Unum 2013 Annual Report Download - page 40

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
38 / UNUM 2013 ANNUAL REPORT
Consolidated Operating Results
Year Ended December 31
(in millions of dollars) 2013 % Change 2012 % Change 2011
Revenue
Premium Income $ 7,624.7 (1.2)% $ 7,716.1 2.7% $ 7,514.2
Net Investment Income 2,492.1 (0.9) 2,515.2 (0.2) 2,519.6
Net Realized Investment Gain (Loss) 6.8 (87.9) 56.2 N.M. (4.9)
Other Income 230.2 1.0 227.9 (8.5) 249.1
Total Revenue 10,353.8 (1.5) 10,515.4 2.3 10,278.0
Benefits and Expenses
Benefits and Change in Reserves for Future Benefits 6,595.7 (1.9) 6,722.2 (6.8) 7,209.5
Commissions 909.5 (0.8) 917.2 4.3 879.2
Interest and Debt Expense 149.4 2.8 145.4 1.5 143.3
Deferral of Acquisition Costs (466.8) (0.1) (467.3) 5.6 (442.5)
Amortization of Deferred Acquisition Costs 418.9 10.6 378.7 3.6 365.7
Impairment of Deferred Acquisition Costs — — — — 196.0
Compensation Expense 790.4 0.5 786.8 (2.6) 808.0
Other Expenses 751.5 (4.0) 782.9 (0.3) 785.5
Total Benefits and Expenses 9,148.6 (1.3) 9,265.9 (6.8) 9,944.7
Income Before Income Tax 1,205.2 (3.5) 1,249.5 274.9 333.3
Income Tax 347.1 (2.3) 355.1 N.M. 49.1
Net Income $ 858.1 (4.1) $ 894.4 214.7 $ 284.2
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.
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 during 2013 and 2012, translating pounds into dollars decreases current period results relative to the prior
period. In periods when the pound strengthens, translating pounds into dollars increases current period results relative to the prior period.
Our weighted average pound/dollar exchange rate was 1.566, 1.584, and 1.603 for years ended 2013, 2012, and 2011, respectively. If the
2012 and 2011 results for our U.K. operations had been translated at the exchange rate of 2013, our operating revenue by segment in 2012
and 2011 would have been lower by approximately $10.8 million and $20.9 million, respectively, and our operating income in 2012 and
2011 would have been lower by approximately $1.4 million and $4.4 million, respectively. However, it is important to distinguish between
translating and converting foreign currency. Except for a limited number of transactions, we do not actually convert pounds into dollars.
As a result, we view foreign currency translation as a financial reporting item and not a reflection of operations or profitability in the U.K.
Consolidated premium income for 2013 declined slightly relative to 2012. Although we experienced premium growth in our Unum US
and Colonial Life segments, the level of growth remains below our long-term expectations. We believe premium growth in many of our
product lines has been unfavorably impacted by the weak pace of economic growth, low levels of employment growth, the competitive
environment, and the distraction caused by political instability and the implementation of healthcare reform. Offsetting the growth in
premium income in Unum US and Colonial Life was a decline in premium income due to the reinsurance agreements we entered into