COLUMBUS,
Ga., Jan. 31, 2018
/PRNewswire/ -- Aflac Incorporated today reported its fourth
quarter results.
Total revenues were $5.4 billion during the fourth quarter of 2017,
compared with $6.0 billion in the
fourth quarter of 2016. Net earnings were $2.4 billion, or $5.95 per diluted share, compared with
$751 million, or $1.84 per diluted share a year ago.
The increase in net earnings in the fourth quarter of 2017 reflects
an estimated $1.7 billion benefit as
a result of the recent U.S. Tax Cut and Jobs Act ("Tax Reform").
This estimated impact of Tax Reform may be adjusted for the current
and future periods, possibly materially, due to, among other
things, further refinement of the company's calculations, changes
in interpretations and assumptions the company has made, tax
guidance that may be issued and actions the company may take as a
result of Tax Reform.
Net earnings in the fourth quarter of 2017 included pretax
net realized investment gains of $58
million, or $0.15 per diluted
share on a pretax basis, compared with pretax net gains of
$386 million, or $0.94 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 fourth
quarter amounted to $42 million,
reflecting pretax net realized investment losses from securities
transactions of $32 million, as well
as pretax realized investment losses from impairments
and the change in loan loss reserves of $10 million. Pretax net realized investment gains
from certain derivative and foreign currency activities in the
quarter were $100 million. Net
earnings also included a pretax charge of $18 million, reflecting Japan branch conversion costs and a
$13 million pretax charge from the
early extinguishment of debt. The income tax expense on
non-operating items in the quarter was $9
million. Additionally, net earnings in the
quarter reflect a tax reform adjustment benefit of $1.7 billion, or $4.30 per diluted share.
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 accumulated other comprehensive
income (AOCI), which fluctuates 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. A significant
portion of the company's business is conducted in yen and never
converted into dollars but translated into dollars for U.S. GAAP
reporting purposes, which results in foreign currency impact to
earnings, cash flows and book value on a U.S. GAAP basis. Because
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 fourth quarter
of 2017 was 112.98, or 3.4% weaker than the average rate of 109.10
in the fourth quarter of 2016. For the full year, the average
exchange rate was 112.16, or 3.1% weaker than the rate of 108.70 a
year ago. Aflac Japan's growth rates in dollar terms for the fourth
quarter and full year were suppressed as a result of the weaker
yen/dollar exchange rate.
Operating earnings in the fourth quarter were $633 million, compared with $589 million in the fourth quarter of 2016.
Operating earnings per diluted share increased 11.1% to
$1.60 per diluted share in the
quarter. The weaker yen/dollar exchange rate decreased
operating earnings per diluted share by $0.03 for the fourth quarter. Excluding the
impact of the weaker yen, operating earnings per diluted share
increased 13.2% to $1.63.
For the full year, total revenues were down 4.0% to
$21.7 billion, compared with
$22.6 billion for the full year of
2016. Net earnings were $4.4 billion,
or $10.96 per diluted share, compared
with $2.7 billion, or $6.42 per diluted share, for the full year of
2016, primarily reflecting the impact of tax reform. Operating
earnings for the full year were $2.7
billion, or $6.81 per diluted
share, compared with $2.7 billion, or
$6.50 per diluted share, in 2016.
Excluding the negative impact of $0.10 per share from the weaker yen, operating
earnings per diluted share increased 6.3% for the full year of
2017.
Total investments and cash at the end
of December 2017 were
$123.7 billion, compared
with $116.4 billion at December 31, 2016.
In the fourth quarter, Aflac repurchased $331 million, or 3.9 million of its common
shares. For the full year, the company purchased
$1.35 billion, or 17.8 million of its
common shares. At the end of December, the company had
49.0 million shares available for purchase under its share
repurchase authorizations.
Shareholders' equity was $24.4
billion, or $62.40 per share,
at December 31, 2017, compared with
$20.5 billion, or $50.47 per share, at December 31, 2016. This reflects a tax reform
adjustment benefit of $1.7 billion,
or $4.35 per share. Shareholders'
equity at the end of the fourth quarter included a net unrealized
gain on investment securities and derivatives of $5.9 billion, compared with a net unrealized gain
of $4.8 billion at December 31, 2016. Shareholders' equity at the
end of the fourth quarter also included unrealized foreign currency
translation loss of $1.8 billion,
compared with an unrealized foreign currency translation loss of
$2.0 billion at December 31, 2016. The annualized return on
average shareholders' equity in the fourth quarter was 40.6%, or
11.7% excluding the tax reform adjustment of $1.7 billion.
