COLUMBUS, Ga., July 27, 2017 /PRNewswire/ -- Aflac
Incorporated today reported its second quarter results.
Total revenues were $5.4 billion
during the second quarter of 2017, which is flat compared with the
second quarter of 2016. Net earnings were $713 million, or $1.79 per diluted share, compared with
$548 million, or $1.32 per share a year ago. Net earnings in the
second quarter of 2017 primarily reflect lower losses related to
certain derivatives and foreign currency activities, compared with
second quarter 2016.
Net earnings in the second quarter of 2017 included pretax net
realized investment losses of $19
million, or $.05 per diluted
share on a pretax basis, compared with pretax net losses of
$208 million, or $.51 per diluted share a year ago. Beginning in
the first quarter of 2017, the company began reporting amortized
hedge costs associated with certain U.S. dollar investments in the
Japan portfolio as part of
operating earnings. Pretax net realized losses from securities
transactions and impairments for the second quarter amounted to
$3 million and were composed of
pretax net realized investment gains from securities transactions
of $5 million, and pretax realized
investment losses from impairments and change in loan loss reserves
of $8 million. Pretax net realized
investment losses from certain derivative and foreign currency
activities in the quarter were $16
million. Net earnings also included a pretax charge of
$8 million, reflecting Japan branch conversion costs. The income tax
benefit on non-operating items in the quarter was $10 million.
The following discussion includes references to Aflac's non-U.S.
GAAP performance measures, operating earnings, operating earnings
per diluted share, operating return on equity, amortized hedge
costs, and adjusted book value. These measures are not calculated
in accordance with U.S. GAAP. The measures exclude items that the
company believes may obscure the underlying fundamentals and trends
in insurance operations because they tend to be driven by general
economic conditions and events or related to infrequent activities
not directly associated with insurance operations. Management uses
operating earnings, operating earnings per diluted share, and
operating return on equity to evaluate the financial performance of
Aflac's insurance operations on a consolidated basis and believes
that a presentation of these measures is vitally important to an
understanding of the underlying profitability drivers and trends of
Aflac's insurance business. The company believes that amortized
hedge costs, which are a component of operating earnings, measure
the periodic currency risk management costs associated with hedging
a portion of Aflac Japan's U.S. dollar-denominated investments and
are an important component of net investment income. The company
considers adjusted book value important as it excludes components
of shareholders' equity that fluctuate due to market movements that
are outside management's control. Definitions of the company's
non-GAAP measures and reconciliations to the most comparable U.S.
GAAP measures are provided in the schedules accompanying this
release.
Due to the size of Aflac Japan, where the functional currency is
the Japanese yen, fluctuations in the yen/dollar exchange rate can
have a significant effect on reported results. In periods when the
yen weakens, translating yen into dollars results in fewer dollars
being reported. When the yen strengthens, translating yen into
dollars results in more dollars being reported. Consequently, yen
weakening has the effect of suppressing current period results in
relation to the comparable prior period, while yen strengthening
has the effect of magnifying current period results in relation to
the comparable prior period. As a result, the company views foreign
currency translation as a financial reporting issue for Aflac
rather than an economic event to the company or shareholders.
Because a significant portion of the company's business is
conducted in Japan and foreign
exchange rates are outside of management's control, Aflac believes
it is important to understand the impact of translating Japanese
yen into U.S. dollars. Operating earnings, operating earnings per
diluted share, and operating return on equity, all excluding
current period foreign currency impact are computed using the
average yen/dollar exchange rate for the comparable prior year
period, which eliminates dollar based fluctuations driven solely
from currency rate changes.
The average yen/dollar exchange rate in the second quarter of
2017 was 111.10, or 2.5% weaker than the average rate of 108.28 in
the second quarter of 2016. For the first six months, the average
exchange rate was 112.31, or .4% weaker than the rate of 111.82 a
year ago. Aflac Japan's growth rates in dollar terms for the second
quarter and first six months were suppressed as a result of the
weaker yen/dollar exchange rate.
Operating earnings in the second quarter were $731 million, compared with $683 million in the second quarter of 2016.
Operating earnings per diluted share increased 10.9% to
$1.83 in the quarter, compared with
$1.65 a year ago. The weaker
yen/dollar exchange rate decreased operating earnings per diluted
share by $.02 for the second quarter.
