01—Abstract
Summary
Summary of the 10-K filed February 28, 2007. Cited figures are marked; the original filing is the authoritative source.
Principal Financial Group, Inc. (PFG) reported $256.9 billiona in assets under management and approximately eighteen million customers worldwide as of December 31, 2006.
The company describes itself as a leading provider of retirement savings, investment and insurance products, with a focus on small and medium-sized businesses. Its operating segments are U.S. Asset Management and Accumulation, International Asset Management and Accumulation, and Life and Health Insurance. Total U.S. GAAP revenues rose to $9,870.5 millionb in 2006 from $9,041.7 million in 2005, and net income increased to $1,064.3 million from $919.0 million.
Net income available to common stockholders was $1,031.3 millionc, or $3.74 per diluted share. The year included the $741.1 million cash acquisition of WM Advisors, Inc., which closed on December 31, 2006 and added about $28.0 billion in assets under management, and the issuance of $600.0 million of 6.05% senior notes due 2036. The company also repurchased shares under several programs, including a $500.0 million accelerated repurchase completed in November 2006, and paid an annual common dividend of $0.80 per share.
Total assets were $143,658.1 milliond and total stockholders' equity was $7,860.8 million at year-end. The filing also flags risks that bear on investors, including sensitivity to securities market declines, interest rate movements, reliance on insurance subsidiary dividends (constrained by Iowa law), possible rating downgrades, and ongoing industry-wide regulatory inquiries and a putative ERISA class action over revenue-sharing fees. Management does not believe pending litigation will have a material adverse effect on the company's financial position.
02—Key points
Key Highlights
- Assets under management reached $256.9 billion at December 31, 2006, up from $195.2 billion at December 31, 2005.
- Net income rose to $1,064.3 million in 2006 from $919.0 million in 2005; diluted net income per share was $3.74 versus $3.11.
- Total U.S. GAAP revenues were $9,870.5 million, compared with $9,041.7 million in 2005.
- The WM Advisors, Inc. acquisition closed on December 31, 2006 for a total cost of $741.1 million in cash, adding approximately $28.0 billion in assets under management.
- Stockholders' equity was $7,860.8 million at year-end 2006, and treasury stock purchases totaled $755.8 million during 2006.
- The company declared an annual common dividend of $0.80 per share, up from $0.65 in 2005.
- Principal Life's ratings from A.M. Best (A+), Fitch (AA), Moody's (Aa2) and S&P (AA) are all stated as having a stable outlook.
03—Questions
Frequently Asked Questions
What drove the growth in revenue and earnings in 2006?
Premiums and other considerations rose $330.3 million, or 8%, to $4,305.3 million, led by the Life and Health Insurance segment. Fees and other revenues increased $184.7 million, or 11%, to $1,902.5 million, mainly from higher account values and strong equity market performance in U.S. Asset Management and Accumulation. Net investment income increased $257.9 million, or 8%, to $3,618.0 million.
How much capital did the company return to shareholders in 2006?
The company paid $214.7 million in common dividends and $24.7 million in preferred dividends, and it spent $755.8 million on treasury stock acquisitions, net. A $500.0 million accelerated share repurchase was completed in November 2006, and a new $250.0 million repurchase program was authorized on November 28, 2006, with no purchases made under it as of December 31, 2006.
What are the main risks identified in the filing?
Key risks include declines or volatility in securities markets that reduce asset-based fee revenue, defaults in the $42.4 billion U.S. fixed maturity portfolio, commercial mortgage loan delinquencies, a downgrade in insurance financial strength ratings that could increase policy surrenders, and interest rate changes affecting spreads. The filing also notes that Iowa law limits dividends from Principal Life Insurance Company to the parent, and that regulatory and litigation matters could affect results.
What legal matters are pending?
The company is subject to ongoing industry-wide inquiries from the New York and Connecticut Attorneys General regarding broker compensation, and it is in discussions with those offices about payments tied to single premium group annuity sales. A putative ERISA class action filed November 8, 2006 alleges that Principal Life failed to disclose revenue-sharing fees from mutual funds in 401(k) plans. Management states that it does not believe pending litigation will have a material adverse effect on its business or financial position.
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