|
| Des Moines, IA (November 2, 2009) – Principal Financial Group, Inc. (NYSE: PFG) today announced net |
| income available to common stockholders for the three months ended September 30, 2009, of $184.7 million, |
| or $0.57 per diluted share compared to $90.1 million, or $0.35 per diluted share for the three months ended |
| September 30, 2008. The company reported operating earnings of $238.7 million for third quarter 2009, |
| compared to $251.2 million for third quarter 2008. Operating earnings per diluted share (EPS) for third quarter |
| 2009 were $0.74 compared to $0.96 for the same period in 2008.1The decline in operating earnings from a |
| year ago reflects a number of items, including lower average assets under management (AUM), higher costs for |
| employee pension and other post-retirement benefits,2lower investment income and unfavorable foreign |
| currency movements. These items were substantially offset by the company’s expense management activities |
| and lower deferred policy acquisition cost (DPAC) amortization expense. The decline in per share results also |
| reflects the company’s May 11, 2009 common stock offering, which increased weighted average shares |
| outstanding from 261.0 million for the quarter ending September 30, 2008, to 321.5 million for the quarter |
| ending September 30, 2009. |
| “Improved market conditions, and the positive impact of actions by management over the past |
| several quarters, contributed to a strong sequential increase in assets under management and operating |
| earnings,” said Larry D. Zimpleman, chairman, president and chief executive officer. |
| Added Terry Lillis, senior vice president and chief financial officer, “We also achieved strong |
| improvement in net income during the third quarter, our best result in two years. Since year-end 2008, book |
| value per share has nearly tripled, as narrowing credit spreads have driven down net unrealized losses by |
| more than $6 billion pre-tax. This improvement reaffirms the quality and diversification of our portfolio, the |
| discipline of our asset/liability management, and the strength of our capital and liquidity positions.” |
| “While confidence in the capital markets improved again in the third quarter, we expect the |
| economic recovery will be more protracted, and that near-term, business activity will remain muted,” said |
| Zimpleman. “In this environment, we continue to manage all our resources with care, as we focus on |
| positioning the company for sustainable, profitable growth as the recovery takes hold over time. |
| “Although businesses and institutional investors remain cautious, which has impacted sales and net |
| cash flows, we’re seeing some early signs of progress. Full service accumulation sales quote activity was 30 |
| percent higher in September than January. And recently, we’re seeing signs of increased search activity |
| from institutional investors. While it will take several quarters for pipeline to turn into sales and then |
| deposits, we are cautiously optimistic about sales and flows as we move into 2010.” |
| |
| Additional Business Highlights: |
| • | Expense management: management action reduced the fixed component of compensation and other |
| | expenses $225 million or 16 percent comparing the nine months ended September 30, 2009 to the same |
| | period a year ago. |
| • | Strong capital and liquidity: the company’s position in liquid assets was $7.3 billion as of September |
| | 30, 2009, and its excess capital position3was approximately $1.5 billion. |
| • | Solid sales in a difficult sales environment: the company’s three key retirement and investment |
| | products generated $2.7 billion of sales, on a combined basis in third quarter 2009, with $0.5 billion |
| | of sales for full service accumulation, $1.9 billion for Principal Funds, and $0.3 billion for |
| | individual annuities. |
|
| U.S. Asset Accumulation |
| Segment operating earnings for third quarter 2009 were $154.6 million, compared to $136.5 million |
| for the same period in 2008, primarily due to variances in three businesses. Full service accumulation earnings |
| increased $6.1 million from a year ago to $70.6 million for third quarter 2009. The increase primarily reflects |
| DPAC true-ups in both periods due to equity market performance, which reduced DPAC amortization expense |
| in third quarter 2009 by $4.8 million after-tax, and increased expense in third quarter 2008 by $6.2 million |