Shareholders' equity excluding AOCI was $20.3 billion, or $52.09 per share at December 31, 2017, compared with $17.9 billion, or $43.99 per share, at December 31, 2016. On an operating basis, the
annualized return on average shareholders' equity excluding the
impact of foreign currency in the fourth quarter was 13.3%, or
13.9% excluding the tax reform adjustment of $1.7 billion.
AFLAC JAPAN
In yen terms, Aflac Japan's premium income, net of
reinsurance, decreased 3.3% in the fourth quarter to ¥354.2
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. Net investment income,
net of amortized hedge costs, increased 2.4% to ¥63.5
billion primarily due to the foreign currency impact of U.S.
dollar-denominated investments. Amortized hedge costs
on the U.S. dollar investment portfolio totaled $60 million pretax quarter to date, compared with
$64 million in the previous year.
Total revenues were down 2.5% to ¥418.8 billion in the fourth
quarter. Pretax operating earnings in yen for the quarter increased
8.8% on a reported basis and 7.5% on a currency-neutral basis. The
pretax operating profit margin for the Japan segment was 20.2%, compared with 18.1%
in 2016, primarily reflecting the impact of the prior-year
¥6 billion reserve adjustment on a closed block of
business, as well as the mix of first and third sector
products.
For the full year, premium income in yen was
¥1.4 trillion, or 2.7% lower than a year ago. Net investment
income, net of amortized hedge costs, decreased
2.0% to ¥251.8 billion. Total revenues in yen
were down 2.5% to ¥1.7 trillion. Pretax operating earnings were
¥343.6 billion, or 0.6% higher than a year
ago.
Aflac Japan's growth rates in dollar terms for the fourth
quarter were suppressed as a result of the weaker yen/dollar
exchange rate. Premium income, net of reinsurance,
decreased 6.7% to $3.1 billion in the
fourth quarter. Net investment income, net of amortized hedge
costs, decreased 1.1% to $559
million. Total revenues declined by 5.9% to $3.7 billion. Pretax operating earnings increased
5.1% to $747 million.
For the full year, premium income in dollars was
$12.8 billion, or 5.8% lower
than a year ago. Net investment income, net of amortized hedge
costs, decreased 5.6% to $2.2 billion. Total revenues were
down 5.8% to $15.0 billion. Pretax
operating earnings were $3.1 billion,
or 3.0% lower than a year ago.
In the fourth quarter, total new annualized premium sales
decreased 8.3% to ¥23.6 billion, or $209
million. Third sector sales, which include
cancer, medical and income support products, increased 1.3%
to ¥22.0 billion in the quarter.
Total first sector sales, which include products such as WAYS
and child endowment, were down 59.4% in the quarter, reflecting the
company's actions to reduce the sale of first sector savings
products that are more interest-sensitive.
For the full year, new annualized premium sales declined
16.6% to ¥94.9 billion, or $846
million. Third sector sales increased 4.1% for the
year.
AFLAC U.S.
Aflac U.S. premium income increased 2.2% to $1.4 billion in the fourth quarter. Net
investment income was up 2.8% to $182
million. Total revenues increased 2.1% to $1.6 billion. Pretax operating earnings in the
quarter were $288 million, an
increase of 9.9%, primarily reflecting a lower year-over-year
expense ratio. The pretax operating profit margin for the U.S.
segment was 18.3%, compared with 17.0% a year ago.
For the full year, premium income increased 2.0% to
$5.6 billion, and net investment
income increased 2.6% to $721
million. Total revenues were up 2.0% to $6.3 billion. Pretax operating earnings were
$1.2 billion, 3.1% higher than a year
ago. The pretax operating profit margin for the U.S. segment was
19.8%.
Aflac U.S. total new annualized premium sales increased
6.7% in the quarter to $515
million. For the full year, total new sales
were up 4.7% to $1.6
billion.
DIVIDEND
The board of directors announced a 15.6%
increase in the quarterly cash dividend,
effective with the first quarter.
The first quarter dividend
of $0.52 per share is
payable on March 1,
2018, to shareholders of record at the close of
business on February
21, 2018.
