Aflac's 2014 second quarter net earnings are down compared to a year ago.
COLUMBUS, GA (WTVM) -
Aflac recently reported a $810 million net profit for the second quarter, down from $889 million a year ago. Overall, total revenue for the second quarter fell to $5.8 billion, compared to $6 billion a year ago.
Net earnings in the second quarter of 2014 included after-tax net realized investment gains of $60 million, or $.13 per diluted share, compared with net after-tax gains of $130 million, or $.28 per diluted share, a year ago. After-tax realized investment gains from securities transactions in the quarter were $63 million, or $.14 per diluted share. On an after-tax basis, impairments were $18 million in the quarter, or $.04 per diluted share. Hedging costs related to certain dollar investments of Aflac Japan on an after-tax basis, were $16 million in the quarter, or $.04 per diluted share. Realized after-tax net investment gains from other derivative and hedging activities in the quarter were $31 million, or $.07 per diluted share.In addition, net earnings included a loss of $7 million, or $.01 per diluted share, from other and nonrecurring items.
Aflac believes that an analysis of operating earnings, a non-GAAP financial measure, is vitally important to an understanding of the company's underlying profitability drivers. Aflac defines operating earnings as the profits derived from operations, inclusive of interest cash flows associated with notes payable, but before realized investment gains and losses from securities transactions, impairments, and derivative and hedging activities, as well as other and nonrecurring items. Aflac's derivative activities are primarily used to hedge foreign exchange and interest rate risk in our investment portfolio as well as manage foreign exchange risk in certain notes payable and forecasted cash flows denominated in yen. Management uses operating earnings to evaluate the financial performance of Aflac's insurance operations because realized gains and losses from securities transactions, impairments, and derivative and hedging activities, as well as other and nonrecurring items, tend to be driven by general economic conditions and events or related to infrequent activities not directly associated with the company's insurance operations, and therefore may obscure the underlying fundamentals and trends in Aflac's insurance operations.
Furthermore, because a significant portion of Aflac's business is in Japan, where the functional currency is the yen, the company believes it is equally important to understand the impact on operating earnings from translating yen into dollars. Aflac Japan's yen-denominated income statement is translated from yen into dollars using an average exchange rate for the reporting period, and the balance sheet is translated using the exchange rate at the end of the period. However, except for certain transactions such as profit repatriation and the Aflac Japan dollar investment program, the company does not actually convert yen into dollars. As a result, Aflac views foreign currency translation as a financial reporting issue rather than an economic event for the company or its shareholders. Because changes in exchange rates distort the growth rates of operations, readers of Aflac's financial statements are also encouraged to evaluate financial performance excluding the impact of foreign currency translation. 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.