10-QPeriod: Q2 FY2013

AFLAC INC Quarterly Report for Q2 Ended Jun 30, 2013

Filed August 6, 2013For Securities:AFL

Summary

Aflac Incorporated reported solid financial results for the second quarter and first half of 2013, with net earnings and diluted earnings per share increasing significantly compared to the same periods in 2012. This improvement was driven by a substantial recovery in realized investment gains, which were negative in the prior year, and a favorable shift in foreign currency translation due to a weaker yen. Revenue growth was modest, with Aflac Japan showing a decline in yen-denominated premium income due to product repricing and a shift in customer focus, although annualized premiums in force remained strong. Aflac U.S. saw moderate growth in premium income. The company's investment portfolio experienced fluctuations, particularly in the fair value of available-for-sale securities, impacted by market conditions. Management highlighted efforts to manage market risk, including derisking activities and hedging strategies, particularly for its significant Japanese operations. The company also continued its share repurchase program and maintained strong capital levels.

Financial Highlights

32 data points
Beta

Revenue

$6.04B

Net Income

$889.00M

14.7% Net Margin

EPS (Diluted)

$0.95

Total Assets

$116.31B

Cash & Equivalents

$2.39B

Free Cash Flow

$1.87B

Financial Statements
Beta
Revenue$6.04B
SG&A Expenses$529.00M
Operating Income$1.16B
Interest Expense$69.00M
Net Income$889.00M
EPS (Basic)$0.95
EPS (Diluted)$0.95
Shares Outstanding (Basic)930.43M
Shares Outstanding (Diluted)935.95M

Key Highlights

  • 1Net earnings for Q2 2013 were $889 million ($1.90/diluted share), a substantial increase from $483 million ($1.03/diluted share) in Q2 2012.
  • 2Net earnings for the first six months of 2013 were $1.78 billion ($3.80/diluted share), up from $1.27 billion ($2.71/diluted share) in the same period of 2012.
  • 3The company reported a significant swing in realized investment gains, moving from a net loss of $418 million in Q2 2012 to a net gain of $201 million in Q2 2013.
  • 4Aflac Japan's premium income declined by 11.8% in USD terms due to the weaker yen and product repricing, although annualized premiums in force in yen remained robust.
  • 5Shareholder equity experienced a notable decrease in unrealized gains on investment securities and derivatives, moving from a net unrealized gain of $2.6 billion at year-end 2012 to a net unrealized loss of $209 million at June 30, 2013.
  • 6The company issued $700 million in senior notes in June 2013 and repurchased approximately 5.3 million shares of common stock for $279 million in the first six months of 2013.

Frequently Asked Questions

The substantial increase in net earnings was primarily driven by a significant recovery in realized investment gains. In Q2 2012, Aflac reported net realized investment losses of $418 million, whereas in Q2 2013, they reported net realized investment gains of $201 million. Additionally, a weaker yen against the U.S. dollar positively impacted reported results in dollar terms.

Aflac Japan's results are translated into U.S. dollars. In periods when the Japanese yen weakens against the U.S. dollar, as it did in Q2 2013 and the first half of 2013 compared to the prior year, the reported dollar values of yen-denominated revenues and earnings are lower. Conversely, a stronger yen would magnify dollar results. The company views foreign currency translation as a financial reporting issue and analyzes performance excluding its impact to understand underlying operational trends.

Aflac Japan's overall sales declined in the second quarter of 2013 compared to the prior year, attributed to product repricing (particularly WAYS and other first sector life products) due to lower assumed interest rates and improved investment returns in banks shifting customer focus to investment trusts. The company is focusing on its core cancer and medical products and expects continued demand, particularly with a new medical product launch in August 2013. Sales through the bank channel declined significantly, while traditional agency channels remained strong.

The investment portfolio saw a significant swing from net realized investment losses in the prior year to gains in the current periods. However, the fair value of available-for-sale securities was negatively impacted by market conditions, leading to a substantial decrease in unrealized gains and a shift to a net unrealized loss of $209 million at June 30, 2013, from a net unrealized gain of $2.6 billion at December 31, 2012. This was primarily due to unrealized losses on investment securities and derivatives.