OUTLOOK
Commenting on the company's results, Chairman and Chief
Executive Officer Daniel P. Amos
stated: "We are pleased with the company's overall
performance for the year. Aflac Japan, our largest
earnings contributor, generated strong financial and third sector
sales results for the year. Looking ahead to 2018, sales of
third sector products face challenging comparisons, especially in
the early part of the year due to the conversion of the
Japan branch. However, we expect
to see improvements in third sector sales in the second half of the
year. As we said during our outlook call last month, in 2018, we
anticipate that third sector earned premium will continue its
steady growth in the 2% to 3% range, reflecting Aflac's stable
sales and high persistency in Japan.
"Turning to our U.S. operations, we are
pleased with the sales results, financial performance and strong
profitability of Aflac U.S. in 2017. Our sales results
reflect our focus on the growth strategy
we implemented in both our career and broker
channels. As we said on last
month's outlook call, we anticipate 2018 growth in earned premium
to be around 2% to 3% and new annualized premium sales growth of 3%
to 5%.
"We remain committed to maintaining strong capital ratios
on behalf of our policyholders and balance this financial strength
with a focus on increasing the dividend, repurchasing shares and
reinvesting in our business. The board of directors' action to
increase the dividend by 15.6% reflects overall strength in the
company's capital position, along with an outlook for stable growth
in earnings and deployable capital generation. This accelerated
resetting of the dividend as we enter 2018 demonstrates our
commitment to rewarding our shareholders. Additionally, we expect
share repurchase will be in the range of $1.1 to $1.4
billion in 2018, which assumes stable capital conditions and
the absence of compelling alternatives. At the same time, we
recognize that prudent investment in our platform is also critical
to our growth strategy and driving efficiencies that ultimately
will impact the bottom line.
"We are pleased that the U.S. tax reforms enacted in
December 2017 provided Aflac with an
opportunity to accelerate and increase our investments in
initiatives that reflect our company values and objectives. As we
communicated, we expect to increase overall investment in the U.S.
by approximately $250 million over
three to five years. These strategic investments target continued
growth in the company's U.S. operation, expanded employee benefits
and training programs as well as investing in technology and
digital businesses.
"As we look to 2018 and take into
account U.S. tax reform, our objective is to produce stable
operating earnings per diluted share of $7.45 to $7.75,
assuming the 2017 weighted-average exchange rate of 112.16 yen to the dollar. As always,
we are working very hard to achieve our earnings-per-share
objective while also ensuring we deliver on our promise to
policyholders."
ABOUT AFLAC
When a policyholder gets sick or hurt, Aflac pays cash
benefits fast. For more than 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 2018 included Aflac on its list of Most Admired
Companies for the 17th time. 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
aflac.com/espanol.
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. (EST) on Thursday,
February 1, 2018.
AFLAC INCORPORATED AND SUBSIDIARIES CONDENSED INCOME
STATEMENT
|
(UNAUDITED – IN
MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED DECEMBER 31,
|
|
2017
|
|
|
2016
|
|
% Change
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
|
5,424
|
|
$
|
5,955
|
|
(8.9)
|
%
|
|
|
|
|
|
|
|
|
|
Benefits and claims,
net
|
|
3,007
|
|
|
3,262
|
|
(7.8)
|
|
|
|
|
|
|
|
|
|
|
Total acquisition and
operating expenses
|
|
1,418
|
|
|
1,540
|
|
(7.9)
|
|
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
999
|
|
|
1,153
|
|
(13.4)
|
|
|
|
|
|
|
|
|
|
|
Income
taxes*
|
|
(1,352)
|
|
|
402
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings*
|
$
|
2,351
|
|
$
|
751
|
|
213.0
|
%
|
|
|
|
|
|
|
|
|
|
Net earnings per
share – basic*
|
$
|
5.99
|
|
$
|
1.85
|
|
223.8
|
%
|
|
|
|
|
|
|
|
|
|
Net earnings per
share – diluted*
|
|
5.95
|
|
|
1.84
|
|
223.4
|
|
|
|
|
|
|
|
|
|
|
Shares used to
compute earnings per share (000):
|
|
|
|
|
|
|
|
|
|
Basic
|
392,159
|
|
406,847
|
|
(3.6)
|
%
|
|
Diluted
|
395,040
|
|
409,380
|
|
(3.5)
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per
share
|
$
|
0.45
|
|
$
|
0.43
|
|
4.7
|
%
|
* This includes the company's estimated
impact of Tax Reform of $1.7 billion, which may be adjusted for the
current and future periods, possibly materially, due to, among
other things, further refinement of the company's calculations,
changes in interpretations and assumptions the company has made,
tax guidance that may be issued and actions the company may take as
a result of Tax Reform. Excluding the impact of Tax Reform the
company's 4Q17 net earnings would have been $651 million and net
earnings per basic or diluted share of $1.66 or $1.65,
respectively.
