Unum 2012 Annual Report Download - page 42

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
40 UNUM 2012 ANNUAL REPORT
Accounting Developments
For information on new accounting standards and the impact, if any, on our financial position or results of operations, see Note 1
of the “Notes to Consolidated Financial Statements” contained herein.
Consolidated Operating Results
Year Ended December 31
(in millions of dollars) 2012 % Change 2011 % Change 2010
Revenue
Premium Income $ 7,716.1 2.7% $ 7,514.2 1.1% $ 7,431.4
Net Investment Income 2,515.2 (0.2) 2,519.6 1.0 2,495.5
Net Realized Investment Gain (Loss) 56.2 N.M. (4.9) (119.8) 24.7
Other Income 227.9 (8.5) 249.1 3.1 241.6
Total Revenue 10,515.4 2.3 10,278.0 0.8 10,193.2
Benefits and Expenses
Benefits and Change in Reserves for Future Benefits 6,722.2 (6.8) 7,209.5 13.5 6,354.1
Commissions 917.2 4.3 879.2 2.8 855.4
Interest and Debt Expense 145.4 1.5 143.3 1.1 141.8
Deferral of Acquisition Costs (467.3) 5.6 (442.5) 4.7 (422.5)
Amortization of Deferred Acquisition Costs 378.7 3.6 365.7 (2.0) 373.3
Impairment of Deferred Acquisition Costs — (100.0) 196.0 — —
Compensation Expense 786.8 (2.6) 808.0 4.1 776.3
Other Expenses 782.9 (0.3) 785.5 (1.2) 794.9
Total Benefits and Expenses 9,265.9 (6.8) 9,944.7 12.1 8,873.3
Income Before Income Tax 1,249.5 274.9 333.3 (74.7) 1,319.9
Income Tax 355.1 N.M. 49.1 (88.9) 441.2
Net Income $ 894.4 214.7 $ 284.2 (67.7) $ 878.7
N.M. = not a meaningful percentage
In describing our results, we may at times note certain items and exclude the impact on financial ratios and metrics to enhance the
understanding and comparability of our operational performance and the underlying fundamentals, but this exclusion is not an indication
that similar items may not recur. See “Reconciliation of Non-GAAP Financial Measures” as follows for additional discussion of these items.
Also, as previously discussed, effective January 1, 2012, we adopted an accounting standards update regarding the capitalization of costs
associated with the acquisition of insurance contracts and applied the amendments retrospectively. Prior period results have been
adjusted to reflect our retrospective adoption. See Note 1 of the “Notes to Consolidated Financial Statements” contained herein for
further discussion.
The comparability of our financial results between years is affected by the fluctuation in the British pound sterling to dollar exchange
rate. The functional currency of our U.K. operations is the British pound sterling. In periods when the pound weakens relative to the preceding
period, as occurred in 2012 compared to 2011, translating into dollars decreases current period results relative to the prior periods. In
periods when the pound strengthens relative to the preceding period, as occurred in 2011 compared to 2010, translating pounds into dollars
increases current period results relative to the prior period. Our weighted average pound/dollar exchange rate was 1.584, 1.603, and
1.543 for the years ended 2012, 2011, and 2010, respectively. If the 2011 and 2010 results for our U.K. operations had been translated at
the exchange rate of 2012, our operating revenue by segment in 2011 and 2010 would have been approximately $11.0 million lower and
$20.3 million higher, respectively, and our operating income by segment in 2011 and 2010 would have been approximately $2.3 million