Stockholders' Equity

12 Months Ended

Dec. 31, 2013

Stockholders' Equity

Stockholders' Equity

14. Stockholders' Equity

Preferred Stock

        As of December 31, 2013, we had 13.0 million shares of preferred stock authorized, issued and outstanding under the two series described below. Preferred stockholders have dividend and liquidation priority over common stockholders.

        Series A.    Dividends on the Series A Preferred Stock are non-cumulative and are payable quarterly when, and if, declared by our Board of Directors at a rate of 5.563% per annum of the liquidation preference. On or after the dividend payment date in June 2015, the Series A initial distribution rate will become a floating rate, subject to reset, at our option, subject to certain conditions and parameters. If reset, the rate may be at fixed or floating rates. On or after the dividend payment date in June 2015, we may, at our option, redeem the shares at a price of $100 per share, or $300.0 million in the aggregate, plus accrued and unpaid dividends for the then current dividend period to the date of redemption, if any.

        The Series A Preferred Stock has no stated maturity and is not convertible into any other of our securities. Series A Preferred Stock will have no voting rights, except with respect to certain fundamental changes in the terms of the shares and in the case of certain dividend non-payments.

        Series B.    Dividends on the Series B Preferred Stock are non-cumulative and are payable quarterly when, and if, declared by the Board of Directors at a rate of 6.518% per annum of the liquidation preference. On or after the dividend payment date in June 2035, the Series B initial distribution rate will become a floating rate, subject to reset, at our option, subject to certain conditions and parameters. If reset, the rate may be at fixed or floating rates. On or after the dividend payment date in June 2015, we may, at our option, redeem the shares at a price of $25 per share, or $250.0 million in the aggregate, plus accrued and unpaid dividends for the then current dividend period to the date of redemption, if any.

        The Series B Preferred Stock has no stated maturity and is not convertible into any other of our securities. Series B Preferred Stock will have no voting rights, except with respect to certain fundamental changes in the terms of the shares and in the case of certain dividend non-payments.

Dividend Restrictions and Payments

        The certificates of designation for the Series A and B Preferred Stock restrict the declaration of preferred dividends if we fail to meet specified capital adequacy, net income or stockholders' equity levels. As of December 31, 2013, we have no preferred dividend restrictions.

        On April 1, 2013; July 1, 2013; September 30, 2013 and December 30, 2013, we paid a dividend of $8.2 million, $8.3 million, $8.2 million and $8.3 million, respectively, equal to $1.39 per share on Series A non-cumulative perpetual preferred stock and equal to $0.41 per share on Series B non-cumulative perpetual preferred stock. Dividends were paid to stockholders of record as of March 14, 2013; June 13, 2013; September 12, 2013 and December 12, 2013, respectively.

        On March 30, 2012; July 2, 2012; October 1, 2012 and December 31, 2012, we paid a dividend of $8.2 million, $8.3 million, $8.2 million and $8.3 million, respectively, equal to $1.39 per share on Series A non-cumulative perpetual preferred stock and equal to $0.41 per share on Series B non-cumulative perpetual preferred stock. Dividends were paid to stockholders of record as of March 15, 2012; June 14, 2012; September 13, 2012 and December 13, 2012, respectively.

        On March 30, 2011; June 30, 2011; September 30, 2011 and December 30, 2011, we paid a dividend of $8.2 million, $8.3 million, $8.2 million and $8.3 million, respectively, equal to $1.39 per share on Series A non-cumulative perpetual preferred stock and equal to $0.41 per share on Series B non-cumulative perpetual preferred stock. Dividends were paid to stockholders of record as of March 11, 2011; June 9, 2011; September 8, 2011 and December 8, 2011, respectively.

Common Stock

Date of dividend payment	Date of record	Dividend per common share		Common stock dividend
				(in millions)
2013:
December 27, 2013	December 9, 2013	$	0.26	$	76.7
September 27, 2013	September 5, 2013		0.26		76.5
June 28, 2013	June 3, 2013		0.23		67.6
March 29, 2013	March 11, 2013		0.23		67.6
2012:
December 28, 2012	December 10, 2012	$	0.21	$	61.7
September 28, 2012	September 6, 2012		0.21		61.6
June 29, 2012	June 11, 2012		0.18		53.7
March 30, 2012	March 12, 2012		0.18		54.3
2011:
December 2, 2011	November 10, 2011	$	0.70	$	213.7

