10-QPeriod: Q1 FY2013

AFLAC INC Quarterly Report for Q1 Ended Mar 31, 2013

Filed May 6, 2013For Securities:AFL

Summary

Aflac Incorporated reported solid financial results for the first quarter of 2013, with net earnings of $892 million, or $1.90 per diluted share, representing an increase from the prior year's $785 million, or $1.68 per diluted share. This growth was primarily driven by strong performance in investment gains, which offset a slight decline in total revenues due to unfavorable currency exchange rates, particularly the weakening yen. The company's core insurance operations, especially Aflac Japan, demonstrated resilience, although premium income in yen saw a modest decrease, offset by favorable investment income and lower operating expenses. Key financial highlights include robust net earnings and earnings per share growth, a significant positive swing in realized investment gains compared to the prior year, and a stable to improving capital position. The company also continued its share repurchase program, returning value to shareholders. While currency fluctuations and a challenging low-interest-rate environment in Japan present ongoing considerations, Aflac's diversified business model and prudent financial management provide a stable foundation for future performance.

Financial Highlights

32 data points
Beta

Revenue

$6.21B

Net Income

$892.00M

14.4% Net Margin

EPS (Diluted)

$0.95

Total Assets

$120.54B

Cash & Equivalents

$2.60B

Free Cash Flow

$3.83B

Financial Statements
Beta
Revenue$6.21B
SG&A Expenses$534.00M
Operating Income$1.21B
Interest Expense$71.00M
Net Income$892.00M
EPS (Basic)$0.95
EPS (Diluted)$0.95
Shares Outstanding (Basic)932.92M
Shares Outstanding (Diluted)938.25M

Key Highlights

  • 1Net earnings increased by 13.6% year-over-year to $892 million.
  • 2Diluted earnings per share rose by 13.1% to $1.90.
  • 3Realized investment gains totaled $156 million, a significant improvement from a $45 million loss in the prior year's period.
  • 4Total revenues saw a slight decrease of 0.5% to $6,208 million, largely due to currency translation effects of the weaker yen.
  • 5Aflac Japan's pretax operating earnings were $989 million, slightly down from $1,040 million in the prior year, reflecting currency impacts and business mix changes.
  • 6Aflac U.S. pretax operating earnings increased by 3.7% to $281 million.
  • 7The company repurchased approximately 3.1 million shares of common stock during the quarter for about $156 million.

Frequently Asked Questions

The increase in net earnings was primarily driven by a significant improvement in realized investment gains. Aflac reported $156 million in net realized investment gains for the first quarter of 2013, a substantial swing from a $45 million loss in the same period of 2012. This was bolstered by gains from securities transactions, redemptions, and derivative valuations, which more than offset a slight decrease in total revenues.

The weakening of the Japanese yen against the U.S. dollar had a notable impact on reported results, primarily by decreasing the translated value of yen-denominated revenues and assets. While Aflac Japan's operational results in yen were relatively stable, the translation to U.S. dollars led to a reported decrease in total revenues and certain segment revenues. Management evaluates performance excluding currency translation effects to better understand underlying operational trends.

Aflac's investment portfolio experienced some unrealized losses, primarily related to changes in interest rates and credit spreads, particularly in the financial institutions and corporate sectors. The company's total unrealized losses on investment securities (available for sale) decreased from $3,932 million at the end of 2012 to $3,003 million at March 31, 2013. Other-than-temporary impairment losses recognized in earnings for the quarter were $55 million, down from $203 million in the prior year's quarter. Management believes most of these unrealized losses are temporary and does not anticipate realizing them due to the intent and ability to hold these securities to maturity or recovery.

Aflac has been actively managing its exposure to European sovereign debt and related financial institutions. The company has significantly reduced its investment exposure to peripheral Eurozone countries and perpetual securities over the past few years. While direct exposure to the most distressed countries like Greece and Cyprus was immaterial, the company continues to monitor its investments in other European countries, particularly banks and financial institutions, for credit quality and potential government support. The company's risk reduction efforts have lowered its exposure to these areas considerably, mitigating the impact of the ongoing European financial crisis.