferred stock, value | 0.1 | 0.1 |
1_Consolidated Statements of Fi
| Consolidated Statements of Financial Position (Parenthetical) (USD $) | ||
| Share data in Millions, except Per Share data | Jun. 30, 2009
| Dec. 31, 2008
|
| Stockholders' equity | ||
| Common stock, par value (in dollars per share) | 0.01 | 0.01 |
| Common stock, shares authorized (in shares) | 2,500 | 2,500 |
| Common stock, shares issued (in shares) | 446.2 | 387 |
| Common stock, shares outstanding (in shares) | 318.3 | 259.3 |
| Treasury stock (in shares) | 127.9 | 127.7 |
| Series A preferred stock, par value $.01 per share with liquidation preference of $100 per share - 3.0 million shares authorized, issued and outstanding in 2009 and 2008 | ||
| Stockholders' equity | ||
| Preferred stock, par value (in dollars per share) | 0.01 | 0.01 |
| Preferred stock, liquidation preference (in dollars per share) | $1 | $1 |
| Preferred stock, shares authorized (in shares) | 3 | 3 |
| Preferred stock, shares issued (in shares) | 3 | 3 |
| Preferred stock, shares outstanding (in shares) | 3 | 3 |
| Series B preferred stock, par value $.01 per share with liquidation preference of $25 per share - 10.0 million shares authorized, issued and outstanding in 2009 and 2008 | ||
| Stockholders' equity | ||
| Preferred stock, par value (in dollars per share) | 0.01 | 0.01 |
| Preferred stock, liquidation preference (in dollars per share) | $25 | $25 |
| Preferred stock, shares authorized (in shares) | 10 | 10 |
| Preferred stock, shares issued (in shares) | 10 | 10 |
| Preferred stock, shares outstanding (in shares) | 10 | 10 |
Consolidated Statements of Oper
| Consolidated Statements of Operations (USD $) | ||||
| In Millions, except Per Share data | 3 Months Ended
Jun. 30, 2009 | 3 Months Ended
Jun. 30, 2008 | 6 Months Ended
Jun. 30, 2009 | 6 Months Ended
Jun. 30, 2008 |
| Revenues | ||||
| Premiums and other considerations | 937.7 | 1156.2 | 1887.6 | 2209.2 |
| Fees and other revenues | 515.2 | 622.5 | 988.7 | 1235.9 |
| Net investment income | 860.1 | 990.9 | 1688.6 | 1951.2 |
| Net realized capital gains (losses), excluding impairment losses on available-for-sale securities | -20.8 | -65.6 | 11.9 | -124.1 |
| Total other-than-temporary impairment losses on available-for-sale securities | -200.9 | -45.9 | -347.5 | -113.4 |
| Portion of impairment losses on fixed maturities, available-for-sale recognized in other comprehensive income | 66.5 | 117.1 | ||
| Net impairment losses on available-for-sale securities | -134.4 | -45.9 | -230.4 | -113.4 |
| Net realized capital losses | -155.2 | -111.5 | -218.5 | -237.5 |
| Total revenues | 2157.8 | 2658.1 | 4346.4 | 5158.8 |
| Expenses | ||||
| Benefits, claims and settlement expenses | 1334.3 | 1,634 | 2640.9 | 3,106 |
| Dividends to policyholders | 62.9 | 69 | 126.4 | 139.8 |
| Operating expenses | 562.7 | 742.6 | 1251.1 | 1493.3 |
| Total expenses | 1959.9 | 2445.6 | 4018.4 | 4739.1 |
| Income before income taxes | 197.9 | 212.5 | 328 | 419.7 |
| Income taxes | 33.9 | 29.4 | 41.4 | 59 |
| Net income | 164 | 183.1 | 286.6 | 360.7 |
| Net income attributable to noncontrolling interest | 5.4 | 6.5 | 7 | 1.7 |
| Net income attributable to Principal Financial Group, Inc. | 158.6 | 176.6 | 279.6 | 359 |
| Preferred stock dividends | 8.3 | 8.3 | 16.5 | 16.5 |
| Net income available to common stockholders | 150.3 | 168.3 | 263.1 | 342.5 |
| Earnings per common share | ||||
| Basic earnings per common share (in dollars per share) | 0.52 | 0.65 | 0.96 | 1.32 |
| Diluted earnings per common share (in dollars per share) | 0.52 | 0.64 | 0.95 | 1.31 |
Consolidated Statements of Stoc
| Consolidated Statements of Stockholders' Equity (USD $) | |||||||||
| In Millions | Series A preferred stock
| Series B preferred stock
| Common stock
| Additional paid-in capital
| Retained earnings
| Accumulated other comprehensive income (loss)
| Treasury stock
| Noncontrolling interest
| Total
|
| Balances at begininng at Dec. 31, 2007 | $0 | 0.1 | 3.9 | 8295.4 | 3414.3 | 420.2 | -4712.2 | 97.6 | 7519.3 |
| Increase (Decrease) in Stockholders' Equity | |||||||||
| Common stock issued | 23.6 | 23.6 | |||||||
| Capital transactions of equity method investee, net of related income taxes | 0.2 | 0.2 | |||||||
| Stock-based compensation and additional related tax benefits | 31.2 | 31.2 | |||||||
| Treasury stock acquired, common | -6.1 | -6.1 | |||||||
| Dividends to preferred stockholders | -16.5 | -16.5 | |||||||
| Dividends to noncontrolling interest | -8.8 | -8.8 | |||||||
| Capital received from (paid to) noncontrolling interest | 9.7 | 9.7 | |||||||
| Effects of changing post-retirement benefit plan measurement date, net of related income taxes | 0.9 | (2) | -1.1 | ||||||
| Comprehensive income (loss): | |||||||||
| Net income | 359 | 1.7 | 360.7 | ||||||
| Net unrealized gains (losses), net | -1220.9 | -1220.9 | |||||||
| Foreign currency translation adjustment, net of related income taxes | 32.8 | -0.6 | 32.2 | ||||||
| Unrecognized post-retirement benefit obligation, net of related income taxes | (4) | (4) | |||||||
| Comprehensive income (loss) | (832) | ||||||||
| Increase (decrease) in stockholders' equity | 0 | 0 | 0 | ||||||
| Balances at end at Jun. 30, 2008 | 0 | 0.1 | 3.9 | 8350.4 | 3757.7 | -773.9 | -4718.3 | 99.6 | 6719.5 |
| Comprehensive income (loss): | |||||||||
| Balances at begininng at Dec. 31, 2008 | 0 | 0.1 | 3.9 | 8376.5 | 3722.5 | -4911.6 | -4718.6 | 96.5 | 2569.3 |
| Increase (Decrease) in Stockholders' Equity | |||||||||
| Common stock issued | 0.6 | 1112.4 | 1,113 | ||||||