|
AFLAC INCORPORATED AND SUBSIDIARIES CONDENSED INCOME
STATEMENT
|
(UNAUDITED – IN
MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
TWELVE MONTHS ENDED DECEMBER
31,
|
|
2017
|
|
|
2016
|
|
% Change
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
|
21,667
|
|
$
|
22,559
|
|
(4.0)
|
%
|
|
|
|
|
|
|
|
|
|
Benefits and claims,
net
|
|
12,181
|
|
|
12,919
|
|
(5.7)
|
|
|
|
|
|
|
|
|
|
|
Total acquisition and
operating expenses
|
|
5,468
|
|
|
5,573
|
|
(1.9)
|
|
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
4,018
|
|
|
4,067
|
|
(1.2)
|
|
|
|
|
|
|
|
|
|
|
Income
taxes*
|
|
(353)
|
|
|
1,408
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings*
|
$
|
4,371
|
|
$
|
2,659
|
|
64.4
|
%
|
|
|
|
|
|
|
|
|
|
Net earnings per
share – basic*
|
$
|
11.04
|
|
$
|
6.46
|
|
70.9
|
%
|
|
|
|
|
|
|
|
|
|
Net earnings per
share – diluted*
|
|
10.96
|
|
|
6.42
|
|
70.7
|
|
|
|
|
|
|
|
|
|
|
Shares used to
compute earnings per share (000):
|
|
|
|
|
|
|
|
|
|
Basic
|
396,021
|
|
411,471
|
|
(3.8)
|
%
|
|
Diluted
|
398,930
|
|
413,921
|
|
(3.6)
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per
share
|
$
|
1.74
|
|
$
|
1.66
|
|
4.8
|
%
|
* This includes the company's estimated
impact of Tax Reform of $1.7 billion, which may be adjusted for the
current and future periods, possibly materially, due to, among
other things, further refinement of the company's calculations,
changes in interpretations and assumptions the company has made,
tax guidance that may be issued and actions the company may take as
a result of Tax Reform. Excluding the impact of Tax Reform the
company's full-year 2017 net earnings would have been $2.7 billion
and net earnings per basic or diluted share of $6.75 and $6.70,
respectively.
|
AFLAC INCORPORATED AND SUBSIDIARIES CONDENSED BALANCE
SHEET
(UNAUDITED – IN
MILLIONS, EXCEPT FOR SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
DECEMBER 31,
|
|
2017
|
|
|
2016
|
|
% Change
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments and
cash
|
$
|
123,659
|
|
$
|
116,361
|
|
6.3
|
%
|
|
|
|
|
|
|
|
|
|
Deferred policy
acquisition costs
|
|
9,505
|
|
|
8,993
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
4,053
|
|
|
4,465
|
|
(9.2)
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
137,217
|
|
$
|
129,819
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
Liabilities and
shareholders' equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policy
liabilities
|
$
|
99,147
|
|
$
|
93,726
|
|
5.8
|
%
|
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
5,289
|
|
|
5,360
|
|
(1.3)
|
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
8,416
|
|
|
10,251
|
|
(17.9)
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
24,365
|
|
|
20,482
|
|
19.0
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders' equity
|
$
|
137,217
|
|
$
|
129,819
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
Shares outstanding at
end of period (000)
|
|
390,455
|
|
|
405,810
|
|
(3.8)
|
%
|
|
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. Please note
that our "operating earnings" label will be changed to
"adjusted earnings" on both a pretax and after-tax basis commencing
with the company's first quarter 2018 reporting. This change will
only pertain to the label of the measure and will not alter its
definition or calculation.
- Operating earnings per share (basic or diluted) are the
operating earnings for the period divided by the weighted average
outstanding shares (basic or diluted) 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 accumulated other comprehensive income (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
AOCI as recorded on the U.S. GAAP balance sheet.