Excluding the impact of the weaker yen, operating earnings per
diluted share increased 12.1% to $1.85. The increase in operating earnings
primarily reflects improved benefit ratios in both Japan and the U.S. Additionally, the company
recognized a tax benefit of $22.5
million, or approximately $.05
per diluted share, resulting from favorable resolution of items
related to tax year closings.
For the first six months of 2017, total revenues were down 1.4%
to $10.7 billion, compared with
$10.9 billion in the first half of
2016. Net earnings were $1.3 billion,
or $3.25 per diluted share, compared
with $1.3 billion, or $3.06 per diluted share, for the first six months
of 2016. Operating earnings for the first half of 2017 were
$1.4 billion, or $3.50 per diluted share, compared with
$1.4 billion, or $3.32 per diluted share, in 2016. Excluding the
negative impact of $.01 per share
from the weaker yen, operating earnings per diluted share increased
5.7% for the first six months of 2017.
Total investments and cash at the end of June 2017 were $121.9
billion, compared with $120.5
billion at March 31, 2017.
In the second quarter, Aflac repurchased $200 million, or 2.7 million of its common
shares. For the first half of the year, the company purchased
$800 million, or 11.2 million of its
common shares. At the end of June, the company had 15.6 million
shares available for purchase under its share repurchase
authorizations.
Shareholders' equity was $21.5
billion, or $54.30 per share,
at June 30, 2017, compared with
$22.6 billion, or $54.98 per share, at June
30, 2016. Shareholders' equity at the end of the second
quarter included a net unrealized gain on investment securities and
derivatives of $5.2 billion, compared
with a net unrealized gain of $6.4
billion at June 30, 2016. The
annualized return on average shareholders' equity in the second
quarter was 13.6%.
Excluding accumulated other comprehensive income (AOCI),
shareholders' equity was $18.1
billion, or $45.71 per share
at June 30, 2017, compared with
$17.1 billion, or $41.74 per share, at June
30, 2016. On an operating basis, excluding AOCI, the
annualized return on average shareholders' equity on a
currency-neutral basis for the second quarter was 16.5% and for the
first half of the year was 15.7%.
AFLAC JAPAN
In yen terms, Aflac Japan's premium income, net of reinsurance,
decreased 2.7% in the second quarter to ¥358.0 billion, with growth
in third sector premium more than offset by an anticipated
reduction in first sector premium due to savings products reaching
premium paid-up status in the quarter. Net investment income, net
of amortized hedge costs, declined 4.7%, primarily due to lower
reinvestment rates and increased amortized hedge costs. Amortized
hedge costs on the U.S. dollar investment portfolio totaled
$56 million quarter to date, as
compared to $37 million in the
previous year. Total revenues were down 3.0% to ¥421.2 billion in
the second quarter. Pretax operating earnings in yen for the
quarter increased 1.8% on a reported basis and 1.0% on a
currency-neutral basis. The pretax operating profit margin for the
Japan segment was 20.9%, compared
with 19.9% in the prior year.
For the first six months, premium income in yen was ¥720.9
billion, or 1.9% lower than a year ago. Net investment income, net
of amortized hedge costs, decreased 5.5% to ¥125.8 billion. Total
revenues in yen were down 2.4% to ¥848.9 billion. Pretax operating
earnings were ¥175.7 billion, or 2.0% lower than a year ago.
Aflac Japan's growth rates in dollar terms for the second
quarter were suppressed as a result of the weaker yen/dollar
exchange rate. Premium income, net of reinsurance, decreased 5.3%
to $3.2 billion in the second
quarter. Net investment income, net of amortized hedge costs,
decreased 7.9% to $557 million. Total
revenues declined by 5.7% to $3.8
billion. Pretax operating earnings declined 1.4% to
$791 million.
For the first half of the year, premium income in dollars was
$6.4 billion, or 2.5% lower than a
year ago. Net investment income, net of amortized hedge costs,
decreased 6.7% to $1.1 billion. Total
revenues were down 3.1% to $7.6
billion. Pretax operating earnings were $1.6 billion, or 3.0% lower than a year ago.
In the second quarter, total new annualized premium sales
decreased 16.0% to ¥25.4 billion, or $229
million. Third sector sales, which include cancer, medical
and income support products increased 5.8% to ¥23.7 billion in the
quarter. Total first sector sales, which include products such as
WAYS and child endowment, were down 77.9% in the quarter,
reflecting the company's actions to reduce the sale of first sector
savings products that are more interest-sensitive.
For the first six months of the year, new annualized premium
sales declined 22.7% to ¥47.5 billion, or $423 million. Third sector sales increased 6.6%
in the first half of the year.