| Stock-based compensation and additional related tax benefits | 16.8 | 16.8 | |||||||
| Treasury stock acquired, common | -3.7 | -3.7 | |||||||
| Dividends to preferred stockholders | -16.5 | -16.5 | |||||||
| Dividends to noncontrolling interest | -4.2 | -4.2 | |||||||
| Purchase of subsidiary shares from noncontrolling interest | -45.9 | 0.2 | -45.7 | ||||||
| Capital received from (paid to) noncontrolling interest | -18.2 | -18.2 | |||||||
| Effects of reclassifying noncredit component of previously recognized impairment losses on fixed maturities, available-for-sale, net | 9.9 | -9.9 | |||||||
| Comprehensive income (loss): | |||||||||
| Net income | 279.6 | 7 | 286.6 | ||||||
| Net unrealized gains (losses), net | 1806.8 | 1806.8 | |||||||
| Noncredit component of impairment losses on fixed maturities, available-for-sale, net | -68.4 | -68.4 | |||||||
| Foreign currency translation adjustment, net of related income taxes | 110.8 | 110.8 | |||||||
| Unrecognized post-retirement benefit obligation, net of related income taxes | 29.9 | 29.9 | |||||||
| Comprehensive income (loss) | 2165.7 | ||||||||
| Increase (decrease) in stockholders' equity | 0 | 0 | |||||||
| Balances at end at Jun. 30, 2009 | $0 | 0.1 | 4.5 | 9459.8 | 3995.5 | -3042.4 | -4722.3 | 81.3 | 5776.5 |
Consolidated Statements of Cash
| Consolidated Statements of Cash Flows (USD $) | ||
| In Millions | 6 Months Ended
Jun. 30, 2009 | 6 Months Ended
Jun. 30, 2008 |
| Operating activities | ||
| Net income | 286.6 | 360.7 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||
| Amortization of deferred policy acquisition costs | 36.2 | 126.4 |
| Additions to deferred policy acquisition costs | -253.3 | -373.8 |
| Accrued investment income | 54.5 | 30.1 |
| Net cash flows from trading securities | 38 | -409.8 |
| Premiums due and other receivables | -55.3 | 23 |
| Contractholder and policyholder liabilities and dividends | 820.1 | 1083.9 |
| Current and deferred income taxes | 149 | -20.1 |
| Net realized capital losses | 218.5 | 237.5 |
| Depreciation and amortization expense | 68.8 | 69.8 |
| Mortgage loans held for sale, acquired or originated | -21.2 | -27.4 |
| Mortgage loans held for sale, sold or repaid, net of gain | 26 | 28.8 |
| Real estate acquired through operating activities | -16.6 | -29.9 |
| Real estate sold through operating activities | 0.3 | 7.2 |
| Stock-based compensation | 16.5 | 26.4 |
| Other | 46.8 | -59.7 |
| Net adjustments | 1128.3 | 712.4 |
| Net cash provided by operating activities | 1414.9 | 1073.1 |
| Investing activities | ||
| Available-for-sale securities: purchases | (2,968) | -4360.4 |
| Available-for-sale securities: sales | 1623.7 | 434.2 |
| Available-for-sale securities: maturities | 2049.6 | 1799.4 |
| Mortgage loans acquired or originated | -181.1 | -753.4 |
| Mortgage loans sold or repaid | 862.2 | 613.8 |
| Real estate acquired | -42.1 | -11.2 |
| Real estate sold | 1.3 | 46 |
| Net purchases of property and equipment | -16.5 | -49.5 |
| Purchases of interest in subsidiaries, net of cash acquired | -45.7 | -20.3 |
| Net change in other investments | -50.6 | -25.3 |
| Net cash provided by (used in) investing activities | 1232.8 | -2326.7 |
| Financing activities | ||
| Issuance of common stock | 1154.4 | 23.6 |
| Acquisition of treasury stock | -3.7 | -6.1 |
| Proceeds from financing element derivatives | 77.9 | 83.3 |
| Payments for financing element derivatives | -43.7 | -61.1 |
| Excess tax benefits from share-based payment arrangements | 0.2 | 2.8 |
| Dividends to preferred stockholders | -16.5 | -16.5 |
| Issuance of long-term debt | 750 | 3.1 |
| Principal repayments of long-term debt | -21.7 | -12.7 |
| Net repayments of short-term borrowings | -345.7 | -72.7 |
| Investment contract deposits | 2681.1 | 6792.5 |
| Investment contract withdrawals | -5224.4 | -5531.7 |
| Net increase in banking operation deposits | 68.1 | 232.3 |
| Other | -3.2 | -3.1 |
| Net cash provided by (used in) financing activities | -927.2 | 1433.7 |
| Net increase in cash and cash equivalents | 1720.5 | 180.1 |
| Cash and cash equivalents at beginning of period | 2,608 | 1344.4 |
| Cash and cash equivalents at end of period | 4328.5 | 1524.5 |
Nature of Operations and Signif
| Nature of Operations and Significant Accounting Policies | |
| 6 Months Ended
Jun. 30, 2009 USD / shares | |
| Notes to Consolidated Financial Statements | |
| Nature of Operations and Significant Accounting Policies | 1. Nature of Operations and Significant Accounting Policies Basis of Presentation The accompanying unaudited consolidated financial statements of Principal Financial Group,Inc. (PFG), its majority-owned subsidiaries and its consolidated variable interest entities (VIEs), have been prepared in conformity with accounting principles generally accepted in the U.S. (U.S. GAAP) for interim financial statements and with the instructions to Form10-Q and Article10 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June30, 2009, are not necessarily indicative of the results that may be expected for the year ended December31, 2009. These interim unaudited consolidated financial statements should be read in conjunction with our annual audited financial statements as of December31, 2008, included in our Form10-K for the year ended December31, 2008, filed with the United States Securities and Exchange Commission (SEC). The accompanying consolidated statement of financial position as of December31, 2008, has been derived from the audited consolidated statement of financial position but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. We