On Tuesday, Aflac Incorporated reported its first quarter results.

Reflecting the weaker yen/dollar exchange rate, total revenues fell 9.1% to $5.6 billion during the first quarter of 2014, compared with $6.2 billion in the first quarter of 2013. Net earnings were $732 million, or $1.60 per diluted share, compared with $892 million, or $1.90 per share, a year ago. 

Net earnings in the first quarter of 2014 included after-tax net realized investment losses of $36 million, or $.08 per diluted share, compared with net after-tax gains of $102 million, or $.21 per diluted share, a year ago. After-tax realized investment gains from securities transactions in the quarter were $27 million, or $.06 per diluted share. On an after-tax basis, impairments were $2 million in the quarter, or$.01 per diluted share. Hedging costs related to certain dollar investments of Aflac Japan on an after-tax basis, were $6 million in the quarter, or $.01 per diluted share. Realized after-tax net investment losses from other derivative and hedging activities in the quarter were $55 million, or $.12 per diluted share. In addition, net earnings included a loss of $6 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 primarily include: foreign currency, interest rate and credit default swaps in variable interest entities that are consolidated; foreign currency swaps associated with certain senior notes and the company's subordinated debentures; foreign currency forwards used in hedging foreign exchange risk and interest rate swaptions used in hedging interest rate risk on U.S. dollar-denominated securities in Aflac Japan's portfolio; and foreign currency forwards and options used to hedge certain portions of 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 that include the Aflac Japan dollar investment program, the company does not actually convert yen into dollars. As a result, Aflac views foreign currency as a financial reporting issue and not as 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.

The average yen/dollar exchange rate in the first quarter of 2014 was 102.70, or 9.8% weaker than the average rate of 92.59 in the first quarter of 2013. Operating earnings in the first quarter were $774 million, compared with $790 million in the first quarter of 2013. Operating earnings per diluted share in the quarter remained unchanged from a year ago at $1.69. The weaker yen/dollar exchange rate decreased operating earnings per diluted share by $.10 for the first quarter. Excluding the impact from the weaker yen, operating earnings per diluted share increased 5.9%.

Total investments and cash at the end of March 2014 were $110.5 billion, compared with $108.5 billionat December 31, 2013.

In the first quarter, Aflac repurchased $415 million, or 6.5 million shares, of its common stock. At the end of March, the company had 42.7 million shares available for purchase under its share repurchase authorizations.

Shareholders' equity was $15.7 billion, or $34.53 per share, at March 31, 2014, compared with $14.6 billion, or $31.82 per share, at December 31, 2013. Shareholders' equity at the end of the first quarter included a net unrealized gain on investment securities and derivatives of $1.9 billion, compared with a net unrealized gain of $1.0 billion at the end of December 2013. The annualized return on average shareholders' equity in the first quarter was 19.3%. On an operating basis (excluding total net realized investment gains/losses in net earnings, unrealized investment gains/losses, and derivative gains/losses in shareholders' equity), the annualized return on average shareholders' equity was 22.7% for the first quarter of 2014, or 26.0%, excluding the impact of the yen.