| after-tax. Individual annuities earnings increased $20.2 million from a year ago to $36.1 million for third |
| quarter 2009. The increase also primarily reflects DPAC true-ups in both periods due to equity market |
|
| performance, which reduced DPAC amortization expense in third quarter 2009 by $7.0 million after-tax, and |
| increased expense in third quarter 2008 by $5.3 million after-tax. The increase in individual annuities earnings |
| also reflects a 7 percent increase in average account values. Partially offsetting these increases was a $7.2 |
| million decline in earnings compared to a year ago in the full service payout business due to lower net |
| investment income and lower mortality gains. |
| Operating revenues for the third quarter were $1,025.6 million, compared to $1,237.5 million for |
| the same period in 2008. The decline primarily reflects lower net investment income in the investment only |
| business, which the company has been scaling back over the past several quarters, and lower premiums in the |
| individual annuities business due to lower sales of fixed deferred annuities. |
| Segment assets under management were $158.8 billion as of September 30, 2009, compared to |
| $160.7 billion as of September 30, 2008. |
|
| Global Asset Management |
| Segment operating earnings for third quarter 2009 were $10.5 million, compared to $23.5 million in |
| the prior year quarter, reflecting a 12 percent decline in average assets under management, lower fees due to a |
| slowdown in the real estate market, and higher costs for employee pension and other post-retirement benefits. |
| Operating revenues for third quarter were $111.3 million, compared to $141.7 million for the same |
| period in 2008. |
| Non-affiliated assets under management were $73.2 billion as of September 30, 2009, compared to |
| $82.9 billion as of September 30, 2008. |
|
| International Asset Management and Accumulation |
| Segment operating earnings for third quarter 2009 were $33.1 million compared to $44.4 million |
| for the same period in 2008. Third quarter 2009 earnings were dampened by deflation in Chile, which |
| reduced earnings by $3.5 million. Third quarter 2008 earnings included a $5.0 million unlocking benefit for |
| price changes in Brazil and a $7.1 million experience benefit from higher yields on invested assets in Chile |
| due to unusually high inflation. Adjusting for these items impacting comparability between periods, segment |
| earnings increased 13 percent compared to the year ago quarter. |
| Operating revenues were $156.1 million for third quarter, compared to $265.5 million for the same |
| period last year, primarily the result of lower investment returns due to deflation in Chile in third quarter 2009. |
| Segment assets under management were $31.4 billion as of September 30, 2009, compared to |
| $28.6 billion as of September 30, 2008. Had currency rates remained unchanged from 2008, segment assets |
| under management would have increased 17 percent over last year. |
|
| Life and Health Insurance |
| Segment operating earnings for third quarter 2009 were $68.2 million, compared to $73.9 million |
| for the same period in 2008. Individual Life earnings increased to $29.8 million compared to $21.2 million |
| in third quarter 2008, primarily due to DPAC true-ups in both periods due to equity market performance, |
| which reduced DPAC amortization expense in third quarter 2009 by $2.9 million after-tax, and increased |
| expense in third quarter 2008 by $3.6 million after-tax. Health earnings were $12.0 million in third quarter |
| 2009. This compares to $21.5 million for third quarter 2008, which benefited from more favorable |
| development of prior quarter claims. Specialty Benefits earnings were $26.4 million compared to a record |
| $31.2 million in third quarter 2008. In addition to higher costs for employee pension and other post- |
| retirement benefits in third quarter 2009 than third quarter 2008, results for the Health and Specialty Benefits |
| divisions also reflect a reduction in the number of members in existing plans and lower investment income. |
| Operating revenues for third quarter were $1,104.2 million, compared to $1,158.9 million for the |
| same period a year ago. The decline was primarily due to a 7 percent decline in Health division premiums, |