have evaluated subsequent events through August5, 2009, which was the date our consolidated financial statements were issued. Reclassifications have been made to prior period financial statements to conform to the June30, 2009, presentation. See Recent Accounting Pronouncements for impact of new accounting guidance on prior period financial statements. Recent Accounting Pronouncements On June30, 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No.168, The FASB Accounting Standards CodificationTMand the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No.162 (SFAS 168). This statement replaces SFAS No.162, The Hierarchy of Generally Accepted Accounting Principles, and establishes the FASB Accounting Standards CodificationTM(Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rulesand interpretive releases of the SEC under federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September15, 2009. We do not anticipate that SFAS 168 will have a material impact on our consolidated financial statements. On June12, 2009, the FASB issued SFAS No.166, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No.140 (SFAS 166). The objective of SFAS 166 is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial repor |
Investments
| Investments | |
| 6 Months Ended
Jun. 30, 2009 USD / shares | |
| Notes to Consolidated Financial Statements | |
| Investments | 2. Investments Fixed Maturities and Equity Securities Fixed maturity securities include bonds, mortgage-backed securities, redeemable preferred stock and certain nonredeemable preferred stock. Equity securities include mutual funds, common stock and nonredeemable preferred stock. We classify fixed maturity securities and equity securities as either available-for-sale or trading at the time of the purchase and, accordingly, carry them at fair value. See Note9, Fair Value of Financial Instruments, for methodologies related to the determination of fair value. Unrealized gains and losses related to available-for-sale securities, excluding those in fair value hedging relationships, are reflected in stockholders equity, net of adjustments related to deferred policy acquisition costs (DPAC), sales inducements, unearned revenue reserves, derivatives in cash flow hedge relationships and applicable income taxes. Unrealized gains and losses related to trading securities and hedged portions of available-for-sale securities in fair value hedging relationships are reflected in net income as net realized capital gains (losses). The cost of fixed maturity securities is adjusted for amortization of premiums and accrual of discounts, both computed using the interest method. The cost of fixed maturity securities and equity securities is adjusted for other-than-temporary impairments recognized in net income. For loan-backed and structured securities, we recognize income using a constant effective yield based on currently anticipated prepayments using a tool that models the prepayment behavior of the underlying collateral based on the current interest rate environment. The amortized cost, gross unrealized gains and losses, other-than-temporary impairments in OCI and fair value of fixed maturities and equity securities available-for-sale as of June30, 2009, are summarized as follows: Amortized cost Gross unrealized gains Gross unrealized losses Other-than-temporary impairments in OCI Fair value (in millions) Fixed maturities, available-for-sale: U.S. government and agencies $ 570.2 $ 4.8 $ 0.8 $ $ 574.2 Non-U.S. governments 708.1 82.7 5.8 785.0 States and political subdivisions 1,968.4 33.9 40.4 1,961.9 Corporate 33,176.7 679.0 2,890.9 28.0 30,936.8 Residential mortgage-backed securities 2,187.7 64.3 1.7 2,250.3 Commercial mortgage-backed securities 5,355.3 8.6 1,825.8 31.7 3,506.4 Collateralized debt obligations 641.7 3.0 316.0 34.1 294.6 Other debt obligations 2,436.3 19.2 425.3 40.8 1,989.4 Total fixed maturities, available-for-sale $ 47,044.4 $ 895.5 $ 5,506.7 $ 134.6 $ 42,298.6 Total equity securities, available-for-sale $ 294.2 $ 12.0 $ 93.7 $ $ 212.5 The amortized cost and fair value of fixed maturities available-for-sale as of June30, 2009, by contractual maturity, were as follows: Amortized cost Fair value (in millions) Due in one year or less |
Derivative Financial Instrument
| Derivative Financial Instruments | |
| 6 Months Ended
Jun. 30, 2009 USD / shares | |
| Notes to Consolidated Financial Statements | |
| Derivative Financial Instruments | 3. Derivative Financial Instruments Derivatives are generally used to hedge or reduce exposure to market risks associated with assets held or expected to be purchased or sold and liabilities incurred or expected to be incurred. Derivatives are used to change the characteristics of our asset/liability mix consistent with our risk management activities. Derivatives are also used in asset replication strategies. We do not buy, sell or hold these investments for trading purposes. Types of Derivative Instruments Interest Rate Contracts Interest rate risk is the risk that we will incur economic losses due to adverse changes in interest rates. Sources of interest rate risk include the difference between the maturity and interest rate changes of assets with the liabilities they support, timing differences between the pricing of liabilities and the purchase or procurement of assets and changing cash flow profiles from original projections due to prepayment options embedded within asset and liability contracts. We use various derivatives to manage our exposure to fluctuations in interest rates. Interest rate swaps are contracts in which we agree with other parties to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts based upon designated market rates or rate indices and an agreed upon notional principal amount. Generally, no cash is exchanged at the outset of the contract and no principal payments are made by either party. Cash is paid or received based on the terms of the swap. