SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: FEBRUARY 2, 2004
(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)
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ITEM 7. EXHIBITS
99 Fourth Quarter 2003 Earnings Release
ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On February 2, 2004, Principal Financial Group, Inc. publicly announced
information regarding its results of operations and financial condition for the
quarter ended December 31, 2003. The text of the annnouncement is included
herewith as Exhibit 99.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRINCIPAL FINANCIAL GROUP, INC.
By: /S/ MICHAEL H. GERSIE
--------------------------------------------
Name: Michael H. Gersie
Title: Executive Vice President and Chief
Financial Officer
Date: February 2, 2004
2
EXHIBIT 99
RELEASE: On receipt
MEDIA CONTACT: Jeff Rader, 515-247-7883
rader.jeff@principal.com
INVESTOR RELATIONS CONTACT: TOM GRAF, 515-235-9500
INVESTOR-RELATIONS@PRINCIPAL.COM
PRINCIPAL FINANCIAL GROUP, INC. REPORTS FOURTH QUARTER 2003 RESULTS
Des Moines, IA (February 2, 2004) -- Principal Financial Group, Inc. (NYSE: PFG)
today announced quarterly net income for the three months ended December 31,
2003, of $203.9 million, or $0.63 per diluted share compared to net income of
$215.4 million, or $0.64 per diluted share for the three months ended December
31, 2002. The company reported operating earnings of $148.5 million for fourth
quarter 2003, compared to $177.9 million for fourth quarter 2002. Operating
earnings per diluted share for fourth quarter 2003 were $0.46 compared to $0.53
for the same period in 2002. Operating revenues for fourth quarter 2003 were
$2,452.6 million, compared to $2,423.7 million for the same period last year.1
"2003 was a very strong year for The Principal, our fifth consecutive year of
record operating earnings," said J. Barry Griswell, chairman, president and
chief executive officer. "In spite of the fourth quarter write-down of our
mortgage servicing rights, we still delivered seven percent earnings per share
growth in 2003, largely driven by record earnings in the U.S. Asset Management
and Accumulation segment, which improved 17 percent for the year and 41 percent
in the fourth quarter."
Highlights for the fourth quarter and full year 2003 include: o Record net
income of $746.3 million in 2003.
o Record operating earnings of $750.6 million in 2003, including record
operating earnings in three of the company's four operating segments - U.S.
Asset Management and Accumulation, International Asset Management and
Accumulation, and Life and Health Insurance.
o Record quarterly operating earnings in the fourth quarter for two segments
- $117.6 million for U.S. Asset Management and Accumulation, and $66.4
million for Life and Health Insurance.
o Record sales of the company's key retirement and investment products in
2003, including $6.4 billion for pension full service accumulation ($1.8
billion in the fourth quarter), $1.8 billion for mutual funds and $1.4
billion for individual annuities.
3
o Record assets under management of $144.9 billion, up 30 percent from a year
ago, including 31 percent growth for U.S. Asset Management and
Accumulation, and 70 percent growth for International Asset Management and
Accumulation.
"As we had anticipated, even stronger earnings emerged from our retirement
businesses, as equity markets and the economy improved. U.S. Asset Management
and Accumulation was our key growth driver in 2003, delivering $434 million in
earnings, an additional $63 million contribution to the bottom line," said
Griswell. "Fourth quarter marked the segment's third straight quarter of record
earnings, reflecting our continued success in growing account values and assets
under management. Principal International produced strong earnings growth as
well, up 58 percent for the year, the result of organic growth, prudent expense
management and strategic acquisition activity.
"A number of other leading indicators point to the strength of our position
going forward," said Griswell. "Pension full service accumulation account values
increased $13 billion, or 30 percent in 2003, to a record $56 billion, driven by
improved investment performance, as well as strong customer net cash flow, which
increased 69 percent compared to 2002. Full service accumulation net cash flow
grew to more than 11 percent of beginning of year account values, nearly twice
our long-term expectations, reflecting strong deposits from existing customers,
excellent retention, and record sales.