AFLAC U.S.
Aflac U.S. premium income increased 1.9% to $1.4 billion in the second quarter. Net
investment income was up 2.3% to $180
million. Total revenues increased 2.1% to $1.6 billion. The pretax operating profit margin
for the U.S. segment was 21.0%, compared with 19.0% a year ago.
Reflecting improved persistency and a favorable benefit ratio,
pretax operating earnings in the quarter were $330 million, an increase of 13.4%.
For the first six months, total revenues were up 1.8% to
$3.1 billion and premium income rose
1.8% to $2.8 billion. Net investment
income increased 2.3% to $358
million. Pretax operating earnings were $640 million, 2.7% higher than a year ago.
Aflac U.S. total new annualized premium sales increased 2.4% in
the quarter to $356 million.
Additionally, persistency in the quarter was 77.6%, compared with
76.7% a year ago. For the first half of the year, total new sales
were up 2.1% to $689 million.
DIVIDEND
The board of directors declared the third quarter cash dividend.
The third quarter dividend of $.43
per share is payable on September 1,
2017, to shareholders of record at the close of business on
August 23, 2017.
OUTLOOK
Commenting on the company's results, Chairman and Chief
Executive Officer Daniel P. Amos
stated: "We are pleased that our second quarter financial results
in both Japan and the United States reflected solid performance
and advanced our progress toward achieving the company's objectives
for 2017.
"Aflac Japan, our largest earnings contributor, generated strong
financial results both in the quarter and for the first half of the
year. In yen terms, results on an operating basis were better than
expected for the quarter, resulting primarily from improved benefit
ratios. Additionally, our operation in Japan continued to produce strong third sector
sales results. As we've communicated, we continue to believe the
long-term compound annual growth rate for third sector product
sales will be in the range of 4% to 6%.
"Turning to our U.S. operations, we are pleased with the
financial performance and continued strength in profitability. Our
results on an operating basis reflect improved benefit ratios and
ongoing investment in our platform. As we've communicated, we
anticipate a long-term compound annual growth rate of 3% to 5% in
new annualized premium sales. As we look ahead, we
continue to believe the strategy for growth we implemented in both
our career and broker channels is the right one, and we will
continue to make tactical adjustments to meet our long-term growth
objectives.
"We remain committed to maintaining strong capital ratios on
behalf of our policyholders and all stakeholders. We balance this
financial strength with a focus on increasing the dividend,
repurchasing shares and reinvesting in our business. We continue to
believe our financial strength in Japan positions us to repatriate in the range
of ¥120 to ¥140 billion to the U.S. for the calendar year 2017,
assuming capital conditions remain stable. We continue to
anticipate that we'll repurchase in the range of $1.3 to $1.5 billion of our shares in 2017, which
also assumes stable capital conditions and the absence of
compelling alternatives.
"In the second half of the year, as we continue to focus on
initiatives designed to drive future growth, our expectation is to
increase spending, particularly related to IT and promotional
expenditures. However, I want to reiterate our 2017 earnings
guidance. Our six month results put us on track to produce stable
operating earnings per diluted share of $6.40 to $6.65, assuming the weighted-average
exchange rate in 2016 of 108.70 yen
to the dollar. If the yen averages 105 to 115 to the dollar for the
third quarter, we would expect operating earnings, a non-U.S. GAAP
measure, to be approximately $1.51 to
$1.69 per diluted share in the third quarter. As always, we
are working very hard to achieve our earnings-per-share objective
while also making sure we deliver on our promise to
policyholders."
ABOUT AFLAC
When a policyholder gets sick or hurt, Aflac pays cash benefits
fast. For six decades, Aflac insurance policies have given
policyholders the opportunity to focus on recovery, not financial
stress. In the United States,
Aflac is the leader in voluntary insurance sales at the worksite.
Through its trailblazing One Day PaySM initiative, Aflac
U.S. can receive, process, approve and disburse payment for
eligible claims in one business day. In Japan, Aflac is the leading provider of
medical and cancer insurance and insures 1 in 4 households. Aflac
insurance products help provide protection to more than 50 million
people worldwide. For 11 consecutive years, Aflac has been
recognized by Ethisphere as one of the World's Most Ethical
Companies. In 2017, Fortune magazine recognized Aflac as one of the
100 Best Companies to Work for in America for the 19th consecutive
year and in 2017 included Aflac on its list of Most Admired
Companies for the 16th time. In 2015, Aflac's contact centers were
recognized by J.D. Power by providing "An Outstanding Customer
Service Experience" for the Live Phone Channel. Aflac Incorporated
is a Fortune 500 company listed on the New York Stock Exchange
under the symbol AFL. To find out more about Aflac and One Day
PaySM, visit aflac.com or espanol.aflac.com.