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by one counterparty at each due date. We use interest rate swaps primarily to more closely match the interest rate characteristics of assets and liabilities arising from timing mismatches between assets and liabilities (including duration mismatches). We also use interest rate swaps to hedge against changes in the value of assets we anticipate acquiring and other anticipated transactions and commitments. Interest rate swaps are used to hedge against changes in the value of the guaranteed minimum withdrawal benefit (GMWB) liability. The GMWB rider on our variable annuity products provides for guaranteed minimum withdrawal benefits regardless of the actual performance of various equity and/or fixed income funds available with the product. A swaption is an option to enter into an interest rate swap at a future date. We have written these options and received a premium in order to transform our callable liabilities into fixed term liabilities. Swaptions provide us the benefit of the agreed-upon strike rate if the market rates for liabilities are higher, with the flexibility to enter into the current market rate swap if the market rates for liabilities are lower. Swaptions not only hedge against the downside risk, but also allow us to take advantage of any upside benefits. In exchange-traded futures transactions, we agree to purchase or sell a specified number of contracts, the values of which are determined by the values of designated classes of securities, and to post variation margin on a |
Long-Term Debt
| Long-Term Debt | |
| 6 Months Ended
Jun. 30, 2009 USD / shares | |
| Notes to Consolidated Financial Statements | |
| Long-Term Debt | 4. Long-Term Debt The components of long-term debt as of June30, 2009, and December31, 2008, were as follows: June30, 2009 December31, 2008 (in millions) 8.2% notes payable, due 2009 $ 440.9 $ 454.9 3.31% notes payable, due 2011 58.5 49.9 3.63% notes payable, due 2011 29.9 25.6 7.875% notes payable, due 2014 400.0 8.875% notes payable, due 2019 350.0 6.05% notes payable, due 2036 601.8 601.8 8% surplus notes payable, due 2044 99.2 99.2 Non-recourse mortgages and notes payable 52.6 58.7 Other mortgages and notes payable 0.4 0.4 Total long-term debt $ 2,033.3 $ 1,290.5 The amounts included above are net of the discount and premium associated with issuing these notes, which are being amortized to expense over the respective terms using the interest method. On May18, 2009, we issued $750.0 million of senior notes. We issued a $400.0 million series of notes that bear interest at 7.875% and will mature on May15, 2014, and a $350.0 million series of notes that bear interest at 8.875% and will mature on May15, 2019. Interest on the notes is payable semi-annually on May15 and November15 each year, beginning on November15, 2009. The proceeds will primarily be used to refinance $440.9 million of notes due on August15, 2009, with the remaining proceeds being used for general corporate purposes. |
Federal Income Taxes
| Federal Income Taxes | |
| 6 Months Ended
Jun. 30, 2009 USD / shares | |
| Notes to Consolidated Financial Statements | |
| Federal Income Taxes | 5. Federal Income Taxes The effective income tax rate for the three and six months ended June30, 2009, was lower than the U.S. corporate income tax rate of 35% (U.S. statutory rate) primarily due to income tax deductions allowed for corporate dividends received and the interest exclusion from taxable income. Taxes on our share of earnings generated from equity method investments reflected in net investment income also contributed to a lower than U.S. statutory rate. The effective income tax rates for the three and six months ended June30, 2008, were lower than the U.S. statutory rate primarily due to income tax deductions allowed for corporate dividends received and additional U.S. foreign tax credits resulting from the enactment of legislation to increase the Brazilian tax rate in the second quarter of 2008.As we apply the equity method of accounting to our Brazilian operations, the net increase in deferred tax liabilities associated with the newly enacted rate is reflected in net investment income. The effective income tax rate for the six months ended June30, 2008, was also lower than the prevailing U.S. statutory rate due to the release of state deferred income tax liabilities associated with a reorganization of certain subsidiaries. The Internal Revenue Service (IRS) is currently auditing our federal income tax returns for the years 2004 through 2007. The IRS informed us of their intent to audit our 2008 tax return beginning in early 2010. We do not expect the results of these audits or developments in other tax areas to significantly change the possible increase in the amount of unrecognized tax benefits, but the outcome of tax reviews is uncertain and unforeseen results can occur. Consistent with December31, 2008, we estimate that it is reasonably possible that the amount of our unrecognized tax benefits could increase $0.0 to $11.0 million within the next twelve months. |
Employee and Agent Benefits
| Employee and Agent Benefits | |
| 6 Months Ended