"Our performance reflects an uncompromising focus on meeting the needs of our
customers, the strength of our people, and their ability to execute, even under
difficult conditions. In 2004, we'll continue to provide innovative retirement
and employee benefit solutions, responsive service, and exceptional convenience
and choice, which we believe is the key to delivering sustainable, profitable
growth, and to building long-term value for our shareholders."
Assets under management were $144.9 billion as of December 31, 2003, an increase
of $10.1 billion, or 7 percent compared to September 30, 2003, and an increase
of $33.8 billion, or 30 percent compared to December 31, 2002.
For the twelve months ended December 31, 2003:
o Net income increased to $746.3 million, or $2.28 per diluted share,
compared to net income of $142.3 million, or $0.41 per diluted share,
during the same period a year ago. Net income for the prior year period
includes an after-tax goodwill write-down of $280.9 million ($255.4 million
related to BT Financial Group), a loss on discontinued operations of BT
Financial Group ($196.7 million), partially offset by a favorable tax
benefit from an IRS audit issue of $138.0 million.
o Operating earnings increased to $750.6 million, compared to $749.4 million
in the year earlier period. o Operating earnings per diluted share
increased 7 percent to $2.30 per diluted share compared to $2.14 per
diluted share in the year earlier period.
o Operating revenues increased 3 percent to $9,483.0 million from $9,223.1
million during the same period a year ago.
4
RESTATEMENT OF THIRD QUARTER 2003 FINANCIAL STATEMENTS
The restatement of the company's previously issued financial statements for the
quarter ended September 30, 2003 reflects the application of a new accounting
standard for Principal Residential Mortgage Inc., the company's mortgage banking
subsidiary, and the new standard's impact on the carrying value of loans held
for sale. As a result of the restatement, third quarter 2003 net income was
reduced by $31.8 million, and third quarter operating earnings were reduced by
$30.6 million. (The difference between net income and operating earnings
reflects a $1.2 million other after tax adjustment.) The third quarter
correction was effectively reversed in the fourth quarter, the period in which
the loans were sold, increasing fourth quarter net income and operating earnings
by $31.8 million. For the full year, the net effect of the restatement is as
follows:
|.| Net income was unchanged
|.| Operating earnings increased by $1.2 million
The restatement is the result of a review of the application of FASB
Interpretation No. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES (FIN 46) and
the related technical application of effectiveness tests under Statement of
Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES (SFAS 133) for hedging programs on residential mortgage
loans held for sale.
Under accepted accounting prior to the company's adoption of FIN 46 on July 1,
2003, Principal Residential Mortgage, Inc. had an off-balance sheet facility,
used to hold and finance new mortgage loans. With the adoption of FIN 46, the
off-balance sheet entity was consolidated within the company's financial
statements.
The company's hedging program, in place to hedge the market value risk
associated with interest rate movements between the time of loan commitment and
time the loan is sold outside the facility, has been economically effective.
However, in the year-end closing process, after revised FIN 46 consolidation of
the mortgage loan facility, it was determined that the company could not hold
the loans at market value because it did not have sufficient documentation
needed to qualify for special hedge accounting treatment under SFAS 133. In
effect, it was determined that the company correctly recorded hedge losses in
the third quarter, but needed to delay recording third quarter appreciation on
the loans until the fourth quarter, the period in which the loans were sold.
The change had no effect on the economic results of hedging activities or total
cash flows for any period, and an immaterial impact to the balance sheet at
September 30, 2003. The company is evaluating effectiveness-testing methods for
the first quarter 2004, and expects to meet the rigorous documentation standards
required by SFAS 133, even though the actual hedging strategies themselves,
which have been effective in economic terms, will not change.
The remainder of this release covers the highlights of fourth quarter 2003
financial results. All comparisons to prior periods are restated, where
applicable.