Reconciliation of Outstanding Shares

	Series A preferred stock		Series B preferred stock		Common stock
	(in millions)
Outstanding shares at January 1, 2011		3.0		10.0		320.4
Shares issued		—		—		1.8
Treasury stock acquired		—		—		(21.1	)
Outstanding shares at December 31, 2011		3.0		10.0		301.1
Shares issued		—		—		3.2
Treasury stock acquired		—		—		(10.5	)
Outstanding shares at December 31, 2012		3.0		10.0		293.8
Shares issued		—		—		5.8
Treasury stock acquired		—		—		(4.4	)
Outstanding shares at December 31, 2013		3.0		10.0		295.2

        In May 2011, our Board of Directors reinstated the November 2007 share repurchase program. In July 2011, we completed this program. In August 2011, our Board of Directors authorized a share repurchase program of up to $200.0 million of our outstanding common stock. We completed this program in September 2011. In November 2011, our Board of Directors authorized a share repurchase program of up to $100.0 million of our outstanding common stock. We completed this program in December 2011. In February 2012, our Board of Directors authorized a share repurchase program of up to $100.0 million of our outstanding common stock. We completed this program in May 2012. In May 2012, our Board of Directors authorized a share repurchase program of up to $200.0 million of our outstanding common stock. We completed this program in February 2013. Also in February 2013, our Board of Directors authorized a share repurchase program up to $150.0 million of our outstanding common stock.

        Our Board of Directors has authorized various repurchase programs under which we are allowed to purchase shares of our outstanding common stock. Shares repurchased under these programs are accounted for as treasury stock, carried at cost and reflected as a reduction to stockholders' equity.

Other Comprehensive Income (Loss)

	For the year ended December 31, 2013
	Pre-Tax			Tax			After-Tax
	(in millions)
Net unrealized losses on available-for-sale securities during the period	$	(1,686.5	)	$	559.5		$	(1,127.0	)
Reclassification adjustment for losses included in net income (1)		61.1			(20.9	)		40.2
Adjustments for assumed changes in amortization patterns		252.8			(88.5	)		164.3
Adjustments for assumed changes in policyholder liabilities		575.7			(193.4	)		382.3
Net unrealized losses on available-for-sale securities		(796.9	)		256.7			(540.2	)
Noncredit component of impairment losses on fixed maturities, available-for-sale during the period		24.5			(8.3	)		16.2
Adjustments for assumed changes in amortization patterns		(14.4	)		5.1			(9.3	)
Noncredit component of impairment losses on fixed maturities, available-for-sale (2)		10.1			(3.2	)		6.9
Net unrealized losses on derivative instruments during the period		(46.3	)		16.8			(29.5	)
Reclassification adjustment for losses included in net income (3)		11.6			(4.3	)		7.3
Adjustments for assumed changes in amortization patterns		10.9			(3.8	)		7.1
Adjustments for assumed changes in policyholder liabilities		20.5			(7.2	)		13.3
Net unrealized losses on derivative instruments		(3.3	)		1.5			(1.8	)
Foreign currency translation adjustment		(282.6	)		13.2			(269.4	)
Unrecognized postretirement benefit obligation during the period		426.7			(149.3	)		277.4
Amortization of prior service cost and actuarial loss included in net periodic benefit cost (4)		84.9			(29.7	)		55.2
Net unrecognized postretirement benefit obligation		511.6			(179.0	)		332.6
Other comprehensive loss	$	(561.1	)	$	89.2		$	(471.9	)

	For the year ended December 31, 2012
	Pre-Tax			Tax			After-Tax
	(in millions)
Net unrealized gains on available-for-sale securities during the period	$	1,577.3		$	(520.6	)	$	1,056.7
Reclassification adjustment for losses included in net income (1)		107.8			(38.4	)		69.4
Adjustments for assumed changes in amortization patterns		(169.0	)		59.1			(109.9	)
Adjustments for assumed changes in policyholder liabilities		(689.2	)		230.6			(458.6	)
Net unrealized gains on available-for-sale securities		826.9			(269.3	)		557.6
Noncredit component of impairment losses on fixed maturities, available-for-sale during the period		(17.3	)		6.1			(11.2	)
Adjustments for assumed changes in amortization patterns		4.0			(1.6	)		2.4
Adjustments for assumed changes in policyholder liabilities		3.2			(1.1	)		2.1
Noncredit component of impairment losses on fixed maturities, available-for-sale (2)		(10.1	)		3.4			(6.7	)
Net unrealized losses on derivative instruments during the period		(25.9	)		9.1			(16.8	)
Reclassification adjustment for losses included in net income (3)		3.4			(1.5	)		1.9
Adjustments for assumed changes in amortization patterns		25.9			(9.1	)		16.8
Adjustments for assumed changes in policyholder liabilities		(70.0	)		24.5			(45.5	)
Net unrealized losses on derivative instruments		(66.6	)		23.0			(43.6	)
Foreign currency translation adjustment		(25.4	)		15.6			(9.8	)
Unrecognized postretirement benefit obligation during the period		(245.7	)		86.0			(159.7	)
Amortization of prior service cost and actuarial loss included in net periodic benefit cost (4)		49.6			(17.3	)		32.3
Net unrecognized postretirement benefit obligation		(196.1	)		68.7			(127.4	)
Other comprehensive income	$	528.7		$	(158.6	)	$	370.1