Jun. 30, 2009 USD / shares | |
| Notes to Consolidated Financial Statements | |
| Employee and Agent Benefits | 6. Employee and Agent Benefits Components of net periodic benefit cost (income): Pensionbenefits Otherpost-retirement benefits Forthethreemonthsended June30, Forthethreemonthsended June30, 2009 2008 2009 2008 (inmillions) Service cost $ 12.8 $ 12.4 $ 2.8 $ 2.1 Interest cost 25.2 24.9 4.9 4.2 Expected return on plan assets (19.9 ) (32.6 ) (6.5 ) (9.4 ) Amortization of prior service benefit (1.9 ) (1.9 ) (0.5 ) (0.6 ) Recognized net actuarial loss (gain) 23.2 0.3 2.4 (0.8 ) Net periodic benefit cost (income) $ 39.4 $ 3.1 $ 3.1 $ (4.5 ) Pensionbenefits Otherpost-retirement benefits Forthesixmonthsended June30, Forthesixmonthsended June30, 2009 2008 2009 2008 (inmillions) Service cost $ 25.6 $ 24.8 $ 5.6 $ 4.2 Interest cost 50.4 49.8 9.8 8.4 Expected return on plan assets (39.8 ) (65.2 ) (13.0 ) (18.8 ) Amortization of prior service benefit (3.8 ) (3.8 ) (1.0 ) (1.2 ) Recognized net actuarial loss (gain) 46.4 0.6 4.8 (1.6 ) Net periodic benefit cost (income) $ 78.8 $ 6.2 $ 6.2 $ (9.0 ) In 2008, our return on plans asset was lower than expected, which resulted in an actuarial loss and lower plan assets at December31, 2008.The 2008 lower than expected return caused the expected return on plan assets in 2009 to be lower and the recognition of the actuarial loss to increase as the loss is amortized. Contributions Our funding policy for our qualified pension plan is to fund the plan annually in an amount at least equal to the minimum annual contribution required under the Employee Retirement Income Security Act (ERISA) and, generally, not greater than the maximum amount that can be deducted for federal income tax purposes. The minimum annual contribution for 2009 will be zero so we will not be required to fund our qualified pension plan during 2009. However, it is possible that we may fund the qualified and nonqualified pension plans in 2009 for a combined total of between $20.0 million to $100.0 million. During both the three and six months ended June30, 2009, we contributed $12.5 million to these plans. |
Contingencies, Guarantees and I
| Contingencies, Guarantees and Indemnifications | |
| 6 Months Ended
Jun. 30, 2009 USD / shares | |
| Notes to Consolidated Financial Statements | |
| Contingencies, Guarantees and Indemnifications | 7. Contingencies, Guarantees and Indemnifications Litigation and Regulatory Contingencies We are regularly involved in litigation, both as a defendant and as a plaintiff, but primarily as a defendant. Litigation naming us as a defendant ordinarily arises out of our business operations as a provider of asset management and accumulation products and services, life, health and disability insurance. Some of the lawsuits are class actions, or purport to be, and some include claims for punitive damages. In addition, regulatory bodies, such as state insurance departments, the SEC, the Financial Industry Regulatory Authority, the Department of Labor and other regulatory bodies regularly make inquiries and conduct examinations or investigations concerning our compliance with, among other things, insurance laws, securities laws, ERISA and laws governing the activities of broker-dealers. We receive requests from regulators and other governmental authorities relating to other industry issues and may receive additional requests, including subpoenas and interrogatories, in the future. On November8, 2006, a trustee of Fairmount ParkInc. Retirement Savings Plan filed a putative class action lawsuit in the United States District Court for the Southern District of Illinois against Principal Life. Principal Lifes Motion to Transfer Venue was granted and the case is now pending in the Southern District of Iowa. The complaint alleged, among other things, that Principal Life breached its alleged fiduciary duties while performing services to 401(k)plans by failing to disclose, or adequately disclose, to employers or plan participants the fact that Principal Life receives revenue sharing fees from mutual funds that are included in its pre-packaged 401(k)plans and allegedly failed to use the revenue to defray the expenses of the services provided to the plans. Plaintiff further alleged that these acts constitute prohibited transactions under ERISA. Plaintiff sought to certify a class of all retirement plans to which Principal Life was a service provider and for which Principal Life received and retained revenue sharing fees from mutual funds. On August27, 2008, the Plaintiffs Motion for ClassCertification was denied. The Plaintiff filed a petition seeking permission to appeal that ruling. The petition was denied on October28, 2008. On May11, 2009, Plaintiff filed a new Motion for ClassCertification. Principal Life is aggressively defending the lawsuit. On August28, 2007, two plaintiffs, Walsh and Young, filed a putative class action lawsuit in the United States District Court for the Southern District of Iowa against Principal Life and Princor Financial Services Corporation (the Principal Defendants). The lawsuit alleges that the Principal Defendants breached alleged fiduciary duties to participants in employer-sponsored 401(k)plans who were retiring or leaving their respective plans, including providing misleading information and failing to act solely in the interests of the participants, resulting in alleged violations of ERISA. The Principal Defendants are aggressively defending the lawsuit. On February28, 2007, Luz Zapien (Zapien) filed a secu |
Stockholders Equity