SEGMENT HIGHLIGHTS
U.S. ASSET MANAGEMENT AND ACCUMULATION
Segment operating earnings for fourth quarter 2003 were a record $117.6 million,
compared to $83.7 million for the same period in 2002. The improvement was
driven by record operating earnings in the pension business of $92.6 million, a
25 percent increase compared to the same period a year ago.
Operating revenues for the fourth quarter increased to $1,024.1 million compared
to $916.8 million for the same period in 2002. The improvement was primarily the
result of the 2003 acquisition of Post Advisory Group by Principal Global
Investors and increased fees within pension full service accumulation
operations.
5
Segment assets under management continued to increase, reaching a record $120.8
billion as of December 31, 2003, up 9 percent from $110.4 billion as of
September 30, 2003, and up 31 percent from $92.3 billion as of December 31,
2002.
INTERNATIONAL ASSET MANAGEMENT AND ACCUMULATION
Segment operating earnings for fourth quarter 2003 were $8.2 million, compared
to $9.4 million for the same period in 2002. (For the quarter ended December 31,
2002, segment results include a loss of $0.3 million for BT Financial Group.2)
Principal International, which consists of the company's asset accumulation
businesses outside the U.S., had fourth quarter operating earnings of $8.2
million, compared to $9.7 million for the same period in 2002.
Operating revenues for the segment were $122.4 million for fourth quarter 2003,
compared to $105.6 million for the same period last year, primarily reflecting
record annuity sales in Chile and higher assets under management in Brazil.
Assets under management for the segment were $7.5 billion as of December 31,
2003, compared to $6.9 billion as of September 30, 2003, and compared to $4.4
billion as of December 31, 2002.
LIFE AND HEALTH INSURANCE
Segment operating earnings for fourth quarter 2003 were a record $66.4 million,
compared to $61.4 million for the same period in 2002. The increase in segment
earnings is primarily due to the conversion to new deferred policy acquisition
cost (DPAC) and policy valuation models on some of our life and disability
products. The new models were implemented in the fourth quarter, resulting in a
write-up of the DPAC asset, and lower amortization expense, which drove an
additional $17.7 million of operating earnings for the segment. Partially
offsetting this item were higher claims expenses, reflecting normal claims
fluctuations, and a one-time write-off of accrued investment income in
connection with distribution alliances in which the company has invested.
Operating revenues increased to $1,004.5 million for the quarter, compared to
$996.1 million for the same period in 2002, largely as a result of increases
within the disability insurance operations. Operating revenues were down
slightly in the life business, as the company has shifted marketing emphasis in
recent years from traditional premium-based products to fee-based universal life
and variable universal life products. Unlike traditional premium-based products,
universal life and variable universal life premium is not reported as GAAP
revenue. Operating revenues were up slightly in the health business. Rate
increases and the change in accounting treatment of a reinsurance contract were
largely offset by the decline in covered members from a year ago.
6
MORTGAGE BANKING
Operating losses for the segment in fourth quarter 2003 were $42.8 million
compared to operating earnings of $29.1 million for the same period in 2002. In
line with the earnings guidance update on December 15, 2003, the company took a
write-down of its mortgage servicing rights asset in the fourth quarter,
reflecting currently available external indicators of market value. The
after-tax impact of this write-down was $87.1 million, or 27 cents per diluted
share. As described earlier in the release, the third quarter restatement was
reversed in the fourth quarter, increasing fourth quarter operating revenues by
$51.6 million, which reduced the fourth quarter operating loss by $31.8 million.
Mortgage banking earnings are generated from loan production and loan servicing.
Production earnings were $53.0 million (which includes the $31.8 million item
described above), compared to $120.0 million for the same period in 2002. The
decline in production earnings reflects a 52% decline in mortgage loan
production compared to a year ago, as well as lower earnings due to decreased
gains on the sale of mortgage loans, reflecting rising interest rates and
greater pricing competition for new loan applications. Servicing generated a
loss of $95.8 million during the quarter, compared to a loss of $90.9 million
for the same period in 2002. The fourth quarter 2003 loss from servicing
reflects: the previously discussed $87.1 million write-down of the mortgage
servicing rights; $27.4 million of earnings from servicing operations (including
a $12.2 million gain from the sale of servicing); and a $36.1 million loss from
mortgage servicing rights valuation adjustment (net of hedges).
