01—Abstract
Summary
Summary of the 10-K filed February 13, 2013. Cited figures are marked; the original filing is the authoritative source.
Principal Financial Group, Inc. (PFG) reported assets under management of $403.0 billiona and approximately 18.3 million customers worldwide as of December 31, 2012.
The company describes itself as a global investment management leader offering retirement services, insurance solutions and asset management, with a primary focus on small and medium-sized businesses. It organizes its business into four reportable segments: Retirement and Investor Services, Principal Global Investors, Principal International and U.S. Insurance Solutions, plus a Corporate segment. Net income attributable to Principal Financial Group, Inc. was $805.9 millionb in 2012, up from $652.7 million in 2011, and net income available to common stockholders was $772.9 million, or $2.57 per diluted share, compared with $1.95 in 2011.
Total revenues rose to $9,215.1 millionc from $8,670.7 million. Total assets were $161,926.5 million and total stockholders' equity was $9,773.2 million at year-end. Management attributed the earnings improvement largely to higher gains tied to the Catalyst Health Solutions merger and the absence of a 2011 court ruling on uncertain tax positions, with the 2012 effective tax rate at 14% versus 23% in 2011.
AUM rose from $335.0 billion to $403.0 billiond over the year. The filing also highlights the February 4, 2013 acquisition of roughly 90% of AFP Cuprum S.A. in Chile for approximately $1.4 billion, funded in part by senior notes issued in 2012. Long-term debt increased to $2,671.3 million from $1,564.8 million.
The filing notes that a 2012 DPAC and actuarial balance unlocking decreased net income by $96.7 million, and that continued low interest rates pressure spreads. Ratings agencies carry negative outlooks on several insurer ratings following the Cuprum transaction.
02—Key points
Key Highlights
- AUM of $403.0 billion and approximately 18.3 million customers worldwide as of December 31, 2012, up from $335.0 billion in 2011.
- Net income attributable to PFG of $805.9 million in 2012, compared with $652.7 million in 2011; net income available to common stockholders of $772.9 million.
- Diluted earnings per share of $2.57 in 2012, versus $1.95 in 2011.
- Total revenues of $9,215.1 million in 2012, compared with $8,670.7 million in 2011.
- Acquisition of approximately 90% of AFP Cuprum S.A. in Chile closed February 4, 2013 for approximately $1.4 billion, funded partly by 2012 senior note issuances.
- Long-term debt rose to $2,671.3 million from $1,564.8 million, reflecting senior notes issued in September and November 2012.
- A DPAC and actuarial balance unlocking in 2012 decreased net income by $96.7 million, and financial strength ratings from S&P, Moody's and Fitch carry negative outlooks.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 13, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $9.22B$8.67B | +6.3% |
| Net Income | $806.60M$638.30M | +26.4% |
| EPS (Basic) | $2.60$1.92 | +35.4% |
| EPS (Diluted) | $2.58$1.91 | +35.1% |
| Shares Outstanding (Basic) | 297.50M314.50M | −5.4% |
| Shares Outstanding (Diluted) | 300.40M317.60M | −5.4% |
05—Questions
Frequently Asked Questions
What drove the increase in net income in 2012?
The filing attributes the increase in net income available to common stockholders primarily to higher gains associated with the merger of Catalyst Health Solutions, Inc. and the subsequent disposition of PFG's remaining interest, along with the absence of a 2011 negative impact from a court ruling on uncertain tax positions.
What is the Cuprum acquisition and how was it financed?
PFG acquired approximately 90% of AFP Cuprum S.A., a leading Chilean pension manager, closing February 4, 2013 for approximately $1.4 billion. The company issued $900.0 million of senior notes in November 2012 and $600.0 million in September 2012, with proceeds used to fund the acquisition, and the filing notes Cuprum will be consolidated within the Principal International segment.
How are the company's ratings affected by the Cuprum transaction?
A.M. Best affirmed the financial strength ratings of Principal Life and PNLIC with a stable outlook. S&P and Moody's affirmed the ratings but changed outlooks to negative, and Fitch placed its outlook on rating watch negative before changing it to negative on February 12, 2013, citing pressure on cash coverage and debt metrics and integration risk.
What are the main risks highlighted for the company's investment portfolio?
The filing cites $47.9 billion of U.S. fixed maturities with about 7% below investment grade and $605.6 million, or 1.27% of total fixed maturities, classified as problem, potential problem or restructured. It also notes $10.2 billion of commercial mortgage loans, 20% of which are in California, and exposure to earthquake and regional economic risk.
How did interest rates affect results in 2012?
The filing states that sustained low interest rates compressed spreads and led to an unlocking of DPAC and other actuarial balances that decreased net income by $96.7 million in 2012. Management indicated that a sustained low interest rate environment would reduce the growth in net income.
06—Continue