COLUMBUS, Ga., July 23 /PRNewswire-FirstCall/ -- Aflac Incorporated
(NYSE: AFL) today reported its second quarter results.
Reflecting a stronger yen to the dollar, total revenues increased 15.2%
to $4.3 billion during the second quarter of 2008, compared with $3.8
billion a year ago. Net earnings were $483 million, or $1.00 per diluted
share, compared with $415 million, or $.84 per share, a year ago. Realized
investment losses were $1 million, or nil per diluted share in the second
quarter of 2008, compared with realized investment gains of $9 million, or
$.02 per share a year ago. Net earnings in the second quarter of 2008
included a loss of $3 million, or $.01 per diluted share, from the change
in fair value of the interest rate component of the cross-currency swaps
related to the company's senior notes, as required by SFAS 133. In the
second quarter of 2007, the impact of SFAS 133 decreased net earnings by $1
million, or nil per diluted share.
We believe that an analysis of operating earnings, a non-GAAP financial
measure, is vitally important to an understanding of Aflac's underlying
profitability drivers. We define operating earnings as the profits we
derive from our operations before realized investment gains and losses, the
impact from SFAS 133, and nonrecurring items. Management uses operating
earnings to evaluate the financial performance of Aflac's insurance
operations because realized gains and losses, the impact from SFAS 133, and
nonrecurring items tend to be driven by general economic conditions and
events, and therefore may obscure the underlying fundamentals and trends in
Aflac's insurance operations.
Furthermore, because a significant portion of our business is in Japan,
where our functional currency is the Japanese yen, we believe it is equally
important to understand the impact on operating earnings from translating
yen into dollars. We translate Aflac Japan's yen-denominated income
statement from yen into dollars using an average exchange rate for the
reporting period, and we translate the balance sheet using the exchange
rate at the end of the period. However, except for a limited number of
transactions, we do not actually convert yen into dollars. As a result, we
view foreign currency as a financial reporting issue for Aflac and not as
an economic event to our company or shareholders. Because changes in
exchange rates distort the growth rates of our operations, we also
encourage readers of our financial statements to evaluate our financial
performance excluding the impact of foreign currency. The chart toward the
end of this release presents a comparison of selected income statement
items with and without foreign currency changes to illustrate the effect of
currency.
Operating earnings in the second quarter were $487 million, compared
with $407 million in the second quarter of 2007. Operating earnings per
diluted share rose 23.2% to $1.01, compared with $.82 a year ago. The
stronger yen/dollar exchange rate increased operating earnings per diluted
share by $.08 during the quarter. Excluding the impact from the stronger
yen, operating earnings per share increased 13.4%.
Results for the first six months of 2008 also benefited from a stronger
yen. Total revenues rose 14.5% to $8.6 billion, compared with $7.5 billion
in the first half of 2007. Net earnings were $957 million, or $1.98 per
diluted share, compared with $831 million, or $1.68 per share, for the
first six months of 2007. Operating earnings for the first six months of
2008 were $962 million, or $1.99 per diluted share, compared with $814
million, or $1.64 per share, in 2007. Excluding the benefit of $.13 per
share from the stronger yen, operating earnings per diluted share rose
13.4% for the first six months of the year.
AFLAC JAPAN
Aflac Japan's total revenues in yen were up 2.9%. Premium income in yen
rose 3.6%, and net investment income declined .7% in the second quarter.
Investment income growth in yen terms was suppressed by the stronger
yen/dollar exchange rate because approximately 37% of Aflac Japan's second
quarter investment income was dollar-denominated. Excluding the impact of
the stronger yen, net investment income was up 5.0% in the quarter. Due to
continued improvement in the benefit ratio, the pretax operating profit
margin expanded from 17.4% to 18.2%. As a result, pretax operating earnings
in yen increased 7.5%. For the first six months, premium income in yen
increased 3.6%, and net investment income was down .3%. Total revenues were
up 2.8%, and pretax operating earnings grew 6.1%.