Mortgage loan production was $7.9 billion in the fourth quarter 2003 compared to
$16.5 billion in the year earlier period. At December 31, 2003, the servicing
portfolio was $118.7 billion, compared to $117.8 billion as of September 30,
2003, and compared to $ 107.7 billion as of December 31, 2002.
Operating revenues decreased 29 percent to $301.3 million for the quarter,
compared to $421.7 million for the same period last year. Production revenues
decreased $146.7 million, or 56 percent, and servicing revenues increased $26.3
million, or 16 percent, from the same quarter a year ago.
CORPORATE AND OTHER
Operating losses for fourth quarter 2003 were $0.9 million, compared to
operating losses of $5.7 million for the same period in 2002. The improvement
reflects higher investment income in the fourth quarter 2003 compared to the
same period a year ago.
FORWARD LOOKING AND CAUTIONARY STATEMENTS
This press release contains forward-looking statements, including, without
limitation, statements as to sales targets, sales and earnings trends, and
management's beliefs, expectations, goals and opinions. These statements are
based on a number of assumptions concerning future conditions that may
ultimately prove to be inaccurate. Future events and their effects on the
company may not be those anticipated, and actual results may differ materially
from the results anticipated in these forward-looking statements. The risks,
uncertainties and factors that could cause or contribute to such material
differences are discussed in the company's annual report on Form 10-K for the
7
year ended December 31, 2002, and in the company's quarterly report on Form 10-Q
for the quarter ended September 30, 2003, filed by the company with the
Securities and Exchange Commission. These risks and uncertainties include,
without limitation: competitive factors; volatility of financial markets;
decrease in ratings; interest rate changes; inability to attract and retain
sales representatives; international business risks; foreign currency exchange
rate fluctuations; and investment portfolio risks.
OUTLOOK FOR FIRST QUARTER AND FULL YEAR 2004
Based on estimated net realized credit losses of $25 million after-tax in the
first quarter, and $65 million after-tax for 2004, the company expects first
quarter net income to range from $0.53 to $0.57 per diluted share and 2004 net
income to range from $2.50 to $2.60 per diluted share.3 The company expects
first quarter 2004 operating earnings to range from $0.61 to $0.65 per diluted
share.4 The company expects 2004 operating earnings to range from $2.70 to $2.80
per diluted share.5
SHARE REPURCHASES
In May 2003, the board of directors authorized a repurchase program of up to
$300 million of Principal Financial Group, Inc. outstanding common stock. Under
this program, in the fourth quarter, the company repurchased 2.3 million shares
for $75.0 million, an average price per share of $32.53. In 2003, 15 million
shares were repurchased by the company under board-authorized repurchase
programs, for $453.0 million, an average price per share of $30.25.
STOCK OPTIONS
As communicated in the third quarter 2002 earnings release, The Principal began
expensing employee stock options and the employee stock purchase plan,
retroactive to January 1, 2002. This resulted in an after-tax expense of $3.7
million and $14.3 million, respectively, for the three and twelve months ended
December 31, 2003, compared to $2.1 million and $7.7 million, respectively, for
the three and twelve months ended December 31, 2002.
FIN 46 IMPACT ON ASSETS AND LIABILITIES
As communicated in the third quarter 2003 earnings release, effective July 1,
2003, the company early adopted Financial Interpretation No. 46, CONSOLIDATION
OF VARIABLE INTEREST ENTITIES ("FIN 46") for variable interest entities ("VIEs")
created on or after February 1, 2003. FIN 46 provides guidance related to
identifying variable interest entities and determining whether such entities
should be consolidated. The guidance resulted in an increase in assets and
liabilities of $2.2 billion within the company's December 31, 2003, consolidated
statement of financial position.