A copy of Aflac's Financial Analysts Briefing (FAB) supplement
for the quarter can be found on the "Investors" page at
aflac.com.
Aflac Incorporated will webcast its quarterly conference call
via the "Investors" page of aflac.com at 9:00 a.m. (EDT) on Friday,
July 28, 2017.
AFLAC INCORPORATED
AND SUBSIDIARIES CONDENSED INCOME STATEMENT
|
(UNAUDITED – IN
MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
JUNE 30,
|
|
2017
|
|
|
2016
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
|
5,428
|
|
$
|
5,437
|
|
(.2)
|
%
|
|
|
|
|
|
|
|
|
|
Benefits and claims,
net
|
|
3,039
|
|
|
3,254
|
|
(6.6)
|
|
|
|
|
|
|
|
|
|
|
Total acquisition and
operating expenses
|
|
1,344
|
|
|
1,349
|
|
(.4)
|
|
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
1,045
|
|
|
834
|
|
25.3
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
332
|
|
|
286
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
713
|
|
$
|
548
|
|
30.1
|
%
|
|
|
|
|
|
|
|
|
|
Net earnings per
share – basic
|
$
|
1.80
|
|
$
|
1.33
|
|
35.3
|
%
|
|
|
|
|
|
|
|
|
|
Net earnings per
share – diluted
|
|
1.79
|
|
|
1.32
|
|
35.6
|
|
|
|
|
|
|
|
|
|
|
Shares used to
compute earnings per share (000):
|
|
|
|
|
|
|
|
|
Basic
|
396,433
|
|
411,853
|
|
(3.7)
|
%
|
Diluted
|
399,348
|
|
414,326
|
|
(3.6)
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per
share
|
$
|
.43
|
|
$
|
.41
|
|
4.9
|
%
|
AFLAC INCORPORATED
AND SUBSIDIARIES CONDENSED INCOME STATEMENT
|
(UNAUDITED – IN
MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
SIX MONTHS ENDED
JUNE 30,
|
|
2017
|
|
|
2016
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
|
10,737
|
|
$
|
10,888
|
|
(1.4)
|
%
|
|
|
|
|
|
|
|
|
|
Benefits and claims,
net
|
|
6,091
|
|
|
6,279
|
|
(3.0)
|
|
|
|
|
|
|
|
|
|
|
Total acquisition and
operating expenses
|
|
2,702
|
|
|
2,658
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
1,944
|
|
|
1,951
|
|
(.4)
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
639
|
|
|
672
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
1,305
|
|
$
|
1,279
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
Net earnings per
share – basic
|
$
|
3.27
|
|
$
|
3.08
|
|
6.2
|
%
|
|
|
|
|
|
|
|
|
|
Net earnings per
share – diluted
|
|
3.25
|
|
|
3.06
|
|
6.2
|
|
|
|
|
|
|
|
|
|
|
Shares used to
compute earnings per share (000):
|
|
|
|
|
|
|
|
|
Basic
|
398,768
|
|
415,301
|
|
(4.0)
|
%
|
Diluted
|
401,695
|
|
417,623
|
|
(3.8)
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per
share
|
$
|
.86
|
|
$
|
.82
|
|
4.9
|
%
|
AFLAC INCORPORATED
AND SUBSIDIARIES CONDENSED BALANCE SHEET
(UNAUDITED – IN
MILLIONS, EXCEPT FOR SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
JUNE
30,
|
|
2017
|
|
|
2016
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments and
cash
|
$
|
121,896
|
|
$
|
125,983
|
|
(3.2)
|
%
|
|
|
|
|
|
|
|
|
|
Deferred policy
acquisition costs
|
|
9,340
|
|
|
9,552
|
|
(2.2)
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
4,158
|
|
|
5,752
|
|
(27.7)
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
135,394
|
|
$
|
141,287
|
|
(4.2)
|
%
|
|
|
|
|
|
|
|
|
|
Liabilities and
shareholders' equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policy
liabilities
|
$
|
98,458
|
|
$
|
103,066
|
|
(4.5)
|
%
|
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
5,252
|
|
|
5,009
|
|
4.9
|
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
10,181
|
|
|
10,662
|
|
(4.5)
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
21,503
|
|
|
22,550
|
|
(4.6)
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders' equity
|
$
|
135,394
|
|
$
|
141,287
|
|
(4.2)
|
%
|
|
|
|
|
|
|
|
|
|
Shares outstanding at
end of period (000)
|
|
395,999
|
|
|
410,115
|
|
(3.4)
|
%
|
|
DEFINITIONS OF NON-U.S. GAAP FINANCIAL
MEASURES
Aflac defines the non-U.S. GAAP measures included in this
earnings release as follows:
- Operating earnings includes interest cash flows associated with
notes payable and amortized hedge costs related to foreign currency
denominated investments, but excludes certain items that cannot be
predicted or that are outside of management's control, such as
realized investment gains and losses from securities transactions,
impairments, change in loan loss reserves and certain derivative
and foreign currency activities; nonrecurring items; and other
non-operating income (loss) from net earnings. Nonrecurring and
other non-operating items consist of infrequent events and activity
not associated with the normal course of the company's insurance
operations and do not reflect Aflac's underlying business
performance.