The average yen/dollar exchange rate in the second quarter of 2008 was
104.50, or 15.6% stronger than the average rate of 120.78 in the second
quarter of 2007. For the first six months, the average exchange rate was
104.77, or 14.7% stronger than the rate of 120.13 a year ago. Aflac Japan's
growth rates in dollar terms for both the second quarter and first six
months were magnified as a result of the stronger average yen/dollar
exchange rates.
Reflecting the stronger yen, premium income in dollars rose 19.7% to
$2.6 billion in the second quarter. Net investment income was up 14.8% to
$508 million. Total revenues increased 18.9% to $3.1 billion. Pretax
operating earnings advanced 24.3% to $573 million. For the first six
months, premium income was $5.2 billion, or 18.7% higher than a year ago.
Net investment income rose 14.3% to $1.0 billion. Total revenues were up
17.8% to $6.2 billion. Pretax operating earnings were $1.1 billion, or
21.7% higher than a year ago.
Aflac Japan's total new annualized premium sales declined 4.9% to 28.7
billion yen, or $274 million in the second quarter. For the first six
months, total new premium sales were down .3% to 56.3 billion yen, or $537
million. Second quarter sales results reflected an 11.1% decline in cancer
product sales, compared with a year ago. The decline in cancer insurance
sales reflected challenging comparisons to 2007 when cancer insurance sales
benefited from advanced purchases of our product prior to a pending premium
rate increase. In addition, our sales associates focused on selling a lower
premium cancer insurance product in the second quarter that upgrades the
coverage for existing policyholders. Medical insurance sales rose 8.7% in
the quarter, benefiting from the sale of our nonstandard medical product,
Gentle EVER. Bank channel sales increased 146.4% in the second quarter,
compared with the first quarter. While that is a significant improvement,
we had expected the bank channel to do even better.
AFLAC U.S.
Aflac U.S. total revenues rose 8.4% to $1.2 billion in the second
quarter. Premium income increased 9.5% to $1.1 billion and net investment
income was up .1% to $125 million. Pretax operating earnings were $190
million, an increase of 11.1%. For the first six months, total revenues
were up 8.4% to $2.4 billion. Premium income rose 9.4% to $2.1 billion. Net
investment income increased .7% to $248 million. Pretax operating earnings
rose 11.8% to $380 million.
Total new annualized premium sales rose 4.9% to $383 million in the
second quarter of 2008. Although second quarter sales growth was below our
annual target of an 8% to 12% increase, the rate of growth improved
significantly over the first quarter of 2008. For the six months, total new
annualized premium sales increased 2.7% to $736 million.
New agent recruitment continued to be solid this year. The number of
newly recruited agents rose 4.2% in the second quarter to more than 6,700.
Additionally, the average number of weekly producing sales associates
increased, rising 6.3% in the second quarter. We continue to believe that
the ongoing expansion of a productive sales force is an important driver of
future sales growth. We also believe our success at increasing the number
of producing sales associates has resulted from the enhanced training
programs we have been implementing over the last few years.
DIVIDEND
The board of directors declared the third quarter cash dividend. The
third quarter dividend of $.24 per share is payable on September 2, 2008,
to shareholders of record at the close of business on August 20, 2008.
OUTLOOK
Commenting on the company's second quarter results, Chairman and Chief
Executive Officer Daniel P. Amos stated: "I am pleased with Aflac's
financial performance for the first half of 2008. In both the United States
and Japan, our financial results have met or exceeded our expectations so
far this year.
"I am encouraged by the improvement of our U.S. sales growth in the
second quarter following a very slow start in the first quarter of this
year. Knowing that we need a 12.5% increase in the second half of the year
to meet the low end of our sales target, it will clearly be difficult to
achieve the minimum of an 8% increase for 2008. As I have mentioned
previously, we can't rule out that the U.S. economy is a contributing
factor to slower sales growth. However, we still believe our products
remain affordable to the average American consumer. And we are convinced
that the protection our products provide is even more valuable when a
significant health event occurs at a time of rising food and gas prices,
and we're working to convey that message to consumers through our
commercials and sales force.