EARNINGS CONFERENCE CALL
At 9:00 A.M. (CST) tomorrow, Chairman, President and CEO J. Barry Griswell and
Executive Vice President and CFO Mike Gersie will lead a discussion during a
live conference call. Parties interested in listening to the conference call
live may access the webcast on the Principal Financial Group Investor Relations
(IR) website (www.principal.com/investor) or by dialing (800) 374-1609 (U.S.
callers) or (706) 643-7701 (International callers) approximately 10 minutes
prior to the start of the call. To access the call, leader name is Tom Graf.
Listeners can access an audio replay of the call on the IR website, or by
calling (800) 642-1687 (US callers) or (706) 645-9291 (International callers).
The access code for the replay is 4808487. Replays will be available through
February 10, 2004. The financial supplement is currently available on our
website and will be referred to during the conference call.
8
ABOUT THE PRINCIPAL FINANCIAL GROUP
The Principal Financial Group(R) (The Principal (R))6 is a leader in offering
businesses, individuals and institutional clients a wide range of financial
products and services, including retirement and investment services, life and
health insurance and mortgage banking through its diverse family of financial
services companies. More employers choose the Principal Financial Group for
their 401(k) plans than any other bank, mutual fund, or insurance company in the
United States7. A member of the Fortune 500, the Principal Financial Group has
$144.9 billion in assets under management8 and serves some 15 million customers
worldwide from offices in Asia, Australia, Europe, Latin America and the United
States. Principal Financial Group, Inc. is traded on the New York Stock Exchange
under the ticker symbol PFG. For more information, visit WWW.PRINCIPAL.COM.
###
9
SUMMARY OF SEGMENT AND PRINCIPAL FINANCIAL GROUP, INC. RESULTS
OPERATING EARNINGS* (LOSS) IN MILLIONS
-------------------------------------------------------------
SEGMENT THREE MONTHS ENDED, YEAR ENDED,
---------------------------------------------------- -------------------------------------------------------------
12/31/03 12/31/02 12/31/03 12/31/02
---------------------------------------------------- --------------- -------------- -------------- ---------------
U.S. ASSET MANAGEMENT AND ACCUMULATION $117.6 $83.7 $433.8 $370.9
---------------------------------------------------- --------------- -------------- -------------- ---------------
INTERNATIONAL ASSET MANAGEMENT AND ACCUMULATION
8.2 9.4 34.9 19.5
---------------------------------------------------- --------------- -------------- -------------- ---------------
LIFE AND HEALTH INSURANCE 66.4 61.4 241.2 233.1
---------------------------------------------------- --------------- -------------- -------------- ---------------
MORTGAGE BANKING (42.8) 29.1 53.2 142.9
---------------------------------------------------- --------------- -------------- -------------- ---------------
CORPORATE AND OTHER (0.9) (5.7) (12.5) (17.0)
---------------------------------------------------- --------------- -------------- -------------- ---------------
OPERATING EARNINGS (NET INCOME EXCLUDING NET
REALIZED/UNREALIZED CAPITAL
GAINS (LOSSES) AS ADJUSTED AND
OTHER AFTER-TAX ADJUSTMENTS) 148.5 177.9 750.6 749.4
---------------------------------------------------- --------------- -------------- -------------- ---------------
NET REALIZED/UNREALIZED CAPITAL
GAINS (LOSSES), AS ADJUSTED 16.0 (90.1) (51.6) (243.9)
---------------------------------------------------- --------------- -------------- -------------- ---------------