- Operating earnings per share (basic or dilutive) are the
operating earnings for the period divided by the weighted average
outstanding shares (basic or dilutive) for the period
presented.
- Operating return on equity excluding current period foreign
currency impact is calculated using operating earnings excluding
the impact of the yen/dollar exchange rate, as reconciled with
total U.S. GAAP net earnings, divided by average shareholders'
equity, excluding AOCI. The comparable U.S. GAAP measure is return
on average equity (ROE) as determined using net earnings and
average total shareholders' equity.
- Amortized hedge costs represent costs incurred in using foreign
currency forward contracts to hedge the foreign exchange risk of a
portion of U.S. dollar-denominated assets in the company's
Japan segment investment
portfolio. These amortized hedge costs are derived from the
difference between the foreign currency spot rate at time of trade
inception and the contractual foreign currency forward rate,
recognized on a straight line basis over the term of the
hedge. There is no comparable U.S. GAAP financial measure for
amortized hedge costs.
- Adjusted book value is the U.S. GAAP book value, less
Accumulated Other Comprehensive Income ("AOCI" as recorded on the
U.S. GAAP balance sheet).
|
RECONCILIATION OF
NET EARNINGS TO OPERATING
EARNINGS1
|
|
(UNAUDITED – IN
MILLIONS, EXCEPT FOR PER-SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
THREE MONTHS
ENDED JUNE 30,
|
|
2017
|
|
|
2016
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
713
|
|
$
|
548
|
|
30.1
|
%
|
|
|
|
|
|
|
|
|
|
Items impacting net
earnings:
|
|
|
|
|
|
|
|
|
Realized investment
(gains) losses:
|
|
|
|
|
|
|
|
|
Securities
transactions and
impairments
|
|
3
|
|
|
11
|
|
|
|
Certain
derivative and foreign currency (gains)
losses2, 3
|
|
16
|
|
|
197
|
|
|
|
Other and non-recurring (income) loss3
|
|
8
|
|
|
–
|
|
|
|
Income tax (benefit) expense on items
excluded
from
operating earnings2
|
|
(10)
|
|
|
(73)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings
|
|
731
|
|
|
683
|
|
7.0
|
%
|
Current period
foreign currency impact4
|
|
9
|
|
|
N/A
|
|
|
|
Operating earnings
excluding current period foreign
currency
impact5
|
$
|
739
|
|
$
|
683
|
|
8.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per
diluted share
|
$
|
1.79
|
|
$
|
1.32
|
|
35.6
|
%
|
|
|
|
|
|
|
|
|
|
Items impacting net
earnings:
|
|
|
|
|
|
|
|
|
Realized investment (gains)
losses:
|
|
|
|
|
|
|
|
|
Securities transactions and
impairments
|
|
.01
|
|
|
.03
|
|
|
|
Certain derivative and foreign currency
(gains)
losses2,
3
|
|
.04
|
|
|
.48
|
|
|
|
Other and
non-recurring (income) loss3
|
|
.02
|
|
|
–
|
|
|
|
Income tax (benefit)
expense on items excluded
from operating earnings2
|
|
(.02)
|
|
|
(.18)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
per diluted share
|
|
1.83
|
|
|
1.65
|
|
10.9
|
%
|
Current period
foreign currency impact4
|
|
.02
|
|
|
N/A
|
|
|
|
Operating earnings
per diluted share excluding
current period foreign currency
impact5
|
$
|
1.85
|
|
$
|
1.65
|
|
12.1
|
%
|
|
1
Amounts may not foot due to rounding.