- The estimated impact of Tax Reform, which is
included in GAAP net income and equity, but excluded from operating
earnings as defined, is a preliminary estimate and may be adjusted
for the current and future periods, possibly materially, due to,
among other things, further refinement of the company's
calculations, changes in interpretations and assumptions the
company has made, tax guidance that may be issued and actions the
company may take as a result of Tax Reform.
RECONCILIATION OF NET EARNINGS TO OPERATING
EARNINGS1
|
(UNAUDITED – IN
MILLIONS, EXCEPT FOR PER-SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED DECEMBER 31,
|
|
2017
|
|
|
2016
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
2,351
|
|
$
|
751
|
|
213.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Items impacting net
earnings:
|
|
|
|
|
|
|
|
|
|
Realized investment
(gains) losses:
|
|
|
|
|
|
|
|
|
|
Securities transactions and
impairments
|
|
42
|
|
|
(25)
|
|
|
|
|
Certain
derivative and foreign currency (gains)
losses2,
3
|
|
(100)
|
|
|
(361)
|
|
|
|
|
Other and non-recurring (income) loss3
|
|
31
|
|
|
137
|
|
|
|
|
Income tax (benefit) expense on items excluded
from operating
earnings2
|
|
9
|
|
|
87
|
|
|
|
|
Tax reform adjustment4
|
|
(1,700)
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings
|
|
633
|
|
|
589
|
|
7.5
|
%
|
|
Current period
foreign currency impact5
|
|
10
|
|
|
N/A
|
|
|
|
|
Operating earnings
excluding current period foreign
currency
impact6
|
$
|
643
|
|
$
|
589
|
|
9.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per
diluted share
|
$
|
5.95
|
|
$
|
1.84
|
|
223.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Items impacting net
earnings:
|
|
|
|
|
|
|
|
|
|
Realized investment
(gains)losses:
|
|
|
|
|
|
|
|
|
|
Securities transactions and
impairments
|
|
0.11
|
|
|
(0.06)
|
|
|
|
|
Certain
derivative and foreign currency (gains) losses2,
3
|
|
(0.25)
|
|
|
(0.88)
|
|
|
|
|
Other and
non-recurring (income) loss3
|
|
0.08
|
|
|
0.33
|
|
|
|
|
Income tax (benefit) expense on items excluded
from operating
earnings2
|
|
0.02
|
|
|
0.21
|
|
|
|
|
Tax reform adjustment4
|
|
(4.30)
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
per diluted share
|
|
1.60
|
|
|
1.44
|
|
11.1
|
%
|
|
Current period
foreign currency impact5
|
|
0.03
|
|
|
N/A
|
|
|
|
|
Operating earnings
per diluted share excluding
current period foreign currency
impact6
|
$
|
1.63
|
|
$
|
1.44
|
|
13.2
|
%
|
|
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 This estimated impact of Tax
Reform may be adjusted for the current and future periods, possibly
materially, due to, among other things, further refinement of the
company's calculations, changes in interpretations and assumptions
the company has made, tax guidance that may be issued and actions
the company may take as a result of Tax Reform.
5 Prior period foreign currency
impact reflected as "N/A" to isolate change for current period
only.
6 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)
|
|
|
|
|
|
|
|
|
|
TWELVE MONTHS ENDED DECEMBER 31,
|
|
2017
|
|
|
2016
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
4,371
|
|
$
|
2,659
|
|
64.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Items impacting net
earnings:
|
|
|
|
|
|
|
|
|
|
Realized investment
(gains) losses:
|
|
|
|
|
|
|
|
|
|
Securities transactions and
impairments
|
|
9
|
|
|
(55)
|
|
|
|
|
Certain
derivative and foreign currency (gains)
losses2,
3
|
|
(9)
|
|
|
(32)
|
|
|
|
|
Other and non-recurring (income) loss3
|
|
69
|
|
|
137
|
|
|
|
|
Income tax (benefit) expense on items
excluded
from operating
earnings2
|
|
(24)
|
|
|
(18)
|
|
|
|
|
Tax reform adjustment4
|
|
(1,700)
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings
|
|
2,716
|
|
|
2,691
|
|
0.9
|
%
|
|
Current period
foreign currency impact5
|
|
41
|
|
|
N/A
|
|
|
|
|
Operating earnings
excluding current period foreign
currency
impact6
|
$
|
2,757
|
|
$
|
2,691
|
|
2.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per
diluted share
|
$