"For Aflac Japan, we were not surprised to see weak second quarter
sales. Yet, we did expect a sales increase in the quarter. With sales being
flat for the first six months of the year, it will be more challenging to
achieve our objective of a 3% to 7% sales increase for the year than
anticipated. However, we expect to see improved sales growth in the second
half of 2008, and I still believe our sales objective is achievable. My
optimism for meeting our target is based on the strength of our product
line and the new distribution opportunities through the bank channel and
Japan Post.
"One of the very favorable attributes of Aflac's business model is our
predictable earnings growth even in periods when sales are not as
predictable. It appears that we are in one of those periods. However, even
though our sales growth has been slower than we expected so far this year,
our outlook for earnings has not changed. Our earnings growth primarily
reflects our large and profitable block of in-force business. Importantly,
the claims, expense and margin trends of our business in force remain
predictable and very favorable. As a result, I believe we are
well-positioned to achieve our earnings targets for 2008 and 2009.
"Our objective for 2008 remains an increase of 14% to 15% in operating
earnings per diluted share, excluding the impact of foreign currency.
Achieving that target would result in operating earnings of $3.73 to $3.76
per diluted share this year, assuming the same average exchange rate we
experienced in 2007. However, through the first half of 2008, the yen has
been significantly stronger to the dollar, compared with a year ago. If the
stronger yen persists throughout the year, it will continue to benefit our
reported results in dollar terms. Assuming the yen averages 105 to 110 for
the full year, we would expect to report operating earnings per diluted
share of $3.86 to $3.98 in 2008. Using that same exchange rate assumption,
we would expect third quarter operating earnings to be $.98 to $1.01 per
diluted share. For 2009, our objective remains a 13% to 15% increase in
operating earnings per diluted share before the impact of the yen/dollar
exchange rate."
For more than 50 years, Aflac products have given policyholders the
opportunity to direct cash where it is needed most when a life-interrupting
medical event causes financial challenges. Aflac is the number one provider
of guaranteed-renewable insurance in the United States and the number one
insurance company in terms of individual insurance policies in force in
Japan. Our insurance products provide protection to more than 40 million
people worldwide. Aflac has been included in Fortune magazine's list of
America's Most Admired Companies for seven years and in Fortune magazine's
list of the 100 Best Companies to Work For in America for ten consecutive
years. Aflac has been recognized three times by both Fortune magazine's
list of the Top 50 Employers for Minorities and Working Mother magazine's
list of the 100 Best Companies for Working Mothers and has also been
included in Ethisphere magazine's list of the World's Most Ethical
Companies for two consecutive years. Aflac Incorporated is a Fortune 500
company listed on the New York Stock Exchange under the symbol AFL. To find
out more about Aflac, visit aflac.com.
A copy of Aflac's Financial Analyst Briefing (FAB) supplement for the
second quarter of 2008 can be found on the "Investors" page at aflac.com.
Aflac Incorporated will webcast its second quarter conference call on
the "Investors" page of aflac.com at 9:00 a.m. (EDT), Thursday, July 24.