OTHER AFTER-TAX ADJUSTMENTS 39.4 127.6 47.3 (363.2)
---------------------------------------------------- --------------- -------------- -------------- ---------------
NET INCOME ** $203.9 $215.4 $746.3 $142.3
---------------------------------------------------- --------------- -------------- -------------- ---------------
PER DILUTED SHARE
THREE MONTHS ENDED, YEAR ENDED,
---------------------------------------------------- --------------- -------------- -------------- ---------------
12/31/03 12/31/02 12/31/03 12/31/02
---------------------------------------------------- --------------- -------------- -------------- ---------------
OPERATING EARNINGS (NET INCOME EXCLUDING NET
REALIZED/UNREALIZED CAPITAL
GAINS (LOSSES) AS ADJUSTED AND
OTHER AFTER-TAX ADJUSTMENTS) $0.46 $0.53 $2.30 $2.14
---------------------------------------------------- --------------- -------------- -------------- ---------------
NET REALIZED/UNREALIZED CAPITAL
GAINS (LOSSES), AS ADJUSTED 0.05 (0.27) (0.16) (0.69)
---------------------------------------------------- --------------- -------------- -------------- ---------------
OTHER AFTER-TAX ADJUSTMENTS 0.12 0.38 0.14 (1.04)
---------------------------------------------------- --------------- -------------- -------------- ---------------
NET INCOME $0.63 $0.64 $2.28 $0.41
---------------------------------------------------- --------------- -------------- -------------- ---------------
WEIGHTED-AVERAGE DILUTED SHARES OUTSTANDING
323.3 337.4 326.8 350.7
---------------------------------------------------- --------------- -------------- -------------- ---------------
*OPERATING EARNINGS VERSUS U.S. GAAP (GAAP) NET INCOME
Management uses operating earnings, which excludes the effect of net
realized/unrealized capital gains and losses, as adjusted, and other after-tax
adjustments, for goal setting, determining employee compensation, and evaluating
performance on a basis comparable to that used by securities analysts. Segment
operating earnings are determined by adjusting U.S. GAAP net income for net
realized/unrealized capital gains and losses, as adjusted, and other after-tax
adjustments we believe are not indicative of overall operating trends. Note:
after-tax adjustments have occurred in the past and could recur in future
reporting periods. While these items may be significant components in
understanding and assessing our consolidated financial performance, we believe
the presentation of segment operating earnings enhances the understanding of our
results of operations by highlighting earnings attributable to the normal,
ongoing operations of our businesses.
** Net income for the three months ended December 31 2003 reflects net
realized/unrealized capital gains/(losses) of $16.0 million, which includes
$(28.2) million in credit losses stemming from impairments and credit impaired
sales, as well as $39.4 million in other after-tax adjustments. The other
after-tax adjustments reflect a $28.9 million gain stemming from contested IRS
matters and a $10.5 million gain from discontinued operations. Net income for
the three months ended December 31, 2002 reflects net realized capital losses of
10
$(90.1) million, primarily made up of credit losses stemming from impairments
and credit impaired sales of $(76.1) million, as well as $127.6 million in other
after-tax adjustments. The other after-tax adjustments reflect a $138.0 million
gain resulting from the settlement of an IRS issue, a $(8.6) million loss
resulting from the increase to a loss contingency reserve established for sales
practices litigation, and a $(1.8) million loss on discontinued operations.
11
PRINCIPAL FINANCIAL GROUP, INC.