| Stockholders Equity | |
| 1/1/2009 - 6/30/2009
USD / shares | |
| Notes to Consolidated Financial Statements | |
| Stockholders' Equity | 8. Stockholders Equity Reconciliation of Outstanding Shares SeriesA preferred stock SeriesB preferred stock Common stock (inmillions) Outstanding shares at January1, 2008 3.0 10.0 259.1 Shares issued 0.9 Treasury stock acquired (1.0 ) Outstanding shares at June30, 2008 3.0 10.0 259.0 Outstanding shares at January1, 2009 3.0 10.0 259.3 Shares issued 59.2 Treasury stock acquired (0.2 ) Outstanding shares at June30, 2009 3.0 10.0 318.3 In May2009 we issued 58.2 million shares of common stock at a price of $19.75 per share. Net proceeds from the issuance were $1,109.1 million. The proceeds from this offering will be used for general corporate purposes. Comprehensive income (loss) is as follows: Forthethreemonthsended June30, Forthesixmonthsended June30, 2009 2008 2009 2008 (in millions) Net income $ 164.0 $ 183.1 $ 286.6 $ 360.7 Net change in unrealized gains (losses) on fixed maturities, available-for-sale 3,086.2 (716.8 ) 3,097.0 (2,172.0 ) Net change in noncredit component of impairment losses on fixed maturities, available-for-sale (66.5 ) (117.1 ) Net change in unrealized gains (losses) on equity securities, available-for-sale 35.8 6.6 (16.5 ) (2.3 ) Net change in unrealized gains on equity method subsidiaries and noncontrolling interest adjustments 56.5 5.5 121.4 6.1 Adjustments for assumed changes in amortization patterns (532.2 ) 122.7 (360.4 ) 293.7 Adjustment for assumed changes in liability for policyholder benefits and claims (0.8 ) (3.7 ) (40.1 ) (11.4 ) Net change in unrealized gains (losses) on derivative instruments 4.7 48.6 (20.9 ) 11.9 Change in net foreign currency translation adjustment 85.1 (29.8 ) 109.2 40.5 Change in unrecognized post-retirement benefit obligation 22.9 (3.0 ) 46.0 (6.1 ) Provision for deferred income tax benefits (taxes) (892.8 ) 154.6 (939.5 ) 646.9 Comprehensive income (loss) $ 1,962.9 $ (232.2 ) $ 2,165.7 $ (832.0 ) |
Fair Value of Financial Instrum
| Fair Value of Financial Instruments | |
| 6 Months Ended
Jun. 30, 2009 USD / shares | |
| Notes to Consolidated Financial Statements | |
| Fair Value of Financial Instruments | 9. Fair Value of Financial Instruments We use fair value measurements to record fair value of certain assets and liabilities and to estimate fair value of financial instruments not recorded at fair value but required to be disclosed at fair value under SFAS 107. We follow SFAS 157 to determine SFAS 107 fair value disclosure amounts. Certain financial instruments, particularly policyholder liabilities other than investment-type insurance contracts, are excluded from these fair value disclosure requirements. Valuation hierarchy SFAS157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). For SFAS 157 disclosures, SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels. Level 1 Fair values are based on unadjusted quoted prices in active markets for identical assets or liabilities. Our Level 1 assets and liabilities primarily include exchange traded equity securities, mutual funds and U.S. Treasury bonds. Level 2 Fair values are based on inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly. Our Level 2 assets and liabilities primarily include fixed maturity securities (including public and private bonds), equity securities, over-the-counter derivatives and other investments for which public quotations are not available but that are priced by third-party pricing services or internal models using substantially all observable inputs. Level 3 Fair values are based on significant unobservable inputs for the asset or liability. Our Level 3 assets and liabilities include certain fixed maturity securities, private equity securities, complex derivatives and embedded derivatives that must be priced using broker quotes or other valuation methods that utilize at least one significant unobservable input. Determination of fair value The following discussion describes the valuation methodologies used for assets and liabilities measured or disclosed at fair value. The techniques utilized in estimating the fair values of financial instruments are reliant on the assumptions used. Care should be exercised in deriving conclusions about our business, its value or financial position based on the fair value information of financial instruments presented below. Fair value estimates are made at a specific point in time, based on available market information and judgments about the financial instrument. Such estimates do not consider the tax impact of the realization of unrealized gains or losses. In addition, the disclosed fair value may not be realized in the immediate settlement of the financial instrument. We validate prices through an investment analyst review process, which includes validation through direct interaction with external sources, review of recent trade activity or use of internal models. In circumstances where broker quotes are used to value an instrument, we generally receive one non-binding quote. Broker quotes are val |
Segment Information
| Segment Information | |
| 6 Months Ended
Jun. 30, 2009 USD / shares | |
| Notes to Consolidated Financial Statements | |