2 To conform to
current year presentation, prior-year amounts have been revised to
reflect the change in methodology of classifying the
amortized hedge costs related to foreign
currency denominated investments as a component of operating
earnings.
3
Foreign currency gains (losses) for all periods have been
reclassified from other income (loss) to derivative and foreign
currency gains
(losses) for consistency with current period
presentation.
|
4
Prior period foreign currency impact reflected as "N/A" to isolate
change for current period only.
5
Amounts excluding current period foreign currency impact are
computed using the average yen/dollar exchange rate for the
comparable prior-
year period, which eliminates dollar-based
fluctuations driven solely from currency rate changes.
|
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF
NET EARNINGS TO OPERATING
EARNINGS1
|
|
(UNAUDITED – IN
MILLIONS, EXCEPT FOR PER-SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
SIX MONTHS
ENDED JUNE 30,
|
|
2017
|
|
|
2016
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
1,305
|
|
$
|
1,279
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
Items impacting net
earnings:
|
|
|
|
|
|
|
|
|
Realized investment
(gains) losses:
|
|
|
|
|
|
|
|
|
Securities
transactions and
impairments
|
|
20
|
|
|
(66)
|
|
|
|
Certain
derivative and foreign currency (gains)
losses2,
3
|
|
108
|
|
|
234
|
|
|
|
Other and non-recurring
(income) loss3
|
|
28
|
|
|
–
|
|
|
|
Income tax (benefit) expense on items
excluded
from
operating earnings2
|
|
(55)
|
|
|
(59)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings
|
|
1,406
|
|
|
1,388
|
|
1.3
|
%
|
Current period
foreign currency impact4
|
|
3
|
|
|
N/A
|
|
|
|
Operating earnings
excluding current period foreign
currency
impact5
|
$
|
1,409
|
|
$
|
1,388
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per
diluted share
|
$
|
3.25
|
|
$
|
3.06
|
|
6.2
|
%
|
|
|
|
|
|
|
|
|
|
Items impacting net
earnings:
|
|
|
|
|
|
|
|
|
Realized investment (gains)
losses:
|
|
|
|
|
|
|
|
|
Securities transactions and
impairments
|
|
.05
|
|
|
(.16)
|
|
|
|
Certain derivative and foreign currency
(gains)
losses2, 3
|
|
.27
|
|
|
.56
|
|
|
|
Other and
non-recurring (income) loss3
|
|
.07
|
|
|
–
|
|
|
|
Income tax (benefit) expense on items excluded
from
operating earnings2
|
|
(.14)
|
|
|
(.14)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
per diluted share
|
|
3.50
|
|
|
3.32
|
|
5.4
|
%
|
Current period
foreign currency impact4
|
|
.01
|
|
|
N/A
|
|
|
|
Operating earnings
per diluted share excluding
current period foreign
currency impact5
|
$
|
3.51
|
|
$
|
3.32
|
|
5.7
|
%
|
|
1
Amounts may not foot due to rounding.
2 To conform to
current year presentation, prior-year amounts have been revised to
reflect the change in methodology of classifying the
amortized hedge costs related to foreign
currency denominated investments as a component of operating
earnings.
3
Foreign currency gains (losses) for all periods have been
reclassified from other income (loss) to derivative and foreign
currency gains
(losses) for consistency with current period
presentation.
|
4
Prior period foreign currency impact reflected as "N/A" to isolate
change for current period only.
5
Amounts excluding current period foreign currency impact are
computed using the average yen/dollar exchange rate for the
comparable prior-
year period, which eliminates dollar-based
fluctuations driven solely from currency rate changes.
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF
U.S. GAAP BOOK VALUE TO ADJUSTED BOOK VALUE
(UNAUDITED – IN
MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS)
|
JUNE 30,
|
|
2017
|
|
|
2016
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GAAP book
value1
|
$
|
21,503
|
|
$
|
22,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
AOCI
|
|
3,401
|
|
|
5,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted book
value2
|
$
|
18,102
|
|
$
|
17,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of outstanding
shares at end of period (000)
|
|
395,999
|
|
|
410,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GAAP book value
per common share
|
$
|
54.30
|
|
|
$
54.98
|
|
(1.2)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted book value
per common share
|
|
45.71
|
|
|
41.74
|
|
9.5
|
|
|
|
|
1
U.S. GAAP book value represents total
shareholders' equity as recorded on the balance sheet.