RESULTS OF OPERATIONS
(IN MILLIONS)
THREE MONTHS ENDED YEAR ENDED
-------------------------------- -------------------------------
12/31/03 12/31/02 12/31/03 12/31/02
---------------- --------------- --------------- ---------------
Premiums and other considerations $ 983.2 $ 940.8 $3,634.1 $ 3881.8
Fees and other revenues 619.7 604.1 2,416.2 1,990.8
Net investment income 848.0 849.2 3,419.6 3,304.7
Net realized/unrealized capital 27.6 (130.8) (65.7) (354.8)
gains/(losses)
---------------- --------------- --------------- ---------------
TOTAL REVENUES 2,478.5 2,263.3 9,404.2 8,822.5
---------------- --------------- --------------- ---------------
Benefits, claims, and settlement expenses 1,302.6 1,274.2 4,861.3 5,216.9
Dividends to policyholders 75.2 75.6 307.9 316.6
Operating expenses 888.9 791.0 3,281.3 2,623.2
---------------- --------------- --------------- ---------------
TOTAL EXPENSES 2,266.7 2,140.8 8,450.5 8,156.7
---------------- --------------- --------------- ---------------
Income from continuing operations before
income taxes 211.8 122.5 953.7 665.8
Income taxes (benefits) 18.4 (94.7) 225.8 45.9
---------------- --------------- --------------- ---------------
Income from continuing operations, net of
related income taxes 193.4 217.2 727.9 619.9
Income (loss) from discontinued operations,
net of taxes 10.5 (1.8) 21.8 (196.7)
---------------- --------------- --------------- ---------------
Income before cumulative effect of
accounting changes 203.9 215.4 749.7 423.2
Cumulative effect of accounting changes,
net of related income taxes - - (3.4) (280.9)
---------------- --------------- --------------- ---------------
NET INCOME $ 203.9 $ 215.4 $ 746.3 $142.3
Less:
Net realized/unrealized capital gains
(losses), as adjusted 16.0 (90.1) (51.6) (243.9)
Other after-tax adjustments 39.4 127.6 47.3 (363.2)
---------------- --------------- --------------- ---------------
OPERATING EARNINGS $ 148.5 $ 177.9 $ 750.6 $ 749.4
================ =============== =============== ===============
SELECTED BALANCE SHEET STATISTICS
PERIOD ENDED
--------------------- -------------------- -----------------
12/31/03 12/31/02 12/31/01
--------------------- -------------------- -----------------
Total assets (in billions) $ 107.8 $ 89.9 $ 88.4
Total equity (in millions) $ 7,399.6 $ 6,657.2 $ 6,820.3
Total equity excluding accumulated other
comprehensive income (in millions) $ 6,228.3 $ 6,021.4 $ 6,672.8
End of period shares outstanding (in millions) 320.7 334.4 360.1
Book value per share $ 23.07 $ 19.91 $ 18.94
Book value per share excluding accumulated other
comprehensive income $ 19.42 $ 18.01 $ 18.53
12
PRINCIPAL FINANCIAL GROUP, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO U.S. GAAP
(IN MILLIONS, EXCEPT AS INDICATED)
THREE MONTHS ENDED YEAR ENDED
----------------------------- ---------------------------
12/31/03 12/31/02 12/31/03 12/31/02
-------------- -------------- ------------- -------------
DILUTED EARNINGS PER SHARE:
Operating Earnings 0.46 0.53 2.30 2.14
Net realized/unrealized capital gains/(losses) 0.05 (0.27) (0.16) (0.69)
Other after-tax adjustments 0.12 0.38 0.14 (1.04)
-------------- -------------- ------------- -------------
Net income 0.63 0.64 2.28 0.41
============== ============== ============= =============
BOOK VALUE EXCLUDING OTHER COMPREHENSIVE INCOME:
Book value excluding other comprehensive income 19.42 18.01 19.42 18.01
Net unrealized capital gains/(losses) 4.03 2.46 4.03 2.46
Minimum pension liability (0.01) - (0.01) -
Foreign currency translation (0.37) (0.56) (0.37) (0.56)
-------------- -------------- ------------- -------------
Book value including other comprehensive income 23.07 19.91 23.07 19.91
============== ============== ============= =============
OPERATING REVENUES:
USAMA 1,024.1 916.8 3,651.0 3,780.5
IAMA 122.4 105.6 412.1 357.9
Life and Health 1,004.5 996.1 4,014.3 3,946.8
Mortgage Banking 301.3 421.7 1,396.8 1,153.0
Corporate and Other 0.3 (16.5) 8.8 (15.1)
-------------- -------------- ------------- -------------
Total operating revenues 2,452.6 2,423.7 9,483.0 9,223.1
Net realized/unrealized capital gains (losses) and related
fee adjustments 25.9 (160.4) (78.8) (400.6)
-------------- -------------- ------------- -------------
Total GAAP revenues 2,478.5 2,263.3 9,404.2 8,822.5
============== ============== ============= =============