| Segment Information | 10. Segment Information We provide financial products and services through the following segments: U.S. Asset Accumulation, Global Asset Management, International Asset Management and Accumulation and Life and Health Insurance. In addition, there is a Corporate segment. The segments are managed and reported separately because they provide different products and services, have different strategies or have different markets and distribution channels. The U.S. Asset Accumulation segment provides retirement and related financial products and services primarily to businesses, their employees and other individuals. The Global Asset Management segment provides asset management services to our asset accumulation business, our life and health insurance operations, the Corporate segment and third-party clients. The International Asset Management and Accumulation segment consists of Principal International, which has operations in Brazil, Chile, China, Hong Kong Special Administrative Region, India, Indonesia, Malaysia, Mexico and Singapore. We focus on countries with large middle classes, favorable demographics and growing long-term savings with defined contribution markets. We entered these countries through acquisitions, start-up operations and joint ventures. The Life and Health insurance segment provides individual life insurance, group health insurance and specialty benefits, which consists of group dental and vision insurance, individual and group disability insurance and group life insurance, throughout the United States. The Corporate segment manages the assets representing capital that has not been allocated to any other segment. Financial results of the Corporate segment primarily reflect our financing activities (including interest expense), income on capital not allocated to other segments, inter-segment eliminations, income tax risks and certain income, expenses and other after-tax adjustments not allocated to the segments based on the nature of such items. Management uses segment operating earnings in goal setting, as a basis for determining employee compensation and in evaluating performance on a basis comparable to that used by securities analysts. We determine segment operating earnings by adjusting U.S. GAAP net income for net realized capital gains (losses), as adjusted, and other after-tax adjustments which management believes are not indicative of overall operating trends. Net realized capital gains (losses), as adjusted, are net of income taxes, related changes in the amortization pattern of DPAC and sales inducements, recognition of deferred front-end fee revenues for sales charges on retirement products and services, net realized capital gains and losses distributed, noncontrolling interest capital gains and losses and certain market value adjustments to fee revenues. Net realized capital gains (losses), as adjusted, exclude periodic settlements and accruals on non-hedge derivative instruments and exclude certain market value adjustments of embedded derivatives. Segment operating revenues exclude net realized capital gains (losses) (except periodic settlements and accruals on non-hedge derivatives), inc |
Stock-Based Compensation Plans
| Stock-Based Compensation Plans | |
| 6 Months Ended
Jun. 30, 2009 USD / shares | |
| Notes to Consolidated Financial Statements | |
| Stock-Based Compensation Plans | 11. Stock-Based Compensation Plans As of June30, 2009, we have the 2005 Stock Incentive Plan, the Employee Stock Purchase Plan, the 2005 Directors Stock Plan, the Stock Incentive Plan, the Directors Stock Plan and the Long-Term Performance Plan (Stock-Based Compensation Plans). As of May17, 2005, no new grants will be made under the Stock Incentive Plan, the Directors Stock Plan or the Long-Term Performance Plan. As of June30, 2009, the maximum number of new shares of common stock that were available for grant under the 2005 Stock Incentive Plan and the 2005 Directors Stock Plan was 13.4 million. The compensation cost that was charged against income for stock-based awards granted under the Stock-Based Compensation Plans is as follows: For the six months ended June30, 2009 2008 (in millions) Compensation cost $ 26.2 $ 27.4 Related income tax benefit 8.6 9.0 Capitalized as part of an asset 2.0 2.6 Nonqualified Stock Options Nonqualified stock options were granted to certain employees under the 2005 Stock Incentive Plan. Total options granted were 2.2 million for the six months ended June30, 2009. The fair value of these options was determined using the Black-Scholes option valuation model assuming a weighted-average dividend yield of 4.1 percent, a weighted-average expected volatility of 55.0 percent, a weighted-average risk-free interest rate of 2.1 percent and a weighted-average expected term of 6 years. The weighted-average estimated fair value of stock options granted during the six months ended June30, 2009, was $4.07 per share. As of June30, 2009, there were $11.6 million of total unrecognized compensation costs related to nonvested stock options. The costs are expected to be recognized over a weighted-average service period of approximately 1.7 years. Performance Share Awards Performance share awards were granted to certain employees under the 2005 Stock Incentive Plan. Total performance share awards granted were 0.5 million for the six months ended June30, 2009. The performance share awards granted represent initial target awards and do not reflect potential decreases resulting from the final performance objective to be determined at the end of the performance period. The actual number of shares to be awarded at the end of each performance period will be either 0% or 100% of the initial target awards. The fair value of performance share awards is determined based on the closing stock price of our common shares on the grant date. The weighted-average grant date fair value of these performance share awards granted was $11.07 per common share. As of June30, 2009, there were $3.6 million of total unrecognized compensation costs related to nonvested performance share awards granted. The costs are expected to be recognized over a weighted-average service period of approximately 1.9 years. Restricted Stock Units Restricted stock units were issued to certain employees and agents pursuant to the 2005 Stock Incentive Plan. Total restricted stock units granted were 1.8 million for the six months ended June30, 2009. The fair value of restricted s |