AFLAC INCORPORATED AND SUBSIDIARIES CONDENSED INCOME STATEMENT
(UNAUDITED - IN MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS)
THREE MONTHS ENDED JUNE 30, 2008 2007 % Change
Total revenues $4,336 $3,764 15.2%
Benefits and claims 2,575 2,266 13.6
Total acquisition and operating expenses 1,021 863 18.4
Earnings before income taxes 740 635 16.5
Income taxes 257 220
Net earnings $483 $415 16.4%
Net earnings per share - basic $1.02 $.85 20.0%
Net earnings per share - diluted 1.00 .84 19.0
Shares used to compute earnings per
share (000):
Basic 474,383 487,900 (2.8)%
Diluted 480,828 494,227 (2.7)
Dividends paid per share $.24 $.205 17.1%
AFLAC INCORPORATED AND SUBSIDIARIES CONDENSED INCOME STATEMENT
(UNAUDITED - IN MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS)
SIX MONTHS ENDED JUNE 30, 2008 2007 % Change
Total revenues $8,603 $7,515 14.5%
Benefits and claims 5,113 4,524 13.0
Total acquisition and operating expenses 2,024 1,720 17.7
Earnings before income taxes 1,466 1,271 15.3
Income taxes 509 440
Net earnings $957 $831 15.2%
Net earnings per share - basic $2.01 $1.70 18.2%
Net earnings per share - diluted 1.98 1.68 17.9
Shares used to compute earnings per
share (000):
Basic 476,261 489,219 (2.6)%
Diluted 482,623 495,435 (2.6)
Dividends paid per share $.48 $.39 23.1%
AFLAC INCORPORATED AND SUBSIDIARIES CONDENSED BALANCE SHEET
(UNAUDITED - IN MILLIONS, EXCEPT FOR SHARE AMOUNTS)
JUNE 30, 2008 2007 % Change
Assets:
Total investments and cash $60,892 $52,197 16.7%
Deferred policy acquisition costs 7,194 6,096 18.0
Other assets 2,466 1,821 35.4
Total assets $ 70,552 $60,114 17.4%
Liabilities and shareholders' equity:
Policy liabilities $ 55,881 $45,722 22.2%
Notes payable 1,539 1,392 10.6
Other liabilities 5,233 4,810 8.8
Shareholders' equity 7,899 8,190 (3.6)
Total liabilities and
shareholders' equity $70,552 $60,114 17.4%
Shares outstanding at end
of period (000) 476,027 488,483 (2.5)%
RECONCILIATION OF OPERATING EARNINGS TO NET EARNINGS
(UNAUDITED - IN MILLIONS, EXCEPT FOR PER-SHARE AMOUNTS)
THREE MONTHS ENDED JUNE 30, 2008 2007 % Change
Operating earnings $487 $407 19.7%
Reconciling items, net of tax:
Realized investment gains (losses) (1) 9
Impact from SFAS 133 (3) (1)
Net earnings $483 $415 16.4%
Operating earnings per diluted share $1.01 $.82 23.2%
Reconciling items, net of tax:
Realized investment gains (losses) - .02
Impact from SFAS 133 (.01) -
Net earnings per diluted share $1.00 $.84 19.0%
RECONCILIATION OF OPERATING EARNINGS TO NET EARNINGS
(UNAUDITED - IN MILLIONS, EXCEPT FOR PER-SHARE AMOUNTS)
SIX MONTHS ENDED JUNE 30, 2008 2007 % Change
Operating earnings $962 $814 18.1%
Reconciling items, net of tax:
Realized investment gains (losses) (5) 18
Impact from SFAS 133 - (1)
Net earnings $957 $831 15.2%
Operating earnings per diluted share $1.99 $1.64 21.3%
Reconciling items, net of tax:
Realized investment gains (losses) (.01) .04
Impact from SFAS 133 - -
Net earnings per diluted share $1.98 $1.68 17.9%
EFFECT OF FOREIGN CURRENCY ON OPERATING RESULTS(1)
(SELECTED PERCENTAGE CHANGES, UNAUDITED)
Including Excluding
THREE MONTHS ENDED JUNE 30, 2008 Currency Currency
Changes Changes(2)
Premium income 16.5% 5.4%
Net investment income 11.2 3.7
Total benefits and expenses 14.9 4.0
Operating earnings 19.7 10.3
Operating earnings per diluted share 23.2 13.4
(1) The numbers in this table are presented on an operating basis, as
previously described.
(2) Amounts excluding currency changes were determined using the same
yen/dollar exchange rate for the current period as the comparable
period in the prior year.
