01—Abstract
Summary
Summary of the 10-K filed March 12, 2002. Cited figures are marked; the original filing is the authoritative source.
Principal Financial Group, Inc. (PFG) reported $120.2 billiona in assets under management and approximately thirteen million customers worldwide as of December 31, 2001.
The company describes itself as a leading provider of retirement savings, investment and insurance products, with a focus on 401(k) and defined contribution pension plans, particularly for small and medium-sized businesses. It completed its demutualization and initial public offering on October 26, 2001, issuing 100.0 million shares at $18.50b per share, with an additional 15.0 million over-allotment shares issued November 9, 2001. Net proceeds from the IPO were $1,753.9 million, of which $1,689.7 million was contributed to Principal Life Insurance Company.
For 2001, net income was $358.8 millionc, down from $620.2 million in 2000, reflecting net realized capital losses of $514.0 million, a $10.7 million cumulative effect of accounting change, and $31.1 million of non-recurring items. Operating earnings rose to $710.9 million from $628.1 million. Total revenues were $8,817.5 million and total assets were $88,350.5 million.
Mortgage Banking production surged to $37.8 billiond in loans from $8.3 billion, and the mortgage servicing portfolio grew to $80.5 billion. The filing notes Enron-related impairments of $71.9 million and an estimated after-tax goodwill impairment of approximately $300.0 million to be recognized in the first quarter of 2002 upon adoption of SFAS 142. Subsequent events include the February 1, 2002 sale of the remaining Coventry Health Care stake for estimated proceeds of $325.2 million with an estimated realized gain of $183.1 million, a Fitch downgrade of Principal Life's financial strength rating from AA+ to AA, and a board authorization on February 26, 2002 to repurchase up to $450.0 million of common stock.
02—Key points
Key Highlights
- Assets under management of $120.2 billion as of December 31, 2001, up from $117.5 billion in 2000, serving approximately thirteen million customers worldwide.
- Net income fell to $358.8 million in 2001 from $620.2 million in 2000, driven by $514.0 million of net realized capital losses, while operating earnings increased to $710.9 million from $628.1 million.
- Demutualization and IPO completed October 26, 2001: 100.0 million shares sold at $18.50 per share, plus 15.0 million over-allotment shares; net IPO proceeds of $1,753.9 million.
- Mortgage Banking loan production rose to $37.8 billion in 2001 from $8.3 billion in 2000, and the servicing portfolio reached $80.5 billion.
- Expected after-tax goodwill impairment of approximately $300.0 million upon adoption of SFAS 142 on January 1, 2002, to be recognized as a cumulative effect of accounting change.
- Subsequent events: sale of remaining Coventry Health Care stake for estimated proceeds of $325.2 million (estimated realized gain of $183.1 million) and a $450.0 million share repurchase authorization.
- Fitch lowered Principal Life's financial strength rating from AA+ to AA on February 11, 2002; A.M. Best rated Principal Life A+ and S&P rated it AA with a negative outlook.
03—Questions
Frequently Asked Questions
Why did net income decline sharply in 2001 despite higher operating earnings?
Net income was $358.8 million versus $620.2 million in 2000 mainly because net realized capital losses were $514.0 million in 2001, compared with gains of $139.9 million in 2000. Those losses included $71.9 million of impairments tied to Enron and related entities and $227.4 million of total other-than-temporary impairments. Operating earnings, which exclude realized capital gains and losses and non-recurring items, rose to $710.9 million from $628.1 million.
What did the demutualization and IPO mean for shareholders and policyholders?
Principal Mutual Holding Company converted to a stock company effective October 26, 2001. Eligible policyholders received, in aggregate, 260.8 million shares of common stock, $1,177.5 million of cash and $472.6 million of policy credits. The IPO raised gross proceeds of $2,127.5 million including over-allotment, and common stock began trading on the NYSE under PFG on October 23, 2001.
What are the main risks the company highlights for future results?
The filing cites risks including competition, declines or volatility in securities markets, a downgrade in Principal Life's financial strength ratings, interest rate changes, foreign currency fluctuations, weakness in Australian equity values affecting BT Financial Group, and potential inadequacy of reserves. It also notes litigation from opt-out sales-practices lawsuits and a lawsuit challenging the demutualization plan of conversion, as well as the effects of the September 11, 2001 attacks on net income and assets under management.
How did the company's mortgage banking business perform?
Mortgage Banking reported operating revenues of $757.4 million and operating earnings of $126.7 million in 2001, compared with $359.8 million and $50.0 million in 2000. Loan production reached $37.8 billion, with refinancings making up $20.7 billion of that total. The company said it does not originate or service subprime mortgages to any material degree.
What capital actions and near-term events should investors watch?
The board authorized repurchases of up to $450.0 million of common stock on February 26, 2002, and Principal Life declared a $390.0 million ordinary dividend payable to the parent around April 5, 2002. The company expects a first-quarter 2002 goodwill impairment of about $300.0 million after tax, and an estimated $183.1 million pre-tax realized gain from the Coventry sale completed February 1, 2002.
04—Continue