2
Adjusted book value is the U.S. GAAP book value, less AOCI (as
recorded on the U.S. GAAP balance sheet).
|
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF
U.S. GAAP RETURN ON EQUITY (ROE) TO OPERATING ROE
(EXCLUDING IMPACT OF
FOREIGN CURRENCY)
|
|
|
|
THREE MONTHS ENDED
JUNE 30,
|
2017
|
2016
|
|
|
|
U.S. GAAP
ROE1
|
13.6
|
%
|
10.3
|
%
|
|
|
|
|
|
Add:
differences between operating earnings and net
earnings2
|
.3
|
|
2.5
|
|
|
|
|
|
|
Less:
impact of foreign currency3,4
|
(.1)
|
|
–
|
|
|
|
|
|
|
Add:
impact of excluding AOCI5
|
2.7
|
|
3.1
|
|
|
|
|
|
|
Operating ROE,
excluding impact of foreign currency
|
16.5
|
%
|
16.0
|
%
|
|
|
|
|
|
1 ROE is calculated
by dividing net earnings (annualized) by average shareholders'
equity.
2 See separate
reconciliation of net income to operating earnings.
3
Impact of foreign currency is calculated by
restating all yen components of the income statement to the
weighted average yen rate for the
comparable prior year period. The
impact is the difference of the restated operating earnings
compared to reported operating earnings.
4 For
comparative purposes, current period income is restated using the
weighted average prior period exchange rate, which eliminates
the
foreign currency impact for the
current period. This allows for equal comparison of this financial
measure.
5 Excludes
all U.S. GAAP components of average AOCI from average shareholders'
equity
|
|
RECONCILIATION OF
U.S. GAAP RETURN ON EQUITY (ROE) TO OPERATING ROE
(EXCLUDING IMPACT OF
FOREIGN CURRENCY)
|
|
|
|
SIX MONTHS ENDED
JUNE 30,
|
2017
|
2016
|
|
|
|
U.S. GAAP
ROE1
|
12.4
|
%
|
12.7
|
%
|
|
|
|
|
|
Add:
differences between operating earnings and net
earnings2
|
1.0
|
|
1.1
|
|
|
|
|
|
|
Less:
impact of foreign currency3,4
|
–
|
|
–
|
|
|
|
|
|
|
Add:
impact of excluding AOCI5
|
2.3
|
|
2.4
|
|
|
|
|
|
|
Operating ROE,
excluding impact of foreign currency
|
15.7
|
%
|
16.2
|
%
|
|
|
|
|
|
1 ROE is calculated
by dividing net earnings (annualized) by average shareholders'
equity.
2 See separate
reconciliation of net income to operating earnings.
3
Impact of foreign currency is calculated by
restating all yen components of the income statement to the
weighted average yen rate for the
comparable prior year period. The impact is the difference of the
restated operating earnings compared to reported operating
earnings.
4 For
comparative purposes, current period income is restated using the
weighted average prior period exchange rate, which eliminates
the
foreign
currency impact for the current period. This allows for equal
comparison of this financial measure.
5 Excludes
all U.S. GAAP components of average AOCI from average shareholders'
equity
|
|
EFFECT OF FOREIGN
CURRENCY ON OPERATING RESULTS1
(SELECTED PERCENTAGE
CHANGES, UNAUDITED)
|
|
|
|
THREE MONTHS ENDED
JUNE 30, 2017
|
Including
Currency
Changes
|
Excluding
Currency
Changes2
|
|
|
|
Net premium
income3
|
(3.3)
|
%
|
(2.7)
|
%
|
|
|
|
|
|
Net investment
income4
|
(5.2)
|
|
(4.5)
|
|
|
|
|
|
|
Total benefits and
expenses
|
(5.0)
|
|
(4.4)
|
|
|
|
|
|
|
Operating
earnings
|
7.0
|
|
8.2
|
|
|
|
|
|
|
Operating earnings
per diluted share
|
10.9
|
|
12.1
|
|
|
1 Refer to
previously defined operating earnings and operating earnings per
diluted share.
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.