EFFECT OF FOREIGN CURRENCY ON OPERATING RESULTS(1)
(SELECTED PERCENTAGE CHANGES, UNAUDITED)
Including Excluding
SIX MONTHS ENDED JUNE 30, 2008 Currency Currency
Changes Changes(2)
Premium income 15.8% 5.4%
Net investment income 11.1 4.0
Total benefits and expenses 14.3 4.0
Operating earnings 18.1 10.4
Operating earnings per diluted share 21.3 13.4
(1) The numbers in this table are presented on an operating basis, as
previously described.
(2) Amounts excluding currency changes were determined using the same
yen/dollar exchange rate for the current period as the comparable
period in the prior year.
2008 OPERATING EARNINGS PER SHARE SCENARIOS
Average Annual
Exchange Operating % Growth Yen
Rate EPS Over 2007 Impact
100 $4.06 - 4.09 24.2 - 25.1% $.33
105 3.95 - 3.98 20.8 - 21.7 .22
110 3.86 - 3.89 18.0 - 19.0 .13
115 3.78 - 3.81 15.6 - 16.5 .05
117.93* 3.73 - 3.76 14.1 - 15.0 -
120 3.70 - 3.73 13.1 - 14.1 (.03)
125 3.63 - 3.66 11.0 - 11.9 (.10)
* Actual 2007 weighted-average exchange rate
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" to encourage companies to provide prospective information, so long
as those informational statements are identified as forward-looking and are
accompanied by meaningful cautionary statements identifying important
factors that could cause actual results to differ materially from those
included in the forward-looking statements. We desire to take advantage of
these provisions. This document contains cautionary statements identifying
important factors that could cause actual results to differ materially from
those projected herein, and in any other statements made by company
officials in communications with the financial community and contained in
documents filed with the Securities and Exchange Commission (SEC).
Forward-looking statements are not based on historical information and
relate to future operations, strategies, financial results or other
developments. Furthermore, forward-looking information is subject to
numerous assumptions, risks, and uncertainties. In particular, statements
containing words such as "expect," "anticipate," "believe," "goal,"
"objective," "may," "should," "estimate," "intends," "projects," "will,"
"assumes," "potential," "target" or similar words as well as specific
projections of future results, generally qualify as forward-looking. Aflac
undertakes no obligation to update such forward-looking statements. We
caution readers that the following factors, in addition to other factors
mentioned from time to time could cause actual results to differ materially
from those contemplated by the forward- looking statements: legislative and
regulatory developments, including changes to health care and health
insurance delivery; assessments for insurance company insolvencies;
competitive conditions in the United States and Japan; new product
development and customer response to new products and new marketing
initiatives; ability to attract and retain qualified sales associates and
employees; ability to repatriate profits from Japan; changes in U.S. and/or
Japanese tax laws or accounting requirements; credit and other risks
associated with Aflac's investment activities; significant changes in
investment yield rates; fluctuations in foreign currency exchange rates;
deviations in actual experience from pricing and reserving assumptions
including, but not limited to, morbidity, mortality, persistency, expenses
and investment yields; level and outcome of litigation; downgrades in the
company's credit rating; changes in rating agency policies or practices;
subsidiary's ability to pay dividends to the parent company;
ineffectiveness of hedging strategies; catastrophic events; and general
economic conditions in the United States and Japan, including increased
uncertainty in the U.S. and international financial markets.
Analyst and investor contact - Kenneth S. Janke Jr., 800.235.2667 -
option 3, FAX: 706.324.6330, or kjanke@aflac.com
Media contact - Laura Kane, 706.596.3493, FAX: 706.320.2288, or
lkane@aflac.com
(Logo: http://www.newscom.com/cgi-bin/prnh/20041202/CLTH019LOGO )
SOURCE Aflac Incorporated
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CONTACT:
Analysts and Investors, Kenneth S. Janke Jr.,
+1-800-235-2667 - option 3, Fax: +1-706-324-6330,
kjanke@aflac.com; or Media, Laura Kane, +1-706-596-3493, Fax:
+1-706-320-2288, lkane@aflac.com, both for Aflac Incorporated
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