01—Abstract
Summary
Summary of the 10-K filed February 29, 2008. Cited figures are marked; the original filing is the authoritative source.
Aflac Incorporated (NYSE: AFL) closed 2007 with net earnings of $1.634 billiona, or $3.31 per diluted share, up about 12% from $2.95 in 2006.
Total revenues rose 5.3% to $15.4 billionb, driven by premium growth of 5.4% to $12.97 billion and net investment income of $2.33 billion. The company met its 2007 objective of 15-16% growth in per-share earnings on the company's adjusted basis. Aflac Japan remains the dominant engine, generating 71% of 2007 revenues and holding 82% of total assets, so the stock's fortunes are closely tied to Japan's economy, the yen/dollar exchange rate, and Japanese insurance regulation.
The key operating story is steady growth in both segments. Aflac Japan's pretax operating earnings rose 10.2% in dollars to $1.82 billionc, helped by an improving benefit ratio, though yen-denominated new annualized premium sales fell 2.4% as the stand-alone medical market weakened. Aflac U.S. was the standout, with pretax operating earnings up 18.3% to $692 million and new annualized premium sales up 9.5%.
Management guided to 13-15% EPS growth for 2008 and expects Aflac Japan's profit margins to keep expanding, while noting that the strong yen at year-end inflated reported balance sheet figures. Capital return and balance-sheet risk both matter to investors. Cash returned to shareholders through buybacks and dividends reached $979 milliond, and the board authorized an additional 30 million shares in January 2008.
A February 2008 accelerated share repurchase of 12.5 million shares for $757 million is expected to settle in the second quarter. Quarterly dividends were raised to $0.24 for 2008. Investment-quality metrics remained solid overall, with 97.7% of U.S. debt holdings and 99%+ of Japan holdings in investment-grade securities, but unrealized losses of about $2.1 billion and roughly $1 billion of below-investment-grade bonds warrant monitoring given the 2007 credit market stress.
02—Key points
Key Highlights
- Net earnings of $1.634 billion ($3.31 diluted EPS) grew about 10% in dollars from 2006, meeting management's 15-16% per-share growth objective on an adjusted basis.
- Total revenues reached $15.4 billion, up 5.3%, with premiums of $12.97 billion and net investment income of $2.33 billion.
- Aflac Japan delivered 71% of revenues and 82% of assets; its pretax operating earnings rose 10.2% to $1.82 billion, while yen-denominated new sales declined 2.4%.
- Aflac U.S. pretax operating earnings climbed 18.3% to $692 million, with new annualized premium sales up 9.5% to $1.56 billion.
- Shareholder returns totaled $979 million in 2007; a $757 million accelerated share repurchase was launched in February 2008, and an additional 30 million share buyback was authorized.
- 2008 guidance calls for 13-15% diluted EPS growth, with Aflac Japan sales growth of 3-7% and U.S. sales growth of 8-12%, aided by new bank and Japan Post distribution channels.
- Balance sheet exposure to the yen remains significant: a stronger year-end yen raised total assets by about $2.1 billion, and unrealized losses on debt securities totaled $2.1 billion at year-end 2007.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2007filed February 29, 2008Financial Statements
| Revenue | $15.39B |
| SG&A Expenses | $1.49B |
| Interest Expense | $27.00M |
| Net Income | $1.63B |
| EPS (Basic) | $1.68 |
| EPS (Diluted) | $1.66 |
| Shares Outstanding (Basic) | 975.74M |
| Shares Outstanding (Diluted) | 987.94M |
05—Questions
Frequently Asked Questions
How did Aflac perform financially in 2007?
Aflac earned $1.634 billion, or $3.31 per diluted share, in 2007, up from $2.95 in 2006. Revenues grew 5.3% to $15.4 billion, and the company met its internal objective of 15-16% growth in adjusted per-share earnings.
How much does Japan matter to Aflac's results?
Aflac Japan generated 71% of 2007 revenues and held 82% of total assets. Its results are also affected by yen/dollar translation: a weaker yen reduces reported dollar earnings, while a stronger yen increases them, although management views translation as an accounting effect rather than an economic one.
What is the outlook for 2008?
Management targets 13-15% growth in diluted EPS for 2008. Sensitivity tables show that the yen exchange rate matters: at a 125 yen/dollar rate, EPS growth falls to roughly 10-12%, while at 105 yen/dollar it rises to about 20-22%. Aflac Japan's sales are expected to grow 3-7% and Aflac U.S. sales 8-12%.
Is the company returning cash to shareholders?
Yes. In 2007 Aflac returned $979 million through share repurchases and dividends. The quarterly dividend rose to $0.24 for 2008, and a 30 million share repurchase authorization was added in January 2008 after the company exhausted its previous program in mid-2007.
What are the main investment and credit risks?
Most of the portfolio is investment grade, but unrealized losses reached about $2.1 billion at year-end 2007, and about $1.0 billion of below-investment-grade securities are held. Management believes the declines are temporary and has not recorded significant impairments, though it notes that persistently low yields in Japan pressure investment spreads over time.
06—Continue