10-QPeriod: Q3 FY2008

AFLAC INC Quarterly Report for Q3 Ended Sep 30, 2008

Filed November 7, 2008For Securities:AFL

Summary

Aflac Incorporated reported solid financial results for the nine months ended September 30, 2008, despite a challenging economic environment. Total revenues increased to $12.29 billion, up from $11.38 billion in the prior year period. Net earnings were $1.06 billion, a decrease from $1.25 billion in the same period last year, primarily impacted by significant realized investment losses in the third quarter of 2008, totaling $597 million. These losses were largely attributed to write-downs of investments in Lehman Brothers, Washington Mutual, and certain perpetual debentures, reflecting market volatility. The company's core insurance operations remained robust, with Aflac Japan continuing to be the primary contributor to earnings. Aflac Japan's pretax operating earnings increased to $1.69 billion, driven by premium income growth and stable operating expenses. Aflac U.S. also showed positive operational performance, with pretax operating earnings rising to $11.9$ billion. The company demonstrated a commitment to returning capital to shareholders, with significant share repurchases and an increase in dividends paid. Despite economic headwinds and investment market turmoil, Aflac maintained a strong capital position and adequate liquidity. The company's management remains focused on its long-term strategy, emphasizing product development, sales force expansion, and prudent investment management. The potential impact of the Icelandic bank failures was noted as a significant event expected to result in a substantial charge in the fourth quarter.

Financial Highlights

21 data points
Beta

Revenue

$3.69B

Net Income

$100.00M

2.7% Net Margin

EPS (Diluted)

$0.10

Cash & Equivalents

$514.00M

Free Cash Flow

$1.19B

Financial Statements
Beta
Revenue$3.69B
SG&A Expenses$419.00M
Interest Expense$7.00M
Net Income$100.00M
EPS (Basic)$0.10
EPS (Diluted)$0.10
Shares Outstanding (Basic)950.71M
Shares Outstanding (Diluted)961.49M

Key Highlights

  • 1Total revenues increased to $12.29 billion for the nine months ended September 30, 2008, compared to $11.38 billion in the prior year period.
  • 2Net earnings decreased to $1.06 billion from $1.25 billion year-over-year, significantly impacted by $597 million in realized investment losses in Q3 2008, including write-downs of Lehman Brothers and Washington Mutual.
  • 3Aflac Japan remains the dominant segment, with pretax operating earnings rising to $1.69 billion.
  • 4Aflac U.S. also showed growth in pretax operating earnings to $11.9 billion.
  • 5The company experienced a net change in cash and cash equivalents of -$1.05 billion for the nine months ended September 30, 2008.
  • 6A significant after-tax charge of approximately $110 million is expected in Q4 2008 due to impairments on investments in Icelandic banks.
  • 7The company repurchased approximately 23.2 million shares in 2008 as of September 30, 2008, demonstrating a commitment to shareholder returns.

Frequently Asked Questions

The primary driver for the decrease in net earnings was a significant increase in realized investment losses during the third quarter of 2008. These losses, totaling $597 million ($389 million after tax), were largely due to write-downs of investments in Lehman Brothers and Washington Mutual, as well as impairments on certain perpetual debenture investments, reflecting the volatile market conditions.

Aflac Japan continued to be the company's main revenue and profit generator. For the nine months ended September 30, 2008, Aflac Japan reported pretax operating earnings of $1.69 billion, an increase from $1.39 billion in the same period last year. This growth was supported by a 16.9% increase in premium income (in dollar terms) and stable operating expenses.

Aflac had investments totaling $167 million ($115 million at fair value) in three Icelandic banks: Glitnir, Landsbanki, and Kaupthing. Due to government receivership and the unlikelihood of recovering these obligations, the company expects to take an after-tax charge of approximately $110 million in the fourth quarter of 2008 for other-than-temporary impairments on these securities.

In light of market volatility, Aflac reclassified all of its perpetual debentures to 'available-for-sale' securities. Furthermore, it began evaluating these perpetual debentures for other-than-temporary impairments using an equity security impairment model, rather than the previous debt security model. This shift resulted in a $191 million after-tax charge in the third quarter of 2008 for these securities.