| which primarily reflects a decline in group medical covered members. |
|
| Other-than-temporary impairments for third quarter 2009 |
| On April 9, 2009, the Financial Accounting Standards Board established new requirements for measuring |
| and presenting other-than-temporary impairment charges on available for sale securities, which the Company |
| adopted with first quarter 2009 reporting. Based on the new requirements, on a pre-tax basis, total other than |
| temporary impairment losses on available for sale securities were $162.5 million and the noncredit portion of |
| loss recognized in other comprehensive income was $45.3 million. Net impairment losses on available for |
| sale securities of $117.2 million for third quarter 2009 reflect: the company’s actions to reduce asset ratings |
| drift risk by selling or tendering certain securities, which resulted in a loss of $20.8 million; and deterioration |
| in expected cash flows, which resulted in a $28.6 million net impairment charge on non-agency residential |
| mortgage backed securities and residential collateralized debt obligations, and a $17.8 million net |
| impairment of commercial mortgage backed securities and commercial mortgage backed collateralized debt |
| obligations. The remainder of the net impairment losses for third quarter 2009 primarily relates to |
| impairments of corporate credits. |
| |
| 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 |
| losses, capital and liquidity positions, sales and earnings trends, and management's beliefs, expectations, |
| goals and opinions. The company does not undertake to update or revise these statements, which are based |
| on a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Future |
| events and their effects on the company may not be those anticipated, and actual results may differ materially |
| from the results anticipated in these forward-looking statements. The risks, uncertainties and factors that |
| could cause or contribute to such material differences are discussed in the company's annual report on Form |
| 10-K for the year ended December 31, 2008, and in company’s quarterly report on Form 10-Q for the quarter |
| ended June 30, 2009, 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 that may significantly affect the company’s ability to |
|
| meet liquidity needs, access to capital and cost of capital; a continuation of difficult conditions in the global |
| capital markets and the general economy that may materially adversely affect the company’s business and |
| results of operations; the actions of the U.S. government, Federal Reserve and other governmental and |
| regulatory bodies for purposes of stabilizing the financial markets might not achieve the intended effect; the |
| risk from acquiring new businesses, which could result in the impairment of goodwill and/or intangible assets |
| recognized at the time of acquisition; impairment of other financial institutions that could adversely affect the |
| company; investment risks which may diminish the value of the company’s invested assets and the |
| investment returns credited to customers, which could reduce sales, revenues, assets under management and |
| net income; requirements to post collateral or make payments related to declines in market value of specified |
| assets may adversely affect company liquidity and expose the company to counterparty credit risk; changes |
| in laws, regulations or accounting standards that may reduce company profitability; fluctuations in foreign |
| currency exchange rates that could reduce company profitability; Principal Financial Group, Inc.’s primary |
| reliance, as a holding company, on dividends from its subsidiaries to meet debt payment obligations and |
| regulatory restrictions on the ability of subsidiaries to pay such dividends; competitive factors; volatility of |
| financial markets; decrease in ratings; interest rate changes; inability to attract and retain sales |
| representatives; international business risks; a pandemic, terrorist attack or other catastrophic event; and |
| default of the company’s re-insurers. |
| |
| 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 adjustsU.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 |
| At 4:30 P.M. (CST) today, 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 call leader's name is Tom Graf. |
| |
| • | Replays of the earnings call are available at:www.principal.com/investoror by dialing 800-642-1687 |