OPERATING EARNINGS:
USAMA 117.6 83.7 433.8 370.9
IAMA 8.2 9.4 34.9 19.5
Life and Health 66.4 61.4 241.2 233.1
Mortgage Banking (42.8) 29.1 53.2 142.9
Corporate and Other (0.9) (5.7) (12.5) (17.0)
-------------- -------------- ------------- -------------
Total operating earnings 148.5 177.9 750.6 749.4
Net realized/unrealized capital gains (losses) 16.0 (90.1) (51.6) (243.9)
Other after-tax adjustments 39.4 127.6 47.3 (363.2)
-------------- -------------- ------------- -------------
Net income 203.9 215.4 746.3 142.3
============== ============== ============= =============
NET REALIZED/UNREALIZED CAPITAL GAINS (LOSSES):
Net realized/unrealized capital gains (losses), as adjusted 16.0 (90.1) (51.6) (243.9)
Add:
Amortization of DPAC (2.1) (16.6) (5.1) (35.4)
Capital gains (losses) distributed 1.5 (6.1) 4.5 12.7
Tax impacts 10.0 (47.6) (26.7) (134.0)
Minority interest capital gains 0.5 - 0.1 -
Less related fee adjustments:
Unearned front-end fee income (0.5) (20.0) 4.6 (14.0)
Certain market value adjustments to fee revenues (1.2) (9.6) (17.7) (31.8)
-------------- -------------- ------------- -------------
GAAP net realized/unrealized capital gains (losses) 27.6 (130.8) (65.7) (354.8)
============== ============== ============= =============
OTHER AFTER TAX ADJUSTMENTS:
IRS audit issue 28.9 138.0 28.9 138.0
Demutualization expenses - - - (2.0)
Loss contingency reserve - (8.6) - (21.6)
FIN 46 implementation - (3.4) -
SFAS 142 implementation - - - (280.9)
Discontinued operations 10.5 (1.8) 21.8 (196.7)
-------------- -------------- ------------- -------------
Total other after-tax adjustments 39.4 127.6 47.3 (363.2)
============== ============== ============= =============
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1 We use a number of non-GAAP financial measures that management believes are
useful to investors because they illustrate the performance of our normal,
ongoing operations, which is important in understanding and evaluating our
financial condition and results of operations. While such measures are
consistent with measures utilized by investors to evaluate performance,
they are not a substitute for U.S. GAAP financial measures. Therefore, we
have provided reconciliations of the non-GAAP financial measures, including
consolidated operating earnings and consolidated operating revenues, to the
most directly comparable U.S. GAAP financial measure at the end of the
release. We adjust U.S. GAAP financial measures for items not directly
related to ongoing operations. However, it is possible that these adjusting
items have occurred in the past and could recur in the future. Management
also uses non-GAAP financial measures for goal setting, determining
employee and senior management awards and compensation, and evaluating
performance on a basis comparable to that used by securities analysts.
2 As a result of the sale of substantially all of BT Financial Group, which
closed on October 31, 2002, the operating earnings of BT reflect only the
corporate overhead expenses allocated to BT. This treatment is pursuant to
Statement of Accounting Standard No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("SFAS 144"). Under SFAS 144, all revenues
and expenses (excluding allocated corporate overhead) are reported as
discontinued operations. Therefore, fourth quarter 2002 results for BT
reflect one month of allocated expenses with no corresponding activity in
2003.
3 Other items that we are unable to predict could significantly affect net
income, such as changes to laws, regulations, or accounting standards,
litigation, or gains or losses from discontinued operations.
4 First quarter 2004 guidance is based on certain assumptions, including
domestic equity market performance improvement, of roughly two percent from
December 31, 2003 levels.
5 Full year 2004 guidance is based on certain assumptions, including domestic
equity market performance improvement of roughly 2% per quarter for 2004.
6 "The Principal Financial Group(R)" and "The Principal(R)" are registered
service marks of Principal Financial Services, Inc., a member of the
Principal Financial Group.
7 CFO Magazine, April/May 2003, based on total plans served in 2002 by
insurance companies, banks and investment firms.
8 As of December 31, 2003
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