|
10.96
|
|
$
|
6.42
|
|
70.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Items impacting net
earnings:
|
|
|
|
|
|
|
|
|
|
Realized investment
(gains)losses:
|
|
|
|
|
|
|
|
|
|
Securities transactions and
impairments
|
|
0.02
|
|
|
(0.13)
|
|
|
|
|
Certain
derivative and foreign currency (gains)
losses2,
3
|
|
(0.02)
|
|
|
(0.08)
|
|
|
|
|
Other and
non-recurring (income) loss3
|
|
0.17
|
|
|
0.33
|
|
|
|
|
Income tax (benefit) expense on items excluded
from operating
earnings2
|
|
(0.06)
|
|
|
(0.04)
|
|
|
|
|
Tax reform adjustment4
|
|
(4.26)
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
per diluted share
|
|
6.81
|
|
|
6.50
|
|
4.8
|
%
|
|
Current period
foreign currency impact5
|
|
0.10
|
|
|
N/A
|
|
|
|
|
Operating earnings
per diluted share excluding
current period foreign currency
impact6
|
$
|
6.91
|
|
$
|
6.50
|
|
6.3
|
%
|
|
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 This estimated impact of Tax
Reform may be adjusted for the current and future periods, possibly
materially, due to, among other things, further refinement of the
company's calculations, changes in interpretations and assumptions
the company has made, tax guidance that may be issued and actions
the company may take as a result of Tax Reform.
5 Prior period foreign currency
impact reflected as "N/A" to isolate change for current period
only.
6 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 VALUE1
(UNAUDITED – IN
MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS)
|
|
DECEMBER 31,
|
|
2017
|
|
|
2016
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GAAP book
value2
|
$
|
24,365
|
|
$
|
20,482
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Unrealized foreign currency
translation gains
(losses)
|
|
(1,750)
|
|
|
(1,983)
|
|
|
|
|
Unrealized gains (losses) on
securities
and derivatives
|
|
5,941
|
|
|
4,781
|
|
|
|
|
Pension liability
adjustment
|
|
(163)
|
|
|
(168)
|
|
|
|
|
Total
AOCI
|
|
4,028
|
|
|
2,630
|
|
|
|
|
Adjusted book
value3
|
$
|
20,337
|
|
$
|
17,852
|
|
|
|
|
Add:
|
|
|
|
|
|
|
|
|
|
Unrealized foreign currency
translation
gains (losses)
|
|
(1,750)
|
|
|
(1,983)
|
|
|
|
|
Adjusted book value
including unrealized foreign
currency translation gains
(losses) 2,4
|
$
|
18,587
|
|
$
|
15,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of outstanding
shares at end of period (000)
|
|
390,455
|
|
|
405,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GAAP book value
per common share2
|
$
|
62.40
|
|
$
|
50.47
|
|
23.6
|
%
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Unrealized foreign currency
translation gains
(losses) per common share
|
|
(4.48)
|
|
|
(4.89)
|
|
|
|
|
Unrealized gains (losses) on
securities and
derivatives per common share
|
|
15.22
|
|
|
11.78
|
|
|
|
|
Pension liability adjustment
per common share
|
|
(0.42)
|
|
|
(0.41)
|
|
|
|
|
Total
AOCI per common share
|
|
10.32
|
|
|
6.48
|
|
|
|
|
Adjusted book value
per common share3
|
$
|
52.09
|
|
$
|
43.99
|
|
18.4
|
%
|
|
Add:
|
|
|
|
|
|
|
|
|
|
Unrealized foreign currency
translation
gains (losses) per common share
|
|
(4.48)
|
|
|
(4.89)
|
|
|
|
|
Adjusted book value
including foreign currency
translation gains (losses)
per common share2,
4
|
$
|
47.60
|
|
$
|
39.10
|
|
21.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
1Amounts may not foot due to
rounding.
2 U.S. GAAP book value represents total
shareholders' equity as recorded on the balance sheet. These
amounts include the company's estimated impact of Tax Reform of
$1.7 billion, or $4.35 per share.
3Adjusted book value is the U.S. GAAP
book value, adjusted for AOCI (as recorded on the U.S. GAAP balance
sheet).
4Adjusted book value including
unrealized foreign currency translation gains (losses) is
adjusted book value plus unrealized foreign currency translation
(gains) losses.
|
RECONCILIATION OF U.S. GAAP RETURN ON EQUITY (ROE) TO
OPERATING ROE1
(EXCLUDING IMPACT OF
FOREIGN CURRENCY)
|
|
|
|
THREE MONTHS ENDED DECEMBER 31,
|
2017
|
2016
|
|
|
|
Net earnings - U.S.