	For the year ended December 31, 2011
	Pre-Tax			Tax			After-Tax
	(in millions)
Net unrealized gains on available-for-sale securities during the period	$	559.4		$	(207.9	)	$	351.5
Reclassification adjustment for losses included in net income (1)		112.0			(42.9	)		69.1
Adjustments for assumed changes in amortization patterns		(114.9	)		40.2			(74.7	)
Adjustments for assumed changes in policyholder liabilities		(230.3	)		93.0			(137.3	)
Net unrealized gains on available-for-sale securities		326.2			(117.6	)		208.6
Noncredit component of impairment losses on fixed maturities, available-for-sale during the period		49.9			(18.0	)		31.9
Adjustments for assumed changes in amortization patterns		(1.4	)		0.5			(0.9	)
Noncredit component of impairment losses on fixed maturities, available-for-sale (2)		48.5			(17.5	)		31.0
Net unrealized gains on derivative instruments during the period		39.6			(13.8	)		25.8
Reclassification adjustment for losses included in net income (3)		20.7			(7.4	)		13.3
Adjustments for assumed changes in amortization patterns		(23.9	)		8.4			(15.5	)
Net unrealized gains on derivative instruments		36.4			(12.8	)		23.6
Foreign currency translation adjustment		(130.8	)		(0.1	)		(130.9	)
Unrecognized postretirement benefit obligation during the period		(286.7	)		100.3			(186.4	)
Amortization of prior service cost and actuarial loss included in net periodic benefit cost (4)		20.7			(7.2	)		13.5
Net unrecognized postretirement benefit obligation		(266.0	)		93.1			(172.9	)
Other comprehensive loss	$	14.3		$	(54.9	)	$	(40.6	)

(1)

Pre-tax reclassification adjustments relating to available-for-sale securities are reported in net realized capital gains (losses) on the consolidated statements of operations.

(2)

Represents the net impact of (1) unrealized gains resulting from reclassification of previously recognized noncredit impairment losses from OCI to net realized capital gains (losses) for fixed maturities with bifurcated OTTI that had additional credit losses or fixed maturities that previously had bifurcated OTTI that have now been sold or are intended to be sold and (2) unrealized losses resulting from reclassification of noncredit impairment losses for fixed maturities with bifurcated OTTI from net realized capital gains (losses) to OCI.

(3)

See Note 6, Derivative Financial Instruments — Cash Flow Hedges, for further details.

(4)

Pre-tax amortization of prior service cost and actuarial loss included in net periodic benefit cost, which is comprised of amortization of prior service cost (benefit) and recognized net actuarial (gain) loss, is reported in operating expenses on the consolidated statements of operations. See Note 12, Employee and Agent Benefits — Components of Net Periodic Benefit Cost, for further details.

Accumulated Other Comprehensive Income

	Net unrealized gains on available-for-sale securities			Noncredit component of impairment losses on fixed maturities available-for-sale			Net unrealized gains (losses) on derivative instruments			Foreign currency translation adjustment			Unrecognized postretirement benefit obligation			Accumulated other comprehensive income
	(in millions)
Balances at January 1, 2011	$	652.1		$	(198.2	)	$	11.3		$	34.5		$	(188.2	)	$	311.5
Other comprehensive income during the period, net of adjustments		139.5			—			10.3			(130.4	)		(186.4	)		(167.0	)
Amounts reclassified from AOCI		69.1			31.0			13.3			—			13.5			126.9
Other comprehensive loss		208.6			31.0			23.6			(130.4	)		(172.9	)		(40.1	)
Balances at December 31, 2011		860.7			(167.2	)		34.9			(95.9	)		(361.1	)		271.4
Other comprehensive income during the period, net of adjustments		488.2			(6.7	)		(45.5	)		(11.0	)		(159.7	)		265.3
Amounts reclassified from AOCI		69.4			—			1.9			—			32.3			103.6
Other comprehensive income		557.6			(6.7	)		(43.6	)		(11.0	)		(127.4	)		368.9
Balances at December 31, 2012		1,418.3			(173.9	)		(8.7	)		(106.9	)		(488.5	)		640.3
Other comprehensive income during the period, net of adjustments		(580.4	)		—			(9.1	)		(254.6	)		277.4			(566.7	)
Amounts reclassified from AOCI		40.2			6.9			7.3			—			55.2			109.6
Other comprehensive loss		(540.2	)		6.9			(1.8	)		(254.6	)		332.6			(457.1	)
Balances at December 31, 2013	$	878.1		$	(167.0	)	$	(10.5	)	$	(361.5	)	$	(155.9	)	$	183.2