| | (U.S. and Canadian callers) or 706-645-9291 (International callers). The access code is 33374311. |
| | Replays will be available approximately two hours after the completion of the live earnings call through |
| | the end of day November 10, 2009. |
| |
| The company's financial supplement and additional investment portfolio detail for third quarter 2009 is |
| currently available atwww.principal.com/investor, and may be referred to during the call. |
|
| About the Principal Financial Group |
| The Principal Financial Group®(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, 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 $280.4 billion in assets under management5 |
| and serves some 18.6 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. |
| | | | |
| | Operating Earnings (Loss)*
in millions |
| |
| | Three Months Ended, | Nine Months Ended, |
| Segment | 9/30/09 | 9/30/08 | 9/30/09 | 9/30/08 |
| U.S. Asset Accumulation | $154.6 | $136.5 | $385.1 | $428.5 |
| Global Asset Management | 10.5 | 23.5 | 25.5 | 67.4 |
| International Asset Management and Accumulation | 33.1 | 44.4 | 79.4 | 107.9 |
| Life and Health Insurance | 68.2 | 73.9 | 197.7 | 219.8 |
| Corporate and Other | (27.7) | (27.1) | (84.5) | (59.9) |
| Operating Earnings | 238.7 | 251.2 | 603.2 | 763.7 |
| Net realized capital losses, as adjusted | (53.5) | (156.3) | (154.6) | (316.4) |
| Other after-tax adjustments | (0.5) | (4.8) | (0.8) | (14.7) |
| Net income available to common stockholders | $184.7 | $90.1 | $447.8 | $432.6 |
| |
| Per Diluted Share |
| Three Months Ended, | Nine Months Ended, |
| 9/30/09 | 9/30/08 | 9/30/09 | 9/30/08 |
| Operating Earnings | $0.74 | $0.96 | $2.07 | $2.92 |
| Net realized capital losses, as adjusted | (0.17) | (0.60) | (0.53) | (1.21) |
| Other after-tax adjustments | (0.00) | (0.01) | (0.00) | (0.05) |
| Net income available to common stockholders | $0.57 | $0.35 | $1.54 | $1.66 |
Weighted-average diluted common shares
outstanding | | | | |
| 321.5 | 261.0 | 291.1 | 261.3 |
|
| *Operating earnings versus U.S. GAAP (GAAP) net income available to common stockholders |
| Management uses operating earnings, which excludes the effect of net realized capital gains and losses, as adjusted, and other after- |
| tax adjustments, for goal setting, as a basis for determining employee compensation, and evaluating performance on a basis |
| comparable to that used by investors and securities analysts. Segment operating earnings are determined by adjusting U.S. GAAP |
| net income available to common stockholders for net realized capital gains and losses, as adjusted, and other after-tax adjustments |
| the company believes are not indicative of overall operating trends. Note: it is possible these adjusting items have occurred in the |
| past and could recur in future reporting periods. While these items may be significant components in understanding and assessing |
| 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. |
| | | | |
| | Three Months Ended, | Nine Months Ended, |
| | 9/30/09 | 9/30/08 | 9/30/09 | 9/30/08 |
| Premiums and other considerations | $ 932.9 | $ 1,049.7 | $ 2,820.5 | $ 3,258.9 |
| Fees and other revenues | 550.7 | 599.0 | 1,539.4 | 1,834.9 |
| Net investment income | 853.3 | 1,079.7 | 2,541.9 | 3,030.9 |
| Net realized capital gains (losses), excluding | | | | |
| impairment losses on available-for-sale | | | | |
| securities | 50.6 | (20.9) | 62.5 | (145.0) |
| Total other-than-temporary impairment losses | | | | |
| on available-for-sale securities | (162.5) | (209.7) | (510.0) | (323.1) |
| Portion of impairment losses on fixed | | | | |
| maturities, available-for-sale recognized | | | | |
| in other comprehensive income | 45.3 | - | 162.4 | - |
| Net impairment losses on available-for-sale | | | | |
| securities | (117.2) | (209.7) | (347.6) | (323.1) |
| Net realized capital losses | (66.6) | (230.6) | (285.1) | (468.1) |
| Total revenues | 2,270.3 | 2,497.8 | 6,616.7 | 7,656.6 |
| |
| Benefits, claims and settlement expenses | 1,317.1 | 1,597.2 | 3,958.0 | 4,703.2 |
| Dividends to policyholders | 61.9 | 70.4 | 188.3 | 210.2 |
| Operating expenses | 643.0 | 723.7 | 1,894.1 | 2,217.0 |
| Total expenses | 2,022.0 | 2,391.3 | 6,040.4 | 7,130.4 |
| |
| Income before income taxes | 248.3 | 106.5 | 576.3 | 526.2 |
| Income taxes (benefits) | 44.1 | (2.2) | 85.5 | 56.8 |
| Net income | 204.2 | 108.7 | 490.8 | 469.4 |