GAAP ROE2, 3
|
40.6
|
%
|
13.9
|
%
|
|
|
|
|
|
Impact of excluding
unrealized foreign currency
translation gains (losses)
|
(3.6)
|
|
(1.0)
|
|
|
|
|
|
|
Impact of excluding
unrealized gains (losses) on securities
and
derivatives
|
11.8
|
|
4.2
|
|
|
|
|
|
|
Impact of excluding pension
liability adjustment
|
(0.3)
|
|
(0.1)
|
|
|
|
|
|
|
Impact of excluding AOCI
|
7.9
|
|
3.1
|
|
|
|
|
|
|
U.S. GAAP ROE – less
AOCI
|
48.5
|
|
17.0
|
|
|
|
|
|
|
Differences between
operating earnings and net earnings3, 4
|
(35.4)
|
|
(3.6)
|
|
|
|
|
|
|
Operating ROE -
reported
|
13.1
|
|
13.4
|
|
|
|
|
|
|
Less: Impact of
foreign currency5
|
(0.2)
|
|
N/A
|
|
|
|
|
|
|
Operating ROE,
excluding impact of foreign currency
|
13.3
|
|
13.4
|
|
|
|
|
|
|
Less: Impact of Tax
Reform
|
(0.6)
|
|
N/A
|
|
|
|
|
|
|
Operating ROE,
excluding impacts of foreign currency and
Tax
Reform
|
13.9
|
%
|
13.4
|
%
|
1Amounts presented may not foot due to
rounding.
2U.S. GAAP ROE is calculated by dividing
net earnings (annualized) by average shareholders' equity.
Excluding the estimated impacts of Tax
Reform
of $1.7 billion of earnings and $850 million impact of average
shareholders' equity, the U.S. GAAP ROE would have been 11.7% for
the
three
months ending 2017.
3These measures include the company's
estimated earnings impact of $1.7 billion of Tax Reform, which may
be adjusted for the current and
future
periods, possibly materially, due to, among other things, further
refinement of the Company's calculations, changes in
interpretations and
assumptions the company has made, tax guidance that may be issued
and actions the company may take as a result of Tax
Reform.
4 See separate reconciliation of net
income to operating earnings.
5Impact 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. For
comparative purposes, only 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.
|
RECONCILIATION OF U.S. GAAP RETURN ON EQUITY (ROE) TO
OPERATING ROE1
(EXCLUDING IMPACT OF FOREIGN
CURRENCY)
|
|
|
|
TWELVE MONTHS ENDED DECEMBER
31,
|
2017
|
2016
|
|
|
|
Net earnings - U.S.
GAAP ROE2, 3
|
19.5
|
%
|
13.9
|
%
|
|
|
|
|
|
Impact of excluding
unrealized foreign currency
translation gains
(losses)
|
(1.9)
|
|
(1.7)
|
|
|
|
|
|
|
Impact of excluding
unrealized gains (losses) on securities
and derivatives
|
5.5
|
|
3.1
|
|
|
|
|
|
|
Impact of excluding pension
liability adjustment
|
(0.2)
|
|
(0.1)
|
|
|
|
|
|
|
Impact of excluding AOCI
|
3.4
|
|
1.3
|
|
|
|
|
|
|
U.S. GAAP ROE – less
AOCI
|
22.9
|
|
15.2
|
|
|
|
|
|
|
Differences between
operating earnings and net earnings3, 4
|
(8.7)
|
|
0.2
|
|
|
|
|
|
|
Operating ROE -
reported
|
14.2
|
|
15.4
|
|
|
|
|
|
|
Less: Impact of
foreign currency5
|
(0.2)
|
|
N/A
|
|
|
|
|
|
|
Operating ROE,
excluding impact of foreign currency
|
14.4
|
|
15.4
|
|
|
|
|
|
|
Less: Impact of Tax
Reform
|
(0.7)
|
|
N/A
|
|
|
|
|
|
|
Operating ROE,
excluding impacts of foreign currency and Tax
Reform
|
15.1
|
%
|
15.4
|
%
|
1 Amounts presented may not foot due to
rounding.
|
2U.S. GAAP ROE is calculated by dividing
net earnings (annualized) by average shareholders' equity.