Earnings Per Common Share
| Earnings Per Common Share | |
| 6 Months Ended
Jun. 30, 2009 USD / shares | |
| Notes to Consolidated Financial Statements | |
| Earnings Per Common Share | 12. Earnings Per Common Share The computations of the basic and diluted per share amounts were as follows: For thethreemonthsended For thesixmonthsended June30, June30, 2009 2008 2009 2008 (in millions, except per share data) Net income $ 164.0 $ 183.1 $ 286.6 $ 360.7 Subtract: Net income attributable to noncontrolling interest 5.4 6.5 7.0 1.7 Preferred stock dividends 8.3 8.3 16.5 16.5 Net income available to common stockholders $ 150.3 $ 168.3 $ 263.1 $ 342.5 Weighted-average shares outstanding Basic 289.9 259.1 275.1 259.2 Dilutive effects: Stock options 0.4 1.8 1.7 Restricted stock units 1.1 0.3 0.7 0.3 Diluted 291.4 261.2 275.8 261.2 Net income per common share: Basic $ 0.52 $ 0.65 $ 0.96 $ 1.32 Diluted $ 0.52 $ 0.64 $ 0.95 $ 1.31 The calculation of diluted earnings per share for the three and six months ended June30, 2009 and 2008, excludes the incremental effect related to certain outstanding stock-based compensation grants due to their anti-dilutive effect. |
Condensed Consolidating Financi
| Condensed Consolidating Financial Information | |
| 6 Months Ended
Jun. 30, 2009 USD / shares | |
| Notes to Consolidated Financial Statements | |
| Condensed Consolidating Financial Information | 13. Condensed Consolidating Financial Information Principal Life has established special purpose entities to issue secured medium-term notes. Under the program, the payment obligations of principal and interest on the notes are secured by funding agreements issued by Principal Life. Principal Lifes payment obligations on the funding agreements are fully and unconditionally guaranteed by PFG. All of the outstanding stock of Principal Life is indirectly owned by PFG and PFG is the only guarantor of the payment obligations of the funding agreements. The following tables set forth condensed consolidating financial information of (i)PFG, (ii)Principal Life, (iii)Principal Financial Services,Inc. (PFS) and all other direct and indirect subsidiaries of PFG on a combined basis and (iv)the eliminations necessary to arrive at the information for PFG on a consolidated basis as of June30, 2009 and December31, 2008, and for the six months ended June30, 2009 and 2008. In presenting the condensed consolidating financial statements, the equity method of accounting has been applied to (i)PFGs interest in PFS, (ii)Principal Lifes interest in all direct subsidiaries of Principal Life and (iii)PFSs interest in Principal Life even though all such subsidiaries meet the requirements to be consolidated under U.S. GAAP. Earnings of subsidiaries are, therefore, reflected in the parents investment and earnings. All intercompany balances and transactions, including elimination of the parents investment in subsidiaries, between PFG, Principal Life and PFS and all other subsidiaries have been eliminated, as shown in the column Eliminations and Other. These condensed consolidating financial statements should be read in conjunction with the consolidated financial statements. The financial information may not necessarily be indicative of results of operations, cash flows or financial position had the subsidiaries operated as independent entities. Condensed Consolidating Statements of Financial Position June30, 2009 Principal Financial Group,Inc. ParentOnly PrincipalLife Insurance Company Only PrincipalFinancial Services,Inc.and OtherSubsidiaries Combined Eliminations and Other Principal Financial Group,Inc. Consolidated (inmillions) Assets Fixed maturities, available-for-sale $ $ 37,709.4 $ 5,179.2 $ (590.0 ) $ 42,298.6 Fixed maturities, trading 680.1 189.5 869.6 Equity securities, available-for-sale 207.0 5.5 212.5 Equity securities, trading 0.4 170.0 170.4 Mortgage loans 10,409.4 2,501.0 (476.6 ) 12,433.8 Real estate 19.8 957.3 (2.5 ) 974.6 Policy loans 883.6 18.9 902.5 Investment in unconsolidated entities 5,807.4 3,212.0 919.1 (9,430.8 ) 507.7 Other investments 5.5 1,579.0 716.5 (418.0 ) 1,883.0 Cash and cash equivalents 1,280.0 1,841.3 2,191.7 (984.5 ) 4,328.5 Accrued investment income 2.2 645.4 56.7 (8.1 ) 696.2 Premiums due and other receivables 855.8 187.3 3.4 |
Document and Entity Information
| Document and Entity Information (USD $) | |||
| 6 Months Ended
Jun. 30, 2009 | Jul. 29, 2009
| Jun. 30, 2008
| |
| Document and Entity Information | |||
| Entity Registrant Name | PRINCIPAL FINANCIAL GROUP INC | ||
| Entity Central Index Key | 0001126328 | ||
| Document Type | 10-Q | ||
| Document Period End Date | 2009-06-30 | ||
| Amendment Flag | false | ||
| Current Fiscal Year End Date | --12-31 | ||
| Entity Well-known Seasoned Issuer | Yes | ||
| Entity Voluntary Filers | No | ||
| Entity Current Reporting Status | Yes | ||
| Entity Filer Category | Large Accelerated Filer | ||
| Entity Public Float | $10,868,279,906 | ||
| Entity Common Stock, Shares Outstanding | 318,935,780 |