Noncontrolling Interest

        Interest held by unaffiliated parties in consolidated entities are reflected in noncontrolling interest, which represents the noncontrolling partners' share of the underlying net assets of our consolidated subsidiaries. Noncontrolling interest that is not redeemable is reported in the equity section of the consolidated statements of financial position.

        The noncontrolling interest holders in certain of our subsidiaries maintain an equity interest that is redeemable at the option of the holder, which may be exercised on varying dates. Since redemption of the noncontrolling interest is outside of our control, this interest is presented on the consolidated statements of financial position line item titled "Redeemable noncontrolling interest." If the interest were to be redeemed, we would be required to purchase such interest at a redemption value based on fair value or a formula that management intended to reasonably approximate fair value based on a fixed multiple of earnings over a measurement period. As such, the carrying value of the redeemable noncontrolling interest is compared to the redemption value at each reporting period. Any adjustments to the carrying amount of the redeemable noncontrolling interest for changes in redemption value prior to exercise of the redemption option are determined after the attribution of net income or loss of the subsidiary and are recognized in the redemption value as they occur. Adjustments to the carrying value of redeemable noncontrolling interest result in adjustments to additional paid-in capital and/or retained earnings. Adjustments are recorded in retained earnings to the extent the redemption value of the redeemable noncontrolling interest exceeds its fair value and will impact the numerator in our earnings per share calculations. All other adjustments to the redeemable noncontrolling interest are recorded in additional paid-in capital.

        Following is a reconciliation of the changes in the redeemable noncontrolling interest (in millions):

Balance at January 1, 2011	$	—
Net income attributable to redeemable noncontrolling interest		0.2
Redeemable noncontrolling interest assumed related to acquisition		22.0
Balance at December 31, 2011		22.2
Net income attributable to redeemable noncontrolling interest		1.9
Redeemable noncontrolling interest assumed related to acquisition		37.2
Distributions to redeemable noncontrolling interest		(2.0	)
Foreign currency translation adjustment		1.1
Balance at December 31, 2012		60.4
Net income attributable to redeemable noncontrolling interest		13.6
Reclassification from stockholders' equity (1)		173.9
Contributions from redeemable noncontrolling interest		1.2
Distributions to redeemable noncontrolling interest		(13.9	)
Purchase of subsidiary shares from redeemable noncontrolling interest		(2.4	)
Change in redemption value of redeemable noncontrolling interest		19.2
Foreign currency translation adjustment		(4.8	)
Balance at December 31, 2013	$	247.2

(1)

During the third quarter of 2013, we identified a classification error of certain of our noncontrolling interests. The classification error had no impact on net income, but did impact earnings per share to the extent the redemption value of the redeemable noncontrolling interest exceeds the fair value. We evaluated the classification error and related earnings per share impact based on qualitative and quantitative factors in accordance with SEC Staff Accounting Bulletins 99 and 108 and concluded the impact was not material in the current or any prior quarterly or annual periods presented. During the third quarter of 2013, we recorded a $173.9 million increase to redeemable noncontrolling interest and a corresponding decrease to stockholders' equity. See related discussion in Note 19, Earnings Per Share.

Dividend Limitations

        The declaration and payment of our common stock dividends is subject to the discretion of our Board of Directors and will depend on our overall financial condition, results of operations, capital levels, cash requirements, future prospects, receipt of dividends from Principal Life (as described below), risk management considerations and other factors deemed relevant by the Board. There are no significant restrictions that limit the payment of dividends by us, except those generally applicable to corporations incorporated in Delaware.

        Under Iowa law, Principal Life may pay stockholder dividends only from the earned surplus arising from its business and must receive the prior approval of the Commissioner to pay a stockholder dividend if such a stockholder dividend would exceed certain statutory limitations. In general, the current statutory limitation is the greater of 10% of Principal Life's policyholder surplus as of the preceding year-end or the net gain from operations from the previous calendar year. Based on this limitation and 2013 statutory results, Principal Life could pay approximately $687.2 million in stockholder dividends in 2014 without exceeding the statutory limitation.