Excluding the estimated impacts of Tax
|
Reform of $1.7
billion of earnings and $850 million impact of average
shareholders' equity, the U.S. GAAP ROE would have been 12.4% for
the
|
full year
2017.
|
3These measures include the company's
estimated earnings impact of $1.7 billion of Tax Reform, which may
be adjusted for the current and
|
future
periods, possibly materially, due to, among other things, further
refinement of the company's calculations, changes in
interpretations and
|
assumptions
the company has made, tax guidance that may be issued and actions
the company may take as a result of Tax Reform.
|
4See separate reconciliation of net
income to operating earnings.
|
5Impact 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.
For
|
comparative
purposes, only 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.
|
EFFECT OF FOREIGN CURRENCY ON OPERATING
RESULTS1
(SELECTED PERCENTAGE
CHANGES, UNAUDITED)
|
|
|
|
THREE MONTHS ENDED DECEMBER 31,
2017
|
Including
Currency
Changes
|
Excluding
Currency
Changes2
|
|
|
|
Net premium
income3
|
(4.1)
|
%
|
(1.8)
|
%
|
|
|
|
|
|
Net investment
income4
|
0.4
|
|
1.5
|
|
|
|
|
|
|
Total benefits and
expenses
|
(5.8)
|
|
(3.5)
|
|
|
|
|
|
|
Operating
earnings
|
7.5
|
|
9.2
|
|
|
|
|
|
|
Operating earnings
per diluted share
|
11.1
|
|
13.2
|
|
|
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)
|
|
|
|
TWELVE MONTHS ENDED DECEMBER 31,
2017
|
Including
Currency
Changes
|
Excluding
Currency
Changes2
|
|
|
|
Net premium
income3
|
(3.6)
|
%
|
(1.5)
|
%
|
|
|
|
|
|
Net investment
income4
|
(3.2)
|
|
(2.0)
|
|
|
|
|
|
|
Total benefits and
expenses
|
(4.2)
|
|
(2.1)
|
|
|
|
|
|
|
Operating
earnings
|
0.9
|
|
2.5
|
|
|
|
|
|
|
Operating earnings
per diluted share
|
4.8
|
|
6.3
|
|
|
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
|
2018 OPERATING EARNINGS PER
SHARE1
SCENARIOS2
Weighted-Average Yen/Dollar
Exchange Rate
|
|
|
|
Operating Earnings Per
Diluted Share
|
|
|
|
Foreign Currency
Impact
|
|
|
|
|
|
|
|
|
|
105
|
|
|
|
7.72 –
8.02
|
|
|
|
0.27
|
110
|
|
|
|
7.53 –
7.83
|
|
|
|
0.08
|
112.163
|
|
|
|
7.45 –
7.75
|
|
|
|
–
|
115
|
|
|
|
7.35 –
7.65
|
|
|
|
(0.10)
|
120
|
|
|
|
7.20 –
7.50
|
|
|
|
(0.25)
|
1A
non-GAAP financial measure, operating earnings per share (basic or
diluted) are the operating earnings for the period divided by
theweighted
|
average
outstanding shares (basic or diluted) 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 broadrange of projected values that would
not be meaningful to investors. For this reason, we believe that
the
|
probable
significance of such information is low.
|
2Table recasts all quarters to the
average exchange rate.
|
3 Actual 2017 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. The company desires 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.
The company cautions 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 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 the Company's 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 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 the
Company's financial strength or debt ratings; inherent limitations
to risk management policies and procedures; concentration of the
Company's 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 the
Company's investments; catastrophic events including, but not
necessarily limited to, epidemics, pandemics, tornadoes,
hurricanes, earthquakes, tsunamis, war or other military action,
terrorism or other acts of violence, and damage incidental to such
events; changes in U.S. and/or Japanese accounting standards; loss
of consumer trust resulting from events external to the Company's
operations; increased expenses and reduced profitability resulting
from changes in assumptions for pension and other postretirement
benefit plans; level and outcome of litigation; and failure of
internal controls or corporate governance policies and
procedures.
The estimated impact of Tax Reform, which is included
in GAAP net income and equity, but excluded from operating earnings
as defined, is a preliminary estimate and may be adjusted for the
current and future periods, possibly materially, due to, among
other things, further refinement of the Company's calculations,
changes in interpretations and assumptions the Company has made,
tax guidance that may be issued and actions the Company may take as
a result of Tax Reform.
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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