PFG

Business Context and Reporting Period

Company: Principal Financial Group, Inc. (NYSE: PFG)
Filing Type: Form 8-K (Current Report)
Date of Report: December 3, 2009
Reporting Period: The filing provides forward-looking guidance for the full year 2010. It references assets under management as of September 30, 2009.

Key Financial Metrics and Guidance

The filing does not report historical financial results for 2009 but provides specific 2010 outlook ranges and assumptions:

• 2010 Operating Earnings Per Diluted Share (EPS): $2.45 to $2.75
• 2010 Net Income Per Diluted Share: $1.75 to $2.05
• Estimated Mortgage and Credit Losses (2010): $0.65 to $0.75 per diluted share
• Corporate Segment Operating Losses (2010): $90 million to $110 million
• Assets Under Management (AUM): $280.4 billion (as of Sept 30, 2009); projected 13% to 15% increase in 2010 average AUM.
• Share Repurchases: None anticipated for 2010.

Material Changes and Strategic Assumptions

Management's 2010 guidance incorporates several material strategic shifts and assumptions:

• Investment Only Business Reduction: The company plans to scale back the Investment Only business from approximately 25% of general account liabilities to approximately 20% by year-end 2010.
• Principal International (Brazil): A pending change in economic interest in the BrasilPrev joint venture is expected to impact operating earnings. The company signed a Memorandum of Understanding with Banco do Brasil to extend the venture for 23 years, reducing Principal's economic interest from 46% to 25%.
• Market Assumptions: Guidance assumes an average S&P 500 Index of 1,150 in 2010.

Outlook, Risks, and Contingencies

Long-Term Goals:

• Average annual improvement in Return on Equity (ROE) of roughly 50 basis points.
• 11% to 13% average annual growth in EPS.

Risks and Uncertainties: The filing includes extensive cautionary statements regarding factors that could cause actual results to differ materially from guidance, including:

• Adverse capital and credit market conditions affecting liquidity and cost of capital.
• Continued difficult conditions in global capital markets and the general economy.
• Investment risks diminishing the value of invested assets.
• Changes in laws, regulations, or accounting standards.
• Fluctuations in foreign currency exchange rates.
• Reliance on dividends from subsidiaries to meet debt obligations.

Unusual Items: The net income guidance range reflects estimates for mortgage and credit losses only. It explicitly excludes potential impacts from mark-to-market on derivatives, changes in laws/regulations, and gains/losses from discontinued operations.

Investor Verification Checklist

• Verify the final terms and regulatory approval status of the BrasilPrev joint venture restructuring with Banco do Brasil.
• Monitor the actual reduction of the Investment Only business relative to general account liabilities throughout 2010.
• Track the S&P 500 Index performance against the 1,150 average assumption used in the guidance.
• Review subsequent filings for updates on mortgage and credit loss estimates, as the current range ($0.65-$0.75/share) is a key driver of the net income outlook.
• Confirm the absence of share repurchase activity as stated in the guidance.