3 Net of
reinsurance
4 Less
amortized hedge costs on foreign investments
|
EFFECT OF FOREIGN
CURRENCY ON OPERATING RESULTS1
(SELECTED PERCENTAGE
CHANGES, UNAUDITED)
|
|
|
|
SIX MONTHS ENDED
JUNE 30, 2017
|
Including
Currency
Changes
|
Excluding
Currency
Changes2
|
|
|
|
Net premium
income3
|
(1.3)
|
%
|
(1.0)
|
%
|
|
|
|
|
|
Net investment
income4
|
(4.2)
|
|
(3.9)
|
|
|
|
|
|
|
Total benefits and
expenses
|
(1.9)
|
|
(1.6)
|
|
|
|
|
|
|
Operating
earnings
|
1.3
|
|
1.5
|
|
|
|
|
|
|
Operating earnings
per diluted share
|
5.4
|
|
5.7
|
|
|
1 Refer to
previously defined operating earnings and operating earnings per
diluted share.
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.
3 Net of
reinsurance
4 Less
amortized hedge costs on foreign investments
|
2017 OPERATING
EARNINGS PER SHARE1 SCENARIOS
|
|
Weighted-Average
Yen/Dollar
Exchange Rate
|
Operating Earnings
Per
Diluted Share
|
Foreign
Currency
Impact
|
|
|
|
100
|
6.73 -
6.98
|
.33
|
105
|
6.53 -
6.78
|
.13
|
108.70
|
6.40 -
6.65
|
–
|
115
|
6.19 -
6.44
|
(.21)
|
120
|
6.04 -
6.29
|
(.36)
|
|
|
|
1 A
non-GAAP financial measure, operating earnings per share (basic or
dilutive) are the operating earnings for the period divided by the
weighted
average
outstanding shares (basic or dilutive) for the period presented in
2017 and 2016.In reliance on the "unreasonable efforts" exception
in Item
10(e)(1)(i)(B)
of SEC Regulation S-K, a quantitative reconciliation to the most
comparable GAAP measure is not provided for this financial
measure.
Forward-looking information with regard
to the most comparable GAAP financial measure, earnings per share,
is not available without unreasonable
effort.
This is due to the unpredictable and uncontrollable nature of these
reconciling items, which would require an unreasonable effort to
forecast and
we believe
would result in such a broad range of projected values that would
not be meaningful to investors. For this reason, we believe that
the
probable
significance of such information is low.
|
2 Actual 2016 weighted-average
exchange rate
|
|
FORWARD-LOOKING INFORMATION
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 report 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", "outlook" 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: difficult
conditions in global capital markets and the economy; exposure to
significant interest rate risk; concentration of business in
Japan; foreign currency fluctuations in the yen/dollar
exchange rate; failure to execute or implement the
conversion of the Japan branch
conversion to a legal subsidiary ; limited availability of
acceptable yen-denominated investments; deviations in actual
experience from pricing and reserving assumptions; ability to
continue to develop and implement improvements in information
technology systems; governmental actions for the purpose of
stabilizing the financial markets; interruption in
telecommunication, information technology and other operational
systems, or a failure to maintain the security, confidentiality or
privacy of sensitive data residing on such systems; ongoing changes
in our industry; failure to comply with restrictions on patient
privacy and information security; extensive regulation and changes
in law or regulation by governmental authorities; defaults and
credit downgrades of our investments; ability to attract and retain
qualified sales associates and employees; decline in
creditworthiness of other financial institutions; subsidiaries'
ability to pay dividends to Aflac Incorporated; decreases in our
financial strength or debt ratings; inherent limitations to
risk management policies and procedures; concentration of our
investments in any particular single-issuer or sector;
differing judgments applied to investment valuations; ability to
effectively manage key executive succession; significant valuation
judgments in determination of amount of impairments taken on our
investments; catastrophic events including, but not necessarily
limited to, epidemics, pandemics, tornadoes, hurricanes,
earthquakes, tsunamis, acts of terrorism and damage incidental to
such events; changes in U.S. and/or Japanese accounting standards;
loss of consumer trust resulting from events external to our
operations; increased expenses and reduced profitability resulting
from changes in assumptions for pension and other postretirement
benefit plans; level and outcome of litigation; failure of internal
controls or corporate governance policies and procedures; and other
risks and uncertainties described from time to time in Aflac
Incorporated's filings with the SEC.
Analyst and investor contact – David A.
Young, 706.596.3264 or 800.235.2667; FAX: 706.324.6330 or
dyoung@aflac.com
Media contact – Catherine H. Blades,
706.596.3014; FAX: 706.320.2288 or cblades@aflac.com
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SOURCE Aflac Incorporated