| Net income attributable to noncontrolling | | | | |
| interest | 11.3 | 10.4 | 18.3 | 12.1 |
| Net income attributable to PFG | 192.9 | 98.3 | 472.5 | 457.3 |
| Preferred stock dividends | 8.2 | 8.2 | 24.7 | 24.7 |
| Net income available to common stockholders | $ 184.7 | $ 90.1 | $ 447.8 | $ 432.6 |
| |
| Less: | | | | |
| Net realized capital losses, as adjusted | (53.5) | (156.3) | (154.6) | (316.4) |
| Other after-tax adjustments | (0.5) | (4.8) | (0.8) | (14.7) |
| Operating earnings | $ 238.7 | $ 251.2 | $ 603.2 | $ 763.7 |
| | | |
| Selected Balance Sheet Statistics | |
| |
| | Period Ended, |
| | 9/30/09 | 12/31/08 | 9/30/08 |
| Total assets (in billions) | $ 137.4 | $ 128.2 | $ 143.4 |
| Total common equity (in millions) | $ 6,966.7 | $ 1,930.8 | $ 5,070.6 |
| Total common equity excluding accumulated | | | |
| other comprehensive income (in millions) | $ 8,400.8 | $ 6,842.4 | $ 6,957.9 |
| End of period common shares outstanding (in | | | |
| millions) | 318.9 | 259.3 | 259.2 |
| Book value per common share | $ 21.85 | $ 7.45 | $ 19.56 |
| Book value per common share excluding | | | |
| accumulated other comprehensive income | $ 26.34 | $ 26.39 | $ 26.84 |
| | | | |
| | Three Months Ended, | Nine Months Ended, |
| | 09/30/09 | 09/30/08 | 09/30/09 | 09/30/08 |
| Diluted Earnings Per Common Share: | | | | |
| Operating Earnings | 0.74 | 0.96 | 2.07 | 2.92 |
| Net realized capital losses | (0.17) | (0.60) | (0.53) | (1.21) |
| Other after-tax adjustments | - | (0.01) | - | (0.05) |
| Net income available to common stockholders | 0.57 | 0.35 | 1.54 | 1.66 |
| |
| Book Value Per Common Share Excluding Accumulated Other | | | | |
| Comprehensive Income: | | | | |
| Book value per common share excluding accumulated other | | | | |
| comprehensive income | 26.34 | 26.84 | 26.34 | 26.84 |
| Net unrealized capital losses | (2.67) | (7.58) | (2.67) | (7.58) |
| Foreign currency translation | (0.18) | 0.07 | (0.18) | 0.07 |
| Net unrecognized post-retirement benefit obligations | (1.64) | 0.23 | (1.64) | 0.23 |
| Book value per common share including accumulated other | | | | |
| comprehensive income | 21.85 | 19.56 | 21.85 | 19.56 |
| |
| Operating Revenues: | | | | |
| USAA | 1,025.6 | 1,237.5 | 3,024.4 | 3,697.9 |
| GAM | 111.3 | 141.7 | 319.0 | 425.0 |
| IAMA | 156.1 | 265.5 | 381.8 | 700.4 |
| Life and Health | 1,104.2 | 1,158.9 | 3,352.1 | 3,527.1 |
| Corporate and Other | (40.1) | (52.4) | (123.2) | (152.3) |
| Total operating revenues | 2,357.1 | 2,751.2 | 6,954.1 | 8,198.1 |
| Net realized capital losses and related adjustments | (86.2) | (248.3) | (336.7) | (517.5) |
| Terminated commercial mortgage securities issuance operation | (0.6) | (5.1) | (0.7) | (24.0) |
| Total GAAP revenues | 2,270.3 | 2,497.8 | 6,616.7 | 7,656.6 |
| |
| Operating Earnings: | | | | |
| USAA | 154.6 | 136.5 | 385.1 | 428.5 |
| GAM | 10.5 | 23.5 | 25.5 | 67.4 |
| IAMA | 33.1 | 44.4 | 79.4 | 107.9 |
| Life and Health | 68.2 | 73.9 | 197.7 | 219.8 |
| Corporate and Other | (27.7) | (27.1) | (84.5) | (59.9) |
| Total operating earnings | 238.7 | 251.2 | 603.2 | 763.7 |
| Net realized capital losses | (53.5) | (156.3) | (154.6) | (316.4) |
| Other after-tax adjustments | (0.5) | (4.8) | (0.8) | (14.7) |
| Net income available to common stockholders | 184.7 | 90.1 | 447.8 | 432.6 |
| |
| Net Realized Capital Gains (losses): | | | | |
| Net realized capital gains losses, as adjusted | (53.5) | (156.3) | (154.6) | (316.4) |
| Periodic settlements and accruals on non-hedge derivatives | 20.3 | 17.6 | 48.0 | 45.8 |
| Amortization of DPAC and sale inducement costs | (16.7) | (16.2) | (106.3) | (46.1) |
| Certain market value adjustments of embedded derivatives | (2.3) | 3.3 | (8.8) | 6.5 |
| Capital gains (losses) distributed | 7.5 | (11.8) | 14.4 | (14.2) |
| Tax impacts | (31.1) | (75.4) | (96.9) | (151.7) |
| Noncontrolling interest capital gains | 9.9 | 8.1 | 15.5 | 4.4 |
| Recognition of front-end fee revenues | (0.7) | - | 2.1 | - |
| Certain market value adjustments to fee revenues | - | 0.1 | 1.5 | 3.6 |
| GAAP net realized capital losses | (66.6) | (230.6) | (285.1) | (468.1) |
| |
| Other After Tax Adjustments: | | | | |
| Change in estimated loss related to a prior year legal contingency | - | - | - | 7.6 |
| Terminated commercial mortgage securities issuance operation | (0.5) | (4.8) | (0.8) | (22.3) |
| Total other after-tax adjustments | (0.5) | (4.8) | (0.8) | (14.7) |
